The Full Court of the Australian Federal Court recently considered the legal effect of the use of the term ‘casual worker’ in the case of WorkPac Pty Ltd v Skene [2018] FCAFC 131 and found that an employee described as a ‘casual’ in an employment contract was, nevertheless, a permanent employee at common law.

The Facts

Mr Skene was employed by WorkPac between 20 July 2010 and 17 April 2012 as a dump-truck driver in a mine operated by Rio Tinto Coal Australia Pty Ltd (Rio Tinto).  WorkPac and Rio Tinto had entered into an agreement for the provision of labour to the mine.

Mr Skene entered in to an agreement entitled ‘Casual or Fixed-Term Employee Terms and Conditions of Employment’ with WorkPac which contained the following provisions:

  • That was employed on a casual basis;
  • His rate of pay was A$50 per hour;
  • His contract could be terminated with one hours’ notice;
  • His shift pattern was set at 7 days on, 7 days off with each shift set at 12.5 hours;
  • He was to be provided with accommodation and flights to and from the mine as a fly-in, fly-out worker.

Mr Skene’s hourly rate of pay was expressed in the contract as including ‘a loading in lieu of leave entitlements’.  Mr Skene worked continuously throughout the period of his employment with WorkPac save for a period of 7 days unpaid leave.  Mr Skene’s employment was terminated on 17 April 2012.  He lodged proceedings in the Federal Court of Australia seeking compensation under the National Employment Standards in the Fair Work Act 2009 (Cth) and the applicable the WorkPac Pty Ltd Mining (Coal) Industry Workplace Agreement 2007 (the Enterprise Agreement) for unpaid annual leave and for the imposition of penalties upon WorkPac.

The Full Court Findings

The Full Court held that the status of the employee was to be construed in accordance with the common law test of the essential characteristics of casual employment set out in Hamzy v Tricon International Restaurants t/a KFC (2001) 115 FCR 78.  Namely, as an arrangement where there is no advance commitment to the duration and hours of employment, there is intermittency and unpredictability in the provision of work and no guarantee of ongoing work or agreed pattern of work.

The Full Court found that the regularity and predictability of Mr Skene’s employment together with the ‘advance commitment’ to provide work 12 months in advance was incompatible with the employment being casual.  The Court, therefore, held (agreeing with the first instance Judge) that Mr Skene was not a casual employee and was entitled to be paid annual leave.

The Full Court acknowledged that Mr Skene may in effect be paid twice for the same entitlement as he had received a ‘causal loading’ in his hourly rate of pay.  This situation has been referred to as ‘double dipping’ and the financial implications of ‘double dipping’ to employers has provided the impetus for a test case now being advanced by WorkPac and the Commonwealth government.  The Full Court in Mr Skene’s case acknowledged that as permanent employees they should not be entitled to the casual loading and made the observation that should an employer be met with a claim from an employee who successfully argues for an entitlement to annual leave, the employer may be entitled to set off casual loading payments previously made.    However, in Mr Skene’s case this was not possible as his casual loading had not been designated expressly as a specific percentage of his pay.

Test Case seeks reconsideration

WorkPac has elected not to pursue an appeal to the High Court however, in light of the significant implications for its business, WorkPac has instituted a fresh action in the Federal Court to serve as a test case to seek declarations to ameliorate the effect of the Full Court’s decision in Skene.  Moreover, the Federal Government has also applied to intervene in the test case on the basis that the case is of significant importance for Australian businesses.

In the forthcoming test case, WorkPac seeks various declarations in its case which is being pursued against another employee, Mr Robert Rossato (who is cooperating in the proceedings) as follows:

  • That Mr Rossato was a casual employee at common law despite being engaged on a regular and predictable basis because WorkPac had classified him as such under the Enterprise Agreement;
  • That he is not entitled to compensation for unpaid annual leave upon termination of his contract;
  • A declaration that a 25% casual loading compensated Mr Rossato for annual leave, personal and compassionate leave;
  • That WorkPac is entitled to set off the casual loading against any claim that Mr Rossato may have for unpaid annual or personal leave.

 

The Government intervenes

As a sign of the Federal Government’s intentions in this arena the Fair Work Amendment (Casual Loading Offset) Regulations 2018 (the Regulations) were brought in to effect on 18 December 2018 to address the issue of ‘double dipping’.  The Regulations operate to allow an employer to offset any casual loading payments made to an employee incorrectly classified as a casual employee and who as a result is entitled to compensation for unpaid contractual leave.  The relevant part of the Regulation is reproduced below:

(1)  This regulation applies if:

(a)  a person is employed by an employer on the basis that the person is a casual employee; and

(b)  the employer pays the person an amount (the loading amount) that is clearly identifiable as an amount paid to compensate the person for not having one or more relevant NES entitlements during a period (the employment period); and

(c)  during all or some of the employment period, the person was in fact an employee other than a casual employee for the purposes of the National Employment Standards; and

(d)  the person makes a claim to be paid an amount in lieu of one or more of the relevant NES entitlements.

Note 1:       This regulation is intended to apply if the person has been mistakenly classified as a casual employee during all or some of the employment period.

Note 2:       For the purposes of paragraph (b), examples of where it may be clearly identifiable that an amount is paid to compensate the person for not having one or more relevant NES entitlements include in correspondence, pay slips, contracts and relevant industrial instruments.

(2)  To avoid doubt, the employer may make a claim to have the loading amount taken into account in determining any amount payable by the employer to the person in lieu of one or more relevant NES entitlements.

(3)  This regulation does not affect the matters to which a court may otherwise have regard, at law or in equity, in determining an employer’s claim to have the loading amount taken into account.

(4)  A reference in this regulation to a relevant NES entitlement is a reference to an entitlement under the National Employment Standards that casual employees do not have.

 

Employers should take particular note of subsection (b) which uses the phrase  ‘clearly identifiable’ in relation to the payment of casual loading.  If, as was the case in Skene, the payment is not clearly identifiable as a specific amount or percentage of pay, employers will not be able to rely on the Regulations to offset casual loading payments made.

Employers should take the opportunity to consider both the terms of their employment contracts to assess whether workers classified as casual workers are in fact employees under the test set out in Skene and also ensure that any ‘casual loading payments are clearly set out in payslips, contracts or any correspondence to the worker.

Author: Paul Lyons, Lawyer

T: +61 (0) 4 2340 2550

paul.lyons@tmlawltd.com