Will a contract which contains notice of termination terms override the NES? Can we still withhold monies owing to the employee if they do not provide notice? This is for an employee who is award-free and in a management position.
The National Employment Standards (NES) forms the safety net of minimum wages and conditions for employees under the national system and applies to all employees, whether they are award-agreement covered or award-agreement free.
Any provisions in an employee’s contract of employment must not be detrimental to any employee in any respect compared with the NES.
If a contract contained a term which was more generous than that of the NES, the contract would take precedence. For example, if an employee with 10 years of service had a contract which stated that they shall receive 10 weeks' notice of termination then this would be viewed as more generous than the 5 weeks stated in the NES.
Where a contract contains terms which are less favourable than those provided in the NES, these terms would have no effect.
It is a common misunderstanding that, where there are no written terms and conditions of employment, an employee is merely entitled to minimum notice periods under the NES. This, however, is not the case. Unless an organisation has a notice provision in a contract of employment that states exactly how much notice an employee is entitled to, he or she will be entitled to what is called ‘reasonable notice’ of termination of employment.
The courts have the discretion to determine how much notice will be reasonable and take into account various factors such as the employee's length of service, seniority and position, prospects of re-employment, age, any job or opportunity forgone to accept the terminated position and any other factors deemed relevant. Therefore, a senior employee with a contractual term requiring notice as per the NES may be entitled to reasonable notice depending on these factors.
In most cases, an employee's entitlement to reasonable notice will exceed the statutory minimum notice requirements with the risk of such a claim greatest for award-free, senior employees such as a senior manager or director. In some cases, courts in Australia have awarded more than 12 months’ pay in lieu of 'reasonable notice'. Common law claims for reasonable notice can be costly, so they are more likely to be brought by a non-award employee such as a manager.
It is therefore critical for employers to include express notice provisions in their contracts of employment. This applies to new employees as well as employees who are promoted or whose duties have significantly altered.
It is important to note that the NES/Fair Work Act 2009 do not contain provisions setting out the amount of notice an employee is required to provide. The source of an employee's notice obligations will come from a modern award, enterprise agreement or contract of employment.
For award-agreement free employees, businesses could pursue a breach of contract claim if an employee did not comply with notice requirements under a contract.
A modern award or enterprise agreement may include terms specifying the period of notice an employee must give to terminate his or her employment. The applicable industrial instrument will need to be considered to determine whether and how an employer can withhold monies for an employee failing to provide notice.
If an award imposed a notice requirement on employees and allowed an employer to withhold an amount owing to an employee on termination if the employee failed to provide the required notice, then the employer can withhold the amount of notice that the employee has failed to provide. However, under most modern awards there are restrictions on the employer’s ability to withhold notice.
Under most modern awards, employers can only withhold a maximum of one week of notice, regardless of how much notice the employee has actually failed to give. Additionally, the deduction can only be made from unpaid wages (specifically preventing the employer from withholding notice from annual leave and other accrued entitlements payable on termination of employment).
For example, if an employee covered under the Clerks Private Sector Award 2010 who has completed 4 years of service resigned without notice, the employer could withhold 1 week’s wages from any outstanding wages due to the employee. The employer would not be able to withhold more than 1 week and would not be able to withhold from any other outstanding monies (e.g. annual leave payable on termination) apart from unpaid wages.
To discuss this topic further, please contact us or call the Ai Group Workplace Advice Line on 1300 55 66 77.
