• Australia: Fair Work Commission Rules that Redundancy Payments Must Take into Account Prior Casual Employment in Certain Circumstances
  • October 25, 2016 | Author: Adam Salter
  • Law Firm: Jones Day - Sydney, New South Wales Office
  • In a surprising decision that is likely to have far-reaching implications, the Full Bench of the Fair Work Commission ("Commission") has ruled that, in calculating redundancy payments, the employee's period of continuous service must take into account certain periods of prior casual employment.

    The employer, Forgacs Engineering Pty Ltd ("Forgacs"), and its employees were covered by an enterprise agreement ("Agreement"). As part of a large-scale redundancy, Forgacs calculated redundancy payments for workers, some of whom were employed on a permanent basis but had prior contiguous periods of casual service. In doing so, Forgacs counted the prior casual service for the purpose of long service leave, but not for calculating notice or severance payments. At first instance, the Commission held that Forgacs had acted correctly in not counting periods of casual service as "continuous service." On appeal, the Full Bench of the Commission overturned the decision.

    The Agreement in question specified that redundancy payments should be calculated by reference to periods of "continuous service," a term defined in section 22 of the Fair Work Act 2009 (Cth) ("Act"). The Commission observed that, while it might seem contrary to "industrial justice" to allow an employee who has received a casual loading to have the same period of employment counted toward severance payments, neither the Agreement nor section 22 of the Act excluded a period of regular and systematic casual employment from the definition of "service" or "continuous service." As a result, where a worker completes a period of regular and systematic casual employment and immediately thereafter commences permanent employment, the earlier period should be included in the calculation of that worker's years of continuous service. In dissent, Commissioner Cambridge disagreed with the majority's interpretation of section 22 of the Act and asserted that casual employment, by its very nature, does not count as service and is not intended to attract service-related benefits under the Act.

    As a result of this decision, employers who have a practice of transitioning casual employees to permanent employment should be aware that any future redundancy entitlements may include casual periods of service completed immediately prior to the commencement of permanent employment. This decision has divided many, especially employer associations. Indeed, in a submission to the Commission as part of its four-yearly review of modern awards, the Australian Industry Group asked the Commission to reject the majority finding in this decision and follow the dissenting judgment, which is more consistent with previous authorities.