Overview
On Monday 4 September 2023, the Federal Government introduced the Fair Work Legislation Amendment (Closing Loopholes) Bill 2023 into Parliament. The purpose of the Closing Loopholes Bill is to provide further employee protections and close off employer loopholes arising from the use of casual contracts and ‘gig economy’ arrangements.
The Closing Loopholes Bill constitutes the third tranche of IR reforms to the Fair Work Act introduced by the current government, and follows on from prior IR reforms in December 2022 and again in June 2023.
The key reforms proposed by the Closing Loopholes Bill include:
- replacing the existing definition of ‘casual employment’ to overcome the High Court’s decision in Workpac Pty Ltd v Rossato;
- inserting a new definition of employee/employment to overcome the High Court’s decision in CFMMEU v Personnel Contracting Pty Ltd and ZG Operations Australia Pty Ltd v Jamsek;
- introducing a new employee choice pathway for eligible casual employees to convert to permanent employment if they wish to do so;
- granting the Fair Work Commission the power to make orders where host employers use labour hire to undercut bargained wages and conditions in enterprise agreements;
- granting the Fair Work Commission the power to set minimum standards for workers in employee-like forms of work and to hear claims of unfair deactivation or termination;
- introducing new criminal offences for underpayments and ‘wage theft’ and increased penalties for non-compliance; and
- bolstering the discrimination protections in the Fair Work Act and aligning these protections closer to those protections contained in other federal anti-discrimination laws.
Although the proposed reforms are wide in scope, one of the primary focuses of the Closing Loopholes Bill is stronger protections for casual employees. Specifically, the Bill attempts to remove (or at least reduce) uncertainty around casual characterisation, as well as restrict the ability of employers to falsely characterise employees as casual in order to avoid leave, notice and redundancy obligations.
New Definition of Casual Employment
The Closing Loopholes Bill will introduce a new definition of casual employment into the Act.
The Bill proposes that commencing from 1 July 2024, an employee will be a casual employee of an employer only if:
(a) the employment relationship is characterised by an absence of a firm advance commitment to continuing and indefinite work; and
(b) the employee would be entitled to a casual loading or a specific rate of pay for casual employees under the terms of a fair work instrument if the employee were a casual employee, or the employee is entitled to such a loading or rate of pay under the contract of employment.
For the purposes of the definition, whether the employment relationship is characterised by ‘an absence of a firm advance commitment to continuing and indefinite work’ is to be assessed:
- on the basis of the ‘real substance, practical reality and true nature of the employment relationship’;
- on the basis that a firm advance commitment can be in the form of a contract of employment, or in the form of a mutual understanding or expectation between the employer and employee (which can be inferred from the conduct of the parties); and
- having regard to the following considerations:
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- whether there is an inability of the employer to elect to offer work or an inability of the employee to elect to accept or reject work (and whether this occurs in practice);
- whether, having regard to the nature of the employer’s enterprise, it is reasonably likely that there will be future availability of continuing work in that enterprise of the kind usually performed by the employee;
- whether there are full-time employees or part-time employees performing the same kind of work in the employer’s enterprise that is usually performed by the casual employee; and
- whether there is a regular pattern of work for the employee (which does not need to be absolutely uniform).
Notably, the new definition no longer requires there to be an ‘agreed regular pattern of work’. Fixed term and specified task contracts are now also expressly excluded from the definition of casual employment.
The new definition more closely accords with the common law multi-factorial test for casual employment accepted prior to the decision in WorkPac Pty Ltd v Rossato [2021] HCA 23. It also appears that the new definition is primarily designed to overcome the High Court’s narrower and more objective interpretation adopted in that case.
In essence, the new definition will require parties to need to look beyond the terms of the contract to determine whether an employee is truly a casual based upon the ‘real substance, practical reality and true nature of the employment relationship’. The new definition also means that employers can no longer simply assume a casual employment contract will be incontrovertible evidence of an employment relationship.
Finally, given the second limb of the new definition, it appears that an employee will be a casual employee if the employee has an entitlement to a casual loading or specific casual rate of pay under an industrial instrument or contract of employment. Although all current modern awards prescribe casual loading rates for casual employees, employers should ensure that casual employment agreements expressly specify that the rate of pay is intended to reflect the casual nature of the employee’s employment and incorporate the employee’s entitlement to casual loading.
The New ‘Employee Choice’ Casual Conversion Regime
A natural consequence of the return to a broader and more subjective assessment of the employment relationship (based upon the ‘real substance, practical reality and true nature of the employment relationship’) is that the true nature of an employment relationship may become uncertain as it evolves over time.
To mitigate this potential uncertainty, the Closing Loopholes Bill introduces an alternative ‘employee choice’ casual conversion regime, whereby employees engaged as casual employees may seek to convert to permanent employment in response to changes to their working conditions and/or to the employment relationship.
This conversion regime is in addition to existing casual conversion provisions in the Fair Work Act which require employers to notify employees of their rights to convert and make offers to convert to permanent employment after a specified period of time.
In essence, the Closing Loopholes Bill provides that where a casual employee has been employed by an employer for 6 months (or 12 months in the case of a small business employer), the employee is entitled to give the employer written notice that they believe their status no longer meets the definition of a casual employee and request to convert to permanent employment.
Where an employee makes a written request for casual conversion, the employer is obliged to:
- consult with the employee about the request; and
- respond to the request within 21 days of receiving the request, including by stating whether the request is accepted or rejected.
Where the request is accepted, the employer is obliged to notify the employee in writing whether the employee is changing to full-time or part-time employment (based upon the employee’s work patterns as a casual employee), as well as confirm the employee's new hours of work and the day the conversion comes into effect.
If the employer rejects the request, it must also notify the employee of the rejection in writing together with detailed reasons for the rejection. The employer’s response must also state that the employee may dispute the decision and that if the dispute is not resolved the employee may apply to the Fair Work Commission.
The employer’s rejection must be based on one or more of the following grounds:
- that the employee still meets the definition of casual employment;
- that substantial changes to the employee’s terms and conditions would be necessary to meet the request; and/or
- that accepting notification would affect compliance with a recruitment or selection process required under a law of the Commonwealth, a State or Territory.
Critically, the employer cannot refuse an employee’s request for casual conversion purely on the general basis of ‘reasonable business grounds’.
If the employee disputes the employer's decision, the employee will need to try and see if the dispute can first be resolved directly with the employer. If the dispute cannot be resolved, the employee may apply to the Fair Work Commission to dispute the employer's decision via arbitration.
The Closing Loopholes Bill also contains anti-avoidance provisions that are designed to ensure employers do not circumvent their casual conversion obligations by reducing or varying employees’ hours, changing patterns of work, or terminating employees’ employment. Where an employer is found to have engaged in such conduct, the employer would be subject to significant civil penalties and potentially exposed to General Protections claims (on the basis that the right to request casual conversion is a ‘workplace right’).
Potential Liability for Back Pay
One of the major concerns with the continuing alterations to the definition of casual employment is the potential for back pay claims. Such claims typically arise where an employee was employed on a casual basis but subsequently alleges that they were in reality a permanent employee and seeks to recover unpaid entitlements such as leave, notice of termination and redundancy pay.
To alleviate these concerns, the Closing Loopholes Bill provides that a casual employee will remain so until the occurrence of a ‘specified event’ – such as when the employee’s status is changed or converted to permanent employment in accordance with the ‘employee’ choice’ casual conversion regime, with the existing casual conversion provisions in the Fair Work Act, or by an order of the Fair Work Commission following arbitration.
For further clarity, the Closing Loopholes Bill provides that all existing employees who were considered to be casuals upon the commencement of the reforms will be deemed to be casuals until the occurrence of one of these specified events.
Accordingly, an entitlement to back pay is only likely to arise when an employer incorrectly classifies an employee as a casual from the commencement of their employment.
Given the significant changes to casual employment brought by the Closing Loopholes Bill, it requires that employers provide all casuals employees with a new ‘Casual Employment Information Statement’ within 3 months of the commencement of the reforms.
Further Information
If you have any questions in respect of the above or would like any other WHS or employment-related assistance, please contact our Matthews Folbigg Workplace Solutions team.
DISCLAIMER: This article is provided to readers for their general information and on a complimentary basis. It contains a brief summary only and should not be relied upon or used as a definitive or complete statement of the relevant law.
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