Closing Loopholes: Workplace law reforms redefine casual employment and contractor status, and introduce the right to disconnect

23 August 2024

Share this article

The last 12 months have seen the introduction of some of the most far-reaching changes to employment and industrial laws in decades with the Closing Loopholes legislation. These changes go to the heart of the relationship between an organisation and its workers and could have significant impact on workforce costs and planning.

This article tells you what you need to do to be ready for the commencement of the next round of those key changes on 26 August 2024.

Casual Employees

Changes to the definition of Casual Employee:
The previous Federal Government amended the Fair Work Act 2009 (Cth) (Act) to introduce the first statutory definition of a casual employee. This gave employers real certainty that if employees had a proper casual employment agreement, then they would be most likely deemed a casual employee. With effect from 26 August, that definition will change, and the criteria for determining whether an employee is a true casual will shift from an assessment of the contractual terms to the practical reality of the working relationship and whether there is a firm advance commitment to ongoing work. Assessing this will involve a review of whether in practice the employer is offering work to the employees, whether the employees are refusing the work, whether there are permanent employees performing the same kind of work, the regularity of the employees’ pattern of work and the understanding between and expectations of the employer and the employee. This new definition will only apply to employees who are employed on or after 26 August 2024, or whose employment circumstances change on or after 26 August 2024. Employees who were classified as a casual with their employer before 26 August 2024 will remain a casual under the previous definition, unless they move to permanent employment. For employees employed on or after 26 August 2024, this will likely lead to uncertainty about an employee’s status absent a clear review of the employee’s work patterns and rostering arrangements. However, the ongoing right for employees to seek conversion to permanent employment will continue (albeit streamlined as discussed below), which could help to mitigate potential risk. In addition, the statutory right to set-off a separately defined casual loading against permanent employment will continue which, when combined with a robust and properly drafted set-off provision in the employment contract will also help to manage the potential risk of a claim for permanent employment entitlements from a casual employee who has been mischaracterised as such.
Changes to Casual Conversion: The pathway to casual conversion to permanent employment will change from 26 August 2024, although transitional arrangements will apply. Currently employers (other than small business employers) are required to offer casual conversion to eligible casual employees after 12 months of employment. Employees of small business employers still have the residual right to request casual conversion after 12 months. The following changes will apply:
- For casual employees employed on or after 26 August 2024: Employers will no longer be required to offer casual conversion. Rather, it will be up to an eligible employee to make the request for conversion after being employed for 6 months (or 12 months for a small business employer). This will reduce the administrative burden on employers.
- For casual employees employed before 26 August 2024: The current regime will continue to apply for 6 months from 26 August 2024 (or 12 months for a small business employer). From 6 or 12 months after 26 August 2024, respectively, the new regime applies.
Casual Employment Information Statement: Employers will have to provide a casual employment information statement to all casual employees before, or as soon as possible after, they have started employment.

Independent Contractors

Definition of Employment: The Act is being amended to provide that in assessing whether an individual is an employee, the totality of the working relationship must be assessed. That is, the real substance, true nature and practical reality of the relationship between the parties must be assessed.

The impact of this is to remove the relative certainty that employers in Australia have enjoyed since the High Court decisions in Personnel Contracting and Jamsek, which effectively said that, in determining whether someone is an employee or a contractor, the contractor agreement must be given primacy. That is, where there is a complete and binding independent contractor agreement in place, the relationship will be a true contractor relationship. With effect from 26 August, however, the actual relationship between the parties, i.e. how the relationship is conducted in practice, regardless of the contractual terms, will again become the relevant factor in determining whether the relationship has been properly characterised. Whilst the contract may be a factor in assessing the relationship, it will not be the primary factor.

In assessing the real substance, practical reality and true nature of the relationship, the factors previously assessed in the old common law test of assessing contractors will be relevant, such as the degree of control the company has over the contractor and whether the contractor can be seen to be carrying out their own business or form part of the company’s undertaking.

Certain contractors can opt out of the new definition, if they earn more than the contractor high income threshold. The threshold for the year starting 1 July 2024 is $175,000. However, the opt out notice can be withdrawn at any time.

These new rules will create further complexity, as they do not apply to all employment entitlements and on-costs. For example, this broader definition will be used for the purposes of assessing whether someone is an employee for the purpose of entitlements under the Act, such as leave or access to unfair dismissal. However, it will not apply to the assessment of whether someone is an employee for the purposes of long service leave, where the High Court decisions will continue to apply, giving primacy to the contract.

Similarly, there are different tests applicable in respect of superannuation guarantee contributions, PAYG and payroll tax, even where the contractors are deemed to be true contractors from an employment law or common law perspective.
Independent Contractors and Unfair Contracts: With effect from 26 August there will be a new jurisdiction in the Fair Work Commission (Commission) that will enable independent contractors who earn less than the contractor high income threshold to dispute unfair contracts. The Commission will have the power to make orders to vary or set aside service contracts if they contain unfair terms related to workplace relations matters. Workplace relations matters will include remuneration, leave, hours of work, termination and other matters that are substantially the same as matters that relate to employees.

Regulated Workers

With effect from 26 August, significant changes will be introduced for independent contractors who are doing particular types of work. These changes are potentially far-reaching and could have significant impacts on workforce planning and cost for impacted industries. The affected independent contractors will be called “Regulated Workers” and are:
- 'employee-like' workers performing digital platform work (e.g. gig workers), and
- independent contractors or ‘employee-like’ workers in the road transport industry.
In order to determine whether someone is an ‘employee-like’ worker performing digital platform work, the worker must satisfy two or more of:
- Low-bargaining power
- Payment at or below the rate of pay of an employee performing similar work
- Low authority over work performance
- Any other characteristic prescribed by regulations
As a result of the changes, the Commission will have the power to set minimum legal standards and/or guidelines in respect of Regulated Workers, including terms in relation to payments and insurance. Regulated Workers will also be able to access a new framework for collective bargaining. Subject to the income levels of the Regulated Workers, they will also have protections against “unfair deactivations” and “terminations”, which are broadly similar to unfair dismissal rights to which employees have access.
Regulated businesses are required to engage with workplace delegates who are Regulated Workers and are prohibited from misleading them or hindering their delegate rights.

Right to Disconnect:

Finally, the right to disconnect will apply to all employees, regardless of remuneration level with effect from 26 August 2024. The only exception to this is that this change will commence from 26 August 2025 for small business employers.
Employees will have the right to refuse contact with their employer outside their working hours unless that refusal is unreasonable. The right to disconnect is a workplace right, and therefore an employee may not be subject to any detriment or adverse action for refusing to take work-related calls or respond to work-related emails in their unpaid personal time, unless that refusal is unreasonable.
The question of what is reasonable will depend on a number of factors, such as the reason for and method of the contact, the impact on the employee, the nature of the role and level of responsibility, the employee’s remuneration and whether the employee is paid to remain available or on-call for work.
There is an exemption from the right to disconnect from contact that is required under a law of the Commonwealth, State or Territory (e.g. some emergency services).

This right is aligned with a growing global trend to introduce similar rights, and with the increased focus on psychosocial safety and the psychological wellbeing of employees in Australia. A deeper dive by the PwC Diversity, Equity and Inclusion team into this aspect of the right to disconnect and how employers can best leverage the right to disconnect is available.

What should employers be doing to prepare?

As can be seen, 26 August 2024 is a significant day for employers, and they must ensure ongoing compliance with these changes. Some key actions companies should be taking include:

Undertaking thorough reviews of casual employment contracts and independent contractor agreements to ensure that they are fit for purpose. In particular, casual employment contracts should have a clear and identifiable casual loading, and a robust set-off clause.
Ensuring that casual employment information statements are issued to all casual employees.
Conducting a detailed review of the use of casual employees and independent contractors in the workplace to ensure that they are appropriately designated as such.
Ensuring that the process is followed to allow high income contractors to opt out of the new definition in the Act.
Companies in the road transport industry and with employee like workers performing digital platform work should be conducting a full workforce review to identify which workers are impacted by the changes regarding Regulated Workers and taking advice in relation to the potential impacts for them to develop an appropriate industrial strategy. 
Training managers in relation to the obligations under the right to disconnect, and the importance of ensuring regular and open communication with team members about deadlines, workload expectations and working arrangements. This should also include a review of employment contracts and policies to ensure that they are clear in relation to expected hours of work and the potential for out of hours work.