On 16 August 2018, the Full Federal Court handed down its judgment in the case of Workpac Pty Ltd v Skene, being a decision that is destined to have wide-ranging negative implications for employers across Australia who employ casual employees.
The two main consequences that arise from the decision are as follows:
1. If an employee has a regular and predictable pattern of work with an expectation of ongoing engagements, that employee is likely to be permanent as opposed to casual (this is regardless of the terms of an award, enterprise agreement or employment contract); and
2. Where an employee initially commences employment working irregular hours under a casual employment contract, the casual employee can morph into a permanent employee during the course of the employment relationship, even thought both parties continue to consider the relationship as casual in nature.
As a result of the decision, a large number of employees currently described by employers as ‘casual employees’ could in fact be permanent employees accruing leave entitlements.
Previously, casual employees were employees that were paid a casual loading instead of accruing annual leave and personal leave, and they were “paid and engaged as such”.
However, in the above decision, the Court has dismissed this previous approach to casual employment as being simply wrong, and it has instead held that the determination of whether an employee is a casual must be conducted by assessing “the real substance, practical reality and true nature of the relationship” as opposed to adopting the description the parties have given to the relationship.
The Court held that in order for an engagement to be considered casual:
(a) there should be no certainty about the period over which the employment is offered; and
(b) there should be an informality, uncertainty and irregularity about the engagement.
In short, if an employment relationship has a level of certainty, regularity and predictability about the hours to be worked, then it is inconsistent with being a casual engagement.
Furthermore, the Court held that although a casual employee is paid a casual loading (usually 25%), this is not determinative of whether the employment is casual. Instead, the Court will look at whether the intent of the parties to make the relationship casual “has been put into practice” by assessing the actual pattern of work.
To add more concern for employers, the Court also found that employees can be genuinely engaged as casuals to begin with, but can morph into permanent status if the characteristics of the relationship change.
What now?
The impact of this decision could be substantial for employers, and regular or long term casuals who are deemed to be permanent under the law will automatically become entitled to:
- paid annual and personal leave (accumulating for each year of their service)
- notice of termination; and
- redundancy entitlements.
Employers should:
1. review their casual workforce to determine whether any of their existing casuals are at risk of being considered permanent;
2. consider whether a measured and staggered conversion process can be implemented to minimise ongoing exposure to liability for permanent employment entitlements; and
3. ensure that all employment contracts for their casual employees contain an offset clause to allow any casual loading paid to an employee to offset any annual and personal leave that becomes owed (note that as the above decision is only very recent, the effectiveness of such a clause to neutralise the effect of this decision has not yet been tested in Court).
