AREEA consultants Karen Nelson and Chloe Sargent review a recent Fair Work Commission decision in which a majority Full Bench finds that casual service counts towards an employee’s entitlement to redundancy pay where the employee converts from casual to permanent employment.
The AMWU successfully appealed an earlier decision of Riordan C in which service as a casual was not found to count towards the calculation of service for the purpose of severance pay.
A majority Full Bench found that because neither the enterprise agreement or s.22 of the Fair Work Act 2009 (“FW Act”) specifically stated that a period of regular and systematic casual service is excluded from the definition of “service” or “continuous service”, casual service should be included for the purposes of severance payments
The majority (Drake SDP and Lawrence DP) effectively acknowledged that their finding is at odds with established understandings of casual work and the calculation of service for redundancy payments:
“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. However, the Act does not exclude a period of regular and systematic casual employment from the definition of service or continuous service for the purpose of severance payments, and neither does the Agreement exclude that period of employment,” they said.
In his dissenting decision, Cambridge C considered that the majority Full Bench erred in relying on the absence of words within s.22 of the FW Act, finding instead that casual service is not mentioned in s.22 because service is intrinsically not derived from casual employment”.
Cambridge C went on to consider the subsequent difficulties resulting from the interpretation of s.22 adopted by the majority Full Bench that would have significant implications for the calculation of other minimum entitlements provided by the National Employment Standards, particularly flexible working arrangements, parental leave, annual leave and personal/carer’s leave.
“The prospect that a casual employee who became a permanent would have her or his annual leave entitlement calculated from the date of commencement as a casual exposes the folly of the interpretation of the meaning of service in s. 22, to include any period of casual employment,” he said.
Peculiar Outcome for Redundancy Entitlements
The entitlement to redundancy in section 117 and 119 of the FW Act is qualified according to an “employee’s period of continuous service”, however section 123 excludes casual employees from the entitlement.
The Full Bench acknowledged that casual employees’ service, however long or continuous, does not qualify them for redundancy if they are a casual at the point in time in which their employment ceases, however the service can be “converted” retrospectively if they are permanent at the time their employment ceases.
AREEA considers this could give rise to peculiar outcomes. For example, an employee employed as a casual for 100 weeks at the time of redundancy would not be entitled to redundancy. If the same employee then worked one week as a permanent employee, their casual service would be “converted” and they would be entitled to redundancy based on service dating back to when they were originally hired as a casual.
It would also provide for disproportionate outcomes between permanent employees. For example, Employee A employed as a permanent employee for 51 weeks at the time of redundancy would not be entitled to redundancy. Another employee, Employee B is employed as a casual employee for the same 51 weeks and is paid 25% more than Employee A in this period. If this employee then worked one week as a permanent they would be entitled to redundancy.
Implications for Employers
AREEA does not endorse the approach taken by the majority Full Bench.
AREEA is in discussion with other employer organisations regarding the decision and maintains that a decision of this nature highlights the need for improved appeal arrangements and the creation of a new independent appeals body separate to the FWC.
In the interim, AREEA recommends when drafting industrial instruments employers should consider whether any terms can or should be included to clearly state that service as a casual does not count for severance purposes. Members making redundancies impacting on employees with periods of casual service prior to being hired on an ongoing basis may also wish to contact AREEA for further advice.
Click here to view the decision.
AREEA’s experienced workplace relations consultants can provided advice on, and assistance with, employer’s obligations in relation to employee entitlements and in drafting agreements to minimise ambiguities and the risk of costly litigation. To learn more, contact an AREEA consultant near you.