The Fair Work Commission interpreted the Fair Work Act to take a broad view of "continuous service", and require certain previous casual employment to be taken into account when calculating redundancy pay.

Employers will need to reconsider how they calculate redundancy pay following a recent decision of the Fair Work Commission ‒ or risk not discharging their statutory obligations.

Redundancy pay has commonly been calculated by reference to employees' part-time or full-time service only, and not previous casual employment. This has now changed. In AMWU v Donau Pty Ltd[2016] FWCFC 3075, the Commission interpreted the Fair Work Act to take a broad view of "continuous service", and require certain previous casual employment to be taken into account when calculating redundancy pay.

A risk of employees transitioning from casual to permanent work

Employers must now carefully consider the possible consequences when a casual employee (who is performing regular and systematic casual work) transitions, without a break in time, to a part-time or full-time role. In these circumstances, should the permanent role subsequently be made redundant, when calculating the number of "years of continuous service" for the purpose of redundancy pay, the period of casual employment must be included.

It should be stressed that this does not have any bearing on situations in which the role of a (genuine) casual employee is being made redundant. This is because section 123 of the Fair Work Act continues to provide that the redundancy provisions do not apply to casual employees. The decision relates only to situations in which a permanent employee's role is made redundant in circumstances where the employee has previously transitioned from (regular and systematic) casual employment.

"Regular and systematic casual" employees are to be considered under section 22

For the purpose of defining "continuous service" under section 22 of the Fair Work Act, the Commission determined that this phrase includes a period of "regular and systematic casual employment", partly on the basis that section 22 does not contain any words excluding such an interpretation. However, as the one dissenting Commissioner put it, the danger is that a casual employment relationship based on one day of work per week for seven years might be considered "regular and systematic", with the entire seven-year period then being subsequently recognised.

The implications of the decision are broad because many casual employees do indeed have some level of prescribed regular working hours. Moreover, the inclusion of regular and systematic casual employment in the definition of continuous service under section 22 may have far-reaching ramifications with respect to other provisions of the Fair Work Act. In particular, although not considered in this decision, entitlements to annual leave and paid personal/carer's leave, for example, are also calculated by reference to years of continuous service as defined by section 22.

Next steps ‒ minimising the risk of larger redundancy payments

Employers need to review their redundancy practices, consider legal implications, and seek advice when changing the status of employees. In cases where an employer may acquire employees through a transfer of business, consideration may need to be given to the sale conditions and indemnities with respect to liabilities arising from redundancy payments. As discussed above, given the far-reaching effect of section 22, it is imperative that employers seek advice as to employees' entitlements when there has been a change of employment status.

The Commission's interpretation is controversial. One of the three members of the full bench disagreed with it, and the likelihood is that there may be an appeal of the decision. For the time being, however, employers should ensure that their employment practices adapt and their redundancy liabilities are reconsidered in response to this decision.