Skip to content

Get ready for changes to the Fair Work Act starting 26 August 2024

Posted byJonathan Williamson

Important changes for businesses and employees take effect on 26 August 2024

The Fair Work Legislation Amendment (Closing Loopholes No. 2) Act 2024 (Closing Loopholes) has brought significant changes to the Fair Work Act 2009 (FWA). These changes follow earlier reforms under the Closing Loopholes No. 1 legislation, that have progressively been implemented since December 2023.

What is it all about?

The upcoming reforms include changes affecting:

  • casual employment;
  • independent contractors; and
  • the right to disconnect.

The Changing Loopholes reforms introduce significant changes aimed to enhance worker protections and close gaps in employment legislation, as part of attempts to address and rectify job security issues in Australia.

Below we provide further detail on these reforms, so you can be better prepared for the changes starting on 26 August 2024.

1. Casual Employment

1.1 New definition

  1. There is a new definition of a ‘casual employee’ and changes to the ‘employee choice’ process, that relates to the pathways for casual employees to convert to permanent full-time or part-time employment.
  2. Under the new definition of ‘casual employee’:
    1. if there isn’t a ‘firm advance commitment to continuing and indefinite work’, taking into account a number of factors, including the real substance, practical reality and true nature of the employment relationship; and
    2. the employee is entitled to receive a casual loading or specific casual pay rate,

then the employee is defined as a ‘casual employee’ under the FWA.

1.2 Casual conversion becomes ‘employee choice’

  1. The changes to the ‘employee choice’ process provide that if a casual employee has been employed for 12 months and they believe their employment no longer aligns with the new definition set out above, they may provide a written notification to their employer stating that they are eligible to change their employment status to permanent employment under the FWA.
  2. An employer may reject an employee choice notification, provided that it is on fair and reasonable operational grounds. For example, if the change in employee’s employment status would cause significant disruption to the business or require substantial changes to the way the employer’s work is organised.
  3. An employee can only make the request if they:
    1. have been employed for at least 6 months (or 12 months if working for a small business employer); and
    2. believe they no longer meet the requirements of the new casual employee definition.
  4. However, an employee cannot make the request if:
    1. it has a current dispute with the employer relating to casual conversion;
    2. in the last 6 months, their employer has refused a previous request; or
    3. the employee has previously resolved a dispute with their employee about casual conversion.
  5. An employer then has 21 days to respond to the notification informing the employee of the outcome of the request and must consult with the employee during that timeframe.
  6. These changes replace the old ‘casual conversion’ process.
  7. All employees who were employed casually before 26 August 2024 will stay casual under the new definition unless their work status changes due to:
    1. a conversion process or Fair Work Commission order, or
    2. accepting an alternative employment offer and starting work on that basis.
  8. Under the changes, employers will also be required to provide all new casual employees with a Casual Employment Information Statement (CEIS), either before or as soon as possible, after they start work in their new job.
  9. A CEIS needs to be regularly issued to long-term casuals (eg, for non-small business employers after six months and then at twelve-month intervals).

1.3 Anti-avoidance framework – dismissal and misrepresentation

  1. Anti-avoidance provisions aim to prevent employers from avoiding the reforms and ensure that casual employees are engaged correctly.
  2. These changes include preventing employers from:
    1. dismissing or threatening to dismiss an employee in order to engage the individual as a casual employee to perform the same or substantially the same work; and
    2. making a statement that the employer knows is false, to persuade or influence the individual to enter into a contract for casual employment under which the individual will perform the same, or substantially the same, work for the employer (eg, as it would have as a full-time or part-time employee).

2. Independent contractors

  1. From 26 August 2024, the definition of an employee and employer will change under the FWA. In considering the new meaning, employers must take into account ‘the real substance, practical reality and true nature of the relationship’ between the individual and the employer.
  2. The ‘real substance’ and ‘relationship’ in the engagement must consider ‘the totality of the relationship’ including other factors such as how the contract is performed in practice, and not just the ‘terms of the contract governing the relationship.’
  3. In practical terms, these changes walk back the recent decisions of the High Court of Australia in CFMMEU v Personnel Contracting Pty Ltd [2022] HCA 1 and ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2, in which the High Court held that the agreement between the individual contractor and the principal shall determine nature of the relationship.
  4. A multi-factorial test will again apply which means principals/ employers are less able to rely on the terms of a written contract and exclude the practical factors of how the contractor relationship operates. Under the multi-factorial test, the conduct of the parties and all surrounding circumstances must be considered, to determine whether the relationship was one of employment or not.
  5. In this regard, companies need to ensure independent contractor agreements accurately reflect the nature of the relationship between the contractor and principal and review whether the contractor is acting more like an employee during their term of engagement. If the engagement resembles an employment relationship scenario, then the contractor may be able to claim employee entitlements under the FWA.
  6. However, it is important to note that other tests still apply to determine whether a contractor is considered an ‘employee’ for taxation, superannuation and workers compensation purposes.

3. Right to opt-out

  1. Another change under Closing Loopholes reforms provides a new mechanism for an individual contractor, who under the new definition would be considered an ‘employee’, to opt-out of being classified as an employee.
  2. To be eligible for the opt-out provision, the contractor’s earnings must be above the ‘contractor high income threshold’ (which has not yet been determined however, for reference, from 1 July 2024, the high income threshold is $175,000).
  3. Either the individual or employer may exercise the opt-out mechanism by issuing a written opt-out notice to the other party including a statement of earnings.
  4. While an individual may revoke an opt-out notice, each individual can only issue one opt-out notice in relation to a particular engagement.

4. Narrower defence to ‘sham contracting’

  1. Sham contracting occurs when an employer attempts to engage an individual disguised as a contractor when they should be classified as an employee.
  2. Previously, employers had a defence if they could prove that it did not know and were not reckless as to whether the individual was being engaged as a contractor.
  3. Under the reforms, the new test provides that at the time that the representation was made, the employer must reasonably believe that a contract was a contract for services, rather than an employment contract.
  4. In determining whether the employer’s beliefs were reasonable, the court will have regard to the size and nature of the employer’s enterprise and any other relevant matter.

5. Right to disconnect

  1. The reforms also provide eligible employees with the right to refuse employer or third-party contact outside of working hours, unless such refusal is unreasonable. This change starts on 26 August 2024 for non-small business employers and 26 August 2025 for small business employers.
  2. In determining whether the refusal of contact is reasonable or unreasonable, regard must be given to:
  1. the reason for the contact or attempted contact;
  2. how the contact or attempted contact is made and the level of disruption the contact or attempted contact causes the employee;
  3. the extent to which the employee is compensated:
    A. to remain available to perform work during the period in which the contact or attempted contact is made; or
    B. for working additional hours outside of the employee’s ordinary hours of work;
  4. the nature of the employee’s role and the employee’s level of responsibility;
  5. the employee’s personal circumstances (including family or caring responsibilities).
  1. The right to disconnect will be considered a workplace right under the FWA’s general protections regime. Accordingly, if a refusal to connect dispute cannot be resolved between an employer and employee, then the matter can be referred to the Fair Work Commission.

6. What happens to employers who don’t adapt to these changes?

  1. Employers that contravene the new provisions may be subject to penalties under the FWA’s civil remedy provisions.
  2. Employers may also face remedial orders from the Fair Work Commission.

7. What should employers do?

  1. Employers should take note of the reforms noted above and seek professional assistance in respect of any issues in terms of their current employment arrangements, including getting current agreements reviewed to establish whether they are legally compliant.
  2. New employment agreements need to be carefully drafted to ensure they reflect the rights and obligations of the parties and are compliant with the FWA.

8. What should you do next?

Art & Commerce are ready to assist you with your enquiry and guide you through the new reforms. We review and draft agreements for businesses and independent contractors.

For specific advice and assistance with employment law matters or contractor/services agreements, you can email us now or book a free 15-minute consult via our website.

Disclaimer

The information in this article is general in nature, does not constitute legal advice and should not be treated as such. You must not rely on this information as an alternative to legal advice from a qualified lawyer.

Posted in