The former Wallabies star had his multi-million dollar contract terminated earlier this year, after posting "hell awaits" for "drunks, homosexuals, adulterers, liars, fornicators, thieves, atheists, idolaters" on his Instagram account.
Ruby Australia dismissed Folau for being in breach of their Professional Players' Code of Conduct.
According to the news organisation Reuters, the proposed legislation would allow Australians to express their faith outside of the workplace, as long as there is no financial damage towards their employer.
Following the release of a draft of the bill last Thursday, Australia's Attorney General Christian Porter said: "Australia has a strong anti-discrimination framework with specific protections for people against discrimination on the basis of their age, sex, race and disability."
He continued: "This draft bill released today extends those protections to provide protection for people against discrimination on the basis of their religion or religious belief, or lack thereof."
The bill would see businesses with a turnover of more than $50m be unable to enforce limitations on a person's religious expression in private, unless that company can prove it would cause "unjustifiable financial hardship to the business".
A business would need to prove that a limitation on their freedom of speech was necessary to avoid this unjustifiable financial hardship, for them to be deemed as non-discriminatory to an employee.
Religious expressions that are malicious or incite hatred will not be protected under the new law.
LGBTQI advocates have criticised the government for the proposed bill, arguing the "radical" laws would give greater power to religious groups and encourage discrimination.
Rugby Australia's (RA) decision to fire Folau for his social media post has sparked controversy over the rights to freedom of speech and religion.
Folau launched legal action against his former employers RA and the New South Wales Waratahs club on the grounds of unlawful termination in June.
Pending a settlement, his case will go to trial in February 2020.
Legislation for the religious freedom bill is expected to be introduced into parliament in October.
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