The recent, much publicised decision of the Full Federal Court in WorkPac Pty Limited v Skene  FCAFC 131 (Skene) has caused widespread concern in business circles. As anticipated, the principal controversy has been 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.
Fresh proceedings have been commenced with multiple interested parties seeking to intervene, and various employee and industry champions have stepped forward to campaign for change.
Meanwhile, in what is emerging as one of the key developments of this year, 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 this article, we provide an update on the legal manoeuvring that has accompanied the Skene decision.
Skene – initial response
As covered in our recent article on the Skene decision, 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.
From a legal perspective, the decision was unremarkable. It confirmed a long-held view that a casual employee has no firm advance commitment as to the duration of their employment or the hours to be worked.
The real controversy from the decision was 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, ‘the money and the box’, as we described it.
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 entitled Myth of the Casual Wage Premium, which states that around a third of casuals (34.3%) report that they did not receive any casual loading.
Rossato - fresh proceedings
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% casual loading; and
- not entitled to, and Workpac was not liable to pay him on termination of his employment, any annual leave, personal/carer’s leave, compassionate leave or public holidays under the FW Act or the applicable enterprise agreement.
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. It will do this by arguing that of the 25% casual loading, 11% compensates him for, or in lieu of or instead of, his annual leave, and 5% for personal and compassionate leave.
A number of interested parties have intervened, or sought leave to intervene, in Rossato.
The Federal Minister for Jobs and Industrial Relations, Kelly O’Dwyer, (Minister) has been granted leave to intervene in the matter. The Minister has echoed employer concerns about the implications of Skene, noting its concern “that the legal right to offset an obligation against payments already made for the same entitlements was not dealt with in Skene v Workpac” and a preference to “make sure the same thing does not happen again”.
The Minister has proposed that the Federal Court could resolve the ‘double-dipping’ issue by:
- offsetting the casual loadings already paid to workers against any entitlements they are deemed to be owed; or
- restitution orders to require such workers to pay back the loadings (on two alternative legal grounds, one being payment by mistake).
The Government is under pressure to resolve this issue before the Federal election due by May next year. Given the proceedings raise ‘issues of general significance’, the Minister has sought for the proceedings to be heard expeditiously and by the Full Federal Court.
The CFMMEU, Mr Skene and the class action law firm Adero (on behalf of former Workpac employee Beau Daniel Meaney) are each seeking leave to intervene in the proceedings. On 8 November 2018, leave was granted to each of these proposed intervenors to inspect the court file in the Rossato proceedings and, if they decide necessary, file and serve submissions on the ‘utility’ of the application that the matter be heard by the Full Court given, in particular, the proposed class action by Adero.
The ACTU has also recently announced its intention to intervene in the proceedings with Secretary Sally McManus announcing, “We will not stand by and allow the Minister to run roughshod over the rights of working people”.
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 it 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 three 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, allegedly underpaid 4,000 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 misclassified, the Communication Workers Alliance has foreshadowed that 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).
It is expected that multiple parties will seek to intervene in the matter to represent employer interests.
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.
Legislative change proposals
Employer representative group Australian Industry Group (AIG) has called for urgent legislative changes to the FW Act to clarify the definition of casual employment and specify that casuals who are ‘already compensated’ by virtue of extra loading cannot claim additional entitlements.
As one would expect, the ACTU responded, calling on the Government to rule out changing the FW Act, and also to:
- rule out any legislation that would allow labour hire firms, or any employer, to continue to misclassify workers simply to reduce their wages;
- reassure the Australian people that the Government has not directed, met with, engaged or otherwise used a lobbying firm to assist WorkPac in lobbying the Senate; and
- reaffirm its commitment to the principle that workers doing the same job, having the same skills and needing the same experience should be paid the same rate of pay without being undercut by labour hire, sham casualisation or other mechanisms designed to undercut wages.
As of the date of this article, however, the Federal Government had not prepared a Bill to amend the FW Act to address the Skene problem, nor made a decision whether or not to introduce such a Bill.
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.
Acceptance mitigated by undertakings
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% 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.
Arrangements similar to Tandem’s have received increasing prominence in Australia in recent years, as businesses transform their employment models in an effort to innovate ways to cut their costs and engage a flexible workforce. The challenges above are a real wake up call for employers to reconsider their decisions around those employment models and the reasons for employing employees on a particular basis.
Ultimately, the law in this area is complex, and the importance of clarity and certainty has not gone unnoticed by employers, unions, the Federal Government or many employees.
Until clarity is able to be provided by further case law or legislative change, employers need to closely examine their employment and commercial arrangements to assess and minimise the risk profile arising from the various outcomes of the above proceedings, including the possible class actions.
This publication is introductory in nature. Its content is current at the date of publication. It does not constitute legal advice and should not be relied upon as such. You should always obtain legal advice based on your specific circumstances before taking any action relating to matters covered by this publication. Some information may have been obtained from external sources, and we cannot guarantee the accuracy or currency of any such information.