More amendments to the Fair Work Act - The key changes for your NFP organisation

The Fair Work Legislation Amendment (Closing Loopholes) (No. 2) Act 2024 (Closing Loopholes Part 2) was passed by Commonwealth Parliament on 12 February 2024 and received Royal Assent on 26 February 2024. It amends the Fair Work Act 2009 (Cth) (Fair Work Act) and related legislation.

Closing Loopholes Part 2 is the final tranche of the Government’s reforms to Australia’s employment laws and follows on from the passing of Closing Loopholes Part 1 in December 2023. You can read our summary of Closing Loopholes Part 1 here. Key reforms in Part 2 include changes to casual employment, changes to the meaning of ‘employee’ and ‘employer’ the new right to disconnect and new jurisdiction for the Fair Work Commission to consider unfair terms in services contracts with independent contractors.

A summary of the key changes that may be relevant to your not-for-profit organisation is provided below. While some of the newly introduced laws are already in effect, all these key changes will come into effect on 26 August 2024.

Casual Employees – A new definition and changes to casual conversion process

The definition of ‘casual employee’ has been replaced in the Fair Work Act. The current definition (which will be repealed) determines whether an employee is a casual employee by reference to the terms of their employment contract. The new definition has regard instead to the substantive nature of the employment relationship. Under the new definition, an employee will be considered a casual employee where:

• 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 for casual employees under an applicable fair work instrument or their employment contract.

In determining whether there is a ’firm advance commitment’, considerations include whether there is a regular pattern of work, whether the employee can accept or reject work, the likelihood of future continuing work and if any part-time or full-time employees perform the same kind of work.

The current process for casual conversion (which requires an employer to make a written offer to eligible casual employees who have been employed for 12 months to convert to permanent employment) will be replaced with an ‘employee choice’ framework which allows a casual employee who meets the prescribed criteria to request conversion to permanent employment.

Employers may refuse a casual employee’s request for conversion on fair and reasonable operational grounds. Unresolved disputes regarding casual conversion can be referred to the Fair Work Commission.

Employers will now also be required to provide a Casual Employment Information Statement to casual employees every 6 months, or every 12 months for a small business.

Right to Disconnect

Employees will have the right to reasonably refuse to monitor, read, or respond to attempted contact from an employer, or third parties such as clients, outside their ordinary working hours.

Consideration must be given, but not limited, to the following factors when considering whether an employee’s refusal is reasonable:

• the reason for the contact;
• how the contact is made;
• any compensation received by the employee for remaining available to perform work during the period or for working any additional hours outside of their ordinary hours;
• the nature of the employee’s role and level of responsibility; and
• the employee’s personal circumstances (including family or caring responsibilities).

An employer who takes action against an employee for exercising their right to disconnect could be subject to a general protections claim.

Small business employers will have an additional 12 months before the right to disconnect applies.

A new test to determine employment status

The Fair Work Act generally governs employment relationships, providing rights and imposing obligations on an employer and an employee. It largely does not apply to independent contractors. The Fair Work Act defines the terms ‘employee’ and ’employer’ as having their ordinary meaning which is the meaning established by the courts through common law.

Closing Loopholes Part 2 inserts a new section 15AA into the Fair Work Act which requires that when considering whether or not a worker is an employee for the purposes of the Fair Work Act regard must be to the ‘real substance’, ‘practical reality’ and ‘true nature of the relationship’.

Determining whether there is an employment relationship will require:

• consideration of the totality of the relationship between the worker and the principal; and
• reference not only to the terms of the contract, but also to other factors, including how the contract is performed.

This amendment expressly overturns decisions made by the High Court in 2022 which found that in determining the nature of the working relationship priority should be given to the written terms of the contract between the worker and the principal. Now, organisations will need to consider a multi-factorial test when classifying its workers and how the relationship plays out in practice.

If a principal considers that due to the application of section 15AA, the worker will become an employee of the principal, the principal must give the worker a notice to that effect. There is a notification process by which workers who earn more than the contractor high income threshold (not yet prescribed by regulation) can opt out from the application of section 15AA and continue to be treated as an independent contractor.

A new right for independent contractors to challenge unfair contract terms

To date, there have been two statutory rights of action for independent contractors when it comes to unfair contract terms. Firstly, the Australian Consumer Law (ACL) contains prohibitions on unfair contract terms applying to consumer contracts or small business contracts that are also standard form contracts. Disputes around unfair contract terms under the ACL are heard in courts and tribunals. Secondly, independent contractors have a broader right to make an application to a court to review a services contract where it is unfair or harsh under the Independent Contractors Act 2006 (Cth) (ICA). Both of these methods require court intervention and are therefore costly and inflexible.

Under Closing Loopholes 2, the Fair Work Commission will have jurisdiction to resolve disputes between independent contractors and principals about unfair contract terms in services contracts. The purpose of this change is to provide independent contractors with a low cost, flexible and informal method for resolving such disputes. The term ‘independent contractor’ is not defined in the Fair Work Act except that it is not confined to an individual. However, the new definition of ‘services contract’ only applies to contracts relating to the performance of work by an individual. A services contact must have the requisite constitutional connection with Australia.

The dispute must be about a term or terms in a services contract which, in an employment relationship would be a workplace relations matter as defined in the Fair Work Act. This right will only be available to contractors who earn below the contractor high income threshold. The rights of action under the ACL and ICA remain available to all independent contractors.

When considering whether a contract term is unfair, the Fair Work Commission will be required to consider, among other matters it considers relevant:

• the relative bargaining power of the parties to the service contract
• whether the services contract as a whole displays a significant imbalance between the rights and obligations of the parties
• whether the contract term is reasonably necessary to protect the legitimate interests of a party to the contract
• whether the contract term imposes a harsh, unjust or unreasonable requirement on a party to the contract
• whether the contract as a whole provides for total remuneration for performing work that is less than that of comparable employees, independent contractors or other employee-like workers.

If a contract term is found to be unfair, the Fair Work Commission will have the power to change those terms of the services contract or set aside those parts of the contract, which relate to a workplace relations matter.

Not-for-profit organisations who engage independent contractors must be aware of these changes and ensure their services contracts do not contain contract terms that would be regarded as unfair in an employment contract.

If you would like to discuss these changes in more detail, including what they mean for your organisation, please do not hesitate to contact us.

‍

‍