Willis, Evan; Schaffer, Charlie --- "Firm advance commitment? Casual employees' rights in the balance" [2021] PrecedentAULA 30; (2021) 164 Precedent 25

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FIRM ADVANCE COMMITMENT?

CASUAL EMPLOYEES’ RIGHTS IN THE BALANCE

By Evan Willis and Charlie Schaffer

This article is a primer for practitioners on two related developments in employment law which will have significant effects on the rights of casual employees.

First, the pending decision from the High Court of Australia in WorkPac Pty Ltd v Rossato (Rossato) which is listed for hearing on 12 May 2021. Second, the Federal Government’s response to the Full Federal Court decisions in Rossato^[1] and Skene,^[2] in the form of the Fair Work Amendment (Supporting Australia’s Jobs and Economic Recovery) Act 2021 (Omnibus Act). This Act recently passed through the Federal Parliament and obtained royal assent on 26 March 2021.

BACKGROUND

Writing in 1947, Australian industrial relations academic, Orwell Foenander, subtitled a chapter on casual employment ‘The Difficulties of the Problem’. The ‘problem’ being in large part that, at the time, there was no single, uniform definition of a ‘casual employee’ and only a patchwork of definitions arising from industrial awards.^[3] During the next 70 years, practitioners in employment and industrial relations have continued to grapple with a patchwork of legislation, awards, agreements and authorities in determining whether any particular employment relationship in dispute is casual or permanent. ^[4] The ‘problem’ of ‘casual’ employment has only been magnified by its growing and widespread use in the modern workforce.^[5] The Skene and Rossato proceedings have been the most high-profile battlegrounds on this topic in some time.

By passing the Omnibus Act, the Morrison Government has, in a manner of speaking, beaten the courts to the punch by providing a legislative ‘fix’ to ‘clarify’ the issue of casual employment. This has been achieved by amending the Fair Work Act 2009 (Cth) (FW Act) to include what is intended to be a comprehensive definition of a ‘casual employee’. This definition centres upon the notion of a ‘firm advance commitment’ to continuing and indefinite work according to an agreed pattern of work for the person, or the absence thereof, in determining the casualness of the employment.^[6] In reality, the new definition prioritises the label the employer gives to the employment relationship at the time of hiring. The amended legislation also seeks to prohibit courts from considering what actually transpired during the employment relationship when determining whether employment was casual or not. This will have a significant impact on the status and entitlements of those ‘casual’ employees who are working, or have been working, under employment arrangements that are in reality more akin to permanent employment arrangements.

The two legal proceedings responsible for bringing us to this inflection point in determining the legal rights of casual employees, and the legislative response, are discussed below.

THE SKENE PROCEEDINGS

Mr Skene was a dump truck operator who was employed on an ‘assignment-by-assignment basis’, according to his written contract of employment. Mr Skene worked 12.5-hour days and was paid a flat hourly rate. His roster for each year was set in advance. Under his contract of employment, as well as in the relevant workplace agreement, Mr Skene was designated as a ‘casual employee’.

The Federal Court decision

In Skene v WorkPac Pty Ltd,^[7] Mr Skene claimed that he was not a casual employee. Therefore, he argued that he was entitled to recover unpaid leave entitlements under the National Employment Standards (NES) contained in Part 2-2 of the FW Act and the relevant collective workplace agreement.

Justice Jarrett found that Mr Skene’s regular and predictable working arrangements meant that he was a permanent employee entitled to leave entitlements under the NES.^[8] However, Jarrett J declined to find that Mr Skene was a permanent employee for the purposes of the workplace agreement at the time that he entered into his contract of employment. This meant that Mr Skene did not establish an entitlement to annual leave under the workplace agreement, which was more beneficial than the entitlements under the NES.

The Full Court decision

In the appeal decision, WorkPac Pty Ltd v Skene^[9] (Skene), the Full Court (Tracey, Rangiah and Bromberg JJ) unanimously dismissed WorkPac’s appeal. The Court held that Mr Skene was a permanent employee under both the applicable workplace agreement and the FW Act. This was on the basis that the expression ‘casual employee’ derived its legal meaning under the common law and not from the text of the workplace agreement. WorkPac argued that the meaning of ‘casual employee’ should be discerned from the applicable workplace agreement. In rejecting this argument, the Court held, among other things, that this meaning would exclude employees who were not employed under an award or agreement and that unilateral designation of the employment status could lead to arbitrary or capricious results.^[10]

The Court determined that the absence of ‘a firm advance commitment’ as to the duration of the employee’s employment, or the days or hours that the employee will work, is the essence of casual employment.^[11] While not laying down an exhaustive test for assessing casual employment, the Court held that the indicia of casual employment includes:

• the overall informality or flexibility of the employment;

• the ability of the employer to elect to offer work;

• the ability of the employee to elect to accept work;

• the uncertainty regarding the period of employment;

• the commitment of the parties to ongoing employment;

• the regularity of working hours or days of work; and

• the process for notifying the employee of each period of work.^[12]

Those indicia must be objectively assessed by reference to the surrounding circumstances. In this case, there was no absence of a firm advance commitment relating to Mr Skene’s employment so he was found not to be a casual employee.

The issue of ‘double dipping’

As Mr Skene was found to be a permanent employee, the Court had to consider the potential issue of ‘double dipping’, as raised by WorkPac.^[13] This related to Mr Skene purportedly receiving casual loading amounts in lieu of employment entitlements (such as annual leave) from WorkPac and then also receiving the entitlement itself.

The Court found that Mr Skene received a flat rate of pay under his contract, which did not expressly refer to any separate ‘casual loading’ amounts. However, the Court said that, even if the rate of pay included a casual loading amount, this casual loading did not satisfy the entitlement to annual leave as required by the FW Act and the workplace agreement. This was because the purpose of an entitlement to annual leave is not purely financial – it also imposes obligations on employers to provide ongoing access to ‘rest and recreation’.^[14]

POST-SKENE: INSERTION OF REGULATION 2.03A

Less than two months after Skene, Regulation 2.03A was inserted into the Fair Work Regulations 2009 (Cth) (FW Regulations) by the Federal Government^[15] in an attempt to prevent ‘double dipping’. Regulation 2.03A provides that an employer may have payment of a casual loading taken into account when determining the amount payable by the employer to an employee in lieu of one or more relevant NES entitlements that has been forgone. However the Full Court in Rossato narrowly defined the meaning of this expression,^[16] such that the regulation has not had the intended effect.

THE ROSSATO PROCEEDINGS

Background

Relying on the decision in Skene, another WorkPac employee, Robert Rossato, a mining truck driver, wrote to WorkPac seeking payment for unpaid annual, personal and compassionate leave entitlements.

In response, WorkPac commenced proceedings in the Federal Court seeking a declaration that Mr Rossato was a casual employee and not entitled to leave entitlements under either the FW Act or the relevant enterprise agreement. Given the ‘public importance’ of the issues raised, it was determined that the case be heard by the Full Court at first instance.^[17] The Full Court decision was handed down in WorkPac Pty Ltd v Rossato^[18] (Rossato).

Mr Rossato had been employed under six separate written contracts over the course of his employment. There were no express ‘set-off’ clauses in the employment contracts.

As in Skene, in addition to his contract of employment, an enterprise agreement applied to Mr Rossato’s employment. Under that agreement, he was employed as a ‘casual field team member’ and paid a 25 per cent loading in lieu of leave entitlements available for all field team members ‘other than casual employees’.^[19]

WorkPac’s primary argument was that Mr Rossato was engaged and designated as a casual employee and was therefore not entitled to leave entitlements under the FW Act or the enterprise agreement. Mr Rossato argued that he was a permanent employee due to his regular and stable working pattern.

WorkPac also argued that, if Mr Rossato was deemed to be a permanent employee, it was entitled to set off the higher rate of pay provided to Mr Rossato (in the form of the casual loading) against any other leave entitlement he was entitled to. WorkPac argued that, under the general law concepts of set-off, there was a ‘close correlation’ between the casual loading payments and the claimed entitlements. Further, it argued that it was entitled to a set-off under Regulation 2.03A of the FW Regulations.

Mr Rossato disputed that there was a sufficiently ‘close correlation’ between the nature of the payments made by WorkPac and the nature of the entitlements sought.

The Full Court decision

Rossato found to be a permanent employee

In three separate judgments, though largely in agreement, the Full Court in Rossato reaffirmed the decision in Skene: that the primary consideration in deciding whether an employee who has been engaged as a ‘casual worker’ is in fact a permanent employee is whether there is stable, regular and predictable employment or ‘a firm advance commitment’ of employment.^[20]

Justices White and Bromberg reiterated that a firm advance commitment may be lacking when the employment is intermittent or irregular, informal and unlikely to continue for any length of time.^[21] However, the Full Court pointed out that the notion of a ‘firm advance commitment’ is not a panacea for determining whether employment is casual. Justice White cautioned against ‘construing words in judgments as if they are provisions in a statute’.^[22] The Federal Government, it seems, has heeded that caution and sought to ensure that the notion of the firm advance commitment does have statutory effect. In the Omnibus Act, it has made the ‘firm advance commitment’ the basis for determining casual employment, thereby giving the concept the ‘talismanic quality’ that White J said it did not have.^[23]

Overall, Mr Rossato was found to be a permanent employee on the basis that he worked an agreed pattern of hours which was pre-programmed and allocated well in advance, and that he performed ‘regular, continuing and predictable work’.^[24] Therefore, he was entitled to be paid for his leave entitlements.

‘Set-off’ rejected

WorkPac’s attempt at arguing the set-off was also unsuccessful. The Court agreed with Mr Rossato that a payment made for a contractual purpose cannot be used to satisfy an award obligation unless there is a close correlation between them – there was found to be no close correlation between the wages paid to Mr Rossato and the leave entitlements. As in Skene, it was said that any form of paid leave involves both a payment and an authorised absence from work. Where the purpose of the payment is not to provide the entitlement in the terms required but to provide a substitute, there will not be a close correlation between that purpose and the statutory obligation.^[25]

Further, the Court found that Regulation 2.03A only applies to claims for payments in lieu of NES entitlements, not to claims for the actual entitlements conferred by the NES.^[26] As such, it did not apply to Mr Rossato as he was claiming the latter.

Finally, a casual loading payment made in lieu of an entitlement does not satisfy that entitlement. The Court held that the entitlement to paid leave was not simply monetary but rather an entitlement to be absent from work while continuing to be paid. The Court held that WorkPac could not contract out of those leave obligations or the timing and manner of the provision of leave.^[27]

The High Court appeal

In late November 2020, the High Court granted WorkPac special leave to appeal. At the time of writing, all parties have filed written submissions.^[28] The parties are the same as those in the Full Court, including the Minister for Industrial Relations (the Commonwealth Attorney-General), the Construction Forestry Maritime Mining Energy Union (CFMMEU) and Matthew Peterson (the lead applicant in a separate class action against WorkPac).

The key issues that the High Court is being asked to decide are:

1. The scope for determining the meaning of ‘casual employee’ under the FW Act. WorkPac submits that the meaning of casual employee depends entirely on the terms of the employment contract.^[29] Mr Rossato, CFMMEU and Mr Peterson argue that the orthodox approach is to look at all of the circumstances of employment, including post-contractual conduct, to determine the nature of employment.^[30]

2. Whether there can be more than one meaning of ‘casual employee’ under different industrial instruments. WorkPac submits that the meaning of ‘casual field team member’ under the enterprise agreement is different to the meaning of ‘casual employee’ under the FW Act.^[31] Mr Rossato, CFMMEU and Mr Peterson argue that any meaning of casual employee under the enterprise agreement must be regarded as being drafted to be consistent with the meaning under the FW Act. As such, the meaning of ‘casual field team member’ refers to ‘casual employee’.^[32]

3. Whether casual loading payments can be ‘set-off’ against a claim for leave entitlements. WorkPac submits that there was a sufficiently close correlation between the casual loadings and the statutory liabilities based on the parties’ contractual intention to pay Mr Rossato the casual loading to compensate him for a lack of the statutory entitlements that he now seeks to be paid.^[33] Mr Rossato, CFMMEU and Mr Peterson argue that there is no close correlation. This is because any loading payments provided cannot discharge leave entitlements due to the prohibition on ‘cashing out’ leave entitlements under s92 of the FW Act.^[34]

4. Whether casual loading payments made to employees, who are later not found to be casual employees, can be clawed back through restitution on the basis of a total failure of consideration. WorkPac submits that the casual loading paid to Mr Rossato was an identifiable portion of his remuneration. Therefore, it was referrable to distinct and severable consideration to obtain the performance of work pursuant to a relationship of casual employment, which ultimately failed.^[35] This argument was unsuccessfully run before the Full Court. Conversely, Mr Rossato, CFMMEU and Mr Peterson argue that there was no failure of consideration for the payments to Mr Rossato. This is on the basis that the casual loading was not identifiable nor severable and that overall the object of the payments was to secure the performance of his work.^[36]

5. The proper meaning of ‘in lieu of’ in Regulation 2.03A. WorkPac and the Minister for Industrial Relations argue for a broad interpretation of Regulation 2.03A, which would capture claims for actual entitlements owed.^[37] In contrast, Mr Rossato, CFMMEU and Mr Peterson argue for the narrower interpretation.^[38]

If the prevailing trend in the lower courts is any gauge, WorkPac faces a difficult task in the High Court. It is this trend that perhaps explains, at least in part, why the Federal Government has taken the political risk of pushing for significant industrial relations reform by passing the Omnibus Act in what may be a federal election year.

THE OMNIBUS ACT

The Omnibus Act^[39] has amended the FW Act to introduce a ‘talismanic’ definition of ‘casual employment’. It has also sought to reduce the capacity for ‘double dipping’ by introducing offsetting measures. A range of other proposed amendments were scrapped to obtain cross-bench support for the Omnibus Act in the Senate.^[40]

New definition of casual employee

The Omnibus Act has inserted a new definition of ‘casual employee’ at s15A of the FW Act: an employee who accepts an offer of employment in circumstances where ‘the employer makes no firm advance commitment to continuing and indefinite work according to an agreed pattern of work’.^[41] To assist in the determination of whether the employer has made a firm advance commitment, an exhaustive list of considerations must be taken into account. These considerations are:

‘

a) whether the employer can elect to offer work and whether the person can elect to accept or reject work;

b) whether the person will work as required according to the needs of the employer;

c) whether the employment is described as casual employment; and

d) whether the person will be entitled to a casual loading or a specific rate of pay for casual employees under the terms of the offer or a fair work instrument.’^[42]

This is a remarkable departure from the matters considered relevant by the presiding judges in the Skene and Rossato litigation. In accordance with existing authorities, all seven judges who considered the issues in Skene and Rossato paid attention to what actually happened during the course of the employment relationship as well as having regard to the agreement made by the parties at the time of entering their employment contract/s.

Employment and industrial relations practitioners will be familiar with the passage in Re Porter (albeit in a different context) that ‘[t]he parties cannot create something which has every feature of a rooster, but call it a duck and insist that everyone else recognise it as a duck’.^[43] Pursuant to the (apparently exhaustive) considerations now provided by the FW Act for determining casual employment, the terms of the relevant written employment agreement will prevail to the effective exclusion of what actually transpired during the course of the employment. This is a radical change. On one hand, it will provide employers with greater certainty about the status of their employees. On the other hand, it will likely negatively impact the ability of persons who have been designated as ‘casual’ employees, but whose employment relationship is in reality more akin to permanent employment, to bring claims for entitlements afforded to permanent employees. The FW Act will now enable an employment relationship that has all or many of the features of permanent employment to be called casual.

Practitioners should note that the new definition applies retrospectively to offers of employment made before the commencement of the Omnibus Act unless a court has made a binding decision, prior to commencement, that the person is not a casual employee.^[44]

The ‘double dipping’ issue

Newly inserted s545A provides that, if a casual employee is misclassified and they are in fact owed entitlements as a permanent employee, any casual loading paid is deducted from the employer’s liability to the employee. This change is intended to avoid the technicalities in relation to set-off clauses – these clauses require precise drafting in order to be effective. This was evidenced in the Skene and Rossato proceedings. This amendment is also intended to apply retrospectively to entitlements that have accrued and loading amounts paid before commencement of the amendments,^[45] as well as to amounts paid on or after commencement.^[46]

CONCLUSION

The fall-out from Skene and Rossato has prompted the Federal Government to legislate in an attempt to close off what has been seen as potential liabilities against employers who have misclassified their employees, whether by design or mistake. The mechanisms adopted to achieve this seek to elevate the terms of the relevant written employment agreement to an all-important status; on one hand for the purpose of determining who is a casual employee (making it harder to prove misclassification) and on the other hand diminishing the importance of the written employment agreement as drafted when it comes to setting off entitlements against loadings paid to casuals (making it easier to offset entitlements otherwise owed).

The legislative changes responding to the Skene and Rossato proceedings weigh heavily in the favour of employers. Nevertheless, the ‘problem’ of defining casual employment is likely to continue to manifest as these new laws are tested. For the meantime, practitioners eagerly await the High Court decision in Rossato, if only to see how the views of the judiciary differ from legislators on the issue of casual employment.

Evan Willis is a partner, specialising in employment and industrial relations, at Holding Redlich. PHONE [phone] EMAIL [e-mail].

Charlie Schaffer is a law graduate at Holding Redlich. PHONE [phone] EMAIL [e-mail].

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^[1] [2020] FCAFC 84.

^[2] WorkPac Pty Ltd v Skene [2018] FCAFC 131; (2018) 264 FCR 536 (Skene).

^[3] OR Foenander, Industrial Regulation in Australia, Melbourne University Press, 1947, 130–1.

^[4] The Fair Work Act 2009 (Cth) (FW Act) previously did not define the term ‘casual employees’ but used the phrase regularly to exclude statutory protection. See for example s86 of the FW Act which states that Division 6 (relating to annual leave) applies to employees other than casual employees. See also FW Act, ss95, 106 and 111.

^[5] In December 2020, taking into account job losses during COVID-19, 22 per cent of all employees were casual employees. See Australian Bureau of Statistics (ABS), Working arrangements August 2020, <https://www.abs.gov.au/statistics/labour/earnings-and-work-hours/working-arrangements/latest-release>.

^[6] Fair Work Amendment (Supporting Australia’s Jobs and Economic Recovery) Act 2021 (Cth) (Omnibus Act), s15A.

^[7] [2016] FCCA 3035.

^[8] Ibid, [86].

^[9] Skene, above note 2.

^[10] Ibid, [118] and [206].

^[11] Ibid, [153].

^[12] Ibid, [173].

^[13] Ibid, [146].

^[14] Ibid, [125]–[126] and [147].

^[15] Fair Work Amendment (Casual Loading Offset) Regulations 2018 (Cth).

^[16] Workpac Pty Ltd v Rossato [2020] FCAFC 84; (2020) 378 ALR 585, [938]–[946].

^[17] Workpac Pty Ltd v Rossato [2018] FCA 2100, [2].

^[18] [2020] FCAFC 84; (2020) 378 ALR 585.

^[19] Ibid, [214].

^[20] Ibid, [413].

^[21] Ibid, [441]–[444] (White J); [71] (Bromberg J).

^[22] Ibid, [399].

^[23] Ibid.

^[24] Ibid, [116].

^[25] Ibid, [226].

^[26] Ibid, [944].

^[27] Ibid, [230].

^[28] High Court of Australia, Case B73/2020: WorkPac Pty Ltd v Rossato & Ors, <https://www.hcourt.gov.au/cases/case_b73-2020>.

^[29] Ibid, appellant’s submissions, [13].

^[30] Ibid, first respondent’s submissions, [16].

^[31] Ibid, appellant’s submissions, [23].

^[32] Ibid, first respondent’s submissions, [19]; third respondent’s submissions, [31]; fourth respondent’s submissions, [31]–[32].

^[33] Ibid, appellant’s submissions, [37].

^[34] Ibid, first respondent’s submissions, [31]; third respondent’s submissions, [33]; fourth respondent’s submissions, [36].

^[35] Ibid, appellant’s submissions, [41].

^[36] Ibid, first respondent’s submissions, [33] and [36]; third respondent’s submissions, [42]; fourth respondent’s submissions, [47].

^[37] Ibid, appellant’s submissions, [51]–[52]; second respondent’s submissions, [56].

^[38] Ibid, first respondent’s submissions, [41]–[43]; third respondent’s submissions, [45]–[47]; fourth respondent’s submissions, [48].

^[39] Omnibus Act, above note 6.

^[40] For example, the Fair Work Amendment (Supporting Australia’s Jobs and Economic Recovery) Bill 2021 (Cth) sought to make changes to enterprise bargaining processes, award ‘simplification’, as well as compliance/enforcement provisions which were designed to further increase civil penalties and introduce criminal penalties for wage underpayments.

^[41] Omnibus Act, above note 6, s15A(1)(a).

^[42] Ibid, s15A(2).

^[43] Re Application By Donald Alexander Porter of An Inquiry Into An Election In the Transport Workers' Union of Australia [1989] FCA 226; [1989] 34 IR 179.

^[44] Omnibus Act, above note 6, ss46(1) and (2).

^[45] Ibid, s46(7).

^[46] Ibid, s46(6).