Changes to the meaning of ‘employment’ as further loopholes closed
Last year, the Fair Work Legislation Amendment (Closing Loopholes) Bill 2023 (Loopholes 1 Bill) was introduced into Federal Parliament, as we discussed here. This bill formed part of the Federal Government’s ongoing reform of Australia’s industrial relations scheme.
The Loopholes 1 Bill was divided, with the first tranche of components passing Federal parliament on 7 December 2023 and the second tranche, which formed the Fair Work Legislation Amendment (Closing Loopholes No. 2) Bill 2023 (Loopholes 2 Bill), the subject of recent Parliamentary debate. The Loopholes 2 Bill passed the Federal Parliament on 12 February 2024, bringing with it another range of major changes to the Fair Work Act 2009 (FW Act) which are designed to provide greater protections to employees and other ‘employee like’ workers.
Two major changes are set out below. A third major change, being the widely-discussed ‘right to disconnect’, is discussed in further detail here.
Definition of Employee
As regular readers will be aware, recent decisions of the High Court in the decisions of in CFMMEU v Personnel Contracting Pty Ltd [2022] HCA 1 and ZG Operations Australia Pty Ltd v Jamsek [2022] 26 HCA 2 (which we summarised here) overturned the traditional ‘multi-factorial’ test which was used to determine whether a person was an employee or independent contractor. Instead, the High Court held that primacy should be given to the legal rights set out in the written contract engaging the worker.
The Loopholes 2 Bill establishes a new definition of employee and employer into the FW Act which, in effect, reinstates the multi-factorial test. This definition will come into effect six months after royal assent.
The interpretation of ‘employee’ and ‘employer’ will now require an assessment of the ‘real substance, practical reality, and true nature of the relationship’ between the parties. This involves considering the overall nature of the relationship in conjunction with the contract terms and other factors, including how the contract is practically executed.
In addition, previously, a principal was protected against a claim that it misrepresented employment as an independent contractor arrangement if it could argue that it did not know and was not reckless to whether the contract was a contract of employment rather than a contract for services. That defence has now been amended and provides that the principal must prove that ‘when the representation was made, [it] reasonably believed that the contract was a contract for service.’ In other words, there will now be a requirement to prove that the belief that a person was engaged as a contractor was objectively reasonable.
Casual Employment
The Loopholes 2 Bill introduces a revised definition of casual employee in the FW Act which will come into effect six months after royal assent. While casual employment has long been characterised by the absence of a firm advance commitment to continuing and indefinite work, the FW Act will set out new indicia, including the ‘real substance, practical reality and true nature of the employment relationship’, in addition to the contract of employment.
Changes have also been made to casual conversion. While the Loopholes 1 Bill initially intended to add an additional pathway to conversion to permanent employment, after the Senate amended the Loopholes 2 Bill, there is now only one new pathway. This allows a casual employee to assert that their employment has ceased to be casual after six months of employment or 12 months of employment. If the employer accepts this, they must engage the employee on a permanent basis. This differs from the current position because it removes the requirement for an employer to offer conversion in certain circumstances, and it means that an employee can only request casual conversion if their employment is truly ongoing in nature, not simply because they have worked for six months for the same employer.
Take Home Messages
Extreme care must be taken when engaging workers as independent contractors or casual employees. It will not be sufficient to state in the contract of employment that the worker is engaged as an independent contractor or casual employee; this must also be reflected in the reality of the working relationship. Otherwise, employers risk receiving claims of sham contracting arrangements or underpayment of wages, leave entitlements and the like. Carefully drafted contracts which reflect the intentions of the parties in entering into the engagement can reduce that risk.
For more specific information or advice on any of the material contained in this article please contact Sathish Dasan on +61 8 8210 1253 or sdasan@normans.com.au, Anastasia Gravas on +61 8 8217 1331 or agravas@normans.com.au or Annabelle Narayan on +61 8 8210 1292 or anarayan@normans.com.au.
