As part of its four yearly review of modern awards, the Full Bench of the Fair Work Commission (FWC) has recently considered whether a clause found in many modern awards allowing employers to make deductions from an employee’s termination pay (where the employee fails to give sufficient notice of resignation) should be removed, changed or included in all modern awards.

Award review

The Fair Work Act 2009 (Cth) (FW Act) requires the FWC to review all modern awards every four years.  The current review of Australia’s 122 modern awards commenced in early 2014 and is still under way.

Many termination of employment clauses in modern awards allow employers to deduct up to four weeks’ remuneration from an employee’s termination pay, where the employee fails to give the required amount of notice of resignation.  Recently, the FWC has considered whether this employer right should be removed, changed or included in all modern awards.

In its decision, the FWC analysed the history of the deduction clause and whether it is consistent with the objectives of modern awards and the FW Act.[1]  The FWC did not reach a final determination on the issue, but expressed concerns that deductions from the amounts otherwise paid to an employee on termination might be “unreasonable” and “disproportionate to the loss suffered by the employer as a consequence of the employee not providing the notice required”. [2] 

The FWC is currently receiving written submissions before making a final determination.  If the change is made, it will see the removal of an effective and practical method for employers to seek compliance from employees with their notice obligations.

Are employees required to give notice of resignation?

The FW Act only contains notice requirements for employers, with the notice obligations of an employee usually being set out in an applicable modern award, enterprise agreement or written contract of employment.

Where an employee is required to provide notice of termination and fails to do so, an employer may be able to deduct any notice the employee fails to give from the employee’s final pay (as discussed above) or commence proceedings for the recovery of any loss suffered.

Making deductions from employee pay or entitlements

Employers can only lawfully make deductions from an employee’s outstanding pay or entitlements in limited circumstances and it is important that employers understand these limitations.

The FW Act only permits an employer to make deductions if:

  • the deduction is authorised in writing by the employee and is principally for the employee’s benefit (for example, insurance premiums or salary sacrifice payments); or
  • the deduction is authorised by the employee in accordance with an enterprise agreement (for example, union membership fees); or
  • the deduction is authorised by or under a modern award or an order of the FWC; or
  • the deduction is authorised by law or an order of a court (for example, deductions such as income tax and superannuation contributions).

Any such deductions must not be directly or indirectly for the benefit of the employer or “unreasonable in the circumstances”.

Employers should proceed carefully when making deductions from employee pay or entitlements and comply with the terms of any applicable modern award, enterprise agreement or written contract of employment.  A failure to do so may expose an employer to underpayment claims and potential penalties under the FW Act.

[1] Fair Work Commission Decision [2017] FWCFB 5258.

[2] Fair Work Commission Statement and Directions [2017] FWCFB 5367.

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