Employer given harsh penalties for deficient ‘blended rate’ of pay

The Federal Court has handed down an important judgment examining the ‘reasonable additional hours’ provisions in the National Employment Standards (NES) set out in the Fair Work Act 2009 (Act), and has issued its decision in respect of penalty breaches of the relevant Award and Act.

The Employer was a large meat wholesaler and hired an employee who had migrated from Ghana three weeks prior. When offered the job, the worker was provided with an ‘employment form’ and ‘employment commencement pack’, which stipulated that he was to work 50 hours per week. Neither document contained his rate of pay, nor did they specify the employee’s overtime entitlements. There was no discussion with the worker about his hours, pay or terms and conditions.

In 2019, the Australian Meat Industry Employees Union (AMIEU) commenced proceedings against the Employer. In a judgment handed down in May 2022, it was held that the employee was covered by the Meat Industry Award (Award) and was entitled to overtime rates for hours worked in excess of 38 hours per week, overtime for work outside the Award’s span of ordinary hours and in breach of the Act was requested or required to work more than 38 ordinary hours per week.

Reasonable Additional Hours and Overtime Rates

Section 62 of the Act prohibits employers from requesting or requiring employees to work more than 38 hours per week, unless the additional hours are ‘reasonable’.

The Employer had paid the employee a ‘blended rate’ which they said incorporated payment of overtime rates for all hours worked up to 50 hours per week. The Employer sought to ‘set-off’ the higher blended rate against the Award rates for overtime. It also said the additional hours above 38 per week were ‘reasonable additional hours’ under the NES. Any hours worked after 50 hours per week were paid at an ‘overtime rate’ which was calculated by dividing the weekly rate by 50.

The Court criticised this system on two grounds:

• First, the hours falling outside the ordinary spread of hours contained in the Award were not properly specified in the employment contract as overtime hours. Payslips referred to these hours as ‘ordinary work hours’.In the Award, overtime is calculated with respect to hours worked outside ordinary working hours on any day. In this case, the first two hours of each shift (2:00 – 4:00am) should have been specified as overtime hours, being outside the ordinary spread of hours in the Award.As the blended rate was not designated to satisfy (or absorb) overtime rates prescribed by the Award, and ordinary and overtime hours were not differentiated in any employment documentation, the Employer was not entitled to offset the overtime hours against the ‘blended rate’.

• Secondly, the 12 additional hours per week were held to not be reasonable under s 62 of the Act, because the employee was given no choice about his ordinary hours of work once he began to work them. The additional hours were clearly requested by the employer who had the onus of proving they were ‘reasonable’. In this case, the requirement or request to work 12 additional hours every week was not reasonable.

The Court ruled that the Employer had breached both the overtime provisions in the Award, and s 62 of the Act.

Penalties

On 28 October 2022 the Employer was fined for these breaches:

• $30,000 for requiring its employees to work excessive hours;
• $20,000 for failing to pay overtime rates;
• $15,000 for failing to post rosters;
• $3,000 for failing to provide the Fair Work Information Statement;
• $25,000 for failing to ensure the availability of the Award and NES.

The penalties alone, even as a ‘first time offender’, totalled $93,000. The penalties were required to be paid to the Union who brought the case in addition to rectification of the underpayment to the employee.

The breaches were considered serious and systemic, having regard to the fact they occurred over a period of at least 3 years, the high likelihood that these breaches extended to more than the one employee, and because the Employer showed little understanding or remorse for why their systems were deficient. The Court considered both specific and general deterrence was necessary in these circumstances.

Can Employers pay workers a blended rate?

Cases involving what is ‘reasonable’ will be highly fact dependent and industry dependent. As this case has emphasised, to lawfully off-set additional hours against ‘loaded’ or ‘blended’ rates will require careful drafting of employment agreements and proof of a system of work that supports a common understanding about what is intended to be covered by the remuneration, salary or the hourly rate paid. Any specific case will also be affected by whether or not a Modern Award applies to the employment.

Employers should obtain specific advice about their particular arrangements, and take steps to review contractual arrangements to ensure remuneration for work sufficiently covers all incidents of the employment arising under the relevant Modern Award or Act.

EMA Legal can assist employers with their specific queries relating to overtime rates, contracts and the NES generally.