Casual Conversion’s Hidden Cost

AMWU v Donau Pty Ltd [2016] FWCFB 3075 (15 August 2016)

An engineering and shipbuilding company got a nasty surprise when it made a group of employees redundant – the employees’ length of service was found to include their earlier stint as casuals, greatly increasing their entitlements under the statutory provisions.

The problem started for the company when it converted a group of casuals to permanent workers, assuming that the employees’ service date for various permanent worker entitlements would commence with the conversion date. But the Fair Work Commission found otherwise. In a majority full bench ruling, FWC agreed with the union which claimed redundancy pay accruals should be calculated from the employees first ever date of employment, not the conversion date.

It is well established that the entitlement to notice and redundancy pay is included in the casual loading. This is enshrined in legislation and in many modern awards. It was reasonable for the employer to assume that the clock started running on “service” as a permanent, rather than as a casual employee, because for all the time the employees were casuals, they were paid the loading.

But the majority found that the Fair Work Act does not distinguish between permanents and casual in the definitions of “service”. They said that, notwithstanding industrial justice would suggest the payment of the loading precluded the approach urged on them by the union, the fact that the Act did not make that distinction, meant the newly converted casuals had to be paid redundancy based on the full length of their time with the company including when engaged and paid as a casual.

The dissenting commissioner made the point that the reasons for the casual loading included that casuals period of service did not count towards accruing permanent entitlements unless specifically provided for in legislation. An example of this is long service leave. He went on to ask that, if the rationale for paying redundancy was based on the inadequacies of the Fair Work Act, then why wouldn’t the same logic apply to annual leave, sick leave and other entitlements that accrue based on length of service?

This last point is particularly relevant and means that employers should be wary of agreeing to employee requests to convert from casual to permanent. If this majority full bench decision is unchallenged or the legislation is not changed, then the ruling has the potential to greatly inflate the costs of casual conversion.