ALAN REED and SECRETARY, DEPARTMENT OF FAMILIES, HOUSING, COMMUNITY SERVICES AND INDIGENOUS AFFAIRS
[2012] AATA 36
•25 January 2012
[2012] AATA 36
Division General Administrative Division File Number(s)
2011/2349
Re
ALAN REED
APPLICANT
And
SECRETARY, DEPARTMENT OF FAMILIES, HOUSING, COMMUNITY SERVICES AND INDIGENOUS AFFAIRS
RESPONDENT
DECISION
Tribunal Mr R P Handley, Deputy President
Date 25 January 2012 Place Sydney The decision under review is set aside and a decision substituted that payment of disability support pension to Mr Reed is subject to an income maintenance period of 431 working days commencing on 30 June 2010.
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Mr R P Handley, Deputy President
CATCHWORDS
SOCIAL SECURITY – pensions – income maintenance period – calculation – redundancy payment – payment in lieu of notice – ordinary income – length – commencement date – decision under review set aside
LEGISLATION
Social Security Act 1991 s 8, 1064, 1072
CASES
Re Finch and Secretary, Department of Education, Employment and Workplace Relations (2009) 112 ALD 171
Re Saad and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs (2010) 115 ALD 231
Re Williams and Secretary, Department of Education, Employment and Workplace Relations [2010] AATA 354Secretary, Department of Employment and Workplace Relations v Richards (2008) 168 FCR 438
SECONDARY MATERIALS
Explanatory Memorandum for the Employment and Workplace Relations Legislation Amendment (Welfare to Work and Other Measures) Bill 2005
Transport Workers Union (Qantas Airways Ltd) Enterprise Agreement 7 (2008-2011)
REASONS FOR DECISION
Mr R P Handley, Deputy President
This decision concerns whether an ‘income maintenance period’ should be applied in determining Mr Reed’s entitlement to Disability Support Pension (DSP) payments and, if so, for what duration and when that income maintenance period should commence.
BACKGROUND
Mr Reed was born in 1947 and is aged 64. He worked for QANTAS from 14 June 1989 to 29 June 2010, taking voluntary redundancy when this was offered. Mr Reed said that after his application for redundancy was accepted, he was about to take his annual leave. When he returned from his leave, he was asked to check the details of the payments due to him, which he did, and four days later his employment was terminated. He actually received the payments 10 days later on 9 July 2010. He received a total of $71,339.14 comprising a redundancy payment of $57,496.77, a payment in lieu of notice of $9,158.76, and a payment in respect of rostered days off of $2,104.50 and in respect of long service of $2,579.11.
On 26 October 2010, Mr Reed applied for a DSP and, on 8 November 2010, lodged an Employment Separation Certificate detailing the payments received on the termination of his employment. On 6 January 2011, Centrelink told Mr Reed that his claim for DSP had been rejected and this was confirmed by letter dated 7 January 2011. The letter stated his application had been rejected because of “excess income” as a result of the payments received from QANTAS on the termination of his employment. Mr Reed sought a review of this decision which was affirmed by an authorised review officer. On a further review, the Social Security Appeals Tribunal (SSAT) remitted the matter to the Secretary of the Department of Families, Housing, Community Services and Indigenous Affairs for reconsideration with the direction that the income maintenance period applied to Mr Reed should be recalculated on the basis that a payment made to Mr Reed in lieu of notice was not a part of his termination payment. On 16 June 2011, Mr Reed lodged an application for a review of this decision by the Tribunal.
The SSAT considered whether, pursuant to s 1064-F11 of the Social Security Act 1991 (the Act), the whole or any part of Mr Reed’s income maintenance period should be waived because Mr Reed was in ‘severe financial hardship’. The SSAT found that this discretion was not available in Mr Reed’s case because his liquid assets were greater than the threshold for severe financial hardship stated in s 19C(3). Mr Reed did not contest this issue in the present proceedings.
THE RELEVANT LEGISLATION AND ISSUES
Issue 1: Does the payment received by Mr Reed in lieu of notice form part of Mr Reed’s termination payment?
Section 117 of the Act provides for the rate of DSP payable in Mr Reed’s circumstances to be worked out using Pension Rate Calculator A at the end of s 1064. Modules E and F of s 1064 set out how a person’s ordinary income affects the maximum rate at which a person’s benefit is payable, Module F being specifically in respect of DSP. Section 1064-F5 states:
1064-F5 If:
(a) a person’s employment has been terminated; and
(b) the person receives a termination payment (whether as a lump sum payment, as a payment that is one of a series of regular payments or otherwise);
the person is taken to have received ordinary income for a period (the income maintenance period) equal to the period to which the payment relates.
Section 1064-F14 states:
1064-F14 In this Module:
leave payment includes a payment in respect of sick leave, annual leave, maternity leave and long service leave, but does not include an instalment of parental leave pay.
payment fortnight means a fortnight in respect of which a disability support pension is paid, or would be paid apart from the application of an income maintenance period, to a person.
period to which the payment relates means:
(a) if the payment is a leave payment-the leave period to which the payment relates; or
(b) if the payment is a redundancy payment and is calculated as an amount equivalent to an amount of ordinary income that the person would (but for the redundancy) have received from the employment that was terminated-the period for which the person would have received that amount of ordinary income; or
(c) if the payment is a redundancy payment and paragraph (b) does not apply-the period of weeks (rounded down to the nearest whole number) in respect of which the person would have received ordinary income, from the employment that was terminated, of an amount equal to the amount of the redundancy payment if:
(i) the person’s employment had continued; and
(ii) the person received ordinary income from the employment at the rate per week at which the person usually received ordinary income from the employment prior to the termination.
redundancy payment does not include a directed termination payment within the meaning of section 82-10F of the Income Tax (Transitional Provisions) Act 1997.
termination payment means:
(a) a leave payment relating to a person’s employment that has been terminated; or
(b) a redundancy payment.
There is no dispute that Mr Reed’s redundancy payment, and his payments in respect of rostered days off and long service leave form part of his termination payment. However, the parties disagree on whether the payment in lieu of notice also forms part of Mr Reed’s termination payment. This is the first issue.
The Secretary contends that the payment made to Mr Reed in lieu of notice – of 12 weeks – was calculated in accordance with the union agreement under which Mr Reed was employed and forms part of his termination payment. Mr Reed was employed under the Transport Workers Union (Qantas Airways Ltd) Enterprise Agreement 7 (2008-2011) (referred to hereafter as the TWU agreement). Mr Larcombe, for the Secretary, referred to Appendix A of this agreement, headed ‘Compulsory Redundancy Agreement’. This states relevantly:
Notice Period
An employee will be given the following period of notice of termination on the grounds of redundancy instead of the period of notice prescribed by Clause 17 – Termination of Employment.
Completed years of Service
Notice in weeks
Up to and including 4 years
4
5 – 9 years
8
10 years and above
12
Provided that an employee who is over 45 years of age will receive no less that 5 weeks notice.
There is no reference in Appendix A to payments in lieu of notice except where under ‘Redundancy Payments’, clause D states that such payments “do not include payments in lieu of notice”. As stated, clause 17 of the main agreement is headed ‘Termination of Employment’. Clause 17.1 states the periods of notice that the company must give on terminating a person’s employment. It is this clause that is amended by the above clause in Appendix A.
Payments in lieu of notice are the subject of clause 17.2, which states:
Payment in lieu of notice must be calculated on the wages the employee would have received in respect of the ordinary time the employee would have worked during the notice period had his/her employment not been terminated.
Mr Larcombe submitted that because specific notice periods applying in the case of redundancy are stated in the Redundancy Agreement, a payment in lieu of notice on an employee being made redundant should be treated as a termination payment.
However, this ignores the meaning of the term ‘redundancy payment’. This was discussed in Re Finch and Secretary, Department of Education, Employment and Workplace Relations (2009) 112 ALD 171 by Deputy President Jarvis:
[28] In ordinary parlance, it could be said that a payment in lieu of notice would be a termination payment, since such a payment is made at the time of, or as a consequence of, the termination of employment. However, the expression “termination payment” is defined in the Act, and in my opinion a payment in lieu of notice is not a “termination payment” within the meaning of the statutory definition. It was not a leave payment. It was a lump sum payment which Ms Finch’s employer chose to make instead of giving her 1 month’s notice requiring her to undertake her normal duties during the 1 month notice period specified in her contract of employment, a copy of which is included as T4 in Ex R1. This provides in effect that either party may terminate employment on 1 month’s notice to the other, but there is also provision for summary dismissal in the event of gross misconduct, and for the employer, in its discretion, to be able to terminate by making a payment in lieu of notice.
[29] The definition of “termination payment” in s 1068A-E12 also includes a redundancy payment. In my view, a payment in lieu of notice could not be said to be a redundancy payment, but is an entitlement arising under her contract of employment when her employment is terminated, for any reason, with less than the agreed prior notice. However, a redundancy payment is a payment made by an employer in consequence of the redundancy of an employee, calculated by reference to a formula that is customarily dependent on the number of years of service of the employee who is being made redundant.
[30] While other paragraphs of Module E of s 1068A of the Act deem certain payments, such as leave payments, to be treated as income of the person receiving the payment for the period to which the payment relates (see for example s 1068A-E3), no such provision applies to payments in lieu of notice. As mentioned above, s 1068A-E4, which deems certain payments to be income for the period to which the payment relates, only applies where a person has received a “termination payment”. I consider that in the absence of any such deeming provision, a payment in lieu of notice should be treated as a payment of income paid to the person concerned on the day on which it was received. In my opinion, Ms Finch’s IMP should not have included the period to which the payment in lieu of notice related.
[31] Mr Visser referred to Re Thorpe and Secretary, Department of Employment and Workplace Relations (2007) 99 ALD 136; [2007] AATA 2013, in support of his argument for the contrary. I agree with respect with the tribunal’s decision in that case that the removal on medical grounds of an employee constituted a termination of employment. However, the payment in question in that case was for accrued annual leave and long service leave; such payments are expressly included in the definition of “termination payment”. The case did not relate to a payment in lieu of notice.
[32] Centrelink’s internal policy guide states that:
Leave and redundancy payments can include:
...
• Payment in lieu of notice.
While the tribunal is not required to adhere to a policy guide, it should do so unless there is a cogent reason to do otherwise (Drake v Minister for Immigration and Ethnic Affairs (1979) 24 ALR 577; 2 ALD 60), but for the above reasons I consider that the Centrelink guide does not reflect the correct legal effect of the relevant sections of the Act, and I decline to follow it.
This decision was followed by the Tribunal in Re Saad and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs (2010) 115 ALD 231, where, at [14], the Tribunal referred to definitions of the word ‘redundancy’ in relation to employment as meaning the state of being made unemployed because one’s job is superfluous to requirements, and stated, at [15]:
The key characteristic of a redundancy payment, which it does not necessarily share with a payment in lieu of notice, is that a person is “superfluous” to requirement in his or her place of employment. In my view, it would distend the ordinary meaning of the term “redundancy” to stretch it to include all payments made in lieu of notice.
I agree with those Tribunal decisions. In terms of the definition of ‘termination payment’, in my view, the payment in lieu of notice is neither a redundancy payment within the meaning of that term, nor is it a leave payment. It is a payment that the employer must make if the person’s employment is terminated without the person being permitted to serve the period of notice. It applies in other situations where a person’s employment is terminated and is not limited to redundancies. The fact that a longer period of notice must be given to an employee who is to be made redundant, does not, in my view, change the nature of a payment made in lieu of that period of notice. Thus, in my view, a payment in lieu of notice does not, in this case, fall within the definition of a ‘termination payment’ as defined in s 1064-F14 of the Act.
Issue 2: How long is Mr Reed’s ‘income maintenance period’?
Section 1064-F2 states:
Lump sum payments arising from termination of employment
1064-F2 Subject to points 1064-F3 to 1064-F14 (inclusive), if:
(a) a person’s employment has been terminated; and
(b) as a result the person is entitled to a lump sum payment from the person’s former employer;
the person is taken to have received the lump sum payment on the day on which the person's employment was terminated.
As stated above, s 1064-F5 states:
If:
(a) a person’s employment has been terminated; and
(b) the person receives a termination payment …;
the person is taken to have received ordinary income for a period (the income maintenance period) equal to the period to which the payment relates.
There is no dispute that the payments made to Mr Reed in respect of redundancy, long service leave and rostered days off give rise to an income maintenance period. However, in accordance with my decision on the first issue, the payment received in lieu of notice does not do so because it is not a ‘termination payment’.
The parties disagree on how the applicable the income maintenance period should be determined and, in particular, what constitutes Mr Reed’s ‘ordinary income’ for that purpose. Mr Reed contends that his ordinary income should be taken to be his average weekly gross income determined over a two year period. His average weekly gross income included payments for overtime and shift work that he was required to perform pursuant to the terms of his contract of employment.
The term ‘ordinary income’ is defined in s 8(1) of the Act as “income that is not maintenance income or an exempt lump sum”. It is not contended that either maintenance income or an exempt lump sum are relevant in Mr Reed’s case. The term ‘income’ is defined in s 8(1), relevantly, as income “earned, derived or received by the person for the person’s own use or benefit” which, pursuant to s 8(2) can be “by any means” and “from any source”. Section 1072 of the Act states:
A reference in this Act to a person’s ordinary income for a period is a reference to the person’s gross ordinary income from all sources for the period calculated without any reduction, other than a reduction under Division 1A.
Mr Reed, relying on the Tribunal’s decision in Re Williams and Secretary, Department of Education, Employment and Workplace Relations [2010] AATA 354 (Williams), contends that the length of his income maintenance period should be calculated by dividing his termination payment by his ordinary income, namely his average weekly gross income determined by reference to his income over the preceding two years. In Williams, the Tribunal relied on the Full Federal Court decision in Secretary, Department of Employment and Workplace Relations v Richards (2008) 168 FCR 438 (Richards), where, at [39] the Court noted that “The Act is a remedial provision and calls for no narrow or pedantic construction”, and said, at [40], the answer to the question what was Ms Richards’ income was to be found in the terms of her employment contract. The Court confirmed that it was Ms Richards’ gross income that had to be taken into account. In Williams, the Tribunal found that the overtime undertaken by Mr Williams was “integrally related” to the work he had contractually agreed to perform.
The Secretary contends that the method of calculation followed in Williams should not be followed. The Secretary submits that paragraph (b) of the definition of ‘period to which the payment relates’ in s 1064-F14 requires that the decision-maker first consider how the redundancy payment has been calculated. Where a termination payment has been calculated by reference to a given number of weeks, the income maintenance period will apply for the same number of weeks.
Mr Reed said the first Employment Separation Certificate prepared by QANTAS dated 4 November 2010 wrongly stated that his average gross weekly wage was $656.38. This was calculated on the basis of the annual leave payments he received in respect of the holiday he took in the period before he was made redundant, and he produced a Pay Advice referring to his annual leave for the period 19 May 2010 to 25 June 2010 which confirmed this. QANTAS subsequently prepared a second Employment Separation Certificate, dated 12 January 2011, stating that his average gross weekly wage was $1,237.97. Mr Reed contends that the applicable income maintenance period should be calculated by dividing his termination payment by this figure.
The Secretary contends that the income maintenance period is calculated by reference to the definitions of ‘leave payment’ and ‘period to which the payment relates’ in s 1064-F14, quoted above and, further, that paragraph (b) of the latter definition applies in Mr Reed’s case. Paragraph (b) requires the decision-maker to consider how the redundancy payment has been calculated. If it is calculated as an amount equivalent to an amount of ordinary income that the person (but for the redundancy) would have received from the employment that was terminated, the period to which the payment relates is the period for which the person would have received that amount of ordinary income.
The TWU agreement, Appendix A, ‘Compulsory Redundancy Agreement’, which governed Mr Reed’s employment, states:
Pay calculation
For the purposes of this Agreement, “pay” shall be paid at that the ordinary time rate prescribed in this Agreement and shall include regular weekly payments, such as service increments and supervisory allowances, but shall exclude shift, overtime and extraneous payments.
Thus, although Mr Reed was required to perform shift work and overtime as required by QANTAS and this would for other purposes be regarded as part of his ordinary income (and presumably reflected in the average gross weekly wage of $1,237.97 stated in Mr Reed’s second Employment Separation Certificate dated 12 January 2011), the redundancy component of Mr Reed’s termination payment appears to have been calculated in accordance with the provision in the TWU Agreement excluding, in particular, shift and overtime payments.
I am therefore satisfied that paragraph (b) of the definition of ‘period to which the payment relates’ in s 1064-F14 is relevant here and that the period of 79 weeks (which equates to 395 working days) stated in both Mr Reed’s Employment Separation Certificates as the period in respect of which the redundancy component of his termination payment was made is the applicable period.
With regard to the long service leave payment received by Mr Reed as a component of his termination payment, I note that Appendix A of the TWU Agreement states:
B. Long service leave
Pro-rata long service leave shall be paid to employees with more that twelve (12) months’ continuous service. For the purposes of these provisions, long service leave will be applied in accordance with the amount provided under the Company’s long service leave provisions.
I have not been provided with a copy of these provisions and assume, since this was not specifically contested by Mr Reed, that payment for the relevant period was made in accordance with these provisions.
With regard to the rostered days off component of Mr Reed’s termination payment, I note that “Payout of RDO’s” is addressed in clause 27.3.4 of the TWU Agreement, which states: “The pay out will be at the employee’s base salary and will be paid at single time.”
In my view, the number of days for which Mr Reed was entitled to long service leave and leave in respect of rostered days off determined by QANTAS, which appears to have been determined in accordance with the applicable TWU Agreement or the Company’s long service leave provisions, should, in accordance with s 1064-F5, be taken to be the period to which the payments relate.
The 79 week redundancy component of Mr Reed’s termination payment together with Mr Reed’s 23 days long service leave and 13 rostered days off result in a total period of 431 working days, which comprises the ‘income maintenance period’ applicable in Mr Reed’s case.
Issue 3: When does Mr Reed’s income maintenance period commence?
Mr Reed contends that the applicable income maintenance period commences on 30 June 2010, being the day after his employment was terminated. Section 1064F-2 of the Act states:
1064-F2 Subject to points 1064-F3 to 1064-F14 (inclusive), if:
(a) a person’s employment has been terminated; and
(b) as a result the person is entitled to a lump sum payment from the person’s former employer;
the person is taken to have received the lump sum payment on the day on which the person’s employment was terminated.
Moreover, in Williams, at [45], the Tribunal said:
As submitted by the Respondent, section 4.3.4.10 of The Guide to Social Security Law provides the date of commencement of an IMP where employment has ceased, is the effective date of the payment for redundancy and related amounts. This will generally be the date the person last worked, or more precisely, the IMP will commence on the day following the last day of paid employment.
However, the Secretary relies on s 1064-F8, which states:
1064‑F8 If a person is covered by point 1064‑F5, the income maintenance period starts, subject to point 1064‑F9, on the day on which the person is paid the termination payment.
Section 1064-F9 is not applicable in Mr Reed’s case. Since Mr Reed received his termination payment of 9 July 2010, the Secretary contends this is the day on which the income maintenance period commences.
I note the distinction between the wording of s 1064-F8, which, in relation to the termination payment, uses the word ‘paid’, and s 1064-F2, which uses the word ‘received’. In my view, it is reasonable to assume that one of the objectives of these provisions, like those elsewhere in the Act, is to prevent ‘double dipping’ – to prevent a person receiving a social security payment, in this case DSP, for a period in respect of which the person has also received a redundancy payment. I also note the Explanatory Memorandum for the Employment and Workplace Relations Legislation Amendment (Welfare to Work and Other Measures) Bill 2005 states under the heading ‘Background’ in relation to ‘Income maintenance period’:
The inclusion of redundancy payments in the calculation of the income maintenance period recognises that the primary purpose of a redundancy payment is to support peoples’ incomes for a period after loss of employment.
…
Under the income maintenance period, where a person claiming or receiving disability support pension receives a leave payment or a redundancy payment, the amount of that payment will be apportioned over the period that the payment represents and maintained as ordinary income for that period.
In Mr Reed’s case, he was paid redundancy payments for the period after the termination of his employment on 29 June 2010: for the period from 30 June 2010. As the Explanatory Memorandum indicates, the primary purpose of redundancy payments is to support a person for a period after the loss of their employment. Mr Reed was paid redundancy payments for 79 weeks from 30 June 2010. The fact that he actually received the lump sum payment in respect of his entitlements on termination on 9 July 2010 is not, in my view, determinative of the issue. It is not uncommon for employees to receive a payment to which they are entitled after the date in respect of which the payment became payable.
Thus, Mr Reed’s income maintenance period commences on 30 June 2010, the day following his last day of paid employment.
CONCLUSION
Essentially, I agree with the SSAT decision with regard to the first and second issues identified above, and the third issue identified above was not discussed in that decision. In my view, it is unnecessary to remit the matter to the Secretary for reconsideration. The applicable periods in respect of which Mr Reed received the redundancy and leave components of his termination payment are clear, totalling 431 working days commencing on 30 June 2010 (and according to the Tribunal’s calculation, ending on 22 February 2012).
DECISION
The decision under review is set aside and a decision substituted that payment of disability support pension to Mr Reed is subject to an income maintenance period of 431 working days commencing on 30 June 2010.
I certify that the preceding 39 (thirty nine) paragraphs are a true copy of the reasons for the decision herein of Mr R P Handley, Deputy President.
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Administrative Assistant - Legal
Dated 25 January 2012
Date(s) of hearing 20 January 2012 Applicant In person Advocate for the Respondent Mr J Larcombe
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