The Albanese federal government has started the year by introducing a suite of significant workplace reforms, passing the Fair Work Legislation Amendment (Closing Loopholes No.2) Act 2023 (Cth) (Act) following robust debate. It follows the passing of the Fair Work Legislation Amendment (Closing Loopholes Act No.1) Act on 7 December 2023. Key changes made in the initial tranche included the criminalisation of intentional wage theft, broadened discrimination protections, increased workplace delegate rights (with the exception of regulated workers) and “same job, same pay” rights for labour hire workers.
The second tranche of workplace relations reforms aim to improve Australia’s workplace relations framework by addressing gaps in the current laws and includes:
The definition of employment has changed
In 2022, the majority of the High Court of Australia in CFMEU v Personnel Contracting Pty Ltd and ZG Operations v Jamsek established that when determining if a person is an employee or individual contractor, the written contract between the parties takes primacy.
The Act amends the Fair Work Act 2009 (Cth) to override this principle. New section 15AA of the Act will require the ordinary meanings of ‘employee’ and ‘employer’ be determined by reference to the ‘real substance, practical reality and true nature’ of the relationship. The ‘totality of the relationship’, including how the contract is performed in practice, must be considered when ascertaining the real substance, practical reality and true nature of a relationship.
This change will be particularly relevant to independent contractor relationships and claims that a relationship should be characterised as employment. These issues will now be subject to a broader set of considerations than the written contract between the parties and it will be more difficult for employers to rely solely, or in the main, on the terms of a written contract to the exclusion of how the relationship works in a practical sense. Employers should also keep in mind that a person may be engaged as an independent contractor at first, but then due to the conduct of the parties afterwards, be found to be an employee.
This legislative change will only be relevant for determining entitlements under the Act. Whether a person is an ‘employee’ for the purposes of taxation, superannuation and workers compensation will continue to be determined by other tests.
An interesting element of this legislative change is that contractors who earn over a ‘contractor high income threshold’ (currently $167,500), and who are already engaged at the time the Act commences, may ‘opt out’ of the amended definition of employment. However, they will have the ability to revoke that ‘opt out’ decision at any time by giving written notice.
Casual employment changes
The Act introduces two key changes in relation to casual employment.
New definition of casual employee
The reforms introduce a new definition of ‘casual employee’ as follows:
- the employment relationship is characterised by an absence of a firm advance commitment to continuing and indefinite work; and
- the employee is entitled under a fair work instrument or contract of employment to a casual loading or specific rate of pay for casuals.
The factors that are relevant to assessing whether there is a firm advance commitment include consideration of the real substance, practical reality and true nature of the employment relationship, whether this is verbal, written or could be inferred by conduct.
Factors which indicate the presence of a firm advance commitment include:
- the inability of the employer to offer, or not offer, work or inability of the employee to elect to accept or reject work;
- the reasonable likelihood of future availability of continuing work having regard to the nature of the business;
- whether full or part time employees perform the same kind of work; and
- whether the employee has a regular pattern of work (even if the pattern changes over time e.g. for illness, injury or recreation).
This change signals a move away from an employee’s casual status being assessed based on contract only, to being assessed having regard to what happens in practice.
The Act removes the ban on employees being both casuals and engaged under a fixed-term contract, excluding for academic university staff.
New pathway to casual conversion
The Act removes existing casual conversion provisions and introduces an “employee choice” framework.
Under the new casual conversion framework, a casual employee will be able to give their employer a written notice if they believe their employment is no longer casual, having regard to the new definition set out above. An employee can only give this notice after 6 months of employment if they are employed by a non-small business employer, and 12 months of employment if they work for a small business employer.
This new pathway removes many of the obligations employers had under the previous casual conversion provisions. Rather than making their own assessments and offering conversion where an employee meets certain requirements, employees need to initiate the shift to permanent employment and employers will need to respond to written notifications within 21 days after they are made. Employers must respond in writing, confirming the employee’s new status and hours of work if the notification is accepted. If employers do not accept the notification, they must set out why.
The Act provides that an employer may decline the employee notification, if:
- the employee meets the definition of a casual employee;
- there are fair and reasonable operational grounds for declining the notification; or
- accepting the notification would result in the employer not complying with recruitment or selection processes required by Commonwealth, State or Territory laws.
Anti-avoidance framework
The Act introduces anti-avoidance provisions to ensure casual employees are engaged properly. This includes requirements that employers must not:
- dismiss, or threaten to dismiss, an employee to engage that individual as a casual employee to perform the same or substantially similar work; and
- make a statement that the employer knows is false to persuade or influence the individual to enter a contract for casual employment under which the employee will perform the same or substantially similar work for the employer.
The defence to sham contracting has been narrowed
Employers who have incorrectly classified an employee as an independent contractor may be penalised for sham contracting, unless they can prove that the amended sham contracting defence applies.
Prior to the reforms, an employer needed to prove that they did not know and were not reckless as to whether the contract was an employment contract rather than one for services.
The narrowed defence provides that an employer has not contravened the sham contracting provisions if, at the time of the representation, the employer reasonably believed the contract of employment was a contract for services.
In determining whether the employer’s belief was reasonable, courts will be required to consider the size and nature of the employer’s enterprise, and will have discretion to consider any other relevant matters.
Right to Disconnect
The Act also introduces a right for employees to refuse contact from employers or third parties outside their paid working hours, unless that refusal is unreasonable.
There is a set list of matters which must be considered when deciding whether a refusal to contact is unreasonable or reasonable. This will operate in a similar way to existing provisions in the Act which relate to reasonable additional hours. In determining whether a refusal to respond is unreasonable, regard must be had to:
- the reason for the contact or attempted contact;
- how the contact or attempted contact is made;
- the level of disruption the contact or attempted contact causes the employee;
- the extent to which the employee is compensated, either to remain available during the period in which the contact or attempted contact is made or for working additional hours outside their ordinary hours;
- the nature of the employee’s role and level of responsibility;
- the employee’s personal circumstances including family and caring responsibilities; and
- whether contact is required by law.
The right to refuse contact will be a ‘workplace right’ for the purposes of the Act’s general protections regime. This means that if the employer and employee cannot resolve their dispute over the right to disconnect, either party can apply to the Fair Work Commission to make an order to stop refusing contact, to stop taking certain actions, or to otherwise address the dispute.
The Fair Work Commission will be required to issue written guidelines about what is reasonable or unreasonable contact from an employer or third party, which we expect will greatly assist employers and employees to have conversations about the right to disconnect. The right to disconnect provisions will have a delayed commencement for small businesses.
Significant increase to civil penalties
The maximum civil pecuniary penalties available under the Act for breaches by body corporates of the National Employment Standards, modern awards, enterprise agreements and minimum wages will increase at least fivefold:
| Nature of breach | Body Corporate |
| Contravention | $469,500 |
| Serious contravention | $4,696,000 |
The maximum civil penalty for a contravention of the civil remedy provisions “associated with an underpayment amount” is the higher of:
- the ordinary civil pecuniary penalties set out above; or
- 3 times the value of the underpayment.
These increases only apply to breaches by body corporates and do not apply where the organisation is a small business employer at the time an application for a penalty is made.
Further, there are new criminal offences for specific intentional underpayments. The criminal offence carries a maximum fine for body corporates and a term of imprisonment of up to 10 years or a fine for individuals. Where the Courts can determine the underpayment amount, the maximum fine that a Court can order against a body corporate is the greater of 3 times the underpayment amount and 5,000 penalty units (currently $1,565,000) for an individual or 25,000 penalty units (currently, $7,825,000) for a body corporate. If the Court cannot determine the underpayment amount, the maximum fine for an individual is 5,000 penalty units ($1,565,000) and for a body corporate is 25,000 penalty units ($7,825,000).
Timing
We summarise below when each change will come into operation:
| Change | When it commences |
| Definition of employment | 26 August 2024, or an earlier date set by the Government |
| Casual employment (definition and casual conversion) | 26 August 2024 |
| Sham contracting | 27 February 2024 |
| Right to disconnect | 26 August 2024 (for non-small business employers)
26 August 2025 for small business employers |
| Increase to civil penalties | 27 February 2024 for increased civil penalties for breaches of the NES, modern awards, enterprise agreements and minimum wages by companies (does not apply to small businesses).
For civil penalties associated with an underpayment amount, commencement will be on 1 January 2025, or an earlier date to be fixed by proclamation (does not apply to small businesses). |
| Criminal penalties for underpayments | 1 January 2025 |
How we can help
The reforms summarised in this article highlight the importance of employers reviewing their engagement of workers, including whether:
- casuals, fixed-term employees, and contractors are and will be engaged lawfully (noting the changes to casual employment, limitations on fixed-term contracts and increased risks of sham contracting, and the significant implications of these reforms);
- their expectations about the availability of workers after hours;
- changes in policy, process and contractual arrangements are required to address the reforms.
Our Workplace Relations team can assist employers to minimise the risk of breaching the sham contracting obligations which commenced on 27 February 2024, and prepare for the commencement of other significant workplace relations reforms in August 2024.
The reforms follow previous changes to Australia’s workplace laws made by the federal government in 2022, including the Secure Jobs, Better Pay Bill and the new limits on fixed term contracts, and changes made in 2023.
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Disclaimer: This article provides general information only and is not intended to constitute legal advice. You should seek legal advice regarding the application of the law to you or your organisation.