Employer penalised after missed deadline for final pay – what employers need to know

Magnium successfully defended a complex and wide-ranging general protections claim made by a former Chief Technology Officer. The former employee claimed that his employment had been unlawfully terminated because he made one or more of some thirty alleged workplace complaints in relation to his employment between July 2022 and April 2023 as well as because he had been temporarily absent because of illness contrary to the general protections under Part 3-1 of the Fair Work Act. 

While the court found in favour of Magnium on the general protections claim, the company admitted that it had breached the Fair Work Act by failing to pay key entitlements on time – specifically $13,326 (gross) in respect of payment in lieu of notice, $32,805 (gross) in respect of unused annual leave and $26,653 (gross) in respect of redundancy pay. 

Magnium paid the payment in lieu of notice and unused annual leave to the former employee in its next pay run, 11 days after termination. In relation to the redundancy pay, Magnium had wrongly believed that it was a “small business employer” for the purpose of the Fair Work Act and therefore was not required to pay redundancy pay. However, Magnium subsequently paid the redundancy pay two and a half months after termination, apparently to “avoid any dispute”[2]. 

Magnium admitted it breached the Fair Work Act by reason of these late payments, with Judge Champion observing at [205] (underlining added):

[205]     Magnium had to make payments as to notice, redundancy pay and accrued and unused annual leave as at the date of the dismissal of Dr Jewell. It did not do so. It late paid these entitlements.

In considering what penalty to impose, the Court recognised that Magnium was careless – not wilfully non-compliant – which led to a lower penalty. The Court accepted:

1. Magnium at all times intended to make a payment to the applicant in lieu of notice as well as unused annual leave but was careless as to its obligation to make such payments not later than the end of the employment; and
2. Magnium had wrongly believed that it was a “small business employer” for the purpose of the Fair Work Act and therefore not required to pay redundancy pay; however, Magnium was nonetheless insufficiently careful in ascertaining whether it legally had to pay redundancy pay.

The Court also took into account the need for general and specific deterrence with the Court observing that contraventions of minimum entitlements are to be viewed seriously and, although Magnium was careless as to its obligations, ignorance of the law is no excuse. 

Although often seen as a ‘technical breach’ that is not often enforced, it is not the first time an employer has been penalised for failing to pay an employee their statutory entitlements on the last day of employment. While payroll logistics can be challenging, courts have made clear that entitlements must be paid when employment ends – not after. 

In Dorsch v HEAD Oceania Pty Ltd (Penalty) [2024] FCA 484, Justice Raper imposed a penalty of $17,000 after the employer failed to pay unused annual leave until three months after the termination of Mr Dorsch’s employment. Although the employer admitted the contravention and paid the unused annual leave in full, the Court recognised that  “[the] obligation to pay accrued annual leave crystallised upon the termination of the employment relationship”[3]and accepted that the failure to do so constituted a breach of s.90(2) of the Fair Work Act.

In Southern Migrant and Refugee Centre Inc v Shum (No 3) [2022] FCA 481, the Federal Court confirmed that the employment cannot be lawfully terminated without providing notice or payment in lieu at the time of dismissal.[4] The employer claimed it had given written notice of immediate termination and promised payment in lieu of notice would be made the following week. However, Justice Snadden found that the employer had terminated the employment contrary to s.117 of the Fair Work Act. 

Similar considerations arise in relation to the obligation to provide written notice of termination before the termination takes effect under s.117(2) of the Fair Work Act. 

In Waknin v Servcorp Administration Pty Ltd [2023] FedCFamC2G 634, the FCFCOA held that the respondent breached s.117 of the Fair Work because it had conveyed the decision to terminate the employee’s employment orally during a meeting on 3 November 2021 without first giving written notice of the termination to the employee. 

However, in Mullan v Calold (WA) Pty Ltd t/as Harcourts Kalamanda [2023] FedCFamC2G 404, the FCFCOA found no breach of section of the Fair Work Act where the employer provided written notice of an employee’s termination later on the same day as the employee was orally advised of her termination – despite initially stating the termination was effective immediately.