National Union of Workers v Cryovac Australia Pty Ltd

[2013] FWC 7036

[2013] FWC 7036

FAIR WORK COMMISSION

DECISION

Fair Work Act 2009
s.739—Dispute resolution

National Union of Workers
v
Cryovac Australia Pty Ltd
(C2013/5231)

DEPUTY PRESIDENT GOSTENCNIK MELBOURNE, 16 SEPTEMBER 2013

Alleged dispute concerning severance pay.

[1] This is an application by the National Union of Workers (the NUW) under s.739 of the Fair Work Act 2009 (the Act) for the Fair Work Commission (the Commission) to deal with a dispute in accordance with Clause 14 of the Cryovac Australia Pty Ltd (Fawkner) & National Union of Workers Enterprise Agreement 2012- 2015 (the Agreement).

[2] The Agreement applies to approximately 124 employees of Cyrovac at its Fawkner Site in Victoria (the Site). The NUW is covered by the Agreement.

[3] The dispute arises between the NUW and Cryovac Australia Pty Ltd (Cryovac) in relation to the interpretation of severance pay provisions contained within the Agreement.

[4] The NUW alleges that Cryovac has not correctly applied the Agreement’s provisions when calculating severance pay for a number of 7 day/12 hour shift work employees who have been made redundant. Specifically, the NUW asserts that any severance payments should include a 17.5% annual leave loading on annual leave paid out and the rate should include the first aid allowance and leading hand allowance for employees in receipt of these allowances.

[5] Cryovac maintains that it has correctly interpreted the provisions of the Agreement and that the annual leave loading, first aid allowance and leading hand allowance are not payable to shiftwork employees as part of severance pay as they are rolled-up in the base rate.

Relevant statutory provisions

[6] The Act provides that the Commission may only deal with a dispute if a term referred to in s.738 requires or allows the Commission to deal with a dispute. 1 Section 738 includes a term within an enterprise agreement which provides a procedure for dealing with disputes.2

[7] In dealing with a dispute, the Commission must not exercise any powers limited by the term 3 and if, in accordance with the term, the parties have agreed that the Commission may arbitrate (however described) the dispute, the Commission may do so.4

[8] Clause 14 of the Agreement provides a procedure for dealing with disputes and outlines a series of steps for the parties to take in the settlement of disputes. If the matter is not settled between the parties after following the outlined steps, Clause 14.6 empowers the Commission to conciliate and, if necessary, arbitrate a dispute as follows:

‘14.6. If the matter is still not settled it shall be submitted to a member of the Fair Work Commission for conciliation, and if necessary, arbitration.’

[9] The NUW advised that the parties had ‘exhausted all avenues of redress as per the disputes procedure.’ 5 Cryovac did not raise any objections to this submission.

[10] On the basis that the outlined steps have been followed in the Agreement, and the dispute remains unresolved, the Commission has jurisdiction to exercise powers of conciliation and, if necessary, arbitration to settle the dispute.

[11] Consequently, following the lodgement of the application on 22 July 2013, I conducted a conciliation conference on 31 July 2013.

[12] While a number of issues were resolved, there remained outstanding areas of dispute.

[13] The outstanding areas of dispute were nominated in the NUW’s submissions as follows:

‘Cryovac Australia Pty Ltd’s (Cryovac) refusal to pay relevant employees:

(i) 17½% annual leave loading on untaken and pro rata annual leave; and

(ii) First aid allowance and leading hand allowance.’ 6

[14] At the conclusion of the hearing into the dispute I raised an issue with the parties that it was unlikely that I would be in a position to finalise my decision before the employees, who are the subject of the disputed claims, would have their employment terminated by reasons of redundancy. This raised the issue of whether I would have jurisdiction to continue to deal with the matters in dispute. I asked Cryovoc to consider whether it wished to argue this jurisdictional question. I have since been devised by Cryovac that it does not wish to argue the jurisdictional question and it was content for me to proceed to determine matters in dispute. Consequently I proceed on that basis and this decision deals with the first of these matters.

Background

[15] Cryovac produces and sells food packaging products to food manufacturers.

[16] For thirteen years, Cryovac has conducted operations at the Site on a 24/7 roster with 12 hour shifts operating in the manufacturing plant and the warehouse while the printing department has operated on a Monday to Friday basis with a weekend shift.

[17] The NUW has members employed in both production and warehousing roles in the manufacturing plant and the warehouse.

[18] In June 2013, Cryovac announced it would be ceasing the operation of 7 day/12 hour shifts in the laminates area of the manufacturing plant.

[19] Cryovac submitted that it found it necessary to restructure the business due to changed market conditions that had resulted in a decline in demand for the company’s product.

[20] Thirty four employees have been directly affected by this restructure. Of these employees, thirty two employees have declined Cryovac’s offer regarding redeployment to 5 day/8 hour shift positions and have instead opted for a redundancy in accordance with Clauses 32.10.1 and 32.10.2 of the Agreement which provides as follows:

‘32.10.1 Employees who initially nominated to work on a specific shift (i.e. permanently day or permanently night) at the time the shift system in each department was set up, can only be transferred by mutual agreement. Capacity to transfer all other employees will be as specified in their contract of employment.

32.10.2 In the event that an employee’s existing 12 hour shift position is no longer required then the employee has the option to take voluntary redundancy if no alternate 12 hour shift position can be provided.’

[21] Of the employees who have opted for the voluntary redundancy, a number of employees (not specified by the NUW or Cryovac) are in dispute in relation to the payment of annual leave loading as part of their severance pay and two are in dispute in relation to the omission of the leading hand allowance and first aid allowance in calculating severance pay.

Interpretation of enterprise agreements

[22] The general approach to the construction of instruments of the kind at issue here is set out in the observations of French J, as he then was, in City of Wanneroo v Australian Municipal, Administrative, Clerical and Services Union (Wanneroo):

‘[53] The construction of an award, like that of a statute, begins with a consideration of the ordinary meaning of its words. As with the task of statutory construction regard must be paid to the context and purpose of the provision or expression being construed. Context may appear from the text of the instrument taken as a whole, its arrangement and the place in it of the provision under construction. It is not confined to the words of the relevant Act or instrument surrounding the expression to be construed. It may extend to ‘...the entire document of which it is a part or to other documents with which there is an association’. It may also include ‘....ideas that gave rise to an expression in a document from which it has been taken’ - Short v FW Hercus Pty Ltd (1993) 40 FCR 511 at 518 (Burchett J); Australian Municipal, Clerical and Services union v Treasurer of the Commonwealth of Australia (1998) 80 IR 345 (Marshall J).’ 7

[23] Although his Honour’s observations were made in the context of interpreting an award the same principles are apt to the interpretation of enterprise agreements. 8 For example, similar observations were made by their Honours Gummow, Hayne and Heydon JJ in Amcor v CFMEU:

‘Clause 55.1.1 must be read in context. It is necessary, therefore, to have regard not only to the text of cl 55.1.1, but also to a number of other matters: first, the other provisions made by cl 55; secondly, the text and operation of the Agreement both as a whole and by reference to other particular provisions made by it; and, thirdly, the legislative background against which the Agreement was made and in which it was to operate.’ 9

[24] The fact that the instrument being construed is an enterprise agreement is itself an important contextual consideration. As French J observed in Wanneroo, at paragraph [57]:

‘It is of course necessary, in the construction of an award, to remember, as a contextual consideration, that it is an award under consideration. Its words must not be interpreted in a vacuum divorced from industrial realities - City of Wanneroo v Holmes (1989) 30 IR 362 at 378-379 and cases there cited. There is a long tradition of generous construction over a strictly literal approach where industrial awards are concerned - see eg GeoA Bond and Co. Ltd (in liq) v McKenzie [1929] AR (NSW) 498 at 503-504 (Street J). It may be that this means no more than that courts and tribunals will not make too much of infelicitous expression in the drafting of an award nor be astute to discern absurdity or illogicality or apparent inconsistencies. But while fractured and illogical prose may be met by a generous and liberal approach to construction, I repeat what I said in City of Wanneroo v Holmes (at 380):

“Awards, whether made by consent or otherwise, should make sense according to the basic conventions of the English language. They bind the parties on pain of pecuniary penalties.”’

[25] None of these principles were matters of contention in these proceedings and I apply them in construing the Agreement and ultimately in determining this dispute as set out below.

Annual leave loading

[26] Clause 20.2 of the Agreement provides as follows:

‘20.2 Severance Pay

In addition to the period of notice prescribed for ordinary termination in clause 21, an employee whose employment is terminated for reasons set out in clause 20.1.1 shall be entitled to the following minimum amount of severance pay in respect of a continuous period of service:

● four (4) weeks notice to be given, with a further one (1) week provided for those over 45 years of age with a minimum of two (2) years service;

• four (4) weeks severance pay will be paid on termination, except in the case where an employee has less than twelve (12) completed months of service, I which case a pro-rata formula of 2.923 hours for each completed week will apply;



• three (3) weeks pay at the agreement rate for each continuous completed year of service or part thereof;



• payout all unused personal leave entitlements. In the case of 8-Hour Shift Workers, these entitlements will be paid at the base rate excluding any shift penalties or allowances;



• Long Service Leave to be paid out on a pro-rata basis after five (5) continuous completed years of service;



• superannuation rights will be provided as the Trust Deed and rules permit with no enhancements;



• should an employee on WorkCover volunteer for the retrenchment/redundancy package, he/she must provide the Company with a medical clearance within




● the period stated for volunteers to nominate;

• untaken annual leave and annual leave pro-rata will attract 17.5% leave loading;




● if all requirements are considered equal by the Company, any retrenched or redundant employee shall have preference of employment for twelve (12) months following date of termination.

• the company will provide assistance wherever possible to find alternative employment for those retrenched or made redundant.



• all persons retrenched or made redundant will be provided with a written reference and a certificate of service stating the reason for termination.



• independent financial advice will be offered by the company if required.



• in relation to the redundancy provision the definition of base rate is the employee’s ordinary time earnings, which includes any over award payment, tool allowance, leading hand allowance, service allowance and shift loading. In determining the payment of a week for 7 day shift employee, it is defined as 38 hours at the employees’ average rate.’ (My underlining)

[1] The NUW submits that the reference to 17.5% leave loading in clause 20.2 of the Agreement is unambiguous and unqualified, with the consequence that an employee’s untaken annual leave entitlement, when paid out on termination of employment for redundancy reasons, will always attract that loading. It follows, so the NUW argues, that a 7 day/12 hour shift work employee is entitled to be paid 17.5% leave loading on untaken annual leave calculated on such employee’s average weekly rate.

[2] There is a superficial attraction to this argument, but it is one that is available only if clause 20.2 of the Agreement is read in a vacuum and no regard is paid the context in which it appears in the Agreement as a whole. It is necessary to have regard not only to the text of clause 20.2 but also to other provisions of the Agreement which may bear upon the entitlement said to arise under clause 20.2. It is also necessary to read the text in operation of the Agreement as a whole and by reference to other provisions contained in the Agreement.

[3] Clause 26 of the Agreement sets out the ordinary hours of work will be 38 hours per week, worked as an 8 hour day with one rostered day off in every 4 week cycle. Ordinary hours will be worked on any or all of Monday to Friday between the hours of 6.00 am to 8.00 pm. Clause 29 of the Agreement sets out the shift work conditions that apply to an employee other than a 7 day/12 hour shift work employee. Clauses 30 and 31 of the Agreement set out the pay arrangements for work performed on a Saturday or a Sunday respectively other than for an employee who is a ‘seven day shift worker’.

[4] Provision for 7 day/12 hour shift work is made in clause 32 of the Agreement. By clause 32.2, an employee who works a 7 day/12 hour shift arrangement receives a loaded rate of pay per week. This is called the average weekly rate which is calculated by reference to 42 average hours per week.

[5] The hourly rate for day shift 7 day/12 hour shift work is calculated by multiplying the base hourly rate of pay by 52.5 hours, then dividing that sum by 42 representing the average hours per week. This represents a loading of approximately 25% on the base hourly rate of pay.

[6] The hourly rate for night shift 7 day/12 hour shift work is calculated by multiplying the base hourly rate by 63.5 hours, then dividing that sum by 42 representing the average hours per week. This represents a loading of approximately 51% on the base hourly rate of pay.

[7] Because the 7 day/12 hour shift work arrangement will invariably result in a difference in the hours actually worked and the average hours that are paid pursuant to the 42 average hours per week formula, the Agreement makes provision in clause 32.12 for the banking and accumulation of the variations. An imbalance arising from the accumulation of variations that is favourable to an employee at the time that an employee’s employment ends is paid out to the employee on termination of employment.

[8] Clause 32 also makes provision for arrangements for rest periods (clause 32.3), annual leave (clause 32.4), public holidays (clause 32.5), absences on public holidays (clause 32.6), working times (clause 32.7), call-in procedure (clause 32.8), substitution of shifts (clause 32.9), transferring staff (32.10) and overtime relief for annual leave and training (clause 32.11). It is clear that clause 32 makes specific provision in relation to particular entitlements because the general provisions for these entitlements, found elsewhere in the Agreement, are necessarily affected by the operation of a 7 day/12 hour shift work roster and the 42 average hours per week formula.

[9] Part 6 of the Agreement contains provisions dealing with leave of absence and public holidays. Clause 34 sets out annual leave entitlements for employees, however the accrual of annual leave provisions in clause 34.1, the rate of pay for that leave and 17.5% loading for annual leave provisions set out in clause 34.3 do not apply to an employee who is a 7 day/12 hour shift work employee. Clause 39 contains the public holiday entitlements of employees covered by the Agreement. Clause 39.7 deals with public holidays and shift work, but excludes from its operation 7 day/12 hour shift work employees.

[10] It becomes apparent from the above analysis that the Agreement provides for differential pay and leave entitlements as between employees who might work some shift work and employees who are 7 day/12 hour shift work employees. On the question of annual leave the different treatment is as follows.

[11] In accordance with clause 32.4 of the Agreement, a 7 day/12 hour shift work employee accrues 240 hours of annual leave per annum which represents 20 days leave calculated on 12 hour shifts. Payment for leave is made the average rate, which is calculated in the manner discussed earlier, and is in substitution for the 17.5% leave loading that would otherwise be payable to an employee taking annual leave. The loading, amongst other entitlements, is therefore built into the rate of pay. In my view this represents the totality of the entitlement to any leave loading for a 7 day/12 hour shift work employee. It operates has a code.

[12] Under clause 34.1 of the Agreement, other employees accrue 23 days of annual leave per annum paid at 8 hours per day calculated at the all-purpose rate, 7.6 hours of which, plus appropriate loading, is paid as annual leave to the employee and 0.4 hours is allocated to the employee’s RDO bank. Clause 34.3 the Agreement deals with 17.5% leave loading and provides that an employee will receive payment for annual leave taken at the employee’s pay rate applicable at the time the employee takes annual leave together with a 17.5% loading. In the case of an employee working shift work (not including a 7 day/12 hour shift work employee), such employee receives the higher of the average shift rates payable to the employee in respect of the full roster cycle preceding the period of leave or a loading of 17.5%.

[13] The NUW submits that the provisions concerning annual leave for 7 day/12 hour shift work which relevantly provides that employees will ‘receive their average weekly rate in substitution of the 17.5% leave loading’ does not detract from Cryovac’s obligation to pay such employees 17.5% annual leave loading as part of the severance pay obligations under clause 20.2 of the Agreement. The NUW argues that the provisions of clause 32.4 deals with the employer’s payment obligation while an employee was taking annual leave while clause 20.2 deals with the employer’s obligation for payment on termination of employment for redundancy reasons.

[14] The NUW submits that the differential treatment of the 17.5% annual leave loading entitlement arises from the different circumstances to which each clause is directed and that this is reinforced by the fact that such an employee taking annual leave is paid at the 42 hours average weekly rate, however in circumstances of a redundancy, annual leave is said to be based on 38 hours at the employee’s average rate. 10

[15] This submission is in my view contrary to the proper construction of the annual leave entitlement upon termination of a 7 day/12 hour shift work employee on redundancy grounds under the Agreement, as well as contrary the method by which Cryovac proposes to calculate that entitlement. 11

[16] As indicated above, clause 32.4 of the Agreement provides that an employee who has accrued annual leave while working on a 7 day/12 hour shift work arrangement ‘will receive their average weekly rate in substitution of the 17.5% leave loading’. There is no distinction made between the rate payable when taking leave while working on a 7 day/12 hour shift work arrangement and on the termination of employment. This point is reinforced by the manner in which leave is accrued. The first paragraph of clause 32.4 inextricably links the hours of leave accrued annual leave to the average rate of pay in providing, as it does, that ‘the total hours of leave accruing per year will be 240 hours (this represents 20 shifts paid at the average rate)’.

[17] It cannot be the case that hours of leave accrued on one assumption (20 shifts of 12 hours of annual leave paid at the average rate) would on termination be paid out on a different and lower assumption (20 shifts of 8 hours of annual leave paid at the average rate) in the case of termination of employment on redundancy, without express language to that effect.

[18] Although the last dot point in clause 20.2 provides that ‘in determining the payment of a week for 7 day shift employee (sic), it is defined as 38 hours at the employees’ average rate’, this definition applies to those entitlements set out in the severance clause which are calculated by reference to a number of weeks pay, for example, the entitlement to 4 weeks’ severance pay found in the second dot point of clause 20.2 of the Agreement, and not is the NUW suggests, to annual leave entitlements.

[19] Clause 20.2 does not comprehensively set out the terms for untaken annual leave to be paid out, rather it simply provides that such leave attracts 17.5% leave loading. The last dot point in clause 20.2 has no work to do in relation to the calculation of payment for untaken annual leave.

[20] Given this construction, the effect of the NUW’s claim is that a 7 day/12 hour shift work employee should be paid 17.5% leave loading on annual leave (clause 20.2) accrued in accordance with clause 32.4 and as a consequence this class of employee but no other, will be compensated twice for annual leave loading when their employment is terminated on redundancy grounds.

[21] This would be both an absurd and unjust result. It runs counter to the structure of the Agreement and the special arrangements in place for annual leave for 7 day/12 hour shift work employees set out in clause 32.

[22] In my view, clause 20.2 does no more than to ensure that a 17.5% leave loading is paid in respect of all unused annual leave including pro rata annual leave of an employee whose employment is ended on redundancy grounds in circumstances where the employee might otherwise not be entitled to receive leave loading when employment has ended or has otherwise not been compensated for the leave loading. Where an entitlement to be paid the loading on termination already exists or is expressly compensated by the rate of pay at which the leave is calculated and paid, clause 20.2 does not give rise to an additional or double dip entitlement.

[23] This point is illustrated by reference to clause 34.5 which provides that ‘if the employee leaves or is dismissed, the employer must pay the employee any leave entitlement including a proportionate amount for each week worked since the employee began working or last qualified for leave. Such pro rata annual leave pay does not include leave loading’.

[24] Clause 20.2 therefore equalises, in a relative sense, the position of an employee in a redundancy case, who would not otherwise be entitled to leave loading on termination of employment on at least some portion of annual leave because of clause 34.5, with that of a 7 day/12 hour shift work employee who is guaranteed an amount of compensation for the 17.5% leave loading because of the manner in which leave is accrued under clause 32.4 and the rate at which that leave is paid out.

[25] The NUW also relies on some extrinsic material in support of its construction of the Agreement. Firstly, the NUW relies on a deed of release 12 which was not executed but given to a 7 day/12 hour shift work employee whose employment recently ended by reason of redundancy for his or her consideration.

[26] The deed was not executed by the employee however the NUW places reliance on the fact that the deed provided that that the employee acknowledges that the ‘Payments’ provided for in the deed are given in full and final satisfaction and discharge of all the claims and that the word ‘Payments’ is defined to include annual leave loading.

[27] The deed does not assist in resolving the proper construction of the Agreement. The deed appears on its face to be a boilerplate document, it is not executed, and in any event it would be surprising if an employer proposing to enter into a deed of release with an employee did not seek to cover all bases irrespective of whether liability was real or not. It is not evidence of the common understanding of the parties about the operation or construction of the Agreement.

[28] Secondly, the NUW relies on a document which sets out a redundancy calculation schedule as at 31 August 2008. 13 The document on its face is calculated for a 7 day/12 hour shift work employee because it provides an average 42 hourly rate calculation. The document also provides for a standard hourly rate calculation. The document contains a calculation for annual leave as well is a calculation for leave loading.

[29] This, the NUW says, is evidence of a past practice of Cryovac paying 7 day/12 hour shift work employees annual leave loading in situations of redundancy. In response, Cryovac say the document calculates annual leave loading in error. Cryovac say it was prepared at a time when a temporary employee was engaged to perform payroll functions.

[30] In truth, the document does not assist in resolving the competing constructions the Agreement. The calculations set out in the document would result in a interpretation of the provisions an issue for which neither party contains.

[31] The fact that leave loading is calculated in the document would tell against construction preferred by Cryovac. However, leave loading in the document is calculated by reference to the hours of the leave accrued multiplied by the standard hourly rate, not by reference to 38 hours at the average rate as the NUW argues or for that matter on a 42 hour average rate.

[32] In the circumstances I am satisfied that on a proper construction of the Agreement, Cryovac’s calculation of annual leave entitlements payable to a 7 day/12 hour shift work employee on termination of the employment on redundancy grounds is correct. Consequently there is no requirement under clause 20.2 to pay such an employee an additional 17.5% loading on accrued but untaken annual leave.

First Aid Allowance

[33] The payment of a first aid allowance to relevant employees as part of their severance pay is not an issue I need to determine. The NUW advised during the course of the hearing that it no longer pressed this claim. 14

Leading hand allowance

[34] The final aspect of the dispute between the NUW and Cryovac concerns two employees, who elected to take a voluntary redundancy, whose disputed leading hand allowance has not been included in the average rate for the purposes of severance pay calculations, including annual leave pay calculations.

[35] After reviewing the submissions and materials provided by the parties, I am not presently satisfied that they sufficiently enable me to reach a decision on this issue.

[36] I have decided to relist the matter for further submissions, solely on this issue.

[37] A supplementary decision will be provided dealing with this issue once further submissions are heard.

DEPUTY PRESIDENT

Appearances:

A Portelli for the National Union of Workers.

A Dalton of the Australian Industry Group for Cryovac Australia Pty Ltd.

Hearing details:

2013

Melbourne:

28 August.

 1 s.739(1).

 2   s.738(b).

 3 s.739(3).

 4 s.739(4).

 5 NUW submissions at [11].

 6 NUW submissions at [4].

 7 (2006) 153 IR 426 at [53].

 8   See Swire Cold Storage Pty Ltd v TWU [2008] AIRCFB 397 at [29] and AMWU v Silcar Pty Ltd [2011] FWAFB 2555 at [11].

 9 (2005) 222 CLR 241 at [30].

 10 NUW submissions at [52].

 11   Transcript at PN258-262.

 12   Exhibit NUW 3.

 13   Exhibit NUW 2.

 14   Transcript at PN161.

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