Closing loopholes – changes to workplace laws

Amendments to workplace laws come into effect on 26 August 2024. If you are an instructor who teaches in someone else’s studio or a studio owner who engages instructors to teach classes, it is crucial to understand the amendments. There are penalties associated for not complying with the amendments.

Closing Loopholes legislation changes:

• how studios identify whether an instructor is an employee or independent contractor
• what happens if a contract for an independent contractor is unfair
• the definition for ‘casual employee’
• the pathway for transitioning from casual to permanent employment
• the right to disconnect
• the rules for using a digital labour platform to facilitate hiring instructors
• the penalties for intentional underpayment of workers (and the Small Business Wage Compliance Code).

The changes to the Fair Work Act (FW Act) are summarised below. Note: this does not constitute or replace legal advice and is general in nature. You must obtain independent advice to apply to your individual circumstances.

 

Independent contractors vs employees

This amendment changes the definition of an ‘employee’ and an ‘employer’. It prescribes how to determine whether a worker is an independent contractor or an employee. It requires each party to consider:

• the real substance, practical reality and true nature of the working relationship
• all parts of the working relationship between the parties – i.e. the terms of a contract and how the contract is performed in practice

This means that some working relationships may be characterised differently from previously and it could change the rights and obligations offered to instructors by studio owners/managers. Studios may need to consider each arrangement that they have in place with their instructors to ensure they align with these changes.

If your relationship with a worker is taken to court, they will use the ‘multi-factorial test’ to decide whether a worker is an employee or a contractor. This test considers the following factors:

1. Control – do they control how, where and when they do their work?
2. Integration – are they serving and representing your business or their own?
3. Remuneration – are they paid for time worked/price per activity (e.g. a rate per class) or for a fixed fee and a specific result?
4. Delegation and subcontracting – can they organise and pay for someone else to replace them?
5. Tools and equipment – who provides their tools and equipment?
6. Risk – who bears the commercial risk for any injuries or defects?
7. Goodwill – are they building goodwill for their own business or yours?

 

Contractors who earn over a certain income threshold can opt out of the new definitions. This threshold has not yet been set. A contractor can revoke their notice to opt out at any time.

Note that changes came into effect on 27 February 2024 regarding sham contracting. Sham contracting is misrepresenting an employment arrangement as an independent contractor arrangement. Employers who engage in sham contracting can be penalised.

The changes relate to the defence of sham contracting cases. The previous defence known as the ‘recklessness’ test has been changed to a ‘reasonableness’ test. To defend a sham contracting claim, an employer must now prove that they reasonably believed the worker was engaged as a contractor.

Be aware that a studio may still be required to pay the superannuation guarantee if an instructor is an independent contractor. Depending on the state legislation, the studio may also be required to pay worker’s compensation insurance.

 

Unfair contracts for independent contractors

This amendment applies to independent contractors who are engaged under a services contract after 26 August 2026. The Fair Work Commission can cancel or change any unfair terms that would relate to workplace relations matters if the independent contractor were an employee.

To determine if a contract term is unfair, the Fair Work Commission can consider matters such as each parties’ relative bargaining power, whether the contract is harsh or unjust and the level of remuneration. The commission can only get involved in workplace relations matters.

Details about the extent of the commission’s powers can be found in the factsheet: https://www.fwc.gov.au/issues-we-help/independent-contractor-disputes-about-unfair-contract-terms

This amendment doesn’t apply to contractors who earn above a set high income threshold. This threshold is yet to be determined.

 

Casual employment and the pathway to permanent employment

The amendments to the FW Act create a new definition for ‘casual employees’ and change the pathway for transitioning casual employees to permanent employment (full or part time employment).

Under the Closing Loopholes amendments, a casual employee is defined as someone who has:

• no firm advance commitment to continuing and indefinite work, and
• they are entitled to a casual loading or a specific rate of pay for casuals under a Fair Work instrument or their employment contract

To determine whether an employee meets this definition, the employer and employee need to consider the real substance, practical reality and true nature of the relationship (i.e. not just the employment contract). For more information about what needs to be considered, refer to the guide from the Fair Work Commission: https://www.fwc.gov.au/documents/resources/fact-sheet-changes-to-casual-employment-2024-08-19.pdf

An employee can remain a casual even if they settle into a pattern of ongoing and regular work. A transition to permanent employment occurs via a defined pathway, as described in the amended legislation. After at least six months of casual employment (or 12 months for small businesses), an employee may notify their employer of their choice to become a permanent employee. A small business has less than 15 employees.

For casual employees who are employed prior to 26 August 2024, they remain casual employees under the new definition unless they move to permanent employment. Up until 26 February 2025 (most employers) or 26 August 2025 (small businesses employers), the existing casual conversion process applies to those employees.

The fact sheet from the Fair Work Commission provides the steps for employers and employees wanting to transition to permanent employment: https://www.fwc.gov.au/documents/resources/fact-sheet-changes-to-casual-employment-2024-08-19.pdf

 

Right to disconnect

This is a new workplace right that starts on 26 August 2024 for most employees, however the start date is delayed to 26 August 2025 for small businesses (less than 15 employees).

Employees are able to refuse to monitor, read or respond to contact or attempted contact outside their working hours, unless their refusal is unreasonable. This includes contact or attempted contact from their employer or another person if the contact is worked related (e.g. another employee or a client).

To determine whether a refusal is unreasonable, the following is considered:

• the reason for the contact or attempted contact
• how the contact or attempted contact is made and the level of disruption it causes the employee
• the nature of the employee’s role and their level of responsibility
• the employee’s personal circumstances, including family or caring responsibilities
• whether the employee is compensated or paid extra for being available outside their ordinary working hours.

If an employer and employee are unable to resolve a dispute about the right to disconnect, they can apply to the Fair Work Commission for assistance.

 

Digital labour platforms

The legislation provides the Fair Work Commission with additional powers for ‘regulated workers’ – i.e. instructors that are hired via a digital labour platform. A digital labour platform is any online system, website or application that facilitates or helps manage the contractual relationship between a studio and an instructor. Note that is not a scheduling system – it is a platform that enables the hiring of instructors to teach classes.

Under the amendments, an instructor can be deemed to be an ‘employee-like worker’. The Fair Work Commission will have powers to set minimum standard orders (binding) and guidelines (non-binding), resolve disputes resulting from the deactivation of an account on the platform and register collective bargaining agreements.

Studios and instructors should take care if they are engaging through a digital labour platform and make informed decisions with reference to the FW Act.

 

Intentional underpayments

These laws come into effect from 1 January 2025. Intentional underpayment of employees will become a criminal offence. Employers cannot intentionally engage in conduct that results in not paying wages or benefits (e.g. superannuation) that they are required to pay.

Employers will commit an offence if:

• they’re required to pay an amount to an employee (such as wages), or on behalf of or for the benefit of an employee (such as superannuation) under the Fair Work Act, or an industrial instrument
• they intentionally engage in conduct that results in their failure to pay those amounts to or for the employee on or before the day they’re due to be paid.

There will be a voluntary Small Business Wage Compliance Code. Compliance with the code will mean that small businesses won’t be criminally prosecuted if they underpay their employees. The code is yet to be developed. If you are a small business (less than 15 employees) stay informed through Fair Work Australia so you can comply with the code when it commences.

 

Conclusion

Understanding this legislation is critical for studio owners and instructors. For more information, go visit: https://www.fwc.gov.au/about-us/closing-loopholes-acts-whats-changing

Seek professional advice if you are uncertain about any aspects of the changes or how they apply to your situation.

 

Suzanne Rhimes, PAA Member