A Full Bench of the Fair Work Commission has ruled that modern awards should provide for unpaid wages and all other amounts due to an employee to be paid no later than seven days after the employee’s last day of employment.
The decision came after considering arguments from employers and unions and recognised that it was unreasonable that employers must make these payments at the time of termination or shortly thereafter.
However, the Full Bench felt it was also unreasonable that employees should have to wait up to one month to coincide with normal pay cycles.
The Full Bench also recognised that there were potential exceptions.
Section 117(2) of the Fair Work Act requires payment in lieu of notice other than for serious misconduct and if this is breached employers can incur a civil penalty. Therefore if employers are terminating and making a payment in lieu of notice at the time of termination then that should be told to the employee in order to avoid a civil penalty.
In regard to redundancy payments employers can be relieved of the obligation to make these payments in accordance with s 120 of the Act. If it can demonstrate that it assisted in providing alternative employment. The Full Bench did recognise that in these circumstances the Commission could order a delay in redundancy payments.
There is also a potential exception relating to s 323 of the Act which relates to the payment of commissions and other allowances such as overtime which must be paid within one month.
The Full Bench decision to insert a new clause into modern awards in view of the exceptions above does pose some problematic consequences.
Implications for employers
This can be a complex issue because termination pay can involve a number of components such as accrued annual leave and payment in lieu of notice.
It can also include redundancy payments and any outstanding wages or commissions.
However, it is clear that if an employer wishes to terminate an employee and provide payment in lieu of notice then that payment should be made at the time of termination.
For all award-related employees, termination payments which include wages, annual and long service leave accruals must now be made within seven days in accordance with the Full Bench decision.
AMMA’s experienced Workplace Relations team can assist with any policies or procedures relating to termination payments and other employment-related issues. For assistance, contact your local AMMA office.