Many casual employees will have new rights.

Crucial Decision Affects Employment of Casuals Engaged on a Permanent Basis

As we expect you will have already read in the media,  the Federal Court recently (in Workpac Pty Ltd v Rossato[1]) confirmed the approach taken in its earlier 2018 judgement (in Workpac Pty Ltd v Skene), which may have significant implications for the future employment of casual employees across Australia.

The primary concerns arising from the judgement are that:

1. Regardless of award provisions such as casual conversion clauses (inserted into most awards recently), if an employee engaged as a casual has a regular and predictable pattern of work with an expectation of ongoing employment, they are likely to be treated as a permanent employee, for the purposes of NES entitlements such as annual leave, personal / carers leave and payment for public holidays not worked.

2. Where an employee commences employment with irregular hours under a casual contract, the casual employee can nevertheless become a permanent employee during the course of their employment relationship, regardless of whether the parties continue to describe the relationship as casual.

As a result of the above decision, some employees currently considered by their employer to be ‘casuals’, could in fact be legally permanent, despite being paid the applicable casual loading.  What is unclear is whether the impact of this decision will only be limited because the facts were unique and similar in nature to the earlier judgement.

In both WorkPac cases, it was found by the Judges that there was a “firm advance commitment” to a continued and regular pattern of work.  Rarely are casuals intentionally given such a commitment by their employer, so it is not certain that in another case the same conclusion would be reached.


Casuals under the Fair Work Act

Since the introduction of the Fair Work Act in 2009, cases before the Fair Work Commission (FWC) have often recognised the prevalence of casual employees being engaged on regular working patterns or on a long-term basis and this has been accepted as a normal method of employment.  The FWC has taken the pragmatic view that, provided an employee was called a casual and paid the casual loading, they could legitimately be considered as casual regardless of the regular pattern of work.

The FWC has dealt with this issue by including a ‘casual conversion’ clause in awards, to encourage employers and employees to engage regular casuals as part time or full-time employees.

The Federal Court has seemingly dismissed this FWC approach to casual employment as the ‘wrong’ approach in its judgements, on the basis that what is actually required is an assessment based on “the real substance, practical reality and true nature of the relationship”, rather than the description the parties have given to the relationship or the basis of such employment under an award, for example.

The Federal Court’s approach instead is that an employee who has a firm advance commitment to ongoing work is not a casual and therefore must be entitled to NES leave provisions.  This decision has very serious implications for casuals engaged in many industries, especially where the contract terms are not clearly defined and the employer has instead relied upon the payment of the casual loading as being the definitive factor.

The Federal Court has also indicated that, “an employment which commences as casual employment may become full-time or part-time because its characteristics have come to reflect those of an ongoing part-time or full-time employment”.

Significantly, the Federal Court also ruled that Regulation 2.03A of the Fair Work Regulations, which was introduced in December 2018 in response to the earlier Skene decision, does not allow the casual loading to be used to offset NES leave entitlements. The highly technical reasoning relied upon, was that the Regulation related to where there were claims for payments made ‘in lieu of’ leave entitlements, but in the case before the Court the claim was not for payments in lieu, but for the actual entitlement to paid leave itself.

What next for employers?

The impact of the two WorkPac decisions could be substantial, but it will still be limited to the particular facts of each case. The uncertainty this creates is of great concern to employers, who will fear possible large, unfunded liabilities for employee entitlements as a result of court decisions.

Regular or long-term ‘casuals’ who are found instead to be permanent employees, would become entitled to NES benefits such as:

  • paid annual and personal leave (accumulating for each year of their service);
  • public holiday entitlements;
  • notice of termination; and
  • redundancy entitlements.

Government Intervention?

Employers are calling for urgent intervention to protect them from underpayment claims, estimated to be up to $8 billion for annual leave alone.  The Morrison Government has already flagged potential legislative changes as a result of this judgement.

Whether the Government will have the numbers remains uncertain, given the Shadow IR Minister Tony Burke said this would be a “gross betrayal of Australian workers.”

“The Morrison Government should also accept it and abandon its plans to pursue legislation to circumvent the judgement and allow this behaviour to continue,” Burke said.

“If there’s any ‘double dipping’ going on here, it is being performed by the employers – they’re taking advantage of the insecurity of casual work while still getting permanent hours out of their workers.”

There is a possibility of an appeal to the High Court, but this will depend on the potential legal arguments available to challenge the judgement and whether the parties to the judgement will seek to appeal.

ER Strategies has been reviewing commentary on the case from lawyers and other academics and they all see a need for this issue to be clarified by legislative change, but they do indicate the result of the WorkPac cases should now clearly be considered the settled legal position.  However, they also take the view that whether the same result will apply for other employers will depend on the specific facts involved.

Unfortunately, this uncertainty is not very helpful because employers want and need certainty.


What Should Employers Do?

At this stage, it appears these are the main options for employers to consider:

1. Ensure that casual contracts of employment are properly drafted to clearly specify that there are no guaranteed hours of work, or days of work;

2. Ensure that the casual loading is clearly identified and may be used to offset any potential NES leave entitlements, where this is possible;

3. Limit the forward rostering of periods of work and make them as short as possible, including the ability for the employer and the employee to vary the days of the week and hours of work;

4. Consider offering part-time or full-time engagements for your casual employees that you identify as possibly having a regular and predictable pattern of work and an expectation of ongoing employment;

5. Ensure compliance with casual conversion award clauses where applicable, as the basis for changing contracts of employment to permanent;

6. Where employees reject casual conversion, detail the casual nature of employment and ensure the arrangement includes that the casual loading may be used to offset any NES entitlements;

7. Consider whether you should commence to make your casual engagements less regular and systematic;

OR

8. Make no changes and await the outcome of any legislative change or further appeal.

ER Strategies will keep clients informed of developments, in particular any progress with legislative changes to address the issues caused by the two WorkPac decisions.  The recent announcement by Scott Morrison that the Federal Government will be talking directly with the ACTU and other unions to reform the workplace laws suggest that a patient wait and see approach may be the best option, at least in the short term.

There are also a range of class actions that have been ‘onhold’ awaiting the outcome of this judgement, so those matters will likely now recommence and provide a clearer indication of how this judgement will apply to other sectors and the nature and extent of underpayment claims we can expect.

[1] WorkPac Pty Ltd v Rossato [2020] FCAFC 84 https://www.judgments.fedcourt.gov.au/judgments/Judgments/fca/full/2020/2020fcafc0084

Getting Our Help

ER Strategies can assist clients to review contracts of employment and develop specific strategies on an individual basis.  Call us on 1300 55 66 37.

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