As part of the Australian Government’s ‘Closing Loopholes’ amendment to the Fair Work Act 2009, from 26 August 2024 onwards, the way that employees and independent contractors are defined will change.
When determining whether a worker is an employee or a contractor, one will need to consider the substance, practical reality and true nature of the working relationship. One will also need to consider how the terms of any contract are performed in practice.
This is a change from the existing test, which the High Court of Australia confirmed to be based primarily on the terms of the written contract.[1]
This new definition may mean that some existing working relationships will be characterised differently to the way they were originally thought to be classified. If, for example, a contractor is now considered an employee, the employee will be entitled to leave entitlements such as annual leave.
‘Opting Out’
Contractors earning above the ‘the contractor high income threshold’ (the quantum of which is still to be determined by the Commission) will have the ability to ‘opt out’ of the new definition.
If a principal suspects that an independent contractor agreement may be considered an employer/employee relationship, they can notify the contractor of their ability to ‘opt out’ of the definition.
The contractor may then, by written notice to the principal, state that they wish to opt out of the new definition within 21 days of receiving notice from the principal (or at any time if the principal has given no notice). The notice must include a statement that says that the contractor believes the amount earned from this contract will exceed the high-income threshold.
Minimum Standards
For those contacting in the ‘gig economy’ or the road transport industry, minimum contracting standards will be introduced. Which means that there will be national legal standards that apply to these particular industries, regardless of what is contained in the specific contracts.
The Commission will be able to set ‘minimum standards orders’ which will be legally binding, and ‘minimum standards guidelines’ which will not be legally binding.
Under these new changes, the Fair Work Ombudsman will have the power to enforce minimum standards orders, and those who are found not to be contracting to minimum standards may face financial penalties.
Unfair Contract Terms
If a contractor believes that they have an unfair contract term in their services contract, as part of these changes, an aggrieved contractor will be able to apply to the Fair Work Commission, who can order that a particular term or terms can be set aside or varied.
When considering whether to set aside or vary a term, the Commission will consider a variety of factors and circumstances relating to:
- the parties’ relative bargaining power;
- whether the contract demonstrates an imbalance of power between the parties;
- whether the contract term is reasonably necessary to protect the interests of a party;
- whether the contract as a whole provides less remuneration than would be expected for that service; and
- any other matter the Commission considers relevant
to ensure a ‘a fair go all round’ is accorded to both independent contractors and the principles concerned. If they find that the term is unfair, the Commission will set aside or vary the term.
Defending a ‘Sham Contract’ Claim
As of 27th of February 2024, changes were made to the legislative defence to a claim for sham contracting.
The defence to sham contracting claims was originally a test of recklessness on the part of the employer, it is now a ‘reasonableness’ test.
To defend a sham contracting claim, an employer is now required to prove that at the time the representation was made, the worker reasonably believed that the worker was engaged as a contractor. This is a lower threshold than previously existed, and will make it easier for a principal to defend against a claim for sham contracting.
Further Assistance
If you have any questions about your working relationships or industrial entitlements, please do not hesitate to get in touch with us at Dobson Mitchell Allport:
Audrey Clarkson, Associate
David Ovens, Lawyer
[1] See Construction, Forestry, Maritime, Mining and Energy Union v Personnel contracting Pty Ltd [2022] HCA 1; ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2.
