In this matter, a decision of the Industrial Magistrate relating to limited contracting out of long service leave (LSL) and contractual set-off was appealed to the Full Bench.

In the original claim, the applicant was employed as a commission-only real estate agent by the respondent for almost ten years.  While employed, the applicant was paid remuneration in the form of commission only on real estate sales he brokered. It was accepted that the applicant’s commission payments considerably exceeded his award entitlement and his legislative leave entitlements, and his employment contract included a clause stating commissions encompassed all leave, making leave unpaid and negating further leave payments on termination.

Upon termination of his employment, the applicant launched proceedings in the Industrial Magistrates Court (IMC), claiming, among other things, an entitlement to accrued but untaken LSL under the Long Service Leave Act 1958 (WA) (LSL Act).  Key to this entitlement was s 5 of the LSL Act, as in force immediately prior to 1 July 2022, which provided that an employer and employee may agree that the employee may forgo their LSL entitlement if the employee is given an adequate benefit in lieu of the entitlement and the agreement is in writing.

Industrial Magistrate Scaddan upheld the applicant’s claim for accrued but untaken LSL, rejecting the respondent’s attempt to set off over-award commissions against the LSL entitlement. The Industrial Magistrate held that s 5 did not permit contracting out of future LSL entitlements via wages components and found the benefit under the contract inadequate.

The respondent appealed the decision of the Industrial Magistrate on the following key issues:

• Whether s 5 of the LSL Act was sufficiently broad to permit the parties to contract out of LSL entitlements before those entitlements have accrued or crystalised, but which are due to come into existence in the future and, if so, whether the contract clause in this matter satisfied the statutory requirement.
• Whether the respondent’s over-award commission payments to Mr Jowett could be set off against its statutory liability for LSL on termination.

The majority of the Full Bench interpreted s 5 broadly, allowing contracting out of contingent (future) LSL entitlements if the employee receives an adequate written benefit. Commissioner Tsang and Commissioner Kucera found the contract satisfied these requirements, and as such the appellant had no liability to pay the respondent LSL on his termination. In contrast, Senior Commission Cosentino adopted a narrow construction like the Industrial Magistrate at first instance, finding s 5 did not apply to LSL short of an accrued entitlement.

Given their earlier findings on the first issue (which resulted in the same order to pay being set aside), the majority of the Full Bench considered they did not have to deal with this part of the appeal and would have dismissed it.  Applying key set off case law, Senior Commissioner Cosentino highlighted the question of whether there was a close connection between the purpose of the payment and the entitlement to be satisfied by the payment. Reference in the relevant contract clause to "all leave entitlements as determined by Legislation" was sufficiently specific to be connected to LSL, including future accrued LSL entitlements.

The Full Bench dismissed the appellant’s appeal challenging LSL liability but upheld its appeal on the set-off issue, quashing orders requiring the appellant to pay the respondent for pro-rata long service leave.

 

The decision can be read here.