In a huge development for businesses that employ casual staff, the Federal Court recently ruled that certain casual employees are entitled to paid annual leave under the Fair Work Act, and have been since 2010.

The ramifications of this decision are huge, particularly for businesses that rely heavily on casuals.

The court ruling
Until last month, casual employees in most industries in Australia were entitled to 25% casual loading, which is paid to compensate them for the fact that they have no guarantee of working hours and are not entitled to other benefits such as paid leave.

However, in the recent Full Federal Court decision of Skene v Workpac, the court found that where employees are designated as casual, but where, in reality, they work regular or predictable work patterns, those employees will be entitled to a range of benefits under the National Employment Standards (NES) including:

• Annual leave;
• Paid personal/carer’s leave;
• Other forms of paid leave;
• Notice of termination; and
• Redundancy pay.

This will be the case even where the employee meets the definition of casual under an applicable modern award or enterprise agreement.

In other words, while the employee might be a casual for the purposes of a modern award or enterprise agreement, it will not mean that they are a casual for the purposes of the NES.

Even more alarming was the court’s finding that an employee can initially meet the definition of a casual but can then morph into a permanent employee at some later point during their employment, triggering an obligation to provide them with leave and other benefits.

Implications for business
Many businesses may now be exposed to claims for back payment from both current and former employees who may have been engaged on a casual basis but who worked on a long-term, regular or predictable basis. This could include claims for up to six years of unpaid annual leave as well as payments upon termination of their employment.

But we paid them the casual loading?
Firstly, the fact that you paid a casual loading will not be determinative of the status of the employee. A court will look beyond what the arrangement was called and focus on the reality of the relationship and the working patterns.

Secondly, the payment of a casual loading does not necessarily protect you from underpayment claims. There are no clear double dipping rules that prevent an employee from claiming unpaid annual leave, even where they received a casual loading.

What should businesses do?
Businesses should review their use of casual employment, particularly where the arrangement involves long-term, regular work patterns. For those employees, businesses should offer conversion to permanent employment wherever practical.

Businesses should also take steps to mitigate their exposure through well drafted employment contracts which include set off clauses and other protections.

If you are an employer with casual staff, it’s important to seek expert advice on how this latest employment standard ruling may affect your business.