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The overhaul of casual classification laws – what you need to know

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Written by Ruth Rosedale, Daniel Delimihalis, Holly Gretton & Claudia Taranto

What you need to know

Legislative changes to the requirements to qualify as casual employment in the Fair Work Act 2009 (Cth) (FW Act) in March of this year and the High Court’s decision in the Rossato appeal in August this year have overhauled the law regarding casual employment, as well as provided much needed certainty around who is – and isn’t – a casual employee.[1]

Most crucially, the FW Act has been amended to include a new exhaustive definition of ‘casual employee’. Specifically, a person is a casual employee if an offer of casual employment is made to them on the basis that the employer makes “no firm advance commitment” to continuing and indefinite work according to an agreed pattern of work for the employee. There is an exhaustive list of factors which must be considered in assessing whether an employer makes no such commitment in its offer, including whether the employee can accept or decline work. We unpack this definition further below.

These developments have far-reaching implications in the transactional space and for financial sponsors, including by significantly changing how the risk of casual mischaracterisation is assessed in due diligence and reducing the need for parties to engage in the onerous task of assessing a casual employee’s actual in-practice pattern of work and subsequent conduct to enable characterisation of the relationship.

Other key changes to the casual employee related provisions of the FW Act include:

  • the addition of a new statutory offset mechanism which operates to permit a court to offset casual loading amounts paid to an employee against claims for unpaid “relevant entitlements” (such as annual leave, carer’s leave, redundancy pay, etc) if the employee is later found to not be a genuine casual employee; and
  • new statutory right for casual employees to convert to part time or full-time employment.

Legislative amendments

4 key changes have been made to the FW Act in relation to the employment of casuals from 27 March 2021:

  • introduced a definition of a “casual employee”, being a person who accepts an offer of employment made by an employer with “no firm advance commitment” to continuing and indefinite work according to an agreed pattern of work;
  • created a new requirement for courts to offset casual loading amounts paid to an employee against claims for unpaid “relevant entitlements” which the person would have been entitled to if they have been a permanent employee (such as annual leave, carer’s leave, redundancy pay, etc);
  • extended rights for casual employees to convert to permanent employment; and
  • introduced a new requirement for employers to provide their casual employees with a Casual Employment Information Statement.

Why is this important for financial sponsors?

These changes are important for financial sponsors for 4 key reasons:

  1. It is the first time a statutory definition of ‘casual employment’ has been introduced in Australia. The previous definition shaped by the courts from case to case was uncertain and confusing, difficult to apply in practice and led to many “shades of grey”. The definition also applies retrospectively.
  1. The new definition also exhaustively lists the factors to be taken into account in assessing whether the relevant employee’s offer of employment was made with “no firm advance commitment”. These are whether the:
    • employer can elect to offer work to the employee;
    • employee can accept or decline work;
    • employee will work only as required according to their employer’s needs;
    • employment is described as casual employment; and
    • employee is entitled to receive casual loadings or a specific rate of pay.

This is to be contrasted with the non-exhaustive and indefinite factors that were to be considered under the previous case law approach. 

  1. The legislated definition focuses on the terms of the employment agreement as at the time of signing, rather than the subsequent conduct throughout the entire employment relationship.
  2. This approach was recently supported in the High Court’s ruling in Rossato which placed strong emphasis on the terms of the casual employment agreement to determine employment status. We explore this further below.
  3. The FW Act now also expressly states that a regular pattern of hours does not of itself indicate that a person is not a casual employee (i.e., that they have a firm advance commitment to continuing and indefinite work according to an agreed pattern of work).

Casual conversion

As noted above, the amendments to the FW Act have also enshrined a right for long-term casual employees to convert to permanent employment. The FW Act put the onus on employers to make offers of permanent employment after 12 months. 

Under the FW Act, if the following criteria is satisfied and no exception applies, employers must now offer conversion for casual employees to full or part time permanent employment (depending on number of hours worked):

  • they have worked for the employer for a 12 month period;
  • they have worked a regular pattern of work on an ongoing basis for at least the past 6 months; and
  • the employee could continue to work their regular hours as a permanent employee without significant adjustment.

Impacts on your due diligence

It is against this backdrop that employment diligence in relation to correct classification of casual employees – which was previously solely focused on the reality of the employee’s work patterns – has now pivoted to focus on the Target’s casual template employment agreements and casual conversion practices. 

In particular, considering whether:

  • employment agreements reflect that casual employees do not have a firm advance commitment to ongoing work and to otherwise meet the specific criteria in the definition of a casual employee to ensure the relationship is correctly characterised.
  • the Target has a clear casual conversion framework in place and governance practices that allow it to identify employees that may be entitled to convert to permanent employment and then actually implement the requirements in the FW Act (which may also be mirrored now in any underlying applicable modern awards).

There is also an increased interest by W&I insurers on casual conversion practices from a compliance perspective.

Developing case law

Seeking to resolve the increasing uncertainty which had been created by multiple cases considering the casual characterisation of employees, the Federal Government passed the amendments to the FW Act before the High Court delivered its judgment in Rossato

Notwithstanding this, the High Court went some way in Rossato to inject certainty into the casual employment debate by holding that a coalmine worker employed by labour hire company, WorkPac, was a casual employee because there was no “firm advance commitment” as to the duration or regularity of his employment. It was accepted by the High Court that a “firm advance commitment” has to be a binding commitment, not just an expectation of further work.

Even though, in practice, the Rossato has not changed the law’s requirements on who is, and who is not, a casual employee and the decision will not be binding in relation to any disputes under the amended FW Act provisions because it pre-dated the changes, the Court’s approach to determining whether there is in fact a “firm advance commitment” to work will be well regarded when courts do go to consider the new legislation.

 

References

[1] WorkPac Pty Ltd v Rossato [2021] HCA 23.

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