Flayme Industries and Director, Australian Defence Force Reserves and Employer Support

[2025] ARTA 154

Flayme Industries and Director, Australian Defence Force Reserves and Employer Support [2025] ARTA 154 (26 February 2025)

Applicant/s:  Flayme Industries

Respondent:  Director, Australian Defence Force Reserves and Employer Support

Tribunal Number:                2024/1163

Tribunal:Deputy President Britten-Jones

Place:Sydney

Date:26 February 2025

Decision:The Tribunal affirms the decision under review.

.................[SGD].......................................................

Deputy President Britten-Jones

Catchwords

RESERVE EMPLOYER SUPPORT PAYMENTS – self-employed member of the Australian Defence Force Reserves seeks employer support payment under the Defence Determination 2012/68 – member operated a registered business whilst also providing defence service in the Reserves - whether the member’s business was the principal source of employment – interpretation of ‘principal source of employment’ – principal source of employment to be determined by comparing time spent working in the Reserves compared to time spent working in the business – member worked more hours in the Reserves than in the business – decision under review affirmed

Legislation

Defence Act 1903 (Cth)

Department of Defence (Cth), Defence Determination 2012/68, Reserve employer support payments – ss 12 and 21A

Cases

Knight and Director, Australian Defence Force Reserves Employer Support Payment Scheme [2011] AATA 131
Matthews and Director, Employment Support Payments Scheme [2006] AATA 221
Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; 194 CLR 355

SZTAL v Minister for Immigration and Border Protection [2017] HCA 34; (2017) 347 ALR 405

Secondary Materials

Macquarie Dictionary (online)

Department of Defence (Cth), Australian Defence Force Reserves Employer Support Payment Scheme Manual (1 July 2017)

Statement of Reasons

1. This application has been brought in the name of Flayme Industries which is the trading name for the business operated by Mitchell Connolly.  At all relevant times, Mr Connolly has operated the registered business of Flayme Industries whilst also providing defence service in the Australian Defence Force Reserves (the Reserves). As a self-employed member of the Reserves, Mr Connolly comes within the Defence Determination 2012/68, Reserve employer support payments (the Determination). The Determination is a legislative instrument made under s 58B of the Defence Act 1903 (Cth).

2. The Determination establishes a scheme, known as the Employer Support Payment Scheme or ESPS, for the provision of financial assistance to businesses that employ members of the Reserves who have been absent from their civilian workplace on defence service. The Determination applies to a self-employed member of the Reserves such as Mr Connolly.

   Legislative Scheme

3. The Determination provides the circumstances in which an employer or self-employed member of the Reserves may claim an employer support payment. Division 2 of Part 2 of the Determination deals with members who are self-employed and provides for the conditions that must be met in order to be a self-employed member:

   12 Conditions for self-employment

   12.1 This section applies to a member who has any of the following roles or interests in the entity or natural person that they are employed by or working for.

   …

   b. A sole trader.

   …

   12.2 A member who has any of the roles or interests in an entity or natural person detailed in subsection 12.1 may only receive employer support payments in relation to employment by that entity or natural person as a self-employed member. If the member does not meet the requirements of Division 2 of Part 2 to be a self-employed member, the member is not eligible to receive employer support payments.

   12.3 For a member to be self-employed, the member’s business must meet both of the following conditions.

   a. It provides the member’s principal source of income or the member’s principal source of employment.

   b. For at least the previous 12 months, it also provided the member’s principal source of income or principal source of employment.

   See:

   Division 5: Principal Source of Income

   Division 6: Principal Source of Employment and Section 39, Limit on claims relating to self-employment

4. Section 12.2 operates to deny eligibility of a member to receive employer support payments unless the member meets the requirements of Division 2 of Part 2 to be a self-employed member. It is not until Part 3 of the Determination that we find the conditions for eligibility to claim an employer support payment. Section 35.1 in Division 2 (Eligibility for payment) of Part 3 provides that a self-employed member is eligible for payment because of the member’s absence on defence service if certain conditions are met. The first of those conditions is that the absence occurs after the qualifying period is met in a financial year. Information about the qualifying period is contained in s 23.1 which includes a note that the member cannot perform the qualification until after they have 12 months of service with their principal source of employment from self-employment.

5. Division 6 of Part 2 of the Determination at s 21A.1 requires a self-employed member to provide information described below when seeking approval under the principal source of employment provisions:

   Member must provide evidence...

   1. that the business is bona fide.

   2. that the business is operating, including documentary evidence of quotes, invoices or similar business records over the previous 12 months.

   3. that the business provides the member’s principal source of employment.

   4. that the business has provided the member’s principal source of employment for at least the previous 12 months.

   5. of the member's normal weekly hours of work in the business.

   The Issue in Dispute and the Applicant contentions

6. Mr Connolly contends that he satisfies the principal source of employment condition in s 12.3(a). There is no issue with respect to the conditions in ss 12.1(b) and 12.3(b). The issue in dispute is with respect to s 12.3(a) and ‘the member’s principal source of employment.’

7. Mr Connolly has provided appropriate evidence by way of his business records to satisfy items 1, 2 and 5 of s 21A.1. The issue in dispute relates to the evidence that the business of Flayme Industries provided his principal source of employment for the relevant 12-month assessment period from 15 February 2022 to 14 February 2023 (the Assessment Period). During the Assessment Period his wife became ill and Mr Connolly was diverted away from his business but maintained his duties as a member of the Reserves. Because he worked more hours in the Reserves than in his business during this period, Mr Connolly has been denied the entitlement which is based upon establishing that the business of the self-employed member provides the member’s principal source of employment. 

8. The decision under review was made by a senior review officer on 6 February 2024. It upheld an earlier decision not to approve Mr Connolly’s application on the basis that his business did not provide his principal source of employment during the Assessment Period. Section 57 of the Determination provides a right of review of this decision by application to the Tribunal. Mr Connolly made his application for review on 18 February 2024.

9. Mr Connolly contends that since joining the Reserves in July 2018, his business provided his principal source of employment up until and including the Assessment Period from 15 February 2022 to 14 February 2023.  In response to numerous earlier applications by Mr Connolly, the respondent accepted that Mr Connolly met the conditions in s 12.3 for the period from July 2018 up until 30 June 2022.  However, for the Assessment Period from 15 February 2022 to 14 February 2023, the respondent says that Mr Connolly’s business did not provide his principal source of employment.

10. Both parties agree that the issue for the Tribunal requires a consideration of the 12-month period from 15 February 2022 to 14 February 2023.  However, Mr Connolly contends that the fact that his business has historically been his principal source of employment is relevant to whether it was his principal source of employment in the Assessment Period.

    The Evidence

11. The respondent relies upon an affidavit from Ms Jodie Enslow who is an assistant director of the Employer Support & Service Protection branch of the Department of Defence. Her responsibilities include making recommendations regarding eligibility under the Employment Support Payment Scheme. Ms Enslow has analysed the business records from Mr Connolly for the purpose of assessing in the Assessment Period whether it was his business (or Defence) that provided his principal source of employment. She deposed to the results of that assessment in her affidavit as follows:

    [42] … As on an initial assessment it was plain that the Applicant had rendered considerable periods of service for Defence in the Assessment Period, it was unclear where the Applicant derived his PSE [principal source of employment] from.

    [43] As a result, a day-to-day comparison was applied using the Applicant's "Hours Worked" evidence (T4), namely a spreadsheet he supplied of hours worked in the business and Defence Attendance Records (T17 pages 236 - 243). I have created a document to assist in the comparison of the Applicant's hours worked in his business and rendered Defence service over the course of this Assessment Period. Annexed and marked "P" is a copy of the calendar comparing the Applicant's civilian employment and Defence service rendered from November 2021- February 2023.

    [44] The day-to-day comparison resulted in a recommendation that the Applicant did not derive his PSE from the business because the Applicant had worked 149-days in the business, being less than the 181-days worked for Defence. As a result, this meant the Applicant did not establish the business provided his PSE as required by the Determination because the Applicant worked 32-days more for Defence.

    [45] However, it was recognised that the Applicant often worked longer hours on a given day in the business than the number of hours that would generally have been worked on a given day for Defence. For this reason, it was determined to also consider an hour-to-hour comparison of time worked. This alternate approach was considered favourable to the Applicant, as it would ensure the Applicant's longer hours worked in the business were fully taken into account when determining his PSE, as compared with the generally shorter days he worked for Defence.

    [46] The hour-to-hour approach resulted in the decision maker accepting that the Applicant worked 1244-hours in the business and 1361-hours for Defence.

    …

    [51] As a result, this meant the Applicant did not establish the business provided his PSE as required by the Determination because the Applicant had worked 117-hours more for Defence than the business.

12. Mr Connolly does not take issue with the calculation of the number of hours that he worked in his business compared to the number of hours worked in the Reserves, but he contends that a simple comparison of hours worked in the business with hours worked in the Reserves is the wrong approach because nothing in the employment support payment scheme identifies ‘hours as a metric to prove the existence of a business.’[1]

    [1] Applicant’s Further Submissions dated 7 January 2025, 1 [2].

13. Mr Connolly contends that his business remained his principal source of employment in the Assessment Period, but he was diverted away from his business because of a need to look after his wife. In his statement of facts dated 19 August 2024, he said:

    My wife was admitted via emergency ambulance to a hospital for various reasons, including a positive COVID test and being in an unresponsive state 15/4/22; for approximately the first two weeks after this, I was unable to perform any duties that were required of my business. I had to organise and facilitate hospital visits, doctor liaisons and correspondence, and look after our child full time. The nature of her condition was not ascertained for a lengthy period, and there were many errors on behalf of the local health district, which lengthened her stay and increased the mental and physical strain on my family and also my time to perform business duties until the end of June 2022. This situation also created a more significant requirement for correspondence with specialists and medical entities, taking more time and focus from my business.

14. In her affidavit, Ms Enslow responds to Mr Connolly’s assertion that he was diverted away from his business to look after his wife, deposing as follows:

    [55] …

    (c) The Applicant claims that he would have worked more hours in his business "but for" his carers duties which began on 15 April 2022. He claims that he should be credited with a 2 week period between 15 - 28 April 2022 while his wife was hospitalised, and possibly more where he was impacted in the number of hours he could work in the business for approximately three months afterward (i.e. until mid July 2022). There are a number of difficulties with this assertion:

    (i) During the initial two-week period of the Applicant's carer's duties, being 15 - 28 April 2022, the Applicant asserted in the initial Hearing of these proceedings on 6 December 2024 that he was mostly unable to work during this 2-week period. However, the Applicant's "Work Hours" evidence (T4, page 34) states that the Applicant worked 64-hours in the business across 7-days of this two-week period (on 18, 19, 20, 21, 25, 27 and 28 April 2022), averaging over 9 hours per day worked; and

    (ii) the Respondent's official Defence Attendance Records (T17, page 226) confirm that the Applicant rendered Defence service on 15 April 2022.

    [56] These hours were accounted for in the ESPS decision-maker's calculation of the Applicant's PSE of hours worked as set out in annexure "P".

    [57] There accordingly remain only 6-days within the initial 2-week period ( 15- 28 April 2022) where the Applicant performed no work, 2-days of which were public holidays for Easter Saturday and Easter Sunday. Records indicate that the Applicant's business is usually closed on Christmas Day and Easter.

    [58] Over the following 3-month period where the Applicant was providing carer's duties, being 15 April 2022 - 14 July 2022, the Applicant worked 36-days in his business (T 4 page 34) and 42-days for Defence (T17 pages 226 - 227) in this 91-day period. This means there remain only 13 days in this 3-month period when the Applicant did not work either in his business or for Defence. Some of these days could reasonably be considered as normal time off as it is not reasonable to make an assessment that the Applicant works every day and does not take an occasional day off, particularly when the evidence indicates he takes at least one day off every 2 weeks. Had the member taken 1 day off every 2 weeks over the 3-month period, this would indicate he would have taken at least 6 or 7 days off.

15. The effect of Ms Enslow’s affidavit was to note that in the months during which Mr Connolly was affected by his wife’s illness, he had very few days off but rather divided his time working the majority of days in the Reserves and some days in his business. Ms Enslow pointed to the calendar at annexure “P” of her affidavit which depicted the significant number of days worked either for the Reserves or in his business.

16. During the resumed hearing on 13 February 2025, Mr Connolly accepted that during the months when his wife was ill, he did work many days for the Reserves. He explained that this allowed him to receive an income whilst attending to the needs of his wife and looking after their child. Mr Connolly said that the extra hours he worked in the Reserves only arose because he was looking after his wife and was granted an indulgence, in the circumstances of his wife’s illness, to carry out his defence service from home. Mr Connolly maintained that despite the higher hours working in the Reserves, his business remained his principal source of employment because it was still a full time role which I understood to mean that it required a full time commitment. 

    Consideration

17. To be eligible to receive employer support payments, Mr Connolly must meet the requirements of Division 2 of Part 2 to be a self-employed member.[2] To be self-employed, Mr Connolly must establish pursuant to s 12.3(a) of the Determination that his business provided his principal source of employment during the Assessment Period.[3] There is a further and distinct obligation pursuant to s 12.3(b) of the Determination to establish that his business provided his principal source of employment during a period of at least 12 months before the commencement of the Assessment Period.

    [2] The Determination cl 12.2.

    [3] The Determination cl 12.3(a).

18. The evidence that must be provided to establish the principal source of employment is set out in s 21A.1. The required evidence includes business records of a member’s normal weekly hours in the business together with quotes, invoices or similar business records to establish that the business is bona fide, that it is has been operating over the previous 12 months and that it has provided the member’s principal source of employment for at least the previous 12 months.

19. The High Court in SZTAL v Minister for Immigration and Border Protection[4] said that the starting point for statutory construction is to consider the text of the provision itself together with its context and purpose:

    The starting point for the ascertainment of the meaning of a statutory provision is the text of the statute whilst, at the same time, regard is had to its context and purpose. Context should be regarded at this first stage and not at some later stage and it should be regarded in its widest sense. All this is not to deny the importance of the natural and ordinary meaning of the word, namely how it is ordinarily understood in discourse, to the process of construction. Considerations of context and purpose simply recognise that, understood in its statutory, historical or other context, some of the meaning of a word may be suggested, and so too, if its ordinary meaning is not consistent with the statutory purpose, that meaning must be rejected.

    [4] [2017] HCA 34; (2017) 347 ALR 405, 410 [14].

20. In Project Blue Sky Inc v Australian Broadcasting Authority,[5] the High Court said:

    The primary object of statutory construction is to construe the relevant provision so that it is consistent with the language and purpose of all the provisions of the statute. The meaning of the provision must be determined "by reference to the language of the instrument viewed as a whole". In Commissioner for Railways (NSW) v Agalianos, Dixon CJ pointed out that "the context, the general purpose and policy of a provision and its consistency and fairness are surer guides to its meaning than the logic with which it is constructed". Thus, the process of construction must always begin by examining the context of the provision that is being construed.

    (footnotes removed)

    [5] [1998] HCA 28; 194 CLR 355, 381 [69].

21. The relevant text to be interpreted is the phrase “principal source of employment.” It will be given a meaning in accordance with its text, context and purpose within the Determination.

22. With respect to the text, I note that there is no definition of “principal” in the Determination, so one must consider the natural and ordinary meaning of the word. The meaning of “principal” in the Macquarie online dictionary is ‘first or highest in rank, importance, value, etc.; chief; foremost.’[6]  This meaning would suggest that a comparison is required if there is another source of employment so as to determine which source is the foremost or the highest in importance or value.

    [6] Macquarie Dictionary (online) ‘principal’ (def 1).

23. With respect to purpose, the Australian Defence Force Reserves Employer Support Payment Scheme Manual issued on 1 July 2017 (the Manual), says that the intent of the employer support payment scheme is to contribute to the ability of the Australian Defence Force Reserves to provide a required capability to the ADF by enhancing employer support for defence service and assisting the availability of Reservists to undertake defence service.  The objectives in clause 1.6 of the Manual are to:

    a. enhance the level of employer support for Defence service by Reservists
    b. assist in providing a broader pool of available Reservists to meet Service
    requirements
    c. increase the likelihood that Reservists with critical skills will make themselves
    available for Defence service, when those skills are required
    d. provide a well-run scheme that maximises the impact of employer support payments on the levels of employer support payments on the levels of employer support and Reservist ability.

1. With respect to context within the Determination, it is noteworthy that to be eligible to receive employer support payments, a self-employed member may satisfy the condition in s 12.3(a) by establishing that the business provides either:

   (a)the member’s principal source of income; or

   (b)the member’s principal source of employment.

2. Division 5 of Part 2 will apply if the member chooses to support the claim by establishing that the business provides the principal source of income. It defines, and provides examples of, income and it sets out the evidence that is required by way of documents and information to establish the principal source of income requirement.

3. In this case, the member has chosen to support the claim by establishing that his business provides the principal source of employment (not the principal source of income). The provisions of the Determination relevant to the principal source of employment are s 12 (conditions for self-employment) in Division 2 of Part 2 and s 21A (evidence of principal source of employment) in Division 6 of Part 2.

4. Whilst s 21A sets out the evidence that must be provided, neither s 12 nor s 21A of the Determination provides much guidance about how one is to determine the principal source of employment. In terms of context, the existence of the principal source of income as an alternative in s 12.3(a) of the Determination suggests that the amount of income generated by the business will not be determinative of whether a business provides the member’s principal source of employment. Further, on a reading of the whole of s 12.3 it is apparent that the member must establish that his business provides his principal source of employment in two distinct time periods; namely during the period for which he is being assessed (the Assessment Period) and in a separate period of at least 12 months prior to the Assessment Period. This is explained by the Manual which says at clause 3.7(b) that to be eligible, a self-employed member must conduct a legitimate business that provides the Reservist’s principal source of employment and has done so for at least the previous 12 months prior to the period of claimed Defence service.

5. It is axiomatic that a self-employed member making a claim for employer support payments will have shared their working time between their business and the Reserves.  In my opinion, the principal source of employment will generally be determined by identifying the employment (either the business or the Reserves) in which the member has worked the most hours. This will require a comparison of the hours worked in the business compared to the hours in the Reserves. This is consistent with the requirement in s 21A.1 to provide evidence of weekly hours of work which suggests that the amount of time worked in the business is a relevant factor. This is the approach described by Ms Enslow in her affidavit namely to:[7]

   interpret ‘principal’ to mean the “main” or “primary” employment source in which the member has worked the most amount of time during the assessment period.

   [7] Affidavit of Ms Jodie Enslow affirmed 7 February 2025 at [12].

6. A comparison of days worked by Mr Connolly in his business with days worked in the Reserves reveals that he worked 32 days more in the Reserves based on 149 working days in the business and 181 working days in the Reserves. An alternate approach based on working hours (which took into account that Mr Connolly worked longer hours on average in a business day than in a day at the Reserves) reveals that he worked 117 hours more in the Reserves based on 1244 hours in the business and 1361 hours in the Reserves.

7. Mr Connolly does not dispute that he worked more in the Reserves than in his business during the Assessment Period, but he contends that his business remained his principal source of employment for two main reasons. First, because historically his business had provided his principal source of employment and, second, because the extra time worked in the Reserves arose from the unexpected circumstances of his wife’s illness. 

8. Mr Connolly’s first contention should be rejected because the principal source of employment requirement applies to two distinct periods and the fact that the member satisfies the requirement in the previous 12 months does not mean that he satisfies it for the Assessment Period. The fact that Mr Connolly’s business provided his principal source of employment in years prior to the Assessment Period is not a relevant consideration when carrying out an assessment for the Assessment Period. I have no doubt that, in Mr Connolly’s mind, his business remained foremost in the Assessment Period, but an objective approach is required based on a comparison of time spent between the business and the Reserves.

9. Mr Connolly’s second contention should be rejected because the assessment in accordance with the Determination requires a comparison of hours or days worked in that Assessment Period irrespective of the reason for the member dividing their time between the business and the Reserves. The principal source of employment should be based on objective criteria which can be determined by the evidence that must be provided under s 21A.1 including evidence of normal hours of work in the business. Further, Mr Connolly accepted that the extra work he carried out as a Reserve during the Assessment Period enabled him to supplement his income during the difficult time of his wife’s illness. It would be an odd result if in addition to receiving this additional income as a Reservist, Mr Connolly could also receive the employer support payment in his capacity as a self-employed member.

10. Given that the purpose of the employer support payment scheme is to increase the defence service of Reservists, it makes sense that it applies when the self-employed Reservist is devoting less time to defence service than to their business. In that situation, the scheme provides an incentive to increase the time devoted to defence service so as to achieve that purpose. Conversely, if the self-employed member is already working more hours in the Reserves than in the business, then the purpose, at least in a relative sense, is already being achieved and there is less of a need to increase defence service for that particular Reservist. 

11. A comparative approach based on time is appropriate when one adopts a purposive and contextual interpretation of the phrase “principal source of employment.”  This approach is consistent with the decision of the Tribunal in Matthews and Director, Employment Support Payments Scheme[8] where the Senior Member compared the number of days worked in the Reserves with the number of days available for other work. See also Knight and Director, Australian Defence Force Reserves Employer Support Payment Scheme[9] where a claim by a self-employed member was rejected because he was employed for most of the relevant period as a Reservist and therefore his business was not providing his principal employment during that period.

    [8] [2006] AATA 221 at [15].

    [9] [2011] AATA 131 at [28].

12. I have found that Mr Connolly’s business did not provide his principal source of employment because he worked more hours in the Reserves than in his business during the Assessment Period. 

    Decision

13. It follows that the decision under review will be affirmed.

37.     I certify that the preceding 36 (thirty-six) paragraphs are a true copy of the reasons for the decision herein of Deputy President Britten-Jones.

..................[sgd]......................................................

Associate

Dated: 26 February 2025

Date(s) of hearing:	6 December 2024 and 13 February 2025
Applicant’s Representative:	Self-represented
Respondent’s Representative:	Ms Helen Sims (Holding Redlich Lawyers)