By Daniel White , Partner, Alex Millman, Senior Associate, and Maeve Liston, Lawyer
On 4 September 2023 the Albanese Government introduced its further flagged reforms to the Fair Work Act 2009 (Cth) (FW Act) by way of the Fair Work Legislation Amendment (Closing Loopholes) Bill 2023 (Cth) (Bill). Similar to the last wave of industrial relations reforms, we anticipate that there will be further amendments to the Bill via the Senate and also potentially the House of Representatives.
The purpose of this article is to provide a high-level overview of what the Bill proposes. In the event the Bill does proceed through Parliament and passed as legislation (in whatever form), we will then provide a ‘deep dive’ review on the new provisions.
Whilst a number of the proposed changes in the Bill may be expected, there are some aspects that go well beyond what the Albanese Government flagged in the lead up to the May 2021 election and will likely take employers by surprise and raise concern.
Re-defining employment (and casual employment in particular)
Whether a person is an employee or, if so, a casual employee, will be based on an assessment that essentially turns its back on the employment contract and instead looks only to how the arrangement actually played out in practice.
Re-writing the definition of casual employment
A new test of casualness
One of the last acts of the Morrison Government was to (finally) insert a definition of casual employment into the FW Act, which built off the issues expounded upon in Rossato.
The test that was introduced at the time was whether there was a “firm advanced commitment to continuing and indefinite work.” Identifying whether such a commitment had been made was to be determined by reference exclusively to the contract of employment.
The Bill keeps the test of a “firm advanced commitment to continuing and indefinite work,” but this will be assessed by reference to any “mutual understanding or expectation” between employer and employee “not rising to the level of” a contract.
Although not limiting any other matters to be considered, the Bill also provides that the following will serve as indicia of non-casual employment:
- whether there is a practical inability for the employer to not offer work or for the employee to refuse to accept it when offered;
- whether, given the nature of the business, it is reasonably likely that work will continue to be available for the employee;
- whether permanent employees perform the same type of work; and
- if there is a regular pattern of work for the employee, although this need not be absolutely uniform.
The written contract of employment (primacy of contract, being employed on a casual basis) is merely a factor that can be taken into consideration, and can be overridden by the practical implementation of the relationship between the parties. In this respect, the test moves away from legally enforceable rights and obligations and more towards how the parties “expect” to behave regardless of any strict legal rights.
Disputes about casualness
The Bill then goes on to provide a mechanism for casual employees to give their employer a notice that they believe they no longer qualify as casual. The employer may dispute this, but the Bill gives the Fair Work Commission (FWC) the power to arbitrate such disputes (although they must first attempt some other form of resolution).
Misrepresenting employment as casual
Finally, the Bill creates three new civil penalty provisions with respect to casual employment which read very similarly to the provisions regarding sham contracting:
- misrepresenting a contract as a contract for casual employment;
- dismissing a person so as to engage them as a casual; and
- making misrepresentations so as to engage a person as a casual.
Readers of the above will appreciate that as the revised definition of casual employment makes the terms of the contract irrelevant, the first of these will either be impossible to prove or act as a ‘honeytrap’ for anyone engaging casual employees.
There is some relief, however, as it will be a defence if the employer “reasonably believed” that the contract was one for casual employment. When assessing the reasonableness of this belief, the Bill very helpfully provides that consideration must be had for the size and nature of the business and “any other relevant matters” – what exactly these may be, it does not say.
The Morrison Government’s amendments had the benefit of specifying when the assessment was to take place – at the time of the formation of the employment contract.
The Bill, unfortunately, does not allow this – or indeed, give any indication of when the assessment is to occur – as one cannot of course examine how the employment relationship “plays out” until it has had an opportunity to do so.
Further, the Bill provides that a person “who commences employment as a casual employee” remains a casual employee until they formally convert to permanent by a formal process.
While this reads like something included to try and give businesses some certainty that their casuals will not become permanent employees by stealth, the practical reality is that this provision may have no meaning – as no employee will ever “commence” as casual under this new definition, merely be “confirmed” as casual.
As such, there appears to be a risk that no employer or employee will be able to say with any degree of certainty if the employment is casual until some months after the employee commences work.
This also means that the employer will not necessarily be certain what the employee is entitled to be paid, what rules in a workplace instrument do or do not apply, and what leave entitlements (if any) the employee has until well after the fact – all but inviting non-compliance with leave entitlements.
The proposed changes to casual employment appear to unwind the clarity provided by recent High Court decisions and create greater confusion than certainty for business. This seems likely to and foster an environment where casual employment disputes will be rife (including subsequent backpay of entitlements if found to be permanent).
Formally defining employment
The Bill takes the long-threatened step of defining employment as something other than “its ordinary natural meaning,” and expressly overturns the decisions in Personnel Contracting and Jamsek by providing that, when determining if a person is an employee the “totality of the relationship” must be considered
The Bill goes on to provide that in determining the totality of the relationship, the written contract is but one factor; regard must also be had for how the contract is performed in practice.
In so doing, the Albanese Government not only undoes the High Court’s decisions in Personnel Contracting and Jamsek, but also the authorities in Hollis v Vabu and Stevens v Brodribb Sawmilling Co Pty Ltd which the High Court determined had long been misapplied by the lower courts.
Hollis v Vabu and Stevens v Brodribb Sawmilling Co Pty Ltd both dealt with situations where the contract was not comprehensively recorded in writing, and stand as authority for the premise that in those limited circumstances the terms of the arrangement could be discerned from conduct. The extension of this principle by the lower courts to circumstances where the contract was comprehensively recorded in writing was, per the High Court in Personnel Contracting, a misapprehension of the scope of the authorities.
Nevertheless, the legislative reform of the Bill means that employers will not be able to comprehensively know that they are, in fact, an “employer” until the relationship with their purported employee has had some time to be “performed in practice.”
The practical ramifications, and perhaps unintended consequences of this, are that there is no certainty about when a person becomes an employee (as distinct from a contractor).
The amendments are clearly aimed at employment-like contracting scenarios, but they have ramifications far beyond this.
Employers may assert that the benefits of employment, including minimum entitlements, do not apply as there is a dearth of evidence as to how the relationship plays out “in practice” to allow the assessment to be made.
This also makes a threshold issue in so many areas of the FW Act – whether the worker is an employee – much more difficult to answer. The worker claiming unfair dismissal may have “worked” for the “employer” for nine months, but only met the definition of “employee” for five months, thereby losing access to that jurisdiction.
While objections to the contract-based assessment had some merit, the test was at least one which could be performed at a specific point in time to avoid these issues. This does not seem to have come to fruition in the Bill.
Given the proposed changes around employees and independent contractors, the ‘sham contracting’ provisions in Division 6 of Part 3-1 of the FW Act have also sought to be amended by the Bill, which is discussed below in Part 9.
Small business redundancy exemption
Under the current terms of the FW Act, businesses employing fewer than 15 employees are exempt from paying redundancy pay.
The Bill proposes to create an exception to this in circumstances where a business is bankrupt or in liquidation if:
- the business is only a small business at the time of liquidation because one or more employees was terminated; and
- those terminations occurred within the six months before the business went into liquidation, or an insolvency practitioner was appointed.
In those admittedly limited circumstances, the employees made redundant will be entitled to receive redundancy pay. This would therefore become an entitlement owing to the employees as priority creditors and protected by the Fair Entitlements Guarantee.
Enabling multiple franchisees to access the single-enterprise agreement stream
Under these proposed changes, the Bill will enable multiple franchisees of the same franchisor to make a single-enterprise agreement, while retaining the ability to make a multi-enterprise agreement.
Currently, the FW Act restricts franchisees from pursuing single-enterprise agreements (per current definition of ‘related employers’). The changes could perhaps make it easier for unions to initiate bargaining for franchisee-wide single-enterprise agreements, rather than having to co-ordinate and initiate separate bargaining with multiple (and sometimes unknown) franchisee entities in order to progress standardised terms and conditions in respect of that franchise.
It should also be noted that protected industrial action cannot occur in respect of multi-enterprise agreements, so the pursuit of a single-enterprise agreement stream against multiple franchisees will expose them to the threat of protected industrial action, which is no doubt a motivating factor for this change.
Transitioning from multi-enterprise agreements
The changes proposed by Part 4 of the Bill seek to clarify circumstances where an employer may transition away from a ‘single interest employer agreement’ (i.e. industry-wide agreement) or a ‘supported bargaining agreement’ (i.e. low paid bargaining stream) to a single-enterprise agreement (i.e. company only enterprise agreement), when the existing agreement has not passed the nominal expiry date.
The Bill provides that in the event a single-enterprise agreement is made so the employer and employees may depart from the existing ‘single interest employer agreement’ or the ‘supported bargaining agreement’, the BOOT must be assessed against the existing instrument. In other words, the FWC must be satisfied the employees are better off overall against the terms of the single-enterprise agreement than the existing terms and conditions. This will result in employers having to pay a premium to exit from industry-wide agreements, to potentially escape inflexibilities within it, in order to apply its own enterprise agreement.
Further, the Bill will require written agreement of all unions covered by the old agreement, before an employer can request employees to vote on the new agreement (unless a voting request order is obtained by the FWC).
Part 5 of the Bill proposes to amend the scope and disposition of the model terms in Division 5 of the FW Act as they relate to dispute resolution, consultation and flexibility (individual flexibility arrangements).
Under the Bill, the FWC is considered the most appropriate body to determine the model terms which are expressed as intending to operate as a ‘safety net’ and encourage increased public participation in the bargaining process in relation to enterprise agreements.
In considering the contents of the model terms (when developing them), the FWC will have regard to the following factors:
- whether the model terms meet the genuine needs to the employee and employer;
- whether the model terms are broadly consistent with similar terms in modern awards;
- best practices (as determined by the FWC); and
- whether all persons and/or bodies have had a reasonable opportunity to make submissions to the FWC as to the substance of the model terms.
A maximum period of 12 months has been proposed as a sufficient period to constitute a Full Bench to hear and make determinations regarding the substance of the revised model terms after consulting with a range of stakeholders including national peak councils.
What can possibly be expected through the model terms process driven by the FWC:
- An expansion of what matters are capable for dispute, broader than the current matters arising under the terms of the enterprise agreement / modern award and the NES. It is likely the model dispute clause will broaden to include all other facets of the employment relationship, including disputing disciplinary action against employees (i.e. revoking warning letters), classification disputes and other matters touching on the exercise of employer prerogative.
- In relation to consultation, we anticipate that employers will be required to undergo greater steps to consult with employees and their representatives (unions) including requiring employers to seek alternative work arrangements (including job share etc.) before looking to move to effect redundancies.
- With the model flexibility clause, we anticipate there will be a restriction on the use, including the ability for employees to unilaterally withdraw from them in a shorter period of time, and greater requirements around employers demonstrating employees are better off under the flexibility arrangement, particularly in relation to non-monetary items.
Only time will tell if our predications are correct, but certainly the experience of the FWC process and development of the ‘Statement of Principles of Genuine Agreement’ yielded a challenging document for employers. It is anticipated the process and outcome of the model dispute, consultation and flexibility clauses (as alluded to above) will be a similar experience for employers.
Closing the labour hire loophole (same job, same pay)
While some speculated that the “labour hire loophole” would be closed by the new definition of employment, it seems that the solution that is presented in the Bill is much, much more complicated than anticipated.
First of all, in something that will doubtless please many labour hire employers, the Bill does not automatically introduce ‘same job, same pay’ requirements.
What it does do, however, is introduce a mechanism whereby employees and unions can apply to the FWC for a “regulated labour hire arrangement order.” This is presumably in response to queries raised by employers during the consultation process around same job, same pay provisions about what would happen if the labour hire company’s conditions were better than the host’s.
In making such an order, the FWC is required to specify the enterprise agreement that would have applied to the employee if they had been directly employed by the host. While that order is in place, the employee must be paid the “protected rate of pay” that they would have been paid under the enterprise agreement as a direct employee.
Failure to pay the “protected rate of pay” will be a civil penalty provision, however it will be a defence for the labour hire employer to show that the host provided incorrect information about the relevant enterprise agreement.
Where there are disputes about how this protected rate of pay is to be worked out, a further application can be made to the FWC for an order specifying how this is to be done (an “alternative protected rate of pay order”). Disputes about how the provisions are to work generally can be taken to the FWC first for alternative dispute resolution and then by arbitration.
There are some limited exceptions to these provisions, namely in that they do not apply to:
- labour hire employers that are small businesses (i.e. under 15 employees); or
- to labour hire arrangements that are for three months or less.
Despite the three-month exception, if a labour hire arrangement is extended beyond three months then these provisions start applying from the date of that extension, not from the end of the three-month exception period.
There are also several anti-avoidance provisions, many of which hinge on the fact that a “regulated labour hire arrangement order” must specify the employees to which it applies. These include:
- a host engaging a person not covered by the order to perform the same work at the end of the three-month exception period;
- a host entering into new labour hire arrangements with different labour hire employers every three months for substantially the same work;
- a labour hire employer dismissing employees to engage them as independent contractors.
Each of these will be a civil remedy provision carrying a penalty of up to $469,500.
Minister for Employment and Workplace Relations Tony Burke MP has indicated these proposed changes will not commence until 12 months’ time.
Workplace (union) delegates’ rights
The influence of certain interests can be seen in Part 7 of the Bill, wherein are found new provisions granting express rights to union delegates in workplaces.
These rights are an entitlement to:
- reasonable communication with the members, or persons eligible to be members, of the union at the workplace in relation to their industrial interests; and
- for the purpose of representing those interests:
- reasonable access to the workplace and workplace facilities; and
- except in the case of a small business (i.e. under 15 employees) – reasonable access to paid time during working hours for the purposes of related training.
Employers will also be prohibited from:
- unreasonably failing or refusing to deal with the workplace delegate;
- knowingly or recklessly making a false or misleading representation to the workplace delegate; or
- unreasonably hindering, obstructing or preventing the exercise of the workplace delegate’s rights.
This prohibition only applies to the workplace delegate acting in that capacity, however the onus falls to the employer to show that their conduct is not unreasonable.
Modern awards and enterprise agreements will also be required to include a “delegates’ rights” term. Whether this will be a model term or simply something to be determined on a case-by-case basis remains to be seen, but the absence of such a term from Part 5 of the Bill (dealing with model terms) seems to suggest that parties will be able to write their own.
This is likely to generate a large number of disputes at the workplace level, as it represents a significant departure for most employers in how they will need to recognise and interact with unions (via delegates) in their workplace going forward.
Expanding anti-discrimination provisions
Part 8 of the Bill makes a relatively significant social change in that it extends the anti-discrimination measures of the FW Act to persons experiencing family and domestic violence.
The list of “discriminatory” terms that cannot be included in modern awards and enterprise agreements will be expanded to include terms that discriminate on the basis of the employee being subjected to family and domestic violence.
“Subjection to family and domestic violence” will become a protected attribute in s.351(1) of the FW Act, however given the exclusions based on State laws in s.351(2) this likely will not have anywhere near as significant an effect as the Albanese Government hopes.
Set against definition of ‘employee’ to be inserted into the FW Act, the Bill proposes to amend aspects of sham arrangements in Division 6, Part 3-1 of the FW Act to change the defence of misrepresenting employment as independent contractor as a test from ‘recklessness’ to one of ‘reasonableness’.
This waters down the level of defence available to employers (recklessness sets a much higher bar, meaning successful claim of breach of this provision is harder to prove). The burden of proof will lie with the employer. The Bill sets out a list of non-exhaustive list of factors the Court must consider when assessing reasonableness, such as:
- the employer’s skill and experience;
- the industry in which the employer operates;
- how long the employer has been operating;
- the presence or absence of dedicated human resource management specialists or experience in the employers’ enterprise; and
- whether the employer sought legal or other professional advice and acted in accordance with it.
Rights of entry
Although Part 10 of the Bill is entitled “Exemption certificates for suspected underpayment”, the bulk of the amendments deal with employer conduct in the face of rights of entry.
Specifically, employers are prohibited from “otherwise acting in an improper manner” when a union official seeks to exercise a right of entry under the FW Act.
The endless arguments about what does or does not constitute an “improper manner” are all but inevitable and the threat of them will, one suspects, be used by union officials as leverage to obtain acquiescence from employers where previously a much firmer line would be drawn.
The exemption certificates after which the Part is named appear only at the end of this spate of amendments, allowing the FWC to exempt a union official from giving 24 hours’ notice of entry into the employer’s premises, if the suspected contraventions in question is an underpayment of wages in respect of a member (not a prospective member).
For those employers who are familiar with exemption certificates, there is often a limited basis to be heard before the FWC in relation to the issuing of them to union officials. It is likely that union officials will seek to use exemption certificates to pursue alleged underpayment claims in order to promote union relevancy and bolster union membership.
Increase in civil penalty provisions
In essence, the Bill proposes that the maximum civil pecuniary penalties that can be issued for serious contraventions in relation to wage exploitation (as discussed below) and various other provisions such as contraventions of the national employment standards, modern awards and enterprise agreements be increased by a five-fold (from 600 to 3,000 penalty units).
In a practical sense, this means that the maximum penalty that may be awarded could be $939,000 as opposed to the current maximum of $187,800 (taking into account that as of 1 July 2023, one penalty unit is $313). Similarly, it is proposed that the civil penalty that could be imposed in the event of failure to comply with a compliance notice be ten times higher than the current civil penalty.
In the event of underpayment, Part 11 of the Bill proposes that the maximum penalty be determined by reference to three times the value of the underpayment (if the monetary value can be ascertained).
A modification to s 557A, namely the serious contravention of civil remedy provisions, is also proposed so that it encompasses the ‘knowing and reckless’ contravention of civil remedy provisions as opposed to the ‘knowing and systematic pattern’ as it is currently framed.
Compliance Notice Measures
The power of the relevant Courts will be increased under Part 12 of the Bill, which proposes to extend the scope and contents of enforcement orders to include the enforcement of compliance with a notice issued by a Fair Work Inspector or Fair Work Ombudsman.
The compliance notice would require the employer to calculate the nature and extent of the underpayment of wages, and would empower the Court to make an order require compliance with a notice (i.e. the employer to pay the calculated underpayment amount).
Part 13 is directed towards restoring the status quo prior to the amendments made by the Fair Work (Registered Organisations) Amendment (Withdrawal from Amalgamations) Bill 2020 (Cth) which increased the period and requirements by which a registered organisation, such union Branches and Divisions, could withdraw from an amalgamated organisation and become a new registered organisation in light of a series of internal union discontentment (for example, the Mining and Energy Division of the CFMMEU).
Under the new amendments, amalgamated organisations will not face demerger applications by Branches or Divisions and other amalgamated parts after five years of the merger occurring, purportedly to restore stability and certainty for amalgamated organisations.
After many years of inaction on the point from multiple governments, the Bill finally introduces a federal wage theft offence.
Critically for employers, the offence will only arise if the employer intentionally engaged in conduct to underpay workers.
It is not, however, clear if the intention is the intention to underpay, or the intention to engage in conduct which resulted (intentionally or not) in an underpayment.
Individuals found guilty of this offence may be liable for up to ten years’ imprisonment. Both individuals and corporations may be liable to a fine equal to the greater of:
- three times the underpayment amount; or
- a fine of:
- for an individual – $1,565,000;
- for a corporation – $7,825,000.
Where the underpayment arises over a course of conduct (as they so often do) then the value of the underpayment for the purposes of the calculating the maximum fine is the total value of the underpayments over the course of the conduct.
One does not need to be a mathematical genius to appreciate that in some cases the maximum fines under these provisions could conceivably reach over the billion-dollar mark.
Small businesses will have some modicum of protection by signing up to a “Voluntary Small Business Wage Compliance Code” which, if complied with, will prevent the Fair Work Ombudsman from taking further regulatory action.
To encourage voluntary disclosure of underpayments, the FWO will be empowered to enter into “cooperation agreements” with employers. Similar to enforceable undertakings, while a cooperation agreement is in force the FWO cannot refer the employer or the specific conduct to which the agreement relates for criminal prosecution.
If it is any consolation for employers, the Bill goes on to make it very clear that these provisions also apply to the Commonwealth government – but also very clear that the relevant Minister is not open to prosecution.
Regulating the gig economy
The last third of the Bill is dedicated to establishing a means to extend minimum employment entitlements to persons who work through digital platforms in the gig economy and sole operator transport workers.
The bill proposes to create the concept of an “employee-like worker”, this being a person who enters into a “services contract” through a digital platform. The FWC will be empowered to make “minimum standards orders” that apply to these employees.
The FWC will be similarly empowered in relation to “regulated road transport contractors” operating in the road transport industry. These individuals do not need to be providing their services through a digital platform, so somewhat confusingly Uber drivers and the like are apt to be captured as an “employee-like worker” rather than as a “regulated road transport contractor.”
These orders, made on application, cover specific work, operators, and specified regulated workers rather than being of general application.
The FWC will also be empowered to make “minimum standards guidelines” which will have a similar effect to “minimum standards orders,” but apply to classes of workers rather than specific named workers.
As for what can be included in these guidelines or orders, it seems that the FWC has a very broad power to include anything that is not expressly prohibited which may include, amongst other things, payment terms, insurance, delegates’ rights, consultation and representation. The list of matters that are expressly prohibited is, however, reasonably extensive, and includes:
- overtime rates;
- rostering arrangements;
- matters primarily of a commercial nature; and
- health and safety matters already dealt with by WHS laws.
Coupled with this is a new “unfair dismissal-like” jurisdiction for the FWC with the creation of an “unfair deactivation or unfair termination” application for these regulated workers.
A “minimum engagement period” of regular work for at least six months will be required in order for the person to access this jurisdiction in the case of digital platform workers, or 12 months in the case of road transport contractors.
For digital platform workers, key considerations will be found in the “Digital Labour Platform Deactivation Code”, which will be created only as and when the Bill is passed. Similarly, for road transport contractors, the “Road Transport Industry Termination Code” will be relevant, subject to its publication by the Minister.
The only remedy for unfair deactivation (at the moment) is reactivation; in the case of unfair termination, the FWC can either order that the parties enter into a new services contract or the payment of compensation, subject to a compensation cap of six months’ pay.
Similarly, the amendments would pave the way for independent contractors who earn below a certain high-income threshold to dispute unfair contract terms in the FWC.
The Bill also proposes to create a means by which employee-like workers or road transport contractors can bargain for collective agreements with their principals. The FWC must register these agreements, which have effect like enterprise agreements, provided that minimum basic criteria are met – there is no BOOT test to be applied.
To round out the substantive amendments of the Bill, the FWC will be vested with jurisdiction in relation to “unfair contract terms” for services agreements, however the only remedy available to the FWC in this jurisdiction at present is to vary or set aside all or part of the contract which relates to workplace relations matters. In this sense, it is less an “unfair contract terms” jurisdiction and more a “keeping employment-like matters out of the contract”, which given the circumstances in which such contracts may arise seems vaguely bizarre.
Work, health and safety and related items
A suite of changes pertaining to current work health and safety legislation such as the Asbestos Safety and Eradication Agency Act 2013 (Cth), Amendment of the Safety, Rehabilitation and Compensation Act 1988 (Cth) and the Work Health and Safety Act 2011 (Cth) (WHS Act) are also proposed.
- Of particular note is, perhaps unsurprisingly, the introduction of a new offence of industrial manslaughter under the WHS Act. Under the proposed reforms, a person commits an offence if they: conduct a business or undertaking or are an officer of a person conducting a business or undertaking;
- they have health and safety duties;
- they intentionally engage in conduct that breaches the health and safety duties that causes the death of an individual; and
- they were reckless, or negligent as to whether their conduct would cause the death of an individual.
The maximum penalties are eye watering, with the maximum offences 25 years imprisonment for an individual and $18 million if committed by a body corporate. There is also no limitation period for commencing of proceedings in relation to industrial manslaughter which is consistent with other manslaughter offences.
The amendments also propose to increase the scope of the Asbestos and Silica Safety and Eradication Agency in order to bolster and monitor national coordinated action.
The Bill heralds some significant wind-back and change for employers. It also seeks to further insert the role of third parties into the employment relationship (unions and FWC).
The changes are complex, providing further regulation and cost for employers, in an already confusing and overwhelming workplace relations system.
The proposed changes will no doubt be subject to rigorous debate and lobbying by employer groups and unions alike as it advances through the Senate.
We will closely monitor the Bill’s progress and provide a final update on any version of the Bill that is passed as legislation, along with commencement dates of the various anticipated amendments.
 WorkPac Pty Ltd v Rossato  HCA 23.
 CFMMEU v Personnel Contracting Pty Ltd  HCA 1.
 ZG Operations Pty Ltd v Jamsek  HCA 2.
 (2001) 207 CLR 21.
 (1986) 160 CLR 16.
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