A recent decision of the Western Australian Industrial Magistrates Court[1] has provided a timely reminder that, where employers pay an annualised salary to an award-covered employee, specific wording may be required in the contract of employment to ensure the higher salary can be offset against specific award entitlements that are not separately provided, such as payment for overtime or leave loading.

The claimant was employed as an administration coordinator for approximately 2 years. Her annual salary was $75,000 (increasing to $78,000) and her employment was governed by the Clerks – Private Sector Award 2010 (Award). The contract of employment relevantly stated:

“Your salary is inclusive of any award provision/entitlements that may be payable under an award”.

You are expected to work, on average at least 40 hours per week, however there will be times when you will be required to work reasonable additional hours as necessary to ensure that the requirements of your position are met. Your remuneration takes these additional hours of work in (sic) account and no further payment will be made for extra hours worked.”

After her employment ended, the claimant sought payment of almost $30,000 for overtime and working through her lunch breaks as directed.

The employer sought to rely on the above terms to argue that the claimant’s salary was inclusive of payment for any and all Award entitlements, as per clause 17 of the Award.

Clause 17.1 of the Award provides:

(a)        An employer may pay an employee an annual salary in satisfaction of any or all of the             following provisions of the award:

(i)         clause 16 – Minimum weekly wages;

(ii)        clause 19 – Allowances;

(iii)       clauses 27 and 28 – Overtime and penalty rates; and

(iv)       clause 29.3 – Annual leave loading.

(b)        Where an annual salary is paid the employer must advise the employee in writing of                 the annual salary that is payable and which of the provisions of this award will be                     satisfied by payment of the annual salary.

The Magistrate agreed with the claimant’s argument that, because the contract of employment failed to identify the applicable Award and failed to specify which Award provisions were satisfied by the annual salary, the employer could not rely on clause 17 which requires specificity. The Magistrate concluded:

“…specificity is crucial because a worker must be able to compare his or her annual salary to award entitlements so that the no-disadvantage test can be properly considered…… The contract of employment does not exclude the claimant’s claim because cl 8.1 of the contract of employment does not clearly indicate that the claimant’s annual salary included those entitlements which she now seeks to recover.”[2]

Key take-away for employers

In order to be able to rely on cl 17 of the Clerks – Private Sector Award 2010 Award, the contract of employment must contain a clause that meets the requirements of cl 17.  A general statement to the effect that the annual salary compensates the employees for all award entitlements will not be sufficient.

Does that mean there is no room for the concept of common law set-off for clerical employees covered by the Award? Probably not.

This case was only concerned with the preliminary issue of the application of cl 17 of the Award. It did not deal with the broader issue of common law set-off. While the employer in this case could not rely on clause 17, it might still be possible, through evidence, to establish that the employee received payments in excess of her Award entitlements (which seems likely) and that the terms on which the excess payments were made permit the employer to set them off against specific Award entitlements (such as overtime) that were not separately paid.

However, had the wording in cl 17 been used in the contract of employment, it would not have been necessary to have this argument.

[1] Stewart v Next Residential Pty Ltd 2016 WAIRC 00756

[2] Ibid at [27-28]

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