Industrial relations reforms: what you need to know about what’s to come

New statutory definition of casual employee

Definition of ‘casual employee’

It is proposed that the FWA will now define a ‘casual employee’. This definition will override the definition of casual employee at common law.

Under transitional provisions, the statutory definition will apply in relation to an offer of employment that was made before commencement of the legislation.

A person will be considered a casual employee if:  

• an offer of employment is made on the basis that the employer makes no firm advance commitment to continuing and indefinite work according to an agreed pattern of work for the person (this is to be determined at the time the arrangement is entered into); and
• the person accepts the offer on that basis; and
• the person is an employee as a result of that acceptance.

There is no requirement for the arrangement to be in writing, and the definition is intended to apply to informal arrangements.

The definition is intended to reflect the common law principle that the essence of casual employment is the absence of a ‘firm advance commitment to continuing and indefinite work according to an agreed pattern of work,’ as recently affirmed in the cases of WorkPac v Skene [2018] FCAFC 131 (Skene) and WorkPac v Rossato [2020] FCAFC 84 (Rossato).

Whether there is a firm advance commitment to continuing and indefinite work according to an agreed pattern of work will be assessed at the time the offer is made against the following factors:

• • whether the employer can elect to offer work and whether the person can elect to accept or reject work;
  • whether the person will work only as required;
  • whether the employment is described as casual employment; and
  • whether the person will be entitled to a casual loading or a specific rate of pay for casual employees under the terms of the offer or a fair work instrument (this term is defined in existing section 12 and includes the national minimum wage order).

This exhaustive list narrows the factors a Court can consider in making its assessment. All of the factors may be relevant and not one is determinative.

For example, if an offer of employment describes the employment as casual and includes payment of a casual loading, but provides for guaranteed hours on a continuing and indefinite basis according to an agreed pattern of work and the employee has no right to accept or reject work that is offered, the employment would not be casual.

Casual for duration of employment

Interestingly, under the proposed changes the employee’s status as a casual employee will be for the duration of their employment, or until either:

• • the employee’s employment is converted to full-time or part-time employment under the new Division 4A of Part 2-2 of the FWA (new casual conversion provisions); or
  • the employee accepts an alternative offer of employment (other than as a casual employee) by the employer and commences work on that basis.

Casual conversion

Casual conversion as part of the NES

A New Division 4A - Offers and requests for casual conversion will be included as part of the NES in the FWA. 

As part of the NES, the new casual conversion provisions will be unable to be excluded or displaced by any modern award or enterprise agreement.  

An employer will be required to make an offer of full-time or part-time employment to an eligible casual employee within 21 days of the employee having been employed for 12 months, subject to certain exceptions.  

However, within the first 6 months, employers will be required to make offers of conversion to all existing eligible casuals, unless they have reasonable grounds not to.

‘Eligible casual employee’

An eligible casual employee is an employee:

• • who has been employed by the employer for a period of 12 months beginning the day the employment started; and
  • during at least the last six months of that period, the employee has worked a regular pattern of hours on an ongoing basis which, without significant adjustment, the employee could continue to work as a full-time employee or a part-time employee, as the case may be.

An employee cannot be converted to a fixed term contract under the proposed changes, however an employer and employee can still agree (outside Division 4A) to enter into a new fixed term arrangement.

Employment for 12 months and regular pattern of hours

Whether a person has been employed for a period of 12 months will depend on the particular circumstances. For example, if an employee works a shift on 1 December, but then does not work for the employer until 31 December the following year, it does not mean the employee has been employed for 12 months.

The term ‘regular pattern of hours’ is adopted from the FWC’s model casual conversion term. Whether an employee meets this requirement will depend on the particular circumstances and involves consideration of the pattern of hours worked during the relevant six month period.

The assessment of whether the employee worked a ‘regular pattern of hours’ is qualified by the contextual requirement that the pattern of hours must be able to be continued as a full-time or part-time employee without significant adjustment.

When must the offer to convert be made and what are the exceptions? 

The offer of conversion must be made in writing within 21 days after the end of the employee’s 12 month anniversary of commencing employment (not counting the day the offer was made) and must be to convert to either:

• full-time employment, if the employee has worked the equivalent of full-time hours in the relevant 6 month period; or
• part-time employment that is consistent with the regular pattern of hours worked during the relevant 6 month period, if the employee has worked less than the equivalent of full-time hours in that period.

Once employment is converted, an employee is taken to be either a full time or part time employee (as the case may be) for the purpose of relevant laws, any applicable fair work instrument and the employee’s contract of employment.

An employer is not required to make an offer to convert to permanent employment where there are reasonable grounds for not making the offer. 

Reasonable grounds include:

• • the employee’s position will cease to exist in the period of 12 months after the time of deciding not to make the offer;
  • the hours of work the employee is required to perform will be significantly reduced in that 12 month period;
  • there will be a significant change in either or both of the days on which or times at which the employee will be required to perform work in that period which cannot be accommodated within the days or times the employee is available to work; or
  • 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 a Territory.

There may be other reasonable grounds on which an employer can decide not to make an offer, including those specific to their workplace or the employee’s role. Such reasonable grounds will be considered taking into account all relevant circumstances.

An employer must give written notice to a casual employee if they decide not to make an offer because:

• • there are reasonable grounds not to make the offer; or
  • the employee has been employed by the employer for a 12 month period, but does not meet the requirement to have worked a regular pattern of hours on an ongoing basis which the employee could continue to work without significant adjustment after conversion.

The written notice must be given to the employee within 21 days after their 12 month anniversary, and inform the employee:

• • that the employer is not making an offer; and
  • the reasons the employer is not making the offer, (eg if the offer is not made on reasonable grounds it must detail the details of the relevant ground).

Employee response and agreement to convert 

An employee must respond to an employer’s offer of conversion with 21 days after the offer is given to the employee and indicate whether it is accepted or declined. If an employee does not respond they are taken to have declined.

If the employee accepts the offer, within 21 days the employer must give the employee written notice of:

• the employee’s new employment status (whether full-time or part-time);
• the employee’s hours of work after the conversion takes effect; and
• the day on which the conversion takes effect.

The employer must also discuss the particulars of conversion with the employee.

The conversion must take effect the first day of the employee’s first full pay period after the day the notice is given by the employer, unless otherwise agreed in writing.

Residual right to casual conversion

There will be a residual right to request casual conversion for casual employees in certain circumstances who have not received or accepted an employer offer to convert.

Eligibility criteria, grounds for refusal and formal requirements broadly reflect those applying to the obligation to offer conversion set out above.

It is also proposed that the residual right to request casual conversion will deal with failures by employers to convert casual employees, and situations in which circumstances change such that an employee may not meet eligibility criteria to convert at the relevant time, but later do meet relevant criteria. 

Rights and obligations

Proposed changes to the FWA will add further protections to the general protections provisions aimed at preventing adverse action against employees relating to casual conversion.

However, it will be noted that nothing in the proposed new Division:

• • requires an employee to convert to full-time or part-time employment; or
  • permits an employer to require an employee to convert; or
  • requires an employer to increase the hours of work of an employee who requests conversion to full-time or part-time employment under the Division.

It should also be noted that an employee who does not wish to convert to full-time or part-time employment (for example because they prefer greater flexibility of work and the payment of a casual loading) can remain employed on a casual basis even if they satisfy the requirements for an offer to convert.

Disputes

The amendments to the FWA will include a dispute resolution process to resolve disputes regarding casual conversion, with the FWC ultimately responsible for resolving any dispute that cannot be resolved at a workplace level.

Casual Information Statement

The FWO will prepare and publish a Casual Employment Information Statement (Statement) which employers must provide to new casual employees before, or as soon as practicable after, the employee starts casual employment.

The Statement must contain information about casual employment and requests and offers of casual conversion, including:

• • the meaning of 'casual employee';
  • an employer offer for casual conversion must generally be made to certain casual employees within 21 days after the employee has completed 12 months of employment;
  • an employer can decide not to make an offer for casual conversion if there are reasonable grounds to do so, but the employer must notify the employee of these grounds;
  • certain casual employees will have a residual right to request casual conversion; and
  • the FWC may deal with disputes about the operation of that Division.

The Statement need not be given more than once in any 12-month period. 

Casual employees must also still receive a Fair Work Information Statement.

No Double Dipping: addressing Skene and Rossato

Background

Many enterprise agreements and modern awards provide that a casual employee is one who is engaged and paid as such, or a similar ‘designation’ approach. 

The Attorney-General’s Department has conducted an analysis of enterprise agreements and modern awards that indicates these ‘designation’ terms for identifying casual employment and the incidence of provision for payment of a casual loading is widespread.

The Department has estimated that the reliance on such terms means employers who have paid employees a casual loading in the mistaken belief that they are casual could be liable to pay those employees up to approximately $18 billion to $39 billion (over a six year period) for entitlements casual employees do not get.

In addition, as a result of the Skene and Rossato decisions, the Australian Securities and Investments Commission raised awareness of possible financial reporting considerations for entities reporting in accordance with Chapter 2M of the Corporations Act 2001 (Cth) (Corps Act). 

To comply with the Accounting Standards under the Corps Act, relevant entities have to consider whether the circumstances of Skene and Rossato apply and if so, provision in their financial reports accordingly.

Under the Bill, it was estimated that the total regulatory costs of continuing with the current approach to be up to $243.8 million over a ten year period.

No Double Dipping Rule

To remedy the impact of the current approach, the Bill proposes to introduce the new definition of ‘casual employee’ (as outlined above), and a new statutory rule for offsetting amounts payable by an employer to an employee for relevant entitlements by the amount of the casual loading previously paid by the employer for the employee not having those entitlements (statutory offset rule).

The statutory offset rule is intended to apply in Rossato-type scenarios, that is where a person has been employed and paid on the understanding they were a casual employee, but is later found not to be a casual employee and a claim is made for amounts for entitlements casual employees do not receive.

It is proposed that when making orders in relation to such a claim, a court must reduce any amounts payable by the employer for relevant entitlements against casual loading amounts paid to the person.

The statutory offset rule will apply if:

• • a person is employed by an employer in circumstances where the employment is described as casual employment; and
  • the employer pays the person an identifiable amount (the loading amount) to compensate the person for not having one or more relevant entitlements (as defined) during a period (the employment period); and
  • during that period, the person was not a casual employee; and
  • the person (or another person for the benefit of the person) makes a claim to be paid an amount for one or more of those entitlements with respect to the employment period.

The loading must be an identifiable amount paid as compensation for the absence of the relevant entitlements during the employment period. As the loading must be clearly identifiable, the statutory offset rule will not include a situation where an employee is paid a flat hourly rate and it is not clear what component is the casual loading.

A court, when making orders in relation to the claim can reduce any amount payable by the employer for the relevant entitlements (the claim amount) by an amount equal to the loading amount, but not below nil. 

The court may reduce the claim amount by an amount equal to a proportion of the loading amount the court considers appropriate, having regard only to:

• • if a term of the fair work instrument or contract of employment under which the loading amount is paid specifies the relevant entitlements the loading amount is compensating for and specifies the proportion of the loading amount attributable to each such entitlement – that term (including those proportions); or
  • if such a term specifies the relevant entitlements the loading amount is compensating for but does not specify the proportion of the loading amount attributable to each such entitlement – that term, and what would be an appropriate proportion of the loading amount attributable to each of those entitlements in all the circumstances; or
  • if paragraph (a) or (b) does not apply – the NES entitlements listed below on what would be an appropriate proportion of the loading amount attributable to each of those entitlements in all the circumstances.

A relevant entitlement refers to an entitlement under the NES, fair work instrument or contract of employment to any of the following:

• • paid annual leave;
  • paid personal/carer’s leave;
  • paid compassionate leave;
  • payment for absence on a public holiday;
  • payment in lieu of notice of termination;
  • redundancy pay.

It should be noted that if an employment contract (or other relevant instrument) lists that casual loading is paid instead of some entitlements (for example, annual and personal leave), but the employee claims for notice and redundancy pay, the court will be unable to offset the casual loading against the claim for notice and redundancy pay.