The original idea

A worker stands at the gates of the docks hoping for work. The boss approaches the fence separating dozens of huge containers from those milling outside wanting to unload them.

"30 workers!" is the call.

The first 30 file inside, heads counted as they pass; a day's work in front of them. There are no guarantees for tomorrow, just as there were none yesterday, but at least today is taken care of.

In 2021, the concept of casual employment is starkly different to the purist idea that started out - that of ad hoc work, no promises or expectation that it would continue, with a modest premium on the hourly rate. It is now not unusual to hear stories about casual employees engaged consistently over many years by the same employer and later claiming permanent employee entitlements. It is telling that, in the mid-1980's, legislation was amended in a number of States and Territories to give casuals long service leave entitlements.

Problems emerge concerning increased use of casual employment

In its 2015 report on Australia's workplace relations framework, the Productivity Commission found that the rate of casual employment nearly doubled between 1980 and 2000. In some industries the use of casual employment is endemic.

What accounts for this significant increase over time? The reasons are various, with some employers using these arrangements to try and maintain some flexibility and variable cost within their labour model. In many cases, workers simply prefer casual employment and the premium that comes with it. There are many situations in between.

Over time some limited employment protections for long-term casual workers have been put in place, such as protection from unfair dismissal for casuals with systematic employment and a reasonable expectation the employment would continue.

Until now, the term "casual employee" was not defined in the legislation for general purposes and took its meaning from the common law. This called for an assessment of the substance and totality of the employment relationship. There were a number of problems with this lack of definition and the law concerning casuals more generally.

First, at common law, the concept of a casual employee was vague and complex, evolving as it did with each decision considered the best and latest precedent. Second, the common law failed to assist in the identification of when an employee's legal status which started as casual later became permanent - a major problem given a lot hangs off the difference. Third, when an employee, at some indeterminate point in time became permanent, logic dictated that he or she would be entitled to additional conditions (such as annual leave, sick leave and redundancy pay) under the NES or another source such as an enterprise agreement. However, along the way the casual employee had been paid a casual loading of 25% intended to cover these same entitlements. The principle that an employee should not receive the same entitlement twice (the so-described "double dip") clashed in these cases with a complicated body of case law concerning the law of offsetting payments. These issues gained public attention recently with cases such as Workpac Pty Ltd v Skene [2018] FCAFC 131 and WorkPac Pty Ltd v Rossato [2020] FCAFC 84.

Three major changes to casual employment rights

The passage into law this week of the Government reforms is the next step in a regulatory evolution of casual employment rights. The Fair Work Act ("the Act") makes three major changes by introducing:

  • a statutory definition of "casual employee" into the Act which gives primacy to the parties description of the relationship when the employment commenced;
  • a limited entitlement to convert from casual employment status to permanent employment under the National Employment Standards ("NES"); and
  • a statutory power obliging a court to offset any casual loading paid against any shortfall amount being claimed by an employee where it is later determined that the employee should have been treated as permanent.

Casual employee defined

The Act defines a casual employee as an employee who accepts an offer of employment in circumstances where the employer made "no firm advance commitment to continuing and indefinite work according to an agreed pattern of work". Codifying factors developed by the common law, the Act provides an exhaustive set of considerations which must be taken into account in determining whether the offer meets the definition of casual employment, which changes the position where Courts would consider an unconfined universe of potentially relevant factors and it was never certain which would win the day.

Now, a regular pattern of hours will not determine the issue, and the question of whether a person is a casual employee is assessed based on the offer and subsequent acceptance, not by the subsequent conduct of the parties. By putting heavy emphasis on the terms and parties' own characterisation of the employment relationship at the start, the Act will have the effect that employment offered on a casual basis will later be considered casual even if subsequent conduct is characteristic of permanent employment. Subsequent conduct is irrelevant which means a person's employment status cannot unintentionally change over time.

Importantly, the new definition has retrospective effect - it applies to offers of employment given before the amendment became law, unless there is a pre-existing determination by a Court that an employee was not a casual, or an employee exercised a "casual conversion" right under an award or agreement before the amendments take effect.

Casual conversion to permanent employment

The Act gives various rights to casuals including that an employer (other than a small business employer with fewer than 15 employees) must offer a casual employee conversion to permanent status if the employee has been employed for a period of 12 months, and during at least the previous 6 months, the employee has worked a regular pattern of hours on an ongoing basis which, without significant adjustment, could continue to work as a full-time or part-time employee. An employer need not make an offer if there are reasonable grounds to decline, such as:

  • where the employee's position will cease to exist within 12 months; or
  • there will be a significant change in the days on which, or times at which, the employee's hours of work are to be performed which cannot be accommodated by the employee's availability.

Should a dispute arise it will be governed by any procedure for settling disputes that applies to the employee contained in the employee's contract, a fair work instrument (including importantly an enterprise agreement) or a separate written agreement. If none of these apply a default procedure is set out in the legislation which provides for conciliation and/or consent arbitration. There is a sleeper issue here where, for example, an enterprise agreement made before these amendments provides for arbitration as the final dispute settlement step. It appears that procedure, including arbitration, will apply to a dispute about casual conversion rights and the "reasonable refusal" issue - disputes clauses invariably apply to disputes arising under the NES, which will contain the new conversion mechanism. There is also a small claims procedure set up giving access to a Court.

We can expect to see many "unreasonable refusal to convert" cases in the future, particularly in circumstances where an employer uses large pools of casuals consistently and over regular work patterns. The employer requirement to provide new casuals with a Casual Employment Information Statement setting out their rights will see that casuals are fully informed about their options.

Offset of casual loading

Following the uncertainty created by the Skene and Rossato decisions mentioned above, the Attorney's General Department estimated that employers could be liable to pay approximately $18 billion to $39 billion (over a six-year period) to employees who, while initially engaged as a casual, may have become permanent over time and subsequently entitled to be paid entitlements such as annual leave.

The Act seeks to address this liability in two ways. The first is the retrospective application of the "casual employee" definition in most cases. The second is that where this does not apply, where a claim is made by a person who has been employed and paid on the understanding that he or she is a casual employee, but is later found to be a permanent employee entitled to additional entitlements, the court must reduce (or "set off") any amount payable by the employer by an amount equal to the casual loading already paid.

This change also has retrospective effect, applying to entitlements accrued before commencement of the amendment. Employers can rely upon this legislation to defend existing claims where the new definition of casual employment does not apply retrospectively.

Other changes

The Act also contains several other provisions which have been less heralded than the marquee amendments, but are worth noting. Principally:

  • The Act amends NES provisions that refer to casual employment. Most significantly, it amends provisions relating to notice of termination and severance entitlements to clarify that service as a casual prior to converting to permanent employment does not count towards an employee's length of service. This resolves an issue which has been of concern to employers since the Full Bench of the Fair Work Commission held that prior casual service should be factored into redundancy entitlements in AMWU v Donau Pty Ltd [2016] FWCFB 3075.
  • The Act's transitional provisions require that within 6 months, the Fair Work Commission review modern awards' provisions defining, regulating the engagement of, and allowing for the "conversion" of, casual employment. This is to ensure harmony with the new legislative provisions. Given the short timeframe, and that the ACTU and peak employer associations all supported the recent abolition of four-yearly award reviews, this may not be a welcome development for a Tribunal already dealing with a heavy workload.

Where to from here?

Of interest to many employers will be the new right to convert from casual to permanent employment. At a strategy level, this directs attention to whether casual employment is being used in a manner that creates exposure to conversion to permanent employment. Long term, this exposure will motivate greater employer discipline in proactively deciding upon the right labour mix (permanent, fixed term, casual, contractors, etc.). There will be less tolerance for bringing on large numbers of casual employees that are used as a flexible labour pool if a change in status can be brought about by a relatively inexpensive Tribunal application rather than a complex and expensive court case seeking unpaid permanent employee entitlements.

In the shorter term, there will be a need to manage the issue of casuals that are already on the books, and the potential for conversion disputes, particularly where resolution will be by compulsory arbitration.

The changes concerning offsetting are sensible. They are largely common sense - something the legal system does not always demonstrate. The Government's efforts to fix this particular problem will be welcomed by many businesses.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.