Australian IR reform: analysing new laws’ impact

Garreth Hanley:
This is With Interest, a business, finance and accounting news podcast, brought to you by CPA Australia.

Gavan Ord:
Hello, welcome to With Interest. I'm Gavin Ord from CPA Australia. In this podcast, we'll be talking about recent ongoing changes to Australia's industrial relations law, or IR law. These changes started in around about 2023, and will continue through to 2025, and possibly beyond, depending on the government.

In this podcast, we'll be looking at significant changes to IR laws that happened in August 2024. Ruth is a special counsel at Corrs Chambers Westgarth, where she specialises in Employment and Labour Law. Ruth has worked extensively with both private and public sector clients in this area. Welcome to With Interest, Ruth.

Ruth Hart:
Thank you very much for having me today.

Gavan Ord:
So let's get straight into the questions. So there's been no shortage of IR changes of late, and I'm sure that's kept you very busy of late.

Ruth Hart:
Indeed.

Gavan Ord:
And we expect more changes to come through next year. Can you give us a snapshot of the recent IR changes and how they're impacting employers and employees?

Ruth Hart:
Certainly. Look, there certainly have been a lot of changes under the Fair Work Act over the last two years, primarily under the Secure Jobs Better Pay Act, and then more recently under the two Closing Loopholes Acts. And we really haven't seen such extensive changes to the IR laws since back in 2006 when we had John Howard's work choices. So we can see that the pendulum has well and truly swung back the other way, and the reality is that many businesses are really struggling to keep up.

The Fair Work Act used to be two volumes, now it's four. So if we look at the changes as a whole, the ones that came into effect before August 2024, it's evident that many of the changes are directed at enhancing union powers and engagement with unions, promoting secure employment, and ensuring essentially that businesses don't compete on wages. So by way of example, there are strengthened union rights concerning right of entry, workplace delegates, as well as the ability to compel an employer to commence and conclude enterprise bargaining.

The restrictions on the use of fixed term contracting and the recent changes with respect to defining employment and casual employment, they are all designed to encourage employers to offer permanent ongoing employment instead. Then we have the regulated Labour Hire Order regime. It's already in place. It's having an impact in sectors such as mining and aviation to prevent host employers from essentially paying the Labour hire workers less than they would pay their direct workforce. As to the specific impacts on the accounting and finance sectors, the introduction of the fixed-term contracting provisions have certainly been particularly challenging.

Employers have had to adjust their contracting practices to ensure consistency with the new provisions, although there are a number of exceptions which are very helpful. So particularly in accounting and finance, the availability of the exception for those earning more than $175,000 is somewhat helpful. But look, there are all these other procedural requirements that people need to comply with as well.

So you have to provide a fixed-term contract information statement to all employees on a fixed-term contract regardless of whether or not you're relying on an exception. And those procedural requirements are important because if you don't comply with them, civil penalties apply. So there's a lot to get on top of.

Then some other key changes, there are more stringent requirements for considering and responding to requests for flexible working arrangements and extensions for unpaid parental leave requests, which have also required employers to adjust their policies and practices because the new provisions require the employer to genuinely try to reach agreement on these arrangements, and specifically have regard to the consequences of any refusal on the employee. So they can't just give a blanket, "No," with the reasonable business grounds.

So even when refusing the request, the employer must still articulate the changes that the employer is willing to make. So that's just a snapshot of some of them. There are so many, we can't get into them all.

Gavan Ord:
That's quite a snapshot.

Ruth Hart:
Yes.

Gavan Ord:
That's a lot in a very short period of time.

Ruth Hart:
Absolutely.

Gavan Ord:
And no wonder I hear from business that they're really struggling keeping up with the pace of change. So that's a lot of change in a very short period of time.

Ruth Hart:
And that's only about a third of them.

Gavan Ord:
And that's just what's come in.

Ruth Hart:
They're the changes that are already in place. But now if you'd like me to turn to the recent changes that have just come into effect-

Gavan Ord:
Yes, please. If you can run through some of those changes.

Ruth Hart:
So on Monday the 26th of August 2024, we now have four key changes in place. One relates to the changes to the definition of an employee versus an independent contractor under the Fair Work Act, which really shifts the focus from the primacy of the contract, what the terms of the contract say, and the state of the relationship at the point of the engagement to requiring an analysis of the true substance of the relationship between the parties.

So in some ways, you might say this means that the parties lose a degree of control over how they characterise their relationship upfront, because the relationship might evolve and change over time. So this increases the risk of misclassification and the risk that you might have a contractor who will say, "Well actually, I'm not really an independent contractor. I'm in substance an employee.

You owe me annual leave entitlements," et cetera. For independent contractors who earn less than the high contractor threshold, which has now been set at $175,000, it's the same as the high-income threshold for unfair dismissal, they can now just access the Commission to get orders about unfair terms in their contract. And so that's particularly significant. Those who earn more than that threshold will still need to go to court to deal with the unfair contracts.

Secondly, we've got the change to the definition of casual employment, which has come into play subject to some transitional arrangements. And again, this shifts the attention to the true substance of the relationship between the parties, not just the way the contract is at the point of the engagement. And there will be enhanced pathways for casual employees to convert to permanent employment. It's called the Employee Choice Framework now rather than Casual Conversion Framework.

The third change, which is the most well-known change probably, is about the right to disconnect, which has attracted a lot of attention, and we can discuss that in more detail. But I think it is important to note that small businesses do have more time to comply with that right; they've got until the 26th of August 2025. And then finally, it's probably not so relevant for people in the accounting and finance space, but it's probably worth knowing that there are a raft of changes to build in employee-like protections and minimum standards for so-called regulated workers who don't quite fit neatly into the definition of an employee.

So what I'm talking about are gig economy workers, so the Uber drivers, and also there are regulated road transport contractors, so truck drivers who aren't employees. But from a policy perspective, it's seen that these people need a degree of attention. And so they've really got rights now that are very akin to unfair dismissal rights for employees in a very broad brush sense. So they're the key changes that just came into effect.

Gavan Ord:
And we are recording on that week, so it's a lot of changes for one week.

Ruth Hart:
Yes, indeed.

Gavan Ord:
Let's maybe look at fixed-term contracts. So what do you think these changes mean to an employee or an employer currently renegotiating their employment contract?

Ruth Hart:
What the parties need to ensure now is that the contract falls within the limitations under the Fair Work Act, or that they can otherwise comfortably rely on one of the exceptions. And again, as I mentioned before, it's really important that the employer remembers to offer fixed-term contract information statement, because if you don't do that, there's potentially a civil penalty that attaches to that. So there are essentially four separate limitations, and they all relate to the golden number two. First, the fixed term of the contract must not be more than two years.

That's probably the simplest one to get your head around. The second one is that a fixed-term contract must not have the option to extend or renew it over a period that is more than two years. Third, the fixed-term contract cannot provide for an option to extend or renew it more than once. And then the fourth one relates to the prohibition on consecutive contracts. So this is the most complicated one, but in broad terms, it prohibits the use of two consecutive fixed-term contracts for the employee to perform the same or similar work where there's substantial continuity of employment between those contracts.

And it can be two contracts or three. As I said, they're slightly more complicated. I won't get into all the details, but you need to be aware of the prohibition of consecutive fixed-term contracts. And you can't get excited about any sort of anti-avoidance arrangements too, because there are anti-avoidance provisions in there. So you can't try and create a contrivance to avoid these.

Gavan Ord:
So really it's like employers who just keep rolling over contracts, they can't assume they just can perpetually roll over contracts.

Ruth Hart:
Well, absolutely not. And again, the whole policy objective behind the change is really to, as I said, encourage permanent, secure employment. So they want you to think twice before engaging someone as a casual. They want you to think twice before engaging someone on a fixed-term contract. Ultimately, it's as if the only safe option in some ways becomes permanent, ongoing employment. But that's the policy objective behind the legislation. Look, there is one other, a couple of other points I'd like to make about this if I may.

Gavan Ord:
Yes, please.

Ruth Hart:
Look, for the sake of completeness, it's important to note that the restrictions only cover fixed-term arrangements for employees, so they don't govern the arrangements for independent contractors, and nor do they relate to statutory appointments. So there is one significant change which just came into effect on the 26th of August, and that relates to casuals. So when the provisions came into effect, there was a general carve-out that these restrictions didn't apply to casual employment at all. Now that loophole has been closed.

That carve-out is significantly narrowed to only cover casual engagements that last for the duration of a shift. So it's only for genuine shift-to-shift casuals. So this means, for example, that any attempt to engage a casual on a series of fixed or contingent-term contracts may fall foul of limitations.

So people might think they're quite familiar with the fixed-term contracting regime, but you've got to be careful that it's a different scenario now with casuals, you can't just engage your casuals on a series of fixed-term casual contracts either. Unless you can rely on one of the exceptions, which you may well be able to do for seasonal workers and the like.

Gavan Ord:
That just shows how employers have to really keep on top of what's going on in this area and reach out to experts that can help, because as you said, they might think they're across the fixed-term contract issue, but the change of the 26th of August means maybe they're not.

Ruth Hart:
So the most important thing is to make sure you're looking at the current version of the Act. I'm just waiting for the time when we'll have a consolidated version of the Act and you won't be having to look at the transitional provisions as well. Because that's the other area in which people can trip up, is that they can see, "Oh yes, well, here's the law in this particular place," but they're not mindful of the transitional arrangements. So there can be a few pitfalls there. Is it worth going through some of the exceptions that are commonly relied upon?

Gavan Ord:
I think it's worth it if you could run through some of those exceptions.

Ruth Hart:
Yeah. So look, there are a number of exceptions, there are nine of them. I won't go into all of them in detail, but some of the ones that employers commonly rely upon in accounting and finance are the one that is available where an employee is engaged to perform a distinct and identifiable task involving specialised skills.

So that's essentially for project-based work. You've got an IT employee that needs to come in and do a IT rollout and you don't have that skill in-house, you could rely on that exception. The other one that is commonly relied upon is the temporary absence exception. So this is the one that relates to where an employee is engaged in emergency circumstances, or to fill a temporary absence of another employee.

So you can still use the fixed-term contracts to cover long-term maternity leave or long service leave, or even if someone's away on workers' compensation, that's where you could use it. There is also an exception which relates to a contract where the work is government-funded for more than two years and there's no reasonable prospect of the funding being renewed. Now, I commonly tell people that this one's really hard to rely on, because how on earth are you ever going to satisfy yourself that there's no reasonable prospect of the funding being renewed?

Because it's common for government projects to run over time, and typically you want to finish the project. These provisions haven't been tested yet, so we really do have to watch this space and see how the disputes play out in the Commission and in the courts to get greater clarity as to what these exceptions actually mean.

Gavan Ord:
And now we turn to the topic du jour, which is-

Ruth Hart:
Indeed.

Gavan Ord:
... the right to disconnect.

Ruth Hart:
Mm-hmm.

Gavan Ord:
Now, could you explain, let's go beyond the headline of right to disconnect, could you explain what it actually is?

Ruth Hart:
Yes.

Gavan Ord:
And what does it actually mean for employers and employees? Because I think there's been, people just grabbed the headline and think that they can ignore their employer after five o'clock. Could you go beyond the headline and explain what it actually means?

Ruth Hart:
Well, that's exactly right. I think it is important to dispel some of those myths. So I think it's worth looking at the history a little bit. So yes, indeed, the spectre of the introduction of the right to disconnect has certainly been causing a lot of angst for businesses, particularly to the extent it might seem to strike at the heart of flexible working arrangements. So the right itself generally commenced operation on the 26th of August 2024, as we mentioned earlier, but small businesses do have longer to adjust. That's businesses with less than 15 employees.

They have until the 26th of August 2025. So in my experience talking with clients, there seems to be a lot of confusion about the nature of the right. So I think it is worth pausing to note exactly what it is and what it is not. Let's look at the history of it. It started off as a bill introduced by the Greens to enshrine the right to disconnect as an entitlement under the National Employment Standards But look, in the face of strong opposition from business groups, the Greens proposal has been significantly watered down to what we see now in part 2-9 of the Fair Work Act, and notably that the new right does not form part of the National Employment Standards, but it's still a minimum entitlement that exists under part 2-9 of the Fair Work Act.

The really important point to understand is that it does not prohibit an employer or a third party from contacting an employee outside their normal working hours. It simply goes to whether the employee is required to respond. So you need to be wary of any claims in bargaining or during performance management, misconduct, processes where people seek to enshrine a right preventing the employer from making contact. That's not what it's about. Although of course there might be issues where an employer makes contact and the employee will say, "Well, you really gave me no choice but to reply."

But anyway, that's another issue. So the right to disconnect is in fact a right to refuse to respond to contact or attempted contact from an employer or a third party such as clients, unless the refusal is unreasonable. So as I said, it is not a prohibition on a party attempting to make contact with anyone, and there are a range of factors that need to be taken into account in determining whether or not the refusal is reasonable, and that can't be determined in the abstract. It's got to be determined by reference to the specific facts and circumstances at the point when the attempted contact is made.

So you need to take into account things like the reason for the contact, the level of disruption it will cause, the extent to which the employee is compensated for being contacted at a particular time or for working additional hours, the nature of the employee's role and level of responsibility, and the employee's personal circumstances. And so just to go back to the example that you were discussing earlier, an employee can't necessarily say that they're not available at five minutes after five if there's a query, particularly in circumstances where they're compensated under their contract for reasonable hours.

As a broad brush statement, if the employee is contacting an employee to respond to an emergency situation, for example, it would usually be reasonable to expect the employee to respond to that contact. Another clear example is where an employee receives an on-call allowance, clearly the employee should be responding to the call. But look, beyond that, there will be a significant grey area as to what is or is not reasonable in all the circumstances.

And businesses now are grappling as to how they should implement this right in the workplace. But I think the overarching point is that businesses need to take a holistic approach to dealing with this. So I'd recommend that they consult with their people and work out an approach to accommodate the right to disconnect. And ideally, employers should be taking a holistic approach and dealing with the issue through the lens of occupational health and safety obligations, and ensuring that they have appropriate control measures in place to manage psychosocial hazards in the workplace. So if you take care of that, the right to disconnect will almost take care of itself. Ultimately, it's about maintaining that dialogue.

Gavan Ord:
I like that. It's going beyond the legal advice to actually just engaging with your people and looking through that broader lens rather than just legal compliance that you're looking at the health and safety of your staff.

Ruth Hart:
But I mean, of course, the health and safety obligations, that is the legal requirement as well, so you do have to take a holistic approach to discharge your occupational health and safety obligations. But look, there will be more in this space. The Commission will shortly write some guidelines about how the right to disconnect works, but even the Commission says it can't do that until it sees how a few disputes play out in the Commission. So we need to look out for that.

And the Commission will also be reviewing the right to disconnect term that we now have in the awards. It'll do that in about 12 months’ time. And as part of that, the review, the Commission will be inviting submissions from parties to see how the term in the award can be improved as well.

Gavan Ord:
Is there any precedent from other countries that the commission can draw upon in this area?

Ruth Hart:
Oh, certainly. I mean, the right to disconnect is nothing new. There are certain models that are in place overseas that are more or less like what we have here today. But I mean, the other point to bear in mind is that this concept is not new for a number of employers anyway.

So there are, for example, many employers in the banking sector that have enshrined more beneficial rights to disconnect within their enterprise agreement. So of course, they need to comply with their enterprise agreements, and anything that you have in your enterprise agreement will need to be complied with. And that might be, as I said, more beneficial than what's actually in the current right.

Gavan Ord:
The minimum standards.

Ruth Hart:
Than the minimum standards, exactly. Yep.

Gavan Ord:
There's also been changes to the definition of employee, as well as changes to casual employment relationships. Could you just go in and explain what some of those changes have been?

Ruth Hart:
Yeah, well, look, changes in this space that are primarily designed to overcome the implications of recent high court authority on the primacy of the contract. And look, the likely impact of these change is consistent with the policy objective of promoting secure employment, is that employers will think twice before thinking to engage someone as an independent contractor.

So the key thing is you really want to be satisfied if you're engaging someone as an independent contractor, that they're genuinely an independent contract, someone running their own business. Don't try to dress it up as an employment relationship.

Gavan Ord:
I come from a tax background, so you bring your own tools, that sort of stuff. It's some of those things which a tax practitioner would be familiar with as well.

Ruth Hart:
Well, exactly. And if you look at it through that lens, it's back to the future, so we're going back to the old case law. We have to look at that multifactorial test. So these changes overcome the impacts of the recent high court decisions in Jamsek and Personnel Contracting. So yeah, it's shifted the focus back to the substance of the relationship rather than just the terms of the contract and the status of the relationship at the point of the engagement. So yes, it's probably a very familiar space for your audience.

Gavan Ord:
So could you expand upon a few other recent IR changes and what they can mean to the relationship between employers and employees? So I'm thinking here about pay secrecy, family and domestic violence leave, the right of entry of union officials, things like that.

Ruth Hart:
Yes. Well look, there are all of those changes, which are very significant. But if I'm thinking about this particular sector, I think some of the key changes that they need to really be thinking about and the ones that are presenting the biggest challenges for people in white collar environments are dealing with the changes with respect to respect at work and managing psychosocial hazards in the workplace. So I might just pause to talk about those for a little bit.

Gavan Ord:
Yes, please.

Ruth Hart:
So back in December 2022, there was a new positive duty introduced to eliminate workplace sex discrimination and sexual harassment commenced, and the duty is to take reasonable and proportionate measures to eliminate, so far as possible, sex discrimination, sexual harassment, and other forms of prohibited conduct by staff. Look, I won't go into the detail of all the rest of the regulatory changes in this space, but the overarching message is that it's no longer sufficient just to have a anti-discrimination policy on your back shelf and say, "Oh, well, we've done everything."

You really have to be looking at the culture within your organisation from the top down to make sure that it is a protective and safe environment for everyone. And similarly, the current focus on managing psychosocial hazards in the workplace is a real challenge for people in the white collar environment, or across all industries actually, because everyone understands how to deal with risks relating to manual handling, trip hazards, et cetera.

But a requirement now to deal with psychosocial hazards is much more challenging. So the risks that people need to be taking into account concern the risks arising from, for example, lack of role clarity, unreasonable deadlines, prolonged periods of working under stress, underutilization of skills, conflict in the workplace and remote working arrangements. People need to be making sure that they've got appropriate control measures in place to deal with these risks, because there are specific regulations in most of the states and territories now that require you to take these matters into account. And yeah, the regulators are looking at them more closely.

Gavan Ord:
Now, looking into your crystal ball, what further IR law changes are we likely to see before the next election, or at least the government try to implement before the next election?

Ruth Hart:
Well, the government has repeatedly stated that it has no plans for any more IR law changes before the next election. But under the laws that have already been passed, some things still haven't happened yet. So for example, wage theft, that's probably the most high profile one that we need to have a think about. The new wage theft offence is likely to start on 1 January 2025 or a later date declared by the Minister. But I think presently, it should be 1 January 2025.

The wage offence will apply to employers who intentionally engage in conduct that results in the underpayment of entitlements under the Fair Work Act, or a fair work instrument such as a modern award or enterprise agreement. So, for example, if you're not paying out annual leave appropriately, you're not giving people minimum wages in accordance with the clerical award, and you're doing that in an flagrant way-

Gavan Ord:
So it's a criminal offence, so you have to have the guilty mind, guilty act.

Ruth Hart:
Absolutely, yes. So it's not going to capture inadvertent or unintentional underpayments, but yeah, look it's serious, because the wage theft offence will carry a maximum of 10 years imprisonment, and/or a maximum fine being the greater of three times the amount of the underpayment itself, or for an individual, the actual fine could be up to about a million and a half dollars, or for a company, is close to $8 million. So they're pretty significant consequences.

So initially, these matters would be investigated by the Fair Work Ombudsman, and then referred to the DPP if appropriate. But there is some hope. There are pathways to safety available through, for example, cooperation agreements. So the fair work Ombudsman can enter into a cooperation agreement with an employer if they disclose a potential offence, which means that the Ombudsman will agree not to refer the conduct for prosecution.

So it operates a little bit like a guilty plea. You get more of a caution instead of exposure to proceedings. But look, it remains to be seen how that will all play out. But the present Ombudsman is certainly making a great effort to educate employers and take a more of a cooperative approach before being too punitive. That seems to be the current messaging, not that that's cause for complacency, but people with the accounting background, they would be realising that this is the time for them to be auditing, auditing, auditing.

Gavan Ord:
That's right.

Ruth Hart:
And rectifying, rectifying, rectifying,

Gavan Ord:
And some of the states already have this criminalisation or wage theft. Has there been any prosecutions under the state laws, that you're aware of?

Ruth Hart:
Well, so for example, in Victoria, there are still a number of proceedings and continued proceedings in relation to long service leave because that's where they still have jurisdiction. But because of all the constitutional issues, other prosecutions haven't really taken off, so they don't really operate much in this space anymore. Just, the other issue in relation to changes to penalties come 1 January 2025 is that there will also be increased civil penalties for underpayments.

So leaving aside the wage theft offence, that's for very serious conduct, but if you're just found to have contravened a provision in the civil sense, you may now also be exposed to the current penalties that exist, or three times the value of the actual underpayment amount come 1 January 2025. So that's potentially going to have more of an impact on your garden variety contraventions, because the wage offence, there's obviously a higher standard of proof to get up on the wage offences. Yes.

Gavan Ord:
What I've noticed, and this is not so much in the IR space, but the non-compete clauses, so the government's looking at putting some restrictions on non-compete clauses. So do you have any thoughts on that?

Ruth Hart:
Well, it's certainly a growing trend overseas, so yeah, I think we can probably expect some movement in that space as well. Because again, it's seen as one of the restrictions on keeping the economy moving. How do people get wage increases? They don't necessarily get it when they stay where they are, they get it when they go elsewhere.

Gavan Ord:
From engaging with members on this often, non-compete clauses are pretty common, but the enforcement of those clauses is not so common.

Ruth Hart:
Well, exactly. I mean, they generally have more value as a deterrent than as an enforceable instrument, because as you know, the starting point is that they are unenforceable, unless they're found to be reasonable in all the circumstances.

Gavan Ord:
Well, thank you, Ruth. There's so much more we can talk about in the IR space.

Ruth Hart:
Yes.

Gavan Ord:
And hopefully, we get a chance to do that later on. For everyone listening today, thanks for joining us on the show, and Ruth, thanks for your time today. And as I said before, Ruth works for Corrs Chambers Westgarth. For more information about IR laws and changes, and our topics we have discussed today In this episode, you can refer to the show notes for additional resources from CPA Australia. With Interest is a regular podcast. If you like today's show, you can subscribe on your favourite podcast app by searching for CPA Australia's With Interest. I'm Gavin Ord. Until next time, thanks for listening.

Garreth Hanley:
You've been listening to With Interest, the CPA Australia podcast. If you've enjoyed this episode, help others discover With Interest by leaving us a review and sharing this episode with colleagues, clients, or anyone else interested in the latest finance, business and accounting news. To find out more about our other podcasts and CPA Australia, check the show notes for this episode. And we hope you can join us again for another episode of With Interest.