Further IR reforms are on the way, including huge penalty increases for wage underpayments

Matt Kelleher, Jennifer Winckworth and Alessio Silvestro
03 May 2023
Time to read: 6 minutes

Consultations are underway on criminalising wage theft, employee-like forms of work, "same job, same pay" for labour hire workers, and stronger protections for workers.

While most employers have been focused on the recent reforms introduced as part of the Fair Work Legislation Amendment (Secure Jobs, Better Pay) Act 2022, the Federal Government has also recently released details of further significant changes to the Australian workplace relations landscape, planned for introduction in the latter half of 2023.

On 13 April 2023, the Department of Employment and Workplace Relations published four consultation papers covering a broad range of issues for which the Government is planning further reforms:

  • criminalising wage theft;
  • employee-like forms of work;
  • same job, same pay; and
  • stronger protections for workers.

Submissions are open until 11.00 pm AEST on Friday 12 May 2023.

In addition to the measures the subject of the current consultation papers, the Federal Government has also separately identified a range of other areas for reform, including the definition of casual workers, a single national framework for labour hire regulation, the small business redundancy exemption and reforms to enterprise bargaining provisions to close loopholes.

Criminalisation of wage theft

There continues to be a strong focus on the issue of wage underpayments across Australian workplaces, with significant underpayment amounts recovered by the Fair Work Ombudsman in the last financial year indicating that non-compliance remains widespread requiring further government intervention.

To deliver on its pre-election commitments in this space, the Federal Government proposes to strengthen the compliance and enforcement framework in the Fair Work Act, including by introducing new criminal offences for wage underpayments and increasing the maximum civil penalties for wage exploitation-related provisions of the Fair Work Act.

The Criminalising Wage Theft consultation paper sets out a range of proposals, including:

  • a new criminal wage underpayment offence to be:
    • knowledge-based (ie. for employers that knowingly underpay an employee); or
    • recklessness-based (ie. for employers that are aware of a substantial risk that they are not paying an employee the amount to which that employee is entitled and proceed even though it is unjustifiable to take that risk); or
    • a combination of both.
  • a new criminal record-keeping offence for related record-keeping misconduct;
  • circumstances where multiple offences can be charged as "a course of conduct" and a single offence;
  • a five-fold increase in the maximum penalty for wage underpayment offences:
    • for individuals, the maximum penalty would be $82,500 per contravention or $825,000 per serious contravention; and
    • for body corporates, the maximum penalty would be $412,500 per contravention and $4,125,000 per serious contravention.
  • reforming the defence to sham contracting to provide that an employer will not be liable for a sham arrangement if the employer reasonably believed that the contract was for services and not for employment.

Underpayment and wage theft considerations will clearly feature heavily in the Federal Government's next tranche of legislative reforms. Accordingly, this is an area that should be front of mind for employers.

Employee-like forms of work: Minimum standards and regulation of the gig economy

In light of the growing emergence of the gig-economy and non-standard workforces, the Federal Government has identified what it says are the significant difference between the rights and protections afforded to employees versus independent contractors as a key loophole in the current regulatory framework. To address this, the Fair Work Commission (FWC) would be empowered to set minimum standards for workers in employee-like forms of work, including those engaged in the gig economy.

The Employee-like Forms of Work consultation paper is seeking submissions on how the proposed new jurisdiction of the FWC should operate, what workers it should cover and the matters it should consider in its decision making. The proposed reforms contemplate (amongst other things) the FWC being empowered to set minimum standards for relevant workers. including for:

  • minimum rates of pay;
  • concepts of "work time" (eg. which activities performed by a worker should attract compensation);
  • payment times (eg. timeframes between performance of work and payment);
  • workplace conditions, such as portable leave and rest breaks;
  • treatment of business costs, including vehicles and maintenance, insurances and licences;
  • record-keeping;
  • training and skill development; and
  • dispute resolution.

This consultation paper also outlines the Government's proposals for:

  • the Road transport industry – to empower the FWC to set minimum standards for the road transport industry to ensure that it is safe, sustainable and viable; and
  • unfair contract disputes – to give certain classes of independent contractors the right to challenge unfair contractual terms in the FWC (noting that currently, the only recourse available for such workers is through formal court processes).

If implemented, these changes will see a significant increase in the powers of the FWC to set minimum standards and handle disputes for a broader range of workers.

Regulating labour hire via "Same Job, Same Pay" measure

Substantial reforms are slated concerning labour hire workers. The "Same Job, Same Pay" measure is intended to address "the limited circumstances where an employer engages labour hire workers to deliberately undercut the bargained wages and conditions contained in enterprise agreements made with their employees".

If legislated, these reforms would ensure that labour hire workers are paid at least the same as directly engaged employees doing the same work.

The Same Job, Same Pay consultation paper outlines a range of complex and technical issues that will inform the scope and application of these reforms, including:

  • defining the types of labour hire arrangements to which the reforms will apply;
  • criteria to determine when a labour hire worker is working the "same job" as a directly engaged employee;
  • approach to calculating the "same pay" payable to the labour hire worker by reference to the definition of the "full rate of pay" (inclusive of incentives, bonuses, loadings, allowances, overtime or penalty rates etc) payable to employees;
  • imposing both a direct entitlement for labour hire workers in the same job to receive the same pay as an employee, and a positive obligation on labour hire providers and host employers to take reasonable steps to ensure the direct entitlement to the same pay is paid to the labour hire worker;
  • determining the jurisdiction of the FWC to deal with "Same Job, Same Pay" disputes; and
  • determining civil remedy penalties and enforcement mechanisms for breaches of "Same Job, Same Pay" obligations.

The reforms will have a significant impact on employers and organisations using labour hire arrangements who will be subject to the proposed compliance framework.

Discrimination and general protections

The Federal Government has identified that there is a broad and overlapping array of Commonwealth, State and Territory anti-discrimination laws that "can apply in slightly different ways" and which result in "a complex and fragmented scheme that is confusing and difficult for both employers and employees to understand and navigate".

The Stronger Protections for Workers consultation paper identifies a number of ways the Fair Work Act's anti-discrimination framework could be further aligned with Commonwealth anti-discrimination laws to improve consistency and clarity at a federal level. Examples include:

  • expressly prohibit indirect discrimination and to include a definition of disability;
  • amending the inherent requirements exemption to clarify the requirement to consider reasonable adjustments;
  • establishing a new complaints process to require all discrimination complaints under the Fair Work Act to be handled in the first instance by the FWC;
  • making vicarious liability for discrimination under the Fair Work Act consistent with the new sexual harassment jurisdiction and other Commonwealth anti-discrimination laws; and
  • inserting "experiencing family and domestic violence" as a protected attribute in the Fair Work Act.

It is also inviting submissions on the adverse action provisions, including whether the protections for a person engaging, or not engaging, in "industrial activity' could be clarified (the paper acknowledges they are loosely defined).

Other proposed reforms for 2023: casual workers, redundancy, labour hire and enterprise bargaining

Other substantive reforms (which were the subject of recently concluded consultations) have also been foreshadowed for introduction in the second half of 2023.

Definition of a casual worker

The Government intends to legislate a fair, objective test to determine when an employee can be classified as a casual employee. It is proposed that this would include consideration of the terms of the contract of employment, but also consider the practical reality (or the post contractual conduct) of the relationship between employer and employee.

Small business redundancy exemption

Small businesses with fewer than 15 employees are currently exempt from provisions in the Fair Work Act that entitle an employee to be paid redundancy pay.

In insolvency contexts, where an employer progressively downsizes from a larger business to a smaller business, the remaining employees may lose their entitlement to redundancy pay if their employer becomes classified as a small business.

The Federal Government is considering a discrete measure to address this while preserving the small business redundancy exemption.

A single national framework for labour hire regulation (to be implemented in place of existing State and Territory schemes)

The proposal to establish a national labour hire regulation is aimed at deterring non-compliance, protecting workers from exploitation, and promoting accountability and transparency in the labour hire sector, while also reducing red tape for labour hire providers that are currently required to understand and comply with multiple State and Territory labour hire licensing schemes, and pay multiple licence fees.

Enterprise bargaining and single interest agreements

The Government is considering shifting the responsibility to prepare model consultation, flexibility and dispute resolution terms in enterprise agreements from the Minister for Employment and Workplace Relations to the FWC (who is otherwise responsible for preparing such terms in modern awards and otherwise responsible for approving enterprise agreements).

The Government is also considering the merits of introducing further transitional and grand-fathering arrangements to the single-interest bargaining system in light of the introduction of the Fair Work Legislation Amendment (Secure Jobs, Better Pay) Act 2022. The reforms would preserve arrangements entered into by employers who are bargaining under the pre-existing single interest employer stream.

Key takeaways and next steps

These further proposed reforms cover a broad variety of significant workplace issues which will impact employers and organisations (including contractors and labour hire providers) in a range of industries.

It will be important for businesses to watch this space and keep track of when these changes are introduced to Parliament in the coming months. Please get in touch with your Clayton Utz lawyer to explore what these changes could mean for your organisation.

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