Recent judicial decisions could have ‘significant’ implications for employers

“Conflicting” judicial decisions around section 323 of the Fair Work Act could have “significant” impacts on Australian employers and offer another lever for unions to pull in employment contractual disputes.

HR Leader recently spoke to Jordan Hardinge, a senior associate of employment and industrial relations at Herbert Smith Freehills, about recent judicial decisions that he claims could have potentially “significant” impacts on Australian employers around contractual disputes.

Hardinge reviewed a decision handed down by Justice Taylor in the Federal Court relating to section 323 of the Fair Work Act – which requires an employer to pay an employee “in full”, “in money” and “at least monthly”.

According to Hardinge, there are now a number of recent conflicting judicial decisions considering the scope of this provision and whether it:

• Creates an independent statutory cause of action that an employee can rely on in a breach of employment contract claim (i.e. it effectively picks up any failure to pay a contractual entitlement on the grounds that the employee has not been paid “in full” under their contractual terms);
• Or (2) only provides for a more limited entitlement regarding the manner in which the employee is to be paid (i.e. the employee must be paid fully in money, with no unpermitted deductions, and not in “in kind”).

Justice Taylor’s decision in Australian Rail, Tram and Bus Industry Union v Pacific National Executive Services Pty Ltd [2025] NSWIC 3 supports the broader view of this provision – a broader approach that allows for employees to “effectively bring a breach of contract claim as an action arising under the FW Act”.

“This is significant as it means the employee obtains the benefit of the no-costs jurisdiction provided for under the FW Act – making it very hard for an employer to recover its legal costs if successful in defending the claim and thereby reducing the risk of litigation for the employee,” Hardinge said

“It also allows the employee to pursue civil penalties for a breach of the FW Act provisions that are not available in purely contractual claims – which currently exposes an employer to a maximum penalty of $495,000 per contravention.”

New lever for unions

On top of these potential implications, Hardinge noted that these decisions could give unions across Australia yet another “lever to pull” during contractual disputes.

“This case potentially gives unions an additional lever to pull in relation to any employment contractual dispute between an employer and an employee. Where an employee would have been required to sue individually under their employment contract in relation to any contract-based dispute, if this case is applied a union could conceivably commence proceedings for a group of employees who all have similar disputed contractual terms as a proceeding under the Fair Work Act 2009 (Cth),” Hardinge said.

“This makes it more likely that proceedings will be commenced for contractual issues as there is an economy of scale available. There is also the incentive for the union of recovering any civil penalty (as high as $495,000 per contravention), which is not available in breach of contract claims.”

“The employees/union will also not be exposed to any adverse cost order, as a proceeding under the FW Act is a no cost jurisdiction. All of these factors suggest that unions will be more inclined to pursue claims for breaches of contractual entitlements.”

What it means for employers

Moving forward, if this construction of section 232 is, in fact, adopted on a broader scale – although there is still some dispute in the “jurisprudence about the scope” of the provision – the significance of implications for employers could be immense.

“It will increase the appetite for unions and employees to pursue contractual-based disputes in the Federal Court of Australia. It may also potentially entice class action funders to become more involved in the area,” Hardinge said.

“Overall, it increases the risk for employers that they may be sued for contract-based entitlements that are rarely litigated – as opposed to, say, entitlements arising under an award or enterprise agreement where the Fair Work Ombudsman has regulatory oversight and unions frequently litigate.”

“Combined with the recent Elisha decision that considers the availability of contractual damages for psychiatric injury, close consideration of the terms of the contract of employment has never been more important.”

For employers, ensuring that their employment contracts are carefully and precisely crafted “has never been more important”.

“The careful drafting and legal review of employment contracts has never been more important. This case significantly increases the risk of employees/unions commencing proceedings where there may be an ambiguously drafted contractual entitlement not being paid to employees,” Hardinge said.

“Employers should carefully review their current template employment contracts to ensure any entitlements are clearly articulated and are understood by both parties.”

“Where an employer is considering making any pay-related changes (for example, changing the pay frequency of employees, say, from weekly to fortnightly), careful consideration should be given to the terms of the employment contract, as this may now be a matter than can be litigated under the FW Act provisions.”