Out-Law Analysis 8 min. read
19 Feb 2024, 10:21 am
The second part of controversial workplace reform legislation, which is expected to significantly impact Australian employment law, has been passed by both houses of the federal parliament and is set to become law.
Passage of the Closing Loopholes No. 2 Bill follows the Closing Loopholes No.1 Bill, which became law in December 2023. Once it receives Royal Assent, the bill will bring into effect major changes including the ‘right to disconnect’, changes to intractable bargaining declarations, and increased penalties for breaches of the Fair Work Act.
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Of all the changes set to take effect, the right to disconnect has drawn the most interest since the original Closing Loopholes Bill was introduced. While there has been much discussion about the effect the new right will have on workplaces, the legal ramifications once the right is introduced are unlikely to match the panic.
There were several versions of the right to disconnect proposed before the final version was agreed, including a complete prohibition on out of hours contact and a penalty regime. Ultimately, the version that passed appears to strike a balance between the competing interests of employee work-life balance and employers having the ability to continue to reasonably contact employees outside working hours.
From August 2024, which will be six months after the bill is expected to receive Royal Assent, all employees, including those not covered by a modern award, will have the right to refuse to monitor, read or respond to contact from their employer or other third parties such as clients and customers, outside of their working hours, unless the refusal is unreasonable.
Whether a refusal is unreasonable is determined on consideration of several factors set out in the legislation, including:
Keeping these factors in mind, it is clear the right to disconnect will affect some industries more than others, and some employees within businesses differently to others. For example, for a well-paid senior manager in a global professional services business, refusing contact may be unreasonable. However, for a lower paid labourer in the construction industry, it may not be unreasonable to exercise their right to disconnect.
As a consequence, employers should not take a ‘one size fits all’ approach to dealing with their employees’ right to switch off.
The right will be an enshrined protection in the Fair Work Act 2009 (Cth) (FW Act), meaning employers will not be able to take adverse action by dismissing or threatening to dismiss or not promote an employee because they exercised or proposed to exercise their right to disconnect.
In addition, disputes about out of hours contact will need to be dealt with between the employer and employee in the first instance. If unsuccessful, the Fair Work Commission’s (FWC) ever-expanding dispute resolution jurisdiction will also include disputes about the right to disconnect. The FWC can deal with the dispute in a number of ways, including conciliation or arbitration, in which it can make a stop order, similar to a stop bullying order.
Practically, the outcome of an employee right to disconnect is not too dissimilar to the limitations imposed on employers in asking employees to work reasonable additional hours. In fact, several of the factors used to determine whether a request or requirement to work additional hours is reasonable overlaps with the right to disconnect.
As part of the Federal government’s second tranche of industrial relations reform legislation, the intractable bargaining scheme was introduced.
In apparent response to concerns that employers might use the scheme to their advantage, the FW Act will be amended so that the FWC cannot make an intractable bargaining declaration that is less favourable than a prior enterprise agreement. This will mean that each term in the new enterprise agreement about which the FWC is asked to make a declaration, other than the extent of increases in wages, cannot be less favourable to an employee or union than the corresponding term in the previous enterprise agreement.
The FWC only has power to make intractable bargaining declarations in relation to terms of a proposed enterprise agreement that are not agreed. Early indications in intractable bargaining cases were that employers would assert that no terms were agreed, and therefore the FWC had to make a declaration in respect of, effectively, an entire agreement.
This will make removing or changing legacy clauses or arrangements, such as rostering arrangements, more difficult for employers, given unions and employees can rely on the FWC being unable to remove or change them in any detrimental way.
From the day after the Bill receives Royal Assent, civil penalties for some contraventions of the FW Act will increase five-fold, including penalties for breaches of the national employment standards, awards, enterprise agreements, pay frequency and employee records.
This will increase the maximum penalty for many of these contraventions to 300 penalty units which, as of February 2024, is A$313 (US$204), meaning the maximum civil penalty for each contravention is A$469,500 for a body corporate and A$93,900 for an individual.
However, there are separate and distinct civil penalties for matters relating to breaches of the FW Act that relate to underpayment. For body corporates, the maximum pecuniary penalty is the greater of A$469,500 per contravention or three times the amount of the underpayment. Given the amount of some of the reported underpayments in the past few years, we may see civil penalties for underpaying staff in the tens of millions of dollars in the future. The Commonwealth Bank group, for example, has just received a civil penalty under the current regime of A$10.3 million for underpayments of A$16 million. Under the new laws, the maximum penalty could have been as high as A$48 million.
New definitions of ‘employee’ and ‘employer’ have also been inserted into the FW Act. An employment relationship will be identified by “ascertaining the real substance, practical reality and true nature” of the parties’ relationship.
For this to be determined:
These changes are in direct response to the decisions of the High Court of Australia in CFMMEU v Personnel Contracting Pty Ltd and ZG Operations Pty Ltd v Jamsek in 2022, which gave primacy to the terms of the contract in determining whether an employment relationship existed. In effect, the changes turn back the clock and reinstate the ‘multi-factorial’ approach to be used in determining whether or not an employment relationship exists.
The practical effect of the changes is that it is likely to be much more difficult to categorise with confidence a worker as a contractor, creating uncertainty for businesses and other organisations which have traditionally relied on non-employee workers. Industries such as construction, transport and IT may be particularly affected by these changes.
The bill also amends the definition of a casual employee. An employee will be a casual employee only if:
Whether there is an absence of a firm advance commitment, will be based on several factors including:
Again, the changes replace the previous definition of casual employment introduced by the previous Coalition federal government that prioritised the existence of a written contract specifying the casual nature of the engagement in line with the 2021 High Court decision in WorkPac v Rossato. The Bill reverts the test to focus on the post-contractual conduct of the parties, with the terms of any written contract being just one factor to be considered among many.
As with the new definitions of ‘'employee’ and ‘employer’, the new definition of casual employee is likely, as a general rule, to make it more difficult to reach confident conclusions whether an employee is or is not a casual employee.
Employers will no longer have an obligation to consider and offer casuals the option to convert to permanent employment. Instead, the onus will rest with the employee.
Casual employees who have completed six months’ employment or, in the case of small businesses, 12 months employment, can request conversion if they believe, having regard to their working arrangements and the new definition of casual employment, they no longer satisfy the definition of a casual employee. Employers can decline that request on the basis that there are fair and reasonable operational grounds not to offer conversion, among other reasons. The employer must respond within 21 days of the request.
These changes mean casual conversion is now an employee-led right, removing the burden from employers to periodically consider whether employees are entitled to be offered conversion.
In the event of disputes about casual conversion that are not resolved within the workplace, the changes made by the bill mean the FWC will have the power to arbitrate to resolve the disputes if other methods, such as conciliation or mediation, have been unsuccessful.
The bill also introduces radical new laws for “regulated workers” in the gig economy and the road transport industry. The new laws include:
Co-written by Suren Missaghi and Stefania Silvestro of Pinsent Masons.