Secondments – Can an employee choose not to go on secondment? Can sending an employee on secondment constitute adverse action?

Introduction

Secondments are arrangements where an employee is temporarily transferred to work in another office (internal secondment) or for a different legal entity (external secondment). While working for the host, the secondee will remain employed by their employer.

Secondments in the legal industry are very common. Lawyers working at large commercial law firms are often sent on short term secondments to work in-house for a client. There are a number of benefits that flow from this arrangement. The client gets specialty legal advice and the seconded lawyer can help upskill the client’s staff on basic legal matters. In return the seconded lawyer builds connections with the client and hopes to obtain further work with the client when they return from secondment. The seconded lawyer continues to be employed and paid by the law firm. The law firm will have a separate agreement with the client as to how much the client pays for the secondment. Ordinarily this rate will be the lawyer’s wages plus a fee the law firm takes for providing the services.

Ordinarily a secondment is a great short term professional development opportunity for the employee concerned. However, there are some situations where an employee may not welcome a secondment, such as where the employee is concerned about relocating to another location, that the placement will involve deskilling, would make performance management difficult or would involve a significant amount of new training. In these situations, is an employee able to refuse to go on secondment?

Can an employee refuse to go on a secondment?

Lawful employer directions

Generally speaking if an employee is directed to go on secondment by their employer and this direction is a "lawful direction" then the employee must go on the secondment. A lawful direction is one which relates to the subject matter of the employee’s employment, involves no illegality and is reasonable (see Dixon J in R v Darling Island Stevedoring & Lighterage Co Ltd; Ex parte Halliday (1938) 60 CLR 601 – this case concerned a provision of an award but the provision adopted the common law test for a lawful direction).

Generally speaking it will not matter that the work completed on secondment is not interesting or that there is not enough work for a secondee. There is no common law right for an employee to be provided with work or meaningful work (note this common law position may be altered by an applicable enterprise agreement, contract of employment, or other workplace instrument).

It is important to note that an employee does not have to comply with a direction that is unlawful. Therefore if a direction to go on secondment breaches an employer’s obligation under the Fair Work Act 2009 (Fair Work Act), the employee does not have to comply with the direction. Employees should be particularly alert if the secondment occurs at the same time as a significant change within their employer’s organisations such as a new outsourcing arrangement or a merger.

Can sending an employee on a secondment be adverse action?

In the recent case of McJannet v Special Broadcasting Services Corporation t/as SBS Corporation [2016] FCCA 2937 the Federal Circuit Court considered whether sending an employee on secondment can constitute adverse action.

Ms McJannet was employed by SBS as a Presentation Coordinator Supervisor within the Technology and Distribution Division. She had worked for SBS since 1982. In late 2014 SBS entered into an agreement to outsource its playout operations to Deluxe Australia Pty Ltd. As a consequence of the outsourcing:

A number of SBS employees of the T&D division (excluding Ms McJannet and some others) were offered and accepted employment with Deluxe; and


SBS decided to retain Ms McJannet and a number of other members of the T&D division as employees. Ms McJannet was then directed to go on secondment with Deluxe in order to perform the requirements of her position.

Ms McJannet took a period of leave, resigned on 14 March 2016, and did not go on the secondment. Despite her resignation SBS encouraged her to reconsider her resignation and recommence employment but she did not take up this offer and her employment with SBS ceased.

Ms McJannet alleged a number of contraventions of the Fair Work Act and her contract of employment. Relevantly for this blog post, Ms McJannet claimed adverse action had occurred under s.340 of the Fair Work Act when SBS decided to require her to undertake a secondment (or otherwise resign) and not pay her redundancy. Section 340 of the FW Act provides that a person must not take adverse action against another employee because the other person has a workplace right (etc) to prevent the exercise of a workplace right by the other person. Ms McJannet claimed she had a right to redundancy payout. Adverse action is defined in s.342 of the Fair Work Act. Adverse action is taken by an employer against an employee if the employer injures the employee in his or her employment (s.342(1) Item 1(b)) or alters the position of the employee to the employee’s prejudice (s.342(1) Item 1(c)). SBS submitted that adverse action had not occurred as there was no "injury" or prejudicial alteration to her position, and she was not entitled to a redundancy payment.

Judge Altobelli found there was no adverse action. Ms McJannet was never in scope to be offered employment with Deluxe and was never offered a financial settlement as a consequence of the outsourcing. Judge Altobelli found the proposed secondment did not require the functions of Ms McJannet’s position to be transferred to another location and therefore she was not eligible for a redundancy under the relevant clause of the enterprise agreement. Ms McJannet was directed to go on secondment to Deluxe and was not offered resignation as an alternative.

Ms McJannet was particularly concerned about being sent on secondment because she believed it would involve deskilling, make performance management difficult, involve a new work location, involve new training, and raise problems with her supervising team located physically apart from her. Judge Altobelli found that no aspect of the secondment would have altered the position of the applicant to her prejudice and that there was no adverse action. 

 

Summary

Ordinarily, if an employee is directed to go on secondment by their employer and the direction is a lawful direction, the employee will have to go on the secondment regardless of whether the employee has to change physical work location or whether the employee will be getting challenging or interesting work. Employees should look out for any additional factors that may affect their employer’s power to send them on a secondment, such as a Secondment Policy or relevant provisions of an enterprise agreement.

It is possible that requiring an employee to go on secondment may constitute adverse action in certain factual circumstances. However, the case of McJannet v Special Broadcasting Services Corporation t/as SBS Corporation [2016] FCCA 2937 indicates that it will be difficult to establish that being sent on secondment "alters the position of the employee to the employee’s prejudice" or "injures the employee in his or her employment" under s.342 of the Fair Work Act. 

 

For further reading I recommend the case of Westpac Banking Corporation v Wittenberg [2016] FCAFC 33 which involves complicated legal issues arising from five secondments that occurred during the merger of St George Bank with Westpac Banking Corporation. You may also wish to read Swiegers v Commonwealth Scientific and Industrial Research Organisation [2015] NSWDC, a decision concerning the employer’s failure to provide a role for the secondee when the secondee returned to the employer from secondment.

Sick leave – when does an employee need to provide a medical certificate?

When you are sick and need to take a day off work, the last thing you feel like doing is waiting in a doctor’s drop-in practice for hours to get a medical certificate for your boss. In this blog post I explain the situations when your employer can lawfully request evidence such as a medical certificate and the type of evidence which will satisfy the requirement.

 

Personal leave - basic principles

The material in this blog post is only relevant to national system employees to which the Fair Work Act 2009 (Fair Work Act) applies. The term used for sick leave in the Fair Work Act is “personal leave”. A full time employee is entitled to 10 days of paid personal/carer’s leave for each year of service (s.96 Fair Work Act). Personal leave accrues progressively during a year of service according to the employee’s ordinary hours of work and accumulates from year to year. Part time employees have the same pro rata entitlement. Employers cannot contravene a National Employment Standard and are subject to the Fair Work Act’s civil penalty regime if a contravention does occur (s.44). Accrued personal leave will not be cashed out unless an award or enterprise agreement applying to the employee permits cashing out (s.100).

 

A modern award or enterprise agreement cannot exclude a National Employment Standard such as the entitlement to personal leave in s.96 of the Fair Work Act. However, modern awards and enterprise agreements may contain certain additional clauses relating to personal leave including terms relating to the kind of evidence an employee must provide to be entitled to paid personal leave (s.107(5)). An employee to whom a modern award or enterprise agreement applies must therefore check the provisions of the relevant instrument to see whether more detailed evidence requirements apply than the basic requirements contained in s.107. 

 

Evidentiary requirements

Section 107 of the Fair Work Act provides the notice and evidence requirements for personal leave. After the employee provides notice of the personal leave to the employer, the employee must, if required by the employer, give the employer evidence that would satisfy a reasonable person that the leave is taken “because the employee is not fit for work because of a personal illness, or personal injury, affecting the employee” (s.107 and s.97). Two questions arise:

1.                  When can an employer request evidence?

2.                  What type of evidence would satisfy a reasonable person?

 

When can an employer request evidence?

The words used in s.107 are “must, if required by the employer”. This appears to provide employers with broad power to request medical evidence. However, employers should consider whether requiring the medical evidence is reasonable. Situations where it would be reasonable to request medical evidence include where there is an extended absence, a particular pattern of absence, or the employer otherwise reasonably suspects the employee does not satisfy the requirements to take personal leave. Where the employer makes a request for the evidence, the evidence must be provided within a reasonable timeframe. A reasonable timeframe could be during the personal leave (if the personal leave is occurring over a long period of time), or after the personal leave has finished (if the personal leave is for a short period of time).

 

What type of evidence would satisfy a reasonable person?

A reasonable person would be satisfied by medical evidence such as a medical certificate. Personal leave may be taken where the employee “is not fit to work because of a personal illness, or personal injury, affecting the employee” (s.97). Note the “not fit to work” requirement. Having an illness or injury alone is not sufficient to take personal leave. Where a medical certificate is not obtained and an employer subsequently requests evidence, the employee may be able to submit a statutory declaration as evidence that would satisfy a reasonable person. However, a statutory declaration may not suffice where a modern award or enterprise agreement has more specific evidence requirements. A good example is the Telstra Enterprise Agreement 2015-2018.

 

Clause 32.2(a) provides that “medical evidence” must be provided to an employee’s manager if personal leave is more than 3 consecutive work days or if more than 5 personal leave days have already been taken during the leave year without providing evidence. A statutory declaration is unlikely to fall within the concept of “medical evidence”, especially when contrasted to clause 32.2(b) which expressly permits a statutory declaration be provided where the employer has requested evidence after forming a reasonable suspicion the employee is not entitled to the personal leave.

Modern awards and enterprise agreements may contain more specific provisions relating to personal leave evidentiary requirements.

Modern awards and enterprise agreements may contain more specific provisions relating to personal leave evidentiary requirements. It is therefore important to understand whether you are covered by a modern award or enterprise agreement. You should be able to find this information in your employment contract or letter of offer. If in doubt, you should talk to your employer’s human resources contact or call the Fair Work Ombudsman for advice.

Enterprise agreements often contain specific provisions relating to personal leave evidentiary requirements. In contrast, modern awards generally refer to the personal/carer’s leave in the National Employment Standards and do not provide additional evidentiary requirements for personal leave. For example, the Banking, Finance and Insurance Award 2010 provides “Personal/carer’s leave and compassionate leave are provided for in the NES”. Some modern awards provide for unpaid personal leave for casuals, such as the General Retail Industry Award 2010:

33.1 Personal/carer’s leave and compassionate leave are provided for in the NES.

33.2 Casual employees are entitled to be not available for work or to leave work to care for a person who is sick and requires care and support or who requires care due to an emergency.

33.3 Such leave is unpaid. A maximum of 48 hours absence is allowed by right with additional absence by agreement.

Case law on the evidentiary requirements of s.107 is limited:

1.      Australian and International Pilots Association v Qantas Airways Ltd [2014] FCA 32

This adverse action case concerned a pilot First Officer Greg Kiernan who took extended sick leave due to clinical depression. Mr Kiernan produced medical certificates, but Qantas requested a more detailed report that outlined his fitness to work in his role as a pilot and the expected timeframe to resume normal duties. Mr Kiernan argued he had satisfied this evidentiary requirement by providing the medical certificates and was not required to produce a more detailed report. The key provisions of the certified agreement were:

 

“31.3.7 Notifying the Company of illness

A flight crew member is required to notify the Company immediately upon becoming ill and will, as far as possible, state the nature of the illness and the estimated duration of absence.
...

31.3.10 When a medical certificate is required

(d) Before being required to produce a medical certificate or other evidence of unfitness for duty, a flight crew member is entitled to a maximum of four occasions or seven days of sick leave commencing from 20 August in each year. However, if a flight crew member reports sick on the same day that he or she is contacted for duty or on the following day, the Company may require the flight crew member to produce a medical certificate or other evidence of unfitness for duty.

(e) Any patterns affected by non-certificated sick leave will be unpaid other than as provided in 31.3.10(a).” (emphasis added)

 

Justice Rares held that the provisions in the certified agreement were not exhaustive of the contractual rights between Qantas and its employees in respect of when or why Qantas could require an employee to undergo a medical examination or provide further information about the employee’s medical condition. Justice Rares implied a term into the employment contract that Qantas may require medical evidence of the kind sought from Mr Kiernan, and require Mr Kiernan to attend a meeting to discuss matters arising from the certified agreement and the Work Health and Safety Act. The implied term is necessary to enable the employer to make its own business arrangements and to adjust for the impact caused by the sickness. Unless there is an express term to the contrary, ordinarily in a contract of employment, each party agrees to do all such things as are necessary on their part to enable the other party to have the benefit of the contract.

While this case did not directly concern the interpretation of the evidentiary provisions in s.107 of the Fair Work Act, it is a good example of the many layers of law that can influence when an employer can request medical evidence.

 

2.      Maritime Union of Australia v DP World Sydney Limited [2014] FWC 2682

This case involved an employee who provided a backdated medical certificate as evidence of an illness. The employee was covered by the DP World Sydney Enterprise Agreement 2011 which included both a personal leave clause (cl.16) and an absence management clause (Appendix 1). The absence management clause provided:

DP World understands that from time to time, Employees are unable to attend work due to illness or injury. In these circumstances, Employees have the right to access their sick leave entitlement provided for under the Agreement provided this is for genuine illness. Employees should be aware however of the impact unplanned absences have on the business and the Company's ability to properly service its customers. For these reasons and to ensure sick leave is used for genuine illness or injury the Company requires Employees to provide the following evidence to substantiate their absences in any of the following circumstances:

(a) 5 days absence in the year may be uncertified;

(b) The 6th uncertified day of absence requires production of a statutory declaration;

(c) Any absence in excess of 6 uncertified days must be accompanied by a medical certificate;

(d) Sick leave absences for each day prior to or following a public holiday must be accompanied by a medical certificate;

(e) Employees who are subject to an Absence Management Plan (AMP) must provide a medical certificate for any absence:

In the cases where medical certificates must be provided as outlined, the certificates will only be accepted in the following circumstances:

(a) Prior to the day of the absence;

(b) On the day of the absence;

(c) On the next rostered shift immediately following the absence (provided certificate is not backdated).

In all these circumstances no backdated medical certificates will be accepted.” [Emphasis added]

 

Commissioner Cambridge held that a backdated medical certificate certifies illness in respect to a period before the date the medical practitioner examined the person and made the certificate. Appendix 1 of the enterprise agreement needed to be reconciled with s.107 of the Fair Work Act which provides any evidence that would satisfy a reasonable person can be provided as evidence of the personal leave. Unilaterally rejecting a backdated medical certificate that deprives an employee of their personal leave entitlements will breach s.107 of the Fair Work Act. This case highlights the risks associated with focusing solely on the provisions of an enterprise agreement in determining employee leave entitlements. Enterprise agreements must be read subject to the sections of the Fair Work Act.

 

3.      Vos Construction and Joinery Pty Ltd re Vos Construction & Joinery Pty Ltd Enterprise Agreement (Construction North) 2013-2016 [2013] FWC 4009

A proposed enterprise agreement contained a notice clause requiring more onerous notice requirements than contained in s.107 when an employee takes personal leave. Commissioner Ryan reiterated that whilst s.107(5) permits enterprise agreements to include terms relating to the kind of evidence an employee must provide to an employer there is no provision in s.107 for enterprise agreements to contain a term with more onerous notice requirements than provided for in s.107(2) of the Fair Work Act.

 

4.      Trustee for the MTGI Trust v Johnston [2016] FCAFC 140

Mr Johnston took annual leave when his wife had an emergency caesarean and his fourth child was born ten weeks premature. He later sought to transfer that leave to personal leave. This lead to his dismissal by his employer. The Full Court of the Federal Court upheld the unfair dismissal decision.

 

Conclusions

1.      Employees

·         You are only entitled to take personal leave under s.97 of the Fair Work Act where an illness or injury means you are not fit to work. Personal leave cannot be used for other reasons. If you need to care for a family member, you may be able to take carer’s leave in accordance with s.97(b) of the Fair Work Act.

·         Familiarize yourself with the evidentiary requirements of the enterprise agreement or award that covers you so you know in advance whether you will need to obtain medical evidence.

·         If you are unsure call human resources at your work and find out what their expectations are. While their expectations may or may not be the correct legal interpretation of the enterprise agreement or award, it is in your best interests to obtain the medical evidence and dispute the requirement later if you wish. You can also call the Fair Work Ombudsman for advice.

·         Keep track of days you take leave without medical evidence. This is particularly important if the enterprise agreement provides that medical evidence must be given after a certain amount of days of personal leave have been taken. Your employer must provide information about the number of days of personal leave you have taken within a reasonable time on request (see s.536 Fair Work Act and reg.3.36 Fair Work Regulations 2009).

 

2.      Employers

·         It may not be reasonable to request medical evidence for personal leave in all situations.

·         Ensure you are familiar with the personal leave provisions in any enterprise agreements or modern awards relating to your employees. In particular, the provisions in an enterprise agreement or modern award must be read in conjunction with the Fair Work Act and the contract of employment.

·         Ensure records are kept of personal leave taken by employees and respond to employee requests for personal leave records in a reasonable time frame.

 

Budden v Finke Enterprises Pty Ltd [2016] FWC 562 – employer can direct you to change your hair colour and a retaliatory response could constitute reason for dismissal

Thinking of dying your hair a crazy colour for charitable purposes? You might want to think again, as an employer may be able to lawfully direct you to change your hair colour and a failure to comply with a lawful direction may constitute reason for dismissal. You should also think twice about the way you react to a warning about your hair colour or appearance, as your reaction alone may be a sufficient reason for dismissal. In the recent case of Budden v Finke Enterprises Pty Ltd [2016] FWC 562, the employee’s reaction to a direction to change hair colour was a valid reason for dismissal under s.387(a) of the Fair Work Act 2009.

Unfair dismissal – the basics

To come within the unfair dismissals jurisdiction of the Fair Work Commission, an applicant must first meet a number of qualifying criteria, including the minimum employment period of 6 months or 12 months for small business employers (s.383), and come within the limitation period of 21 days (s.394). An unfair dismissal will only have occurred where the criteria in s.385 are satisfied:

(a)    The person has been dismissed; and

(b)   The dismissal was harsh, unjust or unreasonable; and

(c)    The dismissal was not consistent with the Small Business Fair Dismissal Code (where applicable); and

(d)   The dismissal was not a case of genuine redundancy.

In Ms Budden’s case, the focus was on s.385(b), whether the dismissal was “harsh, unjust or reasonable”. In considering whether a dismissal is “harsh, unjust or unreasonable”, the criteria in s.387 must be taken into account:

(a)  whether there was a valid reason for the dismissal related to the person's capacity or conduct (including its effect on the safety and welfare of other employees); and

(b)  whether the person was notified of that reason; and

(c)  whether the person was given an opportunity to respond to any reason related to the capacity or conduct of the person; and

(d)  any unreasonable refusal by the employer to allow the person to have a support person present to assist at any discussions relating to dismissal; and

(e)  if the dismissal related to unsatisfactory performance by the person--whether the person had been warned about that unsatisfactory performance before the dismissal; and

(f)  the degree to which the size of the employer's enterprise would be likely to impact on the procedures followed in effecting the dismissal; and

(g)  the degree to which the absence of dedicated human resource management specialists or expertise in the enterprise would be likely to impact on the procedures followed in effecting the dismissal; and

(h)  any other matters that the FWC considers relevant.

While all the criteria in s.387 must be taken into account, the focus in Ms Budden’s case was on s.387(a), whether there was a valid reason for the dismissal related to the person’s capacity or conduct.

Facts

Ms Budden was employed part time by Finke Enterprises to work five hours a day Monday to Friday at Fused Café. Ms Budden was the most senior cook employed. She was passionate about raising awareness about breast cancer and persuaded the Directors of Finke Enterprises to raise funds for breast cancer research in October 2015. The Directors agreed to donate 10c from every hot beverage sold as well as part proceeds from the sale of pink slices cooked by Ms Budden. There were two separate issues that led to Ms Budden being issued with a formal warning on 17 September 2015 and later put forward as a valid reason for dismissal under s.387(a) of the Fair Work Act 2009:

1.       Making derogatory comments about her employer to colleagues after she dyed her hair fluorescent pink and was directed to dye it a more work appropriate colour; and

2.       Complaints from staff about intimidation and bullying.

Dyeing hair fluorescent pink

Without consulting with her employer, Ms Budden dyed her hair fluorescent pink on 10 September 2015 in preparation for the October breast cancer fundraising campaign. On 17 September 2015 Ms Budden was given a formal verbal warning giving her until the 21 September to change her hair colour. This was followed up by a phone call during which Ms Budden yelled and swore at a Director. A formal written warning was also issued reiterating the options for changing her hair colour, indicating her behaviour on the telephone was inappropriate and that any further issues would result in a review of her employment status.

Commissioner Saunders held that the direction to change hair colour was a lawful direction because:

1.       Customers of the café could see Ms Budden in the kitchen and Ms Budden sometimes interacted with customers;

2.       The owner of a café is entitled to require staff working in a café to have a neat and professional appearance;

3.       The owner offered a number of reasonable options including for Ms Budden to dye her hair a lighter “ash pink” colour for the duration of the breast cancer fundraising month;  and

4.       The fact the employer had previously accepted Ms Budden’s different hair colours did not matter, as those hair colours were not fluorescent.

While Ms Budden reluctantly followed the direction and dyed her hair a more subtle cranberry colour, she was not happy and vented to her colleagues. In particular, at an employee’s 21^st birthday in which many of her colleagues were present, Ms Budden approached a number of colleagues and indicated she was angry she had to change her hair colour and made statements such as “would you like me to show you what it looked like before they fucking made me change it?”.

A final meeting was held on 21 September 2015 with management to give Ms Budden an opportunity to apologise or provide a comment on her behaviour. Ms Budden stormed out a number of times, returning only to make angry comments and storm off again. The decision was then made to dismiss Ms Budden. 

While Commissioner Saunders relied more on the intimidation grounds for dismissal discussed below, he also found Ms Budden’s behaviour in bad-mouthing her employer to be a valid reason for dismissal as her behaviour viewed objectively was likely to cause serious damage to the relationship of trust and confidence with her employer. As Ms Budden had complied with the direction to change her hair colour, Commissioner Saunders did not have to consider whether a failure to comply with the direction would have been a valid reason for dismissal. It is likely it would have been a valid reason for dismissal given if the direction was lawful, as the refusal would likely effect the trust and confidence between parties in the employment relationship.

Staff complaints of intimidation and bullying

Prior to the verbal and written warnings issued on 17 September 2015 Ms Budden had received a number of warnings about her intimidating behaviour including yelling aggressively at staff, putting staff down, calling staff names such as “idiot”, slapping a staff member’s hand, criticising staff members behind their back, and criticising the café’s owners. There was also a particular incident where Ms Budden cornered a junior employee and asking if she was scared of her. The warnings on 17 September 2015 also included a further warning about her intimidating behaviour.

Commissioner Saunders found Ms Budden’s behaviour was a valid reason for dismissal, as an employer has obligations of health and safety to employees in the workplace and Ms Budden negatively impacted on the health and wellbeing of other employees. The fact Ms Budden’s “style” was direct and blunt and she did not personally see anything wrong with her behaviour did not prevent her intimidating behaviour being a valid reason for dismissal.

Conclusion

The case of Budden v Finke Enterprises is a good example of how things can rapidly spiral out of control for an employee who takes a direction from an employer too personally and does not think before they act to bad-mouth their employer. If you do plan to dye your hair a crazy colour, even for charity, ensure your employer is supportive of the change, as you will be required to comply with a lawful direction where an employer is entitled to require staff to have a neat and professional appearance. If you are directed to change your hair colour or appearance, the best course of action will usually be to make the change as directed and refrain from bad-mouthing your employer, especially to colleagues. This includes bad-mouthing your employer on social media, as tempting and satisfying as it may seem at the time. An apology or considered explanation for certain behaviour can go a long way to preventing dismissal if you do act in a way that diminishes your employer’s confidence in you.    

Lawful deductions and set-off - When can your employer deduct money from your pay? Can an amount an employer owes you be set-off against an amount an employer has already paid?

Human resources teams are humans too. Sometimes they overpay an employee. Sometimes they underpay an employee. Sometimes they forget to pay employees award entitlements like overtime. In this blog post I investigate the situations where an employer can deduct money from your pay and the situations where an employer can off-set an amount they owe you from an amount they have already paid.   

Relevant provisions of the Fair Work Act 2009

Section 323 of the Fair Work Act 2009 describes the method and frequency that an employer must pay an employee amounts payable to the employee, such as wages, bonuses and loadings. An employer must pay amounts payable in full, in money, at least monthly. The money can be paid in cash, by cheque, electronic funds transfer or a method authorised under an award or enterprise agreement (s.232(2)). Section 324 permits an employer to make deductions from an amount payable to an employee if one of four situations exist:

a. the deduction is authorised in writing by the employee and is principally for the employee's benefit; or

b.  the deduction is authorised by the employee in accordance with an enterprise agreement; or

c.  the deduction is authorised by or under a modern award or an FWC order; or

d. the deduction is authorised by or under a law of the Commonwealth, a State or a Territory, or an order of a court.

Many employees are not aware that where the deduction is not authorised by an award, enterprise agreement, FWC or court order or another law, the employee’s written permission is required and the ‘principally for the employees benefit’ test must be satisfied before an employer can deduct an amount from an employee’s pay. The employee may withdraw their permission for the deduction at any time (s.324(b)). If the employer wishes to vary the amount deducted, this variation must also be agreed to in writing by the employee (s.324(3)).

Section 326 supports the application of s.324, providing that a term of a modern award, enterprise agreement or contract of employment that permits an employer to deduct an amount from an amount that is payable to an employee or requires an employee to make a payment to the employer or another person is invalid to the extent the deduction or payment is:

(i)                 directly or indirectly for the benefit of the employer, or a party related           to the employer; and

(ii)                unreasonable in the circumstances.

Can an employer set-off an amount it owes you against another amount it has already paid you?

A common situation arises where an employer has been paying the employee more than the applicable award rate for wages and when the employer is then found to owe the employee an award entitlement such as penalty rates, the employer sets off the amount owed with the excess amount already paid to the employee. This practice is called a set-off and is only permitted in certain situations.

Set-off at common law

At common law, whether a set-off is permitted will depend on the purpose for which the sum already paid was made and the nature of the amount the employer owes the employer. The principles of set-off in the employment law context are as follows:

·   Where there is a contractual arrangement the employer will pay the employee sums over and above or extraneous to award entitlements, the contract prevents the employer from relying on these additional payments to satisfy award entitlements outside the agreed purpose of the payments - Poletti v Ecob (No 2) (1989) 91 ALR 381 per Keely, Gray and Ryan JJ.

·   Where there are outstanding award entitlements, a sum that had already been paid to the employee designated for a purpose other than the satisfaction of the award entitlement cannot afterwards be said to have satisfied the award entitlement - Poletti v Ecob (No 2) (1989) 91 ALR 381 per Keely, Gray and Ryan JJ.

·   The critical question is whether the relevant award entitlements arose outside the contractually agreed purpose. While there must be a close correlation between the nature of the contractual obligation and the nature of the award obligations, it is not necessary that the same label be used - Australian & New Zealand Banking Group Limited v Finance Sector Union of Australia (2001) 111 IR 227.

·   An excess payment must be specifically designated at the time of payment, for example, for overtime or call-back, if it is then later to be used by the employer to set-off overtime or call-back entitlements under an award. Timely designation is important - Logan v Otis Elevator Company Pty Limited (1999) 94 IR 218.

·  In James Turner Roofing v Peters (2003) 132 IR 122, Anderson J distilled the authorities into five key principles:

1. If no more appears than that (a) work was done; (b) the work was covered by an award; (c) a wage was paid for that work; then the whole of the amount paid can be credited against the award entitlement for the work whether it arises as ordinary time, overtime, weekend penalty rates or any other monetary entitlement under the award.

2. However, if the whole or any part of the payment is appropriated by the employer to a particular incident of employment the employer cannot later claim to have that payment applied in satisfaction of his obligation arising under some other incident of the employment. So a payment made specifically for ordinary time worked cannot be applied in satisfaction of an obligation to make a payment in respect to some other incident of employment such as overtime, holiday pay, clothing or the like even if the payment made for ordinary time was more than the amount due under the award in respect of that ordinary time.

3. Appropriation of a money payment to a particular incident of employment may be express or implied and may be by unilateral act of the employer debtor or by agreement express or implied.

4. A periodic sum paid to an employee as wages is prima facie an appropriation by the employer to all of the wages due for the period whether for ordinary time, overtime, weekend penalty rates or any other monetary entitlement in respect of the time worked. The sum is not deemed to be referable only to ordinary time worked unless specifically allocated to other obligations arising within the employer/employee relationship.

5. Each case depends on its own facts and is to be resolved according to general principles relating to contracts and to debtors and creditors.

In Linkhill, the Federal Court indicated these principles are consistent with Poletti and other authorities, and that in principle 1, such payment should be designated as “all-in” or all inclusive. 

·         While it is not yet settled, there have been suggestions by the Federal Court that the above principles may not apply to situations where parties did not intend to provide for award entitlements at all. For example, in situations where the employer believed the employee to be an independent contractor, and a court later determines that an employment relationship existed - Linkhill Pty Ltd v Director, Office of the Fair Work Building Industry Inspectorate [2015] FCAFC 99.

Key Case - Poletti v Ecob (No 2) (1989) 91 ALR 381

The key Federal Court case for set-off in the employment law context is the decision of Poletti v Ecob (No 2) (1989) 91 ALR 381. Poletti ran a horse training business and employed Mr Hunt as a foreman to train horses. The applicable award was the Horse Training Industry Award 1976–1982 (the Award). Prior to commencement Poletti and Mr Hunt came to an agreement that Mr Hunt would be paid $50 more a week than his previous job. Mr Hunt and his family lived in accommodation above the stables. Mr Hunt was paid weekly in cash, and was paid an additional amount to that which was agreed (additional cash payments). Except for two days in 1986, Mr Hunt took no annual leave and was paid extra in lieu of annual leave at his request. He was also paid extra in lieu of public holidays on which he worked. At first instance before the Chief Industrial Magistrate, Mr Hunt successfully argued he was entitled to be paid annual leave, wage, public holiday and overtime entitlements under the Award.

In their joint judgment, Justices Keely, Gray and Ryan outlined two key principles (at 393):

·   where there is a contractual arrangement the employer will pay the employee sums over and above or extraneous to award entitlements, the contract prevents the employer from relying on these additional payments to satisfy award entitlements outside the agreed purpose of the payments; and

·   where there are outstanding award entitlements, a sum that had already been paid to the employee designated for a purpose other than the satisfaction of the award entitlement cannot afterwards be said to have satisfied the award entitlement.

In applying these principles to Mr Hunt’s case, the Full Court found the intention of Poletti and Mr Hunt in their contractual arrangement was to come fix remuneration for the total number of hours to be worked by Mr Hunt each week. The additional cash payments could therefore be treated as satisfying the employer’s obligations in outstanding payment of wages for ordinary time worked. Mr Hunt was also given additional payments for annual leave, so the outstanding annual leave owed by the employer under the Award could be set-off against this amount. There was no evidence of additional payments being made for the specific purpose of public holidays, so the employer still owed this amount to the employer under the Award. The employer could not offset money owed under the Award for overtime, as the additional cash payments had not been made for this purpose.

In Poletti, the Full Court applied two earlier cases:

11. Decision of the NSW Industrial Relations Commission in Ray v Radano [1967] AR(NSW) 471 (Ray v Radano)

In Ray v Radano, a chef claimed he was owed overtime payments under the applicable award, and that weekly payments made by the employer (which were in excess of the award rate), were only in respect of ordinary time. The NSW Industrial Relations Commission held that to the extent the amount paid each week exceeded the rate prescribed by the award, this could be treated as a payment in respect of overtime. While all judgments reached the same outcome, Justices Richards and Sheehy in their joint judgment took a different view on the applicable principles to Sheldon J, but Sheldon J’s judgment has been preferred in subsequent cases, including in Poletti.

Richards and Sheehy JJ were of the view “if the moneys received by him were not received for wages but for some other purpose, for example, for fares or as a uniform allowance, he would have to provide this fact in order to establish that such moneys were not to be taken into account in determining the correct balance due to him for wages”.

Sheldon J (whose judgment was favoured in Poletti and other subsequent Federal Court cases) disagreed with this principle: “I can see no difference in principle between an amount promised in excess of the award requirement whether the promise is for, say, a uniform allowance or for a payment confined to ordinary time only. In each case, the employee works on the basis that he will receive an extra-award payment and, in my opinion, it is not to the point that in one case its subject matter is clothing and in the other additional remuneration for a nominated period of work. If one cannot be set-off, neither can the other because their essential character is identical, i.e., both are payments in fulfilment of a promise extraneous to the award obligation”.

22.Decision of the NSW Industrial Relations Commission in court session in Pacific Publications Pty Ltd v Cantlon (1983) 4 IR 416 (Pacific Publications)

Mr Clarkson was employed as an A grade journalist by Pacific Publications. He was retrenched and was entitled to $6,203.20, being 16 week’s pay in lieu of notice under the applicable award. Mr Clarkson received a number of payments from Pacific Publications including a $4,000 “Special Gratuity” payment. Pacific Publications later agreed to pay the 16 weeks, but only forwarded a cheque for $2,203.20 and claimed the $4,000 “Special Gratuity” payment constituted the remainder of the 16 week’s pay in lieu of notice.

The NSW Industrial Relations Commission preferred the judgment of Sheldon J to the majority in Ray v Radano and held that the “special gratuity” payment was not intended to be a payment in lieu of award notice on termination, as the company clearly appropriated the payment as a “special gratuity” extra-award payment at the time it was made. The $4,000 could not be set-off against the payment in lieu of notice Pacific Publications owed to Mr Clarkson.

Set-off and sections 323 and 324 of the Fair Work Act 2009?

Sections 323 and 324 are only engaged where amounts are payable in a relevant period in relation to the performance of work including incentive based payments and bonuses, loadings, monetary allowances, overtime or penalty rates, and leave payments. The sections only apply to an amount payable. If the amount owed to an employee is not an amount payable, sections 323 and 324 will not disrupt the operation of the principles of set-off described above.

The Federal Circuit Court case of Palmer v DDR Plumbing & Gas Fitting Pty Ltd [2015] FCCA 2086 is illustrative of a situation where a deduction made was not an amount payable under s.323 and therefore did not breach s.324.

In Palmer v DDR Plumbing, DDR Plumbing was seeking to set-off overtime payments owed to an apprentice plumber under the award with payments made in excess of award rate. Judge Smith found the amounts could be set off as there was a close correlation between the amounts paid under the contract for time worked up to 7pm and the award obligation to pay overtime rates.

There was a further issue in that tools owned by DDR had been stolen while the tools were in the possession of the apprentice plumber. The tools were worth $5,000. DDR had deducted the cost of replacing these tools from the apprentice’s annual leave entitlements. Amounts compensating for stolen goods are not an allowable deduction under s.324. DDR would be required to pay the annual leave under s.323 if it was “amounts payable to the employee” at the time they were deducted. Judge Smith found there was no obligation on DDR to pay the applicant annual leave at the time the deduction was made and therefore the deduction did not breach obligations under s.90 (payment of annual leave) or s.323. 

Summary

Whether a set-off is permitted is dependent on:

·        1.Statutory considerations

Whether the amount in question is an “amount payable to the employee” under s.323. If the amount is an amount payable to the employee, s.323 and s.324 must be complied with where the set-off involves a deduction.

·        2.Principles of set-off at common law

The first step is to identify:

o   the purpose for which the additional payments were made to the employee; and

o   the purpose of the amount the employer owes the employee.

The second step is to consider the principles of set-off at common law (discussed above) to see if the set-off is permitted. and apply the principles discussed above.

·        3.Terms in awards, enterprise agreements and employment contracts

In particular, look out for annualised salary provisions in awards and set-off clauses in employment contracts.