A casual conundrum: Federal Court confirms substance over form when assessing casual employment

Whether an employee is casual or permanent has significant implications for the employee’s entitlements to various forms of paid leave, notice of termination, redundancy pay, public holidays and, in certain circumstances, access to unfair dismissal laws. But take note – the description of an employee as a casual, and payment of a casual loading, will not necessarily mean that the employee is in fact a casual.

In a significant decision which has widespread implications for the labour hire industry, users of labour hire services and employers with ‘casual’ employees alike, WorkPac Pty Limited v Skene [2018] FCAFC 131 (WorkPac v Skene), the Full Court of the Federal Court (Court) upheld a decision finding that an employee—who was described as a casual but worked a regular roster set a year in advance—was a permanent employee. As a consequence, the employee was entitled to annual leave under both the National Employment Standards (NES) and the enterprise agreement which applied to his employment.

The Court’s decision in WorkPac v Skene confirms that in considering whether an employee is a casual or permanent for the purposes of the Fair Work Act 2009 (Cth) (FW Act), the approach adopted by the common law prevails. Essentially, this requires that in order to be considered a casual, an employee must have no firm advance commitment as to the duration of their employment or the days (or hours) worked. However, the decision leaves open the capacity of an employer to ‘set off’ the liability for leave or other benefits against the casual loading, where such loading is clearly expressed as an identifiable amount.

The Facts

The facts of WorkPac v Skene are not unusual.

Mr Skene was employed by WorkPac Pty Limited (WorkPac), a labour hire company. He worked as a dump-truck operator at a mine in central Queensland from 20 July 2010 to 17 April 2012. During that time, he worked a 7 day on, 7 day off roster, which was set in January for the rest of the year. He worked with the same crew every shift, alongside both labour hire workers and permanent employees. He worked 12.5 hours every shift. The mine provided his accommodation and paid for his flights, as he was a fly-in, fly-out (FIFO) worker.

Mr Skene’s employment was continuous, other than a period of 7 days’ unpaid leave which was arranged in advance with the mine. He received no paid leave.

As is common, Mr Skene’s contract classified him as a casual and provided for him to be paid a flat rate per hour, which was expressed to include ‘a loading in lieu of leave entitlements’. He was required to submit timesheets and was paid by the hour (at a flat rate of $50.00, and later $55.00, per hour). His contract provided for termination by one hour’s notice.

On 17 April 2012, Mr Skene’s engagement at the mine and his employment with WorkPac was terminated. He did not receive any payment in lieu of untaken annual leave on termination.

Mr Skene lodged an application with the Federal Circuit Court seeking compensation for unpaid annual leave under the NES in the FW Act and under the applicable enterprise agreement, the WorkPac Pty Ltd Mining (Coal) Industry Workplace Agreement 2007 (Agreement). Mr Skene also sought the imposition of penalties upon WorkPac for these breaches.

The First Instance Decision

A casual employee does not receive many of the benefits of permanent employment, including:

• paid annual or personal leave;
• parental leave and related entitlements (unless a ‘long term casual’);
• compassionate leave;
• notice of termination;
• redundancy pay; and
• public holidays.

Instead, they receive a casual loading, typically 25% of their base rate of pay.

Section 86 of the FW Act provides that the annual leave entitlements provided by Division 6, Part 2-2 of the legislation apply to ‘employees, other than casual employees’. Mr Skene’s claim therefore turned on whether he was a casual employee.

At first instance,[1] the Federal Circuit Court held that Mr Skene was not a casual employee for the purposes of the NES as:

• his hours of work were clear, predictable and set 12 months in advance; and
• both sides made a ‘firm advance commitment’ as to the duration of his employment and the days/hours he would work (especially given he was a FIFO worker).

The primary judge did, however, hold that Mr Skene was a casual employee within the meaning of the Agreement. He held that the Agreement allowed WorkPac to designate an employee as casual for the purposes of the Agreement on the commencement of their employment.

As a result, Mr Skene was only entitled to compensation for unpaid annual leave under the NES. The primary judge declined to award penalties against WorkPac, on the basis that it had closely considered the legal consequences of the employment arrangement and relied on the advice of a senior staff member.

Both WorkPac and Mr Skene appealed the decision.

The Court’s Decision

On appeal, the Court considered the concept of casual employment in some detail.

As there is no definition of casual employment in the FW Act, the Court considered whether it comes from:

• the common law (as argued by Mr Skene); or
• modern awards and enterprise agreements in accordance with an entrenched notion of ‘casual’ determined by industrial tribunals over 70 years (as argued by WorkPac).

Given there were conflicting authorities on this point, the Court was not persuaded that there is a uniformly understood specialised meaning of ‘casual employee’ derived from the award context.

The Court held that ‘casual employment’ is a term given meaning by the common law on the basis that:

• Parliament is presumed to have intended words to have their legal meaning;
• the NES has primacy over modern awards and enterprise agreements;
• the purpose of annual leave (affording employees opportunity for rest and recreation) would be defeated by allowing enterprise agreements to remove employees’ access to it, even where offset by casual loading, as the restrictions on cashing out annual leave in the FW Act make it clear that money cannot completely compensate for the inability of an employee to take annual leave;
• the NES applies to award/agreement-free employees, as well as those covered by awards and agreements;
• modern awards and enterprise agreements do not contain a common definition of casual employment and, arguably, do not define this concept at all; and
• modern awards and enterprise agreements were developed after the commencement of the FW Act and so cannot inform its meaning.

Indicia of casual employment

The Court held that casual employment is characterised by ‘no firm advance [mutual] commitment to continuing and indefinite work according to an agreed pattern of work’. This lack of a firm commitment is reciprocal, with the employee similarly not providing a commitment to ongoing employment. This is ‘the essence of casualness’.

In the Court’s view, employees in continuous employment are not within the scope of the expression ‘casual employee’ for the purposes of section 86 of the FW Act.

The relevant indicia of casual employment, highlighted in a number of earlier decisions of the Federal Court and Fair Work Commission, include:

• irregular work patterns;
• uncertainty as to the period over which employment is offered;
• discontinuity; and
• intermittency of work and unpredictability.

Casual employment involves flexibility in the employment following engagement.

The Court distinguished this from the definition in section 12 of the FW Act of a ‘long term casual employee’ which includes that ‘the employee has been employed by the employer on a regular and systematic basis for a sequence of periods of employment during a period of at least 12 months’. The distinction between this definition and that of a casual was that in relation to the latter, there is no long-term, firm, advance and mutual commitment to continuing work on an agreed pattern of hours. An example of this is a relief teacher who works across different positions in a school for over a year, but who does not know from week to week whether he or she will be needed the next year.

The description of an employee in their contract, payment of casual loading, submission of timesheets and right to terminate on an hour’s notice were relevant but not decisive factors. The Court noted that these factors often reflect the parties’ subjective intention at the commencement of the employment, and may not reflect the objective reality of that employment over time.The relevant inquiry is focused on the real substance, practical reality and true nature of the relationship between employer and employee.

The ‘money and the box’?

In determining that Mr Skene was entitled to annual leave, the Court engaged with the concept of ‘double dipping’ by casual employees who reap the benefit of accessing both a casual loading and annual leave. The Court noted that, as permanent employees are not entitled to casual loading, there will be no ‘double dipping’.

Here, though, it appears that Mr Skene has been permitted to ‘double dip’, as the Court stated the following:

Assuming, however, that Mr Skene was paid a casual loading which was at least in part in lieu of paid annual leave, it may be said he will be paid twice for the same entitlement if he is now compensated for not being paid annual leave as the primary judge found he should be. However, that Mr Skene was paid a casual loading when he need not have been is not a legitimate basis for construing s 86 of the FW Act in the manner for which WorkPac contends.

Importantly, the Court observed that an employer may be able to make a claim for set-off against an employee who is paid a casual loading and later successfully argues that he or she is entitled to annual leave on the basis that he or she is not a casual.

On the facts of this case, however, Workpac’s attempts to set off the casual loading against Mr Skene’s entitlement to annual leave failed, as there was no designated amount or percentage of his wages expressly attributed to the casual loading. Instead, it was expressed in general terms.

As a result, the Court agreed with the primary judge that Mr Skene was not a casual employee and was therefore entitled to annual leave under the NES.

Did the enterprise agreement deem Mr Skene a casual employee?

The Court also found that Mr Skene was not a casual employee under the Agreement, and disagreed with the primary judge on this issue.

The Agreement stated that ‘Casual FTMs will be engaged by the hour […] At the time of their engagement, the Company will inform each FTM of the status and terms of their engagement’.

The Court held that this did not define who were casual employees—it merely required WorkPac to inform employees of their employment status and set out the applicable rates for different types of employment. As a result, the common law definition of ‘casual’ (as outlined above) applied to Mr Skene’s entitlement to annual leave under the Agreement.

The Court left open the possibility that an enterprise agreement could apply a different definition of casual employment to that under the common law. However, such a definition can only go so far. The Court’s decision confirmed that an enterprise agreement cannot, and will not, define the term ‘casual’ for purposes of the NES. The Court was also critical of a potential ‘definition term’ which left the status of the employee purely at the discretion of the employer, and did not provide for that status to change as the employment relationship changes.

Penalties? Ignorance no excuse

On the question of penalties, the Court also adopted a different view to the primary judge. The Court noted that the employee whom WorkPac claimed had provided advice about the nature of Mr Skene’s engagement had commenced employment after Mr Skene had. The Court also stressed the objective seriousness of the offence and that ignorance of the law is not ordinarily an excuse.

The Court remitted the determination of compensation payable to Mr Skene, and penalties to be imposed on WorkPac, to the primary judge.

Key Takeaways

To the extent that the Court’s decision in WorkPac v Skene confirms the common law approach to defining casual employment, it is unremarkable. However, what it does highlight is the need for employers to review the substance of their employment relationships, and how their casual employees are engaged in practice.

In our experience, this is not a ‘one way street’. We are aware of many employees who prefer to be classified as a casual, not least due to the immediate benefit of the additional 25% loading.

Preferences of this nature, even if mutual, may practically reduce the likelihood of challenge but will not override the question at law as to whether the employee, is in fact, a true casual—or rather, may be considered to be entitled to benefits such as annual leave under the NES or industrial instruments.

We therefore recommend that employers take the following steps in light of the Court’s decision:

1. Review how their casual employees are engaged including the systems of work and work practices. How far in advance is there a stated commitment to work agreed days or hours? Even if employees are rostered, can it be said that the engagements beyond the roster period are not fixed and are variable? In undertaking this assessment, keep in mind that key features of casual employment include irregular work patterns, unpredictability and intermittency.

2. Where practical, consider offering full-time or part-time employment and/or changing the work arrangements.

3. Review their contracts to ensure that casual loadings are attributed a clearly identifiable amount, and expressed to be able to set off with an identifiable value for annual and personal leave that would otherwise accrue. The description of an employee as a casual in a contract, and the payment of casual loading, are not decisive factors. However, the payment of a casual loading may be able to be set off against annual leave entitlements where there is a specific amount or percentage of wages attributed to it.