The landmark Victorian legislation was brought on for debate in the upper house on Thursday afternoon after Premier Ben Carroll unveiled last minute pro-business changes.
Full-time, part-time and casual employees were expected to get the right to work from home two days a week on a pro-rata basis if reasonably able to under the laws.
But the coalition and cross bench teamed up to refer the bill to a parliamentary inquiry, stalling its passage until the committee reports back by October 20.
The motion, led by Shooters, Fishers and Farmers MP Jeff Bourman, passed 18 votes to 17.
One sitting week remains before the Victorian parliament is dissolved for the November state election.
Premier Ben Carroll indicated Labor would not add an extra sitting week to allow for the bill to be debated and passed this term.
"I've already added one week to the parliamentary sitting (calendar)," he told reporters.
"They had their chance. This has been in the parliament for three months."
Shadow Attorney-General James Newbury earlier said the opposition supported the government amendments and would not oppose the bill.
He repeatedly said the coalition had "no plans" to change the legislation should it come to office.
Mr Carroll accused Opposition Leader Jess Wilson and the Liberal Party of pretending to support the work from home laws.
"The Liberal Party and Jess Wilson have shown their true colours," he said.
"Jess Wilson has shown herself to be just like Peter Dutton.Â
"Sneakily, at five minutes to midnight, she's voted it down with the One Nation party."
The government provided the opposition and minor parties with a copy of its changes on Wednesday afternoon.
"The changes were substantial and the reality is that we weren't given enough time to give these amendments the consideration they deserve," said Animal Justice MP Georgie Purcell, who voted for the motion.
Under Labor's proposed amendments, the right would be explicitly restricted to employees who live in Victoria and the definition of "home" would be amended to a worker's main residence or a mutually agreed location.
The right would not stack on top of other rights or entitlements under federal law and could not be used to vary an employment agreement's days and times.
Employers would be required to pay for limited essential equipment for workers, such as a laptop or software to complete tasks, and not be responsible for home internet or basic utility bills.
Businesses would have up to 28 days - instead of 21 days - to respond to a work-from-home notice.
Employers could issue a notice to pause or revoke the arrangements if work from home was deemed unreasonable.
Businesses with fewer than 15 workers were slated to be given more time to prepare, with their start date delayed to January 1, 2028.
The start date for larger businesses had already been pushed back to July 1, 2027, when Mr Carroll hit pause to reset the government's frayed relationship with the business community after he replaced Jacinta Allan as premier in late July.
Business Council of Australia chief executive Bran Black described the legislation as "economy wrecking" as it would add costs to businesses at the worst time.
"This referral should be the final nail in the coffin," he said.
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