Home | Member Updates | Former employees may be entitled to EA pay increases
Summary: The High Court of Australia recently refused to allow an appeal from a decision of the Full Federal Court, which held that two applicants were entitled to receive pay increases under new enterprise agreements that were approved after they had resigned their employment.
Universities should keep this case in mind in respect of potential liability if their new enterprise agreements provide for increases that are backdated from the date of approval.
Background
The two Applicants, Mr Murtagh and Mr O’Mara, were teachers employed in Toowoomba in the Catholic secondary system. They resigned their employment on 6 December 2019 and 31 December 2019 respectively.
On 25 November 2020, the Fair Work Commission approved two enterprise agreements, which replaced the agreements under which the Applicants were respectively employed at the time of their resignation.
Each of the two agreements provided for staged salary increases, with the first expressed to be operative as of the first full pay period on or after 1 July 2019. Neither of the two former employers paid this increase to the Applicants.
Claim for breach of EA
The applicants instituted proceedings in the Federal Court’s original jurisdiction, claiming:
- a declaration under s 545 of the FW Act that the former employers had contravened s 50 of the FW Act by failing to pay them arrears of salary and related superannuation contributions for the period between 1 July 2019 and their respective resignation dates
- the imposition of a civil penalty pursuant to s 546 of the FW Act
- an order pursuant to s 537 of the FW Act that they be paid the alleged arrears with interest.
Consideration of HCA authority and s 58(2) of the FW act
The Court referred to the previous High Court decision in Aldi Foods, in which the HCA had observed that an enterprise agreement may ‘’cover’’ an employee even though not yet in operation to ‘’apply’’ to that employee. However the HCA in Aldi Foods did not consider the issue of backdated provisions.
In this regard the Full Court noted that sections 58(2)(a) and (b) of the Fair Work Act 2009 (FW Act) provide that if an enterprise agreement is in operation and has passed its nominal expiry date and another agreement comes into operation that covers an
employee, the earlier agreement can no longer apply. The Court observed that the dichotomy between ‘’applies’’ and ‘’covers’’ in s 58(2)(a) and 58(2)(b) of the FW Act reflected the dichotomy between coverage and application noted by the HCA in Aldi Foods. In the current circumstances, the selection of 1 July 2019 as the operative date for the first pay increase under the new agreement was ‘’hardly coincidental’’, given that the nominal expiry dates of the two previous agreements was 30 June 2019.
Reference to the explanatory memorandum and interpretation principles
The Full Court further referred to Paragraph 196 of the Explanatory Memorandum to the FW Act, which provides that:
- The terms of an enterprise agreement can only have any effect when an agreement commences operation. However, this does not preclude an agreement from including a terms that has retrospective effect (eg a backdated wage increase).
Referring to the ‘’practical bent of mind’’ for constructing enterprise agreements deriving from Kucks v CSR Limited, the Court concluded that:
- The obvious intent is that, once the enterprise agreements became operative, there will be a seamless transition between the old pay rates thereby made forever inapplicable and hew pay rates, applicable for teachers in respect of work performed on and from 1 July 2019.