The Federal Government's omnibus IR reforms legislation: what is in, what is out, and what you need to do now

10 Dec 2020

Australia's workplace relations regime is not in for a major overhaul, but the Fair Work Amendment (Supporting Australia’s Jobs and Economic Recovery) Bill 2020 (the FW Bill) does represent the most substantial shift in industrial relations since the Fair Work Act 2009 (Cth) (FW Act) was introduced in 2009.

The Bill was introduced into Parliament on Wednesday and Labor and the ACTU have already expressed dissatisfaction with parts of the Bill, including the proposed temporary changes to the BOOT. This means the Bill is unlikely to make it through the Senate without changes.

In the meantime, employers should familiarise themselves with the proposals, and be aware that the proposed amendments in relation to casuals have some retrospective operation, are subject to complex transitional provisions and apply to offers of employment before, on or after commencement of this Bill.

The Fair Work (Registered Organisations) Amendment (Withdrawal from Amalgamations) Bill 2020 (Withdrawal Bill) was also introduced (and passed) on Wednesday. Unlike the FW Bill, the Withdrawal Bill was uncontroversial and passed smoothly through both Houses of Parliament.

Casual employees

What the Bill says:

As widely anticipated, section 15A of the Bill will insert a new definition of "casual employee" into the FW Act, being an employee who accepts an offer of employment in circumstances where the employer made "no firm advance commitment to continuing and indefinite work according to an agreed pattern of work".

As the definition suggests, the key question is whether an employer made a "firm advance commitment" to continuing and indefinite work according to an agreed pattern of work, at the time the offer was made. To assist in this determination, the Bill also provides an exhaustive list of considerations at section 15A(2) that must be taken into account in determining whether the offer of employment meets the definition for casual employment.

The Bill will also amend the National Employment Standards (NES) by inserting a new section 66B, containing a mechanism to convert casual employees to either full or part-time employees where certain criteria have been met.

Notably, employers will be unable to convert casual employees to a fixed term contract under new Division 4A. This suggests a concerted effort to ensure casual employees are not simply placed on a series of (what could be equally temporary) fixed term contracts, and are able to obtain ongoing, permanent employment where appropriate.

In addition, casual employees will have a residual right to request a conversion from their employers under certain circumstances. Importantly, the Bill prohibits employers from reducing or varying, or terminating, an employment relationship in order to avoid any conversion obligations.

These amendments will have some retrospective operation in that they apply to offers of employment before as well as on or after the amendments commence. The transitional provisions in Schedule 7 of the Bill are complex and provide a six-month transitional period for employers to assess whether they are required to make conversion offers and other necessary adjustments for casual employees engaged before the amendments came into effect. Casual employees engaged prior to the amendments coming into effect need to have 12 months service (at the date of the assessment under the transitional provisions) to trigger the operation of the transitional provisions.

What we still don't know:

Employers will not be required to make a casual conversion offer in circumstances where there are "reasonable grounds" for not doing so, and where those grounds are based on known facts or are reasonably foreseeable at the time.

What will constitute "reasonable grounds" is unclear, although the Bill does include a non-exhaustive list at new section 66C(2) as to what will amount to reasonable grounds to not make an offer, including where doing so would result in a "significant change" in the days, hours, or times the employee's hours would be required to be performed, which cannot be accommodated within the employee's availability.

Notwithstanding this, the question of "reasonable grounds" will likely be the subject of future dispute.

What action employers need to take:

Employers should assess their casual workforce and seek advice about the proposed amendments, noting there is only a 6 month transitional period proposed. If enacted, these sections of the FW Bill will apply to new employees from the date of enactment. It also has some retrospective operation in that it will apply to existing casual employees engaged prior to the amendments taking effect.

Employers should also prepare to provide casual employees with the Fair Work Ombudsman's "Casual Employment Information Statement", which will need to be given to each existing and new casual employee before, or as soon as practicable after, the employee starts employment.

Award simplification

What the Bill says:

Reform and simplification of the Modern Award system has been on the agenda for some time. The Bill proposes some relatively modest reforms, however, just because these changes are not ground-breaking, does not mean they are uncontroversial, or that further changes are not on the horizon.

One such example of what is shaping up to be a controversial proposal are the new sections being introduced that would allow certain part-time employees who work at least 16 hours per week, and covered by particular "identified Modern Awards" (as defined in the new section 168M) such as the retail and hospitality industries, to agree to work additional hours at their ordinary rate of pay by entering into a "simplified additional hours agreement".

Currently, part-time employees typically receive overtime for shifts or hours worked outside of their set hours, even if this falls under 38 hours per week.

However, a "simplified additional hours agreement" removes the need to formally alter the number of hours an employee covered by an identified modern award is contracted to work, or pay additional hours at overtime rates. Employees would still be entitled to overtime in accordance with the Award where they work more than 38 hours per week) and it will be a workplace right to enter into, refuse to enter into or to terminate a simplified additional hours agreement.

The second part of the award simplification amendments is the introduction of a new Part 6-4D into the FW Act. Slated as an extension of particular JobKeeper flexibilities, the new provisions will enable employers in industries covered by "identified modern awards" to issue employees with "flexible work directions".

  • "Flexible work directions" relate to either the duties or location of an employee's work.
  • This Part will be repealed 2 years after the Bill receives royal assent.

Unlike the JobKeeper provisions which had special dispute resolution provisions (see eg s789GV of the FW Act), disputes about "flexible work directions" will be determined by the Fair Work Commission (FWC) in accordance with the dispute resolution mechanism in the relevant award.

What we still don't know:

  • It is unclear whether further simplified pay rules are still on the horizon, with IR Minister Christian Porter confirming that he has asked FWC President Iain Ross to consider the most effective way to introduce simplified "loaded rates" that incorporated other rates, into the one rate, in an effort to avoid further underpayments in industries particularly affected by COVID-19.
  • It is also unclear whether the intention is to eventually expand the additional hours for part-time employees provisions to other industries and awards.
  • Finally, it is also not immediately clear whether the JobKeeper provisions will continue to apply in their current form to non-Award covered employees.

What action employers need to take:

  • Employers should consider drafting a template "simplified additional hours agreement" which includes the necessary requirements that can be used when a part-time employee agrees to work additional hours at ordinary rates of pay.
  • In order to issue a flexible work direction to an employee, an employer must have a "reasonable belief" that the direction is necessary as part of a strategy to assist with the revival of the employer's business.
  • Employers should also be aware that there are conditions on their ability to issue valid flexible work directions, including the impact of the direction on the employee, providing sufficient notice, consultation with the employee and the form of the direction.

Enterprise agreements

What the Bill says:

In the face of a decline in agreement making, the Bill focuses on simplifying and streamlining the agreement-making and approval process, and giving the FWC a greater discretion to get agreements approved, particularly while businesses are trying to recover from the impacts of COVID-19.

The Bill proposes the following changes:

Pre-approval process

Under the Bill, there are new steps that employers would need to take before asking employees to vote on a proposed enterprise agreement. Importantly, employees must be given a "fair and reasonable opportunity" to decide how to vote, and the previous 14 days' notice of representation rights has been extended to 28 days.

Approval process

There is an emphasis on accelerating the approval process under the Bill. Specifically the FWC will be required to determine applications to approve agreements within 21 working days, as far as practicable. In addition, the FWC will be able to correct minor errors more easily, and the right of additional parties to be heard in relation to the application will be limited to "exceptional circumstances". This includes unions if they are not a bargaining representative for the agreement.

Further, an employer will no longer be required to demonstrate that a proposed enterprise agreement does not exclude the safety net provided by the NES. Instead, the agreement must include a model term explaining the interaction between the NES and proposed enterprise agreement.

Revised Better Off Overall Test (BOOT)

One of the most significant changes proposed under the Bill is the revised BOOT.

In particular, the FWC must only take into account patterns or kinds of work, or types of employment, that employees are currently engaged in, or are reasonably foreseeable, not hypothetical working arrangements. The FWC may also have regard to overall benefits, including non-monetary benefits the employees would receive under the agreement compared to a relevant modern award (such as access to support services), as well as the views of employers, employees and bargaining representative as to whether the agreement passes the BOOT.

This signifies a move away from a forensic, clause-by-clause assessment against the relevant award, in favour of a more holistic assessment.

As a direct response to the COVID-19 pandemic, the Bill also proposes a new mechanism enabling the FWC to approve a proposed enterprise agreement notwithstanding it failing to pass the BOOT, where the FWC is satisfied in all the circumstances that it is appropriate to do so. As part of a more relaxed overarching public interest test, relevant considerations for the FWC include the views of the parties covered by the agreement, the extent of employee support for the agreement, the circumstances of those parties, including the likely effect of approval or non-approval, and the impact of COVID-19 on the business.

An agreement approved under this mechanism will be limited to no more than two years' duration, and the temporary mechanism will sunset after two years.

Termination after nominal expiry date

An employer will not be able to apply to terminate an enterprise agreement after its nominal expiry date, until 3 months after that date. This will prevent employers using this as a tool during bargaining.

What we still don't know:

A number of the proposed changes, particularly those concerning amendments to the application and assessment of the BOOT, have already received significant pushback. At this stage, it is unclear everything will make it through the Senate in its current form.

What action employers need to take:

Employers should consider the benefits of seeking approval for a new enterprise agreement given the revised BOOT test for the next two years.

Employers with legacy agreements should review their employment arrangements and consider bargaining for a new agreement in advance of 1 July 2022.

Employers requiring employees to vote on a new enterprise agreement should become familiar with the new requirements involved in asking employees to vote on an agreement, including changes to the period in which the employees must have access to the agreement, notification of voting process, and explanation of the terms of the agreement and their effect.

Compliance and enforcement

What the Bill says:

The Bill aims to enhance the FW Act compliance and enforcement framework to more effectively deter non-compliance with workplace laws, make it easier to recover wages when underpayments occurs and promote fair competition.

Schedule 5 of the Bill introduces a range of new provisions, including:

  • Orders relating to civil remedy provisions (Part 1): The Bill increases civil penalties for remuneration-related contraventions and sham arrangements by 50%, and introduces a new "value of the benefit" alternative civil penalty for remuneration-related contraventions by bodies corporate (other than small business employers). It also clarifies that the orders the court can make include adverse publicity orders.
  • Small claims procedure (Part 2): Employees will be able to recover their entitlements more easily, quickly and cost-effectively through the small claims process, by increasing the small claims cap from $20,000 to $50,000. The Federal Circuit Court and Magistrates Courts will also be able to refer small claims matters to the FWC for conciliation and consent arbitration.
  • Employment advertisements (Part 3): Employers are prohibited from publishing (or causing to be published) job advertisements at a rate of pay less than the relevant national minimum wage.
  • Compliance and infringement notices (Part 4): Increases the maximum penalty for not complying with a compliance notice and allows for an increase to the maximum penalty able to be imposed under an infringement notice.
  • Enforcement undertakings (Part 4): Codifies factors the FWO may take into account when determining whether to accept a written undertaking, including for example whether the person has made a voluntary disclosure to the FWO, demonstrated a willingness to address the contravention and is fully cooperative with the FWO.
  • Sham arrangements (Part 5): Increases the maximum civil penalty for sham arrangements by 50%.
  • Criminalising underpayments (Part 7): Introduces a new criminal offence for an employer that dishonestly engages in a systematic pattern of underpaying one or more employees.
    • An underpayment will occur 'dishonestly' where it is considered dishonest according to the standards of ordinary people and the defendant knew their behaviour was dishonest.
    • An employer underpays an employee if they fail to pay the employee any amount payable in relation to the performance of work in full, in money or at least monthly.
    • This includes the payment of incentive based payments, loading, allowances, overtime rates or leave payments.
    • A breach can result in a four year prison term and/or a fine of up to $1,110,000 for an individual or up to $5,550,000 for a body corporate.

What action employers need to take:

In relation to underpayments, employers will need to be particularly careful in ensuring they are complying with their obligations under legislation and any relevant Enterprise Agreements or Modern Awards. The reality is that many businesses are likely sitting on an underpayment issue whether it has been identified or not and the introduction of criminal offences means that, where employers become aware of underpayments, they should be immediately proactive about remediation and keep good evidence of doing so in order to defend any claim the underpayments were made "dishonestly"

It follows that all businesses should be focusing on auditing payroll systems, undertaking assessments of compliance and resolving any identified issues as a matter of urgency.

Greenfields agreements

What the Bill says:

For the last year, the government and opposition have been in discussions regarding lifetime workplace agreements. These are workplace agreements that will last the lifetime of projects, and which aim to provide investor certainty and limit the risk of industrial action that may occur when negotiating new agreements four years into the project.

A culmination of these discussions, the Bill provides that if the work to be performed under a Greenfields agreement relates only to the construction of a major project, the nominal expiry date can be eight years after the agreement will come into operation rather than four years. However, it must contain, at minimum, annual increases to the base rate of pay payable to each employee that will be covered by the agreement.

A project is a "major project" if the total expenditure is, or is likely to be, at least $500 million or if a declaration is made that the project is a major project. A declaration cannot be made unless the capital expenditure will be at least $250 million. In making a declaration, the responsible Minister must take into account the national or regional significance (if any) of the project, the contribution the project is expected to make to job creation and any other matter that the responsible Minister considers relevant.

What we still don't know:

Whether the opposition government is going to support the proposed 8 year term. While initially agreeing to consider the idea, and engaging in months-long discussions with the government, Labor have cooled on the idea and many unions have come out against it. The wording of the Bill is also ambiguous in respect of the "major projects" definition and whether the work under the Greenfields agreement can extend to operation of the project following its development.

What action employers need to take:

In the event the Bill is passed, employers should get on the front foot in order to understand whether any future projects can benefit from the extended lifetime of the agreement. That is, employers should seek advice as to whether the relevant project is a "major project" for the purpose of the Bill or if they should take steps to seek a declaration from the responsible Minister.

Union demergers

What the Bill says:

The Withdrawal Bill will extend the timeframe for a "constituent part" of an "amalgamated organisation", is able to withdraw from the organisation.

The Bill passed both Houses of Parliament on Wednesday, and will likely commence early next year.

Under the former legislation, a constituent part of an amalgamated organisation, such as a smaller union that has joined an larger organisation comprising of multiple unions, could only apply to the FWC for a secret postal ballot to decide whether it should de-merge up to five years after an amalgamation with a larger organisation.

In contrast, under the Withdrawal Bill, the FWC will be able to accept applications after the five-year period if it is satisfied that it is appropriate to do so.

In assessing whether it is appropriate to do so, the FWC will have regard to:

  • whether the amalgamated organisation has a record of not complying with workplace or safety laws and any contribution of the constituent part to that record; and
  • the likely capacity of the constituent part seeking to withdraw to promote and protect the economic and social interests of its members as an independent registered organisation.

If the FWC considers that an amalgamated organisation has a record of not complying with workplace or safety laws, but that the "constituent part" has not contributed to that record, the FWC must decide that it is appropriate to accept the application.

What we still don't know:

The Withdrawal Bill reflects the Morrison government's commitment to ensuring the "lawful behaviour of registered organisations", and comes on the back of the narrow defeat of the Fair Work (Registered Organisations) Amendment (Ensuring Integrity) Bill (Ensuring Integrity Bill) in the Senate last November.

While it does not go as far as the Ensuring Integrity Bill, it is a sign that the government (and indeed the opposition), are committed to ensuring that Unions comply with all applicable laws, and that registered organisations continue to have the freedom of association and ability to leave an amalgamated organisation, where the amalgamated organisation does not have a good track record of not complying with such laws.

It also remains to be seen whether the government will again attempt to introduce the stronger measures envisaged by the Ensuring Integrity Bill down the line.

What action employers need to take:

The proposed amendments are likely to be welcomed by employers operating in union-dominated industries, as they provide an opportunity for a decentralisation of the power wielded by large amalgamated unions such as the CFMMEU.

What's not happening in this round of reform?

No fast-tracked union deals

After employer push-back during the consultation process (which almost derailed negotiations in September) the proposal which saw unions agreeing to reforms of the BOOT in exchange for union-backed agreements being prioritised has been left out of the Bill. No doubt this is the basis of Labor and Union commentary about their dissatisfaction with the proposed changes to the BOOT.

No small business schedule in modern awards and no small business award

A proposal by the Council of Small Business Organisations of Australia to insert a model schedule for small businesses into all Modern Awards has not been included as part of the proposed reforms.

The model schedule had been proposed to apply to businesses employing fewer than 40 full-time staff on an opt-in basis, with specific 'carve out' elements intended to override any inconsistent Award provisions, including:

  • a loaded rate provision;
  • a directed work hours reduction provision;
  • a provision for the employer and employee to agree to work increased part-time hours at the normal rate;
  • a universal casual to permanent conversion process; and
  • universal redundancy and unfair dismissal provisions in line with the current provisions in the NES that would override any inconsistent Award provisions.

Although there has been no inclusion of a model schedule specifically for SMEs, some of the carve-out elements have been reflected in the Fair Work Amendments (Supporting Australia's Jobs and Economic Recovery) Bill 2020. Similarly, the proposal of a modern award for small businesses, which was floated by, is not part of the current reforms.

Industry-level bargaining

The Australian Council of Trade Unions plan to reintroduce industry-level bargaining has also been left out of the proposed reforms. Industry-level bargaining would allow employees, represented by unions, to negotiate with whole sectors or industries rather than just with their direct employer.

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.