The Federal Court has recently ordered the Victorian Department of Education and Early Childhood Development to repay $37 million to 46,000 teachers after it found the Department had unlawfully deducted amounts from their wages to pay for laptop computers.

Implications for employers

This decision emphasises the importance of ensuring that any deductions made from employees’ salaries are clearly authorised by one of the means permitted under section 324 of the Fair Work Act 2009. In light of this decision employers should also consider, in the case of any deductions authorised under an enterprise agreement or a contract of employment that directly or indirectly benefit them or a party related to them, whether the deduction would be considered ‘unreasonable in the circumstances’.

Background

Between 1 July 2009 and 29 November 2013, fortnightly deductions of between $4 and $17 were made by the Department from the salaries of a large number of Victorian government school teachers and principals who participated in a scheme in which the Department provided teachers with laptop computers and associated services (NTP Program). The program involved the Department entering into agreements with third parties to procure large numbers of laptop computers, which were then licenced to the teachers pursuant to written agreements (Receipt Agreements). The principal purpose of the NTP Program was to provide teachers with a laptop computer for use as a work tool. Subject to some restrictions, teachers were permitted to use the laptop for personal purposes. Most government school teachers (about nine of every ten) participated in the NTP Program and between July 2009 and November 2013 millions of dollars were deducted by the Department from the salaries of participating teachers as ‘contributions’ to the cost of the laptop computers.

The Australian Education Union (AEU) challenged the lawfulness of those deductions and on behalf of participating teachers sought orders in the Federal Court that the amount deducted under the NTP Program be repaid. The proceeding concerned tens of thousands of teachers, so a representative sample of 11 teachers and a set of common questions was used with the intention that the answers could apply more widely without further trial.

Legislation

Under the Act employers are required to pay their employees amounts payable for the performance of work, in full and in money, except where the making of a deduction from salary is permitted (section 323). An employer is permitted to make deductions in specified circumstances - including where a deduction has been authorised by the employee in accordance with an enterprise agreement (section 324(1)(b)) or where the deduction is authorised by a State law (section 324(1)(d)).

Section 325(1) of the Act prohibits an employer from requiring an employee to spend amounts payable to the employee in any particular way where the requirement is ‘unreasonable in the circumstances’. Section 326(1) invalidates a term of an enterprise agreement or a contract of employment which has the effect of permitting the employer to make a deduction, where the deduction is for the benefit of the employer, or a party related to the employer, and is ‘unreasonable in the circumstances’.

Decision

Justice Bromberg found that the deductions made under the NTP Program from the teachers’ salaries were not permitted by section 324(1) of the Act and that the Department had therefore contravened section 323(1) by failing to pay the teachers in full.

The Department attempted to argue that the deductions were authorised by the teachers under the Receipt Agreements, in combination with applicable enterprise agreements which authorised the making of ‘salary packaging arrangements’, and thus permissible under section 324(1)(b). However, His Honour found that because the laptops were not provided to teachers as remuneration for their services, the arrangements under the NTP Program were not ‘salary packaging arrangements’ and therefore not made in accordance with an enterprise agreement. His Honour distinguished between a payment made to an employer out of an employee’s entitlement to salary and the substitution of an entitlement to salary for another form of remuneration, and held that only the latter was capable of being a ‘salary packaging arrangement’ under the enterprise agreements. The terms of the Receipt Agreement and the surrounding circumstances showed that the purpose of the transaction was to provide the teachers with equipment for use ‘as a work tool and for self-education purposes’ which suggested a facilitative purpose, to assist in the performance of work, rather than a remunerative purpose as required for salary packaging.

As an alternative, the Department contended that the deductions were authorised ‘by or under a law of the State’ under section 324(1)(d) – namely a Ministerial Order made on 19 December 2012. The effectiveness of the Ministerial Order was challenged on a number of basis, of which Justice Bromberg accepted two.

First, His Honour held that the Ministerial Order was ineffective to the extent to which is sought to provide retrospective authorisation for deductions made between 1 July 2009 and 18 December 2012, as section 324(1)(d) does not apply in relation to authorisations retrospectively given by a State law.

Second, His Honour held that the Ministerial Order was inoperative in relation to any deduction made pursuant to a term of a teacher’s contract which was rendered of no effect by section 326(1). That section invalidates a term of an employment contract which has the effect of permitting the employer to make a deduction, where the deduction is for the benefit of the employer and is ‘unreasonable in the circumstances’. His Honour came to the view that the deductions were ‘unreasonable in the circumstances’ because:

  • the contributions were made in the absence of a genuine choice by the teacher to participate in the NTP Program;
  • the contribution to the cost was set at an unreasonable rate;
  • the deductions made were not principally for the benefit of the teachers concerned; and
  • the value of the benefits actually received by the teachers (being the personal use of the laptops) did not provide a countervailing justification.

Following this decision, the Department has ceased making deductions from teachers’ and principals’ salaries under the NTP Program and agreed to repay all affected teachers and principals a refund amount as well as 5% interest.