A Full Bench of the Federal Court has affirmed the Court’s earlier approach in WorkPac Pty Ltd v Skene. Employees purported to be casual who work regularly and systemically are more likely to be found to be permanent full-time or part-time employees and entitled to leave and other entitlements.
The second issue in the Rossato decision concerns an employer’s ability to set-off casual loadings paid to employees, against any future liabilities for leave payments. Employers should be concerned their ability to mitigate unforeseen leave costs is now more uncertain for the time being. Resultingly, some employers may decide to conduct regular reviews of their workforce and optimise the mix of casuals to other employees as a way of reducing financial risk.
Recently, a Full Bench of the Federal Court determined a labour hire business must pay their employee leave benefits after he resigned, despite the employee being engaged as a casual and being paid a casual loading.
The employer argued that if the employee was permanent, it could reduce the amount of leave payable to the employee by making allowance for casual loadings it had previously paid the employee. These arguments were rejected by the Court.
The result is significant for employers of casual employees who may not foresee the potential for additional employment costs.
- Between July 2014 and April 2018, Robert Rossato was employed by WorkPac Pty Ltd to work at its client’s coal mines in central Queensland.
- In August 2018, WorkPac was ordered to pay leave entitlements to another employee – Paul Skene, who had been employed as a long-term casual.
- In October 2018, Mr Rossato’s representatives sent a letter to WorkPac claiming similar benefits for Mr Rossato. The following day, WorkPac wrote to Mr Rossato’s representatives denying liability. The day after that, WorkPac filed an application in the Federal Court seeking an order relieving them of any liability to pay Mr Rossato the employment benefits he was claiming.
- Mr Rossato consistently worked regular rostered hours at multiple mine sites. Generally, a 7 day on, 7 day off roster with long workdays and taking very few breaks – other than his rostered days off.
- Mr Rossato’s hours were so regular, it was common for WorkPac to send him pre-populated timesheets that he would simply submit without changing any details.
- Mr Rossato was also paid a flat rate of pay for all hours worked. That is, he was paid a single amortised rate of pay that WorkPac intended would compensate him for ordinary wages, casual loading, applicable allowances and the overtime penalties he would have otherwise earned under WorkPac’s enterprise agreement.
- Despite the flat hourly rate, some of Mr Rossato’s employment contracts described in detail the portion of his wage that constituted casual loading – even going so far as to apportion specific percentages of his wage rate that were paid in lieu of entitlements like annual leave and personal leave.
- The flat hourly wage included additional amounts over and above the minimum earnings WorkPac was required to pay in its enterprise agreement. The additional amounts reflected market wage rates prevailing at the time and did increase and decrease several times to reflect changes in the amount clients were prepared to pay for Mr Rossato’s services.
- Lastly, Mr Rossato was not employed on one continuous employment contract. His location of work, classification, roster and wage rate changed during the 3 years and 10 months he worked for WorkPac. Each time WorkPac entered into a new contract of employment with Mr Rossato. In total there were six separate employment contracts.
Was Mr Rossato a Casual Employee?
The Court had little trouble deciding Mr Rossato was a permanent employee. Even on WorkPac’s submission (that the court should only have regard to the contract terms agreed between it and Mr Rossato) the Court decided both parties knew Mr Rossato would work regular and predictable hours for an open-ended period and this was enough to show Mr Rossato was not a casual employee.
The Court also went further. It endorsed the approach taken in Skene that determining whether an employee is casual or permanent means looking at the real substance of the relationship between the parties and their conduct during the employment relationship. Parties agreeing to call the employment casual and agreeing to pay casual loading is a relevant consideration. However, it will not outweigh later conduct pointing to the existence of a permanent employment relationship.
As well as the regular and predictable hours worked by Mr Rossato, indicators of a permanent employment relationship might be found in policies or understandings that employees will work the hours offered to them, or that employees will make themselves available for a minimum number of hours each week.
It is difficult to provide a template answer to when employment must be characterised as permanent. Rossato shows Courts will continue to have regard to the circumstances of each case and weigh up different indicators, perhaps over a long period of time to characterise whether a person’s employment is casual or permanent.
Was WorkPac entitled to ‘set-off’ the casual loadings paid to Mr Rossato against his claimed entitlement to leave payments?
Anticipating the Court would find Mr Rossato was a permanent employee, WorkPac argued it should not have to pay him both a casual loading and payout the leave entitlements being sought. Put simply, WorkPac argued:
- If the casual loading was paid on the mistaken belief Mr Rossato was casual, they were entitled to ‘restitution’ for the mistaken casual payments; and
- Having paid casual loading as compensation for not granting Mr Rossato annual leave, personal leave and public holiday entitlements, WorkPac were entitled to ‘set-off’ the casual loadings paid against the value of benefits now being claimed by Mr Rossato.
Each Judge gave their own reasons for rejecting WorkPac’s argument that it should be permitted to reduce the amounts owed to Mr Rossato. These included:
- Some Judges considered the casual loading could not be clearly identified as a discrete component of Mr Rossato’s total hourly wage.
- One judge found Mr Rossato had been paid an identifiable casual loading but decided it could not be used to reduce WorkPac’s liability because WorkPac subsumed the casual loading to make up an hourly rate they decided was necessary to attract and retain Mr Rossato as an employee.
- WorkPac did not pay casual loading to satisfy Mr Rossato’s entitlements to paid leave. Rather they paid it because (they thought) he was not entitled to paid leave. Accordingly, the Court decided the casual loading had a different character to the leave entitlements being claimed by Mr Rossato.
- Similarly, the casual loading paid by WorkPac is a monetary benefit whereas Mr Rossato’s entitlement to paid leave included an entitlement to time-off as well as money and therefore the casual loading was distinctly different to the benefits being claimed by Mr Rossato (even though in effect, Mr Rossato’s claim was a claim for payment).
- Rossato does not break new ground in determining when a person will be regarded as a permanent employee for the purposes of the National Employment Standards or their award/enterprise agreement entitlements.
- The decision does make it harder though for employers to argue against the so-called ‘double-dip’ of employees receiving casual loading and then claiming an entitlement to paid leave.
- Multiple employer bodies are lobbying the Australian government to introduce legislative certainty around casual employment and employees claiming paid leave after already being paid casual loading. Attorney-General Porter has said he will consider the issue in due course but that legislative change ‘will not be simple’.
- Meanwhile looking forward, employers can review employment contracts to avoid some of the problems faced by WorkPac. Flat-rates should be avoided and employment contracts should be carefully drafted to provide a set-off mechanism that might help protect against future claims.
- The surest way for employers to avoid a ‘double-dip’ situation however will be to review their casual employment arrangements.
- Some employees might be more appropriately classified as full-time or part-time. Also, where an employer decides to leave employees on casual arrangements, the reasons as to why their employment is uncertain or unpredictable can be documented providing a better basis for defending a future claim.
- Lastly, correctly classifying employees will provide greater certainty for budgeting and cost recovery.
Click here to read the full judgment.
Please contact our employment and workplace relations team on (08) 9321 0522 should you require practical advice with respect to your casual workforce and employment contracts.