Industrious Conversations: Navigating changes to casual employment

Talia:

Hello and welcome to Ashurst Legal Outlook. This is our third podcast in our new series bringing you insights into Industrial Relations developments in Australia from our leading Employment team at Ashurst. My name is Talia Firth and I'm a Partner in the Employment team in Sydney. Today we'll be discussing another limb of the Closing the Loopholes changes. That is, the amendments to the Fair Work Act (Act) in relation to casual employees. I'm joined in this discussion by Scarlet Reid, who is also a Partner in our Employment team in Sydney.

Scarlet:

Hello everyone. Today we're going to cover three key changes in relation to casual employment. Firstly, the new definition of a "casual employee" under Section 15A of the Act and what this means for employers. We will then look at the new requirements under the Act to issue a Casual Employee Information Statement (CEIS) during an employee's employment. Finally, we'll discuss the new casual conversion provisions under the NES. We'll explain what has changed and what this means for employers in practice.

Talia:

So the first change to be aware of is that the Closing the Loopholes amendments have introduced a definition of a "casual employee" for the first time. Specifically, under the new Section 15A, an employee is considered to be a casual only if the employment relationship is characterised by an absence of a firm advance commitment to continuing and indefinite work, and the employee is entitled to a casual loading or specific casual rate of pay. We'll look at what this means in more detail, but first, the history of how this change came about is really interesting. Scarlet, how did we get to this point?

Scarlet:

Well, as you said, Talia, prior to these amendments, there was no statutory definition of "casual employee". The approach that was adopted in the industrial tribunals, which is consistent with the definition that's given in almost every modern award, was that a casual employee was an employee who was engaged and paid as such. But then in 2014, an employee by the name of Mr. Skene commenced proceedings against his employer, WorkPac and he was assisted by the CFMEU. Mr. Skene at the time had been employed for two years as a casual employee, and the nature of his work meant that he was provided with rosters 12 months in advance and he worked in accordance with those rosters. So he argued that he was entitled to benefits as a permanent employee. In response, WorkPac argued that there was no general law definition of a casual employee and that the settled industrial tests should be applied.

Ultimately on appeal, the Full Federal Court rejected WorkPac's argument and they said that the industrial meaning should not be adopted for the purposes of assessing who is a casual under the Fair Work Act. It said this for a few reasons, and those reasons included the fact that if that approach was adopted, then this would mean that an employer could merely label an employee as casual at the start of the relationship and changes couldn't be recognised over time. The Full Court adopted the test of whether the employee had an absence of a firm advance commitment as to the duration of the employment or the days or hours the employee would work. So you'll see that this reflects the new definition that Talia just referred to that's been inserted into the Fair Work Act. Now, at the time, this decision caused significant concern amongst employers. They were alarmed that this might open the floodgates to more claims by casual employees and of course that did happen and several class actions were commenced on behalf of groups of casual employees.

Talia:

But the Skene decision is not the end of the story, is it, Scarlet? Because subsequently WorkPac commenced separate Federal Court proceedings in a case concerning another casual employee named Mr. Rossato and those proceedings eventually came before the High Court of Australia. The High Court confirmed the primacy of the contract, that is, the relevant commitment is to be determined by the terms of the employee's contract where the contract is wholly in writing. The High Court reiterated that the role of a court is to determine the character of a legal relationship between parties only by reference to the legal rights and obligations, which constitute that relationship, noting that the Fair Work Act leaves the making of a casual employment contract as something to be agreed between the employer and the employee.

Scarlet:

And that brings us to the new definition of a casual employee under the Fair Work Act. The new definition of a casual employee, which took effect from 26 August 2024, effectively reverses the Rossato decision and takes us back to Skene, the decision which said that the definition is about substance over form. You look to the nature or practical reality of the employment and not necessarily what the contract says and as you explained before, Talia under the new Section 15A, an employee is a casual employee only if the employment relationship is characterised by an absence of a firm advance commitment to continuing and indefinite work, and the employee is entitled to a casual loading or specific casual pay rate under an award, registered agreement or employment contract.

Talia:

So Scarlet, how do you work out whether there is an absence of a "firm advance commitment"?

Scarlet:

Well, the Act says that whether there is a firm advance commitment needs to be assessed on the real substance, the practical reality, and the true nature of the employment relationship. So a firm advance commitment can be in the form of a contract of employment, or an addition to the terms of a contract, or it could be in the form of a mutual understanding between the parties or even an expectation between an employer and an employee. The Act makes it clear that a mutual understanding may be inferred from conduct of the employer and the employee after entering into the contract for employment or from how the contract is performed and there are a number of other factors that must be considered in determining whether there's a firm advance commitment.

These include things like whether the employer can offer or not offer work to the employee (and whether this is actually happening), whether the employee can accept or reject work (and again, whether this is actually happening), whether it's reasonably likely that there will be future work available of the kind the employee usually performs in the employer's business based on the nature of the business, if there are other full-time or part-time employees performing the same kind of work in the employer's business as the work the employee usually performs, and if the employee has a regular pattern of work, even if it changes over time due to, for example, reasonable absences because of illness, injury or other leave. However, a note in the legislation clarifies that a regular pattern of work does not itself indicate a firm advance commitment to continuing and indefinite work if there are other factors that indicate an absence of a firm advance commitment.

Talia:

And of course Scarlet, not all of those considerations need to be satisfied to establish that the employment relationship is in fact characterised by the absence or presence of a firm advance commitment to continuing work, and other factors might also be relevant. So it's important to note that there's likely to be guidance in the future about what is this test of the absence of a 'firm advance commitment' and how does it play out in practice. Scarlet, what I'm interested in is what does this new definition mean for existing casual employees?

Scarlet:

Yes, it's a good question, Talia. So an existing casual employee (and we're talking about someone who was engaged before 26 August 2024), will remain a casual employee until their employment status has changed, including as a result of the new "employee choice" path work that we're going to discuss a little bit later. So an existing casual employee can't rely on the new definition to claim entitlements as a permanent employee.

Talia:

Okay, so you talked about existing people who are casual employees before 26 August 2024. What about a new casual employed after 26 August 2024?

Scarlet:

Yes, that is a good question and we get some guidance in that regard from the Explanatory Memorandum that provides that if a casual employee was correctly classified as a casual employee upon engagement within the meaning of the new definition of casual employee, they'll remain a casual employee until their employment status is changed, including through a new casual conversion process.

However, there are risks if a new casual is actually misclassified. If an employer engages a new casual and their contract says that they're casual, but there are factors to indicate otherwise (in particular, that the employee has a firm advance commitment to continuing work), then the employee may claim that they actually were always a permanent employee and that they're therefore entitled to certain benefits such as accrued leave, etc and they say that they would've had those benefits had they actually been properly classified as a permanent employee in the first place.

Talia:

 That definitely raises issues about double-dipping in circumstances where an employee is being paid a casual loading and they subsequently claim entitlements as a permanent employee. However, there was an earlier amendment to the Fair Work Act to deal with this particular concern, and that is Section 545A of the Act, which says that if a person is employed in circumstances where the employment is described as casual and the employee is paid a casual loading to compensate them for not having certain entitlements and the employee then makes a claim to be paid for those entitlements, a court must in fact reduce any amount payable as a result of the employee not being a casual by an amount equal to the loading. So that is, the court must set off the casual loading paid to the employee against any entitlements arising by reason of them being misclassified.

Scarlet:

Talia, let's move on to the second topic we wanted to discuss today and that is the Casual Employee Information Sheet. This is a really important thing for employers to be aware of. The new definition of casual employment is one of the things explained in a new Casual Employee Information Statement that employers are required to give to casual employees after 26 August 2024. Continuing on the theme of new acronyms from our previous podcast episodes, this is also referred to as the CEIS, Casual Employee Information Sheet. Talia, can you take us through when employers need to give the new CEIS?

Talia:

An employer must now provide an existing casual employee with the CEIS as soon as practicable after they've been employed for 6 months and then again after they've been employed for 12 months and subsequently every 12 months of employment. For a casual employee who commences employment after 26 August 2024, the employer must give the employee the new CEIS before or as soon as possible after the employee starts their employment and then again after 6 months of employment, 12 months of employment and subsequently every 12 months.

Scarlet:

Does this mean that it will be an individual date that varies from employee to employee?

Talia:

That certainly does seem to be how the provisions operate, Scarlet. So for each employee, the 6 month or 12 month anniversary is going to depend on the employee's commencement date and this raises practical issues for employers with large casual workforces who may be required to implement automated systems that effectively flag when a particular casual employee reaches each service milestone after which the new CEIS must be reissued to the employee as soon as practicable. A blanket approach of say, reissuing the statement to all casuals every six months might not be compliant with the requirements because the Act says that this CEIS has to be issued as soon as practicable after an employee has reached particular service milestones. Hopefully this is one of the areas where we'll get more clarification of the practical means of complying with these obligations in the future.

Scarlet:

I certainly hope so. And is there anything else that employers should be mindful of?

Talia:

Well, employers should be aware that it is acceptable and indeed recommended to email employees the link to the CEIS page from the Fair Work Ombudsman's website and that will ensure that employers are providing the notice in its most up-to-date form. It's also important to keep in mind that employers still need to give all new employees a copy of the Fair Work Information Statement and for fixed-term employees, they also have to be provided with the Fixed-Term Contract Information Statement.

Scarlet:

Another feature of the CEIS of course is that it actually explains to casual employees what the new employee choice pathway is. I mentioned earlier that we were going to be discussing this. So the new employee choice pathway is really the last significant change that we're going to touch upon today. And what that is, is that from 26 February 2025, eligible casual employees can notify their employer in writing of their intention to change to permanent employment under Section 66AAB of the Fair Work Act. A casual employee is able to make this notification if they have worked for the employer for at least six months, believe that they no longer meet the casual employee definition, do not have a current dispute with their employer in relation to casual conversion, and in the six months prior, the employee has not refused an offer to convert to permanent employment. So an employer must respond within 21 days after receiving an election from an employee that the employee wishes to make this conversion.

Talia:

So it's fair to say Scarlet, isn't it, that the onus is now on the employee to say that they want to convert to permanent employment?

Scarlet:

Exactly. Previously the onus was on the employer to identify casuals who could convert and make an offer. Now the legislation effectively switches that around.

Talia:

And if an employer decides to grant the request, what do they have to do?

Scarlet:

An employer must discuss a number of points with the employee before giving written notice that it is granting a request for permanent employment. Those points are whether the employee is going to convert to a full-time or a part-time employment arrangement, what the employee's hours of work will be after the conversion takes effect, and they also have to discuss the day that the conversion will take effect. This must be the first day of the employee's first full pay period that starts after the response is given unless the employer and the employee agree that it's going to be another day. If an employer grants the request, it must provide written notice within 21 days detailing whether the employee is converting to part-time or full-time work, the new hours of work and when the conversion takes effect.

Talia:

And there are limited bases, aren't there, in terms of an employer refusing a notification for an employee to convert to permanent employment?

Scarlet:

Yes, that is quite right. So a refusal can only be made on the grounds that the employee still meets the casual employee definition and that's the one we discussed under Section 15A of the Fair Work Act or if there are fair and reasonable grounds to refuse or if accepting the notification would result in the employer not complying with a recruitment or selection process required by law.

Talia:

So the Fair Work Act also defines fair and reasonable grounds for not accepting the notification. Those include where substantial changes would be required to the way in which the work in the employer's enterprise is organised or where there would be significant impacts on the operation of the employer's enterprise, or finally, that substantial changes to the employee's terms and conditions would be reasonably necessary to ensure that the employer doesn't contravene a term of a Fair Work instrument that would apply to the employee as either a full-time or part-time employee, as the case may be.

Scarlet:

Yes and before refusing a notification, the employer must consult with the employee, including discussing the details for the reasons for not being able to accommodate the change and the reasons for the refusal must be provided to the employee in writing.

Talia:

It's important to note, isn't it, Scarlet, that the Fair Work Commission will be able to arbitrate disputes relating to casual conversion and the Commission has power to make specific orders, including to grant requests of conversion or require an employer to make an offer of casual conversion.

Scarlet:

Yes, that is right, Talia. There's certainly some big changes that are taking effect, but the good news is that there is a phased timeline for these changes to kick in. So what does that timeline look like?

Talia:

Well, it's good news and bad news because in fact this spaced timeline actually makes things a little bit tricky for the next six months. That is because we've got these new transitional provisions which provide that the new employee choice regime for casual conversion doesn't start until 6 months after 26 August 2024, which will be 26 February 2025, as you already explained. So for casual employees who were employed before 26 August 2024, their existing casual conversion rights and the employer's existing obligations under the NES will actually continue until 26 February 2024. The new employee choice pathway will enliven from 26 February 2025. For new casual employees who have been employed after 26 August 2024, they cannot access the existing provisions in relation to casual conversion, but they will have access to the new employee choice pathway from 26 February 2025.

So that means that in this transitional period, employers continue to have obligations to any casual employee who was employed before 26 August 2024, in terms of actually making offers to convert to casual employment where the previous requirements under the Act have been met. And employees will have a residual right to request casual conversion during this period as well, where those offers are not made. So it's a bit of a confusing period, but I think everything's going to be clarified come 26 February 2025.

Scarlet:

I agree. Thankfully, once we reach 26 February 2025, this regime is definitely going to become a bit simpler because we won't then have to distinguish between what you and I are calling "old casuals" versus "new casuals" and the employee choice regime will instead apply to all casual employees after that date.

Talia:

And once we do see the commencement of the new employee choice regime, we can expect to see some decisions dealing with these new concepts of "fair and reasonable grounds" to refuse a notification by a casual employee to convert to permanent employment and we might get some more guidance from the Fair Work Commission in that respect as well.

Scarlet:

Yes, I would expect so. A final point I wanted to raise, is that employees' rights under the employee choice provisions are workplace rights and those are protected under the adverse action provisions of the Act.

Talia:

That is a very important consideration, Scarlet. So there's certainly lots of new issues that employers will need to be aware of when engaging and maintaining casual employees going forward.

Scarlet:

Yes, indeed. In summary, employers should make sure they understand the new definition of casual employee and should carefully consider whether their casual arrangements, in fact, meet this definition. Employers should also make sure that they have processes in place to make sure that casual employees receive the CEIS at the right times. Finally, employers need to be prepared to respond to notifications from casuals to change to permanent employment once the new employee choice pathway comes into play and that'll be from 26 February 2025.

Talia:

Excellent. Thanks so much, Scarlet.

Scarlet:

Thank you, Talia.

Talia:

Thank you for listening. To hear more Ashurst podcasts and to ensure you don't miss any future episodes in the series, subscribe now on Apple Podcasts, Spotify or your favourite podcast platform. Also, please do reach out to our Employment team if you'd like to discuss this topic more, it's one that we are following closely and have a keen interest in. We hope you'll join us next time to gain insights from other members of our leading Employment team here at Ashurst as we continue to explore key developments in Industrial Relations in Australia. Until then, thank you for listening and goodbye for now.

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