Contractors or Employees? Opt in or opt out? Gig economy with employee-like workers?
The contractor landscape has not escaped the new IR law changes from Fair Work Legislation Amendment (Closing Loopholes No.2) Act 2024.
Effective from August 26, 2024, these amendments redefine the legal parameters within which businesses must operate, emphasising a more holistic view of employment relationships under the Fair Work Act 2009.
Key Changes and Implications for Contractors:
- Shift in Legal Framework: The amendment revises the definition of ’employee’ and ’employer’ to focus on the “real substance, practical reality, and true nature” of the relationship, moving away from the strictly contractual interpretations that were previously endorsed by the High Court in cases like Personnel Contracting and ZG Operations. This shift requires businesses to consider not just the terms of the contractor agreement but also the practical execution of said terms.
- Mechanism for Opting Out: The new provisions under sections 15AB(2) and 15AB(3) allow certain high income threshold contractors to opt out of these new definitions, providing flexibility for businesses and contractors to maintain their current working arrangements under specific conditions. The high income threshold has not been defined yet, however the current high income threshold for other matters such as General Protections is $167,500 in from 1 July 2023, so it give us an indicative range.
- Introduction of ‘Employee-Like’ Worker Status: The amendments introduce new categories such as ’employee-like workers’, particularly targeting those in the gig economy. This change aims to extend certain protections to workers who, while not employees, share many characteristics with them, especially those engaged through digital platforms. The Fair Work Commission will be granted the ability to set minimum standards for gig economy workers and the ability to challenge unfair terminations. We suspect organisations like Menulog and Uber will be carefully considering their approach to this.
- Reviewing Unfair Contract Terms: A new pathway has been established for contractors to seek review of unfair contract terms directly through the Fair Work Commission, bypassing the more cumbersome court processes previously in place. This provision makes it easier for contractors to challenge exploitative practices and challenge sham contracting.
- Changes to Sham Contracting Defences: The amendment removes the previous defence that allowed businesses to claim ignorance or lack of recklessness regarding the misclassification of employees as contractors. Businesses now need to demonstrate a reasonable belief in the contractor status, placing a higher burden of proof on them to justify their classifications.
The opt-out provisions introduced in the Fair Work Legislation Amendment (Closing Loopholes No.2) Act 2024 offer contractors the ability to choose whether or not to be classified under the new definitions of ’employee’ and ’employer’ as revised by the amendments. These provisions are particularly relevant for contractors who meet a certain high income threshold, referred to as the “contractor high income threshold” – which is yet to be determined.
Opt-Out Provisions for Contractors:
- Eligibility: The option to opt out is available only to contractors whose remuneration exceeds the contractor high income threshold. Those below this threshold cannot opt out and are automatically subject to the new definitions under section 15AA of the Fair Work Act.
- Process: Contractors eligible to opt out can do so by issuing an ‘opt out’ notice either before or after the new definitions take effect on August 26, 2024. This notice must be formally given to their principal.
- Revocation: Contractors retain the right to revoke their opt out notice at any time. Revocation of the opt out notice will result in the contractor being classified under the new definitions from the date of revocation forward, if the revocation occurs after August 26, 2024.
- Implications of Opting Out: Issuing an opt out notice carries implications. For instance, notifying a contractor of their option to opt out might imply that the business considers the possibility of the contractor being an employee under the new definitions. Additionally, any subsequent actions taken against a contractor for revoking their opt out notice could potentially contravene the general protections provisions of the Fair Work Act.
- Limitations and Risks: Reliance on opt out notices is not advised as a permanent solution due to the potential for revocation and the associated legal risks. Instead, it’s recommended that businesses ensure their contractor relationships are clearly delineated to avoid falling under the employee definitions unless opting out is part of a strategic transition plan.
Overall, the opt-out provisions provide flexibility for higher-income contractors to maintain their current contractual status, but businesses should approach these options carefully, considering both legal implications and the potential for changes in the contractor’s decision.
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Written By:
Jonathan Mamaril, Director NB Employment Law
