Pub­li­ca­tions

Cal­cu­lat­ing redun­dan­cy pay­ments does pri­or ser­vice as a casu­al count?

Aus­tralian law has for a long time recog­nised the con­cept of casu­al” employ­ment. It is gen­er­al­ly under­stood that casu­al employ­ees are engaged on an as need­ed” basis. There is no oblig­a­tion on the employ­er to offer a casu­al work and, equal­ly, there is no oblig­a­tion on the employ­ee to accept work when offered.

Because of the vari­able nature of their employ­ment, the Fair Work Act 2009 excludes casu­al employ­ees from the ben­e­fit of cer­tain enti­tle­ments bestowed on per­ma­nent employ­ees under the NES. For exam­ple, under the Act, casu­al employ­ees are not enti­tled to paid personal/carer’s leave, annu­al leave, notice of ter­mi­na­tion or redun­dan­cy pay.

How­ev­er, to com­pen­sate casu­al employ­ees for the fact that they do not receive these enti­tle­ments casu­al employ­ees receive a 25% load­ing” (or uplift) on the min­i­mum wages set for per­ma­nent employ­ees. For award-cov­ered employ­ees the load­ing is man­dat­ed in the applic­a­ble mod­ern award, and for award-free employ­ees the enti­tle­ment is derived from the Fair Work Commission’s min­i­mum wage orders.

The Fair Work Act 2009 recog­nis­es that where a casu­al employ­ee is engaged on a reg­u­lar and sys­tem­at­ic” basis, they should be giv­en cer­tain addi­tion­al rights – for exam­ple, the right to claim unfair dis­missal if ter­mi­nat­ed unfair­ly after a peri­od of reg­u­lar and sys­tem­at­ic” employ­ment of 6 or 12 months (depend­ing on the size of the employer’s enterprise).

On occa­sion an employ­ee who is ini­tial­ly engaged as a casu­al may sub­se­quent­ly accept a per­ma­nent posi­tion with an employ­er. In fact, some mod­ern awards man­date that cer­tain casu­al employ­ees must be offered a per­ma­nent posi­tion after a work­ing for a set peri­od of time (so called casu­al con­ver­sion”).

For casu­als who become per­ma­nent employ­ees, the ques­tion aris­es as to what sta­tus their peri­od of casu­al ser­vice should now be giv­en. If, for exam­ple, an employ­ee with ten years’ ser­vice as a casu­al and one year’s ser­vice as a per­ma­nent employ­ee is made redun­dant, should their redun­dan­cy pay be cal­cu­lat­ed on 11 years’ ser­vice or one year’s service?

You might think that if such an employ­ee had received the ben­e­fit of the 25% casu­al load­ing for ten years then it would be log­i­cal that their peri­od of casu­al employ­ment would be dis­re­gard­ed for the pur­pose of cal­cu­lat­ing notice and redun­dan­cy pay. Oth­er­wise, wouldn’t the employ­ee, in effect, be dou­ble-dip­ping” on entitlements?

Some­what sur­pris­ing­ly, in the recent deci­sion of AMWU v Donau Pty Ltd [2016] FWCFB 3075 the major­i­ty of the Full Bench of the Fair Work Com­mis­sion deter­mined that peri­ods of reg­u­lar and sys­tem­at­ic” employ­ment as a casu­al before an employ­ee becomes per­ma­nent are to be count­ed as peri­ods of ser­vice for the pur­pose of cal­cu­lat­ing notice and redun­dan­cy pay. We dis­cuss the deci­sion and its con­se­quences below.

We also briefly men­tion a deci­sion of the Admin­is­tra­tive Appeals Tri­bunal of Aus­tralia in Rear­don v Sec­re­tary, Depart­ment of Employ­ment [2016 AATA 1027] hand­ed down on 15 Decem­ber 2016 which con­firmed that redun­dan­cy pay­ments and notice for per­ma­nent employ­ees should not take account of pri­or casu­al ser­vice which was irreg­u­lar and unsystematic.

The Facts

New­cas­tle ship­builder Donau Pty Ltd faced mak­ing a large num­ber of employ­ees redun­dant after com­plet­ing work on a con­tract with the Aus­tralian Sub­ma­rine Corporation.

The rel­e­vant employ­ees were cov­ered by an enter­prise agree­ment which ref­er­enced the Fair Work Act 2009 pro­vi­sions includ­ing those deal­ing with redun­dan­cy and notice.

At first instance Com­mis­sion­er Rior­dan found that pri­or ser­vice of casu­als who had sub­se­quent­ly become per­ma­nent employ­ees should not be tak­en into account when cal­cu­lat­ing redun­dan­cy pay and notice. The Aus­tralian Man­u­fac­tur­ing Work­ers’ Union appealed this deci­sion to the Full Bench of the Fair Work Com­mis­sion who by a two to one major­i­ty upheld the appeal and reversed Com­mis­sion­er Riordan’s decision.

The Full Bench Deci­sion in Donau

The deci­sion is based upon a detailed and tech­ni­cal analy­sis of the rel­e­vant pro­vi­sions in the Fair Work Act 2009
The enti­tle­ment to redun­dan­cy pay aris­es from sec­tion 119 of the Act and is cal­cu­lat­ed by ref­er­ence to an employee’s peri­od of con­tin­u­ous ser­vice”. Sec­tion 123(1)(c) express­ly excludes casu­al employ­ees from an enti­tle­ment to notice and redun­dan­cy pay.

The ques­tion of how a peri­od of casu­al ser­vice is to be treat­ed for the pur­pos­es of notice and redun­dan­cy pay was analysed by the Full Bench by con­sid­er­ing the def­i­n­i­tions of ser­vice” and con­tin­u­ous ser­vice” in sec­tion 22 of the Act. This states as fol­lows:
”(1) A peri­od of ser­vice by a nation­al sys­tem employ­ee with his or her nation­al sys­tem employ­er is a peri­od dur­ing which the employ­ee is employed by the employ­er, but does not include any peri­od (an exclud­ed peri­od) that does not count as ser­vice because of sub­sec­tion (2).
(2) The fol­low­ing peri­ods do not count as ser­vice:
a) any peri­od of unau­tho­rised absence;
(b) any peri­od of unpaid leave or unpaid autho­rised absence, oth­er than:
(i) a peri­od of absence under Divi­sion 8 of Part 2 – 2 (which deals with com­mu­ni­ty ser­vice leave); or
(ii) a peri­od of stand down under Part 3 – 5, under an enter­prise agree­ment that applies to the employ­ee, or under the employee’s con­tract of employ­ment; or
(iii) a peri­od of leave or absence of a kind pre­scribed by the reg­u­la­tions;
(c) any oth­er peri­od of a kind pre­scribed by the reg­u­la­tions.
(3) An exclud­ed peri­od does not break a nation­al sys­tem employee’s con­tin­u­ous ser­vice with his or her nation­al sys­tem employ­er, but does not count towards the length of the employee’s con­tin­u­ous ser­vice.
(3A) Reg­u­la­tions made for the pur­pos­es of para­graph (2)(c) may pre­scribe dif­fer­ent kinds of peri­ods for the pur­pos­es of dif­fer­ent pro­vi­sions of this Act (oth­er than pro­vi­sions to which sub­sec­tion (4) applies). If they do so, sub­sec­tion (3) applies accord­ing­ly.
— — — — –
(4) For the pur­pos­es of Divi­sions 4 and 5, and Sub­di­vi­sion A of Divi­sion 11, of Part 2 – 2:
(a) a peri­od of ser­vice by a nation­al sys­tem employ­ee with his or her nation­al sys­tem employ­er is a peri­od dur­ing which the employ­ee is employed by the employ­er, but does not include:
(i) any peri­od of unau­tho­rised absence; or
(ii) any oth­er peri­od of a kind pre­scribed by the reg­u­la­tions; and
(b) a peri­od referred to in sub­para­graph (a)(i) or (ii) does not break a nation­al sys­tem employee’s con­tin­u­ous ser­vice with his or her nation­al sys­tem employ­er, but does not count towards the length of the employee’s con­tin­u­ous ser­vice; and
(c) sub­sec­tions (1), (2) and (3) do not apply.”

The major­i­ty of the Full Bench (Senior Deputy Pres­i­dent Drake and the Deputy Pres­i­dent Lawrence) not­ed that nowhere in the exclu­sions from what con­sti­tutes con­tin­u­ous ser­vice” is it stat­ed that a peri­od of ser­vice as a reg­u­lar and sys­tem­at­ic casu­al is exclud­ed. In their view this meant that such peri­ods of ser­vice should be includ­ed in the peri­od of con­tin­u­ous ser­vice used to cal­cu­late redun­dan­cy pay (and notice) under the Act.

The Senior Deputy Pres­i­dent and the Deputy Pres­i­dent acknowl­edged that Indus­tri­al jus­tice might sug­gest that it is unfair for an employ­ee who has received a casu­al load­ing for a peri­od of employ­ment to have that peri­od of employ­ment also count towards the accru­al of sev­er­ance pay­ments” but found that they were con­strained by the word­ing of the Act.

A dis­sent­ing view

In his dis­sent­ing judg­ment, Com­mis­sion­er Cam­bridge not­ed that the major­i­ty had deter­mined that a peri­od of reg­u­lar and sys­tem­at­ic ser­vice was not express­ly exclud­ed from the def­i­n­i­tion of con­tin­u­ous ser­vice” in sec­tion 22 of the Act. In the majority’s view that meant that such ser­vice must be tak­en into account when cal­cu­lat­ing the peri­od of con­tin­u­ous ser­vice for redun­dan­cy pay.

Com­mis­sion­er Cam­bridge not­ed that by that rea­son­ing, because no peri­od of casu­al ser­vice in any form was exclud­ed from the def­i­n­i­tion of con­tin­u­ous ser­vice”, this would mean that any peri­od of casu­al employ­ment – whether reg­u­lar and sys­tem­at­icor not – should be count­ed for the pur­pose of con­tin­u­ous ser­vice for redun­dan­cy pay. It would there­fore fol­low that a casu­al, even doing work of a very occa­sion­al and tran­sient nature, could if sub­se­quent­ly made a per­ma­nent employ­ee, rely on this pri­or peri­od of casu­al ser­vice for the pur­pose of cal­cu­lat­ing redun­dan­cy entitlements.

In Com­mis­sion­er Cambridge’s view this could not be the inten­tion of the Act. He point­ed out that the def­i­n­i­tion of ser­vice” in sec­tion 22 (1) of the Act being “[a] peri­od dur­ing which the employ­ee is employed by the employ­er” must be log­i­cal­ly be con­fined to mean a peri­od of per­ma­nent employment.

As the Com­mis­sion­er went on to dis­cuss, if the majority’s deci­sion rep­re­sent­ed a cor­rect inter­pre­ta­tion of the Act then, because the def­i­n­i­tion of ser­vice” in sec­tion 22 applies through­out the Act, it would mean that a casu­al employ­ee who was then engaged as a per­ma­nent employ­ee would also be enti­tled to annu­al leave and per­son­al leave accrued over the peri­od of casu­al ser­vice. In Com­mis­sion­er Cambridge’s view this illus­trat­ed the fol­ly” of an inter­pre­ta­tion of the mean­ing of ser­vice in s 22 which includ­ed a peri­od of casu­al employment.

Deci­sion of the AATA in Rear­don v Sec­re­tary, Depart­ment of Employment

In Rear­don v Sec­re­tary, Depart­ment of Health, the appli­cant who had lost her job fol­low­ing her employer’s insol­ven­cy, made a claim for 4 weeks’ pay in lieu of notice, and 11 weeks of redun­dan­cy on the basis that her years of casu­al employ­ment were con­sid­ered to con­tribute to con­tin­u­ous ser­vice” giv­ing her a total of over 6 years employ­ment with her for­mer employer. 
Ms EA Shana­han, Pre­sid­ing Mem­ber who heard the mat­ter, not­ed that the deci­sion of the Full Bench in Donau had been hand­ed down in August 2016 and invit­ed sub­mis­sions on the impact of that deci­sion on the applicant’s claim. 
Sub­mis­sions of the respon­dent includ­ed ref­er­ence to the dis­sent­ing deci­sion of Com­mis­sion­er Cam­bridge in Donau and his view that if con­tin­u­ous ser­vice” includ­ed the casu­al ser­vice of an employ­ee it results, amongst oth­er things, in an enti­tle­ment to paid annu­al leave already catered for in the casu­al pay loading. 

The Pre­sid­ing Mem­ber not­ed that the Fair Work Act does not pro­vide a def­i­n­i­tion of con­tin­u­ous ser­vice” oth­er than in sec­tion 12 of the Act which states that sec­tion 12 has a mean­ing affect­ed by” sec­tion 22. As not­ed above, sec­tion 22 does not exclude ser­vice as a casu­al from con­tin­u­ous service. 

The Pre­sid­ing Mem­ber not­ed that in rela­tion to unfair dis­missal” under s 384 of the Act, there was ref­er­ence to casu­al employ­ment which includ­ed employ­ment on a reg­u­lar and sys­tem­at­ic basis”.

The evi­dence was that Ms Reardon’s employ­ment as a casu­al was irreg­u­lar and vari­able rang­ing from a min­i­mum of 6 to a max­i­mum of 27 hours per week. Addi­tion­al­ly the nights she worked var­ied con­sid­er­ably over the five years of her employ­ment as a casu­al. This did not in the Pre­sid­ing Member’s view amount to a reg­u­lar and sys­tem­at­ic pat­tern” of casu­al employ­ment suf­fi­cient to sat­is­fy such a def­i­n­i­tion” of casu­al employment. 

She not­ed that nei­ther the NES nor the award applic­a­ble to Ms Reardon’s employ­ment (Gen­er­al Retail Indus­try Award 2010) negat­ed the gen­er­al com­mon law inter­pre­ta­tion of what is a casu­al and there­fore the applicant’s pri­or ser­vice as a casu­al did not meet the def­i­n­i­tion of con­tin­u­ous service”. 

In the cir­cum­stances, the Pre­sid­ing Mem­ber con­sid­ered that as the appli­cant had not been engaged in con­tin­u­ous ser­vice” as a casu­al, that peri­od should not be tak­en into account for the pur­pose of notice and redun­dan­cy. There­fore the orig­i­nal deci­sion under which she was paid 1 weeks’ pay in lieu of notice and no redun­dan­cy, should not be disturbed. 

The future

Read­ing between the lines, the majority’s com­ments in Donau on indus­tri­al jus­tice” sug­gest that they may have pre­ferred to arrive at a dif­fer­ent view but the word­ing of the Fair Work Act 2009 pre­vent­ed them from doing so. Enquiries made do not indi­cate that an appeal was lodged with the Fed­er­al Court against this deci­sion, and assum­ing this is the case it may be some time before we see any chal­lenge to it.

The deci­sion in Rear­don sup­ports the prin­ci­ple that the attri­bu­tion of pri­or casu­al ser­vice for notice and redun­dan­cy cal­cu­la­tions for per­ma­nent employ­ees, is lim­it­ed to casu­al employ­ment which was reg­u­lar and systematic”. 

Impli­ca­tions for employers

For the sake of clar­i­ty, the deci­sion in Donau does not mean that a casu­al employ­ee who is made redun­dant will be enti­tled to notice or redun­dan­cy pay. It is clear that casu­als do not receive notice or redun­dan­cy pay on termination. 

What this deci­sion does mean – absent any sub­se­quent deci­sions – is that where an employ­er offers a casu­al employ­ee a per­ma­nent posi­tion, the employ­er will need to bear in mind a future need to include a peri­od of reg­u­lar and sys­tem­at­ic” past casu­al ser­vice, if and when cal­cu­lat­ing notice and redun­dan­cy pay under the Fair Work Act 2009. It may be chal­leng­ing task in itself in some instances, to arrive at a view as to whether pri­or ser­vice as a casu­al was reg­u­lar and sys­tem­at­ic”. Pay­roll records may also require review in this context.

Prospec­tive pur­chasers of busi­ness­es should bear in mind a poten­tial need to check the employ­ment records of per­ma­nent staff to see if allowance should be made for a pri­or peri­od of casu­al ser­vice which might need to be tak­en account of for the above purposes.

Uncer­tain­ty will like­ly con­tin­ue as to whether the deci­sion in Donau poten­tial­ly affects cal­cu­la­tions regard­ing annu­al leave and per­son­al leave of per­ma­nent staff with past ser­vice as a casual.