Introduction
In fulfillment of its 2022 election commitment, the Federal Government has completed the third significant round of workplace relations law reform, with many of the significant changes coming into effect on 26 August 2024. The changes include the much discussed ‘right to disconnect’, along with significant changes to the law regarding casual employees, the employee-contractor distinction, a new penalty regime and federal criminal wage theft provisions.
We provided a summary of key changes in the Government’s earlier rounds of reforms in this article, Fair Work Update: Major Changes to Employment Law.
In this article, we highlight the new rules applying to engaging casuals, as well as the changes to how the Courts and the Fair Work Commission determine whether a worker is an independent contractor or employee.
In subsequent articles, we shall discuss the new ‘right to disconnect’, and the new penalty and criminal wage theft regimes.
Casual Employment
Casual Employees - Definition
Current Situation
Over the last several years, employers have faced considerable uncertainty in determining who is a casual employee, particularly where employers have employed casuals on a longer-term basis and the employees have regular hours of work.
In 2021, following earlier controversial decisions of the Federal Court, the Coalition amended the Fair Work Act 2009 (Cth). Following the Coalition’s amendments, and a subsequent decision of the High Court overturning the Federal Court decisions, we could say that a casual employee:
a) was an employee who accepted employment 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 person’;
b) the test was applied at the time that the employee commenced employment, based on the understanding of the parties at the time (without looking at how the employment relationship played out in practice across time); and
c) where there was a comprehensive written contract, the contract would usually be determinative.
This provided employers with a high degree of certainty, because, provided that the employer entered into a well written casual employment contract with the employee, the employer could be confident that they had employed a casual employee.
However, from the labour movement’s perspective, this was seen as a triumph of form over substance, because an employee could be employed in practice on an indefinite basis, with regular hours, but not be entitled to the benefits of permanent employment, including paid annual leave and personal leave.
What is Changing?
The Government has now amended the Fair Work Act to take what it considers is amore realistic approach. From 26 August 2024, an employee will only be genuinely a casual employee if:
a) The employer ‘makes no firm advance commitment to continuing and indefinite work according to an agreed pattern of work’ for the employee, and
b) The employee is entitled to a casual loading or a specific rate of pay for casual employees under an Award, Enterprise Agreement or their contract of employment.
Significantly, the first limb of the test is to be ascertained ‘on the basis of the real substance, practical reality and true nature of the employment relationship’, not just with reference to the terms of a written contract. Factors that may determine the ‘real substance, practical reality and true nature of the employment relationship’ include:
- Whether, as a practical reality, the employer may elect whether or not to offer work, and the employee can elect whether or not to accept work;
- Whether it is reasonably likely that the employee will have continuing work into the future of a similar kind to the work that they usually perform;
- Whether there are full-time or part-time employees performing the same kind of work as the employee; and
- Whether there is a regular pattern of work for the employee.
Whilst the test is still applied at the start of the employment relationship, the intentions of the parties as to how the relationship would play out in practice can be inferred by the conduct of the parties over time.
There are a couple of key takeaways for employers from these changes:
- Employers will need to ascertain, when engaging an employee as a casual, if they can genuinely say that they are employing an employee on the basis that there is ‘no firm advance commitment to continuing and indefinite work according to an agreed pattern of work’. In most circumstances, this means that the employer and employee expect that the employee will either be employed only on a short-term basis, or they will have hours that can vary substantially roster to roster.
- Employers will need to ensure that they pay a casual loading, or state in an employment contract that the employee’s rate of pay has been calculated on the basis that they are a casual employee. For most casual employees paid under Awards or Enterprise Agreements, this will be a given. However, particularly with senior employees employed on a casual basis (such as consultants), who are not paid under an Award or Enterprise Agreement, it will be important to either include a casual loading component in the employee’s employment contract, or at least state in their contract that their remuneration has been calculated on the basis that they are a casual employee.
Of some comfort for employers is that if a person genuinely commences employment as a casual employee, they remain a casual employee until they transition to full-time or part-time employment in accordance with the Act. This means that if an employer correctly classifies an employee at the start of employment, the employee does not cease being a casual employee just because their actual pattern of work changes to look like that of a full-time or part-time employee.
Transition to Permanent Employment
The other side of the coin is that casual employees can request to convert to permanent employment.
In 2021, the Coalition Government introduced new mechanisms for casual employees to request to convert to full-time or part-time employment, and introduced new dispute resolution procedures if the employer and employee could not reach agreement.
The current Government has retained the general framework but has change the process.
What is Changing?
From 26 August 2024, employees who believe they no longer meet the casual employment criteria can notify their employer of that fact and request to convert to full-time or part-time employment.
There is no longer a requirement for employers to proactively offer permanent employment, which the 2021 amendments to the Fair Work Act required, and which proved to be somewhat cumbersome. However, there are new requirements with respect to providing the Casual Employment Information Statement to employees (see below).The intent of the amendments to the Act are to ensure that casual employees are aware of their rights, but the amendments sensibly leave the onus of requesting conversion to permanent employment to the employee.
Employees can notify their employer after six months of employment, or after 12 months if they are employed by a small business employer. Employers must consult with the employee and provide a written response within 21 days.
Employers can reject the notification if the employee still qualifies as a casual and there are fair and reasonable operational grounds for not accepting the notification. Reasonable operational grounds for rejecting a notification include that:
a) Substantial changes would be required to the way in which work in the employer’s enterprise is organised;
b) There would be significant impacts on the operation of the employer’s enterprise; or
c) Substantial changes to the employee’s terms and conditions would be reasonably necessary to ensure that the employer does not contravene an Award or Enterprise Agreement that would apply to the employee as a full time or part time employee.
In other words, an employer will need to have good reasons for not transitioning a casual employee to permanent employment if the employee requests to transition.
Disputes Regarding Transition to Permanent Employment:
If an employer and employee cannot agree on whether an employee should transition to casual employment, the parties can take the matter to the Fair Work Commission. Generally, the Commission will seek to first conciliate the dispute, and see if a mutual agreement can be reached. However, if that is not possible, from 26 August 2024, the Fair Work Commission will be able arbitrate the dispute and make a binding decision in relation to the dispute.
Casual Employment Statement
Since 2021, employers have been required to provide casual employees with a copy of the Fair Work Casual Employment Information Statement before or as soon as practicable after employment commences.
From 26 August 2024, employers will need to provide the Fair Work Casual Employment Information Statement to employees
- For a small business - after 12 months of employment
- For all other businesses -
- After 6 months of employment; and
- After 12 months of employment; and
- Every 12 months thereafter.
The clear intent of these requirements is to keep an employee’s right to request to transition to permanent employment front of mind.
Employers should ensure that they have a process for ensuring that they provide the Statement to casual employees at the relevant milestones.
Employees vs Contractors
A new statutory definition of ‘employee’ and ‘employer’
In the same way that the Government was concerned that the Courts were taking too formalistic an approach to determining whether an employee was a genuine casual employee, the Government was also concern that the Courts were taking too formalistic approach to determining if a worker that was classed as an independent contractor, was, in fact, a contractor and not an employee.
Previously, if a business engaged a person under a comprehensive written contract of employment, and the rights and responsibilities of the parties under that contract were those of an independent contractor relationship, a Court would not generally look beyond the written contract itself, and consider how the relationship played out in practice, in determining if the worker could genuinely be said to be a contractor.
This meant that, with a well drafted contract, businesses could have a high degree of confidence that they were engaging a worker as a contractor.
However, this position has now been changed, with the Government introducing a new statutory definition of ‘employee’ in section 15AA of the Fair Work Act that provides that:
‘whether an individual is an employee of a person …, or whether a person is an employer of an individual …, is to be determined by ascertaining the real substance, practical reality and true nature of the relationship between the individual and the person.’
To take an example, a key factor in determining whether a worker is a contractor or employee is determining the level of control that the business has over the worker. Previously, if a worker was engaged under a contract, the written terms of which gave the worker a high degree of flexibility in how they carry outwork under the contract, that may well have supported the worker being a contractor.
However, from26 August 2024 the Courts will look, not only at the terms of the contract, but also the practical reality of the relationship. If, in practice, a business has a high level of control over a worker, that may suggest the worker is an employee, even if the written terms of the contract suggest that the worker has more control over their work than they might in reality.
Businesses will still be well served by having comprehensive written contractor agreements. However, a good contract will no longer be sufficient, and businesses will need to assess, as a matter of practical reality, whether the worker can genuinely be said to be an independent contractor, considering the totality of the relationship.
Opting out of the new regime
Individuals who are contractors and who are expected to earn more than the contractor high income threshold have the option to opt out of the new statutory definition of ‘employee’ and ‘employer’. This allows high income contractors to maintain their existing arrangements, without risk to the businesses for whom they work.
As at the date of this article, the contractor high income threshold has not been set.
It is important to note than an individual can revoke their opt-out at any time, in which event a business engaging the contractor would need to assess whether the individual is a contractor, not an employee, under the new statutory definition.
Conclusion
The Government’s changes to the Fair Work Act intend to strike a fairer balance between employees and businesses, but they come with higher risks to businesses. Businesses should review their onboarding processes to ensure that they are equipped to distinguishing between contractors and employees, and casual versus permanent staff, and update policies and procedures for managing the transition from casual to permanent employment.
How Sharrock Pitman Legal can help?
Our Employment Law team is experienced in advising business owners and hiring managers on their rights and obligations to their staff.
If we can assist your business, please do not hesitate to contact us on 1300 205 506 or email sp@sharrockpitman.com.au.
The information contained in this article is intended to be of a general nature only and should not be relied upon as legal advice. Any legal matters should be discussed specifically with one of our lawyers.
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