The Federal Labor Government (Government) has completed its third tranche of workplace relations reform with the recent passage through Federal Parliament of its Fair Work Legislation Amendment (Closing Loopholes No. 2) Bill 2023. Along with its 'Secure Jobs, Better Pay' laws in December 2022 and 'Closing Loopholes No. 1' changes in December 2023 and appointments to the Fair Work Commission (FWC), since its election, the Government has made significant and long-lasting legal and social changes to Australian workplaces.

The key changes in this third tranche are to:

• Return the law to a more fluid definition of 'casual employment'.
• Give rights to employees to reasonably disconnect from work outside their usual working hours.
• Define 'employment' to overturn recent High Court of Australia (High Court) decisions about independent contracting arrangements.
• Create rights for gig workers, transport workers and independent contractors to have the FWC determine certain aspects of their workplace conditions.
• Enable unions to enter workplaces for suspected underpayments without giving the current 24-hour written notice.
• In arbitrating intractable bargaining disputes, require the FWC not to provide terms in a new enterprise agreement that are less favourable to employees than the current enterprise agreement (except for wage increases).
• Increase penalties for underpayment of wages by five times.

The Government has yet to announce what date the legislation will commence, but as noted below, some of these provisions will not commence for a period of six months after that date. Here is a summary of the key changes.

CASUAL EMPLOYMENT

The definition of what is a casual employee will change for newly employed casuals—but an existing casual employee is taken to be a casual employee based on the current definition in the Fair Work Act 2009 (Cth) (FW Act).

The new definition defines a casual employment relationship as one characterised by an absence of a firm advance commitment to continuing and indefinite work, and for which the employee is entitled to a casual loading. This is similar to the current definition that was inserted into the FW Act in 2021. However, the legislation introduces further indicia for interpreting this definition that looks at, amongst other factors, the real substance, practical reality and true nature of the relationship.

Further, an employee is not a casual employee if their contract includes a term that it will terminate at the end of an identifiable period and they are covered by a higher education award (even if there is an enterprise bargaining agreement that applies to the employer).

Importantly, if an employee is a casual employee within the meaning of the definition at the commencement of their employment, then the employee's status cannot be changed retrospectively. A prospective change only occurs when:

• The employee convinces the employer that they are no longer a casual employee.
• The employee is offered and accepts conversion to full-time or part-time employment.
• The employee is offered and accepts full-time or part-time employment by the employer.
• Arising from a dispute, the parties agree to change the status of the employee or an order is made to that effect by the FWC.

These changes do not enable employees to retrospectively make claims that they were not casual employees (as they could before the current provisions on casual employment were inserted into the FW Act in 2021) if they met the definition of casual employment at the commencement of the employment. Even if such a claim is made, a court is compelled to offset the payments that the casual employee would have received if they were a part-time or full-time employee against the value of the casual loading.

The Casual Employment Information Statement must be given to a casual employee before or as soon as practicable after commencement of employment, then at the six months mark, then at the 12 months mark and then every 12 months. Some of these obligations do not apply to a small business employer.

An employer cannot dismiss or threaten to dismiss a non-casual employee in order to engage them as a casual employee nor make false statements to induce them to enter a casual contract.

The casual employment changes are due to commence six months after the legislation formally commences.

What Does This Mean in Practice?

Casual employment is made more uncertain by these changes compared to the narrower definition in the FW Act introduced in March 2021. However, it has not placed employers in the precarious position that arose from the Federal Court decisions in Skene and Rossato (before the High Court overturned them) that enabled retrospective determinations that casuals were continuing employees and where a casual loading did not offset the entitlements payable to continuing staff.

THE RIGHT TO DISCONNECT

The legislation introduces a general legal right to disconnect for all Australian employees. Employees may refuse to monitor, read or respond to contact, or attempted contact, from an employer or a third party about work outside of their working hours unless the refusal is unreasonable. In practice, much will turn on whether or not a refusal by an employee to respond to contact is unreasonable.

When considering whether or not a refusal is unreasonable, it will be necessary to consider:

• The reason for the contact or attempted contact.
• How the contact is made and the level of disruption it causes.
• The extent to which the employee is compensated to remain available (such as an on-call allowance) or to work reasonable additional hours outside their ordinary hours of work.
• The nature of the employee's role and level of responsibility.
• The employee's personal circumstances.
• If the contact or attempted contact is required under law.

Ultimately, it is likely that the employer will bear the onus of establishing that the employee's conduct is unreasonable.

Disputes about the right to disconnect can, after an attempt to resolve such disputes within the workplace, be taken to the FWC by either the employer, the employee or an industrial association. 

The FWC is then empowered to make orders including:

• If the employee's conduct is unreasonable, an order to compel the employee to stop refusing contact.
• If the employee's conduct is not unreasonable:
  • An order preventing the employer from taking action against the employee such as disciplinary action.
  • An order preventing the employer from continuing to require the employee to respond to out of hours contact.

Like the 'stop bullying' and 'stop sexual harassment' jurisdiction, the FWC has no power to make pecuniary penalties and it can dismiss applications that are frivolous or vexatious. However, any breach of a FWC order may result in penalties.

All modern awards will be updated to include a standard right to disconnect term.

The right to disconnect will be a workplace right and therefore any adverse action taken against an employee who has reasonably refused contact after hours will breach the general protections provisions and may result in pecuniary penalties. The right to disconnect changes are due to commence six months after the legislation formally commences.

What Does This Mean in Practice?

In circumstances where an employee is paid well above award or minimum wage or is specifically paid an amount to work reasonable additional hours in excess of their ordinary hours, it would seem that in the majority of cases, the statutory right to refuse to respond to contact will not apply. 

However, where an employee is simply paid at minimum wage or the award rate for hours worked, unless exceptional cases apply, an employee will generally have the right to refuse to respond to their employer as this will not be considered unreasonable.

While this change has been touted as a widespread right to disconnect for all employees, in practice, the right to disconnect will be established only where the refusal to respond to contact from an employer is reasonable.

INDEPENDENT CONTRACTORS' RIGHTS TO CONTEST UNFAIR TERMS

The legislation provides a new regime to enable the FWC to order remedies for independent contractors, i.e. under a contract for services, if their contracts contain 'workplace matters' which are unfair. This regime extends to prospective contractors. The regime only applies to independent contractors who earn up to the 'contractor high income threshold', (currently AU$167,500) and means they cannot make a claim under the practically defunct Independent Contractors Act 2006 (Cth).

Within this new regime, the FWC may take into account a range of factors when determining if a term is unfair, including parties' bargaining power; any significant imbalance between the parties' rights and obligations; whether the term imposes a harsh, unjust or unreasonable requirement; and whether the services contract as a whole provides for a total remuneration for performing work that is less than regulated workers or employees performing the same or similar work would receive.

By way of remedy, the FWC may make an order setting aside all or part of a services contract, or amending or varying all or part of a services contract which, in an employment relationship, would relate to a workplace relations matter. It will not conduct 'hearings' but rather conferences or submissions unless appropriate.

These changes are to come into effect on a day to be fixed by proclamation, or otherwise, they will commence six months after the legislation formally commences.

What Does This Mean in Practice?

This is a first step in re-setting the working conditions of independent contractors by a national employment tribunal. In the Government's eyes, it seeks to apply fairness to working people across the workforce unencumbered by the labels of 'employee' or 'contractor'. 

Companies should review their independent contracting arrangements, noting the different test that will now apply, to consider whether they are at risk that the arrangement is more akin to employment and to consider whether the contract terms may be considered unfair measured in part against the conditions of an employee in a like situation.

A NEW DEFINITION OF 'EMPLOYMENT' AND HOW TO OPT OUT

Definition of Employment

The test of what it means to be in 'employment' has been legislated for the first time, overturning the two seminal 2022 High Court independent contractor decisions of Personnel Contracting and Jamsek which focused on the terms of the employment contract. The new test relies on the same language as for determining casual employment (i.e. the totality of the relationship test that applied prior to these decisions) namely, assessing the 'real substance, the practical reality and the true nature of the relationship'.

The legislation also lessens the test for proving that an employer misrepresented that an independent contractor agreement was in reality an employment contract, i.e. sham contracting.

Opting Out

The legislation innovatively but perhaps impractically introduces the concept of an opt out notice from this new definition. A person who engages or proposes to engage a worker may invite them to give a notice opting out of this definition of employment so that High Court decisions about the tests of what constitutes an independent contractor arrangement apply instead. The person can do this if they consider that because of the statutory definition of 'employment' (that could capture more independent contracting arrangements compared to the High Court test), their relationship with the worker would morph into employment. 

If the worker accepts the invitation, then the relationship will be determined based on the High Court decisions, not the statutory test of 'employment'. This would not definitively determine that the relationship was principal/contractor, but it would assist in defending a claim that it was not. However, the individual at any time can revoke the opt out notice, in which case any challenge that the relationship was not principal/contractor would be measured against the new statutory definition of 'employment'.

These changes are to come into effect on a day to be fixed by proclamation, or otherwise, they will commence six months after the legislation formally commences.

What Does This Mean in Practice?

The greater certainty of what is an independent contractor arising from the High Court decisions in 2022 has been swept away and we are back to the familiar territory of the uncertain 'totality' test that 'it depends on a range of factors…'

The opt out notice is unlikely to attract most independent contractors, as it lessens their chances of claiming at some stage (such as where the relationship sours) that the relationship is an employment one and seeking compensation for employee-like benefits.

REGULATED WORKERS

New Key Definitions

The legislation provides for and regulates a new class of nonemployee workers. This is currently limited to digital platforms and road transport work.

Digital Labour Platform

A digital labour platform means an online enabled application, website or system operated to arrange, allocate or facilitate the provision of labour services by engaging independent contractors through the application, website or system or act as an intermediary for users who interact with independent contractors.

Regulated Worker─Digital Platform Work

An 'employee-like worker' is an independent contractor who performs all or a significant majority of their work under a services contract, whose work is digital platform work and who satisfies at least one of the following characteristics:

• Low bargaining power in negotiations;
• Receives remuneration at or below the rate of an employee performing comparable work;
• Low degree of authority over the performance of the work; or
• Such other characteristics as are prescribed by the regulations.

The definition of an 'employee-like worker' covers individuals (the worker) but also extends to a director of a company or a partner in a partnership doing digital platform work.

Minimum Standard Orders of Regulated Workers

The legislation empowers the FWC to set either binding minimum standards orders or nonbinding minimum standard guidelines for regulated workers. This could include standards in relation to payment terms, deductions, working time, record keeping, insurance, consultation, representation, union delegates' rights and cost recovery, but excludes rostering and overtime.

Unfair Deactivation of Regulated Workers

The amendments are targeted to protect employee-like workers performing digital platform work or engaged in the road transport industry. The amendments provide unfair dismissal protections to these contractors performing digital platform work and also allows contractors to make an application to the FWC for an unfair contract remedy in relation to a services contract. The amendments provide similar threshold jurisdictional criteria to the current unfair dismissal regime, including a minimum of six months' engagement and annual earnings being below the 'contractor high income threshold' (to be set by regulations).

The FWC is not empowered to order compensation, but it may order restoration of lost pay in conjunction with an order for reactivation.

Collective Agreements for Regulated Workers

The legislation enables a form of registered collective agreement between a digital platform or road transport business and organisations that represent workers for such businesses with a less onerous process for making these agreements than for an enterprise agreement.

These changes are to come into effect on a day to be fixed by proclamation, or otherwise, they will commence six months after the legislation formally commences.

What Does This Mean in Practice?

These provisions are currently limited to a small sector of the workforce but give considerable protection which does not currently exist to set 'workplace relations' conditions and provide 'unfair dismissal'-like protection for nonemployees engaged in digital platform and road transport work.

One should not expect that this regulation of nonemployees' working conditions is now concluded. If the legislation proves effective, one can expect it to spread to other types of workers.

The right of entry provisions of the FW Act have been expanded to enable permit holders (registered organisations/unions) to enter a workplace to investigate suspected wage or entitlement underpayments without advance notice in certain circumstances. 

EXPANDED RIGHT OF ENTRY RIGHTS

Under the new laws, registered organisations or unions will be able to apply to the FWC for an exemption certificate to circumvent the requirement for an advance entry notice to be given at least 24 hours before entering a premises. 

The FWC will be required to issue an exemption certificate if:

• The FWC is satisfied that a suspected contravention involves the underpayment of wages or entitlements, affecting a member of the registered organisation/union; or
• As currently exists, the FWC reasonably believes that advance notice of the entry given by an entry notice might result in the destruction, concealment or alteration of relevant evidence.

In the event this right of entry relating to suspected underpayments is misused, the new laws enable the FWC to ban the exemption certificate or otherwise impose specified conditions on the exemption certificate for a specified period. 

In addition to the existing prohibitions against intentionally hindering or obstructing a permit holder from validly exercising their rights of entry, the amendments also require that a person must 'not otherwise act in an improper manner' towards a permit holder entering a workplace with an exemption certificate.

These changes will come into effect from 1 July 2024. 

What Does This Mean in Practice?

These provisions supplement the Fair Work Ombudsman's investigative powers into underpayment matters and significantly enhance the powers of unions on the ground at Australian workplaces. 

INTERACTABLE BARGAINING

The Closing Loopholes No. 2 legislation makes amendments to the powers of the FWC to make intractable bargaining workplace determinations (which set terms and conditions, much like enterprise agreements or modern awards). 

Introduced by the Secure Jobs, Better Pay amendments in 2022, these powers allow the FWC to make an intractable bargaining declaration that bargaining for a new enterprise agreement is at an impasse. Following such a determination (or an optional post-declaration bargaining period), the FWC must then arbitrate and determine any outstanding matters in dispute between the parties.

While no such determination has yet been made, the newest amendments now mean that when the FWC makes such a determination about the matters still in dispute, the terms it makes must be no less favourable than those in an existing enterprise agreement which apply.

Given the inherent nature of bargaining is that some terms and conditions may be traded off in exchange for others, these amendments have the effect of reducing employers' bargaining powers in such negotiations, and make the prospect of seeking such a determination less appealing to employers. 

These changes will take effect on the day the legislation formally commences.

What Does This Mean in Practice?

This is a fundamental change to the bargaining process because the FWC cannot undo any provisions of current agreements in arbitrating new agreements to employees' disadvantage (even if overall the condition is improved). The first tranche of legislation by the Government also removed the right to terminate agreements that had reached their expiry dates unless by agreement or in circumstances where their continuation jeopardises the viability of a business, so an employer can either reach agreement to make adverse changes to existing conditions or put the enterprise agreement to a vote without the agreement of bargaining representatives. 

PENALTIES FOR CIVIL REMEDY PROVISIONS

The legislation:

• Increases by five times the maximum civil pecuniary penalties for wage noncompliance (for companies, increasing from AU$93,900 to AU$469,500 for a contravention and from AU$939,000 up to AU$4.695 million for a serious contravention); and
• Increases the maximum civil pecuniary penalty for failure to comply with a compliance notice by 10 times (increasing from AU$46,950 up to AU$469,500 per contravention for companies).

These amendments impose heavier penalties for employers (and individuals) in relation to wage noncompliance, indicating an increased regulatory focus on this area.

Further, the definition of 'serious contraventions' is amended so that it applies to knowing or reckless contraventions, rather than knowing and systematic contraventions. The 'recklessness' element for the purpose of 'serious contraventions' would require subjective awareness as to a substantial risk that the contravention would occur.

These changes will take effect on the day the legislation formally commences.

What Does This Mean in Practice?

This is a very clear signal that employers must be vigilant in ensuring that they are wage and conditions compliant or face the wrath of the Fair Work Ombudsman, the courts and prosecuting unions. If ever there was a thought that wage compliance was a lesser consideration for businesses than taxation compliance and other regulatory impositions, these marked increases should remove that thought (even if awards and one's own enterprise agreements are sometimes imprecise instruments to interpret).

We acknowledge the contributions to this publication from our graduate Julia Kerry.