Check out-dated contracts now - "no excuses" next year

03 December 2009 8:23am

With the holiday season approaching, employers need to beware that if they grant employees leave in advance there's a risk they won't be able to deduct it from the final pay packet, says DLA Phillips Fox senior associate Alex Manos.

"It is now a requirement of the Fair Work Act that a deduction is not permitted to be made from an employee's wages unless it meets the requirements in the Act," Manos says. Under the FW Act, an employee must provide written consent for the exact amount before it can be deducted and it must be principally for the employee's benefit. Otherwise the deduction must be authorised by an enterprise agreement, award, court order or by legislation.

In the past it has been common practice for an employer to deduct money owing for annual or sick leave taken in advance, from an employee's final pay packet, he says. This right has traditionally been built-in to employment contracts, but the FW Act will override it.

If an employee refuses to sign off on the amount to be deducted, their employer will have to seek the employee's written consent to deduct it from their final pay packet or negotiate its return in another form, he says. Otherwise, as a last resort, the employer will need to consider court action to recover it.

"It is important for organisations to ensure that if they do have a clause allowing the employer to make a deduction from the wages, that it's compliant with the legislation," Manos says.

Non-compliant clauses may not be enforceable and civil remedy provisions for breaching those sections mean employers can face fines of up to $33,000.

Pay in lieu of notice

Provisions of the Fair Work Act coming into effect on 1 January also mean payments in lieu of notice must include all of the remuneration an employee would have received had they actually worked the notice period, Manos says.

This can not only include overtime, allowances and penalty rates, but also payment in lieu of entitlements such as access to private use of a company car or superannuation.

"Traditionally some of those entitlements weren't incorporated into payment in lieu of notice clauses, so that's one to watch out for," says Manos.

"Unfortunately ignorance isn't an excuse and come 1 January 2010 all employers will be expected to comply with the National Employment Standards and the terms contained in the modern awards," he says.

Contracts call for careful wording

Employment contracts must not contradict the relevant modern award, but neither should they incorporate its terms, Manos says. "This requires some careful wording."

When an employer wishes to refer to a modern award, enterprise agreement or a policy , it should express this wish cautiously, "to avoid the terms of a modern award actually becoming a term of the employment contract," he explains.

Manos says there have already been well publicised cases where employers' policies and enterprise agreements were found to have been incorporated into the employment contract and "lessons should be learned from this".

In such cases an employee accusing their employer of failing in their obligation to deliver on a particular policy can pursue a breach of contract claim, which can significantly increase the compensation that they can claim.

The Miscellaneous Award

As of 1 January 2010 the miscellaneous modern award, which will cover employees who are not covered by any other modern award, is one to watch, Manos says. This award is designed to capture workers in industries that have traditionally been award-free.

"Come 1 January some employers that weren't previously covered by awards may indeed find themselves covered by a modern award and it is up to employers to investigate that and make sure that if they are covered by a modern award, they're applying it," he says.

"This can be a challenging process as the statement released by the full bench of the Commission actually admits that it is unclear which employees will be covered by the Miscellaneous Award."

It is possible that certain professionals who are not traditionally award-covered employees will fall within the scope of this award, he says. These may include occupations such as managers, software programmers, accountants and human resources professionals, despite the fact that this is not the intention of the award. Organisations potentially affected by this need to be mindful of the final form that this award takes and how it develops.

"Most organisations, however, will know which awards apply to their workforce at 1 January 2010 and they should be focussing on ensuring that they are award compliant and do not, as a result of any changes to the award under which they operate, incur additional operational expenses."

Manos says that organisations should be using the tools in the award and legislative framework to work for them to help achieve their operational needs. "This may involve the use of individual flexibility agreements, guarantees of annual earnings and annualised earnings agreements."

Before January, employers must also prepare for how to deal with employees' requests for flexible work arrangements. To learn what to include in your policy, and how to avoid sanctions, click here to sign up for our webinar.

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