The Fair Work Act 2009 (Cth) (the Act)
has placed impediments upon the capacity of employers to make
deductions from an employee's wages or recover monies owing
A common clause in standard employment contracts often states
that 'The employee agrees that the employer may deduct from the
employee's final pay monies which is owed to the
On this basis the employer simply could deduct the amount that
was owed to it from the final pay, however the law has swept this
Division 2 of Part 2-9 of the Act has placed a number of hurdles
on the capacity of an employer to recover monies owed through
agreed deduction arrangements or through a debt recovery action in
The Act permits an employer to deduct an amount from monies owed
to an employee arising from their performance of work but only
the deduction is authorised in writing by the employee
the deduction is 'principally' for the employee's
in the case of a contract, the authority is not withdrawn and
the exact amount that can be deducted is specified in the
This means that an employee might accept a payment from an
employer as a loan under a contract and then withdraw the right to
deduct the money at any time; or if part of the amount has been
paid off, argue that the balance cannot be deducted because it is
not the specific amount that was authorised to be deducted under
This should still leave the right of the employer to recover the
balance of the loan in a civil proceeding... but wait... there is
Recovery of monies
The Act sets out further provisions that limit the right to make
deductions and/or recovery monies from employees.
A term of a modern award, an enterprise agreement or a contract
of employment has no effect to the extent that the term permits an
employer from deducting an amount payable to an employee or
requires an employee to make a payment to an employer if the
deduction or payment is: directly or indirectly for the benefit of
the employer; or is unreasonable in the circumstances.
Regulation 2.12 of the Fair Work Regulations sets out some
examples that do amount to reasonable circumstances:
providing an employee with goods and services on the same terms
as the goods and services that the employer provides to members of
the public, like health insurance or financial loans
corporate card expenses
personable phone call expenses
petrol purchases for private use.
The effect of the Act is that if the term of the contract is
directly or indirectly for the benefit of the employee or is
'unreasonable', then the employer cannot make the deduction
and cannot even recover the debt that is owed in a debt recovery
action in a court.
A classic example is where an employer pays for an
employee's training/education costs but on the basis that if
the employee leaves within a certain period of time, he or she must
repay these costs (or a proportion of them). The Act might now
prevent the employer from recovering the money because the terms
are 'unreasonable' as determined by a court.
Courts in the past have considered the enforceability of
training bonds or requirements to repay relocation expenses based
on claims that:
the payment exceeds the true costs of the employer and
therefore is a 'penalty'
the agreement was achieved through duress and therefore is not
the time period that the employee had to remain in the
employment to avoid having to repay the monies was so long as to
amount to a restraint of trade.
These remain available defences for employees, but the Act now
sets a higher bar for employers to satisfy, namely whether the
'benefit' was essentially for the employer's benefit or
that the requirement to repay is just 'unreasonable' in the
In practical terms, even if the transaction is lawful but a
deduction from wages is not permitted, do employers wish to
commence a timely and costly recovery action against a former
employee for a relatively nominal amount of money?
Employers must ensure that agreements about loans or
training/education costs and the like are carefully drafted and
agreed without duress, are principally for the benefit of the
employee and set repayment conditions that are reasonable and not
This publication is intended as a general overview and
discussion of the subjects dealt with. It is not intended to be,
and should not used as, a substitute for taking legal advice in any
specific situation. DLA Piper Australia will accept no
responsibility for any actions taken or not taken on the basis of
DLA Piper Australia is part of DLA Piper, a global law firm,
operating through various separate and distinct legal entities. For
further information, please refer to www.dlapiper.com
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