Closing Loopholes Part 2: What’s Changed?

The Fair Work Legislation Amendment (Closing Loopholes) (No. 2) Act 2024 (Closing Loopholes Part 2) was passed by the Senate, after having previously been passed by the House of Representatives, on 12 February 2024. The Act signifies the final part of the Labor Government’s third major wave of reforms to Australia’s employment laws. The Act received Royal Assent on 26 February 2024, with many of the newly introduced laws currently in effect.

The Fair Work Legislation Amendment (Closing Loopholes) Act 2023 (Closing Loopholes Part 1), passed by Parliament on 7 December 2023, introduced changes to certain labour hire arrangements, new rights for workplace delegates, protections for employees experiencing family and domestic violence and introduced a new criminal wage theft offence.

Closing Loopholes Part 2 builds upon the groundwork laid by Closing Loopholes Part 1, introducing some of the more controversial changes ultimately stripped out of Closing Loopholes Part 1. Key reforms pertain to casual employment, casual conversion, the meaning of “employee” and “employer”, intractable bargaining determinations, protections for gig economy workers, union rights of entry and a new legal right for employees to disconnect from work-related communications outside of working hours.

These key changes are summarised below:

Definition of casual employment

Closing Loopholes Part 2 introduces a new definite on of casual employee which shifts the focus of the definition to the practical reality of the employment relationship rather than a strict consideration of the terms of the written employment contract.

An employee will now be considered to be a casual employee where:

1. the employment relationship is characterised by an absence of a firm advance commitment to continuing and indefinite work; and
2. the employee is entitled under a Fair Work instrument or contract of employment to a casual loading or specific rate of pay for casuals.

Indicia for assessing whether there is a firm advance commitment to continuing work include:

1. consideration of the real substance, practical reality and true nature of the employment relationship. A firm advance commitment can be in the form of a contract of employment, or a mutual understanding or expectation between the employer and employee not rising to the level of a contract term, which could be inferred from the parties’ conduct or how the contract is performed in reality.
2. having regard to considerations including:
   1. whether there is an inability of the employer to elect to offer, or not offer, work or an inability of  the employee to elect to accept or reject work, and whether this occurs in practice;
   2. the reasonable likelihood that there will be future availability of continuing work with the employer of the kind usually performed by the employee;
   3. whether there are any permanent full time or part time employees employed by the employer to perform the same kind of work that is usually performed by the employee;
   4. whether the employee has a regular pattern of work, even if this pattern fluctuates over time or is  marked by reasonable absences such as for illness, injury or recreation. The Act notes that the presence of a regular pattern of work will not of itself indicate a firm advance commitment to continuing work.

Changes to Casual Conversion Provisions

Closing Loopholes Part 2 has removed the casual conversion provisions and replaced this framework with similar “employee choice” provisions.

Employees employed on a casual basis will now be able to provide their employer with written notification if they would like to change their employment status to permanent full time or part time employment after they have been employed for 6 months, or 12 months in the case of a small business.

Employers are then required under the provisions to consult with the employee before responding to the employee’s notification within 21 days of receiving the notification. An employer’s response must also include information including:

1. a statement that the employer accepts or does not accept the notification
2. if the employer accepts the notification:
   1. Whether the employee is changing to fulltime or part time employment;
   2. The employee’s hours of work after the change has taken effect
   3. The day the employee’s change to permanent employment will take effect
3. if the employer does not accept the notification:
   1. The employer’s reasons for the decision

An employer will be permitted to refuse the employee’s notification for reasons including:

1. the employee continues to satisfy the definition of “casual employee”;
2. where there are fair and reasonable operational grounds for not accepting the notification; or
3. accepting the notification would result in the employer not complying with a recruitment or selection process required by or under a law of the Commonwealth or a State or a Territory

The new “employee choice” framework differs from the existing casual conversion process as it is now up to the employee to initiate the shift to permanent employment, rather than the employer who was previously required to review their casual workforce and offer casual conversion to employees once they became eligible.  Instead of proactively reviewing their workforce to offer permanent employment to eligible employees, employers will only be required to act upon receiving an “employee choice” notification.

The changes with respect to casual employment will come into force on 26 August 2024.

Definition of employment

The Fair Work Act 2009 (Cth) (FW Act) primarily governs the relationship of employment by conferring various rights and obligations on employers and their employees. Under the FW Act, the definitions attributed to “employee” and “employer” are determined according to the ordinary meaning given to these terms by the courts.

Closing Loopholes Part 2 inserts a new section 15AA into the FW Act, which amends the “ordinary meaning” of “employer” and “employee” for the purpose of determining whether an employment relationship exists between the parties to a working arrangement. The ordinary meaning of “employee” and “employer” will now be determined by ascertaining the real substance, practical reality and true nature of the relationship between the parties and the working relationship. In making such a determination, the totality of the relationship must be assessed, considering not only the written terms of the contract governing the relationship but how also how the relationship is performed in practice. All relevant indicia must be considered in any such assessment, and one indica will not be determinative of the nature of the relationship.

This amendment reverses decision of the High Court in CFMMEU v Personnel Contracting Pty Ltd [2022] HCA 1 and ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2, which found that nature of the relationship could be determined with reference only to the written terms of the contract, to the exclusion of post-contractual conduct of the parties except in very limited circumstances. The legislation has therefore reverted to the common law “multi-factorial test” where relevant considerations in determining whether an employment relationship include:

1. The extent of control exercised over the worker, or the right to exercise control over the worker;
2. Whether the worker is provided with tools and equipment, or whether the worker supplies their own;
3. Whether the worker is required to wear a uniform;
4. Whether the worker is permitted to delegate work to an external worker or subcontractor, or decline work;
5. Whether the worker is remunerated through a regular wage or salary, or is paid upon their completion of each discrete task or project; and
6. The express terms of any contract between the parties.

This change means that the post-contractual conduct of parties to a working arrangement will once again hold significance in determining disputes about whether a worker is an employee or a contractor. We anticipate that employers may witness an increase in disputes regarding a workers’ contractor classification, and associated underpayment claims, as workers engaged as contractors assert their status as employees and demand reimbursement for unpaid entitlements such as annual leave.

The commencement date for this change will be fixed by Proclamation in the coming months, however if the provisions do not commencement by 26 August 2024, then the provisions will commence on 27 August 2023.

Right to disconnect

Closing Loopholes Part 2 introduces a controversial new right for employees to disconnect from work-related communication outside of working hours.  Once the right to disconnect takes effect from 26 August 2024 (or 26 August 2025 for small businesses), employees will have a workplace right to refuse to monitor, read or respond to contact by employers or third parties outside of their working hours, unless such a refusal is unreasonable.

An employer who takes adverse action against an employee because that employee exercises their right to disconnect may be exposed to a general protections claim brought by the employee.

Employers and employees will both be able to seek orders from the Fair Work Commission with respect to a dispute arising from an employee exercising their right to disconnect.

For further information on the new right to disconnect, see our article titled “Employee’s right to disconnect after hours.”

Workplace delegates’ rights

Closing Loopholes Part 1 introduced a number of new rights for workplace delegates, including a right to reasonable use of the workplace facilities to undertake their duties as a workplace delegate, as well as paid time during working hours to attend training specific to their functions as a workplace delegate.

Closing Loopholes Part 2 builds upon these rights for workplace delegates by extending the general protections provisions, as they relate to workplace delegates, to prohibit the business employing workplace delegates from unreasonably failing to deal with the workplace delegate, or hindering, obstructing or preventing them in exercising their rights, unless the employer can demonstrate it was reasonable to do so, for example, if the action was lawful reasonable management action. Employers will now also be prohibited from knowingly or recklessly making a false or misleading representation to a workplace delegate. An employer in contravention of these general protections provisions will be exposed to a general protections claim brought by the workplace delegate.

The commencement date for this change will be fixed by Proclamation in the coming months, however if the provisions do not commencement by 26 August 2024, then the provisions will commence on 27 August 2023.

Union Rights of Entry in Relation to Suspected Underpayments

Closing Loopholes Part 1 introduced significant changes in relation to the underpayment of employee entitlements, most significantly through the introduction of a new criminal wage theft offence to commence on 1 January 2025 or following the Fair Work Commission’s (FWC) introduction of the Voluntary Small Business Wage Compliance Code.

Closing Loopholes Part 2 has introduced a further change with respect to employee underpayments, by allowing unions to obtain an exemption certificate from the FWC to waive the minimum 24 hour notice requirement for exercising the union’s right of entry into an employer’s premises, if the union reasonably suspects that the wages or entitlements owed to a member of the union have been underpaid by the employer.

Before the FWC will issue an exemption certificate, the Commission must be satisfied that advance notice of entry into the workplace would hinder an effective investigation into the underpayment by resulting in the destruction or concealment of relevant evidence relating to the underpayment.

The FWC does not itself need to be satisfied that there has been an underpayment of wages or entitlements, or that there is a reasonable basis for the union’s suspicion that such an underpayment has occurred. Rather, the Commission must simply be satisfied that the union suspects a contravention involving an underpayment in order to grant the exemption certificate.

This amendment is due to commence on 1 July 2024.

Sham Contracting  

An employer is prohibited from representing an employment contract as a contract for services and wrongly classifying an employee as an independent contractor to deprive the employee of their statutory entitlements.

Closing Loopholes Part 2 does not change this prohibition but does amend the defence that previously existed in relation to sham contracting. Where an employer has incorrectly classified an employee as an independent contractor and is facing penalties for sham contracting, the employer can seek to rely upon the defence set out in the FW Act. This defence previously required an employee to establish that they did not know and were not reckless as to whether the contract was an employment contract rather than a contract for services. Closing Loopholes Part 2 has amended this defence to require employees to prove that, at the time of the representation of the nature of the contract to the employee, the employer reasonably believed that the contract was a contract for services.

Closing Loopholes Part 2 has therefore made it more onerous for employers to successfully raise the sham contracting defence by requiring employers to establish that their belief that the relationship was not one of employer was objectively reasonable in the circumstances, rather than limiting the assessment to the employer’s actual belief. In determining whether the employer’s belief was reasonable, the Act requires that regard be had to factors including the size and nature of the employer’s business and any other matters deemed relevant.

This amendment took effect on 27 February 2024.

Intractable Bargaining Workplace Determinations

Closing Loopholes Part 2 also introduced some amendments relating to intractable bargaining. The Federal Government’s earlier Secure Jobs, Better Pay reforms empowered the FWC to resolve intractable bargaining disputes by making an intractable bargaining declaration upon an application by a single bargaining representative.

The Commission can make an intractable bargaining declaration where it is satisfied that there are no reasonable prospects of the parties attempting to bargain with respect to a new enterprise agreement, reaching an agreement after a prescribed period has passed, generally 9 months. Once an intractable bargaining declaration has been made, the FWC has the power to arbitrate an outcome in the parties’ dispute through an intractable bargaining workplace determination (IBWD).

Closing Loopholes Part 2 introduced further reforms to the intractable bargaining provisions, providing that any contested terms that are the subject of arbitration by the Commission cannot be determined in a way that would result in conditions less favourable to employees or unions than the current conditions provided for by the provisions in an existing appliable enterprise agreement. This reform may therefore disincentivise employees from making concessions in bargaining, by giving employees security in the knowledge that, should negotiations proceed to the arbitration stage where the Commission makes an IBWD, the Commission’s determination with respect to the disputed terms will be no less favourable than employees’ current enterprise agreement conditions.

This amendment came into force on 27 February 2024.

Regulation for Road Transport and Gig Economy Workers

Some of the more controversial amendments introduced by Closing Loopholes Part 2 relate to protections covering workers in the road transport industry and gig-economy workers engaged by digital labour platforms. Closing Loopholes Part 2 introduces a series of protections for these workers, who the legislation describes as “employee-like workers.”

Key protections afforded to employee-like workers include:

1. Minimum Standards Orders: Closing Loopholes No. 2 empowers the FWC to establish minimum working conditions and standards for employee-like workers by making a Minimum Standards Order (MSO).

   An MSO can be made by the Commission on its own initiative or upon application by an eligible organisation that represents a worker or business’ industrial interests, the business to be covered by the MSO, or the Minister. Applications for an MSO must specify the class of regulated workers to be covered by the order with reference to a particular industry or type of work.

   An MSO may include terms including but not limited to payment terms, deductions, insurance, consultation requirements, and record-keeping requirements. MSOs cannot regulate overtime rates, rostering arrangements or penalty rates for work performed at particular times or on particular days.

2. Unfair Deactivation: Employee-like workers who have been performing work on a regular basis through a digital labour platform for a minimum period of 6 months, and who earn less than the ‘contractor high income threshold’, will be able to make an unfair deactivation claim if the worker’s access to the digital labour platform is deactivated. The unfair deactivation provisions will operate in a similar way to the existing unfair dismissal provisions available to employees. Employee-like workers will be able to access an appropriate remedy, such as reactivation or payment on account of lost income, if their access to the digital labour platform is found to have been unfairly deactivated or unfairly terminated.

   In considering whether the deactivation was unfair, the FWC will consider factors including whether a valid reason existed for the deactivation relating to the worker’s capacity or conduct.

3. Collective agreements: Digital labour platforms and relevant unions or organisations entitled to represent the interests of employee-like workers will be able bargain and enter into collective agreements providing for working conditions more favourable for employee-like workers than those provided under an MSO.
4. Extension of workplace-delegates’ rights: the rights afforded to workplace delegates under the Closing Loopholes reforms, including a right to reasonably access workplace facilities and paid time during working hours to attend to workplace delegates’ duties, will also apply to employee-like workers.

The changes with respect to employee-like workers are expected to come into force on a date to be fixed by Proclamation, no later than 26 August 2024.

Unfair Contract Jurisdiction

Closing Loopholes Part 2 introduces a new jurisdiction within the FWC to address unfair contracts, accessible to specific independent contractors. The Commission may make an order to set aside, amend or vary a contract for services where it deems the term unfair, and the contract term would relate to a workplace relations matter if it were applied in an employment context.

Closing Loopholes Part 2 also introduces a new high-income threshold for contractors under the FW Act, the amount of which will be specified by the Fair Work Regulations. A contractor’s annual earnings must fall below the high-income threshold to access the unfair contract jurisdiction of the FWC, as well as the new unfair deactivation provisions.

Under the Closing Loopholes amendments, when determining whether a term in a contract for services is unfair, the FWC may have regard to factors including:

1. the relative bargaining power of each party to the contract;
2. any significant imbalance between the rights and obligations of the parties;
3. whether the term in question is reasonably necessary to protect the legitimate interests of a party;
4. whether the term in question imposes a harsh, unjust or unreasonable requirement on a party;
5. whether the services contract as a whole provides for a total remuneration for performing work that is:
   1. less than regulated workers performing the same or similar work would receive under an MSO or minimum standards guidelines; or
   2. less than employees performing the same or similar work would receive;
6. any other matter the FWC considers relevant.

The amendments with respect to unfair contracts for services will come into force on 27 August 2024.

If you would like further advice on how best to navigate these recent changes to the Fair Work Act 2009, or how these changes might affect you or your business, please contact the experienced Employment Law Team at Hunt & Hunt Lawyers.