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Greater certainty for employers of casuals

01 April 2021

#Workplace Relations & Safety

Published by:

Julia Wyatt

Greater certainty for employers of casuals

Despite the efforts of the Federal Government to unite industry parties around industrial relations reforms in a range of areas, the Fair Work Amendment (Supporting Australia's Jobs and Economic Recovery) Act 2021 (Cth) that commenced from 27 March 2021 is confined to issues relating to casual employment. Without the support of Labor and the Greens, the Government was unable to negotiate the passage through the Senate of the bulk of its proposed legislation.

In this article, we look at how recent Federal Court decisions have created uncertainty around casual employment and how the new amending legislation aims to address these issues.

Workpac rulings

The Fair Work Act 2009 (Cth) (FW Act) exempts casuals from entitlements to paid leave, notice and redundancy pay provided in the National Employment Standards (NES) of the FW Act. Employers assumed if they engaged someone as a casual and paid them a casual loading, they could be confident that they didn’t need to provide these NES entitlements to that person.

This assumption was challenged in the decision of the Federal Court in Skene v WorkPac Pty Ltd (2018) 264 FCR 536 (Skene), which resolved a claim that an employee was not exempt from NES entitlements to paid annual leave, despite being designated as a casual and paid a casual loading. The Court ruled that, for the purposes of the NES exemption of casuals, an employment relationship will not be casual where the employer gives the employee a firm advance commitment to continuing and indefinite work according to an agreed pattern of work, and the employee reciprocates by committing to be available on a continuing and indefinite basis to perform work according to that agreed pattern.

Following the Skene decision, industry groups raised concerns about the financial viability of casual employment, asserting that the ruling leads to ‘double-dipping’ as casual loading was generally paid to casuals as compensation for the absence of NES entitlements to paid leave, notice and redundancy pay.

Following Skene, the Federal Government’s initial solution was to insert Regulation 2.03A into the Fair Work Regulations 2009 (Cth) to enable employers to offset the casual loading paid to putative casuals if a court determined that they were not covered by the NES exemption. However, this mechanism was rendered nugatory following the decision of the Court in Workpac Pty Ltd v Rossato [2020] FCAFC 84 (Rossato). This decision determined a claim by an ex-employee, who like the applicant in Skene was designated to be a casual, for NES paid personal/carer’s leave and compassionate leave.

In the Rossato decision, the Court followed and amplified the ‘firm advance commitment’ test developed in the Skene decision. The Court also held that Regulation 2.03A could not be relied upon by the employer to set off the casual loading against the claimed entitlements. That was because the applicant in Rossato was seeking payment for his NES entitlements, not payment ‘in lieu’ of an NES entitlement as required under Regulation 2.03A.

The High Court appeal of the Rossato decision is underway with the hearing likely to be listed during this year. It will be interesting to see what influence, if any, the new amending legislation will have on the Court’s deliberations.

Amending legislation

The legislative amendments to the FW Act that took effect on 27 March 2021:

  • insert, for the first time, a statutory definition of casual employment
  • create an NES entitlement for casuals to request conversion to permanent employment
  • address the defects in the mechanism for offsetting casual loading against claims for paid NES entitlements provided in Regulation 2.03A
  • make provisions for resolution of disputes, transitional arrangements and the issuing of a Casual Employee Information Statement.

New definition of a ‘casual employee’

The amending legislation enshrines a definition of casual employment, adopting in part the test in the Skene and Rossato decisions. Under the definition, a person will be a casual if:

  • an offer of employment is made by the employer to the person on the basis the employer makes no firm advance commitment to continuing and indefinite work according to an agreed pattern of work for the person; and
  • the person accepts the offer on that basis and becomes an employee as a result of that acceptance.

The new definition will require that, in determining whether, at the time the offer is made, the employer makes no firm advance commitment to continuing and indefinite work according to an agreed pattern of work for the person, and must have regard to:

  • whether the employer can elect to offer work and whether the person can elect to accept or reject work
  • whether the person will work as required according to the needs of the employer
  • whether the employment is described as casual employment
  • 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 an award or enterprise agreement.

Importantly, once the original offer meets that test and is accepted by the employee, the casual status of the employee is ‘locked in’ and cannot be affected (at least for the purposes of FW Act entitlements) by any subsequent conduct of the parties. In this respect, the statutory definition departs from the Federal Court rulings in Skene and Rossato, which contemplated that aspects of the employment relationship post-engagement were relevant in determining the existence of the firm advance commitment. For the purposes of the FW Act, a person employed as a casual at the outset remains a casual until converted to permanent employment or the person accepts an alternative offer of employment from the employer.

NES casual conversion rights

The NES now requires employers to offer eligible casual employees conversion to permanent employment after 12 months of service, unless there is a reasonable business justification not to do so.

To be eligible, the employee must have worked regularly and on an ongoing basis for at least six months of that period. The obligation to offer conversion will not be imposed on small business employers, although they will still need to grant conversion requests from eligible casuals unless they have reasonable grounds for refusing the request.

The new legislation also amends the FW Act to clarify that previous casual service (within the definition of casual employee) will not be accounted for in the length of service for determining NES annual leave, personal/carer’s leave, payment in lieu of notice and redundancy pay. Therefore, upon conversion to permanent employment, the previous period of service as a casual should not impact these entitlements.

The Fair Work Commission (FWC) has been granted authority to deal with small claims disputes about the new NES entitlement to casual conversion if discussions at the workplace level do not resolve the dispute.

Setting off casual loading

The new legislation allows courts to offset casual loading amounts paid to an employee against certain permanent employee entitlements, during a period when that employee was not a casual employee.

When making orders involving underpayment of entitlements, a court must now reduce any amounts payable to the employee for relevant minimum entitlements against any casual loading paid to that employee in lieu of those entitlements.

Importantly, the employee must have been misclassified as a casual employee for the casual loading offset to apply. The new definition of casual employee and the universal rights of casuals to request conversion to permanent employment should lessen the prospective likelihood that a casual employee will be misclassified.

There is still some uncertainty surrounding exactly how the offset calculations will be applied by the Court. For example, if casual loading is set at 25 per cent, how will this be apportioned when reducing the claimed permanent employee entitlements?

Employers should ensure that instruments used to engage casuals expressly link the payment of loadings with the absence of NES entitlements to paid leave, notice and redundancy pay. This is a prerequisite for the operation of this new statutory right to set off casual loading against claims for these entitlements.

Casual Employee Information Statement

The new legislation obliges employers to issue new casuals with a Casual Employment Information (CEI) Statement, to inform them of their entitlements to request casual conversion. The Fair Work Ombudsman will shortly publish this document.

Transitional provisions

The new amendments will have a significant impact on employers as well as current and future casual employees. Employers have been given until 27 September 2021 to assess all existing employees against the conversion criteria and offer conversion to permanent employment if the employee meets the eligibility requirements and there are reasonable grounds to do so.

During this period, the FWC is also required to review all modern awards to ensure they are consistent with the new statutory definition of casual employee and the new NES casual conversion provisions. They will vary these awards to the extent of any inconsistency.

Any employment offers made before 27 March 2021 will fall within the meaning of casual employment under the FW Act as long as they satisfy the criteria in the new definition of casual employment. In this way, the new statutory definition of casual employee will apply to the engagement of a casual employee retrospectively.

Exceptions to the retrospective application apply where:

  • an employee is found by a court not to be a casual employee before 27 March 2021
  • an employee has converted to an employment basis other than casual under the FW Act or a contract of employment.

The casual conversion entitlement and the offsetting provisions also apply retrospectively.

The retrospective application of the amendments to former employees impacts their ability to pursue common law claims for misclassification or, alternatively, limits the compensation available for underpayments resulting from misclassification by retrospective application of the new statutory offsetting rule.

What this means for employers

The proposed changes provide certainty and clarity around casual employment and ‘double-dipping’.

Employers should be ready to reassess their casual workforce in light of these changes and note the retrospective application of the changes to existing casual employees. Employers should also be prepared to manage the casual conversion arrangements.

The following steps may be taken by employers to ensure compliance with the new provisions:

  • review and update casual employment contracts
  • update onboarding procedures for casuals to include the CEI Statement
  • undertake an assessment of their existing casual employment engagements within the six-month transition period
  • ensure any changes to modern awards within the six-month transition period are complied with
  • create new policies to accommodate the new requirements, including staff training
  • establish procedures for:
    • offering casual conversion
    • addressing requests for casual conversion
    • resolving internal disputes of this nature.

Authors: Charles Power & Julia Wyatt

The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.

Published by:

Julia Wyatt

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