Casual service counts for the purposes of notice and redundancy pay

5 minute read 23.08.2016 Harriet Eager, Ben Watson

Permanent employees are entitled to have any previous service as a casual counted for the purpose of calculating notice and redundancy pay, providing the service is continuous, regular and systematic.

One member of the Full Bench, Commissioner Cambridge, disagreed – warning of the potential ramifications of the case on other entitlements based on service such as annual leave.

This decision has wide-ranging implications for employers.

What was the case about?

The decision was an appeal from a decision of Commissioner Riordan in February this year.

Shipbuilder Forgacs was intending to retrench a large number of employees. When calculating severance payments for the affected employees, Forgacs:

had counted prior regular and systematic casual service in relation to long service leave;
did not count prior regular and systematic casual service in relation to termination notice; and
did not count prior regular and systematic casual service in relation to redundancy pay.

The Australian Manufacturing Workers Union notified a dispute to the Commission, arguing that under the Forgacs Engineering Pty Ltd Enterprise Agreement 2013 (Forgacs Agreement) casual service should count for the purpose of notice and redundancy pay.

What was decided in the first instance?

At first instance, Commissioner Riordan held that the casuals had been paid a casual loading to compensate them for foregoing notice and redundancy pay entitlements. On this basis, the Commissioner held that prior casual service did not count towards the calculation of service for the purpose of notice and redundancy pay.

What did the Full Bench say?

Senior Deputy President Drake and Deputy President Lawrence were in the majority.

They started by observing that the definition of 'service' under the Fair Work Act 2009 (Cth) (Act) applied to the Forgacs Agreement because the NES was incorporated by it.

The conclusion as to incorporation is not without controversy. Although the Forgacs Agreement referred to the provisions of the NES and expressly stated that notice and redundancy entitlements were not payable if employees would not otherwise be entitled to them under the NES, unlike the relevant modern award, the NES was not expressly incorporated into the agreement.

The majority acknowledged the provisions of both the Act and the Forgacs Agreement preclude a casual employee from receiving redundancy pay. They noted, however, that the Forgacs Agreement contained detailed arrangements for the transition of employees from casual to permanent employment. Nowhere in those detailed provisions, they observed, was there any suggestion that regular and systematic employment immediately followed by permanent employment would be excluded from the calculation of service.

They then concluded that the definition of 'continuous service' in the Act included periods of regular and systematic casual employment, as it was not expressly excluded. The majority acknowledged there might be some 'industrial injustice' in an employee who has received a casual loading for a period of casual employment also being allowed to count that service for the purpose of redundancy pay, but this did not alter their conclusion.

The majority were clear that employees who are casual at the time of termination are not entitled to notice or redundancy pay on termination.

Commissioner Cambridge dissented. The Commissioner said the meaning of 'service' has broader implications for a number of minimum standards in the NES, not just redundancy pay. As a matter of statutory construction, Commissioner Cambridge said that the exclusions in the NES for casual employees in respect of notice and redundancy pay should defeat the majority's interpretation of the phrase 'continuous service'. The Commissioner also warned the majority's interpretation could retrospectively activate entitlements for employees who converted from casual to permanent employment – for example in relation to leave entitlements under the NES.

What does this mean?

If it is correct, then this decision changes the way in which employers have traditionally determined entitlements to notice and redundancy pay for permanent employees who were formerly casuals.

It would allow employees to 'double dip' on entitlements – as casual loading is paid in compensation for not being entitled to the incidents of permanent employment, including notice and redundancy pay.

However, it does not mean that employees who remain casuals are entitled to notice and redundancy pay.

Given the ramifications of the decision, it is possible that there will be a challenge to the decision in the Federal Court.

What do you need to do?

You need to be conscious of this decision when terminating the employment of any permanent employee who has had a period of continuous, regular and systematic casual service – especially in redundancy programs.

It is important to appreciate that the rationale in the decision will not automatically apply to all enterprise agreements. It will depend on what they say. This is something that you may wish to seek advice on.

If you are negotiating an enterprise agreement, you should consider expressly excluding casual service from the calculation of redundancy pay and other entitlements under the agreement itself. However, an agreement cannot exclude the NES. Therefore even if casual service is excluded for the purposes of enterprise agreement entitlements, on the basis of the decision, NES entitlements will still be relevant and, if the decision stands, casual service may need to be considered for permanent employees.