KERNAGHAN v Neffray Pty Ltd
[2020] FCCA 1141
•13 May 2020
FEDERAL CIRCUIT COURT OF AUSTRALIA
| KERNAGHAN v NEFFRAY PTY LTD & ORS | [2020] FCCA 1141 |
| Catchwords: INDUSTRIAL LAW – Awards – Interaction between contractual payments and award obligations – whether nature of contractual payments met obligations under award – nature of industrial law ‘set off’ – application of principles to unusual terms of Road Transport (Long Distance Operations) Award 2010 |
| Legislation: Fair Work Act 2009 (Cth), ss.14, 45, 539, 545, 546 Road Transport (Long Distance Operations) Award 2010, cls.3, 13, 14, 20, 22, 23, 24. |
| Cases cited: Australia and New Zealand Banking Group Limited v Finance Sector Union of Australia [2001] FCA 1785; (2001) 111 IR 227 Byrne v Australian Airlines Ltd (1995) 131 ALR 422; 69 ALJR 797;(1995) 185 CLR 410 James Turner Roofing Pty Ltd v Peters [2003] WASCA 28; (2003) 132 IR 122 Kent v Tal & Ors [2018] FCCA 3218 Lynch v Buckley Sawmills Pty Ltd [1984] FCA 306; (1984) 3 FCR 503 Phillips & Ors v Linfox Australia Pty Ltd [2006] SAIRC 68 Poletti v Ecob (No.2) [1989] FCA 779; (1989) 31 IR 321 Textile, Clothing and Footwear Union of Australia v Givoni Pty Ltd [2002] FCA 1406 |
| Applicant: | PATRICK KERNAGHAN |
| First Respondent: | NEFFRAY PTY LTD |
| Second Respondent: | BAKER TRANSPORT CO PTY LTD |
| Third Respondent: | PETER BAKER |
| File Number: | MLG 2689 of 2017 |
| Judgment of: | Judge Riethmuller |
| Hearing date: | 21 and 23 August 2019 |
| Date of Last Submission: | 23 August 2019 |
| Delivered at: | Melbourne |
| Delivered on: | 13 May 2020 |
REPRESENTATION
| Counsel for the Applicant: | Mr Partos |
| Solicitors for the Applicant: | Nevin Lenne & Gross |
| Counsel for the Respondents: | Ms Symons |
| Solicitors for the Respondents: | Sparke Helmore |
ORDERS
The matter be listed on 12 June 2020 at 10.00am for Mention.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT MELBOURNE |
MLG 2689 of 2017
| PATRICK KERNAGHAN |
Applicant
And
| NEFFRAY PTY LTD |
First Respondent
| BAKER TRANSPORT CO PTY LTD |
Second Respondent
| PETER BAKER |
Third Respondent
REASONS FOR JUDGMENT
Introduction
The applicant claims that the respondents contravened the Road Transport (Long Distance Operations) Award 2010 (‘the Award’) during the term of his employment as a long-distance truck driver, because they failed to pay him various entitlements. The third respondent in this matter is the Director and Secretary of the first and second respondents and was joined to proceedings pursuant to section 14 of the Fair Work Act 2009 (Cth) (‘the Act’). The applicant seeks relief in the sum of $27,756.36 from the respondents, pursuant to sections 45, 539 and 546 of the Act.
The respondents deny any liability for outstanding wages or entitlements, and allege that, on a proper interpretation of the Award, the applicant was overpaid during the course of his employment, by an amount in excess of $26,000. Although it is said that the applicant may be able to ‘point to technical “breaches” of the industrial instrument’, the respondents submit that on the proper interpretation of the Award, the applicant received remuneration that was, in total, more than $26,000 above the minimum required by the Award: see paragraph [2] of the respondents Outline of Argument filed 14 August 2019.
When the matter was called on for hearing, a late amendment resulted in a necessary adjournment of the trial. However, the parties agreed to make use of the date to argue a number of preliminary questions, as it appears likely that rulings on the preliminary questions will obviate the need for a lengthy trial.
Background
The applicant was employed by the first respondent between 23 March 2014 and 30 June 2014. Between 1 July 2014 and 13 February 2016 the applicant was employed by the second respondent. The change in employers was between related companies and has little relevance on the questions arising in this case.
The applicant was employed as a truck driver and in that role he ordinarily drove a B-double truck with a carrying capacity of up to 68 tonnes. It is agreed that the applicant is properly classified as a Grade 6 employee working in a ‘long distance operation’ under the Award.
The case is conveniently divided into two periods:
a)In the first period (from 23 March 2014 until 26 April 2015) the applicant was paid a flat rate of $25.00 per hour for all recorded hours of work.
b)In the second period (from 27 April 2015 until 13 February 2016) the applicant was paid on a cents per kilometre basis, together with:
i)a set fee for loading or unloading; and
ii)annual leave (paid at $25.00 per hour until 30 June 2014, and thereafter at $20.69 per hour).
The contract of employment for the first period was simply an oral agreement to engage in employment. The parties did not discuss terms: the applicant commenced work and was paid at $25 per hour for each hour worked. The applicant continued to undertake work at this rate, thus leading to a contract to carry out work during nominated hours for $25 per hour. No other relevant terms were expressed, nor is it necessary to imply any other terms for a valid contract.
The contract of employment for the second period was a lengthy written document. Clause 11 of the contract relevantly provided:
11. REMUNERATION AND ALLOWANCES
11.1 You will be paid on a cents per kilometre basis for the driving component of each long distance journey.
11.2 For the purposes of the guaranteed minimum payment, your base rate of pay is set out at Item 8 of the Schedule, provided that this rate of pay may be increased from time to time if required in order to comply with the applicable Industrial Instrument.
…
11.5 … you will be entitled to any allowances appropriate to your position as set out in the Industrial Instrument.
11.6 Where your pay exceeds your legislative entitlements, any above-component not otherwise allocated may be offset against any other applicable entitlements.
…
The relevant schedule to the contract provided:
Long Distance Routes
40 cents per kilometre exclusive of superannuation (off GPS readings with direct routes being taken)
Loading/Unloading - $20.00 B Double $15.00 Single
$36.53 Travel Allowance
…
or
Minimum weekly rate
$767.00
The substance of the dispute arises from the fact that the flat hourly rate of $25 per hour is a rate less than the ‘driving time’ hourly rate under the Award. Thus, the applicant’s principle claim is for the difference between $25 per hour and the relevant hourly rate for hours when he was ‘driving’. This seemingly straightforward claim gives rise to many complexities when analysed through the prism of the Award. A number of key points arise:
a)Whether the payment of a flat hourly rate for all hours worked evidences a choice by the employer to use the hourly driving rate method under cl.13.5 rather than the default cents per kilometre rate under cl.13.4.
b)How the provisions of the Award that provide for guaranteed minimum weekly rates (cl.13.2) interact with the provisions for payment on a ‘cents per kilometre’ rate (cl.13.4) or hourly driving rate (cl.13.5) in the Award.
c)Whether the payments in the first period of the applicant’s employment for hours that were not ‘driving time’ can be taken as satisfying the amounts owing under the Award for ‘driving time’.
There is also a dispute as to the correct reference rate in the Award for calculating annual leave: the minimum rate under cl.13.1 or the hourly driving rate under cl.13.5 of the Award.
The Award, like most modern awards, is a long and complex document. The Award must be read as a whole. The parts of the Award particularly relevant for this judgment are:
Excerpts of provisions from Road Transport (Long Distance Operations) Award 2010
3. Definitions and interpretation
3.1 In this Award, unless the contrary intention appears:
…
driving time means all time driving the vehicle between destinations but not including rest breaks
…
loading or unloading means being physically engaged in the loading or unloading of the vehicle and includes tarping, installing and removing gates and operation of on board cranes
…
13.1 Minimum weekly rates of pay
The minimum weekly rates of pay for ordinary hours of work for full-time employees are as follows:
Grade Minimum weekly rate
…
6 $786.20
…
13.2 Guaranteed minimum payment
(a) A full-time employee is entitled to a guaranteed minimum fortnightly payment which must be twice the weekly rate prescribed by clause 13.1 for the classification under which the employee is working. Provided that, to become entitled to this payment, the employee must be ready, willing and available to perform such duties covered by this award which the employer may from time to time require.
(b) A casual employee is entitled to a guaranteed minimum payment per engagement as set out in clause 10.3(d).
(c) A full-time employee, having already earned the guaranteed fortnightly payment, and held on call for any part of the second week, must be paid on an hourly basis for the period during which the employee remains on call at the rate prescribed for the appropriate classification of this award, in addition to the guaranteed fortnightly payment.
(d) An employee travelling by sea or rail in company with a vehicle on a long distance operation must be paid eight hours’ ordinary pay in any day. Provided that if any working period less than eight hours otherwise covered by this award has been worked, the employee must be entitled to the balance of the difference paid between eight hours’ and actual hours worked. The cost of transport must be borne by the employer.
13.3 Rates of pay
(a) An employee engaged in a long distance operation must be paid for all driving time pursuant to either the cents per kilometre method set out in clause 13.4 or the hourly rate method set out in clause 13.5.
(b) At commencement of employment the employer must nominate whether the employee is to be paid pursuant to the cents per kilometre method or the hourly rate method. The method of payment may be changed from one to the other upon the provision of four weeks’ notice to the employee in writing. Where no method has been nominated, the cents per kilometre method will apply.
(c) The minimum driving rate must be either the cents per kilometre rate set out in clause 13.4 or the hourly rate set out in clause 13.5, depending upon which method is applicable under clause 13.3(b).
(d) In addition to the appropriate minimum driving rate ,a long distance driver must be paid:
(i) the rate or allowance for any loading or unloading duties calculated in accordance with clause 13.6;
(ii) the travelling allowance as prescribed by clause 14.2(c);and
(iii) any other allowances required to be paid by the award.
13.4 Rates of pay—kilometre driving method
(a) An employee engaged in a long distance operation may be paid for the driving component of a particular journey by multiplying the number of kilometres travelled by the cents per kilometre rate for the relevant vehicle, subject to clause 13.4(b).
The minimum cents per kilometre rate for each grade is as follows:
Grade Minimum cents per kilometre
…
6 40.88
…
(b) Schedule of agreed distances
The following schedule shows the agreed distances for long distance journeys between the listed centres. Where an employee performs a journey and that journey is specified in this schedule, the number of kilometres is deemed to be the number indicated in the schedule for that journey.
From/To Route Kilometres
…
Sydney/Melbourne Hume Highway 858
…
13.5 Rates of pay—hourly driving method
(a) An employee engaged in a long distance operation may be paid for the driving component of a particular journey by means of an hourly driving rate for the relevant grade of vehicle. The hourly driving rate may only be applied as follows:
(i) where the journey to be performed by the driver is listed in the schedule in clause 13.5(c) the number of driving hours for that journey is deemed for the purposes of this Award to be no fewer than the number indicated in the schedule for that journey; or
(ii) where the journey to be completed is not listed in clause 13.5(c) payment must be for actual hours worked and must not be pursuant to a trip rate which provides for a fixed amount per trip; or
(iii)where the employer has an accredited Fatigue Management Plan in place, the hourly rate may be used to calculate a trip rate for any journey by multiplying the hourly rate by the number of driving hours specified in the FMP for that journey. For the purposes of this clause accredited Fatigue Management Plan means any program which is approved under an Act of a Commonwealth, State or Territory parliament for the purposes of managing driver fatigue.
(b) The minimum hourly driving rate is calculated by dividing the minimum weekly rate prescribed by clause 13.1 by 40, and multiplying by 1.3 (industry disability allowance) and 1.2 (overtime allowance).
Grade Minimum per hour $
…
6 30.66
…
(c) Schedule of agreed driving hours
The following schedule shows the agreed driving hours for Grade 4 long distance journeys between the listed centres, as referred to in clause 13.5(a)(i).
From/To Route Driving hours
…
Melbourne/Sydney Hume Highway 10.5
…
13.6 Loading or unloading
(a) Where an employee is engaged on loading or unloading duties, that employee must be paid for such duties at an hourly rate calculated by dividing the weekly Award rate prescribed by clause 13.1 by 40 and multiplying by 1.3 (industry disability allowance), provided that a minimum payment of one hour loading and one hour unloading per trip must be made where loading and/or unloading duties are required.
(b) As an alternative to clause 13.6(a), where there is a written agreement between the employer and the employee a fixed allowance based on the hourly rate in clause 13.6(a) may be paid to cover loading and unloading duties, provided that such written agreement is attached to the time and wages record.
…
14.1 Allowances for responsibilities or skills
(a) Industry disability allowance
The rates per kilometre are inclusive of an industry disability allowance of 1.3 times the ordinary rate, which compensates for the following:
(i) shiftwork and related conditions;
(ii) necessity to work during weekends;
(iii) lack of normal depot facilities, e.g. lunch room, wash rooms, toilets, tea making facilities;
(iv) necessity to eat at roadside fast food outlets;
(v) absence of normal resting facilities and normal bed at night;
(vi) additional hazards arising from driving long distances at night and alone;
(vii) handling dirty material;
(viii)handling money;
(ix)extra responsibility associated with arranging loads, purchasing spare parts, tyres, etc;
(x) irregular starting and finishing times; and
(xi) work in rain.
(b) Overtime allowance
The rates per kilometre are inclusive of an overtime allowance of 1.2 times the ordinary rate, which takes into account an overtime factor of two hours in 10 at double time.
…
14.2 Expense related allowances and reimbursements
…
(c) Travelling allowance
(i) An employee engaged in ordinary travelling on duty or on work on which the employee is unable to return home and takes their major rest break under the applicable driving hours regulations away from home must be paid $38.43 per occasion. This will not be payable where an employee is provided with suitable accommodation away from the vehicle.
…
22. Delays, breakdown or impassable highways
An employee must be paid for all time up to a maximum of eight hours in any period of 24 hours at the rate prescribed by clause 13.1 where a long distance operation is delayed because of breakdowns or impassable highways. Provided that the employee must take all reasonable steps to minimise the period of delay.
…
23.2 Payment for period of annual leave
(a) Before going on annual leave, an employee must be paid wages calculated in accordance with subclause (b), for the period of leave the employee takes.
(b) The wages referred to subclause (a) will be calculated to include the following:
(i) A proportion of the applicable minimum weekly rate prescribed by clause 13.1 which corresponds to the amount of leave taken, and
(ii) An additional loading of 30%. The loading prescribed by this subclause will not apply to proportionate leave on termination.
(c) For the purposes of clause 23.2(b)(i) the applicable minimum rate prescribed by clause 13.1 must be that applicable to the classification which the employee would have worked in had they not taken the period of leave.
…
24.2 Rate of pay for a period of paid personal/carer’s leave and compassionate leave
The rate of pay for an employee who accesses a period of paid personal/carer’s leave or compassionate leave must be a portion of the applicable minimum rate prescribed by clause 13.1 which corresponds to the amount of leave taken. The applicable minimum rate must be that applicable to the classification which the employee would have worked in had they not taken the period of leave.
…
26.4 For all time worked by a full-time or part-time employee on a public holiday, payment must be made at the following rates:
(a) on Good Friday and the Christmas Day holiday—30% of the applicable minimum weekly rate specified in clause 13.1(a) plus payment for the work performed in accordance with the designated method of payment specified in clause 13.
(b) on any other holiday—20% of the applicable minimum weekly rate specified in clause 13.1(a),plus payment for the work performed in accordance with the designated method of payment specified in clause 13.
An employee must be paid for a minimum of four hours’ work.
Question 1
Is clause 13.3 of the Award exhaustive of the circumstances in which an employee (covered by the Award and engaged in a long distance operation) is entitled to be paid (other than allowances under 13.3(d) and leave and holiday pay)?
The Award provides a relatively unusual scheme for determining minimum payments to the employee by the employer. In substance there is a multistep process:
a)Where an employee is engaged in a ‘long distance operation’, the employee must be paid ‘for all driving time’ either by way of
i)a ‘cents per kilometre method’ (as provided for in cl.13.4); or
ii)the ‘hourly rate method’ (as provided for in cl.13.5):
as is set out in cl.13.3.
b)The employer must nominate which of these two methods is to be used at the start of the employment (and if no nomination is made, the cents per kilometre method applies): cl.13.3.
c)The Award nominates numbers of kilometres and driving hours for common journeys.
d)If the amount calculated under cl.13.4 or cl.13.5 (cents per kilometre or hourly driving time methods) for a fortnight is less than the minimum guaranteed rate, then the employee must be paid at least twice the minimum weekly rate for the relevant fortnight: see cl.13.2.
e)The minimum rate of pay for ordinary hours is set out in cl.13.1 of the Award, expressed as a weekly rate. The number of hours in an ordinary week is 38: see cl.20.1.
The Award also provides for additional payments if the employee is required to carry out loading or unloading of a truck at an hourly rate in accordance with cl.13.6. This hourly rate is set by reference to the minimum rate of pay for ordinary hours provided for in cl.13.1. Other specific allowances are provided for in cl.14. There is also provision for drivers to be paid at the hourly rate equivalent to the guaranteed minimum rate for delays ‘because of breakdowns or impassable highways’: see cl.22.
Clause 13.4 sets out that when an employee is remunerated on the ‘cents per kilometre’ method, the calculations for determining the ‘driving component’ are based upon distance travelled, not the time taken to drive the distance. In cases involving the operation of cl.13.5, the problem is complex, as the relevant schedule only provides for minimum driving times between cities, making the actual time spent in the ‘driving component’ crucial for the calculations.
The structure of the Award is such that it is only ‘driving time’ that is used for calculating primary remuneration, even though there will inevitably be other time spent on tasks associated with driving. Taken in the context of cl.13.3, the term ‘driving component’ used in cl.13.4 and 13.5 clearly refers to the ‘driving time’ referred to in cl.13.3. Such an interpretation of the Award is reinforced by a number of aspects of the Award:
a)Clause 14.1(a) notes that the driving time rates are intended to include remuneration for numerous other aspects of a driver’s role, for example, sub-clauses (viii) and (ix) which refer to ‘handling money’ and ‘arranging loads, purchasing spare parts, tyres, etc’. these tasks are clearly outside the ordinary concept of ‘driving time’ but incidental to the role of a truck driver;
b)Clause 22 makes separate provision for payment for hours when a driver would otherwise be driving, but for delays and breakdowns; and
c)Clause 13.6 makes separate provision for loading and unloading.
In Phillips & Ors v Linfox Australia Pty Ltd [2006] SAIRC 68 this interpretation was adopted for an earlier version of the Award, where the Industrial Magistrate said:
34. The question arises apart from driving time and loading and unloading time, what other periods of time were the applicants entitled to receive payment for and at what rate?
35. A payment for all hours other than driving time does not fit within the award structure. This would mean that the applicants would be paid for time spent on meal breaks, waiting time, refuelling and the like.
…
38. … The award does not require payments to be made in respect of safety checks, refuelling, waiting time and meal breaks. Cl 33 does make an allowance for delays, breakdown or impassable highways.
It is also important to note that the Award does not have the effect of placing truck drivers in a similar position to workers on ‘piece rates’ as there is provision for a guaranteed minimum rate under cl.13.2. That is, even if the driver does no driving in a given fortnight the driver still receives the guaranteed minimum wage set out in cl.13.2.
As a result the answer to the first question is:
Clause 13.3 is exhaustive of the circumstances in which an employee falling under the Award and engaged in a long distance operation is entitled to be paid, save for circumstances where an employee is entitled to be paid the guaranteed minimum under cl.13.2 or other specific allowances set out in the award such as those under cl.13.3(d), cl.13.6, cl.22, and leave and holiday pay.
Questions 2 to 6
2. If the answer to (1) is “no”, on what basis and in what circumstances in an employee falling under the Award and engaged in a long distance operation, entitled to be paid?
3. For the purposes of clause 13.3(a) and the definition of “driving time” contained in clause 3.1 of the Award, what is the meaning of “driving”?
4. For the purposes of clause 13.5(a), does “driving component” have the same meaning as “driving time”?
5. If the answer to 4 is “no”, what is the meaning of “driving component”?
6. For the purposes of clause 13.5(a)(ii), is the meaning of “actual hours worked” to be understood as meaning actual hours engaged in “driving”?
Questions 2 to 6 focus upon the definition of ‘driving time’ as it is variously used in the Award.
If the case turned upon the operation of cl.13.5 it may have been necessary to define the metes and bounds of the concept of ‘driving’ under the Award. However, in this matter the employer did not nominate (at the commencement of the first period of employment) the method under which the applicant was to be paid. I am not persuaded that the payment of the flat rate of $25 per hour can be construed as an effective nomination of a method under the Award: no mention was made of the Award, the payments were not calculated using the Award rates, and there is nothing to indicate that the employer or employee were even aware of the terms of the award. Pursuant to cl.13.3(b) of the Award the rate per kilometre method must be applied if no method is nominated by the employer. Therefore, this clause operates with respect to the first period of the applicant’s employment. When the employer did nominate a method, in the written contract of employment for the second period, the method nominated was nonetheless the cents per kilometre method. Thus, in both periods the operation of the Award required minimum payments in accordance with cl.13.4.
Clause 13.2 provides for a ‘guaranteed minimum’ rate of pay. This clause is engaged if the rate calculated under cl.13.3 is less than the ‘minimum rate’ set out in cl.13.1. The minimum rate provisions are only engaged if the wages for a given fortnight fall below twice the weekly minimum rate: see cl.13.2. The minimum rate does not apply to every hour worked which is not remunerated as ‘driving time’ under cl.13.4 or cl.13.5, rather it provides a fortnightly total to be compared to the fortnightly earnings under cl.13.3. That is, the driver receives either the amount calculated under 13.3 or the amount calculated under 13.2 for a given fortnight, not a mix of both methods. The ‘minimum rate’ in cl.13.2 provides a base rate below which wages cannot fall, which is only engaged in this case if the payment calculated on a cents per kilometre rate under cl.13.4 falls below the minimum rate.
In this matter, because of my finding that both periods of employment are governed by cl.13.4 (the cents per kilometre rate) and my findings with respect to question 8 below, it is not necessary to make findings as to the precise definition of ‘driving time’ under cl.13.5.
I therefore answer the second question, in the context of the facts of this case, as:
The applicant was entitled to be paid in accordance with cl.13.4, save where the amount calculated under cl.13.4 was less than the minimum rate set out in cl.13.1, and in such circumstances he was entitled to be paid the minimum rate for the relevant fortnight.
It is unnecessary for answers to be given to questions 3 to 6 on the issues that arise in this case.
Question 7
7. Whether:
a) Annual Leave under clause 23.2 of the Award;
b) Personal Leave under clause 24.2 of the Award; and
c) Public Holidays under clause 26 of the Award
are calculated by reference to the rate contained in clause 13.1 of the Award or by the minimum hourly driving rate contained in clause 13.5 of the Award?
The payments under these clauses are all set by specific reference to the ‘minimum rate [prescribed or specified] by clause 13.1’. With respect to annual leave pay, the wages amount has an additional loading of 30%. For work on public holiday days, there are specific loadings based upon the rates in clause 13.1 are provided.
The applicant initially raised an issue as to the appropriate ‘base rate’ to be used in calculating leave entitlements under the Award, however, this was not pursued at the hearing. The Award is quite clear on its face in this regard as cl.24 provides for the base rate set out in clause 13.1 to be used in the calculations, not the rates from 13.4 or 13.15. As is common in Awards, the base rate is increased by 30% when the calculation is done under cl.23 for annual leave.
Thus, I answer this question as follows:
Wages for Annual Leave under clause 23.2 of the Award, Personal Leave under clause 24.2 of the Award, and Public Holidays under clause 26 of the Award, are calculated by reference to the rate contained in clause 13.1 of the Award.
Question 8
8. Does a set-off operate in circumstances where:
a) The applicant was paid an amount of $25 per hour for all work performed by him for the first respondent and the second respondent; if
b) The applicant was not entitled to be paid pursuant to the Award for all of this work.
The employer paid the applicant $25.00 per hour for all of the hours worked by him during the first period of employment. Some of those hours were times when the employee was carrying out the driving component of a journey and other hours were incidental hours. If the applicant’s entitlements were calculated in accordance with cl.13.2 (guaranteed minimum rate), the total amount paid by the employer for the initial period was greater than the guaranteed minimum rate provided for in the award.
The applicant’s case focuses upon the difficult interactions between Awards and contracts of employment when the contract provides for payment rates and methods different to the structure of the Award.
In this case, the contract of employment for the first period gave rise to a contractual obligation to pay $25 per hour for each hour worked.
Separate from the contractual rights and obligations there are statutory obligations arising under the Act including a statutory obligation to comply with the terms of any applicable modern Award: see section 45 of the Act. The Award created a statutory obligation to pay the applicant the cents per kilometre rate for each hour of ‘driving time’ but no obligation to pay for other incidental working time (save for the specific extra entitlements for loading or delays, etc.). Enforcement of the terms of an Award is a statutory remedy under sections 539 and 545 of the Act, which is independent of the terms of the contract of employment. A contract of employment does not automatically incorporate the Award and may even contain terms inconsistent with the Award. However, the contract only establishes contractual obligations not Award obligations. The terms of the Award did not become terms of the contract of employment in the first period as the parties did not specifically incorporate the terms of the Award into the contract: see Byrne v Australian Airlines Ltd (1995) 131 ALR 422; 69 ALJR 797;(1995) 185 CLR 410. It is not possible to contract out of the award obligations: see Textile, Clothing and Footwear Union of Australia v Givoni Pty Ltd [2002] FCA 1406 at [32]. Any failure to meet the Award obligations by the employer will leave the employer open to statutory penalties and a statutory right for the employee to recover Award entitlements.
As the statutory provisions do not limit the terms of contacts of employment a contract of employment can provide for payments on any terms that the parties choose. Many contracts of employment provide for benefits to employees outside the award provisions, such as performance bonuses. If a contract provides for an hourly rate that is less than the award the employee has a contractual right to the rate in the contract and a separate statutory claim for the difference between the contractual rate and the award rate. Thus, the interactions between employment contracts that merely set an hourly or weekly rate, and the complexity of the minimum payment requirements imposed by the many and varied Awards present many complexities. Disputes commonly arise with respect to such simple contracts when the employer has in mind a simple flat rate and the employee assumes that the rate set is only the base rate and that other entitlements under an Award will also be payable (such as time and a half for over-time): for example, see Kent v Tal & Ors [2018] FCCA 3218 where the contract made no mention of overtime or weekend work and Fair Work Ombudsman v Lindsay F. Nelson Manufacturing Pty Limited & Anor [2019] FCCA 2151 where there was no discussion of annual leave.
As the purpose of the statutory scheme is to regulate wages by imposing a minimum rate of payment, the courts have been reticent to assume that simple agreements setting an hourly rate (even if at a rate higher than the relevant Award minimum) also meet the employer’s obligation to pay additional allowances in modern Awards. It is, of course, possible for a term to be placed in the employment contract which would ensure that both parties understood the terms of the engagement and whether the rate was intended to cover all Award entitlements (a so called ‘all in’ rate). Such a clause needs to be drafted with particular care: see, for example, Linkhill Pty Ltd v Director, Office of the Fair Work Building Industry Inspectorate [2015] FCAFC 99, and Fair Work Ombudsman v Transpetrol TM AS [2019] FCA 400. In this case the contract of employment for the first period has no such clause. The contract for the second period provides an example of an attempt at such a clause where it says:
11.6 Where your pay exceeds your legislative entitlements, any above-component not otherwise allocated may be offset against any other applicable entitlements.
The obvious defect in this clause (aside from its general lack of clarity) is the insertion of the words ‘not otherwise allocated’. As the various payments will be allocated when they are calculated, for example as an hourly rate or a bonus, the clause is largely ineffectual. For a clause to effectively provide for any payments in excess of award entitlements (or outside the entitlements provided for in an award) to be taken as satisfying all or part of any other award entitlement of the employee, the clause must be quite clear. This clause, as with the one discussed in Linkhill’s Case (at [89] to [90]) demonstrate how easy it is for a drafter approaching a contract from an employer’s perspective to draft a clause which has the opposite effect to that intended, when the clause is read in light of a careful reading of the cases on the interaction between contracts and awards. It is surprising how little attention is given to such clauses in employment contracts given their practical importance for employers.
To determine whether payments that have been made pursuant to a contract of employment also fulfil the Award obligations, it is necessary to consider the nature of the payments and compare them to the obligations under the Award. Thus, for example, in James Turner Roofing Pty Ltd v Peters [2003] WASCA 28; (2003) 132 IR 122 even though an hourly rate was paid on the mistaken assumption that the employee was an independent contractor, that payment was nonetheless a contractual payment that went toward satisfying statutory award entitlements: see also Lynch v Buckley Sawmills Pty Ltd [1984] FCA 306; (1984) 3 FCR 503 and Australia and New Zealand Banking Group Limited v Finance Sector Union of Australia [2001] FCA 1785; (2001) 111 IR 227. In some cases it is difficult to determine whether the nature of a particular contractual payment satisfies a particular award entitlement.
Care needs to be taken with the analogies made in some of the cases (for example, Poletti v Ecob (No.2) [1989] FCA 779; (1989) 31 IR 321) to the law relating to payments by debtors to creditors as this can also distract from the central issue. The common law debtor cases concern debtors with multiple debts owing to a creditor where it is necessary to decide which debt a payment should be credited against. In employment cases there are not necessarily two separate debts (as in the cases concerning payments of debtors to creditors). The question is whether a particular payment (usually pursuant to a contract of employment) is of such a nature as to fulfil the statutory obligation to pay the award amounts. The analogy could wrongly lead to the inference that the categorisation of a payment by the payer is conclusive (as in the case of categorisation of a payment by a debtor to a creditor where there are multiple debts). The question is not determined simply by the subjective or expressed intent of the payer, but on an assessment of whether the underlying nature of the payment fulfils an Award entitlement (as occurred in the following cases: James Turner Roofing, Lynch v Buckley Sawmills Pty Ltd, Australia and New Zealand Banking Group Limited v Finance Sector Union of Australia Pty, and Fair Work Ombudsman v Transpetrol TM AS). This is not to say that the subjective or expressed intentions of the parties are irrelevant (they are often determinative on a practical level), rather, that the real question is whether the true nature of the payment (objectively assessed in all of the circumstances) fulfils the relevant award obligations.
The terms ‘set-off’ and ‘off-set’ are often used in argument in these cases. There is no true ‘set-off’ involved (in the common law or equity sense) as there are no obligations owing by the employee to the employer which are able to be ‘set-off’. Nor is there anything about the operation of an Award obligation that allows it to be ‘off set’ against an obligation owed by the employee. The employer and employee cannot contract out of the statutorily imposed Award obligations, nor can an estoppel arise that estops the employee from claiming and receiving their statutory entitlements, or in some fashion relieves the employer of their statutory obligations: see Givoni case. The use of the term ‘set off’ can also distract attention from the real question: determining whether the nature of the payments made are such as to fulfil particular Award obligations in all of the circumstances of the case.
The question in this case is how to categorise the payments of $25.00 per hour made pursuant to the contract of employment for the first period, in the context of the Award obligations.
In Awards where the structure of the Award provides for a base hourly rate, a contract of employment that merely provides for the payment of an hourly rate only serves to fulfil award obligations to pay for each hour to the extent of the hourly rate in the contract but does not satisfy other entitlements: see generally Givoni’s Case and Poletti v Ecob (No.2).
The respondent’s argument is that the contract for the first period provided for greater benefits than the Award because the employer chose to pay $25 per hour for all hours of work: that is, the employer chose to pay for hours where there was no obligation to do so under the award. As discussed above, there is nothing to stop employers providing payments or benefits beyond the award minimums: this is no mere academic point as many contracts of employment provide for far greater benefits than award minimums in order to attract and retain skilful and dedicated employees. The corollary of this argument, pressed by the applicant, is that for the hours during which the applicant was driving he was entitled to more than $25 per hour as this was less than the amount calculated under cl.13.5 for those hours when he was ‘driving’. This argument is analogous to cases where the contract of employment provides for a flat rate of $25 per hour where the award rate for standard hours is $20 per hour and the award overtime rate is $30 per hour: the employer cannot ordinarily rely upon the ordinary time payments in excess of the award minimum to satisfy the underpayments for each of the overtime hours.
In the present case, the structure of the Award is quite unusual. It is not an Award that provides for ordinary time and overtime. Rather the Award provides for a rate based upon actual driving time or distance. However, in recognizing the difference between contractual entitlements and Award obligations, it is obvious that the applicant was not ‘overpaid’, as was argued by the employers: the applicant received his contractual entitlements of $25 per hour. It is the nature of the payment by the employer to the applicant that must be considered to determine which of the Award entitlements it satisfies.
The nature of this payment is clearly within the structure of cl.13.2 of the Award which relies upon total hours worked. There is nothing illogical about an employer providing for a higher guaranteed minimum rate as it would benefit drivers by softening the loss of income by drivers when there is less driving time available and benefit employers by increasing the likelihood of retaining good drivers during those periods.
In these circumstances the contract rate can easily be seen as providing for a rate analogous to that provided for in cl.13.2: a guaranteed minimum rate to which the applicant was entitled. Whilst an hourly rate is not the method for calculating entitlements under cl.13.4, the Award nonetheless rests on the fundamental concept of a guaranteed minimum weekly rate for employees. That is, the nature of the applicant’s entitlement to $25.00 per hour (some $950.00 per week, being the hourly rate multiplied by 38 hours: see cl.20) satisfies his entitlements under clause 13.2, but at the above Award rate agreed in the employment contract. If, however, the calculations in accordance with cl.13.4 result in a higher amount payable to the applicant, then to the extent that the remuneration calculated in accordance with that clause for the particular fortnight exceeded his contractual rate he has a statutory entitlement to the difference.
I would therefore answer question 8 as follows:
The applicant’s entitlements under cl.13.2 of the Award should be calculated in accordance with the Award, as if the applicant was paid $950 in the nature of a guaranteed minimum rate applicable to the applicant under cl.13.1.
Conclusion
The answers to the general practical questions that arise in this case (as set out at the start of the judgment) are therefore:
a)In the context of this case the flat hourly rate for all hours worked did not evidence a choice by the employer to use the hourly driving rate method under cl.13.5 rather than the default cents per kilometre rate under cl.13.4.
b)The provisions of the award that provide for guaranteed minimum weekly rates (cl.13.2) are an alternative rate to the provisions for payment for driving time (whether on a ‘cents per kilometre’ rate (cl.13.4) or hourly driving rate (cl.13.5)) which operate only if the driving time calculations come to less than the guaranteed minimum in a given fortnight.
c)Wages for Annual Leave under clause 23.2 of the Award, Personal Leave under clause 24.2 of the Award, and Public Holidays under clause 26 of the Award, are calculated by reference to the rate contained in clause 13.1 of the Award.
d)The nature of the contractual payments for the first period of employment was, in the context of the award, that of a guaranteed minimum rate under cl.13.2. Thus, the applicant will only be entitled to greater payments under the award where the fortnightly entitlements calculated under cl.13.4 (together with the relevant award allowances) are greater than the contracted hourly payments for that fortnight.
It is appropriate that the parties have an opportunity to consider the reasons herein and have an opportunity to make submissions as to the future management of the proceedings if these answers are not sufficient for agreed calculations to be prepared. I therefore direct that the matter by listed for a mention on an appropriate date.
I certify that the preceding forty-seven (47) paragraphs are a true copy of the reasons for judgment of Judge Riethmuller
Associate:
Date: 13 May 2020