Coming full circle

Casual employment

New definition of ‘casual employee’

Closing Loopholes No 2 introduces a new definition of ‘casual employee’ into s15A of the FW Act, which contains the following elements:

• the employment relationship is characterised by an absence of a firm advance commitment to continuing and indefinite work, which is assessed by considering the real substance, practical reality and true nature of the employment relationship; and
• the employee is entitled to receive a casual loading or specific rate of pay for casuals.

The new definition places emphasis on the totality of the relationship, demonstrating a significant departure from the current definition, which was introduced following the High Court decision in WorkPac Pty Ltd v Rossato [2021] HCA 23 to give primacy to the terms of the contract.

Academic staff who are covered by an applicable modern award and engaged under a fixed-term contract will be exempt from the s15A definition of casual employment.

Employees who are engaged on a casual basis will remain so until any of the following events occur:

• their employment is converted to full-time or part-time in accordance with the applicable causal conversion provisions, or under the terms of an enterprise agreement or an award;
• their employment status is changed by order of the Fair Work Commission (FWC); or
• the employee accepts an alternative offer of employment by the employer and commences work on that basis.

New pathway for casual conversion

Closing Loopholes No 2 establishes a new pathway for casual employees to initiate change to their employment status. The existing casual conversion procedure, which comprised of two streams – employer offers and employee requests – is repealed. Under the new regime, employer offers are no longer required, and casual employees are given a choice as to whether they wish to notify their employer about converting their employment to full-time or part-time.

An employee will be eligible to bring a notification for casual conversion if that employee:

1. believes that they no longer meet the requirements of the new casual employee definition;
2. has been employed with the employer for at least 6 months (or 12 months if working for a small business employer);
3. is not currently engaged in an ongoing dispute with their employer about casual conversion; and
4. has not had any of the following events occur within the 6 months prior to making the notification:
   1. received a response from their employer refusing a previous notification about causal conversion; or
   2. resolved a dispute with their employer about casual conversion.

Where an employee makes a casual conversion notification, an employer must consult with the employee and respond in writing within 21 days.

If notification is accepted, the employer must specify in its response:

• that they accept the notification;
• whether the employee is changing to full-time or part-time employment;
• the employee’s hours of work after the change takes effect; and
• the day that the change will take effect.

The employer may reject the notification on any one of the following grounds (and must detail these reasons to the employee in its response):

• the employee still meets the definition of a casual employee;
• there are fair and reasonable operational grounds for rejecting the notification; or
• accepting the notification would result in the employer’s failure to comply with recruitment or selection processes required by Commonwealth, State or Territory laws.

New protections are also being introduced to prevent the intentional misclassification of casual employment. Under these protections, an employer must not:

• dismiss or threaten to dismiss an employee so to avoid engaging them as a casual employee; or
• knowingly make false misrepresentations to persuade or influence an individual to enter a contract for casual employment.

Casual conversion disputes

An employer and employee must first attempt to resolve casual conversion disputes at the workplace level.

If unsuccessful, the dispute may then be referred to the FWC, who will first attempt to resolve the dispute by informal means (such as mediation and conciliation) before dealing with the dispute by arbitration.

Casual Employee Information Statement

Employers are currently required to provide a Casual Employment Information Sheet (CEIS) to all new casual employees at the commencement of employment.

Closing Loopholes No 2 creates an additional requirement that the CEIS be provided again after the employee has completed 6 months of employment with a non-small business employer and every subsequent employment period of 6 months (or every 12 months for small business employers).

Definition of Employment

“Ordinary meaning” definition

From 26 August 2024 new “ordinary meaning” definitions of employee and employer will be included in s15AA of the FW Act, which require the real substance, practical reality and true nature of the working relationship between the parties to be considered when characterising the employment relationship. Under the new s15AA(2), this must be ascertained by considering the following factors:

• the totality of the relationship between the parties; and
• other factors, including (but not limited to) the terms of the contract and how the contract is performed in practice.

The new s15AA has the effect of overriding the ‘contract-centric’ approach taken by the High Court in CFMMEU v Personnel Contracting Pty Ltd [2022] HCA 1 and ZG Operations v Jamsek [2022] HCA 2, which gave primacy to the written terms of a contract in determining whether an individual was an employee or independent contractor, rather than considering the real substance and practical reality of the relationship.

Opting out of s15AA

Closing Loopholes No 2 also inserts a provision at s15AB of the FW Act enabling individuals earning above the contractor high income threshold (a newly established amount to be determined by the regulations) (Contractor High Income Threshold) to ‘opt-out’ of the new s15AA definitions by providing a written ‘opt-out notice’ to the person who may become their employer as a result of the new ‘employer’ and ‘employee’ definitions.

Section 15AB commenced on 27 February 2024 and importantly, the opt-out notice must be provided before s15AA comes into operation on 26 August 2024.

This provision enables an individual to preserve their status as an independent contractor if they consider that the relationship may, upon the commencement of the s15AA definitions, become an employer/employee relationship.

An individual has the right to revoke an opt-out notice at any time by giving written notice to the principal.

Unfair contract terms framework: Independent contractors

Closing Loopholes No 2 establishes an unfair contract terms framework in the FW Act, which gives the FWC jurisdiction to deal with disputes in relation to unfair contract terms of services contracts.

When determining whether a contract term is unfair the FWC will have regard to a number of prescribed matters, including:

• relative bargaining power of the parties to the services contract;
• whether the contractual term is reasonably necessary to protect the legitimate interests of a party to the contract; and
• whether the contract imposes a harsh, unjust or unreasonable requirement on a party to the contract.

Independent contractors earning less than the Contractor High Income Threshold may apply to the FWC for an order to set aside, amend or vary all or part of the services contract. Independent contractors with income above the Contractor High Income Threshold can continue to access the existing unfair contracts jurisdiction under the Independent Contractors Act 2006 (Cth).

The FWC may make an order in relation to a services contract if it is satisfied that it includes one or more unfair contract terms which, in an employment relationship, would relate to ‘workplace relations matters’.

A ‘workplace relations matter’ is defined under the FW Act to include matters such as:

• remuneration, allowances or other amounts payable to employees;
• hours of work of employees; and
• making, enforcing or terminating of agreements (not being employment contracts) that determine terms and conditions of employment. 

What do these changes mean for your organisation?

As these changes are set to take effect on 26 August 2024, employers who engage casual employees and independent contractors need to consider and understand how these reforms will impact upon their operations.

Employers may consider preparing for the new regime by taking the following steps:

Changes to casual employment

• Ensure that the rostering of casual employees is genuinely reflective of a casual employment relationship;
• Review casual employment contracts to confirm that they accurately reflect the true reality of the relationship. This is particularly important for businesses that rely heavily on a casual workforce;
• Familiarise the business with the new pathway for casual conversion, and review and update internal systems and processes as required; and
• Provide casual employees with the updated version of the CEIS from 26 August 2024, and implement processes to achieve compliance with the new timeline for distribution, being every 6 months (or 12 months for small business employers).

Changes to the employment relationship

• Review independent contractor engagements and consider the ‘true nature’ of these arrangements to ensure personnel are correctly classified;
• Audit employees at risk of being misclassified as an independent contractor to also avoid potential employment claims and breaching the sham contracting provisions of the FW Act; and
• Review services contracts for unfair contract terms (focussed on those earning less than the Contractor High Income Threshold).

If you would like to discuss these upcoming changes in more detail or require assistance in reviewing your agreements and arrangements, please contact our Employment & Labour Team.