Do you have an obligation to convert casual staff to permanent positions?

Casual employment can pose complications for businesses, particularly when it comes to deciding whether to offer a casual employee a permanent role. Are there any cases where permanent conversion is compulsory for employers?

Do you need to convert all casual staff to a permanent position? The short answer is “no”. But it’s not a black and white situation. For example, you do have an obligation to consider whether you should convert casual staff to permanent positions.

As you may know, the Fair Work Act (FW Act) was amended, effective 27 March 2021, to address casual employment, predominantly because of some controversial case law developments around that time regarding casual employment.

Essentially, the FW Act amendments:

• Helpfully define what a ‘casual’ is and what it means to be a casual in law;
• Require that any loadings paid to casuals must be used to offset against any underpayments found at law; and
• Allow for casual conversion.

Essentially, employers must now consider offering conversion from casual to permanent employment to an employee after 12 months of regular and systematic employment or explain in writing why an offer to convert cannot be made (on genuine business grounds only, such as an expectation for hours to decrease in the coming months).

You must do this within 21 days of the 12-month anniversary of casual employment. Below the author sets out where an employer does not have to make an offer.

Where does an employer have to make an offer?

So, conversion is not compulsory, but consideration of it and applying the business grounds test to your determination is compulsory. 

An offer initiated by the employer, or a notice explaining why an offer will not be made, only needs to be done once for a casual (in writing). After that, subject to some conditions, a casual employee can request permanency every six months provided they have been working regular hours. The employer is not required to do anything to remind them, so this is a matter for the employee to initiate. Any request made must always be properly addressed by the employer in writing, or they can expect to face penalties under the FW Act.

Small businesses (those with less than 15 employees) are exempt from conversion obligations, although employees of small businesses can still request conversion.

In my view, for current casuals beyond 12 months’ engagement, where you have already considered and addressed conversion, unless a request is made, you have no further work to do on that issue.

For new casuals coming on board, you need to ensure your systems are set up to alert you to 12-month anniversaries where you must consider whether a conversion offer is required.

What are the initial considerations to be made?

Unsurprisingly, this depends on the facts and circumstances of your business, but does require the following three jurisdictional facts to be satisfied first:

1. The employee has been employed for 12 months;
2. During the last six months of that period the employee has worked a regular pattern of hours on an ongoing basis (on a regular and systematic basis); and
3. Conversion would not require ‘significant adjustment’ to continue the work as a permanent employee.

Further, an employer is not required to make an offer if there are ‘reasonable business grounds’ not to make the offer.

These can include (as prescribed by the FW Act, but not limited to the below):

• The position won’t exist in 12 months;
• Hours of work will reduce in the following 12 months;
• There will be significant change in hours of work and where and when to be performed and which cannot be accommodated within the employee’s availability; or
• The offer would not comply with a recruitment process under Commonwealth or State law.

Noting early case law on the topic, my view is that other successful business reasons could include:

1. Most obviously, that you can successfully argue that your casual employees do not meet the test of having a ‘regular pattern of hours’ and have not been employed by you on a ‘regular and systematic basis’ over the last six months;
2. ‘Significant adjustment’ would be required to accommodate the conversion, such as significant changes to hours of work, sizeable increased remuneration, marked differences in roles and responsibilities by the conversion (argued successfully in cases so far);
3. Commercial and business reasons such as that the nature of your enterprise, or the role or the workplace does not suit permanent employment (e.g. labour needs fluctuate, work requirements are too ad hoc, operational requirements suit casual labour);
4. Significant (costly) adjustments would be required to the work structures, work hours/patterns, remuneration and payroll, supply chain movement, rosters, work methods, etc. to accommodate changes to permanency;
5. And the financial burden of changing casual staff to permanent would have the likely effect of closing the business – i.e. jobs lost.

In the majority of decisions I’ve found the employer has successfully argued burdensome “significant adjustments” to defeat the conversion applications made to the Fair Work Commission (FWC).

I am aware of two decisions among the handful in this area of law where an order has been made by the FWC to require conversion offers be made.

In the first decision of CPSU, the Community and Public Sector Union v Technical and Further Education Commission T/A TAFE NSW [2022] FWC 2908 (TAFE decision), Commissioner McKenna was willing to order that three individuals employed by the TAFE be given conversion offers for permanent employment at the TAFE, being satisfied that the requirements of section 66B of the FW Act had been met.

Three interesting facts about this case, which set it apart from other cases, were:

• Conversion would not mean a substantial change in duties or responsibilities for the employees involved – it would not be a ‘promotion’ – the work each employee was doing would remain the same; 
• There was evidence of long-term casual employment over a systematic and regular basis prior to the application; and
•  TAFE also made the interesting forensic/strategic decision not to cross examine the union’s witnesses, thus allowing all union evidence to be accepted and remain unchallenged – instead wishing to focus more on the intellectual argument of legislative application under section 66(2)(d) of the FW Act.

In the second decision of CPSU, the Community and Public Sector Union v Commonwealth of Australia (Services Australia) [2022] FWC 1246, Commissioner Johns found in favour of the CPSU and ordered conversion offers be made to Commonwealth employees.  

Similarly to the TAFE decision, the Commonwealth tried to rely on legislation to argue that it overrode the conversion requirements. It tried to rely on section 66(2)(d) of the FW Act, arguing that a conversion offer would not comply with the recruitment process under Commonwealth law, namely the requirements of the Public Service Act.

Needless to say, these somewhat technical/legalistic arguments have not gone down well with the FWC.      

Commissioner Johns went as far to say that if the argument were to succeed, government agencies could bypass and frustrate the intentions of the conversion terms in the FW Act, which is clearly not the intention of Parliament. In the TAFE decision, Commissioner McKenna accepted that an employer cannot simply create policies and procedures under the guise of conforming to legislation to avoid conversion obligations.

These two decisions ought not panic the reader into thinking that the floodgates have opened on orders being made by the FWC for conversion offers to be made. On the contrary, the majority of decisions seeking conversion orders in the FWC have failed based on persuasive common sense evidence being brought by the employer and accepted by the FWC.

These two cases can be distinguished by a number of aspects, as listed above, and on the basis that they are both cases focusing on the application of legislation to override conversion laws (trying to rely on section 66(2)(d) of the FW Act). To my mind, both cases focused mostly on legal argument rather than on more practical, persuasive and common sense evidence.

What does this mean for HR?  

So where does this leave HR? I’ll admit, casual conversion isn’t the easiest process to get right, as it’s often so circumstantial, but here’s what I’d say to HR professionals who were concerned about it:      

• Don’t panic. A casual employment workforce still has its role and place in the workplace and conversion is not taking over.     
• Apply the conversion consideration requirements as required and have your systems set up to deal with it.     
• Apply practical common sense as to whether conversion should be offered in your workplace and focus more on the business reasons rather than artificial legal argument.      
• Don’t be afraid to say no to conversion – just have sound business reasons and put them in writing to staff.      
• If in doubt on whether your arguments to refuse conversion would pass the ‘pub test’ (i.e. collective opinion), get good, practical advice from a workplace law specialist.

Luke Connolly is the Director of Connolly Workplace Law. The information in this article is general in its nature and does not constitute legal advice.

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