On 20 May 2020, the Full Bench of the Federal Court of Australia handed down its decision in Workpac Pty Ltd v Rossato [2020] FCAFC 84 (Rossato), which is a significant decision for any employer who engages casual employees.
This decision has re-confirmed the position taken in Workpac Pty Ltd v Skene (2018) 264 FCR 536 (Skene), which held an employee who was engaged on a regular and systematic basis as a casual was entitled to the paid leave entitlements of a permanent employee.
Whilst both the Rossato and Skene cases compromise of similarities, the Rossato's decision goes further than the findings in the case of Skene, as Workpac were also prevented from 'setting off' the outstanding leave entitlements against the casual loading previously paid to the employee.
The Rossato decision highlights the need for employers to give proper consideration to the engagement of their casual employees, as the Court will consider the substance of the employment relationship rather than its form, and the implications for failing to properly characterise their employment is significant.
We examine the findings of the Rossato decision, and the implications.
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The Employment
WorkPac Pty Ltd (WorkPac) is a labour hire company who engaged Mr Rossato to work as a production employee on various mines for the Glencore Group in the period from July 2014 to April 2018.
During the period of the employment, Mr Rossato was employed pursuant to six consecutive employment contracts, all of which were for an indefinite duration with some contracts even setting out a roster, allocating shifts to Mr Rossato for a period of up to seven months in advance. His employment was also governed by the terms of WorkPac's Enterprise Agreement (EA).
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Allegations
In reliance on the decision of Skene, Mr Rossato claimed that despite being employed as a casual employee, and being paid as such (receiving payment for the casual loading in lieu of leave entitlements), the employment relationship could not be truly characterised as that of a casual employee. Mr Rossato's argument was premised on the fact he:
- worked regular and systemic hours for WorkPac (not dissimilar to other full-time employees who worked the same roster), and was employed over a three and a half year period;
- performed work on a shift roster comprising of a regular pattern of 7 days on / 7 days off; and
- was provided with a roster some 7 months in advance.
On 2 October 2018, Mr Rossato sent correspondence to WorkPac alleging that he was in fact a permanent employee, not a casual and on that basis, was entitled to receive paid leave entitlements (including annual leave, personal/carer's leave, compassionate leave and public holidays) in accordance with the provisions under the Fair Work Act 2009 (Cth) (FW Act) and the EA.
In response, WorkPac commenced Federal Court Proceedings seeking a ruling that:
- Mr Rossato was a casual, not a permanent employee, and sought to rely on the terms of employment set out under the employment contract, and the fact he had received payment of the casual loading in lieu of leave entitlements;
- In the alternative, if Mr Rossato was found to be a permanent employee, WorkPac sought declarations that allowed the company to:
a. use the 25% casual loading paid to him to 'set off' against any leave entitlements owing; and
b. seek restitution of the 25% casual loading on the basis that it had been mistakenly paid to Mr Rossato.
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Court findings
Not a casual employee
The Court held that Mr Rossato was not a casual employee for the purposes of the FW Act nor was he a casual field team member as defined under the EA.
The Court found that Mr Rossato was in fact a permanent employee for the following reasons:
- he was employed for an indefinite duration;
- his employment was 'stable, regular and predictable' and akin to that of other full-time employees, as evidenced by Mr Rossato's six employment contracts; and
- Mr Rossato's employment could not be distinguished from the decision in Skene because in both cases there were similarities in respect of years of continuous service (with no breaks in between), regular shift patterns (with the same staff) to rosters set months in advance, and both were provided with accommodation.
Restitution Claim
In respect of WorkPac's claim for restitution on the basis of failure of consideration or mistake, the restitution claim failed because:
- Mr Rossato was remunerated in the form of a flat hourly rate (which exceeded the minimum prescribed under the EA) – the Court found that this rate reflected WorkPac's assessment of the market rate it had to pay in order to recruit and retain Mr Rossato as an employee. Therefore, the casual loading cannot be separately identified or regarded as severable, as the casual loading was subsumed into the market rate that WorkPac determined to pay; and
- the Court found that the mistake on WorkPac's part was only in relation to the characterisation of Mr Rossato's employment as a casual employment relationship, but not WorkPac's contractual obligation to pay Mr Rossato his hourly rate. Further, the contract of employment contained no provision permitting WorkPac to seek restitution of the casual loading paid to him in circumstances where the characterisation of his employment relationship was found to be incorrect.
Set Off Claim
In respect of the set off claim, WorkPac sought to use the 25% casual loading paid to Mr Rossato to 'set off' the outstanding leave entitlements. The Federal Court rejected that argument for the following reasons:
- the payment of casual loading was paid because of the absence of paid leave entitlements for casuals, and therefore, WorkPac cannot now claim that the casual loading can be set off against the payment of outstanding paid leave entitlements; and
- the payment of casual loading by WorkPac to Mr Rossato (i.e. independent and/or in advance of him taking accrued annual leave) could not have been regarded as lawfully discharging Mr Rossato's entitlements to annual leave because cashing out of annual leave is only permitted in limited circumstances.
Court Orders:
As a result, in summary, the Court made the following orders:
a. in Mr Rossato's employment, under each of the contracts, he was other than a casual employee for the purposes of the FW Act and not a casual field team member for the purposes of the EA;
b. Mr Rossato is entitled to payment in respect of annual leave, personal/carers leave, compassionate leave and payment for public holidays; and
c. WorkPac is not entitled to either restitution or to 'set off' against its liabilities, any of the payments made under the six contracts of employment.
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Impact for employers going forward
Whilst it is anticipated that WorkPac will lodge an appeal to the High Court, absent a successful appeal or legislative intervention to overturn this finding, the decision in Rossato remains the current authority for determining an employee's employment status.
Without a successful appeal or legislative intervention, there is a significant exposure for employers with regular casuals, particularly given the potential for double-dipping" as this decision affirms that casuals can retain their casual loading benefits and seek back payment of accrued leave entitlements. An employer can also be exposed to pecuniary penalties if an underpayment claim is successful.
As a result it is anticipated that there will be an increase in underpayment claims, including class actions, with employer organisations calling for urgent protection from what has said to be billions of dollars' worth of leave claims.
In response. the Australian Prime Minister has commented that he would be considering creating a clear definition of what a casual worker is in the FW Act, giving casual employees access to sick leave and holiday pay, and creating a right to for a long term casual worker's role to be converted to permanent (with leave entitlements) in circumstances where they are operating as a full time employee.
This will hopefully create some guidance for employers to reduce any confusion as to an employee's appropriate employment type.
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Employer next steps and considerations
This decision is significant for employers as it reaffirms the view of the Courts those casual employees who work regular and systematic hours, and have lengthy periods of service are more likely to be characterised as permanent employees, although we note that each case will turn on its facts.
In light of this decision and the decision in Skene, in an effort to mitigate against this risk, employers ought to:
- promptly undertake an assessment of their casual employees to determine the true nature of the engagement;
- review and update employment contracts for casual employees, by ensuring those contracts:
- have an appropriately worded set-off clause;
- have a clause that enables the employer to recover the casual loading paid if the employment is found to be permanent; and
- do not have a clause stating that the casual loading entitlements are paid in lieu of the National Employment Standards entitlements;
- consider offering permanent employment to those casual employees who are employed on an indefinite basis that is stable, regular and predictable.
Originally published Clyde & Co, May 2020
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
