New employee definition under the Fair Work Act
Historically, there has never been a general definition of ‘employee’ or ‘employer’ in the Fair Work Act 2009 (Cth) (FW Act) or any of its predecessors. The current ‘common law’ approach, adopted by courts and tribunals, allowed the parties to agree in writing that a worker was an employee or independent contractor, without having to consider other factors.
As outlined in our previous article, this year will bring a number of changes as part of the Fair Work Legislation Amendment (Closing Loopholes No.2) Act 2024 (CL No.2 Act), which will include a new definition of ‘employee’ and ‘employer’.
The new meaning
Under the new meaning, an ‘employee’ and ‘employer’ will be determined by the “real substance, practical reality and true nature of relationship” between the parties. The new meaning considers that the nature of the employment relationship may change over time, and it will no longer rely only on the terms of the written contract.
What are the key factors to consider?
In determining whether a worker is an employee or an independent contractor, the following characteristics will be considered:
- the amount of control the employer or principal has over how work is performed (i.e. the greater the control, the more likely there will be an employment relationship)
- who bears the financial responsibility and risk
- who is responsible for providing and maintaining equipment
- whether the worker can delegate or subcontract work
- whether there are set hours of work
- the deduction of income tax
- the right to dismiss the worker.
Who does the new meaning apply to?
The new meaning of ‘employee’ and employer’ will apply to arrangements that were entered into before 26 August 2024 if they continue on this date, as well as any arrangements that are entered into on or after 26 August 2024.
The new meaning applies only to the FW Act and to ‘employee’ and ‘employer’ definitions in modern awards and is limited to workers who are employed by national system employers.
The new definition will not apply to the meaning of ‘employee’ and ‘employer’ in other legislation. This means that a person could be an ‘employee’ under the FW Act and entitled to annual leave, sick leave and access to unfair dismissal, but could be a ‘contractor’ under workers’ compensation legislation.
When does the new definition take effect?
The new definition will commence on 26 August 2024.
What should employers do now to prepare?
Employers are encouraged to review any independent contractor agreements that are in place and ensure that the practical reality of working arrangements match the relationship that the business intended.
More information
The Fair Work Ombudsman have information available at: https://www.fairwork.gov.au/about-us/workplace-laws/legislation-changes/closing-loopholes/additional-fair-work-act-changes#definition-of-employment