Australia: 5 inconvenient truths about casual conversion

Last Updated: 2 April 2018
Article by Brian Powles

Sally McManus threw down the gauntlet to 'big business' last week on behalf of the ACTU at the National Press Club.

Ms McManus set out a number of proposals about industrial relations, following through on the ACTU's various television and social media promises that they would #changetherules. Issues such as a crack down on the gig economy, an overhaul of the labour-hire industry, a 7.6% raise to the minimum wage, greater access to collective bargaining, more robust 'good faith' bargaining provisions, and broader arbitral powers for the Fair Work Commission are all currently on the ACTU's political agenda.

Most notably, however, was the reintroduction of a proposal that would allow all casual employees to convert to permanent employment status after six months of employment. As rationale for this, McManus claims casuals have no 'job security' and should not be denied basic rights by the refusal of permanent positions, claiming that the average 'tenure' of casual employees is 3 years.

This may be exciting rhetoric to support the #changetherules groundswell, however in respect of casual employment it forgets the following:

One – The idea that permanent part time employees have 'job security' is a myth.

It is perhaps a sad reality, but permanent part time employees do not have significantly greater 'job security' than casual employees. Casuals are covered by the exact same unfair dismissal provisions if they are engaged on a 'regular and systematic basis'. They are also covered by the General Protections provisions of the Fair Work Act preventing any unlawful adverse action.

Permanent employees, under the National Employment Standards, are entitled to personal leave, annual leave, notice, and in some cases redundancy, but these financial benefits are negligible. Further, redundancy and notice (particularly in the first three years) are not significant enough to represent 'job security' in the mythical sense advocated by unions. These end of employment employment benefits (if they are ever realised) are significantly less than the twenty-five percent loading on top of every hour worked over the course of employment that is currently received by casuals.

The key difference (and some would argue only practical difference) is that casual employees are engaged on a flexible basis, with no guarantee of hours. What Ms McManus is therefore proposing, is that those employed on a flexible hours basis should be able to demand a guarantee of ongoing fixed hours after only six months of employment. When we cut through the political rhetoric, this is the only substantive change which would result from the ACTU's proposal. And this raises some significant hurdles.

Two – There is a social need for flexible hours employment, which is growing.

Some casual jobs in society exist as a permanent reality, and the mere fact they may be done long term by a particular person does not change the essential nature of that role, or the ongoing requirement for it to exist. As consumers, we demand flexibility and choice, and as our market place becomes larger and more global, we are generally becoming averse to commitment. Sectors such as hospitality, retail, agriculture, education, all have a growing requirement for flexibility of staffing, which is tied directly to consumer demand.

Perhaps the best current example is the roll out of National Disability Insurance Scheme, which has been a key objective of the Australian Labour Party, and other socially progressive Australians, for decades. The community generally have nothing but praise for the objectives of the NDIS, because it puts the control back with the participant. However, from an employment perspective this has created a turbulent and unpredictable wave of participant led supply and demand throughout the entire disability services sector. Industry experts predict that the response to the roll out of the NDIS will lead to an almost complete casualisation of the industry.

As a rule, consumers are demonstrating a trend towards less 'commitment' to products and services. Restaurant customers rarely book tables, except for a very small class of venue. NDIS participants can change providers, or the nature of the supports they require, with virtually no notice. Educational institutions compete for student revenue, and take enrolments up to the day before teaching commences, which has broad impacts on teaching and other employment levels.

We cannot expect employers in competitive markets to maintain an employment commitment when their customer base gives no guarantee of revenue. Despite what people think, the clear majority of businesses do not have large reserves of revenue. While it may be convenient to blame 'big business' for driving casualisation of the workforce, it is primarily a response to the casualisation of every day life.

Three – Flexible hours creates employment growth, and regulation imposing commitment causes employment opportunities to recede.

For an example, I look no further than my own hospitality businesses, which I operated in regional New South Wales between 2004 and 2014. These businesses did not exist prior to 2004. We began with one full time employee, and three casuals. By 2014, we had two venues, 5 full-time employees and approximately 30 casuals, representing a total of approximately 12 full time equivalents. Our wage cost correlated almost exactly with revenue to the extent possible, and this hovered typically at 40% of revenue, which was at the upper end of what was sustainable in that sector. Our businesses were healthy but never insanely profitable. But one thing that could always be said was that we actively created jobs from day one. Those jobs were of a type, and in a location, where they were needed, and appreciated, by the people that held them.

If a legal entitlement had existed for any of the employees to make an election to convert to guaranteed and fixed hours, and been taken up by employees, three things would have inevitably happened:

  • the total hours (which had varied from week to week) would have reduced overall for those employees, as the business would only have been able to commit to the lower end of the possible spectrum of hours available from week to week;
  • the business' capacity to maintain casual arrangements with other employees would have diminished, due to the commitment that had been made to the fixed hours employees, and new opportunities would have been slower to arise; and
  • given that the business would only be able to commit to the lower end of possible variation of employee hours, overall staffing would be reduced, and the capacity for the business to successfully deliver service to customers would have been threatened. This would have represented a threat to customer satisfaction, revenue, and in turn a recession of employment opportunities.

This may seem melodramatic or an exaggeration to some. But I suspect those people have never had a small business, nor had to wonder where next week's payroll was coming from.

In whatever plans we make in order to protect vulnerable employees, we need to acknowledge that flexibility is always a precursor to growth, and growth is a necessary part of economic and social prosperity for everyone.

Four – A requirement for fixed hours after six months will incentivise short term casual employment.

There is no question that an entitlement to conversion after six months would create an incentive for employers to end casual employment prior to the entitlement arising. This is especially given that six months would also conveniently correspond with the commencement of unfair dismissal protections. It doesn't take a 'Mr Burns attitude' to employment to work this one out. It is a no brainer. Those employers who are currently loath to commit to permanent arrangements (particularly amongst those employing entry level or unskilled workers) are likely to take this course. Prior to the six-month period, there will almost no legal remedy for employees who lose their casual employment. However, once they go beyond six months, not only will they be protected from unfair dismissal, but the entitlement to conversion will have arisen, and become a workplace right. The employees will be protected from adverse action under Part 3-1 of the Act for any proposal to exercise that right. For many employers, even the existence of this risk will create overwhelming incentive to end employment before this leverage can exist.

For many employees, seeking to work a casual job in the medium to long term with no desire to become permanent, this factor will put their employment at risk prior to the end of the first six month period. This would be counter-productive and contrary to the interests of vulnerable workers.

Five – Employers are vulnerable too.

This is the reality that is most often ignored by the union political dialogue, as they seek to inappropriately polarise the community into the 'workers' and 'big business'. Less than 10% of private sector employees are union members, and small and medium businesses account for 97% of Australian businesses, employing over 40% of Australia's workforce. A clear majority of the employment community no longer fit into the unions' rhetorical paradigm. Businesses cease trading every day because of economic pressures, and this leads to job losses. Any sudden regulatory change which makes it considerably harder to maintain sustainable businesses will have broad social and economic consequences which effect everybody, most notably vulnerable workers. It is immensely foolish to promote a #changetherules initiative to allegedly increase job security, when it is obvious that it will only result in widespread job losses and uncertainty throughout the economy.

But I am pretty certain that Ms McManus and her ACTU friends actually know all of this, and this is just the latest political push to get someone charismatic to Canberra. I'm equally confident that Australian workers are probably wise (and weary) enough to be cynical when a proposal to #changetherules looks a little too good to be true.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Brian Powles
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