Late last year Parliament passed round 1 of the Government's Closing Loopholes reforms in the Fair Work Legislation Amendment (Closing Loopholes) Bill 2023 (Closing Loopholes No. 1). Today the House of Representatives agreed to pass 'round 2', after the Government struck deals with the Greens and independent Senators in the Senate late last week to pass a number of remaining reforms in the Fair Work Legislation Amendment (Closing Loopholes No. 2) Bill 2023 (Closing Loopholes No. 2 Bill).

Closing Loopholes No. 2 Bill makes further, significant reforms to the Fair Work Act 2009 including changes in relation to: the definition of employee and employer; the definition of casual employee and right to convert to permanent employment; minimum standards and dispute resolution for employee-like workers performing digital platform work and regulated road transport industry contractors; independent contractor protections; right of entry for suspected underpayments and increased maximum penalties for underpayments; and a number of other changes. Closing Loopholes No. 2 Bill also includes a new Greens' sponsored statutory right to disconnect outside of work hours.

What you need to know about the key reforms

A statutory definition of employee

(to start 6 months after Royal Assent or earlier by proclamation)

Closing Loopholes No. 2 inserts a new definition of employee and employer into the Fair Work Act to determine who's who, and in turn what protections, rights and entitlements they enjoy. The meaning of employee and employer under the new definition is to be determined by 'ascertaining the real substance, practical reality and true nature of the relationship' between the parties – to do this the totality and true nature of the relationship must be considered having regard to the terms of the contract and also to other factors such as how the contract is performed in practice. In effect, this overrides and replaces the approach adopted by the High Court in the Personnel Contracting and Jamsek decisions – which had given primacy to the terms of the written contract in determining whether an individual was a contractor or employee – and takes us back to the multi-factorial approach that applied previously.

Employers / principal contractors will need to be mindful that, among other things, the conduct of the parties in practice after a contract is entered into will be considered in determining the true nature of the relationship. This means that businesses may engage an individual with the understanding that they are hired as an independent contractor, but later could be found to be an employee – with a number of employee related entitlements flowing to them and the prospect of underpayment claims.

Contractors

(to start the day after Royal Assent)

Independent contractors who earn above a still unspecified contractor high income threshold, will have a right to 'opt out' of the employee / employer definition under a complex notification regime – although they will also have a right of revocation.

Closing Loopholes No. 2 Bill will also enable independent contractors earning below the specified contractor high income threshold to dispute allegedly unfair contract terms in the FWC – a more cost effective, applicant friendly jurisdiction than the courts. The Independent Contractors Act 2006 will continue to apply in respect of independent contractors paid above the new contractor high income threshold to challenge their contract terms – though that jurisdiction has rarely been used.

Casual employees

(to start 6 months after Royal Assent)

Closing Loopholes No. 2 will also introduce a new definition of casual employee in the Fair Work Act.

Broadly, casual employment will be where:

• there is an absence of a firm advance commitment to continuing and indefinite work; and
• the employee is entitled to a casual loading or a specific rate of pay for casual employees (under a fair work instrument or contract).

The Bill includes a number of factors to consider when assessing if there is a 'firm advance commitment', including having regard to, again, the 'real substance, practical reality and true nature of the relationship'. The changes in the Closing Loopholes No. 2 Bill make it clearer that the employment contract can be one of these relevant factors, although others still need to be considered.

A range of changes to the Closing Loopholes No 2. Bill relating to casuals were proposed by independent Senators Thorpe, Lambie and Pocock, including most notably:

• Alternative pathway to casual conversion: the changes originally proposed by the Government would have introduced a new 'employee choice' conversion pathway to operate in addition to the existing conversion provisions in the Fair Work Act. However, as a result of the cross bench changes, the existing conversion provisions will cease to operate, meaning the onus will be on the casual employee to make a request to change their employment status (once certain thresholds are met including that the employee has been employed for at least 6 months (or 12 months for small business employers)).

The grounds on which an employer can refuse an employee's request have also been broadened to include 'fair and reasonable operational grounds'. There is some guidance in the Bill on what this might mean in practice (e.g. broadly, it would be fair and reasonable to not accept a request if substantial changes would be required to the way in which work in the employer's enterprise is organised). The amendments also make it clear that notifications, responses and offers (among a few other things) under this pathway will be workplace rights under the Fair Work Act's general protection regime.

• Fixed term contracts: the capacity for employers to engage casual employees on fixed term contracts has been broadened to address concerns raised by on-hire / recruitment companies offering temporary contracts (with exclusions for academic and teaching staff in the higher education sector, amongst others).
• Casual information statement: employers will have to provide casuals with a Casual Employment Information Statement more often – before or at the time they start, and also after 6 months (excluding small business employers) and 12 months.

For employers that have not audited their use of casual labour recently, now is the time to consider how these changes impact your workforce structure and planning.

Right to disconnect

(to start 6 months after Royal Assent; 18 months after Royal Assent for small businesses)

Closing Loopholes No 2 Bill inserts a new right to disconnect in the Fair Work Act. Some employer groups and others have criticised the lack of consultation over its introduction.

Employees will have the right to refuse to monitor, read or respond to contact (or attempted contact) from an employer outside of their working hours – unless that refusal is unreasonable. The right also extends to contact (or attempted contact) outside of the employee's working hours from a third party if work related (e.g. from customers or clients).

This proposed clause differs from an earlier Greens' proposal which had sought to place a general prohibition on employers unreasonably contacting employees outside their hours of work (subject to some exceptions).

Without limiting the matters to take in account, the Bill lists these factors that must be considered in determining whether an employee's refusal to be contacted is unreasonable:

• 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 (including non-monetary compensation) to remain available to perform work or be contacted, or for working additional hours, outside of ordinary working hours;
• 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).

If there is a dispute regarding the employee's right to disconnect, the parties must first attempt to resolve it at the workplace level. If the matter is not resolved, the employer or employee can apply to the FWC to make an order to stop refusing contact, to stop taking certain actions, or to otherwise deal with the dispute. Penalties can be imposed if an order is breached.

The right to disconnect will also be a workplace right for the purposes of the general protection regime under the Fair Work Act – giving employees an additional claim if, for example, they allegedly suffer detriment for refusing to monitor, read or respond to contact.

There are an increasing number of right to disconnect clauses in enterprise agreements – they will continue to apply if they are more favourable than this new right in the Fair Work Act. All modern awards will also be required to include a right to disconnect clause.

Greens Senator Barbara Pocock, a key proponent of the reform, is reported as saying the Greens do not expect to see "a deluge of legal cases about the right to disconnect" and that the purpose of the reform is about "improving the conversation about the boundary around our working time." Many employers across Australia are – and should be – already having these conversations. Considering job design is part of an employer's general obligation to provide a healthy and safe workplace (including psychologically) so far as is reasonably practicable.

Underpayments

(amended penalties to start later of day after Royal Assent or when (but not before) the Wage Compliance Code comes into effect; exemption certificate changes start 1 July 2024)

Closing Loopholes No. 1 introduced significant changes related to underpayment of employee entitlements – including a new criminal wage theft offence (to start the later of 1 January 2025 or when (and not before) the FWC 's Voluntary Small Business Wage Compliance Code starts).

Closing Loopholes No 2. Bill includes a new provision to allow unions to obtain an exemption certificate from the FWC to waive the minimum 24 hours’ notice requirement for exercising right of entry if they reasonably suspect a member of their organisation has been or is being underpaid wages or other monetary entitlements. The latest amendments to the Bill introduce an additional 'guardrail' – before issuing a certificate, the FWC must be satisfied that advance notice of entry into a workplace would hinder an effective investigation into suspected underpayments

Penalties associated with an underpayment will be significantly increased under these latest reforms – for the first time a penalty could be ordered which is proportionate to the extent of the underpayment. Employers who intentionally (rather than dishonestly) underpay staff will face a penalty of up to 10 years in prison and a maximum fine of up to $7.825 million, or three times the underpaid amount (if it exceeds the cap).

Intractable bargaining disputes

(to start the day after Royal Assent)

The Bill also includes some bargaining related changes including in relation to intractable bargaining. Changes made by the Fair Work Legislation Amendment (Secure Jobs, Better Pay) Act 2022 gave the FWC power to resolve intractable bargaining disputes sooner by making an intractable bargaining declaration on application by a single bargaining representative. If an intractable bargaining declaration is made, the FWC Commission must make a workplace determination as quickly as possible. Under Closing Loopholes No. 2 Bill, a workplace determination, other than in respect of wage increases and agreed terms, must not be less favourable to employees or employee organisations than corresponding terms in existing enterprise agreements. The change has been criticised by employer groups. Academic Professor Andrew Stewart had also urged that the Bill should adopt a 'better-off overall test' instead, arguing the changes would make it less likely that employers would agree to trade-offs as they could lose their benefit in arbitration.

Regulated workers

(employee-like 'gig economy' digital platform workers / road transport industry) (to start 6 months after Royal Assent or earlier by proclamation)

Closing Loopholes No. 2 introduces a series of protections for regulated workers both in the road transport industry and, broadly, employee-like gig economy / digital platform workers. These reforms, as first proposed, are set out in more detail in our earlier update – Closing Loopholes Bill passing the House of Representatives. Changes introduced to the Senate last week include a number of substantive and technical changes to these proposals (including giving the FWC power to also set minimum standards for persons in a 'road transport contractual chain').

Where to from here

Since it was elected in May 2022, the Government has enacted significant employment law reform in Australia (Secure Jobs, Better Pay; Protecting Worker Entitlements and Closing Loopholes No. 1). These latest changes in Closing Loopholes No. 2 continue this trend.

If you would like to discuss the potential impact of these changes in the Closing Loopholes No 2 Bill for your business, please contact us.