The Fair Work Legislation Amendment (Closing Loopholes No. 2) Bill 2023 received Royal Assent on 26 February 2024. This legislation introduces changes to the Fair Work Act that are significant to all employers. The most significant changes relate to the way the law defines an ‘employee’ and ‘employer’, and a high-profile new protection for employees that allows them the ‘right to disconnect’. Significant additional changes relate to union protections and workplace delegate rights, treatment of independent contractors, and protections for gig workers and road transport contractors.

Employer or Contractor

The Closing Loopholes legislation introduces a statutory definition into the Fair Work Act of ‘employee’ and ‘employer’ to counteract recent High Court decisions where the contract between the parties was given precedence in determining the nature of the relationship. The statutory definition returns to the previous common law test which takes into account a number of factors (known as the multi-factor test). To determine if a worker is an employee or an independent contractor, consideration must be given to ‘the real substance, practical reality, and true nature of the working relationship’ which includes all parts of the working relationship between the parties. The terms of the contract are still important but how the contract is performed in practice is a key consideration. The changes are due to commence on 26 August 2024.

Opt Out for Independent Contractors

The legislation introduces a mechanism for an individual who would be considered an employee under the new definition to ‘opt out’ of this classification. To be eligible to opt out, the individual’s earnings must exceed the ‘contractor high-income threshold’ (which is distinct from the threshold for employees set by the Commission). Currently, there is no detail about the amount of the contractor high-income threshold, which is yet to be prescribed by the Fair Work Regulations 2009 (Cth).

The opt out mechanism may be exercised by either an individual or the employer of the individual by providing a written opt out notice and a statement of earnings to the other. An individual can revoke an opt out notice, although each individual may only give one opt out notice in respect of a particular relationship.

Right to Disconnect

A new employee ‘right to disconnect’ will take effect from 26 August 2024 (or 26 August 2025 for small businesses). At that time, an employee may refuse to respond to contact from their employer outside their usual working hours, unless such a refusal would be unreasonable. This is a general right that will be enjoyed by all employees.

This right is subject to some qualifications and a significant potential for conflicting interpretations. Most notably, the provisions do not make it clear what will constitute a ‘reasonable’ refusal to respond to contact. Based on guidance provided by the Fair Work Ombudsman, several factors must be considered when determining whether an employee’s refusal is unreasonable, including:

  • the reason for the contact;
  • whether the employee is compensated for being available or working additional hours outside their ordinary hours of work;
  • the nature of the employee’s role and level of responsibility; and
  • the employee’s personal circumstances, including family or caring responsibilities.

New Definition of Casual Employee

From 26 August 2024, an updated definition of casual employee will be introduced to the Fair Work Act.  Currently, a casual employee is defined as an employee who accepts a job offer knowing there is not firm advance commitment to ongoing work with an agreed pattern of work and the factors to be considered include whether there is choice about the work offered (from the employer’s perspective) and accepted (from the employee’s perspective), whether the employee will be offered work when they are needed, whether the employee is described as a casual employee and paid a casual loading.

Under the updated definition, an employee will be a casual if there is no firm advance commitment to continuing and indefinite work and the employee is entitled to a casual loading.  The factors to be taken into account are expanded to include the real substance, practical reality and true nature of the employment relationship.  Consideration of the contract between the parties is also extended to include the mutual understanding or expectations of the employee and the employer in entering into the contract.

This is another move towards a multi-factor approach to defining employment relationships, rather than relying mainly on the contract between the parties.

Requests for Casual Conversion

The legislation also replaces the existing provisions regarding employer offers and employee requests for casual conversion. Under the new process, a casual employee may notify their employer that they believe they no longer meet the requirements of the new definition of casual employee and, if the employer accepts the notification, the employee’s employment status changes to permanent employment. An employer may reject an employee choice notification, but only based on ‘fair and reasonable operational grounds’. An employer must give the employee reasons if they decide to reject an employee choice notification, however, those reasons do not need to be detailed.

For casual employees engaged before the new laws come into effect, the existing provision regarding employer offers and employee requests for casual conversion will be preserved until six months after the new laws come into effect. After six months, the existing provisions will be removed, and the employees will be able to use the new employee choice process to change to permanent employment.

Gig Workers and Road Transport Contractors

The legislation introduces provisions to empower the Fair Work Commission to set minimum standards for road transport contractors and ‘employee-like’ digital platform workers in the gig economy. The legislation introduces a comprehensive framework to enable the Commission to make ‘contractual chain orders’ that will apply to businesses along the supply chain in the road transport industry. It also introduces a requirement that the Commission be satisfied before approving any collective agreement to cover ‘employee-like’ gig economy workers or road transport workers that the agreement is not contrary to the public interest.

Right of Entry

Closing Loopholes introduces a new right for unions to enter workplaces without notice to investigate suspected contraventions of the Fair Work Act in respect of members. To exercise the right, unions must first obtain an exemption certificate from the Commission so that the usual 24-hour notice is not required.

Under the amended provision, the Commission must issue the exemption certificate if either:

  • the Commission reasonably believes that giving an employer advance notice of the entry might result in the destruction, concealment, or alteration of evidence of an underpayment; or
  • the Commission is satisfied that the suspected contravention(s) involve the underpayment of a union member that the union is entitled to represent, and the Commission reasonably believes that advance notice of the entry would hinder an effective investigation into the suspected contravention(s).

The stronger powers of entry are augmented by a significant increase in the maximum civil penalties for contraventions of the Fair Work Act. A five-fold increase to the current maximum civil penalties will apply to selected civil remedy provisions (including breaches of the National Employment Standards, modern awards, and enterprise agreements). However, it should be noted that these maximum penalties will not apply to small business employers.

This information provides a general overview only and you should obtain professional advice relevant to your circumstances. If you or someone you know wants more information or needs help or advice, please contact us on (02) 5127 5261 or email [email protected].