Non Compete Clause
What is a Non Compete Clause?
A non compete clause is a clause in a contract. These clauses aim to prevent a person from carrying out competing activities against another business. A contract may refer to
In Australia, Modern Awards (Awards) specify the minimum rate of pay that employers must pay employees in certain sectors. Awards also outline additional entitlements that employees should receive, such as penalty rates, overtime, allowances, and loadings.
Employers must legally pay their employees the minimum rate along with these additional entitlements. Some employers may choose to include these entitlements in employee salaries to simplify payroll processes. They call this an annualised salary arrangement.
This article covers annualised salaries in employment contracts, annualised salaries found within certain Awards and how to legally implement either option. We will also explore what employers must do to comply with their obligations under the Fair Work Act 2009 (Cth) (Fair Work Act).
Award entitlements can be complicated and may not always fit the specific needs of a business.
Many employers prefer to offer simple salary packages or all-inclusive rates. This helps them avoid dealing with hourly wages, overtime, allowances, and other requirements under an Award or enterprise agreement.
An annualised salary covers all entitlements owed to the employee under an Award. Employees in these arrangements receive a steady salary that meets or exceeds minimum industry standards. This eliminates the pay fluctuations that can occur with payment made specifically under an Award.
This method helps employers by simplifying the administrative burden. It also ensures employees have a certain and steady income. Both parties benefit from this approach.
Employers should make sure that annualised salary agreements include a set-off clause in the employment contract. The set-off clause must specify the additional Award entitlements that the annualised salary covers.
Employers can also choose to adopt the annualised salary provisions found within certain Awards.
When implementing an annualised salary approach, employers should ensure that:
Before using an annualised salary arrangement, the employer should review the annual salary of each employee.
Employers must ensure their employees understand how much overtime and penalty hours they must work without receiving additional pay. All employers should clearly communicate this information.
Employers should calculate average overtime and penalty hours when reviewing annualised salaries.
After calculating the total annual salary, employers should inform employees in writing and agree on the annualised salary and calculations.
Employers can send employees a letter with the details of the salary calculation or an updated employment contract. However, it is advisable to get the agreement in writing.
Employers can implement annualised salaries in one of two ways.
1. an annualised salary such as those provided in some Awards; or
2. a set-off clause implemented in the employment contract.
A workplace lawyer can provide employers with advice, as well as updated employment agreements.
Certain Awards have their own clauses allowing for the payment of an annualised salary to employees. This is instead of the standard method of paying a fixed wage along with additional entitlements and allowances.
Awards featuring these provisions include:
1. the Clerks – Private Sector Award 2010; and
2. the Banking, Finance and Insurance Award; and
3. the Mining Industry Award 2010.
The specific terms of the clauses vary, but some are detailed and could pose practical challenges in administration.
For instance, obligations include:
These requirements may prove burdensome for many employers. They may question the value of relying on annualised salary provisions within awards.
The Fair Work Commission clarified that employers and employees do not have to only use award annual salary arrangements. They have the option to adopt a standard common law contract with a set-off clause.
This perspective is consistent with precedents in various leading cases.
A salary set-off clause in a work contract ensures the employee’s pay meets the required minimum amount.
With a set-off clause in place, employees will earn a salary that exceeds the basic rate stipulated under an Award. The set-off clause should state that any extra payment will go towards the employer’s payment obligations from the Award. This means that the employer will use any additional funds received to cover their responsibilities outlined in the Award. This includes entitlements such as overtime, weekend penalty rates, leave loading, and allowances.
Linkhill Pty Ltd v Director, Office of the Fair Work Building Industry Inspectorate (2015) FCA FC 99 (Linkhill)
The Full Court of the Federal Court reaffirmed the legal validity of set-off clauses in this case.
The court in Linkhill stressed the need for a strong link between the contract obligation and the award obligations. This means that the type of contract should directly relate to the Award. The court highlighted the significance of this connection.
The court examined previous rulings to determine the legality and enforcement of set-off clauses. The court found that they will enforce set-off clauses if the clauses are written clearly. The compensation paid must be enough to meet the employer’s obligations.
The court decided that an employer and employee can agree to use a salary to fulfil specific Award requirements. As such, set-off clauses can be valid.
Include an annual salary set-off clause in the contract. Make sure to specify the total salary, including all minimum payments and benefits. This includes any payments and benefits prescribed under legislation or relevant Modern Awards (Minimum Entitlements).
Minimum Entitlements include:
All allowances including:
Many modern Awards require specifying the award entitlements covered under the annualised salary provision. Employees can check their pay against their award entitlements to make sure they are not at a disadvantage.
The Western Australian Industrial Relations Commission (WAIRC) made a significant ruling here. The court rejected the use of generic ‘catch-all’ provisions in employment contracts.
This decision shows how important it is to have clear and specific terms in contracts. Vague clauses that cover everything are not legally binding. Employers need to make sure their employment contracts are clear and match the roles and duties of their employees.
Should the set-off clause be overly broad, it may not be legally enforceable. Including the entitlements listed in an Award in the employment contract will satisfy the requirement for specificity.
Employers must keep records and give detailed payslips to employees under the Fair Work Act and Fair Work Regulations 2009 (Cth). These records may include documenting and disclosing overtime hours worked, agreements on averaging hours, and regular hours worked.
Failure to comply with these obligations is one of the most common forms of employer non-compliance with the Fair Work Act.
The Fair Work Ombudsman says employers must keep written records of an employee’s annualised salary for seven years.
The records must include the following:
These requirements relate to general annualised salaries. In addition, each Modern Award has specific requirements that employers must meet. For example, some Modern Awards require that employers and employees enter into a formal, written agreement. This agreement must detail the annualised salary arrangement.
Therefore, employers must consider the applicability of the Modern Award to specific requirements. The easiest way to do this is to hire a workplace lawyer to carry out this review on a businesses behalf.
Many employees do not record their times and attendance. As a result, it can be difficult for employers to accurately calculate the annualised salary amount. This can make it impossible to compare the salary to the amount the employee should have received.
Employers must track when employees start and finish work to ensure their annualised salary is fair and legal. This includes tracking when employees start and finish work, as well as when they take unpaid breaks.
Employers also need to ensure that employees acknowledge these records as true records. Employers should do this regularly on a weekly or daily basis.
Employers may wish to consider implementing an automated time-tracking solution. This may relieve the burden of keeping these records manually.
A workplace lawyer can provide further advice.
Employers must check and calculate the hours worked by an employee after 12 months or when their employment ends.
Employers will need to compare the yearly salary paid to what the employee should have earned based on the Modern Award.
If an employer underpays an employee, the employer must pay the difference within 14 days of an annual audit. Employers must conduct an audit sooner if an employee leaves before 12 months.
An employment lawyer can provide employers with advice on the best way to audit compliance. They may also confirm if an employer has accurately paid wages.
Employers should take the following steps when auditing to ensure compliance with annualised salary arrangements:
Employers should review salaries at least once a year. Depending on the Modern Award, employers may need to conduct more regular reviews. The review should occur when there is a change in pay rates under any relevant Awards.
Employers must pay employees their yearly salaries accurately based on an annual wage agreement or set-off clause. Employers will need to ensure that payroll systems (especially automated ones) accurately calculate entitlements.
Employers need to carefully monitor Modern Awards that mandate paying entitlements within a specific pay period. An annual salary in a contract may not adhere to the time frame rules of a Modern Award. This is even if it meets the yearly entitlements required for payments. The Court confirmed this in Annualised Wage Arrangements [2018] FWCFB 154.
All record-keeping requirements are critical to ensure that employers can monitor and demonstrate compliance with Modern Awards.
Employers seeking clarity or legal advice regarding any of the above points should contact a workplace lawyer.
Employers should clearly outline all entitlements included in set-off clauses for annual salary agreements. They should ensure clarity and specificity in the clauses. Employers should also adhere to legal regulations when creating these clauses.
Other clauses that should always be in employment contracts also exist.
Employers face challenges when implementing annual salary provisions in Awards. These challenges include accurately calculating entitlements, keeping records, and addressing employee concerns about pay fluctuations.
Annualised salaries provide employees with predictability in income and ensure employer compliance with minimum entitlements under Awards.
An annualised salary must not be less than an employee’s Minimum Entitlements under the award or registered agreement. As well as the National Employment Standards.
If an employer fails to comply with a Modern Award, they could face the risk of underpayment claims (or wage theft). Businesses face risks to their finances and reputation when accused of underpaying wages.
Examples of underpayment of wages
Authorities have penalised employers for underpayment of wages in the following examples.
Breaking the rules can cost individuals up to $13,320 per breach and businesses up to $66,600 per breach in civil penalties. These may apply to a failure to pay the minimum wage and keep required records of each employee.
Authorities can also consider breaches as ‘serious contraventions’. Authorities can fine individuals up to a maximum of $133,200 per serious breach. Companies, on the other hand, can face fines of up to $666,000 for each serious violation.
Further, each State and Territory continues to impose harsher penalties for wage theft. In Queensland, wage theft is now a crime that can lead to a maximum prison sentence of 10 years.
Employers concerned about underpaying employee wages should urgently seek advice from an experienced employment law firm.
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