What Australian employers can expect when latest Closing Loopholes changes 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.

Hear Aaron Goonrey discuss this story on The Pinsent Masons podcast here or wherever you get your podcasts.

The right to disconnect

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:

• the reason for the contact, e.g. emergencies, confirmation of work rosters, genuinely urgent deadlines, interstate or overseas work relationships
• the manner of the contact, e.g. is contact made by email, text, phone?
• the employee’s compensation, e.g. is the employee a high-income earner, has the employee agreed to work reasonable overtime, is the employee paid for the additional hours’ work?
• the nature of the employee’s role, e.g. seniority, responsibilities and whether the business is international
• the employee’s personal circumstances, e.g. does the employee have family or caring responsibilities that prevent him/her from responding to the contact?

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.

Changes to intractable bargaining declarations

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.

Penalties for breaches of the Fair Work Act

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 definition of employment

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:

• the totality of the relationship must be considered; and
• when considering the totality of the relationship between the worker and the organisation, attention must be given to how the contract is performed in practical terms, rather than only focusing on the terms of the contract itself.

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.

New definition of casual employee

The bill also amends the definition of a casual employee. An employee will be a casual employee only 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 if the employee were a casual employee, or the employee is entitled to such a loading or rate of pay under the contract of employment.

Whether there is an absence of a firm advance commitment, will be based on several factors including:

• the real substance, practical reality and true nature of the employment relationship; and
• a mutual understanding or expectation that there will be an absence of indefinite and continuing work, and on the basis that a firm advance commitment can be in the form of the contract of employment.

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.

Casual conversion changes

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.

Regulated workers

The bill also introduces radical new laws for “regulated workers” in the gig economy and the road transport industry. The new laws include:

• providing greater protections from unfair terminations and unfair deactivations for individuals working within a digital labour platform, as well providing the FWC the power to set the minimum standards for persons in a road transport contractual claim;
• expanding the scope of the definition of ‘digital labour platform’ to also apply where other parties other than the platform operator process relevant payments;
• amending the road transport objective to provide that in performing a function or exercising a power, the Expert Panel for the road transport industry would be responsible for considering the need for an appropriate safety net of minimum standards for regulated road transport workers and employees in the road transport industry, and having regard to the need for minimum standards in road transport contractual chains;
• provisions that employee-like workers and digital labour platform operators cannot be covered by both federal and state systems once an employee-like minimum standards order covers them.

Co-written by Suren Missaghi and Stefania Silvestro of Pinsent Masons.