Federal Court confirms 'casual' employee is entitled to annual leave

The Federal Court handed down an appeal decision that has the potential to affect all employers who engage 'casual' employees. Now, more than ever, employers should ask themselves 'are they really a casual?' when engaging a 'casual' employee.

In WorkPac Pty Ltd v Skene [2018] FCAFC 131, the Court held that a mining truck driver (Mr Skene) was entitled to annual leave under the National Employment Standards (NES) and his employment agreement (a transitional instrument created under the Fair Work scheme), despite his contractual status as a 'casual employee'. The Court also held that the employer (WorkPac) was liable to pay a pecuniary penalty.

Lessons for employers from WorkPac P/L v Skene

WorkPac v Skene confirms that the nature of an employee's employment status is not determined by how an employer characterises or describes the status. The key learnings from this decision include:

• 'casual' employees may be entitled to annual leave if the substance of their employment relationship indicates that they are not a 'casual employee';
• the Fair Work Commission (FWC) and the Federal Court will adopt the common law definition of 'casual employees' (being an assessment by way of the multi-factor test) when applying the annual leave provisions in s 86 of the Act;
• an employee who is paid casual loading may still be entitled to paid annual leave if the substance of their employment relationship indicates that they are a permanent employee;
• the classification of an employee's employment status in a contract is not determinative of the true nature of their employment; and
• courts are willing to impose pecuniary penalties upon employers for 'unknowing' contravention of the NES.

Background

On 16 April 2010, Mr Skene was provided a 'Notice of Offer of Casual Employment' and executed his employment agreement on the same day. He was offered an alternative role on 16 July 2010 and was provided another 'Notice of Offer of Casual Employment'.

Mr Skene worked a 'seven days on, seven days off' continuous arrangement. He was 'flown in' and provided accommodation during the seven days that he worked, and subsequently 'flown out' to enjoy his 'seven days off'.

In January 2011, WorkPac provided Mr Skene a 12-month roster that covered the entirety of 2011. Mr Skene received a similar 12-month roster in early 2012.

WorkPac terminated Mr Skene's employment on 23 April 2012 due to workplace misconduct.

Mr Skene had not taken any paid annual leave during his employment with WorkPac, and was not paid any money in lieu of untaken annual leave upon termination.

First instance – not a 'casual', entitled to leave payments, but no penalties

Sections 86 and 87 of the Fair Work Act 2009 (Cth) (the Act) provide that national employees, other than 'casual employees', are entitled to paid annual leave under the NES.

Similarly, Mr Skene's employment agreement provided annual leave entitlements for 'permanent' employees.

At first instance, the primary judge applied the common law to interpret the phrase 'casual employee' in s 86 of the Act. The primary judge held that the nature of Mr Skene's employment was not that of a 'casual employee'. Accordingly, Mr Skene was entitled to annual leave under the Act.

The primary judge took a different approach when interpreting Mr Skene's employment agreement. The judge held that Mr Skene's status under the employment agreement was determined subjectively by WorkPac as the agreement stated: 'At the time of their engagement, [WorkPac] will inform each [employee] of the status and terms of their engagement'. In essence, the primary judge determined that Mr Skene should not be afforded the entitlements of 'permanent' employment under the agreement because WorkPac had subjectively classified Mr Skene as a 'casual' employee.

The primary judge did not order WorkPac to pay pecuniary penalties on the basis that it had 'unknowingly' contravened the NES.

New judgement – a caution for all employers

On appeal, WorkPac argued that the primary judge had erred in finding that Mr Skene was not a 'casual employee' under the Act.

Leave under the NES

WorkPac asserted that the expression 'casual employee' in s 86 of the Act did not have a legal meaning derived from the common law, rather, it had a non-technical meaning that is often used in a 'specialised sense' in federal awards and/or industrial agreements (i.e. 'a 'casual employee' is one engaged and paid as such').

The Court was critical of WorkPac's interpretation, which only addressed employees who are actually covered by an award and/or industrial agreement and is silent as to 'award/agreement free employees'. The Court noted that there is no evidence of a legislative intent to attribute a compounded or dual meaning to one legislative provision.

The Court applied the common law regarding the expression 'casual employee' and the statutory interpretation principles and held that it was appropriate to adopt the common law test for a 'casual employee', which requires an objective consideration of the conduct of, and relationship between, the parties to an employment relationship.

The Court held Mr Skene was not a 'casual employee' because:

• there was a firm commitment to providing Mr Skene continuing and indefinite work (subject to the rights of termination)
• there was an agreed pattern and arrangement of work.

Appeal decision – entitled to leave payments (casual loading not payed or relevant)

Relying upon the Fair Work Commission's decision in Telum, WorkPac argued that Mr Skene should not be entitled to annual leave under the Act as he was paid 'casual loading' for the hours he worked. WorkPac asserted that there would be 'double dipping' by casual employees who are paid casual loading if they are also paid annual leave.

The Court did not accept this argument. The Court held that it was not clear if Mr Skene was actually paid 'casual loading' (his employment agreement states that he would be paid $55.00 per hour). Further, the Court noted that only 'casual employees' are entitled to 'casual loading', and there was nothing in the Act that required employees such as Mr Skene, who are in fact not 'casual employees', to be paid 'casual loading'.

The fact that 'Mr Skene was paid a casual loading when he need not have been [was] not a legitimate basis for construing s 86 of the [Act] in the matter in which WorkPac contends'.

Mr Skene's employment contract did not allow employer to determine employment status

Further, the Court held that there was no mechanism in Mr Skene's employment agreement that allowed WorkPac to determine whether Mr Skene was a 'permanent' or 'casual' employee under the agreement. The Court held that Mr Skene's employment status under the agreement was to be determined by the usual connotations of 'permanent' and 'casual'.

On the basis of its decision regarding s 86 of the Act, the Court held that Mr Skene was in fact a 'permanent' employee under the agreement, which entitled him to annual leave.

Pecuniary damages for WorkPac

The Court accepted that WorkPac had mistaken Mr Skene's employment status, and 'unknowingly' contravened the NES.

However, the Court held that ignorance of the law does not amount to an excuse for contravening the NES. Accordingly, the matter was remitted to the Federal Circuit Court of Australia for determination of any pecuniary penalties to be imposed on WorkPac.

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For more information, contact Maddocks on (03) 9288 0555 and ask to speak to a member of the Employment team.

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