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Part 2 of the Closing Loopholes Bill now law

What is the Closing Loopholes Bill?

The Closing Loopholes Bill, officially known as the Fair Work Amendment (Closing Loopholes) Bill 2023 was introduced by the Government last year.

The Bill was split in two parts with the less controversial parts of the Bill approved by Parliament on 7 December 2023. This dealt with matters such as wage theft, labour hire ('same job, same pay'), and workplace delegates, some of which are already now in effect (see our earlier blog).

Part 2 of the Bill was passed 12 February 2024 and is awaiting Royal Assent. It includes rules around an employees’ right to disconnect, the definition of casual employees and contractor rights – among many others.

Quick summary of changes under the Closing Loopholes No.2 Bill

‘Right to disconnect’

A new ‘right to disconnect’ for employees will be introduced, meaning that they can’t be contacted outside of work hours (but with an exception for where the contact is reasonable).

The casual/contract employee test

The test of whether someone is a true casual employee has changed, and it now considers the conduct of the employer/employee after the contact has been entered into – not just the terms of the contract itself.

Similar changes have been made to the employee v contractor test, where the post-contract conduct is to be considered, not just the terms of the contract.

Streamlined casual conversion

For medium to large businesses, the casual conversion process will now become available after 6 months, compared to the previous 12-month period. For small businesses, employees can choose to convert to permanent employment after 12 months.

More rights for certain contractors

These rules apply to a number of specific situations, such as workers on digital platforms or owner-drivers in the road-transport industry. We’ll go into more detail below.

Penalties and investigations

The changes bring in increased penalties for breaches of workplace laws. It also introduces rights for unions to enter the workplace without notice to investigate underpayments.

The changes in detail

We take you through the following provisions of the new laws below:

1. Employees’ ‘right to disconnect’

2. Changes to casual employment

3. Contractors working through digital platforms

4. Contractors in the road transport industry

5. Unfair contract terms for independent contractors

6. Change to the employee v independent contractor test

7. Sham contracting

8. Stronger penalties for breaches of workplace laws

9. Union rights of entry to investigate underpayments

10. Enterprise bargaining

1. Employees’ ‘right to disconnect’

When will the changes come into force?

6 months from Royal Assent*, or 18 months from Royal Assent for small businesses of less than 15 employees.

*Royal Assent is when the legislation officially comes into effect, usually a few days after it has been passed by Parliament.

What are the changes?

The new ‘right to disconnect’ rule gives employees a right to refuse contact from their employers outside of their usual working hours. This right is subject to a reasonableness test.

The right is expressed as follows in the new legislation:

333M: Employee right to disconnect

(1) An employee may refuse to monitor, read or respond to contact, or attempted contact, from an employer outside of the employee’s working hours unless the refusal is unreasonable.

(2) An employee may refuse to monitor, read or respond to contact, or attempted contact, from a third party if the contact or attempted contact relates to their work and is outside of the employee’s working hours unless the refusal is unreasonable.

On the face of it, the new legislation gives the employee a right to refuse any contact from their employer (or a third party such as a client or colleague) outside of working hours. This would include phone call, email, text message or contact by other means.

The right extends to a right not to monitor forms of contact – in other words, it envisages an employee being able to turn off their phone, leave their laptop at work, etc.

It is important to note that the right to refuse contact (or to refuse to monitor for contact) is only where the contact is unreasonable. In other words, an employer will still be able to require an employee to be contactable where this requirement is reasonable.

Factors that are to be considered in assessing reasonableness are:

The reason for the contact - eg. was it very urgent?
How the contact is made and the level of disruption caused - eg. an early evening text message is likely to be less disruptive than a phone call in the middle of the night.
The extent to which the employee is compensated to remain contactable - eg. do they get an “on-call allowance” or a high salary which envisages some out-of-hours contact/work?
The nature of the employee’s role and the employee’s level of responsibility - eg. the more senior the role, the more likely that contact outside of work will be found to be reasonable.
The employee’s personal circumstances - eg. it will be less likely to be reasonable to expect an employee with family or caring responsibilities to be contactable outside of work at times they are caring for others.

The legislation makes clear that the right to disconnect is listed as a workplace right within the Fair Work Act, meaning that an employee cannot be adversely treated (eg. be passed over for promotion, or dismissed) because they exercise these new rights. If they are treated adversely they will be able to bring a general protections claim against the employer.

There are also mechanisms within the legislation for resolving a dispute between an employer and employee about whether the refusal of contact is unreasonable or not. The first step is a statutory obligation for the employer and employee to try and resolve the dispute between themselves.

If this attempt at resolution is unsuccessful, either party may make an application to the Fair Work Commission (FWC). The FWC then has the power to make orders* preventing an employer from contacting an employee and/or ordering an employee to stop refusing reasonable contact.

The legislation also requires (within 6 months of Royal Assent) for all modern awards to include clauses relating to the right to disconnect (ie. to provide more details of how the right will operate for award-covered employees) and for guidelines to be published by the FWC about how the right to disconnect works more generally.

It remains to be seen what terms the FWC will include in modern awards to deal with the right to disconnect, but this is likely to include industry-specific rules about contactability and could also include increased rates of pay for employees who are expected to be contactable outside of work hours.

To be clear though, the right to disconnect will apply to all employees, whether award-covered or not.

*Due to the way the legislation was rushed through, the legislation also currently includes a provision - not intended by the Government - which means that employers who breach a right to disconnect order can be guilty of a criminal offence (eg. face jail time). The Government has promised they will legislate so that the criminal sanctions are removed prior to the provisions coming into force (the overall effect being that employers will only face financial penalties for breaches).

What does this mean for businesses?

On one hand, the new law won’t have a significant impact on how businesses operate. Employees are already required to follow reasonable directions of their employers. An employee can therefore already be required to be contactable outside of work hours where this is reasonable and could refuse such direction where being contactable is an unreasonable request.

The new legislation still operates so that reasonable out-of-hours contact will be ok. However, by enshrining the right to (reasonably) disconnect in legislation it appears that - at the very least - extra layers of bureaucracy have been added to running a business.

Employers wishing to contact staff out-of-hours may well face the unwelcome prospect of a dispute arising with the employee. They will then have to go through the hurdles of trying to resolve the dispute at a workplace level, and then the dispute having to be brought before the FWC to resolve the issue. They will then need to wait for the Commission to determine whether the contact was reasonable or not, rather than being able to just rely on a common sense approach to out-of-hours contact.

Furthermore, it is unclear as to how far an employee’s protection from being adversely treated for exercising the right to disconnect will extend. For example, previously an employee being dismissed in the first months of employment due to having an inflexible approach to out-of-hours contact would have little recourse to challenge this, having not been employed long enough to claim unfair dismissal.

Now that the right to disconnect is a workplace right, employers face greater risks of legal challenge when dismissing employees on these grounds . General protections claims, unlike unfair dismissal claims, do not depend on the employee having been employed for a minimum period of time.

Some commentators fear that employers will withdraw the approach of letting employees have freedom to work remotely, which is usually coupled with an expectation that the employee’s hours can be worked more fluidly. If employers are worried that they are going to struggle to lawfully contact employees out of work hours when they are working from home, they may feel that they need to adopt a stricter approach to on-site work and fixed hours, to be sure that employees are contactable at all times during the normal working day.

What can businesses do in response?

It will be very important that job offers, employment contracts, position descriptions and workplace policies all spell out the level of out-of-hours contact expected of a role. For example, will they only be contacted in an emergency? Are they expected to keep an eye on messages out-of-hours to be able to complete their work? The clearer it is to employees about the expectations regarding out-of-hours contact, the more likely it will be that attempts to contact the employee will be considered reasonable.

Benefits packages may need to be tailored so that they clearly explain that high salaries/wages are paid in consideration of the expectation of some out-of-hours contact.

2. Changes to casual employment

When will the changes come into force?

6 months after Royal Assent, or earlier by proclamation*.

*Proclamation is a right for the Government – rarely used in practice – to bring the law into force at an early date.

Definition of casual employment

The test of whether someone is a true casual employee will now need to have regard to the “practical reality and true nature of the employment relationship”.

This reverses the current position under the Fair Work Act which just looks at the terms of the contract between the parties when employment commences. The legislation returns to the (less certain) position where the conduct of the parties after the contract has been entered into should also be considered.

Casual conversion and “employee choice”

The existing obligations to offer employees to convert to permanent employment after a set period of time have been scrapped, and instead replaced by an “employee choice” regime.

An employee will be able to give a written notification to their employer that they no longer consider themselves to be a casual employee, and so should be converted to permanent employment.

This might arise because the employee has ended up working regular hours and where there is a commitment to ongoing work – therefore no longer meeting the definition of casual employment.

Employees will have this right when the employee has six months of service (currently the right to convert applies at 12 months service), though it will remain at the 12 month mark for employees of small businesses with fewer than 15 employees.

An eligible casual employee will be able to initiate a change to full-time or part-time employment by making a “notification” to their employer if the employee:

Believes they are no longer a casual employee at the point in time when they make the notification,
Meets the minimum employment period – 12 months if employed by a small business employer; otherwise six months,
Has not sought to exercise their rights to convert in the last six months, and
Wants to change their employment status to full-time or part-time employment.

There will be no requirement for an employee to issue a notification if they do not want to change their employment status. Employees will have complete choice about whether to remain a casual employee.

If they don’t choose to make this notification, they will remain a casual employee thereafter (assuming they have been validly appointed as a casual employee in the first place).

Employer response to a notification

Where an employee makes a notification to convert to permanent employment, an employer must respond in writing within 21 days. Employers are required to first consult with an employee in relation to the notification.

If the employer does not accept the notification, they must state that they do not accept the notification on one or more stipulated grounds and provide their reasons.

An employer may only refuse a notification on one of the following grounds:

The employer believes the employee is still correctly classified as a casual employee (eg. there is not a firm commitment of ongoing regular work).
There are fair and reasonable operational grounds for not accepting the notification.
A change of employment status to full-time or part-time employment would not comply with a recruitment or selection process required by a Federal or State/Territory law (likely only to apply to public sector employers).

In order to rely on the “fair and reasonable operational grounds” exemption for refusing a notification, one of the following must apply:

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.
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.

Any disputes about conversion can be determined by the Fair Work Commission.

Changes from the current casual conversion process

On the positive side, some of the red tape of the existing conversion process is removed. Employers will no longer have an obligation to proactively offer conversion to regular casual employees at 12 months of employment.

Furthermore, the current rules operate so an employee can request conversion to permanent employment when they consider that they could work their current pattern of hours – without significant adjustment – as a permanent employee. This request can only be refused by employers on reasonable grounds.

The new obligation on employers is subtly narrower. Employees only have a right to make a notification to convert where they no longer meet the definition of casual employment. It is not simply the case that they consider that they can perform their role as a permanent employee (as is the case now).

On the other-hand, employees are going to be able to access conversion rights sooner: after six months of employment, rather than the current 12 months for all businesses (except small businesses).

Other changes regarding casual employment

The legislation also introduces new protections against the intentional misuse of casual employment, including dismissing an employee in order to re-engage them as a casual employee and knowingly making false statements to engage a person as a casual employee.

The Casual Employment Information Statement, which employers are required to provide to new casual employees at the commencement of their employment, will be updated. Employers will also have to provide the Statement again after 12 months of employment to remind casual employees of their rights.

The legislation confirms that it is permissible to engage a casual employee on a fixed-term contract, and only prevents this in limited circumstances – namely where they are a member of academic staff or a teacher at a higher education institution and covered by either the Higher Education Industry - Academic Staff - Award 2020 or the Higher Education Industry - General Staff - Award 2020.

3. Contractors working through digital platforms

When will the changes come into force?

6 months after Royal Assent, or earlier by proclamation.

What are the changes?

The legislation increases the rights of certain independent contractors performing digital platform work, for companies such as UberEats, Deliveroo, Mable, etc.

Minimum standards orders

The FWC will have the power to make a minimum standards order that sets standards for employee-like workers, much like a modern award.

A minimum standards order may include terms relating to any of the following:

Payment terms
Deductions
Record-keeping
Insurance
Consultation
Representation
Delegates’ rights
Cost recovery

Employee-like minimum standards order must not include terms about any of following matters:

Overtime rates
Rostering arrangements
Matters that are primarily of a commercial nature that do not affect the terms and conditions of engagement of regulated workers covered by the minimum standards order
A term that would change the form of the engagement or the status of regulated workers covered
A matter relating to work health and safety that is otherwise comprehensively dealt with by a Federal/State law

Terms about penalty rates, payments for time prior to the acceptance of an engagement (or between engagements) and minimum periods of engagement can only be included in minimum standards orders in certain circumstances. Before making a minimum standards order, the FWC must consult with the sector. A Digital Labour Platform Consultative Committee will also be established for this and related purposes.

The FWC may also make non-binding minimum standards guidelines that will run alongside the minimum standards orders.

Unfair deactivations

The new laws also mean that the FWC will be empowered to deal with disputes over an employee-like worker’s unfair deactivation from a digital labour platform. In effect, it introduces a mechanism similar to the unfair dismissal regime for these contractors.

To be able to make such a claim, the contractor will have to earn under the “contractor high income threshold”, with the amount to be prescribed by regulations in due course.

A Digital Labour Platform Deactivation Code will be published by the Government, compliance with which will mean that the deactivation cannot be found to be unfair.

If the FWC determines that a deactivation has been unfair, it can make an order requiring reactivation of the worker on the relevant platform. If it does so, the FWC can also make orders for the digital labour platform to pay the worker for the remuneration lost because of the deactivation.

Other amendments

Digital labour platform operators will now be able to make collective agreements (similar to enterprise agreements) with trade unions.

Employee-like workers on digital platforms will also have access to the new right to be represented by workplace delegates, as introduced in Part 1 of this Bill.

4. Contractors in the road transport industry

When will the changes come into force?

6 months after Royal Assent, or earlier by proclamation.

What is changing?

Similar changes to those affecting contractors working in digital platforms will be made for certain contractors working in the road transport industry (eg. “owner-drivers”).

Going forward, the FWC will have power to make a “road transport contractual chain order” that sets minimum standards for certain road transport contractors, similar to the minimum standard orders affecting contractors working on digital platforms. The FWC may also make guidelines that set standards for road transport contractors. A Road Transport Industry Expert Panel and Road Transport Advisory Group will be established to consider the need for minimum standards in the sector and to advise the FWC.

There will also be new unfair termination protections for road transport contractors, similar to the unfair dismissal regime for employees. Where the FWC determines that a termination is unfair, the FWC may order that a new contract be entered into, or the payment of compensation to a person. The FWC will also be empowered to deal with disputes over a contractor’s services contract with a road transport business.

Other changes

Road transport businesses will be able to make collective agreements (similar to enterprise agreements) with a union. Road transport contractors will also have access to the new right to be represented by workplace delegates.

5. Unfair contract terms for independent contractors

When will the changes come into force?

Upon Royal Assent.

What is changing?

Independent contractors in any industry earning below a yet-to-be-specified “contractor high-income threshold” will be able to raise a dispute over unfair contract terms in the FWC.

The FWC will be able to make orders that:

Set aside all or part of a services contract.
Amend or vary all or part of a services contract.

No orders for compensation will be able to be made by the FWC under these powers.

6. Change to the employee v independent contractor test

When will the changes come into force?

6 months after Royal Assent, or earlier by proclamation.

What are the changes?

A definition of “employee” and “employer” will be inserted into the Fair Work Act for the first time.

The Act will be amended so that the meaning of “employee” and “employer” will be determined by reference to the “real substance, practical reality and true nature” of the relationship between the parties.

In other words, the law will move away from the current position that the determination of whether an employment v contractor relationship exists is done by looking at the terms of the contract entered into by the parties at the commencement of the engagement.

Instead, going forward, the conduct of the parties during the relationship will also need to be assessed in determining this question. For example, if you end up treating someone as an employee, regardless of what is in their contractor agreement, they are likely to be considered to be an employee in the eyes of the law.

This creates less certainty for businesses when engaging a contractor as to whether they will later be found to be an employee. This is more worrying still, given the increased likelihood of businesses falling foul of the “sham contracting” offence and the increased penalties for non-compliance with workplace laws.

Confusingly for employers, the new definition of employee/employer will only apply under the Fair Work Act, whilst the approach of determining the status of the worker through looking (purely) at the contract will continue to apply under other workplace laws, such as those dealing with superannuation, workers compensation, long service leave, etc.

Opt-out notice

Existing contractors will, however, be able to opt-out of the application of the new definitions, if they consider that their relationship may become an employment relationship as a result of these new changes. An opt out notice can only be given by a contractor whose earnings exceed the (yet-to-be-set) contractor high income threshold.

7. Sham contracting

When will the changes come into force?

On Royal Assent.

What are the changes?

The Fair Work Act currently prohibits an employer from misclassifying an employee as a contractor, commonly referred to as “sham contracting”.

The Act also provides a defence to sham contracting if the employer proves that they did not know, and were not reckless as to whether the individual should have been engaged as an employee rather than a contractor.

The Act will now be amended to narrow this defence, so that an employer will bear the onus of proving that they reasonably believed that individual could be validly engaged as a contractor.

This is a more objective test, as a court will have to assess an employer’s behaviour according to reasonableness, rather than an assessment of their subjective reasons for acting. If the employer was deemed to be acting unreasonably – regardless of an honest intention – they will no longer be able to rely on the defence.

The ability of an employer to rely on this defence to sham contracting has therefore been reduced.

8. Stronger penalties for breaches of workplace laws

When do the changes come into force?

Various dates depending on the contravention.

What is changing?

The amendments will:

Increase financial penalties for certain breaches of the Fair Work Act, including those related to wage underpayments, by five times.
Increase the financial penalty for failure to comply with a compliance notice by 10 times.
Enable the maximum penalty for a contravention of the Fair Work Act to be determined by reference to three times the value of the underpayment.
Widen the definition of a “serious contravention” (where the highest penalties can be ordered) so that it applies to conduct that is done knowingly or recklessly. Currently only contraventions that are knowingly performed can be a serious contravention.

Different penalty arrangements apply to small business employers in some circumstances.

9. Union rights of entry to investigate underpayments

When will the changes come into force?

1 July 2024.

What are the changes?

Unions generally have to give an employer at least 24 hours’ notice that they wish to enter a worksite and can only apply to the Fair Work Commission for a certificate to waive the requirement for notice in very limited circumstances.

The right to apply to the FWC to waive giving notice of entry will be broadened and will now be available if the union wishes to enter to investigate suspected underpayment of wages.

Employers, particularly those with a unionised workforce, will therefore need to be prepared for the potential of a union entering their workplace without providing any prior notice.

10. Enterprise bargaining

When do the changes come into force?

Upon Royal Assent.

What is changing?

A number of technical amendments will be made, which mean:

It will be easier for groups of franchisees to make enterprise agreements collectively.
The FWC will determine the model flexibility, consultation and dispute resolution terms to be included in enterprise agreements, rather than the model terms being contained in the relevant regulations, as is now the case.
Any intractable bargaining declaration* made by the FWC will be required to be no less favourable to an employee or union than their existing enterprise agreement, assessed on a clause-by-clause basis (except for clauses dealing with wages).

*An intractable bargaining declaration is an order the FWC can make where there is an impasse between employers and employees/unions bargaining for an enterprise agreement, where the bargaining has been ongoing for at least 9 months.

Need Further Help?

If you need any assistance understanding these changes, or your obligations as an employer, ABIC Clinic Members can reach out to the ABIC HR advisory team for further guidance or contact an ABIC Facilitators on 1800MYABIC (1800 692 242).