Fixing the casual conundrum: a simple matter of definition and conversion?

Despite its ambitious title yet modest scope, the Fair Work Amendment (Supporting Australia’s Jobs and Economic Recovery) Act 2021 (Amendment Act) makes some important changes to the law relating to casual employees. 

The changes to the laws relating to casual employment relating to casual employment, that commenced on 27 March 2021, provide benefits to businesses and to casual employees. However, enhanced casual conversion rights add an administrative burden for employers.  

This burden is especially onerous during a six-month transition period ending on 27 September 2021 (Transition Period).  

Background

When the legislation was introduced in the Federal Parliament in late 2020, the Government proposed changes to Australia’s system of industrial regulation in five areas:

• casual employees
  
  
• modern awards
  
  
• agreement making, approval and termination
  
  
• Greenfields agreements
  
  
• wage theft

Most of the proposed reforms were abandoned during the parliamentary debates, and it came down to one area - casual employees. The much diminished reform deals with casual employment in the following ways:

• defining casual employment;
  
  
• conversion to full-time or part-time work; and
  
  
• remedying the effects of misclassification, i.e. addressing ‘double dipping’

The meaning of casual employment

The Amendment Act adopts a definition of ‘casual employee,’ that is intended to draw from existing common law tests but provides considerably more certainty.[1] A person is a ‘casual employee’ if they are engaged on the basis of an offer of employment where “the employer makes no firm advance commitment to continuing and indefinite work according to an agreed pattern of work for the person”. 

Whereas the common law test involves consideration of an unlimited number of circumstances at various times during the employment relationship, the focus of this definition is on the terms of engagement. The factors that determine whether an offer was made on the basis of no firm advance commitment to continuing and indefinite work are set out exhaustively, being:

• whether the employer can elect to offer or the employee can elect to accept or reject work;
  
  
• whether the employee will work as required based on the employer’s needs;
  
  
• whether the employment is described as casual employment; and
  
  
• whether the person will be entitled to a casual loading or rate of pay specific to casual employees under the terms of the employee’s contract or the relevant fair work instrument.

Other provisions make clear that a regular pattern of hours does not of itself evidence a firm advance commitment to continuing and indefinite work, and that the question of whether a person is a casual employee is to be determined on the basis of the employment that was offered and accepted, rather than the subsequent conduct of the parties.  

This departs from the common law position established in WorkPac Pty Ltd v Rossato [2020] FCAFC 84 (Rosatto), in which the substance of the employment relationship over the course of an employee’s employment was considered in determining whether an employee was a casual employee. The problems arising from the uncertain nature of the employment at any one point of time are remedied by this definition.

Offer of conversion

The NES has been expanded by the insertion in Part 2-2 of the Fair Work Act 2009 (FW Act) of a new Division 4A. Amongst other things, this compels all employers – apart from those with fewer than 15 employees – to offer all eligible casual employees an opportunity to convert to full-time or part-time employment (unless it is not reasonable to do so) in prescribed circumstances, being:[2]

• the person has been employed for at least 12 months; and
  
  
• during at least the last six months of that 12-month period they have worked a regular pattern of hours on an ongoing basis such that, without significant adjustment, the employee would continue to work as a full-time or part-time employee as the case may be.

The grounds that will make a failure to offer conversion ‘reasonable’ include, but are not limited to:

• the employee’s position will cease to exist within 12 months of the refusal to offer conversion;
  
  
• the hours of work that the employee is required to perform will be significantly reduced within the 12-month period;
  
  
• there will be a ‘significant change’ in the 12-month period in the days on which, or the time at which, the employee’s work is to be performed and those changes “cannot be accommodated within the days or times the employee is available to work during the period”; and
  
  
• “making the offer would not comply with a recruitment or selection process required by or under a law of the Commonwealth or a state or territory.”^’[3]

The permanent position offered must entail conversion to an ongoing role consistent with the pattern of hours worked in the previous six months (i.e. if the employee has been working full-time hours, the offer must be on a full-time basis).  

These provisions are based on the standard award casual conversion provision except that instead of allowing a regular casual employee to apply for conversion which must be granted (subject to the employer’s right to refuse on reasonable business grounds), the employer must offer conversion (unless there are reasonable grounds not to do so).

The offer must be in writing and made within 21 days of the employee’s one-year anniversary.

The employee is not obliged to accept an offer of conversion, but retains the right to request conversion if at a later date they work a regular pattern of hours over a six-month period.

It is prohibited for an employer to vary or reduce hours to avoid the obligation to offer conversion. Significantly, casual employees also hold ongoing rights to make a request to convert on similar terms. An employer will still retain the right to refuse such a request on reasonable business grounds.

The FWC has been given the capacity to deal with disputes about the operation of the casual conversion provisions by conciliation or (by agreement) arbitration. It is also required, within six months of the commencement of the legislation, to review any term in a modern award that provides terms and conditions of casual employment to ensure it is consistent with the FW Act. It also has the capacity to determine applications about how the definition applies to enterprise agreements.

Parties can also apply to resolve their dispute as small claims proceedings where a person applies for an order from a Magistrates court or the Federal Circuit Court.

Transition period

The Amendment Act requires an employer to assess whether to offer conversion to certain categories of existing casual employees. Employers will be required to identify and assess whether to offer ‘conversion’ to any employees, who fall within the following three categories:

• were casuals immediately before commencement of the legislation on 27 March 2021;
  
  
• were designated as casuals before commencement either for purposes of an industrial instrument or their contract of employment; and
  
  
• have been offered casual employment (within the meaning of the Amendment Act) before commencement.

The ‘evaluation process’ requires that employers must:

• assess all existing employees who fall into one of the above categories during the Transition Period;
  
  
• offer conversion to all eligible casual employees, unless they have reasonable grounds not to do so; and
  
  
• provide a notice to any employee who has not been offered conversion explaining the reasons for the non-offer, including whether the reason is that the employee has not met the eligibility criteria of being employed for at least 12 months or that they have not worked a regular pattern of hours over the previous six months.

While these changes mean that the usual operation of the casual conversion clauses will not apply to these employers and employees until after the end of the Transition Period, employers will need to proactively evaluate the status of existing employees who may otherwise not be ‘casuals’ within the meaning of the Amendment Act during the Transition Period.  

Clearly, this will give rise to a significant administrative burden for employers who engage a substantial number of employees on a casual basis.  

Addressing ‘double-dipping’ issues

The Amendment Act has inserted new provisions in the FW Act aimed at addressing situations where employees have wrongly been classified as a casual employee, and have been paid a corresponding loading. This provision addresses uncertainties raised in the Rossato decision about an employer’s ability to offset casual loading against other entitlements.  

The Rosatto decision also suggested that if employers intended to offset casual loading, they should clearly identify and link the particular entitlements that were being set off against the casual loading amount.

The Amendment Act provides that where an employee has been wrongly classified as a casual, and an employee (or another person – such as a union – on their behalf) subsequently makes a claim for an amount allegedly due to the person as an employee, the court hearing the matter must reduce the compensation (if any) by such amount as it considers appropriate having regard to various factors that are identified, to reflect the loading that has been paid to the employee. A court cannot reduce any amount payable below nil, meaning employees cannot be made to reimburse an employer for any amount.

This provision appears to apply both to past misclassifications and to those that may occur in the future, meaning employers can rely on this provision for claims which have already been made.  Clearly this provision is intended to allow employers who are subject to current underpayment claims, including class actions, relating to casual employees, to argue for reduction of the size of (or eliminate entirely) the value of such claims. It will address some of the difficulties flowing from the decisions of Skene and Rossato.  

The provision may encounter some difficulty with the restriction in the Australian Constitution on the acquisition of property other than on ‘just terms’.[4] It is not clear that any such challenge would be successful as the law essentially deals with adjustments to competing claims, but it seems likely that the matter will be tested at an early stage – most likely in the context of a number of class actions that have been initiated in the aftermath of the Skene and Rossato decisions. 

Casual Employment Information Statement

The Fair Work Ombudsman has prepared a Casual Employment Information Statement, which must be provided to every new casual employee at the commencement of their employment.  

During the Transition Period, employers with 15 or more employees must assess all their casual employees, including employees designated as casuals prior to 27 March 2021. The employer must provide a copy of the Casual Employment Information Statement to those employees as soon as practicable after 27 September 2021. This is intended to ensure that the existing casual employees are notified about the new casual regime. 

Employers with fewer than 15 employees must provide a copy of Casual Employment Information Statement to all existing casual employees as soon as practicable (rather than after 27 September 2021).  

Next steps for employers

The changes that came into effect on 27 March 2021 are a welcome progression on the issue of casual employment, providing business with greater certainty and commensurate confidence.  However, it is not a simple ‘fix’.  

Assessments are still required to be made at the point of employment as to whether there is no firm advance commitment to continuing and indefinite work having regard to the criteria set out in the FW Act.  

For many employers, there is also a considerable task ahead in assessing their current workforce, and ensuring systems are in place to ensure offers of conversion are made as and when required.   

Over the next six months at least, employers will be required to:

• Conduct an assessment to determine which existing employees fall within the scope of the transitional provisions and who may therefore be eligible to receive an offer for conversion.
  
  
• For employees who are eligible to receive an offer of conversion, ensure that either conversion offers are made or notice provisions are complied with in accordance with the Amendment Act.
  
  
• Provide new casual employees with the Casual Employment Information Statement published by the Fair Work Ombudsman.
  
  
• Update systems generally, to identify when employees will become eligible to receive offers for conversion, and ensure notices regarding offers of conversion are given to employees in compliance with the Amendment Act.  

Employers should review their existing contracts of employment and update their practices, if required, to align with and take advantage of the new regime and attach the Casual Employment Information Statement.