Industrial Relations Commission of New South Wales CITATION: Staff Specialists (State) Award 2008 [2009] NSWIRComm 44 APPELLANT: NSW Department of Health PARTIES: RESPONDENT: Australian Salaried Medical Officers' Federation (New South Wales) FILE NUMBER(S): IRC 2315 of 2008 CORAM: Boland J President; Walton J Vice-President; Ritchie C CATCHWORDS: APPEAL - Appeal by NSW Department of Health against decision to vary Staff Specialists (State) Award to provide that staff specialists who salary sacrifice a new/additional fringe benefits tax exempt item will not be required to share the income tax savings arising from that exercise - Variation made on the ground that the parties to the Award had made an agreement regarding salary sacrificing - Held at first instance it was inappropriate for the employer to "walk away" from the agreement - Held at first instance that employer should be required to observe agreement by an appropriate variation to the Award - Held on appeal that whilst there was an unenforceable industrial agreement the mere existence of the agreement could not, on its own, provide a proper foundation for the Commission to exercise its discretion to vary the Award to enshrine what is said to be an entitlement under that arrangement - Held on appeal that the effect of the award variation was to embed a disparity in employment conditions in circumstances where there was no cogent evidence to support the maintenance of such a distinction on objective grounds - Held on appeal that the conduct by the Commissioner in making her own inquiries about certain matters amounted to a denial of natural justice to the appellant - Leave to appeal granted - Appeal upheld - Matter referred to President for consideration as to whether a Full Bench should be convened to deal with application to vary Award LEGISLATION CITED: Industrial Relations Act 1996 CASES CITED: Broken Hill Commerce and Industry Consent Award [2002] NSWIRComm 252, Re Staff Specialists (State) Award [2008] NSWIRComm 1126 HEARING DATES: 12 March 2009 DATE OF JUDGMENT: 8 April 2009 APPELLANT: Mr M Kimber SC with Mr P Sergent of NSW Department of Health LEGAL REPRESENTATIVES: RESPONDENT: Mr J Nolan of counsel with Mr S O'Hara of ASMOF JUDGMENT: INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES FULL BENCH CORAM: BOLAND J, President WALTON J, Vice-President RITCHIE C Wednesday 8 April 2009 Matter No IRC 2315 of 2008 STAFF SPECIALISTS (STATE) AWARD 2008 Application by NSW Department of Health for leave to appeal and appeal against a decision and order of Commissioner Bishop given on 25 November 2008 in Matter No IRC 543 of 2008 DECISION OF THE COMMISSION [2009] NSWIRComm 44 1 This matter concerns an application by the Director General, New South Wales Department of Health, for leave to appeal and, if leave is granted, to appeal against a decision and orders of Bishop C made on 25 November 2008 in Staff Specialists (State) Award [2008] NSWIRComm 1126. In that matter the Commissioner decided that the Staff Specialists (State) Award should be varied so as to provide that staff specialists who salary sacrifice a new/additional fringe benefits tax exempt item will not be required to share the income tax savings arising from that exercise. The Commissioner made orders to give effect to her decision. Background 2 The factual background, as the Commissioner described it, was generally not in dispute and what follows is essentially drawn from the Commissioner's decision. In 1998 the Department of Health and Australian Salaried Medical Officers Federation (New South Wales) ("ASMOF") entered into a Memorandum of Understanding ("the MOU") to provide for salary packaging arrangements for Senior Medical Practitioners ("SMPs"). Some 11 specified benefits could be salary sacrificed up to the Fringe Benefit Tax ("FBT") exemption cap without incurring any FBT liability that would otherwise have been passed on in full and incurred by those SMPs. The agreement reached was that the FBT deduction benefit was to be shared on a 50/50 basis as between the employer and employee. As Bishop C noted, the MOU contained no express agreement, one way or the other, concerning the treatment of any income tax savings that might become available to SMPs who took advantage of the salary sacrificing arrangements. 3 In 1999, the salary sacrificing provisions of the MOU were incorporated into the Staff Specialists (State) Award, effective from 30 July 1999. Clause 4B, Salary Sacrifice, of the Award relevantly provided as follows: ... b) Subject to the other provisions of this clause Senior Medical Practitioners may salary sacrifice from the range of benefits the Corporation and Federation agree upon from time to time. c) Salary sacrifice arrangements must be formalised by an agreement between the Senior Medical Practitioner and the Senior Medical Practitioner's employer. … f) The Fringe Benefits Tax on the benefits chosen by the Senior Medical Practitioner that would have been payable except for the Public Benevolent Institution status of the hospital will be calculated for each Senior Medical Practitioner who enters into a salary sacrifice agreement. This amount will be divided equally between the employer and the senior medical practitioner … h) The administration cost of each salary sacrifice agreement will be shared equally by the employer and the participating Senior Medical Practitioner. The employee's share will be deducted from the total amount sacrificed in that Senior Medical Practitioner's salary sacrifice agreement. 4 Again, as the Commissioner observed, the Award also made no reference to the treatment of any income tax savings that might become available to SMPs who took advantage of the salary sacrificing arrangements. 5 At [15]-[17] of her decision the Commissioner noted that: [15] In 2002, following negotiations between the Department and the Health Unions, agreement was reached on the introduction of a "General" Salary Packaging Scheme which commenced operation from 1 January 2002. This Scheme applied to all New South Wales Health Employees (other than Staff Specialists). It provided for 22 benefit items to be packaged, with all income tax savings associated with participation in the Scheme (irrespective of whether the benefits sought to be packaged were subject to FBT or were "FBT exempt") to be shared on a 50/50 basis as between the employer and employee. Participation in the scheme is on a voluntary basis. The combined amount of any salary packaging/sacrificing shall not exceed 50% of salary. [16] As a consequence of the agreement reached, salary packaging provisions were inserted in the Health Employees Conditions of Employment (State) Award … as well as number of other health awards (but not the SMP's Award) … [17] The procedures applicable to the salary sacrificing provisions in those various health awards are contained in the New South Wales Health Services Salary Packaging Policy and Procedures Manual … The salary sacrificing provisions contained in the various health awards provide that the employer and employee shall comply with the procedures set out in the Manual "as amended from time to time". 6 The next development in 2002 was that there was an exchange of correspondence and subsequent discussions between ASMOF and the Department concerning a proposal by ASMOF that SMPs withdraw from the 50/50 FBT sharing arrangement with Health Services (so that there would be no sharing) with that withdrawal to be offset by SMPs foregoing their annual leave loading. ASMOF also sought to align the scheme applicable to SMPs with some of the features of the "general" salary-sacrificing scheme available to other Health Services employees. 7 In March 2002, the Department advised ASMOF by letter that its proposal regarding withdrawal from the sharing arrangement was rejected. The letter noted that: Almost all responses from Health Services indicated a concern with the negative impact of a 100% saving for SMPs would have on the take-up rate by other employees who are packaging under the 'general' scheme, and who are required to share 50/50 with their employer. There was also a concern over equity, with a general belief there should be the same 50/50 sharing arrangement applicable to all classifications of employees. 8 The letter further indicated as follows: 2. Alignment with Features of the General Scheme. The SMPs' scheme is to be aligned with the following features of the general scheme: § the same range of package benefit items will be offered, § the maximum amount of salary that can be packaged will be increased to 50% (including superannuation sacrificing), and § the salary sacrifice to superannuation will remain a segregated arrangement per the award clause, free of any administration fees as is the case under the general scheme. 9 On the 26 March 2002, ASMOF responded to the letter from the Department relevantly as follows: As discussed, the Federation has considered whether the formula used to calculate the employer share in the SMP scheme should be made consistent with the formula used in the general scheme. Unfortunately, the Federation is unable to agree to this proposal. If the Federation's understanding of the general scheme is correct, SMPs would be disadvantaged compared to the existing arrangements. 10 On the 5 April 2002, the Acting Director-General of the Department replied to the correspondence from ASMOF stating that: Your preference is noted, and it is agreed that the SMPs salary packaging continue to be administered in terms of the notional FBT formula per the Senior Medical Practitioners Award. 11 In December 2002, Health Services was advised of approval to expand the salary packaging benefits list by 10 additional items for both the "general" and the SMPs' salary packaging schemes. The additional items were designed to "improve the range of choices and the overall take-up rates in both schemes." The salary packaging arrangements between the parties then continued unchanged until 2006. 12 In February 2006, the Deputy Director-General, Health Support, advised Chief Executives of the various Area Health Services and other relevant Health Services, that following a further approach to the Premier's Department and Treasury, approval had been given for an additional benefit to be added to both the "general" and the Staff Specialists (as they were now known) schemes, namely "Relocation/Living-Away-From-Home Expenses". The benefit was a FBT exempt item. 13 On 23 July 2007, Mr Trevor Craft, who at the time was Assistant Directo`r Employee Relations for NSW Health, advised ASMOF that consideration was being given by the Department to the addition to salary packaging arrangements of a new benefit item of "meal entertainment" that was FBT exempt. This is what sparked the dispute that eventually led to the Commissioner making her decision in November 2008. 14 The correspondence indicated that: The Department has decided that this benefit and any future approved benefits only be made available strictly on the basis of a 50/50 sharing of the income tax saving between employer and employee - irrespective of the employee's classification - in the interests of consistent treatment and parity across the NSW Health Service. 15 In correspondence dated 10 September 2007, ASMOF advised of its preparedness to meet to discuss the issues, but indicated: [I]t is unlikely that we will be willing to agree to reduce the benefits available to staff specialists under the Award. The suggestion that certain benefits will not be made available until ASMOF agrees to amend the Award is obviously unacceptable. 16 As the Commissioner noted, by further correspondence dated 13 November 2007 the Secretary of ASMOF, Dr John Sammut, advised the Department as follows: I confirm that ASMOF regards the NSW Health approach to this matter as a breach of the "no extra claims" provision of the Award. It is not in dispute that staff specialists currently have a salary packaging scheme that is different to the general scheme in that FBT savings (but not other tax savings) are shared between the employee and the employer. This reflects Clause 7(e) of the Staff Specialists (State) Award. The NSW Health policy that staff specialists will only be able to access the "meal entertainment" benefit is clearly contrary to the Award and can only legitimately occur if the Award is varied. ASMOF does not agree to such a variation and therefore the NSW Health position is in breach of the "no extra claims" clause. 17 It may be noted that in October 2007, the Department had advised ASMOF of the amendments that had been made to the New South Wales Health Salary Packaging Policy and Procedure Manual for the General Salary Packaging Scheme and reiterated the availability of the new "meal entertainment" benefit to staff specialists on the terms as set out in the Department's correspondence of 23 July 2007. 18 In a letter dated 6 December 2007, Mr Craft refuted the contention that his proposal was a breach of Clause 7(e) of the Award or that it was a breach of the no extra claims clause of the Award. The Department further indicated that it did not seek to vary the Award to alter the existing sharing arrangements. The correspondence also stated: It is the Department's view that the new benefit 'meal entertainment' being fringe benefit exempt, by definition, does not give rise or have relevance to, any fringe benefit tax saving. The only saving that will arise with the introduction of this benefit will be income tax saving which is not dealt with under that subclause. Moreover, the Department does not see this proposal as taking anything away from current benefits and the calculation of sharing arrangements of the benefits available to date. The income tax sharing condition accompanying the introduction of this and other new optional benefits, is intended to place staff specialists on an equal footing with other staff in terms of future benefit items. 19 On 24 April 2008, ASMOF filed its application to vary the Award in the following terms: By deleting clause 7(a) and substituting: (a) Subject to the other provisions of this clause, Staff Specialists may salary sacrifice from the range of benefits which the Director-General of the NSW Department of Health offers to all staff of NSW Health who are covered by the 'general' salary packaging scheme, or otherwise as may be agreed to by the Federation from time to time. By deleting clause 7(e) and substituting: (e) The Fringe Benefits Tax on the benefits chosen by the Staff Specialist that would have been payable except for the Public Benevolent Institution status of the hospital will be calculated for each Staff Specialist who enters into a salary sacrifice arrangement. This amount will be divided equally between the employer and the Staff Specialist. To avoid any doubt, where salary sacrifice involves a benefit which is Fringe Benefits Tax exempt, no sharing arrangements will apply. 20 The grounds and reasons for the application were that: a) the variation makes express, the agreement between ASMOF and NSW Health regarding the application to staff specialists employed under the Staff Specialists (State) Award of the right to avail themselves of salary sacrifice from the range of benefits which the Director-General of the NSW Department of Health offers to all staff of NSW Health who are covered by the 'general' salary packaging scheme; b) the agreement regarding the basis upon which staff specialists would be offered the same range of package benefits as would be offered to employees within NSW Health was expressed in a letter to ASMOF from NSW Health dated March 15, 2002 ['the 2002 agreement']. It was upon the faith of this agreement and against that background, that the present Award was settled; c) by letter dated 3 October 2007, NSW Health reneged on the 2002 agreement; d) it would be inequitable were NSW Health be permitted to renege on an agreement which it had freely made with ASMOF in the absence of compelling reasons; e) the Commission would not lend itself to the breaking of industrial arrangements which were clear and well settled and against which the relevant Award clause was crafted. f) NSW Health should be held to its commitment by the making of the proposed variation which would put the matter beyond doubt; g) the making of the proposed variation would be fair and just in the circumstances and do no more than re-instate the position regarding salary sacrifice agreed upon between the parties. 21 Subsequently, in the proceedings before Bishop C, the appellant sought an alternative variation to the Award as follows: Staff Specialists (State) Award 1. Change the title of Clause 6 'Salary Sacrifice Definition' to 'Salary Packaging Definition', and substitute 'salary packaging' in lieu of 'salary sacrifice' in this clause. 2. Rename Clause 7 'Salary Sacrifice' as 'Salary Packaging'. 3. In Clause 7, wherever the term 'salary sacrifice' or 'sacrificed' appears in this clause, substitute with the terms 'salary package' or 'salary packaging' or 'packaged' as the case may be. 4. Delete Clause 7 (a) and substitute with: a. Subject to the other provisions of this clause, staff specialists may salary package from the range of benefits the Director-General NSW Department of Health determines from time to time. 5. Delete Clause 7 (e) and substitute with the following: (i) Subject to (ii), (iii) and (iv) below, the fringe benefits tax on the benefits chosen by the Staff Specialist that had been payable except for the public hospital fringe benefit exemption status, will be calculated for each Staff Specialist who enters into a salary packaging arrangements. This amount will be divided equally between the employer and the Staff Specialist. (ii) In respect of salary packaging benefits available to Staff Specialists prior to 3 October 2007, the savings calculation as based on the fringe benefit tax value of the benefits packaged, will continue to be calculated in accordance with (i) above. (iii) The 'General' Salary Packaging Scheme applicable to NSW Health Service employees other than Staff Specialists, provides for the 50/50 sharing between the employee and employer to be calculated on the income tax saving derived from the pre-tax salary packaging deductions from the employee's salary, including salary packaging benefit items regardless of whether those benefits attract full FBT or are FBT- exempt. (iv) This method of calculating the 50/50 sharing of income tax savings in (iii) above, is to be applied to the 'meal entertainment' salary packaging benefit and to any other new salary packaging benefit introduced on and from 3 October 2007. 6. Substitute the word 'sacrificed' with 'packages/sacrifices' in Clause 9 "Limitation on the Amount to Be Sacrificed." Decision at first instance 22 In what was undoubtedly a thorough review of the respective cases put by the parties and the evidence in the proceedings at first instance, the Commissioner found that at the conclusion of the correspondence exchanged in early 2002 there was an agreement made between the parties: [A]lbeit one that was not formalised in any award/agreement/MOU documentation, that provided for SMPs to gain access to the additional 22 benefit items available to be salary sacrificed but without the 50/50 income tax sharing arrangement applicable to all other Health Services employees. 23 The Commissioner further found that between 2002 and 2006 there was no change to the agreement between the parties concerning salary sacrificing for Staff Specialists and its application or implementation. At [147] Bishop C stated that: [147] I consider that ASMOF would have been entitled to act on the faith of the agreement in existence between the parties between 2002 and 2006 and that no dramatic or substantial change would take place without the appropriate negotiations and further agreement being reached. That view would then have been reinforced by the actions of the Department in 2006. 24 The Commissioner then noted that there was a further significant development in relation to the making of a new Staff Specialists (State) Award in 2006 that neither party had drawn to the Commission's attention. After observing that the Commission may, pursuant to s 162(2)(j) of the Industrial Relations Act 1996 ("the Act") "on its own initiative, inquire into any industrial matter", the Commissioner indicated that she had made her own inquiries as to the making of the new Award in 2006. The Commissioner explained what she had discovered and her conclusions at [150] to [157] of her decision: [150] In 2006 the Full Bench issued an extensive decision dealing with applications by both ASMOF and the Health Administration Corporation (the HAC as it then was) for a new Staff Specialists (State) Award , see Staff Specialists (State) Award, Re [2006] NSWIRComm 124. [151] There were some 14 days of hearing with the decision handed down on 28 April 2006. It was a major industrial case that had commenced with an application by ASMOF in 2004 with a further application by HAC in 2005. The Full Bench decision refers to lengthy conciliation proceedings in 2005 before Boland J which resulted in an agreement on salaries between the parties embodied in a Memorandum of Understanding tendered in proceedings. Other claims were also the subject of agreement between the parties. The claims left to be determined by the Full Bench in accordance with the Commission's Work Value and Special Case Principles related to a claim by ASMOF for further salary increases from July 2005 and claims relating to managerial allowances for Staff Specialists from July 2005. [152] It is clear that this was a major case involving conciliation, then inspections, with detailed submissions by the parties. The outcome of the Full Bench deliberations is not relevant to this matter save that there is no mention anywhere of any issue arising from any disparity between the two salary sacrificing schemes that have been referred to in these proceedings. [153] I would have thought that if the Department harboured ongoing concerns about the disparity between the two salary sacrificing schemes in operation then these Award proceedings would have been the opportunity to ventilate such concern and address the issue. It is apparent that no such action took place. [154] The Full Bench made a new Staff Specialists (State) Award incorporating the agreements reached between the parties and the matters determined by the Full Bench decision to operate from the beginning of the first full pay period to commence on or after 28 April 2006 and to remain in force until 30 June 2008. [155] It seem to me that this is also a further strong indication that ASMOF were entitled to continue to rely on the faith of the agreement it had reached with the Department in 2002 on salary sacrificing for its members. [156] I also note that the same applications concluded before the Full Bench in 2006 in NSWIRComm 124, were the subject of further consideration in 2007 by Boland J (as he then was) in dispute proceedings concerning a claim by ASMOF for a Special Service Allowance for Emergency Physicians in public hospitals, see Staff Specialists (State) Award, Re [2007] NSWIRComm 191. The matter was heard on 28 June 2007 and the date of judgement was the 6 August 2007. [157] Again this would appear to have been an opportunity for the Department to raise any issue it had with disparity between the two schemes. And again the absence of any such action would have entitled ASMOF to continue to rely upon the faith of the agreement it had reached with the Department. 25 After reviewing the exchanges between the parties in 2006 and 2007 regarding the appellant's announced intention that the meal entertainment benefit and any future approved benefits would only be made available on the basis of a 50/50 sharing of the income tax saving between employer and employee, the Commissioner reiterated her earlier expressed view that there was in existence an agreement between the parties as to the salary sacrificing arrangements applicable to Staff Specialists and had been so in that form since 2002. The Commissioner acknowledged that the agreement was not a legally enforceable agreement as might be contemplated by a formal contract between the parties, but expressed the view it may be enforceable as an Award entitlement. 26 At [171] Bishop C expressed the following views critical of the appellant for "reneging" on the 2002 agreement: [171] The Department certainly has the right to make changes it considers appropriate to policies and matters affecting employees. However the appropriate context for proposed changes to matters pertaining to wage rates and conditions of employment (whether formally enshrined in awards/other formal instruments or informal industrial arrangements) is in the context of appropriate award discussions where both sides have the opportunity to put items on the bargaining table and participate in negotiations. Agreement may or may not be reached on all matters and the assistance of the Commission may be required. However I consider that it was entirely inappropriate for the Department to walk away from and indeed, to use Mr Nolan's term, " renege " on the agreement that had been in place between the parties since 2002. 27 At [174] Bishop C noted that the Award had expired and that an application for a new award had been filed by ASMOF. At [176] the Commissioner considered that "it would be more appropriate and desirable for issues as to any parity of the two respective schemes to be dealt with by the parties in the context of the current round of negotiations for and proceedings related to that application for a new Award." 28 Nevertheless, the Commissioner proceeded to vary the Award and in the course of doing so stated: [177] On that basis and in the light of the views I have formed, as outlined above, it seems to me that it would be only be appropriate to vary the Award in the terms as sought by ASMOF. This would, as ASMOF submits, put beyond doubt what should operate between the parties on the basis of the agreed arrangements that have existed and should have continued to exist until negotiations had taken place on any replacement agreement or arrangements. [178] I agree that the form of variation as proposed by ASMOF does nothing more than give effect to the agreement reached between the parties and restores the parties to the position operating prior to July 2007. Where the parties take the matter in the future should be the subject of appropriate negotiation between the parties in the normal course of the proceedings arising from the application for the new Award ( IRC 08/1019). [179] Having formed that view, I also consider that it is in the public interest that I vary the award in terms as sought by ASMOF to ensure that such a significant employer as the Department complies with the agreement it reached with ASMOF covering a significant section of its workforce as it would expect in turn ASMOF to so do (and indeed other Health Unions generally). 29 The Commissioner made orders varying the Award in the terms sought by ASMOF effective from the date of the Commissioner's decision, namely, 25 November 2008. Consideration 30 The ratio of the Commissioner's decision to vary the Award to incorporate the variation proposed by ASMOF was that an agreement (albeit unenforceable) regarding salary sacrificing had been struck between the parties in 2002, that ASMOF was entitled to continue to rely on the faith of that agreement, that it was "entirely inappropriate" for the appellant to "walk away" from the agreement, and so it was appropriate to vary the Award to put beyond doubt "what should operate between the parties on the basis of the agreed arrangements that have existed and should have continued to exist until negotiations had taken place on any replacement agreement or arrangements." 31 We need to consider firstly the nature of the asserted 2002 agreement. In 1998/1999 a Memorandum of Understanding was entered into between ASMOF and the appellant about salary sacrificing based upon the appellant's then salary packaging policy. Eleven benefits could be salary sacrificed up to the FBT exemption cap without incurring any FBT liability that would otherwise have been passed on in full and incurred by staff specialists. The agreement reached was that the FBT deduction benefit was to be shared on a 50/50 basis as between the employer and employee. There was no agreement concerning the treatment of any income tax savings that might become available to staff specialists who took advantage of the salary sacrificing arrangements. Indeed, it does not appear that income tax savings was even a subject of discussion between the parties at that early stage. 32 We note also that the Salary Packaging Agreement made between the employer and individual employee, based on the appellant's Salary Packaging Policy and which addressed the question of sharing the FBT saving, defined the Salary Packaging Policy as meaning "the policies and procedures relating to salary packaging as announced by the Employer from time to time." 33 The Award was varied in July 1999 to reflect the salary sacrifice arrangements agreed between the parties and the Award provisions then inserted only dealt with the question of FBT savings and did not deal at all with the question of whether the income tax savings arising from the salary sacrificing of FBT exempt items should be shared between the parties. 34 In 2002, ASMOF sought to withdraw from the FBT sharing agreement and at the same time sought to align the scheme applicable to staff specialists with some of the features of the general salary-sacrificing scheme available to other Health Services employees but which were not then available to staff specialists under their own salary-sacrificing scheme. The respondent was not successful in its first endeavour but it was successful in gaining access to the greater range of salary sacrificing benefits that were then available under the general scheme. ASMOF also successfully resisted the appellant's attempt to fully "align" the two schemes so that staff specialists would have been required to share with the employer all income tax savings associated with participation in the scheme (irrespective of whether the benefits sought to be packaged were subject to FBT or were "FBT exempt") on a 50/50 basis. Instead, it was agreed that the status quo would apply, namely, that staff specialists (approximately 3,000) would be able to salary sacrifice on a more beneficial basis, that being they only had to share the FBT savings associated with salary sacrificing under the staff specialists' scheme on a 50/50 basis. 35 The acceptance of the status quo by the appellant took the form of a letter to ASMOF dated 5 April 2002, in which the Acting Director-General of the Department, in responding to ASMOF's letter of 26 March 2002 where ASMOF declined to agree to the formula used to calculate the employer share in the general scheme, relevantly stated as follows: I refer your letter of 26 March 2002 where following the cancellation of the McMillan Shakespeare salary packaging contract and transfer of the scheme's administration to the Health Services scheme administrations, you expressed a preference to continue using the formula for the calculation of the 50/50 share arrangement for employers' and employees' savings under the Senior Medical Practitioners (SMPs), Salary Packaging Scheme, rather than the formula from the 'general' salary packaging scheme. Your preference is noted, and it is agreed that the SMPs salary packaging continue to be administered in terms of the notional FBT formula per the Senior Medical Practitioners Award. 36 It was this exchange of letters that the Commissioner found constituted an agreement between the appellant and ASMOF, "albeit one that was not formalised in any award/agreement/MOU documentation, that provided for SMPs to gain access to the additional 22 benefit items available to be salary sacrificed but without the 50/50 income tax sharing arrangement applicable to all other Health Services employees." 37 As at March 2002, there was clearly an arrangement between ASMOF and the appellant that the agreement reached in 1998/99, to the effect that there would be a sharing of the FBT savings associated with salary sacrificing on a 50/50 basis, would continue. We do not consider that arrangement could be regarded as an enforceable agreement or, for that matter, any form of agreement that the appellant would henceforth maintain the 1998/99 agreement in perpetuity; but it was nonetheless what may be described as an agreement of an industrial nature having some significance, as we will discuss below, in proceedings before this Commission. 38 Despite the 2002 arrangement being an agreement of an industrial nature there are two things we need to say about it. First, the Salary Packaging Agreements made between the appellant and individual employees following the making of the MOU in December 1998 provided that all salary-packaging arrangements were to be made in accordance with "the Employer's Salary Packaging Policy" … "as announced by the Employer from time to time". In so far as individual employees were concerned who entered into a Salary Packaging Agreement, it would appear that such employees acknowledged that their salary packaging might change from time to time depending upon changes to the employer's policy. The 2002 arrangement did not displace those formal contracts. Secondly, the terms of the Award only dealt with the question of FBT savings and did not deal with the question of whether the income tax savings arising from the salary sacrificing of FBT exempt items should be shared between the parties. So there was no Award provision that precluded the employer from making changes to its policy in respect of these exempt items. 39 The 2002 arrangement was maintained until 2007 when the appellant sought to unilaterally change it by deciding that, in respect of all employees, the meal entertainment benefit and any future approved benefits would only be made available "strictly on the basis of a 50/50 sharing of the income tax saving between employer and employee". Whilst it may be the case that the employer was entitled, in a strict sense, to announce that it intended to change its policy, the 2002 arrangement had been operating for five years on the basis that staff specialists only had to share the FBT savings associated with salary sacrificing and not all income tax savings, as was the case with all other employees. ASMOF was entitled to believe this arrangement had become part of a settled entitlement of staff specialists in accordance with the terms of the agreement subject to its terms being re-negotiated, nothing having been done or said in the five years that would have put ASMOF on notice that the appellant could or would, at any time, unilaterally change the arrangement without consultation or negotiation. It should be borne in mind that the original arrangement in 1998 was not unilaterally introduced by the employer but was the subject of negotiation. The same applied in relation to the introduction of the general salary-packaging scheme; it was introduced in 2002 on the basis of an agreement between the employer and the Health Unions. 40 We consider the appellant should have realised that if there was to be any change to the 2002 arrangement it would have been appropriate to either seek to re-negotiate the arrangement or, at the very least, give reasonable notice of the intention to effect a change. It has been said that it is extremely important in industrial and employment relations that parties adhere to considered agreements entered into by them: Re Broken Hill Commerce and Industry Consent Award [2002] NSWIRComm 252 at [8]. Such agreements, notwithstanding that they might be attended by a significant degree of informality, should not be departed from lightly. 41 Notwithstanding the view we have expressed regarding the care which industrial parties should take in seeking to depart from longstanding arrangements, we find that the Commissioner erred in determining that it was appropriate to vary the Award to put beyond doubt "what should operate between the parties on the basis of the agreed arrangements that have existed and should have continued to exist until negotiations had taken place on any replacement agreement or arrangements." 42 In award variation matters the Commission is required to act in a manner that is not contrary to the public interest (s 17(3) of the Act) and otherwise is required, by s 10 of the Act, to make awards "in accordance with this Act setting fair and reasonable conditions of employment for employees". It is not apparent that the Commissioner gave proper consideration to the public interest or to the requirement to fix fair and reasonable conditions of employment, but rather placed a disproportionate emphasis on what the appellant had agreed to in 2002 and the belief that the appellant should be required to adhere to that position. The mere existence of the unenforceable industrial agreement in this case could not, on its own, provide a proper foundation for the Commission to exercise its discretion to vary the Award to enshrine what is said to be an entitlement under that arrangement. At the very least, issues of industrial merit were required to be considered in accordance with the statutory mandate in s 10 of the Act. 43 We note that the Commissioner was cognisant of the difference between the benefit applying to staff specialists and other health employees in relation to tax sharing and was no doubt alert to the appellant's concern about the implications of any award variation that enshrined the 2002 arrangement. In this respect the Commissioner stated: [114] It is also clear from both the submissions of the parties as well as my own knowledge of the health industry in New South Wales over recent years, that there are a number of areas in which there is not strict comity or parity of conditions as between Staff Specialists and the various other groups of Health workers, not to mention that there have been differential wage increases operating from time to time as a result of negotiations between the various parties. … [116] However there has been no specific and detailed evidence provided to the Commission on the nature and range of those differences, any comparison as to the number of employees affected or any detail as to the cost implication to the employer. The Department's contentions indicated that there were 3000 Staff Specialists as compared to 97000 health workers (covered by the general scheme). I assume that those are approximate figures. That was the only comparative detail or information to come out of the evidence. [117] However if one were to embark seriously on any consideration of whether or not there ought to be a greater degree of parity as between Staff Specialists and other public sector health workers, it may also be relevant to consider whether any issues of attraction and retention of Staff Specialists in the New South Wales health system ought to be considered in any context of examining any differential conditions applicable. 44 Having regard to the obligations upon a Commissioner in deciding whether to make an award variation, it was incumbent on Bishop C to give proper consideration to the consequences of imposing an award obligation on the employer that enshrined a dichotomy between 3,000 staff specialists and 97,000 other health employees whereby staff specialists received a greater benefit and to whether that may have industrial implications for the employer in the form of flow on claims. The effect of the award variation was to embed a disparity in employment conditions. Such a variation could only be made if there was cogent evidence to support the maintenance of such a distinction on objective grounds. The fact that other differences might exist between staff specialists and the majority of health employees may not be a sufficient basis upon which to introduce a further disparity, especially one that does not, on the available evidence, appear to be objectively defensible. 45 We note that what was overlooked in the proceedings at first instance, both by the parties and by the Commissioner, was the Commission's Wage Fixing Principles and the requirement for ASMOF's application to be referred to the President for consideration as to whether the matter should be processed as a special case before a Full Bench of the Commission. This is an important mechanism for protecting the public interest by ensuring, amongst other things, that authoritative consideration is given to whether an award variation will set off a damaging round of flow on claims. That mechanism was bypassed by the course the proceedings took at first instance. 46 The other error committed by the Commissioner was that she purported to conduct her own "inquiry" into an industrial matter pursuant to s 162(2)(j) of the Act and to use the results of that inquiry as part of the foundation for her decision in the matter. It would be rare that that provision will operate in the context of what were properly constituted proceedings that were before the Commission, and where issues relating to industrial matters had been joined. The Commissioner did not inform the parties that she was proposing to undertake such an inquiry, nor did she provide the parties with an opportunity to comment on the appropriateness of that course or to make submissions about the outcome of that inquiry. 47 As a result of her inquiry, the Commissioner found that there had been a major industrial case in 2004-2006 involving applications by ASMOF and the Health Administration Corporation for new awards for staff specialists. The Commissioner considered that: [I]f the Department harboured ongoing concerns about the disparity between the two salary sacrificing schemes in operation then these Award proceedings would have been the opportunity to ventilate such concern and address the issue. It is apparent that no such action took place. 48 The Commissioner noted that the Full Bench made a new Staff Specialists (State) Award incorporating agreements reached between the parties to that Award and the matters determined by the Full Bench decision to operate from the beginning of the first full pay period to commence on or after 28 April 2006 and to remain in force until 30 June 2008. In this respect, the Commissioner found that: [T]his is also a further strong indication that ASMOF were entitled to continue to rely on the faith of the agreement it had reached with the Department in 2002 on salary sacrificing for its members. 49 The Commissioner's inquiries also revealed that there were dispute proceedings concerning a claim by ASMOF for a Special Service Allowance for Emergency Physicians in public hospitals in 2007. The Commissioner regarded these proceedings as an opportunity for the appellant to raise any issue it had with disparity between the two tax sharing schemes and, importantly, in the absence of any action by the appellant "would have entitled ASMOF to continue to rely upon the faith of the agreement it had reached with the Department." 50 Further still, the Commissioner discovered there were negotiations proceeding between the parties for a new award to replace the award that had expired on 30 June 2008. The Commissioner considered that "it would be more appropriate and desirable for issues as to any parity of the two respective schemes to be dealt with by the parties in the context of the current round of negotiations for and proceedings related to that application for a new Award." However, those proceedings were finalised on 15 August 2008 well before Bishop C gave her decision on 25 November 2008. Putting aside the fact that the proceedings had been finalised and it was not open to have the tax sharing issue before the Commissioner dealt with in the award negotiations, the logic of the Commissioner's decision was that she should not have proceeded to make the award variation but rather left the parties to negotiate their differences in the negotiations for a new award. 51 It was inappropriate for the Commissioner to embark on a private inquiry. It had the effect of preventing the appellant from addressing the propositions that it had foregone opportunities to ventilate its concern about the disparity between the two salary sacrificing schemes thereby strengthening ASMOF's contentions that it was entitled to rely on the faith of the 2002 arrangement. The appellant was denied natural justice. 52 In light of the errors committed at first instance, we have decided to grant leave to appeal and to uphold the appeal. We are, nevertheless, conscious of the fact that our decision does not resolve the issue in dispute between the parties. We are not attracted to the submission put by the appellant that we should vary the Award in the terms of the appellant's proposed variation in order to resolve the dispute. We have not been provided with any grounds as to why the appellant's variation is any more acceptable than ASMOF's variation having regard to the requirements of s 10 and s 17 of the Act. 53 We consider steps should be taken towards achieving a resolution of the industrial issues between the parties. Accordingly, we have decided to refer ASMOF's application and the counterclaim by the appellant earlier set out in this decision to vary the Staff Specialists (State) Award to the President for his consideration as to whether the claims should be processed as a special case before a Full Bench of the Commission, unless otherwise allocated by the President. Orders 54 The Full Bench makes the following orders: (1) Leave to appeal is granted. (2) The appeal is upheld and the decision and orders of Bishop C in Matter No IRC 543 of 2008 are set aside. 55 We direct that the application by ASMOF in Matter No 543 of 2008 to vary the Staff Specialists (State) Award and the counterclaim by the appellant earlier set out in this decision to vary that Award be referred to the President for his consideration as to whether the claim should be processed as a special case before a Full Bench of the Commission, unless otherwise allocated by the President. ________________________ DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. 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