Contracts king as High Court clarifies casual conundrum

What you need to know

• The High Court has today overturned Federal Court decisions that found that employees engaged on a casual basis but who worked regular and predictable shifts over an extended period were not casual.
• The High Court determined that a casual employee does not have a firm advance commitment to continuing work. An assessment of whether an employee has such a commitment is determined by the terms of the employee's employment contract (where it is wholly in writing). The firm advance commitment is an enforceable promise, not an "expectation" of ongoing employment.
• The High Court expressly recognised that casual employment can be for a long term, with a casual employee working regularly and systematically.
• The High Court emphatically rejected prior Federal Court authority that where the contract is wholly in writing, the "entirety of the relationship" could be considered in characterising the nature of it. It is impermissible to look to the "real substance and practical reality" of the relationship. The true nature of the relationship is to be found only in the contract (where it is wholly in writing).
• The decision highlights the need for employers to ensure their employment contracts reflect a true casual engagement (and that the terms are consistent with the new definition of "casual employee" in the Fair Work Act 2009 (Cth) (Act)).
• In light of the High Court's finding, the Court did not consider the circumstances in which an employer may be able to "set off" casual loading paid by an employer where it mistakenly considered an employee to be casual.

What you need to do

• Review your contracts and engagements with casuals and ensure they reflect a casual relationship (and are not merely labelled as such). Also ensure they reflect recent amendments to the Act.
• Consider whether any changes in your business made as a result of the Federal Court decisions in Skene and Rossato should be re-visited.
• Ensure processes are in place to comply with recent amendments to the Act concerning casual conversion (see our alert here).

How did we get here?

In August 2018, a Full Court of the Federal Court of Australia in Skene cast doubt on the future of casual employment in Australia, finding that a coal mine worker who worked a regular and predictable pattern of shifts was not a casual employee despite the employee being offered and accepting casual employment and being paid a casual loading (see our alert here).

Later that year, the employer, WorkPac, now being advised by Ashurst, sought to challenge the decision of Skene by commencing its own proceedings, seeking declarations that another employee, Mr Rossato, was a casual employee. In the alternative, if Mr Rossato was not a casual employee, and so was entitled to be paid for annual and personal/carer's leave entitlements he had not received during his employment, WorkPac sought orders that the Court should reduce from those entitlements, amounts already paid to Mr Rossato by way of casual loading. In May 2020, a Full Court of the Federal Court found that:

• Mr Rossato was not a casual employee; and
• WorkPac could not set off against the amounts it owed Mr Rossato, any amount paid by way of casual loading.

As to the second issue, the Court found that the loading had not been paid on the basis of a mistaken belief about Mr Rossato's classification as a casual employee. It also found that the loading could not be set off because it was paid on the basis that Mr Rossato did not have annual or personal leave entitlements (not to compensate him for those entitlements).

The decision caused significant concern among employers, industry and Government, with it paving the way for casual employees working a regular, systematic and predictable pattern to claim leave entitlements and retain the casual loading paid to them. The Federal Government estimated the potential cost impact to employers to be between $18 billion and $39 billion. The decision was the catalyst for the Government to amend the Act to include a statutory definition of "casual employee" and to insert provisions dealing with "setting off" a casual loading.

Who is a casual employee: the test

The High Court found that for the employment to be "other than" casual, there must exist a firm advance commitment to continuing work unqualified by indicia of irregularity, such as uncertainty, discontinuity, intermittency and unpredictability.

The High Court noted that "a reasonable expectation of continuing employment…on a regular and systematic basis" is entirely consistent with casual employment.

What is a "firm advance commitment"?

The High Court however went further, finding that the requisite "firm advance commitment" was one that was an enforceable promise, as distinct from a mere expectation on behalf of an employee that their employment would continue. The Court said "some amorphous, innominate hope or expectation falling short of a binding promise enforceable by the courts is not sufficient to deprive an agreement for casual employment of that character."

Further, and importantly, the High Court found that where an employee's contract is wholly in writing (as was the case here), the terms of that contract are construed to determine whether the firm advance commitment exists.

The High Court emphatically rejected the notion, raised by the Federal Court in Skene and Rossato, that where a contract is in writing, post-contractual conduct can be taken into account in a search for the "true nature", "practical reality" and "real substance" of the relationship.

The High Court dismissed the Federal Court's finding that the test of whether someone is an employee (as distinct from a contractor) should also be applied to determine the nature of the employment relationship (i.e. casual or not).

The High Court made it clear that the correct approach for Courts was to apply conventional principles of contractual interpretation. It said that it was "no part of the judicial function in relation to the construction of contracts to strain language and legal concepts in order to moderate a perceived unfairness resulting from a disparity in bargaining power between the parties so as to adjust their bargain". This is a powerful statement by the High Court which will act to limit a developing tendency in some Courts to depart from the application of conventional contractual principles to achieve an outcome that is perceived by the Court as "fair".

Why was the firm advance commitment not here present?

The High Court found, unsurprisingly, that the label given to the contract by the parties is not determinative (but is to be taken into account). However here, the contracts (noting that there were six, some of which varied slightly in their terms) and the general conditions governing the employment provided:

• that Mr Rossato's hours of work "may vary" and were a "guide only";
• that WorkPac was not required to offer Mr Rossato any assignment, and any assignment offered could be accepted or rejected;
• that an assignment could be varied on one hours' notice;
• for termination by either party on only one hours' notice;
• in the case of three of the six contracts, that Mr Rossato had the right to refuse or cancel shifts;
• that the employment was on a casual basis; and
• for the payment of a casual loading.

The High Court found that the fact that Mr Rossato's hours were set by a roster system, often for long periods in advance, was of limited significance and fell well short of a commitment to an ongoing employment relationship.

Accordingly, the High Court found that on a plain and ordinary meaning of those provisions the parties had deliberately avoided a firm advance commitment to ongoing employment. Given Mr Rossato's right to terminate on one hour's notice, and to refuse an assignment (or in some cases, shifts), he also had not provided any enforceable commitment to WorkPac.

What is the significance of the decision in light of the recent amendments to the Act?

Employers who are subject to the Fair Work Act should be aware that the decision remains of particular importance where an employer is covered by an enterprise agreement (particularly one entered into before the recent amendments to the Act) that provides for casual employment but does not define a "casual employee".

In that circumstance, the general law test of what is a casual employee (as described by the High Court) will be a key consideration. Those employers should not assume that the statutory definition of casual employee will be the relevant test.

You should also review any template contracts of employment in light of the decision and issue them to employees who do not have a written contract of employment, or whose existing contract does not reflect the essential features of casual employment.

In addition, the Act was recently amended to, among other things, require employers to make conversion offers to eligible casual employees. Read more about that and the implications for you, here.

Employers who are not subject to the Fair Work Act should:

• consider whether the casual arrangements in place in their organisation reflect a true casual engagement (if the engagement is governed by a written contract, consider whether the sorts of terms identified above are present);
• put in place written contracts of employment if none exist;
• review any template contracts of employment in light of the decision and issue them to employees who do not have a written contract of employment, or whose existing contract does not reflect the essential features of casual employment.

What about set off?

The High Court did not deal with the various set off arguments advanced by WorkPac in light of its finding that Mr Rossato was a casual employee.

The approach taken by the Federal Court has largely been overtaken by the statutory amendments to the Act, which require the casual loading to be taken into account in the event a Court finds an employee was not casual and is entitled to payment for entitlements such as annual leave.

While the reasoning of the Full Court in Rossato in relation to set off may remain instructive, the foundation for its approach has been removed by the High Court's findings that Mr Rossato was a casual and he was paid a casual loading.

Want to know more?

Get in touch with one of our team below. Further, we are holding a national webinar on 9 August 2021. If you would like to attend, please contact us.

Authors: Ian Humphreys, Partner and Patrick Lawler, Senior Associate.