After an unsuccessful attempt to introduce wide-ranging reforms to our national workplace relations system, the Morrison government has mustered up just enough support in Parliament to push through amendments to the operation of casual employment under the Fair Work Act 2009 (Cth) (FW Act). These amendments became law on 27 March 2021.
With the passing of these laws, most employers have breathed a sigh of relief. After all, the reforms were squarely aimed at remedying the many problems that employers had signalled for years as plaguing their ability to confidently hire casual employees. However, while the amendments to casual employment are certainly good news for many businesses, now is not the time for employers to rest on their laurels and bask in what is a seemingly employer-centric suite of reforms.
Unfortunately, the reforms are not the statutory equivalent of a magic weight loss pill. Employers are going to need to hit the corporate treadmill and work to comply with their new casual employment obligations, but doing so will deliver much needed certainty as to when, and for how long, an engagement will be one of casual employment.
If they have not already, employers should be assessing, and where necessary updating, their entire casual employment lifecycle, from job design, recruitment, and offers of employment through to rostering, work performance, issuing directions as to days and hours of work, and the assessment of eligibility to convert to permanent employment.
In this article, after providing a brief overview of the reforms to casual employment, we outline processes employers might want to consider in getting their businesses match fit for meeting their new casual employment obligations.
What are the amendments to casual employment?
The amendments to casual employment include:
- A statutory definition of casual employee.
- In circumstances where an employee has been misclassified as a casual but subsequently found by a court to be permanent, a rule permitting the courts to set off any casual loading paid to the employee while misclassified as a casual against any entitlements owed to the employee under their correct classification as a permanent.
- A pathway for casual employees to seek conversion to permanent employment under the National Employment Standards (NES).
- A requirement for employers to provide casual employees with a Casual Employment Information Statement, such statement being prepared and published by the Fair Work Ombudsman.
The statutory definition of casual employee
Fundamental to the operation of the casual employment reforms is the new statutory definition of casual employee.
Broadly, like the previous approach to assessing whether an engagement is one of casual employment, under the statutory definition a casual employee does not have a firm advance commitment from their employer as to ongoing and regular work. Whether or not there has been a firm advance commitment is determined by having regard to matters including whether the employment has been described as casual employment, whether the employer can elect to offer work and the employee can elect to accept or reject the work, and whether the employee is entitled to receive a casual loading. Importantly, unlike the previous approach, the assessment of casual employment is made at the time of offer and acceptance of the engagement and does not have regard to any subsequent conduct of the parties.
The practical outcome of limiting the assessment of casualness to the point of offer and acceptance is that once an engagement is deemed to be one of casual employment, under the new statutory definition it will now remain a casual employment engagement until either the:
- Employer and employee agree to change to another type of engagement (for instance, permanent or fixed term).
- Employee has elected to exercise a right to convert to full-time or part-time employment via an applicable casual conversion process, and there are no reasonable grounds that prevent an employer from fulfilling the exercise of this right.
Offsetting
Undoubtedly the most concerning issue that existed for employers in the pre-reform approach to casual employment was that, over time, an engagement that commenced on an understanding by both parties as being casual could morph at an indeterminate time into one of permanent employment. While this approach recognised the fluidity of casual employment, it practically introduced a high degree of uncertainty over whether a casual was indeed a casual which, in turn, exposed employers to the risk of underpayment claims.
Whereas permanent employees are entitled to a range of minimum benefits and entitlements that recognise their years of service with an employer, such as paid annual leave and personal/carer’s leave, redundancy pay and notice of termination, casual employees are generally paid a 25% casual loading each pay cycle broadly in recognition of the fact that they lack the right to receive this range of service-based benefits and entitlements.
When an employee has been engaged as a casual and received a casual loading, but is subsequently found by a court to have morphed into a permanent employee at some point during employment (or to have been incorrectly engaged as a casual employee from day one), their employer can be exposed to a claim for the back payment of service-based entitlements the employee should have received had they been correctly classified as permanent.
But what about the casual loading? Surely, the casual loading paid to the employee while the parties incorrectly thought the engagement was one of casual employment can be used to offset the employer’s liability for the back payment of the service based entitlements for any period the employee is found to be permanent?
Indeed, this has been the argument raised by employers for years, culminating in the much publicised decision in WorkPac Pty Ltd v Rossato [2020] FCAFC 84 (currently on appeal to the High Court), where the Full Court of the Federal Court of Australia unanimously disagreed, finding the casual loading paid to a misclassified casual employee could not be used to set off the service-based entitlements owing to them as a permanent employee.
As a result, the Australian Securities and Investment Commission recommended companies should account for potential back payments to misclassified casual employees as a contingent liability in their financial reporting, with the government estimating these back pay contingent liabilities at the time of introducing the casual employment amendments into Parliament in December 2020 could be between $18 billion and $39 billion.
Unsurprisingly, the Morrison government intervened by introducing a statutory rule as part of its reforms to casual employment that applies where a person has been employed and paid on the understanding they were a casual employee, but is later found to not be a casual employee and a claim is made for unpaid entitlements. In that situation, the rule requires a court to reduce any amounts payable to the misclassified employee by the employer for underpayments by any casual loading paid to the employee. Teamed with the operation of the statutory definition for casual employee, the new statutory offsetting rule delivers to employers certainty and safeguards to engage a casual workforce with more confidence.
Casual conversion
Of course, the government was never going to successfully pass amendments to the casual employment landscape without paying homage to debates regarding the casualisation of the workforce and related issues, including job insecurity, inferior work and reduced benefits.
Those against a casualised workforce have long highlighted the inability of casuals to take paid holidays and sick leave, their lack of protection against dismissal, and wider socio-economic considerations including the difficulties casual employees face in successfully securing home loans. Conversely, those in support of casual employment have focused on the requirement of businesses to fulfil genuine operational needs through a flexible form of labour, together with a surprising number of casual workers who themselves have expressed overall satisfaction with ongoing casual work.
A pathway for eligible casual workers to convert to permanent employment if they choose, caveated by a right for employers to not have to facilitate such conversion where reasonable business grounds so justify, sought to strike a balance between the two competing positions. Indeed, broadly, this was the model our independent workplace relations tribunal, the Fair Work Commission (FWC), considered appropriate to introduce across the modern award system in 2018 (although, the specifics of the modern award casual conversion terms varied between industries and occupations).
Building on what the FWC had started, as part of the casual employment reforms, the Morrison government introduced an eleventh minimum employment entitlement into the NES for all national system casual employees. This new NES casual conversion entitlement operates slightly differently depending on whether the employer is:
- An employer who is not a small business employer (that is, the employer engages more than 15 employees), in which case the employer has a positive obligation to offer casual employees’ conversion to permanent employment, assuming eligibility requirements are met and reasonable business grounds support making the offer. There is also a residual right for eligible employees to request conversion to permanent employment in certain circumstances.
- A small business employer, in which case the employer does not have a positive obligation to offer casual employees’ conversion to permanent employment, however, there is a right for eligible casual employees to request conversion to permanent employment in certain circumstances.
There are strict notification and timing requirements on both employers and employees under the NES casual conversion entitlement, together with certain obligations in respect of holding discussions and engaging in consultation. Further to resolving disputes regarding casual conversion under existing dispute resolution mechanisms, the amendments also introduced a new statutory dispute resolution mechanism together with the ability to have a civil remedy application regarding casual conversion dealt with as a small claims proceeding.
What do employers need to be doing right now?
After years of wrestling with the inherent uncertainty associated with engaging casuals, the recent amendments to casual employment under the FW Act can now provide employers with confidence to utilise this type of employment. While the government has provided the much-needed statutory foundation to bolster employer confidence in the use of casual employment, it is now up to businesses to build on that foundation by implementing into their businesses, management systems and operating procedures necessary to meet their new casual employment obligations.
The steps necessary will vary depending on the nature and size of the employer’s operations and workforce, however, broadly this may involve:
- Updating recruitment processes and contracts of employment, including:
- ensuring staff in certain roles, such as recruitment, organisational design and human resources, are appropriately trained to understand how to assess and explain whether an engagement will be one of casual employment under the new statutory definition. These staff would also be mindful to ensure operational divisions are aware of an employee’s rights regarding conversion to permanent employment;
- considering whether all new casual employees should be provided with a written contract of employment (if this is not already the case) and if so, updating template casual employment contracts in light of the new statutory definition of casual employee and statutory offsetting rule, along with considering whether it is feasible and appropriate to roll existing casual employees onto updated contracts of employment; and
- incorporating the provision of the Casual Employment Information Statement into recruitment and onboarding processes.
- Auditing of existing casual employment engagements. Under the transitional provisions that accompany the casual employment reforms, employers who are not small business employers must assess, before 27 September 2021, whether all its casual employees engaged before 27 March 2021 (whether they meet the new statutory definition of casual employee or not) are entitled to be offered conversion to permanent employment, and whether there are reasonable business grounds to do so. In order to perform the assessment, employers will first need to ascertain who are its existing casual employees, which could include considering:
- who, or what department, will be responsible for undertaking the audit of existing casual employees, and how they will be trained to correctly identify whether an engagement is one of casual employment;
- where and how those responsible for undertaking the audit will obtain relevant and up-to-date information regarding the employer’s existing casual employees; and
- what information needs to be obtained in respect of identifying whether an engagement is one of casual employment, and to facilitate the conduct of an assessment for eligibility for casual conversion (for instance, offers of employment, or rostering and shift data).
- Developing a process for assessing and notifying existing casual employment engagements in respect of casual conversion. An employer who is not a small business employer will need to develop a process for assessing and notifying all existing casual employees against the new NES casual conversion entitlement before 27 September 2021. Consideration will need to be given to:
- whether an initial communication should be sent to employees with information canvassing the changes to casual employment under the FW Act, and that the business is currently auditing existing casual employees against the new NES casual conversion entitlement;
- developing the structure and workflow for the casual conversion process, including relevant templates letters and notifications (noting the strict notification and timing requirements on both employers and employees);
- who, or what department, will be responsible for undertaking the assessment and conversion process, and how they will be trained to undertake the relevant assessment, and effectively and efficiently run the casual conversion process. Importantly, these staff will need to understand when conversion can be facilitated by the employer without significant adjustment, and develop a process for liaising with relevant persons in business operations and management to assess whether there are reasonable business grounds that may justify not offering an existing casual employee conversion to permanent employment; and
- developing processes for managing disputes regarding casual conversion at a workplace level, noting a large number of these disputes will likely be in response to an employer’s assessment of ineligibility (for instance conversion would require a significant adjustment) or its decision to not offer conversion to permanent employment to a casual employee on the reasonable grounds.
- Developing an ongoing process for the identification, assessment and offer of casual conversion to eligible employees, and response to requests for casual conversion by eligible employees. An employer (including a small business employer) will need to develop an ongoing process for the identification, assessment and offer of casual conversion to eligible casual employees, and a process for effectively and efficiently responding to requests for casual conversion by eligible casual employees. Consideration will need to be given to:
- who, or what department, will be responsible for developing processes for, and ongoing compliance with, an employer’s casual employment obligations, and how they will be trained on the employer’s casual conversion obligations. In addition, consideration should be given to who, or what department, will be responsible for actually undertaking the ongoing assessment and conversion process, and how they will be trained;
- developing structures and workflows to adequately capture the assessment, response and conversion processes. Processes will need to be implemented that identify or flag for assessment each and every casual employee once they have reached a 12-month threshold, or have exercised a right to request conversion, ensuring staff responsible for conducting the assessment have access to relevant information and/or a process for liaising with relevant persons in business operations and management to assess eligibility to convert and whether there are reasonable business grounds that may justifying not offering the employee conversion to permanent employment;
- developing relevant templates letters and notifications for offering conversion, as well as responding to conversion requests (noting the strict notification and timing requirements on both employers and employees for both the positive obligation to offer conversion, as well as the obligation to respond in a timely manner to any request for conversion by an eligible casual employee);
- developing processes for managing disputes regarding casual conversion refusals at a workplace level, noting a large number of these disputes may arise in the context of an employer’s refusal of an eligible employee’s request for conversion to permanent employment on the reasonable grounds; and
- monitoring implementation of the ongoing casual conversion process to ensure compliance with an employer’s casual employment obligations. Consideration may need to be given to further auditing of the employer’s casual employment workforce, ongoing refresher training for staff responsible for the conversion process, applications to the FWC to address any inconsistencies, uncertainties or difficulties in the operation of an enterprise agreement or modern award applicable to the employer and its workforce in light of the new NES casual conversion entitlement.
About Practical Law Employment
Practical Law offers a wide range of up-to-date, practical resources that go beyond, and complement, primary law and research by providing legal know-how and the resources needed to practice better and more efficiently. All Practical Law resources are created and maintained by a team of expert lawyers who have worked at the world’s leading law firms and in-house departments.
For the full range of Practical Law Employment resources to assist employment practitioners understand, upskill and advise on these amendments to casual employment, and assist employers to prepare for, and respond to, these amendments in their workplaces, see Toolkit, The FW Act amendments to casual employment on Practical Law.
