The AEU Victoria recently won millions of dollars in back-pay for more than 40,000 Victorian teachers after the Federal Court found the Victorian Government had been making unlawful deductions from teachers’ salaries by requiring them to pay for access to laptops.

Only in very specific circumstances can an employer deduct an employee’s pay, or require them to spend it in a particular way.

In the recent case of AEU v State of Victoria^[1] Justice Bromberg held that years of deductions by the Department of Early Education and Early Childhood Development (“the Department”) were unlawful and should be paid back to 40,000 Victorian teachers. It was deemed unreasonable for teachers’ to pay for resources necessary for doing their job.

Facts and arguments of the case

Between 1 July 2009 and 29 November 2013 fortnightly deductions were made by the Department from the salaries of teachers. The deductions were made pursuant to a scheme in which the Department provided laptops to teachers for use at work. The deductions were classified by the Department as “contributions” to the cost of the laptops.

In defending the deductions the Department ran 2 arguments. Firstly, it asserted that the deductions were authorised by section 234(1)(b) of the Fair Work Act 2009 (“FWA”). Section 234(1)(b) allows an employer to deduct pay if authorised to do so under an enterprise agreement. The Department argued that the deductions were a form of salary packaging and, therefore, because salary packaging was permitted under the enterprise agreement the deductions were lawful.

The second argument run by the Department was that the deductions were permitted by section 234(1)(d) of the FWA. Section 234(1)(d) allows deductions if they are authorised by a law of the State. The Department pointed to a Ministerial Order made on 19 December 2015 as purported authorisation by State law.

Decision

Justice Bromberg disagreed with both arguments. In relation to the Department’s first argument he explained that a ‘fundamental feature of a salary packaging arrangement is the substitution of one form of remuneration for another.’^[2] In this case, Justice Bromberg held, the laptops could not be construed as a form of remuneration for the work performed by the teachers.

In relation to the second argument Justice Bromberg rejected this proposition on the basis that section 234(1)(d) cannot act retrospectively,^[3] and, further the Ministerial Order had no effect upon the terms of a teacher’s employment contract.^[4]

Interestingly, Justice Bromberg went on to determine that the terms under the scheme giving effect to the deductions were terms of the employment contracts of the teachers concerned. If a term of an employment contract allows deductions that are ‘unreasonable in the circumstances’ then that term has no effect by operation of section 326(1) FWA. In this case Justice Bromberg held that the deductions were indeed ‘unreasonable in the circumstances’ for the following reasons:

1. the teachers had no genuine choice whether to participate in the laptop scheme or not;
2. the deductions were set at an excessive rate;
3. the teachers were not the primary beneficiaries of the deductions;
4. the value of the personal benefits received by the teachers (that is, their ability to use the laptops for private use) was insufficient.^[5]

What does this mean for employees?

If an employee finds that their pay is being deducted they should check on what basis this is occurring. An employer must have a legal basis for deducting pay such as authorisation under an enterprise agreement, modern award, Fair Work Commission order or a State or Commonwealth law. If an employer cannot point to such a basis the deductions may be unlawful.

Even if an employer can point to a purported basis AEU v State of Victoria reminds us that, on closer scrutiny, the basis may not be justified and the payments might be unlawful. Whether the deductions are unreasonable will depend on the particular circumstances of each case.