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Long term casual engagements may not be lawful

Employers using long term casual engagements for workplace flexibility need to be cautious as there is no guarantee that these arrangements are lawful under the Fair Work Act 2009 (Cth) (Fair Work Act).

Employers should be aware of the terms of the specific award or enterprise agreement relating to casual employment and carefully word their letters of engagement to protect themselves against the risk the casual arrangement will be deemed permanent employment.

Permanent employees cannot cash out NES entitlements

The Courts have determined that it is unlawful for employers to pre-pay annual and sick leave for permanent employees (see, e.g. CFMEU v Jeld-Wen Glass Australia Pty Ltd [2012] FCA 45). The Fair Work Commission has, after several inconsistent decisions, determined that it will not register Enterprise Agreements that attempt or purport to pay permanent employees a loaded hourly rate in exchange for National Employment Standards (NES) paid leave entitlements (Canavan Building Pty Ltd [2014] FWCFB 3202).

Consequently, permanent employees cannot be paid “all-in-rates” (that is, loaded hourly rates) in lieu of NES entitlements.

This limits business model flexibility

This greatly restricts business flexibility, as employers are not able to simplify arrangements by paying higher rates for each hour worked in lieu of entitlements. It also makes performance based pay and business models dependent on alternative forms of engagement – such as people placement and quasi-contracting – difficult to implement lawfully.

Casual engagement is often the only option

The only lawful mechanism by which to access this type of flexibility is casual engagement. Under the NES, employers are entitled to pay casual employees a 25% loading in lieu of paid leave and redundancy entitlements. In effect, a higher hourly rate can be used to buy out these entitlements.

But this may not be lawful for “Long-Term” casuals

The problem is that, according to the Federal Court, Workchoices, did away with long term casuals. It is possible the same reasoning applies to the Fair Work Act.

This argument proceeds as follows:

In Williams v MacMahon Mining Services Pty Ltd [2010] FCA 1321 the Court held that:

  • as agreed by the parties, Work Choices did not contain a definition of “casual” and therefore the word attracted its common law meaning, being discontinuous, intermittent or irregular engagement;
  • as such, any form of long-term, systematic engagement was not “casual”; and therefore,
  • such employees could not be paid a loading in lieu of the then Australian Pay and Classification Scales (APCS).

This reasoning may apply to the Fair Work Act because:

  • the APCS were identical in concept to the NES – being legislated minimums that could not be adjusted under contracts or registered workplace agreements; and
  • the Fair Work Act also does not define “casual”.
  • As Work Choices did not recognise long-term casuals, the same must also be true of the Fair Work Act.
  • Therefore, persons engaged on a long-term or systematic basis cannot be paid a highly hourly rate in lieu of their NES entitlements.

 

The key risk associated with this reasoning is that the Court may not only find that employees paid a casual loading but working regular and systematic hours are permanent, but that they are additionally entitled to back payment of annual leave and sick leave as though their higher hourly rate (i.e. the loaded rate) was in fact their base rate of pay.

Recent full bench decision of FWC may provide some protection

While it is possible to make the argument outlined above, in the recent decision of Telum Civil (Qld) Pty Limited v CFMEU [2013] FWCFB 2434 the Full Bench of the Fair Work Commission held that the decision in Williams v MacMahon concerned a different statutory context and did not assist the Commission in constructing the phrase “casual employee” for the purposes of section 123(1)(c) of the Fair Work Act.

More importantly, the Commission held that in the Fair Work Actreference to “casual employee”…is a reference to an employee who is a casual employee for the purposes of the Federal industrial instrument that applies to the employee. In reaching this decision, the Full Bench emphasised that this holds true even if the employee would not be assessed as a casual under the common law.

The Commission’s reasoning was as follows:

  • The scheme of the Fair Work Act is to provide for the consistent and harmonious interaction of the NES, modern awards and enterprise agreements;
  • Section 59 and 139(1)(b) of the Act demonstrate the legislature contemplated that “casual employment” may be defined by modern awards;
  • All modern awards, in fact, define casual employment and in doing so do not adopt the common law approach;
  • Furthermore, various sections of the Fair Work Act indicate the legislature did not intend “casual employment” to be defined by the common law, for example:
    • section 12 – definition of “long term casual employee”;
    • section 23 – meaning of small business;
    • section 384(2)(a) – calculating period of employment; and
    • to adopt any other approach would allow “double dipping” by employees engaged as casuals but working systematic hours – as they would be paid the casual loading but additionally allowed to access NES entitlements.

 

In Telum, the relevant Agreement provided that casual employees are those persons engaged and paid as such in accordance with the Agreement. As such, the Commission concluded that employees who were engaged as casuals and paid the 25% loading were in fact casuals despite the fact these workers were engaged for 12 months, for equivalent full-time hours and had consistent start and finish times (i.e. they were not “casual” under the common law definition).

As such, provided employees are engaged and treated as casuals in compliance with the applicable modern award or enterprise agreement:

  • it is possible to cash-out their NES entitlements; and
  • their employment cannot be subsequently characterised as permanent by applying the common law definition.

 

Caution should be exercised

To ensure you can rely on Telum when engaging employees on a casual basis you should be careful to:

  • engage the employee, in writing, specifying:
    • that their employment is on a casual basis; and
    • that they will receive a casual loading to compensate them for benefits which are provided to full-time employees only;
  • ensure that the employees are, in practice, paid as casuals; and
  • comply with any special terms of the applicable award or agreement as to the conditions that characterise casual employment.

 

Moreover, we emphasise that Telum concerned a particular enterprise agreement and is, at this stage, an isolated decision. It is only applicable to employees covered by awards and registered enterprise agreements.

As such, employers using long-term casual arrangements should ensure how the loading pay is calculated. Ideally, they should distinguish between the base rate, the loading, and any other bonuses payable above award rates of pay.

The contracts should also contain a clause explaining what happens if the employee turns out to be a permanent rather than casual worker. That clause should involve re-payment of the mistakenly paid casual loading in exchange for re-crediting the employee’s leave balance for any untaken annual and/or sick leave.

Next steps

It should not be this hard, or confusing, to give people a job. Hopefully, the definition of casual is something that will be addressed by amendments to the Fair Work Act. Until then, employers are urged to take simple steps to protect them from crippling liabilities for casual employees who turn out to be permanent.

For assistance with your employment arrangements contact Chamberlains:

P 02 6215 9100

E scott.chamberlain@chamberlains.com.au

 

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