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When is a casual not a casual? The saga continues

By Ross Jackson

• 29 May 2020 • 8 min read
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In a decision that will add to the pressure businesses are facing due to the COVID-19 pandemic, the Full Federal Court has ruled that an employee incorrectly classified as a casual by their employer is entitled to both leave entitlements and the casual loading already paid to them (WorkPac Pty Ltd v Rossato [2020] FCAFC 84).

Employers who have incorrectly classified permanent employees as casual and for whom leave entitlements are owed, will not be able to “set-off” the value of casual loading paid to those employees against leave entitlements. The decision upholds the 2018 ruling in WorkPac v Skene[1] and has reignited concerns over some employees “double-dipping”. The federal government is considering legislative intervention. The decision represents the unequivocal triumph of the common law definition of casual employment, where every engagement is a separate contract without any future promise of work, over the “industrial” definition of casual employment, as an employee who is engaged and paid as such.

Application by WorkPac

Mr Rossato, a coal miner, was employed by WorkPac, a labour hire firm, for approximately three and a half years. During his employment, Mr Rossato entered into six consecutive contracts of employment, all of which stated that he was engaged on a casual basis. Each of the contracts provided for a 25% casual loading as a part of Mr Rossato’s wage.

WorkPac commenced proceedings in the Federal Court seeking:

  • a declaration that Mr Rossato was a casual employee and not entitled to paid annual leave, personal/carers leave, compassionate leave and public holiday pay under the Fair Work Act 2009 (Cth) or the applicable enterprise agreement
  • if the Court found that Mr Rossato was not a casual employee, that the casual loading already paid to him would be ‘set-off’ against any entitlement Mr Rossato would otherwise have to paid leave entitlements.

Was the employee truly a casual?

The Court found that Mr Rossato’s work under each of the contracts was “regular, certain, continuing, constant and predictable”, and that he should be properly classified as a permanent employee. As a result, the Court found that Mr Rossato was entitled to paid leave as a permanent employee.

Could WorkPac set-off the amount of the casual loading already paid?

WorkPac submitted that the amount of the casual loading paid to the employee should be deducted from any amount awarded to him in respect of unpaid leave entitlements. This was on the basis that casual loading payments were made in lieu of the entitlements Mr Rossato would have been owed as a permanent employee. In the alternative, WorkPac argued that it should be repaid the value of the casual loadings as the loadings were paid on the mistaken belief that Mr Rossato’s employment was casual (Restitution). WorkPac was unsuccessful in both of these arguments.

Set-off argument

WorkPac argued that it was entitled to a set-off on two bases, firstly under general law and secondly under the Fair Work Regulations.

The Court held that the casual loadings did not have a “close correlation” to the various leave entitlements claimed by Mr Rossato. Justice White, supported by Justices Bromberg and Wheelahan, explained that while paid leave is “a service related entitlement”, casual loadings are a “payment for an hour worked” and “designated as the remuneration for the services provided”, and therefore have a “different purpose” to paid leave entitlements. This was further supported by the limitations under the Fair Work Act on permanent employees “cashing out” their accrued leave entitlements.

The Fair Work Regulations provide for an employer to set-off an amount paid in casual loadings against any claim for an amount “in lieu” of paid leave or any other entitlements under the National Employment Standards (NES). The Court held that Mr Rossato was not seeking an amount “in lieu” of his NES entitlements, but an amount “for” his NES entitlements. As such, the Court held that the regulations did not apply in this case.

Restitution argument

WorkPac argued that it was entitled to restitution of the casual loading paid to Mr Rossato on the basis that the payments were only made on the mistaken belief that Mr Rossato was a casual employee and, therefore, entitled to the loadings.

The Court found that the mistake made by WorkPac was to incorrectly frame the employment it offered Mr Rossato as “casual”. By paying Mr Rossato a wage inclusive of a loading, WorkPac was simply abiding by its obligations to pay Mr Rossato in accordance with the employment contracts, which stipulated that Mr Rossato was entitled to the loading. The Court held that such a mistake could not be remedied by restitution.

Government intervention?

The Government has flagged potential legislative intervention to prevent “double-dipping” by employees previously classified as casuals so that they do not receive both a casual loading and leave entitlements for the same period.

Implications for employers

Unless the Government intervenes and pending any appeal to the High Court, it is expected the case will result in class actions and individual claims.

Importantly, an employee will still need to successfully argue that they are not a casual employee in order to access entitlements to paid annual and personal leave.

The problem is that while there is a well-established concept of a “regular” and “systematic” casual employee, (who will, for example, often have access to unfair dismissal remedies) the boundaries between what is truly “casual” and what is “permanent” employment continue to be confusing for employers and employees.

If you have long term casuals who work the same shifts or roster week to week and have a soundly-based expectation of ongoing employment, there is a real risk that they could be held to be permanent employees and entitled to accrue the entitlements of permanent employees, including to be paid for accrued annual leave on the termination of their employment.

Of course, the easy answer when engaging workers on a regular and systematic basis with an expectation of future and indefinite work is to classify them as permanent part time employees, not casuals. The employee will then not receive a casual loading but they will be entitled to leave and other benefits (such as notice of termination). But this is a line readily drawn in theory, less so in practice.

Since October 2018, casual conversion clauses have been inserted in many Modern Awards, which provide that eligible casuals may request permanent part time or full time employment. Employers must provide all casual employees covered by Awards that contain casual conversion provisions information about the right to request conversion within the first 12 months of an employee’s engagement as a casual, regardless of shift patterns.

What should employers do?

It remains to be seen if the Federal government legislates to prevent double-dipping, for example, by allowing an absorption or set-off of casual loading already paid to a misclassified employee to satisfy leave entitlements in that same period.

The approach taken by the Court in this case to avoid the application of the antidouble dipping regulations already in place is interesting, to say the least - drawing a distinction between a claim for a benefit (which is now convertible to cash) and a claim for a payment in lieu of that benefit is not readily discernible.

It is also possible that WorkPac will appeal the decision to the High Court of Australia.

In the meantime, as employers, you should consider conducting a review of casual employment arrangements and your business needs and practices to ascertain both your potential liability for past arrangements, and what forms of engagement mitigate that risk in future whilst still meeting your business needs:

  • If your business relies on the flexibility of a casual workforce, are you creating unnecessarily regular patterns of work for casual employees which erode your ability to assert that those employees are truly casual? Can you make clear that every engagement is to be considered separate and distinct, and that no engagement is to be taken as a representation that another will be offered?
  • Are some of your casual employees actually permanent part time employees, or have become so, as a result of regular, constant and predictable patterns of work?
  • Are your casual employees covered by a Modern Award that contains a casual conversion clause? Make sure you are complying with your obligations.
  • Consider reviewing your written arrangements with casual employees. Express any casual loading as a separate and identifiable amount in letters of appointment or contracts and that it is paid instead of entitlements provided to permanent employees. This quantification may assist if the government intervenes to allow an employer to set-off those amounts in the event that the casual employee is later found to have been mis-classified and should have been treated as a permanent employee.

[1] [2018] FCAFC 131

Require guidance navigating this issue, including what employers can do now?

Contacts a member of the Employment, Safety & People team for further assistance.

By Ross Jackson

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