The Commonwealth will be a party to an industrial relations test case over whether casual staff are entitled to annual leave payments.
Industrial Relations Minister Kelly O'Dwyer will intervene in a Federal Court case which could set a precedent for casual workers' pay and leave entitlements.
Labour hire firm WorkPac has filed an application seeking declarations a former employee, Robert Rossato, was a casual employee and not entitled to be paid leave entitlements.
"It is important for me to intervene in this case given the considerable concern across Australia's three million small businesses and given the impact it could have on job creation and existing jobs," Ms O'Dwyer said.
The Commonwealth will be a party to the test case, which comes after an earlier ruling which found a casual truck driver employed by the company was entitled to an annual leave payout.
Ms O'Dwyer said the government was concerned the legal right to offset an obligation against payments already made for the same entitlements was not dealt with in the first case.
"We want to make sure the same thing does not happen again," she said.
"It must be made clear that the fundamental common law right to offset is available to small business employers if it faces claims to pay for the same entitlement twice."
The Federal Court in August found the truck driver employed under a labour hire arrangement was not a casual under employment law because of his regular pattern of work.
Australian Industry Group chief executive Innes Willox welcomed the decision.
"Casual employment plays a vital role in Australia's labour market. A loss in flexibility in this area would destroy competitiveness and jobs," Mr Willox said.
But unions are fuming, with Australian Council of Unions president Michele O'Neil arguing the initial court decision rightly exposed big business cheating workers out of entitlements.
"There is a long history of case law about what makes a person a casual and it is very clear that people who have fixed and continuous work are entitled to accrued leave," Ms O'Neil said.
"Big businesses in the labour hire industry have been caught abusing the casual classification and they're trying to escape paying working people the money they're owed."