Potential Claims for Permanent Employment Entitlements
Recent changes have been made to the Fair Work Act 2009 (Cth) (FW Act) which may change your casual employment and management strategy. Below we consider the recent amendments and response to the Rossato case, and its impact on claims for permanent employment entitlements from casual employees.
Claims for permanent employment entitlements from casual employees
As many readers would know, the 2020 case of WorkPac Pty Ltd v Rossato resulted in an employee who was paid a casual loading (and was thought to be a casual during their employment) subsequently claiming that they were, in truth, a permanent employee entitled to certain paid entitlements, such as annual leave. The Full Bench of the Federal Court found in favour of the employee (the case is currently on appeal to the High Court).
The part of the case that was troubling for all employers, however, was the finding of the Court that the value of the 25% casual loading paid to the employee could not be offset against the value of the annual leave owed to the employee. This resulted in what has been described as ‘double dipping’, because the employee was able to keep the casual loading payments and receive payment for the value of annual leave through employment.
When can the offset be applied?
The recent amendments to the FW Act seek to address this ‘double dipping’, by providing that a Court must allow for some level of offset if a casual loading has been paid, as follows:
if a person’s employment has been described as casual employment (but it does not, in fact, meet the ‘casual employee’ test, and therefore was, in truth, permanent employment); and
the employee has been paid an ‘identifiable amount’ (the loading amount) to compensate the employee for not having one or more relevant entitlements during a period; and
the employee makes a claim to be paid an amount for one of more of the relevant entitlements,
then, the Court must reduce any amount payable to the employee for the relevant entitlements by an amount equal to the loading amount (subject to the applicable offset methods).
What is an ‘identifiable amount’?
The loading amount must be an identifiable amount paid as compensation for the absence of the relevant entitlements during the employment period. Relevant entitlements are:
· paid annual leave;
· paid personal/carer’s leave;
· paid compassionate leave;
· payment for absence on a public holiday;
· payment in lieu of notice of termination; and
· redundancy (severance) pay.
Whether an amount is an ‘identifiable amount’ will require a case-by-case assessment for each relevant employee, which considers:
the terms of each of their contracts of employment or letters of offer, regarding remuneration; and
the rates of pay provided for in the applicable Modern Award (including any historical Award) or enterprise agreement – whether in the Modern Award or enterprise agreement, or in a Fair Work Ombudsman Pay Guide.
How does the offset apply?
The recent amendments provide for a number of different ways that the Court can apply the offset – primarily based on the terms of any applicable employment contracts, and/or the applicable Modern Award or enterprise agreement. It is important to remember that different Modern Awards provide for the casual loading differently. For example:
the Health Professionals and Support Services Award 2020 states that the casual loading is paid instead of the paid leave entitlements of full-time employees, and is silent on payment in lieu of notice or redundancy pay;
whereas the Clerks – Private Sector Award 2020 states that the casual loading is payable instead of other entitlements (such as entitlement to paid leave) from which casuals are excluded by the terms of the Award and the NES. This would therefore include payment in lieu of notice or redundancy pay.
Consideration of how the offset may apply to a relevant employee must therefore be done on a case by case basis.
What do businesses need to do about this?
The new ‘offset’ provisions will apply to claims by former, current and future employees.
For former and current employees
Undertake an assessment of their potential exposure, if a claim was made, for employees that do not pass the ‘casual employee’ test (see our earlier article about the new 'Casual Employee' definition) – you should also speak to your financial advisors to understand if this is required to comply with ASIC’s financial reporting guidelines for casual employees.
Consider whether your employment contract and/or remuneration arrangements adequately reflect the payment of an ‘identifiable amount’, and if not, whether changes should be made to upgrade your employment contracts to adequately deal with these amendments.
For future employees
Ensure that your casual employees meet the ‘casual employee’ test – if they do not, your business will be exposed to risk of a claim that the employee was really a ‘permanent employee’ and therefore entitled to payment of relevant permanent entitlements.
Review your employment contracts, to ensure they adequately reflect the payment of an ‘identifiable amount’ paid to compensate the employee for not having one or more entitlements during their casual employment.
If you need assistance to consider the impact of these changes for your business, IR Legal Solutions can provide you with specific legal advice to assist your business to navigate these changes.
This content is not be a substitute for legal advice and is for information only. Employers should obtain advice that is specific to their circumstances and business operations, and not rely on this publication as legal advice.