Problems with set-off clauses for Award-Covered Employees

Only last week I was speaking about Basic HR Management to business owners in Brisbane about this particular topic. I feel it is, therefore, important to post here. 

Case Law: Simone Jade Stewart v Next Residential Pty Ltd (2016)

Having an employment contract did not prevent a former employee from claiming payments for additional hours worked because the contract failed to clearly express which entitlements were included in her annual salary.

As an administration coordinator, Ms Stewart was employed by Next Residential Pty Ltd (Next Residential) with an annual salary of $78,000. Her employment was terminated in January 2016, and she lodged a claim of underpayments of $30,000.

Ms Stewart alleged that Next Residential had not paid her overtime and lunch breaks as required by the relevant award. The award, in this case, was the Clerks – Private Sector Award 2010 [MA000002].

Next Residential claimed any additional hours worked were not directed by the company; any additional hours worked were offset by early finishes, late starts and half days, and, as per her contract, she was paid an annual salary, which took into account additional hours worked. The contract stated “Your salary is inclusive of any award provisions/entitlements that may be payable under an award” and “Your remuneration takes [reasonable] additional hours of work into account and no further payment will be made for extra hours worked.”

The Clerks – Private Sector Award 2010 [MA000002] contains a clause permitting employers to pay employees an annualised salary in satisfaction of minimum weekly wages, allowances, overtime and penalty rates and annual leave loading. The clause states that the employer is required to inform the employee which specific provisions of the Award would be satisfied by the annual salary.

Ms Stewart argued her contract of employment did not identify the applicable Award and did not inform her of the Award provisions that were satisfied in the annual salary. Consequently, she claimed she was entitled to overtime hours worked and payment for work completed during her lunch break, amounting to $28,984.

Decision:

Employers may pay employees an ‘all-inclusive rate’ that includes award entitlements, so long as this intention is clearly expressed in the contract of employment. However, under the Award relevant to Ms Stewart, not all entitlements may be included within an annualised salary, for example, meal breaks.

The Court found the contract created uncertainty and confusion by including “any” award provision under “an” award. The provision lacked specificity, and the parties were not alert to the applicable Award or the provisions which were to be included in the annualised salary. Further, the contract appeared to include entitlements in the annualised salary that, under the Award, could not be included.

As a result, the employment contract did not exclude Ms Stewart’s claim because the contract did not clearly indicate which entitlements were included in her annual salary.

Lessons:

Employers often include set-off provisions in employment contracts to provide one all-inclusive rate to satisfy all entitlements under an award or at law. You should review your employment contracts to;

  • check whether there is a relevant award that applies;
  • check the specific entitlements under that award that can be set off by providing an annual salary; and
  • amend and reissue employment contracts where this is not clear, or send out a letter to employees clarifying this.

Specific award entitlements should be included as a minimum and be as specific as possible.

Need help to review your contracts – call us on 1300 332 322.

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