Mr Timothy Eric Atkinson v Midway Community Care Inc
[2010] FWA 2907
•13 APRIL 2010
[2010] FWA 2907 |
|
DECISION |
Fair Work Act 2009
s.394 - Application for unfair dismissal remedy
Mr Timothy Eric Atkinson
v
Midway Community Care Inc.
(U2009/11894)
COMMISSIONER WILLIAMS | PERTH, 13 APRIL 2010 |
Termination of employment – jurisdictional objection.
[1] This matter involves an application made pursuant to s. 394 of the Fair Work Act 2009 (the ‘FW Act’) by Mr Atkinson (the applicant) against his past employer Midway Community Care Inc (the respondent).
[2] The matter was not able to be resolved at conciliation and has been referred for determination.
[3] The respondent has raised a jurisdictional objection to the application, arguing that Mr Atkinson is not a person protected from unfair dismissal within the terms of s. 382. The respondent argues that he enjoyed annual earnings above the high income threshold and so is excluded from making this application by s. 382(b)(iii).
[4] Implicit in the respondents original objection was the assumption that the applicant was not covered by a modern award or enterprise agreement and so is not covered by the inclusions of s. 382(b)(i) or (ii). This assumption was understandable given the applicant was the Chief Executive Officer of the respondent.
[5] The applicant’s representative in response to the objection has argued that not only was the applicant paid below the high income threshold but he was also covered by s.382(b)(i). If either of these condition can be established the respondents objection will be dismissed.
Background and the legislation
[6] The Applicant was employed by the Respondent in the position of Chief Executive Officer from 1 November 2005 until his employment was terminated on 26 August 2009.
[7] Relevant sections of the FW Act 2009 include:
s. 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.
s. 396 Initial matters to be considered before merits
FWA must decide the following matters relating to an application for an order under Division 4 before considering the merits of the application:
(a) whether the application was made within the period required in subsection 394(2);
(b) whether the person was protected from unfair dismissal;
(c) whether the dismissal was consistent with the Small Business Fair Dismissal Code;
(d) whether the dismissal was a case of genuine redundancy.
[8] Section 396(b) requires FWA to decide whether the applicant was protected from unfair dismissal before considering the merits of the application. The parties have provided detailed written submissions on the jurisdictional issues.
The submissions
[9] The applicant submits that Schedule 3, Part.5, section 36 of the Fair Work(Transitional Provisions and Consequential Amendments) Act 2009 (the ‘Transitional Act’)provides that Part 3-2 of the FW Actapplies on and after the Workplace Relations Act 1996 (the ‘WR Act’)repeal day, as if:
• the reference in subparagraph 382(b)(i) of the FW Act to a modern award includes a reference to an award-based transitional instrument.
[10] Further Schedule 3, Part 2, section 2(5) of the Transitional Act provides that awards and notional agreements preserving State awards, are award-based transitional instruments.
[11] Next,Schedule 8, Part 3, Division 1 Clause 31 of the WR Act provides that if immediately before the reform commencement (i.e. the day on which the Workplace Relations Amendment (Work Choices) Act 2005 came into effect being 27 March 2006), the terms and conditions of employment of one or more employees in a single business or a part of a single business:
(a) were not determined under a State employment agreement; and
(b) were determined, in whole or in part, under a State Award (the original State award) or a State or Territory industrial law (the original State law);
a notional agreement preserving a State Award ("NAPSA") is taken to come into operation on the reform commencement in respect of the business or that part of the business.
[12] Section 4 of the WR Act defines State award to mean an award, order, decision or determination of a State industrial authority.
[13] The General Order on Termination, Change and Redundancy 2005 WAIRC 01715 ("the General Order") commenced on 1 June 2005 and applied to the Applicant. The General Order is an order of the Western Australian Industrial Relations Commission. Consequently under the WR Act the General Order is a State award.
[14] It is submitted for the applicant that the combined effect of the fact that:
- The General Order was a ‘State Award’
- under the WR Act a State award became a NAPSA and
- under the Fair Work Act a NAPSA is an award-based transitional instrument and
- for the purposes of section 382 of the FW Actthe reference to a modern award includes a reference to an award based transitional instrument
means that the Applicant does satisfy section 382(b)(i) and is therefore protected from unfair dismissal because he was covered by the General Order.
[15] If the Tribunal does not accept that section 382b)(i) applied to the Applicant, then the Applicant submits that the Applicant is protected from unfair dismissal by virtue of s.382(b)(iii) because at the time of the termination the Applicant's annual rate of earnings and such other amounts was less than the high income threshold. A detailed explanation supported by a statutory declaration was provided in this regard.
[16] The respondent argues that the Transitional Act excludes the application of the General Order. The Applicant contends that s382 applies to him because a modern award when read with the transitional provisions picks up the General Order. The Applicant also contends that the General Order is an award-based transitional instrument and therefore is caught by section 36 of Schedule 3.
However, section 3(3) of Schedule 3 states:
“However, an award-based transitional instrument does not apply to an employee (or to an employer ...) at a time when the employee is a high income employee (see section 329 of the FW Act.”
[17] Section 329 of the FW Actprovides that a high income employee is one whose guaranteed annual rate of earnings is above the high income threshold. Sections 330 and 331 define the annual rate of earnings in the same way as is applicable under section 382(b)(iii) in that the high income threshold is the same (being $108,300.00 at the time of dismissal) and the annual rate of earnings includes pay, monies paid to others on behalf of the employee and non-monetary benefits.
[18] The respondent says the effect of section 3(3) Schedule 3 is to bring the applicable transitional instruments into line with the FW Act in that there is a cut off point after which the Act does not apply and that cut off point is consistent across Australia. Therefore it is necessary to determine the question of whether the Applicant’s annual rate of earnings meets or is above the high income threshold.
[19] If it is not accepted that the first contention above is correct then alternatively the respondent says the General Order referred to by the Applicant does not apply in any event because the order is inconsistent with the provisions of the FW Act and therefore pursuant to s109 of the Commonwealth of Australia Constitution Act (the ‘Constitution’), the FW Act provisions prevail.
[20] The General Order referred to by the Applicant deals with termination of employment and in particular the process and any payments to be made. The FW Act deals with termination of employment through Division 11 of Part 2-2 and the provisions in Part 3-2 which the Applicant is seeking to invoke in the present proceedings.
Consideration
[21] For the applicant it is argued that at the time of dismissal he was covered by the General Order of the Western Australian Industrial Relations Commission and so is protected from unfair dismissal.
[22] The General Order deals with termination change and redundancy rights and obligations. It was made in June 2005.
[23] Clause 1 identifies to whom the General Order applies as follows.
CLAUSE 1. APPLICATION
1.1 This General Order takes effect on 1 August 2005 and applies to each employee as defined in subsection 7(1) of the Industrial Relations Act, 1979 throughout the State of Western Australia.
1.2 This General Order does not apply to any employee who holds an office for which the remuneration payable is determined or recommended pursuant to the Salaries and Allowances Act 1975.
1.3 Any provisions relating to termination of employment, introduction of changes in production, program, organisation, structure or technology that are likely to have significant effects on employees or redundancy applying to an employee which are inconsistent with and provide more favourable conditions to an employee than those set out in this General Order whether by way of award, order or agreement of this Commission or by legislation or otherwise will apply to those employees to the extent of any such inconsistency.
[24] Subsection 7(1) of the Industrial Relations Act, 1979 (W.A.) referred to in Clause 1.1 of the General Order is as follows:
“employee means —
(a) any person employed by an employer to do work for hire or reward including an apprentice;
(b) any person whose usual status is that of an employee;
(c) any person employed as a canvasser whose services are remunerated wholly or partly by commission or percentage reward; or
(d) any person who is the lessee of any tools or other implements of production or of any vehicle used in the delivery of goods or who is the owner, whether wholly or partly, of any vehicle used in the transport of goods or passengers if he is in all other respects an employee,
but does not include any person engaged in domestic service in a private home unless —
(e) more than 6 boarders or lodgers are therein received for pay or reward; or
(f) the person so engaged is employed by an employer, who is not the owner or occupier of the private home, but who provides that owner or occupier with the services of the person so engaged;”
[25] This definition of employee is very broad and clearly the applicant falls within the definition of employee in the Industrial Relation Act 1979 (W.A.) and so I agree that the General Order applied to the applicant.
[26] I have considered the applicants submissions regarding the cumulative effect of the Workplace Relations Act 1996, the Fair Work (Transitional Provisions and Consequential Amendment) Act 2009 and the Fair work Act 2009 and agree with the conclusion that:
- Under Schedule 8 of the WR Act, the General Order being an order of a Sate Industrial Authority (s.4 of the WR Act) became a Notional Agreement Preserving a Sate Award (a NAPSA). I note that s. 38A(1) of Schedule 8 of the WR Act specifies that a NAPSA ceases to be in operation by 31 December 2009, absent any of the other situations arising mentioned in this section. So this NAPSA was still operating at the time of the applicant’s dismissal in August 2009.
- Under Schedule 3 of the Transitional Act thisNAPSA is an award-based transitional instrument (section 2(5)) and for the purposes of s. 382 of the FW Actthe reference to a modern award in s. 382(b)(i) includes a reference to an award based transitional instrument (section 36).
[27] Notwithstanding this the respondents says that because the applicant was a high income employee (although the applicant contests this) as defined in s. 329 at the time of the dismissal the effect of s. 3(3) of Schedule 3 of the Transitional Act means the award based transitional instrument did not apply to him.
[28] The flaw in this submission is that the words “applies” and “cover” have separate and distinct meanings in the FW Act. These relevantly are set out in s. 47 and s.48. This is reflected in s.3 of Schedule 3 of the Transitional Act on which the respondent relies. In short as Note 1 explains “covers” is used to indicate the range of employees, employers, etc to whom the instrument potentially “applies.”
[29] In practice an award based transitional instrument may cover an employee throughout their employment but at any particular time, for different reasons including when the employee is a high income employee, it may not apply to the employee.
[30] The critical point is that the relevant part of s.382(b) is concerned not with whether the instrument applied to the applicant but rather whether:
“ (i) a modern award covers the person;”
[31] As was submitted the term modern award includes award based transitional instruments. In this case whether or not the applicant at the time of dismissal was a high income employee would affect whether the award based transitional instrument (the General Order) applied to him but regardless of this at all times the instrument covered him.
[32] The respondent’s argument regarding s.109 of the Constitution ignores the fact that the legislation has expressly included the coverage of the General Order by the respective transitional provisions. This submission on inconsistency is not correct.
[33] I find then that the applicant at the time of the dismissal was covered by an award based transitional instrument and so is protected from unfair dismissal.
The high income threshold
[34] Considerable information and argument has been put regarding the applicant’s annual earnings and s. 382(b)(ii).
[35] Given my findings above it is not necessary to determine this issue however for completeness I will briefly deal with it.
[36] The parties agree the high income threshold at the time of dismissal was $108,300. Further the parties agree the applicant’s salary at the time of dismissal was $ 102,876 per annum. However the parties have different views regarding a vehicle provided to the applicant and salary sacrifice arrangements.
[37] The applicant proposes using the RAC WA figures and argues the non monetary benefit to the applicant of the vehicle in question was $5273.14 per annum.
[38] I believe this figure is to be preferred over the same calculation using RACV figures because the applicant at all time was working in Western Australia.
[39] On the applicants submission then the annual earnings was $ 108,149.14 1.
[40] Regarding the salary sacrifice arrangements the applicant agrees this was part of the applicants salary but says the effective changes to the applicant’s net income from the related tax benefits should not be taken into consideration by the tribunal 2.
[41] The information is that the applicant took considerable advantage of the respondent’s willingness to offer the applicant the opportunity of salary sacrifice. For part of 2009 the applicant salary sacrificed all of his salary into his superannuation fund and so paid no income tax. The pay slips, examples of this, show the fortnightly gross pay as $ 4312.88 and the net pay to be zero 3.
[42] At the time of dismissal the applicants fortnightly salary sacrificing equated to $50,000 per annum. The respondent sought an assessment of the benefit to the applicant of this salary sacrifice from a firm of accountants. This firm of accountants assessed the benefit to the applicant in reduced income tax as being $ 10,538 per annum 4.
[43] The applicant concedes rightly that the salary sacrifice amounts were amounts applied by the respondent as directed by the applicant.
[44] The question is whether these amounts are to be included in determining the high income threshold.
[45] A similar issue was considered recently by SDP Hamberger in 2010 FWA 1952 5.
[27] A Full Bench in Rofin Australia Pty Ltd v K J Newton6 found that a Commissioner was not in error in concluding that, in the circumstances of the case in question, any FBT paid by the employer in relation to the provision of a motor vehicle should not be included as a non-pecuniary part of the employee’s ‘rate of remuneration’ for the purposes of determining whether the specified rate was exceeded. The Full Bench focused on the fact that FBT is a tax paid by the employer. It is not paid to the employee, nor on behalf of or at the direction of the employee, and “such an amount would not fall within the ordinary meaning of the word ‘remuneration’.” The Full Bench did however recognise it might be appropriate to include FBT in a genuine ‘salary sacrifice’ situation.
[28] Under the current legislation, the word ‘remuneration’ is not used. Rather the tribunal has to estimate a real or notional money value of the benefit in question. The applicant’s own evidence is that the car was ‘in lieu of a salary increase.’ While employees pay income tax on their salary, they do not on fringe benefits. As a matter of administration, FBT is payable by the employer. However failure to include FBT in the value of a fringe benefit would be (significantly) to underestimate its value to the employee.
[46] I agree with his conclusion. In this instance the applicant received a benefit agreed with the respondent that he would be able to salary sacrifice various amounts of his salary at will. He took advantage of that and did receive a benefit namely a reduction in the amount of income tax he paid. In the circumstances I find that this benefit should be considered when assessing whether the high income threshold applies.
[47] The difference between the amounts the applicant accepts was his annual rate of earnings and the high income threshold is:
$108,300.00 minus $ 108,149.14 = $150.86
In determining whether the applicant’s annual earnings exceeded the high income threshold it is not always necessary to determine precisely the amount of those earnings. Here I accept that the benefit to the applicant of the salary sacrifice arrangements would be in excess of $150.86 per annum and so in total the earnings of the applicant did exceed the high income threshold.
[48] Notwithstanding my finding on the earnings point because of the earlier finding that the applicant was covered by an award based transitional instrument this application is within jurisdiction and can proceed.
[49] The matter will now be listed for a determinative hearing.
COMMISSIONER
1 Final submission para 44(b)
2 Final submission para 45 to 48
3 Statutory declaration Mr Mander para 11 to 13
4 Annexure J to Statutory declaration of Mr Mander
5 PR994813
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