Recent developments in employment law

The latest issues, decisions and proposed changes impacting business and workplace risk 12 min read

FWO releases guidance on payroll remediation programs

By Tarsha Gavin and Reuben Gregg-McQueen 

FWO's expectations for employers conducting wage remediation programs

In response to an increase in self-reported wage underpayments and employer requests for regulator guidance on undertaking payroll remediation programs (PRPs), the Fair Work Ombudsman (the FWO) has recently released its Payroll Remediation Program Guide (the Guide).¹

Key takeaways

• The Guide outlines the FWO's approach to assessing PRPs and a suggested framework for conducting a PRP, but is not intended to be a checklist for compliance or legal advice for employers.
• Given the FWO's clear expectations in the Guide regarding a number of aspects of PRPs, we think it is likely employers conducting PRPs can expect to be asked by the FWO to explain any significant departure from the approaches or principles outlined in the Guide.

Key matters covered in the Guide

The Guide is comprehensive and outlines a range of matters for employers to consider when conducting a PRP, including:

• how to design a PRP;
• how employers should communicate with employees throughout the remediation process;
• how payments are to be made to current and former employees, or to the Commonwealth if former employees cannot be located; and
• methods to ensure that employers remain compliant with their legal obligations in the future.

Below are some key themes and aspects of the Guide.

An employee-centred approach

A central theme throughout the Guide is the importance of keeping employees at the centre of a PRP, including by:

• genuinely consulting with them and other relevant parties, such as unions, during each stage of the PRP, including in decisions about the scope of review, developing a methodology and making remediation payments; and
• minimising the complexity of a PRP and making it easy for employees to receive their entitlements.

Period of review

The FWO recommends that employers treat the statutory limitation period of six years for the commencement of proceedings to recover an underpayment as the minimum period for a PRP review. Where the underpayment issue extends beyond the six-year period, employers who limit their review to six years can expect to be asked by the FWO to justify their decision to not extend the review period.

Approach to offsetting

The Guide confirms the FWO's position on offsetting payments owing to employees in PRPs, which is that:

• employers cannot use an overpayment in one pay period to satisfy an underpayment in another pay period; and
• if an employee is paid an amount for a specific entitlement, this cannot be used to satisfy an underpayment of a different entitlement.

Employers that depart from this approach will be asked by the FWO to provide a legal basis for doing so, including any contractual offsetting terms that they rely on.

Offsetting practices in wage remediation programs are currently the subject of judicial consideration in the FWO's proceedings against Woolworths and Coles in the Federal Court, which are awaiting judgment and may impact on the FWO's stated position. 

Application of interest

The Guide also sets out the FWO's expectation that remediation payments include interest and that an acceptable rate is the Federal Court’s pre-judgment interest rate (currently 8.35%). If an employer decides not to pay interest as part of their remediation program, the FWO will expect them to demonstrate the appropriateness of their approach, and has said that it is open to other approaches, such as applying an uplift amount to repayments or making repayments at a higher rate of pay.

Federal Court warns employers regarding deferral of incentives 

By Chloe Wilton and Nathan Shannan

Decision underscores limits on employer's ability to defer incentive payments

The Federal Court has rejected an employer's attempt to defer, and later forfeit, payment of employees' incentive payments after they became payable.²

Key takeaways

• While this decision is subject to an appeal, current authority suggests that once an employee's incentive payment becomes 'payable', the employer must pay the amount to the employee, in full, within one month. Employers cannot rely on contractual terms to defer or forfeit an incentive payment after it becomes payable.
• If an employer intends or is required to defer all or part of an employee's incentive payment, the incentive arrangement should specify that the deferred part of the incentive payment will not be payable to the employee until the end of the deferral period.

Background

Two former employees of Fortrend Securities Pty Ltd brought proceedings in the Federal Court after Fortrend refused to pay outstanding bonus amounts following their resignations. The employees' employment contracts provided that:

• the employees 'would receive a bonus' if Fortrend received a specified amount of monthly commission through the employees' clients and accounts;
• the bonus for a particular month would be paid in two instalments – half in the following month, and the remaining half seven months later; and
• if the employees resigned or their employment was terminated, they would not be entitled to receive the unpaid bonus.

Fortrend resisted the employees' claims to the unpaid bonus amounts, on the basis that:

• the bonus became payable progressively, with half payable in the following month and the remainder payable seven months later; and
• the unpaid 50% bonus payment was forfeited because the employees resigned before it was paid.

The decision

The Federal Court decided that the employees' bonuses became payable in full once the monthly commission threshold was met. This was because once the monthly commission threshold was met, there was no requirement for further work before Fortrend's obligation to pay the amounts to the employees crystallised. This meant that the full bonus amount must be paid within one month, in accordance with section 323 of the Fair Work Act 2009 (Cth) (the FW Act), which requires that employers pay amounts payable to employees in relation to the performance of work, in full, at least monthly. By failing to do so, Fortrend contravened s323.

While the employment contracts provided for 50% of the bonus to be paid after seven months, those provisions governed the timing of the payment, not when the bonus became payable, and were invalid because they were inconsistent with s323 of the FW Act.

Notably, the court determined that the managing director of Fortrend was involved in its contravention of s323 and so was liable as an accessory under s550 of the FW Act. This was because the managing director had knowledge of all the material circumstances that led to the contravention and so was found to be 'knowingly concerned' in it.

Moving forward

The decision, while subject to an ongoing appeal, highlights the importance of ensuring that contractual and policy-based incentive arrangements clearly specify when incentive payments are 'payable', particularly if all or part of the incentive payment will be deferred.

Subject to what is determined on appeal, entities that are subject to the Financial Accountability Regime Act 2023 (the FAR Act) may also need to consider the interaction between s323 of the FW Act and the FAR Act obligations on accountable entities as to the variable remuneration of accountable persons. A key obligation in that respect is the obligation on an accountable entity to defer part of an accountable person's variable remuneration and reduce their variable remuneration in certain circumstances.

Non-compete clause reform on the horizon 

By Tarsha Gavin, Anita Thompson and Anoushka Rastogi

Proposed ban on non-compete clauses

The Federal Government has announced plans to ban non-compete clauses for employees below the high-income threshold, alongside broader reforms intended to address practices such as wage fixing and no-poach agreements. 

Key takeaways

• The Federal Government plans to ban non-compete clauses for employees earning below the high-income threshold (currently $175,000) from 2027, with further reforms targeting wage-fixing and no-poach agreements also on the agenda.
• As non-competes are often unenforceable for lower-income workers under current law, the practical impact of the reform may be limited. However, employers who may be impacted by the reforms should begin exploring alternative protections, such as strengthened confidentiality clauses and use of gardening leave provisions in employment contracts.

Federal budget and non-compete clauses

Proposed changes

The Government announced as part of the Budget for 2025/26 that, if re-elected, it would ban non-compete clauses for workers earning below the high-income threshold in the Fair Work Act 2009 (Cth) (currently at $175,000 per year, excluding superannuation), taking effect from 2027 and applying prospectively.

It is anticipated this reform will be brought about by amendments to the Competition and Consumer Act 2010 (Cth) that will also address practices such as:

• fixing wages by making arrangements that cap workers' pay or employment conditions such as health benefits, non-statutory leave entitlements, and bonus schemes, without the knowledge and agreement of affected workers; and
• using 'no-poach' agreements to block staff from being hired by competitors.

The proposed reform follows governmental concern that non-compete clauses are now a common and growing feature of the Australian labour market, suppressing the wages of many workers, including lower-paid and vulnerable workers. The Government has cited research estimating that these reforms could lift wages of affected workers by up to 4% of $2,500 per year. The Productivity Commission has further estimated that these changes could increase annual GDP by $5 billion.

For further details on the key concerns in relation to non-competes considered in the Federal Treasury Issues Paper published in April last year, see our previous Insight.

Implications for employers 

At this stage, the Government's proposed ban on non-compete clauses applies only to employees earning below the high-income threshold. In practice, many employers who rely on non-compete provisions to protect legitimate business interests typically apply them to high-income earners, as employees in more senior positions are likely to be those with access to sensitive confidential information and in regular contact with clients.

Accordingly, the proposed reforms are unlikely to significantly affect the use of non-compete clauses for senior employees. In situations where they impact the restraint of junior employees, in some cases those clauses may have not been enforceable if contested, even without the proposed reforms.

For employers who use non-compete clauses for workers below the high-income threshold in circumstances where they would be enforceable under current law, alternative mechanisms may be necessary to protect their confidential information and other business interests, such as bolstering contractual provisions dealing with notice periods, gardening leave, confidential information and intellectual property.

What's next?

The Government has not yet consulted on the finer details of the proposed reforms, including potential exemptions, penalties and transitional arrangements. With the Labor Party now re-elected, we expect that consultation to occur in due course, and also to potentially address non-solicitation clauses relating to both  clients and co-workers.

Victorian labour hire regulator ramps up enforcement action  

By Sarah Lunny and Emerald Cornwall-Jones

Prosecutions highlight importance of complying with labour hire licensing obligations

The Victorian Labour Hire Authority (the LHA) is pursuing criminal charges against a company director for knowingly providing false and misleading information in support of an application for a labour hire licence. The charges follow a spate of successful prosecutions by the LHA, which have resulted in total penalties of more than $1.3 million against labour hire companies and directors.

Key takeaways

• The LHA appears set to continue ramping up its enforcement action after a number of successful prosecutions against labour hire companies and their directors in recent months.
• The prosecutions reinforce that labour hire providers in Victoria must ensure they have a labour hire licence to provide such services. Those engaging labour hire workers must ensure that they do so from a licensed labour hire provider.

Background

The LHA oversees Victoria's labour hire licensing scheme, which came into effect in 2019. This includes assessing applications for labour hire licences under the Labour Hire Licensing Act 2018 (Vic) (the Act).

Under the scheme, it is unlawful to provide labour hire services without a labour hire licence. It is also unlawful to engage an unlicensed labour hire provider. The Act also contains a range of obligations and offences with regard to advertising unlicensed labour hire services, and providing information regarding a labour hire licence application.

Recent prosecutions

The LHA has recently commenced proceedings involving four criminal charges against the director of KSK Pty Ltd. It is alleged that false invoices, misrepresentations and misleading information had been submitted in a labour hire licence application.

Over the past 12 months, the LHA has also commenced proceedings and successfully obtained enforcement outcomes against a number of entities and individuals in industries such as construction and horticulture. These prosecutions have related to breaches of the Act for conduct such as:  

• engaging unlicensed labour hire workers;
• supplying labour hire workers to perform work without holding a labour hire licence;
• advertising and providing unlicensed labour hire services; and
• failing to notify the LHA of changes in a company's directors, and that a director was not longer a fit and proper person.  

Home sweet home office: FWC affirms remote employment 

By Veronica Siow and Hannah Woodfield

Fair Work Commission applies multifactorial test to 'modern' remote workplace

The Fair Work Commission (the FWC) recently decided that an Australian-based remote worker for a non-profit organisation in the United States was an employee.

Key takeaways

• In the context of modern workplaces and increased work-from-home arrangements, workers may have greater flexibility and control over their work, but this will not necessarily change how their employment will be characterised.
• Whether a relationship is one of employee and employer or principal and independent contractor depends on the 'real substance, practical reality and true nature of the relationship' between the employer or principal and the worker. Companies should carefully review their contracts and working arrangements with their independent contractors, to ensure that those contracts and arrangements in fact properly reflect their status as an independent contractor.

Background

Free Hearts Free Minds (FHFM) is a California-registered non-profit organisation. The worker, referred to as Ms AB, who is based in Australia, was engaged by FHFM to provide therapy services to its clients in the role of 'mental health therapist' and 'mental health facilitator'. She performed that work online and at times of her choosing.

Ms AB later moved into the position of 'executive director' at FHFM, which required her to liaise with donors, engage in marketing activities, and onboard volunteers and other workers. Ms AB worked full-time hours and invoiced FHFM monthly for her services under an ABN, as required by FHFM.

Ms AB performed work under the direction of Ms EF, a director of FHFM based in California. Ms AB had weekly online meetings with Ms EF, who set the tasks Ms AB was to perform. Ms EF told Ms AB that her new role was as an independent contractor of FHFM and not as an employee.

Ms AB was later dismissed by FHFM. Ms AB brought a claim in the FWC on the basis that her dismissal was 'adverse action' under the FW Act. FHFM disputed the claim on the grounds that:

• Ms AB was not an employee and so she was not 'dismissed' under the FW Act; and
• the FWC did not have jurisdiction to deal with the claim because FHFM was not subject to the FW Act.

The decision

In deciding whether Ms AB was an employee or independent contractor, the FWC applied the new section 15AA of the FW Act. Under s15AA, whether an individual is an employee is to be determined by ascertaining the 'real substance, practical reality and true nature of the relationship' between the individual and the person. The totality of the relationship must be considered not only by reference to the contractual terms governing the relationship, but also to other factors.

Section 15AA reintroduces the multifactorial test that the High Court departed from in Personnel and Jamsek (see our previous Insight on the Personnel and Jamsek decisions). However, the FWC noted that the application of the test may now be affected by changes to the modern workplace, where remote work and flexible arrangements are common.

The FWC assessed the various factors of Ms AB's relationship with FHFM in relation to the 'ultimate question' of whether she was carrying out a trade or business on her own behalf. No evidence indicated Ms AB was running an independent trade or business. Her work was integral to FHFM's operations, Ms EF retained the right to exercise and did exercise control over how she performed her work, and she presented to the public as FHFM's executive director and not an autonomous entity.

Therefore, despite the remote nature of Ms AB's role, the FWC decided she was an employee and not an independent contractor.