Avoid Costly Penalties

A recent Federal Court decision, Dorsch v HEAD Oceania Pty Ltd (Penalty) [2024] FCA 484, has highlighted the importance of timely payment of employee entitlements after termination. This case sets a crucial precedent for employers, emphasising that delays in payment can lead to significant penalties.

The case involved an employee who received payment for their accrued but untaken annual leave three months after being terminated. The Federal Court found that this delay violated section 90(2) of the Fair Work Act (FW Act), which requires such payments to be made on the day of termination. The employer was fined $17,000 for this breach, representing about 25% of the maximum penalty. Additionally, the employee was awarded $10,000 in general damages due to the distress caused by the financial strain from the delayed payment.

Timely Payment of Entitlements: The Fair Work Act mandates that all amounts payable to an employee must be paid in full and at least monthly. However, the Federal Court clarified that accrued but untaken annual leave must be paid out on the day of termination.

Legal Obligations: Employers must be aware of their obligations under the FW Act. Ignorance of the law is no excuse. The Court emphasised that employers must understand and comply with their legal responsibilities to avoid penalties.

Procedural Fairness: When terminating an employee, employers must follow procedural fairness. This includes providing written notice of termination, where applicable, stating the effective date and ensuring all owed entitlements are paid promptly on termination day. These entitlements include outstanding wages, notice payments, accrued annual leave, long service leave, and redundancy pay, if applicable.

The Federal Court’s decision in this case aligns with another ruling on payment in lieu of notice. According to section 117(2)(b) of the FW Act, payment in lieu of notice must be made before the dismissal takes effect. This clarifies that both notice payments and accrued entitlements must be settled on the termination day to ensure lawful termination.

To comply with the FW Act and avoid penalties:

• Understand Your Obligations: Familiarise yourself with the FW Act and any applicable awards or agreements. This includes knowing when and how to make required payments.
• Seek Expert Advice: If unsure about any entitlements or legal requirements, seek advice from legal or HR experts to avoid mistakes.
• Follow Best Practices: Ensure all termination processes are fair and transparent. Provide written notice and make all required payments on the termination day.

The Dorsch v HEAD Oceania Pty Ltd case is a critical reminder for employers about the importance of timely payments of entitlements upon termination. By understanding and adhering to legal obligations, employers can avoid significant penalties and ensure fair treatment of their employees.

If you would like more information or want to learn more, please contact us here and a Mapien Workplace Strategist will be in touch ASAP.