Closing Loopholes No. 2 Bill passes: the latest industrial relations reforms

What you need to know

• The Closing Loopholes Bill was split into two tranches late last year, with the first tranche passed in December 2023, and the second tranche now passing the Federal Parliament today (12 February 2024). This second tranche includes reforms relating to casual employment, further changes to the bargaining regime (on transitions from multi-employer bargaining and intractable bargaining declaration processes), a new employee right to disconnect, and a regime to regulate the gig economy and road transport industry.
• The Bill was passed today (12 February 2024) by the House of Representatives, approving amendments from the Senate made last week (8 February 2024) achieving the third round of IR reforms for the Government.

What you need to do

• The new right to disconnect will commence six months after the date of Royal Assent; changes to casual conversion will also commence six months after the date of Royal Assent; and changes to multi-employer bargaining and intractable bargaining workplace determinations will commence the day after Royal Assent.
• For the new right to disconnect, employers should consider existing terms of employment and how they may be relied upon in any dispute concerning contact to an employee outside of hours, and also ensure that managers are aware of the new rights in making employment decisions affecting employees as the right to disconnect may be relied upon in a general protections claim.
• For employers engaged in bargaining or planning for it, they should consider the impact of the new intractable bargaining declaration workplace processes – which mean arbitration outcomes cannot be less favourable to employees and unions than the terms of the previous agreement.
• For casual conversion, employers should ensure that those responsible for engaging casual employees and also dealing with requests to convert to permanent employment are aware of the new definitions and conversion processes.

Why this is important now

The Federal Parliament has now passed the third tranche of the Australian Government's IR reforms in the past 14 months, with the Fair Work Legislation Amendment (Closing Loopholes No. 2) Bill 2024 following on from the "Secure Jobs, Better Pay" reforms in December 2022, and the first round of "Closing Loopholes" reforms, which was split and passed in December 2023.

This Bill includes the major reforms held over from the split, together with a new "right to disconnect" agreed between the Government, the Greens and cross-benches to secure its passage.

Right to disconnect

A late inclusion in the Bill is a new right for employees to 'disconnect' – that is a right for employees to not face detriment due to refusing to respond to attempts by their employer, or third parties (like customers, clients, supplier or others), to contact them outside of hours.

It is modelled, in part, on the private members Bill introduced by the Greens in March 2023 - Fair Work Amendment (Right to Disconnect) Bill 2023 – although it does not adopt the approach from that proposal of erecting a general prohibition on contact outside of hours.

The new right in the Bill has the following features:

• It provides a new 'workplace right' that an employee may refuse to monitor, read or respond to contact, or attempted contact, from their employer or a third party outside of hours unless the refusal is considered to be unreasonable.
• In assessing whether a refusal is unreasonable, the following are taken into account:

the reason for the contact or attempted contact;

how the contact was made and the level of disruption caused to the employee;

the extent to which the employee is provided additional compensation for remaining available after hours (at the time the contact was made) or for working additional hours outside of ordinary hours (generally);

the nature of the employee's role and level of responsibility; and

the nature of the employee's personal circumstances (including family and caring responsibilities).

• It also provides that if an enterprise agreement that covers the employee provides for a right to disconnect that is more favourable than the Act, then that term continues to apply.
• If there is a dispute between the employee and the employer because the employee has refused to monitor, read or respond to contact or attempted contact, and the employer contends the refusal is unreasonable (and the employee disagrees), then the Fair Work Commission (FWC) may deal with an application to resolve the dispute. The FWC will have powers to issue 'stop' orders that may apply to the employee (to stop refusing contact) or the employer (to stop taking certain actions) – similar to orders available under the anti-bullying and sexual harassment regimes in the FWC.
• As it provides a new "workplace right", the right to disconnect may be relied upon by an employee in a general protections claim.
• Modern awards must now also include a term that provides for the exercise of an employee's right to disconnect.

The practical effect of the provisions will be to provide employees with a new right, and employers with a corresponding obligation not to treat an employee detrimentally for refusing to monitor, read or respond to out of hours contact. The Government and Greens have stated that the right is not intended to prevent employers contacting employees outside of hours to check shift availability, or to deal with emergencies or critical work – however those exceptions are not set out in the legislation as factors for assessing whether a refusal is unreasonable or in the FWC in deciding whether to issue an order.

The impact of the provisions is likely to be less significant for managerial and professional employees given their seniority and remuneration. For employees with 'on-call' or 'stand-by' allowances or similar arrangements, the laws are also likely to have little practical impact. For other employees, including those in lower paid or junior roles, the right may be a source of disputation in the workplace and could pose practical issues for employers seeking to find sick leave relief, for example, at short notice. In a hybrid-working world, given the increase in flexible working arrangements that many employees enjoy, what is considered "outside of hours" in those circumstances could be challenging to assess. The inclusion of the new rights may also sound in claims for on-call and availability allowances or similar in bargaining.

Employers are advised to consider their existing arrangements, and if necessary to make amendments to employment contracts to clearly recognise that remuneration compensates for monitoring, reading and responding to contact outside hours; or in the alternative, to consider other mechanisms to deal with the right such as an 'availability allowance'.

The new provisions will commence six months after Royal Assent.

Intractable bargaining workplace determinations

The Bill makes amendments to the intractable bargaining regime, introduced by the 'Secure Jobs, Better Pay' reforms (see our Employment Alert: The genie is out of the bottle proposed reforms to the Fair Work Act). That regime provides that if bargaining cannot be concluded through a bargaining dispute or a confined negotiating period, the FWC will have the power to arbitrate on the outstanding terms that have not been agreed by the parties.

The Bill provides that the FWC cannot include in an intractable bargaining declaration 'workplace determination', as the outcome of arbitration, a term which is less favourable to employees, or a union to be covered by the determination, than a corresponding term dealing with the same matter in the previous enterprise agreement. The assessment is to be made on a term-by-term, and not a global or overall, basis. This provision does not apply, however, to a term dealing with wage increases – with the effect that the amount of wage increases year on year in a workplace determination will not need to be equal to or greater than increases in the previous enterprise agreement. However, wage rates under a workplace determination must not be less favourable to employees than under the previous enterprise agreement.

Given the operation of the term, bargaining parties may reassess their approach to bargaining and the likely outcomes in any intractable bargaining declaration arbitration. It also means that if inefficient or outdated terms in enterprise agreements remain unagreed during bargaining they will be subject to an assessment of being more or less favourable, on an individual term basis, in any arbitration – making their removal or amendment in the arbitration process challenging. It may also impact on the stance of bargaining parties during negotiations, as employees and their unions may be disinclined to 'bargain' outcomes, knowing that any arbitration will not result in specific terms becoming less favourable.

There are also new provisions introduced by the Bill which clarify what terms are taken to be 'agreed' before a determination is made. This is significant, given only terms that are not agreed are subject to arbitration by the FWC. Those terms are ones agreed between the bargaining representatives: at the time the intractable bargaining declaration application was made; at the time any declaration is made; and any terms agreed during a post-declaration negotiation period – assessed cumulatively across those three periods.

These new provisions will commence on Royal Assent. The amendments will apply to intractable bargaining determination applications that are on foot, and the Bill also provides for the FWC to revisit and potentially vary any determinations made before the amendments commence.

Multi-employer bargaining

The Bill provides that a single-enterprise agreement may replace a multi-employer agreement that covers an employee in relation to the same employment, once it comes into operation (and the multi-employer agreement will then cease to apply).

The Bill limits the circumstances, however, in which an employer covered by a multi-employer enterprise agreement may put a single-enterprise agreement to a vote. If a multi-employer enterprise agreement applies to at least one employee and is within its nominal term, then a new single-enterprise could only be put to a vote of employees if all of the unions to which the multi-employer agreement applies have provided their written agreement to the vote being held, or (if written agreement is not provided) where the FWC has issued a "voting request" order. By their operation, the provisions permit a vote on a single-enterprise agreement to be put to employees in the ordinary way, after a multi-employer agreement that covers such employees has passed its nominal expiry date.

Significantly, the FWC will only be able to approve a new single enterprise agreement if the new agreement results in all employees being better off overall than under the multi-employer agreement. This effectively elevates the status of a multi-employer agreement to become a quasi-modern award for BOOT purposes – requiring that any replacement single enterprise agreement must provide more generous terms, meaning conditions will not go backwards as compared to the multi-employer agreement (on an overall basis).

These new provisions will commence on Royal Assent.

Casuals

The Bill introduces a new definition of "casual employee" – which will be met if:

• the employment relationship is characterised by an absence of a firm advance 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 Bill provides that the assessment of whether there is an "absence of a firm advance commitment to continuing and indefinite work", is to be assessed on the basis of the "real substance", "practical reality" and "true nature of the relationship", which can include conduct subsequent to entering into the contract.

The new definition effectively reverses the High Court decision in WorkPac Pty Ltd v Rossato (2021) 271 CLR 456 (see our Employment Alert: Contracts king as High Court clarifies casual conundrum) and replaces the previous definition of casual employment inserted into the Act in March 2021 by the former Government. A note to the new provisions provides that a regular pattern of work does not of itself indicate a firm advance commitment to continuing and indefinite work, meaning a casual employee with a regular pattern of work may still be a casual.

The Bill also makes changes to the casual conversion process, providing a new "employee choice about casual employment" conversion regime.

Under the "employee choice" provisions, a casual employee can issue a written notification to their employer if they would like to change their employment status to full-time or part-time employment, if they meet the below requirements:

• if they believe they are no longer a casual;
• they want to change their status;
• they have been employed for at least 6 months (if they are employed by an employer who is not a small business employer); and
• they are not involved in a dispute about their status or have not had a notification, rejection or dispute resolution process about casual conversion within the past 6 months.

In effect, this means the new regime may permit an employee to make a request for conversion to their employer every six months.

An employer must deal with any request to change status within 21 days, including by consulting with the employee, and then responding in writing and providing details of any acceptance (including the status as a full-time or part-time employee, commencement date and hours of work) or reasons for not accepting the request.

An employer may refuse a notification on the grounds that they believe the employee is still correctly classified as a casual employee; there are fair and reasonable operational grounds for not accepting the notification; or a change of employment status to full-time or part-time employment would not comply with a recruitment or selection process as required under Federal or State / Territory laws.

The "fair and reasonable operational grounds" for refusing are that:

• substantial changes would be required to the way in which work in the employer’s business is organised;
• there would be significant impacts on the operation of the employer’s business; and/or
• it would be reasonably necessary to make substantial changes to the employee’s terms and conditions to ensure the employer does not contravene a term of a modern award / enterprise agreement that would apply to the employee as a full-time employee or part-time employee (as the case may be).

The amendments to the Bill provide for a transitional period in relation to the new employee choice regime.

The FWC will also be able to arbitrate disputes relating to casual conversion without agreement from the parties, and is given powers by the Bill to make specific orders including to grant requests of conversion or requiring an employer to make an offer of casual conversion.

There will also be new general protections provisions regarding misrepresenting permanent employment as casual.

The new employee choice and casual conversion regime will commence six months after the date of Royal Assent.

Other changes

• Definition of employment

As part of the broader reforms introducing a new regime to regulate the gig economy and road transport industry, the Bill includes new definitions for "employer" and "employee" for the first time in the Fair Work Act 2009 (Cth). The definitions apply generally to determining employment status under the Act, and not only to determine coverage by the new gig economy and road transport industry regime. The Act has, to this stage, adopted the common law meaning of those terms.

The Bill provides that determining a relationship of employment is to be assessed based on the "real substance", "practical reality" and "true nature" having regard to the "totality of the relationship", which is not limited to the terms of the contract governing the relationship, but may also consider other factors including how the contract is performed in practice. The definition effectively reverses the High Court decisions in CFMMEU v Personnel Contracting Pty Ltd 25 [2022] HCA 1 and ZG Operations Australia Pty Ltd v Jamsek [2022] 26 HCA 2 (see our Employment Alert – Employee vs independent contractor - Contractual terms reign supreme).

• Sham arrangements

The Bill amends the defence for misrepresentations about sham contracting arrangements in the Act – changing the test from 'recklessness' to one of 'reasonable belief'. The amendment provides that the prohibition on misrepresentations will not apply if the employer proves that, when the representation was made, the employer "reasonably believed" that the contract was a contract for services (ie. an independent contractor agreement). The new test will apply to representations made after the commencement of the amendments, which commence on Royal Assent. Penalties for breaches of the sham contracting provisions will also increase to 300 penalty units ($93,900) for individuals and 1,500 penalty units ($469,500) for bodies corporate.

• Serious contraventions

The availability of higher penalties for 'serious contraventions' will be amended by the Bill to lower the bar for such penalties to be ordered, to apply to 'knowing' and 'reckless' contraventions, rather than (as is currently the case) to 'knowing' and 'systematic' contraventions. Serious contravention penalties for selected civil penalty provisions are also significantly increased to 15,000 penalty units ($4,695,000) for bodies corporate.

• Right of entry – suspected contraventions

At present, permit holders are required to provide at least 24 hours' notice of right of entry for the purposes of investigating suspected contraventions of the Act. The Bill provides a mechanism for the FWC to grant an exemption certificate removing the 24-hour notice requirement where a union right of entry permit holder suspects a contravention involving underpayments of employment entitlements to a union member. This is likely to be a low bar as it only requires a suspicion (and not evidence) of a contravention. The FWC must also reasonably believe that advance notice of the entry given by an entry notice would hinder an effective investigation into the suspected contravention or contraventions. Provisions concerning other entry requirements and powers of permit holders will remain the same. The new provisions will commence on 1 July 2024.

What's next

The Bill has today (12 February 2024) been passed by the House of Representatives approving the amendments made by the Senate. Once Royal Assent is given, aspects of the Bill will then commence in a staged way (as detailed above). Employers should consider the terms of the reforms now, and take steps to ensure they are ready for them – for example, by implementing any changes and preparing their managers for the new right to disconnect and casual conversion process, or taking stock of their approach to bargaining underway or due to commence in the near future under the revised regime.

Given the significant reforms over the past 14 months, and with the next federal election to be held before May 2025, further substantial IR reforms appear unlikely and none have been foreshadowed. The balance of 2024 and the start of 2025 will see a significant amount of 'bedding in' of the new laws – likely involving the FWC and courts dealing with applications under the new regime, and the FWC developing new terms for modern awards as required by the 'Secure Jobs, Better Pay' and 'Closing Loopholes' reforms, and erecting the new gig economy and road transport regime. There will be many 'on the ground' developments under the new laws to pay close attention to.

Authors: Trent Sebbens, Partner; Kathy Srdanovic, Partner; Gemma Harvey, Graduate; and Harry Coulter, Graduate.