Over the past 18 months, we have seen the Albanese Government move ahead with its industrial relations (IR) reform agenda.

2022 saw the passage of the Secure Jobs, Better Pay Bill, which focused on changes to enterprise bargaining, additional obligation to prevent sexual harassment in the workplace, and the establishment of the National Construction Industry Forum on which HIA has been appointed.

Closing loopholes was the focus for 2023. The impact of these reforms has been the subject of much speculation and fanfare. After accepting amendments from the Greens and independent Senators the Fair Work Legislation Amendment (Closing Loopholes No. 2) Bill 2023 passed Parliament in February.

It boosts union rights to investigate suspected wage underpayment, creates new definitions of ‘employment’, ‘casual’ and ‘employee-like’, and introduces a right to disconnect from the workplace outside of paid hours.

The consideration of Closing Loopholes No. 2 followed the carving up of these reforms into two separate pieces of legislation. The original Bill, which passed Parliament last December introduced two significant reforms: a criminal offence for deliberate wage underpayments, and expanded union rights.

The impact of the reforms on the residential building industry and independent contracting has always been front of mind for HIA. We remain concerned that many of the reforms will simply add a layer of uncertainty and risk.

Is independent contracting in the residential building industry at risk?

Genuine independent contracting in the residential building industry can continue to operate as they always have. HIA stressed the importance of these arrangements to Government and due to these efforts, two key amendments were made to the legislation.

How do you opt out of the definition of employment

The new laws introduce a definition of employment which requires that ‘the real substance, practical reality and true nature of the relationship between the parties, including not only the terms of the contract but the manner of performance of the contract’ be considered when determining the status of a worker.

The definition is intended to confirm that the long-standing multi-factorial test apply when considering a worker’s status – i.e. Is there a written contract? Does the contractor use their own tools? Can they delegate work?

To ensure the status quo was maintained, HIA worked closely with the Government to secure greater clarity regarding the operation of the definition. Parties can choose to ‘opt out’ if they are concerned that the new definition may apply to their relationship (and they don’t want it to), and the contractor is earning above a certain amount.

Once the parties have opted out of the definition, the independent contracting arrangement is preserved. HIA will also work with the Fair Work Ombudsman (FWO) to develop industry-specific guidance on the ‘opt out’ option. It will be of most use to subcontractors who do a lot of work for the same builder but also do a range of jobs on the side.

Remember, this definition only applies for the purpose of industrial relations laws. All other ‘tests’ for determining the application of other state and federal obligations, such as superannuation, payroll tax or long-service leave, operate unaffected by this change.

Tradies not the target of ‘employee like’ measures

A clear target of these reforms was the gig economy, such as Uber drivers. The legislation includes a range of measures aimed at setting minimum standards for the sector on the basis that a worker is ‘employee-like’.

There was speculation that the definition of ‘employee- like’ would capture independent contractors in the residential building industry. Clearly, this is not the case. In fact, to be captured by these measures, a worker must be a ‘digital platform worker’ and satisfy two of the following: have low bargaining power, low authority over the work, or receive pay at or below rates of comparable employees.

We are aware that other industry groups have continued to call out the residential building industry as a target of these reforms. While several measures will affect those operating in our industry – as they impose greater scrutiny on working arrangements and represent additional complexity and red tape – the sector is not the target.

What else might affect independent contractors? 

The Fair Work Act currently makes it an offence, known as sham contracting, to intentionally misrepresent an employment relationship as an independent contracting arrangement. Changes to the defence to an allegation of sham contracting means it will be available where a business reasonably believes an arrangement is an independent contractor arrangement.

This is opposed to the current defence available to an employer who can prove that, at the time of making the representation, they did not know, and were not reckless as to whether there was an employment relationship. Independent contractors earning below a new contractor high-income threshold will be able to challenge unfair contract terms, allowing the Fair Work Commission to rewrite them.

Independent contractors earning above the contractor high-income threshold would access the right to challenge unfair contracts terms through the existing framework under the Independent Contractors Act, rather than the Fair Work Act. Members may recall there are laws already in place that require that standard form contracts used with small businesses do not include ‘unfair contract terms’.

What do the changes mean for employers? 

A new offence of wage theft and five-fold increases to penalties means it has never been more important to make sure you pay your employees correctly. From 1 January 2025, a new criminal offence of wage theft will apply to intentional underpayments. This means that underpayments that are accidental, inadvertent or based on a genuine mistake would not be covered.

The maximum penalties would be the higher of $7.825 million or three times the amount of the underpayment. Individuals could face imprisonment of up to 10 years, or a fine of the greater of $1.565 million or three times the amount of the underpayment. The Bill includes a mechanism by which employers could protect themselves from prosecution. They could enter a cooperation agreement with the FWO or comply with a voluntary small business wage compliance code (yet to be drafted), guaranteeing they will not be prosecuted if they follow the code to ensure workers are paid correctly.

The laws also amend the existing criteria for determining whether a serious contravention has occurred, which triggers higher maximum penalties (up to $4.695 million for a corporation). A person will be regarded as having engaged in a serious contravention if they knowingly underpay employees or are reckless as to whether a contravention could occur. Recklessness involves the awareness of a substantial risk of the contravention occurring and is being unjustifiable to take that risk.

Should you be concerned about the unions? 

While union activity in the residential building industry is generally very low, it is important to be aware of its expanded rights under these new laws.

• Union workplace delegates have a series of new rights, including access to paid time off for training purposes. Employers will be obliged to engage with delegates, not hinder or obstruct them in their duties, or make any false statement to a delegate. The changes have no real limitations, and will be largely controlled by the unions. For example, the unions will decide the number of delegates in each workplace and the length of paid time off required for training.
• Union can apply to have the 24-hours’ notice of entry to inspect employment records of union members waived on the basis that: 
• there is a concern regarding the destruction of documents 
• there is a reasonable suspicion of underpayment 
• advance notice of entry would hinder effective investigation into suspected underpayments.
• Union officials, without a union right-of-entry permit will be able to enter a workplace to assist a health and safety representative.

So, what really matters? 

Many of the changes are complex, add a layer of uncertainty and risk and will increase the administrative burden on business. To manage this, HIA recommends doing a business stocktake to review all your work arrangements and make any necessary changes.

First published on 12 March 2024