Closing Loopholes Bill: Key considerations as we head into 2024
On September 4, 2023, the Australian Labor Government introduced the Fair Work Legislation Amendment (Closing Loopholes) Bill 2023 to Parliament, which aims to close the 'loopholes' that undermine pay and working conditions in the Commonwealth jurisdiction. The 284 page Bill proposes to implement some of the most significant changes to industrial relations law in Australian history, and received significant criticism by businesses and politicians as to its complexity and the long-term consequences of the proposed legislation.
Since the publication of our 2023 Year in Review article below, the Federal Labor Government has announced a major change to the previously proposed timetable for the passage and presumably implementation of the Closing Loopholes Bill. With the support of the Greens and crossbench senators, David Pocock and Jacqui Lambie, the Senate has now voted to divide the Bill into two parts.
As of 7 December 2023, and by a vote of 32 to 25, the Senate has passed the first part of the Bill which deals with the following reforms, some of which are uncontentious, but others have been heavily contested:
- creating a clear pathway and a reverse onus of proof for first responders with PTSD to access support under the Safety, Rehabilitation and Compensation Act 1998. These provisions will cover the Australian Federal Police, ambulance officers, paramedics, emergency services communications operators, firefighters and members of the Australian Border Force;
- strengthening protections for workers experiencing domestic violence and protecting them against discrimination, including preventing adverse action by their employers;
- extending the remit of the Asbestos Safety and Eradication Agency to bring silica into line with asbestos;
- safeguarding redundancy payments for workers who might be working for larger businesses that have become a small business due to insolvency;
- criminalising intentional wage and superannuation theft;
- creating new workplace rights for union delegates including to reasonable paid time off to attend union training;
- critically, providing for applications to the Fair Work Commission for same job, same pay orders for labour hire workers, which is one of the most contentious reforms the Bill proposes;
- introducing a new criminal offence of industrial manslaughter for Commonwealth Government bodies and employers insured under the Comcover scheme; and
- introducing a voluntary small business wage compliance code by 1 January 2025, which is said to shield smaller employers from the new sanctions on wage and superannuation theft.
The remaining, and other more contentious parts of the Bill, now to be known as the ‘Fair Work Legislation Amendment (Closing Loopholes No.2) Bill 2023, will deal with changes to “employee-like” work in the gig economy, reforms to the road transport industry (including implementing minimum standards for truck drivers), and the definition of and conversion process for casual employees to permanent employment. The Workplace Relations Minister, Tony Burke, has stated that these reforms are still a priority for the Government, and can be expected to be debated in the Senate in early 2024.
Minister Burke has also indicated that the Government will be working with the crossbench to deliver an agreed amendment to provide employees with a right to disconnect.
Stay tuned to see if these changes are passed by Parliament next year!
Employers should consider how elements of the Bill could impact your organisation. We have selected the following key areas of the Bill for you to review. These areas include changes to:
- Definition of an employee vs contractor
- Definition of a casual employee
- How workplace reforms may affect labour hire
- Definition of employee-like arrangements
Definition of an employee vs contractor
If Closing Loopholes is passed by the Senate in 2024, a new ‘ordinary meaning’ of the terms employee and employer will be introduced into the Fair Work Act 2009. Whether a worker is an employee or an independent contractor (or another type of worker) can affect many aspects of their rights and obligations. For example, whether they have the benefit of the National Employment Standards and minimum entitlements in an award, whether they can access the unfair dismissal jurisdiction, whether superannuation is paid on their behalf, and whether PAYG tax must be deducted from their earnings.
History of the Definition
For many decades, the law has struggled with how to distinguish an employment relationship from that of an independent contractor with their principal. A true independent contractor is in business on their own account, selling services to clients for a contract price. In contrast, an employee is providing their labour (or “service”) to their employer in return for wages. The question is, in the real world where these distinctions are often blurred, how do we tell the difference, when so many rights hang off being an employee?
Many pieces of legislation use the phrase ‘ordinary meaning’ to define key terms rather than including a specific definition. Where this phrase is used, we must look to the common law meaning given by the courts. The proposed change to the Fair Work Act will replace the current common law test for identifying who is an employee (based on the decisions of the High Court of Australia in CFMMEU v Personnel Contracting Pty Ltd and ZG Operations Australia Pty Ltd v Jamsek) with a new statutory test.
Proposed multi-factor employment test
The proposed test for whether a person is an employee of an employer is that it will be determined by ascertaining the “real substance, practical reality and true nature of the relationship between the individual and the person.” How does the Bill suggest this be done? By considering the totality of the relationship which is made up of:
- the terms of the contract
- how the contract is performed in practice
- any other relevant factors.
This new test will be a significant departure from the test confirmed in recent years by the High Court, which has essentially provided that ‘the contract is king’. The Closing Loopholes Bill seeks to reverse the High Court’s approach and replace it with something that approximates the pre-2022 position.
Under the proposed statutory test, consideration of the common indicia used when determining the true nature of the relationship will be:
rooted fundamentally in the difference between a person who serves their employer in the employer’s business, and a person who carries on a trade or business on their own.
Thinking beyond the definition
If the new definition becomes law, hopefully the attention of lawmakers will turn to other pieces of legislation that deal with the rights and obligations of workers (such as taxation and superannuation) to ensure there is consistency between the definitions in the Fair Work Act and those statutes. State legislatures will also need to consider whether they wish to amend their industrial relations referral instruments to reflect the new definition; as it currently stands the new definition of employment will not apply to the industrial relations powers that States have referred to the Commonwealth. This would lead to the situation where potentially a State public servant in Victoria, for example, would have their employment relationship defined by reference to the common law test as applied by the High Court; but an equivalent employee in a private organisation would be subject to the new definition.
Definition of a Casual Employee
Under a new objective test based on the nature of the relationship, an employee will be a casual employee if:
- there is an absence of a firm advance commitment to continuing and indefinite work; and
- the employee is entitled to either a casual loading or a specific rate of pay under an applicable industrial instrument or under the terms of their employment contract.
The powers of the Fair Work Commission and courts to deal with disputes about casual employment are made greater by:
- expanding the existing small claims procedure to include disputes about the classification of an employee as a casual employee at the start of their employment; and
- allowing the FWC to resolve casual conversion disputes, including by mandatory arbitration.
An anti-avoidance framework would be introduced to stop employers from finding and using loopholes to frustrate casual conversion. This includes a prohibition on misrepresentation. Contravention of these provisions may attract a civil penalty.
How workplace reforms may affect labour hire
The Bill also contains proposed reforms to the labour hire landscape (Labour Hire Reforms). These Labour Hire Reforms have had substantial publicity over the past several months, in no small part because they have the potential to impact the way many businesses and organisations source and pay for labour.
What are the current Labour Hire Reforms?
The Labour Hire Reforms are a complex set of amendments to the Fair Work Act. Key concepts in the Labour Hire Reforms include:
- Relevantly describing “labour hire” as occurring when an employer supplies or will supply, either directly or indirectly, one or more employees of the employer to a regulated host to perform work for the regulated host (note, small businesses are excluded from being a regulated host).
- Empowering the Fair Work Commission to make regulated labour hire arrangement orders (Labour Hire Orders) requiring labour hire employers (LHEs) to pay their employees the same “full” rate of pay that the “host” pays its employees under an employment instrument (such as an enterprise agreement), or other protected pay rate, for performing the same kind of work.
- Providing specified individuals with the right to make an application to the Commission for a Labour Hire Order (including labour hire employees, employees of a regulated host and unions).
- whether the performance of the work is or will be wholly or principally for the provision of a service, rather than the supply of labour having regard to:
- the involvement of the LHE in matters relating to the performance of the work;
- the extent to which the LHE directs, supervises or controls its labour hire employees when they perform the work;
- the extent to which the labour hire employees use systems, plant or structures of the LHE to perform the work;
- whether the performance of the work is or will be wholly or principally for the provision of a service, rather than the supply of labour having regard to:
- the relationship between the regulated host and the LHE, including whether they are related bodies corporate or engaged in a joint venture or common enterprise;
- the terms and nature of the labour hire arrangement under which the work will be performed.
(Note, this is not a complete list of considerations.)
- Excluding training arrangements and specified short-term arrangements from the protected pay requirement.
- Implementing information sharing obligations on regulated hosts to share information about protected pay rates with LHEs.
- Empowering the FWC to arbitrate disputes in relation to labour hire arrangements.
Why does this matter and who should be monitoring the Bill?
Traditional labour hire arrangements are understood to be where two unrelated parties enter into a commercial agreement where one party sources and provides labour to the other party to work effectively as a part of the second party’s enterprise.
However, the concept of labour hire in the Labour Hire Reforms is broader than this traditional understanding. For example, it will potentially capture the provision of labour between entities within a corporate structure.
On 22 November 2023, Workplace Relations Minister Tony Burke announced his intention to introduce an exclusion from the Labour Hire Reforms in relation to service contractors who are providing services other than just the provision of labour. At the time of writing, the wording of the proposed amendment is yet to be introduced to the Parliament, consequently, we can’t yet know the impact of the exclusion.
This means that organisations should monitor the progress of the Bill and consider how it might impact on how they utilise labour hire or provide labour hire. For example, labour hire providers and hosts should start thinking about:
- Whether the introduction of these reforms will result in the need to re-negotiate commercial labour hire arrangements to accommodate for the possibility of a Labour Hire Order being made.
- Assessing potential labour cost impacts, noting that the general meaning of an employee’s “full rate of pay” in the Fair Work Act includes:
- incentive‑based payments and bonuses;
- monetary allowances;
- overtime or penalty rates;
- any other separately identifiable amounts.
- Analysing where labour hire is used and the impact that a successful application for a Labour Hire Order might have (e.g. where do labour hire workers and employees, who are covered by a enterprise agreement, undertake exactly the same work).
Labour hire providers should also start to think about how a Labour Hire Order may interact with compliance with other industrial instruments (such as Modern Awards). For example, there may be added costs to a labour hire provider from the possibility of needing to comply with non-monetary award obligations plus the “full” rate of pay that the “host” pays its employees under an enterprise agreement.
Definition for employee-like arrangements
Closing Loopholes proposes to introduce protections for a new category of worker – namely, an “employee-like” worker. These reforms are significant as, for the first time, workers who are not employees will be subject to extensive regulation dealing with their engagement.
An employee-like worker, in essence, captures contractors working in the gig economy (digital platform work for companies like Uber and Deliveroo) and the road transport industry – for example, delivery drivers, non-employee truck drivers, couriers, rideshare drivers, etc.
What would this look like?
1. Regulation of the road transport industry:
The Fair Work Commission can exercise functions and powers in relation to the road transport industry, taking into account the primary objective of ensuring that the road transport industry is safe, sustainable and viable.
2. Set minimum standards:
The Commission can make binding minimum standards orders as well as non-binding minimum standards guidelines in relation to “employee-like” workers. Orders could include payment terms, deduction arrangements, working times, record-keeping obligations, insurance requirements, consultation obligations, representation, delegates’ rights and/or cost recovery.
3. Collective agreements:
Digital labour platform operators and road transport businesses can enter consent-based collective agreements with unions and other registered employee organisations.
4. Disputes about unfair terminations:
The Commission can deal with disputes over the unfair termination of a road transport contractor’s services contract by a road transport business, and the unfair deactivation of an employee-like worker from a digital labour platform. Eligible workers can seek reinstatement or compensation.
5. Disputes about unfair contract terms
The Commission can deal with disputes about unfair contract terms where an independent contractor earns below a “contractor high income threshold”.
The Independent Contractors Act 2006 will continue to apply to independent contractors earning above the contractor high income threshold. This threshold has not been set yet.
Why is the government proposing these changes?
The government’s intention in making these changes is to promote and protect the rights of an emerging class of workers through a safety net of minimum terms and conditions and more favourable conditions of work.
The government’s view is that these changes will create job and economic security for employee like workers.
What are the likely impacts?
On the one hand, there is the potential for significant red-tape in the gig economy and road transport industry, significantly impacting productivity and profit for employers. This could have a flow on effect to other business and mean higher prices for consumers.
On the other hand, it is important to ensure a safety net exists for non-employees who do not have a great degree of bargaining power, are not comparatively well paid and do not ordinarily have the benefit of collective representation. The changes may also assist in providing a safer environment in which the employee-like workers work.
Considerations for 2024
- The definition of employment vs contractor arrangements will now be subject to a multi-factor statutory test that takes into account the totality of the arrangement on an ongoing, evolving basis.
- Employers will be given greater power in relation to casual employment, including a new pathway to permanent employment.
- Changes to the Labour Hire Reforms may see increased costs associated with labour hires, in part due to the possibility of regulated labour hire arrangement orders whereby a labour hire employer will have to pay its employees the same full rate of pay as the host company’s own employees, if the labour hire employees are doing the same work.
- Organisations with employee-like arrangements in place should plan for potentially increased labour costs and associated protections for this new class of workers.
If you have any questions about how the proposed Bill will affect your organisation in 2024 please feel free to reach out to a member of our employment law team.
Employment, Safety & People 2023 Year in Review
Read more legal insights from our annual publication.
 Key indicia include: whether there is a right on the part of the employer to control how the work is done, integration into the business, mode of remuneration, ability to delegate or subcontract, provision of tools and equipment, business risk and the generation of goodwill
 Marshall v Whittaker’s Building Supply Co (1963) 109 CLR 210.
First employer convicted under Victoria’s new workplace manslaughter laws
The Victorian Supreme Court delivered its first sentence under Workplace Manslaughter provisions of the Victorian OHSA.
‘The right to disconnect’: One key step employers can take now
By Ross Jackson
Employees' right to refuse to monitor, read or respond to contact from their employer outside of working hours...
Australia Day: what you need to know about public holiday ‘substitution’
By Maree Skinner, Simone Luca
What employers need to know if allowing employees to swap their January 26 public holiday for another day.