Reforms to the Fair Work Act – What you need to know

The Federal Government yesterday introduced into parliament The Fair Work Amendment (Supporting Australia’s Jobs and Economic Recovery) Bill 2020 (Bill), which if passed will amend the Fair Work Act 2009 (Cth) (Fair Work Act) and related legislation.

The Bill has been developed with input from a range of stakeholders, through a process of IR working groups formed with unions and employer representatives.

Casual employees

New definition

The Bill will introduce a statutory definition of ‘casual employee’ that focuses on the offer and acceptance of employment and draws on common law principles. The term casual employee is not currently defined in the Fair Work Act, with its meaning having been developed over an extended period through case law. The Bill proposes that a person is a ‘casual employee’ if:

• an offer of employment made by the employer to the person is made on the basis that the employer makes no firm advance commitment to continuing and indefinite work according to an agreed pattern of work for the person;
• the person accepts the offer on that basis; and
• the person is an employee as a result of that acceptance.

In determining whether at the time the offer is made, the employer makes no firm advance commitment to continuing and indefinite work according to an agreed pattern of work for the person, the following considerations are taken into account:

• whether the employer can elect to offer work and whether the person can elect to accept or reject work;
• whether the person will work only as required;
• whether the employment is described as casual employment; and
• whether the person will be entitled to a casual loading or a specific rate of pay for casual employees under the terms of the offer or a Fair Work instrument.

A regular pattern of hours does not, of itself, indicate a firm advance commitment to continuing and indefinite work according to an agreed pattern of work.

The question of whether a person is a casual employee of an employer is to be assessed on the basis of the offer of employment and the acceptance of that offer, not on the basis of any subsequent conduct of either party.

A person who commences employment as a result of acceptance of an offer of casual employment remains a casual employee until:

• the employee’s employment is converted to full-time or part-time employment (see below); or
• the employee accepts an alternative offer of employment (other than as a casual employee) by the employer and commences work on that basis.

Casual loading and double dipping

In the event that an ongoing employee is misclassified as casual, the Bill enables a casual loading amount to be offset against claims for leave and other entitlements in certain circumstances, to address any potential for ‘double dipping’ when recognising the employee’s correct classification. This change is designed to address the issues raised during the WorkPac v Skene and WorkPac v Rossato decisions and which the Fair Work Amendment (Casual Loading Offset) Regulations 2018 (Cth) were intended to, but did not quite, address (see our previous article).

Where this occurs, a Court must reduce any amount owed to the employee for the relevant entitlements by an amount equal to the loading amount. This reduction may be guided by various considerations, including whether the employment contract specifies the proportion of the loading amount attributable to each entitlement. Whether these changes fix the potential for ‘double dipping’ remains to be seen.

Casual conversion

In addition to the existing casual conversion rights in some modern awards and enterprise agreements, the Bill also introduces a statutory obligation for employers to offer some casual employees the ability to convert to full or part-time employment, unless there are reasonable business grounds not to do so.

An employer must make an offer to a casual employee if:

• the employee has been employed by the employer for a period of 12 months from the day the employment started; and
• during at least the last six months of that period, the employee has worked a regular pattern of hours on an ongoing basis which, without significant adjustment, the employee could continue to work as a full-time employee or a part-time employee (as the case may be).

In those circumstances a written offer of conversion must be given to the employee within 21 days after the end of the 12 month period.

An employer is not required to make an offer of conversion if there are reasonable grounds not to make the offer, based on facts that are known, or reasonably foreseeable, at the time of deciding not to make the offer. Those reasonable business grounds include:

• the employee’s position will cease to exist in the next 12 months;
• the hours of work which the employee is required to perform will be significantly reduced in the next 12 months;
• there will be a significant change in the next 12 months to the days on which the employee works and/or the hours of work, which cannot be accommodated within the days/times the employee is available to work; or
• making the offer would not comply with a recruitment or selection process required by or under a law.

There is also a residual right of conversion in certain circumstances for employees who have not received or accepted an employer offer to convert. A casual employee can make a conversion request in writing, which the employer must consult about, and which the employer can refuse on reasonable business grounds.

Casual Employment Information Statement

The Bill also requires casual employees to be provided with a Casual Employment Information Statement, which is to be published by the Fair Work Ombudsman. This statement will focus on the right of casual employees to convert.

Award complexities and flexible work directions

Modern award complexity is acknowledged to be a significant issue for many businesses, especially small businesses, which may lack the resources to understand in detail how modern awards operate.  In the context of the COVID-19 pandemic, business uncertainty was exacerbated by restrictive rules in modern awards around the duties and locations of work.

To ensure the continued flexibility for employers, especially small businesses in distressed sectors, the Bill will extend existing JobKeeper flexibilities in the Fair Work Act concerning duties and location of work to employers and employees to whom identified modern awards apply. Those modern awards include the Commercial Sales Award 2020, the Fast Food Industry Award 2010, the General Retail Industry Award 2020, and the Hospitality Industry (General) Award 2020.

These changes to allow an employer to make a flexible work direction are intended to replicate the existing changes which have been made to a number of identified modern awards, so that employers can continue to make directions where specific thresholds are met, appropriate consultation has occurred, and written records are kept of that consultation and the directions given.

These flexibilities, with appropriate employee safeguards, will be available for a period of two years from the passage of the Bill.

Part-time employment flexibilities

A part-time employee’s ordinary hours are normally defined by what they agree with their employer as their regular pattern of work and/or roster. Each modern award has different rules about how patterns of work and rosters can be agreed upon and altered.

Most modern awards contain provisions that allow part-time employees to work additional hours, including at ordinary rates, either by varying their regular pattern of work or by allowing them to work ordinary hours outside their agreed work pattern. However these provisions differ in their complexity and efficacy in meeting business needs. As an ad hoc arrangement to work additional hours may attract overtime rates, even if an employee volunteers to work those additional hours, this acts as a disincentive for employers to offer those additional hours and increases the likelihood of employers engaging casual employees.

The Bill introduces standard part-time flexibility provisions to be available across identified modern awards (as referred to above). This will enable employers and employees to work together to agree in writing additional hours of work for part-time employees who already work at least 16 hours per week, to be paid at ordinary rates of pay (and not as overtime). This is to be known as a ‘simplified additional hours agreement’.

Despite any agreement, overtime will still be payable to a part-time employee where:

• the hours worked by the employee are outside of a span or spread of hours specified in the modern award, outside of which an employee must be paid overtime; or
• where those additional hours, together with any other hours worked by the employee, result in the employee working more than a maximum number of hours specified in the modern award, or more than 38 hours in a week (including as a result of averaging).

Any agreed additional hours will generally be treated as ordinary hours of work for the purposes of paying penalty rates and for the purposes of calculating leave entitlements.

A simplified additional hours agreement can be terminated by either an employee or an employer by giving seven days’ written notice, or at any time in writing if the employee and the employer agree.

Enterprise agreement making

The Federal Government considers that the current enterprise bargaining system is no longer working effectively and that its use is in decline. This decline may be attributable to a number of reasons, including parties simply choosing not to replace existing agreements, the procedural complexities and technicalities of the system itself, perceived costs and delays in implementing new agreements, and declining union membership. A large number of employees also have their pay and conditions set by agreements which have passed their nominal expiry date and which have not been replaced.

The Bill aims to increase the number of Australians covered by enterprise agreements, by making agreement making and approval processes easier and faster for employers and employees, while balancing flexibility and fairness.

Agreement making process

The Bill will reduce the level of prescription imposed by the Fair Work Act and provide greater flexibility as to the methods by which employees may be provided with a fair and reasonable opportunity to consider whether to approve an enterprise agreement prior to the vote. The Fair Work Commission (FWC) will be required to listen to the views of the bargaining parties in the approval process, and intervention by other persons before the FWC will be limited. In particular, unions will only be able to be heard in relation to an application to approve or vary an enterprise agreement where they are covered by the agreement or they are a bargaining agent for the agreement.

The FWC will no longer be required to be satisfied that the terms of an enterprise agreement do not exclude the safety net provided by the National Employment Standards (NES) in the Fair Work Act and instead, the agreement must include a model term which explains the interaction between the NES and enterprise agreements.

The FWC will be required to approve new or vary existing agreements, as far as practicable, within 21 working days.

Better Off Overall Test (BOOT)

The process for assessment of enterprise agreements against modern awards will also be clarified by requiring the FWC, in applying the BOOT, to:

• only take into account patterns or kinds of work, or types of employment, that are currently engaged in or are reasonably foreseeable – this will exclude patterns or types of work that are hypothetical or not reasonably foreseeable;
• have regard to the overall benefits (including non-monetary benefits) employees would receive under the agreement compared to a relevant modern award; and
• have regard to any views relating to whether the agreement passes the BOOT expressed by employers and employees and their bargaining representatives.

The Bill will also permit the FWC, in limited circumstances, to approve an enterprise agreement which may not pass the BOOT taking into account:

• the views and circumstances of the employees, employer/s and employee organisation/s covered by the agreement;
• the impact of COVID-19 on the enterprise and the extent of employee support for the agreement; and
• whether approval is in the public interest.

This additional measure will cease to operate two years after the Bill commences operation.

Franchises

The Bill will enable franchisees to opt-in to a current single-enterprise agreement that covers a larger group of employers that operate under the same franchise.

‘Zombie’ agreements

The term ‘zombie’ agreement refers to various enterprise agreements made prior to the commencement of the Fair Work Act and those agreements also made during the ‘bridging period’ prior to the commencement of the system of modern awards. The Bill provides that these agreements will cease to operate effective on 1 July 2022.

These older agreements have created various complexities and potentially unfair outcomes for employees in recent years. Upon these older agreements ceasing to operate, employers and employees will revert back to being covered by the terms of a relevant modern award, unless they have negotiated a new enterprise agreement to operate instead.

Greenfields agreements

The Bill will enable the FWC to approve longer-term greenfields agreements made in relation to the construction of a major project, to specify a nominal expiry date of up to eight years after the day the agreement comes into operation. Where the greenfields agreement specifies a nominal expiry date more than four years after the day on which the FWC approves the agreement, the agreement must include a term that provides for annual pay increases for the nominal life of the agreement.

These changes are intended to provide greater investor certainty for future major projects, and to remove the risk of enterprise agreements nominally expiring during a critical construction phase of such a project.

Compliance and enforcement

The Bill introduces a new criminal offence for dishonest and systematic wage underpayments, and increases the value and scope of civil penalties and orders that can be imposed for non-compliance. This is not intended to apply to one-off underpayments, genuine mistakes or miscalculations, as the conduct must be intentional, dishonest and systematic. The maximum penalty for an individual offender is imprisonment of up to four years or a $1.11M fine. For a corporation, the maximum penalty is to be $5.55M.

The Bill enhances the Fair Work Act compliance and enforcement framework by various measures including:

• increasing civil pecuniary penalties for ordinary remuneration-related contraventions and sham arrangements by 50%;
• introducing a new penalty for remuneration-related contraventions by bodies corporate (other than small business employers) based on a multiple of the ‘value of the benefit’ of the contravention;
• increasing the cap for amounts that can be awarded in small claims proceedings from $20,000 to $50,000; and
• making provision for courts to refer small claims matters to the FWC for conciliation and, if conciliation is unsuccessful, enabling the FWC to subsequently arbitrate such matters with consent of the parties.

The last two changes should allow employees to more easily, quickly and cost-effectively recover any other payments owed to them.

While the Bill does not contain any new mechanism by which employers can voluntarily disclose any non-compliance or underpayments as such, the Fair Work Ombudsman will be required to publish guidelines as to when it might commence enforcement proceedings and what factors it will take into account in determining whether or not to accept an enforceable undertaking from an employer.

Fair Work Commission

The Bill includes measures to support more efficient FWC processes, including to enable the FWC to:

• deal with appeals ‘on the papers’ where appropriate;
• vary or revoke decisions relating to enterprise agreements and workplace determinations more easily, to correct minor errors; and
• deal more effectively with unmeritorious applications, such as where a claim is commenced that is frivolous, vexatious, misconceived or lacking in substance, or has no reasonable prospects of success.

Missing?

There are arguably a number of areas which could have been tackled by the Federal Government in seeking to amend the Fair Work Act. Two significant areas, however, immediately come to mind:

• the Bill does not seek to cover or change the way in which an individual may be determined to be an employee or an independent contractor – determinations of this type continue to be a vexed issue in many circumstances, including in light of the growing Gig economy; or
• in light of the many, and in many cases highly publicised, voluntary disclosures by employers of modern award non-compliance and underpayments to employees, we could have expected to see some more formalised mechanism put in to the Fair Work Act so as to facilitate those disclosures and to provide some certainty for employers as to the consequences where such disclosures are made.

While the Bill has been introduced into the Parliament, it is yet to pass to the Senate for debate. It is expected that this will occur in the New Year and that the Bill may be subject to extensive negotiation with the Senate cross benches. As to when the Bill will come law, and the extent to which the Bill will be amended as a result of those negations, remains to be seen.

If your business requires assistance in navigating this area, please contact our Employment Advisory Team.

Authored by:

Brett Feltham, Partner