Redundancy pay has, up until now, been calculated by reference to employees’ permanent service only. But in a game changing FWC (Fair Work Commission) decision on what counts as “service,” a Full Bench has found that periods of regular and systematic casual employment, before becoming a permanent employee, are to be taken into account when calculating service. 

When a shipbuilding company made a number of its employees redundant at one of its yards after the completion of a major contract, a union disputed the company’s redundancy pay calculation for permanent employees who had previously been employed as regular casuals with the company. 

In the original decision, the FWC found that, in accordance with the company’s EA, prior continuous service was only recognised for the purposes of calculating long service leave, not notice or severance payments. The FWC said that the 25% loading casual employees receive compensate them for service-related benefits such as redundancy pay, which are only accessible to permanent employees. However, this decision was overturned by a Full Bench majority on appeal. 

In the majority decision, Drake SDP and Lawrence DP adopted a broad interpretation of “continuous service” under s.22 of the Fair Work 2009 (the Act). Although the Bench acknowledged the principle of a casual loading and ‘industrial justice,’ it found that the definition of continuous service under the Act includes periods of regular and systematic casual employment for the purpose of severance payments. 

The dissenting member, Commissioner Cambridge, said the majority had adopted an erroneous approach to the interpretation of s.22, which is reliant upon the absence of express terms relating to casual employment within that section. In his view, the majority did not properly characterise the concept of service in the overall statutory scheme – which has been the orthodoxy to date. 

Commissioner Cambridge warned that the majority’s characterisation of service as “encompassing a period of casual employment prior to permanent employment being established” has significant implications for a number of NES items. In particular, the payment of annual and personal/ carer’s leave, which accrue based on each year of service. 

He said that the practical effect of this construction is that service related benefits that are “unambiguously not available” to a casual employee become bestowed on a permanent employee for a prior period of service which would not have provided any entitlement for that benefit. 

What remains unclear is whether this decision will feed into other service-related benefits contained in the Act. Only time will tell. 

What we do know for certain is that this decision has real and potentially costly effects for employers who convert casual employees to permanent employees.  A redundancy bill may check out a lot higher than originally anticipated. 

To avoid any doubt about an employee’s entitlements, employers should check their payroll records for any mixed period/s of casual and permanent employment.  And be very careful dealing with casual conversion issues.

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