A majority of a Full Bench of the Fair Work Commission has ruled that employers should count prior contiguous service as a casual where the employee then becomes a permanent employee, when determining redundancy payments.

Implications for employers

Following this decision, employers will have to count periods of regular and systematic casual employment when calculating redundancy payments, where the employee subsequently becomes a permanent employee and their employment is contiguous. The dissenting member in this ruling warned that this could retrospectively confer other entitlements not normally available to casual employees, such as annual leave. This decision is likely to have implications for employers who employ long-term casuals, who then become permanent employees and then lose their jobs. Additionally, practical challenges may arise where the current employer does not have access to details of this prior service, for instance, because of historical transfers of employees before this decision where the parties did not recognise prior casual service.

Background

This dispute arose under the Forgacs Engineering Enterprise Agreement 2013 (Agreement). Forgacs (now Donau Pty Ltd) is a large engineering and shipbuilding company that builds blocks for Australian Submarine Corporation as part of the Air Warfare Destroyer program at Tomago Shipyard. The Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union (AMWU) represents a majority of the workers employed at the Tomago Shipyard.

Due to the completion of the contract with Australian Submarine Corporation, and the absence of other work, Forgacs made a large proportion of its employees at the Tomago Shipyard redundant. There was no dispute between the parties that the redundancies were genuine.

A number of permanent employees had prior contiguous periods of service as casuals. The question put to Commissioner Riordan for determination at first instance was whether these prior contiguous periods of casual service count as service for the purposes of clause 21 (notice of termination) and clause 23 (severance payments) of the Agreement. These clauses provide that a casual employee is not entitled to notice of termination and, further, that no severance payment or notice payment is payable where an employee would not be entitled to notice or redundancy pay in accordance with the National Employment Standards (NES).

The Agreement also contains detailed arrangements concerning the transition from casual to permanent employment. These arrangements are consistent with the delineation between regular and systematic casual employment and an immediately subsequent period of permanent employment.

Legislation

Section 22 of the Fair Work Act (FW Act) sets out the meanings of “service” and “continuous service”. Pursuant to section 22, a period of service by an employee is a period during which the employee is employed by the employer, but excludes certain periods, for example a period of unauthorised absence or unpaid leave. An excluded period does not break the employee’s continuous service with their employer, however the period does not count towards the length of the employee’s continuous service.

Section 117 of the FW Act sets out the requirement of an employer to provide notice of termination or payment in lieu of notice, which is calculated according to the employee’s period of continuous service with the employer (as defined in section 22).

Section 119 of the FW Act sets out an employee’s entitlement to redundancy pay, where the employee has been made redundant. The amount payable under section 119 is calculated according to the employee’s period of continuous service with the employer (as defined in section 22).

Decision at first instance

Commissioner Riordan found that those employees who had been employed by Forgacs as casuals for prior contiguous periods of service, before becoming permanent, were paid a loading to compensate them for the notice and redundancy payment entitlements which attach to permanent employment. He found therefore that prior contiguous service does not count towards the calculation of the period of service for the purpose of notice and redundancy pay.

Decision on appeal

The AMWU sought permission to appeal on the grounds that the appeal raises important issues about the operation of section 117 of the FW Act (requirement for notice of termination or payment in lieu) and section 119 of the FW Act (redundancy pay) which have not been considered by a Full Bench before. Further, the AMWU contended that these issues are issues which attract the public interest.

The AMWU submitted that Commissioner Riordan erred in determining that the definition of “service” and “continuous service” in section 22 of the FW Act does not include periods of casual service, which affects how redundancy pay and notice of termination are calculated pursuant to sections 117 and 119. In the alternative, the AMWU submitted that the Commissioner erred by determining that the phrase “period of continuous service” in sections 117 and 119 of the FW Act had a meaning different to and were unaffected by section 22.

The majority (Senior Deputy President Drake and Deputy President Lawrence) noted that whilst the decision was about the proper construction of the Agreement, the issue also turned on the interpretation of the FW Act because the Agreement incorporates the NES.

The majority noted that the key provision of the FW Act is section 22 which defines “service” and “continuous service” for purposes of the FW Act and therefore the Agreement. Section 123 of the FW Act precludes a casual employee from accruing any entitlement to redundancy pay. Similarly, clause 23.6 of the Agreement states that there is no entitlement to redundancy pay pursuant to the Agreement if the employee would not be entitled to redundancy pay under the NES.

The majority held that nowhere in the detailed provisions relating to the transition from casual to permanent employment was there any support for the proposition that a period of regular and systematic casual employment contiguous with the commencement of permanent employment would be excluded from the calculation of “year of service”, “period of service” or “length of service”. These phrases in the Agreement were held to have the same meaning as “years of continuous service” in section 117 of the FW Act and section 119 of the FW Act.

Further, it was noted that there are no words in the FW Act or the Agreement which exclude any period of regular and systematic casual employment from the calculation of service for the purposes of a redundancy payment.

The majority was careful to state that this decision is not support for the proposition that employees who are casual employees at the date of termination of employment are entitled to redundancy payments.

In his dissenting judgment, Commissioner Cambridge opined that the majority adopted an interpretation of section 22 of the FW Act which is reliant upon the absence of particular words, rather than adopting a proper characterisation of the concept of “service” in the context of the overall statutory scheme. In Commissioner Cambridge’s view, the words “a period during which the employee is employed by the employer” as contained in section 22, must logically be confined to what is described as permanent employment. Any casual employment by its intrinsic nature does not count as service, nor does it attract service related benefits. Commissioner Cambridge found that the majority’s approach has the implication that if service includes service for prior casual employment in relation to redundancy and termination, then it could also apply retrospectively to service for annual leave and personal/carer’s leave.

Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union known as the Australian Manufacturing Workers’ Union (AMWU) v Donau Pty Ltd [2016] FWCFB 3075