Fair Work Ombudsman v the Palcon Group Pty Ltd [2009] FMCA 974

A recent decision of the Federal Magistrates Court illustrates how simple drafting failures, in the context of an industrial agreement, can lead to significant commercial and financial consequences.

The employer had entered into AWAs with certain employees. Provision was made for a performance bonus for the employees.

The literal application of the provision operated in a manner that was far more generous to the employees than the employer had expected or intended.

The employer calculated the bonus in a manner that reflected its own understanding of the position. As a consequence, the employees were underpaid by significant amounts. The underpayment arose because the company believed that the bonus provision entitled the employees to the higher of a basic figure or the actual figure derived as a result of multiplying the recorded output by 51c for each tonne. Unfortunately, the manner in which the provision was expressed was that the employee was entitled to the minimum figure and the figure determined on the basis of the actual tonnage achieved.

The employees brought a complaint to the Workplace Ombudsman. The Ombudsman commenced proceedings in the Federal Magistrates Court for breach of the AWAs and recovery of underpaid amounts.

By the time the matter came for trial, the employer accepted that the underpayments had occurred and had rectified them. The only matter that remained to be determined by the Federal Magistrates Court was the size of the penalty to be applied to the employer for breach of the AWAs.

In assessing the penalty, the Federal Magistrates Court took into account the payment which the employer had made and its expression of contrition. In the final result the employer was fined a total of $22,500.

Evidence given in the course of the proceedings established that the company had not taken legal advice during the course of drafting the provisions. The Federal Magistrate commented that the circumstances were such that the employer might have been entitled to seek rectification of the agreements under ordinary common law principles. This would have required an application to the Supreme Court. However, as the proceedings before the Federal Magistrate were solely concerned with whether or not the actual terms of the AWAs had been breached, the Court was obliged to look only at the drafting of the provisions and not questions of intent.

The error which took place in the drafting of the bonus provision represents a type of mistake that can easily occur in any form of drafting – particularly drafting which references a series of numerically based performance measures.

The case stands as a clear illustration of the difficulties that can confront an employer as a result of failing to adequately check the drafting of industrial agreements.

Although the case involved AWAs, which are now abolished, the drafting lessons arising from this decision are equally applicable to the content of enterprise agreements that might be made under the new Fair Work Act. These agreements need to be carefully calibrated so as to pass the Better Off Overall Test, but also to pay due deference to the National Employment Standards and the content of any underlying modern award. Amidst all of this, it is also fundamentally important that the agreement be thoroughly vetted in order to make sure that important words or phrases are not omitted and that provisions relating to payment of benefits and entitlements accord with the parties’ intentions. Any ambiguity is likely to be resolved against the interests of the employer.