Employers: are you prepared for the Closing Loopholes Act?

Employers face changes to workplace laws following the The Fair Work Legislation Amendment (Closing Loopholes) Bill 2023 (the Bill). The Bill amends the Fair Work Act 2009 affecting labor hire, workplace delegations, wage theft, and employment rights. The Bill is in two parts, with both being passed Australian Parliament’s upper and lower houses in 2023, and the first part receiving Royal Assent on 14 December 2023.

The changes are likely to impact various insurance products and how insurers deal with common coverage issues and losses. No doubt insurers will wish to understand the approach businesses are taking under the new regime and the extent to which they are prepared for the changes foreshadowed under the Bill.

Part One

Part One of the Bill outlines changes to wage theft, labour hire (same job, same pay) and a new rights framework for workplace delegates.

Wage theft

Wage theft will officially become a new federal criminal offence. An employer would be guilty of the offence if they intentionally underpaid their employees to deprive them of entitlement amounts. There would also be significant monetary penalties for businesses found guilty of wage theft. For companies, the maximum penalty would be over $7.825 million, or three times the amount of the underpayment. Individuals would face up to ten years in prison, or a fine of $1.565 million, or three times the amount of the underpayment. The law will come into effect on 1 January 2025, or an earlier date set by proclamation.

Labour hire (same job, same pay)

Another provision in the Bill will enable the Fair Work Commission to order employers to facilitate ‘same job, same pay’ rules, which mandates that labour-hire employers pay their employees no less than the full rate of pay that would be payable to those employees if the ‘host’ employer’s enterprise agreement applied to them. These provisions surpass traditional labour-hire arrangements and took effect on 13 December 2023, the day after the act received Royal Assent.

Rights framework for workplace delegates

The Bill will also affect workplace delegates, an employee appointed or elected who represents the members of the organisation in the workplace. The Bill introduces a new rights framework for delegates, which include the right to:

  • Represent the industrial interests of members, and any other persons eligible to be a member, including in a dispute with their employer

  • Reasonable communication with members, and any persons eligible to be a member, in relation to their industrial interests

  • Reasonable access to the workplace and its facilities for the purpose of representing those interests

  • Reasonable access to paid time, during normal working hours for the purpose of related training. However, this right will not apply if the delegate’s employer is a small business.

Part Two

Part Two of the Bill awaits Royal Assent. When Part Two of the Bill is passed, employers will face changes relating to the right to disconnect, casual employment, right of entry for suspected underpayments, increased max penalties, independent contractors, and gig workers and road transport contractors.

Right to disconnect

Employees, by right, will be able to refrain from engaging in communication with work outside of their work hours, unless the refrain is deemed unreasonable.

When assessing the reasonability of an employee disconnecting, a number of factors will be considered, including:

  • Whether the employee is remunerated for remaining available to work outside their ordinary working hours

  • The employee’s role within the company and the level of their responsibility

  • The reason for the employee being contacted and how the contact is made

  • The level of disruption caused to the employee as a result of the contact/attempted contact

  • The employee’s personal circumstances, including their family or caring responsibilities

An employer will not automatically be subject to investigation if they do contact their employee outside of work hours. However, they will contravene the Fair Work Act if they take adverse action against (fire, dismiss etc.) an employee who reasonably refuses to respond to out-of-hours contact.

If an employee and employer disagree about whether the right to disconnect applies, they will first be prompted by the Fair Work Commission (FWC) to attempt to internally resolve the issue. Failing that, one of the affected parties may approach the FWC. From there, the FWC will formally have power to make a number of orders:

  • If the employee’s refusal of contact is deemed unreasonable, the FWC can order them to stop refusing to respond

  • If the employee has reasonably been refusing contact, the FWC can:

    • Order the employer to stop requiring the employee to respond to contact; or

    • Order the employee not to take disciplinary action against the employee as a result of the reasonable refusal.

If the employee or employer contravenes a direct order from the Fair Work Commission, they risk a civil penalty of up to $18,780 for each contravention.

Casual employment

Part Two of the amendment bill will introduce a new definition of ‘casual employee’, and a new ‘employee choice’ process.

Under the new definition, an employee is considered casual if they are aware that the relationship is characterized by an absence of a firm advance commitment to continuing and indefinite work.

As part of the amendment, a casual employee may notify their employer that they no longer meet the requirements of the new definition of casual employee, and if the employer accepts this, the employee will move from casual to permanent employment.

Right of entry for suspected underpayments

The Bill also establishes new provisions for unions in the workplace, which will come into effect on 1 July 2024. Amendments to the Bill will enable unions to enter workplaces without prior notice to investigate instances of contravention of the Fair Work Act.

To do so, unions can obtain an exemption certificate from the Commission which negates the 24-hour notice. In accordance with the new Bill, the commission must issue the exemption certificate if either:

  • The Commission believes the notice period will cause the employer to destroy, conceal or alter any evidence of an underpayment; or

  • the suspected contravention involves the underpayment of a union member, which the union is representing, and the Commission believes that advance notice would hinder an effective investigation into the suspected contraventions.

Right of entry for suspected underpayments

The amendments have also stipulated that there will be significant increases to maximum civil penalties for breaking laws set out in the Fair Work Act.

Under the new laws, penalties will increase five-fold from what they currently are, which is:

  • be limited to ‘selected civil remedy provisions’ only (including breaches of the National Employment Standards, modern awards and enterprise agreements); and

  • will only apply to corporations that are not small business employers

Independent contractors

As previously discussed, amendments have seen a change in the definition of ‘employee’ and ‘employer’.

In the new Bill, there is the option for someone to ‘opt out’ of being classified as an employee. To be eligible to opt out, the individual must be earning more than the ‘contractor high income threshold’.

In the unamended bill, there is no detail about the amount of contractor high income threshold, which will be formulated by the Fair Work Regulations 2009 (Cth) at a later date.

In order to use the ‘opt out’ mechanism, an individual or their employer must provide a written opt out notice, as well as a statement of earnings. An individual may recall an opt out notice, although each individual can only give one opt out notice in respect of a particular relationship.

In preparation for the amendments, businesses should:

  • review their current use of independent contractors to determine whether contractors would be considered employees under the new definition

  • review arrangements for engaging highly paid independent contractors and consider whether it would be appropriate to agree with these contractors in the event they use the opt out mechanism

  • review any template contracts used to engage independents contractors and assess whether amendments be made to those templates to reflect the changes to the law.

Independent contractors

The Bill enables the Fair Work Commission to set mandatory orders and advisory minimum standards guidelines for road transport contractors and ‘employee-like’ digital platform workers. These orders and guidelines would cover a range of matters, including:

  • payment terms

  • deductions

  • working time

  • record-keeping

  • consultations

  • insurance

A worker would be considered ‘employee-like’ if they performed digital platform work and fulfilled one or more of the following criteria:

  • has low bargaining power

  • they are paid the same or less than employees performing comparable work

  • they have a low degree of authority over the performance of the work

Amendments to the ‘unfair deactivation’ and ‘unfair termination’ aspects of the bill allows the Fair Work Commission to treat the termination of ‘employee-like’ digital platform workers and road transport contractors the same as the pre-existing unfair dismissal regime for employees.

Impact on insurance

There are significant changes to laws that employers must be aware of. No doubt management liability premiums, terms and conditions may be impacted by these changes.

We also flag for insurers that policy definitions, such as “insured”, “employee” and “contractor” may need to be revised depending on insurer appetite across multiple-products.

For policyholders, we would recommend that they consult external advisors to ascertain preparedness for the changes, and work out a response plan to ensure compliance and mitigate against risk of penalties sounding against them.

Should you wish to discuss the Bill and any impacts it may have on your insurance coverage, please contact one of our advisors.

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