In our previous client alert, we briefly explored how the Federal Government’s Fair Work Legislation Amendment (Closing Loopholes) Bill (“Original Bill”) was split on 7 December 2023 with only part of the Original Bill becoming law. The split was the result of Senate divide over the more contentious proposals. On 8 February 2024, the Senate passed the Fair Work Legislation Amendment (Closing Loopholes No. 2) Bill 2023 (“Amending Legislation”). On 12 February 2024, the Bill was passed by both houses in Parliament. You can read the Bill here.
In this article we look at the changes introduced by the amending legislation and the impact this will have on businesses in Australia.
An overview of some of the key amendments include the following:
Right to Disconnect
The “Right to Disconnect” is a new legal right which allows employees to ignore out-of-hours contact relating to the workplace, including contact from third parties such as clients, unless their refusal to engage is unreasonable. The new right is designed to mitigate the risks associated with the instantaneous nature of technology which allows workers to be contactable 24/7 and will also be actionable as part of the General Protections regime.
What are the exceptions?
What constitutes an unreasonable refusal to respond to contact by an employer or third party outside of work hours will depend on the nature of the employment relationship and the terms agreed upon by the employer and the employee. Matters that will be taken into account in determining whether such refusal was reasonable include:
- the reason for the contact or attempted contact;
- how the contact or attempted contact is made and the level of disruption the contact or attempted contact causes the employee;
- the extent to which the employee is compensated:
- to remain available to perform work during the period in which the contact or attempted contact is made; or
- 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).
The Right to Disconnect will come into effect six months after the Bill receives royal assent; however, small businesses will receive an additional 12-month grace period. If a dispute arises in relation to the Right to Disconnect, it is expected to be resolved on a workplace level however, if unsuccessful either party may apply to the Fair Work Commission (FWC) to make orders in this regard.
Independent Contractors – Changing the Definition Of Employment
The amending legislation amends, for the purposes of determining whether an individual is an independent contractor or not, the current understanding of employee and employer in the Fair Work Act 2009 (Cth) (“Act”), to overcome the common laws tests set out in seminal High Court of Australia decisions in FMMEU v Personnel Contracting Pty Ltd [2022] HCA 1 and ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2. In these decisions, a majority of the High Court of Australia held that when ascertaining whether the nature of a relationship is one of employment or principal and contractor, the rights and obligations expressed in a written contract is determinative as long as the parties act in accordance with the contract. By doing so, the High Court of Australia overturned the previous common law multi-factorial test used to determine the true nature of the relationship.
Upon receiving royal assent, a new definition of employee and employer (for the purpose of determining whether the individual is an employee or independent contractor) will come into effect on 1 July 2024 and apply to all relationships entered into prior to the commencement date.
The laws will reintroduce a multi-factorial test used to define employee and employer by inserting section 15AA into the Act. Accordingly, to characterise a relationship as one of employment instead of independent contractor, consideration must be given to the totality of the relationship by ascertaining the real substance, practical reality and true nature of the relationship between the individual and the person. In order to do so, regard must be had not only to the terms of the contract governing the relationship, but also to other factors relating to the totality of the relationship including, but not limited to, how the contract is performed in practice.
Interestingly, the new amendments allow for individual parties to opt out of the application of these provisions if the individual earns more than the contractor high income threshold. In effect, the Act allows either party to provide notice to the other that they wish to opt out of the provisions that may otherwise deem the relationship to be one of employment.
As these provisions take effect on 1 July 2024, it is important that employers review their contractor arrangements and determine whether they should be issuing opt out notices to their individual contractors. Failure to do so, and if the individuals are later found to be employees, may result in significant liability for the employer, including for underpayment of employment related entitlements and penalties for sham contracting.
Casual Employment
Several amendments relating to casual employment designed to strengthen casual employee rights and security will come into effect six months after the legislation receives royal assent. The key changes relate predominantly to the definition of casual employment and the mechanism and requirements regarding casual conversion to permanent employment.
Definition of ‘Casual Employment’
A casual employee will be defined by:
- The absence of a firm commitment in advance to continuing and indefinite work; and
- Whether the employee is entitled to an identifiable casual loading or rate of pay.
Additionally, in determining whether the employment relationship is characterised by an absence of a firm advance commitment to continuing and indefinite work consideration must be had to:
- The real substance, practical reality and true nature of the employment relationship; and
- Whether a firm commitment in advance of ongoing and indefinite work can be inferred though a contract or conduct; or from a mutual understanding or expectation between the employer and employee.
Indicia that indicate whether or not there is such a firm advance commitment include:
- Whether there is an ability of the employer to elect to offer work or an inability of the employee to elect to accept or reject work (and whether this occurs in practice);
- Whether, having regard to the nature of the employer’s enterprise, it is reasonably likely that there will be future availability of continuing work in that enterprise of the kind usually performed by the employee;
- Whether there are full-time employees or part-time employees performing the same kind of work in the employer’s enterprise that is usually performed by the employee; and
- Whether there is a regular pattern of work for the employee.
Importantly, employees employed for a fixed term cannot be casual employees.
Casual Conversion
Revised laws regulating the casual conversion process will regulate how a casual employee may notify an employer that they would like to convert to full time or part-time employment. The amendments do away with the need for employers to offer conversion to permanent employment, however, now allow casual employees to request conversion from their employer. Casual employees employed by small businesses must have been employed for at least 12 months before they can make the request, whereas casuals with larger businesses can do so after 6 months.
Employers will be required to consult with an employee prior to providing a formal written response to their conversion request within 21 days. If an employer refuses the conversion, they must provide detailed reasoning for doing so. Examples of appropriate grounds for refusal include, but are not limited to, the employee still meeting the new definition of casual employee, or where it would be impractical to agree because it would require substantial change to the way in which work is organised, or it would have a significant impact on the employer’s operations. However, employers cannot adjust a casual employee’s working hours to avoid conversion.
If a conversion request gives rise to a dispute, employers are obliged to follow new procedural provisions to resolve the dispute. Accordingly, the provision mandates initial discussions on a workplace level. If the workplace discussion is unsuccessful, it may escalate to the FWC which may make orders or initiate arbitration.
Casual Employment Information Sheet
Non-small business employers must provide casual employees with a ‘Casual Employment Information Statement’ (“CEIS“) before, or as soon as practicable after, the commencement of employment, and as soon as practicable after 6 months and 12 months of employment, and every subsequent period of 12 months of employment.
Small business employers must provide casual employees with a CEIS before, or as soon as practicable after, the commencement of employment, and as soon as practicable after 12 months of employment.
Regulating Employee-Like Workers
Major reforms to the gig economy will allow the FWC to issue minimum standards orders and guidelines for employee-like workers. This will affect a quarter of a million Australians who fall within the scope of these reforms. These workers include workers in the gig economy who are engaged via digital platforms as well as road transport contractors.
The FWC may make minimum standards orders on its own initiative or upon application. Such orders may include terms dealing with:
- payment terms;
- deductions;
- record-keeping in relation to matters covered by or required by this Act, or by an order or instrument made under this Act, being matters that concern regulated workers or regulated businesses;
- insurance;
- consultation;
- representation;
- delegates’ rights; and
- cost recovery.
The Act now also specifies the matters that cannot be included in such orders, including overtime rates, rostering arrangements, the commercial terms and conditions of engagement and work health and safety terms.
Unfair Deactivation & Unfair Termination
A key component of these reforms is the unfair deactivation regime, which is similar to unfair dismissal protections. Accordingly, if an ’employee-like’ worker believes their deactivation was unfair, they may apply to the FWC within 21 days of deactivation to challenge the decision. Deactivation means that the worker’s access to the digital platform is modified, suspended, altered in a way that prevents them from working, or the worker has been terminated. If a dispute arises, the FWC may make a variety of different orders. If the FWC finds the worker’s deactivation was unfair and did not align with the Digital Labour Platform Deactivation Code, which is to be established by the Minister, then the FWC may order that a worker be reactivated into their role. When considering whether the deactivation was unfair the FWC will consider the following:
- Whether there was a valid reason for the deactivation related to the persons capacity of conduct;
- Whether any relevant processes specified in the Digital Labour Platforms Deactivation Code were followed; and
- Any other matters the FWC considers relevant.
If the FWC deems the termination unfair, then the orders capable of being made include reinstatement – in line with the Minister’s Road Transport Industry Termination Code. The amendments now also allow for regulated workers to enter into collective agreements, much the same as enterprise agreements with the digital platform operators or road transport businesses as the case may be. This opens new fertile ground for the union movement to agitate for collective agreements in this space.
Sham Contracting Defence
Amendments to section 357(2) of the Act, impose a higher threshold to a defence for employers accused of misrepresenting employment as an independent contracting arrangement for services.
Accordingly, an employer must now prove they reasonably believed the contract was for services, with regard being had to the size and nature of an enterprise and to any other relevant matters.
Unfair Contracts
A new framework for dealing with unfair terms in contracts of service (independent contractor agreements) will commence on 1 July 2024. The FWC will now have the power to make decisions regarding unfair contract terms if it is satisfied that the contract includes one or more unfair contract terms, which, in an employment relationship, would relate to a workplace relations matter. The FWC will examine whether a term in unfair by considering:
- The relative bargaining power of the parties to the contract;
- Whether the services contract as a whole displays a significant imbalance between the rights and obligations of the parties;
- Whether the contract term under consideration is reasonably necessary to protect the legitimate interests of a party to the contract;
- Whether the contract term under consideration imposes a harsh, unjust or unreasonable requirement on a party to the contract;
- Whether the services contract as a whole provides for a total remuneration for performing work that is:
- less than regulated workers performing the same or similar work would receive under a minimum standards guideline; or
- less than employees performing the same or similar work would receive; and
- Any other matter the FWC considers relevant.
The FWC can conduct conferences or hearings to conduct their investigation and may order all or part of the contract be set aside, if satisfied a term in unfair.
These provisions only apply to contractors who earn less than the contractor high income threshold.
Key Takeaways
The amendments introduced by the Amending Legislation will be far reaching and will have practical effects for almost all workplaces.
As such, we suggest employers take the following proactive steps:
- Update and incorporate provisions dealing with the “Right to Disconnect” into their workplace arrangements, and ensure their employment contracts reflect the needs of the business in this regard;
- Review and ensure that all employee / employer relationships align with the written terms of their employment contract;
- Review and confirm whether all casual employees will be considered casual employees under the new regime;
- Ensure they have appropriate mechanisms in place to provide casual employees with the Casual Workplace Information Statement annually;
- Review and confirm whether your enterprise falls within the scope of proposed reforms regulating employee-like workers;
- Review your independent contractor agreements to ensure they do not contain unfair contract terms; and
- Update your independent contractor agreements and documentation to include an opt-out provision from the regime to be provided for in the Act.
If you wish to discuss any aspect of this client alert, require specialist advice in relation to determining whether your business will be affected by these amendments, or assistance reviewing current employment practices or processes, please do not hesitate to contact us.
This alert is not intended to constitute, and should not be treated as, legal advice.