‘Closing the Loopholes’ Bill – how will it affect employers?

By Rosemary Roach and Nicola Ray

The Fair Work Amendment (Closing Loopholes) Bill 2023 (Cth) (Bill) is the Albanese Government’s third tranche of amendments to the Fair Work Act 2009 (Cth) (FW Act) and associated legislation.

The Bill spans a staggering 284 pages and will not be put to a vote until early 2024. However, employers should nonetheless be mindful of how their business may be affected should the Bill pass in its current form.

Some of the key reforms proposed by the Bill are set out below.

Changes for casual employees

The Bill proposes to introduce a new, objective test of casual employment to be assessed based on the absence of a firm advance commitment to continuing and indefinite work, and also the real substance and practical reality of the employment relationship, not just the contractual description in the initial offer of employment. This proposed change signals a reversion to the common law ‘indicia’ test, overruling the High Court’s 2021 decision in Workpac v Rossato & Ors [2021] HCA 23 (see related article here).

The Bill also proposes to bolster the existing ‘casual conversion’ provisions in the National Employment Standards by introducing a second pathway to convert from casual to permanent employment – by employees exercising a choice through a new notification procedure. The Fair Work Commission (FWC) will be given the power to arbitrate disputes about casual conversion, which could involve resolving a dispute by ordering that an employee be treated as permanent.

Changes to the definitions of ’employee’ and ’employer’

The Bill proposes to insert an ‘interpretive principle’ for determining the meaning of ’employee’ and ’employer’. Similar to the changes to the definition of casual employment, it is proposed that to determine whether a person is an employee (as opposed to an independent contractor) the practical reality and totality of the working relationship should be considered, not just the terms of the written contract in place between the parties. This change would overrule recent High Court authority in  Construction, Forestry, Maritime, Mining And Energy Union & Anor v Personnel Contracting Pty Ltd [2022] HCA 1 and ZG Operations & Anor v Jamsek & Ors [2022] HCA 2 (see related article here).

Closing the labour hire ‘loophole’

The Bill proposes to close the labour hire ‘loophole’ by empowering the FWC to make ‘regulated labour hire arrangement orders.’ Such orders could be sought by relevant employees (including employees of the host employer), unions or host employers.

If made, the order would direct a labour hire employer to pay its employees no less than what they would be paid under the host employer’s enterprise agreement (or other instrument) if the employee were directly hired by the host employer. However, the FWC would not be able to make orders if the order would not be ‘fair and reasonable’ taking into account a range of factors, for example whether the work being performed is specialist work under a service contract.

Protection for Independent Contractors (minimum standards for employee-like workers, sham arrangements, unfair contracts)

A large part of the Bill focuses on protections for certain categories of independent contractors, referred to as ‘regulated workers.’ ‘Regulated workers’ include ’employee-like workers’ performing ‘digital platform work’ (such as through food delivery platforms), as well as ‘regulated road transport contractors.’

Minimum standards and protections for ’employee-like workers’

In a push to improve the working conditions of employee-like workers, the Bill proposes to empower the FWC to set minimum standard orders and minimum standard guidelines in relation to employee-like workers. These orders and guidelines can include terms concerning payment, deductions, working time, record-keeping, insurance, consultation, and other matters. It is also proposed that unions would have the ability to make ‘consent based’ collective agreements with digital labour platforms.

The Bill also proposes to protect employee-like workers (who earn less than the ‘contractor high income threshold’) from ‘unfair deactivation’ from digital labour platforms. The Bill also empowers the FWC to deal with disputes in relation to unfair deactivation, which could include an order that the employee-like worker be ‘reactivated’. In addition to these new powers, the Bill proposes to expand the general protections jurisdiction to protect employee-like workers (including prospective employee-like workers) from specific forms of ‘adverse action’.

Review of unfair contracts

Under the proposed changes, the FWC would also have the power to determine disputes in relation to unfair terms in services contracts. Independent contractors, including employee-like workers (who earn less than the ‘contractor high income threshold’) would be able to make an application to the FWC in relation to ‘unfair terms’ of their services contract. If the FWC finds a term of the services contract to be unfair, it would have the power to vary its terms or set aside all or part of the contract.

Sham contracting

In addition to increasing the regulation of the working conditions of independent contractors, the Bill also proposes to amend the defence to ‘sham contracting’.

‘Sham contracting’ occurs where an employer misrepresents an employment contract to be a contract for services. Currently, section 357 of the FW Act provides a defence to sham contracting where an employer ‘did not know‘ and was ‘not reckless’ as to whether the contract was a contract of employment.

The Bill proposes to change the defence to one of ‘reasonableness.’ That is, the employer will now need to establish that they ‘reasonably believed’ that the contract was a contract for services to defend a sham contracting claim.

Human rights

The Bill proposes to introduce ‘subjection to family and domestic violence’ as a protected attribute within sections 351 and 772 of the FW Act. This change would make it unlawful for an employer to take ‘adverse action’ against, or terminate, an employee on the basis that they are or were subjected to family or domestic violence.

Criminal offences and increased penalties

The Bill proposes to introduce a new criminal offence in the FW Act for intentional wage theft. Body corporates who commit a wage theft offence will be exposed to a maximum fine of up to three times the amount of the underpayment or $7,825,000 (whichever is the greater). Individuals could be exposed to 10 years’ imprisonment or a fine.

Under the Bill increased civil pecuniary penalties are imposed. For civil contraventions that relate to an underpayment the penalties will increase fivefold (up to $4,695,000 for a ‘serious contravention’ on the part of a body corporate), and enable the maximum penalty for a contravention to be up to three times the value of any associated underpayment.

The Bill also proposes to introduce an industrial manslaughter offence into the Commonwealth Work Health and Safety Act 2011.

The Bill further proposes to increase the penalty amounts under the WHS Act by 39%, as well as ensure penalties maintain their real value by increasing in line with the CPI.

Union delegates and right of entry

The Bill proposes to require that modern awards and all new enterprise agreements contain a term that deals with workplace delegates’ rights. These terms must include: a right to represent members within their workplace, rights to reasonable access to paid time off for training, and reasonable access to the workplace and its facilitates to advance their members’ industrial interests.

Under the proposals, delegates’ rights will be workplace rights. An employer will be in contravention of the general protections provisions if adverse action is taken because of the exercise of delegates’ rights.

The Bill also proposes to amend the existing right of entry scheme in Part 3-4 of the FW Act. Currently, the FW Act provides that the FWC may issue an exemption certificate to a permit holder in relation to the giving of notice to enter a workplace to investigate a suspected contravention of the FW Act. It is proposed that the grounds for the issue of an exemption certificate be expanded to include circumstances where the FWC is satisfied that the suspected contravention involves the underpayment of wages or other monetary entitlements.

Key takeaways for employers

• If the proposed amendments to the Fair Work Act are made, business will have to carefully consider their labour arrangements that involve the use of labour hire, casual employees or independent contractors.
• The costs of accessing labour hire arrangements for many business will likely increase as a consequence of the proposed regulated labour hire arrangement orders. This will mean that business will carefully have to consider whether the use of labour hire arrangements will be operationally and / or commercially viable.
• Employers can no longer rely primarily on the contract of employment to classify employment and contracting arrangements. The proposed changes to the definitions of ‘casual employees’, ’employee’ and ’employer’ will mean that employers will lack certainty regarding whether the arrangements they entered into at the commencement of the relationship will remain in place for the duration of the relationship. Employers will need to review their contractual arrangement and ensure that in practice, the parties are acting consistently with a casual employment relationship or independent contractor relationship (as relevant).
• Organisations with a large cohort of independent contractors may have to adjust to greater regulatory oversight of their workforce by the FWC and may also face increased claims before the FWC.
• To avoid the substantial fines associated with wage theft and wage exploitation, employers will need to rigorously audit their payroll processes to ensure employees are and will continue to be paid accurately.

Next steps

On 7 September 2023, the Senate referred the provisions of the Bill to the Education and Employment Legislation Committee for inquiry and report by 1 February 2024.

This means that the amendments proposed by the Bill will not come into effect until after February 2024 at the earliest.

The Bill foreshadows that, if passed, some of the provisions would not come into effect until 1 July 2024. This includes the provisions dealing with the definition of casual employment and the new casual conversion pathway; the provisions relating to ‘regulated workers’ and the introduction of ‘industrial manslaughter’ offence under the Work Health and Safety Act 2011 (Cth). Other provisions would come into effect after Royal Assent.

Senate hearings in relation to the Bill commence this week. We will provide further updates on the progression of the Bill. In the meantime, we urge all employers to familiarise themselves with the Bill and consider the potential impacts for their businesses.