A landmark ruling has reinforced that the label on an employment contract does not determine whether a worker is truly casual, sending a warning signal about the risks of misclassifying their workforce.
The NSW Industrial Relations Commission has ruled that employees can’t be defined as casual by label alone, in a test case decision that may flow on effects for small businesses with flexible workforces.
The ruling found that Corrective Services NSW had incorrectly designated a Community Services field officer, Craig Jackson, as a casual employee despite his work being “regular and systematic.” The NSW Public Service Association, which brought the case, described the win as ‘historic.’
While the decision applies to the NSW public sector, under the state’s industrial laws rather than the federal system, it reinforces a principle now embedded in federal employment legislation: substance matters more than labels. For SME employers who engage casual workers under the Fair Work Act, the ruling is a pointed reminder that classification practices deserve close scrutiny.
The Commission Reinforced That Labels Aren’t Enough
The case centred on whether a NSW government employer could define a position as casual purely through contractual language. Vice President Justice David Chin found it could not.
The PSA argued, and the court accepted, that Jackson’s employment was “not irregular, intermittent, short-term, urgent or other work” and that his role was effectively ongoing. The state countered that because Jackson’s contract used the word “casual,” that designation should carry decisive weight.
But Justice Chin was unconvinced, stating in his judgment, “Labels have never been regarded as decisive of the legal character of an employment relationship.” He said if that was the intention of the legislation, it would have been written that way. “Instead, parliament chose to define casual employment exclusively by reference to the nature of the work carried out by the employee,” he found. To labels alone, the judge said, would be “meaningless and unworkable.”
Federal Law Also Looks Beyond Contract Language
Although this ruling sits within the NSW state industrial relations system, it mirrors a shift already underway at the federal level.
The Closing Loopholes legislation amended the Fair Work Act to redefine casual employment. The new definition moved away from a purely contractual test, instead requiring an assessment of the “real substance, practical reality, and true nature” of the employment relationship.
Under the amended definition, a worker is not casual simply because the contract says so. Other factors must be considered, such as whether there is an advance commitment to continuing and indefinite work, whether the employee has a regular pattern of hours, and whether the role is essentially identical to a permanent position.
For private sector SME employers, the federal definition is the one that applies. But the NSW ruling reinforces the same underlying logic: what happens in practice will override what is written on paper.
The Cost Of Misclassification Adds Up Fast
Getting casual classification wrong is not a technicality. It carries real financial consequences.
An employee found to have been misclassified as casual may be entitled to back-payment of leave entitlements, including annual leave and personal leave. Depending on the length of employment, those liabilities can be substantial.
Under the Fair Work Act, employers also face casual conversion obligations. Employees who have been employed for 6 months (or 12 months in small businesses with fewer than 15 employees) and believe they no longer meet the definition of casual employee can opt to convert to permanent employment. Employers can only refuse the request on very limited grounds.
Beyond financial exposure, disputes over classification can strain workplace relationships, attract regulatory attention and create uncertainty across the broader workforce.
Auditing Casual Roles Is The Practical Next Step
For SME employers, the case may highlight the value of regularly reviewing how casual roles are currently structured to see whether those arrangements reflect reality.
A useful starting point is examining roster patterns. If a casual employee works the same shifts on the same days each week with no genuine variation, the arrangement may look more like ongoing part-time employment in substance.
Employment contracts should also be reviewed. While a contract that labels a role as casual is not sufficient on its own, contracts that fail to reflect a genuine absence of firm advance commitment could increase exposure.
Employers with casual workers who have been engaged for 6 months or more (12 months in a small business) should check whether casual conversion obligations have been met. Where classifications appear borderline, seeking professional advice before a dispute arises is significantly cheaper than responding to one after the fact.
Classification is genuinely complex, particularly for businesses without dedicated HR support. But as this ruling and the federal Closing Loopholes reforms both make clear, the reality of the working relationship will determine employment status, regardless of what the paperwork says.
