Rossato decision confirms Skene: casuals may not truly be casuals at all

By Aaron Dearden and Jessica Luker 

On 20 May 2020, the Full Federal Court handed down its long-awaited decision in WorkPac Pty Ltd v Rossato [2020] FCAFC 84.

The Court found that an employee of labour hire business WorkPac Pty Ltd (WorkPac) engaged and paid as a casual was in fact ‘other than a casual employee’ for the purposes of sections 86, 95 and 106 of the Fair Work Act 2009 (Cth) (FW Act). This entitled him to annual leave, compassionate leave and personal leave.

The decision re-confirmed the position in WorkPac Pty Ltd v Skene (2018) 264 FCR 536 (Skene) (as previously reported by Hall & Wilcox) and emphasised that the Court will look at the real substance of an employment relationship rather than its form when determining whether an employee is in fact a casual employee at law.

The decision directly impacts the manner in which thousands of casual employees are engaged and paid in Australia with employers needing to move quickly to re-assess their current arrangements. For labour hire companies where ‘permanent casual’ work arrangements are frequently utilised the decision will have a significant impact.

In this article, we consider the effect of the Court’s decision on the meaning of casual employment and how this will impact employers moving forward.

Background

From 28 July 2014 to 9 April 2018, Mr Robert Rossato (Rossato) was employed by WorkPac under six consecutive contracts of employment which each labelled his employment as casual. Relying on the decision of Skene, Rossato claimed that despite WorkPac labelling him as a casual, the employment relationship was not that of a casual employee.

WorkPac commenced proceedings in the Federal Court seeking declarations that Rossato was a casual employee and not entitled to paid entitlements under the FW Act or the applicable Enterprise Agreement.  In the alternative, it was argued that Rossato’s pay included a casual loading of 25% which was, in part, paid in lieu of entitlements payable to permanent employees under the FW Act and WorkPac was entitled to ‘set off’ any amount owed to Rossato in respect of those entitlements.

The nature of casual employment

The decision reinforced that casual employment is ordinarily indicated by an absence of a ‘firm advance commitment as to the duration of the employee’s employment or the days/hours the employee will work.‘

While Rossato was employed and paid as a casual, the way the contracts were actually performed pointed against such a characterisation. The Court found that the parties had agreed to employment of an indefinite duration which was stable, regular and predictable, including that:

• the contracts provided for continuing work to be performed according to an agreed pattern of full-time hours;
• despite some variability to the actual hours of work allocated, it was nevertheless pre-programmed long in advance and fixed by a roster; and
• it was implied that Rossato was required to perform the work as allocated to him on the roster and was unable to elect whether to work a shift or not.

According to the Court, these characteristics indicated a firm advance commitment. By comparison, casual employment is unpredictable, irregular, intermittent and not pre-allocated.

Post-contractual conduct

Although it was not necessary to resolve, their Honours indicated that post-contractual events, including the conduct of the parties, may be relevant to the determination of whether a person is casual, not just the written terms of the contract.

The Court emphasised that the words of the FW Act direct attention to the character of the employment at the time the impugned entitlements accrued rather than the character of the engagement at the outset of employment.

Set off

It is well established that an employer may implement a contractual term, or utilise common law appropriation, to ‘set-off’ a debt to an employee against payments already made to the employee in satisfaction of another obligation.

Based on these principles, WorkPac contended that the hourly rate paid to Rossato included a casual loading, which was, in part, paid in lieu of Rossato’s entitlements under the FW Act. WorkPac argued that if Rossato was in fact employed ‘other than a casual,’ it should be able to set off any of his entitlements with payments already made.

The Court rejected this and found that the contracts were not sufficiently worded to give an option for contractual set-off.  Further, the casual loading could not be appropriated. One of the Courts reasons for this was that paying a casual loading is not a substitute for the absence of a right to enjoy the entitlement to paid leave. The purpose of paid leave is to provide an authorised absence from work for rest and recreation without loss of remuneration.  The fact that cashing out restrictions are imposed on these entitlements emphasises this purpose.

The Court also rejected the relevance of Regulation 2.03A of the Fair Work Regulations, which aims to prevent double dipping of casual loading and permanent employee entitlements by allowing a set off when there is a claim ‘in lieu of entitlements.’ Since Rossato was seeking payment of his entitlements under the FW Act and not to be paid an amount ‘in lieu of’ such entitlements, the Regulation was inapplicable.

While the decision means that employers will not be able to set off FW Act leave entitlements, common law appropriation or contractual set off clauses can still be used in particular circumstances. For example, the ability to set-off overtime is likely still available, if the principles are applied correctly and the payments subject to set off are sufficiently correlated to one other.

Restitution

WorkPac argued that, if Rossato was in fact ‘other than casual’ and entitled to the claimed benefits, it was entitled to restitution of the casual loading paid, or any amount paid in excess of what Rossato would have been paid as a permanent employee under the Enterprise Agreement.

WorkPac’s claim for restitution was founded on two grounds:

• that the parties were mistaken as to the employment relationship and accordingly, casual loading was paid by mistake; and
• there had been a failure of consideration for the casual loading amount which deemed it unreasonable for Rossato to retain the benefit.

The arguments were unsuccessful.

On the first ground, the Court determined that the parties had created the employment relationship they had intended (being employment with ‘firm advance commitment’ to ongoing work). Even if there had been a mistake as to the characterisation of the employment relationship, WorkPac could not demonstrate that the mistake caused the payment of the loading amount, as Rossato received more than a casual employee would have been entitled to under the applicable Enterprise Agreement. This indicated that the hourly rate paid to Rossato was reflective of the market rate as opposed to any mistaken legal entitlement.

On the second ground, the Court found that there were a number of occasions during the course of his employment when Rossato would have made use of accrued leave entitlements if they had been available to him. The consideration received by WorkPac was the benefit of Rossato’s services when he would have otherwise accessed leave.

In any event, the Court said it was not open to WorkPac to seek restitution in circumstances where the payments were made pursuant to fully executed and enforceable contracts which were not void or rescinded. The contracts did not provide for any restitution or recovery in this regard.

Key takeaways for employers

Employers should be wary that employment which is regular, certain, continuing, constant and predictable may be deemed ‘other than casual.’ Consider the real substance of an employee’s work rather than the label attached to it and ensure:

• the contract provides that the employer can elect whether to offer employment on a particular day and that the employee is able to decline this;
• shifts are unpredictable and uncertain, in that work is ‘on demand’ rather than pre-determined;
• there is no fixed and repeated roster or clear pattern of work;
• there is no firm advance commitment of continuing and indefinite work;
• the description of the employment relationship is casual, although this is not conclusive; and
• termination is available at short or on no notice.

Employers should also be wary that paying a casual loading will not be determinative of the status of the employment relationship and may not be set-off against FW Act leave entitlements.

There have been calls for the government to make legislative amendment in response to the decision, which in practice could overturn its findings. Hall & Wilcox will report on this as it develops.

The decision also included an assessment of whether Rossato was a casual under the relevant Enterprise Agreement, however this is beyond the scope of this article.