17 June 2020
In the recent decision of Workpac Pty Ltd v Rossato  FCAFC 84 (Rossato), the Full Bench of the Federal Court of Australia (Court) confirmed that annual leave, compassionate leave and personal leave is payable to employees who have been incorrectly regarded by employers as long-term casuals.
The decision has confirmed the risks of employing ‘long term’ casual employees and the consequent potential exposure to substantial historical claims.
While the Federal Government has indicated it may legislate to address the need for further clarification on casual employment, until that time employers would be well served to review current casual employment arrangements to determine and manage their risk profile.
In Rossato, the Court confirmed the 2018 judgment of Skene v WorkPac Pty Ltd (2018) 264 FCR 536 (Skene Case) (see our previous discussion here) in which it was held that an employer cannot offset their leave entitlements liabilities for an incorrectly classified casual employee using the casual loading paid to the employee during their employment.
Mr Rossato was employed by WorkPac Pty Ltd (WorkPac) on a casual basis in six separate contracts of employment between 2014 and 2018. After the completion of his sixth contract, Mr Rossato made a claim to WorkPac for outstanding entitlements under the National Employment Standards (NES) and an enterprise agreement on the basis that he was not a true casual employee.
WorkPac commenced proceedings in the Federal Court seeking declarations that:
WorkPac failed on all three points. We summarise the reasoning with respect to each of the issues below.
Casual employment: Who is a true casual?
In determining whether Mr Rossato was a casual employee or not, the Court largely relied upon the authorities set out in the Skene Case (which you can read more about here) and re-emphasised that the absence of a “firm advance commitment” is a defining feature of casual employment. Where that “firm advance commitment” of ‘continuing and indefinite work according to an agreed pattern of work’ is absent, the “indicia of casual employment” will usually be present, including irregular work patterns and unpredictability.
Despite objections from WorkPac, in determining the true nature of Mr Rossato’s employment was not one of casual employment, the Court considered not only the written employment contract but also the conduct of WorkPac and Mr Rossato during the employment relationship which gave rise to an expectation of ongoing work which was inconsistent with casual employment.
Relevant conduct included that Mr Rossato’s rosters were often prepared at least 12 months in advance and provided for the same pattern of shifts throughout the roster. Between some of his shifts, Mr Rossato lived in the accommodation provided by the employer. White J noted the “Drive In – Drive Out” arrangement was “inconsistent with an expectation of the employment being intermittent or discontinuous” and in particular was inconsistent “with Mr Rossato having a choice as to whether to work on a particular day.”
Workpac unsuccessfully argued that it was entitled to set off the casual loading against the entitlements Mr Rossato was claiming.
The Court identified two principles relevant to WorkPac’s claim, which we address below.
Firstly, a payment made by an employer for one contractual purpose cannot be brought into account for a different contractual purpose. However, if the contractual purposes of two different payment obligations are “closely correlated”, then one payment could be applied against both payment obligations.
WorkPac argued that the contractual purpose of the casual loading was that of a payment in lieu of leave entitlements and therefore the payment of the casual loading had a close correlation to, and should be brought into account to satisfy, WorkPac’s obligations in relation to Mr Rossato’s leave entitlements.
The Court disagreed and noted that the purpose of annual leave is to facilitate an employee’s rest and recreation without loss of pay. This purpose is affirmed by the fact of restrictions being in place for the cashing out of annual leave.
The Court also noted that since Mr Rossato was not a casual employee, any additional payment (including casual loading) made ‘in lieu’ of his leave entitlements would contravene the Act and subject WorkPac to civil penalties since the Act “does not permit the substitution of paid annual leave and paid personal/carer’s leave for money.”
Secondly, an employer (as debtor), owing several debts or obligations to an employee (as creditor), may make a payment to the employee and designate which debt or obligation to which the payment is to be appropriated. However, the designation must be made at the time of the payment and cannot be made retrospectively.
WorkPac unsuccessfully argued that there was an implied appropriation of the casual loading payments to the debt in relation to Mr Rossato’s leave entitlements. The Court held that the time had passed for Workpac to make such a claim as it had not done so at the time of payment.
Regulation 2.03A of the Fair Work Regulations 2009 (Cth)
Following the Skene Case, the Federal Government amended the Fair Work Regulations 2009 (Cth) to assist employers with offsetting particular liabilities. Regulation 2.03A applies where a person, employed on a casual basis and paid a loading amount as compensation for not having certain NES entitlements, makes a claim for payment in lieu of such an entitlement on the basis that they are not a casual employee. Regulation 2.03A permits an employer to make a claim that the casual loading amount be taken into account when determining the employer’s liability for the employee’s claimed entitlements.
The Court held that Regulation 2.03A could not provide Workpac with a basis to claim for a set off in these circumstances because Mr Rossato was seeking payment for his NES entitlements (for example, personal or carer’s leave that he had already taken and for which he was not paid) – not a claim for payment in lieu of an NES entitlement as required under the Regulation.
WorkPac’s third and final claim was that, if Mr Rossato was not a casual employee and WorkPac could not use the casual loading to offset its liability for Mr Rossato’s NES entitlements, then it is entitled to restitution of the casual loading payment on the basis of either mistake or total failure of consideration.
WorkPac also failed to convince the Court that it had made the casual loading payments to Mr Rossato as a result of their mistaken view that they had an obligation to pay Mr Rossato a casual loading. White J determined that WorkPac had initially operated under a mistaken view of their obligation to Mr Rossato. However, following the judgment in the Skene Case that Mr Skene (also an employee of WorkPac) was not a casual employee, WorkPac must have realised there were issues with the legitimacy of its employment arrangements with Mr Rossato. Despite this, WorkPac continued to pay Mr Rossato a casual loading and such payments, therefore being voluntary payments, do not qualify for restitution.
The Court held that, even where payments had been made under a false apprehension of WorkPac’s legal obligations, the mistake had not been the operative cause of the payments and therefore, restitution was not available. WorkPac had determined an appropriate hourly rate to pay Mr Rossato and had subsequently ensured the rate satisfied its obligations under the Enterprise Agreement, meaning that the obligation to pay a casual loading was not the cause of the payments.
Total failure of consideration
WorkPac also unsuccessfully argued that Mr Rossato’s obligation under his employment contract was not only to perform work, but also to accept that the casual loading would discharge any obligations in relation to leave entitlements.
The Court rejected this argument on the basis that Mr Rossato had provided consideration for the casual loading as he had continued to work at times when he would otherwise have been entitled to take leave. Accordingly, the Court determined, WorkPac had “received in full the services from Mr Rossato for which it had bargained.”
Key lessons for employers
While we await a response from the Federal Government with respect to legislative reform pertaining to the employment of casuals, employers should heed the warnings in Rossato and the Skene Case and consider – what is the real substance of its casual employees’ arrangements?
While there is no single determinative factor, and noting the true nature of the employment relationship needs to be assessed in its entirety, the following key questions will assist with this assessment:
Conducting an audit of current employment arrangements together with regular assessments of casual arrangements will assist employers to understanding and managing their business’s level of risk.
If you require assistance with your audit or assessment, please contact a member of Holding Redlich’s Workplace Relations & Safety group.
 Workpac has sought special leave to appeal the decision to the High Court.
The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this newsletter is accurate at the date it is received or that it will continue to be accurate in the future.