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Fair Work Act

A Full Bench of the Fair Work Commission has held that permanent employees are entitled to have prior periods of regular and systematic casual employment count towards the calculation of notice and redundancy pay entitlements under the National Employment Standards (NES). This is despite the fact the employees were paid a casual loading when they were casuals, to compensate for not having these entitlements.

The decision of AMWU v Donau Pty Ltd [2016] FWCFB 3075 has wide-ranging implications, particularly for the tertiary sector, which has twice the workforce casualisation rate of the general workforce.

Background

The case involved a dispute between the Australian Manufacturing Workers' Union (AMWU) and Forgacs Engineering (now known as Donau). Donau is a large engineering company, which builds blocks for the Australian Submarine Corporation.
In 2015, Donau made a large number of workers redundant. Some workers started as casual employees but became permanent employees through a conversion program under the employer's enterprise agreement.

When calculating the employees' redundancy termination payments, Donau:

  • recognised prior contiguous periods of casual service for the purpose of long service leave
  • did not recognise prior contiguous periods of casual service for calculating termination notice, and
  • did not recognise prior contiguous periods of casual service for the purpose of redundancy pay.

The AMWU notified a dispute to the Commission, arguing that the employees' prior casual service should count towards the calculation of the employees' total period of service for the purposes of notice and redundancy pay.

The Commission's decision

The Commission rejected the AMWU's argument. Commissioner Riordan said the 25% casual loading the employees received when they were casuals compensated them for notice and redundancy entitlements provided to permanent employees. 

The AMWU appealed the decision.

The Full Bench's decision

The Full Bench was clear that employees who are casuals at the date of the termination of employment are not entitled to redundancy payments. 

However, employees who started as casuals and had no break between their period of regular and systematic casual employment and their transition to permanent employment, were entitled to have their casual service count towards the calculation of their redundancy pay. 

The majority observed the decision was about the proper construction of the enterprise agreement as well as the interpretation of the Fair Work Act 2009 (Cth) (the Act), because the enterprise agreement incorporated the provisions of the NES. 

The majority noted that the entitlement to redundancy pay under the enterprise agreement was to be calculated by reference to the employee's period of continuous service. A period of continuous service is defined by s 22 of the Act to include a period of regular and systematic casual employment. 

The majority observed there were no words in the enterprise agreement or the Act excluding any period of regular and systematic casual employment from the calculation of service for redundancy pay.

The majority acknowledged there might be industrial injustice in an employee who has received a casual loading for a period of casual employment to have that period of employment also count towards the accrual of redundancy pay—however, this did not alter the majority's conclusion.

Commissioner Cambridge dissented. His view was that s 22 of the Act must be confined to permanent employment. He observed that any arrangement of casual employment does not count as service, nor does it attract service-related benefits unless the terms of a specific instrument prescribe otherwise. 

Commissioner Cambridge also warned the practical effect of the majority's interpretation could retrospectively activate NES entitlements (like annual leave) for employees who transition from casual to permanent employment. 

What does this mean?

This decision means that the calculation of years of continuous service for notice and redundancy pay includes a period of regular and systematic casual employment where:

  • the employee has transitioned to permanent employment before the termination date, and
  • there is no break between the period of regular and systematic casual employment and the transition to permanent employment.

Separate earlier periods of employment are excluded from the calculation. 

However, employees who remain as casuals are not entitled to notice and redundancy pay.

Given the wide-ranging implications of the decision, it may be appealed. The Australian Industry Group has asked the Fair Work Commission to reject the finding as part of the Commission's four year review of modern awards, which is dealing with the casual conversion right and service recognition.

What should tertiary sector employers do?

Employers in the tertiary sector need to be aware of this decision and what it means in terms of notice and redundancy payments for employees, as well as to be across future developments in this area.

For now, it is important to keep in mind that the impact of this decision turns on the wording of your enterprise agreement. If unsure, it is worth seeking advice on how this decision affects the notice and redundancy pay provisions in your agreement.

We would like to acknowledge the contribution of Sara McRostie to this article.
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