DTMV and Secretary, Department of Social Services (Social services second review) - [2023] AATA 29

DTMV and Secretary, Department of Social Services (Social services second review) [2023] AATA 29 (17 January 2023)
Division:GENERAL DIVISION
File Number(s): 2022/2459
Re:DTMV
APPLICANT

AndSecretary, Department of Social Services
RESPONDENT

Decision
Tribunal:Mr S Evans, Member
Date of Hearing: 1 December 2022
Date of Decision: 17 January 2023
Place:Sydney

The reviewable decision is set aside and the matter remitted to the Secretary for reconsideration with the direction that the $51,072 ex gratia payment is not a termination payment.
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Mr S Evans, Member
Catchwords
SOCIAL SECURITY —where an income maintenance period was applied as a result of applicant receiving a redundancy payment and ex-gratia payment — whether ex gratia payment would have been paid if there was no dismissal — whether ex-gratia payment was a payment connected with the termination of a person’s employment - decision set aside and remitted.
Legislation
Social Security Act 1992 (Cth)
Social Security Administration Act 1999 (Cth)
Social Security Legislation Amendment (Fair Incentives to Work) Act2012 (Cth)
Cases
Lee and Secretary, Department of Social Services [2021] AATA 3574
Lee and Secretary, Department of Social Services [2022] FCA 217
Collector of Customs v Pozzolanic Enterprises Pty Ltd (1993) 115 ALR 1
Secondary Materials
Explanatory Memorandum to the Social Security Legislation Amendment (Fair Incentives to Work) Act2012
REASONS FOR DECISION
Mr S Evans, Member
17 January 2023
Introduction

DTMV (the Applicant) worked for the same employer (the company) from 2004 until being made redundant on 13 December 2020.[1] On 4 March 2021 he made a claim for Jobseeker Payment (JSP)[2] which was refused as he was subject to an Income Maintenance Period (IMP)[3] on account of having received a termination payment from the company. The Applicant accepts that an IMP applies but contends part of his final payment, specifically an ex gratia payment of $51,072 (the ex gratia payment), was not a termination payment. The Secretary of the Department of Social Services (the Secretary) contends that all the payments received by the Applicant upon being made redundant are termination payments.
[1] T5/58
[2] T4/46
[3] T18/207
For the reasons which follow, the reviewable decision will be set aside and remitted to the Secretary.
background and facts
After accepting a redundancy from the company, the Applicant’s bank statements show that on 16 December 2020 he was paid $28,995.85 by the company[4]. A separate payment of $51,072.08 was transferred by the company to the Applicant on 13 January 2021.[5]
[4] T8/93
[5] T8/92
When submitting his application for JSP, the Applicant stated that he finished working on 11 December 2020 and had received a redundancy payment of $17,633.28.[6]
[6] T4/50
An employment separation certificate (the separation certificate) dated 15 April 2021 sets out the Applicant’s final gross payment from the company including leave and redundancy payments. The separation certificate states that the Applicant’s final gross payment including leave and redundancy payments was $51,072.00.[7]
[7] T5/58
The separation certificate also provides details of unused leave entitlements or final gross redundancy[8], recording the following:
·Redundancy (80 working days) $17,663
·Long Service Leave (60 working days) $15,283
·Other (232 working days) $51,072
[8] T5/59
Centrelink sought further information as to the nature of the payments received by the Applicant. On 18 May 2021 the company responded with a Schedule 1 statement (Schedule 1) setting out that the Applicant was paid unused annual leave and accrued long service leave to the value of $15,283, which after tax provided a net payment of $10,392.77.[9] The Schedule 1 also states that the Applicant was paid 5 weeks’ notice, a redundancy of 12 weeks and an ex gratia payment of $50,000.
[9] T8/91
Combining the ‘net unused leave payments’ with ‘Total Termination Payments’ of $68,735.36, the Schedule 1 confirms the Applicant was paid $79,128.
Centrelink determined that the Applicant received termination payments of $84,018.13 and that an IMP should be applied in respect of the Applicant’s JSP claim for the period 13 December 2020 through to 24 May 2022.[10]
The Applicant sought review of the decision which was affirmed by an Authorised Review Officer on 25 October 2021. On 24 March 2022 the Social Services and Child Support Division of the Tribunal (AAT1) affirmed the decision to apply an IMP on the basis of him having received an $84,018 termination payment. The Tribunal was also satisfied that the Applicant was not in severe financial hardship because of unavoidable or reasonable expenditure.
Issues to be determined
The Secretary contends that the $51,072 ex gratia payment is a termination payment which should be included when calculating the IMP.
The Applicant accepts that the payment of redundancy, unused annual leave and long-service leave are termination payments and appropriately included in the calculation of an IMP. However, he argues the ex gratia payment was not a termination payment and would have been made irrespective of his having been made redundant.
The issues to be determined by the Tribunal are:
- whether the ex gratia payment of $51,072 is appropriately considered a termination payment and included in the calculation of an IMP. And if so;
- whether any part of the IMP should not apply due to severe financial hardship.
Legislation and Policy
The relevant legislation is set out in the Social Security Act 1991 (Cth) (the Act), and the Social Security (Administration) Act 1999 (Cth) (the Administration Act).
Government policy is set out in the Social Security Guide (the Guide) and is usually applied by the Tribunal in the absence of cogent reasons not to do so.
Qualification for JSP is provided by section 593 of the Act. Section 643 of the Act provides that the rate of JSP is worked out using Benefit Rate Calculator B at the end of section 1068.
Sections 1068-G7AH to 1068-G7AR of Benefit Rate Calculator B set out how certain leave payments may be taken to be ordinary income following the termination of employment. Point 1068-G7AH of the Act states:
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.
Point 1068-G7AQ provides definitions as follows:
payment fortnight means a fortnight in respect of which a jobseeker payment 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 termination payment and is calculated as an amount equivalent to an amount of ordinary income that the person would (but for the termination) 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 termination 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 termination 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 includes a payment in lieu of notice, but does not include a directed termination payment within the meaning of section 82‑10F of the Income Tax (Transitional Provisions) Act 1997.
termination payment includes:
(a) a redundancy payment; and
(b) a leave payment relating to a person’s employment that has been terminated; and
(c) any other payment that is connected with the termination of a person’s employment.
The definition of ‘termination payment’ was amended by Schedule 3 of the Social Security Legislation Amendment (Fair Incentives to Work) Act 2012 (the Amendment) to include ‘any other payment that is connected with the termination of a person’s employment’. The Explanatory Memorandum to the Amendment states in part:
The intention the Income Maintenance Period is to ensure that people who receive a lump-sum payment as part of the termination of their employment use that payment to support themselves for a period before turning to the social security system.
The current definition of termination payment does not reflect accurately the policy intent and leaves it unclear as to the types of payment that may be included as a termination payment. In practice this has been open to unintended interpretation by decision-makers (such as Tribunals) including that certain termination payments are exempt from the Income Maintenance Period for some social security recipients. This has occurred particularly in relation to payments in lieu of notice, where that type of payment has occasionally been found not to be a redundancy payment but a general employee entitlement.
…
The new definition of termination payment would include payments that are one of the following;
·     redundancy payments (which is a continuation of paragraph (b) of the current definition); and
·     leave payments relating to a person’s employment that has been terminated (which is a continuation of paragraph (a) of the current definition); and
·     any other payments that are connected with the termination of a person’s employment.
This definition is not exhaustive.
Examples of such termination payments could include:
·     payments in respect of untaken long service leave, annual leave, sick leave and other types of personal leave
·     payments in respect of untaken maternity/paternity leave (except payments made under the Paid Parental Leave Act 2010)
·     payments made under contracts for early termination of employment
·     gratuity payments (a ”golden handshake” or ”farewell gift”, which may be payable in addition to a person’s contract or award entitlements)
·     payments in lieu of notice
·     payments under the General Employee Entitlements and Redundancy Scheme (which represent termination entitlements that would otherwise have been received from the person’s employer).
Is the ex gratia payment a termination payment?
The Applicant received the ex gratia payment on condition of entering a non-disclosure agreement (NDA) with the company. Having entered into a NDA, the Applicant was able to provide limited information to the Secretary in support of his application. The Applicant sought permission from the company to release information relating to the ex gratia payment and was permitted to provide part of the agreement. What was presented in evidence was of limited assistance as it did not specify the nature of the payment or the reasons for it.
The Applicant was a casual employee before commencing 16 years of full-time employment at the company. Without breaching the terms of the NDA, the Applicant gave oral evidence that the ex gratia payment related to an historical issue with his employer. His evidence was that approximately 6 months prior to being made redundant, he was told by a colleague that the company may have unmet obligations towards the Applicant. Shortly after being made aware of the issue, the Applicant began negotiating with the company regarding the outstanding obligation for which he was to receive the ex gratia payment.
It was the Applicant’s evidence that when negotiating with the company he sought to resolve the issue in a cordial manner as it was his intention to remain at the company. As such the timeliness of resolving the issue was a secondary consideration.
During negotiations, the company announced a major change to its business. The change raised the prospect of the Applicant being made redundant. When the prospect of leaving the company emerged, the Applicant engaged an employment lawyer with a view to expeditiously finalising the issue for which the ex gratia payment was made.
Consideration
The question of whether an IMP applies - and if so for what period - is determined using points 1068-G7AH to 1068-G7AR of Benefit Rate Calculator B, which also sets out how certain leave payments may be taken to be ordinary income following the termination of a person’s employment.
There is no dispute that the Applicant’s long-service leave and outstanding annual leave are captured by the definition of termination payment provided in section 1068 and are appropriately included when calculating the IMP.
In relation to the question of whether the ex gratia payment should be included in calculating the IMP, the Secretary relies on point 1068-G7AQ(c) which defines a termination payment to include ‘any other payment that is connected with the termination of a person’s employment’.
The Secretary argues that the inclusion of the ex gratia payment in the procedures and payroll relating to the termination payment by the company supports the conclusion it was a termination payment. Notably, the ex gratia payment was included in the $68,735 in ‘Total Termination Payments’ listed on the Schedule 1.
The Secretary also draws the Tribunal’s attention to the matter of Lee and Secretary, Department of Social Services[11] (Lee) where the Tribunal determined that a payment received by a person from his former employer following a Fair Work Commission Order for unfair dismissal was a termination payment to which an Income Maintenance Period applied.
[11] [2021] AATA 3574
On appeal the decision in Lee was upheld by the Federal Court with Justice Downes observing that the term ‘connected with the termination of a person’s employment’ as it appears in point 1068-G7AQ(c) of the Act had a wide meaning:
In the case before this Court, the relevant words in the Social Security Act are, “any other payment that is connected with the termination of a person’s employment”. The question before the AAT was whether the facts as found by it fell within those words.[12]
[12] Lee and Secretary, Department of Social Services [2022] FCA 217, [51]
With reference to Collector of Customs v Pozzolanic Enterprises Pty Ltd (1993) Justice Downes considered the meaning of ‘connection’ to be ‘wide and imprecise’, one of its common meanings being ‘relation between things one of which is bound up with, or involved in, another’. His Honour also emphasised the requirement to ‘exercise a value judgement about whether there was a connection between the payment and the termination of the employment within the meaning of the statute’.[13]
[13] Lee and Secretary, Department of Social Services [2022] FCA 217, [53], as per Neaves, French and Cooper JJ in Collector of Customs v Pozzolanic Enterprises Pty Ltd (1993) 115 ALR 1, 10
Applying a wide and imprecise interpretation, it may be argued that the ex gratia payment was connected to the Applicant’s termination in so much as it was listed as a component of the ‘Total Termination Payment’ in the Schedule 1 and a ‘leave and redundancy payment’ in the separation certificate. Furthermore, it was the Applicant’s termination which led to the expeditious settlement of the matter to which the ex gratia payment related. However, having regard to the relevant context and the circumstances regarding the ex gratia payment, it is not in my view a ‘termination payment’ as defined in the Act and the Explanatory Memorandum to the Amendment.
Whilst the Applicant was unable to disclose the exact nature of the ex gratia payment on account of the NDA, I found him to be a credible witness. I accept his evidence regarding the ex gratia payment being made in relation to an historical issue pertaining to his past employment. I also accept that he had been negotiating with the company to settle the matter prior to becoming aware that he may be made redundant.
These findings are relevant as to whether a connection exists between the payment and the termination of the employment within the meaning of the statute. The Explanatory Memorandum to the Amendment makes clear widening the definition of a termination payment was intended to capture certain termination payments which decision makers had found to be a general employee entitlement, and identifies payments in lieu of notice as an example. Other examples include payments in respect to untaken leave including maternity and paternity leave and payments made under contracts for early termination of employment.
As noted by the Federal Court, it was not in dispute that the payment in Lee was ordered following a claim for unfair dismissal ‘as an appropriate amount for remuneration lost’.[14] Clearly, a connection exists between a payment for lost remuneration following unfair dismissal and termination, as without the termination of employment, grounds for ordering the payment would not exist. In contrast to the circumstances in Lee, I am satisfied that the Applicant would have received the ex gratia payment irrespective of being made redundant and that the circumstances which gave rise to the Applicant’s claim were historical and unrelated in any way to the termination of his employment.
[14] Lee and Secretary, Department of Social Services [2022] FCA 217, [43]
Whilst the Secretary relies on the inclusion of the ex gratia payment in the procedures and payroll relating to the termination payment in support of it being a termination payment, the evidence in support of this proposition is inconsistent at best.
The ex gratia payment is referenced as a termination payment in the Schedule 1, but no mention of the ex gratia payment is made in a redundancy calculation estimate from the company dated 26 October 2020 (the redundancy calculation). Rather, the correspondence includes details of unused annual leave, accrued long service leave and redundancy payments broken down by severance and notice. The estimate provides a gross total redundancy payment of $32,916.05 providing a net payment of $28,026.05 after tax is deducted.[15]
[15] T8/89
The documentary evidence also strongly supports a finding that the ex gratia payment and the Applicant’s redundancy payments were treated separately by the company. The Applicant indicated the terms of the ex gratia payment were formalised in January 2021, having been made redundant on 13 December 2020. This sequence is consistent with his bank statements which confirm the ex gratia payment was made to the Applicant almost one month after transfer of the redundancy payments outlined in the 26 October 2020 redundancy calculation.
The two payments to the Applicant are conflated in the separation certificate and the Schedule 1. Both documents treat the payments in aggregate and appear to have been generated after the payments were made. I do not consider the categorisation of the payments contained within these documents to be a reliable indicator of their purpose, preferring instead the itemisation provided in the redundancy calculation.
The Secretary submitted that even having accepted the ex gratia payment related to a separate claim by the applicant against the company, the ex gratia payment is captured by the broad definition of a termination payment as it was included along with his other redundancy payments when it was received by the Applicant.[16]
[16] Respondent’s Statement of Facts, Issues and Contentions, [49]
Neither the inception, formulation nor obligation of the company to make the ex gratia payment were related to the termination of the Applicant’s employment. The ex gratia payment was made separately and subsequent to the payment of the redundancy related payments including unused annual leave, accrued long service leave and payments identified in the redundancy calculation. Whilst an imprecise connection arguably exists between the ex gratia payment and the Applicant’s termination, I am not satisfied that it rises to the level of a ‘termination payment’ in the context of the Act.

It follows that the correct and preferable decision is to set aside the reviewable decision and remit the matter to the Secretary for reconsideration.
Decision
For the reasons stated above, the reviewable decision is set aside and the matter remitted to the Secretary for reconsideration with the direction that the $51,072 ex gratia payment is not a termination payment.

I certify that the preceding 42 (forty-two) paragraphs are a true copy of the reasons for the decision herein of

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Associate
Dated: 17 January 2023

Date(s) of hearing: 1 December 2022

Applicant: In person

Solicitors for the Respondent: Mr T Chang, Services Australia

Date(s) of hearing:	1 December 2022
Applicant:	In person
Solicitors for the Respondent:	Mr T Chang, Services Australia