Closing Loopholes or a Stitch-up – the Government’s IR law reforms

Insight

Proposed fifth edition of ASX Corporate Governance principles – seeking a balance for listed entity boards

On 27 February 2024, the ASX Corporate Governance Council (Council) released the consultation draft for a proposed fifth edition of the ASX Corporate Governance Principles and Recommendations (Fifth Edition).

27 March 2024

Insight

Employee share schemes – sharing knowledge from the last 18 months

On 1 October 2022, the new regime introduced into the Corporations Act through the Treasury Laws Amendment (Cost of Living Support and Other Measures) Act 2022 (Cth) to facilitate employee share schemes (New ESS Regime) took effect.

27 March 2024

Insight

FAR update

The Financial Accountability Regime (FAR) implements the recommendations of the Financial Services Royal Commission to expand the existing Banking Executive Accountability Regime (BEAR) across the Australian financial services sector.

27 March 2024

Insight

Mandatory climate reporting: KWM’s submissions to Treasury

On 12 January 2024, Treasury released a consultation draft of legislation to require mandatory climate reporting by Australian companies. For a description of the proposed reporting regime, see our Client Alert.

27 March 2024

Insight

Commonwealth Gender Equality Strategy update: Working for Women

The Commonwealth Government has released its strategy for moving towards gender equality through internal government policy, law reform, and changes to procurement requirements.

27 March 2024

Publication

Deep dive into ASX200 AGMS in 2023

In 2023 economic and social issues were front-of mind for shareholders at AGMs: the Voice, auditor accountability and executive pay in the face of cost-of-living pressures.

20 March 2024

ISSUE	DETAIL	KWM INSIGHTS AND SUGGESTED ACTIONS
Same Job Same pay *Closing Loopholes 1* Commenced 15 December 2023 but orders cannot take effect until 1 November 2024	The Fair Work Commission (FWC) may now make a Regulated Labour Hire Arrangement Order (Labour Hire Order) requiring employees of third party providers of labour to be paid no less than the rates of pay under an enterprise agreement that would apply to the employees if they were employed directly by the host organisation. Applications for a Labour Hire Order can be made by unions, the host organisation or employees of the labour hire provider. The focus of the Labour Hire Order is on the payment rates under the host organisation’s enterprise agreement and not other benefits or entitlements. The FWC is not required to conduct a line-by-line comparison but may make an order that the labour hire employees be paid a rate which is overall not below the protected rate of pay in the enterprise agreement. The final form of the amendments sought to draw a clearer distinction between labour hire arrangements that are intended to be regulated by the new laws and services contracts. Factors relevant to determining whether the engagement is for the provision of a service (not regulated) rather than the supply of labour (which is regulated) include: the involvement of the employer in the performance of the work; the extent to which the manager ‘directs, supervises or controls’ the employee including by managing rosters, assigning tasks or reviewing the quality of work; the extent to which the employee uses systems, plants 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 specialist or expert work; the extent to which the host employs, has previously or could employ employees to whom the host’s enterprise agreement applies. There are some exceptions available for short term contracts (not exceeding 3 months) but also anti-avoidance provisions preventing arrangements designed to circumvent the new rules.	Applications seeking orders against major contractors in the mining industry and those contractors have communicated the potential need to pass on labour cost increases to their customers. For labour hire businesses there is an immediate need to consider the impact of these new laws on your business model and consider your ability to pass on increased labour costs resulting from a Labour Hire Order to your customers. End users of labour hire across all sectors should review their contracting arrangements to assess whether they are susceptible to a Labour Hire Order having regard to the factors set out in the adjacent column. Where labour supply contracts are impacted, the ongoing commercial viability of these arrangements should be considered particularly where the provider has a contractual right to pass on increased costs resulting from a change in law.
Wage theft *Loopholes 1* Commences 1 January 2025	The Government has taken decisive action in response to the endemic of wage underpayments and has introduced laws criminalising wage theft. An employer commits an offence if they: Are required to pay an amount to, or on behalf of, an employee (such as wages) under an Act or industrial instrument; and Intentionally engage in conduct resulting in the failure to pay those amounts to or for the employee on or before the day the amounts are due to be paid. Importantly, the ‘wage theft’ offence will only apply to intentional underpayment occurring after the provisions take effect, though this will include where the underpayment is part of a course of conduct that commenced before the provisions take effect. Underpayments that are accidental, inadvertent or based on a genuine mistake will not be caught by the provision. Individuals can also prosecuted under the ancillary liability provisions of the Criminal Code Act 1995 (Cth) (Criminal Code). The changes also introduce an ability for an employer to self-report wage underpayments to the Fair Work Ombudsman (FWO) and for a cooperation agreement to be entered into, providing the employer with protection against criminal prosecution (although not civil or other non-punitive enforcement action). The maximum penalties include fines of up to the greater of three times the underpayment amount of $7.825m for a corporation and the greater of up to three times the underpayment or $1.565m or 10 years imprisonment for an individual. Closing Loopholes 2 also significantly increases the civil penalties for breach of the Fair Work Act including a breach of an industrial instrument.	Your organisation must ensure it is taking a proactive approach by developing a comprehensive wage compliance governance framework aligned with best practice risk and compliance management. This includes mapping and identifying wage compliance obligations across the business and then uplifting monitoring and reporting of compliance with these obligations (including to senior management and the board). The new Fair Work Ombudsman is particularly focused on the role of boards and increased governance in this area. The recent substantial $10.34m fine imposed by the Federal Court on a major listed entity has put employers and boards on notice that they need to take wage compliance seriously. Managers and directors should also be mindful of their potential liability under the ancillary liability provisions of the Criminal Code. Under these provisions a person who is found to have “aided, abetted, counselled or procured the commission of an offence” by another person is taken to also have committed that offence unless, before the offence was committed, the person terminated their involvement and took all reasonable steps to prevent the commission of the offence. The requirement for wage theft to be “intentional” does place a high bar on finding ancillary liability, however it nonetheless remains a factor for directors and managers to be mindful of and provides further motivation to take reasonable steps though implementing effective governance in this area. The introduction of cooperation agreements between employers and the FWO will be particularly relevant for companies involved in wage remediation programs. Employers in this situation will need to closely consider whether seeking a cooperation agreement is the appropriate course of action, noting that the existence of a cooperation agreement between the FWO and the employer does not prevent conduct engaged in by any other person (such as a director of the employer) from being referred for criminal prosecution.
Right to disconnect *Loopholes 2* Commences 26 August 2024	Employees will be able to refuse to monitor, read or respond to contact, or attempted contact, outside of their working hours, both from employers and third parties, unless that refusal is unreasonable. In determining whether a refusal is ‘unreasonable’ a range of factors must be taken into account, including: The reason for the contact or attempted contact; How the contract or attempted contact is made and the level of disruption the contact or attempted contact causes the employee; The extent to which the employee is compensated: to remain available to perform work during the period in which the contact or attempted contact is made; or tor working additional hours outside of the employee’s ordinary hours of work The nature of the employee’s role and the employee’s level of responsibility; and The employee’s personal circumstances (including family or caring responsibilities). Disputes regarding the right to disconnect can be heard by the FWC, which can result in ‘stop’ orders. Significantly, the right to disconnect will constitute a workplace right and will be able to be relied on by employees under general protections provisions that protect employees against adverse action taken against them because they exercised a workplace right.	This landmark change represents a significant shift in the ability for employees to push back on incursions into their personal time. You should: Conduct a review to assess the level of out-of-hours contact employees are receiving (particularly if your business operates across time zones) to assess whether there are processes that can be put in place to ensure non-urgent contact can be responded to during work hours. Train HR teams and line managers on the new workplace right to ensure unlawful adverse action is not taken in connection with the right to disconnect. Consider the implications of the protection against adverse action for exercising the right to disconnect under performance and remuneration processes that may be based employee contribution including outside normal working hours. Amend employment contracts to make clear the link between remuneration and the requirement to attend to work-related contact from time to time. For lower-paid employees routinely required to be contactable after-hours, consider whether an additional allowance would be appropriate. Consider your overall approach to regulating and monitoring working hours to address potential risks under the NES (maximum working hours), psychological hazards and time keeping requirements.
New definition of “employee” *Loopholes 2* Commences no later than 26 August 2024.	The Act will be amended to reverse the law settled in recent High Court decisions (Personnel Contracting and Jamsek) which gave primacy to the contractual terms agreed between the parties so that the ordinary meanings of “employee” and “employer” will be determined by reference to the real substance, practical reality and true nature of the relationship between the parties. This will 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 complicate things, contractors earning above a yet-to-be determined high-income threshold can ‘opt out’ of the new definition, meaning their status will be determined by applying the principles in Personnel Contracting and Jamsek. Unhelpfully for employers, such a notice can later be withdrawn. The changes apply to contracts on foot or entered into after the date the changes commence.	If these changes sound familiar, that’s because the amendments are reverting to the common law multi-factorial test pre-Personnel Contracting and Jamsek. Instead of the relative commercial certainty that followed those decisions, employers will now be faced with the possibility that clearly-documented independent contractor arrangements can ultimately be found to be an employment relationship because of how the arrangement is functioning day-to-day. Your organisation should review existing contractor arrangements to assess the risk of mischaracterisation, whether opt-out notices can and should be given and what practical processes should be implemented to prevent independent contractor inadvertently relationships straying into employment territory. Systems can and should be put in place to prevent this happening, especially around on-boarding, payroll reviews, management of absences and failing to differentiate between employees and contractors on a day-to-day level. Consideration should be given to whether high-income ‘opt-out’ process will be of any practical utility for your business. It remains to be seen how many people will choose to opt out given there is little to be gained by the contractor doing so, and the potential for the contractor to withdraw the opt out down the track. Significantly the changes only apply to the definition of employee under the Fair Work Act and will not apply to the meaning of employee for tax or superannuation law which will continue to exacerbate the complexity for employers in this area.
Bargaining changes - intractable bargaining workplace determinations *Loopholes 2* Commenced 26 February 2024	Any intractable bargaining declaration made by the FWC will be required to be no less favourable to an employee or union than a prior enterprise agreement on a clause-by-clause basis (except for wage increase terms).	These changes have the potential to significantly impact the dynamics in bargaining. Where there is any prospect of bargaining resulting in an arbitrated workplace determination, a very careful and considered bargaining strategy will be required – otherwise, employers may be stuck with all of the concessions given to employers / unions during bargaining, and none of those extracted in return.
Casual employees *Loopholes 2* Commences 26 August 2024	A new definition of “casual employee” will be introduced into the Act. The key is that the employment relationship is characterised by an absence of a firm advance commitment to continuing and indefinite work. Crucially, the assessment of whether an employee is a casual is undertaken based on the real substance, practical reality and true nature of the employment relationship. There are also changes to the casual conversion process for employers to build into employment processes.	These changes overturn the existing definition of casual employee in the Fair Work Act, which currently focuses on the terms of employment and not the subsequent conduct of the parties. Like the change above regarding the definition of employment, this change represents a return for uncertainty for employers. Once the new definition comes into effect, the risks associated with the mischaracterisation of casual employees will loom large once again. Your organisation should review its use of casual employees to identify and address mischaracterisation risk – that is, how are employees engaged as casual really working in practice, and is that practical reality reflective of the new legislative test?
Casual conversion changes *Loopholes 2* Commences 26 August 2024	The existing residual right of an employee to request casual conversion from their employer in the Act will be removed and replaced with a more streamlined set of rules. An eligible casual employee will be able to initiate a change to full-time or part-time employment if they (among other things) believe they are no longer a casual employee and have been employed for at least 6 months (or 12 months, for small business employers). Where an employee makes a notification, an employer must respond in writing within 21 days and can only refuse a request on ‘fair and reasonable grounds’. 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.	Coupled with the changes to the definition of casual employee, the government is clearly disincentivising employers from widespread use of casual labour. If you have substantial reliance on the flexibility of a casual workforce, you should be thinking ahead about the possible financial and organisational impacts of significant numbers of employees seeking conversion to permanent employment. In the short team, we suggest you think about what processes need to be put in place or updated to manage casual conversion requests and ensure HR teams and line managers have adequate training to know what action to take when a request is received.
Gig economy *Loopholes 2* Commences no later than 26 August 2024	A new jurisdiction will be established in the FWC to regulate the minimum terms and conditions of gig workers (ie an employee like worker engaged over a digital work platform) and also to provide a forum these workers to challenge “unfair deactivations”.	This will present an entirely new area of regulation for gig workers and digital labour platforms and will have a material impact on businesses operating in this sector.
Road transport *Loopholes 2* Commences no later than 26 August 2024	A new jurisdiction will be established in the FWC to regulate minimum terms and conditions of drivers in the road transport industry and also to provide a forum these workers to challenge the unfair termination of their services. This jurisdiction will include the power to make a ‘road transport contractual chain order’ which can apply to business up and down the road transport chain including end recipients of logistics services.	This new Federal jurisdiction can be expected to operate in a manner similar to the existing State jurisdictions which have established minimum rate orders for drivers. The potential reach of road transport contractual chain orders to users of road transport services is unknown and one for business to closely watch.
Delegates rights *Loopholes 1* 15 December 2023 but industrial instrument changes not required until 1 July 2024	There are enhanced rights for workplace delegates with industrial instruments being required to include a workplace delegates clause and greater protections being provided against adverse action in this area. There will also be an ability for permit holders to enter workplaces with without given the usual 24 hours’ notice to investigate suspected wage underpayments.	These changes increase the ability of unions to exercise influence in the workplace. You should ensure relevant individuals within the organisation are familiar with the right of entry laws to ensure any entry to the workplace by a permit holder is lawful and effectively managed.
Unfair contract terms for independent contractors *Loopholes 2* Commences no later than 26 August 2024	The FWC will be able to arbitrate disputes over ‘unfair contract terms’ in independent contractor agreements which relate to ‘workplace relations matters’. This can result in the FWC setting aside all or part of a services contract or amending it. This new jurisdiction only applies to independent contractors earning below the high-income threshold who enter into the contractor after the commencement date. This new jurisdiction will add to the existing but underutilised systems already available for some independent contractors under the ACL and the Independent Contractors Act 2006.	Template contracts which impose onerous and unnecessary terms on independent contractors should not be used. You should review independent contractor agreements for contractors under the high-income threshold with an eye to the potential for a dispute, making sure that the agreements are reasonably balanced and avoiding including broad sweeping protections in favour of the principal (such as indemnities) which are one-sided and rarely enforced in practice.
Sham contracting – defence Loopholes 2 Commenced 26 February 2024	The Fair Work Act currently prohibits an employer from misrepresenting an employment contract as an independent contracting arrangement, commonly referred to as sham contracting. It is a defence to sham contracting if the employer proves that, when the representation was made, they did not know, and were not reckless as to whether, the contract was a contract of employment rather than a contract for services. The Act will now be amended to replace that defence, so that an employer will bear the onus of proving that they reasonably believed that the contract was a contract for services.	To mitigate against potential claims of sham contracting, you should consider developing and maintain records confirming the basis on which the parties entered into an independent contractor relationship – a checklist or similar document would be useful as evidencing the employer’s reasonable belief. This could also be a useful tool at the on-boarding stage to ensure contractors are not meeting criteria that would suggest they are an employee under the multi-factorial test.