Calculating notice and redundancy entitlements
Casual time now in the mix for calculating notice and redundancy entitlements under Fair Work Act
In a decision which could have wide-ranging consequences, a recent decision of the Full Bench of the Fair Work Commission has found that years of service as a casual employee must, in some circumstances, be taken into consideration in calculating an employee’s termination entitlements.
The statutory context
Under Division 11 of the National Employment Standards (NES), most permanent employees are entitled to be provided with a certain period of notice where their employer terminates their employment, or payment in lieu of that notice. Where the reason for termination is redundancy (i.e. the employer no longer requires the person’s job to be performed by anyone because of changes in operational requirements), an additional amount of redundancy pay is payable to the employee.
The amount of notice and redundancy pay an employer must provide depends on the number of years of “continuous service” the employee has. Previously, years of service as a casual employee have generally not counted towards an employee’s period of continuous service for the purpose of calculating termination entitlements. This stems from the law’s concept of casual employment as being made up of discrete periods of employment, where “the employment” terminates at the end of each casual shift.
However, in the recent decision of Australian Manufacturing Workers’ Union v Donau Pty Ltd, a majority of the Full Bench found that, properly construed, “continuous service” includes periods of regular and systematic casual employment that immediately precedes the employee converting to permanent employment when calculating termination entitlements.
The employer in this case was a large engineering and shipbuilding company, which had recently completed long-running contracts building parts for military submarines. This meant a large number of its workforce, represented by the AMWU, needed to be made redundant.
A significant number of the employees in question had been casual employees working on a regular and systematic basis immediately before they became permanent employees. The AMWU argued that the period of casual service for those employees should be counted towards their periods of “continuous service”, for the purpose of calculating notice and redundancy entitlements.
The majority decision of Senior Deputy President Drake and Deputy President Lawrence found in favour of the AMWU.
The majority focused on the definitions of “service” and “continuous service” contained in section 22 of the Fair Work Act 2009 (Cth) (FW Act), and noted that periods of service as a regular and systematic casual employee were not identified among the other exclusions from periods of “service” and “continuous service” in the definition.
The majority therefore held that periods of regular and casual employment which immediately preceded the outgoing employee’s period of permanent employment needed to be taken into consideration in calculating the amount of notice and redundancy pay to be afforded to that outgoing employee.
In doing so, the majority acknowledged that “industrial justice might suggest that it is unfair for an employee who has received a casual loading for a period of employment to have that period of employment also count towards the accrual of severance payments”. However, they said there was nothing in the words of the FW Act which suggested that such periods of service should not be counted in calculating termination entitlements.
It is important for employers to note that the majority’s decision “is not support for the proposition that employees who are casual employees at the date of termination of employment are entitled to redundancy payments”. This is chiefly because section 123(1)(c) of the FW Act stipulates that the provisions regarding termination and redundancy entitlements do not apply to casual employees.
The dissenting judgment
Commissioner Cambridge disagreed with the majority and came to the opposite conclusion.
Commissioner Cambridge considered other NES entitlements which depend on an employee’s length of “continuous service”, and noted that the NES extended some of these to long-term casual employees. For example, the entitlement to request flexible working arrangements contained in section 65 of the FW Act is extended specifically to long term casual employees. Commissioner Cambridge pointed out that there would be no need for this specific provision for long term casuals if the majority was correct and periods of regular and systematic casual employment counted towards periods of “continuous service”.
Commissioner Cambridge also noted that a logical consequence of the majority’s decision was that a person who has been a casual employee employed on a regular and systematic basis would become entitled to redundancy pay the day after they became a permanent employee, even though they would have had no such entitlement the day before, due to casuals being excluded under section 123(1)(c) of the FW Act.
It will be interesting to see whether this decision is the subject of an appeal to the Federal Court or a legislative response.
In the meantime, employers need to count periods of service as a regular and systematic casual employee immediately preceding employment as a permanent employee toward their employees’ statutory notice of termination and redundancy entitlements.
  FWCFB 3075
 Ibid., at paragraph 19.
 Ibid., at paragraph 16.
Author: James Remington