It is becoming more common for employees to commence work for an employer as a casual, and then at a later point in time convert to permanent employment – either because of the conversion clauses in modern awards, or simply because it best suits both parties.

Does Casual Service Count Towards Continuous Service?

A recent decision of the Fair Work Commission has made a significant change to the treatment of an employee’s service as a casual prior to their conversion to a permanent role. Historically, their previous casual service has not counted towards the calculation of redundancy pay, but this is no longer the case; and the impact may be felt beyond redundancy calculations.

In Australian Manufacturing Workers’ Union v Donau Pty Ltd [2016] FWCFB 3075 (Donau), an employee commenced working as a casual, but after a period of time converted to permanent employment. When the employee was later retrenched, their redundancy severance pay was calculated on their permanent service only. The employee claimed it should also have included their period of casual service – and the majority of the Full Bench agreed.

At first review, this will obviously mean higher severance payments for some retrenched employees. This of itself may be alarming to employers. However, while casual conversion is becoming more common, the decision is still perhaps of limited application.

Other Implications From This Interpretation

In our view, the bigger concern arises from the fact that the same principles may in the future be applied to the treatment of ‘service’ in the context of annual leave and sick leave – as the Fair Work Act gives employees a right to leave for ‘each year of service’. Applying the decision in Donau, casual employees who have converted to permanent employment may have a right to have their casual service counted towards the calculation for annual and personal leave. Is this really the intention of the National Employment Standards or the Fair Work Act?

Casual employees are paid a loading (generally 25%) in lieu of forgone entitlements, including notice of termination, redundancy pay and things like paid annual and personal leave. The outcome of the Donau decision means that casuals who convert to permanent employment are able to double dip against these redundancy entitlements, leaving the door open to similar double dipping in the future against other privileges such as notice, annual leave and personal leave.

For now, the precedent set by this decision applies to calculations of redundancy severance only. We will wait to see if the decision is appealed further, and also how the precedent will be applied to notice and leave situations.

In the meantime, it’s essential that employers ensure that a permanent employee’s previous regular and systematic casual employment is included when calculating their redundancy pay. Employers should also be careful about the application of this precedent where they purchase a business and convert staff from casual to permanent as part of the purchase transition.