DECISION

Fair Work Act 2009
s.156 - 4 yearly review of modern awards

4 yearly review of modern awards – Plain language re-drafting – Standard clauses
(AM2016/15)

4 yearly review of modern awards – plain language re-drafting – standard clauses.

[1] Section 156(2)(a) of the Fair Work Act 2009 (Cth) (the Act) requires the Commission to review all modern awards every four years (the Review). This Full Bench has been constituted to oversee a number of plain language projects as part of the Review. 1 This decision deals with the re-drafting of a number of clauses in modern awards which have been identified as ‘standard clauses’.

[2] In a decision 2 on 28 August 2017 (the August 2017 decision) we finalised the following standard clauses:

A. Award flexibility;

B. Consultation about major workplace change;

C. Consultation about changes to rosters or hours of work;

D. Dispute resolution; and

F. Redundancy.

[3] The terms of clause G–Transfer to low paid job on redundancy were finalised in a decision 3 of 18 October 2017 (the October 2017 decision).

[4] This decision is primarily concerned with standard clause E, Termination of Employment.

[5] In the course of oral argument during a hearing held on 21 August 2017 an issue arose as to whether clause E.1(c) of the termination of employment standard term is a type of provision which may validly be included in a modern award and, if it is, whether such a provisions is necessary to meet the modern awards objective.

[6] The proposed clause E.1 is as follows:

‘E. Termination of employment

NOTE: The NES sets out requirements for notice of termination by an employer. See sections 117 and 123 of the Act.

E.1 Notice of termination by an employee

(a) An employee must give the employer written notice of termination in accordance with Table X—Period of notice of at least the period specified in column 2 according to the period of continuous service of the employee specified in column 1.

Table X—Period of notice

NOTE: The notice of termination required to be given by an employee is the same as that required of an employer except that the employee does not have to give additional notice based on the age of the employee.

(b) In paragraph (a) continuous service has the same meaning as in section 117 of the Act.

(c) If an employee fails to give the period of notice required under paragraph (a), the employer may deduct from any money due to the employee on termination (under this award or the NES), an amount not exceeding the amount that the employee would have been paid in respect of the period of notice not given.

[7] In a Statement 4 issued on 21 August 2017 (the August Statement) we raised two issues in relation to clause E.1(c) as follows:

‘(1) whether clause E.1(c), either wholly or insofar as it deals with NES entitlements, is a type of provision which may validly be included in a modern award under the relevant provisions of the FW Act, including but not confined to ss.55, 118, 139 and 142; and

(2) to the extent that the Commission has the power to include a provision of the nature of clause E.1(c) in a modern award, whether as a matter of merit such a provision is necessary to achieve the modern awards objective in accordance with the requirement in s.138.’

[8] At paragraph [3] of the August Statement we noted that the same issue also arises in relation to the proposed standard clause H.2, which deals with the benefits and payments due to an employee who leaves their employment during a redundancy notice period, insofar as the Ai Group has submitted that where an employee who has been given notice of termination due to redundancy leaves his or her employment before the expiration of the notice period and without giving the required period of notice, the employer is or should be permitted pursuant to clause E.1(c) to make deductions from payments other than for redundancy owing to the employee.

[9] In a Statement and directions 5 of 18 October 2017 we invited interested parties to file further submissions in respect of the following two issues:

1. Whether clause E.1(c) is incidental to a term permitted to be in a modern award and essential for the purpose of making the permitted term operate in a practical way (see s.142(1)(a) and (b)).

2. Whether clause E.1(c) is a term which must not be included in a modern award as the term has no effect because of s.326(1) and (4). (see s.151)

[10] We also invited interested parties to make submissions on the following provisional views expressed in the October 2017 decision:

(i) The scope of clause E.1(a), having regard to the terms of s.123.

(ii) The provisional view that the word ‘written’ be deleted from clause E.1(a).

(iii) The provisional view that, in order to address some uncertainty about the interaction with the NES, clause E.1(c) be amended to confine the scope of the capacity to make a deduction to ‘wages due to the employee.’

(iv) The provisional view that deductions pursuant to clause E.1(c) would have no effect in relation to employees under 18 years of age, because of s.326(4), and hence in its current form it is a term that must not be included in a modern award, because of s.151(c).

(v) The provisional view that clause E.1(c) is incidental to a permitted term, namely clause E.1(a).

(vi) Is clause E.1(c) essential for the purpose of making a permitted term (clause E.1(a)) operate in a practical way? What is the purpose of clause E.1(c)?

(vii) The provisional view that a deduction made pursuant to clause E.1(c) may be ‘unreasonable in the circumstances’ within the meaning of s.326(1)(c)(ii).

[11] Submissions were received from the following organisations:

•  Australian Business Industrial and NSW Business Chamber (ABI);

•  Australian Council of Trade Unions (ACTU);

•  Australian Industry Group (Ai Group);

•  Australian Manufacturing Workers’ Union (AWMU);

•  Australian Property Services Association (APSA);

•  Health Services Union (HSU);

•  Master Electricians Australia (MEA);

•  National Road Transport Association (NatRoad);

•  Real Estate Employer’s Federation (REEF);

•  Registered Real Estate Salespersons’ of SA (RRES); and

•  Textile Clothing & Footwear Union of Australia (TCFUA);

[12] Submissions in reply were received from the following organisations:

•  ABI;

•  ACTU;

•  Ai Group;

•  AMWU; and

•  Community and Public Sector Union (CPSU);

[13] A Hearing was held on 15 December 2017. The following organisations made submissions after that hearing:

•  ABI;

•  ACTU;

•  Ai Group; and

•  NatRoad.

[14] We turn first to the provisional views expressed in relation to clause E.1(a).

The scope of clause E.1(a) and the terms of s.123

[15] In the October 2017 decision we observed that the scope of clause E.1(c) may be too broadly expressed in that it requires ‘all employees’ to give notice of termination. Clause E.1(a) is a permitted term by virtue of s.136(1)(d) and s.118. Section 118 provides that a modern award ‘may include terms specifying the period of notice an employee must give in order to terminate his or her employment’. Section 118 is in Division 11 of Pt 2-2 and s.123 limits the scope of that Division. Relevantly, s.123 provides that Division 11 does not apply to:

(i) employees employed for a specified period of time, or for a specified task, or for the duration of a specified season (s.123(1)(a));

(ii) a casual employee (s.123(1)(c));

(iii) an employee (other than an apprentice) to whom a training arrangement applies and whose employment is for a specified period of time or limited to the duration of the training arrangement (s.123(1)(d));

(iv) daily hire employees working in the building and construction industry (s.123(3)(b));

(v) daily hire employees working in the meat industry in connection with the slaughter of livestock (s.123(3)(c)); or

(vi) weekly hire employees working in connection with the meat industry whose termination is determined solely by seasonal factors (s.123(3)(d)).

[16] In the October 2017 decision we said (at [227]):

‘It would seem to follow that the scope of any award term made pursuant to s.118 must be confined to persons falling within the scope of s.118. We will invite further submissions in respect of this issue.’

[17] Subsequent submissions filed by the ACTU, ABI and Ai Group agreed with the proposition set out above, though they proposed different solutions to appropriately confine the scope of subclause E.1(a).

[18] The ACTU suggests that a new subclause be inserted, as follows:

‘This clause applies to employees to whom Subdivision A of Division 11 of Part 2-2 of the Act applies.

Note: Section 123 of the Act excluded some employees from all or part of Division 11 of Part 2-2 of the Act.’ 6

[19] Ai Group proposes an amendment to clause E.1(a):

‘(a) An employee (other than one excluded under s.123 of the Act) must give the employer written notice of termination in accordance with Table X – Period of notice of at least the period specified in column 2 according to the period of continuous service of the employee specified in column 1.’ 7

[20] ABI submit that the issue could be remedied by inserting a new clause, or a note, in the following terms:

‘This clause applies to all employees except those identified in sections 123(1) and 123(2) of the Fair Work Act 2009 (Cth)’. 8

[21] In its reply submission ABI notes that it does not oppose the wording proposed by Ai Group or the ACTU.

[22] NatRoad contends that it is unnecessary to make specific reference to s.123 in the terms of clause E.1(a). 9 This submission was advanced on the basis that the categories of employees listed in s.123(1) would not be required to provide the prescribed notice because their terms of engagement regulate the way their contract of employment will end.

[23] Contrary to NatRoad’s submission we think it is necessary to make specific reference to s.123 in the terms of clause E.1(a). The scope of the award clause should be confined to the extent of our jurisdiction. Further, the insertion of a reference will clarify the application of the substantive provision and make it easier to understand.

[24] We prefer the solution proposed by ABI (save for the deletion of the reference to s.123(2) and its replacement with a reference to s.123(3)).

Clause E.1(a) and the requirement for ‘written notice’

[25] The second issue in respect of clause E.1(a) is that it currently provides that an employee must give the employer ‘written notice of termination’. The requirement for written notice is a departure from the TCR standard and the current standard term in modern awards. On that basis we expressed the provisional view, in the October 2017 decision, that the word ‘written’ be deleted from clause E.1(a).

[26] The AMWU and a number of other unions supported our provisional view. 10 The ACTU observed that:

‘There is an unfairness associated with an employee being found to have contravened the law and exposed to a penalty (and, potentially, disqualified from holding office in a union) by virtue of non-compliance in form rather than in substance with this requirement’. 11

[27] ABI opposed the variation of clause E.1(a) and contended that there were a range of ‘practical reasons’ why the word written should not be deleted from the provision, in particular:

(a) there are a range of options available to employees in the contemporary context which mean that providing written notice is not inconvenient or unduly taxing (e.g. email);

(b) the requirement is an important safeguard to ensure there is no subsequent dispute about whether an employee actually orally evinced an intention to bring the employment relationship to an end; and

(c) the requirement assists an employer in ensuring compliance with Reg 3.40 of the Fair Work Regulations 2009 (Cth), which relates to termination of employment. 12

[28] Ai Group also opposed the removal of the word “written”, submitting that ‘it is the interests of employers and employees for notice of termination to be given in writing to avoid any uncertainty.’ 13

[29] Ai Group also submitted that if the Commission is of the view that this issue needs to be addressed a better solution would be to amend clause E.1(c), (rather than clause E.1(a)) as follows:

‘(c) If an employee fails to give the period of notice required under paragraph (a), either in writing or orally, the employer may deduct from any money due to the employee on termination (under this award or the National Employment Standards NES), an amount not exceeding the amount that the employee would have been paid in respect of the period of notice not given.’ 14 (emphasis added)

[30] Ai Group submitted that such an amendment would address the concern raised by the Commission about the operation of clause E.1(c), without disturbing the key requirement in clause E.1(a) that notice must be given by an employee in writing. 15

[31] In its submission in reply ABI opposed Ai Group’s proposal that clause E.1(c) should be amended to specify that a deduction may be made in circumstances where notice has not been provided “either in writing or orally”. ABI submitted that Ai Group’s proposal would bring clause E.1(c) into conflict with the requirement at clause E.1(a) that notice be provided in writing, which it argued was inconsistent with clause E.1(c)’s overarching goal of ensuring employees comply with clause E.1(a). 16

[32] The Employers’ characterisation of such an obligation as a ‘reciprocal requirement’ – on the basis that s.117 requires employers to give written notice of termination – is unpersuasive. It is important to appreciate that modern awards do not currently contain an obligation upon employees to provide written notice of termination. Further, an obligation to provide written notice of termination was not a feature of the TCR decisions which provided the genesis of the existing award obligation. The position advanced by the Employers would amount to a significant change in the award safety net and, in our view, they have not advanced a sufficient merit argument to warrant such a change.

[33] Further, Ai Group’s contention that such a variation would resolve disputes as to whether or not an employee has resigned, is problematic. The position advanced may have unforeseen consequences. On the Ai Group’s argument an employee who unequivocally resigns – orally, but not in writing – may still be able to pursue an unfair dismissal claim. Such an outcome seems counter-intuitive.

[34] Nor are we persuaded to address this issue by varying clause E.1(c) in the manner proposed by Ai Group. We agree with ABI that such a variation would create an internal inconsistency in the operation of the standard clause.

[35] We are not satisfied that a variation of modern awards to require employees to provide written notice of termination is necessary to achieve the modern awards objective. Accordingly we will delete the word ‘written’ from clause E.1(a).

[36] We now turn to the various issues associated with clause E.1(c).

Clause E.1(c) and s.142

[37] In the October 2017 decision we concluded that clause E.1(c) was not a term expressly permitted by a provision of Part 2-2 (which deals with the NES) and hence it was not a term that may be included in a modern award pursuant to s.55(2). In particular, we decided that s.118 does not expressly permit a term enabling an employer to deduct from monies owed on termination an amount equivalent to the period of notice not given.

[38] We also noted that s.118 provides that a modern award may include terms specifying the period of notice an employee must give in order to terminate his or her employment; and, on that basis, such a term is ‘a term that is permitted… to be in a modern award’ (within the meaning of s.142(1)(a)). Accordingly, in the event that a modern award includes a term specifying the notice of termination to be given by an employee, then a term such as clause E.1(c) may be permissible, provided the requirements of s.142 have been met.

[39] Section 142(1) provides that a modern award may include terms that are:

(a) incidental to a term that is permitted or required to be in the modern award; and

(b) essential for the purpose of making a particular term operate a particular way.

[40] To be included in a modern award pursuant to s.142 the term must satisfy the requirements of both s.142(1)(a) and (b); and satisfy s.136(2)(b), a point we deal with later.

[41] In the October 2017 decision we reached the provisional view that clause E.1(c) is ‘incidental’ to a permitted term (namely clause E.1(a)) on the basis that there was a sufficient relationship between the two provisions.

[42] The ACTU and the other union parties remain of the view that clause E.1(c) is not ‘incidental’ to the permitted term. The ACTU contends that the provisional view does not adhere to the definition of ‘incidental’ adopted at [134] of the October 2017 decision; particularly the second limb of that definition.

[43] We note that the ACTU does not contend that an ‘anti avoidance’ type of provision can never satisfy the ‘incidental to’ requirement:

‘This is not to say that anti-avoidance type provisions can never satisfy the requirement that they be incidental, but each issue needs to be considered on its merits cognisant of the fact that these are safety net instruments. In this case, the giving of notice is a benefit to the employer in the form of a convenience of uncertain and variable value. The deprivation of that convenience may or may not result in a cost – cost cannot be assumed to happen in conjunction with or naturally appertain to the failure to give notice. Furthermore, if any cost is incurred, it is highly unlikely to have any correlation whatsoever to an employee’s length of service or the wages an employee has rightly earned for worked performed which the employer has received the benefit of. If an incentive is to have a role (beyond the incentive already provided by the enforcement framework of the Act itself), there is no warrant for the incentive to vary in accordance with an employee’s years of service.’ 17

[44] It seems to us that the above submission conflates matters of jurisdiction and merits. The submission advanced may be relevant to the merits of whether a provision such as clause E.1(c) is necessary to achieve the modern awards objective; but it is of little assistance in answering the antecedent question posed by s.142(1)(a).

[45] Paragraph [134] of the October 2017 decision states:

‘As to s.142(1)(a), we adopt the Macquarie Dictionary definition of the phrase ‘incidental to’, namely: ‘liable to happen in conjunction with; naturally appertaining to’.

[46] Contrary to the ACTU’s submission we remain of the view that there is a sufficient relationship between clause E.1(c) and the permitted term such that clause E.1(c) is ‘incidental to’ clause E.1(a), within the meaning of s.142(1)(a). The right of an employer to make a deduction under clause E.1(c) only arises in circumstances where the employee is obliged to give notice of termination in accordance with clause E.1(a).

[47] We now turn to consider whether clause E.1(c) is ‘essential for the purpose of making [clause E.1(a)] operate in a practical way’, within the meaning of s.142(1)(b).

[48] As we observed in the October 2017 decision (at [143]), we consider that there is little discernible difference between the words ‘essential’ and ‘necessary’ when used in the context of a provision such as s.142(1)(b). Further, a distinction is to be drawn between that which is necessary or essential, and that which is desirable. As observed by Tracey J in Shop, Distributive and Allied Employees Association v National Retail Association (No 2) ‘That which is desirable does not carry the same imperative for action’. 18

[49] We went on to state that whether clause E.1(c) met the test in s.142(1)(b) had not been the subject of sufficient debate and we invited further submissions on that issue.

[50] The ACTU and the other union parties submitted that clause E.1(c) was not ‘essential for the purpose of making [clause E.1(a)] operate in a practical way’. The ACTU submits that the purpose of clause E.1(c) is to make compliance with clause E.1(a) more likely and hence reduce the risk of an employer being exposed to inconvenience by an employee’s departure at short notice. As the ACTU put it:

‘It incentivises employee compliance by threatening employees with deprivation of a portion of the wages which they have earned through the performance of work. Clause E(1)(c) also compensates the employer for inconvenience associated with non-compliance, in a matter that is entirely arbitrary and disconnected from the extent of any inconvenience or cost (and even if neither occur). Where neither inconvenience or cost occurs, clause E(1)(c) provides the employer with a saving or in kind benefit at the value of the employee’s earned wages and entitlements forgone.’ 19

[51] Leaving aside for the moment the proposition that the compensatory element of clause E.1(c) is arbitrary and disconnected from any actual loss, there is general agreement as to the purpose of clause E.1(c). We deal later with whether a deduction under clause E.1(c) would be ‘unreasonable in the circumstances’ if it over compensated an employer for any loss suffered.

[52] The nub of the ACTU’s argument is that clause E.1(c) concerns what happens when notice is not given; it is not about how notice is given, or the way in which notice is given. In other words, clause E.1(c) is not for the purpose of making clause E.1(a) ‘operate in a practical way’. As the ACTU puts it:

‘Accepting for present purposes that the purpose of clause E(1)(c) is both compensatory and an incentive and even assuming the incentives referred to above and at paragraphs [167]-[168] of the Decision are effective ones, the question remains whether those matters are sufficient to render clause E(1)(c) “essential for the purpose of making [clause E(1)(a)] operate in a practical way”. The adjective “practical” operates on the “way” in which it must be essential for clause E(1)(a) to operate. It does not contemplate non-observance of clause E(1)(a) – something that is not operating cannot be said to be operating in a “way”, regardless of the adjective used. The incentive purposes of clause E(1)(c) therefore do not give that clause the character of making clause E(1)(a) operate in a practical way, let alone being essential order that it do so. Something that provides an incentive to make a clause operate at all, might be considered to effect the purpose of that clause, but that is not the same as making the clause operate in a “practical way”, or in any “way” for that matter. As far as the compensatory purpose is concerned, it also suffers from the vice of being directed to what happens when clause E(1)(a) is not observed, rather that the manner or way in which it is observed.’ 20

[53] Ai Group, NatRoad and a number of other employers contend that clause E.1(c) satisfies the requirements of s.142(1)(b). Ai Group submits:

‘Clause E.1(c) is ‘essential for the purpose of making (clause E.1(a)) operate in a practical way’ for the following reasons:

(a) The provision provides a practical means of encouraging compliance by employees with the notice requirements in Clause E.1(a). As recognised by the Full Bench of the AIRC in the main TCR Decision of 2 August 1984, there are adverse impacts upon employers when employees terminate their employment without giving notice: (emphasis added)

However, notwithstanding the ACTU arguments we are not prepared, except to a limited extent, to provide for different periods of notice by employer and employee. In particular, we are concerned at the possible consequences for small firms of a loss of employees with long service and the requirement for such employers to find another employee. We have decided that an employee should be required to give the additional notice based on years of service but that it would not be appropriate to require increased notice from the employee based on age.

(b) Clause E.1(c) operates to minimise the significant disruption and cost to employers which arises when employees do not give notice of termination of employment.

(c) It would not be practical for an employer to pursue a civil penalty against an employee under s.45 of the Act for a breach of Clause E.1(a), because:

•  Civil penalties associated with award breaches are typically paid into consolidated revenue, rather than to an aggrieved party. An employer would need to convince the appropriate court that an order requiring a payment to the employer was appropriate in the particular circumstances;

•  The legal and other costs associated with pursuing an action against an ex-employee under s.45 would far outweigh any benefit to the employer; and

•  Unlike an employee, an employer cannot elect to have proceedings relating to a breach of s.45 dealt with as small claims proceedings under s.548. Section 548 only relates to amounts that “an employer was required to pay...”.

(d) Given that employers would be extremely unlikely to pursue an action against an employee for breaching the notice requirements in the award, employees would typically be able to breach Clause E.1(a) with impunity, were it not for Clause E.1(c).

(e) It is not in the interests of employers or employees for an employer to be required to pursue formal legal proceedings against an employee to seek redress for an employee’s breach of an award if a simpler, less time consuming and less costly remedy can be readily achieved (and is currently in place).

(f) The Fair Work Ombudsman does not commonly pursue legal proceedings against individual employees who breach award terms.

(g) It would not be in the public interest for the Fair Work Ombudsman to divert resources towards pursuing legal proceedings against individual employees who breach the notice provisions in clause E.1(a) when a practical mechanism for dealing with such breaches is already enshrined within the award system through clause E.1(c).

(h) To ensure fairness to employers, it is essential to include Clause E.1(c) in awards.’ 21

[54] ABI takes a different view. It submits that clause E.1(c) is desirable but not essential and that ‘the Commission would need to have a cogent or sound basis before it includes clause E.1(c) in any modern awards’. 22 ABI does not contend that the meaning of ‘essential’ differs in any material way from the meaning of ‘necessary’;23 but does argue that the word essential is ‘more emphatic’ than the word ‘necessary’. As to this difference in emphasis, ABI submits:

‘This reinforces the notion that, by using the term “essential”, the legislature is signalling to the Fair Work Commission that the requirement that the Commission satisfy itself that the term is “needed”, when applying section 142 of the Fair Work Act, is particularly important (and perhaps more important than usual).’ 24

[55] In the October 2017 decision we set out some conclusions in respect of a term such as clause E.1(c):

‘[167] For our part we accept that a term such as Clause E.1(c) is likely to enhance compliance with an award term which specifies the period of notice an employee must give to terminate his or her employment. Of course such a term is more likely to encourage compliance if employees were made aware of the potential consequence of failing to provide the requisite notice of termination. We also accept that such a term provides an efficient and effective means whereby compliance with employee notice requirements may be encouraged.

[168] The provision of such a mechanism may also avoid the need to enforce the notice provision through litigation. It may also be accepted that a term such as Clause E.1(c) has been a longstanding feature of federal awards. But, as mentioned earlier, that fact is far from determinative of the issues presently before us.’

[56] We adhere to the above comments; to which we would add that it is also relevant that the small claims procedure in s.548 is not available in proceedings for a breach of clause E.1(a).

[57] A number of the submissions before us have focused on the individual elements of s.142(1)(b) and in particular the word ‘essential’ and the expression ‘operate in a practical way’. In our view the provision needs to be construed as a composite term.

[58] In the context of s.142(1), reasonable minds may differ as to whether a particular term is ‘essential for the purpose of making [a permitted term] operate in a practical way’. In our view the construction advanced by the ACTU is too narrow and seeks to confine the expression ‘operate in a practical way’ in a manner not contemplated by the terms of s.142(1)(b) when read in context, including the relevant legislative history.

[59] We are satisfied that a term such as clause E.1(c) is essential for the purpose of making a term such as clause E.1(a) operate in a practical way.

[60] The next issue is whether clause E.1(c) is a term which we are prohibited from including in a modern award. Section 136(2) is relevant in this regard, it states:

‘(2) A modern award must not include terms that contravene:

(a) Subdivision D (which deals with terms that must not be included in modern awards); or

(b) section 55 (which deals with the interaction between the National Employment Standards and a modern award or enterprise agreement).’

[61] It is convenient to deal first with whether clause E.1(c) contravenes s.55. In the October 2017 Decision we noted that:

‘[228] … there appears to be a general agreement that, as currently drafted, Clause E.1(c) may be contrary to s.55(1) insofar as it may permit a deduction from the payment for untaken paid annual leave on termination contrary to s.90(2). Further, Clause E.1(c) may permit a deduction from a long service leave termination payment, contrary to s.155.

[229] As to the first issue, ABI submits that it would be prudent to amend Clause E.1(c) to delete the reference to the NES. In respect of the second issue, Ai Group submits that Clause E.1(c) could be amended to make it clear that it does not authorise any deduction to be made from long service leave termination payments.

[230] We agree with propositions advanced by ABI and Ai Group, insofar as we accept that it would be prudent to amend Clause E.1(c) to address the issues raised. The form of any amendment will be the subject of further submissions. It is our provisional view that the amendments proposed by ABI and Ai group, while technically addressing the issues raised, may make the provision somewhat cumbersome and lacking in clarity. It is also our provisional view that the preferred approach to addressing the issues raised would be to amend Clause E.1(c) to confine the scope of the capacity to make a deduction to ‘wages due to the employee’. Such an amended version of Clause E.1(c) would read:

‘If an employee fails to give the period of notice required under paragraph (a), the employer may deduct from any wages due to the employee on termination (under this award or the NES)…’

[62] No party contested the proposition that clause E.1(c) cannot permissibly authorise deductions from NES entitlements; but the parties differ as to how this issue is to be dealt with within the standard term.

[63] Ai Group does not concede that it is ‘necessary or desirable’ to amend clause E.1(c) to confine the scope of the capacity to make a deduction to ‘wages due to the employee’, but goes on to submit: ‘However, we understand the reasons why the Commission has reached this provisional view.’ 25 In the course of oral argument Ai Group submitted that it neither opposed nor supported limiting the right to deduct to ‘wages due to the employee’.26

[64] ABI acknowledges that as currently drafted clause E.1(c) could well conflict with NES obligations regarding payments on termination, in particular s.90(2) which deals with annual leave payments on termination. On that basis ABI agreed with our provisional view that the scope of the capacity to make a deduction under clause E.1(c) be limited to ‘wages due to the employee’. 27

[65] The ACTU goes further and submits that clause E.1(c) should be limited not only to deductions from ‘wages due to the employee’, but rather ‘wages due to the employee under this award’ (emphasis added). The effect of the additional words is to confine the scope of the power to make deductions such that it not apply to over award payments. ABI and Ai Group oppose the additional words proposed by the ACTU. 28

[66] Ai Group submits that the ACTU’s additional words ‘are unnecessary’ and would ‘lead to a lot of complications’. 29 ABI submits that the ACTU’s proposal draws an ‘artificial distinction’ between award wages and over award payments and that a term in the form proposed by the ACTU would be:

‘practically burdensome for an employer who may have to undertake complex payroll calculations to work out an employee’s entitlements under the relevant award, in circumstances where they are already dealing with the inconvenience caused by the employee failing to provide the requisite degree of notice’ 30

[67] We agree with the ACTU’s formulation and will amend clause E.1(c) such that it only authorises deductions from ‘wages due to the employee under this award’. It seems to us that authorising deductions from over award payments may have the consequence of overriding private contractual arrangements by which such payments are made, in circumstances where we have no knowledge as to the terms of such arrangements. Further, the complexity argument advanced by ABI and Ai Group is unpersuasive. As will become apparent, we propose to further limit the capacity to make deductions; to one weeks’ wages. Such a limitation will make it simple for an employer to determine the amount that may be deducted in the event that an employee does not give the requisite notice.

[68] We now return to s.136(2)(a) which provides that a modern award must not include terms that contravene Subdivision D of Division 3 of Pt 2-3 (ss.150 – 155A). Sections 151 and 155 are relevant for present purposes.

[69] Section 155 provides:

‘155 Terms dealing with long service leave

A modern award must not include terms dealing with long service leave.’

[70] In the October 2017 decision we noted that, as then drafted, clause E.1(c) may have permitted a deduction from long service leave termination payment. If that was the case then the term may be characterised as a term ‘dealing with long service leave’, in contravention of Subdivision D of Division 3 of Part 2-3 (namely s.155) and hence must not be included in a modern award (because of s.136(2)(a).

[71] As set out earlier, we now propose to limit the capacity for an employer to make deductions from monies owed to an employee under clause E.1(c) to ‘wages due to the employee under this award’. That amendment also resolves any potential issue with s.155, and accordingly we need say no more about it. We now turn to s.151.

[72] Section 151 provides:

‘Terms about payments and deductions for benefit of employer etc.

A modern award must not include a term that has no effect because of:

(a) subsection 326(1) (which deals with unreasonable deductions for the benefit of an employer); or

(b) subsection 326(3) (which deals with unreasonable requirements to spend or pay an amount); or

(c) subsection 326(4) (which deals with deductions or payments in relation to employees under 18).’

[73] The Explanatory Memorandum provides a guide as to the purpose of s.151:

‘587. Clause 151 prohibits a modern award from including a term that is of no effect because:

• the term includes unreasonable payments and deductions for the benefit of an employer (subclause 326(1)); or

• the term relates to unreasonable requirements in relation to how employees spend their wages or other amounts (subclause 326(3)).

588. Although such terms are of no effect, this clause ensures that such terms are not included in awards, as their inclusion (even though inoperative) could be confusing and create uncertainty.’

[74] Section 151(a) and (c), which make reference to various subsections in s.326, are particularly relevant to the matter before us.

[75] Section 326 is in Division 2 – Payment of Wages in Pt 2-9 of the Act (ss.323-327). Section 323 provides, relevantly for present purposes:

‘323 Method and frequency of payment

(1) An employer must pay an employee amounts payable to the employee in relation to the performance of work:

(a) in full (except as provided by section 324); and

(b) in money by one, or a combination, of the methods referred to in subsection (2); and

(c) at least monthly.

Note 1: This subsection is a civil remedy provision (see Part 4-1).

Note 2: Amounts referred to in this subsection include the following if they become payable during a relevant period:

(a) incentive-based payments and bonuses;

(b) loadings;

(c) monetary allowances;

(d) overtime or penalty rates;

(e) leave payments.’

[76] Section 324 deals with ‘permitted deductions’, the relevant part states:

‘(1) An employer may deduct an amount from an amount payable to an employee in accordance with subsection 323(1) if:

…

(a) the deduction is authorised by or under a modern award or an FWC order;

…

Note 2: Certain terms of modern awards, enterprise agreements and contracts of employment relating to deductions have no effect (see section 326). A deduction made in accordance with such a term will not be authorised for the purposes of this section.’

[77] Section 326 provides that certain terms have no effect:

‘Unreasonable deductions for benefit of employer

(1) A term of a modern award, an enterprise agreement or a contract of employment has no effect to the extent that the term permits, or has the effect of permitting, an employer to deduct an amount from an amount that is payable to an employee in relation to the performance of work, if the deduction is:

(a) directly or indirectly for the benefit of the employer or a party related to the employer; and

(b) unreasonable in the circumstances.

(2) The regulations may prescribe circumstances in which a deduction referred to in subsection (1) is or is not reasonable.

Unreasonable requirements to spend or pay an amount

(3) A term of a modern award, an enterprise agreement or a contract of employment has no effect to the extent that the term:

(a) permits, or has the effect of permitting, an employer to make a requirement that would contravene subsection 325(1); or

(b) directly or indirectly requires an employee to spend or pay an amount, if the requirement would contravene subsection 325(1) if it had been made by an employer.

Deductions or payments in relation to employees under 18

(4) A term of a modern award, an enterprise agreement or a contract of employment has no effect to the extent that the term:

(a) permits, or has the effect of permitting, an employer to deduct an amount from an amount that is payable to an employee in relation to the performance of work; or

(b) requires, or has the effect of requiring, an employee to make a payment to an employer or another person;

if the employee is under 18 and the deduction or payment is not agreed to in writing by a parent or guardian of the employee.’

[78] As set out earlier, s.151 relevantly provides that a modern award must not include a term which has no effect because of ss. 326(1) and (4).

[79] As we noted in the October 2017 decision, it seems clear that clause E.1(c) is a term that permits ‘an employer to deduct an amount from an amount that is payable to an employee in relation to the performance of work’ and such a deduction is ‘directly or indirectly for the benefit of the employer’. No party contended otherwise.

[80] The central question is whether such a deduction is ‘unreasonable in the circumstances’ within the meaning of s.326(1)(c)(ii). This expression was considered by Bromberg J in Australian Education Union v State of Victoria (Department of Education and Early Childhood Development) (AEU). 31

[81] In the course of his judgment in AEU, Bromberg J made a number of general observations about the proper construction of s.326. In particular, His Honour concluded that whether a deduction is ‘unreasonable in the circumstances’ is a question of fact and degree dependent upon the relevant surrounding circumstances 32 and then proceeded to identify a number of considerations that are likely to be relevant (though not exhaustive). These considerations appear at [177] – [182] of the judgment and, as we observed in the October 2017 decision, those which are relevant in the present context may be summarised as follows:

1. Consideration must commence from the premise that the ultimate purpose of the scheme is to protect employees from practices that have the effect of denying them the benefit of the remuneration they have earned and are thus entitled to fully enjoy.

2. The extent to which the employer or its related party has benefited will likely be relevant. It will be relevant to assess whether the employee has been taken advantage of in some way, with the result that part of the benefit of his or her remuneration has been lost to the employer. A benefit to the employer is not, of itself, a reason for finding that a deduction was unreasonable. There is nothing wrong in an employer gaining a benefit, but, if that benefit is gained at the expense of the employee, that would tend to indicate unreasonableness. It is the possibility of an unreasonable transfer of the benefit from its intended recipient—the employee—to the employer, which is fastened upon by s.326(1)(c).

3. The phrase ‘in the circumstances’ is of wide import and a broad approach is to be taken to the extent of the circumstances which are considered.

[82] In the October 2017 decision (at [223]) we expressed our provisional view that, having regard to the protective purpose of s.326, a deduction made pursuant to clause E.1(c) may be ‘unreasonable in the circumstances’ within the meaning of s.326(1)(c)(ii) in a range of respects and we canvassed a number of potential variations to clause E.1. We also observed that, as currently drafted, clause E.1(c) is a term which permits an employer to deduct an amount that is payable to an employee under 18 years of age in circumstances where the deduction is ‘not agreed to in writing by a parent or guardian of the employee’. Accordingly, clause E.1(c) would have no effect in relation to employees under 18 years of age, because of s.326(4), and hence it is a term that must not be included in a modern award, because of s.151(c). We invited further submissions in respect of this issue.

[83] It is convenient to deal with the last point first.

[84] As presently drafted clause E.1(c) permits an employer to deduct an amount payable to an employee under 18 years of age in circumstances where the deduction is ‘not agreed to in writing by a parent or guardian of the employee’. It is common ground that as clause E.1(c) would have no effect in relation to employees under 18 years of age (because of s.326(4)), in its current form it is a term that must not be included in a modern award (because of s.151(c)). There is contest between the parties as to what is to be done about this issue.

[85] Ai Group contends that the issue of compliance with s.326(4) could be addressed by the inclusion of a new paragraph (d) in clause E.1, as follows:

‘(d) Paragraph (c) does not apply to an employee under 18 years of age, unless the deduction is agreed in writing by a parent or guardian of the employee in accordance with s.326(4) of the Act.’ 33

[86] The ACTU proposes that employees under 18 years of age ‘be wholly exempt from clause E.1(c). 34 NatRoad takes a similar view.35

[87] ABI agrees that the issue needs to be addressed but expresses no preference as to the method for doing so. 36

[88] The ACTU advanced the following submission in support of its contention that employees under 18 years of age should be exempt from clause E.1(c):

‘The prospect of any parent, given the power to refuse to agree to their son or daughter having their wages docked, is almost certainly nil. Even ignoring fairness considerations, such a term would be clearly irrelevant.’ 37

[89] We agree. Clause E.1(c) will not apply to employees under 18 years of age.

[90] As mentioned earlier, in the October 2017 decision we canvassed four variations to clause E.1 which were directed at ensuring that any deductions made pursuant to clause E.1(c) were not characterised as being ‘unreasonable in the circumstances’, within the meaning of s.326(1)(c)(ii). The variations proposed were as follows:

(i) Limit the deduction that can be made, to no more than one weeks’ wages.
(ii) Amend clause E.1(a) to remove the requirement for notice of termination to be in writing.
(iii) Insert the following qualification into clause E.1(c):

‘No deduction can be made pursuant to clause E.1(c) in circumstances where the employer has agreed to a shorter period of notice than that required in clause E.1(a).’

(iv) To address the circumstances where an employee may be unaware of the requirement in clause E.1(a) to provide notice of termination, two alternate qualifications to clause E.1(c) were proposed:

(a) insert: ‘Any deduction made pursuant to clause E.1(c) must not be unreasonable in the circumstances’; or
(b) expressly provide that no deduction can be made pursuant to clause E.1(c) unless the employer has informed the employee that a deduction may be made from monies due to the employee on termination in the event that the employee fails to give the period of notice required under clause E.1(a)’.

[91] We have already dealt with point (ii) above and need say no more about that.

[92] As to the remaining matters, the ACTU supported (iii) and (iv), but was unconvinced that limiting the deduction to one weeks’ wages would be sufficient to enable the term to be included in a modern award, submitting that: ‘it is difficult to conceive of a fair and relevant safety net that authorises the deprivation of wages earned through work performed’. 38 The other union parties expressed similar views.

[93] There is no dispute as to the variation proposed at (iii) above. ABI, 39 Ai Group,40 NatRoad41 and Master Electricians Australia42 did not oppose the insertion of a prohibition on deductions in circumstances where an employer has agreed to accept less than the required period of notice. We propose to insert such a qualification into clause E.1(c).

[94] As to point (i) above, Ai Group rejects the proposition that the deduction permitted by clause E.1(c) is disproportionate to the loss suffered by the employer:

‘In general, the resignation of an employee with lengthier service will impose greater costs and disruption upon an employer than the resignation of an employee with a shorter amount of service.’ 43

[95] NatRoad advances a similar argument to that put by Ai Group.

[96] ABI takes a different view, and submits as follows:

‘Determining the loss suffered by an employer when an employee fails to provide the requisite period of notice will be a subjective consideration based on a range of factors, some of which are not quantifiable in monetary terms. To the extent that it is necessary to ensure that the clause does not fall foul of s.326, our clients do not oppose a limitation to the amount of any deduction if this is necessary to allay concerns about proportionality, but do not accept that this is necessary.’ 44

[97] We remain of the view that the deductions permitted by clause E.1(c) may be disproportionate to the loss suffered by the employer as a consequence of the employee not providing the requisite notice. To the extent that the purpose of clause E.1(c) is compensatory, the term does not contain a mechanism for ensuring that any deduction made is proportionate to the loss suffered. Indeed the term may permit a deduction of four weeks’ wages in circumstances where the employer has suffered no loss at all. In order to address these concerns we will vary clause E.1(c) in two respects.

•  The deduction that can be made pursuant to clause E.1(c) will be one weeks’ wages.

•  We will insert a qualification to clause E.1(c) that: ‘Any deduction made pursuant to clause E.1(c) must not be unreasonable in the circumstances.

[98] As to point (iv), Ai Group ‘strongly disagreed’ with the view expressed by NatRoad that ‘most employees would not be aware of the risk of being in breach of the Award by not giving the required period of notice’, and submitted that:

‘… there is no basis for a finding by the Commission that employees do not widely understand the very longstanding award obligation of employees to give the required period of notice to their employer.

Accordingly, the proposals identified at paragraph (viii)(4) of the Commission’s Directions are not necessary, and are opposed by Ai Group.’ 45

[99] Similarly, NatRoad submits:

‘We disagree that the absence of knowledge of the provision by an employee creates unfairness or makes the deduction unreasonable. We refer to the issue as being one of fairness, the issue of the principal provision operating so that it represents a ‘two-way street’. 46

[100] The CPSU replied to NatRoad’s contention that the clause should operate as a ‘two-way street’, as follows:

‘The CPSU opposes the submissions of NatRoad of 13 November 2017 at [42-49] where it is claimed such a clause is needed because it is a ‘reciprocal’ or ‘two-way street’ feature of the notice requirements. The CPSU says there no equivalence between an employer’s capacity to withhold money equal to the amount of notice ailed to be given by the employee and the notice requirements imposed upon the employer. The employee is in not the same position of power as the employer regarding notice and termination. Claus E.1(c) does not somehow work as a ‘two way street’ reflecting fairness to the parties.’ 47

[101] ABI propose a different solution to the issue identified in the October 2017 decision (at [223]):

‘As a general proposition, we do not agree that an employee’s ignorance of the requirement to provide a specified period of notice should excuse a failure to provide such notice. However, our clients acknowledge that it may be appropriate for an employee who has not provided the requisite period of notice to be informed of the employer’s intention to withhold monies in accordance with clause E.1(c) and given the opportunity to move his or her last day of employment to a later date, if possible.’ 48

[102] As mentioned above, we have decided to insert a qualification into clause E.1(c) such that any deduction made ‘must not be unreasonable in the circumstances’. Such a qualification addresses the issues raised in respect of (iv).

[103] We are satisfied that the amendments we propose to make to clause E.1(c) are such that deductions made in compliance with the term would not be ‘of no effect’ (because of the operation of ss.151 and 326) and hence there would be no prohibition from including such a term in a modern award.

[104] We have revised model standard term clause E ‘Termination of Employment’ to give effect to this decision. A copy of the revised model standard term is set out at Attachment 1.

[105] The remaining issue in respect of the model termination of employment term is whether such a provision is ‘necessary to achieve the modern awards objective’, within the meaning of s.138. Interested parties may file submissions in respect of the issue in accordance with the following directions:

1. Interested parties are to file submissions in relation to the remaining issue in respect of the model termination of employment term by 4pm Monday 2 July 2018.
2. Interested parties are to file submissions in reply by 4pm Monday 16 July 2018.
3. All submissions are to be sent to [email protected].
4. In the absence of a request for an oral hearing, the matter will be determined on the papers. Requests for an oral hearing are to be directed to [email protected] by no later than 4pm Monday 2 July 2018.
5. Liberty to apply.

Clause H.4

[106] In the August 2017 decision we proposed a revised clause H.4 at [198] and invited interested parties to make submissions. ACTU is the only party who made a submission. The ACTU did not object to the revised clause. 49 We have decided to adopt clause H.4 in the terms of the revised clause at [198] of the August 2017 decision.

PRESIDENT

Appearances:

Sydney:

Mr T Clarke on behalf of the Australian Council of Trade Unions

Mr S Smith on behalf of the Australian Industry Group

Mr M Nguyen on behalf of the “Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union” known as the Australian Manufacturing Workers’ Union (AMWU)

Ms K Thomson and Mr L Izzo on behalf of Australian Business Industrial and the New South Wales Business Chamber

Melbourne:

Ms R Liebhaber of the Health Services Union.

Ms K Biddleston on behalf of the Shop, Distributive and Allied Employees Association

Ms V Wiles on behalf of the Textile, Clothing and Footwear Union of Australia

Mr M Galbraith of the Shop, Distributive and Allied Employee’s Union

Canberra:

Mr R Calver of the National Road Transport Association

Mr S Harris on behalf of the Pharmacy Guild of Australia

Australian Industry Group

Hearing details:

Sydney.

2017.

15 December.

Final written submissions:

Final written submissions following Hearing of 15 December 2017:

Australian Business Industrial and NSW Business Chamber, 21 December 2017.

Australian Business Industrial and NSW Business Chamber, 18 December 2017.

Australian Council of Trade Unions, 18 December 2017

Australian Industry Group, 18 December 2017.

National Road Transport Association, 19 December 2017.

Final written submissions:

Australian Business Industrial and NSW Business Chamber (amended submission), 15 December 2017.

Australian Business Industrial and NSW Business Chamber, 14 November 2017.

Australian Council of Trade Unions, 20 November 2017.

Australian Industry Group, 14 November 2017.

Australian Manufacturing Workers’ Union, 13 November 2017.

Australian Property Services Association, 17 November 2017.

Health Services Union, 21 November 2017.

Master Electricians Australia, 13 November 2017.

National Road Transport Association.

Real Estate Employer's Federation, 13 November 2017.

Registered Real Estate Salespersons’ of SA, 16 November 2017.

Textile, Clothing and Footwear Union of Australia, 15 November 2017.

Final written submissions in reply:

Australian Business Industrial and NSW Business Chamber, 29 November 2017.

Australian Industry Group, 28 November 2017.

Australian Manufacturing Workers’ Union, 27 November 2017.

Community and Public Sector Union, 29 November 2017.

National Road Transport Association, 19 December 2017.

Attachment 1—Revised model termination of employment clause

‘E. Termination of employment

NOTE: The NES sets out requirements for notice of termination by an employer. See sections 117 and 123 of the Act.

E.1 Notice of termination by an employee

(a) This clause applies to all employees except those identified in sections 123(1) and 123(3) of the Act.

(b) An employee must give the employer notice of termination in accordance with Table X—Period of notice of at least the period specified in column 2 according to the period of continuous service of the employee specified in column 1.

Table X—Period of notice

NOTE: The notice of termination required to be given by an employee is the same as that required of an employer except that the employee does not have to give additional notice based on the age of the employee.

(c) In paragraph (b) continuous service has the same meaning as in section 117 of the Act.

(d) If an employee who is at least 18 years old does not give the period of notice required under paragraph (b), then the employer may deduct from wages due to the employee under this award an amount that is no more than one week’s wages for the employee.

(e) If the employer has agreed to a shorter period of notice than that required under paragraph (b), then no deduction can be made under paragraph (d).

(f) Any deduction made under paragraph (d) must not be unreasonable in the circumstances.

 1   [2016] FWCFB 4756.

 2   [2017] FWCFB 4419.

 3   [2017] FWCFB 5258 at [258].

 4   [2017] FWCFB 4355.

 5   [2017] FWCFB 5367.

 6   ACTU submission, 20 November 2017 at para 6.

 7   Ai Group submission, 14 November 2017 at para 8.

 8   ABI submission, 14 November 2017 at para 2.6

 9   Nat Road Submission, 13 November 2017 at paras 25 – 27.

 10   AMWU submission, 13 November 2017 at para 3.

 11   ACTU submission, 20 November 2017 at para 8.

 12   ABI Submission, 14 November 2017 at paras 3.1 – 3.3.

 13   Ai Group submission, 14 November 2017 at para 10.

 14   Ai Group submission, 14 November 2017, paragraph 12.

 15   Ai Group submission, 14 November 2017, paragraphs 10 – 13.

 16   ABI Submission, 29 November 2017, paragraphs 32. – 3.3.

 17   ACTU submission, 20 November 2017 at para [20].

 18   Shop, Distributive and Allied Employees Association v National Retail Association (No 2) (2012) IR 219 382 at [46].

 19   ACTU submission, 20 November 2017 at para [23].

 20   Ibid at para [25].

 21   Ai Group submission, 18 December 2017 at para [22].

 22   ABI submission, 21 December 2017 at para [2.11].

 23   Ibid at [2.2].

 24   Ibid at [2.7].

 25   Ai Group submission, 14 November 2017 at para [14].

 26   Transcript, 15 December 2017 at PN [206] – [207].

 27   ABI submission, 29 November 2017 at para [4.2].

 28   ACTU submission, 20 November 2017 at para [11].

 29   Transcript, 15 December 2017 at PN [209].

 30   ABI Submission, 29 November 2017 at para [4.2].

 31   Australian Education Union v State of Victoria (Department of Education and Early Childhood Development) (AEU) [2015] FCA 1196.

 32   Ibid at [176].

 33   Ai Group submission, 14 November 2017 at para [16].

 34   ACTU submission, 20 November 2017 at para [13].

 35   NatRoad submission, 13 November 2017 at para [34]

 36   ABI submission, 29 November 2017 at para [5.1] – [5.2].

 37   ACTU submission, 20 November 2017 at para [13].

 38   ACTU submission, 20 November 2017 at para [29].

 39   ABI submission, 14 November 2017 at para [8.3(c)].

 40   Ai Group submission, 14 November 2017 at para [37].

 41   NatRoad submission, 13 November 2017 at para [47].

 42   MEA submission, 13 November 2017 at page 1.

 43   Ai Group submission, 14 November 2017 at para [33].

 44   ABI submission, 14 November 2017 at para [8.3(a)].

 45   Ai Group submission, 14 November 2017 at paras [40] – [41].

 46   NatRoad submission, 13 November 2017, at para [49].

 47   CPSU submission, 27 November 2017, at para [12].

 48   ABI submission, 14 November 2017 at para [8.3(d)].

 49   ACTU submission, 4 September 2017 at para [2].

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