Mary Backhouse v Coles Supermarkets Australia Pty Ltd

[2019] FWC 4853

[2019] FWC 4853

FAIR WORK COMMISSION

DECISION

Fair Work Act 2009
s.739—Dispute resolution

Mary Backhouse
v
Coles Supermarkets Australia Pty Ltd
(C2018/7342)

DEPUTY PRESIDENT COLMAN MELBOURNE, 19 JULY 2019

Dispute over ‘top up payment’ provision in enterprise agreement – interpretation

[1] This decision concerns an application made by Ms Mary Backhouse under s 739 of the Fair Work Act 2009 (Act) for the Commission to deal with a dispute in accordance with the dispute settlement procedure in clause 3.2 of the Coles Supermarkets Enterprise Agreement 2017 (Agreement) 1. The Agreement applies to employees of Coles Supermarkets Australia Pty Ltd (Coles), including Ms Backhouse, who is employed in the company’s store at St Marys in the west of Sydney. Ms Backhouse is represented by the ‘Retail and Fast Food Workers Union’ (RAFFWU).

[2] The dispute relates to the interpretation of the ‘top up payment scheme’ in clause 5.3 of the Agreement. As the clause itself explains, the purpose of the scheme is to ensure that employees who were employed at the time the Agreement was made continue to receive ‘at least the average rate of pay’ that they received before the vote on the new agreement. The scheme compares a ‘Protected Pay Rate’ with an ‘Agreement Pay Rate’, the components of which are set out in a table in clause 5.3.6 of the Agreement. If in any weekly pay cycle, including during periods of leave, an employee’s Protected Pay Rate exceeds their Agreement Pay Rate, the employee will receive an additional gross payment equal to the difference.

[3] Ms Backhouse claims that she is entitled to a top up payment in respect of a period of annual leave she took from 30 April to 6 May 2018. During this period, she was paid $24.15 per hour. In 2017, when she took annual leave under the predecessor agreement, she was paid $25.77 per hour, a difference of $1.62 per hour.

[4] The parties agree that Ms Backhouse’s Protected Pay Rate was $22.14 per hour, and during her leave in May 2018 she was paid $24.15 per hour, reflecting her base rate of pay and also 17.5% annual leave loading, as required by clause 9.2.11 of the Agreement. However, the parties disagree about the calculation of her Agreement Pay Rate at this time. Ms Backhouse says that, properly construed, the table in clause 5.3.6 of the Agreement excludes annual leave loading from the Agreement Pay Rate. On this basis, she says that her Agreement Pay Rate was her base rate of pay, namely $20.55. She says that her Agreement Pay Rate was therefore less than the Protected Pay Rate, and that she should receive a top up payment reflecting the difference.

[5] The company says that the Agreement Pay Rate, as defined in clause 5.3.6, includes annual leave loading, and that Ms Backhouse’s Agreement Pay Rate was therefore $24.15, the amount she actually received. It says that this amount exceeded the Protected Pay Rate and that no top up payment arises. The company emphasises that the ‘top up payment’ scheme does not guarantee that employees will always be better off than they would have been under the previous agreement. Rather, it maintains at least the average rate of pay under the previous agreement for employees who were employed at the time of the vote on the new agreement, subject to the specific arrangements set out in clause 5.3.

[6] Ms Backhouse frames the question for determination as follows: does the third column of clause 5.3.6(a) of the Agreement require 17.5% annual leave loading to be included when calculating the Agreement Pay Rate and comparing it with the Protected Pay Rate? The company says that the question is whether it properly applied the terms of the top up payment scheme by including annual leave loading when calculating Ms Backhouse’s Agreement Pay Rate in respect of her period of leave from 30 April to 6 May 2018. There is no essential difference between these questions. As will be apparent, the resolution of the dispute turns on what is the correct interpretation of the relevant provisions of the Agreement.

[7] It was common ground, and I agree, that the dispute has been progressed through the steps in the dispute resolution procedure in clause 3.2 of the Agreement, and that the Commission is empowered to arbitrate the dispute.

Clauses in dispute

[8] Clause 5.3.1 of the Agreement sets out the purpose of the top up payment arrangements in clause 5.3. It reads as follows:

‘5.3.1 Purpose

Coles recognises that notwithstanding the making of this new Agreement, there will be some circumstances where certain team members will have enjoyed a higher average rate of pay based on the particular hours that they had worked in the last 12 months, or lesser period of employment if applicable, prior to the making of this Agreement. Coles has developed this top up payment scheme in order to ensure that (as far as reasonably practicable) team members employed as at the date of a successful vote on this Agreement will continue to effectively receive at least the average rate of pay that they had previously received prior to the date of successful vote. Over time it is expected that the Top Up Payment Scheme will become less relevant following the increases to the hourly minimum rates under this Agreement. The terms in clause 5.3 govern how this top up payment scheme will apply.’

[9] Clause 5.3.2 addresses certain eligibility requirements, which are not in dispute.

[10] Clause 5.3.3 deals with the calculation of the top up payment. Clauses 5.3.3(a) states that a ‘Protected Pay Rate’ will be determined by dividing the ‘gross pay’ of an employee for a period of 12 months prior to the date of the vote on the Agreement by the total hours worked in that time. Clause 5.3.3(b) states that, in calculating the Protected Pay Rate, the ‘inclusions and exclusions outlined in sub-clause 5.3.6(a) will apply’.

[11] Similarly, clause 5.3.3(c) provides that an ‘Agreement Pay Rate’ will be determined on a weekly pay cycle basis by dividing the ‘gross pay’ of an employee by the total hours worked in that week. Clause 5.3.3(d) states that in calculating the Agreement Pay Rate, the ‘inclusions and exclusions outlined in clause 5.3.6(a) will apply.’

[12] Clause 5.3.4 states that ‘in any weekly pay cycle where the Protected Pay Rate exceeds the Agreement Pay Rate’, an eligible employee will receive an ‘additional gross payment of the difference between the Protected Pay Rate and the Agreement Pay Rate multiplied by the hours worked, or, in the case of paid leave, the total number of hours in respect of which [the employee] shall be paid, in that pay cycle week…’

[13] How the Protected Pay Rate and the Agreement Pay Rate are affected by the annual wage increases in clause 5.6 is dealt with in clause 5.3.5.

[14] Clause 5.3.6(a) then provides as follows:

‘Leave or allowance	Will the penalty rate, overtime, leave or allowance (where received or taken) be taken into account when calculating the Protected Pay Rate?	Will the penalty rate, overtime, leave or allowance be included when calculating and comparing my weekly Agreement Pay Rate post 30 April 2018?
Penalty Rates, loading and Overtime
Base rate of pay	Yes	Yes
Penalty rates (Saturday, Sunday evenings, public holidays)	Yes	Yes
Overtime	Yes	Yes
Casual loading	Yes	Yes
Flex up loading	Yes	N/A
Leave
Annual Leave	Yes	Yes
Annual Leave Loading	Yes	Not included for purposes of top up payment, but may be included in calculation of leave under subclause 9.2.11 for determining Agreement rate if applicable
Paid Sick Leave	Yes	Yes
Unpaid Sick Leave	No	No
Paid Carer’s Leave	Yes	Yes
Unpaid Carer’s Leave	No	No
Paid Compassionate Leave	Yes	Yes
Unpaid Compassionate Leave	No	No
Jury Service Leave	Yes	Yes
Defence Force Service Leave	Yes	Yes
Emergency Services Leave	No	Yes
Natural Disaster Leave	Yes	Yes
Parental Leave	No. See subclause 5.3.6(b) below	No (where the team member is on unpaid parental leave). For the purposes of Coles Paid Parental will apply. See subclause 5.3.6(c) below
Pre-natal Leave	Yes	Yes
Leave of absence	No. See subclause 5.3.6(b) below	No
Long service Leave	No	Yes. See subclause 5.3.6(c) below
Public Holidays	Yes	Yes (but only a payment where they either work the public holiday or are rostered to work that day)
Unpaid leave not covered above	No. See subclause 5.3.6(b) below	No
Contractual changes
Limited tenure	Yes	Yes
Change of contract	Most recent role applies	See subclause 5.3.7 below
Allowances
Location and/or District Allowance	Yes	No
Meal Allowance	No	No
Travel Allowance	No	No
Other allowances	No	No
Higher duties	No	No
In charge allowance	Yes	No
First Aid allowance	No	No
Dairy and Freezer allowance	No	No
Laundry allowance	Yes	No’

[15] Particular note is to be taken of the tenth row of the table, which concerns ‘annual leave loading’. The second column answers ‘yes’ to the question of whether leave loading is included in the Protected Pay Rate. The third column, which addresses whether leave loading is included in the Agreement Pay Rate, states: ‘Not included for purposes of top up payment, but may be included in calculation of leave under sub-clause 9.2.11 for determining Agreement rate if applicable.’

[16] Clause 9.2.11 is headed ‘annual leave loading’ and states:

‘(a) During a period of annual leave a team member will receive a loading calculated on the rate of pay prescribed in 5.2 of this Agreement. Annual leave loading is payable on leave the team member has accrued.      

(b) The loading will be as follows:

(i) Day work

Team members who would have worked on day work only had they not been on leave - 17.5% or the relevant penalty rates, whichever is the greater but not both.

(ii) Shiftwork

Team members who would have worked on shift work had they not been on leave - a loading of 17.5% or the shift loading (including relevant weekend penalty rates) whichever is the greater but not both.’

Submissions of the parties

[17] Ms Backhouse says that the table in clause 5.3.6(a) excludes annual leave loading from the Agreement Pay Rate. She says that, unlike most of the other items in the table, the relevant entry for annual leave loading does not indicate a simple ‘yes’, ‘no’ or ‘N/A’, but instead contains text that requires interpretation. In her written submissions, she contends that the correct interpretation of that text is that it has the meaning conveyed by the following marked-up additional words:

‘Annual leave loading is not included in the calculation of the Agreement Pay Rate for the purposes of the top up payment, but may be included in the calculation of the penalty rates which are paid during a period of leave under subclause 9.2.11 for determining the Agreement rate if applicable.’ 2

[18] Clearly the disputed text is concerned with ‘annual leave loading’, as indicated by Ms Backhouse’s additional words at the start of the sentence. And her addition of definite articles make the text read as prose and there is no interpretative objection to this. Of substance however is Ms Backhouse’s contention that the words ‘for purposes of top up payment’ are to be read down as if they were preceded by the words ‘in the calculation of the Agreement Pay Rate’. Her justification for this is that the third column of the table in clause 5.3.6 is concerned, as its heading makes clear, with the calculation of the Agreement Pay Rate, and that the text in the tenth row must therefore be understood as referring to this part of the top up payment scheme, and not to the top up payment itself.

[19] Also of significance is Ms Backhouse’s contention that the phrase ‘may be included in calculation of leave under sub-clause 9.2.11 for determining Agreement Rate’ refers only to ‘penalty rates which are paid during a period of leave’, that is, the higher penalties that may be payable under clause 9.2.11 in lieu of the 17.5% loading. The textual basis for this elaborate contention is not clear. Ms Backhouse submits that the purpose of the provision, understood in the manner for which she contends, is to ensure that an employee who is paid penalty rates under clause 9.2.11 during periods of annual leave has those penalty rates included for the purpose of calculating the Agreement Pay Rate. Otherwise, she says, it might have been argued that the annual leave penalty rates are not included in the Agreement Rate as they are ‘annual leave loading’, which she says is otherwise excluded.

[20] Ms Backhouse also says that the company’s interpretation would effectively replace the words that appear it the third column of the tenth row of the table with a simple ‘yes’. But clearly this argument cuts both ways. The table also does not contain a simple ‘no’. And it does not contain the words she proposes to read into the text that appear in underlining above.

[21] The company contends that the words in clause 5.3.6 simply do not say that annual leave loading is excluded from the calculation of the Agreement Pay Rate. Coles says that the words mean what they say: annual leave loading will not be included ‘for the purposes of the top up payment’, but ‘may be included in the calculation of leave under sub-clause 9.2.11 for determining Agreement rate if applicable’.

[22] Coles submits that the first part of the sentence simply makes clear that annual leave loading is not payable on the top up payment itself. It submits that the second part of the sentence provides that annual leave loading may be included in the Agreement Pay Rate; the word ‘may’ reflects the fact that under clause 9.2.11 of the Agreement, an employee on annual leave receives either leave loading of 17.5% or any higher applicable penalty rate, whichever is the greater, but not both.

The correct interpretation

[23] On the proper construction of clause 5.3.6, annual leave loading is included in the Agreement Pay Rate.

[24] The disputed sentence in the table comprises two phrases. The first is: ‘Not included for purposes of top up payment.’ The second is ‘but may be included in the calculation of leave under sub-clause 9.2.11 for determining Agreement rate if applicable’.

[25] The first phrase is perfectly clear. Annual leave loading is ‘not included for the purposes of top up payment’. This means that it is not to be applied to any gross top up payment. I reject Ms Backhouse’s interpretation of the first phrase. It does not say that leave loading is not to be taken into account ‘in the calculation of the Agreement Pay Rate’, nor can the words ‘for purposes of top up payment’ sensibly be read down to have this meaning. I appreciate that the third column of the table is concerned with the Agreement Pay Rate and the question of which conditions are included and excluded in the rate. But this cannot defeat the ordinary meaning of the words used in the tenth row of the table.

[26] Considering the third column as a whole, one reads first the question in the first row of the column, which asks whether a particular ‘penalty rate, overtime, leave or allowance’ will be ‘included when calculating and comparing my weekly Agreement Pay Rate’. Moving down to row ten in the table, the next words that are read are ‘Not included’. Reading only to this point, annual leave loading might seem to be excluded from the Agreement Rate. But obviously it is necessary to read the words that follow ‘Not included’. The whole of the first phrase is ‘Not included for purposes of top up payment’. The first phrase simply does not say or mean that leave loading is not included for the purpose of the Agreement Pay Rate. What is more, the absence of any reference to the Agreement Pay Rate in the first phrase is underscored by its presence in the second phrase. On Ms Backhouse’s argument, two different expressions in the same sentence mean the same thing. This contention is not sustainable.

[27] If annual leave loading was not to be included in the Agreement Pay Rate, a simple ‘no’ would have sufficed. To this however Ms Backhouse says that the words serve a special purpose: they ensure, she says, that higher penalty rates payable during annual leave under clause 9.2.11 are included for the purpose of calculating the Agreement Pay Rate. She says that without the words used in the table, it might have been argued that these higher penalty rates are not included in the Agreement rate for the reason that they are ‘annual leave loading’, and not penalty rates. However, in my view this argument would have been far-fetched. Penalty rates are plainly covered by the second row of the table and are included in both the Protected Pay Rate and the Agreement Pay Rate. There was no need to include the disputed words for the purpose suggested by Ms Backhouse.

[28] The third column in the table in clause 5.3.6 is perhaps a somewhat unexpected place to find a reference to the actual top up payment, given that the column is concerned with the payments that are included in the Agreement Pay Rate. The top up payment itself is dealt with in clause 5.3.4. A stricter drafting approach to the structure of clause 5.3 might have had the first phrase of the disputed text reside in clause 5.3.4, instead of in the table. On the other hand, clause 5.3.4 deals generally with how the top-up payment is calculated. The fact that a condition-specific detail of the top-up payment is dealt with in the table is understandable. It certainly does not cause any interpretative difficulty. Moreover, the ‘annual leave loading row’ is not the only row in the third column of the table that deals with the actual top up payment. A similar reference is made is respect of ‘public holiday’, where, in relation to the Agreement Pay Rate, one finds the following text: ‘Yes (but only a payment where they either work the public holiday or are rostered to work that day)’.

[29] I find no convincing textual basis to read down the disputed first phrase in the manner proposed by Ms Backhouse. This is really the end of the matter, because Ms Backhouse relies on the first phrase to exclude annual leave loading from the Agreement Pay Rate. Her construction sees the second phrase of the disputed text as an exception to the exclusion established by the first. Nevertheless I shall proceed to deal with the proper construction of the second phrase. It only confirms that her construction of the disputed text must be rejected.

[30] The second phrase states: ‘May be included in calculation of leave under sub-clause 9.2.11 for determining Agreement rate if applicable’. It is clear that the omitted subject of this phrase is ‘annual leave loading’, which appears in the first column in row ten. ‘Annual leave loading’ has a generally accepted industrial meaning, namely a loading that is paid to employees during a period of leave. It is commonly paid at the rate of 17.5%. However we are concerned here with the meaning of annual leave loading in the context of the Agreement. Clause 9.2.11 states that annual leave loading is payable on accrued leave and that ‘the loading will be as follows’: for day workers, ‘17.5% or the relevant penalty rates, whichever is greater but not both’; and for shift workers, ‘a loading of 17.5% or the shift loading (including weekend penalty rates) whichever is greater but not both’.

[31] Ms Backhouse contends that ‘annual leave loading’, for the purposes of clause 5.3.6 and clause 9.2.11, means either the 17.5% loading or any applicable higher penalties payable under clause 9.2.11. The significance of this for Ms Backhouse’s interpretation is that it allows her to explain the second phrase in the disputed text as an exception to the exclusion of leave loading from the Agreement rate, one which allows higher applicable penalties to be included in the rate. On Ms Backhouse’s reading, clause 9.2.11(b) states that the annual leave loading defined in the clause ‘will be’ either the 17.5% loading or any higher penalty or shift loading. She says that the provision deems both of these things to be annual leave loading.

[32] This is an arguable position, but the better view is that ‘the loading’ referred to in clause 9.2.11(b) is the 17.5% that appears in the immediately following sub-provisions. The text, in relation to day workers, reads: ‘The loading will be as follows: Team members who would have worked on day work only had they not been on leave – 17.5% or the relevant penalty rates…’ That is, the loading will be 17.5%; but if a higher penalty rate applies, this is what the employee receives instead. Clause 9.2.11 appears to me to treat these as different species of payments. So too does the table in clause 5.3.6, which has separate rows for penalty rates and annual leave loading. Clauses 8.6 and 8.7 also deal discretely with penalties and shift loadings.

[33] In my view, the ordinary meaning of the second phrase in the disputed text in clause 5.3.6 is that ‘annual leave loading’ – meaning the 17.5% penalty rate – ‘may be included’ in the Agreement Pay Rate if it is ‘applicable’,that is, if the employee receives it. If the employee receives instead a higher penalty or shift loading, then the 17.5% leave loading will not be included in the Agreement Pay Rate, because it is not applicable. Instead, the higher applicable penalty will be included in the Agreement Pay Rate. ‘Penalty rates’ are already included in the Agreement Pay Rate through the second row of the table in clause 5.3.6, so there is no need to provide for their inclusion in the Agreement Pay Rate through row 10.

[34] Even if Ms Backhouse were correct in her contention that ‘annual leave loading’ in the table means either of the payments in clause 9.2.11 (the 17.5% loading or a higher applicable penalty), this would not assist her interpretation, because the second phrase of the disputed text would then have to be read as providing that either of these payments ‘may be included in the calculation of leave for determining Agreement Rate’. There is simply no reading of the text that excludes the 17.5% leave loading from the Agreement Rate.

[35] I note that the company said in its written submissions that annual leave loading will ‘always’ be included in the calculation of the Agreement Pay Rate. It explained at the hearing that by this it means that employees always receive at least 17.5% loading during annual leave; when a higher penalty is payable under clause 9.2.11, they receive the higher amount.

[36] Ms Backhouse contended at the hearing that the disputed text was obscure in its reference to annual leave loading being included in the calculation of ‘leave’. However the reference to ‘leave’ is clearly to the payments associated with leave under clause 9.2.11, for the purpose of determining the Agreement Rate.

[37] Ms Backhouse acknowledged in her written submissions that the words ‘may be included … for determining Agreement rate if applicable’ mean that ‘technically annual leave loading may be included in some circumstances’. 3 (She has in mind here only annual leave loading in the form of higher penalty payments, but as I have said, there is no basis for this construction.) She said that the words ‘may’ and ‘if applicable’ show that the inclusion of leave loading in a calculation may be relevant or not. Precisely so. These acknowledgements are consistent with the correct interpretation I have explained above. Annual leave loading of 17.5% may be included in the Agreement Rate when it is applicable, namely when it is paid. But when a higher penalty rate is paid under clause 9.2.11, this is what is included in the Agreement Rate instead. In my view, it is payable because the second row of the table in clause 5.3.6 includes penalty rates in the Agreement Rate. But if that were not the case, and ‘annual leave loading’ applied to all ‘clause 9.2.11 payments’ as Ms Backhouse contended, the higher penalties would be included through the tenth row. A consequence of this would be that the words ‘if applicable’ in the tenth row would need to be read ‘as applicable’. In my view, this is just another reason for preferring the view that ‘annual leave loading’ refers to the 17.5% loading only.

[38] My analysis above is sufficient to determine the correct interpretation of the disputed provisions. However I will mention some further supporting points of context. First, the conditions excluded from the calculation of the Agreement Pay Rate in clause 5.3.6 are either unpaid leave or contingent allowances. Substantial payments are included in the Agreement Pay Rate.Why would annual leave loading be excluded from the Agreement Pay Rate, especially when clause 5.3.4, which deals with the payment of the top-up monies, specifically contemplates a calculation based on either actual hours worked or leave? Secondly, clause 5.3.3(c) states that the Agreement Pay Rate is determined by dividing the ‘gross pay’ of the team member by the total hours worked in that week. This is a further indication that leave loading, like other substantial payments, is included in the Agreement Pay Rate, just as it is for the Protected Pay Rate. Thirdly, it seems highly improbably that annual leave loading should have been selected, apparently at random, for exclusion from the Agreement Pay Rate, especially if, as Ms Backhouse agreed, the higher penalties that employees might receive during a period of leave are to be included. The lack of any apparent sense in such an approach tells against a construction that would deliver it.

[39] Ms Backhouse also submitted that her interpretation reflects a ‘fair and just’ approach to the relevant provisions and the one with the most ‘merit’. My jurisdiction in this matter is concerned with what is the correct interpretation of the provision. However, I must say that I cannot see any general point of fairness associated with an argument that would exclude from the Agreement Pay Rate a payment that Ms Backhouse actually received.

[40] I appreciate that Ms Backhouse is aggrieved that she was paid less while on annual leave under the current Agreement than what she was paid when taking leave under the earlier agreement. But the top up arrangements do not provide that an employee will at all times be better off under the Agreement than under its predecessor. Rather, the arrangements are directed at ensuring that employees ‘will continue to effectively receive at least the average rate of pay’ of the earlier agreement. In the week Ms Backhouse took annual leave in May 2018, she received at least her average pay under that earlier agreement. The correct interpretation explained above is consistent with the purpose of the top up scheme.

Conclusion

[41] Annual leave loading of 17.5% is included in the Agreement Pay Rate wherever an employee receives this loading while on annual leave. If an employee receives a higher penalty rate or shift loading under clause 9.2.11, this amount is included in the Agreement Pay Rate instead of the 17.5%.

[42] The answers to the questions for determination are as follows:

Question: Does the third column of clause 5.3.6(a) of the Agreement require 17.5% annual leave loading to be included when calculating the Agreement Rate and comparing it with the Protected Rate?

Answer: Yes

Question: Did Coles properly apply the terms of the top up payment scheme by including annual leave loading when calculating Ms Backhouse’s Agreement Pay Rate in respect of her period of leave from 30 April to 6 May 2018?

Answer: Yes

DEPUTY PRESIDENT

Appearances:

J. Cullinan for Ms Backhouse

N. Barkatsas for Coles Supermarkets Australia Pty Ltd

Hearing details:

2019

Melbourne

16 July

Printed by authority of the Commonwealth Government Printer

<PR710252>

 1   AE428094

 2   Applicant’s outline of submissions, paragraph 37

 3   Applicant’s submissions, paragraph 56(e) and (f)