IR Bill A Deal Breaker

28 November 2023
IR Bill A Deal Breaker - Featured image

The Albanese government’s so-called ‘Closing Loopholes’ Bill targets Australian employers, warns employment law and industrial relations expert Mark Mourell.

Labour productivity in Australia has gone backwards. In the 12 months to the financial year ending 2023, labour productivity declined about three per cent. Much of the blame can be attributed to the industrial red tape imposed by Australia’s labour regulatory regime. Australia has one of the world’s most rigid and complex industrial relations systems. The recent passage of the Fair Work Legislation Amendment (Secure Jobs, Better Pay) Act 2022 (Cth) worsened the condition by imposing additional red tape and compliance obligations on businesses, at a time when private sector investment—around 11 per cent of the GDP—is close to a record low. The second tranche of the Federal Government’s industrial relations reform, the Fair Work Legislation Amendment (Closing Loopholes) Bill 2023 (Cth) (the Bill) threatens to exacerbate the current productivity crisis by doubling down on the harmful approach of piling-on even more red tape, thus increasing compliance costs, creating uncertainty, and disincentivising employment.

The bill consists of some 280 pages of legislative amendments in 28 separate parts—and extends to more than 520 pages of explanatory memorandum and additional notes. This is more than an omnibus bill; it is a legal and bureaucratic nightmare that will affect businesses and workers for decades to come. Little wonder that several days after it was introduced into the Federal Parliament, following an uproar from the business community the Bill was sent to the Education and Employment Legislation Committee to report back to the Senate in February 2024.

Reform contained in the Bill—for casual, labour-hire, and independent contract working arrangements—is needed, according to Employment and Workplace Relations Minister Tony Burke, because of a range of factors including unequal pay for similar work, unequal benefits, and health and safety concerns. The government believes it can fix these problems by undermining the law of contract, then enforcing its new workplace regime through the Fair Work Commission (FWC) and Fair Work Ombudsman (FWO).

The Bill is massive and complex, so this review can only be a general appraisal and focuses on two key parts:

  • Part 1 which adds a new section, 15A, to the Fair Work Act 2009 (Cth) (the Act), dealing with the definition of casual employees; and
  • Part 15 which adds section 15AA, dealing with independent contractors and employees.

BACKGROUND TO THE PROPOSED LEGISLATION

The key to the government’s proposals in relation to independent contractors and casual employees is based on inserting into the Act a set of so-called ‘interpretive principles’ for determining the ordinary meanings of ‘employer’ and ‘employee’. This is largely due to three High Court decisions, namely: CFMMEU v Personnel Contracting [2022] HCA 1, ZG Operations v Jamsek [2022] HCA 2, and WorkPac v Rossato [2021] HCA 23, decisions to all of which are referenced in the explanatory memorandum to the Bill.

The High Court, in the case of Rossato, determined that Rossato, a truck driver who had been engaged as a casual by the labour-hire firm Workpac, was not—as the Construction, Forestry, Maritime, Mining and Energy Union (CFMMEU, previously known as the CFMEU) had contended on his behalf—a permanent employee. The reason for this was that Rossato did not have a firm and advance commitment to ongoing work. The decision further noted that the terms of the contract—not the subsequent conduct of the parties—determine the relationship’s nature. This was a very reasonable decision, bearing in mind Rossato had worked under these conditions for four years and had only made a demand for the benefits to which permanent staff are entitled after being approached by the CFMMEU.

In 2022, High Court decisions in the cases of Jamsek and Personnel Contracting also upheld the supremacy of the contract, and its content, in determining the status of a worker. They were not radical decisions. They simply reiterated the approach of the High Court on the employee and independent contractor dichotomy: an approach adopted from the English common law dating back to the 1840s. This approach is based on the content of the contract and the notion of control: namely, who ultimately controls how work is to be done. The distinction between an employee and a contractor is important because it determines what benefits a person is entitled to under the relevant legislation and how much independence they enjoy. It impacts directly on about one million independent contractors who enjoy the freedom and flexibility to run their own businesses with less interference from the government and unions.

The legal background is straightforward. Apart from a period between 1986 and 2015, in addition to the wording of the contract, the High Court essentially followed what was termed the control test, which was established in the 1840s. As earlier noted, it involves asking who ultimately controls how work is to be performed. The more control (or the right of control) an employer or principal has over the worker, the more likely that worker is to be an employee. In 1986, however, Justice Mason developed a somewhat different test, namely the multi-factor test. The test was formulated in the famous case of Stevens v Brodribb [1986] HCA 1. Factors taken into account in this decision other than contractual provisions and control included the mode of remuneration and how income tax was paid. In 2001 this multi-factor test was affirmed by the High Court in Hollis v Vabu [2001] HCA 44.

The courts subsequently continued to follow the multi-factor test, but applying this test is nebulous and cumbersome. The High Court, in the case of CBA v Barker [2014] HCA 32, heralded a new era in employment law. It placed a halt to legal innovations and activism, and refocused on the construction and content of the contract of employment.

This is now derogatorily termed the ‘contract-centric’ approach. One must ask, what approach apart from contract-centric can courts adopt to interpret a contract? Moreover, the High Court stated in Rossato and Jamsek that this approach accords with elementary notions underlying the law of contract, namely ‘freedom of contract’. This is regarded by left-wing lawyers and activists as being as bad as nuclear energy.

Adults should be free to contract as they wish.

The central issue in Jamsek was whether two owner-drivers (Jamsek and Whitby) who had been working in partnership structures for years as contractors to their principal, ZG Operations, were in fact employees. If they had been deemed employees by the court, then their estates would have been entitled to various benefits including annual and long-service leave and superannuation. But the High Court ruled they were indeed independent contractors operating their own businesses. Essentially, there was no new law enunciated here—simply the application of existing precedents. This was not good enough for the Transport Workers Union.

Personnel Contracting was more problematic. It saw a slight difference of opinion among the members of the Court between the contract-centric approach and the multi-factor test. In 2016 McCourt, a 22-year-old backpacker, entered into a contract with Personnel Contracting, a labour hire company in Western Australia. He signed two documents which described him as a contractor and had the difference between contractor and employee explained to him. Personnel Contracting then entered into an agreement with its client, Hanssen, to render manual labouring services conducted by McCourt. This type of trilateral contracting arrangement is known as an ‘Odco’ arrangement, named after a previous Federal Court case. Since the early 1990s, Odco v Building Workers Industrial Union of Australia [1989] FCA 483 was regarded as correct law and a large section of the business community conducted its activities on this basis. Sometime after McCourt completed his work, he and the CFMMEU alleged he was an employee of Personnel Contracting—not a contractor—and that the latter had contravened the National Employment Standards and the Act by not paying McCourt in accordance with the relevant award.

Uber Eats cyclist at work.
Photo: Franklin Heijnen/Flickr

The High Court ruled by a six-to-one majority that McCourt was an employee and entitled to the award benefits sought by the CFMMEU. It over-ruled Odco and caused some consternation in the business community. Law firms advised their clients to re-examine and re-draft their contracts.

Nevertheless, most of the judges essentially concentrated on the contract as signed by the parties. Six of them agreed, after reviewing the contract in detail, that Personnel Contracting’s contract with McCourt was a contract of employment based on its right to control his work, conduct, and activities at work. Three of their honours also pointed out that, given there was no challenge to the validity of the contract or evidence that it had been varied by conduct, a review of how the parties went about discharging their obligations to each other after execution of the agreement was unwarranted. In other words, the contract was complete and embodied the whole intention of the parties. This was a strict application of the law of contract.

Two judges, however, found McCourt was an employee based on the multi-factor test. They were prepared to consider the wider aspects of the contractual relationship, including the manner of its performance. As mentioned earlier this is a much more complicated, impressionistic, and ultimately subjective process. In the end despite the CFMMEU’s win in Personnel Contracting, and because of the TWU’s failure in Jamsek, the unions remained dissatisfied.

Recently, the courts and FWC have viewed digital platform workers as contractors rather than employees who are consequently not entitled to workers’ compensation or a right to sue for unfair dismissal under the Act (for example, see the case of Gupta v Uber Eats [2020] FWCFB 1698, whereby a delivery courier was not found to be an employee of Uber Eats). From the foregoing discussion it can be deduced there are two very big elephants in this ‘contractual room’, namely:

  • All parties to these contracts are adults contracting freely and fully aware of their contractual rights and obligations.
  • The parties operated under these contracts for considerable periods of time (months if not years) before unions alerted them to their ‘entitlements’ and financed litigation. By overlooking these elephants, and then attempting to overrule the careful reasoning of the High Court in this area, the new Bill undermines two key principles of the common law of contract. The first is of capacity and freedom of contract; the notion that adults who are fully cognisant of their rights should be free to contract as they wish. The second principle is that the courts have never re-written contracts after the event to redress a so-called inadequacy in the arrangement. In other words, courts will not hear complaints about a bad bargain after the event. These foundational principles are at the core of the law of contract and form the basis upon which contracts have been negotiated for hundreds of years.

OPENING THE FLOODGATES

These cases involve workers with different contractual arrangements: labour hire workers, casual employees, and independent contractors (including owner-drivers and digital platform workers). But they all fall under the umbrella of non-traditional forms of permanent work. Those involved in non-traditional forms of work are less likely to unionise than those who are engaged in permanent, especially full-time, work. Under the Bill that the Federal Government has recently introduced, these different categories of workers are going to be heavily regulated, and it will be left to the FWC to resolve and ultimately to decide what workers get what benefits. The role of the courts and the common law will be severely truncated.

The first stage is a directive essentially to the courts and the FWC as to how they should decide future cases, namely the so-called ‘interpretative principles’. These are contained in sections 15A and15AA of the Bill. In effect, they attempt to widen the definition of an ‘employee’, widen the criteria for casual workers to be deemed permanent employees, and create a new category of ‘regulated workers’—such as road transport workers and digital platform workers who are deemed ‘employee-like’. These definitions are vague, indeterminate, and circular. The current circular definition of an employee in the Act states that the term is defined by its ‘ordinary meaning’; an employee is one who is “usually … an employee”. The Bill amplifies this circularity. The most important of the new definitions concerns the distinction between employee and contractor, and is contained in section 15AA. It borrows the vague wording of the Federal Court in Rossato (which was later disavowed by the High Court) to craft an expanded definition, which has been described as ‘Orwellian’.

It states that in deciding who an employee is, as opposed to a contractor, regard must be had to the “totality of the relationship” including “how it is performed” and most importantly “the real substance, practical reality and true nature of the relationship”.

This is a vague, totally subjective, indeterminate test—even worse than the multi-factor test. To make matters worse, these same words are used to distinguish a casual and full-time employee in section 15A. The jurisdiction of the FWC and the FWO over these newly deemed employees is extended by these wide definitions. Similarly, the power of the unions is enhanced because they can ask the FWC to decide who is covered by statutory and other benefits such as leave entitlements, superannuation, workplace health and safety protections, protection against unfair dismissal, not to mention the other benefits under the National Employment Standards. The new definitions thereby will open the floodgate to disputation in the workplace, union interference and ultimately litigation.

The Bill undermines the law of contract.

The government has estimated the legislation will cost the economy $9 billion while employers estimate it will cost more like $90 billion, and this comes at a time of supposedly rampant inflation. Go figure that!

With regards to transport carriers and digital platform workers, the definitions in section 15AA of the Bill undermine the notion of freedom of contract in two ways. It attacks the decision in Jamsek and FWC determinations regarding digital platform workers. Then it creates a set of elaborate provisions to undermine the structures under which independent contract work is performed. A person operating via a trust or a partnership can still be deemed an employee or a regulated worker. A union representative can still argue the worker is entitled to all the benefits of the Act and have the FWC rule on the matter. Moreover, in response to Jamsek and cases regarding digital platform workers, the legislation will create a new jurisdiction enabling the FWC to impose minimum standards on deemed employers for ‘employee-like’ workers performing digital platform work and regulated road transport industry contractors. It empowers the FWC to make consent-based collective agreements between platform operators, road transport businesses, unions, and employees. Of course, it also expands the scope of the union movement’s operations. Further, it empowers the FWC to handle disputes between employee-like workers who are deactivated from digital labour platforms or road transport workers who believe they have been unfairly terminated by a road transport business. This is an expansion of the FWC’s unfair dismissal jurisdiction.

Finally, in a sop to independent contractors, the proposed legislation allows contractors performing work that is remunerated at an amount that exceeds the new contractor high income threshold (whatever that will be) to continue to operate under the Independent Contractors Act 2006 (Cth).

Clearly, the Bill is an attempt to undermine the law of contract, expand the regulatory powers of the FWC and the FWO, and increase union membership and reach. Without a doubt the Bill will expand the bureaucracy in the FWC and the FWO, open the floodgates to litigation and hence expand the size of employment law firms and human resource departments, and enhance the careers of union officials and activists.

This Bill will not close loopholes because what the government has failed to understand is that more regulation does not equate to better regulation. What it equates to is more litigation, greater uncertainty in the business community, declining productivity, and increased costs. Ultimately, all Australians will pay for these so-called expanded protections through increased prices and—in due course, I would hazard—increased taxes.

Dr Mark Mourell worked at five Australian universities and retired as head of Employment Relations and Human Resources in the Griffith Business School at Griffith University.

This article from the Spring 2023 edition of the IPA Review is written by employment law and industrial relations expert Mark Mourell.

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