Where ‘offset’ claims can succeed
We recently wrote about the importance of a well-drafted set-off clause in an employment contract following the decision of the Federal Circuit and Family Court of Australia (FCFCA) in Manchee v BTIG Australia Limited [2022] FedCFamC2G 813 (Manchee) (click here for further information). The recent decision of the Full Court of the Federal Court of Australia (the Full Court) summarised below has emphasised this further.
The case of Wardman v Macquarie Bank Limited [2023] FCAFC 13 was an appeal from a previous decision of the FCFCA. The key issue was whether monthly payments made to employees discharged Macquarie Bank’s (the Bank’s) obligations under the Banking, Finance and Insurance Award 2010 (the Award) to pay the minimum award rates, leave, public holidays and annual leave loading.
Facts
The five appeals (relating to over 48 employees) related to former employees of the Bank seeking claims for unpaid wages and other Award payments that were alleged to have accrued in the six years prior to the commencement of the proceedings.
The remuneration structure for all employees fundamentally comprised of two components: a commission and a ‘Basic Cost Responsibility’ or ‘BCR’. The BCR had a fixed payment component (referred to as the ‘salary component’) that was paid monthly.
The Award required the Bank to pay the minimum wages to full-time employees, a loading of 17.5% during a period of annual leave, and specified penalty rates for overtime work.
For a majority of the employees (the Majority) the ‘Remuneration’ clause in their employment contracts included words to the effect of ‘BCR is a remuneration package that represents the total cost of your employment including employer superannuation, fringe benefits tax, payroll tax [and] workers compensation insurance...where applicable.’
In the case of three other employees (the Three Employees), their contract stipulated that the over-Award payments were all-inclusive and ‘will be set off against any payment or benefit to which you may become entitled as a consequence of your employment…including but not limited to minimum hourly rates, allowances, overtime and penalty rates and loadings.’
The employees claimed that the salary component was in fact an advance on commission and therefore did not offset their entitlement to wages pursuant to the Award.
Decision at first instance
At first instance, the FCFCA determined whether the salary component could be used to offset the employees’ entitlement to Award wages. The second issue was whether the payments were able to offset pay for leave, public holidays and annual leave loading.
The primary judge considered the employment contracts holistically (rather than one by one) and found that the Bank did not contravene the National Employment Standards (NES) or Award provisions regarding wages or salary, but failed to meet the NES and Award obligations regarding leave, public holidays and annual leave loading. The primary judge ordered the Bank to back pay leave entitlements and civil penalties.
The Bank appealed the primary judge’s findings regarding leave entitlements and annual leave loading, and the employees challenged the primary judge’s findings regarding wages.
The questions for the Full Court to consider were whether:
- the payments made by the Bank to the employees were correctly treated as salary; and
- the Bank discharged its obligations under the Award to make payments on account of leave, annual leave loading and public holidays?
Decision on Appeal
Characterisation of the BCR salary component as salary
The employment contracts were in several different forms, however, none made explicit reference to the Award. Despite this, the Full Court held that the absence of any reference to the Award did not prevent the ability for contractual payments to discharge Award entitlements.
After considering each of the remuneration clauses, the Full Court was persuaded that the monthly BCR sum was intended to be paid to compensate employees for their time-based provision of labour, separately from any commission earned. Accordingly, the intention of those payments was ‘sufficiently similar’ to that of the wage entitlements payable under the Award to discharge the obligation to pay wages.
Discharging obligations regarding leave entitlements
With respect to payment for public holidays and leave, the Full Court held that the primary judge erred and found instead that the ‘statutory obligations upon the Bank to provide paid leave and payment for public holidays were discharged by the monthly payments.’
This is because the regular payments of monthly salary were made without deduction on account of any leave taken or public holidays and were directed to the same purpose as the statutory obligations, which was to pay the employees for their ordinary hours of work even during any periods of leave and absences on public holidays.
However, the Bank distinguished between the Majority and the Three Employees with respect to annual leaving loading. For the Majority, the Full Court found that the payment for annual leave loading was a ‘special payment’ in addition to an employee’s ordinary salary and was not discharged by the monthly payments.
For the Three Employees, the Full Court found that the obligations to pay annual leave loading were discharged as their contractual agreements contained an express set-off provision against a range of entitlements that made specific reference to loadings. Although the set-off clause did not specifically list ‘annual leave loading’, a reference to ‘loading’ was sufficient to imply it.
Take Home Messages
As in Manchee, a substantial part of the employees’ remuneration in this case stemmed from commission. However, where the employer in Manchee was required to pay the employee for wages, leave and annual leave loading under an award, the Full Court arrived at a different conclusion in this case. The difference lies in the strength of the employment contract and the specific set-off clause. In the Manchee case the employment agreement consisted merely of a letter with no reference to salary, wages or the award. In comparison, although the employment contracts in this case made no reference to the Award, they set out the remuneration structure with sufficient detail to infer what the remuneration was intended to compensate.
For employers, this case highlights the importance of including a comprehensive and detailed set-off clause in employment contracts if the intention is for a salary payment to cover Award-based entitlements.
Should you wish to discuss any matters raised in this article, please contact Lincoln Smith on +61 8 8210 1203 or lsmith@normans.com.au, Anastasia Gravas on + 61 8 8210 1331 or agravas@normans.com.au, or Annabelle Narayan on +61 8 8210 1292 or anarayan@normans.com.au.
