Will the government’s new casual loading offset provisions prevent double-dipping?

Over the last six months, the federal government has been openly critical of the decisions of the Federal Court of Australia in WorkPac Pty Ltd v Rossato [2020] FCAFC 84 and WorkPac Pty Ltd v Skene [2018] FCAFC 131. It has also recently supported a successful application for special leave to appeal the Rossato decision in the High Court of Australia, which is likely to be heard sometime next year. 

In the meantime, Attorney-General Christian Porter has introduced the Fair Work Amendment (Supporting Australia’s Jobs and Economic Recovery) Bill 2020, which seeks to effectively overturn the decisions of Rossato and Skene — decisions Porter described earlier this year as having caused “confusion and uncertainty for employers and their employees”.

Among other things, the bill proposes a new subsection 545A(1) of the Fair Work Act 2009 (Cth) (FWA) which provides that the section applies if:

1. A person is employed by an employer in circumstances where the employment is described as casual employment;
2. The employer pays the person an identifiable amount (the loading amount) paid to compensate the person for not having one or more relevant entitlements during a period (the employment period);
3. During the employment period, the person was not a casual employee; and
4. The person (or another person for the benefit of the person) makes a claim to be paid an amount for one or more of the relevant entitlements with respect to the employment period.

Subsection 545A(2) then provides that when making any orders, a court must reduce any amount payable by the employer for the relevant entitlements by an amount equal to the loading amount that was already paid. 

If the specific entitlement or entitlements have not been identified, subsection 545A(4) defines a “relevant entitlement” to mean a statutory or contractual entitlement to:

• Paid annual leave;
• Paid personal/carer’s leave;
• Paid compassionate leave;
• Payment for absence on a public holiday;
• Payment in lieu of notice of termination; and
• Redundancy pay.

In essence, these provisions would allow an employer to reduce their liability to pay permanent employment entitlements to an employee who was mischaracterised as a casual employee, but was still paid an identifiable casual loading. 

The explanatory memorandum to the bill makes it clear that these provisions are directly aimed at overturning the decisions of Rossato and Skene:

“The Full Federal Court concluded in Rossato (as it did in Skene) that, despite the parties indicating at the outset of their relationship that the employee was a casual employee, it does not necessarily follow that the employee should be so characterised.

“This has resulted in a risk that a significant number of employers and employees have been left in a precarious position of uncertainty as to their rights and obligations.

“This is particularly so where the Full Court in Rossato and Skene endorsed an approach where determination of a casual employment relationship could be assessed by reference to the totality of the circumstances at some point during or at the end of the relationship.”

As a result, the new casual loading offset provisions adopt the new statutory definition of casual employment, which, contrary to the approach adopted in Rossato, ignores the totality of the relationship and the conduct of the parties and instead gives primacy to the agreed terms of the employment at the outset of the relationship.

Double-dipping or not?

The public outcry from the federal government and employer groups following the decisions in Rossato and Skene is curious, particularly when it comes to the issue of ‘double-dipping’. 

In some instances, it appears that commentators have overlooked the fact that in many of these cases, including in Rossato and Skene, the employee was not in fact paid a separately identifiable casual loading at all times during the employment. 

For example, in Rossato, there were six separate employment contracts in question. Justice Bromberg stated that he doubted that the contracts, in and of themselves, could be objectively construed as providing Mr Rossato with a casual loading. 

While the interpretation of these contracts turned partly on the provisions of an applicable enterprise agreement, Justice White similarly held that only some of Mr Rossato’s contracts contained a separately identifiable casual loading. 

It was also not in dispute that Mr Rossato’s payslips did not record a separate 25% casual loading at any stage during his employment. 

This is indicative of many situations that are inaccurately labelled by employer groups as ‘double-dipping’. Instead, what is often actually occurring, is that the employer is found to have mischaracterised the employment relationship and is then seeking to retrospectively assert that they paid a casual loading all along. 

This is sometimes the case even when there is no evidence of the loading being owed or paid in the employment contract and payslips. Rather, the employer simply asserts that they paid a ‘loaded flat rate’ and points to a lower rate that was paid to a permanent employee within the same company.

This is not a form of double-dipping, where a casual offset clause, like the one proposed in the bill, is applicable or necessary.

Nevertheless, this type of scenario seems to have been conflated with other scenarios whereby a specific entitlement or entitlements have been identified as being compensated by a separately identifiable 25% loading in the employment contract or payslips.

The recent outcry is also surprising given that the principles expounded in Rossato and Skene are not entirely new. Justice White in Rossato, after examining the relevant authorities, summarised the following well-established proposition concerning offset: 

“If they agree that a sum of money is paid and received for a specific purpose which is over and above or extraneous to an award entitlement, the contract precludes the employer from later seeking to rely on the payment as satisfying an award obligation which is outside the agreed purpose of the payment. 

“If the payment was made for the purpose of satisfying the kind of award obligation sought to be satisfied, it may be brought into account as satisfaction or part satisfaction of that obligation.  If it was paid for some other purpose, then the employer cannot bring the payment into account.”

As noted by Justice White, what this means is that an employer cannot “later reallocate an amount agreed to be paid to an employee in respect of subject A (for example, ordinary hours of work) to meet a claim in respect of subject B (for example, overtime)”. 

This inability to offset amounts against unidentified or other identified entitlements is also well entrenched in the common law that has developed around the distinction between an employee and a contractor. 

That is, when assessing whether a person is an employee or a contractor, a court will examine the totality of the relationship between the parties and will not generally accept the label that the parties have attached to the relationship as being determinative. 

As a result of this approach, courts have consistently compensated workers who have been mischaracterised as “contractors” for permanent employment entitlements, even when the parties had purportedly agreed to this characterisation between themselves. 

This has also been the case when the newly identified employer has asserted that it paid the worker a higher rate than it would have if it had engaged the worker as an employee. In these cases, the employer is not able to offset this higher amount against the permanent employment entitlements that were found to be owed.

In light of all of this, what is concerning for employees is that the government appears to have used this alarmist reaction from employer groups following the decisions in Skene and Rossato, to try and justify the introduction of legislation that would retrospectively extinguish accrued entitlements owed to mischaracterised employees.

The government has sought to justify its position in the explanatory memorandum to the bill by asserting that without these amendments “significant costly and time-intensive court processes would be needed to determine the appropriate rights and obligations of employers and employees in these situations”. And “employers would need (on a case by case basis) to litigate any possibly available restitution claims in order for courts to conclusively determine liabilities outstanding to employees”.

The reality is, litigating claims on a case-by-case basis is the natural consequence when an individual employee is not paid their lawful entitlements. This is obviously preferable to simply extinguishing accrued liabilities that are purportedly too costly for employers to meet. 

For all of these reasons, the casual loading offset provisions will no doubt attract criticism as an overreach, designed simply to absolve employers from meeting the consequences of their breach of law, rather than genuinely prevent double-dipping. This is particularly the case when the provisions are read in conjunction with the new statutory definition of casual employment, which has unquestionably been drafted to favour employers. 

Regardless as to whether the provisions ultimately survive in their current form, it is a truly remarkable situation that a federal government has sought to intervene and overturn two carefully constructed and well-reasoned decisions of the Full Court of the Federal Court. 

It is also remarkable that in the process, it is seeking to extinguish up to $39 billion worth of accrued entitlements owed to some of the most vulnerable workers in Australia, including those who may have been genuinely mischaracterised as casual employees for many years prior to COVID-19, only to then be left with no personal leave, annual leave, notice or redundancy entitlements when the pandemic hit.

Disclaimer: this article should not be construed as legal advice and is not intended as such. If readers wish to obtain advice about anything contained in this article, they should speak with a lawyer and discuss their individual circumstances.