Closing loopholes 20 min read
The Federal Government has introduced the Fair Work Legislation Amendment (Closing Loopholes) Bill 2023 (Cth), to amend the Fair Work Act 2009 (Cth). You can read the Bill here.
In this Insight, we explore the key reforms proposed by the Bill and offer recommended steps you can take now to prepare should the changes become law.
- The proposed amendments would introduce a new federal criminal offence of 'wage theft', with significant maximum penalties. Critically, an employer would only be guilty of the offence if it intentionally engaged in the conduct (or the inaction) to achieve the result of depriving employees of entitlement amounts.
- The proposed new laws would significantly increase the available civil penalties for many contraventions of the Fair Work Act.
- The new laws would replace the definition of 'casual employee' with a new definition based on 'the real substance, practical reality and true nature of the employment relationship'.
- The Bill proposes to introduce an obligation on labour hire providers to pay a labour hire employee no less than a 'protected rate of pay'. Importantly, this obligation would only apply if the Fair Work Commission has made a labour hire arrangement order.
- The Bill provides that for the Fair Work Act, the ordinary meanings of 'employee' and 'employer' must be determined by ascertaining the 'real substance, practical reality and true nature of the relationship'.
The proposed amendments would introduce a new federal criminal offence of 'wage theft'.
- The offence would apply to amounts due under the Fair Work Act and industrial instruments, but not employment contracts.
- Only intentional underpayments captured. Critically, an employer would only be guilty of the offence if it intentionally engaged in the conduct (or the inaction) to achieve the result of depriving employees of entitlement amounts. The Government has said the decision to specifically include 'intention' among the elements of the new offence 'makes clear that underpayments that are accidental, inadvertent or based on a genuine mistake' would not come within the scope of the offence.
The existing Federal Criminal Code (which would apply to prosecutions for the new 'wage theft' offence) contains provisions explaining how 'intention' would be attributed to a company. Briefly, a company would have a relevant 'intention' to commit an offence if it expressly, tacitly or impliedly authorised or permitted the commission of the offence. In applying these provisions, the knowledge, conduct and intention of senior executives and directors would be relevant, as would the extent to which the company has created and maintained a 'corporate culture' of employee entitlement compliance.
- Significant criminal penalties will apply. The maximum penalties for the new criminal offence would be significant. For companies, the maximum monetary penalty would be the higher of $7.825 million or three times the amount of the underpayment. Individuals would face potential imprisonment of up to 10 years, or a fine of the greater of $1.565 million or three times the amount of the underpayment.
- Self-disclosure 'safe harbour' protection might be available. The Government has included in the proposed legislation a mechanism by which employers could seek to protect themselves from prosecution by entering into 'cooperation agreements' with the Fair Work Ombudsman (FWO). The FWO would have discretion to determine whether to enter into a cooperation agreement. Factors relevant to the FWO's exercise of that discretion would include the extent to which the employer has made a 'voluntary, frank and complete' disclosure of the conduct, the extent of the employer's cooperation with the FWO, and the seriousness of the offence. The intention of a cooperation agreement would be to provide for ongoing cooperation between the employer and the FWO on compliance matters. While a cooperation agreement is in force, the FWO could not refer the matter for prosecution.
The new offence would commence on 1 January 2025 (or an earlier date set by proclamation). As a general rule, federal criminal offences cannot be retrospective in operation. However, it is possible that an intention that is first formed before the commencement of the new offence might 'continue' and trigger criminal liability for underpayments that occur after commencement. For this reason, even before commencement of the new provisions, employers should take care to ensure payroll compliance is high priority.
The proposed new laws would also significantly increase the available civil penalties for many contraventions of the Fair Work Act. In particular, the standard maximum civil penalty that would apply to a single contravention of the National Employment Standards, a modern award or an enterprise agreement, would increase to $469,500 for a corporation and $93,900 for an individual. This would be a five-fold increase to the maximum civil penalties that currently apply.
In addition, where the contravention involves an underpayment, the maximum applicable civil penalty would be the greater of five times the otherwise applicable maximum civil penalty or three times the underpayment amount. As such, breaches of enterprise agreements or modern awards that result in underpayments would, potentially, leave an employer liable to civil penalties in the millions—a dramatic increase from the existing regime.
The proposed laws also amend the existing criteria for determining whether a serious contravention has occurred, which triggers higher maximum penalties (up to $4.695 million for a corporation). Under the proposed new laws, a person will be regarded as having engaged in a serious contravention if they knowingly underpay employees or are reckless as to whether a contravention could occur. In this context, recklessness involves the awareness of a substantial risk of the contravention occurring and it being unjustifiable to take that risk.
The increases in available maximum civil penalties are particularly significant given recent High Court and Federal Court cases that have determined that 'proportionality' is not a relevant consideration in setting an amount of a civil penalty. These recent cases have shown a greater willingness by courts to impose the maximum civil penalty, where the court decides that is necessary for deterrence.
These new civil penalty provisions would commence on 1 January 2024 (unless the proposed legislation is not passed by then).
In 2021, the former Coalition Government included a definition of 'casual employee' in the Fair Work Act, which provides that whether a person is a casual employee is to be assessed on the basis of the offer of employment and not on any subsequent conduct of the employer and employee. As foreshadowed during the consultation process earlier this year, the new laws would replace the definition of 'casual employee' with a new definition based on 'the real substance, practical reality and true nature of the employment relationship' and taking into account a range of factors.
This means that what the employer and employee do in practice would be relevant to determining whether an employee is a casual employee. For example, if in practice the employer generally offers work to the employee and the employee generally accepts work, this would be a factor that weighs in favour of the employee being a permanent employee. Similarly, if in practice the employee works a regular pattern of work, even if it is not absolutely uniform, this would indicate the employee is a permanent employee.
The definition of 'casual employee' would also have the effect that, for a casual employment arrangement to be lawful, the employee would have to receive an identifiable casual loading, regardless of whether the employee is entitled to such a loading under an industrial instrument.
The law would also introduce a new 'employee choice' process whereby a casual employee could notify their employer that they believe they no longer meet the requirements of the new definition of casual employee. This is in addition to the existing processes for employers to offer, and employees to request, conversion from casual employment to permanent employment. If the employer accepted the employee choice notification, the employee would change to permanent employment from the date specified by the employer, in consultation with the employee. There would be limited grounds for an employer to reject an employee choice notification and the employer would have to give detailed reasons for their decision.
The proposed law would also introduce a requirement to provide a casual employment information statement to casual employees after 12 months of employment, in addition to when the employment commences.
The proposed law would also:
- expand the existing anti-avoidance provisions by providing that an employer must not change an employee's pattern of work to avoid any right or obligation under the employee choice or casual conversion provisions
- permit the Fair Work Commission (FWC) to arbitrate disputes regarding the new employee choice provisions and the existing casual conversion provisions, without the agreement of the parties
- introduce new offences regarding misrepresenting employment as casual employment, dismissing an employee to engage them as a casual employee and making misrepresentations to engage an individual as a casual employee. These offences mirror the existing sham contracting provisions in the Fair Work Act.
If passed, the new and amended provisions regarding casual employees would take effect from 1 July 2024. As such, employers should review their:
- existing casual arrangements to assess the risk the employees are permanent
- casual employment contracts
- processes for determining whether an employee can be engaged as a casual
- casual conversion processes.
As foreshadowed in the consultation paper released earlier this year, the Bill proposes to introduce an obligation on labour hire providers to pay a labour hire employee no less than a 'protected rate of pay' in connection with the work performed by the labour hire employee for the host business. Importantly, this obligation would only apply if the FWC has made a labour hire arrangement order that specifies the host business, labour hire provider and labour hire employees that are subject to the order.
The FWC would have to make an order if it was satisfied that:
- an employer supplies or will supply, either directly or indirectly, one or more employees of the employer to a host to perform work for the host
- an enterprise agreement (or equivalent) that applies to the host would apply to the employees if the host were to employ them directly to perform that work
- the host is not a small business employer.
It does not matter whether the employer and host are related companies.
The 'protected rate of pay' is defined as the 'full rate of pay' that would be payable to a labour hire employee if they were covered by the host business' employment instrument (eg an enterprise agreement or workplace determination). The full rate of pay includes any incentive-based payments, bonuses, loadings, allowances, overtime and penalty rates and other separately identifiable amounts.
The Explanatory Memorandum says the intention is that labour hire providers are required to ensure that the total amount paid to labour hire employees is no less than the protected rate, not that the labour hire provider must match specific amounts paid under the instrument. Unfortunately, this is not dealt with expressly in the proposed law, which could create uncertainty.
It is also unclear whether the protected rate of pay only includes amounts payable under the host business' employment instrument or whether it may also include other amounts payable in connection with the work performed by a labour hire employee for a host business (eg a site-based allowance payable outside the host business' employment instrument).
The proposed laws would allow the FWC to make an order specifying an alternative protected rate of pay, not a rate based on the host business' employment instrument. It appears that the alternative protected rate of pay could be derived from any employment instrument that applies to the host employer or a related body corporate of the host employer.
Arrangements involving the supply of labour hire employees for a period of less than three months (including variations) would generally be exempt from these provisions. However, the Commission could make an order to extend, remove or shorten the exemption period.
Unfortunately there is no clear carve-out of services contracts/specialist contractors from the proposed laws. Instead, the proposed laws would provide that the FWC must not make a labour hire arrangement order if it is satisfied it is not fair and reasonable to do so, having regard to various factors, including whether the performance of the work is wholly or principally for the provision of a service rather than the supply of labour. The Explanatory Memorandum provides the example of a catering service contracted to provide catering for employees of a host business the primary business of which is not the provision of catering services.
The proposed law would:
- impose obligations on host businesses to provide labour hire providers with all necessary information regarding the protected rate of pay
- allow the FWC to deal with disputes about what the protected rate of pay is, including by arbitration
- include anti-avoidance provisions that prohibit schemes made for the purpose of preventing the FWC from making a labour hire arrangement order and other practices aimed at avoiding paying the protected rate of pay (eg the labour hire provider engaging independent contractors instead of employees to perform work for the host business).
If passed, the majority of these provisions would take effect from the day after the Act receives Royal Assent. This means applications for labour hire arrangements could (and would) be made in the near future. However, a labour hire provider could not be required to pay the protected rate of pay until on or after 1 November 2024. Further, the anti-avoidance provisions apply retrospectively to prohibit conduct or schemes entered into on or after 4 September 2023.
Any business that has workers engaged through labour hire or entities that supply labour within a corporate group, or that uses external service providers, should be considering whether to prepare to respond to an application for a labour hire arrangement order. Consideration should also be given to what alternatives there are to those labour models, if they become unviable.
The Bill provides that the ordinary meanings of 'employee' and 'employer' are to be determined by ascertaining the 'real substance, practical reality and true nature of the relationship' between the parties. The Bill further prescribes that in making this assessment, regard must be had to the 'totality of the relationship' between the parties, having regard to the terms of the contract governing the relationship and other factors relating to the totality of the relationship, including how the contract is performed in practice.
The inclusion of these definitions is expressly intended to require a multi-factorial assessment as to whether an individual is an employee or independent contractor, as was the case prior to the High Court decisions in CFMMEU v Personnel Contracting Pty Ltd  HCA 1 and ZG Operations Australia Pty Ltd v Jamsek  HCA 2, which are discussed here.
The new definitions would only apply for the purpose of the Fair Work Act, not other laws relating to employment, such as superannuation and long service leave laws (where the common law from the High Court decisions would continue to apply). This could result in workers being treated as an employee for only some entitlements, or the employer choosing to pay employment entitlements where there is no statutory obligation to do so (to ensure consistency).
There are also proposed amendments to the existing defence to the sham contracting offence under the Fair Work Act, so that it is available where a business reasonably believes an arrangement is an independent contractor arrangement.
Independent contractors earning below a new 'contractor high income threshold' would be able to challenge unfair provisions in their contracts, allowing the FWC to rewrite the terms and conditions of contractor agreements. Independent contractors earning above the contractor high income threshold would access the unfair contracts provisions of the Independent Contractors Act, rather than the Fair Work Act.
If passed, these changes would take effect from the day after the Act receives Royal Assent.
If the law is passed, businesses will need to review their processes for determining whether a worker can be engaged as an independent contractor and whether that relationship can be maintained over time. Template independent contractor agreements should also be reviewed.
New model terms
The Bill contains a proposal to change the process for determining the model flexibility, consultation and dispute resolution terms for enterprise agreements. Currently, these model terms are prescribed in the Fair Work Regulations. Under the proposed changes, a Full Bench of the FWC would determine the model terms, consistent with the manner in which modern awards are created.
As is the case currently, the model terms would not override terms agreed to between the parties to an enterprise agreement, provided the agreed terms comply with the requirements under the Fair Work Act.
The new law would prescribe the matters the FWC would take into account in determining the model terms, including whether:
- the model terms are broadly consistent with comparable terms in model awards
- the terms represent 'best practice' workplace relations
- all relevant persons and bodies have had the opportunity to make submissions on the model
The amendments would commence 12 months after the date the Bill receives Royal Assent. This would allow the FWC to determine the model terms.
Obviously there would be the potential for the Commission to make substantial changes to the model terms, which could be detrimental to business. An example would be more onerous consultation requirements, or more limited circumstances where flexible work arrangements may be used.
Franchisees can collectively bargain for enterprise agreements
The Bill would amend the existing bargaining framework to enable multiple franchisees of the same franchisor (or related bodies corporate) to make a single-enterprise agreement. This would allow franchisees to bargain as if they were a single enterprise, including conducting a ballot to approve an enterprise agreement as if multiple franchisees were a single enterprise. Employees of franchisees could also obtain a majority support determination where a majority of employees who would be covered by the proposed agreement wish to bargain, without the requirement to establish that each employer has at least 20 employees.
These amendments would commence the day after the Bill receives Royal Assent.
Collective agreements for employee-like workers and road transport contractors
The Bill would introduce a framework for digital labour platform operators and road transport businesses (known as 'regulated businesses') to make consent-based collective agreements with registered employee organisations, in relation to the terms and conditions of 'employee-like' workers engaged by regulated businesses (known as 'regulated workers').
These amendments would commence on 1 July 2024.
Multi-employer bargaining provisions
The new law would alter the path for employers covered by a multi-employer agreement to make a single-enterprise agreement. The changes would include:
- If the nominal expiry date of the multi-employer agreement has not passed, the employer would have to obtain the written consent of relevant unions before putting the replacement agreement to employee vote, or obtain a voting request order from the FWC.
- The single-enterprise agreement would be assessed against the existing multi-enterprise agreement for the 'better off overall' test.
These amendments would commence the day after the Bill receives Royal Assent.
Workplace delegates' rights
The Bill would introduce a new rights framework for workplace delegates, being workers elected or appointed by their union to represent the interests of union members (including employee-like workers) in the enterprise.
Workplace delegates would be entitled to:
- represent the industrial interests of current and potential eligible union members, including in disputes with their employer
- reasonable communications with members and potential eligible members in relation to their industrial interests
- reasonable workplace access
- reasonable access to paid time for training during normal working hours.
All modern awards, new enterprise agreements and new workplace determinations would have to include a 'delegates’ rights term' consistent with the above entitlements.
New general protections provisions would prohibit employers from failing to deal with a workplace delegate or hindering, obstructing or preventing them in exercising their rights, unless the employer could demonstrate it was reasonable to do so (eg if the action was reasonable management action taken lawfully). Employers would also be prohibited from knowingly or recklessly making a false or misleading representation to a workplace delegate.
These amendments would commence the day after the Bill receives Royal Assent.
If the law is passed, employers should review existing processes for engaging with delegates and provide information and training to managers regarding the new rights, entitlements and prohibitions. Consideration should also be given to how these new rights could result in claims during enterprise bargaining for even greater rights for delegates.
Right of entry for suspected contraventions of the Fair Work Act
The Bill includes provisions for unions to enter workplaces without notice to investigate suspected contraventions of the Fair Work Act in respect of members. The union would have to obtain an exemption certificate from the FWC so that the usual 24-hour notice is not required.
This change would commence on 1 July 2024.
If the law is passed, employers should review their right of entry protocol and training to cover this change.
Gig workers and road transport contractors
The proposed laws would empower the FWC to set mandatory orders and advisory minimum standards guidelines for road transport contractors and 'employee-like' digital platform workers. A wide range of matters could be covered, including payment terms, deductions, working time, record-keeping, consultation and insurance.
A worker would be 'employee-like' if they performed digital platform work and satisfied one or more of the following: low bargaining power, paid the same or less than employees performing comparable work, or a low degree of authority over the performance of the work.
New 'unfair deactivation' and 'unfair termination' regimes would empower the FWC to deal with the termination of 'employee-like' digital platform workers and road transport contractors, similarly to the existing unfair dismissal regime for employees. This would allow the FWC to make a wide range of orders, including reinstatement.
For the road transport industry specifically, a new FWC expert panel would have the power to set above-award conditions for participants throughout the road transport industry (including owner drivers and independent contractors), and to impose orders across the entire contractual chain.
If passed, these changes would take effect on 1 July 2024.
The Bill needs to work its way through parliament. The Minister for Employment and Workplace Relations has said he is having good engagement and conversations with the Senate crossbench about the proposed laws. No doubt the Greens will have views. We will monitor the progress of the Bill and provide updates.