On 4 August 2021, the Australian High Court bolstered the power of business to define employment by contract, overturning a landmark “double dipping” decision that meant regular casuals were entitled to paid leave and left businesses facing a potential $39 billion backpay bill (see related TT article about WorkPac Pty Ltd v Rossato & Ors [2021] HCA 23). The same contractual approach is likely to ‘bleed into’ identifying who is an employee, and affect the ‘gig’ economy (UberEats/Deliveroo) cases running, for things like unfair dismissal (see related TT article). The most obvious tax issue, to flow out of how employment is characterised, is whether the payer has to withhold PAYG instalments of tax and pay them to the ATO, on account of the payee’s income tax.
See below for further detail.
The High Court has bolstered the power of business to define employment by contract, overturning a landmark “double dipping” decision that meant regular casuals were entitled to paid leave and left businesses facing a potential $39 billion backpay bill.
Legal experts said the unanimous ruling handed down on Wednesday was a major precedent on freedom of contract that could have far-reaching implications, including by reducing the scope for sham contracting claims brought against Uber and Deliveroo.
The ruling is a vindication of the Morrison government’s workplace reforms passed earlier this year that addressed a court decision by retrospectively defining casuals based on their job description rather than the practical reality of their employment.
Corrs Chambers Westgarth partner and former Fair Work vice-president, Graeme Watson, who helped draft the reforms, said the decision meant the law was now in line with the amendments and “removed” the threat of a constitutional challenge on the basis the changes deprived workers of their legal entitlements.
“Here you’ve got Parliament being vindicated,” he said. “This notion that an employee does not know what they are until a court decides … it’s judicial activism really.”
The ruling overturns the full Federal Court majority decision which included Justice Mordy Bromberg, whom a recent Menzies Research Centre analysis found ruled in favour of unions in 91 per cent of industrial relations cases decided between 2018 and 2020.
The Federal Court had found mine worker Robert Rossato was entitled to annual leave and other permanent entitlements on top of his 25 per cent casual loading because his full-time rosters, scheduled up to a year ahead, were a firm advanced commitment of work inconsistent with casual employment.
CFMEU approach ‘obscurantism’
However, six High Court judges led by Chief Justice Susan Kiefel said the full Federal Court had “strayed from the orthodox path” by insisting on the “practical reality” of the relationship.
The High Court found the rosters were “of limited significance” as Mr Rossato’s employment, maintained through consecutive fixed-term contracts, was still on an “assignment by assignment basis”.
“Inasmuch as the rosters imbued Mr Rossato’s employment with the qualities of regularity and systematic organisation during the period of each assignment, those qualities have been demonstrated to be entirely compatible with the notion of ‘casual employment’ in the [Fair Work] Act,” the Chief Justice said in the plurality decision.
“What was absent was a firm advance commitment to continuing work beyond the completion of the particular assignment.”
The judges dismissed the CFMEU’s approach, adopted by Justice Bromberg, that employment should be defined by its practical reality as “obscurantism”.
“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.”
Mr Watson said the decision “very strongly reinforced the primacy of contract”.
“This was really the reason why the original decision sent shockwaves through employer ranks,” he said.
“If you say, look at all the circumstances. and that includes post-contractual conduct … then the status or classification of an employee may change from time to time. That whole uncertainty was a nightmare for employers and led to widespread concerns.”
CFMEU mining president Tony Maher said the decision was disappointing in the fight against the “permanent casual rort” but overshadowed by Coalition laws that blocked compensation and embedded an “unfair definition of casual”.
One academic says …
University of Adelaide law professor Andrew Stewart said that the comments in the ruling were “shocking” and had “profound” implications for employment law.
He said the High Court had effectively signalled it was not interested in the protective intention of the Fair Work Act, that inequality of bargaining power was irrelevant and that “its job is to give effect to freedom of contract”.
The ruling also downplayed a key decision relied on in sham contracting claims – where workers allege they are really employees not independent contractors – which said courts needed to look at the totality of the employment relationship.
From ‘casual’ employee to who is an ’employee’
“This is not just a decision about who’s a casual,” he said. “There are very, very clear indications that the High Court will be overthrowing [recent sham contracting rulings] and sending the strongest possible signal that you are what your contract says you are.
”The emphasis on the idea that the parties should be able to know what their rights are and the role of court is to give effect to what parties have agreed is, on the face of it, an open invitation to engage workers as independent contractors or volunteers rather than as employees.”
Professor Stewart cautioned that businesses could still fall foul of the law and be liable for backpay for misclassifying casuals or independent contractors if they did not have the right contract in place or the difference between contract and reality was stark.
However, the bar was now higher and he questioned whether businesses would feel “they’ve been given the green light to push the boundaries between employment and contracting”.
“It’s certainly, for example, a massive boost for Uber and Deliveroo. It’s very hard to see how they can be found to be employers on the basis of contracts.”
Australian Chamber of Commerce and Industry acting chief executive Jenny Lambert said the decision reinstated “the long-standing common law and practice around employment.
“It’s time for a rethink on the misinformation around ‘insecure work’, concentrate on facts, and be guided by the preferences of Australians for how they work and by what businesses need, to stay in business and grow jobs,” she said.
Class actions to collect holiday pay for ‘casuals’
Adero law firm principal, Rory Markham, who is leading six multimillion-dollar class actions for casuals, said the decision was “a major setback but not fatal”.
“We feel there are arguments left on the table that could have been run for WorkPac employees, particularly around variation of contact and sham or pretence of contract,” he said.
“We’ll be investigating those and anticipate carrying on with those arguments in a revised or pivoted pleadings in the class actions.”
He said the idea that Mr Rossato was employed on an “assignment by assignment” basis was a fiction and employees had little freedom to reject assignment offers.
What the politicians say
Minister for Industrial Relations Michaelia Cash said the case highlighted the “confusion and uncertainty around casual employment that has been present for too long” and which the Coalition’s amendments had addressed, including a potential $39 billion liability for business.
However, opposition industrial relations spokesman Tony Burke accused the Morrison government of joining with labour hire firms to get the High Court outcome and using legislation to extinguish casuals’ rights.
“Under the government scheme passed earlier this year employers can benefit from the certainty of a permanent worker – but they don’t need to give them the benefits of permanent work like sick leave or annual leave,” he said.
“A Labor government will overturn the government’s scheme, ending the rorts and restoring rights to workers.“
[15.8.21]