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The High Court has now handed down its much-anticipated decision in the Rossato case. It has determined that the mine worker who brought the case was a casual employee, and that the Full Court of the Federal Court had been in error when it determined otherwise.
In doing so, the High Court has confirmed that a casual employee is one who does not have a firm advance commitment to ongoing work. Significantly the Court has brought the application of that concept ‘back to basics’, by holding that the assessment of whether there is a firm advance commitment is to be governed by the terms of the employee’s contract (not by the subsequent conduct of the parties). By adopting this approach, the Court has further entrenched the primacy of contract law in characterising work relationships, underpinned by enforceable promises rather than imprecise notions such as expectations or hopes.
This article starts with a brief overview of the Skene and Rossato litigation, including the decisions of the Full Court of the Federal Court in those cases. We then briefly describe the principal findings of the High Court in Rossato, and conclude with a consideration of the implications of the Court’s decision in the context of the recent changes to the Fair Work Act 2009 (Cth) (‘FW Act’) concerning casuals.
The Federal Court decisions
Around 20% of the Australian workforce are engaged as casuals, a figure that has remained relatively constant for over the past 20 years. Many casuals are employed by small businesses on an informal basis, or by larger businesses in all sectors of the economy, including by labour hire providers.
The 2018 decision of the Full Court of the Federal Court in WorkPac Pty Ltd v Skene ([2018] FCAFC 131, ‘Skene’) sent shock waves through employer ranks when it was handed down in 2018. For many years, casual employees were considered to be those employees ‘engaged and paid as such’: the common award definition. Entitlements to casual loading (a payment in addition to a casual employee’s fixed hourly wage in lieu of leave entitlements) were inserted into awards on the premise that casual employees, so defined, did not have entitlements to leave under the National Employment Standards (NES) in the FW Act.
In Skene the Full Court of the Federal Court found that a determination of whether or not an employee was a casual, and whether they were entitled to leave benefits under the NES, depended on a different test. Because the FW Act did not contain a definition of a casual employee, the Court felt impelled to determine the meaning of that term. In doing so, it applied a test akin to that used when deciding whether a person performing work is an employee or an independent contractor, and in doing so determined that it was necessary to consider the entirety of the employment relationship including post-contractual conduct.
Although the written terms of the enterprise agreement and the employment contracts in Skene made it clear that the employment was casual, other factors were given greater weight and the relationship was held not to be casual employment. The characterisation of a given employment relationship could therefore change over time.
Rossato was intended to be a vehicle to test the Skene case, with the benefit of more fulsome argument, more detailed facts, and the potential involvement of the High Court. In a case that took a differently constituted Full Court over 12 months to decide, the Skene case was essentially upheld and applied in Rossato. It is that decision that has now been overturned by the High Court.
The facts in Rossato
WorkPac Pty Ltd (WorkPac) is a labour hire company which, amongst other things, supplies labour to mining companies in Queensland. Mr Robert Rossato was an experienced ‘production operator’ who had been engaged by WorkPac at various coal mine sites in that State for a nearly unbroken period from July 2014 until his retirement in April 2018. He was a ‘drive in, drive out’ employee who stayed in accommodation provided by the mine operator whilst on site.
Mr Rossato worked principally on a seven days on/seven days off roster which was set by the mine operator in January of each year, and which was notified to Mr Rossato at that time
He was employed under the terms of the WorkPac Pty Ltd Mining (Coal) Industry Enterprise Agreement 2012 (‘2012 EA’). Relevantly, this Agreement provided for a 25% casual loading that was stated to be in lieu of all leave entitlements (other than long service leave). Unusually for such agreements, it specifically provided that the leave attributable to the 25% loading was as follows:
- 11% in lieu of annual leave and leave loading entitlements;
- 5% in lieu of personal leave entitlements;
- 4% in lieu of notice of termination requirements;
- 2.5% in recognition of the itinerant nature of casual work; and
- 2.5% in lieu of redundancy entitlements.
During the course of his employment with WorkPac, Mr Rossato was engaged under six separate contracts of employment, each of which described him as a casual employee. The first three contracts contained a schedule, stating that the flat rate of pay that Mr Rossato received included a 25% loading that comprised each of the elements identified above. The three subsequent contracts did not contain such a schedule, or any information regarding the composition of the 25% loading, nor did they contain any independent express term that the casual loading was to be paid in lieu of entitlements to leave or public holidays.
The employment arrangements also contemplated ‘that Mr Rossato would not work for anyone else during the ‘assignments’ with WorkPac, and that WorkPac could recover from Mr Rossato any costs it incurred arising from Mr Rossato choosing not to complete an assignment.’
Throughout his employment, WorkPac paid Mr Rossato hourly rates above those required by the 2012 EA. This was presumably intended to make the proffered employment more attractive to him.
Some months after his retirement in April 2018 Mr Rossato wrote to WorkPac claiming that, in light of the decision of the Full Court in Skene, he was not a casual employee and that as such he was entitled to payments in respect of annual leave, paid personal/carer’s leave, paid compassionate leave and public holiday payments under the FW Act and under the 2012 Agreement.
The proceedings in Rossato
Just two days after it received Mr Rossato’s claims, WorkPac initiated Federal Court proceedings seeking various forms of declaratory relief. It also undertook to pay Mr Rossato the amounts that it agreed would be owing if he was found to be a permanent employee, and to pay his legal costs irrespective of the outcome of the proceedings.
The Chief Justice of the Federal Court determined that the case should be heard by a Full Court, and the trial was conducted largely on the basis of a statement of facts agreed by WorkPac and Mr Rossato.
The Minister for Industrial Relations, the CFMMEU and a representative of a law firm that had initiated a class action against WorkPac were granted leave to intervene in the proceedings.
WorkPac’s principal contention was that Mr Rossato should properly be regarded as a casual employee, and that as such he was not entitled to the payments he claimed.
Failing that, WorkPac argued that it could either recover the payments it had made to Mr Rossato by way of casual loading, or set them off against any sums owing in respect of annual, personal and compassionate leave.
It argued that it could do this on a number of grounds, including that:
- The loading had been paid on the basis of a mistake as to the character of Mr Rossato’s employment.
- It had not received ‘valuable consideration’ for the payment of the loading.
- The loading could be set-off against the alleged entitlements because it had been paid in lieu of those entitlements.
- The payment of the loading could be applied and off-set against Mr Rossato’s claims in relation to the NES by force of regulations under the FW Act that had been introduced in response to the Skene decision.
The decision of the Full Court of the Federal Court
As indicated, the Full Court followed the reasoning of the earlier Court in Skene, and determined that Mr Rossato was not a casual employee. It reached this conclusion on the basis that his employment arrangements were such that, in accordance with the common law understanding of casual employment, he had a ‘firm advance commitment’ to continuing employment with WorkPac.
Justice Bromberg expressly endorsed the reasoning in Skene to the effect that in characterising relationships, it was necessary to look to the ‘entirety of the employment relationship’, although he did not regard that factor as decisive in this instance. Justice White indicated that he was ‘not persuaded’ that this line of reasoning was ‘plainly wrong’, but preferred the view that the question of whether there was a firm advance commitment was best determined at the commencement of the employment relationship.
All three members of the Court also rejected WorkPac’s arguments in relation to set-off and restitution, albeit for differing reasons.
Arguments before the High Court
Not surprisingly, the principal focus of WorkPac’s arguments on appeal were to the effect that Mr Rossato did not have a ‘firm advance commitment’ in the relevant sense, and that as such he was a casual employee who was not entitled to the payments he claimed.
This assertion was based on the key premise that the character of Mr Rossato’s employment had to be determined at the time of his engagement, solely by reference to the express and implied terms of his contract of employment, and that it was not appropriate to refer to post-contractual conduct in this context. This meant that the course of dealing between, and the conduct of, the parties was irrelevant in the context of ascertaining the character of the relationship between them.
WorkPac also argued that if Mr Rossato were found to be a permanent employee then it was entitled to set off the loadings that had already been paid to him against his entitlements as a permanent employee, or that it was entitled to claim restitution of those payments on the grounds that they were made on the basis of a mistake.
The Court unanimously determined that Mr Rossato was a casual employee, and consequently was not entitled to the various benefits he had claimed. That being the case, the Court did not need to (and did not) express any view on WorkPac’s set off and restitution arguments.
The core findings
It was common ground before the High Court that ‘the expression “casual employee” in the [FW] Act refers to an employee who has no ‘firm advance commitment as to the duration of the employee’s employment or the days (or hours) the employee will work’’ (para [32]), and that the outcome of the appeal rested on whether any such commitment existed in respect of Mr Rossato.
The question of whether there was any such commitment was, in the opinion of the Court, to be determined solely by reference to the terms of the contract at the time the employee was engaged. It was not permissible to look to the totality of the relationship, or to ‘unenforceable expectations or understandings that might be said to reflect the manner in which the parties performed their agreement.’ ‘To the extent that Justice Bromberg expressed support for the notion that the characterisation exercise should have regard to the entirety of the employment relationship, his Honour erred’ (para [57]).
In reaching its conclusions, the Court adopted a strict contractual analysis to the task of characterising the relationship between Mr Rossato and WorkPac (paras [62]-[63]):
‘To insist upon binding contractual promises as reliable indicators of the true character of the employment relationship is to recognise that it is the function of the courts to enforce legal obligations, not to act as an industrial arbiter whose function is to synthesise a new concord out of industrial differences. That it is no part of the judicial function to reshape or recast a contractual relationship in order to reflect a quasi- legislative judgment as to the just settlement of an industrial dispute has been emphatically the case in Australia at the federal level since the Boilermakers Case [footnotes omitted].
To insist that nothing less than binding contractual terms are apt to characterise the legal relationship between employer and employee is also necessary in order to avoid the descent into the obscurantism that would accompany acceptance of an invitation to enforce “something more than an expectation” but less than a contractual obligation. It is no part of the judicial function in relation to the construction of contracts to strain language and legal concepts in order to moderate a perceived unfairness resulting from a disparity in bargaining power between the parties so as to adjust their bargain…’
Applying these criteria to the interpretation of contracts, the Court was of the clear view that ‘the Full Court in Skene strayed from the orthodox path’ (paras [66]-[67]), and to the extent that the Full Court in Rossato also looked to the conduct of the parties, it too was in error.
It also follows from this line of reasoning that the question of whether there was a firm advance commitment is separate to the subsequent duration of the casual employment. The Court made clear that, in the scheme of the FW Act which expressly contemplates casual employment can be regular and long term, the existence of ‘a reasonable expectation of continuing employment … on a regular and systematic basis’ is not inconsistent with the nature of casual employment.
The Court also considered that the Full Court in Rossato had erred in placing an ‘inordinate emphasis’ on ‘the significance of the roster system under which Mr Rossato was obliged to work’ (para [93]) as support for the proposition that Mr Rossato had a ‘firm advance commitment’:
‘The Full Court erred in attributing to the systematic nature of Mr Rossato’s work under … [WorkPac’s client’s]… rosters a significance that was critical to that Court’s ultimate characterisation of Mr Rossato’s employment as one that involved a firm advance commitment to continuing work beyond the completion of the particular assignment. Inasmuch as the rosters imbued Mr Rossato’s employment with the qualities of regularity and systematic organisation during the period of each assignment, those qualities have been demonstrated to be entirely compatible with the notion of “casual employment” in the Act. What was absent was a firm advance commitment to continuing work beyond the completion of the particular assignment. While Mr Rossato might fairly be said to have had, over time, a reasonable expectation of continuing employment on a regular and systematic basis, that was not a firm advance commitment to continuing employment beyond the particular assignment. Indeed, the express terms of the contracts between them… were inconsistent with the making of any such commitment.’
Finally, the Court addressed the extent to which the characterisation of employment relationships can be determined by the label that the parties choose to attach to it (para [97]):
‘Mr Rossato was described as a casual employee…It is true, of course, that whether employment is casual or not for the purposes of the Act is not determined by the “label” which the parties choose to attach to their relationship. The character of the relationship between the parties is established by the rights and obligations which constitute the relationship. Nevertheless, use by the parties in their contract of the label “casual” might be a factor which influences the interpretation of their rights and obligations…’ [Footnotes omitted]
The Court’s decision is very clear and direct in its terms, providing a welcome degree of clarity in an area which has long been bedevilled by a lack of clarity. As appears below, it also helps alleviate concerns about the cost implications of the decisions of the Full Court of the Federal Court in Skene and Rossato.
The decision has been to some extent overtaken by the changes to the laws with respect of casual employment that were effected by the Fair Work Amendment (Supporting Australia’s Jobs and Economic Recovery) Act 2021 (Cth) (2021 Act).
Relevantly, this measure did three things:
- First, it adopted a definition of ‘casual employee’ that was broadly inconsistent with the approach to the term’s meaning that was accepted by all parties in Rossato.
- Secondly, it stipulated that the question of whether a person is a casual employee ‘is to be assessed on the basis of the offer or employment and the acceptance of that offer, not on the basis of any subsequent conduct of either party’.
- Thirdly, it purported to adopt WorkPac’s set off argument in respect of accrued entitlements of employees who had been characterised as ‘casuals’, but who were subsequently found to be permanent employees. This would not, however, extend to situations where the employee had been found by a court not to be a casual prior to the commencement of the 2021 Act.
It is likely that the accrued entitlements amendments will be subject to constitutional challenge at some point on the ground that they constitute an acquisition of property on other than just terms in a manner that is not consistent with section 51(xxxi) of the Constitution. Assuming that any such challenge is unsuccessful, then the 2021 Act does indeed appear successfully to address the principal employer concerns about the retrospective effects of Skene and Rossato.
It should also be noted that the 2021 Act requires employers to provide ‘casual employees’ who fall within the definition of that term in section 15A of the FW Act, and who satisfy the criteria set out in section 66B, with the opportunity to convert to full time employment. In other words, whilst the High Court decision in Rossato, together with section 545A of the FW Act, mean that casual employees cannot ‘double-dip’ in the way that they could in consequence of the Full Court decisions in Skene and Rossato,. employers are now faced with the possibility that ‘long term’ casuals have the right to convert to continuing, full-time employment if they so choose.
The fact that the Court has adopted a rigorous legal analysis and approach to the issues is likely to attract academic, industrial and political criticism. This could in turn give rise to legislative intervention, especially in the event of a change of Government.
The Court’s treatment of an argument put by one of the interveners concerning categorisation of work relationships also merits comment.
The intervener pointed to the apparent incongruity between an approach to categorisation that focusses solely upon the terms of the contract and the established principle that the distinction between employer/employee and principal/contractor relationships is to be determined by reference to the ‘totality of the relationship’, rather than just the terms of the contract.
The Court’s distinction between the purposes of the two categorisation processes (para [101]) underscores its unwillingness to have categories within the employment relationship be subject to the same generalised ‘characterisation’ approach that has been adopted in relation to independent contractors.
In that context, it is interesting to note that the High Court presently has before it two cases that will provide it with an opportunity to clarify a number of issues concerning the categorisation of work relationships. It will be interesting to see whether the Court’s approach to those cases is influenced, directly or indirectly, by that which it has adopted in Rossato.
It is important to appreciate that notwithstanding the decision in Rossato, a ‘casual’ who was engaged on the basis of contractual arrangements that fall outside the common law or statutory understandings of casual employment (for example, because they are not ‘made on the basis that the employer makes no firm advance commitment to continuing and indefinite work according to an agreed pattern of work’) could still raise objections based on issues of the same character as those that were at issue in Rossato.
This could also arise, for example, where ‘casuals’ are engaged under enterprise agreements that pre-date the 2021 Act, and which proceed on the basis of an understanding of the nature of casual employment which does not accord with the approach endorsed by the High Court in Rossato and by the legislature in the 2021 Act.
The decision of the High Court will nonetheless be of considerable significance to employers who have been grappling with historic claims associated with casual employment. This includes a spate of misclassification class actions commenced in the retail and hospitality industries, and the suite of actions against Australian labour hire firms (including WorkPac) currently operating in the black coal mining industry.
Many of these class actions have been in abeyance, pending the outcome of the High Court appeal. The High Court’s determination may very well prove to be fatal to these actions. In the face of such a clear indication from the Court as to how it will approach the question of employee classification, it may be that the continued prosecution of such claims may increase the prospect of adverse cost consequences, which may prove an unattractive prospect for the funders and firms supporting these actions.
1. Although the decision in Rossato is of fairly limited practical effect in light of the passage of the 2021 Act, it does serve as a timely reminder of the importance of ensuring that contracts under which casual employees are engaged are drafted in such a way as properly to reflect the requirements of s15A of the FW Act.
2. It is also important to appreciate that enterprise agreements may make provisions concerning casuals that do not fall within the scope of the High Court’s decision and the changes set out in the 2021 Act.
3. Assuming that it is valid in constitutional terms, s545A of the FW Act means that where things do go wrong in the categorisation context, employers can offset casual loadings that have been paid to employees who were engaged as casuals, but who subsequently provide to be permanent employees, against leave entitlements of those employees.
