The Federal Court ruling that has everyone talking, and what you need to know!
On 20 May 2020 the Federal Court handed down a 277 page judgment in the matter of WorkPac Pty Ltd v Rossato  FCAFC 84 finding that Rossato (the “casual” employee) was entitled to payment of annual leave and sick leave entitlements causing concern for business. This is our take on the decision.
By Terri Bell & Ellie Wolfenden
A wide array of news articles and commentary on social media have marked the decision as having potentially dire consequences for businesses with casual employees, sparking concern that it has allowed casual employees to double dip by being paid annual and personal leave entitlements on top of casual leave loading. This concern arises because the court held the employer (WorkPac) had no right to set off amounts it alleged it had already paid to the employee by way of casual leave loading against the employee’s claim for annual and personal leave entitlements.
There is no doubt that the timing of the decision has a large bearing on the breadth of reporting of the case, and the concerns many have. Businesses are struggling, unprecedented numbers of people are out of work due to the pandemic, and as a nation we need businesses to feel comfortable employing people, not hesitant. The Federal Government has since announced the need for a review of Industrial Relations laws and Scott Morrison has flagged that the issue of casual employment should form part of this review. But should employers really be concerned about this decision?
We have broken down the 277-page decision into some key points. If you have any concerns regarding what this decision means for you, please do not hesitate to contact our office on 02 9191 9856 or email us at firstname.lastname@example.org.
How did the court come to its decision?
It is important to keep in mind that determinations of an employee’s status require consideration of each employee’s circumstances, including their contract of employment and their actual method and pattern of work. As such, court decisions of this nature will often only provide clear guidance to employers and employees with similar factual matrixes. The following points should therefore be taken into account when considering this decision:
This case was run in a relatively novel manner, in that it appears there was no statement of claim or defence, but rather an agreed statement of facts and issues adopted by the parties to the litigation;
Many of the court’s findings refer to the drawing of inferences and implications due to the absence of evidence led by the employer, WorkPac;
Based on the facts, Mr Rossato was not a true casual employee at any point during his employment, because:
He worked 35-38-hour weeks over the entire duration of his employment (3+ years) performing the same work, at the same times, and in the same manner as full-time employees;
There was a very predictable pattern of work across the whole of Mr Rossato’s employment, that was obvious at the outset of the employment and each subsequent assignment;
Shift rosters were set out far in advance (up to 12 months in some cases);
There was no evidence that Mr Rossato (or other casual employees) could or did refuse shifts allocated to them, and one contract contained a clause providing that a refusal to work allocated shifts may make the employee liable to the employer for damages;
His employment contract contained a term providing for his exclusive employment with WorkPac.
Are all casual employees entitled to annual and sick leave because of this judgement?
In short, no. The court held in this case that the employee (who had worked a full-time roster for 3 years) was not a casual employee. Because his employment was more properly characterised as full time, the employee should have received, over the course of his employment, paid annual leave and sick leave entitlements.
If your casual employees are “proper” casual employees when looking at the totality of their employment (and not just their employment contract), they are not entitled to take annual leave or paid sick leave.
Did this case change the definition of a casual employee?
In short, no. The difficulty outlined by this decision is that there is no clear definition of a casual employee, only a set of indicators of casual employment (versus permanent employment) which must be considered and applied to each individual employee, over the course of their employment, to properly determine their employment status. This can be a difficult task, and one that needs to be conducted at regular intervals by employers of long-term casuals.
This case, together with the case of Skene v WorkPac, may cause some concern for employers of casual workers who work regular hours in accordance with a roster in circumstances where that roster is a “firm advance commitment” on the part of the employer and the employee to work the rostered shifts, with little flexibility in practice. Many workplaces operate using a roster system, and it remains uncertain how (and if) these decisions will be applied in circumstances where a roster may be issued only 2 weeks or a month in advance and be subject to change.
It is likely legislators will consider the necessity to provide a clear definition of a casual employee through legislation. In doing so, we would hope they are mindful of the flexibility that true casual employment offers both business owners and workers, many of whom may not want to be tied to a permanent role, and seek flexibility to accept and reject shifts at will. Alternatively, perhaps consideration needs to be had to providing for a new type of employment, which is more flexible than part-time employment (particularly where such employment is covered by an Award) but provides employees with entitlements to annual leave and other NES entitlements that casual employees are currently ineligible for.
Surely its fine if the employment contract states that the employee is a casual?
In short, no. The Court has re-affirmed a long history of judicial precedent providing that one must look past the words of an employment contract to determine the true nature of the relationship. This is because not all of the indicators of an employment relationship (and the form of that relationship) will be ascertainable from the employment contract, as an employment relationship “is dynamic and involves a high degree of interaction between the parties to that relationship.” (See Paragraph  of the judgement).
In practice, Courts will look at the written document, so we do recommend you have one, however they will also consider how the arrangement worked in practice when determining an employee’s status. The difficulty for employers is that consideration of ‘regular and systematic’ employment is necessarily an exercise that requires hindsight not always available to the parties at the outset of the contract. It therefore requires employers to regularly review the relationship.
However, when at the outset of a casual agreement you and the employee know that the hours and pattern of work will be reasonably predictable, this is an indication that they may be better characterised as a full or part-time employee.
Should all employers employing casuals be worried?
It depends. You should give proper consideration at the outset as to whether the person you are employing is a casual or permanent employee, and regularly audit the working arrangements of your casual employees (particularly those who have been engaged for over a year) and consider the following questions:
Do you have casual staff working alongside full-time staff performing the same role and hours?
Do you assign a roster to your casual staff, and if so, is the roster:
fixed and not able to be changed; and
prepared some months in advance?
Are the hours worked by casual staff consistent and predictable week to week?
Are your casual employees able to refuse shifts when offered? More importantly, in practice do your casual employees never refuse shifts, change their shifts, or make themselves unavailable at short notice?
Do you require your casual employees to work only for your business and not undertake any other paid work?
Do you require your casual employees to turn up to work, and are they subject to any penalties if they do not arrive for a shift?
If the answer to one or more of the above questions is yes, you should consider auditing your casual employees to determine whether any should be characterised as part time or full-time employees.
Following the decision, it may also be necessary to ensure that payslips for your casual employees separately identify their casual loading entitlements they are being paid each pay period.
If my casual employees should be full time or part time, do I owe backpay or can I “set-off” casual loading payments made to these employees?
The decision in WorkPac v Rossato has spurred on grave concern regarding this issue. Whilst it may depend on the facts of each case, pending a successful appeal or legislative intervention, it is unlikely you will be able to set off any casual loading payments against a claim for payment of NES entitlements made by a “casual” employee found to be a permanent employee.
In this case, WorkPac sought to ‘set off’ the difference between the hourly rate paid to the employee as a ‘casual’ against the hourly rates payable to a permanent employee (i.e. the Casual Loading) as against the employee’s claim for payment of annual leave entitlements, public holidays and payment for personal/carer’s leave taken on an unpaid basis during his employment.
This notion of ‘double-dipping’ – that is, casuals being paid a casual loading because they are not entitled to annual leave, sick leave and other NES entitlements, and subsequently claiming paid annual leave and sick leave – looks likely to be addressed by the legislature, though we note that regulations passed in 2018 ostensibly to address this issue were held by the Court not to apply in this case. This is because, according to the Federal Court, regulation 2.03A can apply only when a person makes a claim to be paid an amount in lieu of one or more of the relevant NES entitlements. The Court rationalised that was not the situation in the case before it, as Mr Rossato sought payment of the NES entitlements, not payments in lieu of those entitlements. This could appear to be an artificial distinction; however we understand the Court considered that the entitlements in the NES were for employees to be able to take paid annual and sick leave, rather than to be paid an amount in lieu of those entitlements (save for specifically legislated exemptions, such as on termination of employment, or when authorised under cashing out provisions related to annual leave).
If the claim had in fact been for payment in lieu of the relevant NES entitlements, we wonder whether the Court may have considered the provision did not apply because Mr Rossato was found to be a full-time employee from the outset of his employment (notwithstanding how the employer had tried to characterise his employment by contract) as the regulation only applies where the employee is “employed by an employer on the basis that the person is a casual employee”.
Who does need to be worried?
Employers who have been using “casual” employees to perform full-time roles should be most concerned about this decision. Previously, the ability to offset casual loading to any claims for back-pay of entitlements may have provided reassurance to them, however this decision has largely removed that assurance.
While this decision has attracted criticism from industry groups for ‘double-dipping’ on the part of casual employees, consideration should also be had to the view that employers are trying to have it both ways by hiring staff to perform full time work (or requiring staff to work on a regular and systematic basis) whilst deeming them to be casual employees. As was explored by the Court in Rossato in paragraphs 61 – 68:
The bargain struck between an employer and a permanent employee is that the employer promises to provide ongoing regular and systematic work, and the permanent employee promises to undertake that ongoing work on a regular and systematic basis. Because of this obligation on the part of the employee to provide ongoing services, these employees have a need to access paid annual leave, sick leave, and other NES entitlements. From this bargain, the employer receives the benefit of a firm advance commitment from the employee to continuing and indefinite availability for the performance of work according to an agreed pattern of work.
Whereas the bargain struck between an employer and a casual employee is that the employer may provide the casual employee with opportunities for work, and the casual employee may agree to accept such engagements or refuse them at will. Because true casual employees are not obliged to provide ongoing service, and are able to pick and choose their engagements, there is not a similar need for an entitlement to paid annual leave, sick leave, and other NES entitlements.
In these circumstances, it can also be said that an employer should not be able to ‘double-dip’ and obtain the benefit of an employee working on an ongoing, regular and systematic basis, (or expect “casual” employees to be available for work on that basis) without also providing access to paid annual leave, sick leave and other NES entitlements, and provide a reciprocal level of job security.
As we outlined above, this judgement is quite lengthy, and its full implications may take some time to be fully understood and addressed by lawyers, industry groups and the government.
One issue we have noted from a first read is that the decision may perversely disincentivise employers from making above-award (or above-enterprise agreement) payments to casual employees.
As WorkPac did not lead evidence on how they arrived at the calculation of the hourly rate applicable to Mr Rossato (which was at times above the amount required to be paid under the applicable enterprise agreement), the Court was left in the position to infer that the hourly rate was fixed by reference to some consideration other than the amounts required to be paid under the Enterprise Agreement with the addition of the casual loading.
In the absence of evidence, and with WorkPac’s assertion that they would not have paid Mr Rossato more than they had to, the inference open to the Court was that the hourly rates in Mr Rossato’s contract were amounts it was required to pay to attract and retain Mr Rossato as an employee in the available market. Because of this, the Court found that the (See paragraph 760 of the judgement):
"the identifiable casual loading cannot be regarded as severable as it was subsumed into the rate which WorkPac considered it necessary to pay".
While this aspect of the decision requires more consideration, and may have been a result of the lack of evidence adduced by WorkPac in these proceedings combined with the argument by WorkPac that payments made in excess of what was required by the enterprise agreement were a “mistake” entitling it to rectification or restitution, the decision could disincentivise the payment of above-agreement payments to casual employees.
If you are paying above Award hourly rates, we recommend that you have documentation on how that rate was reached, and ensure that payment of the casual loading is kept separate and is readily identifiable in any contract and in the employee’s payslips.
What comes next?
The decision may yet be appealed, and it is expected amendments to the legislation will be proposed. In the interim, and until any appeal is finalised or legislation passed, we recommend that you:
Conduct an audit of your casual employees;
If you have casual employees working on a regular and ongoing basis, consider:
whether they are more likely part time or full-time employees; and if so,
discuss a transition to part time or full-time employment with that employee, and keep records of the discussion and the employee’s;
Review payment arrangements for your casual employees and ensure that all entitlements are properly covered. If you are making above-Award (or above-Enterprise Agreement) payments to casual employees, you should make sure these additional payments (and any reasoning for such payment) are documented clearly;
Update your payslips for casual employees to ensure their casual leave loading entitlement is separately identified.
If you would like assistance with conducting any of the above actions, or would like advice on how this judgement may affect your employees and working arrangements, contact Terri Bell & Co at email@example.com or by phone on (02) 9191 9856.
IMPORTANT NOTICE - The information contained in this article is not intended to be comprehensive. It is general in nature and is not intended to be used as a substitute for legal, financial or other professional advice. You must seek specific professional advice tailored to your personal circumstances before taking any action based on this article.
Liability limited by a scheme approved under Professional Standards Legislation.