Casual employment - new Fair Work regulation clarifies offsetting rules for casual loading payments
Since the decision of the full Federal Court in Workpac v Skene, employers of long term casual workers have been concerned about the prospect for unforeseen liabilities to those workers for paid leave and other entitlements under the National Employment Standards.
Typically, casual workers are not entitled to such things as paid annual, personal or compassionate leave. Instead, they receive a loading to compensate for the absence of those and other entitlements of permanent employment.
One of the uncertainties coming out of the Skene decision is whether, in the event an employer is found to be liable to an employee - wrongly treated and paid as a casual - for entitlements applicable to permanent employment; the employer can in that situation claim an offset or credit against the claim for the casual loading previously paid.
The Government has now varied the Fair Work Regulations to clarify that employers may, in certain circumstances, claim in these situations that the casual loading payments should be offset against the later liability.
The August 2018 decision of the full Federal Court in Workpac v Skene  FCAFC 131 has, for now, authoritatively stated the test for determining whether an employee can properly be regarded as casual. According to the decision:
the ‘essence’ of casual employment is that the employee has no firm advance commitment from the employer to continuing and indefinite work according to an agreed pattern of work;
that question is to be determined objectively, by reference to all of the surrounding circumstances;
characterisation of employment as ‘casual’ for the purposes of an applicable industrial instrument - such as an award or enterprise agreement - while relevant, is not determinative.
Awards and enterprise agreements will typically identify a casual employee as one ‘engaged as such’ and to whom a 25% loading is payable instead of entitlements to leave and other matters from which casual employees are excluded under the National Employment Standards (NES). These include entitlements to paid annual, personal and compassionate leave; notice of termination and redundancy pay, and; payment for public holidays.
The most significant issue for employers coming out of the Skene decision is the potential for ‘double dipping’. In the event of a successful claim for NES entitlements applicable to permanent employment, an employee expressly engaged and paid as a casual will have received both the casual loading previously paid plus the entitlements for which the casual loading was intended to compensate.
This was argued by the employer to be the result in Skene, although it was not clear from the evidence that Mr Skene’s rate of pay included an identifiable casual loading. Workpac claimed to have employed and paid Mr Skene as a casual employee, so that he was not entitled to paid annual leave. Following the termination of his employment, Mr Skene successfully sued Workpac for an unpaid annual leave entitlement. The Court found that, having regard to the circumstances of his employment, Mr Skene was not, in truth, a casual employee and so was entitled to paid annual leave. His employment lacked the ‘essence’ of casual employment. Rather, he was engaged to work a regular pattern of hours according to a roster fixed 12 months in advance.
The Skene decision did not decide that an employer who, having wrongfully classified an employee as casual and paid the loading, is not entitled to apply or offset the loading - effectively as a credit - against any later claim for entitlements applicable to permanent employment. There are some case authorities in favour of the offset argument. However, that specific issue is now the subject of ongoing test-case litigation between Workpac; two of its other former employees; the Commonwealth Government, and; various union parties.
In the meantime, on 18 December 2018, the Government varied the Fair Work Regulations 2009 to give statutory recognition to the offset argument. The new regulation, which is said by the accompanying Explanatory Statement to ‘describe the existing general law’ and ‘to avoid doubt’, applies where all of the following criteria are met:
an employee is employed by their employer on a casual basis;
the employee is paid a casual loading that is clearly identifiable (e.g., by correspondence, payslips, contracts or relevant industrial instruments) as being an amount paid to compensate the person in lieu of entitlements that casual employees are not entitled to under the NES, such as personal or annual leave;
despite being classified by the employer as a casual, the employee was in fact a full-time or part-time employee for some or all of their employment for the purposes of the NES;
the employee has made a claim to be paid for one or more of the NES entitlements (that casual employees do not have) that they didn't receive for all or some of the time that they were incorrectly classified as a casual.
In those circumstances, under the new regulation an employer can ‘make a claim’ to have the casual loading payments made to the employee taken into account when working out the relevant NES entitlements owing. The offset is not automatic, but subject to determination by a court.
The new regulation applies to employment periods that occurred before, on or after 18 December 2018. The full text of the regulation and the accompanying Explanatory Statement can be viewed here.
Only time will tell whether the new regulation will be of assistance to employers seeking to rely on it. As indicated above, further test case litigation following on from the Skene decision is ongoing. Further legislative reform is also possible and the new regulation is subject to veto or disallowance by the Senate when Parliament rises in 2019. Those things aside, there are other things employers can do to mitigate the risks, which include exposure to prosecution for civil penalties or fines of up to $63,000 for contraventions of the NES. For further advice or assistance, please contact HopgoodGanim Lawyers’ Workplace and Employment team.