Typically, managers, directors or other senior employees are not covered by modern awards. However, two recent cases serve as a reminder that employers should exercise caution in assuming their senior employees are not covered by a modern award, so as not to be caught out not providing award entitlements or assuming such employees do not have access to unfair dismissal.
- Director at a Real Estate Agency
- A property manager was classified as a director by her employer.
- The Fair Work Commission (FWC) considered whether the employee was hired primarily to undertake management duties or a supervisory role.
- The FWC held that the employee’s substantive duties were covered by the Real Estate Industry Award 2010, under ‘property manager supervisor’.
- It was found that the job title did not match the employee’s actual role.
Principal purpose test
In establishing whether an employee is covered by a modern award, the employee’s position title will not necessarily matter.
Rather, in reaching its decision in the above case, the FWC examined the nature of the work and determined the principal purpose of the employee’s employment by quantifying the time the employee spent performing her various duties and responsibilities as well as a qualitative review of her work.
In carrying out the principal purpose test, the FWC may consider the following non-exhaustive “executive” factors:
- Authority to hire and terminate staff
- Authority to sign contracts on the company’s behalf
- Authority to set KPI’s and targets
- Engage in shaping the company’s policies
- Have budgeting responsibilities
The FWC has referred to the fundamental duty of a manager being “unfettered discretion”.
Employers should pay close attention to whether employees with ‘manager’ as their title actually possess responsibilities and skills synonymous with those of a manager. Illegitimate managerial titles will not exclude the employee from being covered by the award.
On the other hand, the principal purpose test will not be relevant in limited circumstances where the award actually covers managerial roles.
- CEO of a Community Legal Centre
- The CEO of North Australian Aboriginal Family Violence Legal Service argued she was covered by the Social, Community, Home Care and Disability Services Industry Award 2010.
- The employer argued that the principal purpose of the employee’s employment was of a managerial nature so she could not be covered by the relevant Modern Award.
- The FWC held that provisions were made in multiple classifications under the award for employees in managerial roles, covering the CEO.
Exceptions to the rule
The FWC accepted in the above case that, although “this is not the case with most awards” in which “it is clear that management roles are excluded”, management roles were “clearly included” in the Social, Community, Home Care and Disability Services Industry Award 2010.
There are a limited number of modern awards which contain a classification covering a manager role, including the Registered and Licensed Clubs Award 2010, which includes ‘club manager’ as a classification.
Employers should be abreast of whether there is any award classification for a manager in the relevant modern award for their industry or a senior employee’s role. It is crucial that employers do not simply rely on paying employees well above modern award rates – that will not always be sufficient to circumvent modern award obligations and entitlements.
It may be necessary to prepare a Guarantee of Annual Earnings for certain senior employees or to consider implementing individual Flexibility Agreements where appropriate.
If you are unsure as to whether your employees are covered by an award please do not hesitate to contact Nick Stevens, Jane Murray or Angharad Owens-Strauss.