Closing Loopholes No. 2: What Businesses Need to Know

The latest reforms stemming from the government's Closing Loopholes No. 2 legislation (mostly) took effect as of 26 August 2024.

The changes introduced significant reforms that impact employment classifications, contractor arrangements, gig economy rights, and compliance requirements. Below is a breakdown of the key changes and what business owners need to be aware of.

Casual employment: To be or not to be (a casual employee)

The question of what constitutes a casual employee has long been debated, with recent cases like WorkPac Pty Ltd v Rossato, WorkPac Pty Ltd v Skene, and WorkPac Pty Ltd v Jamsek providing some legal clarity. The Closing Loopholes No. 2 legislation builds on this foundation by (once again for the second…or third…time in as many years) redefining the definition of casual employment.

The casual employee definition is a topic of ongoing contention with the pendulum swinging from a statutory and contractual definition to a multi-facet test and back – over the past few years.

Under the new laws, a casual employee is no longer defined solely by the initial agreement but by the actual true and practical nature of their work. This in effect reverts to older multi-faceted tests of substance than more recent tests of form.

Casual employment: right to conversion, no longer proactive, but still active

The new legislation modifies the casual conversion provisions. While the previous requirement mandated employers to proactively offer conversion for casuals who worked a regular and systematic pattern of hours (which, in and of itself, was contentious and inconsistently applied) to permanent status.

The new casual conversion law shifts this to a right for casual employees to initiate a request conversion themselves initiate the conversion process if they believe their working patterns have shifted to resemble those of a permanent employee. The changes mean:

• Casual employment is now assessed based on actual work patterns, not just initial agreements.
• Casual employees can now request conversion to permanent employment but are no longer automatically offered this option by employers (see, Fair Work Amendment (Supporting Australia’s Jobs and Economic Recovery) Act 2021, Part 2A).
• There has been introduction of a new definition of casual employment (see, Fair Work Act 2009, Section 15A).

Employee vs. Contractor: Navigating the fine line

The distinction between employees and contractors has always been a complex and risky area for businesses. The new legislation makes it clear that the substance of the working relationship takes precedence over contractual labels. Like casual employment, this has been a topic of much debate over the past several years.

This concept is particularly important when dealing with sole trader contractors versus those operating under a company structure. The implications of misclassification can be severe, from liability for back pay to penalties under the Fair Work Act.

Moreover, the legislation incorporates opt-out notice provisions, which are critical for businesses that may have relied on such clauses to mitigate their obligations (see, Closing Loopholes No. 2 legislation, Section 12AB (opt-out notice provisions)). These opt-out clauses, permit contractors that earn above the ‘contractor high income threshold’ ($175k/yr) to give a notice opting out of the new changes and remaining under the ‘old’ system. Opt-out notices have strict and somewhat counter-intuitive notice obligations (such as the principal confirming in writing they believe the subcontractor may be an employee) to work.

The Gig Economy: No more free rides

Gig economy workers have historically occupied a grey area between employee and contractor, often considered as being a third category of quasi-employment. In the UK for example, in Uber BV v Aslam (2021) the UK Supreme Court ruled that Uber were not self-employed contractors, but rather “Workers’ which is a distinct category under UK Employment law.

In Australia, the new legislation pushes gig-workers closer to the definition of an employee. The changes require that gig workers be afforded many of the same protections as employees, including compliance with the National Minimum Wage and workplace safety standards (see, FW Act s. 12A and Closing Loopholes No. 2, s.25B (gig economy provisions). This represents a significant shift in how these workers are viewed and treated under the law.

Wage theft laws imminent

As the landscape of industrial relations continues to evolve, businesses should prepare for upcoming wage theft compliance laws. Starting in next year, wage theft will become a criminal offense. The new legislation will introduce stringent penalties for employers found guilty of underpaying workers, highlighting the importance of accurate payroll practices.

Key takeaways for businesses

1. Casual Employment: Review current casual workforce arrangements to ensure casual employment is considered holistically, to be prepared to respond to conversion requests from employees with 6 months tenure (or 12 months for small businesses).
2. Employee vs. Contractor: Be meticulous in assessing contractor arrangements, particularly concerning sole traders, and notify those who earn above the subcontractor high income threshold of their ability to “opt-out” of the notice regulations, if you want them to clearly remain a sub-contractor. Contact us for support on providing these notices as they can be tricky to navigate and get right.
3. Gig Economy Workers: Update contracts and practices for gig workers to ensure compliance with minimum wage and safety standards. Audit and review current arrangements to ensure that pay – and safety – conditions are compliant. Be mindful of increased penalties of non-compliance to ensure no nasty surprises.
4. Wage theft: Businesses will need to audit their payroll systems to ensure compliance with these new laws and ensure ongoing compliance.

Changes to the Industrial and Employee Relations landscape have been considerable and wide ranging over the last two years so, as always, get in touch to see how Nellers can assist with these matters and more.