How ‘offset’ claims can fail

In numerous industries, a substantial proportion of an employee’s remuneration can be by way of commissions. In Manchee v BTIG Australia Limited [2022] FedCFamC2G 813 (the Contraventions Decision) the Federal Circuit and Family Court of Australia (the Court) found that, as a result of a poorly drafted employment agreement, the payment of commissions at an above-award rate did not discharge the employer’s obligations pursuant to the Fair Work Act 2009 (Cth) (the FW Act) and the Banking, Finance and Insurance Award (the Award) to pay wages, annual leave and annual leave loading. In Manchee v BTIG Australia Limited (No 2) [2023] FedCFamC2G 43 (the Penalties Decision), penalties were awarded due to the ‘egregiousness’ of the employer’s conduct.

Facts

The Applicant, Mr Manchee, was employed as a sales trader by the Respondent, BTIG Australia Ltd (BTIG) from December 2012 to April 2021. He was employed pursuant to two employment agreements: one executed in 2012 (the 2012 Agreement) and another executed in 2020 (the 2020 Agreement).

The dispute arose due to the manner in which Mr Manchee was paid pursuant to the 2012 Agreement, where he received only commissions. The 2012 Agreement provided that Mr Manchee was entitled to an annual draw of $110,000 per annum against commissions. In practice, this meant he was paid a fixed monthly draw of $9,167. If the commissions attributable to Mr Manchee at the end of the month exceeded $9,617, he would be paid an amount consisting of the monthly draw plus the amount of commission exceeding the monthly draw. If the commissions attributable to Mr Manchee at the end of the month were less than $9,617, he would still be paid the monthly draw amount but the deficiency would be carried and deducted from the next month’s commissions.

Mr Manchee submitted that while he was employed under the 2012 Agreement, BTIG had:

• breached the Award by failing to pay him the minimum wage, even though under the commission arrangement, Mr Manchee was paid significantly more than would have been payable to him as wages under the Award;
• breached the National Employment Standards because he had not accrued four weeks’ paid annual leave each year (in that any periods of leave he took were unpaid because he was only paid the commission that had already accrued from work undertaken before the leave); and
• breached the Award by failing to pay him annual leave loading.

He claimed he was entitled to compensation, consisting of the Award minimum wages, annual leave and annual leave loading.

BTIG submitted that the payments Mr Manchee received constituted ‘regular and stable’ payments for all hours worked during employment and compensated him for work performed in the same way as a salary. BTIG also submitted that it should be able to offset its payments under the 2012 Agreement against its Award obligations.

Contraventions Decision

The Court considered the documentation setting out the 2012 Agreement (which consisted merely of a letter) and noted that it only provided that Mr Manchee was entitled to a portion of the commission he earned; there was no reference to a salary, wages or the Award.

Accordingly, in considering whether BTIG was entitled to offset its payments under the 2012 Agreement against the Award obligations, the Court found that there was ‘no close correlation’ between the subject matter of the obligations under the 2012 Agreement (which could be characterised as a share of revenue generated for BTIG) and his wages (which is characterised as payment for hours worked). The 2012 Agreement did not refer to anything that would be characterised as work or labour. The Court noted that had BTIG ‘at least attempted to pay Mr Manchee by reference to his work rather than solely by reference to his profitability then a sufficient correlation between the two obligations might have been discernible and a set-off available.’ In the absence of such a reference, the Court held that BTIG was not entitled to set off the payments made under the 2012 Agreement against Mr Manchee’s Award entitlements.

However, Mr Manchee was not entitled to any compensation because he did not suffer any loss, having been paid more than he would have been under the Award.

Penalties Decision

As BTIG’s conduct in failing to pay Mr Manchee wages, annual leave and annual leave loading contravened the FW Act, a further hearing was held to determine whether BTIG should be liable for civil penalties.

In determining whether to award a penalty, the Court noted that:

• BTIG’s conduct extended over a period of 7.6 years from the commencement of Mr Manchee’s employment until the commencement of the 2020 Agreement;
• BTIG had breached three separate obligations which attracts three separate penalties;
• BTIG operated an enterprise of ‘some size’ and appeared to have failed to obtain suitable advice before the 2012 Agreement was drawn up;
• BTIG’s conduct was not an accident; the arrangement was designed to drive revenue;
• any inadvertence to the Award requirements carried ‘little weight’;
• the 2012 Agreement was known at the highest levels of BTIG and was not the fault of a junior employee;
• there was little evidence of BTIG exhibiting contrition for its breaches, beyond a brief, simple statement in its written submissions on penalty;
• while BTIG was unlikely to repeat the offending conduct, the Court considered that there was a need to deter others from emulating it.

Accordingly, BTIG was ordered to pay to Mr Manchee $5,000 for each of the three contraventions of the FW Act, for a total of $15,000.

Take Home Messages

Employers must be cautious where they pay employees on the basis of commissions rather than weekly wages or salaries. It is essential that contracts are carefully drafted so it is clear that the commission payment is made in satisfaction of award entitlements such as wages and the employer is entitled to offset those commissions against award entitlements. This is the case even where employees are paid above the award rate, and the same principles apply in respect of employees receiving salaries above award rates.

Should you wish to discuss any matters raised in this article, please contact please contact Sathish Dasan on + 61 8 8210 1253 or sdasan@normans.com.au, Anastasia Gravas on + 61 8 8210 1331 or agravas@normans.com.au, or Annabelle Narayan on +61 8 8210 1292 or anarayan@normans.com.au.