Beware the risks of converting casuals to permanent employees

By Simon Dewberry, Andrew Stirling
Employment & Safety Industrials

In brief

A Full Bench of the Fair Work Commission has ruled that prior service as a casual counts as service when calculating redundancy pay. The decision is completely at odds with what employers would expect. Partner Simon Dewberry, Managing Associate Andrew Stirling and Senior Associate Tristan Garcia report. 

How will it affect you?

  • Employers will be liable for increased redundancy payments in circumstances where their employees have converted from casual to permanent status.
  • The interpretation given to term 'service' in the Fair Work Act 2009 (Cth) may also have implications for how employers calculate those employees' entitlements to notice of termination and possibly also annual and personal leave.

The decision

The employer had a large number of employees who had been engaged on a casual basis before converting to permanent employment. The majority of the Full Bench decided that their period of casual employment should count as continuous service for redundancy purposes. They did so because there is no provision in the Fair Work Act that excludes any period of regular and systematic casual employment when determining the meaning of 'continuous service'.

In reaching this view the majority acknowledged that the result might seem unfair, particularly since an employee has had the benefit of a casual loading for the period that they were engaged as a casual.

In a strong dissent, Commissioner Cambridge identified that the effect of the majority decision is to retrospectively give the employee service related entitlements that are clearly not intended to be available to casual employees. The Commissioner found that annual and personal leave entitlements, and notice of termination, could also be affected by the majority's approach.

The fallout

There is a strong possibility that the employer will seek to appeal this decision.

In the meantime, the decision is likely to lead to claims for service related entitlements by employees who have converted from casual to permanent employment. Employers should assess their exposure to such claims.

Employers should also consider the risk of such claims when making decisions about converting casuals to permanent employment. Consideration should be given to avoiding or mitigating the risk of such claims under the terms offered to the employee at the time their employment status changes.