Offsetting over award payments is not an automatic right

National Workplace Lawyers is frequently asked by clients whether they can off-set award and other entitlements against higher wage or salary payments made to employees. In New Image Photographics Pty Ltd v Fair Work Ombudsman [2013] FCA 1385, Federal Court, on appeal from the Federal Magistrates Court (as it then was) was required to consider, among other matters, whether the employer could off-set wage entitlements against other payments made to an employee.

Background

Ms Keen was employed as a casual telemarketer by New Image Photographics Pty Ltd (New Image). During the period of Ms Keen's employment, she was not paid the casual loading set out in the award in addition to her ordinary hourly rate of pay. However for a significant portion of her employment she was paid above the ordinary hourly rate of pay applicable to her role. With the passing of time, the over award amount paid to her fell below the minimum ordinary hourly rate of pay to which she was entitled under the award. Ms Keen was underpaid $19,009.68 in casual loading and $304.82 in wages during her employment.

Unfortunately, Ms Keen became terminally ill during her employment. New Image kindly 'gifted' her $3,000 to assist her at this time. Subsequently, Ms Keen passed away.

The Fair Work Ombudsman brought proceedings seeking the underpayment together with penalties.

In the proceedings, New Image argued that the overpayment of above the ordinary hourly rate of pay and the gifted amount of $3,000 could be off-set against any alleged underpayment of ordinary pay (Additional Amounts).

Decision in the first instance

Magistrate Jarrett, as he then was, determined that the Additional Amounts could not be set off against the underpayment.

Decision on appeal

On appeal, New Image re-agitated, among other matters, the set off argument. Justice Collier, determined that as there was "no designation by the employer of any overpayment being referable to the underpayments which had been made, and certainly no agreement to that effect," in the contract.

The contract simply provided a more generous hourly rate of pay. It did "not attempt to make any particular allocation between different types of leave". Consequently, New Image could not successfully argue that the underpayments had been off-set by the Additional Amounts paid to Ms Keen.

In the alternative, Justice Collier said that for "set off of payments to take effect, there must be mutuality in respect of the overpayment and underpayment, designation by the employer of the overpayment as being referable to the underpayment, and consent by the employee to receive the overpayment as setting off such underpayment". This mutual agreement did not exist in the present circumstances, in the written contract of employment or otherwise.

Justice Collier also upheld Magistrate Jarrett's (as he then was) decision at first instance in which New Image was ordered pay to the estate of Ms Keen $19,314.50 plus interest as well two penalties, $23,100 for the underpayment of the casual loading and $19,800 for underpayment of her wages.

Participation in contraventions

Mr Bedington, the sole director of New Image was also ordered to pay penalties as a person knowingly concerned in the contraventions. Mr Bedington was the person responsible for the setting of employees' wage rates. Penalties of $5,280 for each contravention totalling $10,560 were imposed upon him.

Implications for employers

Employers should take considerable care when they seek to off-set payments to employees against any modern award, enterprise agreement or statutory based entitlement.

In particular, employers should:

• review relevant modern awards, enterprise agreements, other industrial instruments and the National Employment Standards to identify all payments due to an employee;
• ensure that their contracts of employment provide express and clearly drafted relevant off-set provisions that an overpayment is made in full satisfaction of the award/agreement or other entitlements; and
• ensure that any overpayment more than covers the other award/agreement or other entitlements that would have been payable if the employee was paid the minimum award/agreement rate.

Similarly, pitfalls may occur where an employer seeks to annualise an employee wages or apply an 'all-in' rate pursuant to a modern award. Some modern awards, such as the Clerks – Private Sector Award 2010 and the Hospitality Industry (General) Award 2010 enable annualisation of wages if certain conditions, as set out in the awards, are first met.

Employer's should seek specific legal advice before engaging employees on the award annualisation provisions or set-off provisions to reduce their exposure to risk.

If you would like more information about the case, please contact National Workplace Lawyers on +61 2 9233 3989. 

National Workplace Lawyers

Note — this is for information purposes only and does not purport to be comprehensive or to render legal advice.