The Federal Court has handed down a judgment that highlights the urgent need for a mechanism to allow casual loading paid to employees to be offset against future claims for permanent entitlements in circumstances where employees are found to have been misclassified as casuals.

In this matter, the Attorney General’s Department (the Department), which is responsible for administering the Fair Entitlement Guarantee (FEG), recognised the employee was in fact permanently employed and determined to withhold the 25 percent loading from his claim for permanent entitlements under the scheme.

However, on 12 February 2021 the Federal Court overruled the Department’s determination, finding it undermined the objects of the FEG Act by seeking to attribute the casual loading to the entitlements owed.

Background

A mineworker was engaged as a casual employee by labour hire company SubZero Labour Services Pty Ltd (SubZero) in May 2013. The contractual terms in the letter of engagement defined the employment as casual and it was also subject to the Black Coal Mining Industry Award 2010, and the National Employment Standards (NES).

Under the terms of the letter of engagement, the mineworker was paid an all-inclusive rate of pay which included the base rate plus a 25 per cent casual loading that was inclusive of all benefits to paid leave and severance pay together with a further loading to compensate for loadings, penalty rates and allowances.

As a result of SubZero’s insolvency, the mineworker’s employment ended in September 2016 upon which he made an application for an advance under the Fair Entitlement Guarantee (FEG) Act (FEG Act). The application included claims for advances of unpaid annual leave, payment in lieu of notice, and redundancy pay.

The Department determined that under the Award conditions the mineworker could not have been employed as a casual and therefore was entitled to an advance under the FEG Act.

In its decision, the Department treated the 25 percent casual loading as being attributable to the unpaid entitlements and reduced the amount of the advance by the amounts contributable to annual leave, payment in lieu of notice, and redundancy pay.

The mineworker sought a review of the decision by the Administrative Appeals Tribunal which confirmed the decision of the Department in relation to unpaid annual leave and payment in lieu of notice. However, the Tribunal remitted the decision to the Department for reconsideration as a result of its incorrect treatment of the severance pay.

The mineworker appealed the decision.

Casual loading is not attributable to entitlements

The central issue to the appeal was whether there was a basis for reducing the amount of the advance for the amounts “attributable to the entitlements” owed to the mineworker.

The Department sought to distinguish the matter from WorkPac v Rossato which was decided after the present case had been heard and which parties were given leave to address.

Justice Wheelahan accepted the Department’s submission that the primary focus was the phrase “attributable to” in s 19(2)(a) of the FEG Act, rather than whether the payments made discharged any contractual or statutory obligations.

The Department also submitted that the purpose of the provision was to avoid paying out taxpayers’ funds where the employee is not out of pocket, regardless of how, why or when payment is received.

“The key relevance in determining whether payments relied on are capable of being attributable to the entitlements are the terms of the instruments that governed the employment relationship which included the letter of engagement, the Award, and the NES” the court said.

The two entitlements the Department sought to attribute the wages paid by the employer to affect a reduction of the advance under s 19(2) of the FEG Act were entitlements to annual leave and severance pay.

In relation to the annual leave entitlement, the court found the regular payment of wages by the employer was not capable of being properly attributable to the entitlement to paid leave or payment for annual leave upon termination.

The court said applying the principles in WorkPac v Rossato would not have resulted in the employer being able to attribute a portion of the wages to discharge its obligation to make payment of annual leave upon termination. Further it disagreed with the Tribunal’s reason that this would result in an employee being paid twice for those entitlements.

The court also found there was no issue of double recovery of severance pay entitlement because there was insufficient connection with the statutory entitlement to a severance pay under the Award.

The court found the effect of the Department’s submission was to undermine the object of the FEG Act by reducing the entitlement to an advance “by a process of dissection and attribution which the employer would not have been permitted to undertake to reduce its liability to pay that entitlement”.

Wheelahan J said there was nothing in the FEG Act that should override the express object that there should be advances on account of unpaid entitlements in the event of the insolvency of an employer which is what the Department contended.

The court concluded that the Tribunal made an error in accepting the payment of the casual loading could be attributable to entitlements to annual leave and severance pay for the purposes of the FEG Act. The court remitted the decision to the Tribunal to be reheard and resolve the calculations of the advance.

Implications

It is decisions like this that highlight the importance of the Government’s IR Reform Bill, currently subject to a parliamentary inquiry, being passed into law to clarify the entitlements owed to casual employees.

The most concerning aspect of the casual employment issue is the risk of ‘double dipping’ claims being pursued by employees who have accepted offers of casual employment in the past and been paid higher rates as part of their employment arrangements but are later found to have been misclassified as casuals and then pursue back-paid permanent entitlements.

The courts continue to set dangerous precedent that casuals can receive both higher hourly pay rates and entitlements reserved for permanent employees.

AMMA’s view is that the Government’s IR Reform Bill is essential to provide a legislative solution that will protect businesses from potential ‘double dipping’ claims from current and past employees.

Even prior to the devastating impacts of COVID-19, this issue threatened to bankrupt masses of employers. As a result, there was a widely held view that the Federal Government’s Fair Entitlements Guarantee scheme would be placed under significant strain.

Australia’s business community and especially small businesses, which are most impacted by this uncertainty, need a legislative fix now.

AMMA continues to execute a substantial advocacy plan to give the Bill the best chance of passing through the senate and into law.

This involves ongoing engagement with the Senate Crossbench and the Australian Parliament more broadly, to ensure all members fully understand the benefits these reforms will have on the national economy and community.

For more information on the government’s Industrial Relations Bill, or any other matters related to casual employment issues, contact our policy team via [email protected].