The Fair Work Legislation Amendment (Closing Loopholes) Act and Fair Work Legislation Amendment Closing Loopholes No. 2 Act 2024 (Acts) have brought significant changes for Australian businesses. The Acts contain provisions that either have or will take effect at different times. The provisions that are the subject of this article – which significantly change how workers are classified – take effect from 26 August 2024.
In our experience, there’s already considerable confusion about the correct classification of staff as either employees or contractors. This article explains how classifications will be determined from 26 August 2024 and what your organisation needs to do now to avoid the consequences of misclassification.
Key Changes: Current and Upcoming
While this blog focuses on correct classification of workers under the new laws, it’s important to note that the Acts introduce many other provisions that significantly change the rights and obligations of workers and employers in many different respects. Here is a useful summary from FWC: The Closing Loopholes Acts – what’s changing | Fair Work Commission (fwc.gov.au). It’s crucial that your organisation understands everything that’s changing and is ready to comply by the time any changes take effect.
Correct classification is crucial
The Australian legal system recognises two categories of worker: employees and independent contractors.
Legally, an independent contractor arrangement is a commercial arrangement between two entities, whereas an employment relationship exists between an individual and an employer. Despite much case law on the topic, there continues to be a mistaken belief that workers always have whatever label is given to them, when in reality the proper classification of a legal relationship is determined by law, not by what the parties say the arrangement is. Sometimes that classification is what’s specified in the contract, sometimes it’s not.
Two High Court decisions made in 2022 confirmed that Courts should primarily focus on the terms of any written contract when determining the correct legal categorisation for a worker, unless certain exception apply, in which case the Court may have regard to the ‘totality of the relationship’ (i.e. the various characteristics of the relationship) and may find the correct classification is different to what is described in the contract.
From 26 August 2024, a new section 15AA of the Fair Work Act introduces a definition of employment whereby the ordinary meaning (i.e. the common law meaning) of "employee" and "employer" will be determined by examining the "real substance, practical reality and true nature of the relationship between parties". These provisions effectively overturn the High Court decisions, and it’s crucial to reassess each worker’s current classification to determine whether they will continue to be correctly classified when these provisions take effect.
Employers have greater obligations towards employees than contractors, and if your workers are incorrectly classified, your organisation is exposed to significant risks including:
Claims for employee entitlements, including award and leave entitlements;
Other legal actions from workers, including for unfair dismissal or general protections claims; and
Penalties for sham contracting imposed by regulatory bodies.
How we can assist
Properly classifying workers as contractors or employees is a complex but essential task. It’s crucial to get it right, but easy to get it wrong and mistakes can lead to severe consequences, even if made unknowingly. Given the high stakes and complexity, investing in specialist legal advice is a sound investment. Our expert team can provide the guidance and support you need to ensure your organisation is compliant before these new laws take effect. Contact us for tailored advice and assistance for your situation.
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