Court decision

On 4 August 2021, the High Court of Australia delivered its decision in WorkPac Pty Ltd v Rossato & Ors [2021] HCA 23 (Rossato No 2).

The decision provides greater clarity for employers around the concept of when an employee will be deemed “casual” and also how to prove and disprove a “firm advance commitment to ongoing work”.

At one level, the decision is of limited ongoing practical significance, given the recent introduction into the Fair Work Act of a statutory definition of “casual employee”.

More broadly, however, the High Court’s rationale for reversing the original decision in Rossato may signify something of a brave new world in employment contract theory, whereby the form of the parties’ contract in the express words they use will be the primary determinant of the character of their relationship.

Will promoters operating in the gig economy now have a more solid ground to argue — based on their paperwork — that their contracted workers are contractors rather than employees?

Background

A casual or permanent employee? Rossato and Skene

In our August 2020 publication, we re-visited WorkPac Pty Ltd v Rossato [2020] FCAFC 84 (Rossato No 1), which affirmed the approach of the Full Court of the Federal Court in WorkPac Pty Ltd v Skene [2018] FCAFC 13 (Skene). 

In Rossato No 1, the Full Federal Court held that a casual employee was an employee who had “no firm advance commitment from the employer to continuing and indefinite work according to an agreed pattern of work”, and found that because Mr Rossato had such a commitment from the employer, he was not a casual employee. WorkPac had not appealed to the High Court in Skene but did so in Rossato.

Casual employee reform

In our April 2021 publication we summarised the Fair Work Amendment (Supporting Australia’s Jobs and Economic Recovery) Act 2021 which amended the Fair Work Act 2009 (Cth) (FW Act), largely coming into effect on 27 March 2021. The amendments were generally intended to reverse the effect, or at least address uncertainties that arose from the decisions in Skene and Rossato No 1. 

The recent FW Act amendments:

• enact for the first time a statutory definition of "casual employee" at s15A, following the court’s approach of "no firm advance commitment", but insead shifting the focus to when the employment offer is made rather than the subsequent conduct of either employer or employee;
• applies the new definition retrospectively to offers of casual employment made prior to the commencement of the amendments, which (with very limited exceptions) will retrospectively and prospectively exclude casual employees’ claims for underpayment based on the decisions in Skene and Rossato No 1; 
• in cases where an employee is found to have been wrongly classified and paid as a casual employee, require the Court to reduce any amounts found to be payable on account of permanent employment (e.g., for paid annual leave), by any casual loading previously paid; and
• require employers to provide a Casual Employment Information Statement to all new (and existing) casual employees.

The 4 August 2021 High Court decision (Rossato No 2)

The High Court unanimously allowed WorkPac’s appeal in Rossato, finding that Mr Rossato was indeed a casual employee and clarified what is a “casual employee” (under the pre-amended provisions).

What is a casual employee?

The pre-2021 caselaw holds that a casual employee is an employee who does not have a firm advance commitment from their employer about how long they will be employed for, or when they will work, and correspondingly a casual employee does not give their employer the same commitment. The new section 15A definition reflects that understanding. Where the High Court differed from the Federal Court was in applying those principles to the facts of the case.

Justice Gageler gave a separate judgment stating the central question in the appeal was the meaning of undefined references to “casual employee” in the FW Act which defined “employee” by reference to the ordinary meaning of the term, with this question being of national importance at the time special leave to appeal was granted. However, the importance of the question diminished with the subsequent insertion into the Act of a definition of “casual employee” which operates comprehensively for the future, and operates retrospectively subject to very limited exceptions. 

Key facts

Mr Rossato worked at WorkPac’s Central Queensland coal mines under six separate employment contracts between July 2014 and April 2018. WorkPac had always believed it had engaged Mr Rossato as a casual employee and paid 25% casual loading, but not paid leave entitlements or public holidays. 

In addition to these contracts, Mr Rossato was covered by an enterprise agreement classifying him as a casual worker.

Key findings

The High Court (including Gageler J) found that in carrying out these six employment contracts Mr Rossato was a casual employee pursuant to the FW Act and also WorkPac’s enterprise agreement.

Key points include:

• Mr Rossato’s employment was expressly on an “assignment-by-assignment basis”. 
• Mr Rossato’s rosters fell short of being a contractual promise by WorkPac that Mr Rossato had to work all shifts listed.
• Mr Rossato was entitled to accept or reject any offer of an assignment including shifts listed in rosters. 
• At the end of each assignment WorkPac did not have to offer Mr Rossato further assignments. 
• While the rosters exhibited features of regularity and consistency, they did not establish an ongoing commitment between the parties. The contractual arrangements did not include a mutual commitment to an ongoing employment relationship between them after each assignment was completed.

Significance — legal principle

The heart of the High Court’s reasoning is the principle that “a court can determine the character of a legal relationship between parties only by reference to the legal rights and obligations which constitute that relationship. 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.” [57].

The joint reasons emphasised that, while employment law has evolved so that employment can no longer be understood in purely contractual terms, the Federal Court’s approach — which permitted reference not only to the terms of engagement but also to non-binding practices and behaviours that evolved during the relationship — would violate principles of freedom of contract and make it impossible for employers and casual employees to ascertain their rights and liabilities before they accrued [63], [99]. On that basis, the Court held that not only Rossato No 1 but also Skene had been wrongly decided. 

But the decision has direct significance only for Mr Rossato and WorkPac’s employment relationship, and even that had ended for other reasons before the Federal Court case. For everyone else, the Federal Court’s approach has been squarely abrogated by the new section 15A and related amendments to the FW Act.

The greater significance of the High Court’s decision is its striking retreat to laissez-faire considerations of freedom of contract and a narrowing of the role of the courts: “To insist that nothing less than binding contractual terms are apt to characterise the legal relationship between employer and employee is also necessary in order to avoid the descent into the obscurantism that would accompany acceptance of an invitation to enforce “something more than an expectation” but less than a contractual obligation. It is no part of the judicial function in relation to the construction of contracts to strain language and legal concepts in order to moderate a perceived unfairness resulting from a disparity in bargaining power between the parties so as to adjust their bargain”[63].

That said, some of the subsequent commentary overstates the significance of the decision. For example, the decision has been portrayed as overturning Hollis v Vabu Pty Ltd (2001) 207 CLR 21. However, as the Court itself pointed out [101], Vabu concerned not the question of when employment is casual or permanent, but the question of whether a person was an employee at all, as opposed to an independent contractor. The Court will further consider that distinct question in CFMMEU v Personnel Contracting and ZQ Operations Australia Pty Ltd v Jamsek in the near future. It may be that, after Rossato, the Court will be inclined to give greater weight to the contractual intention of the parties expressed at the outset. But not necessarily. There are good reasons supporting a multifactorial analysis in answering the employee/contractor question that are not relevant to the casual/permanent question, and the Court itself identifies some of those [101]. So, if Uber and Deliveroo really are celebrating after Rossato, their celebration might yet prove to be premature.

Significance — practical

The decision directly affects only the employment relationship between Mr Rossato and WorkPac. For just about every other employment relationship, the new statutory definition of "casual employee" and related amendments in the FW Act are now the source, and they provide more certainty and comfort to employers who engage casual employees than any court decision for 20 years. There are still, however, practical issues to consider including:

1. importantly, the High Court’s decision is specific to the factual circumstances before the court. Employers should consider their particular circumstances such as unique business arrangements with staff or specific terms of employment contracts. A well drafted contract is key to reducing the risk of underpayment claims;
2. providing a Casual Employment Information Statement (available on the Fair Work Ombudsman website) to all new (and existing) casual employees;
3. reviewing employment arrangements of each casual employee:

• to ensure consistency with the amended FW Act, make sure terms are not inconsistent with a casual employment relationship;
• ascertain whether they are in fact casual employees or permanent employees — consider whether to make an offer of conversion to permanency; and 
• to include terms to offset casual loading paid to an employee against permanent employee benefits to prevent double-dipping if in the future the employee is found to be a permanent employee; and

4. ensuring adequate systems to monitor when casual employees reach their 12-month anniversary — consider whether to make offer of conversion to permanency.

Should you require any further information or clarification, or assistance with casual contract templates, please contact our Workplace and Employment team.