Alan Hutchings v Coles Group Supply Chain Pty Ltd t/a Coles Kewdale Distribution Centre
[2017] FWCFB 50
•11 JANUARY 2017
| [2017] FWCFB 50 |
| FAIR WORK COMMISSION |
DECISION |
Fair Work Act 2009
s.604 - Appeal of decisions
v
Coles Group Supply Chain Pty Ltd t/a Coles Kewdale Distribution Centre
(C2016/1912)
VICE PRESIDENT HATCHER |
|
Appeal against decision 2016 [FWC] 4050 of Deputy President Bull at Sydney on 29 July 2016 in matter number C2015/8010.
[1] Mr Alan Hutchings seeks leave to appeal and appeals a decision of Deputy President Bull issued on 29 July 2016 (Decision). 1 The application to which the Decision related was one made pursuant to s.739 of the Fair Work Act 2009 (Act) for the Commission to deal with a dispute in accordance with the dispute settlement procedure contained in clause 20 of the Coles Kewdale Distribution Centre WA Agreement 2014 (Agreement). The Decision was the result of the exercise of arbitration power for which provision is made in clause 20 of the Agreement.2
[2] Clause 20 of the Agreement also deals with appeals to a Full Bench of the Commission as follows:
“20.8.1 Where the dispute (or any matter that remained in dispute) has been arbitrated and a decision given under sub-clause 20.8.2, either party may appeal the decision to a Full Bench of FWC, with the leave of the Full Bench, within 21 days of the date of the arbitrated decision. A Full Bench of FWC will have all of the powers as outlined in sub-clause 20.8.1 and shall have the power to confirm, quash, dismiss or vary the decision of FWC.
20.8.2 The Full Bench of FWC may grant leave to appeal under sub-clause 20.9.1 if, in its opinion, the matter is of such importance that leave should be granted.”
[3] Mr Hutchings has been employed by the Coles Group Supply Chain Pty Ltd (Coles) since 1998. Mr Hutchings’ employment is at Coles’ Kewdale Distribution Centre and he is a delegate of the Shop, Distributive and Allied Employees Association (WA Branch). In his employment with Coles, Mr Hutchings is covered by the Agreement. Mr Hutchings was originally employed at Coles’ former distribution centre at Canning Vale, and was transferred to the new Kewdale Distribution Centre in 2009.
[4] Coles has a long history of maintaining a productivity-based incentive payment scheme (Incentive Scheme) for employees engaged at the Kewdale Distribution Centre and previously at the Canning Vale Distribution Centre. Since 2008, a provision referring to the Incentive Scheme has been included in the operative enterprise agreement at Kewdale, though a similar provision appeared in an agreement operating at the Canning Vale Distribution Centre in 2005. The current provision is found at clause 10 of the Agreement and it provides:
“10. PRODUCTIVITY / PERFORMANCE BASED INCENTIVES
The Company undertakes to examine the introduction and if deemed appropriate, the cessation, of a productivity and performance based incentive scheme (“the scheme”) for team members covered by this Agreement. Such a scheme will be developed on the basis that:
i. The form and structure of the scheme will be determined by the Parties in consultation with the team members; and
ii. The objective of instituting the scheme will be to provide an “at risk” additional wage benefit to the team members at no detriment to wage rates specified in Clause 8 hereof; and
iii. Any additional wage benefit payable to the team members from the scheme, including in its formation and introduction, will not constitute any part of a team members ordinary time earnings and will not be included for the purposes of calculating entitlements in respect of annual leave loadings or any other entitlements of a team member; and
iv. The Parties may revise the form and structure of the scheme in consultation with the team members.”
[5] On 4 May 2015, Coles announced a decision that in future it would calculate the incentive payment due to any employee under the Incentive Scheme by reference to the base wage rates as they were in 2014, and not include in the calculations the May 2015 increase to the base wage or any increases thereafter.
[6] The Incentive Scheme at the centre of the appeal appears to provide a financial reward for individual productive performance of specified work at a rate that is greater than the expected time for undertaking that work. The measurement of the expected time for undertaking specified work appears to be based on a system known as the Manhattan Labour Management System (Labour Management System), which is an engineered standard developed using a range of factors including equipment efficiency, fatigue and breaks. The expected time for undertaking specified work is calculated using the engineered standard to derive a figure known as the “Standard Allowable Minutes” (SAM) for each specified work or task. The SAM assigned to each specified work or task is the expected time that it should take an employee to safely complete the specified work or task, through the application of normal skill and effort.
[7] The Incentive Scheme, its operation and its “form and structure” are largely unrecorded. The only record, which explains some of the features of the Incentive Scheme, is contained in a document entitled Kewdale DC Labour Management System "How Incentives Work". That document contains only a description of the productivity or performance aspects of the Incentive Scheme and provides the following illustrative example:
“For example
My first task should take 10 minutes. I complete it in 9 minutes.
Performance = 10/9 x 100 = 111%
My next task should take 20 minutes. I complete it in 16 minutes.
Performance = 20/16 x 100 = 125%
Over these tasks, I have taken 25 minutes to complete 30 minutes worth of tasks.
Cumulative performance = 30/25 x 100 = 120%
At the end of each pay cycle, your performance over the period is calculated and any incentive payment is sent through to Kronos. Incentive payments are made one week in arrears.”
[8] The Incentive Scheme operates in relation to what are described as “on-standard tasks”, namely tasks that involve the physical movement of stock. Therefore, measured over each pay cycle, if an employee achieves a cumulative figure for performance of on-standard tasks that exceeds 100% over a cycle, the employee will become entitled to an incentive payment under the Incentive Scheme.
[9] It appears not to be in dispute that since the introduction of the Incentive Scheme, any incentive payment made to an employee pursuant to that scheme was calculated by reference to an employee’s prevailing base rate of pay or wage. The decision announced by Coles on 4 May 2015 represents a departure from this practice.
[10] At its most basic, the Incentive Scheme produces an incentive payment entitlement in relation to an employee when the employee’s performance, measured by a calculated performance percentage, exceeds 100% in a given period and is multiplied by a monetary value. In mathematical terms, the formula for calculating an incentive payment would be represented as follows:
P x M = I; where “P” represents the performance percentage, “M” represents the monetary value and “I” represents the incentive payment.
[11] The essential point taken in this appeal is that the Deputy President was wrong in his conclusions that the decision announced by Coles on 4 May 2015 was not a revision to the form and structure of the Incentive Scheme and therefore that Coles was not required to consult with team members about the proposed change in accordance with clause 10 iv of the Agreement. After dealing with the principles applicable to the construction of an enterprise agreement, the Deputy President dealt with the “form and structure” issue as follows: (footnotes omitted)
“[69] Little evidence of exactly what the ‘form and structure’ of the Incentive Scheme refers to was provided to the Commission. The written material available included: attachment CM1 to the witness statement of Ms Murdoch titled Kewdale Regional Distribution Centre - Labour Management System – Coles and attachment CM2 copies of various signs located around the Kewdale DC explaining the LM System to team members in the order process being undertaken by Coles.
[70] Coles submitted that the incentive scheme formula is not documented and there has never been a promise of a particular monetary value to be used. The May 2014 base wage rate is the current rate used, (and intended to continue to be used by Coles) although this is not expressed in writing in any documentation.
[71] There was no evidence of a common intention by the parties that the base wage rate in the calculation of the incentive payment used at the time the Incentive Scheme was introduced would be increased as per any increases in wage rates. While the practice has been to base the incentive payments on the prevailing base wage rate, I am unable to conclude that this practice constitutes part of the ‘form and structure’ of the Incentive Scheme. The practice is not contained in any of the documentation tendered and made available to the workforce. The form and structure of the Incentive Scheme gleaned from this documentation appears to be the measuring of employee performance based on the time it takes to perform a task against an expected time period (100%) based on an employee using average skill and effort to complete the task. Performance above the expected time (100%) attracts an incentive payment. This is the fundamental form and structure of the Manhattan Labour Management System.
[72] Within this form and structure it is an accepted practice that how an employee’s performance is measured and the calculation of the expected time to perform a task are revisions not concerning the form and structure of the Incentive Scheme.
[73] However, in respect of the form and structure of the Incentive Scheme it remains unchanged, despite Coles determining that the monetary value used in the calculations are to remain at the 2014 base wage rates. There was no evidence before the Commission that the monetary value to be used in the calculations would be the base rate of pay as varied from time to time.
[74] As such I am unable to find that Coles has revised the form and structure of the Incentive Scheme.” 3 [Endnotes omitted]
[12] The case before the Deputy President was conducted on the basis that Mr Hutchings conceded that the descriptor “form and structure” in clause 10 of the Agreement was relevantly ambiguous. 4 On appeal, Mr Hutchings sought to advance a contrary argument, namely that those words are unambiguous and have a plain or ordinary meaning.5
[13] There was some debate during the appeal about whether Mr Hutchings should be permitted to advance an argument not advanced, or directly contrary to the one advanced, before the Deputy President. We are persuaded that he should, for the following reasons. First, the argument now advanced raises a question of law, and had the point been raised before the Deputy President, we do not consider the answer could be affected by any evidence that the Respondent might have wished to advance or adduce. Secondly, the nature of this appeal, given it involves a disputed construction of an enterprise agreement, is not one against a discretionary decision made at first instance. Rather, our task in this appeal is to determine whether the decision against which the appeal is made was correct. Thirdly, and related to the second reason, the exercise of arbitral powers pursuant to a dispute settlement procedure of an enterprise agreement must not result in a decision that is inconsistent with, relevantly, the enterprise agreement pursuant to which the dispute is brought. 6 A decision containing an erroneous construction of an agreement would be a decision that fell foul of that prohibition.
[14] As to that issue, Mr Hutchings submits that there is no ambiguity in the meaning of the words “form and structure” used in clause 10 iv of the Agreement and that having regard to the ordinary and usual meaning of the words used, “form and structure” has a plain meaning, namely the arrangement of parts, or a condition or character of the incentive scheme. It says that the rate at which the incentive payment would be calculated is relevantly a condition or character of the Incentive Scheme, so that a revision of the rate by freezing it amounts to a revision of the form and structure of the Incentive Scheme.
[15] Coles submits that the words “form and structure” are words of limitation and cannot be understood as covering every input in the Incentive Scheme. It says that if that were the case the clause would just have referred to “Scheme” or “any part of the Scheme”. It says that a part, element or constituent is not the “structure”; the arrangement of those things is the structure, and that this is consistent with the definition of “structure” in the Macquarie Dictionary, Sixth Edition as follows:
“…3. A complex system considered from the point of the view of the whole rather than of any single part…”
[16] Coles submits that the definitions of “form” also have that focus on the overall structure or organisation of parts, rather than any single part. It says that to the extent that an ordinary meaning of “form and structure” can be gleaned from the dictionary definitions, they do not assist Mr Hutchings but rather suggest the focus of clause 10 iv is on revisions to the overall arrangement of the Incentive Scheme as opposed to changes to individual elements operating within it. In addition, Coles submits that it remains unclear what aspects of the Incentive Scheme would comprise parts, elements and constituents of the Incentive Scheme. 7
[17] In our view, the words “form and structure”, in clause 10 have a plain and ordinary meaning. The “form” of the Incentive Scheme is a reference to the shape or appearance of the Incentive Scheme. That is, the shape or appearance of the Incentive Scheme is one that provides an “at risk” additional wage benefit to an employee, calculated by reference to the performance or productivity of the employee. The “structure” of the Incentive Scheme is a reference to the constituent parts or inputs of the Incentive Scheme arranged together to make or compose the Incentive Scheme.
[18] Understood in this way, it is clear in our view that in the broadest sense, the structure of the Incentive Scheme in terms of its constituent parts or inputs is comprised of the assessed performance described as a percentage above 100% multiplied by a monetary value producing an incentive payment amount.
[19] It appears not to be in dispute that the first input, the performance percentage, is determined by reference to the labour management system to which earlier reference was made. One of the component parts of the labour management system is the SAM. It is not in dispute that Coles may, for example, recalibrate the SAM to ensure that expected task completion times are accurate and are relevant having regard to, for example, the nature of any equipment used in performing the task, and changes to or improvement in technology.
[20] It may therefore be seen that the inherent feature of the first input is that at least some of the measurement tools used to calculate the first input might change over time. An alteration in this regard would not be a revision of the structure of the Incentive Scheme since the variable nature of the measurement tools is an inherent feature of the first input and thus of the structure of the Incentive Scheme.
[21] The gravamen of the dispute therefore boils down to whether the second input, the monetary value, is the prevailing base wage rate applicable to an employee or is an amount that may from time to time be determined by Coles.
[22] It is uncontroversial that Coles has operated an incentive scheme at its Western Australian distribution centres since the early 1990’s, including at Canning Vale, the predecessor distribution centre to Kewdale. It also appears to be uncontroversial that a provision in the nature of the clause at issue in this appeal did not appear in any agreement until 2005 when such a provision was included in an agreement covering employees at the Canning Vale Distribution Centre. The first occasion on which a provision of the kind found in clause 10 of the Agreement appeared in an agreement covering employees at the Kewdale Distribution Centre, was in 2008 when the distribution centre commenced operating.
[23] It is also the case that Coles’ practice in ascribing the monetary value used to calculate an incentive payment under the Incentive Scheme has always been to use an employee’s prevailing base wage. There is no evidence that in introducing and maintaining an Incentive Scheme, Coles reserved unto itself the capacity to alter the monetary value input of the Incentive Scheme as it saw fit. There is no evidence that, at the time that the Incentive Scheme was introduced to the Kewdale Distribution Centre that the monetary value input of the Incentive Scheme was anything other than the amount of an employee’s prevailing base wage. Thus the structure of the scheme introduced at the Kewdale Distribution Centre in 2008 was constituted by a performance measurement based on the labour management system, an inherent feature of which was the variable nature of the performance measurement tools and a monetary value determined by an employee’s prevailing base wage, and where performance as measured exceeded 100% in any given period resulted in an incentive payment.
[24] None of this appears to have changed at the time when clause 10 of the Agreement commenced to operate. It may therefore be inferred that the structure of the Incentive Scheme described above was the structure of the Incentive Scheme described in clause 10 of the Agreement. Both inputs were variable. The first was able to be varied at the initiative of Coles in order to take account of changes in productivity requirements and technology. The second was variable to the extent of being automatically adjusted in line with movements or increases in an eligible employee’s base wage. Coles’ decision announced on 4 May 2015 changed the second input from an amount which was variable in the way described to a permanently fixed amount, being the employee’s base wage rate as at 2014. This, we consider, was a change to the structure of the Incentive Scheme in that one of its two constituent parts was altered. It follows that the announcement made by Coles on 4 May 2015 amounted to a revision of the structure of the Incentive Scheme to which clause 10 iv of the Agreement applied, and therefore that prior consultation with team members was required before any such change could be effected. It is not in contest that the required consultation did not occur.
[25] For these reasons, we consider that the Deputy President erred in his construction of clause 10 of the Agreement, and in his conclusion that the action taken by Coles did not amount to a revision of the form and structure of the Incentive Scheme.
[26] Given the history of the provision at issue and the Incentive Scheme, the potential impact of the decision of Coles on the employees affected, and on the operation and structure of the Incentive Scheme, we also consider that the appeal raises a matter that is of such importance that leave should be granted.
Conclusion
[27] For the reasons given, we consider that the Deputy President erroneously concluded that the decision announced by Coles on 4 May 2015 was not a revision to the form and structure of the Incentive Scheme contrary to clause 10 iv of the Agreement.
[28] We therefore make the following orders:
1. Leave to appeal is granted;
2. The appeal is upheld; and
3. The Decision ([2016] FWC 4050) is quashed.
VICE PRESIDENT
Appearances:
Mr D. Chin of Counsel for Mr Hutchings.
Mr R Dalton of Counsel for Coles Group Supply Chain Pty Ltd.
Hearing details:
2016.
Perth
October 14.
1 [2016] FWC 4050
2 See sub-clauses 20.2, 20.6 and 20.7
3 Decisionat [69]-[74].
4 Appeal Transcript PN63
5 Appeal Transcript PN60; Appellant’s Outline of Submissions at [12]-[16].
6 See s.739(5)
7 Respondent’s Outline of Submissions at [20]-[26]
Printed by authority of the Commonwealth Government Printer
<Price code C, PR589082>
1
1
0