Recruiting and onboarding new employees is a costly and time-consuming process. But what happens if a new worker doesn’t stick around long? Can you claw back any of those costs? 

Let’s consider an example: a company is negotiating a new enterprise agreement and one of the proposed terms relates to the company’s right to deduct recruitment costs if an employee resigns within the first three months of employment. This is to recover the costs of using a recruitment agency. 

The bargaining representatives have questioned the legality of such a term. However, the employer believes the Fair Work Act permits an agreement that contains terms that allow an employer to deduct monies from an employee’s wages. Would these terms pass the better off overall test? 

Deductions  

It would appear such a term in an enterprise agreement may be unlawful for two reasons. Firstly, even if an enterprise agreement contains an authority to make a deduction, the Fair Work Act (s326) provides that the authorisation will have no effect if the authorisation is to allow a deduction from an amount otherwise payable to an employee or requires an employee to make a payment to an employer or another person. 

Secondly, the Fair Work Act (s172) provides that, among other things, a matter must pertain to the relationship between an employer and that employer’s employees covered by the agreement. 

In this case, it could be argued that deductions for costs incurred by the employer prior to the start of an employee’s employment are not a matter ‘pertaining to the employment relationship’. The costs pertain to the relationship between the company and the recruitment agency.  

An enterprise agreement may contain terms about deductions from wages for any purpose authorised by an employee covered by the agreement. While an enterprise agreement may permit certain deductions, an individual employee must authorise the deduction and this authorisation does not arise simply from approval of the agreement. 

Deduction terms will not have an effect if they benefit the employer and are unreasonable in the circumstances. For example, (then) Fair Work Australia refused to allow an agreement clause that would have enabled an employer to deduct recruitment costs from employees’ pay packets if they resigned soon after commencement. See Radploy Pty Ltd t/a Lake Imaging [2011] FWA 39. 

It should be noted that a matter which contravenes the Fair Work Act (s324) does not necessarily prevent approval of the agreement. 

Reasonable deductions 

The Fair Work Regulations 2009 (reg 2.12) provide a deduction that is reasonable for the purpose of recovering costs directly incurred by an employer due to the voluntary private use of particular property of the employer by an employee (whether authorised or not). 

Examples of such costs include: 

  • the cost of items purchased on a corporate credit card for personal use by the employee 
  • the cost of personal calls on a company mobile phone 
  • the cost of petrol purchased for the private use of a company vehicle by the employee. 

However, although these deductions may be considered reasonable, the deduction must still be authorised by the applicable modern award, enterprise agreement, or contract of employment. 

The bottom line: There are limited situations when an employer may deduct monies from an employee’s wages but, for the most part, this is not permitted.