Deidre Fleming v National Mutual Funds Management Limited [1995] IRCA 335

INDUSTRIAL RELATIONS COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY VI 1917 of 1995 B E T W E E N : DEIDRE FLEMING Applicant AND NATIONAL MUTUAL FUNDS MANAGEMENT LIMITED Respondent Before: Judicial Registrar Murphy Place: Melbourne Date: 17 July 1995 REASONS FOR JUDGMENT (EX TEMPORE) REVISED FROM TRANSCRIPT By way of notice of motion, filed 23 June 1995, and returnable at the hearing of the proceeding, the respondent sought to have the application dismissed on the basis that the Court did not have jurisdiction. The respondent's argument on the notice of motion was that the applicant's relevant wages under section 170CD(1) of the Industrial Relations Act (the Act) exceeded the applicable amount, namely $60,000 per annum. The parties agreed that the motion should be determined first and the matter proceeded on that basis. On the notice of motion the Court heard evidence from Kathryn Algie, the Senior Human Resources Consultant of the respondent. She also swore an affidavit on 23 June 1995. The applicant filed an affidavit sworn 13 July 1995. The central issue The evidence in this case revolved around the remuneration entitlements of the applicant under her contract of employment and the extent to which the various elements of her remuneration package came within the term "relevant wages" in section 170CD(1) of the Act. In evidence was the applicant's letter of appointment dated 23 December 1993 as Marketing Communications Manager with the respondent. The letter refers to her commencing employment in early 1994 and read: "2. Remuneration Packaging Your total remuneration package will be $80,000 per annum. The date of your next remuneration review will be 1 July 1994. Subsequent remuneration reviews will carried out at least on annual basis. This may be reviewed from time to time in line with National Mutual Funds Management policy. Your remuneration options are as detailed below. Further details and a remuneration disk for package selection will be provided by Kathy Algie in Human Resources. While the total cost of the remuneration package cannot be exceeded, some of the component parts may be varied to suit individual circumstances. Also, we expect that the package components and costs will change at April 1994 to reflect the change in FBT at that time. Full details of each component is (sic) explained in the Flexible Remuneration Booklet which will be provided to you. In brief, the components are: 2.1 Flexible Items (a) Salary Maximum of 70 per cent of total remuneration, and a minimum of 50%. (b) Expense Allowance This is intended to cover minor incidental expenses, and there is no maximum if the salary is at the 70% limit. Approved general business expenses of a more substantial nature are reimbursed." The letter goes on to provide for other aspects of the package including concessional loans, motor vehicle, expense payment by way of VISA card, clubs and health insurance. It also provides at 2.2 "Superannuation" and provides that the respondent will contribute 9% of the notional superannuation salary to a superannuation fund, that amount not being included in the total package figure. It also provided that employee contributions were 6% of the notional superannuation salary which is "70% of your total remuneration package". Ms Algie gave evidence that she had two meetings with the applicant discussing her remuneration. In her affidavit she says that the first of those meetings occurred on 12 January 1994 in which she explained her options in structuring her superannuation package under the 1994 policy. Exhibit KA2 to her affidavit was the "1994 Flexible Remuneration Packaging Level G" booklet (the booklet) of the respondent. Ms Algie gave evidence that she gave this booklet to the applicant. She also gave her a computer disk that allows the employee to manipulate the individual components of the package. Ms Algie was unable to recall precisely the details of the conversation, but said that she advised the applicant that it was up to the individual as to how to chose the components within the package. She explained that employees are required to have a salary component described as such, which was a maximum of 70% of the remuneration package. The reason for this were the then provisions of the relevant superannuation trust deed. Ms Algie stated that she explained to the applicant, as she did to all employees, that if the various benefits available are not selected, then the difference is a balancing item, namely a cash allowance. Ms Algie's affidavit records that in late January the applicant advised her that she intended to take a motor vehicle as part of her package. On 1 February 1994 Ms Algie and the applicant had another meeting at which the applicant formalised the structure of the salary package applicable to her. That package was to provide a salary of $55,599, provision of a fully maintained motor vehicle paid for by the respondent to the value of $19,699, health insurance paid by the respondent to the value of $1342, and superannuation paid by the respondent to the value of $3360. There was also an agreement to slightly vary some of these components commencing 1 April 1994, consequent upon some changes to the FBT taxation regime. Ms Algie's evidence was that if the applicant had not elected to structure her salary package in accordance with exhibit KA4, which is the detail of the salary package, an equivalent sum would have been paid to her as a cash allowance. The applicant in her affidavit maintained that at no time was it explained to her that it was open to her to exceed the 70% maximum of total remuneration to be taken by way of salary by receiving a cash allowance. She also deposed that at no time did she ever receive more than 70% of her total remuneration by way of salary. Her counsel referred to the ambiguous nature of the reference to the "Expense Allowance" in the letter of appointment and to the fact that it makes no reference to the fact that the whole of the balance of the remuneration package, above the maximum of 70% salary, could be taken as an expense allowance. Ms Algie's evidence was that there were taxation benefits to employees by taking part of their remuneration in the form of a motor vehicle and the other optional items. It was the respondent's primary contention that when the contractual arrangements between the parties are looked at, the applicant had an entitlement to a salary of $80,000 per annum, and that that amount was her relevant wages for the purposes of section 170CD. The applicant's argument, on the other hand, was that her salary was $55,599, as revealed in exhibit KA4, and that this was less than the then statutory maximum of $60,000 per annum. It was contended that the amount of her package constituted by the motor vehicle was a non-pecuniary benefit which could not be considered for the purposes of section 170CD of the Act. The first question to be determined is the content of the employment contract between the parties. I am satisfied that, having regard to the wording of the letter of appointment, which is exhibit KA1, the booklet was incorporated into the contract between the parties. The letter of appointment makes it clear that the details provided in the letter are only a summary, and I am satisfied that, applying an objective test, the booklet was part of the agreement between the parties. When the terms of that booklet are referred to it is clear that the whole purpose of the booklet was to provide options to the employees to make their own choices in order to minimise the incidence of taxation on the total remuneration package. The only compulsory item which must be accounted for within the total remuneration package was the employee superannuation contribution. The balance of the package can be allocated at the discretion of the employee. Appendix 1 of the booklet provides a chart which lists the efficiency (for taxation purposes) of the various remuneration options available. Paragraph 5.2 reads: "5.2 Cash allowance Cash allowance allows you to receive more of your package as cash. It is paid via Payroll, with PAYE tax deducted, and is costed into your package in exactly the same way as salary, (i.e. $1 of cash allowance costs $1 in package). Whilst the allowance does not constitute a part of your superannuation salary for superannuation plan benefit purposes, it will be used in determining your Highest Average Salary for Reasonable Benefit Limit purposes. Cash allowance is an optional item and is used to balance your remuneration package after all other benefits have been taken into account. 5.3 Superannuation Superannuation is a fixed and compulsory package component." It then goes on to detail the superannuation arrangements. Relevant cases I was referred to a number of authorities on the meaning of relevant wages within the terms of section 170CD. Cases such as Brown v Listaglen Pty Limited (Industrial Relations Court of Australia, Murphy JR, 21 December 1994), Glenis v Heller Financial Services Limited (Industrial Relations Court of Australia, Murphy JR, 24 May 1995) and Watson v Royal Selangor (Aust) Pty Limited (Industrial Relations Court of Australia, Parkinson JR, 4 July 1995) are not of direct assistance, as they did not consider the issue of relevant wages in the context of a total remuneration package, as distinct from a package which consisted of wages and additional benefits, such as commission. The leading authority on this matter is Ardino v Count Financial Group Pty Limited (1994) 1 IRCR 221 where the provision was considered by Wilcox CJ. In Ardino, the Court considered a number of payments made on behalf of an employee. One of those payments was made to a superannuation fund at the direction of the employee. This was held to be part of his relevant wages because he had an entitlement to those moneys. In the course of his consideration of the issues, Wilcox CJ distinguished between wages and a payment pursuant to a binding antecedent obligation. At 228, he said: "I should say, however, that I do not think it is right to exclude the superannuation payments. I agree with counsel that the definition of "relevant wages" is concerned only with payments that are wages, strictly so-called. I do not think it includes payments made by an employer on behalf of an employee pursuant to a binding antecedent obligation, whether statutory or contractual. It is now commonplace for employers to make payments to a superannuation fund in respect of individual employees. This is usually because of a statutory obligation to that effect, sometimes because of a binding contractual obligation. If the situation is that the employer never had any option but to pay particular moneys to a superannuation fund, as distinct from making it available to the employee, the payment cannot properly be described as "wages" ... I appreciate, of course, that an employer's obligation to make a payment that the employee was never contractually entitled to receive may have arisen out of negotiations between the employer and the employee as to the terms and conditions of employment. Ordinarily, I suppose, these negotiations will have preceded the commencement of the employment; but sometimes terms and conditions of employment are renegotiated during the course of the employment. The parties may agree that the employer will provide non-pecuniary benefits, such as use of a car or overseas travel, or make payments to someone else, such as for superannuation or school fees. The effect of that agreement may be to diminish the periodical payments made direct to the employee. Part of what might have been available to the employee as salary is diverted elsewhere. I do not think any of this matters. The question is not the genesis of the obligation, but its nature. In relation to non-pecuniary benefits, I cannot see how they can ever be regarded as "wages" for the purpose of the definition. The word "wages" is not defined in the Industrial Relations Act, so in section 170CD it bears its ordinary meaning. The Shorter Oxford English Dictionary defines "wage" as: "A payment to a person for service rendered; now esp the amount paid periodically for the labour or service of a workman or servant." The Macquarie Dictionary gives the primary meaning of "wage," noting that it is often plural, as "that which is paid for work or services, as by the day or week, hire, pay". I think these definitions' emphasis on payment makes it difficult to argue that benefits that do not take the form of money payments are "wages". So far as money payments are concerned (superannuation, school fees etc), the critical question is whether the employee ever had an entitlement to receive the money himself or herself. If the contractual arrangement between the employer and employee was that the money would be paid to someone else as soon as the occasion arose, to the exclusion of any right of the employee to obtain payment, the money was not something that the employee received or was entitled to receive. He then refers to an earlier payment on behalf of the employee by the employer to a superannuation fund, and puts that payment in that category. It is clear that the way to approach the matter is to consider first what were the wages of the employee. Here, having regard to the letter of appointment and the booklet, the wages of the applicant, being the payment due for the services which she was to render, were $80,000 per annum. Except for the amount of the employees superannuation contribution, she was entitled to receive that amount in cash. She chose for personal, and presumably, taxation considerations, to accept her package in the form of an amount described by the parties as salary, provision of a motor vehicle, and payment of health insurance. The fact that part of her total package was accepted by her as a non-pecuniary benefit, does not alter the fact that the benefit arose by reason of a legal obligation on the respondent to pay her a total amount of remuneration of $80,000 per annum. The position then is within that discussed in Ardino (above), because the amount expended on the motor vehicle was "part of what might have been available to the employee as salary". It has been diverted to a motor vehicle by the applicant, just as the salary payments of Mr Ardino were diverted by him to a superannuation fund. The position then is different than that where an employee might be entitled to a non-pecuniary benefit such as a car which could not be converted to cash (Cf Glenis (above)). Here, the parties have first agreed on a total remuneration package, and the respondent has, except for the superannuation amounts, given the applicant the option as to the amount of cash which she is to receive. When the matter is considered in this way, it is proper to characterise the whole of the remuneration package, except the superannuation, as relevant wages. The superannuation is properly excluded on the authority of Ardino (above) because of the contractual arrangements between the parties. In Brown (above), I said: It is probably the case however that the terms "wages" and "salary" are in many instances interchangeable, particularly when section 170(1) (sic) provides a maximum amount of "relevant wages" of $60,000. The concepts of commission and bonus have a different meaning in general usage, and that meaning is not encompassed in the ordinary meaning of the term "wages". Here it is proper to regard the applicant as being entitled to a salary of $80,000, and that proportion of the salary which she was entitled to convert to cash is the amount of her "relevant wages". It follows from this that I am satisfied that the "relevant wages" of the applicant exceeded the jurisdiction of the Court under section 170CD. Having made this finding, it is unnecessary for me to consider the respondent's alternative argument that the "relevant wages" exceeded $60,000 per annum by reason of the addition of some amounts of accrued annual leave which were paid to the applicant upon the termination of her employment. I propose to allow the notice of motion and to dismiss the application. MINUTES OF ORDERS THE COURT ORDERS: 1. The Notice of Motion is allowed and the application dismissed. I certify that this and the preceding eleven (11) pages are a true copy of the reasons for judgment of Judicial Registrar Murphy. Associate: Dated: Solicitor for the Applicant: Gadens Ridgeway Counsel for the Applicant: Mr C. O'Grady Solicitor for the Respondent: John Lunny & Associates Counsel for the Respondent: Mr B. Lacy Date of hearing: 17 July 1995 Date of judgment: 17 July 1995