Many businesses engage contractors to carry out work rather than taking on additional employees. There are many reasons for this – the work may be inconsistent and not regular, and the employer does not want the burden of an underutilised workforce. The question is, are business owners liable for casual employee leave entitlements?
In recent times this practice has become widespread even to the extent that the contractors may be working almost exclusively for the one business.
The business has seen this as worthwhile even though it would typically pay the contractor up to 25% more than an employee in wages to avoid incurring the employee entitlement liabilities such as annual leave and long service leave.
In acquiring the owner of a business (usually a company), the buyer also acquires its liabilities. Those liabilities, especially in the case of contingent liabilities for "casual employees" would probably not be disclosed on the company's balance sheet because the business, until now, has not been liable for them.
All this may have been changed by the recent decision of the Full Court of the Federal Court of Australia in WorkPac Pty Ltd v Rossato (WorkPac decision) 1 which considered whether an employer (WorkPac) may have liability for unpaid annual leave, public holidays and personal/carer's leave entitlements accrued by "casual employees" (i.e contractors).
The Decision – Summary
The WorkPac decision comprising 183 pages, including the Court's summary, in short, found that:
- the description given by the parties as to the nature of the relationship is relevant, but not a conclusive consideration;
- the parties had agreed on the employment of indefinite duration which was stable, regular and predictable such that the required firm advance commitment was evident in each of his six contracts considered by the Court (bolding by the author);
- the absence of a firm advance commitment as to the duration of the days/hours the employee will work is not conclusive that the employment was casual. The firm advance commitment may be assessed by regard to the employment contract as a whole, including by considering whether it provided for the work to be regular or intermittent, whether it permitted the employer to elect whether to offer employment on a particular date, whether it permitted the employee to elect whether to work and the duration of the employment;
- WorkPac Pty Ltd could not set-off or claim restitution of the 25% casual staff loading against its liability for the payment of the above-mentioned leave entitlements;
- WorkPac Pty Ltd could not rely upon regulation 2.03A of the Fair Work Regulations 2009 (Cth).
The WorkPac decision is being taken on appeal to the High Court but will probably not be heard for some time. It is also possible that the Government will introduce remedial legislation.
In the meantime, however, persons who were thought to be casual employees and remunerated as such may, in fact, have claims against the business to leave entitlements stretching over many years. Even if no claim is made against the business by the casual employees, these potential claims should be taken into account in any contract to sell the business or the company which owns it. H
In the circumstances, it is imperative that the parties to a buy/sell contract particularly the buyer should take legal advice before committing to the contract.
1 WorkPac Pty Ltd v Rossato (2020) FCAFC 84
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.