Australia: The changing landscape of casual employment in the franchising sector – an update on changes to penalty rates

In the past few months we have seen a number of significant changes to the penalty rate regimes that apply to many franchise networks. In this article, we consider the key changes that are likely to impact on franchise networks and provide suggestions to franchisors as to how they should be preparing for these changes.

Changes to penalty rates

Sunday penalty rates

The Fair Work Commission (FWC) has decided that its controversial cuts to Sunday penalty rates will be 'phased in' through a staged transitional arrangement, in order to mitigate the effects of any hardship likely to be experienced by employees as a result of its decision to cut Sunday penalty rates.

The Sunday penalty rates under the Fast Food Award 2010 and the Hospitality Industry (General) Award 2010 will be reduced by 25 per cent over the next three years. A four-year transition period will apply to employers covered by the General Retail Industry Award 2010 and the Pharmacy Award 2010 where Sunday penalty rates will be reduced by 50 per cent.

The first of these reductions came into effect on 1 July 2017 with the penalty rates under each of these modern awards being reduced by 5 per cent. Future reductions during the transitional period will take effect on 1 July each year during the transitional period.

The Federal Court of Australia will hear an application from the SDA and United Voice to quash the decision to reduce Sunday penalty rates on 18 September 2017. However, for the time being, the 5 per cent reduction that took effect on 1 July continues. As such, franchisors may wish to revisit the penalty rates that they are currently paying to consider if they want to pass on this reduction immediately.

Public holiday penalty rates

The FWC did not decide to 'phase in' the implementation of its previous decision to reduce the public holiday penalty rates in the Fast Food Award, Hospitality Industry (General) Award, General Retail Industry Award or the Restaurant Industry Award 2010. As such, the 25 per cent reduction in public holiday penalty rates that is paid to employees for public holiday work came into effect on 1 July 2017.

Casual conversion

Following an application by the Australian Council of Trade Unions (ACTU) the FWC has determined that modern awards should contain a provision enabling casual employees to elect to convert to full-time or part-time employment, provided that they meet certain conditions.

The FWC proposes to insert a casual conversation clause into 85 modern awards, including the Fast Food Industry Award, the General Retail Industry Award, the Hospitality Industry (General) Award, the Restaurant Industry Award and the Hair and Beauty Industry Award 2010.

The proposed clause will provide that a casual employee who has, over the previous 12 calendar months, worked a pattern of hours on an ongoing basis may elect to convert to full-time or part-time employment.

However, an employer may refuse a request for conversion on the following grounds:

  • it would require 'significant adjustment' to the casual employee's hours of work to accommodate them in part-time or full-time employment within the terms of the applicable modern award;
  • it is not known if or it is reasonably foreseeable that the casual employee's position will cease to exist;
  • the employee's hours of work will 'significantly change' or be reduced within the next 12 months; or
  • on other reasonable grounds based on the facts which are known or reasonably foreseeable as to why the conversion should not occur.

Under this proposed clause, employers will also be required to provide all casual employees with a copy of the casual conversion clause within 12 months of their initial engagement.

It is likely that a casual conversion clause will be inserted into the relevant modern awards later this year.

Overtime rates for casual employees

The FWC has also proposed to make casual employees covered by the Fast Food Industry Award, Hair and Beauty Industry Award, General Retail Industry Award and the Hospitality Industry (General) Award eligible for the payment of overtime penalty rates.

The number of hours a casual employee must work to be eligible for payment of these rates will differ from award to award. For those modern awards that are most relevant to the franchising sector, overtime penalty rates will be payable for all hours worked in excess of, in respect of the:

  1. Hospitality Industry (General) Award – 38 hours per week or 12 hours per day;
  2. Restaurant Industry Award – 38 hours per week or 12 hours per day;
  3. General Retail Industry Award – 38 hours per week or:
    1. outside the span of hours for each day; or
    2. in excess of nine hours per day (but with one day per week where the casual employee may work 11 hours without attracting overtime penalty rates);
  1. Fast Food Industry Award – 38 hours per week or 11 hours per day;
  2. Hair and Beauty Award Industry 2010 – 38 hours per week or 10.5 hours per day.

The overtime penalty rates will be applied to the employee's ordinary rate of pay (as will their casual loading).

These provisions mean that employees need only meet the daily or weekly threshold to be eligible for overtime payments. For example, if a casual employee covered by the Hospitality Industry (General) Award works 2 x 14 hour days in a week, they will be entitled to four hours of overtime penalties, despite working less than 38 hours in the entire week.

Where a casual employee has regularly rostered hours of work a week, the FWC has proposed that to calculate the time worked, the rostered hours be averaged over the length of the roster cycle (which cannot exceed four weeks). For example, where a casual employee works a fortnightly roster in which they work 20 hours one week and 40 the next, the employee will not receive payment for any overtime as they have only worked an average of 30 hours a week.

The FWC's view was that the requirement to pay overtime penalty rates to casuals under these modern awards would not result in a significant cost burden to employers.

The FWC has asked the SDA and United Voice to file draft determinations for these modern awards dealing with overtime rates for casual employees.

Again, it is likely that the new overtime provisions will be inserted into the relevant modern awards later this year.

How to prepare?

As noted above, a number of significant changes have been announced to penalty pay rate regimes over the past few months.

Franchisors (and their franchisees) should use these changes as a good opportunity to review their use of casual employees. In particular, we recommend that franchisors undertake the following steps:

  • assess the number of casual employees that they currently engage who have completed or are approaching 12 months employment;
  • determine whether these casual employees have worked a pattern of hours on an ongoing basis without significant adjustment. For example, has the casual employee been engaged on a regular and systematic basis or only during peak periods on an intermittent basis?
  • determine whether the casual employees' roles can be performed on either a full-time or part-time basis;
  • determine whether:
    • the business would need to make significant adjustments to these casual employees' hours of work to accommodate any request to convert to full-time or part-time employment;
    • the relevant casual positions are required by the business on an ongoing basis; or
    • the relevant casual employees' hours of work will significantly change or be reduced within the following 12 months.

Franchisors are encouraged to work collaboratively with their franchisees in preparation for the changing landscape of casual employment in Australia to ensure compliance with the workplace relations framework, particularly in light of the Protection of Vulnerable Workers Bill which is currently before the Senate.

We are well placed to assist with implementing changes to the penalty rates regimes and developing and rolling out compliance programs.

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