Know what Labor’s proposed IR reforms mean for you

Speaker 1:
Welcome to CPA Australia's With Interest podcast, bringing you this week's need-to-know information for businesses and accounting professionals.

Jane Rennie:
Hello and welcome to CPA Australia's With Interest podcast. I'm Dr. Jane Rennie, General Manager Media and Content at CPA Australia. In this episode of With Interest, we'll be discussing the labour government's proposed industrial relations reforms, in particular, what will change, who it'll impact, and when it'll happen. Joining me to provide an expert perspective is Michael Nicolazzo who is a partner in employment and workplace law at Maddocks. Welcome to With Interest, Michael.

Michael Nicolazzo:
Hi, Jane. Thanks for having me today. Really looking forward to the discussion.

Jane Rennie:
Michael, the government introduced, now it is a bit of a mouthful, the Fair Work Legislation Amendment (Secure Jobs, Better Pay) Bill 2022 in late October. What's the impetus for these industrial relations changes?

Michael Nicolazzo:
I'd say the main impetus is the Albanese government's wish to get wages moving, as I've said a number of times. The ALP went to the May election with a promise to drive wages growth, something that hasn't happened for a while. So this bill is squarely aimed at that as well as making jobs more secure and addressing gender inequity.

Jane Rennie:
Can you give me a sense of the magnitude of what's being proposed with this bill?

Michael Nicolazzo:
Yeah, there are pretty significant changes. I almost fell off my chair when I first saw the bill and all of its 249 pages. The government's gone pretty big, so to speak, and it is looking to introduce quite broad raising changes.

Jane Rennie:
Well, pretty big, is it fair to say that these laws will potentially affect every business operating in Australia?

Michael Nicolazzo:
Yeah, that is fair to say. I think workplaces with enterprise agreements or a union presence will be particularly affected, but even those where, historically, they haven't had bargaining or an enterprise agreement or a union presence will be affected. So proposed changes to employment contracts will mean certain arrangements will need to be reviewed. So, I think it's fair to say that.

Jane Rennie:
Can you give me a comparison then, when was the last time we had IR reform on this scale?

Michael Nicolazzo:
Yeah, look, I don't think we've seen changes to this extent probably since the Fair Work Act was introduced back in 2009. In late 2020, the then Morrison government introduced a bill that was loosely known as an omnibus bill. Those changes weren't as extensive as what's being proposed in this bill. The changes got through last time related to casual employment, and that's pretty much it. So what we are seeing with this bill is a real shake-up of workplace relations in Australia.

Jane Rennie:
And I gather it's already been voted on in the House of Representatives. So where does that mean it's at now? Is it before the Senate?

Michael Nicolazzo:
That's exactly right, yeah. So it passed the House of Representatives on the 10th of November, and it has until the 1st of December to pass the Senate. There was an article just yesterday, or an update yesterday, just saying that the Senate will probably need more time. So we're seeing a whole bunch of submissions and some lobbying taking place at the moment about the Senate considering the bill, but it's still before the Senate before it gets passed.

Jane Rennie:
So does that mean there are likely to be some changes or some compromises to the bill before it gets across the line?

Michael Nicolazzo:
Yeah, that's a good question. I probably think the bill will pass. I think the Senate will want some changes and we've already seen the government has been prepared to make some changes to get it through. So there were some changes made last week, so the bill passed the House of Representatives. There's been talk this week about more changes. So I would expect the bill, in its current form, to be changed slightly before it ultimately gets passed.

Jane Rennie:
And when it does pass, well, when are the reforms likely to commence?

Michael Nicolazzo:
There hasn't been any clear announcement as to when they would commence. The government has said they want to kick off changes as soon as possible. I would've thought that's probably in the first quarter of next year. Potentially, some parts will start then and then perhaps some others around mid-next year. But the government's impetus is really to introduce these changes as quickly as possible.

Jane Rennie:
Well, with hundreds of pages in the bill, there's just too much to cover off in one podcast. So I'd just like to talk through a few elements, but perhaps I'll throw the agenda open to you to nominate, what do you think is the proposed change that might have the biggest implications?

Michael Nicolazzo:
Yeah, look, I think the bill includes a whole bunch of changes, but the biggest changes are probably to the enterprise agreement and the bargaining framework.

Jane Rennie:
All right. Let's start there then. What's the government proposing to do with enterprise bargaining?

Michael Nicolazzo:
I guess what they're really trying to do is reinvigorate bargaining, make enterprise agreements apply to more employees on that basis. And by doing so, by having more employees being able to bargain and making it easier, the government's saying, "Well, that's one way we can drive up wages." So looking at it simply, their rationale is if more employees are negotiating collectively, there's a greater likelihood it's thought that greater wage increases will follow. And that really comes from a belief that the bargaining framework has become too difficult to navigate and employers have been walking away from bargaining. So what the government really wants to see is to drive more enterprise agreements.

Jane Rennie:
Will that mean that businesses will no longer be able to choose to opt out or to walk away from bargaining as you said?

Michael Nicolazzo:
I think what will happen, so bargaining won't be mandatory, but the changes that are being proposed will make it easier for employers to be forced to bargain. So we've got a standard single-entity enterprise agreement. So that's where an employer and employees can bargain. But what the bill is really looking at introducing in terms of its changes, and there's been a lot of commentary around this, is multi-employer bargaining.

So employees agreeing across different businesses and banding together to bargain for an agreement that will apply to different entities. So when the bill was first introduced, it was possible for an employer to be roped into a multi-employer agreement. One of the changes that got through the House of Representatives last week was that there now needs to be majority support at each employer to become part of a multi-employer agreement.

Jane Rennie:
Does that change the threshold that is needed to reach an agreement and does it have implications for the better off overall or BOOT test?

Michael Nicolazzo:
It doesn't change the threshold, but in terms of the BOOT, there are some changes that are being proposed in relation to the BOOT or the better off overall test as it's known. So the changes that are proposed in relation to the BOOT are really to make that assessment that's carried out by the Fair Work Commission much easier. So, historically, again, there's been a bit of a technical line-by-line assessment about whether a proposed agreement passes the BOOT. And what the bill is trying to do now is to say, "Look, the BOOT should be a truly global assessment and it should be an assessment carried out on an overall basis as compared to the underlying modern award." So they're hoping that with these changes, agreements will be passed more easily and that will encourage the employers and employees to take up bargaining again.

Jane Rennie:
I will admit, I'm a bit confused about some of the terms referenced in the bill. So what's the difference and what does it mean the sufficient interest test versus the common interest test? Can you explain those ones to me?

Michael Nicolazzo:
Yeah, no worries. There are quite technical changes that are being proposed. So the sufficient interest, that's really aimed at making sure that employers can't bargain with a small number of employees, say, four or five employees, and then seek to apply that agreement to a much broader group. So what the bill is saying is that there needs to be a sufficient interest from a broad range of employees in the agreement. The common interest test, unfortunately, they've used similar terms. The common interest test is really about multi-employer agreements, and the bill says that different employers can bargain together if there's a common interest. And that's defined in the bill as being geographical location, the nature of the work, the terms and conditions that apply, and whether there's government funding, just for example.

Jane Rennie:
What are the implications of these changes for the role of unions in enterprise bargaining?

Michael Nicolazzo:
The changes really do give a much greater role to unions. So I guess, historically, again, there's been a general decline in union density over the years, and I think the bill could reverse that. It'll encourage more employees to become members of the union if the union goes out and says, "Look, we can get you a better deal. We can bargain together with entity A and entity B, and we can drive up your wages." So I would've thought that there's likely to be greater impetus from the unions to drive up membership as well.

Jane Rennie:
And I imagine this isn't going to affect all industries or sectors the same, what are some examples of industries or sectors that it's likely to impact the most?

Michael Nicolazzo:
Yeah, I think the changes are really targeted at what's historically known as the lower-pay industries. So I would expect to see increased bargaining and increased multi-employer bargains or agreements in the childcare industry, aged care industry, early education, but we could also see them in industries that haven't historically had enterprise agreements, so professional services, purely on the basis that employees from different employers can band together and bargain together.

Jane Rennie:
Well, there's a lot to unpack in that, Michael. Thank you very much. That's our first topic down. What's the next proposed reform that you think our listeners might need to know about?

Michael Nicolazzo:
Yeah, look, I think the changes that are proposed to fixed-term contracts are another big reform.

Jane Rennie:
Well, what are some of the proposed changes that we are likely to see to fixed-term contracts?

Michael Nicolazzo:
Yeah. So what's been proposed is that fixed-term contracts for the same role will be now limited to two consecutive contracts or for a maximum duration of two years. So this has the potential to be quite a huge change. So, for example, say you've got an employer who employs someone on rolling six-month contracts, well, in the past, it would've been arguable whether that was an ongoing arrangement, but the bill makes it much clearer that those sorts of arrangements are now prohibited. So those fixed-term contracts can't be renewed more than twice, and they can't extend for any longer than two years. And what the government has said, the use of fixed-term contracts really leads to insecure work. So they're trying to address one of their election promises about rectifying the insecurity in the job market.

Jane Rennie:
And just to clarify, does that apply if I had, say, a one-year contract, I couldn't have more than two one-year contracts? Or if I was employed on a two-year contract, I couldn't subsequently then offer an employee, say, another two-year contract fixed term?

Michael Nicolazzo:
That's exactly right. Yeah. So if it was a one two-year contract, you couldn't have another fixed-term contract.

Jane Rennie:
Now, what about if I'm an employer who doesn't know if that work is going to continue longer term, so I might need it for another year, say, but I just don't know beyond that, are there any exemptions to the new proposed rules on fixed-term contracts?

Michael Nicolazzo:
There are some exemptions and some carve-outs. So if an employee has specialised skills to complete a specialised task, that is an exemption. Apprenticeships and trainee arrangements will be exempt, seasonal work, for example, so we've got the fruit pickers up on the Murray, they'll be exempt from these provisions. If there's a replacement arrangement for an employee on parental leave or long service leave, for example, or if someone's earning over the high-income threshold, and if the position's subject to government funding. There's some of the exemptions that will apply to the fixed-term arrangements

Jane Rennie:
From time to time, I'm aware that executives perhaps might be employed on longer-term fixed-term contracts, like a five-year contract. Can that be extended to another five-year contract?

Michael Nicolazzo:
If that executive is earning more than the high-income threshold under the act, then I would say yes, there is a clear carve-out for those arrangements. So at the moment, it's around $160,000. If they're earning more than that, then those fixed-term contracts can continue.

Jane Rennie:
And what are some of the industries that this is likely to have the biggest impact on?

Michael Nicolazzo:
Again, I think these changes can be quite far-reaching. I know quite a few industries use fixed-term contracts largely for convenience and a bit of a safety net in the contract with less of a risk of a claiming down the track. But I would've thought there'll be implications for professional services, education, the public sector uses quite a few fixed-term contracts, construction. The impact could be quite wide.

Jane Rennie:
Moving on to another topic, one of the changes that's proposed that I find particularly interesting involves pay secrecy. Now, the bill would give employees the ability to discuss their remuneration with colleagues without fear of reprisals. Just to clarify, Michael, I gather that many employees do have a clause in their contract which might ban them from talking about their pay, is that right?

Michael Nicolazzo:
Yeah, that's right. So it's surprisingly common. I've seen clauses in contracts and enterprise agreements which say employees cannot share with their colleagues how much they earn, and they're known as pay secrecy clauses.

Jane Rennie:
So these pay secrecy clauses, they'd no longer be allowed. Why is that being linked with the gender pay gap issue?

Michael Nicolazzo:
The government said that what these clauses do is often conceal gender pay discrepancies. So if you can't talk about your pay, you don't know what your colleagues are earning. And that lack of transparency can mask gender pay disparity. So, basically, those clauses permit or enable employers to hide discrimination. They're not saying everyone does it, but that lack of transparency does permit it to occur.

Jane Rennie:
Right. Well, I'm thinking this through in practical terms and just wondering what I would then be able to do that I couldn't do before. So would employers have to disclose pay rates? It's not the same as requiring pay transparency, is it?

Michael Nicolazzo:
No, that's right. So you don't have to disclose your pay rate. It just means that you can no longer be prohibited from disclosing your pay rate. But likewise, there's no positive obligation to disclose your pay rate.

Jane Rennie:
Right. So if my colleague says, "Look, tell me what your pay is? I'm concerned that I'm being underpaid, can you tell me what you are paid?" I don't have to disclose. I could if I want to, but don't have to disclose. And neither of us could be punished for either asking for the disclosure or disclosing, is that right?

Michael Nicolazzo:
Yeah, that's exactly right. So there's a protection for both those scenarios, for disclosing and for choosing to not disclose.

Jane Rennie:
What about if it's not prohibited outright? I don't have a pay secrecy clause in my contract as such, but I'm aware it's discouraged and potentially there could be consequences if I disclosed it, would those sorts of informal arrangements be captured by this reform?

Michael Nicolazzo:
Yeah, I would say they are. So even if it's not part of your contract, for example, but there's broadly a policy or a code of conduct discouraging the sharing of pay rates, then that would now be prevented as well.

Jane Rennie:
The last change I was hoping that we could discuss is to flexible working arrangements, and the bill provides new pathways where employers and employees who disagree on hybrid working arrangements can resolve that disagreement. What are some of these new arrangements?

Michael Nicolazzo:
Yeah, so there's been a long-standing right for some employees to request flexible work arrangements, but if an employer refused to agree on the basis of reasonable business grounds, there were very limited options for that employee to get that decision reviewed. And what the changes in respect of these arrangements do is that it now gives the Fair Work Commission the ability to arbitrate disputes about whether a refusal is valid, and if the commission determines that it wasn't valid, then it can actually order that the change in work arrangements being implemented.

Jane Rennie:
So in that sense, it doesn't give me a right to insist on a flexible working arrangement, but it does mean there's an independent arbiter who could consider that. Does that sound like an accurate summary?

Michael Nicolazzo:
Yeah, I think that's exactly right. So employees can now go off and have any refusal challenged and, historically, reasons that have been given have been so subjective under the cloak of being reasonable. So now the commission has the power to determine these disputes.

Jane Rennie:
And just on that, does it give or create expanded grounds that I might, as an employee, be able to say that I should be given these flexible arrangements?

Michael Nicolazzo:
Well, I guess in a sense, it doesn't really expand the reasonable business grounds criteria, but what it means is that you'll now have another body, an independent umpire, having greater say about what a reasonable business ground is. So there's greater intervention from the commission in determining what happens in the workplace.

Jane Rennie:
There's certainly a lot to digest with these changes. Given the magnitude of what's proposed, when do you suggest that businesses should start preparing now for these new laws?

Michael Nicolazzo:
Yeah, look, I think businesses should really start looking to implement the changes now. From all reports, the bill will pass. So I think the fixed-term contracts, the pay secrecy, the flexible work arrangements, they'll pass as they are. So employers, if they don't get that right, they can face penalties and prosecution. So I would be taking steps now to review current practises, look at the possible impacts from these changes, and take steps to proactively prepare for those.

Jane Rennie:
Where can employers go for more information about the laws so that they can consider what the implications for them are?

Michael Nicolazzo:
As we get closer to implementation, there will be information issued by employer associations, industry bodies. The government will issue its own material as well. So I would encourage businesses to look at that material, see how the changes impact them, and of course, seek advice if they need to as well.

Jane Rennie:
That's all we've got time for today. Thanks very much to our guest expert, employment law partner, Michael Nicolazzo from Maddocks. With Interest is a weekly podcast. If you like what you've heard today, why not subscribe on your favourite podcast app? From all of us here at CPA Australia, thanks for listening.

Speaker 1:
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