Closing Loopholes Part 2 Fair Work Act Amendments

The second and final part of the Closing Loopholes Bill: ‘The Fair Work Legislation Amendment (Closing Loopholes No.2) Act 2024’, received Royal Assent on 26 February 2024.

In the second stage of the Bill, the Albanenese Government passed the most controversial workplace reforms, which were initially put “on hold” to allow the first part of the Bill to be enacted from December 2023.

This blog article provides a brief overview of the workplace reforms included in Part 2 of the Closing Loopholes Bill, listed in order of implementation date.

27 February 2024

Breach Under Sham Contracting

The Closing Loopholes Bill made a small but significant amendment to Section 357 of the Fair Work Act (‘Misrepresenting employment as independent contracting arrangement’), commonly known as Sham Contracting.

Section 357, amended as part of the bill, also includes employers’ protection against Sham Contracting.

Previously, employers were protected where they could prove they were not reckless in determining the worker to be a contractor instead of an employee.

Now the Act has narrowed this protection.

Employers are now protected only where they can prove they reasonably believed the worker could be engaged as a contractor instead of an employee.

This is a more objective assessment, as courts will have to base their ruling on the employer’s behaviour according to reasonableness rather than intention.

This means employers deemed to be acting unreasonably will be found in breach of Sham Contracting, regardless of their intention.

Increased Civil Penalties for breaches of the Fair Work Act

The Bill has also increased the civil penalties that a court could impose for a number of breaches of the Fair Work Act applicable only to Non-substantial employers.

These breaches include:

• wage underpayments > by 5 times;
• failure to comply with a compliance notice > by 10 times;

A new threshold is also introduced for what constitutes a ‘serious contravention’.

Enterprise Bargaining Power for Franchisees

Multiple Franchisee Employers that are part of the same Franchisor can now access a single-enterprise stream in the enterprise bargaining framework.

New rules are also introduced to facilitate the transition of a Franchisee Employer from a single-employer agreement to a single-enterprise stream.

1 July 2024

Right of Entry

A registered organisation (such as a Union) can enter a workplace without providing 24-hour notice to investigate suspected underpayments.

The Bill removed the requirement to provide 24-hour notice to the employer when such a notice would interfere with the investigation.

The Fair Work Commission has also been granted additional power to impose conditions on entry permits and exemption certificates.

26 August 2024

The Right to Disconnect

The Right to Disconnect rule gives employees the right to refuse contact from employers outside of their regular working hours.

The new rules start from:

• 26 August 2024 for Small Business Employers;
• 26 August 2025 for Non-Small Business Employers.

The bill’s definition of ‘contact’ is broad. It includes phone calls, emails, text messages, and other forms of communication via internal or external messaging apps (e.g., Whats App or Microsoft Teams).

These rules apply to all employees, regardless of their employment contract (Award, Enterprise Agreement, or Private Contract). However, the Bill also mandates more industry-specific clauses be included across all Modern Awards.

It is important to understand that this new rule does not prevent or penalise employers from attempting to contact their employees outside the working hours. It simply allows the employee the right to refuse to monitor and/or respond to the employer’s attempts to contact them outside their regular hours of work.

The same rules also apply when work-related third-party persons or entities (e.g., a customer or supplier) try to make contact outside the employee’s regular working hours.

In simple terms, the reform envisages employees being able to turn off their phones and/or not take their work devices at home. It is unclear how this new ruling will practically apply to remote workers who work from home.

The legislation makes clear that the Right to Disconnect prevents the employer from adversely treating any employees who decide to exercise this new right (e.g. passing them over for a promotion or dismissal).

Employees who feel they are treated adversely will be able to lodge a general protection claim against their employer with the Fair Work Commission.

The Right to Disconnect is subject to a reasonableness test.

The right to refuse contact (or to refuse to monitor for contact) only applies where the contact is deemed ‘unreasonable’. This means employers may still be able to require employees to be contactable where such a requirement is reasonable.

The Bill includes examples of factors that Fair Work would consider in assessing reasonableness in the instance of a dispute between an employee and employer that could not be resolved internally.

These factors include:

• The reason for the contact > Whether the issue was urgent or not;
• The method of contact and the level of disruption caused > A text message is likely to be less disruptive than a phone call when made after-hours;
• Whether the employees are compensated for being contactable > Whether they get an “on-call allowance” or a high salary that includes an expectation of some out-of-hours contact;
• The nature of the employee’s role and level of responsibility > The more senior the role, the more likely contact outside of work may be deemed reasonable;
• The employee’s personal circumstances > Whether the employee has family or caring responsibilities that would make the contact outside of work unreasonable as they are caring for others.

Changes to Casual Employment

The amendments to Casual Employment introduced in the second part of the Closing Loopholes Bill supersede the rules introduced by the Liberal Government in 2021.

Closing Loopholes reviews three aspects of the legislation introduced in 2021

1. The definition of Casual Employment introduced in the Fair Work Act
   A new statutory definition of Casual Employment is introduced in Section 15 of the Fair Work Act to assist future court rulings where an employee’s nature of work (permanent versus casual) is being debated.
   This new definition puts emphasis on the nature of the employment, rather than the terms of employment stipulated in the agreement.
2. Changes to the Casual Conversion Process
   Closing Loopholes introduces four key changes to the Casual Conversion Process:
   1. Employers are no longer required to issue offers of conversion to permanent employment to casual employees. This onus has been transferred to the employee, who can make a request of conversion to permanent employment, after working a regular pattern of hours for a minimum of 6 months;
   2. The review period for an employee to convert from casual to permanent employment based on their pattern of hours is reduced from 12 months to 6 months for Substantial Employers (the review period for Non-substantial Employers stays at 12 months);
   3. The Casual Employment Information Statement, which includes the Casual Conversion rules, must be provided to the employee multiple times during their employment.
      This is to remind them of their employment rights.
      • For Non-Substantial Employers:
        1. at the time the new employment starts;
        2. every 12 months, on the employee’s work anniversary;
      • For Substantial Employers:
        1. at the time the new employment starts;
        2. after the employee has been working for the business for 6 months;
        3. every 12 months, on the employee’s work anniversary;
   4. The employer’s ability to refuse the employee’s request to convert to permanent employment on reasonable grounds has also been narrowed.
3. New penalties are introduced when an employer dismisses (or threatens to dismiss) a permanent employee and then re-engages such an employee to perform essentially the same work as a casual;

As Casual Employment is an extremely complex topic, we will be publishing a more detailed blog on the new Casual Rulings in the near future.

Employee versus Contractor – Definitions of Employment

New definitions of ‘Employment” (“Employee” and “Employer”) are inserted in the Fair Work Act to better identify the difference between a worker hired as an employee or a contractor.

Similar to the new definition of Casual Employment, the new Employment definitions emphasise the nature of the employment rather than the terms stipulated in the Employment Agreement.

Some exceptions apply to this new definition, including the ability for certain workers to “opt-out” of being employees via a notification process if they earn more than the contractor’s high-income threshold.

We are currently developing a comprehensive guide on the correct assessment of an employee versus a contractor based on the different entitlements. This will be published as a blog on our site in the near future.

Unfair Contract Terms for Independent Contractors

The Fair Work Commission can address issues related to unfair terms found in Agreements (commonly known as ‘Services Contracts’) between an Employer and an Independent Contractor paid under the Contractor High Income Threshold.

The Commission can issue orders mandating the employer to set aside and/or amend all or part of the Services Contract.

Contractors engaged via Digital Platforms

The Bill also introduces a new protection framework for contractors engaged via digital platforms (e.g., Deliveroo, UberEats, etc.), which now fall under a new definition of ’employee-like workers’.

The Fair Work Commission can now establish a set of employment standards, similar to the Awards, including:

• payment terms;
• deductions;
• record-keeping;
• insurance;
• representation and delegates’ rights

The Bill has also included a number of exemptions to these employment standards.

These exemptions include:

• Overtime rates;
• Rostering arrangements;
• any other matters that:
  • are primarily of a commercial nature and do affect the terms and conditions of engagement for such workers;
  • would change the form of engagement or the status of regulated workers covered;
  • relate to work health and safety already covered by a Federal or State law.

The Fair Work Commission must consult with a newly formed ‘Digital Labour Platform Consultative Committee’ before setting any employment standards. 

Once these employment standards are created, the Fair Work Commission will be able to deal with employment issues like disputes or ‘unfair deactivation’ of employment.

Employee-like workers who earn less than the Contractor High Income Threshold can apply to the FWC if they think their contract includes unfair terms and conditions.

The FWC may also issue non-binding standards guidelines that will run alongside the employment standards.

Contractors engaged in the Road Transport Industry

Similar changes to those contractors engaged via Digital Platforms also apply to contractors engaged in the Road Transport Industry.

The Fair Work Commission can now issue a ‘Road Transport Contractual Chain Order”, which sets the minimum employment standards for these types of workers.

A Road Transport Industry Expert Panel and Road Transport Advisory Group is established to assess the employment standards in the sector set out by the Fair Work Commission and propose any amendments.

The Commission is also empowered to deal with disputes over both the contractors’ services and unfair termination (similar to Unfair Dismissal) upon a claim made by one of these workers.

Alongside the Contractual Chain Order, additional non-binding standard guidelines will also be introduced by the Fair Work Commission.

Finally, Road Transport Businesses can make collective arrangements with a union applicable to all their Independent Contractors (similar to Enterprise Agreements). This also includes the ability to elect workplace delegates.

Conclusions

Closing Loopholes Part 2 provides more challenges for employers in the forever-changing environment of Australian Workplace Relations.

Employers should carefully review this new range of changes and ensure their HR/Payroll systems and resources are up to date.

This can be particularly difficult for small businesses that rely on limited human and financial resources.

External specialists’ involvement in this field can be invaluable in helping Small Australian Businesses navigate these changes.

Contact Evolution Cloud Accounting to find out how we can assist your business with both Accounting and Payroll compliance.

References

https://www.fairwork.gov.au/about-us/workplace-laws/legislation-changes/closing-loopholes/additional-fair-work-act-changes

https://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/Bills_Search_Results/Result?bId=r7134

https://www.dewr.gov.au/newsroom/articles/factsheets-closing-loopholes-2

https://www.fwc.gov.au/about-us/news-and-media/news/closing-loopholes-no2-act-has-commenced

Disclaimer

This blog and attached resources are of general nature designed for informational and educational purposes only. They should not be construed as professional financial advice for your individual business. Should you need such advice, consult a licensed financial or tax advisor.