It is worth noting that under the original timetable of the Hon Tony Burke MP for the Closing Loopholes Bill, it would have been passed as law this week.

Instead, in the face of Senate scrutiny, the Bill was pushed into Committee for examination until February 2024. In the time since, fundamental problems with the Bill have been identified (as have been extensively covered in this blog and media commentary).

This week, the Australian Government tabled proposed amendments aimed at a tidy up. But key amendments fail to resolve the issues they purport to address. And others introduce new significant measures not contemplated by the initial Bill. We explain below.

The tidy up is ineffective

For example, let’s look at the changes in relation to two of the hottest issues:

  1. “Regular” casuals: The Bill proposed wholesale amendments to the casual employment test (see our blog here) imposing a complicated multi-factorial test that had the potential to disrupt casual employees from working regular days. After a long negotiation with the AHA, the Government claimed it had reached agreement, such that casuals with regular patterns of work could remain casual. The proposed amendment to achieve this is: regular pattern will not “automatically” mean they are not casuals but does not mean that they are casuals. What does that mean?
  2. “Service-based” contractors: The labour hire provisions of the Bill introduced a new regime for determining when contractors (as opposed to employees) could be required to be paid the same rates as employees who perform like work. The test was inexplicably broad and immediately acknowledged by practically everyone, including Minister Burke, as going too far and risking capturing all sorts of service providers (see our blog here). The proposed amendment here makes things better, but remain obscure. On the one hand, it says that the Fair Work Commission (FWC) must not make orders where a work arrangement relates to the provision of service rather than the provision of labour, but on the other hand, it requires the FWC to have regard to a range of factors, not about the services being provided, but rather the “employment-like” arrangements in which work is performed. So, the test is aimed at an objective skewed by the lens through which it is assessed. Why is there not consideration of the services being performed?

These are just two examples of the problems that have received most significant attention since the Bill was first tabled. Both these amendments are designed to achieve a simple outcome but fail to do so, leaving contestable issues and uncertainty. One could be forgiven for thinking that this is deliberate, as simple drafting of both measures would not be hard to achieve. A more detailed review of the legislation and the amendments reveals a longer list, which we will cover in future posts.

Bargaining determinations: all one way

The amendments include further significant changes to the bargaining regime introduced only last year.

Most concerning is the proposed amendment to the arbitration rules after the FWC determines that bargaining is intractable. A new provision will mean that that any term determined by the FWC must not be “less favourable” to each employee covered by the agreement and any union than the terms of any current enterprise agreement.

So there’s no give and take here – it’s all one way. Employees and the union must not go backwards from their position under any prior agreements. This is an extraordinary measure that fundamentally alters the dynamics of bargaining.

Intractable disputes are almost invariably about difficult issues. Employers commonly want to achieve changes to existing terms and conditions as part of any new deal. The objects of the Fair Work Act 2009 require a fair and flexible framework for collective agreement making to deliver productivity. How unfair that an employer, particularly one trapped by conditions in an outdated enterprise agreement, should ever be able to achieve any such reforms.

The effect of this provision is that militant unions can hold out in bargaining to prevent any such changes (all the while taking protected industrial action). And do so without any risk that an unreasonable position on their part could be rectified by the FWC (even where the FWC considered that it was otherwise fair and appropriate to make changes to existing terms of enterprise agreements). The reform would drive ambit claims and disincentivise any reasons for unions or employees to make concessions. There would now be no risk of them being imposed. The result for the employer: stuck with restrictions in current agreements with no mechanism to address them and where bargaining becomes about managing downside risk and cost.

Who is not listening to the umpire’s decision now? But why bother when it is so much easier to rig the game from the start so the umpire cannot decide against you. More to follow on this change and its impact.

Many Australian businesses use contractual restraints of trade to protect confidential information and customer relationships. In this update we answer frequently asked questions about the future of restraints of trade in Australia, and consider options available to companies in the event that some types of restraints are no longer available.

Are restraints of trade still allowed?  

Yes – in the sense that the rules that have applied for years still apply for the moment.

Restraints of trade can form part of an employment arrangement (usually in the employment contract or a deed) and sale of business agreements and will be valid and enforceable in certain situations.

There are a fairly complicated set of both rules and principles that Courts apply in determining whether a restraint will be valid, and warranting remedy, where it has been or might be breached. The basic rule is that a restraint will be unenforceable unless there are special circumstances where a restraint protects a legitimate interest recognised by law. This interest must be recognised by the law and deemed reasonable by the Court both as between those who agreed to it, and taking into account the public interest.

Generally, Courts take a more permissive approach to sale of business restraints (which typically restrain the vendor from accepting business from former clients of the business sold for a period of time). The idea is that sale of business restraints are a public good because they benefit trade. Courts typically need much more convincing that a restraint in an employment agreement is enforceable.

When is a restraint reasonable and enforceable?

This depends on the particular circumstances. A Court will consider the scope of the restraint (the activities – such as not competing or poaching staff), how long the restraint applies, and its geographical area.

For more detail, click here to receive a copy of my article in the Australian Business Law Journal.

Are employment restraints about to be banned in Australia?

Short answer is no, not yet, but their future looks uncertain.

Businesses that use restraints of trade to protect confidential information going to competitors when employees leave, or purchasers acquiring a business who want to protect goodwill will be keen to understand the future of restraints of trade in Australia. The Australian Competition and Consumer Commission (ACCC) is presently reviewing whether restraints will be banned in Australia following a referral from the Federal Government.

We’ve set out key information about the state of play below. If you see something important and need more insight, speak to any of our partners. We have had deep involvement in many of the most contentious and high stakes cases decided in Australia and have broad advisory expertise in this area.

Are there many types of restraint and which are being reviewed?

Yes, there are many different types of restraint. They include:

  • Non-competition restraints which forbid working for a particular company or in a particular industry.
  • Non-poaching restraints which forbid soliciting or encouraging staff or clients to leave one organisation and join another.
  • Sale of business restraints which are typically a form of non-competition restraint given by a vendor to the purchaser of a business promising not to set up in competition and take clients or staff away.

We understand that all of these types of restraints are under review.

If we were to speculate, what changes will the Government make?

It depends much on what recommendations the ACCC provides the Government with, and then, of course, whether the Government has the numbers in Parliament to implement any recommendations it accepts.

Judging by what has occurred in other countries, most notably the United Kingdom and the United States of America (who Australian politicians commonly look to for ideas), consideration will be given to:

  • banning non-competition restraints contained in employment contracts;
  • limiting non-solicitation of client or staff restraints to a short period of time, say three months maximum; and
  • only permitting enforcement of a restraint where there is specific and separate payment for the period the restraint operates.

It is likely that sale of business restraints will be left alone or subject to additional criteria. We do not anticipate them being banned altogether.

Restraints of trade have been in place for hundreds of years. Why is the Government reviewing them now?

The catalyst for the review in Australia was a 2023 decision by the Federal Trade Commission (FTC) in the United States of America (similar to Australia’s ACCC which enforces competition laws) to issue a rule that all employment non-compete agreements (but not sale of business agreements) be banned, and even existing non-compete agreements be rescinded.

Although this FTC rule is not in effect whilst consultation about the proposal is occurring, the proposed change has unleashed quite the energetic backlash with more than 11,000 submissions being filed with the FTC about the proposals, with plenty of media making the case both for and against restraints. This is mostly due to US legislative activity expanding to impose restrictions on confidentiality and non-disparagement agreements following a separate decision from the National Labour Relations Board which found an increase in corporate suppression of misconduct and ill-treatment of shareholders, consumers and employees.

Interestingly, other employment restrictions including non-disclosure and non-solicitation agreements are exempt from the ban. The affected ability for employers to include confidentiality and non-disparagement clauses in separate agreements has been proposed in conjunction with the ban on non-compete clauses on the basis that these provisions provide an unfair method of competition. In the past, employees have been found to be best positioned to reveal employer misconduct as a result of their access to private, in-house information. This has in turn, attributed to a growing concern for employer abuse in the implementation of strategic confidentiality provisions and contractual clauses aimed at preventing an employee from exercising workplace rights and disclosing misconduct and wrongdoing.  

The criticisms of the FTC proposal are many and varied, including that:

  • The FTC does not take into account the many positive reasons for non-compete agreements, such as promoting innovation and giving companies a better chance to protect confidential information;
  • The FTC does not have congressional authority to make the rule banning non-competes that it proposes – this issue will be determined through litigation in 2023 and 2024; and
  • The reasons given by the FTC for banning non-competes lack substance. For example, the FTC cites the overuse of non-competes to restrict the mobility of low-earning employees, but does not explain why senior employees who have confidential and commercially sensitive information and move from a company to a direct competitor should not be subject to such restraints.

A number of States in the U.S. including California, North Dakota, Oklahoma, and Minnesota have now proposed State legislation to ban non-competes. Other States in the U.S. including Washington, Oregon, Nevada, Colorado, Illinois, Maine, Massachusetts, Rhode Island, Maryland, Virginia, and the District of Columbia have enacted legislation which is restraint friendly or unfriendly. You can find a State-by-State comparison prepared by our United States colleagues here.

The UK government appears to have followed suit shortly after the FTC’s announcement in proposing a statutory limit on the length of non-compete clauses of three months. The UK’s position aims to boost flexibility in the labour market and unleash greater competition and innovation. It is unclear from the UK’s proposal how this is to affect current in-place non-compete clauses.

In the case of Europe, no major jurisdictions have banned non-competes completely. They remain enforceable, given the commonality for employers to opt to embed non-compete clauses in employment agreements of essential employees. Many jurisdictions have a limit of 12 months on non-compete periods, requiring some non-compete periods to be paid fully or partly as is the case in France, Spain, Italy, Belgium, Denmark, Poland, Norway, Portugal, and Germany.

There is specific legislation in New South Wales that helps companies enforce restraints. Will that be changed?

We can only speculate at this point. If the Federal Government changes the law concerning restraints (for example, by placing a strict cap on the duration of employment restraints), it is likely the change in law will apply uniformly across the country, which will alter the position in New South Wales.

We are common users of restraints of trade in our business. What can we do now to put ourselves in a good position in case employment restraints are not available in the future?

Restraints are very common in some industries and professions. In the only Australian study examining the prevalence of restraints, Chia and Ramsay (2016, Australian Journal of Labour Law) found that restraints are most commonly used in financial services, professional services, technology, real estate, recruitment and in wholesale and consumer products businesses.

Although a good restraint of trade can offer important benefits to a business if it is well drafted and used for the right reasons, it is important to bear in mind that there are other means to protect confidential information. Sections 182 and 183 of the Corporations Act 2001 (Cth) prohibit directors and employees improperly misusing information obtained through their employment. Further, equitable rules regarding the misuse of confidential information, agreed contractual provisions, legislation protected trade secrets and common law protected intellectual property all ensure the security of privileged information.

The issue is that none of the means described above offer the same protection that a good restraint of trade does. For example, assuming a valid restraint has been agreed upon, a top salesperson who leaves to join a competitor can be restrained for a reasonable period to (a) enable the former employer to replace them, and (b) provide a replacement salesperson with a chance to meet clients and form customer connections. Absent a restraint, there are no strong legal protections that deal with this kind of situation.

In terms of what can be done to protect business assets, such as confidential information or critical customer connections in the face of a potential ban on restraints, we can take some guidance from what companies have done in some U.S. States, such as California, where restraints were banned years ago. Over time, a number of legal and economic instruments have been developed and deployed including:

  • Use of choice-of-forum clauses (where there are differences between States) that may enable the law of a different forum to regulate the contract;
  • Stronger drafting of confidential information protection contained in the employment contract or Non-Disclosure Agreement clauses (which can be used throughout the employment not just at the start);
  • In industries where this solution is appropriate, invention assignment agreements (typically used in technology companies and universities) where the employee agrees in advance that any inventions developed in the course of the employment belong to the employer;
  • Use of deferred compensation mechanisms to encourage employees to stay with a firm or to leave on terms which protect confidential information and customer relationships; and
  • Increased use of legislation protecting trade secrets and confidential information.

Other novel solutions also exist in particular industries and professions.

Is there merit in the criticism of restraints of trade, that they suppress wages and trap employees in jobs they don’t like?

This is a contentious topic, and there is no straightforward answer. Much depends on the stance taken on some philosophical issues such as whether employees should ever be in a situation where they cannot freely move around in a labour market and pursue their own best interests.

If it is accepted that there is a trade-off to be struck between labour mobility and the protection of company interests, such as confidential and commercially sensitive information or investment in staff and clients, the issue is where the appropriate trade-off should be.

Various overseas studies have looked closely at this issue from different perspectives include a macro whole of economy perspective, a business level perspective and an individual employee perspective. For example:

  • Ronald Gilson from Columbia Law School emphasised that the success of Silicon Valley in California is in large part attributable to the State ban on restraints. Knowledge spillovers between firms, so the argument goes, allow ideas to spread to where they are most likely to be commercialised – which accelerates innovation and is good for the economy and society.
  • By analysing a large volume of patent and other data, Agrawal, Cockburn and McHale (2006, Journal of Economic Geography) noted that it is social ties between people that results in idea and information flows. These researchers found that even after an inventor had moved companies or geographies, knowledge flow at the old location was 50% higher than when they had lived and worked there. This indicates that personal relationships endure over time, space and organisational boundaries. These researchers would not consider restraints a major variable impacting idea and information flows.
  • In a thorough and long paper, Posner, George Triantis and Alexander Triantis (2004, Olin Working Paper No. 137, University of Chicago Law & Economics) considered the issue from an economic efficiency perspective (that is, what is the correct balance point between labour mobility and employer investment in human capital), and concluded that the choice and drafting of a restraint can deal with these tensions, although there are economic incentives for both contracting parties to agree to excessively broad restraints upfront which can be a problem if they cannot be renegotiated at a later date.
  • Arup, Dent, Howe and Van Caenegem (2013, University of New South Wales Law Journal) considered the impact of legal practice (that is, how the law works in practice) upon the enforceability of restraints of trade, and found that when an employee leaves and hard bargaining occurs under circumstances of uncertainty concerning whether the restraint will be enforced, often the former employee is at a financial and expertise disadvantage unless the new employer is willing to become involved and to provide financial and legal support.

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In his press club speech on 31 August 2023, just days before the public release of the Closing Loopholes Bill, Minister for Employment and Workplace Relations the Hon Tony Burke MP described the problem of the labour hire loophole as follows:

“But if you have an enterprise agreement in place, the labour hire loophole is where the employer has agreed for particular tasks, particular classifications, that there’ll be a particular rate of pay. And then, having agreed to it, having had it registered, says, “But I’m now going to use someone who’s technically a different employer,” and those rules instantly disappear, and now we go right back down to the award again. That’s a loophole. It’s not what’s intended. It’s currently legal for the companies that are doing it.“

And later:

“…labour hire shouldn’t be used as a device to undercut what’s been registered and agreed to.“

The Minister defiantly stated, “for anyone who does want to stop us closing the loopholes – defend them. Because so far, no-one has defended any of the loopholes I’ve described”.

The invitation to examine the problem, the policy to deal with it, the implementation of the policy, and even the politics is accepted.

Let’s start with agreeing on the problem. The Minister claims labour hire can be used as a device where a company agrees to a rate of pay in an enterprise agreement and then avoid that agreement by shifting the work to a different employer which pays an inferior rate. This is the “loophole” that allows companies to circumvent how the current law is intended to work. Notice the language used of a “device”. The Minister apparently now sees a device, a trick, a scam that has been taking place for 14 years under the Gillard Government legislation enacted in 2009.

So, is there a loophole that allows companies to circumvent the way the current law is intended to work? To answer that question, let’s examine how the current system deals with this problem.

First, outsourcing work because your employees have entitlements under an enterprise agreement is not lawful. Not under this legislation or previous versions of it. So, the loophole claim does not get off the runway.

Second, employees of the labour hire company working alongside employees earning more have a fairly simple path to higher wages. It is the same path that the host employer’s employees took – that is, to use the system to make an enterprise agreement that contains a higher rate of pay. They would have all the industrial weapons afforded by the legislation, including protected industrial action. This is the premise of enterprise bargaining which underpins the legislation and has done so since 1993, but now staff have the benefit of new options like seeking to engage in multi-employer bargaining, and in many cases, to initiate bargaining simply by requesting that the employer do so.

Third, even the Minister acknowledges there are good reasons for labour hire. So, which are good and which are a device? Read the Bill and see if you come away any wiser.

The reality is that describing this problem as a loophole is wrong. It is a standard issue industrial problem which the legislation already deals with. There is no policy or legal vacuum that needs to be filled.

That’s the problem and the policy – what about implementation?

This is where the Bill has the capacity to create serious distortions.

Consider the situation where a labour hire company has negotiated its own enterprise agreement with its employees. As with any enterprise agreement, the terms and conditions agreed are a mix of swings and roundabouts. That might mean a higher rate of pay than at other enterprises in return for other conditions being changed or reduced, but it may also mean a lower rate of pay in exchange for other benefits such as additional leave. The point of enterprise agreements is that they are negotiated at an enterprise level and are right for that business at that time. The way the system will work if the Bill passes is that those employees can take the high-water mark of the rate of pay in their own agreement or the rate of pay of the “host employer” plus all other conditions provided by the direct employer. The integrity of the agreement making system suffers in return for a pick and choose approach to pay rates.

There are other issues. As mentioned above, the Bill makes no distinction between the use of labour hire as a so-called device and its integrous and proper use. There is a long list of factors that the Tribunal must take into account (if the parties raise them) in deciding whether the legislative bias towards making an order is displaced, but it can also take into account any other factors it considers relevant in ultimately deciding what is “fair and reasonable” – about as vague and amorphous as it gets. Different Tribunal members, each deciding the matter diligently and in line with the legislation, can come to different conclusions because the standard adopted is discretionary and impressionistic. What it does supply, though, is a great political defence – who can argue against a law that is directed to achieving a “fair and reasonable” outcome?

In addition, rather than specialised services labour hire being permissible – as was promised to be the case – it is just one factor that goes into a long shopping list of factors before a result gets spat out. There is no reason why this would necessarily result in an order not being made. Indeed, the default position with specialised labour hire is the same as for any other case – an order must issue unless the employer convinces the Commission it would not be “fair and reasonable”.

The new provisions also jar with other parts of the system. The transfer of business provisions permit the Commission to make an order to stop an enterprise agreement (and its rates of pay) from moving with employees to a new employer in some cases, including outsourcing scenarios. Such an order is the result of a judgment call by the Commission that it’s not appropriate for that instrument – including sometimes a higher rate of pay – to transfer. That outcome could be undermined by the subsequent making of a protected rate of pay order that imports a host employer’s rate of pay where those employees later provide services to the host employer. Again, the system is, by design, weighted towards that outcome.

This legislation is not, however, ill conceived. Not in the real politik sense. It is there for a reason – just not the reason stated. It is not closing a loophole or preventing the use of a device to undercut agreements. If it were really about closing a loophole, then it manifestly goes further than its intended aim. If the government is really targeting a narrow range of abuses, it is obvious that its scope must be narrowed now. As noted, English Parliamentary Draftsman Stephen Laws CB has warned, Acts of Parliament “… cannot be steered to the right target: they have to have been well aimed before having been launched. If an Act misses its target, it may take at least a couple of years to put things right. In the meantime, the government’s policy will not be delivered, and the law may be producing the wrong result in case after case”.

So why make this change to the law when its scope and effects so clearly exceed its stated purpose? One can readily speculate that the real issue is distaste for developments at workplaces that have moved us away from centralised negotiations, usually with one or more powerful unions, that would implement a single set of rules for a workplace or business.  A dispersal of work across different providers, who compete with each other on factors including labour costs and have their own sets of conditions, does not fit that mould, and in turn, reduces unions’ influence and the attraction of membership. This change seeks to reverse those trends, or at least buck the trend.

What we see here is a workplace-level implementation of the same centralising impulse that drove the government’s earlier amendments, allowing employers to be dragged into multi-employer bargaining, and indeed permitting employers to be added against their will to the coverage of enterprise agreements they had no role in negotiating.   

Now, we can debate whether these macro system changes are good or bad. There are complex policy debates to be had here – but we cannot have them if these changes are positioned as ‘closing a loophole’ to cover for their real purpose.

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So, the business needs to cut costs. It might want to outsource. Redundancies look inevitable. But you need to be sure: so here comes a high-priced management consultant.

Things are getting expensive. Everything is on the table. There’s an enterprise agreement or two driving costs. You could get maintenance cheaper elsewhere. Or how about the supply chain? A 3PL solution can work. The numbers stack up. Your hunch is right – the consultants have confirmed it. Post redundancy costs will be amortised in three years. You press the “go” button and on sound advice. You send in the commercial lawyers to make sure all is in order. This is a commercial issue, after all. Safe hands.

Then HR is handed the task of implementation. But wait, there’s the law of workplace change.

Neither the consultants nor the commercial team have considered consultation or the potential for a dispute or litigation.  The employment costs are on the due diligence list, but implementation risks are not on the radar (or, at least, not until now when you raise them at the first implementation meeting).

Now, the union wants to see documents. There has been much talk about the consultants. Their work is no secret.  The union claims this is all about avoiding the industrial instruments and the next bargaining round. A court claim is imminent….

Two potential scenarios follow:

  • First, your outsourcing is stopped in its tracks by a Court injunction. This is until a final hearing can deal with it, about 6 -12 months down the track. And there are to be no redundancies in the meantime. Unfortunately, recent developments mean that this might actually be the best scenario.
  • The second sees the outsourcing going ahead. But then the damages claims follow. A claim by the union that it’s lost membership dues. A claim by employees who have lost jobs and, therefore, income. Add to these claims for “pain and suffering”. And this latter claim will take years, not months, to resolve, all the while potential liability continues to accrue, and uncertainty hangs over every step the business takes like a looming storm cloud.

The law of workplace change is not new. It’s basically this: any workplace change negatively impacting employees must not be for specific unlawful reasons: the existence of an enterprise agreement, the right to bargain for an enterprise agreement, union membership, and certain union activity being just some examples. It’s been heavily litigated over the years. And it remains difficult to navigate even where the reasons are commercially driven, as is most often the case.

That’s because the law has blurred the lines. Are redundancies to save costs because of the enterprise agreement? Or are they to save money? To save money, of course – but the saving comes by “avoiding” the enterprise agreement, or so the argument goes. At a trial, a judge must unpack the various arguments about the reasons for the decision and their underlying cause. Notes of internal meetings, the consultant’s brief and analysis, who said what and to whom internally will all be picked over. Any mention of the enterprise agreement gives the union its gotcha moments.

If the employer cannot positively prove in this contest of competing so-called “reasons”, that the enterprise agreement or other workplace rights did not play any part in their consideration, the court can find that the business has not discharged the reverse onus. The business goes down and substantial damages can follow, defeating the cost-savings and more. And, of course, the senior management are obliged to turn their minds to the industrial arrangements in order to discharge their duties to the business and its shareholders.

So, we run the risk that you are damned if you do and damned if you don’t. This “trip wire” is not new. But following the High Court developments last month, it’s now more opaque than it has been for 20 years. And about to get some renewed focus by union lawyers keen to put the brakes on any workplace change.

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If it’s not already happening, Board room agendas will be making room for yet another compliance program.

We’ve said it before and it’s worth repeating: the bolstering of anti-sexual harassment laws will see workplaces adopt approaches akin to eliminating or minimising, so far as reasonably practicable, workplace health and safety risk. The positive duty demands “reasonable and proportionate” measures to eliminate sex discrimination, sexual harassment and victimisation, as far as possible. The duty will extend to conduct by third parties such as customers or clients – not unlike the extension of the work health and safety duty to workers and others. That said, satisfying the safety standard won’t necessarily meet the new positive duty.

The new regime will be supported by a regulator, the Australian Human Rights Commission (AHRC), with new investigative powers and compliance tools at its disposal. The AHRC will be able to investigate breaches, utilise investigative powers, issue compliance notices, seek Court-based compliance, and will lean on organisations to make enforceable undertakings directed at compliance.

The AHRC has also issued its compliance guidelines consistent with its statutory charter in a paper that runs for close to 100 pages with a separate Information Guide that runs to 60 pages.

Workplaces – and business leaders – will need to be across these expectations and develop appropriate plans. The plans in place today are unlikely to be sufficient in most cases. A policy and training will not be enough. Such guidance material is not dissimilar to the numerous codes of practices available from the various work health and safety regulators.

Seven standards are expected to be adopted. Of these “Leadership” is the first. Not surprisingly, this is about governance, setting the expectations, and providing the compliance oversight. Does this ring any bells?

As examples of the ways leaders might meet this challenge, they are expected to:

  1. Understand their obligations;
  2. Oversee preparation and response plans;
  3. Be visible in their commitment to safe, respectful and inclusive workplaces;
  4. Communicate expectations to workers and third parties;
  5. Ensure expectations are upheld; and
  6. Be responsible and accountable for meeting the positive duty.

Of these, the first (understanding obligations) is the logical starting point. Unless we know what is required of us, we cannot work out what needs to be done. Board briefings will be a necessary part of meeting the standard as will briefings across the leadership team, cascading down (just like we’ve come to expect in the workplace health and safety space). But this is just the beginning. The expectations on senior leaders include:

  • Reading the guidance materials;
  • Attending “quality education sessions”;
  • Maintaining current awareness;
  • Review relevant industry research about sexual harassment and related unlawful conduct;
  • Establish systems to monitor developments including best practice strategies;
  • Create/approve a specific document (“prevention and response plan”) capturing the measures taken, check if they are implemented, update as needed to ensure ongoing effectiveness, and set timeframes for review;
  • For large businesses, regular check ins e.g. having a standing agenda item of “compliance with the positive duty” in leadership/board meetings; and
  • Leading from the top, with internal and external communications flagging the importance of safe and respectful workplaces and elimination of unlawful conduct, including apologies to people who have experienced it in the past and specific commitments for improvements.

The guidelines also highlight a connection between the objectives of reducing risk and broader goals of gender equity. The guidelines state “All actions to implement the positive duty should contribute to achieving gender equity”. This interlinking of gender equity and sexual harassment reflects the recent changes made to the Workplace Gender Equality Agency (WGEA) reporting obligations, which will soon require employers to disclose details about sexual harassment prevention and response steps to the WGEA.

The AHRC guidelines rightly describe the new requirements as a “systemic shift” for businesses.

Senior leaders, boards and businesses will need to have this issue on their radar.

The work begins or continues.

We are preparing Board briefings to assist senior leadership on what’s expected of them and their organisation. Please contact any of our Partners should this be of interest.

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The High Court of Australia’s decision in the Qantas outsourcing case[1] has been widely reported. But both the scope of the decision and the key takeaway have potentially been misunderstood.

How do you (dis)prove a negative presumption about your reasons?

The real issue in this case, as in most adverse action cases, was why Qantas decided to outsource ground handling – that was a factual matter that was debated in the first hearing before the Federal Court of Australia. In these kinds of cases, there is a reverse onus – which means that the employer must prove that the decision-making was not infected by the alleged unlawful reasons. If the employer does not do enough, the presumption is that the decision was made for unlawful reasons.

Qantas said that it had sound commercial reasons for its decision. So where did it all go wrong?

  • The decision maker had received advice and recommendations from others. Even though the others had given evidence that their reasons were not unlawful, the judge was not satisfied that the recommendations weren’t infected by other reasons – namely, that outsourcing would prevent employees from exercising the right to take industrial action in the future.
  • The judge was “less certain” about the decision-maker’s reasons. The judge had “reservations” about the evidence “viewed in light of all the other evidence”. In other words, the broader context in which the decision was made mattered.

The Federal Court was therefore “not satisfied” that Qantas had done enough in its evidence to overcome the presumption that the reasons were, at least in part, to prevent employees from exercising their right to take industrial action in the future.

Is a decision unlawful if it is made to prevent the potential future exercise of rights?

The High Court’s decision considered a fairly narrow issue – whether it is unlawful to take action to prevent employees from exercising rights that they don’t presently have but might be able to exercise in the future. The High Court said yes – an employer can contravene the Fair Work Act 2009 if it dismisses employees as part of an outsourcing program and some part of the reason for the outsourcing was to prevent those workers from taking industrial action against the employer in the future. In other words, dismissing employees is unlawful if it is motivated, even in only a small way, by the desire to stop or avoid those employees exercising their workplace rights in future.

Is this the death of outsourcing?

The bell has not yet tolled for outsourcing, but great care needs to be taken when making decisions for reasons that might include, or be presumed to include, preventing employees exercising workplace rights that they could be expected to exercise if there was no outsourcing – such as taking protected industrial action.

The case directs attention back to the critical importance of the reasons for the decision and the evidence about those reasons. Decision-makers must ensure that their decisions to outsource any business functions are not based on preventing employees exercising any workplace rights that employees might have – whether those rights currently exist or might be able to be exercised in the future.

There are also other areas of the employment relationship where employers will also need to take great care – for example, if an HR manager recommends that an operational manager decides to dismiss an employee before the person has sufficient service to bring an unfair dismissal claim, this will carry risk if one or more of those reasons is to prevent the exercise of that future right.

The High Court’s decision tells us that risks will be higher if there are surrounding circumstances that point to unlawful reasons being relevant to the decision or if a decision-maker is receiving recommendations from people who might be motivated by preventing employees from exercising present or future workplace rights.

[1] Qantas Airways Limited & Anor v Transport Workers Union Of Australia [2023] HCA 27

This instalment of our series on the Closing Loopholes Bill considers new measures aimed squarely at union empowerment.

The Bill mandates rights for union workplace delegates that must be included in all Modern Awards and future enterprise agreements. As a minimum, these rights will be to:

  • represent members and non-members who are eligible to join the union;
  • “reasonable” communication with members and prospective members;
  • “reasonable” access to the employer’s facilities; and
  • for all except small businesses, “reasonable” access to paid (delegates) training.

The “loophole” these unprecedented new laws intends to close is unstated. Because there isn’t one: this is a lifeline to provide unions universal representation in workplaces regardless of their declining membership or employee choice.

The context

We know that union membership has been declining in real terms over many years. It’s hit an all-time low of 8.2% in the private sector.

Unions say they need more rights to arrest this decline. But it might also be true that the value proposition to prospective members is not attractive enough. Perhaps all employers aren’t “bad” after all. Perhaps the strong suite of ever-growing individual rights (more leave, more protections against discrimination and harassment, robust safety laws, and well-resourced regulators) makes unions less relevant. Perhaps the positive employee engagement strategies many employers adopt mean unions are less needed. And perhaps the way some unions conduct themselves is unappealing to workers.

Whatever the cause, fewer and fewer employees across the labour market choose to join and be represented by unions.

This makes unions less relevant. Pretty much every unionised workforce comprises three groups:

  • Group 1: Union members who look to leadership from the union on most workplace issues.
  • Group 2: People who want to make sure they are treated fairly and get good conditions, some of whom will be members of the union, but many will not.
  • Group 3: People without interest in joining the union or participating in its activities. In some industries, a subset of Group 3 is those who join a union because they are coerced into doing so. “No ticket, no start”, as they say.

The proportions of each group vary significantly across different workplaces.

Traditionally, unions engage with employers on behalf of their members. Falling membership means, even in unionised workplaces, Group 1 is commonly only a small proportion, well short of the majority. Unions no longer speak on behalf of enough people in workplaces to achieve their objectives. They no longer represent the majority for the purposes of processes like enterprise bargaining and raising workplace disputes. So, getting employee interest in union business, such as “union rights” clauses in agreements (aimed at delivering the type of rights the new laws will mandate), is getting harder.

This is why the statutory extension of workplace delegate rights to represent non-members (eligible to join the union but have chosen not to) is essential for them.

Unions would only need one member in any workplace to trigger these rights. With it comes a right to ‘represent’ and speak on behalf of all workers eligible to join the union (members or not) on any issue and to communicate with all such workers. Effectively, a right to intervene whether the employees directly involved want them to or not.

Why wouldn’t you want to be a workplace delegate? Paid time during working hours to communicate and represent, and some additional time off for training with the union.

The reality on the ground

Unions talk about “campaigns” and “organising”. What will the new laws look like on the ground?

Meet our example employer, FoodCo. The union endorses three union delegates representing different groups in FoodCo’s manufacturing business: Daisy Delegate, Doug Delegate and Dave Delegate. Each delegate exercises their new rights as follows:

  • Daisy Delegate books a meeting room. She does so to make a call to a union official. She does this daily. Her supervisor asks her to do this during breaks, but that’s not convenient for the union. The calls last up to 30 minutes. There’s no apparent outcome other than FoodCo is down a worker on the production line. A cause for delay. A cause for overtime to be worked as a result.
  • Doug Delegate also conducts regular ad-hoc meetings during the afternoon shift. He’s been asked to do this in the tearoom, but there is no whiteboard there. So, the meetings occur in an office building on an adjacent site. Production is regularly interrupted. He’s asked to work with the supervisor to conduct meetings in a less disruptive way. He does so for a few days and then returns to ad hoc meetings. He says this is the only way he can talk to workers. And sometimes he forgets to book the meeting room as is expected of anyone else. On one occasion, he wouldn’t leave a room that management had already booked.
  • Dave Delegate wants to meet with the two others for two hours. But he’s on the night shift. So, he wants to meet with them as part of ordinary hours. This enables him to receive overtime. They want the boardroom, a speaker phone, and no other rooms booked nearby lest their calls can be overheard.

All this calls into play what’s “reasonable”. But “reasonableness” can only provide a partial answer. What can’t be overcome is the regular attempts to press management’s tolerance in the quest to assert “delegate rights”, which is in and of itself draining and disruptive.

This will happen because the changes require employers to “deal with delegates” and “not hinder or obstruct delegates exercising their rights”. Employers face liability for doing the wrong thing. There is no such sanction for delegates who overstep the mark in the exercise or purported exercise of their powers.

Sure, the scenarios above will not be universal. But neither are they fanciful: they are based on real disputes under union rights clauses in existing enterprise agreements. And there are countless other examples.

The upshot

Five key implications follow from these measures:

  1. The ability of an employer to limit delegate time on union business (as opposed to what they are paid for) will be compromised. They will be paying employees whose attention will necessarily be diverted elsewhere and antithetical to the interests of the employer and, potentially, employees.
  2. Expect to see more delegates on the floor. Working under union direction will be more fun for some Group 1 employees – especially if the boss pays.
  3. Work will be more prone to interruption. Unions have the potential to have on-the-job discussions with employees during paid time.
  4. Non-union members will be caught in the wash of workplace issues they have no interest in.
  5. The question of whether and to what extent an employer can discipline an employee who misbehaves whilst exercising “delegate rights” will again arise – an issue ripe for union litigation against employers as they seek to press the boundaries in reliance on these new rights.

Where to from here?

That a broad legislative mandate is required to compel employers and non-members to recognise and deal with union representatives is telling of a much deeper problem for the union movement: that not enough workers want them involved in their affairs. How workers who have chosen not to be union members will react to this forced intervention remains to be seen.

Of course, unions will still want members; they are businesses, too, and that is how they make money. If past attempts to try and deal with that problem by stronger statutory rights (e.g. a right to meet in break rooms) is any guide, these representative rights are unlikely to win workers over to join them.

And what happens to freedom of association when a union can speak and agitate “on my behalf” even though I disagree with the union’s position and I am not a member?

You know, the other side of freedom of association.

The use of contracting arrangements is widespread; however, around the world, we are seeing trends suggesting this type of work arrangement may become more restricted, higher cost or higher risk to companies in the future. We asked several partners to share their insights on what’s changing for companies that use contractors and what the key impacts of this may be in the future.

What changes are we seeing in the use of contractors?

Pam Devata, employment law partner in Seyfarth’s Chicago office, says that many US states have already enacted laws that apply to contractors. Pam says these laws have impacted various employment conditions, including wages and hours, background screening and ban-the-box laws relating to what and how companies can use criminal history or other screens to make decisions.

Erin Hawthorne, employment law partner in Seyfarth’s Melbourne office, says that in Australia, the government is proposing new laws that will make it easier for contractors to argue they are employees and harder for businesses to defend allegations of sham contracting. There will also be a new capacity for the national labour tribunal to vary or void all or part of independent contractor contracts that include ‘unfair’ terms. This will affect the risk profile of all independent contractor arrangements. In addition, for road transport businesses and businesses that operate online platforms deal with ‘employee-like’ contractors, the proposed laws will introduce ‘employment-like’ conditions for contractor arrangements, including minimum rates and conditions, termination protections and union-led collective bargaining.

Helen McFarland, employment law partner in Seyfarth’s Seattle office, says that more and more states (particularly on the West Coast) are enforcing laws that make it extremely difficult to be classified as an independent contractor. State agencies are aggressively pursuing these issues, even seeking to classify gig workers as employees. Further, legislators are drafting new laws (on the city and state level) chipping away at the differences by requiring companies to provide leaves and various other benefits to contractors that were previously reserved only for employees.  

Mandana Massoumi, employment law partner in Seyfarth’s Los Angeles office, says that California has been the perfect test case in how issues related to classification of independent contractors has been legislated and then litigated. In 2019, California passed laws requiring the application of the “ABC test” to determine if employees are independent contractors for purposes under certain circumstances. Under the ABC test, a worker is considered an employee and not an independent contractor unless the hiring entity satisfies all three of the following conditions:

  • The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact;
  • The worker performs work that is outside the usual course of the hiring entity’s business; and
  • The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

However, while the ABC test is the applicable test for most workers, some occupations or industries are an exception to it, meaning a case-by-case review is always required.

Ana Cid, employment law partner in Seyfarth’s New York office specialising in European and Latin American employment law, says that while some years ago, we saw an initial trend in some countries, like Spain, which regulated an ‘economically dependent’ contractor providing some sort of ‘employment’ rights to those contractors that had a strong dependence into one client, this trend has not continued or developed much. Yet, what is a trend in Europe and also Latin American countries is to have a much stricter bar when classifying independent contractors as such, instead of employees, interpreting signs of supervision and control as factors to reclassify the contractors as employees and also regulating specific test to presume the relationship as employment relationship, particularly in the context of individuals rendering services through digital platforms, where a draft EU Directive is being discussed and is expected to be concluded soon.

Tessa Cranfield, employment law partner in Seyfarth’s London office, sees no sudden changes in the UK, despite various government consultations around adjusting the balance in favour of gig and other ‘insecure’ workers and simplifying the UK’s legal and tax tests for employment. However, a spate of ‘gig economy’ cases has made clear that status depends more on the reality of an arrangement than the written terms. And one change that is here to stay (despite a plan to reverse it by the short-lived Liz Truss government last year) is to make end users ultimately responsible for employment taxes, where a contractor works via an intermediary and works akin to an employee.

Kathryn Weaver, employment law partner in Seyfarth’s Hong Kong office, says that while contracting arrangements remain outside the purview of employment protection laws in Hong Kong, there has been increased scrutiny by the Hong Kong tribunals on the classification of independent contractors. Recently, the Labour Tribunal ruled in favour of six gig workers for a food and delivery parcel platform being employees and not independent contractors, which meant that they were then accorded the statutory employee protections and benefits. This is the first time the Hong Kong Labour Tribunal has found in favour of gig workers and is likely to be of considerable concern to other gig economy companies in Hong Kong.

What does this mean for businesses?

Pam says that employers in the US need to be aware of different types of laws when determining whether to engage with contractors or employees. This is because multiple state and local jurisdictions in the US are broadening their scope of protection for contractors. Pam warns that employers can no longer engage contractors without triggering specific labour requirements in certain states. For example, Pam notes that independent contractors in New York City and Los Angeles as well as other states are subject to Fair Chance and ban-the-box laws traditionally reserved for employees.

Australian businesses that use contractors will need to prepare for a period of uncertainty in the short term as the law reforms take shape. In the longer term, Erin predicts greater legal risk, higher costs, and less flexibility for businesses using contractors (as well as other forms of labour outside of permanent employment). Depending on the reasons for using contractors, these changes may necessitate review of alternative options.

Helen encourages employers to be extremely cautious when choosing to use contractors to perform duties that can also be completed by your employees. When considering the added risk of litigation and government penalties, and joint employment risks as contractors are bringing more lawsuits directly against the companies, it may not be worth it to hire contractors.

Mandana notes that for businesses in the United States, it is important to review any state specific laws (such as the ABC test implemented in California) to ensure proper compliance with the classification requirements, given that this area has been a hotbed of litigation.

Ana suggests that international businesses set up mechanisms to ensure that the relationships with contractors meet the applicable test in each country, particularly when such contractors are providing most of their services for one company. Particular attention should be given to employee presumption tests in each country, even more so if the services are set up under digital platform structures.

Amid the fast-growing gig economy market in Hong Kong, Kathryn reminds companies to exercise caution when engaging gig workers or contractors. If the overall impression of the relationship between the contractor and the company is that of employment, taking into account factors such as the degree of control over the contractor, who provides the equipment to perform the services, whether there is a right to appoint a substitute, who bears the financial risks, and whether the contractor is integrated into the company, then no matter how carefully drafted the independent contractor agreement is, there will be a high risk that the contractor will be deemed to be an employee by the Hong Kong tribunals.

Please contact any of our partners if would like to explore or review your contracting arrangements.

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Anything but casual…

In the first of our series examining the Closing Loopholes Bill introduced into Parliament yesterday, we look at the new measures for casual employment.

The Orwellian title of the Closing Loopholes Bill foreshadows its intentions: casual employment is double-plus-ungood. Premised on the doublethink notion that casual employment is a bad moon on the rise, the Bill proposes wholesale changes to the casual employment test, including measures to protect casuals from their own choices.

The objective

The stated objective is to close the “loophole” of what the Minister has called “permanent casual employment”, by introducing a new “what’s really going on” test. For more information, see the article in The Australian Financial Review Labor is closing the permanent casual worker loophole.

Accepting this is the genuine policy intention, the test of the measures is: do they do what they say, and will they work as they want?

We have serious reservations.

The new test

In their steely determination to place choice about status in the hands of employees, and to prevent abuse of casual employment, the Government has devised a test that:

  1. Requires employers to evaluate and re-evaluate the “true nature” of each casual’s employment circumstances on an ongoing basis;
  2. Introduces a complex definition based on the absence of something (A Future Advance Commitment), effectively requiring employers to disprove a negative to defend their decisions;
  3. Defines the absence of advance commitment by a multi-factorial test of relative considerations, none of which is decisive, but any of which could be in a given case;
  4. Relies on a combination of abstract novel terms, that are very much in the eye of the beholder: “real substance”, “practical reality”, “true nature”, “regular” but not uniform: who knows what they mean sitting here;
  5. Introduces a right for casuals to request conversion every six months and requires employers who wish to refuse to provide detailed reasons informed by the test and based on the circumstances of each employee: administratively burdensome but very convenient for later evidence collection;
  6. Continues the existing obligations for employers to offer conversion after 12 months; and
  7. Creates ongoing liability for misrepresentation of casual arrangements at any point in time, including penalties and back payments (think sham contracting for casuals – so don’t get it wrong).

These measures, however well-intentioned, risk having precisely the opposite effect. Driving uncertainty and insecurity for those people who actually want, and feel well-served by, casual employment.

We will explain why.

The practical implications

Our concern is that the thinking does not take into account how businesses manage risk in the real world. The practical reality is that by failing to define clearly what casual employment is, and using a complex test based on what it isn’t, any ongoing casual relationship is going to carry substantial risk for businesses.

Simply put: too uncertain + serious consequences = high risk. Well-resourced employers will identify and take steps to mitigate this risk. As they do with any risk. And how can a small business owner possibly hope to apply more than 10 abstract notions, to assess the “real substance” and “true nature” of their casual employees on an ongoing basis?

This means that the use of casual employment will change at the initiative of employers, regardless of the choice exercised by employees. It will not result in casual employees having the choice of permanent employment in all circumstances. Some employers will avoid casual employment altogether. Others will change their work practices to reduce the risk.

The risk profile created by the Bill means employers must manage their affairs to:

  1. Avoid regular patterns: Employees will not have the certainty of working on particular days, employers will be compelled to change it up. To ensure not just that there is not a uniform pattern of days but a sufficiently disrupted pattern to avoid the test of “regular” but not “uniform”.
  2. Avoid any future commitments: This is not focussed on the casual with the 12 month roster or, even the promises made during the employment. It will be assessed by things like “mutual expectation” and “understandings” derived from conduct (that do not have to be sufficient to be contractual terms) and the likelihood of future work. What you do and what you say – even how you say it – can affect the outcome.
  3. Increase turnover: Longer service under this test increases risk. The rational thing to do will be to turnover casual employees so the time-based tests are not triggered. Casuals will end up having multiple short-term jobs rather than building experience and potentially other career opportunities with one employer.

The bottom line is that any casual employment relationship is now contestable. The Bill creates a world where legitimate casual employment is confined to fragmented occasional single day employment (on different days). Anything else will carry increasing risk over time.

The result is unlikely to be good for most casual employees.

Most casuals want to be casuals….but now they can make claims

The Minister has said that he sees the legislation providing employees choice and that most will decide to remain casual. The data on that is in: just to illustrate, a large employer who made offers to more than 500 casuals to convert to equivalent part-time, had fewer than 10 acceptances (a conversion rate of under 2). Our experience is that sectors that rely heavily on casual employment typically have conversion rates of 5-10%. Most of those are long-term casuals with settled employment. The Minister seems to acknowledge this, but the Bill does not. Rather than address the specific harm (long term casuals in permanent arrangements) it applies to the norm: all casuals at any point in time.

This is a critical point where the new test fails: it removes the capacity for employers to get certainty from the decision of a casual to remain a casual in respect of their past period of employment. The relationship is all contestable and carries significant financial risk if employers are later found to have got it wrong.

And it is important to remember how these risks manifest as claims. As explained above, very few casual employees elect to change status while they remain employed. The challenges will come when the relationship breaks down. Where arrangements that were agreed are re-characterised through a prism of discontent. And the legislation permits events throughout the relationship to be contested. We know where this ends…

Not all aggrieved employees bring claims. But some will. The choice not to convert will be characterised by fear of losing their job or claims that they were forced not to convert. Most claims will fail. Or be settled to avoid the high cost of litigation that outweighs the value of the claim (rather than because of any genuine wrongdoing). However, this will compel employers to further alter their use of casual employment to reduce that risk.

Where to from here?

You could be forgiven for thinking that the Bill views all casual employment as a subversive form of exploitation to be treated with suspicion, and deserving of legal sanction. This is where the ideology of the Bill bites hard: an underlying assumption that casual employment could not possibly be in anyone’s interests.

This law is not just about the perceived evil of the “permanent casual”, it would apply to all casual employment from day one. And in doing so, it would impose an unworkable test that opens the door for a range of bad outcomes for all involved.

The extent of the changes is unnecessary to address the “permanent casual” loophole the Minister wants to close. They are clumsy, heavy-handed and will affect people who, even on the government’s position, are doing no wrong. These are the hallmarks of bad legislation. If the government really wants to address “permanent casual” employment, the Bill should be substantially amended. It would be a simple fix to introduce positive limitations on the use of long-term casual employment.

Unless what the government really wants is to stamp out casual employment more widely. In which case, this presents as an old-school bait and switch: to hold up the example of the casual truck driver with eight years’ service and a 12-month roster (that most people think shouldn’t happen) and use it to make wholesale changes to something the government and their union stakeholders don’t like (but which most people won’t read in the detail).

The Bill squarely raises that question.

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Some of this is guesswork, and the extent of what’s coming is uncertain, but:

  1. Fixed term arrangements have a limited life. This we know already.
  2. Employees have greater rights to flexible work arrangements. Ditto.
  3. The use of casuals will be restricted, and casuals will have more rights.
  4. For organisations with enterprise agreements, outsourcing work will be limited to using external labour for the same price as that (otherwise) paid internally.
  5. Independent contractors will have the potential to access employment-like terms.
  6. The labour hire industry will be more regulated.
  7. The “gig economy” will see employment-like protections.

What’s obvious is the Labor Government’s intent to drive permanent employment and use legislative levers to reduce the number of other categories of workers.

Contracting, franchising, outsourcing and other legal devices have disrupted long established employment relationships…

– ALP National Platform 2021

So, we will very likely see the disruption of long established means of contracting and engaging personnel.

This doesn’t take much of a crystal ball; anyone who has paid attention to Government messages can join the dots.

But from a labour strategy perspective, the ability:

  • to flex up and flex down will be reduced and/or be more costly;
  • for employees to be engaged as regular casuals and enjoy the 25 % loading will be reduced;
  • to identify cost/efficiency savings through outsourcing will be reduced;
  • drive competition in labour supply will be reduced (in effect, another distortion in the price of labour will apply); and
  • to shift the burden of compliance to third parties, the “owners” of labour, will be reduced.

Interesting times. Of course, more employees mean more potential union members. And unions are not forgotten in the legislated levers also. They stand to gain even more rights to intervene in workplaces they can cover, regardless of membership.

Stay tuned for our series reviewing the third wave of reforms and its implications for employers and the labour market generally – commencing shortly.

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