James Daniels v Beames & Associates Accounting and Financial Services Pty Ltd

[2010] FWA 5072

[2010] FWA 5072

FAIR WORK AUSTRALIA

DECISION

Fair Work Act 2009
s.394 - Application for unfair dismissal remedy

James Daniels
v
Beames & Associates Accounting and Financial Services Pty Ltd
(U2009/12029)

COMMISSIONER DEEGAN CANBERRA, 9 JULY 2010

Termination of Employment – jurisdiction and arbitration

[1] This matter arises from an application for unfair dismissal remedy filed on 11 September 2009 pursuant to s.394 of the Fair Work Act 2009 (“the Act”) by Mr James Daniels (“the applicant”) in relation to the termination of his employment by Beames and Associates Accounting and Financial Services Pty Ltd (“the respondent”).

[2] The matter was heard on 30 and 31 March 2010. As the respondent had raised objections to jurisdiction, claiming that pursuant to s.382 of the Act, the applicant’s annual remuneration exceeded the high income threshold and the applicant was not covered by an award or enterprise agreement, the hearing dealt with the objection and the substantive application together.

[3] At the hearing the applicant appeared in person and Ms Felicity Rafferty, a solicitor, appeared for the respondent.

Jurisdiction

[4] Section 382 of the Act states that:

A person is protected from unfair dismissal at a time if, at that time:

(a)  the person is an employee who has completed a period of employment with his or her employer of at least the minimum employment period; and

(b) one or more of the following apply:

(i) a modern award covers the person;

(ii) an enterprise agreement applies to the person in relation to the employment;

(iii) the sum of the person's annual rate of earnings, and such other amounts (if any) worked out in relation to the person in accordance with the regulations, is less than the high income threshold.

[5] The high income threshold referred to in s.382 (b) (iii) of the Act is calculated according to the Fair Work Regulations 2009 and at the time of the applicant’s termination, was $108,300.

The respondent’s case – jurisdiction

[6] The respondent objected to the jurisdiction of Fair Work Australia on the grounds that the applicant’s employment was not governed by an award or an agreement and the applicant’s annual remuneration exceeded the high income threshold.

[7] The respondent produced the applicant’s common law contract of employment 1 and referred to clause 5.1(a) which was in the following terms:

"The company agrees to pay to the employee during the employment in equal monthly instalments in arrears the annual salary."

[8] It was noted that "annual salary" was defined in clause 1.1 of the Agreement as follows:

"The annual salary means the annual salary amount, inclusive of superannuation set out at item 4 of schedule 1 to this document, or any increased amount."

[9] Under the terms of his contract the applicant was to receive a remuneration package of $120,000 per annum inclusive of superannuation. It was the respondent’s position that when the superannuation guarantee amount of 9% was deducted from the salary package the applicant’s salary was $110,091.74 which exceeded the statutory threshold. It was also noted that, in addition to the remuneration package received by the applicant the respondent also paid the applicant’s professional association fees of $576 per annum, which it was asserted was an additional non-monetary benefit that should be taken into account. According to the respondent when this amount was added to the base salary, it brought the applicant's earnings (for the purposes of section 382 of the Act) to $110,667.74. The respondent claimed that to pay the applicant less than that amount would have amounted to a breach of his contract of employment.

[10] The respondent noted the applicant’s claim that there had been, during the course of the employment, an alteration to the remuneration package set out in the contract which resulted in the applicant’s remuneration being below the statutory threshold. In response to this claim it was put for the respondent that there was no scope under the contract for a decreased amount to be paid, unless there was a variation made to the contract, in writing. Such a variation was required to be signed by both parties (clause 15(1)).

[11] It was the submission for the respondent that during the course of the applicant’s employment, he was regularly counselled by the respondent about issues relating to poor performance. On one occasion during the course of the counselling session, on or around 21 May 2009, the directors of the respondent informed the applicant that in their view, he was being overpaid for what he did, and in their view he was worth only $90,000. It was noted further that the comment was acknowledged by the applicant in an email 2 dated 22 May 2009 where he stated "As you feel I'm only worth 90K, don't pay me for two months. That will bring my remuneration back down to 90K, backdated to my start date." The respondent noted that this suggestion was not acted upon.

[12] The matter was again raised at the applicant’s performance review on 24 June 2009 and a handwritten note 3 made at the time listed, under the heading “Outcomes communicated to James from the meeting”, the words “a salary of $100,000. The respondent acknowledged that the pay slips provided to the applicant for the remainder of his employment (two further monthly payments) showed a reduced rate of pay equivalent to $100,000 (less 9% superannuation).

[13] It was put that on 25 August the respondent sought legal advice in relation to the applicant's contract and the advice given was that in the absence of a written variation to the employment contract signed by both parties it was an unlawful breach of the applicant's employment contract for the respondent to reduce the applicant's annual salary below the $120,000 specified in Schedule 1 to the employment contract. While the salary could be increased it could not be reduced. The respondent was advised that in order to rectify the contractual breach it would be necessary to back pay the applicant to compensate for the underpayments in July and August. On 28 August 2009 the applicant was paid a sum back pay of $3058.10 gross which, the respondent argued, restored the applicant's remuneration to the contracted amount. Further, it was put, had the respondent not paid that amount to the applicant it would have been exposed to a claim in a court of law for breach of contract.

[14] In addition to four weeks' pay in lieu of notice there was a further payment of $1791.45, which was a payment for accrued, unused annual leave. The two payments were paid, as set out in the letter of termination, in accordance with the applicant's normal pay cycle, and received by the applicant on or around 11 September 2009 (the normal pay day). The respondent noted that, while the applicant stated in his submissions that he had not agreed to be paid the back pay, he had accepted the back pay of his contractual salary. He did not advise the respondent of any objection to receiving the back pay nor did he attempt to return those funds to the respondent. Pay slips showing the payment of the claimed amounts were tendered. 4

[15] Finally it was argued for the respondent that the applicant was paid his contractual entitlement while the employment was still on foot and had accepted that payment. The payment was reflected in his pay slips and in his PAYG group summaries.

The applicant’s case - jurisdiction.

[16] The applicant did not dispute that his employment was not covered by an award or enterprise agreement but argued that his annual rate of remuneration was lower than the high income threshold.

[17] It was the applicant’s position that, at his annual performance review on 24 June 2009, it was agreed that his remuneration package would be reduced from $120,000 per annum to $100,000 inclusive of superannuation (that is from $110,091 p.a. to $91,743 p.a. exclusive of superannuation). The applicant was advised at the meeting that the reduction in salary would be confirmed later in writing and an amended contract provided. While the applicant received no further documentation the reduction in pay had been communicated to the office manager and, as evidenced by the pay slips for July and August, the reduction was put into effect.

[18] It was the applicant’s submission that he had accepted an offer put to him by the directors of the respondent that he could remain employed if his remuneration was reduced from $120,000 per annum to $100,000 per annum. The applicant understood when the paperwork was not forthcoming as the firm was “flat out” from June to August.

[19] The applicant claimed that three days after the termination of his employment he had a meeting with the directors of the respondent and the matter of the Fair Work Australia high income threshold was raised. When he noted that his salary was under the threshold the directors had said words to the effect that they had paid an amount into his bank account and he was now over the threshold. The applicant tendered copies of his bank statements which showed that he had been paid the reduced salary in August but that the “catch-up” pay had been received in his bank account on 31 August 2009, the first working day after the termination of his employment.

[20] The applicant acknowledged that over the period of his employment with the respondent he was paid at the higher rate of pay from December 2008 until June 2009. He was then paid at the lower rate for July and August. He noted that he had had two weeks leave without pay in January 2009 and his pro rata pay for the total period of employment was $106,245.67. It was his submission that, even with the professional association fees included his salary was still under the threshold. It was also his view that the association fee was “an otherwise deductible expense” 5 rather than a benefit. It was the applicant’s contention that the catch-up payment was simply a device to try and prevent him from being able to access the Fair Work Australia legislation.

The respondent’s reply – jurisdiction

[21] Ms Rafferty, for the respondent, denied that the catch-up payment was a device and noted that it was to counter such a claim that she had advised her clients to waive legal professional privilege concerning the advice provided to them on the contractual issues. It was her submission that the respondent had no way of knowing that the applicant would approach Fair Work Australia for a remedy. It was put that the respondent's concerns were related to the broader contractual issues that arose in the matter given that the employment of the applicant had arisen from the purchase by the respondent of a business of which the applicant was a principal.

Jurisdiction – conclusion

[22] In order to determine whether the applicant is excluded from the jurisdiction it is necessary to ascertain whether the applicant’s “annual rate of earnings” and such other relevant amounts are less than the high income threshold.

[23] The applicant was employed for less than one year, a fact that will not affect the “annual rate” of his earnings. Similarly, a period of leave without pay will not affect the “rate” of his earnings although it could (hypothetically) have significantly affected the amount he earned.

[24] The applicant’s annual rate of earnings from December to June 2009 is not in dispute. Both parties are clear that his annual salary (less superannuation) was, for that period, in excess of the high income threshold. His salary was then reduced and his monthly pays which were paid mid-July and mid-August consistent with an annual rate of salary of $91,743. Upon receiving advice that these payments were not consistent with the applicant’s employment contract the respondent, on 28 August 2009, repaid the shortfall in salary and the applicant’s annual rate of remuneration returned to the amount agreed in his contract, which was in excess of the high income threshold.

[25] As at the date of the termination of the applicant’s employment it is apparent that his annual salary was, in accordance with the original contract of employment, which had not been the subject of any valid alteration, $120,000 including 9% superannuation. His annual rate of remuneration was therefore either the rate of his annual salary net of superannuation (i.e. $110,091.74) or that rate together with the amount agreed to be paid by his employer for his professional association fees. In either case the applicant’s annual rate of remuneration exceeded the high income threshold.

[26] In my view it would not be appropriate for me, in determining the applicant’s annual rate of remuneration, to take into account the decreased amount of salary paid to the applicant in July and August in circumstances where the shortfall was made up, and accepted by the applicant. The annual rate of remuneration should be determined taking into account both the amount the applicant was legally entitled to be paid in accordance with his contract of employment and the amounts actually paid to him. Only in circumstances where those amounts were different would it be necessary to examine the situation further in order to determine the annual rate of remuneration.

[27] As the applicant’s annual rate of remuneration exceeded the high income threshold Fair Work Australia has no jurisdiction to deal with the substantive application. The application is dismissed. An order to that effect is published separately.

COMMISSIONER

 1   Attachment to the Respondent’s Response

 2   Exhibit B2 Attachment 30

 3   Exhibit B2 Annexure A

 4   Exhibit B1

 5   Transcript PN 52

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