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Are your employment contracts fit for purpose?

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By Brenton Allen, Lawyer, MST Lawyers

Any business owner that remunerates staff by way of an annualised salary should carefully consider the recent decision in Simone Jade Stewart v Next Residential Pty Ltd [2016] WAIRC 00756.

The decision serves as a stark warning for employers to ensure their employment contracts carefully describe which award entitlements are incorporated into above-award rates of pay.

Ms Stewart was employed by Next Residential Pty Ltd (‘Next Residential’) in the position of administrator coordinator with an annual salary of $78,000. Her employment contract stipulated the following:

  • 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 into account and no further payment will be made for extra hours worked; and
  • ¬†Your salary is inclusive of any award provisions/entitlements that may be payable under an award.

In early 2016, Ms Stewart issued proceedings in the Western Australian Industrial Magistrates Court, seeking to recover a back payment of $28,984 in unpaid overtime entitlements pursuant to the Clerks – Private Sector Award 2010 (Clerks Award).

Next Residential asked the Court to determine a preliminary question of whether Ms Stewart’s employment contract operated as a complete defence to her claim. The employer argued that the clauses contained in her employment contract were explicit and established a clear intention for the salary payable to Ms Stewart to be inclusive of all of the provisions set out and payable under the Clerks Award.

In reaching its decision, the Court considered clause 17.1(b) of the Clerks Award, provided below as follows:

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 Court found that Ms Stewart’s employment contract did not identify the Clerks Award or clearly describe which specific provisions were to be satisfied by the payment of the annualised salary.

Additionally, the Court emphasised that employees must be able to compare their annual salaries to underpinning award entitlements to ensure they are not disadvantaged.

On this basis, the Court determined that Ms Stewart’s employment contract did not meet the requirements of clause 17.1(b) of the Clerks Award. Whilst the Court did not order Ms Stewart any compensation, the door is now open for her to proceed with her underpayment claim.

A number of authorities have made it clear that general and broadly worded clauses will be insufficient to amortise award entitlements into annualised salaries.

If you are an employer or HR manager and pay salaries to employees that purport to cover Award entitlements, I invite you to contact our Employment Law and Workplace Safety team by email or by telephone Ph: +61 3 8540 0200 for a confidential and obligation free discussion.