A recent decision of the Federal Magistrates Court illustrates
how simple drafting failures, in the context of an industrial
agreement, can lead to significant commercial and financial
The employer had entered into AWAs with certain employees.
Provision was made for a performance bonus for the employees.
The literal application of the provision operated in a manner
that was far more generous to the employees than the employer had
expected or intended.
The employer calculated the bonus in a manner that reflected its
own understanding of the position. As a consequence, the employees
were underpaid by significant amounts. The underpayment arose
because the company believed that the bonus provision entitled the
employees to the higher of a basic figure or the actual figure
derived as a result of multiplying the recorded output by 51c for
each tonne. Unfortunately, the manner in which the provision was
expressed was that the employee was entitled to the minimum figure
and the figure determined on the basis of the actual tonnage
The employees brought a complaint to the Workplace Ombudsman.
The Ombudsman commenced proceedings in the Federal Magistrates
Court for breach of the AWAs and recovery of underpaid amounts.
By the time the matter came for trial, the employer accepted
that the underpayments had occurred and had rectified them. The
only matter that remained to be determined by the Federal
Magistrates Court was the size of the penalty to be applied to the
employer for breach of the AWAs.
In assessing the penalty, the Federal Magistrates Court took
into account the payment which the employer had made and its
expression of contrition. In the final result the employer was
fined a total of $22,500.
Evidence given in the course of the proceedings established that
the company had not taken legal advice during the course of
drafting the provisions. The Federal Magistrate commented that the
circumstances were such that the employer might have been entitled
to seek rectification of the agreements under ordinary common law
principles. This would have required an application to the Supreme
Court. However, as the proceedings before the Federal Magistrate
were solely concerned with whether or not the actual terms of the
AWAs had been breached, the Court was obliged to look only at the
drafting of the provisions and not questions of intent.
The error which took place in the drafting of the bonus
provision represents a type of mistake that can easily occur in any
form of drafting - particularly drafting which references a series
of numerically based performance measures.
The case stands as a clear illustration of the difficulties that
can confront an employer as a result of failing to adequately check
the drafting of industrial agreements.
Although the case involved AWAs, which are now abolished, the
drafting lessons arising from this decision are equally applicable
to the content of enterprise agreements that might be made under
the new Fair Work Act. These agreements need to be carefully
calibrated so as to pass the Better Off Overall Test, but also to
pay due deference to the National Employment Standards and the
content of any underlying modern award. Amidst all of this, it is
also fundamentally important that the agreement be thoroughly
vetted in order to make sure that important words or phrases are
not omitted and that provisions relating to payment of benefits and
entitlements accord with the parties' intentions. Any ambiguity
is likely to be resolved against the interests of the employer.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Long experience representing many of Australia's leading employers has taught us that in employment litigation the identity of an employee's representative is a major factor in how employee litigation runs.
Australian employees receive certain entitlements (such as annual leave and superannuation) where contractors do not.
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