Determining whether to classify employees as casual or permanent is a significant decision for any employer. When making such a determination, employers must give consideration to the nature and continuity of work to be undertaken by the employee and the viability of paying casual loading – an amount typically 25% higher than an employee’s base rate – or alternatively classifying the employee as a permanent employee and being obliged to recognise (and pay) the employee for annual and personal leave, public holidays, parental leave, redundancy pay and the prospect of unfair dismissal claims, to name a few.
It’s no wonder that many employers choose to outsource their employment obligations to labour hire companies in an attempt to shield themselves from liability and reduce the significant considerations involved, albeit often at substantial additional cost.
To make matters worse for employers, the recent Full Federal Court’s decision in WorkPac Pty Ltd v Skene  FCAFC 131 has shattered the existing belief that hiring casual employees can be a simple and cost-effective alternative to hiring permanent staff.
What was once seen as an effective and flexible way of reducing costs, risks and liability has now been replaced with the alarming possibility that employees classified as casuals may actually be recognised as permanent staff and therefore be entitled to the whole host of benefits that come with being a permanent employee.
The decision also significantly hinders an employer’s ability to simply rely on labour hire firms.
The scenario in WorkPac Pty Ltd v Skene is not an uncommon one. The employee, Mr Skene, worked a total of 12.5 hours each shift on a 7 day on, 7 day off roster which was set in January for the rest of the year. Mr Skene was employed for less than two years as a dump-truck operator at a mine in central Queensland. His employer, WorkPac, provided him with flights to and from the mine and accommodation on site, at no additional cost.
Mr Skene’s contract classified him as a casual employee and provided that he was paid a flat rate of $50.00 per hour (later $55.00), which was expressed to include ‘a loading in lieu of leave entitlements’. He was required to submit timesheets, received no paid leave and his contract provided for termination at one hour’s notice.
In April 2012, Mr Skene’s employment and engagement at the mine was terminated. As is the case with casual employees, Mr Skene did not receive any payment in lieu of untaken annual leave on termination. However, Mr Skene lodged an application with the Federal Court seeking compensation for unpaid annual leave. He also sought the imposition of penalties upon WorkPac.
The Full Federal Court upheld that, although Mr Skene was regarded as having the status of a casual employee and, as a result, had no entitlement to annual leave, his predictable working arrangements meant that he was in fact entitled to annual leave payments under both the National Employment Standards (NES) and the enterprise agreement which applied to his employment.
The Court upheld the notion that a worker which meets the definition of a full or part time employee is not required to be paid a casual loading. However, the Court also held that the mere fact that an employer chooses to pay a worker casual loading does not automatically render that employee as a casual.
This means that, if an employer makes a mistake in characterising an employee and pays casual loading, the employer is not necessarily let off the hook from paying leave and other full-time or part-time employee entitlements.
It also means that payments (such as loadings in lieu of leave) made on the understanding that the employee is casual may not necessarily offset other entitlements later deemed to be payable by the employer as, in this instance, it was not clear to the Court that such a loading had even been paid.
So what makes an employee a casual?
The Court held that casual employment is to be characterised by ‘no firm advance commitment to continuing and indefinite work according to an agreed pattern of work’. This lack of a firm commitment was recognised to go both ways, with the employee also not providing a commitment to ongoing employment.
The Court highlighted that several factors, recognised in a number of earlier decisions of the Federal Court and Fair Work Commission, can be used to identify whether an employee will be regarded as a casual. These include: uncertainty as to the period over which employment is offered; irregular work patterns; and discontinuity, unpredictability and intermittency of work.
Effects of the decision
The decision has far reaching implications for all employers who employ casuals. It is a real possibility that this decision will open the floodgates for casual employees to argue that they are entitled to other employee entitlements and lodge claims stretching back up to six years.
Employers will also be limited in their ability to rely on labour hire companies, as the odds that casual engagement will be questioned by employees, regulators and courts is now significantly higher. Labour hire companies may also seek to charge employers more to account for a casual employee’s potential additional entitlements.
In a new analysis on the impacts of the decision, Australian Industry Group estimates that at least 1.6 million of the economy’s 2.6 million casuals, or 61 per cent, are working on a regular and ongoing basis and are now eligible to claim leave as a result of the decision.
Ai Group calculate further that the total cost of granting paid leave to these “regular” casuals is between $5.7 billon and $8 billion, and these estimates only account for annual leave and not other permanent employee entitlements, such as sick leave and redundancy pay.
Employers had hoped that WorkPac would challenge the Federal Court ruling in the High Court and were calling on Industrial Relations Minister Kelly O’Dwyer to intervene in the case as recently as last week. But the date for a High Court special leave application has since lapsed and there is no certainty of a legislative intervention.
As a result, any employer that hires casual employees will need to take note of this decision. It is common for employees to commence as casuals and, as time progresses, shift into part-time or full-time employment. As a result, employers need to constantly monitor their own workforce and the appropriate classification for each employee. In order to do so, employers should ask themselves:
- Is there a firm advance mutual commitment by the employer to ongoing employment?
- Does the employee work irregular work patterns, with uncertainty, discontinuity, intermittency of work and unpredictability? Or does the employee work regular consistent hours and type of work?
- Does the employee know/think they are a casual employee?
- Is there certainty with respect to the period over which employment will be offered?
If it is clear that an employee’s working arrangement has become ongoing, regular and systematic, employers should reserve the right to transfer that employee’s status from casual to part-time or full-time. It is incredibly important to review existing employment agreements in place and ascertain whether these agreements reflect the correct and agreed employment status of each employee. We also recommend that for casual employees, an employer clearly specifies the portion of their rate of pay that is provided for casual loading, as this will then allow this amount to be set-off against any potential future claim for entitlements. If you have casual employees or are concerned about the implications of this decision, please contact us for advice or assistance. It may be appropriate to conduct an assessment as to whether your casual employees are in fact casual which may include a review of your existing employment agreements in place so as to limit potential claims against you by casual employees for additional entitlements.
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This article does not constitute legal advice or a legal opinion on any matter discussed and, accordingly, it should not be relied upon. It should not be regarded as a comprehensive statement of the law and practice in this area. If you require any advice or information, please speak to a practicing lawyer in your jurisdiction. No individual who is a member, partner, shareholder or consultant of, in or to any constituent part of Legally Yours Pty Ltd accepts or assumes responsibility, or has any liability, to any person in respect of this article.