FEDERAL COURT OF AUSTRALIA Deputy Commissioner of Taxation v Australian Communication Exchange Ltd [2001] FCA 1664 SUPERANNUATION – Determination of amount of "superannuation guarantee shortfall" in respect of casual employees – Construction of industrial award – Meaning of "ordinary time earnings" – Whether this term includes any part of the remuneration received by casual employees for working more than eight hours in any one day or outside the ordinary spread of working hours prescribed by the award – Conclusion that the term includes remuneration at the prescribed ordinary hourly rate and excludes only the loading applied by reason of the work being in excess of eight hours or outside the prescribed spread of hours. Superannuation Guarantee Charge Act 1992 ss 3, 5 Superannuation Guarantee (Administration) Act 1992 ss 14(2), 16, 17, 19, 23 Clerical Employees Award (State) (Qld) cll 3.5, 4.1, 4.2, 4.7 DEPUTY COMMISSIONER OF TAXATION v AUSTRALIAN COMMUNICATION EXCHANGE LTD Q 108 of 2001 WILCOX, HILL & CARR JJ SYDNEY (HEARD IN BRISBANE) 28 NOVEMBER 2001 IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY Q 108 of 2001 BETWEEN: DEPUTY COMMISSIONER OF TAXATION Appellant AND: AUSTRALIAN COMMUNICATION EXCHANGE LTD (ACN 003 044 899) Respondent JUDGE: WILCOX, HILL & CARR JJ DATE OF ORDER: 28 NOVEMBER 2001 WHERE MADE: SYDNEY (HEARD IN BRISBANE) THE COURT ORDERS THAT: 1. The appeal be allowed. 2. The orders made by Dowsett J on 2 May 2001 be set aside and, in lieu thereof, it be ordered that the decision of the appellant, Deputy Commissioner of Taxation, to disallow the objections of the respondent, Australian Communication Exchange Ltd, dated 20 February 2000 be varied to allow so much of the objections as will result in an assessment being made in accordance with the reasons of the Court. 3. Questions of costs, both in relation to the proceeding heard by Dowsett J and in relation to the appeal to this Court, be reserved. 4. Any party that seeks an order for costs must provide written submissions in connection therewith within 14 days. Any submissions in response are to be provided within a further 14 days. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY Q 108 of 2001 BETWEEN: DEPUTY COMMISSIONER OF TAXATION Appellant AND: AUSTRALIAN COMMUNICATION EXCHANGE LTD (ACN 003 044 899) Respondent JUDGES: WILCOX, HILL & CARR JJ DATE: 28 NOVEMBER 2001 PLACE: SYDNEY (HEARD IN BRISBANE) REASONS FOR JUDGMENT THE COURT: 1 The respondent, Australian Communication Exchange Ltd, conducts a business of providing telephonic services to people with impaired hearing. It provides those services 24 hours a day, seven days a week. To do so during the periods relevant to this matter, the respondent employed about 100 casual workers known as "relay officers". This appeal is concerned with the respondent's superannuation guarantee charge obligations in respect of those casual employees. Those obligations are overseen by the appellant, the Deputy Commissioner of Taxation. The matter came before the Court pursuant to objections made by the respondent to amended assessments of superannuation guarantee charge for the years 1995-96, 1996-97 and 1997-98. the statutory framework 2 Section 5 of the Superannuation Guarantee Charge Act 1992 (Cth) ("the Charge Act") imposes a charge on any "superannuation guarantee shortfall" in the amount contributed by employers to superannuation funds for the benefit of employees. The Charge Actincorporates, and is to be read as one with, the Superannuation Guarantee (Administration) Act 1992 (Cth) ("the Administration Act"): see s 3 of the Charge Act. 3 Section 16 of the Administration Act provides that a superannuation guarantee charge imposed (by the Charge Act) on an employer's superannuation guarantee shortfall for a year is payable by the employer. Section 17 provides for aggregation of the shortfalls in respect of individual employees. Section 18 deals with shortfalls in the 1992-93 year; it is not relevant to this case. Section 19 concerns 1993-94 and subsequent years. It provides for calculation of the shortfall, a calculation that commences by applying a percentage specified by s 20 or s 21, depending on whether or not the relevant employer was an employer for the whole of 1991-92, to the total salary or wages paid to the employee in the relevant year. Where this section applies, the base used for calculation of the employer's superannuation contribution includes payments made to the employee in respect of overtime. 4 Section 22 of the Act concerns contributions made by employers to defined benefit superannuation schemes. That is not this case, so the section may be disregarded. 5 Section 23 is, however, important. It applies to superannuation funds other than defined benefit superannuation schemes. It provides, by subs (2) and subject to presently irrelevant qualifications, that if, in a contribution period; (i) an employer is required inter alia by an industrial award to contribute for the benefit of an employee to a superannuation fund; and (ii) the requisite contribution is a specified percentage of the employee's notional earnings base or a percentage of that base calculated in accordance with the award; and (iii) the employer contributes to a complying superannuation fund for the benefit of the employee in accordance with the award; the charge percentage for the employer, as calculated under s 20 or s 21, in respect of that employee for that contribution period is to be reduced by the percentage referred to in the award. 6 In other words, if the charge percentage under s 20 or s 21 was six in the relevant year – as it was under both sections in 1996-97 – and the award percentage was three, the employer's contribution pursuant to s 19 would be reduced to 3% of total salary or wages. However, that contribution would be required to be made on top of the contribution of 3%, calculated on the employee's notional earnings base, under the award. If the statutory and award percentages were identical, the statutory percentage would be reduced to nil. There would be no requirement for a contribution calculated under s 19 by reference to the employee's notional earnings base. The employer's only obligation would be to make the payments required by the award. An employer who made those payments would have no superannuation guarantee shortfall. The Charge Act would impose no liability on that employer. It will be apparent that, under this statutory scheme, award provisions have considerable importance. 7 Section 14(2) of the Administration Act relevantly provides that the expression "notional earnings base" means the earnings of the employee that, under the relevant industrial award, constitutes the employee's earnings by reference to which the requisite employer contribution (i.e. superannuation contribution) is to be calculated. In this case the relevant award is one made by the Queensland Industrial Relations Commission, Clerical Employees Award (State) ("the Award"). the award 8 Clause 3.5 of the Award relevantly provides : "3.5 Occupational Superannuation (1) Application – In addition to the rates of pay prescribed by this Award, eligible employees, as defined herein, shall be entitled to Occupational Superannuation Benefits, subject to the provisions of this clause. (2) Contributions (a) Every employer shall contribute on behalf of each eligible employee as from 20 November 1989 an amount calculated at 3% of the employee's ordinary time earnings, into an Approved Fund as defined in this clause. Each such payment of contributions shall be rounded off to the nearest ten (10) cents. [Emphasis added] . . . (c) Minimum Level of Earnings – No employer shall be required to pay superannuation contributions on behalf of any eligible employee whether full time, part time, casual, adult or junior in respect of any week during which the employees ordinary time earnings, as defined, do not exceed 35% of the Guaranteed Minimum Wage for the Southern Division, Eastern District, as declared from time to time. (3) Definitions – . . . (d) "Ordinary time earnings" shall mean the actual ordinary rate of pay the employee receives for ordinary hours of work including shift loading, skill allowances and supervisory allowances where applicable. The term includes any over-award payment as well as casual rates received for ordinary hours of work. Ordinary time earnings shall not include overtime, disability allowances, commission, bonuses, lump sum payments made as a consequence of the termination of employment, annual leave loading, penalty rates for public holiday work, fares and travelling time allowances or any other extraneous payments of a like nature. . . ." 9 At all material times it has been common ground that the respondent's employees were "casual" as defined in clause 4.7 of the award, which reads as follows: "(1) Definition – A casual employee shall mean an employee who is engaged by the hour and who may terminate employment or be discharged at any moment without notice. (2) Rate of pay – Employees shall be paid an hourly rate by dividing the weekly rate of the appropriate classification by 38 and adding a loading of 19% thereto. (3) Hours – All time worked outside the spread of ordinary working hours or in excess of 8 in any one day or 38 in any one week shall be paid for at overtime rates except where the arrangement of hours are worked in accordance with clause 4.1(i)(f). [This should read 4.1(1)(f)] Provided a minimum of two hours shall be paid for each engagement." 10 As the learned primary judge pointed out, the definition of "ordinary time earnings" in cl 3.5(3)(d) expressly includes "casual rates received for ordinary hours of work". It follows, as his Honour held, that the definition of "ordinary time earnings" applies to casual employees. That conclusion is further supported by the reference to casual employees in cl 3.5(2)(c) which incorporates that definition. 11 Part 4 of the Award (which applies to all employees) is headed "Hours of Work, Overtime". Clause 4.1 (headed "Hours of Work") relevantly provides: "(1)(a)Except as may otherwise be mutually agreed upon … and subject to … the exceptions hereinafter provided, the ordinary hours of work shall be an average of 38 per week, to be worked on one of the following bases: (i) 38 hours within a work cycle not exceeding seven consecutive days; or (ii) 76 hours within a work cycle not exceeding fourteen consecutive days; or (iii) 114 hours within a work cycle not exceeding twenty-one consecutive days; or (iv) 152 hours within a work cycle not exceeding twenty-eight consecutive days. (b) The ordinary hours of work prescribed herein may be worked on not more than five consecutive days in a week, Monday to Saturday inclusive, subject to the following: (i) Except as otherwise specifically provided herein, ordinary hours may be worked between 6.30 am to 6.30 pm on Mondays to Fridays inclusive, and between 6.30 am and 12.30 pm on Saturdays. Such spread of ordinary daily working hours may be altered as to all or a section of employees provided that there is agreement between the employer and the majority of employees involved. (ii) Ordinary hours worked by all employees, excluding casuals, on a Saturday between the hours of 6.30 am and 12.30 pm shall be paid for at the rate of time and a-quarter. (iii) Any arrangement of hours which includes a Saturday as ordinary hours shall be subject to agreement between the employer and the majority of employees involved. …. (f) The ordinary hours of work prescribed herein shall not exceed 10 hours on any day: Provided that where the ordinary working hours are to exceed 8 on any day, the arrangement of hours shall be subject to the agreement of the employer and the majority of employees involved." 12 Paragraph 4.2 ("Overtime") relevantly provides: (1) Except as hereinafter provided, all work done outside or in excess of the ordinary working hours on any day shall be paid for at the rate of time and a-half for the first 3 hours and at the rate of double time for all work so performed in excess of 3 hours on any one day. Such payments shall be in addition to the actual or ordinary weekly wage paid to each employee. ..." 13 Clause 4.6 deals with part-time (as opposed to full-time or casual) employment. As his Honour noted, that clause specifies: · minimum and maximum periods of employment in hours per week; · that "ordinary daily hours" are to be within the spread of hours prescribed in subpar 4.1(1)(b); · maximum and minimum daily hours; and · overtime rates for all time worked outside the spread of ordinary working hours or in excess of eight hours in any one day, or 38 in any one week. THE ASSESSMENTS 14 The respondent made superannuation guarantee contributions in respect of its relay officers that were calculated by applying the appropriate percentage to such part of their wages as was not paid at overtime rates. The Deputy Commissioner assessed upon the basis that there was a shortfall because the award required contributions to be made by reference to the whole of the wages paid to casual employees, including earnings at overtime rates. THE PRIMARY JUDGE'S DECISION 15 The objections to the amended assessments of superannuation guarantee charge came before a judge of the Court. He ordered that the decision of the Deputy Commissioner of Taxation to disallow each of the objections be varied to allow each objection in full. His Honour held that, as cl 4.7(3) of the Award applies to casual employees, earnings by casual employees in respect of time worked outside the spread of ordinary working hours, or in excess of eight in one day or 38 in one week, are to be regarded as payments for overtime work; accordingly they are not "ordinary time earnings" within the meaning of cl 3.5(3)(d) of the Award. It followed they were not to be taken into account in determining the amount applicable to the particular employee for the purpose of the calculation required by cl 3.5(2)(a) of the Award. The primary judge said: "In my view, the expression 'ordinary time earnings' in cl 3.5 includes in the case of a casual employee, earnings received other than for time worked outside the spread of ordinary working hours as prescribed in subpar 4.1(1)(f) or in excess of eight hours in any one day or thirty-eight hours in any one week." THE APPEAL 16 The issue in the appeal is whether the primary judge erred in his construction of the expression "ordinary time earnings" in cl 3.5(3)(d) of the Award. 17 The essence of the appellant's submissions was that what was described as his Honour's "narrow construction" of the Award presented difficulties and would result in discrimination against casual employees; in particular against the casual employees of the respondent, who worked a significant number of hours outside the spread of ordinary hours. The appellant submitted that the term "notional earnings base", referred to in s 14(2) of the Act, for a casual employee was the casual employee's earnings for the hours actually worked whether within or outside the spread of ordinary hours. Such a construction was said to be: · supported by the "structure and express terms of the Award, particularly when construed in the context of the Administration Act", · more consistent with the purposes of the superannuation provisions in the Award and the Act; and would ensure that a casual employee's "access to superannuation" was limited only by the exemptions and the maximum contribution cap in the Act. 18 The respondent relied on the reasoning of the primary judge and submitted that the suggested difficulties were exaggerated by the appellant and, in any event, irrelevant to the task of construing the Award. OUR reasoning 19 There is no doubt that the construction of the Award adopted by the primary judge might have strange results. His Honour's approach would mean that the earnings of casual employees in respect of work outside the spread of ordinary working hours specified in cl 4.1(b) of the Award would be entirely disregarded for the purposes of calculating the employer's "notional earnings base", under s 14(2) of the Act, and therefore the employer's superannuation contribution in respect of that employee. Yet, at least where some contribution was made by the employer in respect of that employee in relation to the relevant contribution period, that contribution would have the effect of removing or reducing (depending on the relevant percentage) the employer's obligation under s 19 of the Act to make a payment based on the employee's total salary or wages. For example, if a particular casual employee worked for six hours during four evenings a week, starting at 6pm, there would be a contribution in respect of only two hours out of the 24 hours actually worked. Yet payment of that contribution would eliminate or reduce the s 19 obligation. 20 Of course, if this is the result dictated by the award on its proper construction, effect must be given to that construction, leaving it to the Queensland Industrial Commission to make such amendment to the award as it may deem proper, or alternatively leaving it to the Commonwealth Parliament to amend the Act. It would not be for us to substitute a preferable result. However, it is legitimate to have regard to the result of any particular construction in considering whether that construction is likely to have been intended by the Queensland Industrial Commission. 21 As it happens we have reached the respectful conclusion that the primary judge's construction of the Award was not correct. It is possible to construe the Award in such a way as to avoid the results that would flow from the so-called "narrow" construction, but without doing violence to its terms. 22 It is clear from the Award that there are two types or qualities of overtime, in the sense of those hours of work which are not ordinary hours of work. The first type comprises hours worked in excess of the average of 38 hours per week or 10 hours (8 hours in respect of casual employees) on any day – see cl 4.1(1)(a) and (f) and cl 4.7(3). The second comprises hours worked outside 6.30 am to 6.30 pm on Mondays to Fridays and 6.30 am and 12.30 pm on Saturdays – see cl 4.1(1)(b). [A particular period might have both qualities, but it does not seem that would give rise to a higher overtime payment entitlement.] These two qualities of overtime are reflected in the phrase "… work done outside or in excess of the ordinary working hours …" in cl 4.2(1) which fixes the rates of overtime payments. 23 Full-time employees are engaged on a weekly basis – see cl 2.1(1). Subject to cl 4.6, the provisions of the Award relevant to weekly employees apply to part-time employees. Consequently, both full-time and part-time employees can be seen to have an actual or ordinary weekly wage. For the former this is based on a 38 hour week. For the latter it will be based on the number of hours agreed upon at the time of engagement – see cl 4.6(1). A significant result of that circumstance is that, when a full-time or a part-time employee works either type of overtime, he or she receives an overtime payment in addition to his or her actual or ordinary weekly wage – see the last sentence of cl 4.2(1). The ordinary weekly wage component falls within the expression "ordinary time earnings" in cl 3.5(3)(d), but the overtime loading does not. [In our opinion the reference to "overtime" in cl 3.5(3)(d) means "overtime payments". That seems to be quite clear from the context, being a definition of a particular species of earnings, and the other types of exclusions being expressed in terms of payments. We reject the submission by counsel for the appellant that "overtime" does not mean "overtime payments".] 24 The situation of casual employees is different. They are paid by the hour. When that hour falls within either category of overtime they are entitled to payment at a higher rate (time and a half for the first 3 hours and double time in excess of 3 hours on any one day). But it is only that increment in the rate, multiplied by the relevant number of hours, which constitutes the overtime payment for the casual employee concerned. The employee has a primary entitlement to be paid for each worked hour at the relevant hourly rate, just as full-time and part-time employees have a basic entitlement to a weekly wage. Then the casual employee has an additional entitlement to an overtime payment, brought about by enhancing the hourly rate. It is only that additional entitlement that may properly be described as an overtime payment. Only that additional entitlement is attributable to the fact that the worked hours are "outside or in excess of" the employee's ordinary working hours. 25 This approach achieves compatibility between the positions of full-time, part-time and casual employees. In each case the overtime payments are excluded from the definition of "ordinary time earnings" in cl 3.5(3)(d). 26 As we see the matter, there is nothing in the definition in cl 3.5(3)(d) which would exclude from "ordinary time earnings" that portion of casual employees' remuneration for working in overtime periods to which they would have been entitled if they had not worked "outside or in excess of" ordinary working hours. 27 The opening words of the definition include the words "means". That may, where appropriate, be construed as "means and includes"; it need not be an exclusive definition. The amount referred to in the first sentence of the definition is expressed in terms of a rate of pay. For casual employees their "… actual ordinary rate of pay [received] for ordinary hours of work …" is an hourly rate calculated by dividing the weekly rate of the appropriate classification by 38 and adding a loading of 19% thereto. In our view, the term "ordinary time earnings for casuals" includes an amount calculated by multiplying that dollar rate by the actual number of hours worked, but does not include any overtime payment. By overtime payment we mean the incremental payment referred to in the fourth sentence of paragraph 24 above. 28 Such a construction may not readily spring to mind on a first reading of cl 3.5(3)(d). However, it is consistent with the obvious purpose of that clause i.e. to include payments for work calculated by reference to ordinary rates of pay (including shift loading, skill allowances and supervisory allowances where applicable), but to exclude overtime and certain other payments not presently relevant. 29 It follows that, when the respondent calculated its contribution obligation in respect of occupational superannuation for its casual employees, it should not have excluded the whole of the payments it made to them for hours worked outside or in excess of ordinary working hours; it should only have excluded such part of those payments as were true overtime payments in the sense explained above. DISPOSITION 30 We would allow the appeal, set aside the orders made at first instance and order that the decision of the appellant made on 10 May 2000, to disallow the respondent's objections dated 20 February 2000, be varied to allow so much of the objections as will result in an assessment being made in accordance with the foregoing reasons. 31 We think it desirable to reserve the question of costs, both at first instance and on the appeal.We are of the preliminary view that an appropriate course would be to make no order for costs, either at first instance or on appeal. We have in mind that our interpretation of the award provides a result that lies between the positions contended for by the parties. 32 If, notwithstanding this preliminary view, either party wishes to seek an order for costs, it should provide written submissions within 14 days. If the opposing party wishes to put submissions in response, it should do so within a further 14 days. I certify that the preceding thirty-two (32) numbered paragraphs are a true copy of the Reasons for Judgment herein of .the Court. Associate: Dated: 28 November 2001 Counsel for the Appellant: J Douglas QC with M Brennan Solicitor for the Appellant: Australian Government Solicitor Counsel for the Respondent: G Martin SC Solicitor for the Respondent: Corrs Chambers Westgarth Date of Hearing: 12 November 2001 Date of Judgment: 28 November 2001