Federal Government's third IR reform package

13 minute read  05.09.2023 Gordon Williams, Briony Pole, Kelly Halpin, Daniel Shaw, Danica Lamb, Kirsty Easdale

The Federal Government introduces the Fair Work Legislation Amendment (Closing Loopholes) Bill 2023.

Key takeouts

  • Late yesterday the Federal Government introduced the Fair Work Legislation Amendment (Closing Loopholes) Bill 2023 into Parliament – the Government's 'third tranche' of IR changes.
  • The Government says the Bill aims to close four key ‘loopholes' (that it says are used by some employers) and strengthen work health and safety frameworks.
  • The proposed changes are significant and far reaching and extend well beyond the four key loopholes. The true impact of the proposed changes, if passed in their current form, therefore remains to be seen.

What do you need to know about the Bill?

Minister for Employment and Workplace Relations Tony Burke has said that '[m]any workers will be unaffected' by the Bill as most businesses do not use loopholes. As a result, Minister Burke describes the cost of the Bill for business as 'minor'.

However, for many employers and their employees, the proposed changes will potentially be the most significant this Government has enacted since it was elected in 2022. The Bill has been criticised by employer groups – among them, and one of the most vocal, the Minerals Council of Australia, which has described these proposed reforms as some of 'the most extreme, interventionist workplace changes that have ever been proposed in Australia' that will add to the cost of living, cost of materials and of doing business in Australia.

The Bill is 285 pages long (and the accompanying Explanatory Memorandum a further 521 pages) so here we provide a summary of the key changes. Over the next four weeks the Bill will be debated in the House of Representatives before it proceeds to the Senate. We are following the Bill's passage closely and considering its impact, and will keep you updated as the reforms progress.

Labour Hire - Same Job, Same Pay (to start day after Royal assent)

  • This change seeks to address instances where employers have negotiated wages for their employees under an enterprise agreement, and then uses labour hire to perform work at lower rates. The Government anticipates this change will impact around 67,000 workers.
  • The Fair Work Commission (FWC) will be able to make an order requiring a labour hire provider to pay its employees the 'full rate of pay' received by the employees of the host employer who are performing the same work.
  • The host employer will be required to make information available on request by the labour hire provider so it can comply with this obligation.
  • An order can only be made on application by an employee, the host employer or an employee organisation entitled to represent the interests of relevant employees. The FWC must also be satisfied it is fair and reasonable to make the order in all the circumstances.
  • Where an order is made, the labour hire provider must pay employees at least the ‘full rate of pay’ that would be payable to that employee if the host employer’s enterprise agreement applied. 'Full rate of pay' is defined in the Fair Work Act 2009 (Act) and includes incentive based payments and bonuses, loadings, monetary allowances, overtime and penalty rates, and other separately identifiable amounts.
  • Genuine service contractors are intended to be excluded. A multi-factorial test will be applied to determine whether work being performed is ‘principally for the provision of a service’. This will consider matters including the degree of control the employer has over the work (compared to the host), whether the employer is subject to industry standards in respect of the work being performed, and whether specialist expertise is required in respect of the work.
  • The Bill includes an exemption where the labour provided will be for less than 3 months (to allow for use of labour hire during ‘surge’ periods) or relates to a training arrangement.
  • Small businesses, comprising fewer than 15 employees, will be exempt from this change – a change that the ACTU has described as unfair.
  • Broad anti-avoidance provisions will apply preventing employers from, for example, entering into multiple labour hire arrangements each of less than 3 months.

Wage Theft (new wage theft offence to start by proclamation or no later than 1 January 2025 – except for the compliance policy)

  • A new criminal wage theft offence will be introduced. 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). If passed, this wage theft offence will be the first time that a penalty could be ordered which is proportionate to the extent of the underpayment.
  • The new offence is not intended to capture employers who inadvertently underpay staff – intentional conduct is defined to include where a person means to engage in the conduct.
  • The Fair Work Ombudsman (FWO) will have the discretion to enter into a 'cooperation agreement' if underpayments are reported. While a 'cooperation agreement' is in force, the FWO cannot refer conduct covered by the agreement to the Director of Public Prosecutions of the Australian Federal Police for action. Enforceable undertakings for civil breaches will continue to be available where appropriate.
  • Unions will be able 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.
  • A Voluntary Small Business Wage Compliance Code will be developed which, if followed, will provide protection from criminal prosecution for small businesses.
  • The FWO will publish a compliance and enforcement policy, which will include guidelines about when enforceable undertakings and compliance agreements will be accepted / considered. This will occur within 6 months of Royal Assent.
  • It will be necessary to work through how a new Federal wage theft regime interacts with the current state based regimes in Queensland and Victoria.

Casuals employees – to start 1 July 2024

A new definition of 'casual employee' will focus on whether there is an absence of a firm advance commitment to continuing and indefinite work based on the real substance, practical reality and true nature of the employment relationship - not the employment contract terms as currently applies. A firm advance commitment may be found in a 'mutual understanding or expectation' outside of the contract or inferred from the parties' conduct.

The current rules relating to employer offers and employee requests to convert to full time or part time employment remain. In addition, after six months' employment (or 12 months for small businesses) a casual employee will be able to issue their employer with a change notification if they consider they no longer meet the definition of a genuine casual. In these circumstances:

  • the employer must respond in writing in 21 days (including specified information) advising if they accept or reject the notification – and must consult with the employee before responding;
  • if a notification is accepted, the casual employee changes to full time or part time employment;
  • an employer can reject a notification on limited grounds – and must advise the employee about their options to dispute the rejection – which includes making a complaint to the FWC, which can ultimately impose a binding decision on the parties.

Employers will be prohibited from reducing an employee's hours, changing their pattern of work or terminating their employment to avoid the operation of the new provisions. Also, there will be new rules against sham casual employment arrangements – similar to those that currently apply to sham contracting.

Transitional provisions will apply to existing casual employees – including that employment before commencement is disregarded for the purpose of the six month period referred to above.

A new ramp for workers – employees, regulated workers (employee-like gig workers and road transport industry contractors) and independent contractors – to start 1 July 2024

  • The Bill will, according to Minister Burke, create a new ‘ramp’ for workers - with employees with full rights at one end, regulated workers (employee-like gig workers and regulated road transport industry contractors) with some rights at the midpoint and independent contractors with limited rights at the other end.
  • As part of this, the terms ‘employee’ and ‘employer’ are to be determined by ascertaining the real substance, practical reality and true nature of the relationship between the parties – including the totality and true nature of the relationship, the terms of the contract and 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.
  • The FWC will have power to set minimum standards (and also make non-binding minimum guidelines) for regulated road transport industry contractors and employee-like workers in the gig economy (i.e. those working through a digital labour platform such as food delivery but not through bidding apps such as Airtasker). The FWC will look at whether the person has low bargaining power, low levels of control over the work that they do or are being paid low wages (e.g. less than what they would be paid as an employee).
  • Registered organisations entitled to represent the industrial interests of one or more regulated workers, regulated businesses and the Minister can seek a minimum standard order tailored for the work performed. The FWC will have discretion to consider a range of terms such as payment terms, working time, record-keeping and insurance but not, for example, overtime rates and rostering arrangements.
  • Employee-like gig workers can apply to the FWC to resolve a dispute where they are 'unfairly deactivated' by the digital platform operator or, in the case of road transport workers, their services have been unfairly terminated. The regimes (including remedies) are broadly similar to the unfair dismissal regime – though in the case of gig workers the FWC cannot order compensation (but can make orders to restore lost pay). The Minister will also make Termination Codes for both regimes.
  • A registered collective agreement making framework will be established allowing digital labour platform operators and road transport businesses to make consent-based agreements with registered employee organisations – including for the FWC to deal with disputes about them (other than by arbitration).
  • A ‘small’ low-cost unfair contracts jurisdiction will be established for independent contractors who earn less than the contractor high income threshold (to be set by Regulation) - to ensure a ‘fair go all round’ between independent contractors and principals.

Other road transport industry changes

  • The Bill provides other road transport industry changes including the establishment of a FWC ‘Expert Panel’ and a Road Transport Advisory Group (RTAG) to advise the FWC about the industry.
  • Before it makes minimum standards orders for the road transport industry, the FWC will need to, among other things, consult with RTAG, consider ‘the commercial realities’ of the industry and satisfy itself that the order will not ‘unduly affect’ the viability and competitiveness of ‘owner drivers or other similar persons’.

Other changes

More bargaining changes

  • Employers who are covered by a multi-employer agreement will be able to negotiate a single-enterprise agreement with their employees – which would take them out of the multi-employer agreement. However, to be approved, the new single-enterprise agreement will need to pass the BOOT as compared to the multi-employer agreement, not the underpinning award.
  • The Fair Work Commission will also give primary consideration to any common view shared by the employer and employee organisations representing the employees about whether the new single-enterprise agreement passes the BOOT in this regard.
  • Separate franchisees of a franchisor will be able to bargain together for a multi-employer agreement.
  • The FWC will develop model flexibility, consultation and dispute terms (within 12 months of Royal Assent).

Workplace delegate rights and training – to start (for the most part) day after Royal Assent

From Royal Assent, modern awards, new enterprise agreements and new workplace determinations will need to include a complying delegates’ rights term that, among other things, sets out worker delegates' rights and entitlements including to:

  • reasonable communication with members (and eligible members) of the relevant employee organisation;
  • reasonable access to the workplace and workplace facilities; and
  • reasonable access to paid time, during normal working hours, for the purposes of related training. Small businesses will be exempt from this training requirement.

Employers will be prevented from unreasonably failing or refusing to deal with a workplace delegate – with the burden of proving conduct is not unreasonable falling on the employer

From 1 July 2024, the Bill also includes new protections for the worker delegates of the Bill's new category of regulated workers in regulated businesses (see above).

Strengthening protections against discrimination and adverse action

The Act’s anti-discrimination provisions will be amended to include protections for employees and prospective employees subjected to family and domestic violence. Employers will be prohibited from taking adverse action against an employee because the employee is subject to family and domestic violence.

Commonwealth work health and safety and workers' compensation (Cth and ACT) changes

  • The Bill also makes changes to the Commonwealth Work Health and Safety Act 2011 (Cth WHS Act), which covers Federal Government departments, public authorities and certain businesses licensed under the Comcare scheme.
  • A new industrial manslaughter offence will apply under the Cth WHS Act. A person conducting a business or undertaking (PCBU), or officer of a PCBU, will have committed an offence if they intentionally engage in conduct that breaches a health and safety duty, and are reckless or negligent as to whether the conduct would cause the death of an individual. A maximum penalty of $18 million for bodies corporate and 25 years' imprisonment for individuals will apply.
  • The Bill also seeks to increase maximum penalties for category 1 breaches of the Commonwealth WHS Act as well as other increases for other offences.
  • The Bill includes a rebuttable presumption that post-traumatic stress disorder (PTSD) of first responders covered by the Safety, Rehabilitation and Compensation Act 1988, was contributed to, to a significant degree, by their employment (intended to cover, for example, Commonwealth and ACT Government first responders including Australian Federal Police employees, ambulance officers, paramedics, firefighters, emergency service communications operatives, associated volunteers, and others). It will apply to PTSD sustained after the amendments commence.
  • The Bill will also extend the functions of the Asbestos Safety and Eradication Agency to address silica related diseases.

Where to from here?

The Minister has foreshadowed that the House of Representatives has four weeks to debate the Bill before it heads to the Senate. The Opposition has already criticised the Government in rushing, in its view, passage of the Bill.

Equally, Teal independents in the House of Representatives have said they do not want the Bill rushed. The same sentiments were expressed by independent Senators Jacquie Lambie and David Pocock at the time of the Government's first round of IR reform – and the Government will need the support of the Senate cross Bench to pass these reforms. Peter Dutton, Leader of the Opposition, has stated that it will be 'very difficult' for it to support the Bill.

That said, we expect that the Government will want the Bill passed before Christmas. Given consultation has been ongoing with key stakeholders including industry and unions in the lead up to Bill’s introduction we expect the Government will likely pass it in this time frame. The Government has demonstrated a willingness to negotiate on the terms of IR Bills previously to meet ambitious timeframes for passing legislation.

We will keep you up to date as things develop and will be hosting seminars to discuss the changes. In the meantime, if you have any questions about the impacts of the proposed changes on your business, please contact our team.