On Tuesday 30 October 2023, the Full Bench of the Federal Court of Australia handed down a decision which may have consequences for employers who have negotiated enterprise agreements, requiring back payment.
The Facts
Mr Murtagh was employed by the Roman Catholic Diocese of Toowoomba until 31 December 2019. He resigned from his employment.
Mr O’Mara was employed by Downlands College, Toowoomba. The end date of his employment is not stated, but is before 2 December 2020.
There were two enterprise agreement that were relevant, one applying to each employee, together referred to as the RCDT EA’s).
The RCDT EA’s came into operation on 2 December 2020 after being approved by the Fair Work Commission on 27 November 2020.
The RCDT EA’s included a commencement clause to the following effect:
“1.2.1 This Agreement shall operate seven (7) days after approval from the Fair Work Commission.
1.2.2 This Agreement shall remain in force until 30 June 2023 unless otherwise agreed in terms of the provisions of the Fair Work Act 2009.
1.2.3 Where this Collective Enterprise Agreement specifies an earlier operative date in relation to a particular provision, then that provision shall operate from that date for all applicable employees employed at that earlier date.”
The RCDT EA’s provide for staged salary increases “from the first full pay period on or after 1 July 2019”.
At First Instance – Federal Circuit and Family Court of Australia
At first instance the trial Judge found that an enterprise agreement could only apply to an employee, in accordance with s.51 of the Fair Work Act 2009 (Cth) (the Act), if the enterprise agreement was in operation, in accordance with s54 of the Act, and therefore, the RCDT EA’s could not apply to Mr Murtagh and Mr O’Mara as they were not employed at the time the RCDT EA’s came into effect on 2 December 2020.
While accepting that the commencement clause at 1.2.3 above “could have been more clearly expressed” the application for backpay was dismissed.
Appeal
On Appeal, the Full Bench of the Federal Court observed that the trial judge’s finding that clause 1.2.3 could have been more clearly expressed was an understatement.
The Full Bench considered whether enterprise agreements could ever be said to apply retrospectively and at [31] stated that it is:
“unlikely that it was intended that there could be no backdating at all of a pay rate in respect of a particular employment. Inevitably, there will be a lag between when an enterprise agreement is made in accordance with s 182 of the FWA and any approval which the industrial commission gives to that agreement pursuant to s 186 of that Act.”
In applying the specific commencement clause in the RCDT EA’s and the wording of the pay increase provision, the Full Bench found that once the RCDT EA’s had come into effect on 2 December 2020, the pay increase provisions which applied retrospectively took effect from 1 July 2019.
It is important to note that the Full Bench stated at [48]:
“In neither agreement is there an overt intention to discriminate in terms of coverage as between teachers who were employed as at 1 July 2019 but who cease employment before each agreement comes into operation and those who remain employed when the agreement comes into operation.
This statement suggests that if a clear distinction is made between employees employed at the time, when drafting the EA, that back payment may not have been ordered.
Mr Murtagh and Mr O’Mara were granted the salary and superannuation increase, in arrears from 1 July 2019 up to the time they ceased to be employed.
Take Away
While this case does not mean all enterprise agreements will into this situation resulting in employers being required to back pay their employees who were employed from the time any pay increase clause comes into effect, this case emphasises the care that must be taken by employers when drafting an enterprise agreement, particularly when the negotiations are protracted and pay increases pre-date the enterprise agreement becoming operational.
If you have any questions about the implications of the Full Bench’s decision on your current enterprise agreement/s or require assistance with drafting an enterprise agreement, please contact us.
Link: https://www.judgments.fedcourt.gov.au/judgments/Judgments/fca/full/2023/2023fcafc0172
Written by Kate Barter & Nicole Dunn