17 Oct NEWS ALERT – Annual salary successfully challenged by an employee

If you follow HR Law or one of the team on LinkedIn you will have seen last week that we posted an updated on a recent court decision where an off-set clause of an employment contract was successfully challenged by an employee.   The employer in question failed to correctly refer to the applicable Modern Award and specify what the employee’s annual salary included in the employee’s employment contract.  Now the employee has been given the go ahead to pursue her former employer for possible underpayment, even though the employer maintains the employee’s above award annual salary adequately compensated the employee.

In the case of Stewart v Next Residential Pty Ltd [2016] WAIRC 00756, the Magistrate held that the employee’s contract was silent as to what Award entitlements the salary she was paid was in lieu of, and a generic clause providing that the salary was “inclusive of any Award provisions/entitlements” was not sufficient to meet the specific requirements of the Modern Award in question, in this case clause 17 of the Clerks – Private Sector Award 2010.

The three key outcomes from this case and lessons all employers should be standing up and taking note of are:

1. Check the Modern Awards

If you are paying an annual salary in lieu of Award entitlements you should check the applicable Modern Award/s that apply to your business to determine if you need to specify exactly what the salary includes.

2. Check the salaries you pay

Usually if you are paying a salary, you are doing so in satisfaction of other Award entitlements that may otherwise be payable, such as overtime penalty rates or annual leave loading. If however, the salary you are paying is not high enough to cover these entitlements, your employees will be underpaid.  Accordingly, you will need to increase your employee’s salaries or risk facing a payment of wages claim.

We recommend undertaking a current wage analysis and comparison for each employee paid a salary over a standard pay cycle.  This involves comparing what an employee is paid compared to what they would otherwise receive under the applicable Modern Award.  If there is a shortfall, you will be able to address it.

3. Check your contracts

Finally, you need to check your contracts.  If you do not have a set-off clause in an employee’s contract of employment, you may be in breach of the applicable Award and/or may not be able to rely on the higher rate should an employee challenge their entitlements, as was the situation in the above case.

Further, if you do have a set-off clause in your contracts, you should have that clause reviewed to make sure it is legally compliant, following the ruling in this case.

The time to take action is now, not when an employee challenges their pay.   We recommend all employers review their contracts and perform a reconciliation of their employee’s salary against the applicable Modern Awards at least annually.

In light of this decision, we recommend all employers check the offsetting clauses in their contracts to ensure they are robust enough to withstand challenge.

Contact the team at HR Law today for a fixed quote to have your offsetting clauses checked.