Mr David Welsby v Artis Group Pty Ltd

[2015] FWC 8066

[2015] FWC 8066

FAIR WORK COMMISSION

DECISION

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

Mr David Welsby
v
Artis Group Pty Ltd
(U2015/9976)

COMMISSIONER PLATT ADELAIDE, 1 DECEMBER 2015

Application for relief from unfair dismissal – high income threshold – non cash benefits.

[1] On 10 August 2015, Mr Welsby lodged an application pursuant to section 394 of the Fair Work Act 2009 (the Act) in relation to his employment with Artis Group Pty Ltd (Artis). Artis has objected to the application on the basis that it asserts Mr Welsby was not protected from the unfair dismissal laws due to his annual rate of earnings exceeding the high income threshold.

[2] Mr Welsby’s application was referred to me for arbitration. The matter was the subject of a jurisdictional hearing on 19 November 2015. Mr Welsby represented himself, and Mr Chris Greatrex, Managing Director, represented Artis.

[3] Section 382 of the Act establishes a high income threshold that operates as a limit to an employee’s eligibility to be protected from unfair dismissal under the Act. That is, if an employee is not covered by a modern award or an enterprise agreement, they must have an annual rate of earnings less than the current high income threshold. The section provides:

“382 When a person is protected from unfair dismissal

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.”

[4] The relevant high income threshold is currently $136,700.

[5] It is common ground that Mr Welsby was not covered by a modern award or enterprise agreement.

[6] Consequently, if Mr Welsby had an annual rate of earnings in excess of the current high income threshold, the Fair Work Commission (the Commission) would lack the jurisdiction to further consider his application.

[7] In this context, I have summarised the background to the employment arrangements that applied to Mr Welsby.

[8] Mr Welsby owned a business called Tapestry Systems, which was sold to Artis under the terms contained in a written contract dated 21 May 2015.

[9] Mr Welsby commenced employment with Artis on 1 June 2014 on a full time basis as Regional Manager, South Australia, working from Artis’ premises in Pirie Street, Adelaide. The terms and conditions of his employment were recorded in a written contract dated 21 May 2014, which was accepted by Mr Welsby on 30 May 2014.

[10] At the time, approximately seven other Tapestry Systems employees were also employed by Artis.

[11] Mr Welsby’s employment was terminated on Friday 24 July 2015. The circumstances of the termination are not relevant to the consideration of the jurisdictional issue.

The Evidence

[12] I have taken into account all of the material before me. I briefly summarise the witness evidence in the following terms.

[13] Mr Welsby gave evidence about the sale of his business to Artis, the basis upon which he was employed, and provided details about his remuneration.

[14] Mr Welsby stated he received a base salary of $120,000 per annum and, subject to the performance of the business, was entitled to a retention bonus.

[15] It was put to Mr Welsby by Mr Greatrex that the provision of the office, car park, and associated overheads were an employment benefit. This was disputed.

[16] Mr Greatrex gave evidence about the negotiations that led up to the purchase of Tapestry Systems, and that the sale agreement and employment contract were structured in a way as to benefit Mr Welsby in light of his changing personal circumstances at the time.

[17] Mr Greatrex confirmed the base salary paid to Mr Welsby, and submitted that the business performance was such that the payment of the retention bonus was never in doubt, and therefore guaranteed, and counted towards the earnings threshold.

[18] Mr Greatrex submitted that the office, car park, and overhead costs were only provided as a result of the insistence of Mr Welsby, and that they could be characterised as a non-cash benefit and count towards the earnings threshold.

[19] A review of the evidence identifies that the parties agree on the following points relevant to the jurisdictional question:

• Prior to his employment with Artis, Mr Welsby was the part owner of a business which traded under the name Tapestry Systems.



• In May 2015, Mr Welsby negotiated and reached agreement with Artis to purchase his business and employ him. The terms of this agreement were recorded in writing.
  



• Mr Welsby was employed by Artis from 1 June 2014.



• Mr Welsby’s contract of employment provided a base salary of $120,000 per annum and a retention bonus, which, subject to business performance, could result in a payment of $20,000 or $40,000.



• The costs of providing the office, car park, and overheads were $18,429 per annum.

[20] Given the agreed facts, the inclusion of remuneration (in addition to the base salary) of $16,700 per annum or more, would be sufficient to put Mr Weslby over the high income threshold.

[21] Section 332 of the Act details what is considered as ‘earnings’. The section states:

“332 Earnings

(1) An employee’s earnings include:

(a) the employee’s wages; and

(b) amounts applied or dealt with in any way on the employee’s behalf or as the employee directs; and

(c) the agreed money value of non-monetary benefits; and

(d) amounts or benefits prescribed by the regulations.

(2) However, an employee’s earnings do not include the following:

(a) payments the amount of which cannot be determined in advance;

(b) reimbursements;

(c) contributions to a superannuation fund to the extent that they are contributions to which subsection (4) applies;

(d) amounts prescribed by the regulations.
Note: Some examples of payments covered by paragraph (a) are commissions, incentive-based payments and bonuses, and overtime (unless the overtime is guaranteed).

(3) Non-monetary benefits are benefits other than an entitlement to a payment of money:

(a) to which the employee is entitled in return for the performance of work; and

(b) for which a reasonable money value has been agreed by the employee and the employer;

but does not include a benefit prescribed by the regulations.”

[22] I note that no regulations have been made under s.322(1)(d) or s.322(2)(d) of the Act.

[23] With respect to non-cash benefits detailed at s.322(3), Regulation 3.05(6) of the Fair Work Regulations 2009 provides as follows:

“(6) If:

(a) the person is entitled to receive, or has received, a benefit in accordance with an agreement between the person and the person’s employer; and

(b) the benefit is not an entitlement to a payment of money and is not a non-monetary benefit within the meaning of subsection 332(3) of the Act; and

(c) the FWC is satisfied, having regard to the circumstances, that:

(i) it should consider the benefit for the purpose of assessing whether the high income threshold applies to a person at the time of the dismissal; and

(ii) a reasonable money value of the benefit has not been agreed by the person and the employer; and

(iii) the FWC can estimate a real or notional money value of the benefit;

the real or notional money value of the benefit estimated by the FWC is an amount for subparagraph 382(b)(iii) of the Act.”

[24] The issues in dispute are:

1. Can the Retention Bonus provided by the contract of employment be characterised as earnings under s.332(1)(a) of the Act, or alternatively, is it a payment which cannot be determined in advance and therefore excluded under s.332(2)(a) of the Act?

2. Can the provision of the office, car park and overheads be characterised as a benefit to which the employee is entitled in return for the performance of work, for which a reasonable money value has been agreed under s.332(1)(c) of the Act?

Findings

[25] The parties tendered documents and gave evidence of the content of pre-sale negotiations concerning the provision of the office, car parking, and overheads.

[26] The sale agreement clearly provides that Artis would take over the relevant contracts and be responsible for the costs of providing these services. The contract of employment is silent on this topic.

[27] The only evidence that the provision of these services was an employment-related benefit came from the oral testimony of Mr Greatrex, of a conversation between himself and Mr Welsby. The content of this conversation was contained in his witness statement,  1 which occurred during the sale negotiations:

“4. In May 2014, the Applicant and I had a conversation with words to the effect of:

Me: “Artis Group would like to purchase Tapestry Systems from you. We will offer you the role of Regional Manager, South Australia, however there is no need for a dedicated office.”

Applicant: “I would like to retain the Adelaide office together with its facilities. I currently have the benefit of a gym, shower, swimming pool, spa, sauana and rooftop barbecue area called the Sky Deck. I also want to keep my current car space as part of my employment with Artis Group.”

Me: “The role does not require a dedicated office. Your duties can be performed remotely, from a home office or preferably at client premises. We don’t hold offices in any state other than New South Wales.”

Applicant: “I would still like to retain them as part of my employment.”

Me: “None of our other regional managers have dedicated offices or car spaces. These are unnecessary expenses for Artis Group”

Applicant: “I would like to have the benefit of the office and car space” (sic)

[28] Mr Welsby disputes the content of that conversation.

[29] Consideration of the interpretation of contracts is subject to the ‘parol evidence rule’ which states, Parol testimony cannot be received to contradict, vary, add to, or subtract from the terms of a written contract or the terms which the parties have deliberately agreed to record any part of the contract. 2

[30] There is also authority that provides if parties execute a contract in writing which does not include a pre-contractual statement as a term, the party who submits the statement is a term will find it difficult to establish, and a failure to include the statement is generally taken to be an indication that it was not a term. 3

[31] This position is further reinforced in this case by Mr Welsby’s contract of employment, which expressly provides that the written contract was the entire agreement and excluded previous verbal or written communications:

“Entire Agreement:

Except as expressly stated otherwise, this Agreement, including the Schedule, constitutes the entire agreement between the parties and supersedes all prior representations, agreements, statements and undertakings whether verbal or in writing.” 4

[32] In my view, the discussions and correspondence between the parties prior to the making of the sale agreement is not a matter that should be taken into account in determining what the parties agreed.

[33] On that basis, this matter can be determined by reference to the contract of employment and the sale agreement.

Retention Bonus

[34] Artis contends that the $20,000 retention bonus provided for in Mr Welsby’s contract of employment was a certainty as a result of the previous business performance, and should be included in the calculation of Mr Welsby’s income. A draft financial report for Tapestry Systems for the year ended 30 June 2013 was tendered in support. 5

[35] The contract of employment contains the following term:

“Retention Bonus:

Provided that the Employee remains in employment with Artis at the date stipulated, the following bonus payment (inclusive of superannuation) will apply:

1st June 2015 - $40,000, on condition of YTD positive $50,000 result for the SA Region from 1^st June 2014. If within $25,000 of YTD positive $50,000 result, a 50% payment ($20,000) will apply.” 6

[36] This term clearly provides an entitlement to a bonus payment of $20.000, conditional upon the achievement of a year to date positive result of at least $25,000, or $40,000 if the $50,000 year to date performance threshold has been met.

[37] The characterisation of bonus payments was considered by a Full Bench of the Commission in Jenny Craig Weight Loss Centres Pty Ltd v I Margoline, 7 where it was stated:

“It seems clear enough that the legislature intended to exclude bonus payments which are contingent, either because they depend on performance in some way or because management reserves the right to modify or discontinue them.” 8

[38] It is clear from this binding authority that a payment which is contingent on future performance cannot be determined in advance within the meaning of s.332 of the Act.

[39] In my view, the contract of employment clearly imposes a precondition relating to the financial performance of the business in order for Mr Welsby to become entitled to the retention bonus. Artis conceded this in its verbal evidence.

[40] It is clear that the payment of the bonus was subject to a condition, and therefore cannot be determined in advance. The retention bonus, therefore, cannot be considered as part of Mr Welsby’s rate of earnings for the purposes of s.382(b)(iii) of the Act.

Non-Cash Benefits

[41] Artis contends that it had agreed with Mr Welsby to provide non-cash benefits in the form of an office, car parking, and overhead costs of the value of $18,429 per annum. This was disputed by Mr Welsby.

[42] For the reasons discussed earlier in my view, the contents of the alleged verbal discussion and the pre-purchase emails cannot be used to determine the intention of the parties as to the characterisation of these services as non-cash benefits.

[43] The sale agreement details the basis upon which Tapestry Systems agreed to sell its business to Artis, and included a provision that Artis would agree to take over certain overhead costs as detailed below:

“Overhead costs

Artis agree to take over the following contracts/costs effected 1^st June 2014

• Rent and Electricity Suite 319, 147 Pirie Street (Wan Bui & H.K. Bui)



• Internet connection and office cleaning – Wilkin Group



• Voiteck – VOIP desk phones



• Car parks for Bill Terrington and David Welsby

Where it is not possible to have any of the above leases or contracts assigned to Artis by the 1^st June 2015, Artis will make any payments due after this date on behalf of Tapestry.” 9

[44] Artis asserted that these costs were as follows:

“(a) Rent and expenses associated with premises at Suite 319, Pirie Street, Adelaide: ($1,095.25 per month) $13,143 p.a.
(b) Internet and Cleaning Services to premises in (a) ($135 per month): $1,626 p.a.
(c) Dedicated Car Space in Adelaide CBD ($305 per month): $3,660 p.a.” 10

[45] Mr Welsby did not challenge the quantum of these costs.

[46] Having considered the oral evidence and the material submitted to me, I am unable to characterise the provision the office and overheads costs described as a benefit to which the employee was entitled to in return for the performance of work as required by s.332(3)(a). Whilst it may be possible to characterise the provision of car parking as such a benefit, in this case, I believe that the car park was provided primarily for work purposes. There was no evidence of it being provided for private use.

[47] On the evidence, it appears more likely that Artis agreed to take responsibility for the provision of the office, overheads, and the provision of car parking as part of its purchase of Tapestry Systems.

[48] I note that at the time of the purchase, the sale agreement indicates that there were seven persons previously employed by Tapestry Systems that would be engaged to work for Artis in its Adelaide office. Mr Welsby, in his evidence, accepted that some of these persons resigned and stated there was on average approximate four persons working from the Adelaide office.

[49] If contrary to my view, overhead costs and car parking could properly be characterised as non-cash benefits under s.332(c) of the Act, then at best a maximum of only one quarter of the office and overhead costs could be apportioned to Mr Welsby, based on the average number of employees using the office during the period of Mr Welsby’s employment. This would amount to additional earnings of $3692.25 per annum. If I then assumed that the car park was used exclusively by Mr Welsby, additional earnings of $3,660 per annum would apply. On that basis, Mr Welsby’s earnings would be increased by $7,352.25 to $127,352.25, which is less than the current high income threshold.

Conclusions and order

[50] For the reasons discussed above, I am not satisfied that Mr Welsby’s annual earnings, for the purposes of s.312 of the Act, exceed the high income threshold.

[51] On this basis, the jurisdictional objection to the continued pursuit of Mr Welsby’s unfair dismissal claim must be dismissed and I so order. The matter will be listed for arbitration, and the parties will be contacted in due course accordingly.

COMMISSIONER

Appearances:

J Welsby, applicant.

C Greateux for the respondent.

Hearing details:

2015.

Adelaide:

November 19.

 1   Exhibit R1.

 2   Bank of Australasia v Palmer [1987] AC 540 at 545.

 3   Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41 at 62.

 4   Exhibit A2.

 5   Exhibit R3.

 6   Exhibit A2.

 7   [2011] FWAFB 9137.

 8 Ibid at [19].

 9   Exhibit A3.

 10   Exhibit R4, at paragraph 6.

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