Employers Beware – Court opens the door to casuals double dipping

Key Points 

• Casual employee entitled to annual leave on termination of employment

• Review engagement of casuals to avoid exposure to significant unexpected liabilities

• Legislative reform likely

​It has long been understood that casual employees are paid a loading to cover entitlements that usually only permanent employees get, such as annual leave. In finding that a casual mining employee was entitled to be paid in lieu of annual leave upon the termination of his employment the Full Federal Court has potentially opened the door to regular and systematic casual employees gaining access to these entitlements and arguably double dipping in the process.

In a decision [1] that has sent shockwaves through employment circles the Full Federal Court last week opened the door to casual employees being entitled to annual leave (and potentially other leave) entitlements. If you think that sounds like double dipping you’re not the only one to react that way.

The all important facts: The employer, WorkPac operated a labour hire business. It employed Mr Skene as a casual dump-truck operator. He was assigned to work at a coal mine operated by Rio Tinto in central Queensland. He worked a pattern of 12.5 hour shifts on a 7 days on, 7 days off continuous roster arrangement with his roster being set each year for the remainder of the year. He was employed on this basis from July 2010 until his employment was terminated for conduct issues in April 2012. He did not take any annual leave during this period. He was paid a flat hourly rate (which at the time of termination was $55 per hour). At the time of engagement Mr Skene was given a ‘Notice of Offer of Casual Employment’. He also executed a document entitled “Casual or Fixed Term Employee Terms & Conditions of Employment”, however, this document did not specifically define or describe Mr Skene to be a casual employee - although it seemed to be accepted by Mr Skene that WorkPac regarded his employment as casual. Nor did WorkPac specifically allocate any part of the rate of pay to a casual loading or as monies paid in lieu of annual leave.

On termination Mr Skene claimed he was a permanent employee entitled to a payment in lieu of annual leave. This was resisted by his employer on the basis that he was a casual employee.

Findings; Both the primary judge and the Full Federal Court found that Mr Skene was not a casual employee and was accordingly entitled to be paid annual leave (or payment in lieu upon termination). It was found (at [183]) “that the essence of casual employment was missing..[because] Mr Skene’s pattern of work was ‘regular and predictable’, ‘continuous’ and not ‘subject to significant fluctuation’ in circumstances where ‘there was plainly an expectation that Mr Skene would be available, on an ongoing basis, to perform the duties required of him in accordance with his roster’ (set 12 months in advance).”

The decision highlights the lack of a definition of “casual employment” in the Fair Work Act (although “long term casual employee” is defined in section 12) and the fact that often the nature of employment changes or evolves during a period of employment, such that an employee may initially be employed as a true casual with unpredictable patterns of work but over time their employment may take on more of a permanent characteristic.

Like any decision the impact of the Workpac is likely to be confined to its fairly unique facts but it has nonetheless set alarm bells ringing and is a timely reminder to employers to think very carefully about how they engage employees.

Reactions to the decision: Reactions have been swift. Here is a selection [2]:

"[O]ne sensible step that should be taken without delay, is for Parliament to move to protect businesses and jobs by amending the Fair Work Act to clarify that an employee engaged as a casual and paid as a casual is a casual for the purposes of the Act.

The interpretation of the Fair Work Act that the Federal Court has adopted is inconsistent with industry practice and will potentially lead to a great deal of uncertainty for businesses. This in turn will not be good for jobs, including for young people who rely heavily on casual employment.": AIG Chief Executive Innes Willox

“This is a major blow for employers who want to use casualisation to avoid their responsibility to their employees. This decision makes clear that employers seeking to avoid paying people’s entitlements can’t simply rely on classifying workers as casuals.”: ACTU President Michele O’Neil

“Employees would be able to use the judgment to double dip on entitlements by claiming casual loadings but then claiming leave the loadings were supposed to replace”: Recruitment & Consulting Services Association of Australia & NZ chief executive Charles Cameron

Labor Leader Bill Shorten has pledged there will be “no such thing” as a permanent casual in a future Labor government.

“That an employee can seek and be awarded annual leave entitlements after knowingly accepting a higher rate of pay rate due to being casual, "massively fails the pub test”.

“Casual employees in Australia get paid extra loading in lieu of other entitlements including annual leave. This is widely understood and accepted by all Australians, from teenagers getting their first job at Coles or McDonalds to casual mining operators taking home some of the best hourly pay rates in the country.”:  Australian Mines and Metals Association chief executive, Steve Knott.

Implications for employers: All employers who employ casual workers need to be aware of this decision and review their engagement processes to ensure they are not at risk of being hit with a significant unexpected liability for leave entitlements.

This decision makes it clear that any employees who are employed as casuals but who end up working regular and systematic hours of work may be entitled to similar entitlements to those usually only considered applicable to permanent employees. These entitlements may be payable or accrue from the commencement of employment and will arguably extend to other entitlements such as personal leave, paid compassionate leave, notice of termination and redundancy pay and flexible work arrangements.

To avoid these kinds of liabilities it is recommended that employers who engage casual workers ensure that:

• the basis of engagement is made very clear at the outset
• the method of calculation of any casual loading and what it is intended to cover is also made very clear
• rosters are only set a short period in advance and do not give rise to regular and systematic hours or patterns of work
• the nature of the engagement be reviewed regularly and if an employee is working hours more consistent with permanent than casual employment that consideration be given to converting them to permanent employees.

The casual conversion case [3] also handed down last week is relevant to this last point and gives rise to another potential difficulty for employers in light of the WorkPac decision. A model casual conversion clause is due to be introduced into most, if not all, modern awards from 1 October 2018, requiring employers to offer to convert the employment of any casual who has worked regular and systematic hours over the previous 12 months to permanent employment. The employee does not have to accept this offer, and in light of the WorkPac decision may be less inclined to do so. If an employer terminates the employment of such an employee they are not only potentially exposed to leave liabilities as in WorkPac but to an adverse action claim for terminating because of the exercise of a workplace right not to accept permanent employment.

Legislative reform has been flagged as a likely outcome of this decision but that won’t happen quickly. In the meantime if you employ casuals and would like advice on how to best protect your business we are here to help.