Employers’ obligations upon termination of employment

It is standard practice for many employers to pay their employees’ accrued annual entitlements in the next pay run after their employment is terminated. However, a recent decision of the Federal Court of Australia in Dorsch v HEAD Oceania Pty Ltd (Penalty) [2024] FCA 484 suggests that the consequences of doing so could be costly.

Facts

The Applicant, Mr Dorsch, was employed by HEAD Oceania Pty Ltd (HEAD). Mr Dorsch’s employment was terminated by HEAD on 9 December 2021, however, HEAD only paid him his accrued but untaken annual leave on 30 March 2022. In a previous judgement, Raper J held that this conduct was in breach of section 90(2) of the Fair Work Act 2009 (Cth) (FW Act) which forms part of the National Employment Standards (NES).

Where a contravention of the NES occurs, the Court is empowered to ‘order a person to pay a pecuniary penalty that the Court considers appropriate.’ In this decision, Raper J determined the appropriate penalty.

Decision

In quantifying the potential penalty, Raper J noted that:

• the payment of annual leave upon termination of employment invariably provides a financial buffer for employees in the wake of their loss of ongoing wages;
• the delay in paying the annual leave had a material effect on Mr Dorsch;
• ignorance of the law is generally not an ameliorating factor because the object of the imposition of the penalty is deterrence by sending a signal to the community at large that employers have an obligation to know their obligations under the FW Act; and
• HEAD was part of a large group of companies which should have understood its obligations in respect of payment of annual leave entitlements, even if HEAD itself is a relatively small enterprise.

However, HEAD’s conduct was not one of deliberately flouting the law, but one where it had an initial mistaken belief as to its obligations and then took inadequate steps to verify its obligations. HEAD did eventually rectify the underpayment and admit to the contravention.

In the circumstances, the Court ordered that HEAD pay a pecuniary penalty of $17,000 to Mr Dorsch.

Take Home Messages

The case highlights the importance of employers understanding and complying with their legal obligations under the NES and the FW Act. Failure to promptly pay accrued annual leave entitlements to employees upon termination of employment puts employers at immediate risk.

For more specific information or advice on any of the material contained in this article please contact Sathish Dasan on + 61 8 8210 1253 or sdasan@normans.com.au or Annabelle Narayan on +61 8 8210 1292 or anarayan@normans.com.au.