The full Amending Act can be found here.
‘New’ Test for Characterising Employment Relationship
One significant change, due to commence on 26 August 2024, is the addition of section 15AA to the FW Act. Section 15AA will provide a statutory test for determining whether an individual is an ‘employee’, rather than an independent contractor for the purposes of the FW Act.
Once in force, section 15AA will mean the relationship between an individual and an employer (or principal contractor) will be determined by ‘ascertaining the real substance, practical reality and true nature of the relationship’ between the parties.
The totality and true nature of the relationship must be considered having regard to contract terms and other factors, such as how the contract is performed in practice.
This amendment was drafted to reflect the ‘multi-factorial approach’ which had been applied by Australian courts for over 30 years. The multi-factorial approach assessed indicia including:
- the extent of control over the worker;
- whether the worker provided their own tools and equipment;
- whether a uniform was provided by or required by the principal;
- remuneration — including whether the worker is paid on completion of tasks or with a periodic wage.
The 2022 High Court decisions of CFMMEU v Personnel Contracting Pty Ltd [2022] HCA 1 and ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2, gave primacy to the terms of the written contract to characterise employment and contracting relationships, and concluded it was unnecessary to conduct a ‘wide-ranging’ review of parties dealings, unless it is alleged a contract is a ‘sham’, or had been varied, and was broadly perceived as a departure from the long established multifactorial test.
The parliamentary history and an explanatory note accompanying s 15AA both make clear this section was enacted in response to the impact of Personnel Contracting and Jamsek and the characterisation of work relationships.
Opting out of Section 15AA
As a transitional measure for existing agreements, an individual considered at risk of becoming an employee because of s 15AA may formally provide an ‘opt out’ notice. Before a principal contractor notifies the individual that they may provide an opt out notice, and before the individual provides an opt out notice, the individual must claim to have earnings over the ‘high income contractor threshold’, an amount yet to be revealed.
The Amending Act inserts section 15AB, which provides an individual may elect that section 15AA does not apply to their relationship, if they provide an opt out notice.
Impact on Employers and Principal Contractors
Employers and principal contractors must be mindful that the conduct of parties to an agreement will be considered when determining the true nature of the relationship. An individual hired as an independent contractor could later be characterised as an employee due to the operation of the relationship in practice, and as a result, the employer would be required to pay various employee entitlements and risks the prospect of claims for underpayments.
