In a timely reminder about the importance of carefully drafting enterprise agreements, the Federal Court of Australia – Full Court (the Full Court) has recently determined a dispute about the definition of “ordinary time earnings” in a particular enterprise agreement. In doing so, the Full Court confirmed that departures from the plain text of an enterprise agreement will not be justified (unless there is an absurdity or a very seriously anomalous result).
In the matter of Target Australia Pty Ltd v Shop, Distributive and Allied Employees’ Association [2023] FCAFC 66, the dispute was in relation to the Target Australia Retail Agreement 2012 and, in particular, a clause which read:
“A team member going on Annual Leave shall be paid in addition to their ordinary time earnings for the period of leave a loading of 17.5% prior to the commencement of such leave.”
Target Australia Pty Ltd’s (the Employer’s) position was that the phrase referred to what the employee would have earned if the employee had not taken leave, calculated as if only the “ordinary hourly rate” applied.
The Shop, Distributive and Allied Employees’ Association’s (the Union’s) position was that the phrase referred to the entirety of what would have been earned by the employee for working their ordinary hours of work.
At first instance, the Federal Court of Australia found that “ordinary time earnings” included payment for ordinary hours in accordance with the classification rates in the Agreement and any applicable penalties. However, it did not include entitlements to allowances or overtime payments.
The Employer appealed this decision, arguing that the Court erred in finding that the phrase included payment of penalty rates. It contended that the phrase “ordinary” should be understood in the same way that it was understood in other sections of the Agreement, namely within the phrase “ordinary hourly rate of pay”, where “ordinary” meant “base”. The use of the word “ordinary” meant a reference to the base rate of pay.
The Full Court was not persuaded by this argument. It considered that the natural meaning of “ordinary time earnings” referred to the total remuneration earned by the employee when working ordinary time. It was not convinced that the reference to “ordinary time” was intended to be a reference to a particular rate of pay; rather, it referred to the particular work being performed. It was of the view that the word “ordinary” was only an adjective which could have different meanings depending on the context in which it was used.
The Employer also argued that the Court at first instance failed to have regard to the fact that all predecessor agreements to the one in question contained an identical clause and, under those predecessor agreements, annual leave loading was paid by reference only to the ordinary hourly rate of pay. According to the Employer, this supported a “common understanding” between the parties as to how the clause would operate; specifically, employees who voted for the agreement should be taken to have understood that the clause applied in the same way as the previous provisions.
The Full Court rejected this contention and referred specifically to the Court’s consideration of this point at first instance. The Court had found that there was no evidence to support a finding of an objective common intention – it did not know whether anyone had previously complained about the payments, whether the bargaining representatives knew about the payment practice or whether any failure to complain may have resulted from inadvertence or a misplaced understanding of the scope of the place. On appeal, the Full Court did not consider these inferences to be erroneous.
Ultimately, the appeal was dismissed.
When drafting enterprise agreements, it is critical that the intentions of the parties are expressed in a clear and unambiguous way. Where defined terms are used, they should be applied consistently throughout the agreement.
This decision is a reminder to employers of the dangers of unclear or ambiguous provisions in enterprise agreements. Employers cannot simply assume that past practice under previous agreements will be indicative of the intention behind such clauses.
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