SUPREME COURT OF NORFOLK ISLAND Hare v Pitcher [2008] NFSC 2 EMPLOYMENT – appeal from decision of Employment Tribunal – appellant employee claimed respondent employer had not paid entitlements in accordance with employment contract and minimum statutory requirements – Tribunal erred in finding entitlements were included in ordinary rate of pay, and in finding entitlements were paid at or in excess of agreement – appeal allowed Employment Act 1988 (NI) ss 11, 12, 15, 16, 17 RICHARD BOWES HARE v DAVID KENDAL PITCHER SC 1 OF 2007 JACOBSON ACJ 3 JULY 2008 SYDNEY IN THE SUPREME COURT OF NORFOLK ISLAND SC 1 OF 2007 ON APPEAL FROM THE EMPLOYMENT TRIBUNAL CONSTITUTED BY MAGISTRATES K SMITH, A F BUFFETT AND E SANDERS BETWEEN: RICHARD BOWES HARE Appellant AND: DAVID KENDAL PITCHER Respondent JUDGE: JACOBSON ACJ DATE OF ORDER: 3 JULY 2008 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The appeal be allowed. 2. The decision of the Employment Tribunal be set aside. 3. The respondent pay the appellant the sum of $3,029.86 for outstanding entitlements. 4. The respondent pay the costs of the appellant limited to any disbursements reasonably incurred in the conduct of the appeal. IN THE SUPREME COURT OF NORFOLK ISLAND SC 1 OF 2007 ON APPEAL FROM THE EMPLOYMENT TRIBUNAL CONSTITUTED BY MAGISTRATES K SMITH, A F BUFFETT AND E SANDERS BETWEEN: RICHARD BOWES HARE Appellant AND: DAVID KENDAL PITCHER Respondent JUDGE: JACOBSON ACJ DATE: 3 JULY 2008 PLACE: SYDNEY REASONS FOR JUDGMENT Introduction 1 This is an appeal from a decision of the Employment Tribunal dated 31 January 2007. 2 The appellant, Mr Hare, was employed by the respondent, Mr Pitcher for a period of approximately three years from September 2003. Mr Hare claimed his leave entitlements were incorrectly calculated. The Tribunal held, however, that: The decision of the Tribunal is that the contract between the applicant and the respondent is valid. In accordance with the contract, the applicant was paid at or at more than the agreed rate for work performed and that rate included his entitlements. 3 Mr Hare appeals from the whole of the Tribunal's determination. 4 The Notice of Appeal sets out five grounds of appeal, but the appellant makes two main contentions. First, Mr Hare submits that the Tribunal erred in finding that his rate of pay included his entitlements. Second, the appellant submits the Tribunal erred in finding that the appellant was paid at or more than the agreed rate for work performed. The Contract 5 On 9 September 2003 Mr Hare and Mr Pitcher signed a written employment contract under which Mr Pitcher engaged Mr Hare to work for him as a joiner. 6 The contract was made under the Employment Act 1988 (Norfolk Island). It is headed "Minimum Standard Employment Contract" and is in a standard, pre-prepared form with blank spaces to be completed specifying the employee's hours of work, rate of pay and other applicable conditions. 7 Under the heading, as part of the standard form, the following words appeared: "employees are entitled to the terms and conditions prescribed in the Employment Act 1988" 8 Clause 3 is headed "Hours of Work". It makes provision for the applicable hours to be completed for each day of the work week. The blanks have been completed to provide for Mr Hare to work eight hours a day, five days a week. 9 Clause 4 is headed "Wages". Clause 4.1(a) states that the "Ordinary rate of pay shall be …". The blank space for the rate per hour has been completed with the figure $15 which is therefore the ordinary rate of pay stipulated in the contract. This figure was later increased: see below at [ ]. 10 Clause 4.1(b) of the standard form contract used provided: "Entitlement shall be additional and accrued □ OR Not be accrued and paid each pay period. □" 11 The box next to the line "Not be accrued and paid each pay period" was checked, and in the course of the proceedings before it, the Tribunal asked both Mr Hare and Mr Pitcher to confirm that it was the second box which was checked. 12 Clause 5.1 is in the prescribed form with no blanks. It provides for the employee to be entitled to annual leave of three ordinary working weeks in accordance with the Employment Act. 13 Clause 6 is also in the prescribed form with no alterations. It is headed "Sick leave". It provides relevantly: "6.1.(a) The Employee is entitled to a minimum of one normal working week paid sick leave per annum in accordance with the provisions of the Employment Act 1988. 6.2.(a) Unless agreed otherwise in this Contract, sick leave may only be taken where: Ø The Employee is sick; or Ø The Employee's spouse, dependent child, or dependent parent is sick; …" 14 The parties' objective understanding at the time of execution of the contract was that it was "otherwise agreed" between them that Mr Hare was entitled to five days sick leave regardless of whether he was actually ill. 15 This does not contravene s 11 of the Act: see s 11(2) of the Act. 16 Moreover, before the Tribunal and on appeal, the parties approached the matter on the basis that the contract was partly written and partly oral, so that no issue arises as to the application of the parol evidence rule. The evidence before the Tribunal 17 Mr Hare and Mr Pitcher gave evidence before the Tribunal. Each gave his account of the factual background and explained the respective arguments for and against the claim. 18 Mr Hare told the Tribunal that he had a discussion with Mr Pitcher before he signed the contract in which Mr Hare said his hourly rate was to be $15 per hour for a trial period, then going up to $16 per hour. He said: "At no time during our conversation was it mentioned that my leave would be paid at anything less than my agreed hourly rate of fifteen dollars …" 19 Mr Hare also said that Mr Pitcher told him in the conversation prior to signature of the contract that he would be paid five days sick leave in addition to his three weeks annual leave. He said that Mr Pitcher told him that he (Mr Pitcher) "would put five days into it". That is to say, Mr Hare was to be paid five days sick leave regardless of whether he was ill. 20 Mr Pitcher's evidence as to the hourly contract rate of $15 was that he told Mr Hare that the amount was comprised of two components. The first was a minimum hourly rate of $8.50 which was the minimum rate prescribed by the Employment Act. The second was $6.50 as: "…an allowance loading or bonus … for every productive hour worked." 21 Mr Pitcher went on to explain that for annual leave, public holiday leave and sick pay, entitlements were to be calculated on the minimum wage, that is, $8.50 per hour, rather than the total of $15 per hour. However, he said that, in fact, these entitlements were calculated on a rate of $12 per hour, apparently as a gesture of goodwill to Mr Hare. 22 Later, Mr Pitcher said that the "only error was to write fifteen dollars on the contract to protect the employee". However, in an exchange with a Tribunal member he accepted that he was bound by the contract that he signed and that it specified $15 as the hourly rate of pay. 23 It was common ground between Mr Hare and Mr Pitcher that Mr Hare was paid $59 per week throughout the period of his contract to cover his entitlements. It is clear enough that the entitlements which were paid were for annual leave, public holiday leave and sick leave, but they were apparently calculated on the rate of $12 per hour rather than $15 per hour. Whether the Appellant's rate of pay included his leave entitlements 24 It is not precisely correct to say the Tribunal found Mr Hare's hourly rate included his entitlements; in fact, the Tribunal found that "both parties agreed" this was the case. This finding is contrary to what was submitted at the hearing. Indeed, it was the complete absence of agreement on this issue which founded the proceedings, and the transcript of the Tribunal hearing shows that neither party understood Mr Hare's hourly rate to include his entitlements. 25 At the hearing before the Tribunal, Mr Hare relied on the written contract of employment, and gave sworn evidence that: "leave entitlements for the year…[were apportioned] weekly and…paid in addition to [his] weekly wage." 26 In addition, the Tribunal specifically put the following to the Applicant: "Mg. Smith: You didn't accept that it [i.e. the leave entitlement] was included in the $15 an hour. Mr Hare: No I didn't. I didn't accept that my leave entitlement was included in $15 an hour." 27 Nor did the respondent ever give evidence that he agreed Mr Hare's hourly rate included his entitlements; rather, Mr Pitcher's position was that Mr Hare's entitlements were calculated on $12 per hour rather than his ordinary rate of $15 per hour, and that there was some understanding between the parties to this effect. 28 I will return to the issue of the terms of the contract later. At this point it is sufficient to note the Tribunal erred in its finding that: "Both parties agree that the entitlements were included in the applicant's [appellants] hourly rate." 29 This ground of appeal is upheld. Whether the Tribunal erred in finding the Appellant was paid in accordance with the contract 30 The appellant submits the Tribunal erred in finding the Applicant was paid at or more than the agreed rate for work performed and that that rate included his entitlements. 31 This ground of appeal turns on a comparison between the terms of the employment contract, and that which was actually paid. 32 The oral and written evidence before the Tribunal was that the appellant was initially paid $15 per hour, and that this rate increased to $16 per hour, then $17 per hour and $17.50 per hour. In addition, the appellant received $59 per week during the entire period of his employment as payment for entitlements. None of this was controversial. 33 I now turn to the contact of employment between the parties (the written part of which was Exhibit 1 before the Tribunal). Pursuant to cl 4.1(a) of that contract, Mr Hare's ordinary rate of pay was $15 per hour, and the evidence of both parties is that this term was varied by agreement over the period of employment. 34 While it is not entirely clear from the Tribunal's reasons, the interchange between the Tribunal and the parties referred to at [11] above is the closest I can come to understanding the Tribunal's finding that both parties confirmed that the contract showed the entitlements were included in the hourly rate. It seems the Tribunal interpreted the absence of a check in the first box as removing from cl 4 the words "Entitlements shall be additional", and that this constituted an agreement that they would be included in the ordinary hourly rate. 35 If this was the Tribunal's understanding, it amounted to an error of law. Such an interpretation would be contrary to the statutory provisions which regulate an employee's entitlement to annual leave and sick leave. 36 The Actsets minimum leave entitlements which are referable to an employee's ordinary rate of pay or gross earnings, and no provision of the Act allows parties to contract out of these minimum leave entitlements: ss 12, 15, 16 and 17 of the Act; (cf. the obligations in Div 3 of Pt 2 of the Act, which may be varied by agreement). 37 On this issue, the Tribunal seems to have proceeded on the mistaken assumption that the minimum entitlements under the Act were tied to the statutory minimum hourly rate of $8.50 per hour (s 14 of the Act), rather than to the employee's ordinary hourly rate as fixed by the contract. This is plainly not the case. Sections 15, 16 and 17 of the Act, set out below, specify that minimum entitlements are calculated by reference to an employee's ordinary rate of pay and actual gross earnings; those provisions make no reference to the minimum hourly rate. Leave entitlements are calculated in such a way that they must be additional to rather than included in ordinary pay, though of course they may be paid weekly or monthly, rather than accrued and paid in a lump sum. 38 It is true that in some cases, such as the present, the entitlement provisions of the Act are framed in such a way that it may be difficult for employers and employees to know in advance the exact amount of entitlements which will be owed. Nonetheless, estimates can be made for the purposes of paying entitlements by instalments, and a reconciliation done at the end of a term of employment to correct for any over- or under-payment. 39 The contractual terms relating to Mr Hare's leave entitlements are thus found in the Act, and are incorporated into employment contracts by s 12. The Act stipulates that the minimum leave entitlements required by law are, relevantly, annual leave (s 15), public holiday leave (s 16) and sick leave (s 17). The relevant parts of those provisions are as follows: Annual holidays 15. (1) If an employee — (a) has continuously served an employer during the preceding year; and (b) at the end of the year, is employed by the employer on a regular basis, the employer — (c) must give the employee leave of not less than the number of days that the employee would work in three ordinary working weeks; and (d) must give the employee that leave on days on which the employee would ordinarily work; and (e) must pay the employee an equal amount in respect of each day of that leave, so that the total amount paid under this paragraph is not less than six per cent of the sum of the employee's gross pay during that year; and (f) pay the employee for a period of leave before the commencement of that period. Penalty: 20 penalty units. (2) If subsection 15(1) does not apply, an employer must not later than — (a) the end of each year of continuous service; or (b) the termination of the employee's service, (whichever occurs first) pay the employee (as a holiday entitlement) not less than six per cent of the sum of the employee's gross pay during that year. Penalty: 40 penalty units. … Public holidays 16. (1) An employer must, in respect of each public holiday for an employee that occurs on an ordinary working day of the employee — (a) if the employee does not work on the public holiday — (i) pay the employee at not less than the employee's ordinary rate of pay for the ordinary hours normally worked by the employee on that day, had it not been a public holiday; and (ii) give the employee a day's leave on the holiday; … Penalty: 20 penalty units. … Sick leave 17. (1) An employer must, if an employee is absent from work by reason of ill health — (a) give the employee leave in respect of that absence; and (b) pay the employee at not less than the employee's ordinary rate of pay for the ordinary hours that the employee normally would have worked had the employee not been absent. Penalty: 20 penalty units. (2) An employee's entitlement under this section in respect of a period of continuous employment accrues — (a) in respect of leave at the rate of not less than one fiftieth of the sum of the period worked by the employee during that period of employment; and (b) in respect of pay at the rate of not less than one fiftieth of the sum of the employee's gross pay for that period of employment (including pay for holidays but not including pay for hours worked in excess of the working week applicable to the employee). (3) Despite the other provisions of this section, an employer is not required under this section to – (a) in any year of employment of an employee, give the employee leave, or pay the employee, in respect of a period, or periods, of absence by reason of ill health of longer than the working week applicable to the employee; or (b) give an employee leave, or pay an employee, in respect of an absence lasting more than one day, unless the employee, within a reasonable period, provides the employer with a certificate signed by a medical practitioner stating that the employee was or will be, in the opinion of the medical practitioner, unfit, by reason of ill health, to work during that period. (4) In subsection 17(3) – "year of employment", in respect of a period of employment of an employee, means – (a) the period of one year commencing on the date of commencement of that employment; or (b) each subsequent period of one year. Annual holiday leave entitlements 40 Under s 15 of the Act, Mr Hare's minimum annual leave entitlements amounted to not less than six per cent of his gross earnings for the previous year or part thereof. (As three weeks is less than six percent of one year, s 15(1)(e) requires that entitlements be calculated as six per cent of gross earnings). 41 Although Mr Hare made submissions to the contrary, "gross earnings" must be understood to be exclusive of entitlements. This is consistent with the ordinary meaning of the term, and avoids a circular definition: cf. ss 15 and 17(2) of the Act. However, the term "gross earnings" does, to my mind, include hours worked in excess of the employee's ordinary working week. 42 Mr Hare's pay records indicate a period of employment of three years and two months, during which he worked some overtime which was paid at the correct rate of pay. The pay records indicate he received ordinary pay in the amount of $95,120.50. Accordingly, his minimum statutory annual leave entitlement for the entire period of employment is $5,707.23. Public holiday leave entitlements 43 Section 16 of the Act specifies the minimum entitlement for public holiday leave. The amount of the entitlement is conditional upon whether or not the employee works on the public holiday, and whether or not the employee would ordinarily work on that day. The parties proceeded on the basis that Mr Hare did not work on any public holiday. 44 Clause 7.1(a) of the contract sets out the 12 public holidays observed on Norfolk Island. Cross-referencing the dates on which public holidays fell during the period of employment with Mr Hare's pay records, the public holiday leave entitlements comprise one day at $15 per hour for 8 hrs; 11 days at $16 per hour for 8 hours; 19 days at $17 per hour for 8 hours and 6 days at $17.50 per hour for 8 hours. (It is assumed that where a public holiday falls on a weekend, e.g. New Year's Day, a public holiday is observed on a weekday in lieu thereof). 45 Mr Hare's total statutory public holiday leave entitlement for the period of his employment was thus $4,952. Sick leave entitlements 46 Under cl 6 of the contract, Mr Hare was entitled to one normal working week of paid sick leave per annum. Clause 6.2(a) provided that sick leave could only be taken in particular circumstances (ie. those characterised by illness). 47 However, the opening words of cl 6.2(a) left open the possibility for the parties to reach agreement that Mr Hare would be entitled to sick leave whether or not he was actually ill. The relevant words are "unless agreed otherwise in this contract". 48 The contract itself did not contain a written clause providing for Mr Hare to be entitled to sick leave otherwise than in the case of illness. Nevertheless, that was the effect of his evidence to the Tribunal about his pre-contractual discussion with Mr Pitcher. 49 Moreover, the effect of Mr Pitcher's evidence was also that Mr Hare would be entitled to sick leave regardless of whether he was ill. The entire thrust of his evidence was that sick leave was payable at $12 per hour, not at the $15 rate specified in the contract. 50 Whilst this issue is not entirely without difficulty, it seems to me that the preferable view is that the parties "agreed otherwise" that sick leave was payable whether or not Mr Hare was actually ill. 51 Once this is accepted, it follows that sick leave was payable at the "ordinary rate of pay" as required by s 17 of the Act. It was therefore to be calculated at the rate of $15 per hour (and such higher rates as were applicable over the period of employment). 52 Neither party submitted that any issue arises under s 17(2), and so I do not need to address that point. At any rate, it would seem that in this case, s 17(3) overrides s 17(2). Section 17(3) limits Mr Hare's sick leave entitlement to one 40-hour week entitlement per annum, accrued at an equal rate over the course of each year. 53 On the basis that this five day entitlement accrued at an equal rate over the course of each year, I find that Mr Hare's sick leave entitlement amounted to $2,129.23. (The calculation set out in the Appendix to my reasons for judgment). Mr Hare's total employment entitlement 54 For the total period of employment, I find that under the contract between the parties, Mr Hare's combined employment entitlements amounted to $12,788.46. 55 As noted above, the appellant did receive payment of $59 per week in respect of his entitlements during the course of employment, being 165.4 weeks. From this I infer that he received $9,758.60. (The appellant's written submissions suggest the amount paid was $9,205, but there seems to be an error in this calculation). 56 Accordingly, the appellant was actually paid $3,029.86 less than the amount owed under the contract in respect of his entitlements. The Tribunal erred in finding to the contrary. Mr Pitcher's submissions 57 Mr Pitcher's submissions to the Court are based on a mistaken understanding of the contract. Once it is accepted that entitlements were not included in Mr Hare's ordinary rate of pay, it followed from ss 15 and 16 of the Act that he was entitled to annual holiday pay and payment in respect of public holidays upon the basis of the $15 rate specified in the contract (and such higher rates as were applicable over the period of employment). 58 Indeed, the Tribunal clearly understood Mr Pitcher's statement that "the only error was to write $15 on the contract" to be a statement of his subjective intention, which would not enable him to re-write the contract. As one of the Tribunal members said to Mr Pitcher in the course of his evidence: "a contract is a contract, not what you think in your head." 59 The issue as to Mr Hare's sick pay entitlements also turned upon Mr Pitcher's mistaken view that they were to be calculated on the $12 figure. As I have said above, it seems to me to follow from the parties' oral evidence that the effect of this agreement between them was that this was to be payable on the ordinary rate of pay, without the necessity for Mr Hare to establish that he was actually absent due to illness. Conclusion and Orders 60 For the reasons above, I propose to allow the appeal and order the respondent pay the appellant the sum of $3,029.86 for entitlements outstanding. 61 Mr Hare was not legally represented on the appeal. It is therefore appropriate that any costs order in his favour be limited to disbursements reasonably incurred by him in the preparation of the appeal, such as filing fees, photocopying and other similar expenses. 62 I therefore propose to order that the respondent pay the costs of the appellant limited to any disbursements reasonably incurred in the conduct of the proceeding. I certify that the preceding sixty-two (62) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Acting Chief Justice Jacobson. Associate: Dated: 3 July 2008 The Appellant was self-represented, with the assistance of Ms Gwynna WhiteOwl. The Respondent was self-represented. The hearing was conducted on the papers. Date of Judgment: 3 July 2008 Appendix: Calculation of sick leave entitlement For the period 1 September 2003 to 17 October 2003: 40 hours x 7/52 weeks x $15 = $80.77 For the period 24 October 2003 to 27 August 2004: 40 hours x 45/52 weeks x $16 = $553.85 For the period 3 September 2004 to 31 March 2006: 40 hours x 83/52 weeks x $17 = $1085.38 For the period 6 April 2006 to 31 October 2006: 40 hours x 30.4/52 weeks x $17.50 = $409.23 TOTAL: $2,129.23