We have stated in the employment contracts of our employees that their employment is covered by the Cleaning Services Award 2010. However, we have since realised that the correct award coverage for these employees falls under the Restaurant Industry Award 2010. Can we issue a notice explaining that the Restaurant Industry Award 2010 is the correct award and then issue new employment contracts that refer to the correct award?
The situation described above is a common one. Unfortunately, it is also one that can become highly complex. In this way, tailored legal advice would be beneficial to an employer in such circumstances. However, some general principles on these issues are outlined below.
Under the modern award system, an award will cover an employee based on an objective assessment of the nature of the employer’s business, the employee’s duties and the environment in which the employee normally performs work. The award coverage of an employee cannot be altered by ‘agreement’ or based on any contractual provisions to that effect.
However, employers and employees sometimes mistakenly refer in an employment contract to an award that would not objectively cover the employee. The impact of referring to an incorrect award will depend on the precise wording of the clause in the contract and other circumstances such as the conduct of the parties. In some cases, there is a risk that the employer may have contractual obligations to pay entitlements under the award referred to in the contract. In addition, the employer would be required to comply with the award which objectively covers the employee.
Alternatively, an employer’s mistaken reference to a second award under an employment contract may be worded in such a way as to create few or no obligations on the employer to abide by the provisions of that award (where the award does not otherwise objectively cover the work that the employee performs).
Depending on the circumstances, an employer can issue a new employment contract that refers to the correct award andthen seek the employee’s agreement to the new contract (although an employee’s agreement may not diminish potential back pay obligations).
When drafting employment contracts, it can be useful to refer tothe applicable award (or enterprise agreement where relevant) to provide clarity for both parties. However, care must be taken so that the award is not incorporated into the contract.
There are long standing court decisions indicating that if an award is expressly incorporated into an employment contract, then a breach of award conditions can also expose the employer to damages for breach of contract. Those damages have the potential to be far in excess of penalties for award breaches.
To avoid these issues employers need to be careful when referring to awards in contracts of employment and a suitable clause to avoid incorporation of an award should be included.
An employer that seeks to change the entitlements of an employee due to a mistaken reference to an award in an employment contract could face a range of issues, in particular those relating to breach of contract. Such issues are particularly pertinent where an employee refuses to agree to the offer of a new employment contract that refers to different entitlements.A determination of the impact of the wording of such a contractual provision can be provided by the Ai Group Workplace Relations team.
The Ai Group Workplace Relations team can also provide strategic advice to an employer about how to move forward with any mistakes that may have been made. To request a referral to the Workplace Relations team, please contact us or call the Ai Group Workplace Advice Line on 1300 55 66 77.
Clinton is the Publications Manager at Ai Group. He is responsible for a number of key services including Annotated Modern Awards, Workplace Relations Handbooks and the management of Ai Group’s HR and Health & Safety Resource Centres. Clinton has a Masters in Employment Relations and previously held advisory roles with the Workplace Authority and Fair Work Ombudsman.
