The imposition of fines on top of underpayment findings for employees who earned well over their award entitlements should make employers understand that award processes for annualising wages must be followed, and that organisations are expected to have governance mechanisms and proactive oversight to ensure employees are paid their correct entitlements.
On 2 October 2020, the Federal Circuit Court found that Macquarie Bank had underpaid 16 of its employees and ordered restitution of amounts that ranged between $17,000 and $43,000 each.1
The underpayments were accepted as inadvertent. The details of the specific underpayments are highly technical, and the case was complex.
The problem arose from a remuneration agreement based on a “Basic Cost Responsibility” model that had unsatisfactory offset provisions and that did not comply with the Banking Finance and Insurance Award 2010 (“Award”) annualised salary provisions.
The employees had earned much more than they would have earned under the Award. The judgment stated that:
Notwithstanding the rapacious nature of the applicants’ claims against the respondent, given the very substantial revenue sharing benefits derived by the applicants during the relevant employment period, it is appropriate to make the declarations … and to make orders for payment of compensation … because of the two contraventions of s 45 of the Act.
Section 45 of the Fair Work Act 2009 states that a person must not contravene a term of a modern award, and that to do so is a “civil remedy provision” meaning that pecuniary penalties (fines) may be imposed in addition to the underpayment orders.
On 22 December 2020, the Court imposed an additional $110,000 in penalties, despite acknowledging that:
the employees had earned more than they would have and so have “double dipped” to an extent;
the underpayments were inadvertent; and
Macquarie Bank had a clean record for such breaches.
The Court was critical that Macquarie Bank did not have adequate board oversight to ensure that HR and payroll were correctly paying the entitlements of employees and complying with workplace laws.
Of the contraventions arising from the BCR model, the Court said the following [emphases added].
…a proper system could readily have prevented that inadvertence…
[The contraventions arose from] a system designed without proper attention to the terms of the Act and the Award.
[There was an] … absence of steps taken under the individual arrangements permitted under cl.7 of the Award and the notification of annual salary satisfaction of award payment provisions in cl.14.1(b).
…those responsible for the inadequate system simply had to consider whether the BCR model complied with the respondent’s payment obligations under the Act and the Award in respect of the relevant employees…
What should employers do?
1. If the relevant award has an annualised wages clause, comply with it including with all documentation requirements.
2. If offsetting mechanisms are used to pay salaries for employees covered by awards that don’t have an annual wage clause, ensure they are properly and professionally drafted to be compliant with the award.
3. Ensure that their senior managers and boards take proactive steps to satisfy themselves that the correct entitlements are being paid and workplace laws are being followed.
How EMA Consulting can help
EMA Consulting can assist in several ways.
We have compliant contract of employment suites available for purchase, including for awards with annualised wages clauses.
We can assist with modifying your existing contract templates or checking that your approach is sound.
We can provide a free session for directors and officers to outline risks and what processes can be put in place to check and oversee compliance.
We are planning a webinar on preventing and detecting inadvertent breaches of entitlements, details of which will be published separately.
Require further information/assistance?
If you require further information or specific advice about your situation, please contact one of our consultants.