AMWU v Donau Pty Ltd [2016] FWCFB 3075

Donau (previously Forgacs Engineering) was making a large proportion of its workforce redundant. This included a number of employees who had previously been employed on a casual basis prior to being transferred to permanent employment.

The Full Bench of the Fair Work Commission was asked to determine whether the prior ‘contiguous’ periods of casual service of the permanent employees were to be recognised for the purpose of calculating notice and severance payments.

Commissioner Riordan had earlier held that the prior service did not count towards the calculations. He said it was a long held principle that the payment of loadings compensated casual employees for their lack of access to the benefits afforded to permanent employees, including redundancy pay.

On appeal, a majority of the Full Bench (Senior Deputy President Drake and Deputy President Lawrence) considered the definition of service and continuous service under the Fair Work Act 2009 and found that the employees’ prior ‘contiguous’ periods of service did count as service for the purposes of notice of termination and severance payments under the agreement. The Forgacs enterprise agreement had incorporated the National Employment Standards and the applicable modern award and the majority of the Full Bench said that neither the agreement, nor the Act contained words excluding a period of regular and systematic employment from the calculation of service for the purposes of severance payments.

At first instance, Commissioner Riordan said it was neither ‘fair or logical’ for an employee who has been paid a casual loading to then be able to use that same period of service in the calculation of notice and redundancy pay as a permanent employee (in effect – double dipping). The Full Bench majority recognised this, but said neither the Act nor the Agreement excluded it.

As a result of this decision, employees who are entitled to redundancy pay under the Fair Work Act 2009 will be entitled to have that payment calculated by reference to service that includes any period of regular and systematic casual service that occurred immediately prior to their permanent employment. This means an employer’s liability for redundancy pay is potentially much greater than previously thought. It should be noted that any prior casual service that is not regular and systematic, however, will not count towards the employee’s period of service.

It is expected this case will continue to be in the news in 2017 given the potential impact the decision has on the calculation of service-based entitlements.

The Australian Industry Group has called on the Fair Work Commission to expressly reject the majority’s construction in its submission to the FWC’s four-year review of modern awards and we wait to see if the Commission will address this issue.