Closing Loopholes 2.0 – Government’s IR reform package passes the Senate

The Federal Government has now secured passage of the remainder of the Closing Loopholes Bill, implementing the final tranche of the Government's IR law reform package.

Along with the changes to the Fair Work Act 2009 (Cth) (Act) introduced by the Fair Work Legislation Amendment (Closing Loopholes) Act 2023 late last year (see our previous articles here), employers have more work to do, to ready themselves for this latest tranche of changes to the Act.

Overview

While most of the amendments are consistent with the Bill originally introduced into Parliament last year and covered in our previous alerts, there are some significant changes between the laws originally proposed and the laws as finally passed by the Senate. In addition to Government amendments, several amendments were also moved by the Greens and independent senators and accepted by the Government in a political compromise to secure the passage of the new laws through Parliament. 

The key points of difference between the final form of the laws against those originally introduced include:

• the introduction of a statutory ‘workplace right’ for employees to disconnect;
• the details of the new Fair Work Commission (FWC) powers to make road transport contractual chain orders being included in the Act (rather than in regulation as previously proposed);
• permitting high income earning contractors to ‘opt out' of having the new statutory definition of employment apply to their arrangements, such that the status of their relationship will continue to be determined by the common law test that has emerged from recent High Court decisions;
• the introduction of the heavily criticised change to the intractable bargaining rules which prevent employee conditions from being less favourable in a bargaining determination;
• amendments to the casual conversion process.

Our detailed overview of the new laws is provided below.

Right to disconnect [changes effective 6 months after the Amending Act receives Royal Assent]

The amendments to the Act provide employees with a “right to disconnect”. This is a signifcant development in Australian labour law and has the potential to impact current working arrangements, approaches to flexibility and communications with employees.

As originally proposed, this right was intended to prohibit employers from contacting their employees after hours, with the risk of significant penalties if they did so.  However, after some compromise in the Senate, the right to disconnect will rest with the employee, such that an employee can choose to monitor or not any after hours contact received and take action to exercise their right to disconnect (with some limitations based around reasonableness). 

An employee may refuse to monitor, read or respond to contact, or attempted contact, outside of the employee’s working hours, from:

• their employer; or
• a third party if the contact or attempted contact relates to their work,

unless that refusal is unreasonable.

In determining whether a refusal is unreasonable, the following factors must be taken into account:

• the reason for the contact or attempted contact;
• how the contact or attempted contact is made and the level of disruption it causes the employee;
• the extent to which the employee is compensated (monetary or non-monetary) to remain available and for working additional hours outside of the employee’s ordinary hours of work;
• the nature of the employee’s role and the employee’s level of responsibility; and
• the employee’s personal circumstances (including family or caring responsibilities).

As the right to disconnect will be a workplace right, an employer will be prohibited under the general protections provisions in the Act from taking adverse action against an employee because the employee has exercised that right.

If there is a dispte between an employer and employee as to whether a refusal is unreasonable, then the parties must first try to resolve matters at the workplace level.  If those discussions do not resolve the matter, either party can apply to the FWC to make orders to stop refusing contact or to stop taking certain actions.

If an application is made to the FWC and it is satisfied that either or both of the following apply:

• an employee has unreasonably refused to monitor, read or respond to contact or attempted contact and there is a risk the employee will continue to do so; or
• an employee’s refusal to monitor, read or respond to contact or attempted contact is not unreasonable and there is a risk that the employer will take disciplinary or other action against the employee because of it or continue to require the employee to monitor, read or respond despite the employee’s prior refusal,

then the FWC may make an order (as applicable):

• to prevent the employee from continuing to unreasonably refuse to monitor, read or respond to contact or attempted contact;
• to prevent the employer from taking the action; or
• to prevent the employer from continuing to require the employee to monitor, read or respond to contact or attempted contact.

Where an order is made, any breach of that order can result in a civil penalty. The Government will remove by separate legislation amendments that would apply a criminal penalty to infringing the right to disconnect.  For small businesses, the provisions won’t apply until 12 months after commencement.

Each modern award will also now need to be varied to include a right to disconnect term from commencement of these provisions.

Higher civil penalties [changes effective on different dates depending on type of contravention]

The amendments to the Act will:

• increase civil pecuniary penalties that apply to contraventions (including serious contraventions) of certain provisions including those related to wage exploitation by 5 times;
• increase the civil pecuniary penalty for failure to comply with a compliance notice by 10 times so that it is consistent with other penalties;
• enable the maximum penalty for a contravention to be determined by reference to 3 times the value of the underpayment (if relevant) in certain circumstances; and
• amend the scheme for ‘serious contraventions’ so that it applies to knowing and reckless contraventions of the relevant provisions.

Different penalty arrangements apply to small business employers in some circumstances.

‘Employee-like’ workers [changes effective on the earlier of proclamation, or 6 months after the Amending Act receives Royal Assent]

The Act and associated legislation will be amended to ensure that certain independent contractors are entitled to greater workplace protections than they are currently.  The majority of the amendments are targeted at independent contractors who are either:

• employee-like workers performing digital platform work; or
• engaged in the road transport industry.

Digital platform work and gig economy workers

A new definition of ‘digital labour platform’ is to be introduced into the Act.  It will be defined to mean an online enabled application, website or system operated to arrange, allocate or facilitate the provision of labour services, where:

• the operator of the application, website or system:
  • engages independent contractors directly or indirectly through or by means of the application, website or system; or
  • acts as an intermediary for or on behalf of more than one distinct but interdependent sets of users who interact with the independent contractors or the operator via the application, website or system; and
• the operator of the application, website or system (or its associated entity or a person connected to it) processes aggregated payments referable to the work performed by the independent contractors.

The definition of digital labour platform is stated to have been intended to be deliberately broad to ensure that it can capture new market structures and forms of work as they emerge.

For the purposes of ascertaining the real substance, practical reality and true nature of the relationship between an individual and a person, any steps taken by a digital labour platform operator to comply with its obligations including under the Digital Labour Platform Deactivation Code or an order of the FWC are to be disregarded.

It is not intended to capture online classifieds where there is not a payment processed, or digital platforms that facilitate the sale of goods.

Definition of employee-like workers

A new definition of ‘employee-like worker’ will also be introduced into the Act.  A person will be an employee-like worker including if they are any of the following:

• an individual who is a party to a services contract (as defined with a constitutional connection) in their capacity as an individual (other than as a principal), and performs work under the contract; and
• if a body corporate is a party to a services contract (other than as a principal) – an individual who is a director of the body corporate, or a member of the family of a director of a body corporate, and performs work under the contract.

Trust and partnership arrangements are also covered.  The effect is to capture individuals performing work under a services contract regardless of the type of entity they have adopted.

Additionally:

• the person must perform all, or a significant majority, of the work to be performed under the services contract;
• the work that the person performs under the services contract is digital platform work;
• the person must not perform any work under the services contract as an employee; and
• the person must satisfy two or more of the following characteristics:
  • the person has low bargaining power in negotiations in relation to the services contract under which the work is performed;
  • the person receives remuneration at or below the rate of an employee performing comparable work; and/or
  • the person has a low degree of authority over the performance of the work.

The intended effect is not to capture persons that have a high degree of bargaining power, are comparatively well paid and/or have a significant degree of authority over their work, regardless of whether they perform work on a digital platform.  It is intended, for example, that skilled tradespeople would not be captured even if they work on a digital platform.

Employee-like workers within the above definition, along with certain road industry workers, will be considered to be ‘regulated workers’.

Minimum standards orders and minimum standards guidelines

The FWC will have the power to make a minimum standards order that sets standards for employee-like workers.

In setting minimum standards orders for employee-like workers, the FWC is required to:

• recognise the perspectives of workers (including their skills, the value of the work they perform, and their preferences about their working arrangements);
• not change the form of the engagement of the workers from independent contractor to employees;
• not giving preference to one business model or working arrangement over another;
• reflect the differences in the form of engagement of workers as independent contractors to the form of engagement of employees; and
• the ability of workers to perform work under a services contract for multiple businesses, and the fact that the work may be performed simultaneously.

The application must make clear the class of regulated business and regulated worker to be covered.

The FWC can make those orders on its own initiative or on application (including by an organisation representing worker industrial interests).

When making or varying a minimum standards order the FWC will be required to have regard to choice and flexibility in working arrangements, arising from the unique nature of digital platform work, without compromising on minimum safeguards to be afforded to employee-like workers. 

An employee-like worker minimum standards order must include terms setting out the digital platform work covered, the digital labour platform operator and the employee-like workers covered.  A minimum standards order may include any of the following:

• payment terms;
• deductions;
• record-keeping;
• insurance;
• consultation;
• representation;
• delegates’ rights; and
• cost recovery.

Employee-like minimum standards order must not include terms about any of following matters:

• overtime rates;
• rostering arrangements;
• penalty rates, payments for time prior to the acceptance of an engagement (or between engagements) on a digital labour platform, and minimum periods of engagement (or minimum payments for those periods), unless the FWC is satisfied that its inclusion is appropriate for the type of work performed by the employee-like workers and the digital labour platform operators covered by the order;
• matters that are primarily of a commercial nature that do not affect the terms and conditions of engagement of regulated workers covered by the minimum standards order;
• a term that would change the form of the engagement or the status of regulated workers covered (including so as to deem them to be an employee); or
• a matter relating to work health and safety that is otherwise comprehensively dealt with by a Federal / State law.

An employee like worker to whom an employee like worker minimum standards order applies in relation to particular digital platform work cannot  also be an employee in relation to that work.

It is the stated intention that where a minimum standards order applies to an employee-like worker or digital labour platform operator in relation to a services contract, these provisions are to apply to the exclusion of the State owner driver laws to the extent that those laws would otherwise affect their rights, entitlements, obligations and liabilities.  This means, in effect, that those parties cannot be covered by both minimum standards orders and State laws.

The FWC may also make non-binding minimum standards guidelines that set standards for regulated workers performing work under a services contract – to be known as “employee-like worker guidelines”.  Again the FWC can make those orders on its own initiative or on application (including by an organisation representing worker industrial interests).  Those guidelines may not include any terms which may not be included in an order.

Consultation

Before the FWC makes a minimum standards order for an employee-like worker, it must publish a notice stating that it proposes to make an order and publish a draft of the proposed order and provide an affected entity a reasonable opportunity to make submissions.  The FWC must not make an order unless there has been genuine engagement with the parties to be covered by those orders.

Establishment of the Digital Labour Platform Consultative Committee

A Digital Labour Platform Consultative Committee will be established to provide a regular and organised means by which representatives of government, digital labour platform operators, workers performing digital platform work and (where the Minister considers it appropriate) others, can consult together on workplace relations matters.

Unfair deactivations

The FWC will be empowered to deal with disputes over an employee-like worker’s unfair deactivation from a digital labour platform.

The person must earn under the “contractor high income threshold” and the application must be made within 21 days of the deactivation occurring.  A new definition of “contractor high income threshold” is to be inserted into the Act, with the amount to be prescribed by regulations.

A person will have been unfairly deactivated when the FWC is satisfied that:

• the person has been deactivated from a digital labour platform;
• the deactivation was unfair; and
• the deactivation was not consistent with the Digital Labour Platform Deactivation Code (being a code to be developed by the relevant Minister to be made after public consultation).

A person will be taken to have been deactivated if:

• the person performed digital platform work through or by means of the digital labour platform;
• the digital labour platform operator modifies, suspends, or terminates the person’s access to the digital labour platform; and
• the person is no longer able to perform work under an existing or prospective services contract, or their ability to do so is significantly altered that in effect the person is no longer able to perform such work.

A deactivation will not be unfair if:

• the deactivation is constituted by the modification or suspension of the person’s access to the digital labour platform for a period of not more than 7 business days; and
• the FWC is satisfied that the digital labour platform operator concerned believes on reasonable grounds:
  • that it is necessary to protect the health and safety of a user or member of the community;
  • the person has engaged in fraudulent or dishonest conduct;
  • the person has not complied with applicable licencing and accreditation requirements imposed by law; or
  • that the deactivation is necessary to enable the digital labour platform operator to conduct an investigation or refer the matter to law enforcement.

Where the FWC determines that the deactivation has been unfair, it can make an order requiring reactivation.  The FWC may not order compensation for unfairness as such.

If the digital labour platform from which the person was deactivated no longer exists and a similar digital labour platform is operated by an associated entity of the operator of the original digital labour platform, the FWC may make an order that the associated entity provide access to the second digital labour platform on terms and conditions no less favourable than those immediately before the person’s access to the original digital labour platform was terminated or suspended.

Should the FWC consider it appropriate to do so, it may also make an order for the digital labour platform to pay the person an amount for remuneration lost, or likely to have been lost, because of the deactivation prior to a reactivation occurring. 

Road transport industry

The amendments will establish:

• a road transport industry expert panel to consider the need for an appropriate safety net of minimum standards for regulated road transport workers and employees in the road transport industry; and
• a road transport advisory group to advise the FWC in relation to matters that relate to the road transport industry.

In the first release of these proposed changes, the Bill provided that the regulations to the Act would make provision for matters relating to the “road transport industry contractual chain” (supply chain) and that it would be those regulations which would empower the FWC to make orders.  As a result none of the proposed detailed was released for full consultation, but was deferred to be included in regulations to be published.  This position has now been reversed, with all of the necessary detail now to be included in the Act itself.

Road transport contractual chain orders

A road transport contractual chain means a chain or series of contracts or arrangements:

• under which work is performed for a party to the first contract or arrangement in the chain or series by a regulated road transport contractor or a road transport employee-like worker under a services contract, or by an employee; and
• in which at least one party to the first contract or arrangement in the chain or series is a company.

An individual will not be in a road transport contractual chain if work is performed by an individual in their capacity of an employee or if the delivery of something to an individual is for the individual’s private or domestic purposes.

The FWC will have power to make a “road transport contractual chain order” that sets standards for regulated road transport contractors, road transport employee-like workers and other persons in a road transport contractual chain.  The FWC can make an order on its own initiative or on application from a union, a regulated business or a person who is a primary party to a first contract in the chain.

In making or varying such an order the FWC:

• must not do so unless:
  • there has been genuine engagement with the parties to be covered;
  • the Road Transport Advisory Group has been consulted; and
  • the consultation process has been followed;
• must have regard to the commercial realities of the road transport industry, including commercial practices in relation to part load, mixed load, no load, multi-leg and return trips;
• must not do so unless the FWC is satisfied that it will not unduly affect the viability and competitiveness of road transport businesses, owner drivers or other similar persons;
• must take into account any current or proposed orders and any current or proposed minimum standards orders; and
• must take reasonable steps to ensure that the coverage of the order is clear.

A road transport contractual chain order must:

• state who is covered by the order including specified regulated road transport contractors or road transport employee-like worker;
• state how it is to interact with any relevant minimum standards order in place; and
• include a dispute resolution procedure.

A road transport contractual chain order may (without limitation) includes terms about:

• payment times;
• fuel levies;
• rate reviews;
• termination, including one way termination for convenience; and
• cost recovery.

A road transport contractual chain order may not include terms about:

• overtime rates;
• rostering arrangements;
• the form of the engagement or the status of regulated workers (including so as to deem them to be an employee); or
• work health and safety that is otherwise comprehensively dealt with by a Federal / State law or the Heavy Vehicle National Law.

If the relevant Minister considers it is in the public interest to do so, the Minister may make a declaration that defers or suspends (for nor more than 12 months) the commencement of a road transport contractual chain order, or the application of all or some of its terms to a specified class of persons.  A union or a regulated business can also apply to the FWC to have an order deferred or suspended the FWC will make such an order after consulting the Road Transport Advisory Group and if there are significant new facts or evidence demonstrate that the order will not provide an appropriate safety net.

Where the FWC makes a decision to defer or suspend the operation of an order, it must then consider whether it should vary or revoke the order.  The FWC will only do so after it publishes a notice of any intent to vary or revoke, and after affected parties have a reasonable opportunity to make written submissions.

Road transport contractual chain guidelines

The FWC may also make guidelines that set standards for regulated road transport contractors, road transport employee-like workers and other persons in a road transport contractual chain.  Any such guidelines cannot cover the same ground as any road transport contractual chain order in place and may not include any of the terms that cannot be included in such orders.

Unfair terminations of a road transport contractor

The FWC will be empowered to deal with disputes over the unfair termination of a road transport contractor’s services contract by a road transport business.

The person must earn under the “contractor high income threshold”, the person must have been performing work in the industry for at least 6 months, and the application must be made within 21 days of the termination occurring.

A person will have been unfairly terminated if the FWC is satisfied that:

• the person was performing work in the road transport industry;
• the person was terminated;
• the termination was unfair; and
• the termination was not consistent with the Road Transport Industry Termination Code (being a code to be developed by the relevant Minister).

A person is taken to be terminated if:

• the person performed work as a regulated road transport contractor under a services contract;
• the road transport business received services under the services contract; and
• the services contract was terminated by, or as a result of conduct of, the road transport business.

A person will not be terminated if the services contract entered into with a road transport business contains a term which specifies the duration of a contract, and the duration of the contract has expired and is not renewed by the road transport business.

Where the FWC determines that a termination is unfair, the FWC may order that a new contract be entered into, or the payment of compensation to a person.  The FWC must not order the payment of compensation to the person unless it is satisfied that entering into a new services contract would be inappropriate and an order for payment of compensation is appropriate in all the circumstances of the case.

Other changes

Collective agreements

Digital labour platform operators and road transport businesses can also make consent-based collective agreements with registered employee organisations.

Unfair contract terms for independent contractors

Independent contractors earning below a specified high-income threshold will be able to raise a dispute over unfair contract terms in the FWC.

The changes to the Act are intended to provide a framework for dealing with unfair contract terms (UCTs) in services contracts that:

• balances the needs of principals and independent contractors;
• addresses the need for a level playing field between independent contractors and principals by creating disincentives to include unfair contract terms in services contracts;
• recognises and protects the freedom of independent contractors to enter into services contracts;
• establishes procedures for dealing with UCTs that are quick, flexible and informal and that address the needs of principals and independent contractors; and
• provides appropriate remedies if a term of a services contract is found to be unfair.

In determining whether a term is an UCT, the FWC will take into account matters such as relative bargaining power, whether the contract term is reasonably necessary to protect the legitimate interests of a party to the contract, and whether the contract term imposes a harsh, unjust or unreasonable requirement on a party to the contract.

The FWC can make the following orders:

• set aside all or part of a services contract; or
• amending or varying all part of a services contract.

No orders for compensation can be made by the FWC in this jurisdiction.

Casuals [changes effective 6 months after the Amending Act receives Royal Assent]

A new definition

A new definition of “casual employee” will be introduced into the Act which draws on core elements of the meaning of casual employment as it was understood before the decision of the High Court of Australia in WorkPac Pty Ltd v Rossato [2021] HCA 23.

An employee will be a “casual employee” if both of the following conditions are met:

• the employment relationship is characterised by an absence of a firm commitment to continuing and indefinite work; and
• the employee would be entitled to a casual loading, or a specific rate of pay for casual employees under the terms of a fair work instrument or employment contract if the employee were a casual employee.

The requirement for “continuing and indefinite work” to be according to an agreed pattern of work is to be removed.

A note will be added to make clear that a regular pattern of work does not of itself indicate a firm advance commitment to continuing and indefinite work. To put that another way, a casual employee who has a regular pattern of work may still be a casual employee if there is no firm advance commitment to continuing and indefinite work.

In assessing whether an employee is a “casual employee”, the following matters need to be considered:

• the issue is to be assessed based on the real substance, practical reality and true nature of the employment relationship – the totality of the relationship and not just the contractual terms;
• a firm advance commitment may be in the form of a mutually agreed term in an employment contract, or a mutual understanding or expectation between an employer and employee; and
• other potential indicators must be considered (but no one factor is determinative and not all factors need to be satisfied), such as whether:
  • there is an inability of the employer to elect to offer work and/or an inability of the employee to elect to accept or reject work;
  • it is reasonably likely that continuing work will be available in the future;
  • there are existing full-time or part-time employees performing the same kind of work; and
  • there is a regular pattern of work for the employee.

The emphasis of the new definition is on the totality of the employment relationship. A regular pattern of work neither automatically means the employee is casual, nor does it mean the employee is not casual. The assessment should consider the real substance, practical reality and true nature of the employment relationship, not any single factor in isolation.

Initially it was proposed to amend the Act to prevent a casual employee being engaged on a fixed term contract.  Practically there may be good reasons, however, to employ a casual employee on a fixed term contract, such as giving a clear indication to a casual employee about the potential duration of their engagement.  The final form of the amendment is limited to only apply to a member of academic staff or a teacher at a higher education institution, who is covered by one of two specified modern awards.

Employee choice about casual employment

A new process will be introduced to allow employees to influence their employment status, replacing the existing casual conversion regimes (after a transition period) and supplementing the contractual ability of employees and employers to change employment status by consent.

The existing obligations in the Act on an employer to offer casual conversion to eligible casual employees and the residual right of those employees to request casual conversion from their employer will be removed.  The removal of those existing rights should simplify matters for employers, who will no longer have the administrative burden of notifying casual employees that they may be able to become permanent employees if they wish.

An eligible casual employee will be able to initiate a change to full-time or part-time employment if the employee:

• believes they are no longer a casual employee at the point in time when they make the notification to their employer;
• meets the minimum employment period - 12 months if employed by a small business employer; otherwise 6 months;
• is not currently engaged in a dispute over their status, or had certain notification or dispute resolution events occur within the preceding 6 months; and
• wants to change their employment status to full-time or part-time employment.

There will be no requirement for an employee to issue a notification if they do not want to change their employment status.  Employees will have complete choice about whether or not to do so.

Practically an employee will only be able to make such a notification once every 6 months.

Employer response

Where an employee makes a notification, an employer must respond in writing within 21 days.  Employers are required to consult with an employee in relation to the notification.

If the employer accepts the notification, they must state:

• that they accept the notification;
• whether the employee is changing to full-time or part-time employment;
• the employee’s hours of work after the change takes effect; and
• the day that the change will take effect.

If the employer does not accept the notification, they must state:

• that they do not accept the notification on one or more stipulated grounds (see below); and
• reasons (previously proposed to be detailed reasons) for their decision.

An employer may refuse a notification on the following grounds:

• the employer believes the employee is still correctly classified as a casual employee;
• there are fair and reasonable operational grounds for not accepting the notification; or
• a change of employment status to full-time or part-time employment would not comply with a recruitment or selection process required by a Federal or State / Territory law.

There will be “fair and reasonable operational grounds” for refusing a notification where:

• substantial changes would be required to the way in which work in the employer’s business is organised;
• there would be significant impacts on the operation of the employer’s business; and/or
• it would be reasonably necessary to make substantial changes to the employee’s terms and conditions to ensure the employer does not contravene a term of a modern award / enterprise agreement that would apply to the employee as a full-time employee or part-time employee (as the case may be).

There are also protections against the intentional misuse of casual employment, including dismissing an employee in order to re-engage them as a casual employee and knowingly making false statements to engage a person as a casual employee.

Other changes

There will also be new dispute resolution procedures and new civil remedy provisions to protect against conduct designed to result in the misclassification of casual employees.

An employer and employee must first attempt to resolve a dispute at the workplace level, by discussion between the parties.  If the dispute is not resolved, then employer or employee may refer the dispute to the FWC.  The FWC would be required to first deal a dispute with it by means other than arbitration in the first instance (such as by mediation, conciliation, making a recommendation or expressing an opinion), but if the dispute remains unresolved, the FWC would then be able to deal with the dispute by arbitration.

A Casual Employee Information Statement will be required to be provided to an employee, at the commencement of their employment and after 12 months service. 

Workplace delegates [changes effective on proclamation, but no later than 6 months after the Amending Act receives Royal Assent]

In addition to the existing protections against adverse action for employees who become officers or members of a union (as a result of their membership), protections for freedom of association and involvement in lawful industrial activities, a new general protection for workplace delegates will be included.  An employer will be prohibited from:

• unreasonably failing or refusing to deal with a workplace delegate;
• knowingly or recklessly making a false or misleading representation to a workplace delegate; or
• unreasonably hindering, obstructing or preventing the exercise of the rights of a workplace delegate.

As with existing provisions, the burden for establishing that the conduct of an employer is not unreasonable is on the employer.  Despite these changes, employers will still be able to undertake reasonable management action, carried out in a lawful way.

Regulatory changes

A definition of “employee” [changes effective on proclamation, but no later than 6 months after the Amending Act receives Royal Assent]

New definition to apply

While the Act mostly confers rights and obligations on “employees”, the Act (and its predecessors) have never defined an employee as being anything other than its normal (or common law) meaning.

Now the Act will be amended so that the ordinary meanings of “employee” and “employer” will be determined by reference to the real substance, practical reality and true nature of the relationship between the parties. 

This will require the totality of the relationship between the parties, including not only the terms of the contract governing the relationship but also the manner of performance of the contract, to be considered in characterising a relationship as one of employment or one of principal and contractor.

This change is designed to overcome the “contract-centric” approach established by the High Court’s decisions in CFMMEU v Personnel Contracting Pty Ltd [2022] HCA 1 and ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2.  In those decisions, a majority of the High Court held that where a comprehensive written contract exists, the question of whether an individual is an employee of a person is to be determined solely with reference to the rights and obligations found in the terms of that contract.  In such circumstances, the High Court held, it is not necessary or appropriate to engage in a wide-ranging review of the parties' conduct in performing their obligations under that contract.

The intention behind these changes is to revert to the “multi-factorial” test previously used to determine if there was an employer / employee or principal / contractor relationship.

Despite this proposed change, the approach required by the decisions in Personnel Contracting and Jamsek will continue to apply to determine whether there is an employment relationship under other workplace laws, to the extent that those laws adopt the ordinary meaning of employee and employer.

Opt out notice

One of the more unusual changes to the Act is the introduction of an ability of an individual to opt out of the application of the new definitions, and so remain subject to the approach flowing from those High Court decisions.

A person (principal) may give an individual (contractor) a written notice stating that the individual may give them an ‘opt out notice’ if they consider that their relationship may become an employment relationship (as a result of this change).  An opt out notice can only be given to a contractor whose earnings exceed the contractor high income threshold.

If (in response to that invitation) an individual provides an opt out notice, then these new definitions of ‘employer’ and ‘employee’ will not apply to the relationship. 

While an opt out notice may only be given once, it can be revoked by an individual at any time (in which case the new definitions revert to applying to that relationship).

Sham contracting [changes effective on the Amending Act receiving Royal Assent]

The Act currently prohibits an employer from misrepresenting an employment contract as an independent contracting arrangement, commonly referred to as sham contracting.  The Act also provides a defence to sham contracting if the employer proves that, when the representation was made, the employer did not know, and was not reckless as to whether, the contract was a contract of employment rather than a contract for services.

The Act will now be amended to replace that defence, so that an employer will bear the onus of proving that they reasonably believed that the contract was a contract for services.  This is seen as providing a more objective test by requiring a Court to assess an employer’s behaviour according to what the employer reasonably believed, rather than assessing an employer’s behaviour only with regards to their subjective reasons for acting.

In determining whether an employer’s belief was reasonable, a Court will need to consider the size and nature of the employer’s, together with other relevant factors such as the employer’s skills and experience, the industry in which the employer operates, how long the employer has been operating, the presence (or absence) of dedicated HR specialists or expertise in the enterprise, and whether the employer sought legal or other professional advice about the proper classification of the individual (and whether they followed any such advice).

Enterprise bargaining changes [changes effective on the Amending Act receiving Royal Assent]

At present only a single employer and its “related employers” (related companies) can bargain for a single enterprise agreement.  Franchisees do not come within the existing definition of ‘related employers’ and accordingly may be prevented from making a single-enterprise agreement.

The Act will be amended so that:

• employers that carry on similar business activities under the same franchise; and
• are franchisees of the same franchisor, or related bodies corporate of the same franchisor,

can continue to be able to make a multi-enterprise agreement if they wish (or a multi-employer enterprise agreement if they would prefer).

If a group of employers includes both franchisees of a common franchisor, as well as other employers that are not franchisees of that franchisor, then those employers will not all be related employers and they will be required to make a multi-employer agreement.

The Act will also be amended to allow a single-enterprise agreement to be replaced by a single interest employer agreement or supported bargaining agreement (as the case may be) that has not passed its nominal expiry date.

Lastly, the FWC is to determine model flexibility, consultation and dispute resolution terms for enterprise agreements, rather than the model terms being contained in the relevant regulations.

Intractable bargaining workplace determinations [changes effective on the Amending Act receiving Royal Assent]

Any intractable bargaining declaration made by the FWC will required to be no less favourable to an employee or union than a prior enterprise agreement on a clause-by-clause basis (except for wage increase terms).  This is a significant change which has been heavily criticised by employer groups as unfairly impacting an employer’s bargaining power and undermining the potential for mutual benefits to be achieved through collective bargaining.

Right of entry changes [changes effective on 1 July 2024]

Normally a union must provide at least 24 hours’ notice before it can exercise a right of entry to investigate suspected contraventions of the act or a workplace instrument, unless an exemption certificate is issued by the FWC.  Currently the Act provides that the FWC must issue an exemption certificate to a union if the organisation has applied for the certificate and the FWC reasonably believes that the advance notice of the entry given by an entry notice might result in the destruction, concealment or alteration of relevant evidence.

These changes to be made to the Act will supplement the existing exemption scheme by empowering the FWC to issue an exemption certificate on a new ground, that is:

• if it is satisfied that the suspected contravention, or contraventions, involve the underpayment of wages, or other monetary entitlements, of a member of the union whose industrial interests the union is entitled to represent and who performs work on the relevant premises; and
• the FWC reasonably believes that advance notice of the entry given by an entry notice would hinder an effective investigation into the suspected contravention.

What is next?

After many twists and turns,  employers will now have to actively engage with and respond to the realities of the Government’s new IR laws which will progressively take effect over the coming months.

Some of these changes are significant, and it remains to be seen how employers will cope with changes such as the introduction of a right to disconnect, the extensive new regulation of the  gig economy and road transport industry, increased uncertainty around the legal status of casual employees and contractors and change in bargaining dynamics introduced by the intractable bargaining rules.