Following the recent passing of the Fair Work Amendment (Closing Loopholes No 2) Bill, employers will soon be subject to new laws governing the conversion of casual workers to permanent status – the ‘employee choice’ framework.

These changes, effective from 26 August 2024, will introduce a new definition of casual employment, along with new pathways for casual workers to convert to permanent employment if they wish to.

The new definition of casual employment shifts the focus from the terms of the employment contract to the practical reality of the employment relationship. This means that rejecting a casual worker’s request to become permanent will be more complex, since HR will no longer be able to lean on contracts to establish casual status.

However, these laws will also make it more difficult for casual workers to gain the protections of permanent employment, as the framework is only available if the employee no longer satisfies the definition of a casual employee. There will also still be many instances where an employer has reasonable grounds to refuse a request. 

In preparation for the new legislation to come into effect, here are some key legal considerations to keep in mind when determining whether a casual worker is entitled to convert to permanent status.

Understanding new laws around casual conversion

One of the most significant changes coming from the new legislation is the removal of employers’ obligation to initiate casual conversion.

The process is transitioning from one which is reliant on the employer checking employment status and offering conversion accordingly to one that places the onus on employees to notify the employers that they no longer meet the definition of a casual and therefore should be permanent employees. 

For HR, this shift has the potential to eliminate much of the busywork involved in checking on the length and status of employment and offering conversion to employees who may not wish to become permanent. The changes reflect the reality that many workers, particularly in sectors like retail and hospitality, are casual by choice and do not wish to lose the casual loading or flexibility this status gives them. 

With that said, the upcoming legislation also has measures in place to allow workers who do wish to convert to permanent status to do so and gain protections such as paid leave, notice of termination and redundancy pay. 

This is likely to have most impact in industries such as aged care, community services, childcare and labour hire companies, where work tends to be predictable, but where it has traditionally been challenging for some workers to convert to permanent status.

Particularly for employers in these industries, it’s crucial to understand what will constitute reasonable grounds to refuse a request under the new laws. 

This is especially true in light of the increased anti-avoidance penalties for improperly engaging casual workers, which were introduced in February this year. 

Employers now face significant civil penalties (up to $93,900 for individuals and $469,500 for body corporates) for breaches, such as dismissing or threatening to dismiss an employee with the plan to re-engage them as casual, making false statements to persuade an individual to enter a casual employment contract or misrepresenting employment as casual. 

Read more about new laws for engaging casual workers and how they could impact your business here.

Grounds for refusing a casual conversion request  

Under the new employee choice framework, employers can reject a request if the employee still fits the new definition of a casual employee. Employers will also retain the ability to reject a request based on fair and reasonable operational grounds. 

These grounds are situations such as where converting a casual employee to a permanent status would cause significant disruption to the business operations or substantial changes would be required to the way in which the employer’s work is organised. 

For instance, if the work is highly weather-dependent or heavily influenced by varying customer demand, employers may argue that maintaining a casual, flexible workforce is essential. Industries such as quarrying, where operations can be halted due to weather, or retail, where the volume of work varies greatly, are typical examples of where these grounds might apply. 

“Even if an employee works a regular pattern of hours, this does not necessarily mean they are entitled to permanent employment.”

An employer can also reject a conversion request on the grounds that there is an absence of a firm advance commitment to continuing and indefinite (i.e. they still fall within the new definition of a casual employee).

Currently, the absence of a firm advance commitment is largely determined by the terms of a contract. Under the new legislation, to refuse a request on the basis that they still fit the definition of a casual employee, employers will need to demonstrate that there is no such commitment by assessing how the relationship plays out in reality and not just having regard to the terms of the contract.

This involves considering factors such as the employee’s ability to turn down shifts or the variability of their work hours. If an employee can decline work or if their schedule lacks consistency, that will support the notion that they still meet the casual employee definition. 

Another factor that may be relevant is how far in advance an employee is informed of their shifts and patterns of work. This issue was raised in Workpac vs Skene, a 2018 Federal Court case where a casual worker was found to fit the definition of a permanent employee in part because he was provided with 12-month rosters in advance.

Employers may also assess whether there are full- or part-time employees performing exactly the same work as the casual employee. If this is the case, this can indicate the presence of a firm advance commitment to continuing and definite work, potentially making them eligible for permanent employment.

Importantly, even if an employee works a regular pattern of hours, this does not necessarily mean they are entitled to permanent employment. 

Best practice for rejecting a casual conversion request

If an employer determines that the employee still meets the casual employee definition or they have fair and reasonable operational grounds kto refuse a request, it’s important to communicate this decision to the employee the right way.

When rejecting a request on the basis of fair and reasonable operational grounds, employers must clearly articulate the specific operational reasons for the rejection in writing, this might include outlining the business’s need for flexibility and any negative impact a permanent conversion might have. 

It’s important to thoroughly communicate the context of customer needs or other variables, and why the current casual arrangement is necessary for their operations. 

Providing clear and detailed written responses is crucial not only to avoid disputes, but also to help employees understand the decision, manage their expectations and avoid misunderstandings. 

While employment contracts are no longer the sole factor in determining whether an employee is casual or not, it remains important to include clear contractual terms that align with the new definition of a casual employee, and keep clear records of the casual loading that has been paid to employees based on their employment status. 

While the upcoming legislation aims to reduce the burden on employers whilst still providing a pathway for casual employees to convert to permanent status, employers may still have valid grounds to refuse these requests (such as because the employee still fits the casual definition, or due to fair and reasonable operational grounds). By assessing, documenting and clearly communicating their  reasons for rejection, employers can mitigate legal risk and maintain the necessary flexibility in their workforce.

Will Snow is a Director and Molly Shanahan is an Associate at Snow Legal.

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The Fair Work Amendment (Closing Loopholes No 2) Bill was recently passed, making significant changes to the Fair Work Act 2009 (FW Act). Among these changes is a new definition of ‘casual employee’ which will come into effect on 26 August 2024. 

Previously, under section 15A of the FW Act, the definition of casual employment was if:

1. An offer of employment by the employer is made on the basis of no firm advance commitment to continuing and indefinite work according to an agreed pattern of work.
2. The person accepts the offer.  
3. The person is an employee as a result of the acceptance. 

The new definition of casual employment considers the practical reality of the relationship, as opposed to merely the terms in the employment contract (as was previously the case). Broadly put, the new definition encompasses an absence of a firm advance commitment to continuing and indefinite work, and in circumstances where the employee is entitled to a casual loading or specific rate of casual pay under an industrial instrument. 

There are a broad range of considerations to determine whether there is an absence of firm advance commitment to continuing and indefinite work, including the real substance, practical reality and true nature of the employment relationship, and whether: 

• There is an inability of the employer to elect to offer work, or an inability of the employee to accept or reject work.
• It is reasonably likely there will be future availability of continuing work.
• There are full-time or part-time employees performing the same kind of work.
• There is a regular pattern of work for the employee.
• These amendments acknowledge a firm advance can take a range of different forms, including in an employment contract, but importantly, through a mutual understanding or reasonable expectation.

New pathways for casual workers to convert to permanent employment

The changes also include a new pathway for employees to change to permanent employment status, previously known as casual conversion. The new pathway replaces the existing right to casual conversion. 

If an employee has been employed for six months (12 months in a small business), they can choose to change their employment status to permanent. There must be a specific event which clearly shows the transition, and it’s now up to the employee to initiate the shift to employment. 

The upside is that the onus is no longer on the employer to review and offer casual conversion.

“The new definition of casual employment considers the practical reality of the relationship, as opposed to merely the terms in the employment contract.”  

Akin to requests for flexible work arrangements, casuals can write to their employer to notify them that they’d like to change their employment status, and employers are required to respond within 21 days. 

An employer may refuse a notification on any one of the following grounds:

• They believe the employee has been correctly classified as a casual employee, e.g. they aren’t working on a systematic basis.
• There are fair and reasonable operational grounds for not accepting the notification, such as if substantial changes would be required to the way work in the business is organised to allow the employee to convert. 
• A change of employment status to full-time or part-time would not comply with a recruitment or selection process required by law, such as the Public Service Act 1999, which outlines that casuals cannot convert without a competitive selection process.

Avoidance penalties to be aware of

The changes will also introduce new anti-avoidance provisions to prevent employers from improperly engaging casual workers. This means employers must not: 

• Dismiss or threaten to dismiss an employee with the plan to then re-engage them as casual. 
• Make false statements to persuade an individual to enter a casual employment contract, such as telling them they will be financially better off.
• Misrepresent employment as casual.

Breaching these provisions can attract civil penalties. The maximum payable under the FW Act increased by 500 per cent for both standard civil contraventions and serious contraventions from 27 February 2024. Companies can now face fines of $469,500, or $4,695,000 for serious contraventions.

Implications for employers engaging casual workers

HR professionals should get across these changes and update their casual conversion processes and procedures to ensure a smooth transition and compliance with the new regime.  Factors to consider include: 

• While not having a firm advance commitment to continuing work is a consideration in determining whether an employee is casual, employers should still consider any conduct on their behalf which could suggest the employee is not a casual (e.g. while a contract says there will not be commitment, sending a text to the casual promising to give them a specific shift every week).
• Ensuring casuals are paid a casual rate or casual loading where they would otherwise be entitled to one under an industrial instrument.
• Being aware that casuals can now request conversion to permanency, and considering what grounds (if any) an employer has to reject such a request.

Fay Calderone is an Employment Partner at Hall and Wilcox. 

A version of this article was first published in the June 2024 edition of HRM Magazine.

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Editor’s note: The Senate committee report on the Closing Loopholes Bill has now been delayed until February 2024.

The government is determined to ‘close loopholes’ around pay and working conditions with its latest tranche of industrial relations reforms. Stronger sanctions will be put in place for deliberate acts of underpayment – including jail time – and gig workers could see a boost in the protections and rights afforded to them, should the legislation get passed.

The Closing Loopholes Bill, which was introduced on Monday 4 September, also includes a federal approach to criminalising industrial manslaughter and new obligations around converting casual staff members.

None of these announcements are particularly surprising. We knew these things were in the pipeline. But they have still been met with concern from some parties.

Employer Groups say the new rules could create “uncertainty and complexity” for millions of casuals, contractors and labour hire workers, and claim that the first round of IR changes (Secure Jobs, Better Pay Bill) “resulted in deeply flawed change to the system that industry is still struggling with”.

To this, Tony Burke, Minister for Employment and Workplace Relations, and Minister for the Arts, told the Canberra Press Gallery, “When Secure Jobs, Better Pay legislation was introduced to the Parliament last year, we were told it would lead to unemployment. We were told it would lead to strikes. We were told it would fail in getting wages moving.”

He goes on to list the positive results to come out of the bill so far: less industrial action, 85 per cent of newly created jobs are full-time and more women are in full-time employment.

“This legislation is making a difference,” he said. And he’s confident this next suite of changes will be no different.

Here are the big-ticket items in this new Bill that HR should be across.

Jail time for wage theft

Employers who deliberately underpay their staff could face a maximum of 10 years in jail or million-dollar fines (capping out at $7.8 million, or three times the amount that was underpaid if that exceeds the maximum fine).

“It is and should be a criminal offence for the worker to be taking money from the till,” said Burke. “But it is not a criminal offence, in most of Australia, for the employer to be taking money from the wages.”

Penalties won’t apply to employers who make “honest mistakes”, Burke has clarified. Support will be afforded to employers who self-report accidental underpayments and the

Fair Work Ombudsman will be able to use its discretion in instances where it doesn’t pursue criminal proceedings, such as if the employer elects into a ‘cooperation agreement’ to right their wrongs.

The government has also announced an increase to the maximum penalties available for civil breaches of underpayment-related provisions (as advised by recommendation 5 of the Migrant Workers’ Taskforce report) which will come into effect on 1 January 2024, if the Bill is passed.

“It’s unlikely that a person will be jailed if they can prove that they have taken all reasonable steps to ensure that workers are being paid correctly.” Aaron Goonrey, Partner, Pinset Masons

Aaron Goonrey, Partner at Pinset Masons, says that the legislation could target anyone who was involved with purposefully withholding payments. Without seeing details of the Bill in full, he speculates this could include the company director, a CEO, payroll officer, legal advisor, accountant or an HR manager.

In determining what constitutes a deliberate underpayment, he says “consciousness and intent” will need to be proved. 

“Under the Victoria Wage Theft Act, the test to prove ‘dishonesty’ of a person in underpayments is “according to the standards of a reasonable person”.

“It may be a similar test to the existing accessorial liability provisions under the Fair Work Act. Accessorial liability occurs when a person is involved in the contravention of a workplace law.”

A contravention occurs when someone:

• Assisted, recommended or caused the contravention
• Influenced the contravention
• Was knowingly concerned in or a party to the contravention
• Conspired with others, which resulted in the contravention

Jonathon Woolfrey FCPHR, Chair of AHRI’s Industrial and Employer Relations Advisory Panel says, “Most employers will have little to fear in regard to ‘deliberate acts of underpayment’, but they will want to ensure they aren’t “reckless”, which may bring them within the parameters of the proposed bill.”

A detailed understanding of the National Employment Standards and Modern Award obligations is critical, he adds.

“It’s a common misconception to assume that paying at, or above, Modern Award rates automatically meets an employer’s obligations. A more thorough assessment is needed,” says Woolfrey, who is the Managing Partner at Talenting and an AHRI Board member and State President.

To prepare for these potential changes, Goonrey says regular payroll audits and due diligence around time and record-keeping should be a key priority for employers.

“It’s unlikely that a person will be jailed if they can prove that they have taken all reasonable steps to ensure that workers are being paid correctly.”

Woolfrey adds that employers could also implement or revise a remuneration framework that outlines an organisation’s salary, superannuation and other compensation strategies.

“[HR could also implement] ongoing monitoring mechanisms, such as regular reports to management or the board, to adapt to the dynamic IR environment, or [perform] scenario tests to assess how the organisation handles complex employment situations and whether it meets or exceeds legal requirements.”

Woolfrey says “no HR professional would argue against the broad intent of wage theft legislation”, but feels it misses broader issues.

“[The legislation] essentially serves as a distraction from the fundamental issue – the complexity of the industrial relations system. Ironically, given the rapid pace of IR reform over the past year, this new legislation contributes to that complexity. While Minister Burke has assured that the “objective is not to send people to jail,” the legislation’s big-stick approach seems to sidestep the real concerns of businesses.”

Small businesses (those with fewer than 15 employees) will be exempt from this new law.

“Ideally, you want the same rights for people in every workplace, but we have to take into account the fact small businesses don’t have an HR department,” said Burke.

The Government is pledging $32.4 million over four years to act on its plans to criminalise wage theft, which could include a “strong and visible” regulator. If passed, these changes are said to come into effect no later than 1 January 2025.

Closing loopholes for gig workers and labour hire

The Fair Work Act currently doesn’t define what an “employee” is. Instead, the courts have been referring to the ZG Operations v Jamsek case as precedent, which determined that what’s stated on an employment contract is what determines employment status.

The new Bill will include an official definition of an employee, which will also make it clearer who constitutes as “employee-like” (i.e. gig workers). Burke says the FWC will assess if someone is “employee-like” by asking:

• Do they have low bargaining power? 
• Do they have low levels of control over the work they do? 
• Are they being paid less than they would get if they were being employed as an employee? 

If the answer is ‘yes’ to these questions, then they may be entitled to further workplace rights.

For example, these “employee-like workers” (rideshare drivers/delivery riders) currently don’t have access to things such as sick leave, annual leave and minimum rates of pay.

Under the proposed laws, which would come into effect in November 2024, the Fair Work Commission will be given new powers to set minimum standards, via applications from relevant parties, including pay, penalty rates, superannuation, payment terms, record keeping and insurance.

“It’s likely that unions will take a leading role in this exercise,” says Goonrey.

“Gig economy workers will keep their status as independent contractors and the FWC will not be able to set standards on terms such as overtime rates, rostering arrangements or to change how a worker is engaged,” he adds. 

This would go against the very nature of gig work, which attracts some people due to its flexible nature.

Gig workers will also have access to a new jurisdiction within the FWC where they can claim “unfair deactivation” (an iteration of unfair dismissal) if they believe they were banned from a particular platform (e.g. UberEats app) without a fair reason.

These new rules are designed to make conditions safer for gig workers and to afford them with minimum standards for employment.

“It’s got to be possible to have 21st-century technology without having 19th-century working conditions,” said Burke.

As well as protections for gig workers, certain employers (excluding small businesses) will also no longer be able to introduce labour-hire workers to undercut the wages of those working under an enterprise agreement. 

Employees, unions and host employers will be able to apply to the FWC for an order that labour hire employees be paid at least the wages outlined in the host employer’s enterprise agreement, says Goonrey.

“Employers will be banned from taking action to avoid their obligations or prevent an order being made,” says Goonrey.

Head of the Minerals Council of Australia, Tania Constable, told the SMH that she believes these proposed changes – originally captured under the Same Pay, Same Job Bill – have the potential to “damage the economy”, stating it could “potentially smothers the entire economy, capturing every business that provides workers, services or skills to another company”.

But Burke says the legislation is likely to only impact 67,000 workers and that he’s not trying to turn every worker into an official employee. The changes are aimed at larger organisations, with the government citing the mining and aviation industries as key focus areas.

“If you are an employee, you have a whole series of rights. If you’re not an employee, all of those rights – all of them – fall off a cliff,” said Burke.

“What we want to do is turn that cliff into a ramp. So, for people in the gig economy, [we would] have a situation where you don’t get all the rights you would have as an employee, but you do have some minimum standards.”

Burke stated that there will still be a place for labour hire and gig workers to manage short-term fluctuations in demand and/or when a situation calls for a specialist skill set, so has included a three-month exemption period for these circumstances.

“A set-and-forget approach was a risky approach before, but now it’s not a viable approach for any employer.” – Jonathan Woolfrey FCPHR

Greater legal protection will also be created for independent contractors. Burke said since the Independent Contractors Act was introduced 17 years ago, it has only been used 68 times and the court has only made a ruling in three of those cases. 

He believes this is because it requires independent contractors to engage in expensive legal battles, which was unrealistic for the average contractor.

He plans to introduce a threshold for ‘no-cost’ jurisdiction within the FWC, which would make it more affordable for some contractors to enforce their rights.

Goonrey says “now is the time for both labour hire and host employers to assess their current arrangements and consider how these may need to adapt going forward to ensure contractual compliance while also seeking flexibility.”

Permanent pathways for casuals

The legislation proposes that casual workers who engage in regular and systematic hours should have access to leave entitlements and guaranteed hours by changing their employment status to permanent should they wish to.

“There would be no back pay of wages or entitlements prior to the period of conversion,” says Goonrey. “In essence, it would be another pathway for casual employees to convert to more permanent employment.”

Currently, an employee may request casual conversion any time after their 12 month anniversary of engagement, he says. 

Woolfrey says the new law would see employers required to offer a pathway to permanent work within the first six months.

“It’s estimated that this may allow up to 850,000 current casual employees the opportunity to request permanent work, which could have significant impacts on many employers. 

“This, combined with proposed changes around the use and payment of gig and labour hire workers, mean that HR practitioners need to have a thorough understanding across the various modes of employment their employer uses and ensure they’re fully aware of the employment situation and contract of each and every worker they directly or indirectly engage. 

“A set-and-forget approach was a risky approach before, but now it’s not a viable approach for any employer.”

Small business owners will be given a 12-month service period window before their casual employees can access new voluntary conversion pathways.

Read more on casual conversion here.

Criminalising Industrial manslaughter

Ninety-one workers have been killed on a worksite in 2023 so far and the government wants to introduce laws to bring that number down to zero in future years.

Industrial manslaughter legislation is already enshrined in most states and territories – or is in its proposal stages. The new Bill will introduce a federal approach.

Industrial manslaughter will become a criminal offence under Commonwealth work health and safety laws and  individuals could face 25 years in jail and body corporates could face up to $18 million in fines if “gross negligence or recklessness” is found to have contributed to the death of a worker. These changes could come into effect from 1 July 2024.

The contents of the Closing Loopholes Bill are likely to be debated over the coming weeks. If the proposals are passed, it’s likely we won’t see the majority of changes come into place until mid to late 2024.

What do you think about the proposed changes? Let us know in the comment section.

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The Australian government has unveiled plans to introduce industrial relations reforms that would offer more than 850,000 casual workers with regular hours a pathway to permanent employment. 

In a press release published last week, Workplace Relations Minister Tony Burke announced that a fresh definition of casual work will likely be introduced, empowering eligible workers to decide whether they wish to transition to permanent positions. 

According to Burke, the proposed amendments aim to address a legal “loophole” that enables certain employers to treat casual workers as if they were permanent employees, depriving them of essential job security and leave benefits.

The government plans to present these reforms to the parliament later this year as part of a broader suite of workplace relations measures to improve worker conditions and pay.

If passed, the reforms will prompt employers to consider how ‘casual’ their casual employees really are, says Will Snow, Employment and Safety Partner at Finlaysons.

“They’re seeking to reflect the reality that if you’re working regular hours, you should be able to become a permanent employee, and you should have those protections of a permanent employee, [such as] paid leave, notice of termination, redundancy pay and the certainty that you’re not going to lose your job next week because the hours go down,” he says.

“This sort of a change may well breathe new life into the rights of individual workers to choose certainty and security over that week’s pay packet.”

What issues are these changes trying to address?

The handling of casual employment has already shifted drastically in the last few years. One of the catalysts for this was a controversial series of court cases – Workpac v Rossato. 

In a 2020 case, the Federal Court found that a casual employee at Workpac, a labour hire company servicing the coal mining industry, was in fact permanent, due largely to his regular and predictable work hours, and therefore had a right to leave and other entitlements. However, once the ruling was passed down, Workpac sought leave to appeal to the High Court. 

In August 2021, the High Court overturned the Federal Court’s ruling and found that the employee was casual for the purposes of the Fair Work Act 2009 and Workpac’s enterprise agreement. The ruling clarified that a casual employee must have no firm advance commitment to ongoing work, and any commitment must be contained in an enforceable agreement. 

“This decision effectively said that, if you had a written contract which describes someone as casual and uses words like, ‘You agree that there’s no firm advance commitment,’ then that would be a very determinative factor in whether or not someone was casual,” says Snow.

“This sort of a change may well breathe new life into the rights of individual workers to choose certainty and security over that week’s pay packet.” – Will Snow, Employment and Safety Partner at Finlaysons

In light of these decisions, many businesses began carefully designing their casual contracts to include “magic words” like these which would automatically establish the employee as casual in the eyes of the courts, he says.

“What these proposed amendments would do, if passed, is simply say, ‘If you’re working regular hours, you should be able to elect to be able to become permanent, regardless of how careful the drafting of your particular contract may be,’” Snow explains.

“They want to make it more subject to the employee’s choice rather than the employer’s choice.”

Currently, under the Fair Work Act, employers are obliged to consider offering conversion from casual to permanent employment after 12 months of regular and systematic employment, or explain in writing why an offer to convert cannot be made on genuine business grounds.

Read HRM’s article on when employers must convert casual workers to permanent positions.

Although the full details of the bill have not yet been announced, Snow predicts that the changes will make it much harder for employers to push back on requests for casual conversion. The definition of ‘reasonable business grounds’ – which currently includes the expectation that the hours of work will significantly change or decrease – may also narrow.

However, it’s important to note that casual workers will have no obligation to convert to a permanent role if they don’t want to, regardless of how regular their hours are. While employers may see an increase in requests for casual conversion if these laws take effect, there are also many employees who are casual by choice and will not wish to convert, Snow says.

What challenges could this pose for employers?

While the proposed new legislation was welcomed by the Australian Council of Trade Unions, business groups such as the Australian Chamber of Commerce and Industry have argued that changing the definition of a casual worker is unnecessary and will reduce the flexibility of these workers.

According to Snow, one of the biggest concerns that businesses might have about the changes is the resourcing issues they could pose.

“The cost of labour is going to be similar – the Minister has said it’s not going to be an imposition on businesses, because you’ll be paying less per hour, but that will go towards people’s leave. 

“It will, however, be harder to manage short-term rostering and demand issues, and it may also affect overtime,” he says. 

“If I’m a permanent part-time employee working 20 hours per week, and I had to work 25 hours per week because of a spike in demand, then those five hours will most likely be [classified as] overtime and have significant penalty rates.”

To manage rostering issues, employers will need to budget for labour in advance rather than from pay period to pay period, he says. This is likely to be challenging for employers in industries that rely on casual labour, including hospitality, aged care and manufacturing.

Particularly for employers in these industries, it will be crucial to assess the organisation’s data on the usage of casual employment and the costs related to it in preparation for these changes.

“Think about your workforce requirements and the use of casuals, and understand that the flexibility which you might have built into those practices may not be available when these laws come into play,” he says.

“Again, many people won’t choose this – lots of people will say, ‘I’m not interested. I want to hang on to the money.’ But I would think that if [the employer has] less power to refuse, then more people will become permanent. 

“I’m certainly aware of a number of instances when people have wanted to become permanent and the employer has said ‘no’ on those ‘reasonable grounds’, and it will be interesting to see how those reasonable grounds might change.”

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Do you need to convert all casual staff to a permanent position? The short answer is “no”. But it’s not a black and white situation. For example, you do have an obligation to consider whether you should convert casual staff to permanent positions.

As you may know, the Fair Work Act (FW Act) was amended, effective 27 March 2021, to address casual employment, predominantly because of some controversial case law developments around that time regarding casual employment.

Essentially, the FW Act amendments:

• Helpfully define what a ‘casual’ is and what it means to be a casual in law;
• Require that any loadings paid to casuals must be used to offset against any underpayments found at law; and
• Allow for casual conversion.

Essentially, employers must now consider offering conversion from casual to permanent employment to an employee after 12 months of regular and systematic employment or explain in writing why an offer to convert cannot be made (on genuine business grounds only, such as an expectation for hours to decrease in the coming months).

You must do this within 21 days of the 12-month anniversary of casual employment. Below the author sets out where an employer does not have to make an offer.

Where does an employer have to make an offer?

So, conversion is not compulsory, but consideration of it and applying the business grounds test to your determination is compulsory. 

An offer initiated by the employer, or a notice explaining why an offer will not be made, only needs to be done once for a casual (in writing). After that, subject to some conditions, a casual employee can request permanency every six months provided they have been working regular hours. The employer is not required to do anything to remind them, so this is a matter for the employee to initiate. Any request made must always be properly addressed by the employer in writing, or they can expect to face penalties under the FW Act.

Small businesses (those with less than 15 employees) are exempt from conversion obligations, although employees of small businesses can still request conversion.

In my view, for current casuals beyond 12 months’ engagement, where you have already considered and addressed conversion, unless a request is made, you have no further work to do on that issue.

For new casuals coming on board, you need to ensure your systems are set up to alert you to 12-month anniversaries where you must consider whether a conversion offer is required.

What are the initial considerations to be made?

Unsurprisingly, this depends on the facts and circumstances of your business, but does require the following three jurisdictional facts to be satisfied first:

1. The employee has been employed for 12 months;
2. During the last six months of that period the employee has worked a regular pattern of hours on an ongoing basis (on a regular and systematic basis); and
3. Conversion would not require ‘significant adjustment’ to continue the work as a permanent employee.

Further, an employer is not required to make an offer if there are ‘reasonable business grounds’ not to make the offer.

These can include (as prescribed by the FW Act, but not limited to the below):

• The position won’t exist in 12 months;
• Hours of work will reduce in the following 12 months;
• There will be significant change in hours of work and where and when to be performed and which cannot be accommodated within the employee’s availability; or
• The offer would not comply with a recruitment process under Commonwealth or State law.

Noting early case law on the topic, my view is that other successful business reasons could include:

1. Most obviously, that you can successfully argue that your casual employees do not meet the test of having a ‘regular pattern of hours’ and have not been employed by you on a ‘regular and systematic basis’ over the last six months;
2. ‘Significant adjustment’ would be required to accommodate the conversion, such as significant changes to hours of work, sizeable increased remuneration, marked differences in roles and responsibilities by the conversion (argued successfully in cases so far);
3. Commercial and business reasons such as that the nature of your enterprise, or the role or the workplace does not suit permanent employment (e.g. labour needs fluctuate, work requirements are too ad hoc, operational requirements suit casual labour);
4. Significant (costly) adjustments would be required to the work structures, work hours/patterns, remuneration and payroll, supply chain movement, rosters, work methods, etc. to accommodate changes to permanency;
5. And the financial burden of changing casual staff to permanent would have the likely effect of closing the business – i.e. jobs lost.

In the majority of decisions I’ve found the employer has successfully argued burdensome “significant adjustments” to defeat the conversion applications made to the Fair Work Commission (FWC).

I am aware of two decisions among the handful in this area of law where an order has been made by the FWC to require conversion offers be made.

In the first decision of CPSU, the Community and Public Sector Union v Technical and Further Education Commission T/A TAFE NSW [2022] FWC 2908 (TAFE decision), Commissioner McKenna was willing to order that three individuals employed by the TAFE be given conversion offers for permanent employment at the TAFE, being satisfied that the requirements of section 66B of the FW Act had been met.

Three interesting facts about this case, which set it apart from other cases, were:

• Conversion would not mean a substantial change in duties or responsibilities for the employees involved – it would not be a ‘promotion’ – the work each employee was doing would remain the same; 
• There was evidence of long-term casual employment over a systematic and regular basis prior to the application; and
•  TAFE also made the interesting forensic/strategic decision not to cross examine the union’s witnesses, thus allowing all union evidence to be accepted and remain unchallenged – instead wishing to focus more on the intellectual argument of legislative application under section 66(2)(d) of the FW Act.

In the second decision of CPSU, the Community and Public Sector Union v Commonwealth of Australia (Services Australia) [2022] FWC 1246, Commissioner Johns found in favour of the CPSU and ordered conversion offers be made to Commonwealth employees.  

Similarly to the TAFE decision, the Commonwealth tried to rely on legislation to argue that it overrode the conversion requirements. It tried to rely on section 66(2)(d) of the FW Act, arguing that a conversion offer would not comply with the recruitment process under Commonwealth law, namely the requirements of the Public Service Act.

Needless to say, these somewhat technical/legalistic arguments have not gone down well with the FWC.      

Commissioner Johns went as far to say that if the argument were to succeed, government agencies could bypass and frustrate the intentions of the conversion terms in the FW Act, which is clearly not the intention of Parliament. In the TAFE decision, Commissioner McKenna accepted that an employer cannot simply create policies and procedures under the guise of conforming to legislation to avoid conversion obligations.

These two decisions ought not panic the reader into thinking that the floodgates have opened on orders being made by the FWC for conversion offers to be made. On the contrary, the majority of decisions seeking conversion orders in the FWC have failed based on persuasive common sense evidence being brought by the employer and accepted by the FWC.

These two cases can be distinguished by a number of aspects, as listed above, and on the basis that they are both cases focusing on the application of legislation to override conversion laws (trying to rely on section 66(2)(d) of the FW Act). To my mind, both cases focused mostly on legal argument rather than on more practical, persuasive and common sense evidence.

What does this mean for HR?  

So where does this leave HR? I’ll admit, casual conversion isn’t the easiest process to get right, as it’s often so circumstantial, but here’s what I’d say to HR professionals who were concerned about it:      

• Don’t panic. A casual employment workforce still has its role and place in the workplace and conversion is not taking over.     
• Apply the conversion consideration requirements as required and have your systems set up to deal with it.     
• Apply practical common sense as to whether conversion should be offered in your workplace and focus more on the business reasons rather than artificial legal argument.      
• Don’t be afraid to say no to conversion – just have sound business reasons and put them in writing to staff.      
• If in doubt on whether your arguments to refuse conversion would pass the ‘pub test’ (i.e. collective opinion), get good, practical advice from a workplace law specialist.

Luke Connolly is the Director of Connolly Workplace Law. The information in this article is general in its nature and does not constitute legal advice.

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