Employers can breathe a sigh of relief after a recent Federal Court decision in Roebuck v Shopping Centres Australasia Property Group Re Limited [2024] FCA 503 which provided much needed clarity regarding the drafting of guarantee of annual earnings clauses.
The Facts
The case centred on whether Mr Roebuck, employed as a Regional Leasing Manager, was covered by the Real Estate Industry Award 2020 (Award), and if so, whether the award applied to him given the guarantee of annual earnings included in his employment contract.
Mr Roebuck claimed that Shopping Centres Australasia Property Group (SCA) had breached the Award and made misrepresentations in relation to his redundancy in July 2021. SCA disputed this claim, arguing that Mr Roebuck was a “high-income employee”, meaning that the Award did not apply to him. A full-time employee is a high-income employee at a time if:
- the employee has a guarantee of annual earnings for the guaranteed period; and
- the time occurs during the period; and
- the annual rate of the guarantee of annual earnings exceeds the high-income threshold at that time.
In determining whether Mr Roebuck was a high-income employee, the Court was tasked with resolving questions of statutory interpretation and the construction of Mr Roebuck’s written contract of employment.
The question of statutory interpretation turned on whether the criterion of a ‘guarantee of annual earnings’ in s 330(1)(b) of the Fair Work Act 2009 (Cth) that an employer give ‘an undertaking in writing to pay the employee an amount of earnings in relation to the performance of work during a period of 12 months or more’ requires there to be a ‘guaranteed period’, within the meaning of s 331 of the Act, for a ‘fixed’ period with a specified or identifiable end date.
Mr Roebuck asserted that there is a requirement for a fixed period and that an evergreen or rolling undertaking is not permitted and that annual earnings must be renegotiated or given again at the end of each guarantee period. SCA, on the other hand, argued that a fixed period is not a requirement and that an undertaking may be evergreen or rolling so as to renew for annual periods of 12 months throughout an employment of an indefinite period.
The contractual construction point centred on whether the employment contract contained an undertaking to pay an amount of earnings in relation to the performance of work during a period of 12 months with or without a specific or identifiable end date and, in any event, whether it provided for an evergreen or rolling annual undertaking for the duration of Mr Roebuck’s employment.
Decision
In resolving these issues, Feutrill J found that the undertaking SCA gave to Mr Roebuck as a term of his written contract was an undertaking of the kind described in s 330(1)(b). On the proper construction of the contract, it was a promise to pay Mr Roebuck $219,178 for each year of his employment commencing on 1 January 2021.
Peabody
The decision comes as a welcome clarification of the status of guarantee of annual income clauses and addresses uncertainties created by the decision in The Association of Professional Engineers, Scientists and Managers Australia v Peabody Energy Australia Coal Pty Ltd [2022] FCA 945 (Peabody). In Peabody, the Court held that the employee’s contract did not meet the requirements of a guarantee of annual earnings because it lacked a fixed or identifiable period. The Court emphasized that for a guarantee to be valid under the Fair Work Act, it must specify a period of at least 12 months with a clear end date, ensuring the guarantee is identifiable and enforceable. While this decision was in the context of a clause in an employment contract that did not contain an undertaking or notice that a modern award would not apply, it created uncertainty for employers about the validity of rolling annual guarantees.
In Roebuck, the Court highlighted that there is nothing in the legislative purpose of Pt 2-9 Div 3 or the purpose of the Act to suggest that an employer cannot give multiple or serial undertakings (which we understand to mean an evergreen or rolling undertaking) to pay an amount of earnings in relation to the performance of work during multiple periods of 12 months. Given this, the Court found that the rolling guarantee was sufficient and met the statutory requirements.
Impacts
Employers can rely on Roebuck as authority that rolling and evergreen clauses meet the requirements of the Act and constitute a guarantee of annual income. This case serves as a timely reminder to ensure that your contract clauses are explicit, cover a period of 12 months of more, and that employees are fully aware of the impacts of an annual guaranteed income clause.
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