A casual employee is not determined by a statement in a contract, but the totality of their employment situation, says a Federal Court decision.

Editor’s note: A High Court decision made on the 26th of November, 2020, granted labour hire company Workpac, special leave to challenge the full Federal Court’s Rossato casual employment ruling (details below). Details around the estimated time of the new hearing are yet to be shared.

The sequel to WorkPac v Skene turned out to be just as explosive as the original. Same company, slightly different type of employee, but same outcome.

In WorkPac v Rossato, the Federal Court of Australia confirmed that labelling an employee as “casual” in a contract isn’t decisive in making them a casual employee. Instead, other contractual elements and the post-contractual nature of the employment also play a key role. 

This case reflects the earlier decision. In 2018, the Full Court of the Federal Court ruled on appeal that a casual employee of labour hire company WorkPac was actually a permanent employee. As HRM wrote at the time, the key issue was the “essence of casualness”.

Top line takeaway: a casual employee is someone whose work is inconsistent, irregular or short term, and casual employees whose work doesn’t fit that description can now make a claim that they are (and have been) a permanent employee, and are therefore owed the appropriate entitlements. 

While a full breakdown of the decision would be valuable, what this article will delve into is the essential confusion and outline what might happen next. Because this isn’t just a legal issue. There are cultural and business understandings that have been ruptured by these WorkPac court cases.

Different views of casual work

If you were to got back to first principles and ask “what is the purpose of casual work, and why was this category created?” you would get different answers depending on who you asked.

We all might agree that society wants a type of non-permanent staff member who could be brought on to meet fluctuating demand without incurring longer term business costs. We also all might agree that the trade-off for that non-permanency and job insecurity should be extra pay and a very high level of flexibility. Outside of their changing, short-term jobs the worker should have full control over their labour, and can pursue other interests such as education.

But businesses, particularly those reliant on customer demand that fluctuates with the days and seasons (hospitality, tourism, etc), also want employees who are more permanent but who don’t create too many longer term business costs and administrative burdens that could hurt business outcomes. They want employees they can dismiss more easily, and who will not incur redundancy payouts when they do. If that can’t be a casual worker, they want some kind of in-between category.

How you would create such a category while satisfying the workers themselves is not something Australia has accomplished.

The best attempt was a long-term casual. But what have long-term casuals who work steadily and systematically got in return for their combination of pseudo-permanency and job insecurity? In the Fair Work Act they get some extra rights, such as parental leave. Reflecting their different role, they are also allowed to claim the JobKeeper subsidy. And, like other casuals, they also get casual loading – extra money to offset their insecurity.

Nevertheless, it’s a very imperfect category. For other types of permanent employees, the Fair Work Act envisions jobs that have multiple protections, notification periods before they can be terminated, redundancy payouts, and paid annual and sick leave – things that help change work from a series of tasks into a role in society. Confusingly, “long-term casual”, and “casual” for that matter, are also not well defined in legislation.

So for quite some time we have been stuck with this tension between what our laws are trying to do, what workers want, and what businesses want. Enter the two WorkPac cases.

Their essential question is this: if someone agrees to a contract where they are labeled a casual employee, but their work is systematic (rostered well in advanced, for example), regular (happens at set hours on set days) and long term (has been happening for years), are they still a casual employee? 

The WorkPac decisions say “no”, they are not.

The shocking part of this to many in the business community is that the employment type they thought existed, doesn’t exist. In practical terms, it technically hasn’t existed for some time. From the perspective of many employers, casual employees used to be casual because they agreed to be casual. And employers fulfilled their part of the bargain, and paid employees who didn’t receive the entitlements of full-time and part-time work casual loading.

Now, even as these employers consider how many entitlements they might owe employees who make a claim, they also have to wrangle with the fact that for years they have paid those employees more money than they would have otherwise. Do they get this money back?

In WorkPac v Rossato, the answer was again “no”. This decision was arrived at for a number of reasons, but for employers a section is clarifying of why casual loading is also perhaps not what they thought it was.

Why are casual workers paid casual loading?

In the words of industrial relations minister Christian Porter, “Small businesses have operated for the last decade inside a pretty widely accepted understanding about how you engage someone either as a permanent or a casual and the fact that they’d have one sort of entitlement or a compensation if they’re a casual in the form of loading.”

This is no doubt true for many. And the thing is, the court decision agrees with that, but not in the one-to-one fashion most owners might have assumed. 

The decision tries to clarify why the Fair Work Act says casual employees are not entitled to some of the rights in the National Employment Standards (NES) in the first place. It decides that “the nature of their employment” is the reason. But why does it find that ? It’s not entirely clear in the wording of the legislation. As the decision states,  “The Fair Work Act does not contain any express statement of the rationale”. The decision then offers two inferred rationales:

1. Casual employees don’t get these entitlements because they aren’t necessary or appropriate, considering what casual work is. The example they use: because casual work is “intermittent, irregular, or short term” it doesn’t make sense that they would have entitlements which rely on work that is otherwise. This was the rationale used by the court in WorkPac vs Skene.
2. Casual employees don’t get these entitlements because “not being bound to provide their services, casual employees are free to work or not, as they choose”. Because the employee can refuse a shift when it suits them, for example, and otherwise has more control over the timing of their employment, it’s inappropriate for them to have paid leave for when they are not working.

The decision then offers up a third rationale, which it then dismisses. It’s an important one because it’s a rationale that makes a lot of sense intuitively when you consider casual loading. That it was dismissed is crucial to changing that understanding.

The rationale is: “The FW Act contemplated that the NES entitlements may be taken either as leave or in money and that, in the case of casuals, they should be taken in money.”

The philosophy behind this rationale is why employer groups are now referring to the decision as enabling “double dipping”. If it’s true that employees were paid 25 per cent extra because they were considered casual and didn’t have leave entitlements, by asking for leave entitlements aren’t they essentially getting the same money twice?

The decision says this doesn’t wash. The Fair Work Act doesn’t provide for ‘entitlements or their cash equivalent’, it just provides for entitlements. It does imagine scenarios where employees can cash out on leave, but they are the exception. The decision further states (emphasis added): “casual loading is in the nature of a compensation for an absence of entitlement, not a payment in lieu of taking the entitlement.”

In other words, being paid casual loading does not in and of itself make someone a casual employee.

It should also be mentioned that the decision proves that WorkPac did a poor job of separating casual loading from its employee Rossato’s pay. It’s clear he was paid more, but it wasn’t always clear what amount of it was for being classified as a casual.

What happens now?

In a statement, Porter has said  the government will be talking to employers and employer groups and has not ruled out legislation that could change the casual equation. Some of those groups have estimated the cost of this decision could be in the billions.

Tony Burke, Labor’s industrial relations spokesperson, has said his party is unlikely to support legislation. He told the Sydney Morning Herald, “If there’s any ‘double dipping’ going on here it is being performed by the employers – they’re taking advantage of the insecurity of casual work while still getting permanent hours out of their workers.”

In a statement sent to the media, Business NSW has supported the creation of a new employment category: ‘perma-flex’. Basically, they want to solve the tension spoken of earlier by changing  the Fair Work Act so that it contain the type of employee they wanted all along.

“Under the proposal, employers would be able to convert a regularly rostered casual into a permanent employee with flexible hours who would be paid leave entitlements, including annual and sick leave. The 25 per cent loading paid to casuals would be reduced to 10 per cent, to take into account the value of the leave entitlements the employees could access,” the statement reads. 

In the same statement, it acknowledges that unions have opposed the creation of such a category. So the tension has changed – and certainly the WorkPac decisions are being celebrated as a win for workers – but it definitely has not disappeared.

In the meantime, there are practical implications for employers. This case truly is something of a sequel, so the advice for them looks a lot like it did in 2018. As HRM wrote, there are four things employers should be considering:

1. review existing casual agreements to limit the risk of repaying casual employees certain entitlements; for example, by checking if the agreements have appropriate set off clauses; 
2. be more diligent in classifying casuals, as employees who work set, inflexible hours with a degree of certainty about ongoing work are unlikely to be ‘casual’;
3. review and monitor your casual workforce: employment arrangements may change during employment and if a casual is no longer a casual, consider converting their employment status to permanent to mitigate any potential exposure (particularly where a casual employee is covered by a modern award containing a casual conversation clause); and 
4. determine whether casual employees are required: employing a “long-term” casual can be significantly more expensive than a permanent employee, and they do still have rights (e.g. they may have rights to protections from an unfair dismissal).