Many enterprise agreements and modern awards provide that a casual employee is one who is engaged as a casual and paid a casual loading. The Federal Government estimates that 77% of enterprise agreements covering more than 140,000 casual employees use this approach, as do 88% of modern awards.

The Fair Work Act 2009 (Cth) (FW Act) exempts casuals from entitlements to paid leave, notice and redundancy pay. Until the last few years, if you engaged someone as a casual and paid them a casual loading, you could be pretty sure they were a casual for the purposes of the exemption.

The Federal Court rulings in the Workpac cases have changed that assumption.

Following those decisions, the legal position is that a so-called casual is not a casual for FW Act purposes where:

• an employer gives the employee a firm advance commitment to continuing and indefinite work, according to an agreed pattern of work; and
• the employee commits to be available on a continuing and indefinite basis, to perform work according to that agreed pattern.

If neither the employer nor the employee give this commitment, the employee will be a casual and the exemption from entitlements to paid leave, notice and redundancy pay provided in the FW Act would stand.

The Federal Government responded to the first Workpac case (Workpac v Skene (2018)) by amending the Fair Work Regulations 2009 to enable an employer to set-off casual loadings paid against amounts claimed by the employee for paid leave entitlements. However, the Full Federal Court in Workpac Pty Ltd v Rossato (2020) substantially undermined the capacity of employers to rely on this Regulation. The Court ruled that Rossato had not claimed an amount in lieu of entitlements to paid leave. Rather, he had claimed the payment due pursuant to those entitlements. As such, the Regulation did not assist Workpac.

The uncertainty as to whether casuals are actually entitled to paid leave and separation payments has seen many companies making provision in their accounts for potential future claims.

The Federal Government is attempting again to resolve this uncertainty with the Fair Work Amendment (Supporting Australia’s Jobs and Economic Recovery) Bill.

What is the Bill?

The Fair Work Amendment (Supporting Australia’s Jobs and Economic Recovery) Bill was introduced in December 2020. This co-called Omnibus Bill is unlikely to pass without support from the cross benches in the Senate.

If passed, it will provide that a person will only be a casual for FW Act purposes if they accept an employment offer on the basis that the employer makes no firm advance commitment to continuing and indefinite work according to an agreed pattern of work.

In determining whether there is an absence of a firm advance commitment to continuing and indefinite work according to an agreed pattern of work, the Court must only consider whether:

• the employer can elect to offer work, and the employee can elect to accept or reject work;
• the employee will work only as required;
• the employment is described as casual employment; and
• the employee will be entitled to a casual loading or a specific rate of pay for casual employees under the terms of the offer or an award, enterprise bargaining agreement (EBA) or national minimum wage order.

Unlike the approach taken by the Courts in the Workpac cases, the fact that employment is intermittent, unstable, irregular, informal and/or unlikely to continue for any length of time does not go to the question of whether it is casual employment. Indeed, the legislation expressly states that a regular pattern of hours does not of itself indicate a firm advance commitment to continuing and indefinite work according to an agreed pattern of work.

The “absence of a firm advance commitment” feature will only be assessed on the basis, and at the time, of the offer and acceptance of employment. Any subsequent conduct is irrelevant. This may encourage form over substance. If employers want to make sure the person they are engaging as a casual is actually a ‘FW Act casual’, they will need provisions in the employment contract or enterprise agreement that make it clear the employer has discretion as to whether to offer work, and that the employee can pick or choose whether to accept or reject work.

‘Locking in’ casual employment status

The legislation aims to lock in a person’s employment status as a casual so that it cannot unintentionally change over time. A person employed as a casual at the outset remains a casual until they are converted to permanent employment or agree to change status. Whether that works remains to be seen. For instance, casual employment is said to be a series of offer and acceptances. No firm advance commitment might have been given for last week’s shifts but if you say, “Jack is in hospital for the next 4 months so I need you to commit to working 3 days a week over that period”, are you converting the employment to permanent employment?

If this definition comes in, it will create uncertainty. Many of these casuals who are labelled as such and paid a casual loading will have been engaged in circumstances where it will not be clear whether the employer makes a firm advance commitment to continuing and indefinite work according to an agreed pattern of work.

Offsetting casual loading against claims for paid leave entitlements

If you don’t afford these employees paid leave, public holiday pay, redundancy pay or notice but you do pay them a loading to compensate them for not having these entitlements, and the employees go to court seeking these entitlements, the court will offset the loading you have paid against this claim.

To allow the set-off, you need:

• the claimant to be employed in circumstances where their employment is described as casual employment; and
• evidence that you paid the loading paid to compensate the person for not having one or more relevant entitlements. This set-off will not occur where an employee is paid a flat hourly rate and it is not clear from the terms of the contract whether that rate includes a casual loading. The contract does not need to state precisely which entitlements the loading is compensating for, but it must identify an amount that is paid to compensate a casual employee for the absence of one or more of the relevant entitlements.

If a contract of employment, award or EBA states that the loading is paid instead of paid annual leave and personal/carer’s leave, but the claim amount is for payment in relation to absence on a public holiday and redundancy pay, there will not be any offset.

The court also has to decide how much of the 25% loading is attributable to the entitlement. So, if an EBA says you pay a casual 25% loading in lieu of paid leave, public holiday pay, rosters days off, notice and redundancy pay, and a non-FW Act casual sues for redundancy pay, what proportion of the 25% goes towards that? The new legislation says that employers can itemise what part of the 25% goes to each entitlement and that will be followed by the court. But how do you do that? And why would you do that?

If this right of offset is intended to provide certainty, it doesn’t. To get certainty, you need a court to find that you contravened the FW Act by underpaying an employee who is not a FW Act casual. You then need a contract that links the loading you paid to the employee to the fact that you were not paying for the entitlement(s) claimed by the employee. The court will then work out what part of the loading paid you can set-off of against the amount claimed. You may or may not be short – so you won’t know what to provision for. Moreover, this set-off won’t give you a defence. You will still be liable to penalties and the adverse publicity of a court finding you have contravened a civil remedy provision.