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Fair play

Fair play

By Emma Goodwin

Workplace 

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The law constrains an employer’s ability to make deductions from an employee’s pay.

Snapshot

  • The Fair Work Act 2009 (Cth) imposes stringent limitations on employers’ capacity to make deductions from employees’ pay and to impose requirements on employees to spend amounts.
  • There have been several cases considering unlawful deductions. Most notably, Australian Education Union v State of Victoria (Department of Education and Early Childhood Development) provides the first detailed commentary on the operation of these provisions.
  • There remain unresolved questions and scope for development, including possible legislative change.

Among the many changes introduced by the Fair Work Act 2009 (Cth) (FW Act) was a new regime for regulating deductions from employees’ pay, detailed in Division 2, Part 2-9. Associated provisions appear in Part 3-1 (general protections) and Part 2-4 (enterprise agreements). The following provides an overview of the provisions and relevant case law.

Regulation of deductions from pay: Division 2, Part 2-9 of the FW Act.

What are employers’ obligations?

Section 323 requires that amounts “payable to the employee in relation to the performance of work” be paid in full, at least monthly1 and in money (s323(1)), via cash, instruments such as cheques, EFT or, where one is prescribed, the method authorised by a modern award (MA) or enterprise agreement (EA) (ss323(2) and (3)).2 Amounts payable in relation to the performance of work include incentive-based payments and bonuses, loadings, monetary allowances, overtime or penalty rates and leave payments (s323(1)).

An employer may lawfully deduct an amount from money payable under s323 where:

  • the deduction is both authorised in writing by the employee (including specifying the amount of the deduction) (s324(2)(a)) and principally for the employee’s benefit (s324(1)(a)). It is critical to note that employee agreement alone is insufficient. Any variation must be authorised in writing (s324(3)) and authorisation may be withdrawn at any time (s324(2)(b)). A legislative note clarifies that a deduction in accordance with a salary sacrifice or other arrangement, whereby the employee elects to forgo payment in favour of an alternative benefit or remuneration, is lawful if the conditions in Division 2 of Part 2-9 are satisfied
  • the deduction is authorised by the employee in accordance with an EA (s324(1)(b))
  • the deduction is authorised by or under an MA;3 a court or Fair Work Commission order; or a Commonwealth, state or territory law (ss324(1)(c) and (d)).

Pursuant to s326, an additional limitation applies where a term of an MA, EA or contract of employment (CE) permits an employer to make a deduction, or requires an employee to make a payment to the employer or another person (ss326(1)(a) and (b)). The deduction will be unlawful if it is both directly or indirectly for the benefit of the employer and unreasonable (s326(1)(d)). Further, if the employee is under 18, written agreement is required from the employee’s parent or guardian (s326(1)(d)). The FW Regulations clarify that a deduction is “reasonable” if it is:

  • made in respect of provision of goods or services by an employer (or a related party) to an employee, in a situation where the employer (or related party) provides those goods or services to the public, in the ordinary course of business, on equivalent or less favourable terms (r2.12(1)). Examples given include deductions of health insurance fees by an employer that is a health fund
  • for the purpose of recovering costs directly incurred by the employer as a result of the voluntary private use of property of the employer by an employee (whether authorised or not) (r2.12(2)). Examples given include the cost of items purchased for personal use on a corporate credit card.

Finally, s325 forbids an employer unreasonably requiring an employee to spend any part of an amount payable to the employee in relation to the performance of work (s325(1)). A term to this effect in a MA, EA or CE is invalid (s326(3)). The Explanatory Memorandum to the Fair Work Bill suggests that requiring an employee to donate a proportion of his or her pay to a charitable or religious organisation nominated by the employer is unreasonable, while requiring an employee who is a tradesperson to purchase tools required to perform his or her duties may be reasonable (unless the employer is required to provide tools) (at [1292]).

Consequences of breach of Division 2-9, Part 2

Sections 323 and 325 are civil remedy provisions, currently attracting penalties per breach of up to $63,000 for a corporation and $12,600 for an individual (ss539(2)(10) and 546(2)).

In recovery proceedings, anything given or provided by the employer in lieu of payment in money is taken never to have been given or provided to the employee (s327(a)). Any amount an employee is required to spend is taken never to have been paid to the employee (s327(b)).

Division 2, Part 2-9 of the FW Act in the courts

Australian Education Union v State of Victoria (Department of Education and Early Childhood Development) (AEU v DEECD)

The first detailed consideration of Division 2, Part 2-9 was in AEU v DEECD.4 DEECD, with teachers’ written authorisation, deducted fortnightly contributions from teachers’ wages toward the cost of laptops and software. The AEU contended that the deductions breached ss323 to 326 inclusive. Bromberg J agreed. Among other things, he held that:

On s324

It is critical to have both written authority and a deduction principally for the employee’s benefit (at [181]). One of the two is insufficient.

Salary packaging is substitution for an entitlement to salary of another form of remuneration for services rendered, not (as occurred here) a payment made to an employer out of an employee’s entitlement to salary (at [35], [40-42], [47] and [51]).

The laptops were not in truth salary packaged (at [128]-[132]). The benefit of the laptops was largely to DEECD, as the laptops facilitated the performance of work (at [108]). The personal use benefit was limited (at [115]-[120]). DEECD admitted the deductions were directly or indirectly for its benefit (at [108]). The laptops were not being provided as remuneration (at [132]).

The Victorian government could not retrospectively authorise deductions via a ministerial authorisation under the Education and Training Reform Act 2006 (Vic) (at [259]-[260]). Retrospective authorisation is not permitted. Further, if a state law authorising a deduction under s324(1)(d) depends on the existence of a term of an MA, EA or CE which permits a deduction, s326 applies. A deduction rendered ineffective by s326 cannot be relied on by a state law for s324(1)(d) authorisation (at [290] and [308]). Accordingly, prospective deductions made under a CE and apparently authorised by the ministerial order may be rendered ineffective by s326.

On ss325 and 326

The agreements signed by teachers in relation to the laptops were part of their CE and subject to s326 (at [332]).

Whether a deduction is unreasonable within the meaning of s326 depends on the circumstances, including (at [176]):

  • the extent to which the employee has gained a benefit from the deduction (at [177])
  • the extent to which the employer or its related party has benefited. An employer benefiting at the employee’s expense suggests unreasonableness (at [178])
  • the quality of the employee’s assent (at [179])
  • whether the employee was able to genuinely choose how to apply his or her remuneration. If a deduction is induced by direct or indirect employer pressure, genuine choice will likely be negated (at [180])
  • whether the s324(1)(a) criteria are met. If not, this indicates unreasonableness for s326 purposes (at [181])
  • a broad range of other circumstances may be relevant. Consideration can be forward looking and with the benefit of hindsight (at [182] and [183]).

Sections 326(3)(a) and 326(3)(b) expressly contemplate that a CE agreed to by the employee may contain a requirement that would contravene s325(1) (at [348]). The circumstances that make an employer’s requirement as to employee spending ineffective for the purposes of s326(3)(b) may also constitute a contravention of s325(1) (at [349]).

Section 326(3)(b) operates in relation to a term in an MA, EA or CE and incorporates the s325(1) criteria into s326(3)(b) in relation to these instruments (at [351)].

“Unreasonable in the circumstances” is to be interpreted in the same way in s325(1) as in s326(1)(c)(ii) (at [353]). Here, the requirement to spend was unreasonable because:

  • the spending occurred in the absence of genuine choice
  • the rate of spending was set at an excessive rate of contribution
  • the deductions made were not principally for the benefit of the teachers
  • the value of the benefit actually received by the teachers (limited personal use) did not provide a countervailing justification (at [356]).

Whether or not an employee has assented to a s325 requirement is relevant to whether a deduction is “unreasonable in the circumstances” (at [352]). “Unreasonable in the circumstances” is interpreted in the same way in s325(1) as in s326(1)(c)(ii) (at [353]).

These deductions were unreasonable at the time they were authorised, because (at [222]:

  • the contribution rate was unreasonable, exceeding the costs of private use (at [200]-[203] and [219]-[220]);
  • there was no genuine choice for most teachers (at [223]);
  • an employer who benefits from the use of a work-related tool should pay for it (at [191]-[192]). DEECD benefited at the expense of teachers (at [206]-[207], [213], [218] and [221])
  • the deductions were not principally for the benefit of the teachers (at [218]), even for teachers who had a genuine choice (at [224]). Parliament wished to intervene even in the face of genuine choice in the case of both ss324(1)(a) and 326(1)(c), where deductions were not made principally for the employee’s benefit (at [224]).

DEECD required teachers to spend money in contravention of s325(1). Without reaching a firm conclusion on whether s325(1) deals only with the spending of wages which are to be, or have been, remitted to the employee, and not with a deduction from salary, the judge proceeded on the basis that “spend” for s325 purposes included wages expended by way of deduction from salary (at [340]-[341]).

A requirement to spend for s325 purposes need not be express. It may be conveyed or imposed by circumstances created by the employer which necessitated the spending by the employee. What constitutes sufficient pressure will be a question of fact and degree (at [345]) and is to be assessed in a practical way, including by reference to whether the spending is the result of the employee’s free and genuine choice (at [346]).

Here, the teachers had no practicable alternative. DEECD created a circumstance where, in the absence of free and genuine choice, it was necessary for teachers to spend parts of their salaries acquiring the use of laptops. DEECD therefore required teachers to spend parts of the amounts payable to them in relation to the performance of work (at [347]). The deductions were not the result of free and genuine choice (at [187]-[188]). Without strong countervailing consideration, such a deduction is unreasonable (at [188]).

Other cases

Other cases have not considered Division 2, Part 2-9 in the same depth as AEU v DEECD. However, they do provide examples of conduct that has been found in breach of Part 2-9.

Types of deduction that have been found unlawful include:

  • unauthorised deductions for payroll administration fees and employee meals5
  • deductions, characterised as a “bond” or “deposit” either during employment or from an employee’s termination pay and not returned if the employee failed to work for the employer for a certain period or performance was inadequate6
  • unauthorised deductions of $20 per employee for each of three occasions of “misconduct”7
  • deduction from an employee’s termination pay of the value of glass the employer alleged had been ordered by the employee8
  • deduction of the value of a gaming nominee licence.9 The CE required the employee to hold and maintain the licence at her expense and authorised the employer to deduct monies owing to it from her pay. 10 The employer was held to be “within its rights” in seeking reimbursement.11 Nevertheless, deducting the amount was unlawful as there was no written authorisation (given this, the question of whether the deduction was principally for the employee’s benefit was not considered)12
  • unauthorised deduction of “training fees” 13
  • deductions in relation to damage caused, or errors made, while performing work14
  • deductions from termination pay for the value of uniforms supplied to the employee and an airfare to transport him from his workplace (a mine site) on termination of employment.15

It has been held that a “deduction” may consist of non-payment of money otherwise due to the employee (for example, withholding notice pay where an employee is improperly summarily dismissed).16

By way of example, it has also been held that requiring an employee misclassified as an independent contractor to spend money on public liability insurance and associated costs was unreasonable for s325 purposes.17

Associated prohibitions

There are two associated prohibitions. First, it is unlawful to exert undue influence or pressure on an employee to agree, or not agree, to a deduction (s344).18 Pressuring an employee in relation to a deduction may also constitute adverse action in breach of s340. Second, EAs may include terms relating to deductions from wages for any purpose authorised by an employee who will be covered by the EA (s171(1)(c)). A note to s253 (terms of an EA that are of no effect) confirms that a term of an EA that breaches s326 is ineffective.19

Proposed change

At the time of writing, the Fair Work (Protecting Vulnerable Workers) Bill 2017 (Cth) (FWPVW Bill) was before Parliament. The FWPVW Bill proposes to (among other things) amend s325(1) to clarify that it is unlawful to require an employee to spend money, whether or not the money was originally paid to the employee in relation to the performance of work (proposed amended s325(1)) and further to remove any doubt that a requirement for an employee to spend or pay contrary to s325(1) constitutes a deduction that does not comply with s324 (proposed amended s327(1)). This is designed to deal with situations such as those where an employer seeks repayment of wages paid to an employee.20 A proposed Labor amendment to the FWPVW Bill would also extend the s325 prohibition to prospective employers and employees (proposed new s325(1A)).21 There are some proposed consequential changes to the structure of s326 and higher penalties may also apply to some breaches.22

Conclusion

Division 2, Part 2-9 significantly constrains an employer’s ability to make deductions from an employee’s pay. The need for such protections is obvious, based merely on the case law examples outlined here. However, this does create difficulties and uncertainty for employers. Where a proposed deduction does not meet the statutory tests, it is likely that an employer will need to seek agreed repayment from the employee or commence debt recovery proceedings to recover funds. There remain questions not yet resolved by the courts. As noted earlier, whether a deduction constitutes “spending” for s325 purposes was not settled in AEU v DEECD. There also remains scope for debate as to what constitutes a payment in relation to the performance of work. For example, in the author’s view an accidental overpayment to the employee is unlikely to constitute such a payment and so recovery of that amount should not be subject to Division 2, Part 2-9.23 However, there is no judicial confirmation of this. Clearly, there remains scope for future developments in relation to Division 2, Part 2-9.

The FWPVW Act came into effect on 15 September.

 

Emma Goodwin is a senior lawyer with the Fair Work Ombudsman. The views expressed in this article are those of the author and not necessarily those of the Fair Work Ombudsman or the Office of the Fair Work Ombudsman.

1. An MA may require more frequent payment.

2. Where an MA or EA prescribes a payment method, it must be observed.

3. For example, MAs often permit withholding of certain amounts from notice pay.

4. AEU v DEECD [2015] FCA 1196.

5. Fair Work Ombudsman v Oz Staff Career Services Pty Ltd & Ors [2016] FCCA 105.

6. Fair Work Ombudsman v Jooine (Investment) Pty Ltd & Anor [2013] FCCA 2144 and Fair Work Ombudsman v Global Express Consultancy Pty Ltd & Anor [2016] FCCA 2446.

7. Birch v Bass Strait Oysters Pty Ltd & Anor [2016] FCCA 191.

8. Brown v DS & MJ Batten T/as Pane In The Glass [2012] FMCA 296.

9. Fair Work Ombudsman v Glasshouse Mountains Tavern Pty Ltd & Anor [2014] FCCA 1115.

10. Note 9 above, at [119] and [120].

11. Note 10 above.

12. Note 9 above, at [120].

13. Broomhead v Nibec Pty Ltd [2015] FCCA 438. See also Jetgo Australia Holdings Pty Ltd v Goodsall [2015] FCCA 137 and FWO v Jestar Airways Ltd [2014] FCA 33. The latter case was largely focused on the breach of the relevant award.

14. Bader v Cyclone City Cleaners Pty Ltd [2010] NTMC 44; Birt v K&S Freighters Pty Limited [2010] FWA 6732; Kahl v Japco Auto Wholesalers Pty Ltd [2016] SAIRC 24; Fair Work Ombudsman v Timryl Pty Ltd & Anor [2014] FCCA 382.

15. Maslen v Core Drilling Services Pty Ltd & Anor [2013] FCCA 460.

16. Wintle v RUC Cementation Mining Contractors Pty Ltd (No.2) [2012] FMCA 459 at [44]. See also note 10 above.

17. Fair Work Ombudsman v Australian Sales & Promotions Pty Ltd & Anor [2016] FCCA 2804.

18. See Australian Federation of Air Pilots v Jetstar Airways Pty Ltd [2014] FCA 15 and Wintle v RUC Cementation Mining Contractors Pty Ltd (No.3) [2013] FCCA 694 for commentary.

19. See Radploy Pty Ltd t/as Lake Imaging re Lake Imaging Enterprise Agreement (Imaging Staff - Geelong) 2010 [2011] FWA 39 at [45]; Calvary Health Care Tasmania Limited T/A Calvary Health Care Tasmania re Calvary Health Care Tasmania Nursing Staff (St Luke's Campus and St Vincent's Campus) Enterprise Agreement 2012 [2013] FWC 908 at [45]–[48]; Jellifish! Pty Ltd re JelliFish! Enterprise Agreement 2012 [2012] FWA 9640 at [71]; and Serco Sodexo Defence Services [2013] FWCA 9760 for commentary.

20. Part 3 of Schedule 1 to the Fair Work (Protecting Vulnerable Workers) Bill 2017 (Cth); Explanatory Memorandum to the Fair Work (Protecting Vulnerable Workers) Bill 2017 (Cth) (EM) at [87] – [92] inclusive. See also Fair Work Ombudsman v Rubee Enterprises Pty Ltd & Anor [2016] FCCA 3456 and Fair Work Ombudsman v Gaura Nitai Pty Ltd & Anor [2017] FCCA 1242.

21. Amendments moved by Senator Doug Cameron, Sheet 8144, available at http://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/Bills_Search_Results/Result?bId=r5826.

22. Related amendments to ss151, 253 and 557 are also proposed. On the issue of higher penalties, see Part 1 of Schedule 1 to the FWPVW Bill and EM at [91].

23. Relevantly, the EM at [93] states that s325 does not operate in relation to “legitimate, mutual negotiations for overpayments to be paid back by an employee to their employer in lieu of legal proceedings. These kinds of requests are reasonable, so are not caught by the prohibition”.


Disclaimer: Views expressed by commentators are not necessarily endorsed by the Law Institute of Victoria Ltd (LIV). No responsibility is accepted by the LIV for the accuracy of information contained in the comments and the LIV expressly disclaims any liability for, with respect to or arising from any such views.

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