Overview
The Federal Government has now passed its third tranche of landmark IR reforms in the form of the Fair Work Legislation Amendment (Closing Loopholes) Bill No 2 2024 (the Closing Loopholes Bill).
This first Reform Update will deal with the following changes to the Fair Work Act 2009 (Cth) (Act) introduced by the Closing Loopholes Bill:
- insertion of a new definition of casual employment to overcome the High Court’s decision in the Rossato case;
- insertion of a new definition of employee/employment to overcome the High Court’s decision in the Personnel Contracting and Jamsek cases;
- introduction of a new system to regulate contractors in the ‘gig economy’, regulating ‘employee-like workers’ engaged by a digital labour platform, including the ability for the Fair Work Commission (FWC) to set minimum standards applicable to workers engaged through a digital labour platform, make collective agreements and for workers to challenge ‘unfair deactivations’;
- introduction of the ability for independent contractors earning below a high-income threshold to challenge unfair contractual terms in the FWC.
Given our unique position providing feedback to Government and advising industry bodies on the reforms, we are pleased to share our insight and to update clients on the specific details of the changes and the impact these changes are likely to have on businesses.
Casual employment changes
The Closing Loopholes Bill will introduce a new definition of casual employment into the Act.
Commencing six months from Royal Assent, under a new s 15A of the Act, an employee is a casual employee of an employer only if:
(a) The employment relationship is characterised by an absence of a firm advance commitment to continuing and indefinite work; and
(b) The employee would be entitled to a casual loading or a specific rate of pay for casual employees under the terms of a fair work instrument if the employee were a casual employee, or the employee is entitled to such a loading or rate of pay under the contract of employment.
For the purposes of determining whether the employment relationship is characterised by an absence of a firm advance commitment to continuing and indefinite work, the Act will require a consideration of the:
‘real substance, practical reality and true nature of the employment relationship.’
In assessing whether there is a firm advance commitment, the commitment can be derived from the terms of any contract of employment between the employer and the employee, or irrespective of the terms of that contract, in the form of a non-contractual mutual understanding or expectation between the employer and the employee. The Bill prescribes that a mutual understanding or expectation may be inferred from conduct of the employer and employee after entering into the contract of employment or from how the contract is performed.
To assess this, regard should be had to:
- whether there is an inability of the employer to elect to offer work or an inability of the employee to elect to accept or reject work (and whether this occurs in practice);
- whether, having regard to the nature of the employer’s enterprise, it is reasonably likely that there will be future availability of continuing work in that enterprise of the kind usually performed by the employee;
- whether there are full time employees or part time employees performing the same kind of work in the employer’s enterprise that is usually performed by the employee; and
- whether there is a regular pattern of work for the employee (although this doesn’t have to be “absolutely uniform” and may include some fluctuation or variation over time, including for reasonable absences such as illness, injury or recreation).
Notably, none of the abovementioned considerations will be determinative and all considerations need not necessarily be satisfied for an employee to be considered a permanent employee.
This definition does not include a requirement for an agreed regular pattern of work. Accordingly, an employee who has a regular pattern of work may still be a casual employee if there is no firm advance commitment to continuing and indefinite work.
However, an employee will not be a casual employee if they are engaged on a fixed term contract which is not for a specified season. Notably a ‘specified season’ does not include a University Semester or a School term.
The updated definition is more aligned to the common law position prior to the High Court’s WorkPac Pty Ltd v Rossato [2021] HCA 23 decision and is designed to overcome the High Court’s decision in that case. Fixed term and specified task contracts are excluded from the definition.
In short, the change means that parties will need to look beyond the written terms of a contract to determine whether an employee is truly a casual and must make an assessment having regard to the ‘real substance, practical reality and true nature of the employment relationship’.
Changing status: the specified event
One obvious consequence of requiring a broader assessment of the employment relationship is that ‘the real substance, practical reality and true nature of the employment relationship’ could potentially change over time from a casual to a permanent employee.
In order to overcome this potential uncertainty, the Closing Loopholes Legislation introduces what is in effect a new and alternative ‘casual conversion’ process, whereby employees engaged as casual employees remain so until the occurrence of a ‘specified event’.
This process replaces existing casual conversion laws which require employers to notify employees of their rights to convert.
A ‘specified event’ occurs when the employee’s employment is changed or converted to permanent employment at the employee’s election.
The Closing Loopholes Legislation provides an ability for casual employees to give written notification that they believe they no longer meet the requirements set out in the casual employment definition (for small business employees after 12 months, for other employees 6 months) and if they have not previously refused an offer to convert and meet other eligibility criteria discussed further below.
This part of the Legislation is intended to protect ‘employee choice’, such that no employee will be forced to convert from casual employment, unless they choose to.
After mandatory consultation with the affected employee, an employer will have 21 days to respond in writing whether or not they accept the application.
Upon acceptance the employee will need to be notified:
- whether the employee is changing to full or part time;
- their hours of work after the change; and
- the day of the change, which must be the beginning of the first pay period after the employer’s response unless otherwise agreed between the employer and the employee.
If not accepting, employers will need to provide:
- detailed reasons for declining;
- a statement that employee may dispute the decision; and
- a statement that if a dispute is not resolved, the employee may apply to the Fair Work Commission.
Grounds for refusal include:
- that the employee still meets the definition of casual employment;
- that accepting the notification would be impractical substantial changes to the employee’s terms and conditions (ie. that would significantly affect the way the employee would need to work) would be necessary to meet the request;
- that accepting notification would affect compliance with a recruitment or selection process required under a law of the Commonwealth, a State or Territory
- substantial changes would be required to the way in the employer’s enterprise is organised;
- there would be significant impacts on the employer’s enterprise; and
- substantial changes to the employee’s terms and conditions would be reasonably necessary.
The Closing Loopholes Legislation contains anti-avoidance provisions designed to ensure employers do not seek to avoid rights or obligations by:
- Reducing or vary hours
- Changing patterns of work and
- Terminating employment.
If the parties are unable to resolve any dispute regarding casual employment at a workplace level, they may apply to the Fair Work Commission to have the dispute mediated/conciliated, or in exceptional circumstances arbitrated. Where the Commission has been unsuccessful in mediating/conciliating the dispute (or there are exceptional circumstances), arbitration can occur with respect to employee choice or casual conversion and the Fair Work Commission may make any order it considers appropriate, including:
- An employee to continue to be casual or
- An employee to become full time or part time.
Back Pay?
On the critical issue of backpay, the legislation is designed so that a casual will only become a permanent employee upon the occurrence of a ‘specified event’ (ie. when the employee qualifies and chooses to become permanent).
This means that backpay is only likely to arise when an employer incorrectly classifies an employee as a casual from the start of their employment. We note that at the start of their employment, in order to determine the ‘real substance, practical reality and true nature of the employment relationship’, a written contract is likely to be the most important piece of relevant information to assess.
Importantly, all employees who were under the existing Fair Work Act provisions considered to be casuals at the commencement of these reforms will be deemed to be casuals until one of these specified events occurs.
However, all such casuals must be provided with a new Casual Employment Information Statement before or as soon as practicable after their employment commences, and as soon as practicable after 12 months employment.
A new definition of Employment
The Closing Loopholes Bill will also introduce a new definition of employment into the Act.
Commencing six months from Royal Assent, as a new section15AA, the ordinary meaning of employee and employer will be defined as follows:
- for the purposes of this Act, whether an individual is an employee of a person within the ordinary meaning of that expression or whether the person is an employer of a person within the ordinary meaning of that expression is to be determined by ascertaining the real substance, practical reality and true nature of the relationship between the individual and the person
- for the purposes of ascertaining the real substance, practical reality and true nature of the relationship between the individual and the person:
(a) the totality of the relationship between the individual and the person must be considered; and
(b) in considering the totality of the relationship between the individual and the person regard must be
had not only to the terms of the contract but also to other factors relating to the totality of the relationship
including but not limited to how the contract is performed in practice. [our emphasis]
This new definition, like the new casual definition, seeks return to a position where the ‘real substance, practical reality and true nature’ of the employment relationship is considered rather than simply looking to the terms of a written contract. In this way, the amendment is aimed at overcoming the recent High Court decisions in Personnel Contracting and Jamsek.
Critically, this means that to determine whether a person is an employee or a contractor, it will no longer be sufficient to simply look to the terms of the written contract.
What will be required is an assessment of other factors including how the contract is actually performed.
This will likely have the effect of ‘reviving’ the traditional approach to how the ‘multifactorial’ test for determining whether a person is an employee or independent contractor used to be applied.
The transitional provisions contained in the reforms indicate that ‘Back-pay’ for unpaid entitlements will not arise for those workers who were contractors under the old version of the Act and will change in status to employees as a result of the new amendment. However, for such workers, employment liabilities will commence accruing on commencement of the new provisions.
Regulation of Employee-like Workers and the ‘Gig Economy’
Commencing six months from Royal Assent, the Closing Loopholes Bill will introduce new powers for the Fair Work Commission to regulate Employee-like Workers and the ‘Gig Economy’.
Such workers, who are legally contractors, have not traditionally fallen within the jurisdiction of the Fair Work Commission.
Who is in Scope?
The new ‘Employee-like’ jurisdiction will regulate ‘Employee-like workers’ performing ‘services contracts’ for ‘digital labour platform operators’.
Employee-like workers are either:
(a) Where an individual who is party to a services contract – the individual performing work under the contract.
(b) Where a body corporate (ie. a Pty Ltd company) is party to a services contract – an individual who is either a director of the company or a family member of the company and who performs work under the contract.
(c) Where a trustee of a trust is party to a services contract – an individual who is a trustee of the same trust and performs work under the contract;
(d) Where a partner in a partnership is a party to a services contract in their capacity as a partner – an individual who is a partner in the same partnership and performs work under the contract.
To be covered, the workers must also:
(a) personally perform all or a significant majority of the digital platform work performed under the services contract; and
(b) satisfy one or more of the following:
(i) the person has low bargaining power in negotiations in relation to the services contract under which the work is
performed;
(ii) the person receives remuneration at or below the rate of an employee performing comparable work;
(iii) the person has a low degree of authority over the performance of the work; or
(iv) the person has such other characteristics as prescribed by the regulations.
A ‘digital labour platform’ has been defined in the legislation to mean an online enabled application, website or system operated to arrange, allocate or facilitate the provision of labour services where:
(a) an operator of the application, website or system that:
(i) engages independent contractors directly or indirectly; or
(ii) acts as an intermediary for or on behalf of more than one distinct but interdependent sets of users who interact with the independent contractors or the operator via the application, website or system; or
(iii) the operator of the application, website or system processes the aggregated payments referable to the work performed by the independent contractors.
This will on its face capture the common-understanding of the ‘gig-economy’ (eg. app-based meal delivery etc) but will not capture forums that do not process payments (eg, Facebook Marketplace).
What will the Fair Work Commission be empowered to do?
The Fair Work Commission will have three broad powers in relation to Employee-like work:
- The making of Minimum Standards Orders and Guidelines which apply to digital labour platforms
- The ratification of consent collective agreements
- Resolving disputes about ‘unfair deactivations’.
Minimum Standards Orders
The Fair Work Commission will be empowered, on its own initiative or on application, to make Minimum Standards Orders for employee-like workers.
In exercising its jurisdiction, the Fair Work Commission will be guided by the Minimum Standards Objective, a provision similar to the Modern Awards Objective however focussing on the particular attributes of ‘Employee-like work’.
An Employee-like worker Minimum Standards Order must include:
- a term identifying who is covered by the order (which could be a class of worker, type of digital platform work or a particular digital platform operator)
- a term about settling disputes.
An Employee-like worker Minimum Standards Order may include (but is not limited to) terms about payment, deductions, record keeping, insurance, consultation, representation, delegates rights and cost recovery.
An Employee-like worker Minimum Standards Order cannot include terms about overtime rates, rostering arrangements, commercial matters that do not affect the terms of engagement for regulated workers, terms that would change the form of engagement of regulated worker (eg. deem a worker an employee), WHS matters that are addressed by other state or territory laws, or a matter prescribed by the regulations.
Further, an Employee-like worker Minimum Standards Order must not contain terms relating to penalty rates (including loadings and shift allowances), payment for time prior to acceptance of engagement on a digital platform or time in between engagements on a digital labour platform, or minimum periods of engagement/payment, unless the Fair Work Commission is satisfied that inclusion is appropriate, having regard to the type of work performed by the employee-like worker or the digital labour platform operators covered by the Minimum Standards Order.
The process of making an Employee-like worker Minimum Standards Order is as follows:
- The Fair Work Commission must firstly publish a notice of intent to make an Employee-like worker Minimum Standards Order with a draft of the order.
- Interested parties must then be provided with a reasonable opportunity to respond.
- ​After consultation, the Employee-like worker Minimum Standards Order must then be published. It may subsequently be revised subject to a further notice of intent or withdrawn.
Contravening Employee-like worker Minimum Standards Order will incur a civil penalty.
The legislation also introduces a system for the creation of ‘Minimum Standards Guidelines’ for Employee-like workers.
‘Minimum Standards Guidelines’ are subject to similar rules to Minimum Standards Orders however would set non-binding minimum standards.
A Minimum Standards Guideline cannot be made where a Minimum Standards Order covers the same subject matter.
Consent collective agreements for employee-like work
The Fair Work Commission will also now be able to register collective agreements made by consent between digital platform operators and organisations entitled to represent Employee-like workers.
The role for the Fair Work Commission in this respect is a relatively passive one.
Agreements negotiated between digital platform operators and unions will be able to be ratified by the Fair Work Commission.
These Agreements will need to leave the ‘employee-like workers’ no worse off than any applicable Minimum Standards Order or State or Territory law.
Collective Agreements can only be terminated pursuant to an arrangement recorded in the collective agreement which enables the agreement’s termination. Such termination provisions are compulsory, but their precise operation can be negotiated by the parties.
The legislation would also expressly permit all conduct associated with the making of a collective agreement as well as all conduct incidental to or in preparation for the making of a collective agreement for the purposes of competition and consumer laws. This has the effect of ensuring that such conduct does not breach the Competition Code. However, boycott conduct is not permitted by the legislative reforms and may still breach the Competition Code (subject to whether its provisions are triggered in a specific case).
Resolving disputes about ‘unfair deactivations’
The Fair Work Commission will also receive a new jurisdiction to deal with ‘unfair deactivations’ - in essence, an unfair dismissal jurisdiction for Employee-like workers working on digital platforms.
Deactivation has been defined by the Bill as the modification, suspension or termination of a worker’s access to the digital labour platform such that the worker is no longer able to perform work.
This jurisdiction will seek to provide a procedure for dealing with deactivation quickly and flexibly seeking to give effect to a ‘fair go all round’.
A employee-like worker is protected from unfair deactivation if they have been performing digital platform work on a digital labour platform on a regular basis for a period of at least 6 months (this is equivalent to the unfair dismissal regime).
An unfair deactivation is where the worker is deactivated from a digital labour platform, the deactivation was unfair, and the deactivation was not consistent with the Digital Labour Platform Deactivation Code (to be issued by the Minister). Like the employment unfair dismissal regime, the new jurisdiction is subject to a ‘contractor high-income threshold’ (yet to be prescribed by the regulations) and includes a 21-day filing limit.
In order to determine whether a deactivation was unfair - the Fair Work Commission must take into account whether there was a valid reason for the deactivation related to the person’s capacity or conduct, whether any relevant processes specified in the Digital Labour Platform Deactivation Code (to be drafted by the Minister) were followed or any other matter that the Fair Work Commission considers relevant.
Remedies for unfair deactivation include re-activation and restoration of lost pay but do not include compensation.
The new ability for Contractors to challenge Unfair Contract Terms
Finally, the Fair Work Commission has received new powers in relation to unfair contract terms of services contracts, commencing 1 July 2024.
This jurisdiction will only include contractors earning below a contractor high-income threshold.
The Fair Work Commission will be able to conciliate, mediate and arbitrate on a compulsory basis disputes relating to ‘unfair contract terms’ in services contracts.
The remedies of the Fair Work Commission do not include compensation but the Commission will be able to set aside, void, amend or vary services contracts of Contractors when they are deemed unfair.
In determining whether a contract term is unfair, the Fair Work Commission may take into account:
- the relative bargaining power of the parties to the services contract;
- whether the contract term is reasonably necessary to protect the legitimate interests of a party to the contract;
- whether the contract term imposes a harsh, unjust or unreasonable requirement on a party to the contract;
- whether the services contract as a whole provides total remuneration for performing work less than that earned by employees or regulated workers under a Minimum Standards Order or Minimum Standards Guideline; and
- any other matter the Fair Work Commission considers relevant.
What’s Next
As always, ABLA’s team of experts are available to help with these matters. Feel free to reach out at info@ablawyers.com.au if you have any queries.
Related IR reforms resources