Holovka and Secretary, Department of Education, Employment and Workplace Relations
[2011] AATA 442
•16 May 2011
Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2011] AATA 442
ADMINISTRATIVE APPEALS TRIBUNAL )
) No 2011/0522
GENERAL ADMINISTRATIVE DIVISION ) Re Jack Holovka Applicant
And
Secretary, Department of Education, Employment and Workplace Relations
Respondent
DECISION
Tribunal Deputy President J W Constance Date16 May 2011
PlaceMelbourne
Decision The decision under review made 20 December 2010 is set aside and in substitution it is decided an income maintenance period of 1 January 2009 to 20 December 2012 inclusive be imposed on the applicant’s claim for newstart allowance.
......(sgd J W Constance)........
Deputy President
SOCIAL SECURITY – Newstart allowance – termination payment – payment in lieu of notice - income maintenance period - severe financial hardship - unavoidable or reasonable expenditure – decision under review set aside
Social Security Act 1991 (Cth) ss 19C(3), 19C(4), 1068A-E4, 1068A-E12 and 1068‑G7AM
Finch and Secretary, Department of Education, Employment and Workplace Relations (2009) 112 ALD 171; [2009] AATA 745
Secretary, Department of Education, Employment and Workplace Relations v Ergin [2010] FCA 1438
REASONS FOR DECISION
24 June 2011 Deputy President J W Constance
INTRODUCTION
1. Mr Holovka applied to the Tribunal for a review of a decision of the Social Security Appeals Tribunal affirming a decision imposing an Income Maintenance Period in respect of his receipt of a newstart allowance. Such a period is imposed if an applicant for an allowance has received certain payments on termination of his or her employment.
2. On 16 May 2011 the Tribunal set aside this decision and determined that a different Income Maintenance Period was applicable. Oral reasons were given for this decision at the time.
3. The reasons for the Tribunal’s decision are now provided in writing.
FACTS
4. The facts in this matter are not in dispute.
5. On 31 December 2008 Mr Holovka ceased work by reason of his having been made redundant. At that time Mr Holovka received the following payments from his employer; the description of those payments is as set out in the Employment Separation Certificate[1] provided by the employer to Mr Holovka.
Redundancy $188,060.00
In lieu of notice $ 6,545.00
Gratuity or golden handshake $ 15,309.00
Sick leave $ 7,783.38
Annual leave $ 23,237.07
Long service leave $ 34,531.42
[1] Exhibit T1 p. 47.
6. Mr Holovka’s entitlements were determined under a Certified Agreement 2003-2006.[2] The Agreement provides in part:
[2] Exhibit T1 document ST4.
16 REDUNDANCY
Notice and Selection of Redundancies
…
In all instances where employees have been selected by the company for redundancy, an opportunity for the employee to respond to such a decision will be part of the selection process.
…
16.1 Notice Payment
Employees that are retrenched will receive a payment of five (5) weeks pay.
16.2 Severance Payment
Employees will receive four (4) weeks pay for each year of service. This calculation is based on completed years and pro rata months of service.
16.3 Ex Gratia Payment
An ex-gratia payment of $5,000.00 is applicable as a consequence of the company selecting employees for retrenchment.
16.4 Good Behaviour Bonus
a. Employees aged under 45 years of age will receive a $6,000.00 payment.
b. Employees aged 45 years of age and over will receive a $9,000.00 payment.
7. The Secretary has taken into account all of the payments set out in paragraph five and has imposed an Income Maintenance Period from 18 August 2008 until 6 August 2012.
ISSUES
8. Mr Holovka has not raised specific issues as to the payments which have been taken into account in calculating the Income Maintenance Period. Rather his argument is that there should be no such period as he no longer has the funds available to maintain his wife and himself. Nevertheless it is necessary that I consider the payments which have been taken into account in the Secretary’s calculation.
9. The issues I have to decide are:
1)has the Income Maintenance Period been calculated correctly?
2)should the whole or part of the Income Maintenance Period not apply to Mr Holovka on the basis that he is in severe financial hardship because he has incurred “unavoidable or reasonable expenditure” during the period?
Legislation relevant to the determination of the Income Maintenance Period
10.Section 1068A-E4 of the Social Security Act 1991 (Cth) provides:
If:
(a) a person’s employment has been terminated; and
(b) the person receives a termination payment (whether as a lump sum payment; as a payment that is one of a series of regular payments or otherwise);
The person is taken to have received ordinary income for a period (the income maintenance period) equal to the period to which the payment relates.
11.“Termination payment” is defined by section 1068A-E12 to mean:
(a) a leave payment relating to a person's employment that has been terminated; or
(b) a redundancy payment.
“Redundancy payment” is defined in part in the same section:
…does not include a directed termination payment within the meaning of section 82-10F of the Income Tax (Transitional Provisions) Act 1997.
Legislation relevant to the application of the Income Maintenance Period
12.Social Security Act 1991 (Cth) provides:
s 1068-G7AM If the Secretary is satisfied that a person is in severe financial hardship because the person has incurred unavoidable or reasonable expenditure while an income maintenance period applies to the person, the Secretary may determine that the whole, or any part, of the period does not apply to the person.
s 19C(3) A member of a couple who makes a claim for parenting payment, austudy payment, special benefit, disability support pension, carer payment or one of the following allowances:
(a) newstart allowance;
…
is in severe financial hardship if the value of the couple's liquid assets (within the meaning of subsections 14A(1) and (2)) is less than twice the fortnightly amount at the maximum payment rate of the payment, benefit, pension or allowance that would be payable to the person:
(f) if the person's claim were granted; and
(g) in the case of a person to whom an income maintenance period applies, if that period did not apply.
Note: For maximum payment rate see subsection (8).
s 19C(4) Unavoidable or reasonable expenditure , in relation to a person … to whom an income maintenance period applies, includes, but is not limited to, the following expenditure:
(a)the reasonable costs of living that the person is taken, under subsection (6) or (7), to have incurred in respect of:
…
(iii) if an income maintenance period applies to the person--that part of the period that has already applied to the person;
(b)the costs of repairs to, or replacement of, essential whitegoods situated in the person's home;
(c)school expenses;
(d)funeral expenses;
(e)essential expenses arising on the birth of the person's child or the adoption of a child by the person;
(f)expenditure to buy replacement essential household goods because of loss of those goods through theft or natural disaster when the cost of replacement is not the subject of an insurance policy;
(g)the costs of essential repairs to the person's car or home;
(h)premiums in respect of vehicle or home insurance;
(i)expenses in respect of vehicle registration;
(j)essential medical expenses;
(k)any other costs that the Secretary determines are unavoidable or reasonable expenditure in the circumstances in relation to a person.
However, unavoidable or reasonable expenditure does not include any reasonable costs of living other than those referred to in paragraph (a).
REASONING
Has the Income Maintenance Period been calculated correctly?
13. It is clear that the payments received by Mr Holovka and described as ‘Redundancy”, “Gratuity or golden handshake”, “Sick leave”, “Annual leave”, and “Long Service Leave” are all included in the definition of “termination payment” and are required to be taken into account in calculating the Income Maintenance Period.
14. The contentious payment is that described as “in lieu of notice”. This was a payment of $6,545.00 and equated to 5 weeks of the Income Maintenance Period.
15. The Tribunal has considered previously the question of whether payments in lieu of notice are termination payments for the purposes of this legislation. It has concluded that they are not. In Finch and Secretary, Department of Education, Employment and Workplace Relations [3] Deputy President Jarvis said:
In ordinary parlance, it could be said that a payment in lieu of notice would be a termination payment, since such a payment is made at the time of, or as a consequence of, the termination of employment. However, the expression “termination payment” is defined in the Act, and in my opinion a payment in lieu of notice is not a “termination payment” within the meaning of the statutory definition. It was not a leave payment. It was a lump sum payment which Ms Finch’s employer chose to make instead of giving her one month’s notice requiring her to undertake her normal duties during the one month notice period specified in her contract of employment, a copy of which is included as T4 in exhibit R1. This provides in effect that either party may terminate employment on one month’s notice to the other, but there is also provision for summary dismissal in the event of gross misconduct, and for the employer, in its discretion, to be able to terminate by making a payment in lieu of notice.
The definition of “termination payment” in s 1068A-E12 also includes a redundancy payment. In my view, a payment in lieu of notice could not be said to be a redundancy payment, but is an entitlement arising under her contract of employment when her employment is terminated, for any reason, with less than the agreed prior notice. However, a redundancy payment is a payment made by an employer in consequence of the redundancy of an employee, calculated by reference to a formula that is customarily dependent on the number of years of service of the employee who is being made redundant.
[3] (2009) 112 ALD 171; [2009] AATA 745.
16. I agree with the interpretation of the term “termination payment” set out above. However in Mr Holovka’s case it is necessary to consider the effect of the terms of the Certified Agreement.
17. Under the agreement the payment is described as a “Notice Payment”. The provision provides for a payment of five weeks pay but makes no reference to it being a payment in lieu of notice. Further the agreement provides that a worker selected for redundancy will be given the opportunity to respond. This suggests that notice of the redundancy cannot be paid out in the manner of a payment in lieu. There is no evidence that Mr Holovka was not given the required notice of the termination of his employment.
18. The provision for the Notice Payment is a sub-paragraph of a paragraph headed “REDUNDANCY”. This suggests also that the payment is a part of the redundancy process and properly characterised as a “redundancy payment”, unlike the payment under consideration in the application by Ms Finch referred to above. In the circumstances of this application the nature of the payment should be decided by reference to the agreement under which the payment was made rather than to the description given to it by the employer in the Separation Certificate. In my view it should have been included under the Redundancy section of that certificate.
19. I am satisfied that the calculation of the Income Maintenance Period contended for by the Secretary is correct.
Should the whole or part of the Income Maintenance Period not apply to Mr Holovka on the basis that he is in severe financial hardship because he has incurred “unavoidable or reasonable expenditure” during the period?
20. In Secretary, Department of Education, Employment and Workplace Relations v Ergin[4] the Federal Court said:
[4] [2010] FCA 1438.
21 The legislative purpose served by the "income maintenance period" regime is clear. A person who, upon becoming unemployed, receives a termination payment is expected to use that payment to cover his or her reasonable living expenses and is not entitled, immediately, to receive income support from the public purse. The SS Act provides a formula pursuant to which the length of any "income maintenance period" is to be calculated. Once the period has expired the person is entitled to the benefit claimed provided that he or she remains otherwise eligible.
22 The SS Act also takes account of the possibility that a person may suffer severe financial hardship during an income maintenance period because some or all of the termination payment is expended on necessary ("unavoidable or reasonable") expenditure on goods or services or the satisfaction of legal obligations. In such cases the Secretary is given a discretion by s 1068-G7AM to determine that the income maintenance period (or part of it) should not apply to the applicant.
23 The occasion for the Secretary to give consideration to the exercise of her discretion under s 1068-G7AM will only arise if the Secretary is satisfied of three things. They are that:
• The applicant is in severe financial hardship;
• The applicant is suffering such hardship "because" he or she has incurred unavoidable or reasonable expenditure; and
• Such expenditure has been incurred while the income maintenance period applies to the applicant.
24 Upon being satisfied of each of these three matters the Secretary may decide that the whole of the income maintenance period or part of it does not apply to the applicant. No formula is prescribed for calculating the length of any dispensation which may be granted by the Secretary once she has determined that the discretionary power is enlivened.
…
29 …Before the decision-maker can exercise the discretion which is conferred by the section she must be satisfied that the cause of an applicant's hardship was the incurring of "unavoidable or reasonable expenditure" during the relevant period.
21. In this case it is only necessary to consider the second of the three requirements referred to by the Federal Court, that is, has Mr Holovka incurred unavoidable or reasonable expenditure. The Secretary has conceded that if the payments made by Mr Holovka are found to be reasonable or unavoidable then these payments have placed him in severe financial hardship.
22. The provisions of sub-section 19C(4) are not exclusive, but give an indication of the type of expenses that should be regarded as reasonable or unavoidable. In addition to the listed items the decision-maker has discretion to determine other expenditure to be reasonable or unavoidable in the particular circumstances of the person concerned.
23. Mr Holovka’s regular mortgage repayments were taken into account in his reasonable costs of living. However there is no evidence to suggest that the repayment of the whole home loan five years prior to the termination date of the mortgage was reasonable in the circumstances in which Mr Holovka found himself. It was a matter of his choice to do so. Similarly, there is no evidence that this payment was unavoidable.
24. Whilst Mr Holovka was free to incur the expenditure he did, spending his funds on cosmetic (as distinct from essential) home repairs has not been shown to be either reasonable or unavoidable. There is no evidence that the purchase of a new car as a replacement for an existing vehicle for the use of his wife, meets the criteria set out in the Act.
25. I am satisfied that a decision that none of the listed items of expenditure is either reasonable or unavoidable is within the intention of the legislation and is in accordance with the principles set out in the decision in Secretary, Department of Education, Employment and Workplace Relations v Ergin[5] referred to above.
[5] [2010] FCA 1438.
26. The decision under review was set aside only because the period of the Income Maintenance Period had been incorrectly calculated in that decision. I am satisfied that the correct period is one of 207.2 weeks as set out in the Statement of Facts and Contentions filed by the Secretary. Mr Holovka did not dispute this calculation. This means that the Income Maintenance Period commenced on 1 January 2009 and will end on 20 December 2012.
I certify that the 26 preceding paragraphs are a true copy of the reasons for the decision herein of
Deputy President J W Constance
Signed: ....(sgd K Peterson)................
K Peterson, AssociateDate of Hearing 16 May 2011
Date of Decision 16 May 2011
Date of Written Reasons 24 June 2011
For the Applicant self represented
Counsel for the Respondent Ms A Bramley, departmental advocate
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