In recent years, employers have grappled with the concept of who is a “casual employee” for the purposes of the Fair Work Act 2009 (Cth) (FW Act). Following a lengthy legal process, the High Court has provided clarity in WorkPac Pty Ltd v Rossato & Ors [2021] HCA 23.

In finding that Mr Rossato was a casual employee, the High Court agreed with the parties that a casual employee is an employee who has no firm advance commitment of ongoing work from the employer. Crucially, the High Court held that, unless the contract between the parties is a sham, or it has been varied, the question of whether there is such a firm advance commitment is determined by looking solely at contractual terms agreed between the parties and not at post-contractual conduct and surrounding circumstances, such as the regularity of working rosters.

The High Court drew a clear distinction between an employee’s expectation of continuing employment on a regular and systematic basis, with a firm advance commitment to continuing employment expressed in contractual documentation.

Background

The definition of “casual employee” has attracted significant legal and political attention and led to ongoing uncertainty for employers. The decision of the Full Court of the Federal Court in WorkPac Pty Ltd v Skene [2018] FCAFC 131 (Skene) initiated such attention, holding that a dump truck operator who had regular and predictable shifts was a permanent employee of WorkPac entitling him to payment in respect of accrued annual leave as provided under the National Employment Standards. The Full Court in Skene found that the indicia for determining whether an employee was a casual employee were no firm advance commitment from the employer to continuing and indefinite work according to an agreed pattern of work, no reciprocal commitment from employee to the employer, irregular work patterns, uncertainty, discontinuity, intermittency of work and unpredictability, not, as WorkPac argued, that a casual was an employee engaged and paid as such.

Following this decision, Mr Rossato, a production employee in the open cut black coal mining industry, who was engaged by WorkPac over a period of 4 years, under 6 separate contracts of employment, wrote to WorkPac seeking back pay in respect of permanent employee entitlements. This was despite Mr Rossato having been paid a casual loading during the course of his employment and each of his employment contracts referring to him as a casual employee. Following Mr Rossato’s request, WorkPac sought a declaration from the Federal Court in respect of Mr Rossato’s employment status and entitlements. The Federal Court remitted the case to the Full Court.

WorkPac sought a declaration that Mr Rossato was a casual employee for the purposes of the FW Act and the governing enterprise agreement. In the alternative, WorkPac sought to use the casual loading paid to Mr Rossato to “set off” against any leave entitlements owing. The company also sought restitution of a percentage of the casual loading, claiming the payment was made mistakenly and that there was an absence of consideration.

Effectively confirming what it had said in Skene, the Full Court found that Mr Rossato was a permanent employee, entitled to the benefits of permanent employment such as paid annual leave, paid personal/carer’s leave, paid compassionate leave and paid public holiday leave. The Full Court also held that WorkPac was not entitled to set-off those entitlements against any casual loading and that they were not entitled to any restitution as the casual loading had not been made by mistake nor was lacking in consideration.

WorkPac successfully obtained special leave to appeal the decision of WorkPac Pty Ltd v Rossato [2020] FCAFC 84 to the High Court.

The High Court decision

It was agreed between the parties before the High Court that a “casual employee” under the FW Act refers to an employee who has no “firm advance commitment as to the duration of the employee’s employment or the days (or hours) the employee will work”’ (para [32]). Therefore, the critical issue for determination was whether Mr Rossato had such a commitment from WorkPac.

The High Court decided in favour of WorkPac, overturning the approach adopted by the Full Court and providing employers with welcome clarification in the casual employment debate.

Look to the contract of employment for “firm advance commitment”

The High Court held that Mr Rossato was a casual employee for the purposes FW Act and the governing enterprise agreement, because the contractual arrangements between him and WorkPac “did not include a mutual commitment to an ongoing working relationship between them after the completion of each assignment”.

The High Court made clear that the written terms of a contract of employment are of central importance when determining whether an employment relationship is casual or permanent and that although the label parties choose to attach to a relationship is not, of itself, decisive it can be a factor that influences the interpretation of rights and obligations.

The High Court held that, in the absence of the contract being a sham (which is challenging to legally prove) or it has been varied, a “firm advance commitment” to ongoing work should be determined by reference to the written terms of the contract of employment rather than non-contractual issues, such as the systematic nature of the work performed by the employee under a roster:

“The search for the existence or otherwise of a “firm advance commitment” must be for enforceable terms, and not unenforceable expectations or understandings that might be said to reflect the manner in which the parties performed their agreement.”

The fact Mr Rossato was paid a casual loading, detailed in the employment contract, was held to be a compelling indication by the parties that there was no firm advance commitment for the relationship to extend beyond the assignment.

The High Court put a clear stake in the ground, emphasising that the function of the court is to enforce legal obligations, not to look behind the plain words of a contract to moderate any perceived unfairness by reshaping or recasting a contractual relationship. This is a clear direction by the High Court for the courts to avoid judicial activism and what it called “the descent into obscurantism that would accompany” an alternative position whereby something less than a contractual obligation could be enforced by the courts.

The CFMMEU intervened in the proceedings and argued that the appropriate time to determine the characterisation of employment is at the time the statutory entitlements arose. This argument was rejected by the High Court which held that this would mean the parties could not know their respective obligations until pronounced upon by a court, which “does not accord with elementary notions of freedom of contract”. The High Court’s commentary in this regard will provide comfort to employers that it will place more significance on the written agreement of the parties than the Full Court in the preceding cases.

Unfortunately for those interested in the wider issues, as a result of finding Mr Rossato a casual employee, given its finding that Rossato was a casual employee, the High Court did not need to decide whether WorkPac could offset any employment entitlements against casual loading already paid, or whether WorkPac could rely on its restitution arguments.

Predictable patterns of work “entirely compatible” with the notion of “casual employment”

The High Court held that a mere expectation of continuing employment on a regular and systematic basis is not sufficient to establish a firm advance commitment, no matter how reasonable the employee’s expectation.

The High Court did not dispute that the rosters worked by Rossato were regular and systematic during the period of each assignment and may have provided him with a reasonable expectation of continuing employment. However, the Court held, even though the rosters gave Rossato’s employment the qualities of regularity and systematic organisation, those qualities were “entirely compatible with the notion of ’casual employment’ in the FW Act” where there is no firm advance commitment to ongoing work beyond the completion of the assignment in the relevant contract.

The clear position from this case is that the contract of employment is of utmost importance. According to the High Court, the commitment must be found in the binding contractual obligation of the parties where they have committed the terms of their employment relationship in a written contract.

Impact of the recent amendments to the Fair Work Act

Although the case was decided in favour of WorkPac, employers should also keep in mind the application of the FW Act following the amendments made by the Fair Work Amendment (Supporting Australia’s Jobs and Economic Recovery) Act 2021.

The Act came into effect after the filing of the High Court appeal but before the appeal was heard. Even so, it was discussed briefly by the High Court towards the beginning of its judgement.

As a result of these recent amendments, the FW Act now defines “casual worker” in section 15A, which states a person is a “casual employee” if:

  • an offer of employment made by the employer to the person is made on the basis that the employer makes no firm advance commitment to continuing and indefinite work according to an agreed pattern of work for the person;
  • the person accepts the offer on that basis; and
  • the person is an employee as a result of the acceptance.

The determination of whether a firm advance commitment exists is based on the following criteria:

  • whether the employer can elect to offer work and whether the person can elect to accept or reject work;
  • whether the person will work as required according to the needs of the employer;
  • whether the employment is described as casual employment; and
  • 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.

As the High Court noted, the new Section 545A of the FW Act specifically seeks to prevent double dipping in circumstances where employees who were employed as casuals and paid a casual loading, later seek to be paid annual leave, personal/carer’s leave, paid compassionate leave, paid public holidays, payment in lieu of notice of termination or redundancy pay. In such cases, the FW Act now provides that the amount of any entitlements ordered to be paid to an employee must be reduced by the amount of any identifiable casual loading paid.

Key Takeaways

Employers should take comfort in knowing they can rely upon properly drafted casual employment contracts, to provide protection against claims for permanent employment entitlements for paid leave, payment in lieu of notice and redundancy pay.

Provided the contract is clear that there is no firm advance commitment, and the contract is not a sham, other factors such as rostering arrangements are irrelevant to a subsequent determination of whether the employee is a casual.

Therefore, employers should ensure their casual employment contracts are carefully drafted, with legal advice recommended, to ensure they are a true casual contract, reflecting the findings of the High Court and the provisions of section 15A of the FW Act, and that the employer can take advantage of the offsetting provisions if needs be.