Failure to pay accrued annual leave: Court fines 'ignorant' employer

Court also criticises chief operating officer's 'unfamiliarity with Australian law'

Failure to pay accrued annual leave: Court fines 'ignorant' employer

The Federal Court of Australia recently dealt with a case involving an employer's failure to pay a worker's accrued annual leave entitlements upon termination of employment.

The court's decision sheds light on the importance of compliance with the Fair Work Act 2009 (Cth) and the consequences of breaching its provisions.

In this case, the court delved into the circumstances surrounding the termination of the worker's employment and the employer's “ignorance” and subsequent failure to pay out the worker's accrued annual leave entitlements.

Background of the case

The case revolved around the worker's allegations that the employer had dismissed him for exercising several "workplace rights," had unreasonably requested or required him to work an unreasonable number of hours, and had failed to pay out his accrued entitlements upon termination.

The worker claimed that each of these actions contravened various sections of the Fair Work Act. In its liability judgment, the court found that the employer had contravened section 90(2) of the Fair Work Act by failing to pay the worker the amount that would have been payable to him had he taken his accrued but untaken annual leave when his employment ended on 9 December 2021.

The employer did not pay the relevant amount of $8,022.82 until 30 March 2022, approximately three months after the termination date.

The court emphasised the seriousness of breaching the National Employment Standards (NES), stating that "any breach of the NES is objectively serious."

It acknowledged the purpose of section 90(2), which is to ensure that employers cannot avoid providing employees with their entitlements by terminating their employment or because the employment comes to an end at the employee's initiative.

Assessing the appropriate penalty

In determining the appropriate penalty, the court considered various factors, including the nature and extent of the contravening conduct, the amount of loss or damage caused, the circumstances in which the conduct took place, and the size of the employer.

The court also considered the deliberateness of the contravention and the period over which it extended. The worker submitted that a penalty of 40–55% of the maximum was appropriate, given the loss he suffered and the need for specific and general deterrence.

On the other hand, the employer argued for a lower penalty, citing factors such as the chief operating officer's (COO) “unfamiliarity with Australian law,” the worker's relatively modest loss and damage, and the employer's contrition and lack of prior violations.

The court noted that "a contravention may be deliberate where it is engaged in with the knowledge of the essential facts giving rise to the contravention. However, the concept may also include additional aggravating features such as deliberately flouting the law, being reckless, wilfully blind, 'courting the risk' or otherwise being negligent."

Balancing the factors

The court balanced various factors. It considered the employer's ignorance of Australian law and mistaken belief regarding the worker's entitlement to accrued annual leave.

The court noted that "ordinarily, ignorance of the law or a mistaken belief as to the innocence of the conduct is not an ameliorating factor because the object of the imposition of a penalty is deterrence – specific and general."

However, the court also acknowledged that the employer had taken steps to rectify the underpayment and had admitted the contravention at the earliest procedural opportunity. The COO had also apologised to the worker, and there was no challenge to the genuineness of the apology.

The court emphasised the need for specific and general deterrence, stating that "a clear message does need to be sent to [the employer] and the community that ignorance (including mistaken belief) is no excuse.”

“Further, an employer not only has an obligation to know and understand the law but also, if in doubt as to whether the entitlement is payable, to take adequate steps to interrogate the circumstances and seek [legal] advice,” the court added.

Consequently, the court ordered the employer to pay the worker $17,000, which comprised approximately 25% of the maximum penalty.

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