Armstrong v Aldi Foods

[2013] VMC 37

IN THE MAGISTRATES COURT OF VICTORIA

AT MELBOURNE

Case No. D11162954

ADAM ARMSTRONG	Plaintiff
v
ALDI FOODS PTY LTD	Defendant

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MAGISTRATE:	Magistrate B Wright
WHERE HELD:	Melbourne
DATE OF HEARING:	15 November 2013
DATE OF DECISION:	27 November 2013
CASE MAY BE CITED AS:	Armstrong v Aldi Foods

REASONS FOR DECISION

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Catchwords:

Workers Compensation – Pre-Injury Average Weekly Earnings – “Ordinary Earnings” – Whether Specific Benefit is a “Commission” or “Incentive Based Payment or Bonus” - Accident Compensation Act (Reprint No. 17) ss 5AB, 5AC

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr M Roche	Slater and Gordon
For the Defendant	Mr J O’Brien	Wisewould Mahony

(Revised)

(Magistrate Wright)

D E C I S I O N

HIS HONOUR: Mr Armstrong seeks a recalculation of his pre-injury average weekly earnings (“PIAWE”) in respect of an accepted claim for a back injury on 25 April 2011 under the Accident Compensation Act 1985 ("the Act") which was sustained in his employment with the Defendant (“Aldi”).

At all relevant times he was employed as a store manager. The parties have agreed that his PIAWE was $1252 per week, subject to a dispute whether all or part of a "Business Review Payment" (“BRP”) pursuant to the relevant Workplace Agreement Dandenong 2009 (“the Agreement") should be included as well. 

Because of the dates of injury and lodging of the claim, the PIAWE provisions enacted by Act 80 of 2010 are relevant. 

In particular, it is an issue, as agreed between the parties, whether the BRP is a “commission” for the purposes of s.5AB(1A)(ii) of the Act defining “ordinary earnings” as opposed to "an incentive based payment or bonus" as excluded from the “base rate of pay” pursuant to s.5AC(1A).

The Act does not define “commission” or “incentive based payment or bonus”. The relevant Second Reading Speech and Explanatory Memorandum do not assist in this regard. 

Both parties agreed that this case should be decided on an analysis of the relevant provisions in the Agreement and applying normal concepts of the relevant contentious words. 

Neither counsel was able to point to any relevant case, save possibly for Patterson v. Stanmorr Pty Ltd (2000) 2 VR 460, a decision of the Victorian Court of Appeal.

The Agreement includes a Schedule 1 for “salaried store employees” (“the Schedule”), which is applicable to Mr Armstrong as a store manager as well as other employees.

“Part B-Remuneration” of the Schedule has a sub-paragraph B1 applicable for store managers.  Sub-paragraph B1.1 relates to salary, and more particularly minimum rate of pay. 

The crucial provision in this case is Sub-paragraph B1.2 “Business Review Payment”. 

The preamble part in B1.2 states :-

"Aldi operates a discretionary Business Review Payment.  It is designed to provide incentives to employees that reflect performance at the store.  The amount of any payment will be determined and paid by Aldi on at least a monthly basis based on the results of the previous calendar month.            

The Business Review Payment for store managers, upon the takeover of a store, is made up of a Productivity Bonus and a Sales Bonus.  Calculation for each of these bonuses are (sic) based on the employees engaged to work an average of 50 hours per week”.

In reference to “Productivity Bonus” this is:-

"Calculated as 125 % of achieved productivity figure for the store for the previous month.  Productivity equals store sales divided by the total productive hours worked by all employees in the store for a month."

In reference to “Sales Bonus” it states:-

"Based on monthly sales for the store cumulatively calculated as follows." 

A scale is then set out in which there is a very small and decreasing percentage figure depending on the monetary level of monthly sales.  To summarise, the higher the sales, the more money is paid by “Sales Bonus” though on a decreasing percentage after the sales reach each monetary level. This is somewhat similar to income tax weekly deductions. However, the percentage reduces at each level. 

A sample pay slip for Mr Armstrong dated 5 October 2008 was tendered to the effect that the wage paid to him included amounts for "Normal Pay", "Sales Bonus" and "Productivity".  Clearly, the latter two components refer to the separate aspects of the BRP.

In the Act there is a distinction between “base rate of pay” in s.5AC and “ordinary earnings” in s.5AB.

Normally, the PIAWE is based on the “ordinary earnings” which is the “base rate of pay” plus any “commission” (see, s.5AB (1)).  In calculating the “base rate of pay”, any “incentive base payments or bonuses” and “piece rates or commissions are excluded (see, s.5AC(1)(a) and (d)).

However, any “piece rate or commission” does form part of “ordinary earnings” under s.5AB(1A)(ii).

Thus, Aldi argues that the BRP is an “incentive based payment or bonus” and Mr Armstrong argues that it is a “commission”.

Aldi points to the preamble part of sub-paragraph B1.2 in which reference is made to it being "discretionary” and “designed to provide incentives to employees" (emphasis added) and is also described as a “bonus”. 

Further, it says that the BRP is not a specific commission based on any sales by Mr Armstrong personally but rather based on the group sales for the whole store. In those circumstances it submits that the BRP must be an incentive. 

Both counsel refer to Patterson v. Stanmorr (supra) which was a case in which it was held that the PIAWE included the value of non-pecuniary benefits received by that worker being the value of food and accommodation to which she was entitled under the terms of her employment. At p.485 of the judgment Phillips JA stated in such circumstances the Act does not dictate form over substance (emphasis added). Thus, it is not how the benefit is described, rather there must be recourse to its substance. 

Counsel for Mr Armstrong points out that both components of the BRP are based on sales and not any other method of calculation.  Although the “Productivity Bonus” does refer to a total productive hours worked by all employees in the store, this is only part of the calculation.  A reduction in the total hours increases the bonus payable by reference to the monthly store sales. 

He also submits that there is nothing to say that commission cannot be paid on group rather than individual sales.  As he states, there would be no other basis for a manager to be ever paid commission. 

Neither counsel referred to any legal definition or relevant interpretation of "incentive based payment or bonus", or alternatively "commission".  As I pointed out to counsel in argument, all commissions payable to employees are probably an incentive, if not a bonus. However, not all incentive payments are commission, depending on their application and relevance.  Incentive may be based on quantity or quality of production and not just quantity of sales. 

The CCH Macquarie Dictionary of Employment and Industrial Relations defines these relevant terms as follows.

Firstly, "incentive payment" is defined at p.160 as being "that part of an employee's pay sometimes provided for in an incentive scheme which relates to the degree to which he or she has achieved an objective desired by the employer which is an increase in quantity or quality of output". 

Secondly, "bonus" is defined at p.38 as a "payment above the regular base rate or standard pay, for example (including) as well as an incentive payment made under a piecemeal system or incentive scheme or as a production bonus". 

Thirdly, "commission" is defined at p.61 as a "payment made to sales staff in addition generally to their base wage and usually related to a specific measure of performance such as a volume or value of sales.  Supervising staff relating to the sales function sometimes also have arrangements in their contracts of employment for earning commission” (emphasis added).

I agree with the counsel for Mr Armstrong that both components of the BRP in the Agreement are “commission” in this case and should be considered in the calculation of “ordinary earnings” together with the agreed “base rate of pay”.  Both components involve a consideration of sales and not quantity or quality of production. 

The fact that group sales, and not individual sales by Mr Armstrong, are taken in to account does not exclude the BRP from being a commission payable to him.  There is no reason why a manager could not be paid a commission based on sales made by his or her staff at an establishment.    The CCH Macquarie Dictionary definition allows for this. 

Clearly the “sales bonus” is a commission as it is purely based on monthly sales for the store.  The “productivity bonus” is based on monthly store sales as well.  If the manager is able to reduce the total productive hours worked by all store employees in a month then a greater amount is paid by way of productivity bonus as the total sales is divided by a lesser amount. 

If the “productivity bonus” was purely calculated as a payment based on the reduction of monthly total productive hours worked by all store employees, it would more likely be an incentive based payment or bonus. However, this is not the case in the Agreement.

Although the two component parts of the BRP in the Agreement are referred to as a “bonus”, I believe that regard should be had to substance and not form as referred to by Phillips JA in Patterson v. Stanmorr (supra).  The substance of the total of the component parts is clearly a commission. 

Similar comments could be made as to the use of the word “incentive” in the preamble part as well. In any event as I have discussed, theoretically all commissions are an incentive to an employee. 

I do not see how reference to the BRP as being discretionary or variable at any time in the Agreement really assists in making my decision in this case.

I therefore hold that the Business Review Payment in the Agreement is a “commission” for the purposes of s.5AB(1A)(ii) and thus should be included as “ordinary earnings”.

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