Employers should plan ahead regarding the conversion of long-term casual employees to permanent full or part time employment. The Fair Work Commission has ruled that casual conversion clauses and minimum periods of engagement for casual employees must be provided for in modern awards.

Casual employment

In 2016, there were almost 2.5 million people engaged as casual employees in Australia. These employees constituted 25% of Australia’s total workforce. However, casual employees, unlike full time and part time employees, have no entitlement to paid annual leave or personal leave under the National Employment Standards (NES), are not guaranteed regular hours of work, and may have their employment terminated without notice, unless it is required under their employment contract or a registered agreement.

In lieu of these benefits, casual employees are entitled to a higher hourly pay rate than equivalent full time or part time employees. This is known as a ‘casual loading’. They are also entitled to some forms of unpaid leave, including unpaid carers leave, compassionate leave, and community service leave. Full time and part time employees are also entitled to these forms of unpaid leave, but this is in addition to their paid leave entitlements. Long term casual employees, who have worked for their employer on a regular and systematic basis for at least 12 months, may request flexible working arrangements with their employer and take unpaid parental leave, but that is all.

Of the 122 modern awards, only 23% currently contain “casual conversion clauses”. These include the Hospitality Industry, Pharmacy Industry, Registered and Licensed Clubs, and Building and Construction General On-site awards. The conversion clauses in these awards enable casual employees with regular or reasonably predictable hours of work to convert to full time or part time employment if they have worked for their employer for a certain period of time. However, there are inconsistencies across these awards in respect of the prerequisites for conversion, grounds for refusal by employers, and notice periods. These inconsistencies, as well as the lack of entitlements available to casual employees and the inability of casual employees to convert to full time or part time employment under the majority of modern awards, were brought to a head in a recent decision of the Fair Work Commission (FWC) on 5 July 2017.

The review

Section 156 of the Fair Work Act 2009 (Cth) (FW Act) requires the FWC to conduct a 4 yearly review of modern awards. During the current review, applications were made by various employer and union bodies to vary provisions concerning casual and part time employment in a number of modern awards. These were heard together by a Full Bench of the FWC.

The Australian Council of Trade Unions (ACTU) submitted that a model casual conversion clause should be inserted into all modern awards and existing conversion clauses should be replaced with this model provision. Other bodies, including the Australian Industry Group, sought to remove the obligation placed upon some employers to notify eligible casual employees of their right to request to convert to permanent employment.

Decision

The FWC decided that it was necessary to insert into all modern awards a provision by which casual employees could elect to convert to full time or part time employment, subject to certain criteria and restrictions. The Commission stated at [365] that:

If the casual employment turns out to be long-term in nature, and to be of sufficient regularity that it may be accommodated as permanent full-time or part-time employment under the relevant modern award, then we consider it to be fair and necessary for the employee to have access to a mechanism by which the casual employment may be converted to an appropriate form of permanent employment.

The FWC accepted that the unrestricted use of casual employment, without the safeguard of a casual conversion clause, may operate to undermine the fairness and relevance of the safety net. Accordingly, the FWC concluded that a casual conversion mechanism would help to achieve the modern awards objective, which requires modern awards and the NES to provide a fair and relevant minimum safety net of terms and conditions.

The FWC rejected the ACTU’s endeavour to vary existing casual conversion clauses in modern awards and to extend the minimum engagement period of casual and part time employees to 4 hours. Instead, it concluded that the 34 modern awards that do not currently contain any minimum period of engagement should be varied to include a 2 hour minimum period of engagement for casual employees. The FWC also rejected the argument that the notification requirement placed upon employers in existing casual conversion clauses should be removed.

Model casual conversion clause

The FWC developed a draft model casual conversion clause to be inserted into the 85 modern awards that do not already contain a clause of this nature.

The proposed clause stipulates that, in order for a casual employee to convert to a part time or full time position:

  1. the employee must work for the employer for a period of at least 12 months; and
  2. the employee must work a pattern of hours on an ongoing basis that could continue to be performed in accordance with the full time or part time employment provisions of the relevant award without significant adjustment.

The proposed clause also requires an employer to provide casual employees with a copy of the casual conversion clause within 12 months after their initial engagement, regardless of whether they become eligible for conversion. It also allows an employer to refuse a casual employee’s request for conversion on the following grounds:

  1. a significant adjustment to the casual employee’s hours of work would be required to accommodate them in full time or part time employment in accordance with the terms of the applicable modern award;
  2. it is known or reasonably foreseeable that the casual employee’s position will cease to exist;
  3. the employee’s hours of work will significantly change or be reduced within the next 12 months; or
  4. other reasonable grounds based on facts which are known or reasonably foreseeable.

Conclusion

It remains to be seen whether there will be any amendments to the model casual conversion clause developed by the FWC, and when the proposed changes will come into effect.

The FWC has directed that any further written submissions regarding the terms of the proposed casual conversion clause are to be made by interested parties by 2 August 2017.