The Closing Loopholes Bill
The Closing Loopholes Bill: Overview
It is a reform package that was announced as being about closing loopholes and enhancing protections. However, on 4 September 2023, the Government introduced a raft of reforms which go much further than that.
The Fair Work Legislation Amendment (Closing Loopholes) Bill 2023 (Bill) has opened new fronts for debate and introduced new amendments which employers will have to grapple with in the coming months.
The House of Representatives has referred the Bill for inquiry by the Senate Education and Employment Legislation Committee, which is due to table its report by 1 February 2024.
In the meantime, Kingston Reid will be closely monitoring any developments in respect of the Bill, so please bookmark this page to stay informed about these changes.
The changes can be divided into six major areas, below.
Same Job, Same Pay
What We Thought It Would Be About: They said they would close the labour hire loophole.
What It Is Actually About: What has been introduced is a labour hire harmonisation system which effectively benchmarks labour hire entities to host employers and allows employees and unions the capacity to seek orders which introduce pay parity across operations. The only exemptions are for training arrangements and short-term engagements not exceeding 3 months. Conceivably, labour hire operators, consultants and contractors can be caught by the scheme.
Further, an anti-avoidance scheme has been included which recognises conduct that takes place from 4 September 2023 (being the day this Bill was introduced to Parliament).
That’s right, any arrangement entered into from 4 September 2023 until the Bill receives royal assent can be caught by the anti-avoidance provisions.
How It Works: One major change under the Bill is to create a new (and relatively complex) scheme for labour hire rates of pay.
Under this scheme, the Commission can make “Regulated Labour Hire Arrangement Orders” which set the minimum rates of pay a labour hire provider must pay to employees. This “protected rate of pay” is the full rate (that is, inclusive of loadings, penalties and allowances etc) payable to direct employees of the host under its enterprise agreement (or other relevant industrial instrument).
The Commission can decline to make such an order, if it is satisfied it is not fair and reasonable to do so, having regard to submissions on a range of issues, including as to the history of industrial arrangements, the relationship between the host and the employer, the terms and nature of the engagement, and other matters.
There is also an obligation on the host to provide information necessary for the labour hire provider to determine the protected rate of pay, along with a capacity for the Commission to deal with disputes (including by arbitration).
There are limited exceptions to this scheme (including for short term engagements, and to some extent, small businesses) and anti-avoidance provisions.
What We Thought It Would Be About: They said it was about criminalising wage theft.
What It Is Actually About: The Bill establishes new wage theft offences which carry penalties of up to 10 years imprisonment, and financial penalties of up to $1,565,000 for an individual and $7,825,000 for a corporation, or 3 times the value of the underpayment, whichever is higher.
The Bill also abrogates the privilege against self- incrimination to allow employee records maintained and kept by an employer to be used in subsequent proceedings. As noted in the explanatory memorandum, if an employer is lawfully required to produce and keep (or issue) these documents and records, then it is not reasonable for their use in evidence to be prevented.
How It Works: It will be a criminal offence to intentionally underpay employee entitlements arising under the Fair Work Act, modern awards or enterprise agreements (although the new offence will not apply to superannuation underpayments).
Prosecutions may only be commenced by the Australian Federal Police or the Commonwealth Director of Public Prosecutions.
It will be a defence to demonstrate honest mistake or that the underpayment was not the result of intentional conduct – demonstrating due diligence will be critical for employers relying on the defence of honest mistake.
Employers may avoid criminal (but not civil) liability by:
- self-reporting and entering a ‘Cooperation Agreement’ with the Fair Work Ombudsman; or
- complying with a yet-to-be-developed voluntary Small Business Wage Compliance Code.
The Bill proposes the following maximum penalties for contraventions of this new criminal offence:
|Maximum penalty (individual)||Maximum penalty (body corporates)|
|If the underpayment amount cannot be determined||a) Fine of $1,565,000;
b) 10 years’ imprisonment; or
c) Both (a) and (b)
|Fine of $7,825,000.|
|If the underpayment amount can be determined||a) Fine of $1,565,000 or three times the value of the underpayment (whichever is greater);
b) 10 years’ imprisonment; or
c) Both (a) and (b)
|Fine of $7,825,000 or three times the value of the underpayment (whichever is greater).|
|Monetary figures are based on the current value of the Commonwealth penalty unit of $313.|
The new criminal offence will likely co-exist with existing State-based wage theft criminal laws.
This is not the first time that the criminalisation of wage theft has been proposed at a federal level. In 2020, the former Coalition Government (unsuccessfully) attempted to introduce criminal offences in respect of employers who “dishonestly” engage in a systematic pattern of underpayments
Gig and Employee-Like Workers
What We Thought It Would Be About: They said it was about supporting gig economy workers.
What It Is Actually About: What has been introduced is a system that extends to gig economy workers but in the same breath revives the Federal Government’s regulation of the road transport industry with new powers introduced to set minimum standards for the road transport industry and hear disputes about unfair contract terms and disputes.
The Bill also features a new test for determining a worker’s employment status, even though this did not initially form part of the Federal Government’s suite of proposed industrial relations reforms at the May 2022 federal election. This proposed amendment extends beyond application to workers in the gig economy and has the potential to impact other non-employment-based work relationships.
How It Works: The Bill will insert a statutory test for employment into the Fair Work Act, which will be applied looking at the “totality of the relationship”, to ascertain the “real substance, practical reality and true nature of the relationship”.
This amendment is targeted at changing the approach adopted by Courts and Tribunals to determining the status of a worker following the High Court judgments in Jamsek and Personnel Contracting in early 2022, reverting largely back to the approach adopted since the High Court’s previous landmark judgment in Hollis v Vabu Pty Ltd (2001) 207 CLR 21.
The most extensive aspect of the Bill, comprising almost half the text, relates to the regulation of employee-like and road transport work. These two streams are dealt with largely separately in the Bill, but the framework for each is similar.
Minimum Standards Orders and Guidelines
This includes powers for the Fair Work Commission (FWC) to make minimum standards orders and guidelines relating to the performance of work by regulated workers (including on its own initiative).
For the employee-like stream, this can include workers (including where they provide their services through an incorporated entity) who:
- perform work under a services contract with the operator of a digital labour platform, or which was facilitated by a digital labour platform; and
- the worker has low bargaining power or receives less remuneration than an employee performing comparable work or has a low degree of authority over the way they perform work (other factors can be prescribed by regulation).
For the road transport industry, this includes workers (including where they provide their services through an incorporated entity) who perform work under a services contract in the road transport industry.
Minimum standards orders must include terms specifying coverage and a procedure for settling disputes.
Minimum standards orders can also include terms dealing with payment terms; deductions; working time; record-keeping; insurance; consultation; representation; delegates’ rights; and cost recovery.
There are certain matters which cannot be included in an order (primarily relating to matters that are of a commercial nature not affecting terms and conditions of engagement or would change the form of the engagement).
The Bill sets out a process for collective agreements to be made between digital labour platforms or road transport businesses and organisations representing the industrial interests of the employee-like workers, or road transport contractors, who will be covered by it.
This process is commenced by the giving of a notice of a consultation period, which specifies who the proposed collective agreement will cover and what it will deal with. This notice must also be given to the FWC, which will publish it on its website, and also to workers to be covered by the proposed agreement. The agreement making parties must also agree on a process for giving a notice to the relevant workers to be covered by the proposed agreement.
The FWC can assist in resolving disputes about the making of the agreement, but arbitration is not permitted. The FWC is also responsible for registering a collective agreement, and also its termination (after the termination steps in the collective agreement have been completed).
Unfair deactivation and termination
The Bill also creates quasi-unfair dismissal rights in the FWC known as “Unfair Deactivation” in the case of the employee-like stream, or “unfair termination” in the road transport stream.
In each case, certain jurisdictional prerequisites apply (similarly to the unfair dismissal jurisdiction – including a contractor high income threshold) and the Commission will consider whether the deactivation or termination was unfair having regard to the existence or absence of a “valid reason”.
The minister also has the power to develop a code for each stream setting out other considerations, for example around fair deactivation or termination procedures.
In both streams, the Commission can order reactivation or reinstatement, and make orders for lost pay. However, orders for compensation in lieu of reinstatement are only available in the road safety stream.
The proposed sham contracting defence – “I didn’t know” may no longer suffice
Under section 357(1) of the Fair Work Act, an employer must not make representations that an employment relationship is an independent contracting arrangement. This is often called ‘sham contracting’. Engaging in sham contracting gives rise to civil penalties.
A defence to sham contracting is provided under section 357(2) if the employer proves (the burden of proof rests with the employer) that at the time of making the representation, the employer:
- did not know; and
- was not reckless as to whether,
there was an employment relationship.
What is proposed? A new defence
The Bill, if passed, will repeal the current defence and introduce a new one.
The proposed new defence will apply if the employer proves (the burden of proof remains with the employer) that at the time of making the representation, they “reasonably believed” that there was an independent contractor arrangement.
The Bill changes the defence from a subjective defence, based on an employer’s knowledge and recklessness, to an objective defence, based on an assessment of reasonableness.
The proposed legislative changes give the Courts wide discretion to determine whether an employer’s belief was reasonable.
The size and nature of the employer’s enterprise is the only mandatory consideration (which aligns with the Fair Work Act’s objectives to acknowledge the special circumstances of small and medium sized businesses). Otherwise, a Court may consider “any other relevant matters”, examples of which include the following:
- the employer’s skills and experience;
- the employer’s industry;
- how long the employer has been operating;
- the presence or absence of a designated human resources or industrial relations team within the employer’s enterprise; and
- whether the employer sought legal or other professional advice about the proper classification of the individual and if so, acted in accordance with that advice.
The new test will only apply to representations made on or after the commencement of the Bill.
Why the change?
The Labor Government says that the current defence is not effective at deterring sham contracting, as it was far too easy for an employer to establish (the subjective defence) that they did not know the true nature of the engagement and did not act recklessly when making representations.
The new (objective) defence will require employers who have misrepresented employment as an independent contractor relationship to prove they “reasonably believed” that the employee was an independent contractor, not merely that they did not know and were not reckless as to an employee’s correct status.
What this means and what now?
If the changes are passed, then:
- Organisations (including labour hire providers) should carefully assess their independent contractor arrangements (including current arrangements which may expire, and be subject for renewal, after the Bill passes) to ensure they have a reasonable basis to classify independent contractors as such.
- Even if an organisation makes out the new defence (i.e. they prove that their belief at the time of the representation, which may be wrong, was reasonable), the employer may still be liable for other civil penalties and/or backpay in relation to contravening the National Employment Standards (NES), modern awards or enterprise agreements. Again, a wholistic and careful assessment of independent contractor status is critical.
- Organisations, particularly medium to large organisations, should ensure their human resources team and other staff who engage employees or independent contractors, are aware of the fundamental differences between an independent contractor and an employee, and consider implementing training if necessary.
- The new defence does not alter the High Court’s position in ZG Operations Australia v Jamsek and CFMEU v Personnel Contracting for determining independent contractor status. As such, organisations should continue to ensure that their written contracts with independent contractors are fit for purpose.
Back to the future – proposed changes to casual employment
The Bill has been introduced into parliament and proposes to make extensive and significant changes to Australia’s industrial landscape, including the nature of casual employment.
The Bill’s casual employment reforms propose to remove the focus on the employment contract and revert to the former test, which requires an employer to continuously consider the true nature of the employment relationship, even when a clear casual employment contract has been entered into with the employee.
The casual employment reforms are intended to come into effect on 1 July 2024. The Bill contains some controversial changes which are already being opposed by certain representative groups. This might make it less likely that the Bill will be passed quickly, however we still anticipate that the Bill will become law by the end of this year, leaving employers with limited time to prepare.
The key changes to casual employment are set out below.
The meaning of casual employment
The Fair Work Act currently defines a casual employee by reference to the terms of the employment contract, without consideration of the employment relationship in practice.
This definition was introduced to the Fair Work Act in 2021 to provide certainty to employers when employing casuals. The Bill proposes to revert to the previous test for casual employment that preceded the 2021 legislative reform, which involves reviewing how the employment relationship unfolds in practice, rather than in the terms of the contract.
The proposed definition of casual employment in the Bill states an employee will be a casual employee if there is no firm advance commitment to continuing and indefinite work and the employee is entitled to a casual loading.
This is the first time that the casual loading (which is traditionally contained in an industrial instrument), will be recognised in the Fair Work Act.
Whether there is a firm advance commitment to continuing and indefinite work will be determined by reviewing the real substance, practical reality and true nature of the employment relationship, including an assessment of whether:
- the employee has a regular pattern of work (with allowance for reasonable absences for illness, injury and recreation);
- the employer can decide not to offer the employee work and the employee can choose to reject work that is offered;
- the employer has full-time and part-time employees performing the same kind of work; and
- the work the employee performs for the employer is reasonably likely to be ongoing.
The basis of a firm advance commitment can be in the form of a contract, or in the form of a mutual understanding or expectation between the employer and the employee, which may be inferred from the conduct of the employer and employee.
Employee notification of conversion
In addition to the existing casual conversion framework, casual employees will have the ability to give an employer written notification of their ‘choice’ to convert to full-time or part-time employment after 6 months of employment (or 12 months for small businesses), if the employee believes their employment no longer meets the definition of casual employment.
Employers will be required to consult with the employee about their written notification and provide a response within 21 days of receiving the written notification to convert.
The ability of an employer to not accept an employee’s written notification will be limited to where:
- the employer considers the employment still meets the definition of casual employment;
- the employer would have to make substantial changes to the employee’s terms and conditions of employment to convert the employment to part-time or full-time without contravening the relevant Award or Enterprise Agreement; or
- conversion would result in non-compliance with the employer’s recruitment obligations under law.
FWC to deal with casual employment disputes
An employee can refer a dispute in relation to a written notification or casual conversion to the FWC if the dispute has not resolved through discussion with the employer. The FWC will be able to initially deal with a dispute as it deems appropriate, including by mediation, conciliation, making a recommendation or expressing an opinion, and can arbitrate disputes that remain unresolved after the initial dispute resolution process.
Where the FWC arbitrates a dispute, the Commission can make an order for the employee to remain employed as a casual employee, or to convert to full-time or part-time employment.
Importantly, a FWC order for an employee to convert to part-time or full-time employment cannot be retrospective and will take effect from the beginning of the employee’s first full pay period after the order is made, or a later date if specified.
This means employers will not be required to remediate an employee’s NES entitlements (such as annual leave and personal leave entitlements), that they would have accrued if they had been employed as a part-time or full-time employee for any period prior to the order taking effect.
Misrepresentation of casual employment (sham casual contracting)
While the FWC’s powers to make orders in respect of a casual employment dispute are limited to prospective orders, an employee, or prospective employee, will be able to make a general protections claim if they believe an employer has misrepresented an employment contract as a contract for casual employment, which are subject to the civil penalty provisions of the Fair Work Act.
An employer will need to discharge the reverse onus of proof to defend such a claim by proving that the employer reasonably believed the contract was for casual employment. The FWC will have a broad discretion in considering whether the employer’s belief was reasonable.
Casual Employment Information Statement
Employers will be required to give a casual employee a copy of the Casual Employment Information Statement:
- before, or as soon as practicable after, the casual employment commences; and
- as soon as practicable after the employee completes 12 months of employment.
Employers will also need to give existing (“continuing casuals”) a copy of the Casual Employment Information Statement within 3 months of commencement.
Other changes included in the Bill include:
- Changes to the multi-employer bargaining framework
- the Bill will modify the rules that regulate the interaction between enterprise agreements, with the effect that single-enterprise agreements will prevail over existing supported bargaining and single interest multi-employer enterprise agreements, even where those multi-employer agreements have not passed their nominal expiry date.
- However, this change is limited somewhat by the fact that in order for an employer to put a single-enterprise agreement to vote of a workforce covered by an “in-term” multi-employer agreement, the written agreement of an employee organisation is required (or otherwise a voting request order from the FWC).
- In addition, under the Bill, when the single-enterprise agreement is assessed by the Commission to determine whether it passes the “better off overall test”, the terms of the multi-employer enterprise agreement is a relevant comparator.
- A new limitation on the existing small business exclusion on the obligation to make redundancy pay: under the Bill, this exclusion will not apply, in essence, where the employer became a small business due to insolvency;
- The inclusion of family and domestic violence as a protected attribute for anti-discrimination protections;
- An expansion of the affected member certificate regime to included cases of underpayment (meaning permit holders can seek approval from the FWC to exercise right of entry without providing advance notice);
- Winding back the changes made to the de-amalgamation process for unions, which enabled this to occur when the relevant constituent part amalgamated more than 5 years prior; and
- Various changes to asbestos and work health and safety, including the introduction of a new industrial manslaughter offence in the Work Health and Safety Act 2011 (Cth) and increased penalties for Category 1 offences.
Workplace Delegates Rights
New Prohibitions in the Fair Work Act
The Bill will insert new civil remedy provisions into the general protections scheme of the Fair Work Act. In particular, the Bill will insert a new s 350A into the Fair Work Act which will prohibit the employer of a workplace delegate from:
- unreasonably failing or refusing to deal with the workplace delegate;
- knowingly or recklessly making a false or misleading representation to the workplace delegate; or
- unreasonably hindering, obstructing or preventing the exercise of the rights of the workplace delegate.
These provisions will be limited to apply in relation dealings with the workplace delegate acting in that capacity. Notwithstanding that, this is a broad set of prohibitions which apply to restrict the ordinary manner in which some employers may go about their business. For example, the scope of the matters about which employers will be prohibited from making misleading representations are not limited to matters which unions or their members may have legitimate interests but extend to all representations made to a workplace delegate in that capacity.
New Rights in the Fair Work Act
The Bill will insert a new s 350C into the Fair Work Act which enumerates the rights of workplace delegates. Those rights will include:
- A right to represent the industrial interests of members of their union, and persons eligible to be members;
- A right to reasonable communication with members of the union and persons eligible to be members;
- A right to reasonable access to the workplace and workplace facilities for the purpose of representing the industrial interest of union members and prospective members; and
- A right to reasonable access to paid time, during normal working hours, for the purpose of training related to representing the industrial interests of union members and prospective members (except in the case of small business employers).
The scope of these proposed new rights is unclear. What is clear is that there will be significant cost in lost time as a result of the new rights. These new rights will give union delegates not only a right to union training during working hours but will also give impetus to union delegates using work time to conduct union business under the cover of the right to reasonable communication.
New Rights in Modern Awards
The Bill will insert a new s 149E into the Fair Work Act. That new provision provides that all modern awards ‘must include a delegates’ rights term for workplace delegates covered by the award.’ That term must provide for the exercise of the rights of the workplace delegate, and those rights must, at a minimum, reflect those contained in the Fair Work Act. The FWC is required to make a determination varying all current modern awards to include a delegates’ rights term by no later than 30 June 2024, and that determination will come into effect on 1 July 2024.
New Rights in Enterprise Agreements
The Bill will also insert a new s 205A into the Fair Work Act. That new provision provides that all enterprise agreements must contain ‘a delegates’ rights term for workplace delegates to whom the agreement applies’. If the delegates’ rights term in the agreement is less favourable than the delegates’ rights term in any of the underpinning modern awards, the term in the enterprise agreement will not apply and the most favourable term in the underpinning modern awards, as determined by the FWC, will apply. This will not apply to enterprise agreements where the employer requests employees to vote to approve the agreement before 1 July 2024.
New Rights in Workplace Determinations
The Bill will insert new sub-ss 273(6)-(7) into the Fair Work Act which, similarly, require workplace determinations to contain delegates’ right term, which must be no less favourable than the underpinning modern awards.
Who will Delegates’ Rights apply to?
For the purposes of the new rights, a workplace delegate means ‘a person appointed or elected, in accordance with the rules of an employee organisation, to be a delegate or representative (however described) for members of the organisation who work in a particular enterprise.’ There is no limit in the Bill as to how many people may be so appointed by a union, or providing for transparency on the part of unions or delegates as to who has been elected.
Only representatives of employee organisations (that is, trade unions) registered in accordance with the Fair Work (Registered Organisations) Act 2009 (Cth) will be entitled to the rights and protections introduced in the Bill. This means that representatives of so-call ‘Red Unions’ and unregistered associations such as RAFFWU will not be entitled to the delegates’ rights in the Fair Work Act or relevant industrial instruments.
Future Expansion of Rights
From 1 July 2024, the Fair Work Act will provide relevant equivalent rights for workplace delegates who are ‘regulated workers’. Please see our separate commentary in respect of the new rights for gig economy and road transport industry participants for more information about changes related to ‘regulated workers’.
Protections Against Discrimination
If the Bill passes the Parliament in its current form, new provisions in respect of workplace discrimination will be inserted into the Fair Work Act. The proposed new rights would be effective immediately upon the Bill being given royal assent.
The protection against adverse action being taken against an employee on the basis or certain protected attributes in s 351 of the Fair Work Act will be extended to prohibit adverse action on the basis of an employee’s subjection to family and domestic violence. This is in addition to the existing protections on the basis of the employee’s race, colour, sex, sexual orientation, breastfeeding, gender identity, intersex status, age, physical or mental disability, marital status, family or carer’s responsibilities, pregnancy, religion, political opinion, national extraction or social origin.
Relevant amendments will also be made to prevent modern awards, enterprise agreements and workplace determinations containing terms which are, or would be, discriminatory on the basis of an employee’s subjection to family and domestic violence.
The provisions rely on the existing definition of family and domestic violence in the Fair Work Act, being violent, threatening or other abusive behaviour by a close relative of a person, a member of a person’s household, or a current or former intimate partner of a person, that either seeks to coerce or control the person, or causes the person harm or to be fearful.
Small Business Redundancies
If the Bill passes the Parliament in its current form, the provisions exempting small businesses from paying redundancy pay in accordance with the Fair Work Act will be narrowed. The proposed change would be effective from the day after the Bill being given royal assent.
The Fair Work Act currently provides that, in circumstances of termination of employment by reason of redundancy, an employer with fewer than 15 employees at the earlier of the time immediately before the termination of employment, or the time when the person was given notice of the termination, is not required to pay redundancy pay in accordance with s 119 of the Fair Work Act.
The Bill will insert a provision into the Fair Work Act which provides that certain businesses with fewer than 15 employees will be required to pay redundancy pay. This will occur in circumstances where the employer is bankrupt or in liquidation (other than purely because of a members’ voluntary winding up of the employer), and the employer became a small business as a result of dismissing employees due to insolvency, or dismissing employees in the six months before (or at any time following) any of the following events:
- becoming bankrupt;
- going into liquidation; or
- the appointment of an insolvency practitioner.
In circumstances where multiple insolvency practitioners are sequentially engaged, and there is no business day between the sequential appointments, any dismissal of employees in the six months prior to the appointment of the first insolvency practitioner will be counted.
This will mitigate potentially inequitable consequences of downsizing on the remaining workforce, where the employer might otherwise have had the benefit of the small business exemption when effecting such redundancies.
While this new provision comes into force on the day after the Bill is given royal assent, the current small business exemption will continue to apply where any of the terminations of employment covered by the new provision occurred before that time.
Multiple Franchisees eligible for single enterprise bargaining
Currently section 172(2) of the Fair Work Act limits bargaining for a single enterprise agreement to a single employer, or related employers. Franchisees are currently excluded from the definition.
The Bill proposes to amend s 172 of the Fair Work Act to specifically include franchisees of a common franchisor within the definition of ‘related employers‘. This will enable:
- franchisees to bargain as if they were a single enterprise, including conducting any ballot to approve an agreement as if they were a single enterprise; and
- employees of franchisees to obtain a majority support determination where a majority of employees who would be covered by the proposed agreement wish to bargain, without needing to establish that each employer has at least 20 employees.
The provisions do not alter franchisees’ ability to make a multi-enterprise agreement.
Why the change?
The intention of the new provision is to make bargaining more accessible for franchisees and their employees.
The provisions promote the right to collective bargaining by providing additional means of reaching agreement on the terms and conditions of employment. Making it more accessible for employees of franchisees (and their bargaining representatives) where the employer does not consent to multi-enterprise bargaining and each individual employer employers fewer than 20 people.
The provisions attempt to make bargaining more attractive to franchisees as a separate vote at each franchise would no longer be required.
The Bill proposes to replace the existing requirements and instead require the FWC to determine model terms on consultation, flexibility and dispute resolution for enterprise agreements (and copied state instruments). In determining model terms, the FWC is to consider:
- ‘best practice’ workplace relations; and
- whether all persons and bodies have had a reasonable opportunity to be heard and make submissions before making determinations.
The FWC will have power to vary its determinations to ensure the model terms remain relevant and in line with developments in workplace relations.
The model terms made by the FWC will not override terms agreed between parties to an agreement where the terms meet the minimum requirements in the Fair Work Act.
The proposed amendments would commence by proclamation 12 months after the Bill receives royal assent. The period of 12 months allows the FWC sufficient time to constitute a Full Bench to determine the model terms, hear and consider submissions and make determinations.
Why the change?
The intention behind the amendments are to ensure the ongoing relevancy of model terms as well as facilitating greater public consultation in the determination of model terms.
How to prepare
In preparation for the amendments, employers should review their agreements and instruments to ensure that the clauses on consultation, flexibility and dispute resolution meet the minimum requirements under the Fair Work Act.
Increases to Penalties
Employee underpayments continue to pose a major financial and reputational risk for Australian businesses. Payroll errors have been the subject of ongoing media attention amidst various public disclosures by large corporates, with no signs of this trajectory changing anytime soon.
The Fair Work Ombudsman (FWO) remains active in regulating this space, with the regulator announcing in August 2023 that it had recovered over half a billion dollars for workers in FY2022-23 (with $317 million of these recoveries coming from large corporates and universities alone).
The sleeper issue for employers faced with payroll errors and underpayment claims is the exposure to civil penalties for alleged contraventions. Whilst making good underpayments can be costly, paying civil penalties in addition to any exposure can significantly increase employers’ total exposure.
This is particularly the case given the current maximum penalties which apply, and what is on the horizon given the release on 4 September 2023 of the Bill.
The Bill proposes to make various changes to the Fair Work Act r, including increasing existing penalties for certain underpayment-related contraventions and introducing a new “wage theft” criminal offence for intentional underpayments.
Outlined below is the current status of maximum pecuniary penalty figures under the Fair Work Act, as well as a summary of the reforms to come.
Penalty-flation – Penalties have already increased numerous times over the past year!
Maximum pecuniary penalties for Fair Work Act contraventions have markedly increased at numerous checkpoints over the past year due to amendments to the Crimes Act 1914 (Cth) as well as the scheduled indexation of the Commonwealth Penalty Unit according to the Consumer Price Index.
Two adjustments to the penalty unit have already occurred since 1 January 2023, resulting in more than a 40% increase to the maximum penalties that may be imposed under the Fair Work Act:
|Contravention date(s)||Maximum penalty
|1 July 2020 to
31 December 2022
|1 January 2023
30 June 2023
|From 1 July 2023||
What changes are expected from the Closing Loopholes Bill?
Further increases to pecuniary penalties under the Fair Work Act (non-intentional underpayments)
The Bill looks to further increase the current maximum pecuniary penalties for certain underpayment-related contraventions of the Fair Work Act.
If the Bill is passed as currently drafted (noting however that the Bill is currently subject to Senate review, so its passage may be delayed and commencement dates may be revised):
- By 1 January 2024 or after royal assent (whichever is later), the maximum pecuniary penalty for non-intentional underpayment-related contraventions (including of employee record-keeping and pay slip obligations) will increase by a factor of five. This would mean that the new maximum penalty for a body corporate would be $469,500 per contravention or $4,695,000 per serious contravention.
- By 1 January 2025 (or earlier by proclamation), where an applicant specifies that they want the maximum penalty to be calculated based on a multiple of the underpaid amount (to the extent that such an amount can be determined), the maximum pecuniary penalty for non-intentional underpayment-related contraventions (including of employee record-keeping and pay slip obligations) that may be imposed on an employer is the greater of the prescribed maximum or three times the underpaid amount.
- By 1 January 2024 or after royal assent (whichever is later), the definition of “serious contravention” would be changed so that knowing or reckless underpayments would constitute a serious contravention subject to increased maximum penalties. This amendment looks to target “mid/upper-tier” contraventions and would make it easier for applicants to establish serious contraventions than is currently the case (presently, serious contraventions under the Fair Work Act need to be both “knowing” and “part of a systematic pattern of conduct”).
If passed, these amendments would amount to the most significant change to the Fair Work Act’s pecuniary penalty regime since September 2017 (which is when the “serious contraventions” provision in section 557A, attracting a tenfold increase to the maximum penalties at that time, was introduced into the Fair Work Act).
Since the High Court’s judgment in ABCC v Pattinson  HCA 13 (Pattinson), it remains beyond doubt that deterrence (both specific and general) is the primary consideration when courts set penalties for contraventions of the Fair Work Act – this can justify the imposition of the maximum penalty, even if the contravening conduct in question is not the “worst case” of offending conduct.
Courts have continued to impose substantial penalties against employers on the basis of the principles outlined in Pattinson, so it remains to be seen what impact further increases to maximum pecuniary penalties for non-intentional underpayments from the Bill will have on the appetite of the FWO, employee unions and individual employees to agitate underpayment-related matters and bring underpayment proceedings under the Fair Work Act.
Criminalisation of “wage theft” and new penalties (intentional underpayments)
The current version of the Bill also looks to introduce into the Fair Work Act, by 1 January 2025 (or earlier by proclamation), a new “wage theft” criminal offence for intentional underpayments of amounts payable under the Fair Work Act and certain industrial instruments (such as modern awards and enterprise agreements).
Further details are to follow from Kingston Reid regarding the scope and likely operation of this new proposed criminal offence.
What does all this mean for employers?
Satisfying the various legal obligations contained in the Fair Work Act, applicable awards and enterprise agreements can be a challenge. However, employers should continue to closely monitor and review their payroll practices for any non-compliance and seek out professional assistance where necessary. Early intervention (and remediation) is key.
The release of the Bill provides an even greater incentive for employers to do this.
Aside from the possible financial consequences of an established contravention, which are set to substantially increase, underpayments (whether intentional or unintentional) invariably have the potential to result in reputational damage to an employer’s brand.
Further, recently publicised FWO proceedings such as the regulator’s proceedings against the Bakers Delight franchisor and bubble tea business Chatime and its co-founder director suggest that employers and other involved parties are increasingly being held to a higher standard when it comes to ensuring compliance with minimum statutory entitlements under the Fair Work Act. In the case of individuals such as company directors, it is possible that personal liability (including for pecuniary penalties) may arise even if they are not aware that the employing entity’s contravening conduct is unlawful.
Whether you are seeking legal advice (e.g. on underpayment liability and/or obligations to self-report any underpayments to the FWO), or wish to conduct a pro-active payroll review and remediation under legal professional privilege, Kingston Reid is available to help.
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