Former employees found to be entitled retrospective wage increases

Employers may now be required to backpay employees who resign or retire before the approval of an enterprise agreement which includes retrospective wage increases, depending on the drafting of the relevant clauses of the enterprise agreement.

In Murtagh v Corporation of the Roman Catholic Diocese of Toowoomba [2023] FCAFC 172, the Full Court of the Federal Court of Australia (the Full Court) overturned the decision of the single Judge of the Federal Court (the Single Judge) handed down earlier this year. Our analysis of the Single Judge’s decision can be found here.

Facts

Two former teachers (the Appellants) were employed by different educational institutions (the Respondents) operated by Toowoomba Catholic Education. The Appellants were covered by separate enterprise agreements which were set to expire on 30 June 2019 (the Previous EAs).

The Fair Work Commission consequently approved new enterprise agreements for each of the Respondents which came into operation in December 2020 (the New EAs). The New EAs relevantly provided for staged salary increases to be operative as of the first full pay period after 1 July 2019, with subsequent salary increases to be offered on 1 July for each year thereafter until 2022.

The Appellants had both resigned from their employment in December 2019 but claimed they were entitled to backpay in accordance with the salary increase specified in the New EAs for the period 1 July 2019 until their resignations in December 2019.

Decision

As set out in our earlier article, the Single Judge found that, on the construction of the relevant provisions of the Fair Work Act 2009 (Cth) (FW Act) and the commencement clauses within the New EAs, both enterprise agreements did not apply to employees who were no longer employed at the time the agreements came into operation.

On appeal, the Full Court interpreted the construction of the relevant provisions and clauses differently. The FW Act distinguishes between when an enterprise agreement ‘covers’ and ‘applies to’ employers and employees. An enterprise agreement may be said to ‘cover’ an employee even though it does not ‘apply’ to that employee. In this instance, the Previous EAs ceased to ‘apply’ in December 2020 when the New EAs came into operation. However, the New EAs retrospectively ‘covered’ the Respondents from 1 July 2019.

This, the Full Court found, was consistent with the ‘practical bent of mind’ and noted that ‘the obvious intent is that, once the enterprise agreements become operative, there will be a seamless transition between old pay rates thereby made forever inapplicable and new pay rates, applicable for teachers in respect of work performed on and from 1 July 2019.’

The Full Court also found that there was no overt intention to differentiate the coverage of the New EAs for employees whose employment ceased after 1 July 2019 but before the New EAs came into operation. In the absence of any such intention, it was unfair to read the coverage clauses in such a manner.

Take home messages

While the Full Court has overturned the Single Judge’s decision, our view on this matter remains the same: the precise drafting of the enterprise agreement is paramount. Had the New EAs been drafted to expressly prevent the retrospective application of the pay increases, the Respondents may not have been required to backpay wages.

While the Appellants in this case sought only modest backpay, there is the possibility that employers may be liable for substantial retrospective wage claims where enterprise agreement clauses are not carefully drafted.

Should you require any assistance in relation to the drafting, negotiation or interpretation of enterprise agreements, please contact Sathish Dasan on + 61 8 8217 1337 or sdasan@normans.com.au, Anastasia Gravas on + 61 8 8217 1331 or agravas@normans.com.au or Annabelle Narayan on +61 8 8210 1292 or anarayan@normans.com.au.