Otis Elevator Co Pty Ltd v Logan

[2000] HCATrans 79

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S119 of 1999

B e t w e e n -

OTIS ELEVATOR COMPANY PTY LTD

Applicant

and

PETER ANTON CHARLES LOGAN

Respondent

Application for special leave to appeal

GLEESON CJ
CALLINAN J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 10 MARCH 2000, AT 10.34 AM

Copyright in the High Court of Australia

MR P.M. HALL, QC:   May it please the Court, I appear with my learned friend, MR J.J. DE MEYRICK.  (instructed by Barker Gosling Lawyers)

MR W.R. HAYLEN, QC:   If the Court please, I appear with my learned friend, MR R. ALKADAMANI.  (instructed by Haywards)

GLEESON CJ:   Thank you, Mr Haylen.

MR HALL:   Your Honours, this application concerns the principles that are to be applied in the case of salaried employees concerning the interaction of their contractual and industrial award entitlements and whether, in particular, there can be offsetting of salary paid in amounts in excess of the award against an award entitlement, in this case by way of overtime.

GLEESON CJ:   Are those principles simply principles arising from the general law of contract and set off?

MR HALL:  Your Honour, they are both contractual principles and they are also thus far industrial principles established in terms of the award operation.  The judgment of the Full Court, in our respectful submission, in this case not only wrongly applies the principles in the Poletti v Ecob decision, a decision of the Federal Court, but it seeks to create a new principle, in our respectful submission, that will have a significant effect upon salaried employment if allowed to stand and potentially in that sense widespread in the sense to which I will identify shortly.

If I could just deal, firstly, there is no issue in this case as to what the critical factual finding was as to the basis upon which the parties contracted and this application raises a pure question of law.  It does not seek to challenge factual findings.  Indeed, it embraces them.

GLEESON CJ:   And do you challenge Poletti?

MR HALL:   We do not, no, your Honour.  In the application book at 136 the critical finding which echoes the finding of the trial judge Mr Justice Moore is to be found at 136 between lines 10 and 15, the Full Court stated:

However, his Honour accepted that Mr Logan and the relevant Otis officers were all aware “the salary included an amount intended to compensate for all overtime including call‑outs”.

That is a critical point of distinction between other cases, including, in particular, Poletti, in which there were ‑ ‑ ‑

GLEESON CJ:   The next two sentences are of some importance, are they not?

MR HALL:   Yes, your Honour.  I was coming to those.  Yes, could I come back to that just very shortly?  The point in this case, quite different from other cases, including, in fact, the Poletti decision, is that there was an express contractual agreement between the parties as to the allocation of the salary to an award entitlement.  There was not in Poletti’s Case.  The evidence indicated before the ‑ ‑ ‑

GLEESON CJ:   When you say an “express contractual agreement”, where do we find it?

MR HALL:   Well, reflected, your Honour, in that finding that the parties agreed when they made the contract that it was a salary to be struck upon the basis that it would include and be referrable to any overtime worked.

GLEESON CJ:   Where is the agreement?

MR HALL:   There is no formal agreement, your Honour.  It is an agreement orally.

GLEESON CJ:   But does it involve anything more than that the contract of employment provided for him to be on call 24 hours and did not provide for him to receive any extra payment if he was called out at midnight as compared with what he would get if he got called out midday?

MR HALL:   That is so, your Honour.  It was to be a salary whereby call‑outs, be it in an overtime period of the day or during ordinary time, would be compensated by way of salary.

GLEESON CJ:   But that is all that was involved in this agreement, that is to say, he was to be on call for 24 hours and the agreement contained no provision for any extra payment if he was called out out of ordinary working hours?

MR HALL:   That is so, your Honour, but the agreement was that the salary to be paid would be paid in respect of overtime work, be it at the call‑out or be it ‑ ‑ ‑

GLEESON CJ:   Where do I find that agreement, Mr Hall?  That is my problem.  I understand that you have a contract that says he was to be on call for 24 hours and he was not to get paid extra for overtime, but you seem to be elevating it to a higher plane.  You seem to say it was part of the contract that ‑ ‑ ‑

MR HALL:   The contract in question was an oral contract formed through discussions and there is affidavit evidence as to those discussions, which, as I have said, the trial judge and the Full Court accepted.  It goes so far as this issue of award entitlement, so to the extent to which that finding reflects, that is to say that the parties held discussions and that is what they discussed; that is what they agreed upon in relation to that matter.

CALLINAN J:   So we are all aware – you say that was an agreement.

MR HALL:   Yes, your Honour, yes.

CALLINAN J:   Line 11.

MR HALL:   That is so, your Honour.

CALLINAN J:   Is that right?

MR HALL:   Yes, that is so, and in that regard the trial judge, analysing the affidavit evidence, the respondent’s understanding of the discussion included that he understood that the salary level was being packaged and the payments were to be paid on the basis that they would compensate in respect of overtime.

CALLINAN J:   Is it your case that the next sentence on line 14 is really irrelevant, that:

His Honour did not find this compensation accounted for the whole of the difference between an award wage and the agreed salary –

irrelevant because the agreed salary was intended to compensate for all overtime?  Is that what you say?

MR HALL:   Your Honour, in part.  Could I put it in this way, and I was about to come to the point?  The Full Court has proceeded upon the basis that there were, in fact, two components which the over‑award payments, the salary payments, could be referrable to and one was the overtime, which the parties had agreed upon, and the second was the performance of what might be called extra‑award duties.  This man essentially worked most of his time as an electrical mechanic, electrical repair work, but he did do the additional duties that are identified at 136, that is to say the responsibilities there of some administrative work, sales work and so on.  There is four in number identified between lines 20 and 25.

Now, your Honour, what we say in answer to your Honour Justice Callinan is this, that the Full Court incorrectly, with respect, regarded those extra responsibilities as something different from overtime and we say that all of the duties were one and the same, that is to say there are three elements in work value or work in the employment context:  one, the other functions and the duties; the second is the value of the functions and duties; and the third is the time in which it is performed.

Now, if it were the case that the extra‑award duties which accounted for the extra hours in respect of which he said he worked beyond the ordinary working week doing lift mechanics work was work of a different value, so that there would need to be some assessment and evaluation of it to decide how much of the over‑award salary was referrable to it; how much was fairly referrable to overtime.  There was no finding that those additional duties, the administrative work, the sales work, carried an extra value that had to be regarded as a separate matter from the overtime.

The truth in a nutshell is this.  The man was performing by agreement mixed functions.  There is no distinction between the value of one from the other and that they were to be performed, those mixed functions, whether in overtime or in ordinary time.  So that in reality there are not two separate matters, two separate purposes, as the authorities referred to, that form separate components of the salary.  They are two sides of the one coin.  They are not two coins.

GLEESON CJ:   The decision of the Full Court turned at least in part, did it not, upon the proposition that there was no way of knowing what amount you would set off?

MR HALL:   Your Honour, that is so upon that assumption.

GLEESON CJ:   What do you say is the way you would work out the amount to set off?

MR HALL:   Your Honour, we say that you do not even come to that for the reason I have just articulated, that is to say that if the extra duties were of no different value, that is to say there was some additional administrative tasks and so forth that was to be performed in ordinary or overtime, then there is no two separate matters to be valued.  The work has to be done within the same component of hours, be they ordinary or overtime hours.  You do not have to – there is no two separate items to value as in the authorities. 

For example, a travelling allowance is quite different from wages, as a gratuity or a Christmas bonus is different from a severance payment.  They have to be looked at differently.  They each have their own value.  In this particular case the respondent did not seek to establish, nor did, that these extra duties carried some extra value and, therefore, required some extra assessment and that is where we say, with respect, the Full Court has gone wrong.  That is the crossroads.  It went down one road assuming that you have to, if you have got the salary for both, value them separately and you cannot, but we say they are not two separate items.  It is the same work of the same value to be performed within ordinary or overtime hours.

In so far as a different view were taken and that is to say for some reason you have to compartmentalise them, even though all the work is of the same value, but perhaps it might be of lesser value, then it is a question of quantum, not of principle, not, that is, of quantum, not of liability, and it would be a question then for an assessment after the overtime has been worked as to how much overtime was, in fact, performed. 

In salary employment the reality is this.  At the beginning of the calendar year, if a salary agreement is struck, there is no way one can forecast whether the salaried employee will be working overtime each week, every alternate week, once a month and so on, so that you cannot make provision in advance by quantification and that is why we say this agreement creates real problems for industry in which it is said, if you cannot and do not do it, then you pay twice.  You pay under the salary agreement and then you are subject to an award claim.

Now, we say the industrial awards were never intended to operate in that way where there is an agreement.  So that if I could come to the point as to the ramifications of this decision.  There will be salaried situations where there is an agreement and we say this is one of them in which the agreement holds and there is not the risk of double counting or double payment.  There will be those cases where the employer enters into a salary agreement and does not take the time or trouble to specify, “This is for an award obligation” or, in effect, “this is for an award obligation of overtime.”  If they do not do it, they do get stuck with the Poletti v Ecob principle and that is seen to be an operation of principle of fairness, but in cases where the parties do so agree it is the opposite.

GLEESON CJ:   When you say they “so agree”, I am sorry to keep nagging at this point, but the only agreement in the present case was in the form of silence, was it not?  His contract said that he was on call for 24 hours full stop.

MR HALL:   The question of on call was a separate issue in the case, if I could just digress for a moment, and that was, if you like, the main issue that was being brought on behalf of the respondent, that is, “I am on call 24 hours a day.  I have an entitlement to be paid 24 hours a day.”  And the Full Court dismissed that point, but the additional duties which the Full Court said had to be valued were those they have identified in that page at 136:  administrative work, sales work and the like.

So the agreement related to the performance of that work, to doing call out work, if required, and to do ordinary work, servicing lifts and so on, in this country region, and travelling to and from.  So, your Honour, the agreement is reflected again as to what it was that was agreed in Mr Justice Moore’s judgment and that can be found at 22 of the application book or page 11 of the clearer print of that decision that was handed to the Registrar.  At page 22 of the application book at line 10 perhaps going down to 26 is sufficient.  After referring to the affidavit evidence as to the discussions - or perhaps I should go back to 11:

Mr Logan denied being told by either Mr White or Mr Bull that overtime was built into his remuneration.  However at one point in his cross examination Mr Logan agreed that at the time of his appointment he knew there was no payment for overtime and no payments for callouts.  Having made that concession he then sought to resile from it.  However while I am not affirmatively satisfied that he was specifically told those matters by Mr White or Mr Bull, given that the conversations took place over a decade before evidence given about them, I am satisfied that at the time Mr Logan accepted the appointment as local representative he was aware the salary included an amount intended to compensate for all overtime including callouts.

GLEESON CJ:   But that is saying no more than saying he was aware that he was not going to get paid extra for overtime.

MR HALL:   Yes, your Honour, that is so and that the extra award – I am calling it “the extra award”, it is really the salary remuneration ‑ ‑ ‑

GLEESON CJ:   Which is only another way of saying he was aware that he was not going to get paid extra if he was called out at night as compared with if he was called out at day.

MR HALL:   Indeed, and that he was going to accept this higher level of remuneration as salary as compensation for doing just that, so that, your Honour, the understanding was built on those discussions, but it was not, of course, just a one‑off situation.  The contract was renewed from year to year to year through the 1980s through to about 1994 or 1995 when they were terminated.  The payments were made year after year allocated on that contractual basis, not otherwise.

GLEESON CJ:   I am just looking at Poletti.  Where do we find the statement of principle?

MR HALL:   It is behind guide card 3 of the booklet.

GLEESON CJ:   Yes.

MR HALL:   And the relevant – the judiciary noted that the two aspects in that case were there were some what might be called gratuitous benefits such as accommodation and the like and that was clearly not referrable to an award entitlement.

GLEESON CJ:   But where do we find the statement of principle in Poletti?

MR HALL:   The statement of principle commences at 329 dealing with the payment of cash payments and the foot of the page:

The next question concerned the manner in which amounts which had been paid in cash to Mr Hunt should be credited to the various obligations under the award.  The appellant’s case was that he was entitled to aggregate all of the amounts due under the award and set against the total all of the amounts actually paid.

His Honour then sets out on that page and the next the principles and the way they developed through the case, the case of Ray v Radano being the forerunner and, in particular, the dissenting judgment of Mr Justice Sheldon, which has now gained acceptance by the Industrial Courts.  Set out at length – and I do not think I need take the Court through all of the important dicta quoted but at 332 their Honours then come to apply the principles at the foot of page, page 332, where they say:

It is to be noted that there are separate situations dealt with in the passage from the judgment of Sheldon J which has been quoted and in the reasoning of the Commission in Pacific Publications.  The first situation is that in which the parties to a contract of employment have agreed that a sum or sums of money will be paid and received for specific purposes, over and above or extraneous to award entitlements –

and interrupting myself, we say the opposite is the case here –

In that situation, the contract between the parties prevents the employer afterwards claiming that the payments made pursuant to the contractual obligation can be relied on in satisfaction of award entitlements arising outside the agreed purpose of the payments.  The second situation is that in which there are outstanding award entitlements, and a sum of money is paid by the employer to the employee.  If that sum is designated by the employer as being for a purpose other than the satisfaction of the award entitlements, the employer cannot afterwards claim to have satisfied the award

entitlements by means of the payment.  The former situation is a question of contract.  The latter situation is an application of the common law rules governing payments by a debtor to a creditor.  In the absence of a contractual obligation to pay and apply moneys to a particular ‑ ‑ ‑

GLEESON CJ:   That prompted my earlier remark.  This does not purport to be some kind of special principle of industrial law.  This all involved the application of principles of common law relating to contract and relating to allocation by a debtor of payments made to a creditor.

MR HALL:   With respect, fundamentally, yes, we get back to those principles and from those principles they have been enshrined and developed in the industrial jurisprudence.  I see the light and, therefore, if I could just complete by saying that, in our respectful submission, the effect would be to create a position of, in effect, unjust enrichment and industrial awards in their application were never intended for that purpose and the cases of Poletti and that kind recognise and give effect to a proper and just application of that principle.  If it please the Court.

GLEESON CJ:   Yes, Mr Haylen.

MR HAYLEN:   If the Court please, this case raises no question of principle at all.  It is involved solely in the application of the principles found in Poletti v Ecob and the argument is, “What is the proper construction of the contract?”  That is what it came down to before the Full Court.  There is and there was an argument about what was the contract.  Mr Logan had said as far as he can recall it is a totally oral presentation to him when he was offered a salaried position, so, “I do not remember anybody telling me about I would not be paid for overtime but I was to be salaried and I was to do a range of other duties beyond that of an electrician special grade, which was my previous position.”  Their Honours in page 136 of the application book at about line 25 found those duties, the additional responsibilities, to be significant.  They describe them very briefly this way:

They included administrative work and sales activities and ensuring an emergency serve 24 hours per day, 365 days per year, either by making himself available for call‑out or arranging for a local electrical contract to be available.  Mr Logan was the local “face” of Otis with important public relations responsibilities.

CALLINAN J:   Mr Haylen, they were not identical either, were they, with the overtime that might be involved in a call‑out?

MR HAYLEN:   No, and a point I should make immediately, the submission that is now made here on this application for special leave that it is all the same work, that is overtime work, was never put forward on the appeal to the Full Court, nor was it the case that it was run below before Justice Moore.  It is a totally new characterisation of the contract and how it was to be performed and the principles that this Court has identified in Coulton v Holcombe and the University of Wollongong v Metwally where you are confined to the argument you ran below would apply.  This is not available any more.

The whole case went forward on the basis that the applicant for special leave said to the Court, firstly, “We did not think the award applied at all.  It was a salaried position outside the award.”  Now, that was a debate that we had before the Full Court and the Full Court found it unnecessary to deal with it.

CALLINAN J:   There were three components:  administrative work, actually attending call‑outs himself, which might not or might involve overtime, and sales activities; is that right?

MR HAYLEN:   And a certain amount, as the Full Court put it, of public relations‑type duties, keeping in touch with the local customers and being the local face of the company in the regional area and the evidence below was that there was a very short conversation, a contract was offered on the basis that, “You would be given a salaried position.  You will not be paid overtime.  That is what a salaried position.”  That was – I will not read it to you, but it is Mr White’s evidence.  It is found at page 166 of the application book.

The significance of that is this.  If this matter comes to the Full Court there are real questions as to the content of the contract.  It cannot be said that there are no factual issues.  The second question then becomes simply whether it is an application of the principles of contract and debtor and creditor set out in Poletti and adopted by the Full Court in that case and by the Full Court in this case.  It is the application of those principles and those principles require nothing more than this.  If you are going to ‑ where there is an award applicable and you want to be pay an amount over and above the award, you have got to specify by reference to – and this is the words used in Ray v Radano and in Poletti v Ecob – by reference to the award obligation.

If the employer here wanted to say, “We have built a salary based upon the award minimum rate and our assessment that you would not be likely to do more than $400 worth of overtime or call‑outs a year and that is identified in the amount of money we are paying you as salary, a lump sum amount of money per annum.”  And the cases simply say when you do that and a claim is made on the award and not the contract that says, “You really owed me $300 or $500 worth of overtime; that is what I actually did,” they can set off the $400, but the cases also say, “If you do not take that step to specify what the component part is, you cannot set it off.”

The two component parts here alleged was something that was said to be compensation for overtime, when, in fact, it was simply offered on the basis, “You will not get paid overtime,” there never was any allocation of a sum and in Ecob and in the case before the New South Wales Commissioner, the Pacific Publications Case, they talk about you take the risk as an employer if you do that, you pay a lump sum beyond the award.  Now, that is what this case gets down to.  It is the construction of a contract, what its elements were and the application of the two cases.

Could I just draw your attention briefly to the case of Pacific Publications.  This is behind tab 2 of the applicant’s book of authorities.  In both this case – this is the case that accepted Justice Sheldon’s minority judgment of 1967 and it has been followed since in New South Wales and what ultimately was applied by the Federal Court in Poletti v Ecob.  In both of these cases there was the same type of submission, not in terms of unjust enrichment ‑ that is perhaps the more modern way of describing it – but of double counting, “We have already paid you an amount of money in the lump sum that is over and above the award as part of your salary and if you do not now let us set that off, you are not allowing us to give effect to our bargain.”

And the Court here says, “But what was your bargain?  We look at the contract and how can we work out how much of it was allocated to overtime and how much to the significant other duties?”  And in the end they simply had to say this – and the question was asked much as your Honour the Chief Justice asked my learned friend a while ago, “How do you do it?”  And one of the answers was this:  you look at the record – you can do it two ways.  You look at a period of call‑outs and set a figure as a type of average and say, “That is the figure that was in the lump sum.”  Or you can actually go to what was done in a year, tote it up on the minimum rate and say, “That is how much was in the salary for overtime.”

GLEESON CJ:   But the salary was fixed at a time when nobody knew how much overtime he would work.

MR HAYLEN:   Exactly, yes, and the court just said, “But you cannot do that.”  And they said, “But how much then is allocated for the additional duties?”  And they said, “Well, what is left over between what was actually done for overtime and what was the gross figure.”

GLEESON CJ:   As I understand it here there was some kind of a discretion in the employee if there was a call‑out after hours either to go out himself or to get some other independent contractor to go out.

MR HAYLEN:   That is so, your Honour.

GLEESON CJ:   And who would pay the independent contractor?

MR HAYLEN:   Well, the company had to pay the independent contractor.

GLEESON CJ:   It did not come out of his salary?

MR HAYLEN:   It did not come out of his salary.  There was no allegation of an agreement of that nature.  Could I just ask you to look at – I am sorry, I started out asking you to look at Pacific Publications under tab 2.  It is the bottom of page 419.  The first point I wanted to make was in Pacific Publications and in Poletti v Ecob they both make this type of submission that is made here:  there is a double‑counting feature and you are not giving effect to the bargain.  About a dozen lines from the bottom of the page – this is the Commission in court session in New South Wales there is a long passage set out from Justice Sheldon’s dissenting judgment in Ray v Radano and it starts off this way:

I regard it as a departure from the provisions of s 92 and, indeed, a contradiction in terms if an amount ($20 in the illustration) promised and paid as an excess over one part of the award entitlement can be used as if it had been a payment in fulfilment of another part of the award obligation.  This involves re‑allocating an amount promised to, and earned by the complainant, in respect of subject A (40 hours work) to meet a claim in respect of subject B (5 hours overtime).  This would be striking a false balance, not a true one, under s 92, because it is not a balance between the ‘price or rate’ fixed by the award and payment made in respect thereto.  It also involves, as I see it, a repudiation of the contract in order to reduce the balance due under the award.  So, in essence, my view is that because s 92 restricts what can be claimed to the award obligation, set‑offs must also be restricted to payments which are referable, expressly or by implication, to the award obligation.

CALLINAN J:   But the principle is in the last sentence, is it not, and you would say that this case is no more than an application of that?

MR HAYLEN:   And that is the point where we say that – it goes to the Full Court and the court becomes involved in that task.

CALLINAN J:   So long as that principle is always applied, as it was in this case, no problem arises.

MR HAYLEN:   No, and as for the idea that there is some general issue – there is certainly no conflict between the various federal and State tribunals about the relevant principles.  Ray v Radano was a case in 1967.  There have been about five reported cases in the period since all going one way.  So the issue of principle is not in doubt.  The application from time to time may yield different results.  That will be because the contract has a different element in it.

The second issue that it has some general application:  you would expect to find some difficulty reported in the cases.  You do not find that.  The general importance of the question is then elevated by saying there are many people on salaries who will be faced with this difficulty.  Well, Ray v Radano and Poletti v Ecob simply say if you are going to offset or want a certain amount of award entitlement to be recognised in the contract identify it with specificity and say how much and identify the award obligation otherwise you run the risk that you will not be able to set it off and that is the clear principle.  That is what employers have been doing for many, many years apparently without difficulty.

To the extent that this is said to be a general problem, I do not even think it is a general problem in the local courts before the Chief Industrial Magistrate where a lot of the enforcement of the awards takes place.  Basically for those reasons we say the case does not raise any issue of principle.  It is a case about the contract and no more than the contract and it is not a suitable vehicle.  If your Honours please.

GLEESON CJ:   Thank you.  Yes, Mr Hall.

MR HALL:   Your Honour, very briefly just a couple of points.  Firstly, there has been no cases of this kind before because there has never been a principle like this established until this one.  Secondly, so far as reliance upon Mr Justice Sheldon’s dicta there, he was addressing situations where there was no contract in favour of the proposition of allocating particular monetary entitlements towards an award entitlement.  He refers to the opposite, agreements where money is paid extraneous to the award entitlement.

Thirdly, there seems to be some issue as to whether or not the characterisation of the evidence has changed.  We would submit not.  As we understand it, the evidence was that the overtime such as the extra duties or additional duties, as the term is used, was either done in ordinary time or overtime, in other words both.  May it please the Court.

GLEESON CJ:   Thank you, Mr Hall.

The decision of the Full Court of the Federal Court in this matter turned upon the application of well-settled principles of common law to the facts and circumstances of this particular case.  The Court is of the view that the application for special leave to appeal should be refused.

Can you resist an order for costs?

MR HALL:   No, your Honour.

GLEESON CJ:   The applicant must pay the respondent’s costs of the application.

AT 11.07 AM THE MATTER WAS CONCLUDED