Legal Alert

FORM OVER SUBSTANCE?
IMPLICATIONS FOR EMPLOYERS ARISING FROM THE NEW DEFINITION OF CASUAL EMPLOYMENT IN THE FAIR WORK ACT

Authors: Jenny Inness, Justin Pen & Justin Handisurya

In the wake of the extensive WorkPac litigation* dealing with the meaning of casual employment, the Federal Government has recently passed legislation amending the Fair Work Act 2009 (Cth) (FW Act) and introduced a new definition of casual employment.

The new legislation (the Fair Work Amendment (Supporting Australia’s Jobs and Economic Recovery) Bill 2021), which became law on 26 March 2021, means that:

1. there is a now a new statutory definition of casual employment , which retrospectively overrides any pre-existing common law definition of casual employment, in Australia;
2. employers will be obliged to offer employees conversion from casual employment status to permanent employment status in certain circumstances;
3. there is a new ‘anti double-dipping’ provision to avoid the situation encountered in the WorkPac litigation;
4. employers must provide new casual employees with a copy of the Casual Employment Information Statement published by the Fair Work Ombudsman before (or as soon as practicable after) they commence employment; and
5. the Fair Work Commission must review Modern Awards to ensure that Awards are consistent with this new legislation in relation to casual employment and casual conversion.

This alert expands on each of the above matters and the implications for employers.

1. The Importance of the “Offer” of Casual Employment

The terms of a letter of offer (or contract of employment) that an employer gives to a casual employee are now more important than ever, given the new definition of casual employment. This is because the new definition of a causal employee focuses on the form (or label) given to the employment, rather than the substance of the employment relationship as it is actually performed.

Under the new legislation, a person is now a casual employee if:

1. an offer of employment has been made to them on the basis that the employer is not offering a firm advance commitment to continuing and indefinite work;
2. the person accepts the offer on that basis; and
3. the person is an employee as a result of that acceptance.

The legislation sets out various factors that might indicate that an offer of casual employment is made on the basis that no firm advance commitment to continuing and indefinite work is made. For example, if the employer has the ability to elect to offer work, and the employee has the equivalent ability to reject offers of such work, then that is one factor pointing towards an offer of casual employment.

Significantly, in all but a small number of cases, these amendments apply retrospectively to offers of casual employment made before, and after, 26 March 2021.

Implications for Employers

Employers should conduct a review of the casual employment contracts and casual letters of offer that they use, to ensure that the terms of those documents are expressly made in accordance with the new definition of casual employment. This is critical to ensure that all new casual employees are employed under this newly formulated definition.

Furthermore, given the retrospective operation of this legislation, employers should also conduct a full audit their existing casual workforce, and consider whether updated casual letters or contracts should be given to current casual staff, to ensure that the offers that have been made to existing casual employees are consistent with the new definition.

2. Employers have an Obligation to Convert Casuals to Permanent Employment

Unless you are a small business employer, the new legislation also means that employers must make an offer to any of their casual employees to convert to permanent part-time or full-time employment status if:

1. the casual employee has been employed for 12 months beginning on the day the employment started; and
2. during at least the last 6-months of that period, the employee has worked a regular pattern of hours on an ongoing basis which could continue to be worked in a part-time or full-time capacity (as the case may be).

Many employers are likely to have long term casual employees who satisfy both of the above criteria.

This casual conversion obligation is a mandatory obligation under the new legislation, and the only way that an employer can lawfully avoid taking this step, is if an employer has what is described as “reasonable grounds” not to make a casual conversion offer. Such “reasonable grounds” might include, for example, if the employer knows that the employee’s position is going to cease to exist in the next 12 months anyway. Employers should carefully consider whether any such grounds exist before declining to offer permanency to a long-term casual employee.

Unless such “reasonable grounds” exist, employers must make casual conversion offers before 27 September 2021 because the legislation includes a 6-month transitional period to allow employers sufficient time to ensure compliance with these new provisions.

Implications for Employers

We recommend that employers immediately audit which employees satisfy the casual conversion criteria, and identify as soon as possible which employees are entitled to be offered casual conversion, well before the September 2021 deadline.

The legislation includes various technical procedural steps for employers to follow to lawfully implement casual conversion. We recommend that employers seek advice to ensure compliance with these steps.

Finally, the legislation provides that an employer must not reduce or vary an employee’s hours of work (or terminate employment) to avoid the rights or obligations of the new legislation.

3. A New Right to “Set Off”

The legislation also establishes new rules that govern how a Court is to deal with periods of employment that were labelled or described as casual employment (and where employees have been paid casual loading), but where the employee was not, in substance a casual employee during the employment.

In such circumstances, a Court must now take into account any identifiable amounts paid by an employer to compensate the employee for not being paid leave entitlements, if an employee brings a claim for payment of those leave entitlements.

For example, if an employee brings a claim for $10,000 arising from an alleged entitlement to annual leave under the Fair Work Act 2009 (Cth), but that employee has been described as a casual and has been paid $8,000 in identifiable casual loading amounts during their employment, a Court now must reduce any payment of annual leave by the amount the employee has already received in identifiable causal loading amounts. In this case, that would result in an employer owing an employee $2,000 for unpaid annual leave entitlements (being the difference between $10,000 and $8,000).

In effect, the legislation enacts a saving provision against, what some commentators have called, casual employees’ “double dipping”. That is, the risk of an employee receiving both:

• the benefit of both a loaded rate (which may include, for example, a casual loading, penalty rates, and overtime loading), owed to a casual employee; and
• the benefit of statutory entitlements (which may include, for example, annual leave pay, notice of termination pay, redundancy pay), owed to a permanent employee.

The Court’s obligation to set-off identifiable loading amounts from any statutory entitlements claimed also has retrospective effect and applies to claims arising from periods of employment that preceded the passage of the Bill.

Implications for Employers

Employers should also review and consider the pay arrangements and pay slip documents provided to casual employees to ensure that each of an employee’s loaded rates are sufficiently referable to an identifiable entitlement (for example, an entitlement to a casual loading, penalty rates, or overtime loading) under a fair work instrument (such as a modern award or an enterprise agreement) or under a contract of employment.

4. The Casual Employment Information Statement

The new legislation also requires all employers to give their new casual employees the Casual Employment Information Statement before, or as soon as practicable after, the employee starts employment as a casual employee.

All new casual employees on and after 26 March 2021 must be given this Statement, which the Fair Work Ombudsman has published, and is available on the Fair Work Ombudsman website.

Employer must ensure that they provide this Statement to all new casual employees, and take steps to provide the Statement to any employees that have commenced casual employment since 26 March 2021.

5. Impact on Existing Modern Awards and Enterprise Agreements  

Many Modern Awards and Enterprise Agreements contain terms dealing with the meaning of casual employment in particular industries, and dealing with how casual employees can convert to permanent part-time or full-time employment.

The new legislation gives employers the right to apply to the Fair Work Commission to seek a variation to their current Enterprise Agreement, given the changes to casual employment enacted by this new legislation.

Similarly, the Fair Work Commission has announced that it will be conducting a review (as required by the new legislation) of Modern Awards to address the interaction of those Modern Awards with this new legislation regarding casual employment. The FWC has established a major case website to publish material relating to its review. If employers wish to make submissions as part of this FWC review we recommend that you seek advice as soon as possible.

* WorkPac Pty Ltd v Skene [2018] FCAFC 131 and WorkPac Pty Ltd v Rossato [2020] FCAFC 84 (on appeal to the High Court to be heard on 12 and 13 May 2021)

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