The Fair Work Legislation Amendment (Closing Loopholes No. 2) Act 2024 (Cth) (Closing Loopholes No.2 Act) has introduced a swath of reforms that impact both small and medium enterprises (SMEs).
Are you a small business?
Businesses who employ fewer than 15 staff members at a time are classed as ‘small business employers’ under the Fair Work Act 2009 (Cth) (FW Act). Several of the legislative changes are more lenient for small businesses. For example, small business employers may be given additional time to comply with the FW Act changes.
Changes to the ‘employer’ and ‘employee’ definition
All employers should familiarise themselves with the revised definition of ‘employer’ and ‘employee’ in section 15AA of the FW Act.
Until recently, courts in Australia considered the totality of the relationship between the worker and the principal, by reference to various indicators of the day-to-day relationship to determine the nature of the relationship. That changed following the High Court’s decisions in Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd and ZG Operations Australia Pty Ltd v Jamsek, which benched the prevailing approach in favour of one that focused primarily on the terms of the contract between the parties.
Section 15AA effectively ‘reverses’ the High Court’s ruling by putting the focus back on the real substance, practical reality, and true nature of the relationship between the parties. Section 15AA provides a statutory guideline that courts and the Fair Work Commission (FWC) must consider when interpreting these terms.
Misclassification can lead to significant legal and financial repercussions, including penalties, back payments of entitlements and potential litigation. Small business employers who wish to maintain a staff cohort of fewer than 15 employees should review their employment contracts to ensure that workers’ categorisations align with the new interpretative framework.
Changes to the casual employee definition
Section 15A has altered the definition of ‘casual employee’ in the FW Act. Whether an employee is a casual employee now depends upon whether:
- the employment relationship has no firm advance commitment to ongoing work; and
- the employee is entitled to a casual loading or specific casual rate of pay under an employment contract, a modern award, or a registered agreement.
The amended definition may require your business to revisit and revise how it classifies casual employees. It is important to ensure that your contracts and employment practices reflect this new definition to avoid risks of misclassification.
The employee choice pathway
The new employee choice pathway allows casual employees to request to convert to permanent employment if they have served at least 6 months of employment. For employees of small businesses, the service requirement is at least 12 months. This pathway replaces the old casual conversion process.
For employees who commenced work before 26 August 2024, the employee choice pathway will completely replace the current ‘casual conversion’ procedure from 26 February 2025 (or 26 August 2025 for employees of small business employers). For those who commenced work after 26 August 2024, the employee choice pathway applies immediately.
As employers, you can only refuse a conversion request on certain grounds, such as if granting the request would require substantial changes to how work is organised or if it significantly impacts the operation of your business.
For small and medium enterprises, it is more likely that an influx of casual conversion requests under the employee choice pathway could impact business operations and organisational requirements. It is advisable to have clear policies and communication strategies in place to manage these requests and ensure they are handled in compliance with the new requirements.
Small businesses are also relieved from the obligation to provide existing casual employees with an annual Casual Employment Information Statement.
‘Right to disconnect’ for employees
New sections 333M and 333N of the FW Act preserves an employee’s right to refuse to respond to employment-related communications outside working hours unless such refusal is deemed unreasonable. In a post-Covid era where remote work blurs the boundaries between work and personal life, this change reflects the need to protect employees’ time outside of work.
Under section 111D, certain small business employers are exempt from complying with the ‘right to disconnect’ until 26 August 2025.
Unfair contract regime for independent contractors
A new unfair contract regime is being introduced in Part 3A-5 of the FW Act, targeting independent contractors who earn under a high-income threshold. This will allow contractors to apply to the FWC to vary or set aside a services contract if it is deemed unfair.
Employers should review all existing contracts with independent contractors to ensure they meet the new fairness standards. Considerations might include the balance of power between the parties, the clarity and transparency of contract terms and whether the contract imposes undue disadvantage on the contractor.
Failure to adjust could result in contracts being set aside or varied by the FWC, which could disrupt your business operations and lead to unforeseen costs.
By Holding Redlich Partner Charles Power, Associate Dogu Yesildag and Undergraduate Isabella Beale
Disclaimer
The information in this article is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.
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