WorkPac v Rossato: Good news for employers

10 August 2021

In brief

In a significant and long-awaited decision in respect of casual employees, the High Court of Australia has provided some much needed clarity in relation to the status of casual employees at common law.  The High Court unanimously upheld WorkPac Pty Ltd’s (WorkPac) appeal determining that its former employee, Mr Rossato, was correctly classified as a casual employee throughout his employment with WorkPac.  

The decision has been warmly welcomed.  It is likely to be the death knell to many threatened and current class actions, it will provide additional certainty to employers in their financial reporting, and could have some far-reaching ramifications on the status of independent contractors and workers in the gig economy.  

In detail

Background

Workpac’s road to the High Court has been a long one.  To recap, in August 2018, the Full Court of the Federal Court in Skene v Workpac found that Mr Skene, a casual labour hire employee, was in fact a permanent employee and entitled to permanent entitlements, with no right of set-off against casual loading.  The Court held that in characterising the essence of employment as casual employment or otherwise, an assessment of the conduct of the parties and the real substance and practical reality of the relationship should be considered, not just the employment contract.

Workpac did not seek leave to appeal the Skene decision to the High Court.  Instead, a test case was commenced with another casual employee, Mr Rossato, claiming that he was permanent and entitled to permanent benefits as a result.  In the interim, the Government attempted to address the position by amending the Fair Work Regulations to introduce Regulation 2.03A which was intended to allow the potential set-off of permanent entitlements.  

On 20 May 2020, the Full Court of the Federal Court in Rossato in a lengthy decision found that (in summary):

• Mr Rossato, was incorrectly classified as a casual employee under the Fair Work Act 2009 (Cth) (Fair Work Act) and the enterprise agreement that covered his employment;
• the contracts entered into by Mr Rossato evidenced ongoing or indefinite employment which was to work long, regular, constant and predictable hours fixed long in advance.  This, by its nature, involved a firm advance commitment and, as such Mr Rossato was a permanent employee;
• as a permanent employee he was entitled to relevant benefits, such as annual leave and paid sick leave; and
• those permanent entitlements could not be set off against the casual loading that had been paid and Regulation 2.03A was ineffective.

This decision of the Full Court, reinforcing the 2018 Skene decision, threw corporate Australia into a tail-spin, and for good reason.  The decision was a catalyst for a number of class action suits.  The ability for casual employees to be deemed permanent and effectively “double dip”, ie retain their casual loading and be paid permanent entitlements, were estimated by the Federal Government to have a potential cost impact of between $18billion and $39 billion.  Workpac sought, and was granted, leave to appeal to the High Court.  

In August 2020, as a result of concern regarding the potential liability arising from misclassification, ASIC issued guidance in relation to financial reporting and audit requirements, stating that companies, directors and auditors needed to assess whether they should have provided for additional employee entitlements (including annual leave, personal and carer’s leave, compassionate leave, public holiday pay, and redundancy payments) for past and present ‘casual employees’ who were employed “in circumstances covered by the Federal Court decision” in Rossato.  

Following on from this, and much to the relief of corporate Australia, the Government amended the Fair Work Act with effect from 27 March 2021 to introduce a statutory definition of casual employees and to permit the offsetting of a casual loading against permanent entitlements if an employee was misclassified (Casual Amendments).  These amendments had retroactive effect and, amongst other things, clarified that an employee would be a casual employee if at the time that the offer was made the employer had not made a firm advance commitment to continuing and indefinite work according to an agreed pattern of work.  

In light of the Casual Amendments, the significance of the High Court decision was lessened.  That being said, employers welcomed the High Court decision of 4 August 2020, which overturned the decision of the Full Federal Court, and echoed the significant changes that had been made to the Fair Work Act. 

1. The decision

In short, the High Court held:

• a casual employee is one who has no firm advance commitment as to the duration of employment or the hours that they will work;
• a reasonable expectation of continuing employment on a regular and systematic basis is not inconsistent with the nature of casual employment - an expectation does not equate to a firm advance commitment to continuing employment;
• a firm advance commitment is evidenced from the contract - not the whole relationship.  If something is not legally binding, then it is not a “commitment” at all;  
• whilst labels in a contract are not in themselves decisive, the use of the term “casual” plus the payment of a loading in lieu of permanent entitlements was a compelling indication that the relationship did not include a firm commitment of continuing employment; and
• ultimately, Mr Rossato’s contracts expressly stated that he was employed on an ‘assignment-by-assignment’ basis, which he could choose to accept or reject. This indicated no firm commitment for ongoing employment once Mr Rossato had completed a given assignment, despite the regularity and systematic organisation of Mr Rossato’s assignments.  The High Court noted that Mr Rossato’s reliance on non-contractual aspects, which built up his expectation of ongoing employment, was insufficient to create a firm advance commitment.  In other words, where there is an employment contract, a firm advance commitment must be found within the binding contractual obligations. 

Because Mr Rossato was correctly classified as a casual employee, the High Court did not need to consider WorkPac’s set off and restitution claims.  Whilst the Casual Amendments now expressly permit the set-off of casual loading against certain permanent entitlements, the broader law surrounding the right of set-off remains complex.  The finding that Mr Rossato was a true casual creates a missed opportunity to have some clarifying High Court commentary on this complex question.  

2. The implications

The impact of the High Court decision is lessened because of the Casual Amendments, but it is still an important decision.  It gives some much needed clarity to the common-law definition of a casual employee and the question of a “firm advance commitment”.

The Casual Amendments have already given employers significant comfort about the dormant risks relating to casual employment.  Following the Casual Amendments, ASIC added to its guidance to affected companies that they should consider the casual amendments in the Fair Work Act when considering their reporting obligations.  This decision, combined with the Casual Amendments will make it significantly more difficult for a casual employee to claim that they have been misclassified and seek additional entitlements, provided that their initial engagement makes it clear that there is no firm advance commitment. This will give some much needed clarity to companies in their financial reporting. 

The High Court decision of course revolved around the classification of casual employees.  In reinforcing the primacy of the contract itself, the decision may well have implications in relation to the classification of independent contractors and gig economy workers.  The High Court has this year granted leave to appeal in two cases in relation to the classification of contractors which will be heard this year and the Rossato decision is an early indicator of the outcome of those cases.  

3. What next for employers?

The High Court decision reinforces the importance of employers ensuring that their contracts of employment for casual employees make no firm advance commitment to continuing and indefinite work according to an agreed pattern of work.  The Casual Amendments state that in determining this, only the following will be considered:

• whether the employer can elect to offer work and whether the person can elect to accept or reject work;
• whether the person will work as required according to the needs of the employer;
• whether the employment is described as casual employment; and
• whether the person will be entitled to a casual loading or a specific rate of pay for casual employees under the terms of the offer or a fair work instrument.

Of additional comfort to employers, casuals who were employed prior to the Casual Amendments coming into force will continue to be classified as casuals if their original employment agreement satisfies the new statutory definition.

Employers must also remember and comply with their additional obligations in respect to casual employees, which the Casual Amendments introduced.  This includes the obligation to offer the right to casuals to convert to permanent employment if they have been employed for more than 12 months and have worked a regular pattern of hours on an ongoing basis which, without significant adjustment, the employee could continue to work as a full‑time employee or a part‑time employee. 

Aside from small businesses, employers must make any offers of conversion by 27 September 2021. Employers do not have to make a casual conversion offer where there are reasonable grounds not to do so. Reasonable grounds may include the casual employee’s position ceasing to exist in a year or the hours of work required by the employee being significantly reduced in that period.  However, even if an offer of conversion is not made, the employer must write to the employees explaining the reasons why such an offer has not been made.  

The Casual Amendments also require employers to give each new casual employee the Fair Work Ombudsman’s Casual Employment Information Statement (CEIS) before, or as soon as practicable after, the casual employee has commenced employment. Current casual employees must be given the CEIS as soon as possible after 27 September 2021.

The takeaway

The High Court has confirmed that a mere expectation of continuing employment (however reasonable) does not form a basis for distinguishing casual and other employees. Where a written employment contract is in place, the binding contractual obligations determine the nature of the employment relationship.   This decision removes a lot of residual uncertainty for employers.   However, it remains essential that casual contracts are carefully drafted and do not include a firm advance commitment for future work.