The Full Court of the Federal Court reconfirmed in WorkPac Pty Ltd v Rossato [2020] FCAFC 84 (Rossato) that the Court will look to the real substance of an employment relationship rather than its form when determining whether an employee is a casual or permanent employee. Before we visit the Rossato decision we will re-visit the related decision of WorkPac Pty Ltd v Skene [2018] FCAFC 131 (Skene).
Re-visting the Skene decision, delivered 16 August 2018
Background
Mr Skene was employed by WorkPac (a labour hire company) as a casual employee from 2010 until his employment was terminated in 2014. He was employed as a truck driver at a mine. He worked to a 12 months in advance roster on a ‘fly-in fly-out basis’; seven days, on seven days off. He was paid a flat hourly rate, alleged by WorkPac to include a casual loading, and his flights to and from the mine and accommodation were paid by WorkPac. Mr Skene argued he was in fact a permanent employee and thus entitled to payment for accrued annual leave when his employment was terminated.
Decision
The Full Court of the Federal Court held that Mr Skene was not a casual for the purposes of either the enterprise agreement that applied to him or the National Employment Standards (NES) under the Fair Work Act 2009 (Cth) (FW Act). Mr Skene was awarded his accrued annual leave on termination. This was despite his alleged receipt, during the course of his employment, of the casual loading. So, the result was that he kept any loading previously paid and received payment for an annual leave entitlement in addition. Some commentary refers to this as the ‘double-dipping’ issue on the basis that the casual loading is intended to compensate for the fact that a casual employee does not enjoy the relevant entitlements, and yet ‘casual’ employees like Mr Skene may in truth be permanent employees who do enjoy those entitlements.
The Full Court rejected previous decisions of the Full Bench of the Fair Work Commission in Telum Civil (Qld) Pty Ltd v Construction, Forestry, Mining and Energy Union [2013] FWCFC 2434 and the Casual Conversion Case (Re 4 Yearly Review of Modern Awards – Casual Employment and Part-time Employment [2017] FWCFB 3541) which both held that a casual is an employee ‘engaged and paid as such’ under the Modern Awards. In Skene, the Full Court confirmed that the NES always prevail over Modern Awards and enterprise agreements and the ‘engaged and paid as such’ definition of ‘casual employee’ is not prescribed in those terms under the FW Act. It is important to remember that the NES apply to Modern Awards and enterprise agreements, as well as award/agreement-free employees.
Regulation 2.03A
The Skene decision resulted in the Federal Government amending the Fair Work Regulations 2009 (Cth) with the introduction of reg 2.03A. Regulation 2.03A provides that an employer who has mistakenly classified an employee as a casual worker during employment, may off-set casual loading payments against the employee’s claim to be paid an amount in lieu of relevant NES entitlements (those enjoyed by permanent but not casual employees).
The Rossato decision, delivered 20 May 2020
Background
Mr Rossato was engaged under a series of six separate employment contracts by WorkPac between July 2014 and April 2018. He was engaged under each contract expressly as a casual. Three of the contracts expressed that payment of the 25% casual loading formed part of his hourly pay rate, with one contract including a term stating that the loaded rate was paid in lieu of leave, notice and redundancy entitlements and attributing specific proportions of the loading to those and other factors.
Additionally, he was covered by an enterprise agreement classifying him as a casual worker stating that the 25% loading paid was in lieu of entitlements paid only to permanent workers.
WorkPac did not challenge the definition of casual employee from Skene as one who “has no firm advance commitment from her or his employer to continuing and indefinite work according to an agreed pattern of work”. Instead it focussed on how that commitment was to be assessed, arguing that the contractual terms were wholly determinative. Mr Rossato argued that the parties’ post-contractual conduct was also relevant.
Decision
The Full Court considered all six contracts, as well as the parties’ post-contractual conduct. Importantly, the Full Court held that Mr Rossato was not engaged as a casual worker, despite the written contracts stating so, on the basis of the Full Court’s construction of the terms of the contracts themselves which evidenced a ‘firm advance commitment’ of ongoing work including:
- Rossato had received weekly rosters often fixed for lengthy periods made months in advance and was required to continue to report for work pursuant to the rosters.
- Rossato had to work for the duration of each assignment and if he didn’t then WorkPac could recover any costs of concluding it from Rossato.
- His timesheets reflected an agreed work pattern.
- The casual loading was not referred to in all of Rossato’s contracts, sometimes being prefaced with the words “may”.
- His pay slips did not indicate the payment of any casual loading. WorkPac unsuccessfully argued the loading was referable to the applicable enterprise agreement and impliedly formed part of the flat rate paid under the contracts.
The Court reinforced (as in Skene) that “employment is not just the contract”, stating the Court was entitled to assess the true intent of the parties, despite the terms of the written contract, noting that “one of the key features of employment contracts is that they tend to be fluid and evolving.”
Restitution unavailable
WorkPac sought restitution (i.e. recovery from Mr Rossato) of the casual loading in the hourly rate paid to Rossato on the basis of either mistake or failure of consideration. The Court rejected both those bases for the restitution claim. It held that there was no operative mistake that would found a claim in restitution. In relation to failure of consideration there could only have been a partial failure, and WorkPac had not been able to identify a severable part of the remuneration to which any failure of consideration could be attributed. Accordingly, both aspects of the restitution claim were dismissed.
Off-set unavailable
Based on a set-off clause in three of the six contracts, WorkPac sought to have the casual loading it claimed to previously have paid attributed to various leave categories against Rossato’s claims. The Court considered in detail a long line of cases dealing with when an employer can bring contractual payments to account in satisfaction of statutory entitlements. Wheelahan J stated the principle as follows at [1008]—
If the payments under the contracts were directed to the same purpose as, or at least had a close correlation to, an obligation under the Fair Work Act to make a payment, then they may be taken into account in satisfying the statutory obligations.
The Court distinguished an entitlement to paid annual leave (i.e. a composite entitlement to authorised absence from work and payment) from an entitlement to a payment in lieu of that entitlement (which is what WorkPac subjectively intended by paying the loading). That analysis applied also to personal/carer’s leave, compassionate leave and public holiday pay.
Applying those principles to the entitlements Rossato claimed and the payments already made under the contracts, White J held at [917-918]—
In my view, these circumstances indicate that, while there is some correlation between the subject matter of the payment and the entitlement, the requisite closeness of the relationship between the purpose of the payments, on the one hand, and the FW Act/2012 EA entitlement does not exist …
Accordingly, I would conclude that WorkPac is not entitled … to have the portion of the casual loading designated as having been paid in lieu of an entitlement to annual leave brought into account in satisfaction of this liability.
Similarly, Wheelahan J held at [1020]—
The objective purpose of the payments of remuneration to Mr Rossato under each of the six contracts of employment was to discharge the contractual obligations to pay wages at the agreed hourly rates that were fixed by the contracts. I do not consider that the entitlements that Mr Rossato now seeks were within the agreed purposes of the contractual payments. While at a general level of abstraction it might be said that a purpose of the payments of wages under the contracts was to discharge corresponding statutory obligations including those under the Enterprise Agreement, in my view it formed no part of those purposes to discharge statutory obligations to give Mr Rossato paid annual leave, paid personal/carer’s leave, paid compassionate leave, or pay in respect of a public holiday on which Mr Rossato did not attend work.
See also Bromberg J at [241-255].
The Court considered that the set-off clause which appeared in three of the six contracts did not demonstrate the ‘requisite closeness’ between the purpose of the casual loading payments and the NES and enterprise agreement entitlements, so set-off was not available. In essence, a payment in lieu of an entitlement could not be said to satisfy the entitlement itself. That is predominantly because the statute confers a composite entitlement to both authorised absence from work and payment; conversely, the loading was and could only ever be a pecuniary substitute for the composite entitlement. See Bromberg J at [227-231].
On that basis it makes sense why no guidance was provided by the Court as to how WorkPac or other employers would be able to off-set loading already paid against leave and other entitlements available under the FW Act and Awards or enterprise agreements.
Careful consideration needs to be given to how to draft an effective contractual term allowing employers to set-off casual loading previously paid against NES entitlements.
‘Double-dipping’ regulation
WorkPac’s attempt to rely on regulation 2.03A of the Fair Work Regulations 2009 (Cth) (Regulations) was rejected by the Court on the following bases:
- The regulation only applied where a person made a claim for payment of an amount in lieu of one or more of the NES entitlements. Rossato’s claims were not in lieu, he was seeking the actual entitlement under the NES or enterprise agreement.
- The casual loading was paid - with wages during the course of the employment - at times when the liability to provide paid annual leave had not even arisen under the FW Act or the enterprise agreement, i.e. when leave is taken or upon termination of employment. Effectively this meant that WorkPac had made the payments before the leave liability arose. Section 92 of the FW Act does not allow the cashing out of annual leave (other than on termination).
This narrow interpretation does call into question the usefulness of the regulation. It invites consideration of whether the Federal Government could, by simply removing the words ‘In lieu of’ from regulation 2.03A, overcome this aspect of the decision. The answer may not be so simple though. The regulation does not confer any set-off entitlement on employers: it is predicated on the extraneous existence of general law remedies of the kind pursued by Workpac in the Rossato litigation. So, any policy intention to overcome the ‘requisite closeness’ aspect of the Court’s reasoning would require more thoroughgoing amendment of the Regulations, if not the NES provisions of the FW Act itself.
What’s next for Australian businesses employing casual workers?
Careful consideration needs to be given to how to draft an effective contractual term allowing employers to set-off entitlements in the event that relevant NES entitlements are payable on termination of employment. We point you to our accompanyingblog on the topic which provides further insights and practical measures to assist employers navigate this potential minefield.
If you wish to discuss your employment needs, please contact a member of our Workplace and Employmentteam.