The Closing Loopholes legislation has introduced far reaching amendments to the Fair Work Act 2009 (Cth) (FW Act) affecting Australian workplaces.
One such amendment, which commenced today, 26 August 2024, is that the Fair Work Commission (FWC) have new powers to review contracts between principals and sub-contractors, and sub-contractors and their sole contractors. Contractors will be able to apply to the FWC for orders relating to a review of their contract terms to ascertain if one or more terms are unfair.
The new power will allow the FWC to set aside or amend or vary unfair terms if one or more contract terms exist that the FWC determines are unfair such as hours, wages and the like within the services contract.
For the FWC to determine whether a contract term is unfair, they will consider:
- the relative bargaining power;
- the significant imbalance in the parties’ rights and obligations under the services contract;
- whether the contract term in question is reasonably necessary to protect the legitimate interests of a party to the contract;
- whether the contract term in question imposes a harsh, unjust or reasonable requirement on a party to the contract;
- whether the services contract provides for total remuneration that is less than an employee performing the same work would receive; and
- any other relevant factors.
The FWC can do this if:
- an independent contractor who is a party to a services contract, or a union or employer association that can represent them, apply to the FWC;
- in the year the application is made, the independent contractor’s annual earnings (and any other amounts) are less than the contractor high income threshold; and
- they are satisfied that the services contract contains one or more unfair terms which would relate to workplace relations matters if the independent contractor were an employee.
The FWC can only use their powers to cancel or amend unfair terms if the issue relates to workplace relation matters in an employment relationship (if the independent contractor was an employee). The following issues would be considered by the FWC as workplace relations matters:
- remuneration, allowances or other amounts payable to employees;
- employees’ leave entitlements;
- employees’ hours of work;
- enforcing or terminating contracts of employment;
- making, enforcing or terminating other agreements determining terms and conditions of employment;
- industrial action by employees and employers (unless it affects essential services);
- disputes between employees and employers; and
- other matters that are substantially the same as matters that relate to employees or employers dealt with by or under the Fair Work Act 2009 or state or territory industrial laws.
The following issues are not workplace relations matters:
- preventing discrimination or promoting equal employment opportunity (unless contained in a state or territory industrial law);
- superannuation;
- workers’ compensation;
- occupational health and safety;
- child labour;
- public holidays (except rates of pay for public holidays);
- deductions from wages or salaries;
- industrial action affecting essential services;
- jury service;
- professional or trade regulation;
- consumer protection; and
- taxation.
The new jurisdiction will be available to any independent contractor that earns below the contractor high income threshold. The Albanese Government has set the high-income threshold at $175,000 for the year starting on 1 July 2024 and has recently published the Fair Work Amendment (Contractor High Income Threshold) Regulations 2024 for transparency. Independent contractors who earn above the contractor high income threshold will still be able to access remedies for unfair or harsh contract terms under the Independent Contractors Act 2006 (Cth).
Where certain workers are earning more than the contractor high income threshold, they will have the opportunity to ‘opt out’ by written notice provided by the principal or employer. An ‘opt out notice’ can be issued where the principal or employer believes that the worker may be in an employment relationship due to the definition of ’employee’ and ’employer’ under new section 15AA. This will be determined by reference to the “real substance, practical reality and true nature of the relationship between the parties“.
However, a worker is not to be automatically determined as an employee under the FW Act simply because they earn under the high-income threshold. They will still need to satisfy the new definition of ’employee’ under the Act. Similarly, a worker earning over the high-income threshold will not necessarily be determined to be an employee if they refuse to ‘opt-out’ of the employment relationship.
In our view, it is important for you to understand the changes that have come into effect and consider reviewing independent contractor terms to determine if they meet the new fairness requirements. Principals should take practical measures to amend or remove any terms which may be considered unfair to avoid unnecessary disputes.
For further information visit the FWC.
Or alternatively, the following video provides a brief overview to the changes.
This article was written by Brad Swebeck, Partner, and Maddison Crawford, Law Graduate.
