Casuals to full-time: Will Fair Work Act changes cause HR headache for contracts?

Changes are abundant in the Australian employment law landscape, with a plethora of new rules and regulations taking hold in 2024 – particularly for casual workers. Under changes to the Fair Work Act, many casual workers may become eligible to opt to change to full or part-time employees – giving them equal access to annual leave, sick pay and staff benefits.

Speaking to HRD, Julian Arndt, Director at Australian Business Lawyers & Advisors (ABLA), says that these changes are with a view of improving casual workers’ rights – however, they’re also causing employers and their HR teams some headaches.

“There’s going to be a new definition of casual employment, and that’s going to essential overturn the relevant authority in the High Court,” adds Arndt. “The new definition states that a casual employee is someone with no firm advance commitment to continuing and indefinite work, which is the touchstone of casual employment. The big difference is, before the change in definition, employers could essentially rely on what had been included in a written contract; and that would largely decide whether someone was casual or not.”

Changing definitions of working contracts

The Labour Party and unions were not in favour of this interpretation, leading to the legislative change in the Fair Work Act.

“As a reaction to that High Court decision, there has been a legislative change to the Fair Work Act," adds Arndt. “Now, the definition requires a broader consideration, not just of the written contract, but of real substance, practical reality and true nature of the employment relationship”

Under the new legislation, casual employees who no longer meet the definition of casual employment will not automatically become permanent employees, but rather the legislation  introduces the concept of employee choice. Casual employees no longer meeting the definition of casual employment will now be able to choose to become permanent if their employment situation includes a firm advance commitment to continuing and indefinite work.

"This would be a casual employee who is engaged as a casual and then after a particular period of time thinks to themselves, well, actually, I’m not really a casual employee, and furthermore I don’t want to be a casual employee” says Arndt.

If the employee decides to convert to permanent status, the employer then has a relatively confined scope to refuse. This conversion grants the employee benefits such as annual leave, personal carers leave, and notice of termination. The goal of this change is to provide more security for casual employees who prefer permanent status. But, for those happy with their arrangements, it’s business as usual.

"For employees who are engaged as casuals who are happy being casual, nothing will change," adds Arndt.

Casuals unhappy with the status quo?

Casual conversion isn't entirely new; the Fair Work Act already included a form of it. What’s different now is the clarity and ease with which employees can make this change. Many casual workers enjoy the flexibility and additional pay loading that comes with casual employment and may not wish to convert.

“There are many casual employees who are very content being casual employees,” says Arndt. “They like the flexibility of casual employment, they like having a 25% loading on their pay. For these employees, the status quo remains. The change in definition is really more relevant to a minority of casual employees who are unhappy with their casual status.”

Employers need to be prepared for this shift and understand how it might impact their workforce. As with any legislative change, staying informed and proactive is key. As Arndt tells HRD, companies most affected will be those with a large proportion of casuals, or employers whose business structure relies on casual employees.

“By way of example, in hospitality, a huge number of employees are casual. Most of those employees may not wish to convert to permanent employment. However, if I were running a hospitality operation and 90% of my staff were casual employees, there is an operational uncertainty involved with knowing that at any time some significant proportion of the 90% of your ongoing workforce may decide they want to become permanent employees.”

And this uncertainty extends to other industries as well, such as mining, warns Arndt.

“In certain heavy industries like mining, there are business models structured around the engagement of long-term and regular casual employees,” he explains. “These employees, engaged for long periods on structured rosters, might decide they want the benefits of permanent employment.”

Addressing the cost implications, Arndt adds that it all depends on individual circumstances.

‘Employees will only become permanent if they choose to’

“Casual employment generally involves higher pay rates due to a loading meant to compensate for the lack of benefits like paid leave. The idea is that this higher pay balances out the absence of entitlements like sick leave and annual leave. You aren't required to give a casual a certain number of hours – they can work more or less as needed. [However], with permanent employees, you lose that flexibility because they have minimum entitlements to hours.”

Another major concern for employers is the risk of casual employees claiming they were actually permanent and seeking back pay for entitlements.

"The high level of anxiety for employers is the prospect that an employee will claim they were actually a permanent employee and make a claim for unpaid leave entitlements," says Arndt. "Most employees will only become permanent if they choose to. They won't suddenly become permanent and be owed thousands in unpaid leave. They will only convert from casual employment if they elect to do so."

Misclassifications carry huge employer risks

There is one glaring exception to this rule, however. And it could cost employers dearly if not handled correctly.

“If an employer mistakenly engages an employee as a casual when the nature of the employment is actually permanent, the employee might claim retrospective entitlements," Arndt explains. "If you get it wrong on commencement, an employee may well say, 'You engaged me as a casual, but I've always been a permanent employee, and you owe me my entitlements'

“It's not enough to simply have a decent contract anymore. Regardless of how clear your contract is about casual employment, the actual work arrangement might suggest otherwise.”

It comes down to the importance of understanding these nuances and preparing accordingly. Employers need to be vigilant about how they classify and manage casual employees to avoid potential pitfalls. As Arndt explains, these changes mean that businesses must align the true nature of the employment relationship with the contractual terms, ensuring compliance and reducing risks associated with misclassification.