- This article was updated on 7 January 2019.
- The Workpac v Skene decision has caused widespread concerns in business circles, the principal controversy being the apparent ‘double dipping’ by employees who receive the benefit of the casual loading – said to be in lieu of leave entitlements, redundancy and notice of termination – and then also receive the value of permanent employee entitlements.
- The Federal Government has stepped in to resolve various concerns, making regulations effective on 18 December 2018, to clarify that an employee’s casual loading payments may be offset against certain National Employment Standards entitlements owing to the employee.
- Fresh proceedings have commenced with industry champions campaigning for change. The Minister for Jobs and Industrial Relations and the CFMMEU have been granted leave to intervene in the proceedings.
- Meanwhile, in what has emerged as a key development of 2018, employment matters are increasingly attracting the attention of class action lawyers and litigation funders. Class actions, a common feature of employment law in the United States, are now threatening to change the landscape for many employers in Australia.
In the October 2018 edition of the LSJ, we reported on the much publicised decision of the Full Federal Court in WorkPac Pty Limited v Skene  FCAFC 131 (‘Skene’). In that case, Mr Skene – who was described as a casual employee but who worked a regular roster that was set a year in advance – was found by the Court to be a permanent employee and entitled to annual leave under the National Employment Standards (‘NES‘).
WorkPac Pty Limited v Skene
Since our article, the Federal Circuit Court determined that the penalty for WorkPac’s breach of the NES should be ‘at the lower end of the scale.’ Ultimately, Workpac was ordered to pay a penalty of $4650, about 5 per cent of the maximum fine of $33,000, plus costs and $5954.48 in compensation for unpaid entitlements during Mr Skene’s 20 months of employment.
The key mitigating factors were considered to be:
- prior to Skene the law was unclear as to whether an employee categorised as a casual employee in an employment agreement could nevertheless be considered properly a permanent employee for the purposes of the FW Act;
- WorkPac ought not be criticised for following a formula which had not only been followed by it but by many other labour hire companies over a long period of time;
- the practice adopted by WorkPac was ‘one which had been widely regarded as lawful under the Fair Work Act’ prior to Skene;
- there was no suggestion that WorkPac is other than a law abiding corporate citizen, notwithstanding the finding in Skene that the applicant had been mischaractised as to the nature of his employment; and
- WorkPac did not deliberately set out to evade the law or otherwise short-change the applicant.
Despite the modest penalty, the legacy of the Skene decision is significant and widespread. Most of the controversy has focussed on the perceived ‘double dipping’ by employees who take the benefit of casual loading on the one hand, and then the value of permanent entitlements on the other.
Employers and industry groups argue that the decision makes way for casual employees to claim back-pay for billions of dollars of annual leave and other permanent entitlements, and opens employers up to penalties for breaching the Fair Work Act 2009 (Cth) (‘FW Act’). Unions argue the decision vindicates their concerns about the proliferation of casual employment in Australia – reported to be the highest proportion of temporary labour in the OECD. In what directly responds to the perceived injustice of ‘double dipping’, the ACTU recently released a paper (Myth of the Casual Wage Premium) stating that around a third of casuals (34.3 per cent) report that they did not receive any casual loading.
In response to industry and business concerns, the Federal Government made new regulations, the Fair Work Amendment (Casual Loading Offset) Regulations 2018. The new regulations, which came into effect on 18 December 2018, are stated to clarify that employers, in certain circumstances, may claim that an employee’s casual loading payments should be offset against certain entitlements under the NES owing to the employee.
The new regulation applies where all of the following criteria are met:
- an employee is employed by their employer on a casual basis;
- the employee is paid a casual loading that is clearly identifiable as being an amount paid to compensate the person in lieu of entitlements that casual employees are not entitled to under the NES, such as personal and annual leave;
- despite being classified by the employer as a casual, the employee was in fact a full-time or part-time employee for some or all of their employment for the purposes of the NES;
- the employee has made a claim to be paid for one or more of the NES entitlements (that casual employees do not have) that they didn’t receive for all or some of the time that they were incorrectly classified as a casual.
If all of these requirements are satisfied, an employer can make a claim to have the casual loading payments made to the employee taken into account when working out the entitlements owing to the employee for the relevant NES entitlements.
The regulations apply to employment periods that occurred before the commencement date of 18 December 2018. The retrospective application of the regulations are stated to not disadvantage any party to the employment relationship as it is merely declaratory of the existing law in relation to the circumstances for which a claim to have the payment taken into account may be made.
The full scope of the regulations appear uncertain. It is not clear whether they would extend to claims made for benefits under an enterprise agreement that sits above the ‘relevant NES entitlement’ or whether the language is intended to capture entitlements such as annual leave, personal leave and redundancy pay howsoever arising.
The regulation also only operates when a person makes a claim to be paid an amount in lieu of one or more of the relevant NES entitlements, and does not automatically operate to offset the loading against NES entitlements. In this sense, it provides a vehicle to enable the employer to make a claim for such offset after which the Court may determine the claim.
Finally, the regulations may not be the long term solution. As a ‘disallowable instrument’, the regulation could be disallowed by a vote in the Senate when parliament resumes next year. Of course, a change in Government would also likely spell the end of the regulations.
In the meantime, the legal manoeuvring in the Courts continues.
Rossato – a second bite of the cherry?
Workpac chose not to seek leave to appeal Skene to the High Court of Australia. Instead, the company is seeking to minimise the practical effect of the judgment (including the ‘double dipping’ aspect) through separate proceedings commenced in the Federal Court of Australia (‘Rossato’).
In Rossato, Workpac is seeking a declaration that from July 2014 to April 2018 another former employee, Mr Rossato, was:
- a casual employee at common law;
- a casual field team member;
- not a permanent field team member;
- bound by employment contracts identifying him as a casual employee under which he was paid a flat hourly rate including 25 per cent casual loading; and
- not entitled to, and Workpac was not liable to pay him on termination of his employment, any annual leave either under the FW Act or the applicable enterprise agreement, nor personal/carer’s leave, compassionate leave or public holidays.
If Mr Rossato is found to have been a permanent employee, Workpac seeks to ‘set off’ the flat rate paid to Mr Rossato against any further entitlement by arguing that of the 25 per cent casual loading, 11 per cent compensates him for, or is in lieu of or instead of, his annual leave, and 5 per cent for personal and compassionate leave.
On 21 December 2018, Chief Justice Allsop granted the Federal Minister for Jobs and Industrial Relations, Kelly O’Dwyer (‘Minister’), and the CFMMEU leave to intervene in the matter. The application of Mr Skene to intervene was postponed to the hearing of the matter.
The Minister has proposed that the Federal Court could resolve the ‘double-dipping’ issue, in essence by:
- offsetting the casual loadings already paid to workers against any entitlements they are deemed to be owed; or
- restitution orders requiring such workers to pay back the loadings (on two alternative legal grounds, one being payment by mistake).
Chief Justice Allsop further ordered that the Rossato proceedings be heard by the Full Federal Court, and be ‘expedited for hearing as soon as practicable’ following the conclusion of the Full Court sittings in February.
Threat of class actions
The utility of the Rossato proceedings has been questioned given the impending threat of class actions. At the case management hearing of Rossato on 8 November 2018, the Chief Justice of the Federal Court remarked that as the questions raised in Rossato are clearly not limited to a particular employee (such as Mr Rossato), but instead a group of people, it seemed to his Honour that the best framework for dealing with those questions was a class action, which he noted ‘is presently intended’.
Indeed, indicative of the increasing trend of class actions in employment matters, Adero are reported to be preparing four separate class actions next month claiming $320 million against Workpac and other mining industry labour hire firms.
Meanwhile, the class action against Chandler Macleod and TESA which was commenced by Adero before Skene, but practically relies heavily on the findings in Skene, presses ahead. This class action was commenced on 27 June 2018 on behalf of workers at the Mt Arthur mine in the New South Wales Hunter Valley.
Most recently, the class action trend has materialised as a class action against Tandem Corporation (‘Tandem’). The action claims that Tandem, a contractor to Telstra and Foxtel, underpaid 4000 technicians who were engaged as contractors through ‘sham’ contracts. The action is funded by Litigation Lending Service Limited.
The action alleges systematic sham contracting where purported contractors are actually employees, and have been denied wages, leave, overtime and other permanent employment entitlements. Should the Court find Tandem’s workers were mis-classified, the Communication Workers Alliance has foreshadowed it is prepared to claim up to $280,000 for each worker, making the value of the total claim over $1 billion (plus penalties for breaches of the FW Act). In the alternative, if the Federal Court finds the workers are independent contractors, representatives of the workers argue the ‘tickets of work agreements’ were unfair and/or harsh within the meaning of section 12 of the Independent Contractors Act 2006 (Cth).
This is consistent with an increasing trend of class actions in industrial and employer law, typically focussed on widespread misclassification of employment or the type of employment and/or related underpayments.
Other industrial reactions
Many other stakeholders are heavily involved in the growing trend of class action litigation in employment cases.
The CFMMEU’s Mining and Energy division seems to be in competition with the class action funders, advertising widely about the benefits of casual employees aligning with the union and that the union will not ‘take a cut of the spoils’, unlike the class action lawyers and those funding them.
The CFMMEU has also written to more than 50 principals and labour providers in the coal mining sector across New South Wales and Queensland, urging them to limit the risk flowing from Skene by changing their employment arrangements. Many of the letters to the principals – recipients of labour – in the industry allege the relevant principal is complicit in breaches of the FW Act. The letters adopt the language of section 550 of the FW Act which deems a person ‘involved in’ a contravention of a civil remedy provision of the FW Act to have contravened that provision.
Industrial instrument amendments
Australia Business Industrial (‘ABI’) and NSW Business Chamber responded to Skene by proposing a new ‘perma-flexi’ employment category to address the ‘significantly adverse consequences’ of the decision. The proposal was aimed at industries that employ large numbers of casuals on regular rosters over extended periods of time. This includes the retail, security services, aged care, call centre and the social, community and disability services industries.
This approach has divided business groups. AIG has labelled the proposal as ‘unnecessary’ and takes the view that casual employment needs to be maintained, not replaced.
Undertakings in enterprise agreements
The approval of Enterprise Agreements has also been affected by Skene. On 29 October 2018, Commissioner Johns approved the Van Nek Unit Trust T/As Handy Hans Construction Pty Ltd and CFMEU Union Collective Agreement 2018-2019 (‘Hans Hardy Agreement’) and the Skyline Plastering Qld Pty Ltd and CFMEU Union Collective Agreement 2018-2019 (‘Skyline Plastering Agreement’), subject to undertakings that:
- in respect of the Hans Hardy Agreement, ‘casual employees are employees who do not have guaranteed regular hours of work or an expectation of continuing work… A typical casual employee is employed on a daily basis when the need arises…’; and
- in respect of the Skyline Plastering Agreement, ‘despite the provisions in Clause 15 of the agreement, the employer will apply the National Employment Standards according to their terms consistent with [Workpac v Skene]… casual employees are employees who do not have guaranteed regular hours of work or an expectation of continuing work.’
AIG has warned employers not to rush in and provide undertakings of this nature, pending the outcome of the Rossato proceedings.
In any case, both the Hans Hardy Agreement and the Skyline Plastering Agreement are short-term agreements expiring on 31 December 2018, entered into by the CFMMEU in anticipation of significant legislative change to be effected if Labor wins the next Federal election.
Where to from here ?
Central to the arguments against ‘double-dipping’ is the enforceability of ‘set off’ clauses in casual employees’ contracts that are directed at setting off the casual loading against liability for leave and other permanent benefits. The Skene decision did not have to resolve the issue of enforceability of such terms and it is difficult territory.
‘Set off’ clauses must be precise in their terms. Amongst other things, the following issues may arise from the incorporation of or reliance on such clauses:
- the 25 per cent casual loading often is not allocated to a particular employee entitlement, and unscrambling the loading can be an imprecise process; and
- the terms often seek to ‘set off’ ‘apples with oranges’ in setting off an entitlement to recreation (for example) against a monetary payment.
Ultimately, the law in this area is complex. While the new regulations seek to bring clarity, there is no certainty of their scope or longevity.
Arrangements similar to Tandem’s have received increasing prominence in Australia in recent years, as businesses transform their employment models in an effort to innovative ways to cut their costs and engage a flexible workforce. The legal focus will increasingly be on employment models and the reasons for employing employees on a particular basis.