Nothing casual about High Court employment decision

A ruling on the definition of ongoing casual employment held major implications for both employers and workers, writes Morry Bailes.

Sep 02, 2021, updated Sep 02, 2021

For a moment it looked like casual employees may be able to have their cake and eat it too.

In last year’s landmark decision of Rossato, the Federal Court of Australia found that an employee who was thought to be a casual was in fact a permanent worker. Shock waves reverberated through our federal industrial relations system.

Mr Rossato had been employed as a casual employee and had been paid a higher casual rate for his labour, yet the court found he was permanent. The significance of the decision meant that as a permanent employee, Mr Rossato was entitled to various forms of paid leave whilst keeping an uplifted casual rate of pay. To many observers, the decision just didn’t make sense.

In response, the Federal Parliament intervened to amend the Federal Work Act, and the Federal Court decision was appealed to the High Court. The High Court recently ruled on the matter, and its decision is of huge import to employment law in Australia.

The decision in the Federal Court relied on the fact that Mr Rossato’s contract of employment was regular and had been renewed year on year for nearly four years. What’s more, he could point to futures rosters which indicated he could look forward to regular work in the future. The court found therefore that the true nature of the employment was that of permanence.

If the circumstances of Mr Rossato’s employment could be seen in that light, perhaps the decision was not unreasonable after all. Haven’t we for a long time suspected that some employment relationships, that have all the hallmarks of permanence, are simply conveniently wrapped up as casual employment creating an advantage for the employer and a disadvantage for the worker?

On the other hand, there was a  lingering sense of unjust enrichment from the Federal Court decision in Rossato, that sat uncomfortably with many people. How could it be that an employee could be compensated at rates 25 per cent higher than those applicable to permanent workers, and yet receive paid holiday entitlements, and paid personal/carer’s leave and compassionate leave as well? It didn’t seem to meet the Aussie ‘fair go’ test. Surely it was one or the other?

Moreover the contract of employment expressly provided that the employment was casual. The Federal Court in its ruling effectively disregarded the contract of employment – or at least found it was secondary to what it thought was the true nature of the employment.

The stage was set for one of employment law’s cases of the century. Although the Federal Parliament’s intervention sought to soften the blow on employers, a cloud remained over their heads as many would be liable for back-pay for leave entitlements – estimated to total around $39 billion – they believed did not exist prior to the Federal Court’s determination.

In short, whatever a contract of employment provided for, it was more or less meaningless if a court could intervene and say it meant the opposite.

When the decision came from the High Court last month, it was unanimous in its finding that Mr Rossato was a casual employee all along. It also upheld the validity of Parliament’s amendments to the Fair Work Act, in particular the now clear definition in the Act of what constitutes casual labour. The Court sat seven judges to hear this all-important case, so the decision in overturning the Federal Court was 7-0. It doesn’t get any more resounding than that.

Employers breathed a collective sigh of relief whilst some workers and unionists expressed disappointment. CFMEU mining president Tony Maher said: “The Federal Court has twice upheld the commonsense principle that you can’t be a so-called ‘permanent casual’ and encouraged ‘all coal miners to look carefully at any work contract they sign. Today’s decision makes clear that the words in the contract matter more than the reality of your working conditions.”

But few employers had seen it that way, and neither did the High Court. Mr Maher was right in one respect. The most important element of the reasoning of the High Court was to uphold the primacy of the contract of employment. In Mr Rossato’s case it was the relevant Enterprise Agreement, and the Court found that the absence of a ‘firm advance commitment’ of employment under the contract of employment meant the relationship was casual in nature. In other words, the employer had not committed to offer future employment.

The High Court did not rely on the contract only, it also looked closely at the facts of the employment. It found that although Mr Rossato had enjoyed regularity of employment, there was no guarantee of future employment and that future rosters were of ‘limited significance’.

It further pointed out the risk that if the Federal Court decision stood it would mean no employee or employer could know the true nature of an employment relationship until it had been interpreted by a court. In short, whatever a contract of employment provided for, it was more or less meaningless if a court could intervene and say it meant the opposite.

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The court expressed it this way: “The submissions by the CFMEU, if accepted, would mean that the parties could not know what their respective obligations were at the outset of their relationship and would not know until a court pronounced upon the question. That outcome does not accord with elementary notions of freedom of contract.”

Critics Of the High Court judgment have struggled to convince the broader public. First is the fact that the Federal Court decision has been described by some as ‘judicial activism’. In that light the High Court decision may be seen as correcting the wrongness of the Federal Court’s interpretation of the law.

Second the High Court was unanimous. It is pretty hard to argue with a unanimous judgement by our highest court comprising some of our best judicial minds. In short, the Court left no doubt.

Third, there are other elements in a casual contract of employment that workers seek and desire, particularly the higher rate of pay and its flexibility. Quite unlike the characterisation given to these relationships by some, many employees seek out casual employment relationships. They may in fact be worse off without them.

Fourth, the decision passes the ‘pub test’. No, casual employees couldn’t have their cake and eat it too. To do so might be seen as double-dipping and ‘un-Australian’. Quite aside from how workers who have chosen permanence must feel. They had traded higher pay for greater certainty, whereas previously thought of casual employees were going to get both, so they might see themselves as ripped off.

On one score, however, detractors of the decision make a fair point. Australians have equal repugnance for employers who exploit their employees. We are the land of the ‘fair go’, and that means treating employees fairly and respectfully. The decision should not be interpreted as a green light by some employers to take advantage of employees, and  whilst the primacy of the contract of employment may be central, expect courts to give short shrift to employers who exploit employees because the facts of an employment arrangement are also relevant. The law dislikes pretence and will always look at what is really going on.

The decision is a win for such companies, whose commercial model relies on the gig economy.

The decision has other potential ramifications. Gone is a likely constitutional challenge to Parliament’s amendments to the Fair Work Act made consequential to the Federal Court decision.

Also, watch this space – many have predicted further litigation involving businesses such as Uber and Deliveroo. The decision is a win for such companies, whose commercial model relies on the gig economy. Indeed the gig economy is here and is expanding in many more industries than just transport. The courts have ruled on this point more than once in Australia, but the suspicion is that the case of Rossato may embolden some businesses to push the boundaries. If that is so, the courts may need to rule again and again.

Meantime our highest court has made the employment landscape in this area very clear, for now and for a long time in the future. For our overall economy, dealing with the impact of COVID, the timing is perfect. A less flexible labour market is a recipe for slower economic growth. No responsible employer seeks to exploit its employees, but what business did not need right now was a playing field further tipped against it.

Labour is usually the highest cost of doing business in Australia, and we collectively did not need it becoming even more expensive in spite of the CFMEU’s best attempts to do so. Whilst the union may have been only trying to do the best by its members, make no mistake; had the original decision stood, the entire Australian economy would have been worse off.

Now that the dust has settled, most people see the Rossato decision as a win for commonsense. Judging by the disbelief and outcry at the findings of the Federal Court, in contrast to the muted response following the unanimous decision of the High Court, you might think the Australian public thinks the law got this one right too, in the end.

The decision is also a timely reminder on the role of the courts, as the independent judicial arm of government. The courts exist to interpret and apply legislation, not to impose a view of legislation that might be regarded as judicial activism. If you want to make that type of contribution to public life, leave the bench and enter the parliament.

Morry Bailes is Senior Lawyer and Business Advisor to Tindall Gask Bentley Lawyers, past president of the Law Council of Australia and a past president of the Law Society of South Australia

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