Finance Sector Union of Australia v Commonwealth Bank of Australia
[2022] FedCFamC2G 409
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)
Finance Sector Union of Australia v Commonwealth Bank of Australia [2022] FedCFamC2G 409
File number(s): SYG 427 of 2021 Judgment of: JUDGE DRIVER Date of judgment: 27 July 2022 Catchwords: FAIR WORK – claimed underpayment of superannuation – whether superannuation payable in respect of annual leave loading considered – interpretation of industrial agreements – significance of a private tax advice from the ATO considered Legislation: Fair Work (Registered Organisations) Act 2009 (Cth)
Fair Work Act 2009 (Cth) ss 54, 190, 539, 540, 545
Superannuation Guarantee (Administration) Act 1992 (Cth) ss 6, 16, 17, 19, 23
Superannuation Guarantee Charge Act 1992 (Cth) ss 3, 5, 6
Taxation Administration Act 1953 (Cth)
Cases cited: Bluescope Steel (AIS) Pty Ltd v Australian Workers’ Union (2019) 270 FCR 359
City of Wanneroo v Australian Municipal, Administrative, Clerical and Services Union (2006) 153 IR 426
Construction, Forestry, Mining and Energy Union v Hail Creek Coal Pty Ltd [2015] FCAFC 149
Federated Liquor and Allied Industries Employees Union of Australia v Ansett Airlines of Australia re the Airports and Overseas Passenger Terminals Employees Award, 1973 (1974) 166 CAR 610
Fire Brigade Employees’ Union of NSW v Fire And Rescue NSW [2020] NSWIRComm 1022
Khoury v Government Insurance Office (NSW) (1984) 165 CLR 622
King v Melbourne Vicentre Swimming Club Inc [2020] FCA 1173
King v Melbourne Vicentre Swimming Club Inc (2021) 308 IR 171
Kucks v CSR Ltd (1996) 66 IR 182
Larcombe v Mackereth [2015] FCCA 2646
NTEU v La Trobe University [2015] FCAFC 142
Re State Rail Authority Firefighters Award 2001 (2002) 122 IR 13
Roy Morgan Research Pty Ltd v Federal Commissioner of Taxation (2011) 244 CLR 97
Shop Distributive and Allied Employees’ Association v Woolworths Ltd (2006) 151 FCR 513
Shop, Distributive and Allied Employees' Association v Target Australia Pty Ltd [2021] FCA 1038
Stock v Frank Jones (Tipton) Ltd [1978] 1 WLR 231
SZTAL v Minister for Immigration and Border Protection [2017] HCA (2017) 262 CLR 362
The National Wage Case (1986) 14 IR 187
United Workers Union v ECEC Management Services Pty Ltd [2021] FCCA 1260
WorkPac Pty Ltd v Skene [2018] FCAFC 131
Division: Division 2 General Federal Law Number of paragraphs: 142 Date of hearing: 25 May 2022 Place: Sydney Counsel for the Applicant: Mr I Latham Solicitors for the Applicant: Turner Freeman Counsel for the Respondent: Mrs J Batrouney AM QC, with Mr A Gotting and Mr A Smorchevsky Solicitors for the Respondent: Minter Ellison ORDERS
SYG 427 of 2021 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
BETWEEN: FINANCE SECTOR UNION OF AUSTRALIA
Applicant
AND: COMMONWEALTH BANK OF AUSTRALIA
Respondent
ORDER MADE BY:
JUDGE DRIVER
DATE OF ORDER:
27 JULY 2022
THE COURT ORDERS THAT:
1.The application lodged on 19 March 2021 is dismissed.
Note: The form of the order is subject to the entry in the Court’s records.
Note: The Court may vary or set aside a judgment or order to remedy minor typographical or grammatical errors (r 17.05(2)(g) Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 17.05 Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth).
REASONS FOR JUDGMENT
JUDGE DRIVER:
INTRODUCTION AND BACKGROUND
By application and statement of claim lodged on 19 March 2021, the Finance Sector Union (Union) seeks relief against the Commonwealth Bank of Australia (Bank) on behalf of an employee, Sally Ann Proctor (Ms Proctor). The Union alleges that Ms Proctor was underpaid superannuation in breach of an asserted obligation under the Commonwealth Bank Group Enterprise Agreement 2014 (2014 Agreement) and the Commonwealth Bank Enterprise Agreement 2016 (2016 Agreement).
It is common ground that no issue between the parties arises in relation to a more recent Enterprise Bargain made in 2020. The issue therefore arises in relation to a fixed passed time period. The issue is confined to the question of whether superannuation is payable in respect of annual leave loading. The difference between the amount of superannuation that was paid on behalf of Ms Proctor and the amount that the Union asserts should have been paid is about $400. The issue, however, affects potentially a significant number of other employees of the Bank and the case raises some important issues of interpretation of the relevant industrial agreements.
Agreed facts
The Union is an association of employees registered in accordance with the Fair Work (Registered Organisations) Act 2009 (Cth).
The Union is entitled to represent the industrial interests of Ms Proctor.
The Union has standing to make the application in this proceeding.
The Bank is a body corporate incorporated in accordance with law and capable of suing and being sued in its own name.
Ms Proctor commenced employment with the Bank on 13 October 2004 and remains employed by the Bank.
From 13 October 2004 to 26 August 2015, Ms Proctor was employed on a part-time basis.
From 26 August 2015 to the present, Ms Proctor has been employed on a full-time basis.
During the period of her employment with the Bank, Ms Proctor has:
(a)worked overtime in excess of her ordinary hours of work from time to time; and
(b)not been a shiftworker.
2014 Agreement
From 9 October 2014 to 1 December 2016 (inclusive), the 2014 Agreement applied to Ms Proctor's employment with the Bank.
Superannuation
Clause 20(a) of Division A of the 2014 Agreement provided:
The Group will provide superannuation contributions in accordance with the Superannuation Guarantee legislation in addition to the salaries provided for in clauses 5 of Division B, 4 of Division C, 4 of Division D and 2 in Division E.
Annual leave loading
Pursuant to clause 1(a) of Division B of the 2014 Agreement, Division B applied to the Bank in respect of its employees employed in the classifications set out in that Division.
From 9 October 2014 to 1 December 2016, Ms Proctor was classified in the GC2 Grade specified in Schedule A of Division B of the 2014 Agreement.
The quantum and timing of the payment of annual leave loading are expressly dealt with in the following provisions of Division B of the 2014 Agreement:
10.3Annual leave loading of 17.5% of the employee's Base Rate of Pay for the period of annual leave will apply.
10.4This loading will be subject to a maximum payment of an amount equal to average weekly earnings of employees as disclosed by the Australian Bureau of Statistics for the September quarter immediately preceding January of the year in which payment is made.
10.5Annual leave loading will be calculated on the employee's salary as at 1 January of the year in which payment is to be made and in the absence of earlier payment will be payable in the last pay of November each year.
10.6Proportionate annual leave loading will be paid to an employee with at least one month but less than twelve months continuous service in the previous calendar year.
For the purposes of Division B of the 2014 Agreement, “Base Rate of Pay” was defined in clause 2 of Division B as:
the rate of pay payable to an employee for his or her ordinary hours of work, not including any bonuses, loadings, monetary allowances, overtime or penalty rates and any other separately identifiable amounts. The Base Rates of Pay are the salary bands detailed in Schedule B.
Schedule B of Division B of the 2014 Agreement, which was headed “Salaries”, set out the following “Minimum Rates” for the GC2 Grade:
(a)effective 1 July 2014 – $44,061; and
(b)effective 1 January 2015 – $44,502.
During the term of the 2014 Agreement, Ms Proctor was paid the following hourly rates (excluding any loadings or penalties):
(a)$24.39 per hour between 20 February 2015 and 30 June 2015;
(b)$25.12 per hour between 1 July 2015 and 30 June 2016; and
(c)$25.88 per hour between 1 July 2016 and 1 December 2016.
Other entitlements
Pursuant to clause 7.3 of Division B of the 2014 Agreement:
(a)a full-time employee was entitled to be paid overtime when they worked outside the span of ordinary hours set out in clause 7.1(b), worked more than ten hours of duty (or 12 hours where that was agreed) on one day, or worked in excess of 40 hours per week;
(b)a part-time employee was entitled to be paid overtime when they worked in excess of the agreed hours, worked in excess of 10 hours per day, or worked outside the span of ordinary hours set out in clause 7.1(b); and
(c)overtime was payable at 1.5 times ordinary rates for the first three hours, and double ordinary rates for any additional overtime hours, unless the parties agreed that the employee would take time off in lieu of overtime.
2016 Agreement
From 2 December 2016 to 26 August 2021, the 2016 Agreement applied to Ms Proctor's employment with the Bank.
Superannuation
Clause 20(a) of Division A of the 2016 Agreement was in the same terms as clause 20(a) of Division A of the 2014 Agreement, set out in paragraph [12 above.
Annual leave loading
Pursuant to clause 1(a) of Division B of the 2016 Agreement, Division B applied to the Bank in respect of its employees employed in the classifications set out in that Division.
From 2 December 2016 to 20 July 2021, Ms Proctor was classified in the GC2 Grade specified in Schedule A of Division B of the 2016 Agreement.
Clauses 8.6(h), 10.3, 10.4, 10.5, and 10.6 of Division B of the 2016 Agreement were in the same terms as set out in the 2014 Agreement, set out in paragraph [15] above.
For the purposes of Division B of the 2016 Agreement, “Base Rate of Pay” was defined in clause 2 of Division B in the same terms as in the 2014 Agreement, set out in paragraph [16] above.
Schedule B of Division B of the 2016 Agreement, which was headed “Salaries”, set out the “Minimum Rates” for the GC2 Grade effective 1 July 2016 as $45,392.
During the term of the 2016 Agreement, Ms Proctor was paid the following hourly rates (excluding any loadings or penalties):
(a)$25.88 per hour between 2 December 2016 and 30 June 2017;
(b)$26.65 per hour between 1 July 2017 and 30 June 2018;
(c)$27.45 per hour between 1 July 2018 and 30 June 2019;
(d)$28.28 per hour between 1 July 2019 and 30 June 2020; and
(e)$29.19 per hour from 1 July 2020 to the date of the application commencing this proceeding.
Other entitlements
Clause 7.3 of Division B of the 2016 Agreement provided for the same overtime entitlements as in the 2014 Agreement, set out in paragraph [19 above.
Annual leave loading payments
Annual leave loading was introduced to the Bank in 1974, backdated to have effect from 1 January 1973.
None of:
(a)the 2016 Agreement;
(b)the 2014 Agreement; or
(c)any predecessor industrial instrument,
expressed what those payments were referable to, including as to whether annual leave loading was provided in lieu of the notional loss of opportunity to work overtime or the loss of any other industrial entitlement.
The Bank made the following annual leave loading payments to Ms Proctor:
(a)on 16 March 2016, the Bank made a payment of $550.91 (the March 2016 Leave Loading Payment);
(b)on 18 January 2017, the Bank made a payment of $688.30 (the January 2017 Leave Loading Payment);
(c)on 17 January 2018, the Bank made a payment of $708.95 (the January 2018 Leave Loading Payment);
(d)on 31 January 2019, the Bank made a payment of $741.84 (the January 2019 Leave Loading Payment);
(e)on 2 January 2020, the Bank made a payment of $752.12 (the January 2020 Leave Loading Payment); and
(f)on 25 February 2021, the Bank made a payment of $763.46 (the February 2021 Leave Loading Payment).
The Bank did not:
(a)make superannuation contributions to the superannuation fund of Ms Proctor calculated as a percentage of:
(i)the March 2016 Leave Loading Payment;
(ii)the January 2017 Leave Loading Payment;
(iii)the January 2018 Leave Loading Payment;
(iv)the January 2019 Leave Loading Payment;
(v)the January 2020 Leave Loading Payment; or
(vi)the February 2021 Leave Loading Payment; or
(b)pay any superannuation guarantee charge within the meaning of s 16 of the Superannuation Guarantee (Administration) Act 1992 (Cth) (SGA Act) in respect of:
(i)the March 2016 Leave Loading Payment;
(ii)the January 2017 Leave Loading Payment;
(iii)the January 2018 Leave Loading Payment;
(iv)the January 2019 Leave Loading Payment;
(v)the January 2020 Leave Loading Payment; or
(vi)the February 2021 Leave Loading Payment.
2020 Agreement
On 14 July 2021, the Commonwealth Bank Group Enterprise Agreement 2020 (2020 Agreement) was approved by the Fair Work Commission with undertakings pursuant to s 190 of the Fair Work Act 2009 (Cth) (Fair Work Act).
On 27 August 2021, the 2020 Agreement commenced operation pursuant to s 54 of the Fair Work Act and clause 1.3 of the 2020 Agreement.
Clause 23.3 of the 2020 Agreement states, among other things, that annual leave loading:
... is for the loss of the opportunity to work overtime during periods of annual leave and consequently Superannuation Contributions are not made on the payment.
Pleadings and evidence
The Union relies upon its application and statement of claim and the affidavit of Ms Proctor made on 19 October 2021 (Proctor affidavit). The Union also relies on the affidavit of its National Secretary, Julia Angrisano made on 19 October 2021 (Angrisano affidavit). I also received an affidavit of a solicitor for the Union (Sean Howe) made on 20 October 2021 (Howe affidavit).
The Bank relies upon its defence filed on 21 May 2021 and two affidavits by Andrew Culleton (employed by the Bank as Executive General Manager, Group People Services, Human Resources) made on 16 November 2021 (First Culleton affidavit) and 15 February 2022 (Second Culleton affidavit).
The pleadings were completed by way of a reply by the Union on 21 June 2021 and the evidence was completed by my receipt of the following exhibits:
·Exhibit R1 Administratively binding advice, 20/05/2022
·Exhibit R2 Letter to Deputy Commissioner of Taxation, 27/01/2022;
·Exhibit R3 Letter to Deputy Commissioner of Taxation, 19/04/2022; and
·Exhibit R4 Edited version of written advice from the Australian Taxation Office (ATO).
The affidavits read by the parties introduced a substantial body of documentary material. While this was useful background, much did not have a direct bearing on the question to be resolved. Objections to evidence had been filed by both parties but I received all of the evidence subject to relevance.
CONSIDERATION
The Union’s contentions
The Union is a registered organisation entitled to make such application under ss 539 and 540 of the Fair Work Act. Ms Proctor, the subject of the application is a long standing employee of the Bank. When on holiday, she was paid annual leave loading of 17.5% of her base rate of pay. Ms Proctor and the Bank were covered by the 2014 Agreement and the 2016 Agreement. The 2014 Agreement and the 2016 Agreement provide for superannuation payments to be made by the Bank. The Bank did not make superannuation contributions calculated upon those payments into a fund held for Ms Proctor's benefit.
The narrow central issue for the Court to decide is whether the payments made by the Bank in respect of annual leave loading attract an obligation under the industrial instruments for the Bank to pay contributions into a superannuation fund. If so, arguments as to appropriate declarations and penalty will arise.
In the resolution of that matter, the Court is likely to turn on two separate matters:
(a)whether payments for annual leave loading are ordinary time earnings (OTE) within the meaning of s 6 of the SGA Act and therefore the subject of superannuation contributions; and
(b)whether:
(i)clause 20 of Division A of the 2014 Agreement; and
(ii)clause 20 of Division A of the 2016 Agreement.
are capable of imposing obligations to make superannuation contributions on the Bank.
Section 19 of the SGA Act creates a superannuation shortfall if superannuation is not paid upon the employee’s salary or wages. Salary or wages is defined to mean total salary or wages paid by the employer to the employee. The charge upon the employer is reduced by contributions made in relation to ordinary time earnings[1].
[1] s 23
Ordinary time earnings are defined in s 6 of the SGA Act. Ordinary time earnings are defined to mean “earnings in respect of ordinary hours of work”. That phrase “ordinary hours of work” was broadly defined in Bluescope Steel (AIS) Pty Ltd v Australian Workers' Union[2] at [56] per Allsop CJ:
The text, context, purpose and enactment history do not direct one to a meaning constituted solely by hours (factually) usually worked. They tend to a meaning that provides for an objective standard that aids in simplicity and lack of complexity. The use, from 1992, of the relevant phraseology in a context of industrial awards and instruments; the well-known conception contained within industrial awards and instruments of standards hours at ordinary rates of pay, and of overtime; the need for the phraseology to be practical, general and flexible to pick up all circumstances of employment; and the need for the task set for the employer to administer and the ATO to audit, quarter by quarter, individual by individual, to be as simple or non-complex as possible all direct one to a meaning that reflects those considerations. The meaning that best reflects these considerations and the text, context, purpose and history of the provision is earnings in respects of ordinary or standard hours of work at ordinary rates of pay as provided for in a relevant industrial instrument, or contract of employment, but if such does not exist (and there is no distinction between ordinary or standard hours and other hours by reference to rates of pay) earnings in respect of the hours that the employee has agreed to work or, if different, the hours usually or ordinarily worked.
[2] (2019) 270 FCR 359
The question then is, whether annual leave loadings are earnings in respect of “ordinary hours of work”
The broad history of annual leave loading is set out at Federated Liquor and Allied Industries Employees Union of Australia v Ansett Airlines of Australia re the Airports and Overseas Passenger Terminals Employees Award, 1973[3] at 611. Commissioner Cohen held that the history of the development of the loading … shows that it originated to compensate blue collar employees, while on leave, for the loss of additional earnings such as shift and penalty allowances etc. It also sought to cushion them against additional expenses and provide money for the enjoyment of a holiday, while on annual leave.[4]
[3] (1974) 166 CAR 610
[4] see Bank Officials (Federal) 1963 Award Print D4366 at 351: submission by the banks quoted with apparent approval
The Union contends that payments for annual leave loading historically were fixed in respect of ordinary hours of work. They are not payments in respect of overtime.
Do the enterprise agreements create obligations?
What do the words say?
The words in clause 20 of the 2014 Agreement and in clause 20 of the 2016 Agreement are relevantly identical. They are that:[5]
The Group will provide superannuation contributions in accordance with the Superannuation Guarantee legislation…
[5] Howe affidavit, pages 116 and 230
That needs to be read in the context of clause 11 of the 2014 Agreement which states that an employee will be paid an annual leave loading of 17.5% of their basic periodic rate of pay. Clause 10 of the 2016 Agreement states in turn that:
10.3Annual leave loading of 17.5% of the employee’s Base Rate of Pay for the period of annual leave will apply.
10.5Annual leave loading will be calculated at the employee’s salary as at 1 January of the year in which payment is to be made…
These payments are said to be “manifestly” in respect of the ordinary hours of work of the employee. There is no suggestion that they refer at all to overtime.
The principles for construction of enterprise agreements are now settled. In WorkPac Pty Ltd v Skene[6] at [197], the Full Federal Court stated:
The starting point for interpretation of an enterprise agreement is the ordinary meaning of the words, read as a whole and in context: … The interpretation “... turns on the language of the particular agreement, understood in the light of its industrial context and purpose . The words are not to be interpreted in a vacuum divorced from industrial realities …; rather, industrial agreements are made for various industries in the light of the customs and working conditions of each, and they are frequently couched in terms intelligible to the parties but without the careful attention to form and draftsmanship that one expects to find in an Act of Parliament .. To similar effect, it has been said that the framers of such documents were likely of a “practical bent of mind” and may well have been more concerned with expressing an intention in a way likely to be understood in the relevant industry rather than with legal niceties and jargon, so that a purposive approach to interpretation is appropriate and a narrow or pedantic approach is misplaced: …
(citations omitted)
[6] [2018] FCAFC 131
The word “will” is a word of obligation: NTEU v La Trobe University[7] at [69].
[7] [2015] FCAFC 142
Further, the Court should interpret the relevant provisions having regard to the contextual factor of the nature of the document being interpreted. As stated by White J at [108] in NTEU v La Trobe:
Although it may be a statement of the obvious, it is appropriate to keep in mind that the document which the Court is asked to construe is an enterprise agreement made pursuant to the regime in Pt 24 of the Fair Work Act 2009 (Cth) (the FW Act). It is in the very nature of these agreements that they are intended to establish binding obligations. The manner of making such agreements is subject to detailed prescription and their operation is contingent upon approval by the Fair Work Commission, the obtaining of which is itself a matter of detailed prescription. In my opinion, it is natural to suppose that parties engaging in this detailed process intend that the result should be a binding and enforceable agreement. To my mind, that is an important matter of context when approaching the construction of cl 74.
The Bank was obliged by clause 20 of Division A of the 2014 Agreement and clause 20 of Division A of the 2016 Agreement to make superannuation contributions in accordance with the legislation to a fund held for Ms Proctor's benefit. In the circumstances set out above, the Union submits that the Bank did not comply with its obligations under clause 20 of Division A of the 2014 Agreement and clause 20 of Division A of the 2016 Agreement.
Should the Court accept the above submissions, the Union seeks that the Court make the following declarations:
1. The Court declares that the respondent contravened clause 20 of Division A of the Commonwealth Bank Group Enterprise Agreement 2014 between 9 October 2014 and 2 December 2016 in that it did not pay superannuation contributions upon the amount of annual leave loading that it paid to Sally Proctor.
2. The Court declares that the respondent contravened clause 20 of Division A of the Commonwealth Bank Group Enterprise Agreement 2016 between 2 December 2016 and 25 February 2021 in that it did not pay superannuation contributions upon the amount of annual leave loading that it paid to Sally Proctor.
The Union also asks the Court to make orders under s 545 of the Fair Work Act requiring the Bank to make a contribution to a fund held for the benefit of Ms Proctor in the sum of $399.52 plus interest that would have accrued to that contribution, had it been made at the time the obligation arose.
The Court would adjourn the question of penalty to a further date.
The Bank’s contentions
These proceedings concern the proper construction of clause 20 of Division A of each of the 2014 Agreement[8] and the 2016 Agreement[9] (together, the Agreements) and whether, in respect of the period from 20 February 2015 to 25 February 2021,[10] the Bank was required to pay Ms Proctor superannuation guarantee contributions on that component of Ms Proctor’s remuneration which consisted of annual leave loading payments that she had received during that period.
[8] Howe affidavit at SH-5 (page 87)
[9] Howe affidavit at SH-6 (page 207)
[10] Union’s statement of claim at [8], [16], [19] and [25]-[30]; Proctor affidavit, pages 63-279. The parties agree that the 2014 Agreement applies in respect of the period from 20 February 2015 to 1 December 2016 and the 2016 Agreement applies in respect of the period from 2 December 2016 to 25 February 2021: statement of agreed facts at [9] and [18]
First, the Bank submits that clauses 20 of each of the 2014 Agreement and the 2016 Agreement are not provisions which require it to make superannuation contributions in relation to Ms Proctor under either of the Agreements. Rather, they simply recognise that the Bank is subject to an existing regime under the SGA Act and the Superannuation Guarantee Charge Act 1992 (Cth) (SGC Act). The SGA Act and the SGC Act do not impose obligations on an employer to make superannuation contributions in relation to its employees, but rather create an incentive for employers to do so by obliging them to pay to the Commonwealth a superannuation guarantee charge imposed on any superannuation guarantee shortfall in any quarter. As a consequence, the Bank contends that the Union’s application must fail because it is premised wholly on the Bank having an obligation under the Agreements, separate from any statutory obligation per se under the superannuation legislation, which it does not.
Secondly, in the alternative, even if the Court were to find that clause 20 of each of the Agreements required the Bank to make superannuation contributions to Ms Proctor, any such obligation is said to operate only by reference to the SGA Act and SGC Act, and thus would only extend to obliging the Bank to pay insofar as there would otherwise be a superannuation shortfall under that legislation. The Bank submits that it does not have any superannuation shortfall (and therefore has no obligation under the Agreements) in relation to Ms Proctor, because Ms Proctor's annual leave loading payments do not form part of OTE for the purposes of the SGA Act. The annual leave loading is not paid by reference to ordinary rates of pay. Instead, by its very nature, it is an additional loading paid on top of the ordinary rate of pay (on top of the employee’s “Base Rate of Pay” as defined in the Agreements) which an employee is entitled to receive during periods of annual leave. The annual leave loading is not paid by reference to ordinary hours of work. Instead, it is paid by reference to the period of annual leave, which is said to be inherently not ordinary hours.
Resolution
The facts relevant to the determination of these proceedings are largely agreed between the parties as outlined above or are otherwise not likely to be in dispute, and can be summarised as follows:
(a)Ms Proctor commenced employment with the Bank in 2004 and remains employed by the Bank,[11] and she has been employed on a full-time basis since 26 August 2015;[12]
(b)the applicable industrial instruments are the 2014 Agreement and the 2016 Agreement;
(c)the Bank has not made superannuation contributions in respect of the annual leave loading payments made to Ms Proctor which are the subject of these proceedings;[13]
(d)the Bank first introduced annual leave loading for its staff in early 1974,[14] and while there is no express reference in the 2014 Agreement or 2016 Agreement (or any of their predecessors) as to what leave loading was referable to,[15] the Bank’s decision to implement leave loading in 1974 was made in the context of various industrial decisions in 1973 and 1974 regarding the inclusion of leave loading in industrial agreements;[16]
(e)the Bank’s practice since the introduction of superannuation legislation in 1992 has been that the Bank does not make superannuation contributions in respect of annual leave loading;[17]
(f)the Bank’s annual leave policy confirms that “[a]nnual leave loading is to compensate an employee for the notional loss of opportunity to work overtime while on annual leave”;[18]and
(g)the 2020 Enterprise Agreement (which is not otherwise relevant to the determination of these proceedings) provides expressly that annual leave loading is “for the loss of the opportunity to work overtime during periods of annual leave and consequently Superannuation Contributions are not made on the payment”.[19]
Relevant provisions of the industrial Instruments
[11] Statement of agreed facts filed 1 Oct 2021 at [5]
[12] Statement of agreed facts filed 1 Oct 2021 at [7]
[13] Statement of agreed facts filed 1 Oct 2021 at [30](a)
[14] First Culleton Affidavit at [8] and Second Culleton Affidavit at [5]
[15] Statement of agreed facts filed 1 Oct 2021 at [28].
[16] A convenient summary of those decisions can be found in Knox v Grace Brothers Holdings Ltd (1985) 8 FCR 497 at 505-509 per Burchett J.
[17] First Culleton affidavit at [9]
[18] First Culleton affidavit at [10]
[19] First Culleton Affidavit at [18]
Operation of the Agreements
In each of the Agreements, Division A sets out general provisions which apply to the four Commonwealth Bank of Australia group companies which are each party to the Agreements (including the Bank), and the four divisions which follow (Division B – E) each apply to one of the four group companies.[20] Division B of each Agreement applies specifically to the Bank in respect of the employees employed in the classifications set out in that Division.
[20] The other entities which are party to the Agreements are Commonwealth Securities Limited (Division C), Colonial Services Pty Limited (Division D) and Commonwealth Insurance Limited (Division E)
The parties agree that Division B of the 2014 Agreement applied in relation to Ms Proctor in respect of the period of 9 October 2014 to 1 December 2016, and that Division B of the 2016 Agreement applied in respect of the period of 2 December 2016 to 26 August 2021.[21]
[21] Statement of agreed facts filed 1 October 2021 at [12] and [18]
There are no material differences between the two Agreements which are relevant to this case, and it is convenient to refer to them without differentiating between the two Agreements.
General annual leave provisions
Clause 14 of Division A in each Agreement is in the same form and contains general provisions relating to annual leave.
Clause 14.1 deals with employees’ minimum annual leave entitlements. It begins by stating that “[a]n employee will be entitled to annual leave in accordance with the Act” (being a reference to the National Employment Standards (NES) in the Fair Work Act) and then proceeds to summarise those entitlements.
Clause 14.1(d) provides:
(d) annual leave is payable at the Base Rate of Pay for ordinary hours worked.
The balance of clause 14 of Division A in each Agreement then deals with additional leave benefits, directions to take annual leave, cashing out annual leave, payment of accrued annual leave on termination, and re‑crediting annual leave where an employee is unable to work.
For completeness, "Base Rate of Pay" is defined in clause 2 of Division B of each Agreement as follows:
Base Rate of Pay means the rate of pay payable to an employee for his or her ordinary hours of work, not including any bonuses, loadings, monetary allowances, overtime or penalty rates, and any other separately identifiable amounts. The Base Rates of Pay are the salary bands detailed in Schedule B.
This reflects the definition of “Base Rate of Pay” in clause 3 of Division A, being the definition which is relevant to the payment an employee receives when taking annual leave (clause 14.1(d) of Division A), providing:
Base Rate of Pay means the rate of pay payable to an employee for his or her ordinary hours of work, not including any bonuses, loadings, monetary allowances, overtime or penalty rates, and any other separately identifiable amounts.
Annual leave loading provisions for applicable Bank employees
Clause 10 of Division B is the same in each Agreement and deals with annual leave loading.
Clauses 10.1 and 10.2 provide for certain entitlements “[i]n addition to the NES entitlement to annual leave at the Base Rate of Pay”. The remaining provisions in clauses 10.3 to 10.6 deal with annual leave loading.
Importantly, clause 10.3 of each Agreement provides:
10.3 Annual leave loading of 17.5% of the employee’s Base Rate of Pay for the period of annual leave will apply.
The remaining provisions in clause 10 of Division B deal with maximum payments for leave loading, the time by reference to which leave loading is calculated, and proportionate leave loading.
Superannuation provision
Clause 20 of Division A in each Agreement are also in identical terms and provide for superannuation contributions to be made "in accordance with the Superannuation Guarantee legislation" and to be paid to Commonwealth Bank Group Super unless the employee chooses an alternative fund. It was confirmed at the trial that the Bank paid superannuation benefits for Ms Proctor at the statutory minimum rate of 9.5%.
Clause 20 of Division A of each Agreement provides:
20. Superannuation and salary sacrifice
(a)The Group will provide superannuation contributions in accordance with the Superannuation Guarantee legislation in addition to the salaries provided in clauses 5 of Division B, 4 of Division C, 4 of Division D and 2 in Division E.
(b) Such contributions will be made to Commonwealth Bank Super. However, employees may elect to have contributions made to an alternative complying fund in accordance with applicable legislation. Further, nothing in this clause 20(b) is intended to affect any arrangements in place at the commencement of this Agreement regarding the fund into which an employee’s superannuation contribution is made.
(c) By agreement with the Group, an employee may choose to take part of their remuneration under this Agreement as salary sacrifice benefits (including by making additional pre-tax contributions into their chosen complying superannuation fund). If an employee makes this choice, the remuneration which would otherwise be payable to the employee will be reduced by the value of such benefits (including associated costs, charges and taxes).
(d) Without limiting the Group’s discretion as to whether or not it will agree to any particular salary sacrificing arrangement, the Group may issue guidelines from time to time as to what salary sacrificing arrangements are acceptable to the Group.
The Bank submits that the wording of clause 20(a), understood in the context of each of the Agreements and the superannuation scheme created by the SGA Act and SGC Act, falls short of imposing an obligation upon it to pay any particular amount of superannuation under the Agreements. Instead, it simply acknowledges the existence of that statutory scheme without creating a new obligation on top of what exists under the SGA Act and SGC Act.
Relevant parts of the Superannuation Guarantee legislation
For the purpose of these proceedings, the operation of the SGA Act and SGC Act can relevantly be summarised as follows.
The authorities make it clear that the SGA Act and SGC Act do not impose any obligation upon an employer to pay superannuation[22] (and that does not appear to be in contention here).
[22] Roy Morgan Research Pty Ltd v Federal Commissioner of Taxation (2011) 244 CLR 97 at 101 [3] per French CJ and Gummow, Hayne, Crennan, Kiefel and Bell JJ, applied in Bluescope Steel at 368 [25] per Allsop CJ, Rangiah J agreeing, and at 420 [216] per Collier J
Instead, the legislative scheme operates by creating a practical incentive to encourage employers to make such payments, in the sense that an employer is given an incentive to pay sufficient superannuation to avoid having to pay a superannuation guarantee charge, given that superannuation contributions paid to avoid a shortfall are tax deductible whereas a shortfall charge is not, and given that the shortfall charge attracts interest and an administration fee.[23]
[23]Roy Morgan at 115 [57] per Heydon J, applied in Bluescope Steel at 420-421 [217] per Collier J
Sections 5 and 6 of the SGC Act and s 16 of the SGA Act impose a charge upon employers equal to the value of the “superannuation guarantee shortfall” for a quarter. That charge is a debt due to the Commonwealth and payable to the Commissioner of Taxation.[24]
[24] Roy Morgan at 101 [3] per French CJ and Gummow, Hayne, Crennan, Kiefel and Bell JJ, referring to the Taxation Administration Act 1953 (Cth), Schedule 1, s 255-5.
The term “superannuation guarantee shortfall” is defined in s 17 of the SGA Act (which forms part of the SGC Act by reason of s 3 of the SGC Act), relevantly, by reference to whether “an employer has one or more individual superannuation guarantee shortfalls for a quarter”. An employer’s “individual superannuation guarantee shortfall” for an employee is defined by s 19 of the SGA Act as an “amount worked out using the formula” of “quarterly salary or wages base for the employer in respect of the employee for the quarter” multiplied by one one-hundredth of the “charge percentage for the employer for the quarter”.
However, s 23(2) of the SGA Act relevantly provides that if an employer makes a contribution in a quarter to a superannuation fund, then the “charge percentage” for the quarter for the purpose of s 19(2) is reduced by the number determined using the following formula, “Contribution” divided by “Ordinary Time Earnings base” and multiplied by one hundred where “ordinary time earnings base” is defined in s 23(2) as the number of dollars in the sum of “the ordinary time earnings of the employee for the quarter in respect of the employer” and “any sacrificed ordinary time earnings amounts, of the employee for the quarter in respect of the employer”.
The term “ordinary time earnings” in relation to an employee is defined in s 6(1) of the SGA Act as follows:
(a) the total of:
(i)earnings in respect of ordinary hours of work other than earnings consisting of a lump sum payment of any of the following kinds made to the employee on the termination of his or her employment:
(A) a payment in lieu of unused sick leave;
(B)an unused annual leave payment, or unused long service leave payment, within the meaning of the Income Tax Assessment Act 1997; and
(ii)earnings consisting of over-award payments, shift-loading or commission; or
(b)if the total ascertained in accordance with paragraph (a) would be greater than the maximum contribution base for the quarter--the maximum contribution base.
Accordingly, if the Court finds that clause 20 of Division A of the Agreements does create a positive obligation upon the Bank to pay superannuation, then the key issue will be whether amounts paid as annual leave loading constitute “ordinary time earnings”, and, in particular, whether they constitute “earnings in respect of ordinary hours of work”, as there is no suggestion that the leave payments are "earnings consisting of over-award payments, shift loading or commission".
Furthermore, I accept that the express inclusion of these additional specifically identified payments in the clause, including a particular loading, "shift-loading", wards against an intention to include other loadings such as an annual leave loading.
The Bank submits that the amounts paid as annual leave loading do not constitute "ordinary time earnings", because a payment in respect of annual leave loading is not a payment in respect of ordinary hours of work. It is not made by reference to ordinary hours of work, and it is necessarily paid at a different and higher amount than a payment which is in respect of ordinary hours of work.
Principles for interpreting Industrial Instruments
The starting point is to construe the language of the relevant provision in an industrial instrument, understood in light of its textual and industrial context and its purpose.[25]
[25] See, eg, City of Wanneroo v Australian Municipal, Administrative, Clerical and Services Union (2006) 153 IR 426 at 438-439 [53] per French J, applied in Fire Brigade Employees’ Union of NSW v Fire And Rescue NSW [2020] NSWIRComm 1022 at [8] per Kite CC
The preference is for a practical interpretation that avoids inconvenience or injustice, rather than a narrow or pedantic one.[26]
[26] See, eg, Kucks v CSR Ltd (1996) 66 IR 182 at 184 per Madgwick J, applied in Fire Brigade Employees’ Union at [9] per Kite CC, King v Melbourne Vicentre Swimming Club Inc [2020] FCA 1173 (King) at [128] per Wheelahan J and, on appeal, King v Melbourne Vicentre Swimming Club Inc (2021) 308 IR 171 (King appeal) at 184 [42] per Collier, Katzmann and Jackson JJ
Regard may be had to extrinsic matter, including the history of the relevant provision and evidence of the customs and working conditions of the particular industry.[27]
[27] See, eg, Short v FW Hercus Pty Ltd (1993) 40 FCR 511 at 518 per Burchett J, Drummond J agreeing; King at [126]-[127] per Wheelahan J, King Appeal at 184 [41]-[43] per Collier, Katzmann and Jackson JJ
However, the task remains one of interpreting a document, and the Court is "not free to give effect to some anteriorly derived notion of what would be fair or just".[28]
[28] See, eg, Kucks at 184 per Madgwick J
The Court should not merely adopt an approach to construction that invariably resolves ambiguity in favour of employees. The approach must be constrained by “what is “fairly open” on the words used”.[29] Similarly, employers and employees should be entitled to regulate their affairs by reference to what an instrument actually says, rather than what it may have meant to say.[30]
[29] Khoury v Government Insurance Office (NSW) (1984) 165 CLR 622 at 638 per Mason, Brennan, Deane and Dawson JJ, cited in Re State Rail Authority Firefighters Award 2001 (2002) 122 IR 13 at 18-19 [27] per Wright J (P), Walton J (VP) and O’Neill C
[30] King at [129] per Wheelahan J, applying Stock v Frank Jones (Tipton) Ltd [1978] 1 WLR 231 at 237 per Lord Simon of Glaisdale
Apart from the limited operation of the common understanding principle[31] (which is not relied upon by either party in this case), the parties’ subjective intentions will not be relevant in construing the meaning of words in an industrial instrument.[32]
Is there an obligation under the Agreements for the Bank to pay superannuation?
[31] See, eg, Shop Distributive and Allied Employees’ Association v Woolworths Ltd (2006) 151 FCR 513 at 520 [31] (Gray ACJ)
[32] See, eg, Construction, Forestry, Mining and Energy Union v Hail Creek Coal Pty Ltd [2015] FCAFC 149 at [59] (Jessup, Rangiah and White JJ)
The Bank submits that properly construed, clause 20 of Division A of the Agreements do not constitute provisions requiring the Bank to make superannuation contributions in relation to Ms Proctor under the Agreements, but rather only refer to the statutory scheme which binds the Bank under the SGA Act and SGC Act.
Clause 20 provides that superannuation contributions are to be made “in accordance with the Superannuation Guarantee legislation”. The Bank submits that the clause does no more than describe the existence of a concomitant statutory scheme, rather than creating a separate industrial right under the instrument.
Conversely, the Union submits that “[t]he 2014 Agreement and the 2016 Agreement provide for superannuation payments to be made by the respondent”.[33] That must be tested against the actual wording of clause 20 of Division A, which the Bank submits falls short of imposing an obligation upon the Bank separate to what already exists under the SGA Act and SGC Act.
[33] Union’s written submissions filed 23 December 2021 at [2]
Importantly, as noted above, neither the SGA Act nor the SGC Act create obligations upon the Bank to pay any particular amount of superannuation. Rather, they operate to encourage the Bank and other employers to make sufficient superannuation contributions to avoid the detriment of having to pay a charge.
The Bank contends that the language of clause 20 of Division A is not apt to create an obligation which is of a fundamentally different character to what is found under the existing legislative scheme for superannuation. What then is the point of the clause? In my view the clause creates a positive obligation to pay superannuation at a rate sufficient to avoid the statutory charge. The legislative scheme to which clause 20 of Division A refers does not itself create any obligation to pay any particular amount of superannuation. However, a minimum rate of 9.5% was prescribed, upon which clause 20 operated.
I accept the Union’s submissions in reply on this issue.
The Union submits that the history of occupational superannuation supports a conclusion that the superannuation clause in the Agreements is enforceable. Universal superannuation arose out of union claims for employers to make Award based superannuation payments instead of pay increases.[34]
[34] The National Wage Case (1986) 14 IR 187 at 217
The Bank submits that the actual wording of clause 20 “falls short of imposing an obligation upon [the Bank]separate to what already exists under the SGA Act and SGC Act.”[35]
[35] Bank’s Outline of Submissions filed on 1o February 2022 at [39], page 8
The same conclusion would apply to both existing award provisions and other enterprise agreement provisions that have already been held to provide such an obligation. The modern awards generally contain a similar (although not identical clause) stating that:
An employer must make such superannuation contributions to a superannuation fund for the benefit of an employee as will avoid the employer being required to pay the superannuation guarantee charge under superannuation legislation with respect to that employee.
As Judge Jarrett held in Larcombe v Mackereth[36] at [23]:
The Award imposes a positive obligation on an employer to make superannuation contributions to a superannuation fund for the benefit of the employee.
[36] [2015] FCCA 2646
In United Workers Union v ECEC Management Services Pty Ltd,[37] I dealt with an enterprise agreement that stated:
20.1SDN will pay superannuation in accordance with legislative requirements as amended from time to time.
20.2 Contributions will be made to a superannuation fund of the employee’s choice.
[37] [2021] FCCA 1260
I adopted a Union submission at [4] that:
Although it lacks the clarity of cl.20.2 of the Award, it is nevertheless tolerably clear that this clause should be interpreted as imposing an obligation to actually make contributions (rather than to incur a tax liability). So much is shown by the use of the words ‘pay superannuation’. Given their ordinary meaning, in an industrial context and in light of the way superannuation is considered in a practical sense, these words reflect a commitment to making payments.
In Bluescope Steel the Full Federal Court dealt with a clause of an enterprise agreement that relevantly stated:
7.2 The Company will make contributions to an employee’s superannuation account at a minimum in compliance with the Superannuation Guarantee (Administration) Act 1992 (Cth), as varied from time to time.
The Full Federal Court found that the clause provided an obligation to make superannuation payments at [12], [238], [358].
Allsopp CJ went on to hold at [19] that:
There is every reason for those representing employees to include in an enterprise agreement an obligation to pay superannuation at the minimum level that will avoid a charge or tax. That reason is the direct enforceability of the obligation. True it is that if an employer fails to pay the minimum contribution it is then faced with both the imposition of a tax and the possible enforcement of obligations in the enterprise agreement. That problem is easily avoided: comply with the obligations freely entered into in the enterprise agreement. This possible duality of consequences is no reason not to view the enterprise agreement as containing binding obligations which can be enforced on behalf of employees for their protection and proper payment, for instance by seeking relief under civil remedy provisions such as ss 539(2), 540, 545(1), (2)(a) and (b) of the Fair Work Act.
The same principles apply in this case.
Do the Agreements and superannuation legislation require contributions to be made in respect of annual leave loading?
The Bank contends that, in the alternative, even if the Court were to deem clause 20 of Division A of the Agreements as requiring the Bank to make superannuation contributions to its employees, that obligation only extends so far as there is an “obligation” to do so under the SGA Act and SGC Act.
There is no suggestion by the Union that the Agreements, in and of themselves, create an obligation to make superannuation contributions in respect of annual leave loading payments made to employees under the Agreements.
Accordingly, assuming that the Agreements create obligations upon the Bank to pay superannuation, it submits that the Agreements only envisage contributions being paid by the Bank to the extent required to avoid a superannuation guarantee shortfall arising under the SGA Act. The Union does not assert otherwise.
As noted above, through the SGA Act and SGC Act, the Bank incurs debts to the Commonwealth, not to employees. Its relevant “obligation”, for the purpose of these proceedings, is that the Bank avoids paying a superannuation guarantee charge if there is no superannuation guarantee shortfall, and that occurs if the superannuation contribution made for an employee divided by their “ordinary time earnings” and multiplied by 100 is equivalent to or more than the relevant charge percentage, which was 9.5% over the period relevant to these proceedings.[38]
[38] See s 19(2) of the SGA Act, under which 9.5% has applied since 1 July 2014 and increased to 10% on 1 July 2021
OTE under the superannuation legislation
Accordingly, the meaning of OTE under the SGA Act and what components of an employee’s remuneration are captured by that concept are critical for determining whether an employer has any superannuation guarantee shortfall in respect of the employee for a relevant quarter, and, in this case, as the Agreements create a separate obligation under those instruments to make superannuation contributions, then whether those contributions required under the Agreements must take into account annual leave loading (because annual leave loading forms part of OTE).
As set out above, OTE is defined under section 6(1) of the SGA Act to mean (respondent’s emphasis retained):
(a) the total of:
(i)earnings in respect of ordinary hours of work other than earnings consisting of a lump sum payment of any of the following kinds made to the employee on the termination of his or her employment:
(A) a payment in lieu of unused sick leave;
(B)an unused annual leave payment, or unused long service leave payment, within the meaning of the Income Tax Assessment Act 1997; and
(ii)earnings consisting of over-award payments, shift loadings or commission;
or
(b) if the total ascertained in accordance with paragraph (a) would be greater than the maximum contribution base for each quarter -the maximum contribution base.
In accordance with ordinary principles of statutory interpretation, the proper construction of the definition of OTE under the SGA Act is to be determined by the text, context and purpose of the provision, construed together.[39]
[39] SZTAL v Minister for Immigration and Border Protection [2017] HCA (2017) 262 CLR 362 at 368 [14] per Kiefel CJ and Nettle and Gordon JJ.
The meaning of OTE under the SGA Act was considered by the Full Federal Court in Bluescope Steel. In that decision, Allsop CJ (with whom Rangiah J agreed) considered the text and context of the concept of OTE in the SGA Act, including its history, and relevantly observed that:
(a)“the enactment history assists in understanding “ordinary time earnings” as earnings referable to standard hours at ordinary rates of pay. It is not just the number of hours, but also their character as paid at an ordinary rate”;[40]
(b)“The meaning that best reflects these considerations and the text, context, purpose and history of the provision is earnings in respect of ordinary or standard hours of work at ordinary rates of pay as provided for in a relevant industrial instrument, or contract of employment”;[41] and
(c)“The phrase ‘ordinary hours of work’ has a statutory meaning in the definition by reference to standard hours at ordinary rates in contradistinction to additional hours at higher rates. That distinction is found as the framework for the construction of the annualised and aggregate salaries in the industrial instruments. The additional hours, as the overtime, are required in the arrangement, and the employees are paid therefore at a higher rate than the base salary. The same applies to public holidays. The superannuation legislation requires a focus (if the distinction is made in the instruments as it is here) upon the standard or ordinary hours at ordinary rates as the basis for the operation of s 23”.[42]
[40] at 373 [44]; respondent’s emphasis retained
[41] at 378 [56]; respondent’s emphasis retained
[42] at 389 [101]; respondent’s emphasis retained
Observations to a similar effect were also made in that decision by Collier J:
the definition of “ordinary time earnings” in s 6(1) of the SGA Act makes separate and express provision for earnings which are not paid at the standard rate for standard hours. In particular, s 6(1)(a)(ii) refers to earnings consisting of over-award payments, shift-loading or commission — these earnings are not included in “earnings in respect of ordinary hours of work” in s 6(1)(a)(i).[43]
[43] at 442 [302]; respondent’s emphasis retained
It is apparent from the reasoning in Bluescope Steel that the concept of OTE under the SGA Act operates by reference to both ordinary hours of work and ordinary rates of pay.
That conclusion is reinforced by the express words in the definition of OTE in s 6. In particular, the express inclusion of “earnings consisting of over-award payments, shift-loading or commission” within the definition of OTE in s 6(a)(ii) of the SGA Act suggests that:
(a)shift loading payments would not have fallen within the scope of “earnings in respect of ordinary hours of work” but for their express inclusion in s 6;
(b)the reason why a payment for shift loading would not otherwise have fallen within the scope of “earnings in respect of ordinary hours of work” must be that the loading is not paid at an ordinary rate, but is rather an extraordinary payment at an extraordinary rate, just as annual leave loading; and
(c)a different loading, such as annual leave loading, is not referred to expressly, and was not intended to fall within the scope of OTE.
I accept the Bank’s submission that payments of annual leave loading do not form part of OTE because:
(a)the loading is not paid by reference to ordinary rates of pay. Instead, by its very nature, it is an additional loading paid on top of the ordinary rate of pay an employee is entitled to receive during periods of annual leave; and
(b)the loading is not paid by reference to ordinary hours of work. Instead, it is paid by reference to the period of annual leave, which is inherently not ordinary hours.
On this basis the Bank succeeds in challenging the assertion by the Union that the entitlement to the leave loading forms part of OTE.
The Agreement provisions
I accept that the annual leave loading which Bank employees receive under Division B of the Agreements does not constitute earnings in respect of ordinary or standard hours of work at ordinary rates of pay, for the following reasons.
Applying the reasoning in Bluescope Steel, the meaning of OTE under the SGA Act requires ordinary hours of work at the ordinary rates of pay to be objectively discerned under the relevant industrial instrument or contract of employment.
First, properly construed, the leave loading is not “ordinary”. Instead, by its very nature, it is extraordinary.
An employee is generally only entitled to four weeks’ annual leave per year.[44] That annual leave is referable to their “Base Rate of Pay”. The Agreements themselves make that clear in clause 14.1(d) of Division A, which expressly states that “annual leave is payable at the Base Rate of Pay for ordinary hours worked”.
[44] Some employees (not Ms Proctor) are entitled to five weeks' annual leave per year under the Agreements (clause 10.2 of Division B)
In contrast, the employee receives the 17.5% annual leave loading on top of their “Base Rate of Pay”. Clause 10.3 of Division B provides for that expressly: “Annual leave loading of 17.5% of the employee’s Base Rate of Pay for the period of annual leave will apply”. It is both an additional amount rather than part of the Base Rate of Pay, and it is an amount which is calculated by reference to the period of annual leave rather than the ordinary hours worked.
The Agreements are structured on the basis that ordinary employee entitlements comprise the “employee’s Base Rate of Pay”. Where there is an extraordinary event, there may be a deviation.
This distinction between an employee’s “Base Rate of Pay” and something for an extraordinary event which is a higher amount or at a different rate, such as annual leave loading, is expressly contemplated by the definition of “Base Rate of Pay” in clause 2 of Division B of each Agreement, which provides that:
Base Rate of Pay means the rate of pay payable to an employee for his or her ordinary hours of work, not including any bonuses, loadings, monetary allowances, overtime or penalty rates, and any other separately identifiable amounts. The Base Rates of Pay are the salary bands detailed in Schedule B.
(respondent’s emphasis retained)
Accordingly, annual leave loading clearly does not itself form part of the employee’s ordinary rate of pay under the Agreements. By its very nature, and by reference to the express provisions of the Agreements, including the definition of "Base Rate of Pay" in both Division A and Division B, it is instead a higher “loading” and not an "ordinary" rate for ordinary hours of work. It therefore does not fall within the scope of OTE under the SGA Act.
Secondly, the purpose of the annual leave loading is to compensate employees for their loss of opportunity to earn more than what is “ordinary” during periods in which they are on annual leave.
Importantly, the Union accepts in its submissions that: [45]
the history of the development of the loading show[s] that it originated to compensate blue collar employees, while on leave, for the loss of additional earnings such as shift and penalty allowances etc. It also sought to cushion them against additional expenses and provide money for the enjoyment of a holiday, while on annual leave.
[45] Union’s written submissions filed 23 December 2021 at [8], quoting from Bank Officials (Federal) 1963 Award Print D4366 at 351 per Cohen C
Similarly, in a recent decision, Banks‑Smith J accepted that the historical purpose of annual leave loading has been to compensate employees who are on leave in respect of additional amounts that they would have earnt if they were working.[46]
[46] Shop, Distributive and Allied Employees' Association v Target Australia Pty Ltd [2021] FCA 1038 at [139]-[142] and [145]-[147] per Banks-Smith J
That is precisely the reason why annual leave loading does not form part of OTE. Both historically and practically, it is not referable to ordinary hours of work or to ordinary rates. Instead, based on its history, it is referable to the lost opportunity to work additional hours at higher rates.
Further, and entirely consistent with this award history, was the Union’s predecessor union, the Commonwealth Bank Officers’ Association’s, own understanding of the purpose of annual leave loading at the very time of the inception of annual leave loading provisions into Federal awards.[47] In 1973, as conceded in the Union’s evidence, the relevant union at the time (the Commonwealth Bank Officers' Association) reported to members:
The Corporation [ie, CBA] and Association have completed negotiations in respect of those items which will be included in salaries of staff members taking annual leave. The items for inclusion and those to be excluded were fairly well defined in the decision by the Arbitration Commission. Briefly, the case argued by the Unions was that a person going on leave should receive for the leave period those additional payments normally received.
In the past, many allowances such as graduate, managers' special non-residential, district, higher duty etc. have been automatically included. As from 1.1.73, shift work and machinist allowances and P.N.G Saturday morning penalty payments for expatriates and locally recruited European staff, will be paid to staff members whilst on leave.
The Commission specifically excluded overtime payments, even though they are paid on a regular basis.
It was agreed that the loading in respect of machinists' allowances will apply in those cases where the allowance is regularly received for 3 months prior to taking leave. Also, it was agreed that temporary absence, sickness and relief in other positions would not affect the entitlement. In the case of shift workers, the additional payment will be calculated for the rostered shift that would have been worked had the person not been on leave.
[47] Angrisano affidavit at page 211; see also page 227
This approach is consistent with the Agreements. That understanding of the purpose of annual leave loading forms part of the context to clause 20 in Division A of the Agreements.
Annual leave loading therefore does not fall within the scope of OTE, because it is not something which is referable to ordinary hours of work. Instead, it is referable to extraordinary hours, being a form of compensation for additional work beyond an employee’s ordinary hours and at higher rates for which the employee would otherwise not be paid while they are on leave.
Thirdly, there is a practical attraction to concluding that annual leave loading does not form part of OTE, because it ensures parity and a standardised approach between employees regardless of whether they are on leave or at work. Under the Explanatory Memorandum to the Superannuation Laws Amendment (2004 Measures No 2) Bill 2004, which introduced changes to the superannuation legislation to make OTE the only notional earnings base from which employers would calculate their superannuation contributions, it was explained at [4.10] that:
Standardising the amount against which SG liability should be assessed to ordinary time earnings reduces complexity for employers, ensuring that employers only need consider ordinary time earnings as opposed to potentially multiple earnings bases for a variety of employees. Standardising earnings bases to ordinary time earnings means that where employees perform the same work under the same remuneration arrangements they can expect to receive SG contributions calculated against the same amount.
If the annual leave loading were taken to form part of the OTE, then that intended standardised system and parity as between employees performing the same work could not be achieved, because those employees who were paid the loading in a particular quarter would be paid an inflated superannuation contribution compared to other employees who do not take annual leave or take a lesser amount of annual leave.
The Bank sought to reinforce its position by obtaining from the ATO a private and administratively binding advice. That advice, which is Exhibit R1, only binds the Bank and the ATO administratively, and does not bind the Court. The advice is not an obstacle to the conclusions I have reached above, and provides support to the Bank’s position, albeit on a more limited basis of reasoning than mine. Relevantly, the Advice states:
Annual leave loading is included in ordinary time earnings (OTE) unless it is clearly linked to lost overtime. Annual leave loading is an extra payment that may be paid to an employee on top of their base rate during periods of annual leave.
As an employer, you work out super guarantee payments for your employees based on their OTE. OTE includes annual leave but not overtime.
To omit annual leave loading from your employees’ OTE, you need written evidence showing that the leave loading is linked to a lost opportunity to work overtime. This evidence can be either:
·The relevant award or agreement
·A documented policy, understood by you and your employees, that states the reason for the leave loading entitlement.
For the period from the formulation of the CBA’s 2019 Group Leave and Attendance Policy there is written evidence showing that the leave loading is linked to a lost opportunity to work overtime. This is included in the 2019 Group Leave and Attendance Policy and subsequent policies as well as in the 2020 EA.
We note the EAs and policy documents in force during the period between 9 October 2014 and the formulation of CBA’s 2019 Group Leave and Attendance Policy do not indicate why ALL was provided to employees. We also note that since the formulation of CBA’s 2019 Group Leave and Attendance Policy, ALL is demonstrably referable to a lost opportunity to work overtime.
In light of this, and based on the CBA EAs, the Commissioner will also accept that ALL was referable to a lost opportunity to work overtime for the period beginning 9 October 2014 until the formulation of CBA’s 2019 Group Leave and Attendance Policy.
CONCLUSION
Accordingly, I find that the Bank was required to make superannuation contributions in relation to Ms Proctor under both of the Agreements in issue. Further, the leave loading payable to Ms Proctor under the terms of the Agreements does not constitute OTE under s 6(1) of the SGA Act.
The Bank would not have any “obligation” under the superannuation legislation in these circumstances, because the annual leave loading payments do not form part of OTE for the purposes of the SGA Act on a proper construction of the Agreements. The annual leave loading payments constitute an amount paid at a rate higher than an employee’s ordinary rate of pay, as an additional loading on top of the employee’s “Base Rate of Pay” and is not representative of a continuation of ordinary pay that the employee would otherwise receive.
I certify that the preceding one hundred and forty-two (142) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Driver. Associate:
Dated: 27 July 2022
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