The Closing Loopholes No. 2 Bill: A Game-Changer for Employees and Employers

With the Closing Loopholes No. 2 Bill (“Bill”) now having passed both houses of federal parliament, new reforms to Australia’s industrial relations landscape are imminent. Amongst other things, the Bill introduces a new casual employee conversion right, a right to disconnect (which we have explored in further detail here), and new protections for ‘employee-like’ workers in specific sectors.

In this article, we provide a summary of the changes that employers need to be aware of moving forward.

What employers need to know

The meaning of ‘employee’ and ‘employer’

In a number of decisions in recent years,^[1] the High Court has reinforced the primacy of the contract entered into between parties as, in most cases, being determinative of whether an individual has been engaged as an employee (be it as a casual employee or otherwise) or contractor.

The Bill changes that position by giving an express ‘ordinary meaning’ to the terms “employee” and “employer”. Importantly, the new provisions also provide that:

1. whether a party is an ‘employer’ or ‘employee’ is to be determined by ascertaining the “real substance, practical reality and true nature of the relationship” between the two parties; and
2. in considering the “totality of the relationship between [the contracting parties], regard must be had not only to the terms of the contract governing the relationship, but also to […] how the contract is performed in practice”.

This brings the approach for assessing the existence of an employment relationship back to the multifactorial test that was generally applied prior to the recent High Court Decisions.

The meaning of ‘casual employee’

The Bill also introduces a new definition of ‘casual employee’ into the Fair Work Act 2009 (Cth), being a relationship where:

1. there is an absence of a firm advance commitment by the employer to offer continuing and indefinite work; and
   
2. as a matter of law, the employee would be entitled to a casual loading or a specific rate of pay under the terms of an applicable contract or industrial instrument.

The Bill identifies a number of factors that should be considered when assessing whether a “firm advance commitment” has been given. Again, these factors place emphasis on the “real substance, practical reality and true nature of the employment relationship” between the contracting parties, and so call for scrutiny of how the parties’ relationship operates in practice.

New pathway to casual conversation

As at the date of this article, the Fair Work Act 2009 (Cth) obliges an employer to offer a casual employee permanent employment as either a part-time or full-time employee in certain circumstances.

The Bill repeals that mechanism and, in its place, introduces a new mechanism for the conversion from casual to permanent employment. In short, it places the onus on a casual employee to notify their employer of a proposed change to their employment once certain threshold requirements are met.

An employer can only refuse to accept the notification and accommodate a conversion to permanent part-time or full-time employment on certain prescribed grounds, including on the basis of “fair and reasonable operational grounds”, which the Bill provides several non-exhaustive examples of.

If a dispute regarding casual conversion cannot be resolved at a workplace level, the Bill also permits either the employer or employee to refer the dispute to the Fair Work Commission for determination via arbitration (after it has first dealt with the dispute by means other than arbitration).

The above new laws regarding casual employees will come into effect 6 months after the Bill receives royal assent.

Right to disconnect

The Bill also introduces a new employee right to elect not to respond to attempts by their employer, and third parties related to their employment (such as clients), to contact them outside of ordinary working hours.

To read more about the implications of this reform, see our recent article here.

New minimum standards for ‘employee-like’ workers

Significantly, the Bill introduces new rights and protections for ‘employee-like’ workers who perform digital platform work or who work in the road transport industry (“Regulated Workers”), including by:

1. empowering the Fair Work Commission to make minimum standards orders and publish minimum standards guidelines which, in effect, introduce minimum standards of engagement that must be observed by Regulated Workers and the businesses that engage them;
2. entitling Regulated Workers to make ‘unfair deactivation’ and ‘unfair termination’ applications to the Fair Work Commission, which are analogous to unfair dismissal claims and to be determined by reference to:

1. in the case of employee-like workers who perform digital platform work, a code known as the Digital Labour Platform Deactivation Code; and
2. in the case of employee-like workers in the road transport industry, a legislative instrument known as the Road Transport Industry Termination Code,

  both of which will operate as standalone future legislative instruments.

The above new minimum standards and protections will commence either on a day to be fixed by proclamation or, alternatively, after 6 months following the date the Act created by the Bill receives royal assent.

Takeaway

These reforms are likely to have a significant impact on how many businesses conduct their operations, irrespective of whether they only engage employees directly or engage a mixture of employees and Regulated Workers.

Employers can expect to face increased compliance costs as they grapple with the complex provisions and multi-factorial tests set out in the new legislation.

It will be particularly important for employers to take a robust and consistent approach to ensure that they can defend disputes relating to, for example, unfair deactivation, unfair termination or even a position that they have taken in response to a casual conversion notification.

Employers would be well advised to carry out a review of existing arrangements in light of these reforms to ensure that they are well prepared for these new reforms to take effect.