Closing Loopholes Legislation – how will these laws impact the SME and franchising sectors?

The Australian Government has made changes to workplace laws as part of its ‘Closing Loopholes’ legislation. There are now two separate pieces of legislation that will significantly alter workplace laws in Australia, with most of the changes becoming operative late last year or this year. This article summarises what the Closing Loopholes laws are, and considers how they will impact the franchising and SME sectors. 


What are the Closing Loopholes laws? 


Late last year, Parliament approved the first round of the Government’s Closing Loopholes reforms in the Fair Work Legislation Amendment (Closing Loopholes) Bill 2023. The Fair Work Legislation Amendment (Closing Loopholes No. 2) also recently passed through Parliament. On 26 February, that bill received Royal Assent. In effect, these are two separate laws that amend the Fair Work Act, which is the primary legislation governing employment obligations in Australia. 


What are some of the key changes? 


The closing loopholes legislation is extensive. It will introduce (or has already introduced) a number of changes. Most importantly for the SME and franchising sectors, those changes are: 


  • Contractor vs Employee distinction

    Ultimately, the legislation aims to return the legal distinction between contractors and employees to its previous state, prior to two High Court decisions in 2022. It emphasizes determining whether a personal service worker is an employee or contractor based on the real nature of the working relationship, considering both contractual terms and post-contractual conduct. Additionally, it tightens the defence against the civil liability offence of ‘sham contracting,’ requiring principals (or the person engaging the contractor) to prove their reasonable belief that the engaged contractor was indeed a contractor.

  • Greater clarity on what is a casual employee at law

    A definition of a casual employee will now be introduced to law. This definition considers the employment relationship based on ‘the real substance, practical reality and true nature of the employment relationship’. It examines a range of factors in determining the correct legal characterisation of the employment. One such factor is whether the employee has a regular pattern of work

  • Casual rights 

    It will now be easier for casuals to convert to full-time work if they choose. Casuals who work full-time hours would be able to access leave entitlements and guaranteed hours if they change their employment status.

  • Gig workers

    The government has now authorized the Fair Work Commission (FWC) to establish minimum standards for gig economy workers and individuals in the road transport sector.

  • Right to disconnect

    Employees will be granted the right to decline unreasonable work-related communication outside of regular hours. They can seek intervention from the FWC to halt such communication if it persists.

  • Unfair contracts

    The government will establish a new informal jurisdiction within the FWC. This will adjudicate disputes arising from unfair terms in service agreements between independent contractors and their principals, provided the contractors fall below a certain income threshold. A contractor whose annual income is less than the threshold will be able to challenge their contract on the basis that it is harsh or unfair. 

  • Enterprise bargaining

    The FWC is now prohibited from issuing determinations less favourable than existing agreements. It will also formulate standard terms for enterprise agreements, enabling multiple franchisees to negotiate a single agreement and replacing single interest employer agreements with single enterprise agreements. Franchisees will once again have permission to make a single-enterprise agreement, while also retaining the ability to make a multiple enterprise agreement.

  • Criminalising Intentional Wage Underpayment

    From 1 January 2025, employers will commit an offence and be liable for up to 10 years in prison and fines of up to $7.825 million if:

    • they are required to pay an amount to an employee (such as wages), or on behalf of or for the benefit of an employee (such as superannuation) under the Fair Work Act, or an industrial instrument, and 
    • they intentionally engage in conduct that results in their failure to pay those amounts to or for the employee on or before the day they’re due to be paid.
  • New discrimination protections

    There are stronger protections against discrimination for employees experiencing family and domestic violence. 

  • Increase in penalties

    Various offences, such as not providing payslips or maintaining employee records, will see penalties raised significantly (up to 5 times). Also, the test for serious breaches of workplace laws will shift from a systematic pattern to being reckless about breaching laws. Being reckless means knowing there’s a big risk of breaking workplace laws and that it is unjustifiable to take that risk.


The Fair Work Ombudsman has published more in-depth reports on these new laws. For further reading, see the links here and here

What are the practical impacts for the SME and Franchising Sectors?

The practical impact and considerations for those in the SME and franchising space are far reaching. It is crucial employers now consider the characterisation of their employment arrangements (i.e. contractor, casual or permanent) to ensure legal compliance. Additionally, employers should ensure they implement policies to promote compliance with the right to disconnect, and update discrimination policies to mirror the new statutory provisions. 

For franchisors, these changes will impact their networks in a number of ways.  Given the presence of criminal sanctions and substantial penalties, ensuring that franchisees pay their employees what they are entitled to and abide by workplace laws has become more important than ever. If there is no workplace law compliance audit system already in place, franchisors should consider introducing one.

Where franchisors have an obligation to promote workplace compliance pursuant to the vulnerable workers laws (see our article here), they should consider providing updates or running training sessions on the closing loopholes laws for the benefit of their franchisees (or directing them to third party organisations who can do that). Franchisors should also review any employment law information provided to franchisees, such as in the operations manual. They should ensure all information and training remains legally correct.

Finally, it is foreseeable that the changes to the ‘gig-economy’ workers could increase the cost of using such services as Deliveroo and Uber Eats. This means fast-food franchises will need to monitor their cost bases carefully, and may need to increase menu prices. 

If you would like to discuss how these new laws will impact your business, please get in touch. 

Key Takeaways

  • The Closing Loopholes laws will radically change workplace laws in Australia
  • Some of the key changes impacting the SME market relate to casual workers, the gig-economy, and a right to disconnect
  • Penalties for breaches of workplace laws have increased significantly. Intentional wage underpayment will become a crime punishable by up to 10 years in jail and fines of up to $7.825million
  • Franchisors should take active steps to ensure their franchisees know about these laws and comply with them. Training should be provided, and all resources checked



Disclaimer: This article contains general information only and does not constitute legal advice. Magnolia Legal disclaims any liability arising from reliance on this article. Our terms of use apply