Casey Grammar School v Independent Education Union of Australia

[2010] FWA 8218

[2010] FWA 8218 (PR503051)

The attached document replaces the document previously issued with the above code on 25 October 2010. This refile corrects a typographical error in the sixth line in para [26] by replacing the words “by s.234” with “by s.324”.

Janet Hall

Associate toVice President Lawler

9 November 2010

[2010] FWA 8218

FAIR WORK AUSTRALIA

DECISION

Fair Work Act 2009
s.739—Dispute resolution

Casey Grammar School
v
Independent Education Union of Australia
(C2010/4660)

VICE PRESIDENT LAWLER MELBOURNE, 25 OCTOBER 2010

Salary sacrifice.

[1] This is an application by Casey Grammar School (Casey) pursuant to s.739 of the Fair Work Act 2009 (FW Act) for Fair Work Australia (FWA) to deal with a dispute notified by Casey under clause 9.4 of the Education Services (Teachers) Award 2010 (Award).

[2] The dispute is over Casey’s refusal to accede to a salary sacrifice arrangement requested by one of its teachers. The teacher in question is employed in the Level 12 classification specified in clause 13 of the Award and has an annual salary of $80,261.64. The salary sacrifice arrangement requested by the teacher would see her receive a monetary payment of $40,265.64 per annum with the balance of her salary ($39,996) paid as employer contributions to her superannuation fund.

[3] From 1 July 2010 the minimum wage specified in clause 14 of the Award for a Level 12 teacher is $54,850 per annum. Casey is happy to agree to the salary sacrifice request if such an arrangement is consistent with its legal obligations, in particular, its legal obligations under the Award and the FW Act. Casey’s refusal to approve the request is based solely on a concern that the arrangement may involve Casey in a breach of the Award or the FW Act because the annual monetary payment under the requested salary sacrifice arrangement is less than the minimum salary specified by the Award. Casey is concerned that the obligation in clause 14 of the Award, in conjunction with s.323 of the FW Act, to pay a minimum salary no less than the amount specified in clause 14 will be breached by the arrangement because monetary payment to the teacher would be less than the applicable minimum wage. The IEUA contends that the arrangement will not involve Casey in a breach of the Award or s.323.

[4] Division 2 of Part 2-9 of the FW Act deals with “Payment of wages” and contains sections 323 to 327. It is useful to set out all of those provisions:

323 Method and frequency of payment

(1) An employer must pay an employee amounts payable to the employee in relation to the performance of work:

(a) in full (except as provided by section 324); and

(b) in money by one, or a combination, of the methods referred to in subsection (2); and

(c) at least monthly.

Note 1: This subsection is a civil remedy provision (see Part 4-1).

Note 2: Amounts referred to in this subsection include the following if they become payable during a relevant period:

(a) incentive based payments and bonuses;

(b) loadings;

(c) monetary allowances;

(d) overtime or penalty rates;

(e) leave payments.

(2) The methods are as follows:

(a) cash;

(b) cheque, money order, postal order or similar order, payable to the employee;

(c) the use of an electronic funds transfer system to credit an account held by the employee;

(d) a method authorised under a modern award or an enterprise agreement.

(3) Despite paragraph (1)(b), if a modern award or an enterprise agreement specifies a particular method by which the money must be paid, then the employer must pay the money by that method.

Note: This subsection is a civil remedy provision (see Part 4 1).

324 Permitted deductions

(1) An employer may deduct an amount from an amount payable to an employee in accordance with subsection 323(1) if:

(a) the deduction is authorised in writing by the employee and is principally for the employee’s benefit; or

(b) the deduction is authorised by the employee in accordance with an enterprise agreement; or

(c) the deduction is authorised by or under a modern award or an FWA order; or

(d) the deduction is authorised by or under a law of the Commonwealth, a State or a Territory, or an order of a court.

Note 1: A deduction in accordance with a salary sacrifice or other arrangement, under which an employee chooses to:

(a) forgo an amount payable to the employee in relation to the performance of work; but

(b) receive some other form of benefit or remuneration;

will be permitted if it is made in accordance with this section and the other provisions of this Division.

Note 2: Certain terms of modern awards, enterprise agreements and contracts of employment relating to deductions have no effect (see section 326). A deduction made in accordance with such a term will not be authorised for the purposes of this section.

(2) An authorisation for the purposes of paragraph (1)(a):

(a) must specify the amount of the deduction; and

(b) may be withdrawn in writing by the employee at any time.

(3) Any variation in the amount of the deduction must be authorised in writing by the employee.

325 Unreasonable requirements to spend amount

(1) An employer must not directly or indirectly require an employee to spend any part of an amount payable to the employee in relation to the performance of work if the requirement is unreasonable in the circumstances.

Note: This subsection is a civil remedy provision (see Part 4-1).

(2) The regulations may prescribe circumstances in which a requirement referred to in subsection (1) is or is not reasonable.

326 Certain terms have no effect

Unreasonable payments and deductions for benefit of employer

(1) A term of a modern award, an enterprise agreement or a contract of employment has no effect to the extent that the term:

(a) permits, or has the effect of permitting, an employer to deduct an amount from an amount that is payable to an employee in relation to the performance of work; or

(b) requires, or has the effect of requiring, an employee to make a payment to an employer or another person;

if either of the following apply:

(c) the deduction or payment is:

(i) directly or indirectly for the benefit of the employer, or a party related to the employer; and

(ii) unreasonable in the circumstances;

(d) if the employee is under 18—the deduction or payment is not agreed to in writing by a parent or guardian of the employee.

(2) The regulations may prescribe circumstances in which a deduction or payment referred to in subsection (1) is or is not reasonable.

Unreasonable requirements to spend an amount

(3) A term of a modern award, an enterprise agreement or a contract of employment has no effect to the extent that the term:

(a) permits, or has the effect of permitting, an employer to make a requirement that would contravene subsection 325(1); or

(b) directly or indirectly requires an employee to spend an amount, if the requirement would contravene subsection 325(1) if it had been made by an employer.

327 Things given or provided, and amounts required to be spent, in contravention of this Division

In proceedings for recovery of an amount payable to an employee in relation to the performance of work:

(a) anything given or provided by the employer contrary to paragraph 323(1)(b) and subsection 323(3) is taken never to have been given or provided to the employee; and

(b) any amount that the employee has been required to spend contrary to subsection 325(1), or in accordance with a term to which subsection 326(3) applies, is taken never to have been paid to the employee.

(emphasis added)

[5] Clause 14 of the Award deals with minimum wages and relevantly provides:

14. Minimum salary

14.1 The minimum salary per annum payable to a full-time employee will be determined in accordance with the provisions of clause 13—Classifications, and the following table.

Level	Per year
...
12	53 493

[6] Section 45 of the FW Act provides:

45 Contravening a modern award

A person must not contravene a term of a modern award.

Note 1: This section is a civil remedy provision (see Part 4-1).

Note 2: A person does not contravene a term of a modern award unless the award applies to the person: see subsection 46(1).

[7] There is nothing in the Award dealing with salary sacrifice arrangements.

[8] In my view the proper meaning of s.324(1), when construed in the context of the FW Act as a whole, is plain according the ordinary meaning of its words: “[a]n employer may deduct an amount from an amount payable to an employee in accordance with subsection 323(1) if” one of the conditions in paragraphs (a) to (d) is satisfied.

[9] Section 323 is, as it heading indicates, concerned with regulating the timing and frequency of the payment of “amount[s] payable” to an employee, together with the method by which those payments must be made. It does not create the underlying legal obligation to pay that renders an amount as “an amount payable to an employee” within the meaning of s.324(1). Rather, it operates on an existing legal obligation to pay and then imposes further obligations on the employer in relation to the timing, frequency and method of such payments. The words of s.323(1) are apt to cover all wage and wage-related amounts due from a national system employer to one of its employees, irrespective of whether those amounts become legally “payable” by virtue of the NES, an award, an individual or collective statutory agreement or a common law contract. On the plain meaning of its words, s.324 is intended to qualify the obligation imposed by s.323 and is intended to authorise certain deductions from “an amount payable to an employee”. Where an employee is employed on a minimum award wage, that minimum award wage is, on any view, an “amount payable” to the employee and there is nothing in the words of s.324 to suggest that a deduction in accordance with s.324 is not permitted from such an “amount payable”.

[10] To the extent that any doubt might be thought to exist as to the proper construction of s.324, that doubt is removed by the Explanatory Memorandum which states:

Clause 324 – Permitted deductions

1286. Clause 324 lists deductions that may be made from payments due to an employee.

1287. A deduction may be made if it is authorised by:

• the employee (in writing), provided that the deduction is principally for the employee’s benefit;

• the employee, in accordance with an enterprise agreement;

• a modern award or an order of FWA; or

• a law of the Commonwealth, a State or a Territory, or an order of a court.

1288. Deductions that may be made under this provision include salary sacrifice arrangements (as is made clear by the first legislative note after this clause).

1289. The second legislative note after this clause clarifies that certain terms of a modern award, enterprise agreement or contract of employment relating to deductions may have no effect (see clause 326). A deduction purportedly made in accordance with such a term would therefore not be authorised for the purposes of this clause.

1290. An authorised deduction does not have the effect of reducing an employee’s minimum wage (e.g., under an award), but will have the effect of reducing the amount that an employer is required to pay to the employee. Other amounts may still be required to be paid by the employer to third parties on behalf of the employee; e.g., under a salary sacrifice arrangement.

(emphasis added)

[11] Further support for giving the words of s.324(1) the generality of their ordinary meaning is provided by s.321 of the FW Act which contains a “guide” to Part 2-9 and relevantly recites:

Division 2 is about the frequency and methods of payment of amounts payable to national system employees in relation to the performance of work, and the circumstances in which a national system employer may make deductions from such amounts.

(emphasis added)

[12] Finally, note 1 to s.324(1) makes it plain that a deduction in accordance with a salary sacrifice arrangement was expressly intended to fall within the authorisation in s.324.

[13] To the extent that Casey is concerned that the provisions of the Award oblige it to make a monetary payment to the teacher no less than the minimum salary specified in clause 14 of the Award and, thus, have the effect of preventing it from entering the requested arrangement it is sufficient to note that the FW Act take precedence over a modern award to the extent of any inconsistency unless the FW Act itself authorises an inconsistent term of that sort. 1 (The FW Act may itself authorise the insertion of provisions in a modern award that are inconsistent with other provisions of the FW Act, in which case there is, on a true analysis, no relevant inconsistency. However, that situation does not arise in the present case.) It follows that if a deduction is authorised by s.324, nothing in the Award can have the effect of overriding that authorisation. To the extent that s.45 could be said to be inconsistent, requiring, as it does, compliance with the award, it is sufficient note that s.45 is a provision of general operation obliging compliance with all terms of an applicable modern award. Section 324 is a specific provision. The guide to construction embodied in the maxim generalia specialibus non derogant suggests that s.324 should prevail over s.45 to the extent that they may be thought to be inconsistent. However, the better view is that there is, in truth, no inconsistency. Section 45 requires compliance with the Award. The Award makes the teacher’s minimum wage payable to the teacher. Section 324(1) then operates in relation to that “amount payable” to the teacher.

[14] Casey advanced four reasons “why s.324 should be read down in light of the primary obligation under s.45 of the Act that a person must comply with its award obligation, in this case the obligation under clause 14 of the Award to pay the minimum salary”. Those reasons appear in the following extract from the applicant’s written submissions:

18. First, because s.324 is limited in its operation, merely qualifying the operation of s.323(1)(a) which deals with circumstances where wages are not paid in full.

19. Secondly; because neither the Explanatory Memorandum to the Fair Work Bill 2008, nor the Note to Section 324(1) makes express reference to salary sacrificing below the award rate. The effect of s.45 should not be read down to give a broad meaning to such intrinsic materials. Their only legitimate purpose is to aid in the interpretation of the express provisions of the Act.

20. Thirdly, the Act does not contain an express provision stating that the minimum rate of pay can be satisfied through a combination of wages and non-wage benefits. Under the former Workplace Relations legislation, there was such an express provision in relation to the operation of the Australian Fair Pay and Conditions Standard (Standard), which did not impose a limit on the amount of salary which could be sacrificed.

21. Regulation 7.1.(4) of the Workplace Relations Regulations 2006 stated:

The Standard does not provide a more favourable outcome in respect mentioned in subregulation (2) if:

a) a provision in the workplace agreement or written contract of employment binding the employee and the employer provides for the employer to pay an amount in respect of the employee under a salary sacrifice arrangement, and

b) the employee gives the employer a written election, separate to the workplace agreement or contract of employment, for a salary sacrifice arrangement, and

c) the guarantee of basic rates of pay in Subdivision B of Division 2 of Part 7 of the Act would be satisfied if the payment were instead paid to the employee.

22. Finally, a broad interpretation of s.324 would effectively undermine the clear intention of the Act to provide for a safety net of minimum award rates of pay as reflected in the object s of the Act itself in s.3(b) and the ‘modem award objective’ as stated in s.134(1). This is consistent with the introduction into the ‘better off overall test’ of the requirement in s.206 that an enterprise agreement must provide a base rate of pay no less than the minimum rate prescribed by the relevant modern award. It is also implicit in the reasoning of the Full Bench in Award Modernisation [2009] AIRFB (25 September 2009) that the legislative scheme contemplates a minimum monetary payment under the modern award system.

23. The Respondent favours a broad interpretation of s.324 that enables an employer to reach agreement with an employee such as Ms Burgess to a salary sacrifice arrangement, even where the effect of the arrangement would otherwise be a breach of the Award, in that her wages would fall below the prescribed minimum rates of pay set out at clause 14. Essentially the respondent’s argument is that whilst the Award may require the payment of wages to be made in full, as long as the provisions in section 324 of the FW Act are met, Ms Burgess can authorise a different arrangement.

24. The applicant submits that if it was intended that the meaning of section 324 was in accordance with the respondent’s view, that would be expressly provided for in the legislation.

[15] I will deal with these points in order. First, s.324 is not expressed as qualifying s.323(1)(a): its qualifies s.323(1) as a whole. The fact that the operation of s.324 is limited in its operation according to the meaning of its words is irrelevant if the meaning of those words comprehends an arrangement of the sort proposed by the teacher in this case.

[16] Secondly, I do not regard it as material that neither the Explanatory Memorandum nor the note to s.324 makes express reference to salary sacrificing below the award rate. There was no express prohibition on that practice in the Workplace Relations Act 1996 (WR Act) and, as far as I can determine, there was no decision of the Australian Industrial Relations Commission (AIRC), FWA or any court identifying such a limitation in the prior legislation. In other words, there was no obvious occasion for the Explanatory Memorandum or the note to s.324 to make express reference to salary sacrificing below the minimum award rate.

[17] Thirdly, I do not see that any strong inference can be drawn from the absence in the FW Act of an express provision stating that the minimum rate of pay can be satisfied through a combination of wages and non-wage benefits. The WR Act itself did not contain any such provision. The existence of a mere regulation made under the WR Act expressly authorising a bona fide salary sacrifice arrangement that results in a monetary payment less than minimum provided for in the Australian Fair Pay Commission (AFPC) does not provide a proper basis for importing a limitation into the operation of s.324(1) of the FW Act that is not apparent in the plain words of that section.

[18] Finally, I note that Casey drew attention to comments of the award modernisation Full Bench of the AIRC which it relied upon as supporting its case. In its decision of 19 December 2008 making the priority stage modern awards 2 the Full Bench stated:

[65] In the case of a number of modern awards issues arose concerning the manner of expression of minimum wages. We have set out hourly rates in addition to weekly rates in some awards. Some awards also contain annual salaries.

[66] A number of parties sought provision for salary packaging or salary sacrifice and annualised wages and salaries as standard in awards. We shall deal with salary sacrifice first. A number of employer interests suggested that salary sacrifice was a legitimate, well accepted practice and that employees would benefit from its adoption. Arrangements permitting an employee to sacrifice an amount of wages in exchange for the employer making a payment on the employee’s behalf are not a feature of the award system. We think we should take a cautious approach. Consistent with the views expressed in our decision of 20 June 2008 concerning the model award flexibility provision, we do not think that minimum wages should be subject to reduction by agreement other than by bargaining. We have not included salary sacrifice provisions in any of the modern awards.

[19] In its statement accompanying the publication of stage 4 exposure drafts the Full Bench said: 3

[13] We turn now to the question of salary packaging or salary sacrifice. In its decision in relation to the priority modern awards, the Commission indicated that it would take a cautious approach to salary packaging. [[2008] AIRCFB 1000 at para 66] The major parties involved in the consultations for health and welfare services (remainder) – social and community services, strongly supported salary packaging. It is clear that salary packaging provisions have been included in relevant awards in the area. However, we do not have a clear indication of the extent to which employees in the industry need or use the award provisions. Nor do we know the extent to which salary packaging provides a net benefit to employees. At this stage we have maintained the approach previously outlined and have not included a salary packaging provision in the relevant exposure draft. Although we are prepared to reconsider the position, we would not be inclined to include such provisions without more information about the incidence of salary packaging in the relevant industries and a more detailed explanation of the relative benefits for employers and employees. Submissions should also cover whether such a term can be included in a modern award and, if so, whether such a term would be consistent with the provision of a fair minimum safety net. We make some further comments in relation to salary packaging later in this statement in dealing with the exposure draft for the Social, Community, Home Care and Disability Services Industry Award 2010.

[20] In the context of the exposure draft of the Social, Community, Home Care and Disability Services Industry Award 2010 the Full Bench stated:

[109] We turn again to the question of salary packaging which we have already dealt with in the introduction to this statement. In its decision of 19 December 2008, the Commission said:

“[66] A number of parties sought provision for salary packaging or salary sacrifice and annualised wages and salaries as standard in awards. We shall deal with salary sacrifice first. A number of employer interests suggested that salary sacrifice was a legitimate, well accepted practice and that employees would benefit from its adoption. Arrangements permitting an employee to sacrifice an amount of wages in exchange for the employer making a payment on the employee’s behalf are not a feature of the award system. We think we should take a cautious approach. Consistent with the views expressed in our decision of 20 June 2008 concerning the model award flexibility provision, we do not think that minimum wages should be subject to reduction by agreement other than by bargaining. We have not included salary sacrifice provisions in any of the modern awards.” [[2008] AIRCFB 1000]

[110] While we maintain the views in this passage, as we have already indicated we are prepared to consider whether there are special circumstances relating to this particular industry which warrant a departure. We have already set out some of the matters which in our view need to be addressed. We should add that there are a number of options in terms of award provisions. If it were decided that salary packaging should not be maintained in the modern award it might be necessary to fashion transitional provisions to take account of the current arrangements. There would also be the possibility of reconsidering the matter in the two year review of modern awards. The views of the parties are invited on these questions also.

(emphasis added)

[21] In the event, the Full Bench nevertheless included a salary sacrifice provision in two of the stage 4 awards. 4

[22] The Full Bench raised doubts as to whether a salary sacrifice term would be consistent with the provision of a fair minimum safety net and, by implication, saw this as a particular issue where such an arrangement would operate in relation to minimum award wages. However, the occasion did not arise for the Full Bench to express a concluded view. The Full Bench did not receive full argument and did not consider the terms of s.324. As far as I am aware, this is the first occasion that a court or tribunal has been called upon to make a determination on the question. I do not see the foregoing as involving the expression of any view that should be regarded as determinative of the present application.

[23] I make two further observations. First, the views of the Full Bench in relation to the appropriate content of a modern award are strictly irrelevant to the proper construction of a provision of the FW Act that is not expressly concerned with or confined to modern awards. I am here concerned with the proper construction of s.324(1) in the context of the FW Act as a whole. That construction must occur in accordance with the established principles of construction. Those principles, in my view, lead to the conclusion that I have adopted.

[24] Secondly, it may be readily inferred that the Full Bench’s doubts arise because of the potential for ‘agreed’ deductions to be used by an unscrupulous employer to unfairly exploit vulnerable employees and thereby undermine the effectiveness of the safety net so far as such employees are concerned. From time to time examples emerge where employers have obliged employees to ‘agree’ to grossly excessive deductions. There is no doubt that this sort of conduct can lead to the safety net being undermined. However, I do not see how deductions properly authorised under s.324(1) can properly be seen as undermining the safety net, even when those deductions come from a minimum award wage. An employee cannot be compelled to enter a salary sacrifice or other deduction arrangement. The employee must genuinely agree to such an arrangement. Parliament may be taken to have been conscious of the potential for abuse and sections 325 to 327 accordingly. Sections 325 to 327 provide an effective remedy against abuse by an employer of salary sacrifice and other deduction arrangements. It follows that a salary sacrifice arrangement entered consistently with the FW Act will need to have been genuinely assessed as advantageous by the employee and genuinely agreed to. Such an arrangement cannot properly be seen as undermining the safety net because the employee still derives the full benefit of the minimum award rate of pay albeit that it better suits the employee to receive part of the benefit of the minimum award rate of pay in employer payments to a third party on the employee’s behalf.

[25] For the reasons I have given I find that an employee and employer can agree pursuant to s.324(1) of the FW Act to a deduction from a minimum award wage or for an amount that results in the employee receiving, as a direct payment, less than the minimum award wage.

[26] I find that the salary sacrifice arrangement proposed by the teacher is one to which Casey can lawfully agree provided that one of the conditions in paragraphs 324(a) to (d) is satisfied and the arrangement does involve a contravention of s.325 or s.326. I find that the arrangement salary sacrifice arrangement proposed by the teacher will not, if accepted by Casey, involve a breach of the Award precisely because such arrangement will be authorised by s.324. The condition in s.323(1)(a) can be satisfied by Casey and the teacher entering into a written agreement for the salary sacrifice arrangement sought by the teacher. There is no question of s.325 or s.326 having any application to the requested arrangement in the present case.

VICE PRESIDENT

Appearances:

R. West for Casey Grammar School.

D. Matson for the Independent Education Union of Australia.

Hearing details:

2010.

Melbourne:

August 24.

 1   See generally Pearce & Argument Delegated Legislation in Australia (2nd edn), chapter 19 esp at para [19.7].

 2   [2008] AIRCFB 1000.

 3   [2009] AIRCFB 865.

 4   [2009] AIRCFB 945 at paras [77] - [78].

Printed by authority of the Commonwealth Government Printer

<Price code C, PR503051>