The common law rights - general
824 The entitlement of an employer to set off payments in circumstances akin to the present was before the Full Court of this Court most recently in Linkhill Pty Ltd v Director, Office of the Fair Work Building Industry Inspectorate [2015] FCAFC 99; (2015) 240 FCR 578. The reasons of the majority (North and Bromberg JJ) contain at [40]-[67] an extensive review of several of the authorities. In that circumstance, I will attempt to confine the review which follows to that which is necessary to identify the principles and the manner of their application.
825 The seminal case is Ray v Radano [1967] AR (NSW) 471, a decision of the Industrial Commission of New South Wales in Court Session. In that case, a chef who had been paid a fixed weekly wage plus a travelling allowance for working six days a week, sought, after the termination of his employment, payment of the overtime required by the applicable award. Neither party had adverted to the award obligations during the currency of the employment. All members of the Full Bench agreed that the amount of wages paid should be brought into account, but there was a difference in the reasons of Richards and Sheehy JJ and Sheldon J. As the reasons of Sheldon J have been preferred in the later authorities (Pacific Publications Pty Ltd v Cantlon (1983) 4 IR 415 at 419; Poletti v Ecob (No 2) (1989) 31 IR 321 at 332-333; TransAdelaide v Leddy at 420; and Australian and New Zealand Banking Group Limited v Finance Sector Union of Australia [2001] FCA 1785; (2001) 111 IR 227 (ANZ v FSU) at [47]), it is sufficient for present purposes to refer only to those reasons.
826 Two initial points may be made in Ray v Radano. First, the jurisdiction being exercised by the Industrial Commission was confined by s 92 of the Industrial Arbitration Act 1940 (NSW) to claims made under awards. Secondly, the only (presently relevant) question before the Court was whether all of the amounts paid under the employment contract for the hours worked could be brought into account in satisfaction of the employee's claim to overtime. Thus, the decision concerned the use to be made of payments for time worked in respect of a particular kind of time worked and not whether amounts paid in respect of time worked could be brought into account in partial satisfaction of service related entitlements such as annual leave.
827 The reasons of Sheldon J include these propositions at 478-9:
[W]here a complainant has been employed by a defendant on work covered by an award, he is entitled under s.92(2) to claim any balance due to him between his award entitlement for his work and any payment made to him by the employer which is properly attributable to that award entitlement. If no more appears than that (a) work was done; (b) the work was covered by an award; (c) a wage was paid; then the whole of that wage can be set-off against the award entitlement for the work whether it arises as ordinary time, overtime, week-end penalty rates or any other monetary right under the award. Prima facie, a weekly sum paid by an employer to his employee is an appropriation by the employer (the debtor) to the payment due for that week … I see no logic in a rule that a periodical sum so paid is deemed to be referable only to ordinary time worked unless it is specifically allocated also to other award rights … [I]f by contract, express or implied, the whole or part of the payment made to the complainant has been made in respect of matters which are outside the award entitlement, the payment to that extent cannot be set-off. This may include amounts allocated, say, for fares or as a uniform allowance where there is no award entitlement in respect of such matters … [T]he employer cannot allocate to one subject matter what he has already paid in pursuance of a promise related to another subject matter. That would be approbating and reprobating.
(Emphasis added)
828 Sheldon J illustrated these propositions by examples to which it is unnecessary to refer presently. The conclusion in Ray v Radano was that the employer was entitled to bring into account all of the wages paid to the employee for his work (other than the travel allowance) in the assessment of its liability for the claimed overtime.
829 It is implicit in the principles stated by Sheldon J that an employer is not entitled to set off a payment which is not properly attributable to the award entitlement.
830 The Industrial Commission of New Wales in Court Session considered the matter again in Pacific Publications. The employee, who had been retrenched, sought payment of the award entitlement to payment in lieu of notice on termination of his employment. The employer considered the award entitlement to be inapplicable but made a payment of $4,000 on the termination which it described as "special gratuity". It argued that that payment satisfied in part the employee's claim for payment of the award entitlement. The Full Bench held that the special gratuity could not be brought into account because the employer had, at the time of the payment, appropriated it as a special gratuity and not as a payment in respect of the award obligation, at 421. It characterised the special gratuity as a "concessional amount independent of and in excess of [the] award entitlements on termination", at 421.
831 The principles concerning set off in circumstances like the present have been considered in this Court in several cases. In Lynch v Buckley Sawmills Pty Ltd (1984) 3 FCR 503, the principal question was whether workers were employees or independent contractors. The employer contended that, if the workers were found to be employees, it could set off against the claimed award underpayments in some weeks, the amounts paid in excess of award entitlements in other weeks. Keely J did not refer to Ray v Radano, but rejected that submission, at 509. His Honour found that none of the amounts had been paid to the workers on the express or implied basis that it was an amount to which the worker was "entitled under (the) award" by reason of an underpayment of the award entitlements in an earlier period. This also meant that the employer could not bring into account the award overpayment in satisfaction of the employees' claims to annual leave.
832 In Poulos v Waltons Stores, it was held that an employer who had remunerated its employee by both a wage and commission was not entitled to set off the commission payments against its liability to pay the award rate. The separate reasons of the Full Court (Smithers, Keely and Gray JJ) do not contain a detailed consideration of the issue but it seems that there were two reasons for the conclusion: first, the award required the wages to be paid in addition to commissions and there was no evidence as to the terms on which the commission had been paid.
833 The availability of set off was considered in more detail in Poletti v Ecob (Keely, Ryan and Gray JJ). The employee claimed payments of wages, overtime, annual leave and public holiday entitlements under an award. One issue in the case was whether the wages paid to him, which included a cash payment without deduction of income tax, could be brought into account. The Court held that it was appropriate to apply the principles discussed by Sheldon J in Ray v Radano and by the Industrial Commission in Pacific Publications, at 333. Their Honours identified these principles, at 332-333:
It is to be noted that there are two separate situations dealt with in the passage from the judgment of Sheldon J which has been quoted and in the reasoning of the Commission in Pacific Publications. The first situation is that in which the parties to a contract of employment have agreed that a sum or sums of money will be paid and received for specific purposes, over and above or extraneous to award entitlements. In that situation, the contract between the parties prevents the employer afterwards claiming that payments made pursuant to the contractual obligation can be relied on in satisfaction of award entitlements arising outside the agreed purpose of the payments. The second situation is that in which there are outstanding award entitlements, and a sum of money is paid by the employer to the employee. If that sum is designated by the employer as being for a purpose other than the satisfaction of the award entitlements, the employer cannot afterwards claim to have satisfied the award entitlements by means of the payment. The former situation is a question of contract. The latter situation is an application of the common law rules governing payments by a debtor to a creditor. In the absence of a contractual obligation to pay and apply moneys to a particular obligation, where a debtor has more than one obligation to a creditor, it is open to the debtor, either before or at the time of making a payment, to appropriate it to a particular obligation. If no such appropriation is made, then the creditor may apply the payment to whichever obligation or obligations he or she wishes. See Halsbury's Laws of England, 4th ed, vol 9, paras 505 and 506.
(Emphasis added)
834 As can be seen, the Court identified two principles. Under the first, the parties' positive agreement that the payment be made for a non-award entitlement or as an addition to an award entitlement precludes the employer later from seeking to rely on the payment as discharging some other liability. Under the second, it is the employer's own conduct as debtor in designating the payment as discharging one debt to the employee, rather than discharging the award obligation, which precludes the payment being regarded as discharging the latter. Both were stated as principles of preclusion.
835 Applying these principles, the Court rejected the employer's claim that he was "entitled to aggregate all the amounts due under the award and set against the total all the amounts actually paid", at 329. However, it held that effect should be given to the parties' agreement that the weekly cash payment was part of the remuneration for the hours worked, with the consequence that those payments should be regarded as satisfying the employer's obligations in respect of wages for ordinary time worked, at 335. The Court also held that the employer had specifically appropriated some of the cash payments as payments "for" annual leave and that it should recognise his right to have done so. That meant that the employee's claim for annual leave had been wholly satisfied. The report of the case does not identify the means by which the employer had been able to satisfy obligations with respect to annual leave by the additional cash payments. Nor is this made evident in the report of the first instance decision: Ecob v Poletti (1989) 31 AILR 308.
836 The two principles identified in Poletti v Ecob have been influential in later decisions.
837 In Logan v Otis Elevator Co Pty Ltd [1999] IRCA 4; (1999) 94 IR 218, the question was whether the amount of the salary paid to an employee which exceeded the minimum wage to which he was entitled under an award could be brought into account in satisfaction of the award entitlement to payment for overtime and call-backs. The parties had not attempted, when making their contract, to identify the amounts allowed in the excess for overtime and call-backs and it was apparent that the excess had also been paid on account of duties of the employee which were additional to those attaching to the award classification.
838 The Industrial Relations Court (Wilcox CJ, Marshall and Madgwick JJ) noted that the decisions subsequent to Ray v Radano had focused on "the matter of designation and appropriation rather than the nature of the outstanding obligation", at [29].
839 The Court considered that the payments were not within the first Poletti v Ecob principle because the parties had not agreed that the difference between the amount that would be due under the award and the amount actually paid would "be paid and received for specific purposes over and above or extraneous to award entitlements", at [30]. That approach seems to be the obverse of the first Poletti v Ecob principle.
840 The Court also held that the employer could not rely on the second Poletti v Ecob principle:
[30] [N]either party sought to designate or appropriate the excess, or any part of it, to any particular obligation owed by Otis to Mr Logan. The whole of the excess was paid and received as an amount appropriate to reflect the difference between the position of a local representative, with all that entails, and an ordinary electrician special class. It is not open to Otis now to change that situation by asking the Court to make a retrospective designation between the various elements that differentiate the situation of a local representative and an ordinary electrician special class. Without such a designation, none of the excess can be reasonably identified as a payment on account of overtime and call-backs and, accordingly, set-off against the overtime and call-back payments due to Mr Logan under the 1989 award.
841 One can identify in that passage elements of both the first and second Poletti v Ecob principles.
842 In ANZ v FSU, the question was whether a retirement/severance allowance paid to managers under a Retirement/Severance Allowance Scheme (the Scheme) could be set off against award entitlements to long service leave. In relation to the first Poletti v Ecob principle, the Full Court (Black CJ, Wilcox and von Doussa JJ) said, at [48], that the "critical question [was] whether the relevant award entitlements arose outside the contractually agreed purpose". In answering that question in favour of ANZ, the Court:
(a) said that the passage from Poletti v Ecob quoted above was an accurate analysis of the judgment of Sheldon J in Ray v Radano and enunciated the relevant principle, at [47];
(b) noted that the Scheme provided that the payment made under it or the award should be that which is more advantageous to the employee, at [50];
(c) noted that the Scheme payment was directly related to the amount of the long service leave taken by the employee during the employment, so that the allowance, like the award entitlement, could properly be regarded as a monetary benefit in respect of untaken long service leave, at [50]; and
(d) said that, accordingly, both the award entitlement and the Scheme payment arose out of the same agreed purpose, at [51].
843 With respect to the first Poletti v Ecob principle, the Court concluded:
[48] The first situation noted in the passage [in Poletti v Ecob] is one where "the parties to a contract of employment have agreed that a sum or sums of money will be paid and received for specific purposes, over and above or extraneous to award requirements". In that situation, the Full Court said, "the contract between the parties prevents the employer afterwards claiming that payments made pursuant to the contractual obligation can be relied on in satisfaction of award entitlements arising outside the agreed purpose of the payments." [Emphasis added]. So the critical question is whether the relevant award entitlements arose outside the contractually agreed purpose.
…
[50] In the present situation it is important to consider what it is the parties agreed, in relation to payment of the Retirement/Severance Allowance …
[51] In this situation, it seems to us accurate to say that both the award entitlement and the contractual payment arose out of the same agreed purpose. The situation is akin to a conditional agreement for an over-award wages payment. By way of variation of the above example, assume it was expected that the award wages to which an employee would become entitled over the forthcoming two years would not reach $1,000 per week, but the employer promised to pay the employee $1,000 per week anyway during that time, or the award wages, whichever was the higher. In that situation, it seems to us, it cannot be said the contract between the parties prevents the employer claiming the $1,000 per week is paid in satisfaction of the award obligation.
[52] It is inherent in this approach that there must be a close correlation between the nature of the contractual obligation and the nature of the award obligations. But it is not necessary that the same label be used. In the present case, both the award obligation and the obligation imposed by cl 43.5 may aptly be described as obligations to make money payments in respect of untaken long service leave.
[53] We do not think this case falls within the first situation discussed in Poletti v Ecob.
(Bold emphasis in the original and italicised emphasis added)
844 Some of the later authorities have taken the emphasised passage in [52] to indicate that the closeness of the requisite correlation relates to the respective obligations under the award and the contract. I doubt that that is correct. On my understanding, the Court was elaborating its reasons for concluding in [51] that both the award entitlement and the contractual payment arose out of the same agreed purpose. That is consistent with their Honours' endorsement, at [47], of the analysis in Poletti v Ecob of the reasons of Sheldon J in Ray v Radano and with their own comparison of the award entitlement and the contractually agreed purpose, at [48]-[49]. In these circumstances, it is not readily to be assumed, in my view, that the Court was intending to modify the focus on the purpose of the employer's appropriation in comparison with the award obligation.
845 The Court also rejected a submission based on the second Poletti v Ecob principle that ANZ could not bring the allowance into account by reason that its notice accompanying the payment to the employees had broken the total payment into "long service leave" and "Retiring Allowance Eligible Termination Payment". That had been done, the Court found, only because of the different tax rates which were applicable, at [55]. The true character of the payment turned on an objective assessment of the terms of the Scheme. Their Honours referred to a clause in the Scheme document which made evident the intention that the retirement/severance allowance would subsume any lesser obligation to make payment under the award in respect of untaken long service leave. In consequence, there had been no designation by the ANZ of the payment to a particular purpose from which it was seeking to resile.
846 The Court endorsed the statement in Logan v Otis Elevator that the decisions subsequent to Ray v Radano had focused on the matter of designation and appropriation rather than the nature of the outstanding obligation, at [56], but emphasised that designation and appropriation are matters to be determined by reference to the whole of the evidence.
847 In Textile, Clothing and Footwear Union of Australia v Givoni Pty Ltd [2002] FCA 1406; (2002) 121 IR 250, Goldberg J refused an employer's claim to be entitled to set off against award underpayment in some weeks the amounts paid to the employees in other weeks which exceeded the award entitlements. Having reviewed the authorities, Goldberg J said:
[60] These authorities make it clear that where a payment is made to an employee in discharge of an award obligation, which payment is in fact in excess of the amount of the obligation, the amount of the excess cannot be set-off against a claim in respect of a different award obligation unless at the time of the payment of the excess the employer designates that the excess is payable in respect of a purpose or an obligation different from the purpose for which the initial payment is made.
[61] Put shortly, where there is a payment made for, or in respect of, ordinary hours of work which is in excess of the award obligation, the excess cannot be set-off against a claim for underpayment of overtime unless at the time of the payment of the excess, the employer designates that that excess over the amount of the award obligation is paid for the purpose of satisfying any entitlement to overtime payments.
…
[64] Neither the employees nor Mr Deon Givoni turned their minds to the issue of award entitlements for overtime. Certainly there was no express designation that any excess of remuneration over award entitlements for ordinary hours worked was to be appropriated to overtime award entitlements. The respondent submitted that nevertheless there can be a reasonable designation other than an express designation and that that designation can be extracted from the circumstances and context of the discussion which led to the arrangement. I took the respondent's reference to a "reasonable designation" to be a reference to an implied designation.
[65] However, I am not satisfied that there was such an implied designation, or even a reasonable designation in a more general sense, in the present circumstances. I am not satisfied that Mr Deon Givoni or the employees turned their minds to whether the payments under the arrangement complied with the Clothing Trades Award. The respondent said that in determining the amount payable under the arrangement, Mr Deon Givoni looked at what the employees had earned in the past applying the Clothing Trades Award and averaged out those amounts into the future. He was not purporting to satisfy an obligation to pay overtime but was rather concerned to achieve a level of remuneration for the employees which would be consistent, regardless of the hours of overtime worked from Monday through Friday.
848 In Fair Work Ombudsman v Transpetrol TM AS [2019] FCA 400, the question was whether the remuneration paid to seafarers by a shipping company which included payments for differently described entitlements under contracts of employment made outside Australia and/or payments for entitlements under the laws of countries other than Australia could be set off against their entitlements under the Seagoing Industry Award 2010. In three cases, the question was also whether the payments could be set off against the seafarers' entitlements under cl 4.3 of the National Minimum Wage Order 2014. Rares J allowed the set off. After referring to Poletti v Ecob, ANZ v FSU, James Turner and Linkhill, his Honour said:
[113] … [T]here is no inflexible principle that precludes a creditor, who has appeared to designate or appropriate a payment to discharge a specific liability, from relying on all of the circumstances to demonstrate that the true character of the payment is, in fact, different or, alternatively, to justify the use of that payment as a set off to a different liability. And this is so even in respect of wholly domestic situations involving Australian industrial agreements and legislative instruments, such as awards … In addition, the application of the principle, in a case like the present, must accommodate the differing industrial relationships that arise under, and must comply with, the laws of one or more sovereign nations or under international treaties …
[114] Here, the true character of Transpetrol's total payments to the crew members of Turmoil was, first, to satisfy all contractual and relevant national law liabilities of any particular crew member, secondly, to ensure that all crew members received the same wage for same rank and work, regardless of the relevant national laws, by topping up their payments under a common arrangement, namely the wage scale and, thirdly, to ensure that Turmoil had both a "blue certificate" and a maritime labour certificate so that she could freely trade worldwide…
[115] On the evidence, Transpetrol intended to pay each crew member an overall sum to cover, first, all of their contractual and statutory entitlements under the relevant national laws, secondly, its obligations under the Maritime Labour Convention and, thirdly, a top up payment in accordance with its policy of providing a common wage scale for the same ranks and work throughout the Transpetrol group's fleet regardless of the requirements of any relevant national law. In that context, the breakdown of payments that the Turmoil ITF agreement required, can be seen as informing the crew member that he or she had been paid everything due under the employment contract and the relevant national law, as well as identifying any top up amount.
[116] However, the character of Transpetrol's total payment to the crew member was that it wished to pay a common lump sum, in addition to the requirements of the differing relevant national laws applicable to any particular crew member, according to the wage scale that would be more than sufficient to meet all contractual and statutory liabilities (even if overlapping) that it had to the crew member. Accordingly, the gross total payment that Transpetrol made (before the Ombudsman's investigation) to each crew member is the relevant one for the purposes of assessing its liabilities under the Fair Work Act while Turmoil sailed on each of the ten voyages in Australian regulated waters.
[117] For those reasons, I am of opinion that Transpetrol is entitled to set off fully the total wages it paid earlier to the official crew members to reduce the sum of its liabilities in respect of each of the ordinary time, overtime or NMWO contraventions …
(Emphasis in the original and citations omitted)
849 If the statement of Rares J that there is no inflexible principle precluding a payment being used as a set off against a different liability is taken literally, then there appears to be some tension between it and the previous decisions, including the decisions of Full Courts.
850 The issue of set off has also been considered in other jurisdictions. In James Turner, the question before the Western Australian Industrial Appeal Court was whether "all-in" hourly rates paid on the basis that the employee was an independent contractor could be brought into account in satisfaction of some or all of the employee's entitlements under an applicable award. At [21], Anderson J said that the following principles could be extracted from Ray v Radano, Pacific Publications, Poletti v Ecob, Logan v Otis Elevator and ANZ v FSU:
1. If no more appears than that (a) work was done; (b) the work was covered by an award; (c) a wage was paid for that work; then the whole of the amount paid can be credited against the award entitlement for the work whether it arises as ordinary time, overtime, weekend penalty rates or any other monetary entitlement under the award.
2. However, if the whole or any part of the payment is appropriated by the employer to a particular incident of employment the employer cannot later claim to have that payment applied in satisfaction of his obligation arising under some other incident of the employment. So a payment made specifically for ordinary time worked cannot be applied in satisfaction of an obligation to make a payment in respect to some other incident of employment such as overtime, holiday pay, clothing or the like even if the payment made for ordinary time was more than the amount due under the award in respect of that ordinary time.
3. Appropriation of a money payment to a particular incident of employment may be express or implied and may be by unilateral act of the employer debtor or by agreement express or implied.
4. A periodic sum paid to an employee as wages is prima facie an appropriation by the employer to all of the wages due for the period whether for ordinary time, overtime, weekend penalty rates or any other monetary entitlement in respect of the time worked. The sum is not deemed to be referable only to ordinary time worked unless specifically allocated to other obligations arising within the employer/employee relationship.
5. Each case depends on its own facts and is to be resolved according to general principles relating to contracts and to debtors and creditors.
851 His Honour held that the lower courts had been wrong in proceeding on the basis that an employer had no right to rely upon a payment to an employee unless there was an express or implied allocation of that payment to obligations arising under the award:
[44] There is nothing in the cases referred to which is to the effect that, where payments are made pursuant to a contractual arrangement without regard for award obligations, they are to be completely ignored and left out of account in looking to see whether an obligation imposed by the award has been satisfied. At their highest they are authority for the proposition that if an employer impliedly or expressly appropriates a payment of money to a particular obligation arising in the employment relationship (ie to a particular incident of employment) the employer is to be held to that appropriation and cannot seek later to reappropriate or "reprobate". The cases are not authority for the proposition (upon which the judgments below seem to have proceeded) that unless there is an express appropriation to a particular award entitlement the sums paid by the employer to the employee are to be ignored or treated as referable only to ordinary time worked.
…
[45] The payment of an amount as wages for hours worked in a period can be relied on by the employer in satisfaction of an award obligation to pay wages for that period whether in relation to wages for ordinary time, overtime, weekend penalty rates, holidays worked or any other like monetary entitlement under the award. This is so, whether the payment of the wages is made in contemplation of the obligations arising under the award or without regard for the award. However, if a payment is made expressly or impliedly to cover a particular obligation (whether for ordinary time, overtime, weekend penalty rates, fares, clothing or any other entitlement whether arising under the award or pursuant to the contract of employment) the payment cannot be claimed as a set off against monies payable to cover some other incident of employment. A payment made on account of say ordinary time worked cannot be used in discharge of an obligation arising on some other account such as a claim for overtime. Whether or not the payment was for a particular incident of employment will be a question of fact in every case.
(Emphasis added)
852 The Court did not then engage in an application of these principles to the circumstances of the case as the matter was remitted to the Industrial Magistrate. Anderson J did note, however, that it may not be open to the employer to rely upon its "all-in" payment as satisfying some of the award obligations, for example, the obligation to pay long service leave, at [48].
853 TransAdelaide v Leddy is a case with some similarities to the present. An employee who had been treated as a permanent part-time employee (PPTE) had become, on working a minimum number of weeks in a year, a full-time employee and accordingly entitled to payment for 38 hours each week even though he had not worked all those hours. As a PPTE, he had received a loading of 20% on the hourly rate otherwise applicable, which was stated to be "in lieu of sick and annual leave entitlements and public holidays". The question was whether TransAdelaide was entitled to "set off" the 20% loading paid during the period in which the employee should have been recognised as a full-time employee against its liability for wages on the basis that the employee was a full-time employee.
854 The Full Court of the Supreme Court of South Australia held that TransAdelaide was so entitled (at 420-421 per Doyle CJ, with whom Lander J agreed, and at 432 per Olsson J), saying that the fact that the employee's wages were to be calculated differently did not mean that the amounts previously paid for wages should not be brought into account. Doyle CJ reasoned as follows at 419-421:
Under the EBA Mr Leddy had no entitlement to sick leave, annual leave or to payment for public holidays. The 20 per cent loading is paid in substitution for those entitlements. In my opinion it cannot be said that it is a payment for public holidays, or for annual leave or for sick leave. It replaces the payments that would otherwise be made in that respect. The loading is paid because there is no such entitlement.
In my opinion the amount paid to Mr Leddy, in respect of each hour worked as a part-time employee, is simply the wage to which he was entitled under the EBA. The manner in which his entitlement is calculated is neither here nor there. It does not alter the nature of the entitlement. His entitlement remained an entitlement to receive a specified hourly rate.
…
The wage actually paid to Mr Leddy was paid as such. The money paid to him was never attributed by either party to anything other than his entitlement under the EBA to wages. Now that it appears that his monetary entitlement, by way of wages, is to be calculated differently, in my opinion there is no reason why the amount actually paid to him by way of wages should not be set-off against the yet to be calculated entitlement. The amount already paid, and the yet to be calculated entitlement, are both a wage rate payable under the EBA in respect of hours worked. There is no question of, for example, a payment for sick leave now being attributed to an entitlement in respect of hours worked.
(Emphasis added)
855 However, as the payments had been paid as wages with respect to the time worked by the employee, they could not be brought into account to reduce TransAdelaide's separate obligations with respect to annual leave and sick leave.
856 In Discount Lounge Centre v Wakefield [2007] SAIRC 15, a retail worker had been paid an "all-in" weekly wage as a casual employee on the express understanding that he did not have an entitlement to annual leave or sick leave. After his employment ended, the employee claimed successfully that his true status had been that of a full-time employee so that he had been entitled to those forms of leave. There was then a question of whether his "all-in" weekly wage of $740 per week could be brought into account with the effect that the amount which exceeded the minimum award wage could be applied to off set the employer's liability with respect to all award entitlements. The Full Bench of the South Australian Industrial Relations Court upheld the first instance finding that, as the sum of $740 had been paid as the weekly wage for the hours worked, it could not be brought into account in satisfaction of the employer's liability for annual leave and sick leave.
857 However, the Magistrate recognised that there may be difficulties in identifying a portion of the casual loading as attributable to annual leave and said that he would hear further submissions on that topic if the parties could not agree.
858 In Williams(FMCA), Mr Williams had been paid as a casual employee and had received a loading. He was found not to have been a casual employee and so had an entitlement to payment of his accrued annual leave on the termination of his employment, pursuant to s 235(2) of the WR Act. Initially, the Federal Magistrate considered that the employer's claim for set off should succeed:
[75] The evidence of Mr Williams discloses that he agreed to be paid a loading in lieu of paid leave entitlements, including annual leave. That is reinforced by the Contract of Employment. There is no doubt, on the evidence, that the employer intended that the loading to be paid would be paid in lieu of paid leave entitlements, including annual leave. Thus, the parties appear to have turned their minds as to whether or not the payment to be made to Mr Williams might include remuneration allocatable to annual leave. If not expressly, then certainly impliedly, the parties have allocated remuneration to cover annual leave entitlements, and which are capable, at least on their face, of being appropriated to the statutorily guaranteed entitlement to be paid accrued annual leave on termination. The arrangement appears to have been entered into for the purpose of discharging Macmahon Mining's obligations in respect of paid leave entitlements, including annual leave. Thus, there appear to have been monies which the employer has either impliedly or expressly appropriated to meet a particular incident of the employment relationship, namely annual leave, and which can now be used by way of set-off against any entitlement that Mr Williams has to be paid annual leave.
[76] There will therefore be a declaration that Macmahon Mining is entitled to set-off any sum of money appropriated from the casual loading paid to Mr Williams in lieu of annual leave.
(Citations omitted)
859 The parties did not reach agreement and the Magistrate did consider the matter further: Williams v MacMahon Mining Services Pty Ltd (No. 2) [2009] FMCA 763. The Magistrate then held that the employer's claim to set off the loading failed for two reasons. First, s 173 of the WR Act had the effect that the parties' agreement that the loading be paid in lieu of leave entitlements was of no effect. Secondly, the Magistrate held that, as the 20% loading paid to him could not be disaggregated into amounts for annual leave, sick leave and public holidays, the employer could not have it brought into account in reduction of its liability for annual leave.