Closing Loopholes Bill – Our summary of the proposed new laws

The Federal Government has now released the third tranche of proposed workplace relations reform, in the form of the Fair Work Legislation Amendment (Closing Loopholes) Bill 2023 (Cth).

The Closing Loopholes Bill will amend the Fair Work Act 2009 (Cth) (Act) to introduce some of Labor’s remaining pre-election promises, as well as other matters discussed and agreed at the Jobs and Skills Summit held last year.

The key reforms proposed by the Closing Loopholes Bill include:

• replacing the existing definition of ‘casual employee’ and introducing a new employee choice pathway for eligible employees to change to permanent employment if they wish to do so;
• ‘same job same pay’ – granting the Fair Work Commission (FWC) the power to make orders protecting bargained wages in enterprise agreements from being undercut by the use of labour hire workers who are paid less than those minimum rates;
• increasing the maximum penalties for underpayments by amending the civil penalties and serious civil contravention frameworks, and adjusting the threshold for what will constitute a serious contravention;
• introducing a new criminal offence for wage theft, which applies to intentional conduct;
• reversing the impact of recent High Court decisions narrowing the meaning of employee by defining the meanings of ‘employee’ and ‘employer’ for the purposes of the Act which require a consideration of the “real substance, practical reality and true nature’ of the relationship”;
• allowing the FWC to set fair minimum standards for ‘employee-like’ workers, including those working in the gig economy and the road transport industry;
• allowing the FWC to deal with disputes about unfair terms in services contracts to which an independent contractor is a party; and
• introducing a new offence of industrial manslaughter in the Work Health and Safety Act 2011 (Cth).

In introducing the Closing Loopholes Bill to parliament, the Minister for Employment and Workplace Relations, Tony Burke said:

“Last year, with the Secure Jobs Better Pay Bill, the parliament passed legislation to improve job security, increase wages and close the gender pay gap. It worked. …

But many Australians are not receiving the full benefit of these changes, because of loopholes that allow pay and conditions to be undercut. For these workers the minimum standards in awards and enterprise agreements are words on a page, with little relevance to their daily lives.

The businesses which use these loopholes are able to undercut Australia’s best employers in a race to the bottom.

If we want workers to be paid properly we need to close the loopholes.

If we want casuals to have a pathway to secure work we need to close the loopholes.

If we want enterprise agreements to determine minimum rates of pay at a workplace, we need to close the loopholes.

If we want gig workers and those in road transport to have minimum standards, we need to close the loopholes.

Those workers have waited long enough, so today I ask the parliament to come together and close the loopholes that undercut pay and conditions this year.”

We have provided more details of the proposed changes in the Closing Loopholes Bill below:

Criminalising wage theft

A new criminal offence

The government has proposed creating a new offence, so that an employer commits an offence if:

• the employer is required to pay an amount to, on behalf of, or for the benefit of, an employee under the Act or an industrial instrument;
• the required amount is not:
  • a contribution payable to a superannuation fund; or
  • referable to long service leave, paid leave as a result of being a victim of crime, paid jury duty or emergency service leave in some circumstances;
• the employer engages in conduct; and
• the conduct results in a failure to pay the required amount to, on behalf of, or for the benefit of, the employee in full on or before the day when the required amount is due for payment.

For this new offence of “wage theft” the prosecution will have to prove beyond reasonable doubt that the employer (or other person) intentionally engaged in the relevant conduct.  

Underpayments that are accidental, inadvertent or based on a genuine mistake are not caught by the provision.

An offence is punishable on conviction as follows:

• for an individual, by a term of imprisonment of not more than 10 years, a fine of the greater of 3 times the underpayment amount or $1.5M, or both; and
• for a body corporate, a fine of the greater of 3 times the underpayment amount or $7.8M.

The Fair Work Ombudsman (FWO) is to prepare a “voluntary small business wage compliance code”.  Compliance with the voluntary code is intended to provide assurance to small business employers (as defined by the voluntary code) that they will not be referred for criminal prosecution in relation to a failure to pay an amount to an employee. 

If a small business employer has underpaid an employee and wishes to seek assurance from the FWO under these provisions, the small business employer will need to satisfy the FWO that it has complied with the voluntary code in relation to that underpayment.  For example, this could include evidence that the small business employer has rectified any systemic issue that contributed to underpaying affected employees, and that required payments have been made to those employees.  If the FWO is satisfied that a small business employer has complied with the voluntary code, the FWO must not refer any conduct for criminal prosecution.

Cooperation agreements

A new framework for the making of cooperation agreements between the FWO and a person that has self-reported to the FWO the possible commission of an offence, or at least the physical elements of an offence, has been proposed.

The cooperation agreements framework is intended to provide a person with the opportunity to access ‘safe harbour’ from potential criminal prosecution if they have engaged in conduct that amounts to the possible commission of the new wage theft offence or related offence and self-reported their conduct to the FWO.

If the FWO decides to enter into a cooperation agreement with the person, the FWO must not refer conduct that is covered by the agreement for possible criminal prosecution while the agreement is in force.

Increases to civil penalties

The amendments proposed by the government will:

• increase civil pecuniary penalties that apply to contraventions (including serious contraventions) of wage exploitation-related provisions by 5 times;
• increase the civil pecuniary penalty for failure to comply with a compliance notice by 10 times so that it is consistent with other penalties;
• enable the maximum penalty for a contravention to be determined by reference to 3 times the value of the underpayment (if relevant) in certain circumstances; and
• amend the scheme for ‘serious contraventions’ so that it applies to knowing and reckless contraventions of the relevant provisions.

Same job, same pay

Regulated labour hire arrangement order

When an employer supplies one or more employees to perform work for a host business, it is proposed that employees and unions will be able to apply to the FWC for a regulated labour hire arrangement order.

The FWC must make an order if it is satisfied that:

• an employer supplies or will supply, either directly or indirectly, one or more employees of the employer to a host to perform work for the host;
• an enterprise agreement (or equivalent) that applies to the host would apply to the employees if the host were to employ them directly to perform that work; and
• the host is not a small business employer.

It does not matter whether there is one or more agreements between the employer and the host or whether the employer and host are related companies.  This is designed to pick up what may be complex arrangements, including where agreements are not between the employer and the host.

The FWC must not make the order if satisfied that it was not fair and reasonable, having regard to submissions from affected businesses and employees. The FWC is required to consider a range of factors including:

• existing pay arrangements;
• whether the performance of the work is or will be wholly or principally for the provision of a service, rather than the supply of labour; and
• the history of industrial arrangements applying to the host and the employer.

The second point above attempts to address concerns about the extension of the ‘same job, same pay’ principle to service contracts by providing a set of factors to determine whether the performance of work will be principally for the provision of a service rather than the supply of labour.  The factors include:

• the involvement of the employer in the performance of the work;
• the extent to which the employer ‘directs, supervises or controls’ the employee including by managing rosters, assigning tasks or reviewing the quality or work;
• the extent to which the employees use systems, plant or structures of the employer to perform the work;
• the nature of the work including whether it is subject to industry or professional standards or is work of a specialist or expert nature; and
• the extent to which the host employs, or has previously or could employ, employees to whom the host enterprise agreement applies.

Whether these factors will provide a clear delineation between the application of the new rules to true labour hire arrangements as opposed to services contracts (eg for maintenance or IT support services) will be a key area of challenge for the new rules and no doubt contested litigation.

Protected rate of pay

If the FWC makes the order, employers that supply labour to a host and are covered by the order would generally be required to ensure that employees working as part of the arrangement are paid no less than the rate at which they would be paid under the host employer’s enterprise agreement if they were directly employed (referred to as ‘the protected rate of pay’).  As a result, the orders protect bargained rates in enterprise agreements that host businesses have negotiated with their employees from being undercut by the use of labour hire.

The obligation to pay no less than the protected rate of pay requires employers to ensure that the total overall amount paid to the employee is no less than the protected rate of pay.  Importantly it does not:

• require a strict line-by-line comparison of entitlements;
• require the application of entitlements from the host instrument to the employees;
• require all employees to be paid the same amount, irrespective of their length of service, skills or experience, unless this is also a requirement of the host’s enterprise agreement; or
• prevent the employee being paid more than the protected rate of pay, if, for example, their employer’s enterprise agreement is more generous than the host’s agreement.

Once an order is made, host employers are also required to provide certain information to employers supplying employees under the arrangement on request to assist them in meeting their payment obligations. 

Where an employer reasonably relies on information provided by the host as to how the protected rate of pay should be correctly calculated and the information provided by the host is incorrect, the employer will not be subject to a civil penalty.

Exceptions to requirement to pay protected rate of pay

There are various circumstances where there is no requirement to pay the protected rate of pay, despite a regulated labour hire arrangement order being in force:

• where an employee performs work for a period of 3 months or less. This exception is designed to allow businesses to respond quickly to short-term increases in demand for services (or to rapid deadlines), to engage employees for short-term periods to back fill positions for employees on leave or who are unwell, or to employ to fill a discrete role or task that needs completion in the short term. The FWC can make a determination extending, removing or shortening this exempt period; or
• where there is a training arrangement with an employee.

The FWC can determine that there is a recurring period that should be exempt from the requirement to pay the protected rate of pay, such as surges in staffing requirements occurring around the Christmas period, snow season or during harvest periods.

There is also a process for making alternative protected rate of pay orders.  This may occur where parties consider that the host enterprise agreement that applies (or would apply) under a regulated labour hire arrangement order should not apply to certain employees, and that an alternative enterprise agreement should apply instead.  This may be the case where the alternative enterprise agreement better reflects the type of work or classification of work to be performed under the regulated labour hire arrangement and/or where the rate of pay specified under the alternative enterprise agreement more fairly compensates for work of the type to be performed under the regulated labour hire arrangement.

Anti-avoidance measures

There are to be broad anti-avoidance provisions, including to prevent an employer from:

• engaging successive employees for less than 3 months (or another period determined by the FWC) in order to enliven the short-term arrangement exemption;
• entering into successive short-term labour hire agreements; and/or
• dismissing labour hire employees and engaging other workers as independent contractors to perform the same work.

‘Employee-like’ workers

New protections for regulated workers

The government has proposed amending the Act and associated legislation to ensure that certain independent contractors are entitled to greater workplace protections than they are currently.  The majority of the amendments are targeted at independent contractors who are either:

• employee-like workers performing digital platform work; or
• engaged in the road transport industry.

Digital labour platforms

A new definition of ‘digital labour platform’ is to be introduced into the Act.  It will be defined to mean an online enabled application, website or system operated to arrange, allocate or facilitate the provision of labour services, where:

• the operator of the application, website or system:
  • engages independent contractors directly or indirectly through or by means of the application, website or system; or
  • 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; and
• the operator of the application, website or system processes aggregated payments referable to the work performed by the independent contractors.

The definition of digital labour platform is stated to have been intended to be deliberately broad to ensure that it can capture new market structures and forms of work as they emerge.

It is not intended to capture online classifieds where there is not a payment processed, or digital platforms that facilitate the sale of goods.

Definition of employee-like workers

A new definition of ‘employee-like worker’ will also be introduced into the Act.  A person will be an employee-like worker including if they are any of the following:

• an individual who is a party to a services contract (as defined with a constitutional connection) in their capacity as an individual (other than as a principal), and performs work under the contract; and
• if a body corporate is a party to a services contract (other than as a principal) – an individual who is a director of the body corporate, or a member of the family of a director of a body corporate, and performs work under the contract.

Trust and partnership arrangements are also covered.  The effect is to capture individuals performing work under a services contract regardless of the type of entity they have adopted.

Additionally:

• the person must perform all, or a significant majority, of the work to be performed under the services contract;
• the work that the person performs under the services contract is digital platform work;
• the person must not perform any work under the services contract as an employee; and
• the person must satisfy one or more of the following characteristics:
  • the person has low bargaining power in negotiations in relation to the services contract under which the work is performed;
  • the person receives remuneration at or below the rate of an employee performing comparable work; or
  • the person has a low degree of authority over the performance of the work.

The intended effect is not to capture persons that have a high degree of bargaining power, are comparatively well paid and/or have a significant degree of authority over their work, regardless of whether they perform work on a digital platform.  It is intended, for example, that skilled tradespeople would not be captured even if they work on a digital platform.

Employee-like workers within the above definition, along with certain road industry workers, will be considered to be ‘regulated workers’.

Minimum standards orders and minimum standards guidelines

The FWC will have the power to make a minimum standards order that sets standards for employee-like workers (and road industry workers).

The FWC can make those orders on its own initiative or on application (including by an organisation representing worker industrial interests).

An employee-like worker minimum standards order must include terms setting out the digital platform work covered, the digital labour platform operator and the employee-like workers covered.  A minimum standards order may include any of the following:

• payment terms;
• deductions;
• working time;
• record-keeping;
• insurance;
• consultation;
• representation;
• delegates’ rights; and
• cost recovery.

Minimum standards order must not include terms about any of following matters:

• overtime rates;
• rostering arrangements;
• matters that are primarily of a commercial nature that do not affect the terms and conditions of engagement of regulated workers covered by the minimum standards order;
• a term that would change the form of the engagement or the status of regulated workers covered (including so as to deem them to be an employee); or
• a matter relating to work health and safety that is otherwise comprehensively dealt with by a Federal / State law.

The FWC may also make non-binding minimum standards guidelines that set standards for regulated workers performing work under a services contract – to be known as “employee-like worker guidelines”.  Again the FWC can make those orders on its own initiative or on application (including by an organisation representing worker industrial interests).

Unfair deactivations

The FWC will be empowered to deal with disputes over an employee-like worker’s unfair deactivation from a digital labour platform.

The person must earn under the “contractor high income threshold” and the application must be made within 21 days of the deactivation occurring.  A new definition of “contractor high income threshold” is to be inserted into the Act, with the amount to be prescribed by regulations.

A person will have been unfairly deactivated when the FWC is satisfied that:

• the person has been deactivated from a digital labour platform;
• the deactivation was unfair; and
• the deactivation was not consistent with the Digital Labour Platform Deactivation Code (being a code to be developed by the relevant Minister).

A person will be taken to have been deactivated if:

• the person performed digital platform work through or by means of the digital labour platform;
• the digital labour platform operator modifies, suspends, or terminates the person’s access to the digital labour platform; and
• the person is no longer able to perform work under an existing or prospective services contract, or their ability to do so is significantly altered that in effect the person is no longer able to perform such work.

Where the FWC determines that the deactivation has been unfair, it can make an order requiring reactivation.  The FWC may not order compensation for unfairness as such.

If the digital labour platform from which the person was deactivated no longer exists and a similar digital labour platform is operated by an associated entity of the operator of the original digital labour platform, the FWC may make an order that the associated entity provide access to the second digital labour platform on terms and conditions no less favourable than those immediately before the person’s access to the original digital labour platform was terminated or suspended.

Should the FWC consider it appropriate to do so, it may also make an order for the digital labour platform to pay the person an amount for remuneration lost, or likely to have been lost, because of the deactivation prior to a reactivation occurring. 

Road transport industry

The changes to the Act propose the creation of:

• a road transport industry expert panel to consider the need for an appropriate safety net of minimum standards for regulated road transport workers and employees in the road transport industry; and
• a road transport advisory group to advise the FWC in relation to matters that relate to the road transport industry.

The regulations to the Act may make provision for matters relating to the “road transport industry contractual chain” (supply chain) or road transport industry contractual chain participants.

Those regulations may empower the FWC to make orders, to be known as ‘road transport industry contractual chain orders’, that confer rights and impose obligations on road transport industry contractual chain participants.

As with employee-like workers, the FWC will have power to make road transport minimum standards orders and road transport guidelines.  Before making a road transport minimum standards order, the FWC must ensure:

• there has been genuine engagement with the parties to be covered;
• it has consulted the road transport advisory group;
• the order takes into account the commercial realities of the industry; and
• the order will not adversely affect the viability and competitiveness of owner drivers.

The proposed changes will also:

• put in a place a "notice of intention" process to give parties an extended period to consider draft minimum standards orders before they become binding; and
• prevent the regulation of issues that are already comprehensively covered by other laws.

Unfair terminations of a road transport contractor

The FWC will be empowered to deal with disputes over the unfair termination of a road transport contractor’s services contract by a road transport business.

The person must earn under the “contractor high income threshold” and the application must be made within 21 days of the termination occurring.

A person will have been unfairly terminated if the FWC is satisfied that:

• the person was performing work in the road transport industry;
• the person was terminated;
• the termination was unfair; and
• the termination was not consistent with the Road Transport Industry Termination Code (being a code to be developed by the relevant Minister).

A person is taken to be terminated if:

• the person performed work as a regulated road transport contractor under a services contract;
• the road transport business received services under the services contract; and
• the services contract was terminated by, or as a result of conduct of, the road transport business.

A person will not be terminated if the services contract entered into with a road transport business contains a term which specifies the duration of a contract, and the duration of the contract has expired and is not renewed by the road transport business.

Where the FWC determines that a termination is unfair, the FWC may order that a new contract be entered into, or the payment of compensation to a person.  The FWC must not order the payment of compensation to the person unless it is satisfied that entering into a new services contract would be inappropriate and an order for payment of compensation is appropriate in all the circumstances of the case.

Collective agreements

Digital labour platform operators and road transport businesses can also make consent-based collective agreements with registered employee organisations.

Unfair contract terms for independent contractors

Independent contractors earning below a specified high-income threshold will be able to raise a dispute over unfair contract terms in the FWC.

The changes to the Act are intended to provide a framework for dealing with unfair contract terms (UCTs) in services contracts that:

• balances the needs of principals and independent contractors;
• addresses the need for a level playing field between independent contractors and principals by creating disincentives to include unfair contract terms in services contracts;
• recognises and protects the freedom of independent contractors to enter into services contracts;
• establishes procedures for dealing with UCTs that are quick, flexible and informal and that address the needs of principals and independent contractors; and
• provides appropriate remedies if a term of a services contract is found to be unfair.

In determining whether a term is an UCT, the FWC will take into account matters such as relative bargaining power, whether the contract term is reasonably necessary to protect the legitimate interests of a party to the contract, and whether the contract term imposes a harsh, unjust or unreasonable requirement on a party to the contract.

The FWC can make the following orders:

• set aside all or part of a services contract; or
• amending or varying all part of a services contract.

No orders for compensation can be made by the FWC in this jurisdiction.

Casuals

A new definition

A new definition of “casual employee” will be introduced which draws on core elements of the meaning of casual employment as it was understood before the decision of the High Court of Australia in WorkPac Pty Ltd v Rossato [2021] HCA 23.

An employee will be a “casual employee” if both of the following conditions are met:

• the employment relationship is characterised by an absence of a firm advancement commitment to continuing and indefinite work; and
• 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 or employment contract if the employee were a casual employee.

The requirement for “continuing and indefinite work” to be according to an agreed pattern of work is to be removed.

In assessing whether an employee is a “casual employee”, the following matters need to be considered:

• the issue is to be assessed based on the real substance, practical reality and true nature of the employment relationship – the totality of the relationship and not just the contractual terms;
• a firm advance commitment may be in the form of a mutually agreed term in an employment contract, or a mutual understanding or expectation between an employer and employee; and
• other potential indicators such as whether there is an inability of the employer to elect to offer work and/or an inability of the employee to elect to accept or reject work, whether it is reasonably likely that continuing work will be available in the future, whether there are existing full-time or part-time employees performing the same kind of work, and whether there is a regular pattern of work for the employee.

So that casual employment is not used to undermine the recently introduced fixed term contract limitations, generally a casual employee cannot be engaged on a fixed term contract.

New pathway to move from casual to permanent employment

Additional processes will be introduced to allow employees to influence their employment status, supplementing existing provisions enabling casual-to-permanent conversion in specified circumstances and the contractual ability of employees and employers to change employment status by consent.

An eligible casual employee would be able to initiate a change to full-time or part-time employment if the employee:

• believes they are no longer a casual employee at the point in time when they make the notification to their employer; and
• wants to change their employment status to full-time or part-time employment.

There will be no requirement for an employee to issue a notification if they do not want to change their employment status.  Employees will have complete choice about whether or not to do so.

Employee notification of their status

A new process is also to be introduced to enable an employee to notify their employer if they believe they are no longer, at that point in time, a casual employee within the meaning of the new definition of casual employee.

An employee will need to:

• believe that their status no longer meets the definition of casual employment;
• meet minimum employment periods - 12 months if employed by a small business employer; otherwise 6 months; and
• not be currently engaged in a dispute over their status, or had certain notification or dispute resolution events occur within the preceding 6 months.

Practically an employee will only be able to make such a notification once in each 6 months.

Where an employee makes a notification, an employer must respond in writing within 21 days.  Employers are then required to consult with an employee in relation to the notification.

If the employer accepts the notification, they must state:

• that they accept the notification;
• whether the employee is changing to full-time or part-time employment;
• the employee’s hours of work after the change takes effect; and
• the day that the change will take effect.

If the employer does not accept the notification, they must state:

• that they do not accept the notification on one or more stipulated grounds (see below);
• detailed reasons for their decision; and
• information about the employee’s ability to attempt to resolve the dispute, and if the dispute is not resolved, the ability of the FWC to make an order.

An employer may refuse a notification on the following grounds:

• the employer believes the employee is still correctly classified as a casual employee;
• it would be impractical for the employer to accept the notification because it would be reasonably necessary to make substantial changes to the terms and conditions of the employee’s employment, which would significantly affect the way the employee would need to work, in order to avoid breaching a modern award or enterprise agreement (such as minimum hours of work); or
• a change of employment status to full-time or part-time employment would not comply with a recruitment or selection process required by a Federal or State / Territory law

Consequential changes are also proposed so that these new notification provisions will work properly with the existing casual conversion rights.

Other changes

There will also be new dispute resolution procedures and new civil remedy provisions to protect against conduct designed to result in the misclassification of casual employees.

An employer and employee must first attempt to resolve a dispute at the workplace level, by discussion between the parties.  If the dispute is not resolved, then employer or employee may refer the dispute to the FWC.  The FWC would be required to first deal a dispute with it by means other than arbitration in the first instance (such as by mediation, conciliation, making a recommendation or expressing an opinion), but if the dispute remains unresolved, the FWC would then be able to deal with the dispute by arbitration.

Workplace delegates

The government has proposed introducing new workplace rights and protections for workplace delegates.  Workplace delegates are employees or workers, who are appointed or elected under the rules of their union, to represent members in a particular enterprise.

These new rights and protections would support their role in representing employees and regulated workers in workplaces.  For example, workplace delegates will be able to exercise representational rights by being entitled to:

• reasonable communication with members, and any other persons eligible to be members, in relation to their industrial interests;
• reasonable access to the workplace and workplace facilities where the enterprise is being carried on; and
• reasonable access to paid time, during normal working hours, for the purposes of related training.

These rights are specified at the level of principle, with the expectation that for most employees, modern awards and enterprise agreements would provide greater detail for particular industries, occupations, or enterprises.  Modern awards (where varied in the future) and future enterprise agreements will be required to include a workplace delegates’ rights term.

In addition to the existing protections against adverse action for employees who become officers or members of a union (as a result of their membership), protections for freedom of association and involvement in lawful industrial activities, a new general protection for workplace delegates will be included.  An employer will be prohibited from:

• unreasonably failing or refusing to deal with a workplace delegate;
• knowingly or recklessly making a false or misleading representation to a workplace delegate; or
• unreasonably hindering, obstructing or preventing the exercise of the rights of a workplace delegate.

As with existing provisions, the burden for establishing that the conduct of an employer is not unreasonable is on the employer.  Despite these changes, employers will still be able to undertake reasonable management action, carried out in a lawful way.

Stronger discrimination protections

Currently, being a person subjected to family and domestic violence is not a protected attribute in the Act or under other Federal anti-discrimination laws, but is protected by some State and Territory anti-discrimination laws.

The government has proposed amending the Act to include a new protection for employees and prospective employees by recognising being subject to family and domestic violence as a protected attribute within the Act’s anti-discrimination provisions.

This change would have the effect that an employer would be prohibited from terminating an employee’s employment because they were being subjected to family and domestic violence.

Regulatory changes

A definition of “employee”

While the Act mostly confers rights and obligations on “employees”, the Act (and its predecessors) have never defined an employee as being anything other than its normal (or common law) meaning.

Now, is proposed that the Act be amended so that the ordinary meanings of “employee” and “employer” be determined by reference to the real substance, practical reality and true nature of the relationship between the parties.  This would require the totality of the relationship between the parties, including not only the terms of the contract governing the relationship but also the manner of performance of the contract, to be considered in characterising a relationship as one of employment or one of principal and contractor.

This change is designed to overcome the “contract-centric” approach established by the High Court’s decisions in CFMMEU v Personnel Contracting Pty Ltd [2022] HCA 1 and ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2.  In those decisions, a majority of the High Court held that where a comprehensive written contract exists, the question of whether an individual is an employee of a person is to be determined solely with reference to the rights and obligations found in the terms of that contract.  In such circumstances, the High Court held, it is not necessary or appropriate to engage in a wide-ranging review of the parties' conduct in performing their obligations under that contract.

The intention behind these proposed changes is to revert to the “multi-factorial” test previously used to determine if there was an employer / employee or principal / contractor relationship.

Despite this proposed change, the approach required by the decisions in Personnel Contracting and Jamsek would continue to apply to employees and employers under other workplace laws, to the extent that those laws adopt the ordinary meaning of employee and employer.

Sham contracting

The Act currently prohibits an employer from misrepresenting an employment contract as an independent contracting arrangement, commonly referred to as sham contracting.

The Act currently provides a defence to sham contracting if the employer proves that, when the representation was made, the employer did not know, and was not reckless as to whether, the contract was a contract of employment rather than a contract for services.

The government has proposed replacing that defence, so that an employer would bear the onus of proving that they reasonably believed that the contract was a contract for services.  This is seen as providing a more objective test by requiring a Court to assess an employer’s behaviour according to what the employer reasonably believed, rather than assessing an employer’s behaviour only with regards to their subjective reasons for acting.

In determining whether an employer’s belief was reasonable, a Court would need to consider the size and nature of the employer’s, together with other relevant factors such as the employer’s skills and experience, the industry in which the employer operates, how long the employer has been operating, the presence (or absence) of dedicated HR specialists or expertise in the enterprise, and whether the employer sought legal or other professional advice about the proper classification of the individual (and whether they followed any such advice).

Small business redundancy exemption

The Act currently contains an exemption to the obligation to otherwise make redundancy payments where the employer comes within the “small business redundancy exemption”.

Changes are proposed to cover the situation when a larger employer incrementally downsizes their workforce due to insolvency, either in the period leading up to liquidation or bankruptcy, or afterwards, and the number of employees falls below the 15 employee threshold for the small business definition.

Under the current position, those remaining employees could lose their previous redundancy payment entitlement under the Act.  This could occur, for example, where most of the employees are made redundant, but some staff such as bookkeeping and payroll staff – fewer than 15 employees in total – are retained to assist with the orderly wind up of the business.  At present, the majority of employees would receive their redundancy entitlements, but the employees kept on to finalise a winding up may not due to the small business redundancy exemption.  Under the proposed changes, the small business redundancy exemption would no longer apply in those circumstances.

Enterprise bargaining changes

At present only a single employer and its “related employers” (related companies) can bargain for a single enterprise agreement.  Franchisees do not come within the existing definition of ‘related employers’ and accordingly may be prevented from making a single-enterprise agreement.

It is proposed to amend the Act so that:

• employers that carry on similar business activities under the same franchise; and
• are franchisees of the same franchisor, or related bodies corporate of the same franchisor,

can continue to be able to make a multi-enterprise agreement if they wish (or a multi-employer enterprise agreement if they would prefer).

If a group of employers included both franchisees of a common franchisor, as well as other employers that are not franchisees of that franchisor, then those employers would not all be related employers and they would be required to make a multi-employer agreement.

The government has also proposed amending the Act to allow a single-enterprise agreement to be replaced by a single interest employer agreement or supported bargaining agreement (as the case may be) that has not passed its nominal expiry date.

Lastly, it is proposed that the FWC should determine model flexibility, consultation and dispute resolution terms for enterprise agreements, rather than the model terms being contained in the relevant regulations.

Rights of entry changes

The government has proposed amending the Act to, amongst other things:

• enable a union to obtain an exemption certificate from the FWC to waive the minimum 24 hours’ notice requirement for entry if they reasonably suspect a member of their organisation has been or is being underpaid; and
• empower the FWC to impose conditions on a permit, as an alternative to revoking or suspending an entry permit.

Normally a union must provide at least 24 hours’ notice before it can exercise a right of entry to investigate suspected contraventions of the act or a workplace instrument, unless an exemption certificate is issued by the FWC.  Currently the Act provides that the FWC must issue an exemption certificate to a union if the organisation has applied for the certificate and the FWC reasonably believes that the advance notice of the entry given by an entry notice might result in the destruction, concealment or alteration of relevant evidence.

These changes would supplement the existing exemption scheme by empowering the FWC to issue an exemption certificate on a new ground, that is, if it is satisfied that the suspected contravention, or contraventions, involve the underpayment of wages, or other monetary entitlements, of a member of the union whose industrial interests the union is entitled to represent and who performs work on the relevant premises.

Labour hire licensing

The government has previously committed to establishing national labour hire regulation to help protect labour hire workers from exploitation, by improving compliance with relevant laws.

Despite the government releasing its consultation paper on this area on 22 March 2023, and being committed to implementing change, a national hire licensing scheme has not been included in the Closing Loopholes Bill.

Changes to unions being able to withdraw from amalgamations

The government has proposed repealing provisions of the Fair Work (Registered Organisations) Act 2009 (Cth) that enable the FWC to accept applications for a de-merger ballot to be made more than 5 years after the relevant amalgamation has occurred, and make changes to provide certainty about the part(s) of a union that may be subject to a de-merger ballot and de-merger from an amalgamated organisation.

Amendments to the Work Health and Safety Act 2011 (Cth)

A new offence of industrial manslaughter is to be introduced into the Work Health and Safety Act 2011 (Cth).  This would align Commonwealth WHS law with recent changes to the model work health and safety legislation to provide for industrial manslaughter within the model framework.  The model legislation does not prescribe the exact provisions of the offence to enable each jurisdiction to implement (or maintain) an offence tailored to the criminal law framework of the jurisdiction.

The new offence would apply to “officers” and persons conducting a business or undertaking (PCBUs) who intentionally engage in conduct that breaches their health and safety duty, causes the death of an individual, and where they were reckless or negligent as to whether their conduct would cause that death.

The new penalties are a maximum of 25 years imprisonment for individuals and a fine of $18 million for bodies corporate or the Commonwealth.

There will also be a significant increase in penalties for all WHS offences under Commonwealth laws, in the form of a general increase to all penalties, a significant increase to penalties for a Category 1 offence to reflect the seriousness of the offence, and a mechanism for future indexing of penalties to ensure penalties remain effective and appropriate.

These changes do not automatically apply to PCBUs covered by State and Territory WHS law; it remains a matter for each State or Territory to legislate changes to their WHS law (noting that several States have existing industrial manslaughter offences).

Asbestos Safety and Eradication Agency

The increase in silicosis and other silica-related diseases has raised the need for urgent coordinated national action to reduce rates of silica-related diseases and to support affected workers and their families.

The government has proposed expanding the functions of the re-named Asbestos and Silica Safety and Eradication Agency to include coordinating action on silica safety and silica-related diseases. This includes developing, promoting and reporting on a Silica National Strategic Plan which will coordinate and track the progress of jurisdictions against nationally agreed targets.

Amendments to the Safety, Rehabilitation and Compensation Act 1988 (Cth)

The government has proposed amending the Safety, Rehabilitation and Compensation Act 1988 (Cth) to introduce a rebuttable presumption that post-traumatic stress disorder suffered by specified first responders was contributed to, to a significant degree, by their employment.  Those specified first responders would include Federally employed firefighters, ambulance officers or paramedics, and emergency services communications operators.

What is next?

With the Closing Loopholes Bill only having been introduced to parliament by the government yesterday, it remains to be seen what position will be taken by the other political parties and the crossbench seats in the Senate.

Some of the changes which have been proposed have already come under criticism from employer groups and there will certainly be significant lobbying and likely amendments before the Closing Loopholes Bill is passed by parliament.

The KWM team will provide further updates as the Closing Loopholes Bill progresses through parliament and other changes are introduced.