If the pandemic is a king-hit for many Small and Medium Enterprises (SMEs), possible back-payment of leave entitlements to casual employees could be the final blow. Potential litigation by casual employees for back-payment of annual leave, personal/carer's leave and compassionate leave has been delivered courtesy of a recent Federal Court decision.
There are already several class actions against employers waiting in the wings in case an application to appeal is denied, and ASIC has advised directors to consider their potential liabilities for leave entitlements for past and current casual employees. They will be focusing on this issue in financial reports for years ended March 31 to June 30, 2020.
In this newsletter we take a take look at the case and tease out other implications for SMEs.
The case: Workpac Pty Ltd v Rossato (2020) FCAFC 84.
Workpac Pty Ltd (Workpac) is a labour hire company that employed Robert Rossato as a truck driver in the mining sector. Rossato was the second truck driver (after a successful claim by Paul Skene ii, iii) to challenge his casual employment designation and claim leave entitlements.
Workpac brought its case to test defences that it had not used in the Skene case.
Applications made by Workpac Pty Ltd.
Workpac applied to the court to find that:
- Rossato was a casual employee because his contracts designated him as such and his Notices of Casual Employment (NOCEs) did not include an express term of a firm, advance commitment.
- If Rossato was found to be permanent employee, Workpac was entitled to off-set the casual loading it had paid against claimed entitlements, alternatively
- If Rossato was found to be a permanent employee, Workpac was entitled to restitution for the casual loading it had paid either by way of
- Mistake, that is, their mistaken characterisation of Rossato's employment, or
- Failure of consideration, that is, Rossato didn't fulfill his part of the contract
What the court found
The Full Court found that:
- Mr Rossato was a permanent employee in all but name, and entitled to paid leave.
- Mr Rossato was owed outstanding entitlements by Workpac Pty Ltd that should have been paid on the termination of his employment
- and, that Workpac could not claim restitution for, nor off-set the 25% casual loading it had previously paid against the outstanding entitlements.
What this means for SMEs
The Court had numerous and various reasons for its decisions. The case will have implications for all companies great and small and we'll try to distill the points most relevant for your SME clients here.
Regarding Rossato's characterisation as a casual employee in his employment contracts without reference to a firm, advance commitment; the Court found that if looks like a duck, swims like a duck and quacks like a duck, then it is in fact a duck no matter what a contract calls it. Post-contract conduct must be considered in a contract's interpretation otherwise the system sets up the possibility for sham contracts.
In Rossato's case, he was provided rosters far in advance, was given reason to expect ongoing work, worked a regular pattern of shifts and his working hours were described as "practically metronomic" iv.
Recommend your clients review their casual employees' hours of work. If they are regular, certain, continuous and ongoing, it may be advisable to change their employment status or their pattern of work.
White J explored the reciprocity inherent in casual employment. A casual employee may decline a shift just as an employer is under no obligation to offer one. He found that an excessively complex process to decline work and the possibility that Rossato was subject to civil penalties and disciplinary action if he failed to be available for rostered shifts, made it implausible that Rossato could, in reality, choose to work or not work.
Advise your clients to ensure that their casual employees are aware that they are able to decline shifts without penalty and have clear processes for confirming their availability or otherwise.
Workpac paid flat, hourly rates above those in the Enterprise Agreement. Rates had varied even though shifts and place of work hadn't. Therefore, the Justices determined that Workpac paid an hourly rate that was the 'market' cost of securing Rossato's services, and then satisfied itself in retrospect that the rate covered the wages, allowances and loading it was obliged to pay. As Rossato was paid this hourly rate for his services, and he provided his services diligently it was determined that there was no failure of consideration on his part.
Further, none of Rossato's payslips detailed loadings or allowances paid. The casual loading could not be separated from Rossato's hourly wages, that is, the casual loading was not severable.
The casual loading was also determined to be not severable because inconsistencies in NOCEs and the EA meant that Workpac could not prove that it had paid a casual loading.
These are just a few of the reasons that the Full Court found that Workpac could not off-set the loading or claim restitution.
Recommend that your clients have their enterprise agreements and employment contracts/letters of offer reviewed by an employment law specialist, and check that their payslips provide clear and detailed advice of casual loading and allowances paid.
Prepare now for the possibility of claimed entitlements
Sticking your head in the sand is never a good strategy when it comes to managing risks to an enterprise. On June 25th, Workpac made an Application for Special Leave to Appeal in the High Court. The outcome of that application is uncertain. But in the interim, the decisions made in Workpac Pty Ltd v Rossato (2020) FCAFC 84 are decisions of the court and need to be taken into consideration.
SME owners who think they may be confronted by litigation for outstanding entitlements need to begin planning their response now, including seeking expert legal advice, thinking about how they might fund back-payments to employees, and importantly, whether they will be able to respond to claims and remain solvent. Timely advice may help prevent employee litigation snowballing into penalties for insolvent trading.
i Doraisamy, J. (2020, May 21). 'Series of class actions' for casual workers to follow Workpac ruling. Retrieved 17 July 2020 from https://www.lawyersweekly.com.au/biglaw/28376-series-of-class-actions-for-casual-workers-to-follow-workpac-ruling
ii Skene v WorkPac Pty Ltd  FCCA 3035
iii Workpac Pty Ltd v Skene (2018) 264 FCR 536
iv Workpac Pty Ltd v Rossato  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.