For the last few years, employers have experienced significant uncertainty around whether or not their casual workers are actually classified as casual. Significant court cases in 2018 – featuring WorkPak contractors Skene and Rossato – have thrown the definition of casual work into disrepute, which has prompted the Australian Government to intervene.
Now that the government has made a series of recommendations to Fair Work Australia, which is likely to pass into law during 2021, what does that mean for your business?
- Am I allowed to give contractors work on a regular schedule?
- Can your casual workers still gain access to permanent worker entitlements, such as leave?
- When do I have to make contractors an offer of permanent employment, and what are my rights?
CXC’s Legal and Compliance team has been closely monitoring the situation. Watch the video below for a comprehensive overview of the upcoming changes, what you need to do to remain compliant, as well as what the next steps are.
If you employ contractors in your business, it’s absolutely essential that you’re across this rapidly changing legislative landscape.
Video transcript
In early December 2020, the Australian government proposed a series of changes to the Fair Work Act, which regulates employment in Australia. These changes were the result of a series of working groups that the government convened in the middle of 2020, ostensibly to address the COVID pandemic and some of the industrial relations issues that had been raised during this time.
These cases were known as Skene and Rossato decisions.
The way that these decisions came out, through case law, is no different from the case law that has existed for the last century in Australia. The first casual employment precedent started in 1913 and progressed all the way through to 2013, where there was a decision related to how enterprise agreements should be interpreted under the Fair Work Act.
It’s not unusual for case law to affect the way legislation is interpreted, but it was considered that the interpretation provided under the Rossato decision and the Skene decision indicated a shortcoming of the Fair Work Act, or at least a shortcoming from what the intent of the Act was, and the way that affected employers, and how they engage casual employees.
Talking about the Skene and Rossato decisions, these decisions resulted in a view that the definition of casual employment, based on the Fair Work Act, had come to acquire a legal meaning referable to a particular set of indicators.
Those indicators were that casual employment existed where there was no firm commitment to the other party, where there were irregular work patterns, a lack of continuity, intermittency of work, unpredictability and uncertainty to the period of employment.
The decisions exposed a shortcoming in the Fair Work Act, which was a disconnection between the payment of casual loading, and the rights an employee has under the national employment standards. Businesses typically understood that when an employee was paid a casual loading, this replaced the entitlements that a permanent employee has under the national employment standards.
However, the Skene and Rossato decisions indicated that this was not necessarily the case; that the national employment standards actually overarch and overtook the casual loading concept, and that it was possible for a person to receive both casual loading and receive the entitlements of a permanent worker under the national employment standards.
The commentary around this particular issue referred to it as a practice of double-dipping, where an employee was able to receive two different entitlements for the same reason. Business groups argued that this double-dipping was unfair. The government agreed with this position ostensibly, and as a result, have drafted this legislation, and introduced it to the parliament as an amendment to the Fair Work Act.
What this legislation does is, for the first time, introduces a definition of casual employment to the Fair Work Act. If this bill was to pass the parliament, there would be a definition of casual employment. That definition states that there are three criteria to the definition. The first part is that the offer of employment made by the employer to the person is made on the basis that the employer makes no firm advance commitment to continuing an indefinite work, according to an agreed pattern of work, for the person.
The last two are obviously fairly procedural but the first one is the key. For the first time, it says that when an employer makes an offer of employment, which has no firm advanced commitment to continuing an indefinite work, according to an agreed pattern of work, then they are casual.
Previously there was no definition of casual, so this is the first definition that’s really ever existed in Australian industrial law or at least federal industrial law for the concept of a casual employee.
Now, this wording is obviously fairly technical. So the legislation goes further and actually defined when a firm advanced commitment is made. The bill clarifies that for the purpose of determining whether the above conditions have been met, regard must be had only to the following considerations. These are the considerations when you look at an employment relationship whether or not a firm advance commitment has been made, and if these things are true then casual employment exists per the definition.
The first of the four aspects is whether the employer can elect to offer work and whether the person can elect to accept or reject work. A person is casual if the employer and the employee have flexibility as to whether to accept or reject an offer of work. The second aspect is that the person will work only as required. The third is whether the employment is described as casual employment in the offer of employment or in the contract. The fourth is 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 (meaning award or an enterprise bargaining agreement).
As you can see, the government is trying not to leave it up to the courts to determine what a casual employee is. They’ve taken on some of the precedents of the Rossato and Skene decisions in the use of the term firm advanced commitment, but they’ve gone further and actually written a definition for casual employment, based around firm advanced commitment and then defined what firm advance commitment actually means. What you can see from that is that the government is trying to provide certainty to both employees and employers as to when they are entering into a casual employment relationship.
The bill also goes further to put into legislation a number of other concepts. The first is that, in determining whether a person is a casual employee, this is to be assessed on the basis of the offer of employment and the extent of that offer – not on the basis of any subsequent conduct of either party. What that means is that if the offer of employment meets the definition that we went through just before then it doesn’t matter what happens after that – it doesn’t matter if the character of the employment changes because the parties understood it to be casual employment.
What that does is effectively rule out the concept of double-dipping that we talked about earlier. If a person says, I think I was a permanent employee, and a court finds that the person is a permanent employee or was a permanent employee, any additional money they’re owed will be subtracted from the casual loading. If there’s an additional amount payable and the employer would have to pay that, but if they’ve already been compensated for that entitlement in the casual loading then they won’t receive any additional entitlement based on that particular action.
So it’s a reasonably comprehensive piece of legislation in that it goes into a significant amount of detail about what defines casual employment and how employers can structure their casual employment, to avoid the risk and the uncertainty that is created by situations where the employment relationship changes over time.
But what the legislation also does is provides enhanced casual conversion rights to employees. On one hand, employers have more certainty upfront, and employees also have that certainty in terms of the fact that they know they are casual going in, but what the legislation also does is introduces enhanced casual conversion provisions.
At the moment there are casual conversion provisions that exist in all of the modern awards, but what this legislation seeks to do is to actually take the concept of casual conversion away from being in the awards and being specific to the award, making it a part of the Fair Work Act and effectively part of legislation in the industrial relations regime in Australia.
What these new casual conversion rights do is they take the current casual conversion system, which requires employers to effectively notify employees that they have the right to request conversion, but then leaves it in the hands of the employee to come back and request that they wish to convert or wish to be assessed for conversion to another form of employment such as permanent employment.
The employer has to look at the last six months of work and decide whether that employee worked a regular pattern of hours on an ongoing basis. If that is the case, then the employer could convert that person to permanent. If the employer could convert that person to permanent without a significant adjustment to the employee’s pattern of hours or work, then they must offer that employee a permanent job. The positive obligation sits with the employer to make an offer under the circumstances where they judge that a person is entitled to work or is capable of working permanently based on the pattern of hours they’ve been doing for the past six months.
Now the employer retains the right to decline to make that offer to the employee on two grounds. One ground is that, where there are reasonable grounds for the employer not to make the offer, and secondly, the grounds have to be based on facts that are known or reasonably foreseeable at the time of deciding not to make the offer.
This really allows the employer a reasonable amount of flexibility to say, look, this doesn’t really suit my business for this person to become permanent. I know it looks like they might be able to become permanent, but it doesn’t suit my business for this particular reason. Reasonable grounds might be based on some current fact about the business or it might be based on, in two or three months in the future, things will change which will then make it reasonable for me to not have this person as a permanent, but I need to keep them as a casual.
The reasons employers can decline to convert a person to permanent is not so different from the current legislation or award provisions. But where it is different is in the actual way the process works, and what I’ve referred to earlier as a positive obligation. This is because there’s more of an effort, or there are more requirements on the employer when a person reaches their 12-month mark. The offer must be made within 21 days after that 12-month mark has been completed, making it a very strict timeline.
If the employee is made an offer of conversion, they do not have to accept it. It’s still a free country. The person may not accept that offer, or they may not like the terms of that offer for whatever reason. The legislation says that if an employee declines the offer, or fails to respond to the offer then the employer has completed their obligation.
If the employer decides not to make an offer of conversion and they then write to the employee and tell them, the employee then has the right to dispute that decision by the employer. They can register a dispute with the Fair Work Commission. The commission has the power to conciliate between the parties to reach an agreement about whether or not that situation was correct, whether the employee made the right assessment about their reasonable grounds.
The one interesting thing about this particular power to conciliate is that the employee cannot force the Fair Work Commission to arbitrate the decision. Arbitrated means that basically, the commission makes a binding decision. The employer can agree for the commission to arbitrate but it does seem unlikely that an employer would agree for the commission to arbitrate a decision if they’re not forced to do so.
It’s likely that these conciliations will certainly be something that employers need to participate in and they need to act in good faith with respect to the conciliation. But if the parties can’t agree, the Fair Work Commission is not really in a position to force an outcome or to bind an outcome between the parties. It is an interesting aspect of the legislation that they didn’t decide that arbitration was compulsory in that situation.
Putting aside if there’s any kind of dispute, say the employer either makes an offer and the employee declines it, or if the employee writes to the employee and says, I’m not going to make you an offer of conversion and the employee says okay, that’s fine – then what will happen? The 12-month mark comes and goes and the person stays as a casual. When will they have the right to take further action?
The answer is every six months. The ball will be no longer in the employer’s court. The employer will not have to do anything at the 18-month mark, or the 24 months, or the 30 months mark. The employer will not have to actively do anything, but if the employee decides at any point that, actually, you know that offer you guys made me six months ago, I’d really like to take that up. They can actually write back and make a request for conversion to the employer. The employer must assess that request in the same way as they made the assessment prior to the first offer or, if the employer declines to make an offer, the employee can say I want you to reassess based on the fact that you didn’t make an offer to me last time because I think my situation has changed or a situation has changed our business.
I would describe it as a fairly extensive provision within the Act. It will have a large administrative impact on companies that have a lot of casual employees; however, the fact that the legislation provides certainty for employers as to what casual employment actually is, it would seem to be logical that there would be enhanced rights for employees. That’s certainly the position the government has taken by providing enhanced casual conversion provisions.
As I mentioned briefly, the other major benefit to employers is that courts are unable to allow employees who win cases to double-dip and get both casual loading and also to get leave entitlements, which is often awarded in those cases. Overall that double-dipping aspect of the legislation provides a strong benefit to employers because that particular aspect of legislation will provide certainty, and will make employers more likely to employ casual employees in the future.
Where to from here?
The Senate has convened a committee to examine the bill and that will report near the end of March 2021 around the 21st. There may be changes to the wording of the bill as a part of the Senate’s committee process and also any kind of negotiations that occur in the Senate as often is the case when the government doesn’t have the numbers in the Senate.
The Senate is expected to vote on the bill around the end of March or shortly thereafter, and when it passes there will be a six-month transitional period that the legislation calls for. As to exactly what will happen in that transitional period and what employers will have to do in that transitional period, we don’t exactly know as yet, the legislation just says there will be a six-month transitional period and not what employers will be required to actually do in that transitional period. Details will be worked out by the Fair Work Commission.
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