What businesses need to know about the proposed IR reforms

23 December 2020

Following months of much publicised discussions between employer groups and unions, on 9 December 2020, the Morrison Government introduced a bill to Parliament which represents what may be the most significant amendment to Australia’s industrial relations system since the introduction of the Fair Work Act 2009 (Cth) (FWA) in 2009.


The Fair Work Amendment (Supporting Australia’s Jobs and Economic Recovery) Bill 2020 (the Bill) aims to improve the operation and usability of the national industrial relations system by providing greater certainty and flexibility to employers and employees during this time of employment and economic recovery.


New definition of “casual employment”


The Bill seeks to provide greater certainty to businesses and employees with respect to casual employment, particularly arising out of the recent Federal Court decisions of WorkPac v Rossato [2020] FCAFC 84 and WorkPac v Skene [2018] FCAFC 131.


The Bill aims to achieve this by:


  • introducing a statutory definition of the term “casual employee” as a person to whom employment is offered and accepted on the basis that there is no firm advance commitment to continuing and indefinite work according to an agreed pattern. The new definition reflects the common law meaning of casual employment rather than the description used in many awards and agreements of someone who is designated and paid as a casual; and


  • seeking to address the possibility of ‘double-dipping’ left open by the Rossato decision by prescribing circumstances in which a court must offset any “identifiable” casual loading paid to an employee against any amounts found to be payable to the employee as a result of the employee being incorrectly classified as a casual.


The proposed definition also makes clear that the question of whether or not an employee is a casual employee is to be assessed at the time the offer of employment is made and accepted and not on the basis of the parties’ subsequent conduct or whether the employee in fact works a regular pattern of hours.  This serves to ensure that a person’s employment status cannot unintentionally change over time; and


The Bill also introduces a new obligation for employers to offer long term casuals (being those who have been employed for at least 12 months and have worked a regular pattern of hours on an ongoing basis during the last 6 months) the opportunity to convert to full-time or part-time employment, unless there are reasonable grounds not to make the offer.


The Bill also preserves the existing right of a casual employee to request to convert to permanent employment (subject to new eligibility requirements).


While casual conversion mechanisms are not new, the Bill introduces new eligibility criteria and a number of procedural requirements which employers will need to follow.


Employers will also be required to provide casual employees with a “Casual Employee Information Sheet”, which is to be prepared by the Fair Work Ombudsman.


More flexible part time employment arrangements


The Bill introduces a new mechanism under which employers can reach agreement with part-time employees to work additional hours without being required to pay overtime rates.  An “additional hours agreement” can only be made if a prescribed modern award covers the employer and employee.  Many of the prescribed awards cover the hospitality and retail industries.


These provisions are intended to promote flexibility and efficiency for businesses and facilitate part-time employees gaining more hours of work by removing restrictive requirements in awards which limit the ability to vary agreed part-time hours or require overtime rates to be paid where an employee exceeds their ordinary hours of work.


The Bill contains conditions for entering into such an agreement, including the following:


  • the employee must work at least 16 ordinary hours per week;


  • the agreement may apply to a single day or to multiple occasions;


  • the additional agreed hours must result in the employee working at least 3 consecutive hours;


  • an employer cannot require or exert undue influence on an employee to enter into such an agreement; and


  • such agreements are to be terminable on 7 days’ notice by either party.


Employees will need to be mindful that overtime will still be payable in certain circumstances, including where the agreed additional hours result in an employee working outside the span or spread of hours permitted under the award or in excess of the daily or weekly maximum number of hours specified in the award.


Extension of flexible work directions


The Bill seeks to extend some of the JobKeeper flexible work directions introduced earlier this year in response to the COVID-19 pandemic.


Under the new provisions, an employer will be able to direct an employee (whether full-time, part-time or casual) to perform any duties that are within their skills and competency, or to work at a different location, subject to certain safeguards including that the direction is not unreasonable and is a necessary part of a reasonable strategy to assist in the revival of the employer’s business.


The directions will only be available to employers and employees who are covered by one of the prescribed awards listed in the Bill, which cover industries that have been hardest hit by COVID-19.  The availability of the directions will not be dependent on a business’s eligibility for JobKeeper payments.  Consultation and notice requirements will also apply.


It is proposed that the flexible work directions will be available to employers for 2 years.


Changes to “better off overall test”


The Bill aims to make agreement making and the approval process easier and faster in response to concerns about the current system’s technicality and complexity.


The Bill proposes to amend the better off overall test (the BOOT) which currently requires the Fair Work Commission (FWC) to ensure that employees covered by an enterprise agreement would be better off overall than they would be under an award which would otherwise apply.


Under the proposed changes, the BOOT would be modified such that the FWC:


  • would only be required to assess an agreement by reference to actual patterns and kinds of work that are engaged in by the business, or are reasonably foreseeable, and not hypothetical ones;


  • can have regard to overall benefits including non-monetary benefits that employees would receive under an agreement compared to an award, including flexible working arrangements, time in lieu, health care benefits and the provision of training; and


  • can give significant weight to the views of employers, employees and bargaining representative as to whether the proposed agreement passes the BOOT.


The Bill also allows the FWC to approve an enterprise agreement which does not pass the BOOT where it would be appropriate having regard to:


  • the impact of COVID-19 on the business;


  • the views of employers, employees and bargaining representatives; and


  • the extent of employee support for the agreement as expressed in the outcome of the voting process.


Any agreement approved under this mechanism can only have a nominal expiry date of up to 2 years.


Cessation of transitional instruments


The Bill will also provide that all enterprise agreements made during the transitional period from 1 July 2009 to  31 December 2009 will automatically cease to have effect on 1 July 2022.


Employees covered by these transitional instruments will revert to the applicable modern award unless a new enterprise agreement has been negotiated.


Introduction of jail time for serious underpayments


The Bill aims to enhance the compliance and enforcement framework in the FWA to more effectively deter non-compliance with workplace laws.  The Bill increases the pecuniary penalties for remuneration related contraventions and sham arrangements by 50% and introduces a new criminal offence for dishonest and systematic wage underpayments. 


The maximum penalty for the new offence will be 4 years imprisonment and a fine of $1.11 million  for individual employers or a fine of $5.55 million for corporate employers.  Individual managers and advisers may also be criminally liable as accessories.


The provision is intended to operate broadly and cover underpayment of base rates of pay as well as unlawful deductions from employee wages.


Relevant factors in determining whether a pattern of underpayments is systematic will include the number of underpayments, the period over which they occurred, and the number of employees affected.  The offence will not apply to one off conduct.


The Bill also increases the small claims cap from $20,000 to $50,000, with a view to making it easier for employees to recover entitlements.


Outstanding issues and where to from here


At this stage, a number of issues remain unclear, including:


  • whether the Bill adequately deals with the issue of ‘set-off’ of a casual loading having regard to the requirement that there be an “identifiable amount” of loading – which the courts have been reluctant to uphold;


  • how the definition of a ‘casual employee’ or the ability of an employer to ‘set-off’ any casual loading paid will be impacted by any findings of the High Court in the appeal of the Rossato decision, which is expected to be heard next year; and


  • whether the part-time flexibilities may be expanded to other industries and awards.


Further, given the vocal opposition to the Bill which has already been expressed, it is unclear when or if at all the Bill will pass Parliament.  In particular, the Opposition and a number of unions have expressed their strong criticism to changes which would allow businesses to more readily bypass the BOOT and it has been reported that the Government may be prepared to concede to such criticism to ensure a quick passage of the Bill.


For further advice on how the changes sought to be introduced by the Bill may affect your business, please contact our specialist workplace law team.


This article provides general comments only.  It does not purport to be legal advice.  Before acting on the basis of any material contained in this article, we recommend that you seek professional advice.


Paul Dugan, Principal in our Disputes Team

Email: pdugan@dmawlawyers.com.au
Direct Telephone:  +61 8 8210 2266


Kylie Dunn, Senior Associate in our Disputes Team

Email: kdunn@dmawlawyers.com.au
Direct Telephone:  +61 8 8210 2286