The Case

Ms Stewart was employed with Next Residential Pty Ltd (NRPL) as an administrative coordinator. She was paid an annualised salary of $78,000 and her employment was governed by the Clerks – Private Sector Award 2010 (Clerks Award).

Ms Stewart’s employment with NRPL was terminated in January 2016. She subsequently lodged a claim in the Western Australian Industrial Magistrates Court (WAIMC) claiming $30,000 in underpayments.

Ms Stewart alleged she had not been paid her overtime or lunch breaks when she was required to work them. NRPL denied the claim. NRPL disputed the hours that Ms Stewart claimed she worked and argued that, in any event, Ms Stewart had been compensated for any additional hours through provision of her annualised salary.

Ms Stewart’s employment contract contained a clause: “(y)our salary is inclusive of any award provisions/entitlements that may be payable under an award”.

The Clerks Award contains a clause permitting employers to pay employees an annualised salary in satisfaction of minimum weekly wages, allowances, overtime and penalty rates, and annual leave loading. The clause states that the employer “must advise the employee in writing of the annual salary that is payable and which of the provisions of [the] award will be satisfied by payment of the annual salary”.

Ms Stewart’s contract did not specify the name of the award or award entitlements that were being set off.

The Verdict

The WAIMC indicated that while it was common for employers to pay an annualised salary intended to compensate employees for all award entitlements, the Clerks Award required these to be specified. As Ms Stewart’s contract did not state what award covered her or the entitlements in the award sought to be set off, she was entitled to continue to progress her underpayment claim.

The WAIMC held that had NRPL drafted Ms Stewart’s employment contract correctly it could have set off minimum weekly wages, allowances, overtime and penalty rates, and annual leave loading. However, not all award entitlements could be included, such as meal breaks.

Lessons

Employers often include set-off provisions in employment contracts to provide one all-inclusive rate to satisfy all entitlements under an award or at law. This decision, while not necessarily binding on other courts, indicates there is now a risk with this practice and that the entitlements sought to be set off must be stated. For award-covered employees, this may be restricted to those matters listed in the award as being able to be set off.

As a result of this decision, you should review your employment contracts to:

• check whether there is a relevant award that applies;
• check the specific entitlements under that award that can be set off by providing an annual salary; and
• amend and reissue employment contracts where this is not clear, or send out a letter to employees clarifying this.

Given this decision may be overturned, it would be prudent to draft the clause to include reference to the award and to list more than the specific award entitlements able to be set off. However, the specific award entitlements should be included as a minimum and be as specific as possible.

Please note: Case law is reported as correct and current at time of publishing. Be aware that cases in lower courts may be appealed and decisions subsequently overturned.