Janine Ruth Andersen v The Over 50's Friendly Society [1995] IRCA 646

INDUSTRIAL RELATIONS COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY VI 3735 of 1995 B E T W E E N : JANINE RUTH ANDERSEN Applicant AND THE OVER 50'S FRIENDLY SOCIETY Respondent Before: Judicial Registrar Millane Place: Melbourne Date: 30 November 1995 REASONS FOR JUDGMENT On 10 July 1995 the applicant made an application in this Court seeking both reinstatement and compensation in connection with the alleged unlawful termination of her employment by the respondent on 26 June 1995. The abovementioned matter was fixed for hearing on 29 and 30 November together with a preliminary application by the respondent by way of Notice of Motion seeking :- 1. That the application of the applicant be dismissed on the grounds that the relevant wages of the applicant determined in accordance with section 170CD of the Industrial Relations Act 1988 on the termination day of the applicant exceeded the applicable amount as prescribed by section 170CD(2) of the Act. 2. That the applicant pay the costs of the respondent of and occasioned by the application. On the return date there was a preliminary dispute between the parties concerning the provision of discoverable documents pursuant to an order made at the last directions hearing. This dispute was resolved with the making of interim orders to enable the parties to exchange documents overnight and file any further affidavit material dealing with the Notice of Motion. It should also be noted here that the applicant sought on the first return date to amend her application to include a claim under the Court's associated jurisdiction (see s.430). Such application was deferred pending the outcome of the respondent's Notice of Motion challenging the jurisdiction of the Court to hear the primary claim. SECTION 170CD OF THE INDUSTRIAL RELATIONS ACT 1988 (the Act) The essential elements of the abovementioned section are set out as follows: s.170CD(1) The following Subdivisions do not apply to a termination of employment of an employee who is not employed under award conditions if: (a) in respect of an employee who was continuously employed by the employer during the period of 12 months immediately before the termination day - on the termination day the employee's relevant wages exceeded the applicable amount; or ... (2) The applicable amount for the purposes of subsection (1) is: (a) subject to paragraph (b), $60,000; or (b) if regulations made in accordance with Subdivision CA prescribe a formula for the annual indexation of the amount referred to in paragraph (a) - the amount worked out using the formula as it applies from time to time. (3) For the purposes of this section, an employee is taken not to be employed under award conditions if wages and conditions of employment of the employee are not regulated by one or more relevant awards that bind the employer of the employee. (4) In this section: ... "relevant wages", in relation to an employee, means the total amount of the wages that the employee received, or was entitled to receive, from the employer in respect of: (a) if paragraph (1)(a) applies to the employee - the period of 12 months referred to in that paragraph; or ... but, in relation to an employee whose contract of employment prescribes normal hours for the performance of work (whether by prescribing the number of hours in which, or the times at which, work is normally to be performed in a particular period), does not include any wages, additional to normal wages, in respect of additional hours of work performed or in respect of work performed at other times; ... In determining the relevant wage for the purposes of the abovementioned section, the respondent employer relied on the decision of Judicial Registrar Murphy in Fleming v National Mutual Funds Management Ltd (unreported, No. VI 1917 of 1995, 17 July 1995) in which the Judicial Registrar, when considering facts not dissimilar to those in the present case, said at page 10 of his decision: "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 was the employer's case that the lastmentioned decision correctly interpreted the approach adopted by Chief Justice Wilcox in Ardino v Count Financial Group Pty Limited (1994) 126 ALR 49 for determining what a relevant wage is. The salients parts of Ardino's case are contained in the following observations made by the Chief Justice in arriving at his decision: "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 common place for employers to make payments to a superannuation fund in respect of the 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 monies to a superannuation fund, as distinct from making it available to the employee, 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 proceeded 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 directly 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. ... ... 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 the 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." ... In Ardino's case His Honour found on the facts that payments made to a superannuation fund were made to that fund instead of the applicant employee because he had chosen to divert those funds to the superannuation fund and not because there was any pre-existing contractual obligation between the employer and the employee for those monies to be paid to the superannuation fund. In other words the employee caused the funds to be received elsewhere when in fact he was contractually entitled to receive those funds himself. Essentially, each case must be decided on its facts. However having heard the evidence from the parties and read the affidavits filed with the Court, I concluded that the applicant at the date of termination had a relevant wage in excess of the $60,000 limit placed on this Court's jurisdiction as at 26 June 1995. On the return date I made the following orders, indicating to the parties that the reasons for the making of these orders would be published subsequently: 1. The respondent's Notice of Motion is - (a) allowed insofar as it relates to the dismissal of the applicant's application; and (b) dismissed in respect to its application for costs. 2. The applicant's - (a) application pursuant to s.170EA of the Industrial Relations Act 1988 is dismissed; and (b) her further oral application to add a claim under the Court's associated jurisdiction is dismissed. THE FACTS In support of its Notice of Motion the respondent filed an affidavit sworn by Julie Maree Duffy (Duffy) on 14 November 1995. Duffy also gave sworn evidence confirming the contents of her affidavit and expanding on other matters. Terence David Reid, the respondent's Public Officer and General Manager, was called to give evidence explaining amendments to the applicant's most recent Group Certificate, however, it would be fair to say that his evidence did not go to the heart of the dispute between the parties. In summary Duffy, who is the General Manager, Human Resources for the respondent, was responsible for the hiring of the applicant, the determination of terms of her employment including the amount and the component parts of the remuneration paid to her in or about June 1993. On 16 April 1993 the respondent advertised in the Financial Review for a person to work in "Account Management & Mortgage Lending". So far as salary was concerned the advertisement said "Package widely negotiable $65,000" (see Exhibit R1). The applicant responded to the abovementioned advertisement and it is not contested that there was discussion of her job requirements with both Duffy and Neil McPhie prior to her being employed. In her evidence-in-chief the applicant did refer to some discussions with another employee, Lauren Powell, although it seems clear that the final discussions in relation to the components of her package were held with Duffy. Exhibit JMD1 to Duffy's affidavit is a copy of a letter written by Duffy to the applicant formalising the respondent's offer of a position with the respondent, stating: "We offer you a total cost remuneration package of $69,000 per annum to be allocated as you so choose within the perimeters of our salary packaging system. ... You will immediately enter the Society's superannuation fund, with 5% of the total of your PAYE salary and nominated benefits being contributed on a monthly basis by the Society, and as a condition of employment, a 5% contribution by yourself. The total contribution of 10% is included in your total cost package as noted above." In confirmation of her acceptance of the offer the applicant signed the abovementioned letter on 11 June 1993. In practice, in offering employment the respondent determines a total employment cost figure which includes all costs associated with the employment of an employee; for example, the payment of payroll tax and workcover premiums. On the evidence it also appears that the package includes items such as the payment of fringe benefit tax where an employee makes an election to take items offered by the respondent as part of the package. For instance, Exhibit R2 has attached to it a document setting out items that may be included in an employee's package such as travel, motor vehicle, entertainment, insurance and home expenses. Some of those items attract fringe benefit tax. That tax would be payable out of the gross salary package agreed upon. The evidence given was that by offering the package the respondent hoped to allow employees an opportunity to arrange their salaries in a financially advantageous way and, thereby, make the job offered attractive to potential employees. In other words, if an employee could opt to have part of the salary package paid towards the leasing and expenses of a motor vehicle as well as a home loan, the employee receives less cash and pays less PAYE tax. Clearly employees have different financial requirements and the packages formulated depend on the individual employee directing the respondent to allocate cash from the salary package to different areas of benefit. It was the respondent's uncontested evidence that in practice (as well as in the applicant's case) in the first week of the financial year employees who are entitled to opt for packaging of their salaries meet with the respondent (in this case Duffy) and give instructions to the respondent on the package options selected for the forthcoming year. With a motor vehicle this involved, amongst other things, estimating the expenses of the year ahead. If there is a surplus of monies at the end of the financial year this money is returned to the employee as a cash payment. The applicant, who opted for the payment of her home loan and motor vehicle expenses, exercised these options at the commencement of the financial year in which her employment was terminated. It was agreed by Duffy in cross-examination that she had no independent recollection of her meetings with the applicant in 1993 at the time the applicant was engaged to work for the respondent. Notwithstanding her failure to recall details of the these meetings, it is clear from the applicant's answers to questions put to her in cross-examination that in order to obtain some tax benefit for the vehicle her company then owned, she accepted an option to package the vehicle as part of her salary package. That entailed having the respondent pay the existing lease on the vehicle, acquire ownership of the vehicle and out of the applicant's salary package, pay the lease and other expenses associated with the motor vehicle in each financial year. Whilst the applicant would have preferred another arrangement for her motor vehicle; namely the payment of an allowance to her for using her own vehicle such arrangement was not part of any package options offered by the respondent when her employment contract was negotiated. The applicant agreed that she could have elected to receive the money that was ultimately allocated to motor vehicle expenses in each financial year of her employment as cash and it would have formed part of the gross income referred to in her Group Certificate in the financial years ending 30 June 1994 and 1995. Once the applicant decided on pursuing the tax advantages involved in accepting the option to package her motor vehicle she was required to end her private leasing arrangements through her own company and take steps to transfer the vehicle to the respondent. Nevertheless, the evidence shows that having elected to include motor vehicle expenses as part of her package entitlements the applicant could at any time reverse that process without penalty and with the prospect of receiving any outstanding cash balance. At the date of termination it is not contested that the applicant's gross package was $76,000. At 26 June 1995 because of choices made to divert a portion of her gross salary entitlement to motor vehicle expenses and a home loan repayment; not to mention the costs of payroll tax, workcover expenses and superannuation contributions deducted from the gross amount, the Group Certificate representing the financial year ending 30 June 1995 shows a salary of $53,035.68. The 12 month period preceding the termination is in fact 27 June 1994 to 26 June 1995. Making the appropriate adjustment the respondent has calculated, and I accept this calculation as being accurate, the applicant's wages for the lastmentioned 12 month period as being $63,801.91. The respondent arrives at this gross figure by using the package salary sum of $76,000 and only deducting what it refers to as on-costs (that is to say the workcover payments and payroll tax payments) and the 10% superannuation payment, not the optional items such as the motor vehicle expenses and the loans paid by the respondent at the applicant's request. The figure arrived at is in excess of $60,000 and the respondent contends it represents the sum the applicant was entitled to receive; that is to say her relevant wages. On the evidence I am satisfied that the relevant wage exceeded the $60,000 ceiling applied by the Act before indexation on 1 July 1995. In my view it cannot be said that there was any binding antecedent obligation (statutory or contractual) on the employer to make the additional payments on behalf of the applicant in respect of the motor vehicle and the loan expenses. The applicant accepted an offer of employment which gave her an entitlement to package cash payments of wages and even after the employer met any statutory or contractual obligations to make payments such as superannuation contributions that entitlement exceeded $60,000. After the commencement of the financial year in which the termination occurred the applicant directed the employer to divert some portion of that salary entitlement to the payment of motor vehicle benefits and a home loan. COSTS Chief Justice Wilcox said in Kanan v Australian Postal & Telecommunications Union (1992) 43 IR 257 at pages 264-265: "It seems to me that one way of testing whether a proceeding is instituted "without reasonable cause" is to ask whether, upon the facts apparent to the applicant at the time of instituting the proceeding, there was no substantial prospect of success. If success depends upon the resolution in the applicant's favour of one or more arguable points of law, it is inappropriate to stigmatise the proceeding as being "without reasonable cause". But where, on the applicant's own version of the facts, it is clear that the proceeding must fail, it may properly be said that the proceeding lacks a reasonable cause." The abovementioned test is an appropriate one to apply to this case. A number of arguable points of law relating to the characterisation of the terms of the contract of employment were put to the Court. The decision of the Judicial Registrar is a useful guideline but not a binding precedent; nor is it pre-emptive of any further argument both on the law and the facts. In the circumstances, I refused the respondent's application for the payment of its costs pursuant to s.347 of the Act. It follows that because of the failure of the primary application, the applicant's oral application to amend her claim to include a claim under the Court's associated jurisdiction was also rejected. MINUTES OF ORDERS THE COURT ORDERS THAT: 1. The respondent's Notice of Motion is - (a) allowed insofar as it relates to the dismissal of the applicant's application; and (b) dismissed in respect to its application for costs. 2. The applicant's - (a) application pursuant to s.170EA of the Industrial Relations Act 1988 is dismissed; and (b) her further oral application to add a claim under the Court's associated jurisdiction is dismissed. NOTE: Settlement and entry of orders is dealt with by Order 36 of the Industrial Relations Court Rules. I certify that this and the preceding ten (10) pages are a true copy of the reasons for judgment of Judicial Registrar Millane. Associate: Dated: 12 December 1995 Solicitors for the Applicant: Home Wilkinson Lowry Counsel for the Applicant: Mr L. Mahr Solicitors for the Respondent: Purves Clarke Richards Counsel for the Respondent: Mr T. Ginnane Date of hearing: 29 & 30 November 1995 Date of judgment: 30 November 1995