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“The parties cannot create something which has every feature of a rooster, but call it a duck and insist that everybody else recognise it as a duck”—Gray J in Re Porter; Re TWU (1989) 34 IR 179 at 184.

The Full Court of the Federal Court’s (Court) recent decision in WorkPac Pty Ltd v Skene [2018] FCAFC 131 (WorkPac) has sparked significant media attention challenging a prevailing view about casual employment and prompting calls for legislative intervention to cure the perceived impact of the Court’s decision.

Much of the criticism is misplaced. The decision does not affect the work relationship between employers and true casual employees—they are not now entitled to be paid annual leave. The decision does, however, expose the risks for industries that use a particular model of engagement of “casual” employees.

Background

It has been commonly thought that if an employer hires an employee as a casual employee and pays them as such, the employee is automatically considered a casual employee at law. This view was formed because modern awards and enterprise agreements define casual employees as “an employee engaged as such”.

The Court emphasised in WorkPac, however, that employers cannot simply designate employees into employment categories as they see fit. Courts and tribunals will look past classifications to the actual work relationship to determine the true nature of an employee’s employment in accordance with common law principles.

The facts

Paul Skene (Mr Skene) was a labour hire employee employed by WorkPac Pty Ltd (WorkPac), which operated a labour hire business. He worked as a dump-truck operator at coal mining operations in central Queensland. He was employed  under an enterprise agreement—the WorkPac Pty Ltd Mining (Coal) Industry Workplace Agreement 2007 (Agreement).

Mr Skene’s contract with WorkPac classified him as a casual employee. He worked a continuous roster of 12.5 hour shifts, seven days on, seven days off, which were set a year in advance. Mr Skene was required to submit timesheets and was paid a flat hourly rate of $50 (later $55), which included a loading in lieu of leave entitlements. The mine operators covered his flights and accommodation as he was a fly-in, fly-out worker.

On 23 April 2012, Mr Skene’s employment was terminated due to behavioural concerns. He did not receive any payment in lieu of untaken annual leave because he was categorised as a casual employee under the Agreement.

Mr Skene subsequently commenced proceedings against WorkPac (as his employer) in the Federal Circuit Court (FCC), seeking unpaid annual leave under the National Employment Standards (NES) and under the Agreement.

Mr Skene submitted that despite being categorised as a casual employee, he was actually a full-time/permanent employee. He claimed that the exclusion of annual leave entitlements to “casual employees” in s 86 of the Fair Work Act 2009 (FW Act) did not apply to him and he sought payment of his entitlement as well as penalties against WorkPac for breaching the FW Act.

First instance decision

The FCC held that Mr Skene was not a casual employee for the purposes of the NES—there was “firm advance commitment” from both parties regarding the duration and predictable nature of his work. Mr Skene was therefore entitled to paid annual leave under the NES.

However, the primary judge held that Mr Skene was a casual employee under the Agreement, which allowed WorkPac to “designate” an employee as a “casual” on the commencement of their employment. Consequently, Mr Skene was only entitled to compensation ($21,054.69 and $6,036.03 in interest) for unpaid annual leave under the NES.  

The primary judge did not award penalties against WorkPac given that it had taken the advice of its National Employee Relations Manager in characterising Mr Skene’s employment as casual under the Agreement, and therefore not affording him annual leave entitlements. Both parties appealed the decision.

The Court’s decision

The indicia or “essence” of casualness

The FW Act does not define “casual employment” and there is no uniform understanding of its meaning in the enterprise agreement or award context. As such, the Court focused on the objective view of the work relationship and confirmed the common law approach to determining the nature of casual employment—that is, substance over form.

The Court reiterated that casual employment is characterised by “no firm advance commitment from [either] the employer [or the employee] to continuing and indefinite work according to an agreed pattern of work”, and confirmed that, “the indicia of casual employment … [-] irregular work patterns, uncertainty, discontinuity, intermittency of work and unpredictability provide the essence of casualness”.  

Ultimately, the Court said that an employer cannot designate their employees as casual employees when the objective view of the work relationship provides the opposite conclusion. In making this assessment, “the nature of the relationship may be legitimately examined by reference to the actual way in which the work was carried out”.

Upon their assessment, Mr Skene was a permanent employee and therefore entitled to annual leave entitlements under the NES upon termination of his employment. He fell outside the scope of a “casual employee” for the purposes of the exclusion from the entitlement for casual employees under the NES and was not a casual employee under the Agreement.

The Court’s assessment was based on four key elements:

  • Mr Skene’s regular and predictable hours
  • the continuous nature of his employment
  • the provision of flights and accommodation at no cost to himself, and
  • the mutual expectation of his ongoing availability to perform his rostered duties.

Double dipping?

Some of the reporting on this case has expressed concern over the assumption that it has set a precedent for casual employees to be able to “double dip” by accepting casual loading in lieu of permanent employee benefits, but seeking and being awarded annual leave entitlements following the termination of their employment.

Reports of this decision, which outline the consequences of this case beyond its circumstances, are misguided. The FCC’s and Court’s decision determined Mr Skene was paid a flat rate and was not paid a casual loading at all. The Court also stated the payment of a casual loading does not provide a legitimate basis to make a determination that the employee was a casual employee.

Employers must note that just because an employee is paid casual loading, does not automatically mean they are properly categorised as a casual employee. Importantly, if the real substance, practical reality and true nature of the employee’s employment is that of a casual, the employee will not receive the benefits permanent employees are entitled to under the NES.

Penalties

The Court disagreed with the primary judge in relation to the imposition of penalties, noting that WorkPac’s representative was employed after Mr Skene commenced his employment. The Court also highlighted the gravity of WorkPac’s offence and reiterated that ignorance of the law is no excuse.

The Court remitted the determination of compensation payable to Mr Skene and the imposition of penalties on WorkPac to the primary judge. The matter is listed for late November this year. The decision will likely provide more insight into the full ramifications of incorrectly characterising the employment relationship.

Key message

WorkPac should remind employers (particularly labour hire companies) that care must be taken when employing staff. In particular, the common law tests or indicia of the true nature of the work relationship should not be ignored. The practical and commercial consequences can be high.

The Court’s decision also sounds a warning for companies that use the services of a labour hire provider. Arrangements should be kept at arm’s length and any attempt to influence the work relationship between the labour hire provider and its workforce should be avoided to avoid any suggestion that the company (or its officers or employees) are “involved in” any breaches of workplace laws by the labour hire provider.

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