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11 Jun 2020

Double dipping, classifying casuals and the challenges presented by WorkPac Pty Ltd v Rossato

By Cilla Robinson, Grace Paton and Colin Chang

When reviewing business practices for casual workers, employers should keep in mind some key questions based on the classification of casuals set out in the Rossato and Skene cases.

The unresolved issue of long-term casual employment is back on the agenda following the recent Federal Court judgment in WorkPac Pty Ltd v Rossato [2020] FCAFC 84. The decision reiterates the need for companies to correctly classify their casual workers and the significant associated risks of getting it wrong, but with no legislated definition of casual employment or limits on its appropriate use, workers and businesses alike are left with ongoing, and wholly unsatisfactory, uncertainty.

Casual workers get no annual leave, personal leave, notice of termination or redundancy pay. Instead they are entitled to a 25% pay loading. Following Rossato, some casuals will be entitled to both. With casuals currently comprising more than 20% of the Australian workforce the decision has far reaching implications for employers. In the current economic climate and widespread job losses resulting from COVID-19, the decision will no doubt add to the financial stress experienced by Australian businesses.

Companies are already responding to Rossato by reassessing the need for their long-term casuals, not necessarily with a view to converting them to permanent staff. Rather they are considering if they can get by without some casual workers altogether. For this reason the decision will likely lead to further job losses after JobKeeper support concludes, as many employers recognise that they cannot afford exposure to the very real risk of underpayment claims from some "permanent" casual staff – specifically, liability for back-payments of unpaid leave entitlements extending as far back as six years, despite 25% casual loading already being paid.

Relevantly, while unions and employers are co-operating to an unprecedented degree in addressing many pandemic related workforce challenges, the regulator and class action funders are not cutting employers any slack. Recently, Hero Sushi was penalised with a record fine of $891,000 for underpaying workers, and two underpayment related class actions have also been launched against convenience chain OTR and Coles, for $70 million and $150 million respectively. The Fair Work Ombudsman's focus on enforcement in the face of the pandemic should signal to all employers that correctly classifying and paying all employees, not only casuals, must be of absolute priority.

Key facts of the Rossato case

For almost three and a half years, labour hire company WorkPac employed Mr Rossato as a mining truck driver. He was engaged under six consecutive contracts, with the following features:

  • Each contract expressly identified him as a casual;
  • Three of the contracts referred to the payment of the 25% casual loading rate being incorporated into his rate of pay; and
  • One contract contained an express clause acknowledging the casual loading rate was paid in lieu of leave, notice and redundancy entitlements.

He was also covered by an enterprise agreement which further stipulated he was engaged on a casual basis and the 25% loading was paid in lieu of leave entitlements available only to permanent employees.

Following his retirement in 2018, Mr Rossato made a claim in respect of his untaken annual, personal and compassionate leave entitlements.

Casual vs permanent employee classification

The first key takeaway of Rossato is that it has not reinvented the wheel in terms of the key factors on which a court will assess and determine whether an individual is employed as a casual or permanent employee. Like the Federal Court's earlier decision in WorkPac Pty Ltd v Skene [2018] FCAFC 131, Rossato elucidates stable, regular and predictable employment or "a firm advance commitment" of employment will be a primary point of consideration in discerning whether a casual employee is in fact, a permanent employee.

In Rossato, the fact that the claimant had received weekly rosters which were often fixed for long periods of time and were made far in advance (sometimes up to seven months in advance), demonstrated that there was in fact a firm advance commitment of employment, akin to that of which is ordinarily only afforded to permanent employees.

Casual loading payments made in lieu: ineffective as set off against leave entitlements

The second key takeaway of Rossato is perhaps the most compelling. In short, in finding that Mr Rossato was not in fact a casual employee, he was able to retain all casual loading payments he had received over the course of his employment, as well as retrospectively recover his accrued and untaken annual, personal and compassionate leave entitlements.

The payment of casual loading by WorkPac was found to be ineffective in setting off any payments for untaken and accrued leave that he was later found to be entitled to. The court's reasoning was:

  • a casual loading payment made "in lieu" of an entitlement, is not the same as satisfying that very entitlement. The entitlement to paid leave arising under the Fair Work Act 2009 (Cth) (FW Act) and the applicable enterprise agreement was not just monetary in nature, but "at its heart an entitlement to be absent from work, while continuing to be paid". Accordingly, a payment made "in lieu" of such entitlement, could not be said to have satisfied the entitlement to paid absence;
  • not only was the casual loading payment made "in lieu" of the entitlement, they were made at a time when the liability to provide paid annual leave under the FW Act and under the applicable enterprise agreement "had not even arisen". An employee’s entitlement to paid annual leave accrues progressively over the course of a year's service and from year to year, according to the employee’s ordinary hours of work. The liability to make the payment however, arises only when the employee takes a period of annual leave or when, on the termination of the employee’s employment, the employee has a period of untaken annual leave. Thus, WorkPac had made the casual loading payments before they were even liable for the leave payments;
  • the casual loading payments could not, at the time they were made, have been regarded as lawfully discharging Mr Rossato’s entitlements to annual leave. Section 92 of the FW Act prohibited the cashing out of paid annual leave, including cashing out by pre-payment of the annual leave entitlements. Had Mr Rossato’s employment continued and his entitlement to take periods of paid leave recognised, WorkPac would not have been entitled in that circumstance to bring into account its earlier cash out or pre-payment of amounts in respect of annual leave.

Overall, the set-off clause which appeared in three of the six contracts of employment, did not elucidate the "requisite closeness" of the relationship between the purpose of the casual loading payments and the leave entitlements arising under the FW Act and applicable enterprise agreement.

The Court further rejected WorkPac's claim that it had mistakenly included the casual loading, in the hourly rate paid to Mr Rossato, and therefore it was not entitled to restitution of the casual loading payments.

The prohibition against double-dipping: regulation 2.03A ineffective as Rossato did not claim National Employment Standards (NES) entitlements in lieu

In December 2018, following the Skene decision and the identified potential for double dipping of casual loadings paid and leave entitlements, regulation 2.03A was introduced.

In Rossato, WorkPac sought to rely on regulation 2.03A as a prohibition against Mr Rossato double dipping on casual loadings and leave entitlements. The court found in this regard, that Mr Rossato was not seeking any amounts "in lieu" of one or more of the relevant NES entitlements (which is relevantly a precondition for evoking regulation 2.03A), but was instead seeking his actual NES entitlements.

Interestingly, Justice Wheelahan also had regard to the explanatory memorandum to regulation 2.03A and highlighted that regulation 2.03A was not intended to change the substantive law with respect to a claim for statutory leave entitlements, which, as set out above, is unlikely to be set off by the payment of casual loading. This of course calls into question the utility of the regulation given its narrow construction.

Importantly, not all long-term casuals will bring Rossato-type risks... whether there is a risk of a regular and systematic casual being found to be a permanent employee will ultimately rely on the factual matrix of the individual employee

Are you at risk? A reminder of types of casuals

In order to assess whether Rossato presents a real risk for your business it is first necessary to understand what a true casual is. Unlike part time or full time employees casuals have no guaranteed hours. They are employed on an as needs basis, generally to provide rostering flexibility and/ or to meet irregular operational demands etc. Casuals get paid a casual loading of 25% on top of their base hourly rate of pay because they do not have the security of employment of permanent staff. Specifically, as noted above they have no guaranteed hours of work and no entitlement to annual leave, paid personal / carer's leave, notice of termination or redundancy pay.

Importantly, not all long-term casuals will bring Rossato-type risks. Casuals come in two types. They can be irregular casuals who work inconsistent hours on an irregular basis or they can be regular and systematic casuals who work regular and systematic hours (eg. same number of hours or on the same day each week) and have an expectation of ongoing work. This does not make them permanent staff, but it does mean that unlike irregular casuals, they have additional rights after 12 months' employment, such as access to parental leave and flexible working arrangement under the FW Act and the ability to bring an unfair dismissal claim if their employment is terminated.

Whether there is a risk of a regular and systematic casual being found to be a permanent employee will ultimately rely on the factual matrix of the individual employee (ie. a court's assessment of whether are they a true casual or a continuing employee?) so it is important not to simplistically conflate long-term regular and systematic casuals with permanent continuing staff in a broad-brush manner, though without doubt such staff are the casuals that present the highest risk.

Employers' (and others') responses to Rossato

Casual work is generally considered irregular, temporary or unpredictable in nature and while some casuals are engaged in this way, the vast majority are employed as regular and systematic casuals, who have the additional protections (over irregular casuals) identified above.

So if casual staff are employed on a regular and systematic basis and over long periods of time, as well as having access to the unfair dismissal jurisdiction, one would think that the benefit of employing such staff tangibly diminishes, while the risk of them being found to be a permanent employee increases in turn. Despite this fact many Australian employers have fallen into lazy HR practices, not critically assessing their model for engaging casual employees and/or revisiting arrangements over time to consider if some casuals are more appropriately classified as permanent staff, or indeed if there is any real benefit to the business in employing casuals over permanents. This carefree approach of systemic casualisation must end with Rossato.

Unsurprisingly the decision has resulted in outrage from employer groups and the real possibility of ministerial intervention. Attorney-General and Industrial Relations Minister Christian Porter has said he is not ruling anything out, including potential amendments to the FW Act. Given the significant impacts of Rossato, unlike Skene, it is also likely the decision will be appealed to the High Court.

It is clear that Rossato has left a great deal of uncertainty in its wake, and we do expect further updates moving forward. In the meantime, Rossato should act as timely reminder for employers to continuously and critically assess the arrangements they have with casual workers and to consider the underlying purpose as to why they employ casual workers when over time (factoring in the casual loading accounting for leave entitlements) the only real difference may be payment of notice of termination and redundancy pay.

How employers can get ahead of the Rossato curve

Employers who are concerned about the ramifications of Rossato should consider taking some practical steps, for example:

  • Conduct a regular review of casual staff to determine whether their hours and shifts appear regular and systematic over the course of their employment with the aim of identifying high-risk casuals, who might be found to be a permanent employee.
  • Consider switching any identified "high-risk casuals" to fixed term contracts, using the casual conversion clause in the applicable modern award or simply offering permanent employment to casual staff identified as necessary on a continuing, indefinite, basis;
  • Establish an ongoing monitoring system of hours and rosters for all other casual employees, to ensure such employees are properly classified at all times.
  • Ensure there is an appropriately worded set off clause in casual contracts of employment;
  • Consider additional contractual clauses that enable the company to recover any casual loading paid to a casual if their employment is found to be permanent; and
  • Ensure that casual contracts do not have a clause stating that casual loading entitlements are paid in lieu of the NES entitlements.

When reviewing business practices for casual workers, keep in mind some key questions based on the classification of casuals set out in the Rossato and Skene cases, including:

  • Is there a "firm advance commitment" as to the workers hours or days worked?
  • Is there the expectation of "continuing and indefinite work" on behalf of the employee? That is, is there regular patterns of work, certainty, continuity of work or predictability over a 12 month period?

If any of these questions are answered in the affirmative, real consideration ought to be given as to whether these individuals are truly casual employees and whether you are better off providing an entitlement to accrued leave and no casual loading, given they will likely already have the additional protections conferred on regular and systematic casuals referred to above.

In short, characterising and paying casuals as such is no longer enough. We expect unions, Applicant law firms and of course the Fair Work Ombudsman will continue to focus on employers with large cohorts of long-term casual staff working regular and systematic hours to challenge whether the staff are in fact permanent staff. Business owners need to get ahead of the curve to adequately mitigate against these risks and move towards genuine and appropriate classification of casual staff.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.