Recovery of contractual entitlements under Fair Work legislation

Analysis

Recovery of contractual entitlements under Fair Work legislation

The right, under the Fair Work legislative regime, to recover contractual obligations that may provide a greater benefit than the statutory minima of the NES or a modern award is a little understood provision.

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The right, under the Fair Work legislative regime, to recover contractual obligations that may provide a greater benefit than the statutory minima of the NES or a modern award is a little understood provision.

The right of a Fair Work Australia inspector to recover an alleged underpayment or breach that relates to a condition under an employee’s contract of employment is a matter that requires clarification.

Issues can arise, for example, in relation to contractual entitlements relating to an over-award payment, or employment conditions relating to those matters under the National Employment Standards (NES).

Prior to the Fair Work Act 2009, an inspector could not enforce the contractual entitlements of an employee in any court, even if the inspector was bringing the enforcement proceedings in relation to the employee’s statutory entitlements. However, the Fair Work Act introduced a provision that provides scope for Fair Work inspectors to assist employees to enforce safety net contractual entitlements, in certain circumstances.

Safety net contractual entitlement

The key point is made in the Explanatory Memorandum to the Fair Work Bill 2009 — noting that s541 of the Act is designed to streamline and simplify enforcement by allowing inspectors to enforce contractual employee entitlements that relate to a breach of a certain statutory entitlement if, at the same time they are enforcing a breach of a certain statutory entitlement (whether or not the safety net contractual entitlements is about the same subject matter as the statutory entitlement that is being enforced).

Section 541 of the Fair Work Act provides that where an inspector applies to a court for an order in respect of a contravention or proposed contravention of a provision or a term specified in s541(3), the inspector will be able to enforce, on behalf of the employee, the employee’s safety net contractual entitlements.

The provisions and terms set out in s541(3) are:
  • a provision of the NES
  • a term of a modern award
  • a term of an enterprise agreement
  • a term of a workplace determination
  • a term of a national minimum wage order
  • a term of an equal remuneration order.
Definitions
 
The term ‘safety net contractual entitlements’ is defined in s12 of the Fair WorkAct to mean an entitlement under a contract between an employer and an employee that relates to any of the subject matters described in:
  • s61(2) (which deals with the National Employment Standards (NES); or
  • s139(1) (which deals with terms that may be included in a modern award).
This includes, for example, a contractual entitlement to wages in excess of minimum wages set out in a modern award or enterprise agreement.

Section 61(2) of the Act refers to matters applied under the NES, those matters being: maximum weekly hours; requests for flexible working arrangements; parental leave and related terms; annual leave; personal/carer’s leave (including compassionate leave); community service leave; long service leave; redundancy pay; public holidays, notice of termination and redundancy pay and Fair Work Information Statement. And, s139 refers to general terms that can be included in a modern award. These include: minimum wages; type of employment, arrangements for when work is performed; overtime rates; penalty rates; annualised wage arrangements; allowances; leave, leave loadings and arrangements for taking leave; superannuation; and procedures for consultation, representation and dispute settlement.

Illustrative examples
 
The Explanatory Memorandum provides a couple of scenarios to illustrate the relevant sections of the Fair Work Act.

The wages term that applies in a modern award to the employee provides that she is entitled to be paid at $20.00 per hour. The employee is entitled under her contract of employment with her employer, to be paid $22.77 per hour. The employee is entitled to four weeks of annual leave under the NES. The employee is entitled under her contract of employment to six weeks of annual leave. 

Scenario 1: Recovering annual leave entitlement under contract
Since the commencement of her employment, the employer has paid the employee only $20.00 per hour. After one year’s service, the employee has accrued six weeks of annual leave under the contract of employment and she agrees with her employer to take six weeks of annual leave. However, the employer only pays her for three weeks of annual leave.

In this scenario, the employer has met their statutory obligations in respect of the employee’s minimum wage because it has paid the amount required under the modern award. However, the employer has contravened the NES in relation to the employee’s annual leave entitlements. A contravention of the NES is a civil remedy provision and an inspector has standing to apply for an order(s) in relation to one week’s annual leave owing to the employee under the NES.

In addition, an inspector has standing to apply on the employee’s behalf for an order in relation to:
  • the difference between $20.00 per hour and $22.77 for each hour worked over the period, being the difference between what the employee was actually paid, and the amount the employee should have been paid under her contract of employment; plus
  • the additional two weeks of annual leave the employee is entitled to under her contract of employment (in addition to the four weeks of annual leave she is entitled to under the NES).

Scenario 2: No breach of legislation

Over the past year, the employer paid the employee only $20.00 per hour and did not meet the contractual obligations to pay the employee $22.77 per hour. The employer paid the employee her four weeks of annual leave entitlement under the NES (although not under her contract of employment).

In these circumstances, although the employer has breached the terms of the employee’s contract of employment in two respects, the employer has not contravened any term or provision set out in s541(3) and, therefore, an inspector would not have the power to investigate the contraventions nor the standing to apply to a court to the employee’s contractual entitlements.

However, the employee could enforce her contractual entitlements in a state or a territory court or could apply to the Federal Court or the Federal Magistrates Court for an order in relation to a statutory entitlement derived from her contract under s543.
 
Source: Paul Munro, IR Consultant.
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