Deductions for insufficient notice

Deductions for insufficient notice

March 2021

 

A notice period is an important time at the end of a person’s employment.  It gives employers time to prepare for the change, including recruiting a replacement or making alternate staffing arrangements.  Employees can use the time to finalise any outstanding matters and prepare a handover.

While the Fair Work Act 2009 (the Act) sets out minimum periods of notice when an employer wants to terminate the employment of an employee, it doesn’t require an employee to give notice before resigning.  However, awards, enterprise agreements and contracts of employment typically set out how much notice an employee needs to give when they resign.

Unfortunately, sometimes employees leave without giving any notice or don’t work out their whole notice period.  The FAQs below answer the enquiries we commonly receive when this occurs.

What do we need to pay an employee who resigns without giving notice or gives insufficient notice? 

An employee is entitled to be paid for any outstanding hours worked up to their last day of employment (wages).  They are also entitled to be paid any accumulated annual leave (and leave loading if applicable) and long service leave (if any) (accrued leave).

The employee does not need to be paid for any part of the notice period not worked unless the employee is on paid leave for that time.

Can we deduct money from an employee’s final pay if they don’t give notice or sufficient notice? 

  • In all cases, deductions can only be made from wages – not from payments of accrued leave paid out on termination of employment.
  • Any deduction from wages must be in accordance with the Act or it will be an unlawful deduction (and civil penalties may ultimately be payable).
  • The rules differ depending on whether the employee is covered by an award or enterprise agreement, or is award-free.

Award employees

Under the Act, a deduction from wages can be made if it is authorised by an award.  Most modern awards allow the deduction of one week’s wages if an employee (aged 18 and over) does not give the required notice.  Provided the deduction is made in compliance with the relevant award, separate authorisation from the employee is not required to make the deduction.  However, awards only authorise deductions from wages due under the award so over-award payments cannot be deducted.

For example: Based on her length of service Maria is required to give two weeks’ notice, but she resigns without giving any notice.  Her award allows employers to deduct up to one week’s wages if an employee resigns without giving the required notice.  The employer can deduct a maximum of one week’s pay from the wages component of Maria’s final pay for notice not given.

Agreement-covered employees

Under the Act, a deduction from wages is permitted if it is authorised by the employee in accordance with an enterprise agreement.  Many enterprise agreements include a provision allowing for deductions from pay if an employee does not give the requisite notice.  Employers should comply with the procedure set out in the enterprise agreement for the employee to authorise the deduction.

For example: Demitri is a teacher covered by a Catholic Independent Schools (Model A, B or C) or the Catholic Systemic Schools enterprise agreement.  He is required to give four term weeks’ notice but resigns giving only one week’s notice.  The enterprise agreements allow an amount to be deducted from a teacher’s pay for notice not given, but only if in accordance with section 324 of the Act.  Section 324 requires the employee to authorise the specific amount of the deduction in writing.  Therefore, Demitri’s employer can only make the deduction from the wages component of his final pay if he provides an express written authority for the amount of the deduction.

Award-free employees

For employees not covered by a modern award or enterprise agreement, a deduction from wages can only be made if the specific amount of the deduction is authorised in writing by the employee and the deduction is principally for the employee’s benefit.  The employee may withdraw their authorisation in writing at any time.

All employees

Whether an employee is covered by an award, enterprise agreement or not, any deduction from wages because of insufficient notice should not be unreasonable in the circumstances.  The Act provides that a term of an award, enterprise agreement or contract of employment has no effect to the extent it permits an employer to make an unreasonable deduction if the deduction directly or indirectly benefits the employer.

Unlike awards which limit the amount that can be deducted to one or two weeks’ pay, some enterprise agreements permit an amount equal to the whole notice period to be deducted if the required notice is not given.  What is reasonable should be considered on a case-by-case basis and given most employers pay fortnightly, in practice there is unlikely to be outstanding wages of significant amounts due on termination of employment.

Do the provisions dealing with deductions in CCER’s template contracts of employment allow money for insufficient notice to be withheld? 

The provisions in CCER’s template contracts of employment dealing with deductions for insufficient notice refer to the relevant provisions of any applicable award or enterprise agreement, or to applicable law.

A contract of employment cannot override the Act or an award or enterprise agreement.  The position for each type of employee is as set out above.

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