The recent Federal Court decision of Williams v McMahon Mining Services Pty Ltd [2010] FCA 1321 may cause some concern for the large number of employers across Australia who engage employees as so-called “regular casuals”.

In this decision, Justice Barker upheld the Federal Magistrate’s decision that Mr Williams was not a casual employee, despite his employment contract specifically stating that he was. As a result of this finding, Mr Williams was entitled to have annual leave paid out upon termination of his employment in accordance with the relevant provisions of the Workplace Relations Act 1996 (‘”the WR Act”). Alarmingly for employers, McMahon Mining was not permitted to set off this payment against the casual loading that it had paid Mr Williams.

The significance of this case will depend on whether the reasoning is confined to its somewhat unusual facts or whether it is applied to a wider range of fact scenarios in subsequent decisions. However, as it stands, Justice Barker’s reasoning has potential for broad application to a large number of casual employment relationships within any industry. It is therefore important for all employers to be aware of this decision.

Mr Williams was employed as a miner by McMahon Mining for just over one year on a fly in, fly out arrangement. His contract identified him as a casual employee and stated that, as a casual employee, he would be paid a flat rate of $40.00 per hour which included “a loading in lieu of paid leave entitlements.” The contract also set out Mr Williams’ hours of work and his rostering arrangement. Under the contract, either party could terminate employment by one hour’s notice, which McMahon Mining did in December 2007.

It was decided that merely labelling Mr Williams as a “casual employee” will not override the true legal relationship. Further to this, Justice Barker stated that “the concept of a casual worker being involved in work which is discontinuous – intermittent or irregular – remains relevant and helpful in understanding the concept today.”

Mr Williams was not engaged on an irregular or intermittent basis. His contract provided for the future and there was a regular roster in place with travel arrangements to facilitate it. All these factors led to the conclusion that Mr Williams was not a casual employee, despite the contract saying that he was, and despite the provision allowing for termination on very short notice.

Therefore, because he was not a casual employee, Mr Williams was entitled to have his annual leave paid out upon termination.

Justice Barker decided that this annual leave payment could not be set off against the casual loading that had been paid. Justice Barker believed that there would be a real inconsistency between allowing such a set off and the provisions of the Australian Fair Pay and Conditions Standard dealing with annual leave. Section 173 of the WR Act prevented contracting out of the provisions of the Standard. By allowing the amount owed to Mr Williams for annual leave to be set off against the casual loading, Justice Barker would have been in effect allowing McMahon Mining to contract out of the requirement to provide Mr Williams with annual leave and to pay that leave out upon termination.

Although this decision was made under the WR Act, it is certainly possible that the same decision could be reached under the new Fair Work Act 2009 (“the FW Act”). While the FW Act does not contain any direct equivalent to section 173 of WR Act, the FW Act was drafted on the assumption that employers and employees cannot contract out of the minimum statutory entitlements that are guaranteed by the Act.

Also, like the WR Act, the FW Act does not define the terms “casual employment” or “casual employee”. Therefore, it would be open for a judge to decide, as Justice Barker did, that an employee can only truly be a casual employee if he or she is not employed on a regular and systematic basis.

What this decision does not consider is the effect of provisions of many modern awards and enterprise agreements that define a casual employee as an employee “who is engaged and paid as such”. It is not clear from this decision whether it would be possible for an employee covered by such an award or enterprise agreement to argue that they were not a casual employee for the purposes of the National Employment Standards under the FW Act in spite of such a definition.

It is important for employers to review their existing arrangements with casual employees. If you have any concerns that a casual employee, who is engaged on a regular and systematic basis, may not be a true casual employee, we recommend that you seek our advice.