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The Fair Work Commission (FWC) recently heard the final submissions of parties in the casual employment case arising out of the four yearly review of modern awards (the Review).

Of particular interest to the parties at the hearing was the operation of casual conversion clauses and how they affect ‘service’ as it is defined in the Fair Work Act 2009 (Cth) (FW Act).

What is casual conversion?

Casual conversion is the process of a casual employee converting to permanent employment, usually following a period of regular and systematic casual employment.

The conversion mechanism usually appears in an enterprise agreement or a modern award. Each conversion mechanism can operate differently depending on the terms of the clauses.

For example, in the Building and Construction General On-Site Award 2010, an employer who has engaged a regular casual employee for six months and intends to continue to engage the employee, must provide the employee with a letter informing them of their right to request to convert to permanent employment. The employee can then respond and request to convert or can request to stay casual. If the employee requests to covert, the employer cannot unreasonably refuse the request.

The rationale behind casual conversion is that if an employer has been employing a person regularly and systematically for an extended period of time, then that employee is not a true casual and should have the benefits of secure permanent employment such as sick leave, annual leave and redundancy pay.

However, casual conversion does not work for all businesses and can impose some onerous obligations on some employers.

Why has casual conversion become a big issue?

The reason casual conversion has become such a big issue recently is because of the FWC Full Bench decision in AMWU v Donau Pty Ltd [2016] FWCFB 3075 (Donau). In Donau, an employer covered by an enterprise agreement was faced with making a significant number of employees redundant. A group of the employees facing redundancy had taken advantage of casual conversion provisions in the enterprise agreement earlier in their employment. The question for the Full Bench to decide was whether the service of those employees as casuals should count towards their service for the purpose of calculating their severance pay (remembering that they were paid a casual loading in lieu of entitlements permanent employees receive when they worked as casuals).

The Full Bench decided that on proper construction of the enterprise agreement and the relevant provisions of the FW Act, the casual service of those employees did count towards their total service for the purpose of calculating their severance pay.

Although this decision is limited to those employees who were covered by the Donau enterprise agreement, this decision hints at the possibility that all casual employees who become permanent as the result of a casual conversion clause should have their casual service count when accessing other employment entitlements.

Commissioner Cambridge delivered a dissenting judgement in Donau and warned against the “folly” of the Full Bench’s interpretation. He cautioned that the interpretation applied by the Full Bench had the potential to allow for casual employees to access years worth of annual leave and sick leave entitlements upon converting to permanent employment should their casual service be retrospectively recognised.

What could this mean for employers?

It is well understood that the casual loading paid to casual employees on top of their ordinary rate of pay is intended to compensate casual employees for not receiving the full suite of entitlements that permanent employees receive.

The mounting concern for employers in light of Donau, is that when casual employees convert to permanent status, if they then become retrospectively entitled to permanent entitlements, they will, in effect have received those entitlements twice – once in the form of casual loading and then again when they convert to permanent employment.

Several employer groups who delivered submissions to the Review raised this issue of “double dipping” and suggested that casual conversion, especially any version of casual conversion that interprets service as having accrued from the beginning of casual employment, is inconsistent with concept of casual employment under the current legislative regime.

In the Review, the idea of casual conversion being inserted into more modern awards was floated, but some employer groups suggested that this may diminish labour flexibility and reduce the amount of jobs that employers offer, in particular casual jobs for fear of triggering casual conversion rights.

The FWC will be accepting written submissions for some time yet before delivering any determinations about casual employment and modern awards.

Whilst we don’t view the decision in Donau as opening the flood gates for former casual employees to bring claims for years worth of annual leave or sick leave, a conversation has certainly begun and we will continue to monitor its progress.

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