Recently, we received a distraught telephone call from a client who runs a small business. He had received a letter from a lawyer representing a former employee. The letter advised our client that the former employee was bringing a claim against the business for underpayment of wages. The letter further indicated that if the matter proceeded to court, penalties exceeding $100,000 may be imposed on our client. One more important detail – our client had recently fired the employee for stealing money from the business.

Any sort of legal action taken against your business is unpleasant. In our client’s case, it was particularly upsetting. His former employee was pursuing his business for more money, even after having stolen from that very business. The theft was even subject to a successful criminal prosecution. The prosecution proved that the former employee had stolen several thousand dollars. Our client estimates that the theft totalled tens of thousands of dollars, but had insufficient direct evidence.

It’s also worth noting that our client had engaged a service provider to prepare the contract of employment (not us!). He was assured the contract was ‘water-tight’. That service provider was not a law firm.

Now can you imagine his distress when he received the letter telling him that if he didn’t pay the former employee more money, court proceedings would be issued against him? He wasn’t the criminal!

Your employee may steal from you. They may incur fines on behalf of your business. They may even damage your business in a way that you cannot remedy. But the rub – none of this affects your obligation to pay them in accordance with the relevant legal requirements.

There are many legal obligations on employers which are complex. Recent court cases have demonstrated this. In the matter of WorkPac Pty Ltd v Skene [2018] FCAFC 131, the court found that Mr Skene was not a casual employee and ordered WorkPac to pay him significant compensation. WorkPac is a large company with a sophisticated Human Resources department. It is therefore easy to see how a small business employer might make a mistake in calculating an employees’ wage.

The question which immediately springs to mind is: “How can this be avoided?

While we recommend that you have your employment contracts prepared by a qualified lawyer (i.e. us!), there are a few basic things to bear in mind when engaging someone to work in your business.

The Basic Legal Requirements

Any agreement where somebody pays somebody else to do work for them is subject to some basic legal requirements. They are set out below.

The National Employment Standards

Any employment relationship must comply with the National Employment Standards (NES). These standards came into effect on 1 January 2010. They set out the minimum entitlements of workers under the Fair Work Act 2009 (Cth).

The 10 minimum entitlements provided for are:

  • Maximum weekly hours;
  • Requests for flexible working arrangements;
  • Parental leave and related entitlements;
  • Annual leave;
  • Personal / carer’s leave, compassionate leave and unpaid family and the newly introduced domestic violence leave (which came into effect on 12 December 2018);
  • Community service leave;
  • Long service leave;
  • Public holidays;
  • Notice of termination and redundancy pay; and
  • The provision to the employee of the Fair Work Information Statement.

The NES also provide for a minimum wage which must be adhered to.

All of the following additional regulations and agreements retain the NES as a base level and must match or exceed the standards.

Modern Awards

Modern Awards cover most employees in Australia. These Awards are specific to certain roles within industries and provide for entitlements and conditions which exceed the NES.

Modern Awards usually categorise workers into classifications which attract different rates of pay. The rates of pay will also be affected by the hours that are worked. If the hours worked are outside usual business hours, then penalty rates will usually apply. For example, someone who is in the hospitality industry and works nights and weekends may be entitled to significant penalty rates on top of their usual hourly rate of pay.

Enterprise Bargaining

‘Enterprise bargaining’ is an industrial-relations term. It describes a process engaged in by a group of workers and their employer if they want to establish employment conditions specific to their specific workplace. The resulting agreements are like specialised or ‘tailored’ Modern Awards.

Employment Contracts

An individual employer will often want to be extremely clear about the basis upon which they employ a specific person, and what they can expect from the employee in return for their remuneration and conditions. An employment contract allows an employer to engage with employees on a one-to-one basis. It also gives the employee a clear indication of what is required of them.

A contract allows the employer to clearly set out what the employee will be paid. This could be an annual salary paid to the employee on a fortnightly basis, payment by reference to an hourly rate, or an arrangement that involves salary sacrifice. All of these methods of remuneration must meet the NES and relevant Modern Award or Enterprise Bargaining Agreement.

The ‘Better Off Overall Test’ or ‘BOOT’

Employers and employees can negotiate alternative employment conditions which reduce a worker’s pay. In these circumstances, the employer must allow the worker something in return that the worker considers of greater value. For example, this might be flexible working arrangements that allow the worker to collect their children from school.

The requirement in these circumstances is that the worker is ‘Better Off Overall’.

Basic wage requirements

All the agreements referred to above provide for a minimum rate of pay for a given level of expectations. An employer can negotiate the terms of employment with an employee and put those terms to writing. If they do not meet or exceed the minimum requirements though, the employee can pursue legal action against the employer for under-payment of wages.

As already mentioned, employers need to be careful that an employment contract considers the requirements of the applicable Modern Award. If the terms of the contract do not meet or exceed those of the relevant Modern Award, then the contract is not worth the paper it is written on.

If a court finds that an employee has been underpaid, it has the discretion to impose significant penalties on both the business owner and the business itself. Some legal commentators anticipate that courts will deliver more of these penalties in coming years.

What Do I Do?

Having a reasonable idea of what you should be paying your employee is a good start. You know the industry that your business operates in and the duties that your employee is required to perform. It is a very good idea to make a list of these duties, and include them in a written employment contract. The Fair Work Australia website provides an online tool to determine what Modern Award an employee will likely be covered by.

Modern Awards set out the different rates of pay that you can use to estimate what you should be paying your employee.

You should also read through the Modern Award and make sure that you meet all the other requirements. You can refer to the matters set out above under the NES requirements to guide you. There may be matters you haven’t considered that you become alerted to.

Finally, it is our strong recommendation that you seek legal advice from a qualified and experienced lawyer. There are companies offering what they generically refer to as ‘employment services’. Often, these companies employ people who are not legally trained to prepare documents. Unfortunately, you will be legally bound by those documents.

Our client is now trying to resolve the claim made against him. The employee who stole from him is now going to cost him even more money. He might even end up having to go to court to defend himself (against his former criminal employee).

If the employment contract had dealt with the relevant Modern Award provisions, our client could have avoided this problem.

Do you have employment contracts in place with all your employees? Have you started to wonder if any particular contract will protect you from a claim in the future?

If you require any advice about those contracts, or would like to prepare, update or review your employment contracts, please contact Andreyev Lawyers on 1300 654 590 to speak to one of our qualified and helpful people.