Better off overall - is it enough?

Modern Awards are often difficult to understand and administratively time-consuming when it comes to ensuring your employees are receiving all their entitlements. Many employers pay their staff a rate that is above the award, with the aim of covering off (setting off) other entitlements such as overtime and allowances. These employers operate on the view that if their employee's are 'better off overall', then they are meeting the requirements of the award.

A federal court decision about this very issue played out in 2020 in relation to claims a large number of employees covered by the Banking and Finance Award were underpaid by Macquarie Bank. The employee claims included underpayment in relation to annual leave loading, and base rate of pay for the ordinary hours for periods of annual leave, compassionate leave and parental/ carer's leave.

The employee contracts did not explicitly state that these entitlements were inclusive and the bank failed to prove that these entitlements were part and parcel of the employee's remuneration.

The Court stated:

"the respondent has failed to prove that this annual leave loading was paid to the relevant applicants or to the relevant applicants on leave accrued on termination.....[and] "The Court does not accept that the Salaries Normal payments have a sufficient close connection or characterisation to be treated as giving rise to a set-off. The receipt of the Salaries Normal does not provide a defence of payment or entitlement to set-off."

The Court acknowledged that the employee's claim was 'rapacious' given the substantial financial benefits the employee's received however the Court ruled that "whether a particular payment satisfies a relevant statutory obligation depends upon the objective purpose of the payment under the terms of the contract, the context of the circumstances known to both parties and the statutory framework".

In essence, even if an employee is better off overall, this may not be enough to satisfy modern award obligations.

OUR KEY TAKEAWAY: Employment contracts should be appropriately drafted to achieve award entitlement set-offs.

Do your employment agreements stack up?