The Federal Court of Australia recently adjudicated a case involving an employer’s neglect in paying a worker’s accrued annual leave entitlements upon termination.
This ruling highlights the crucial need for adherence to the Fair Work Act 2009 (Cth) and the severe repercussions of non-compliance.
Case background
The case centred on the worker’s claims that the employer had dismissed him for exercising his “workplace rights”, had imposed unreasonable working hours, and had failed to pay out his accrued entitlements upon termination.
The court found the employer in breach of section 90(2) of the Fair Work Act for not paying the worker the amount equivalent to his accrued but untaken annual leave when his employment concluded on 9 December 2021. The owed amount of $8,022.82 was only paid on 30 March 2022, approximately three months after the termination.
Seriousness of breaching the NES
The court emphasised the gravity of breaching the National Employment Standards (NES), stating that “any breach of the NES is objectively serious.” The purpose of section 90(2) is to prevent employers from avoiding their obligation to provide employees with their entitlements upon termination.
Penalty assessment
In determining the penalty, the court considered several factors including the nature of the breach, the extent of the loss or damage, and the size of the employer. The worker argued for a penalty of 40–55% of the maximum, citing the loss suffered and the need for deterrence. The employer sought a lower penalty, citing the chief operating officer’s unfamiliarity with Australian law, the worker’s modest loss, and the employer’s contrition and lack of prior violations.
The court noted that deliberate contraventions include actions taken with knowledge of the facts leading to the breach, as well as additional factors like recklessness or negligence.
Balancing the factors
The court considered the employer’s ignorance of Australian law but also recognised the steps taken to rectify the underpayment and the employer’s early admission of the contravention. The chief operating officer had apologised to the worker, and the court did not question the sincerity of the apology.
Need for deterrence
The court stressed the importance of specific and general deterrence, stating, “a clear message needs to be sent to [the employer] and the community that ignorance (including mistaken belief) is no excuse.” Employers must understand the law and seek legal advice if uncertain about entitlements.
Court’s order
Consequently, the court ordered the employer to pay the worker $17,000, representing approximately 25% of the maximum penalty.
Key takeaways
- Compliance with Fair Work Act: Essential to avoid significant penalties and maintain employee trust.
- Ignorance is no excuse: Employers must be proactive in understanding and complying with legal requirements.
- Deterrence: The court aims to deter both specific and general non-compliance through substantial penalties.
This case underscores the importance of rigorous adherence to employment laws and the severe consequences of non-compliance. It also highlights the need for employers to stay informed and seek guidance to ensure compliance with legal obligations.
