Tied up in knots… Unpacking the Closing the Loopholes Amendment Bill

What you need to know

• The Federal Government has introduced a Bill that suggests that its purpose is to close "loopholes" in the existing Fair Work Act.  In practice, the Bill builds on the already significant changes made in December 2022 to further entrench the role of unions in Australian workplaces.

What you need to do

• Employers should carefully review the Bill and prepare for its impact on their workplace.  
• While the Bill has only just commenced the parliamentary review process, given the amount of consultation undertaken to date, it is unlikely that many changes of relevance to large employers will arise through the parliamentary review process.   

Overview

The Fair Work Legislation Amendment (Closing Loopholes) Bill 2023 was introduced on 4 September 2023. The Bill suggests that its purpose is to close "loopholes" in the existing Fair Work Act.  In practice, the Bill: 

• builds on the already significant changes made in December 2022 to further entrench the role of unions in Australian workplaces;
• introduces significant uncertainty about whether a worker is an employee or a contractor;
• introduces broad regulation of "labour hire" arrangements, including various arrangements not commonly understood as labour hire; and
• regulates 'employee-like' workers and the road transport industry, providing a regime for the Fair Work Commission to set minimum standards.

Bargaining

New model flexibility, consultation and dispute terms (Proposed to commence within 12 months of Royal Assent) 

The Bill proposes that the Fair Work Commission will determine new model flexibility, consultation and dispute resolution terms to replace the terms currently in the Fair Work Regulations.  The model terms will take into account "best practice workplace relations".  This presents an opportunity for unions to seek to impose more onerous obligations on employers.  Helpfully, the Bill does not dictate the inclusion of the model terms in an enterprise agreement.  However, the model terms will be incorporated into an enterprise agreement that does not include a compliant term.

Multi-employer bargaining (Proposed to commence immediately after Royal Assent)

The Bill limits the circumstances in which an employer covered by a multi-employer enterprise agreement can return to the single enterprise bargaining stream.  An employer will only be able to hold a vote on a new single enterprise agreement after the multi-employer agreement has passed its nominal expiry date or if all of the unions covered by the multi-employer agreement agree or the Commission issues a "voting request" order.  More significantly, the Commission 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 a multi-employer agreement to having the status of a modern award for BOOT purposes.

Bargaining by franchisees (Proposed to commence immediately after Royal Assent)

The Bill clarifies that franchisees can bargain under either the single enterprise or multi-enterprise bargaining streams.  This means that franchisees may be compelled to bargain for a single enterprise agreement by majority support determination or could be compelled to bargain for a multi-employer enterprise agreement in either the single-interest authorisation or supported bargaining streams.

Union presence in the workplace

Delegates' rights (Proposed to commence immediately after Royal Assent)

The new provisions provide unions with greater access to workplaces and employees.  Employers will need to evaluate what limitations or conditions for access can reasonably be imposed.

Until now, the provision of facilities (access to meeting rooms, email, document production resources and paid time to attend union training) to union workplace delegates has been a matter for employer discretion.  The Bill now provides rights for workplace delegates to access these facilities and communicate with members (and other employees eligible to be members).  These rights will be entrenched in modern awards and enterprise agreements.  If an enterprise agreement does not include a term providing for the exercise of these rights, the Commission will incorporate the relevant modern award term into the enterprise agreement.  

The Bill also expands the general protections provisions of the Fair Work Act to prohibit an employer from unreasonably refusing to deal with a workplace delegate, or unreasonably preventing the exercise of the rights of a workplace delegate.

Similar provisions will apply to "employee-like" workers on digital platforms and regulated workers in the road transport industry from 1 July 2024. 

Right of entry (Proposed to commence 1 July 2024)

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 Fair Work Act.  The Bill includes a mechanism for the Commission to grant an exemption certificate removing the 24-hour notice requirement where the union suspects a contravention involving underpayment of employment entitlements to a member.  This is likely to be a low bar as it only requires a suspicion (and not evidence) of a contravention. 

The Bill also waters down existing provisions providing for the revocation or suspension of entry permits by allowing the Commission to instead impose conditions on an entry holder's permit. 

Underpayments

"Wage theft" laws (Proposed commencement date to be confirmed but no later than 1 January 2025)

The Bill introduces a new criminal offence for "wage theft", where a person engages in conduct resulting in failure to pay a required amount to an employee in full.  The conduct must be intentional, meaning the prosecution will need to prove beyond reasonable doubt that the person intended that their conduct would result in a failure to pay the required amount.  Certain underpayment amounts, including superannuation contributions, are excluded from the regime.

Significant fines of the greater of three times the underpayment amount or 25,000 penalty units apply to companies.  Individuals may also be liable for up to 10 years' imprisonment.  Only the Director of Public Prosecutions or the Australian Federal Police would be able to commence such proceedings.

The Bill also empowers the Fair Work Ombudsman to enter "cooperation agreements" with self-reporting employers.  A cooperation agreement will effectively prevent the Ombudsman from referring conduct which is the subject of the agreement to the DPP or AFP for prosecution. 

Increased civil penalties (Proposed to commence on 1 January 2024)

The Bill increases the maximum civil penalties for contraventions relating to underpayments or employment entitlements five-fold.  Maximum penalties for companies will increase to a maximum of 1,500 penalty units (up from 300 penalty units) or 15,000 penalty units for a serious contravention (up from 3,000 penalty units).  The Bill also allows the maximum penalty for an underpayment-related contravention to be increased to three times the value of the underpayment.

There is also a lower threshold for establishing a "serious contravention".  Under the Act presently, a contravention will be serious where it was done knowingly and as part of a systematic pattern of conduct.  The Bill amends this so a contravention will be serious where it is either done knowingly or recklessly.  There is no requirement for the contravention to be systematic.

Casuals (Proposed to commence 1 July 2024)

Amendments will be made to the current 'casual employee' definition. Whether there is an 'absence of a firm advance commitment to continuing and indefinite work' is to be assessed on the practical reality and true nature of the relationship.  This can include conduct subsequent to entering into the contract. 

The casual conversion process will be amended to provide for a request to convert to permanent employment every 6 months.

The Fair Work Commission will be able to arbitrate disputes relating to casual conversion without agreement from the parties and there are now specific orders that may be made (including orders to grant requests of conversion or to make an offer). There are also new general protections provisions regarding misrepresenting permanent employment as casual.

Employment Definition (Proposed to commence immediately after Royal Assent)

The Bill introduces, for the first time, a definition of an "employee" and "employer".  The "ordinary meaning" of these terms is determined by ascertaining the 'real substance, practical reality and true nature of the relationship' which includes not only the contract, but other factors such as how the contract is performed in practice.  The amendment effectively overturns the High Court decisions in Jamsek and Personnel Contracting (see our Alert) and reintroduces considerable uncertainty for employers.

Regulation of labour hire arrangements (Proposed to commence immediately after Royal Assent, but orders will not take effect before 1 November 2024)

The Bill introduces new provisions that give powers to the Commission to make orders that regulate "labour hire" arrangements.  Although the Explanatory Memorandum suggests that the Bill does not "intend to regulate contracting for specialised services", the provisions are cast in very broad terms and are likely to capture arrangements that would not commonly be described as "labour hire", including some service provision, and the provision of labour between internal group entities.  The provisions do not apply to small businesses.

In short, when an employer supplies one or more employees to a host business, the host, employees (who are supplied, or employees of the host) or unions that represent those employees, can apply to the Commission for a "regulated labour hire arrangement order".  Interestingly, an employer of the "labour hire" employee does not have standing to make an application for an order.  The Commission must make the order if it is satisfied that:

• An employer supplies or will supply (directly or indirectly) one or more of its employees to a host, to perform work for the host (irrespective of whether this occurs through intermediaries, and irrespective of whether there is any agreement about the supply of the employees between the employer and the host); and
• A "covered employment instrument" (most commonly, an enterprise agreement) that applies to the host, would apply to the employees if they were employed by the host to perform work of that kind or substantially of that kind.

However, the Commission must not make the order if it is satisfied that it is not fair and reasonable to do so, having regard to a range of matters set out in the Bill.  The Commission can only consider these matters if a party makes submissions on them.  They include:

• The pay arrangements that apply to employees of the host;
• 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.  There are a range of further specific matters in the Bill that the Commission can have regard to in relation to this consideration, including the extent to which the employer is involved in matters relating to the performance of work, and how that work is directed, supervised or controlled.  These provisions leave open the prospect that service providers will be caught, notwithstanding that such work may be of a specialist nature; 
• The history of industrial arrangements applying to the host and the employer; and
• The relationship between the host and the employer including whether they are related bodies corporate.

A "regulated labour hire arrangement order" will specify the covered host, employer and employees, and the host instrument that is covered by the order.  It must also specify when the order comes into force, and may specify when the order ceases to be in force.  If no date is set for when the order ceases, it will continue to operate unless it is varied or revoked.

The effect of a "regulated labour hire arrangement order" is that the employer must pay the employee at no less than the "protected rate of pay".  This is the full rate of pay that would be payable to the employee if the host employment instrument applied to the employee, including monetary allowances, incentive-based payments and bonuses payable under that instrument.  The employer is not required to provide the employee with non-monetary benefits e.g. provision of flights, accommodation, or shares.

There are limited exceptions to the obligation to pay the protected rate of pay.  They are where a training arrangement applies to an employee, or the employee is performing work under a 'short-term arrangement' (being a period of 3 months or less, although the Commission can make an order that shortens or extends that exemption period).

The Commission can, on application, make an "alternative protected rate of pay order", the effect of which is to set the "protected rate of pay" by reference to a different employment instrument, for example, one that applies to a related body corporate of the host, or another instrument that applies to the host (e.g. where the host has multiple enterprise agreements covering the same kinds of work).

The Commission will have jurisdiction to deal with disputes (including by arbitration) about what the protected rate of pay for an employee is, or whether an employee has been or is being paid less than that rate.  In practice, we anticipate this will commonly involve disputes about what the correct classification is for the employee under the host's employment instrument.

Finally, the Bill contains strict anti-avoidance provisions that operate including where a person enters into or carries out a "scheme" for the sole or dominant purpose of preventing the Commission from making a regulated labour hire arrangement order, e.g. adopting certain corporate structures.  The provisions also seek to prevent employers from engaging different employees under a series of 'short-term arrangements', engaging in multiple 'short-term arrangements' with different labour hire providers, or engaging independent contractors to avoid the operation of the provisions.

Regulation of gig economy and transport workers (Proposed to commence on 1 July 2024)

The Bill establishes an 'award-like' regime for 'employee-like' workers (in the gig economy) and regulated workers in the road transport industry. The key features of the regime include: 

• Minimum Standard Orders/Guidelines: The ability for the Commission to make minimum standard orders (MSOs) and non-binding minimum standard guidelines (MSGs).  MSOs can be made specific to certain businesses or classes of businesses; with MSGs operating across an industry or sector (or part).  MSOs and MSGs cannot overlap.  They may include a range of matters, including payment terms, working time, deductions and representation.  Those orders must not include certain items including overtime rates and rostering arrangements.  Penalties may apply to breaching MSOs. 
• Collective Agreements: The ability for businesses to bargain with unions for Collective Agreements (CAs), which will operate similarly to enterprise agreements currently – including that the CA terms must be the same or more beneficial than an MSO.
• General protections: Consequential protections are inserted into the general protection regime for regulated workers.  The 'independent contractor' protections are extended to cover regulated workers.
• Unfair deactivation/termination: A new unfair deactivation regime for employee-like worker and an unfair termination regime for regulated workers in the road transport industry.  They will operate similarly to the unfair dismissal regime, with the following key features:

Access is limited to a regulated worker in the road transport industry who has performed work for 12 months (with 6 months for employee-like workers);

The Commission will assess whether there is a valid reason and also compliance with processes – to be set out in a Digital Labour Platform Deactivation Code or Road Transport Industry Termination Code to be issued by the Minister;

The regimes provide for reactivation (with lost pay) for employee-like workers, or reinstatement or compensation for road transport workers.

• Unfair contracts: The commission will now have jurisdiction to make orders relevant to unfair contract terms in services contracts, where the annual remuneration is below the contractor high income threshold.  This includes setting aside, amending or varying all or part of a services contract which in an employment relationship would relate to a workplace relations matter.  Any person earning more than the high income threshold will still be required to make a claim under the Independent Contractors Act 2006 (Cth) in the federal courts – in effect establishing a mirror regime in the commission for those below the high income threshold. 

Other changes

Discrimination (Proposed to commence immediately after Royal Assent)

The Bill amends the Fair Work Act to expressly protect employees or prospective employees who are subjected to family and domestic violence from various discriminatory conduct, including adverse action such as dismissal.

Sham contracting (Proposed to commence immediately after Royal Assent)

At present, employers are not liable for misrepresenting employment as independent contracting if they did not know, and were not reckless as to whether, the contract was a contract of employment rather than for services.  The Bill narrows this defence to circumstances where an employer reasonably believed a person was an independent contractor.

WHS amendments (Proposed to commence 1 July 2024 with certain provisions commencing earlier)

The Amendment Bill makes various changes to work health and safety legislation, including introducing industrial manslaughter provisions.  We will consider these changes in more detail in a separate Alert. 

Authors: James Hall, Partner; Jon Lovell, Partner; Trent Sebbens, Partner; Daniel Fawcett, Senior Associate; Kate Hollings, Senior Associate; and Patrick Lawler, Senior Associate.