Paul Hogan v Jetstar Airways Pty Ltd

[2019] FWC 6061

[2019] FWC 6061

FAIR WORK COMMISSION

DECISION

Fair Work Act 2009
s.739—Dispute resolution

Paul Hogan
v
Jetstar Airways Pty Ltd
(C2019/950)

DEPUTY PRESIDENT COLMAN MELBOURNE, 5 SEPTEMBER 2019

Dispute arising under an enterprise agreement – employer’s obligation to provide accident insurance – whether arrangements accord with the agreement

[1] This decision concerns an application made by Mr Paul Hogan under s 739 of the Fair Work Act 2009 (Act) for the Commission to deal with a dispute in accordance with the dispute settlement procedure in clause 8 of the Jetstar Airways Pilots’ Enterprise Agreement 2015 (Agreement). 1 Mr Hogan is an employee of Jetstar Airways Limited (Jetstar) whose employment is covered by the Agreement. He is represented by his union, the Australian Federation of Air Pilots (AFAP).

[2] The dispute concerns the interpretation and application of clause 19.2 of the Agreement which obliges Jetstar to provide accident insurance for a death benefit of at least $500,000 to pilots who are covered by the Agreement. The company provides accident insurance for pilots through a superannuation product. Due to recent changes in the taxation legislation, this practice now has a detrimental tax implication for some pilots and has become contentious. Mr Hogan and the AFAP claim that clause 19.2 does not allow Jetstar to fulfil its obligation to provide accident insurance through a superannuation product without the consent of relevant employees. The company disagrees.

[3] The application was initially listed for conference however the matter remained unresolved. The parties then requested that I express an opinion or make a recommendation to resolve the dispute pursuant to clause 8.5.1 of the Agreement, and that I do so on the papers. They advised that they had privately agreed to be bound prospectively by the opinion or recommendation. I am satisfied that the Agreement authorises me to express an opinion or make a recommendation, and that it is appropriate to do so on the papers.

[4] There was some disagreement between the parties regarding the formulation of the question that should be answered by the Commission. Mr Hogan said that the question to be answered should be the following:

“Does the Jetstar Airways Pilots’ Enterprise Agreement 2015 allow the Respondent to meet the requirements of clause 19.2 (Death Benefit Insurance) via a separate superannuation risk only policy, without the express choice or permission of each employee concerned?”

[5] Jetstar proposed the following alternative question:

“Does clause 19.2 of the Jetstar Airways Pilots’ Enterprise Agreement 2015 require the Respondent to provide each pilot covered by the Agreement with accident insurance for a death benefit of not less than $500,000 over and above any entitlement available under accident compensation legislation outside of a superannuation risk only product.”

[6] The question proposed by Mr Hogan reflects more specifically the circumstances of the present dispute however I propose to answer both questions. As the questions concern the correct interpretation of the Agreement, I consider that it is appropriate that I express my opinion as to the correct answers, rather than make a recommendation.

[7] Before considering the contentions of the parties, it is convenient to set out some relevant factual and legislative background concerning the insurance arrangements that are the subject of the dispute. Since 2007, Jetstar has sought to meet its obligation to provide accident insurance for a death benefit under clause 19.2 of the Agreement and its predecessors by purchasing a group life insurance product within a superannuation scheme, referred to in the company’s submissions as a ‘risk-only superannuation policy’. This means that Jetstar provides accident insurance to pilots through a financial product that falls within the superannuation regulatory scheme (also called a ‘super product’). Death benefit insurance can also be purchased as part of a financial product that does not fall within the superannuation regulatory scheme, and is therefore regulated by the ordinary taxation and regulatory requirements applying to insurance products (also called a ‘non-super product’).

[8] Super products and non-super products are subject to different taxation arrangements. A payment made to a death benefit dependent beneficiary from a super product is tax-free, whereas a payment made from a non-super product is taxable at the beneficiary’s marginal rate. In this sense, a super product is more advantageous to the insured than a non-super product. However, in another sense, super products are less favourable from a taxation perspective, because insurance premiums, such as those paid by Jetstar under its super product, count towards a person’s ‘concessional contributions cap’.

[9] Broadly speaking, the concession contributions cap works in the following way. A person may salary sacrifice earnings to superannuation. Such contributions attract concessional tax treatment (15% rather than marginal rates). However, this concessional tax treatment only applies to a limited (capped) amount of superannuation contributions per annum. The cap was recently reduced from $30,000 to $25,000 per annum. There are now more pilots covered by the Agreement whose superannuation contributions exceed the cap and therefore attract higher taxation treatment. This has brought into sharp focus the fact that the insurance premiums paid by Jetstar for employees’ accident insurance count towards the cap. Importantly, insurance premiums associated with non-super products would not count towards the concessional contributions cap.

[10] The dispute turns on the correct interpretation of the Agreement, and in particular clause 19.2, which provides as follows:

“19.2 Death Benefit Insurance

19.2.1. The Company will provide each pilot with accident insurance for a death benefit of not less than $500,000 over and above any entitlement available under accident compensation legislation.”

[11] Plainly this clause obliges Jetstar to provide pilots with accident insurance for a death benefit of at least $500,000. However the parties differ as to whether Jetstar may meet this obligation through a superannuation product without an employee’s agreement.

[12] Mr Hogan submits that there is no provision in the Agreement allowing Jetstar to meet its obligation under clause 19.2 through a superannuation product. He says that Jetstar’s interpretation of clause 19.2 seeks to imply a term into the provision granting it the ‘unilateral option’ of meeting its insurance obligation in this way.

[13] Mr Hogan contrasts clause 19.2 of the Agreement with clause 22.11(c) of the Air Pilots Award 2010 (Award), which states that “a pilot’s entitlement under a superannuation scheme provided by their employer to a death benefit of not less than an amount prescribed by clause 22.11(a) will satisfy the objective of this clause.” Mr Hogan argues that clause 22.11(a) of the Award imposes on employers an obligation equivalent to clause 19.2 of the Agreement, and the framers of the Award evidently considered it necessary to include an express provision in order to allow employers to provide insurance through superannuation schemes. Mr Hogan says that, without such an express provision, employers would not have been able to meet their award insurance obligations through a superannuation scheme, and that because clause 19.2 of the Agreement does not contain a provision akin to clause 22.11(c) of the Award, the Agreement does not allow Jetstar to provide insurance through a super product.

[14] Mr Hogan also contends that his interpretation of clause 19.2 is consistent with and supported by clause 37.2 of the Agreement, which states that “the superannuation fund to which contributions will be made in respect of a pilot will be the fund chosen by that pilot consistent with the choice of fund regime.” He says that the insurance premiums paid by the company are superannuation contributions for the purposes of clause 37.2, and therefore must be the subject of employee choice. Mr Hogan says that clause 37 does not distinguish between ‘different types of superannuation’, such as ‘risk only products’ and ‘employer superannuation contributions’, and that the clause should be read broadly as applying to ‘superannuation’ generally. He says that the company has acknowledged as much in correspondence with the AFAP (the company disagrees).

[15] Mr Hogan also points out that some enterprise agreements of other companies incorporate an express provision similar to clause 22.11(c) of the Award allowing insurance to be provided through superannuation schemes, and others do not. He says that the Virgin Australia Narrow Body Aircraft Pilots’ Enterprise Agreement 2018, like Jetstar’s Agreement, does not contain such a provision, and that Virgin meets its insurance obligation through a non-superannuation group insurance policy.

[16] Jetstar contends that clause 19.2 of the Agreement simply has nothing to say about how it can meet its obligation to provide accident insurance for a death benefit under the clause, and that the matter is left to its discretion. It contends that it is Mr Hogan who seeks to read into the clause words of limitation that simply do not exist.

[17] The company submits that clause 37 of the Agreement is of no interpretative assistance in this matter, as it deals with statutory employer superannuation contributions, not insurance policies provided through superannuation products. The company says that there is nothing in the text of clause 37 that suggests it has anything to do with accident insurance generally or the way the company meets its obligations under clause 19.2 in particular.

[18] Jetstar further contends that clause 22.11 of the Award is irrelevant to the proper construction of the Agreement. It also submits that the Commission should have no regard to the enterprise agreements or practices of other business, as these cannot possibly have any relevance for the interpretation of the Agreement.

Consideration

[19] In my opinion Jetstar’s interpretation of clause 19.2 of the Agreement is correct. The clause does not impose any limitation on the manner in which the company provides accident insurance. There is no textual basis in clause 19, clause 37 or any other clause or clauses in the Agreement that supports a construction that Jetstar cannot satisfy its obligation under clause 19.2 by means of a superannuation product.

[20] I consider that it is Mr Hogan who seeks to imply a term into clause 19.2. The company’s position is that the clause means what it says and nothing more, whereas Mr Hogan seeks to find additional meaning. Moreover, it is a substantial and particularly elaborate additional meaning for which he contends, one which imposes not only a very specific limitation on Jetstar but also an exception to that limitation. Mr Hogan says that what clause 19.2 really means is that Jetstar must provide accident insurance for a death benefit of at least $500,000, provided however that it cannot use a superannuation product to meet its accident insurance obligation under the clause, unless an employee agrees. The plain words of the clause do not say these things, and a contextual reading of the provision does not bear out any such additional meaning.

[21] I do not accept the contention that the presence in the Award, but not the Agreement, of an express provision permitting the provision of accident insurance through a superannuation scheme supports Mr Hogan’s interpretation. Clause 19.2 must be read on its terms, in the context of the entire clause and the Agreement as a whole. It does not say that there is any limitation on the means by which Jetstar can provide the requisite accident insurance. The fact that the Award expressly allows employers to use superannuation schemes to meet their insurance obligations is irrelevant. There is no basis in the text of the Agreement, either in clause 19 or anywhere else, to infer that the proper interpretation of the instrument is to be informed by reference to the provisions of the Award. There is nothing in the Agreement to indicate that clause 19.2 is to be read more narrowly than what its plain words provide for, namely that the company must provide pilots with accident insurance for a death benefit of a particular minimum amount.

[22] It is not necessary to reflect upon why the framers of the Award included a term that expressly allowed employers to satisfy their insurance obligations through superannuation arrangements. However in my view it would be wrong to assume that the clause would otherwise have prohibited the practice. Perhaps clause 22.11(c) was included for the avoidance of any remote doubt that providing insurance through superannuation products was not otherwise permitted. Perhaps it was to reflect a practice in the industry that is not uncommon. But it does not matter what the Award says. The Agreement must be read on its own terms.

[23] I reject Mr Hogan’s contention that clause 37 of the Agreement supports his interpretation of clause 19.1. Clause 37.1 states that the company must “make monthly superannuation contributions to a complying superannuation fund in respect of each pilot”. Clause 37.2 says, as noted earlier, that the “superannuation fund to which contributions will be made in respect of a pilot will be the fund chosen by that pilot consistent with the choice of fund regime.” Clause 37.3 then provides that if a pilot does not select a fund, the company will make the superannuation contributions to a default fund that offers a ‘MySuper’ product. And clause 37.4 states that the amount of the contributions will be “not less than the amount specified in the superannuation guarantee legislation being the amount required to avoid employers incurring liability for superannuation guarantee charge under the Superannuation Guarantee (Administration) Act 1992.”

[24] Clause 37 is concerned with statutory employer superannuation contributions, not insurance products that the company might purchase for the benefit of employees in satisfaction of its obligation under clause 19.1 of the Agreement. This is already clear from clause 37.1 but confirmed in clause 37.2 which says that the superannuation contributions will be made ‘consistent with the choice of fund regime’. The choice of fund regime does not apply to insurance products. There is nothing in clause 37 that suggests that it applies beyond compulsory employer superannuation contributions to other financial ‘super products’, and in fact the opposite is the case.

[25] Mr Hogan contended that the company had effectively acknowledged that the premiums it pays for the insurance are ‘superannuation contributions’ for the purposes of clause 37. On 19 May 2017, Jetstar sent to pilots a ‘premium calculator’ 2 stating:

“The following calculator provides employees with an estimation of the premium that is paid as an additional employer contribution for their insurance cover held under the Jetstar Group Life policy.

The annual premium represents the additional superannuation contribution that will be made by Jetstar to cover the cost of your insurance cover. This will be noted as a concessional contribution and will count towards the concessional contribution cap imposed by the Government...”

[26] Mr Hogan submitted that Jetstar had recognised that payments relating to compulsory employer contributions of 9.5% as well as ‘risk only superannuation products’ are properly described as ‘superannuation contributions’ and that both such payments should be understood as falling within clause 37.2 of the Agreement.

[27] The company contended that it had sought to provide relevant employees with documentation in order to assist them in considering their taxation circumstances. It said that the insurance premiums count as a contribution for the purpose of the concessional contributions cap simply as a consequence of the taxation law, and that this says nothing about whether they are a ‘contribution’ for the purpose of clause 37 of the Agreement.

[28] In my opinion, the above correspondence simply informs employees of an estimation of the relevant premium and confirms that this is treated at law as additional superannuation and by law counts towards the statutory concessional contributions cap. It notes that the cap is ‘imposed by the Government’. The company was not suggesting to employees that the premiums constituted part of the monthly compulsory superannuation payments with which clause 37 is concerned, or that they were otherwise contemplated by the clause. There is clearly a distinction between the 9.5% compulsory employer superannuation contributions made by Jetstar to the superannuation fund of the pilots’ choosing and the ‘superannuation risk only product’ which the company has purchased for the purposes of meeting its insurance obligation under clause 19.2 of the Agreement. The former, but not the latter, are superannuation contributions within the meaning of clause 37.2.

[29] Mr Hogan’s reliance on clause 37 of the Agreement is therefore misplaced. That provision provides employees with choice of fund for compulsory employer superannuation contributions, as the law requires. Neither clause 37 nor clause 19 provides employees with choice of accident insurance cover.

[30] Mr Hogan says that other companies, such as Virgin, fulfil their obligation to provide accident insurance by means of a separate group insurance policy. Virgin’s enterprise agreement, like that of Jetstar, does not contain an express authorisation for insurance to be purchased through super products. However, what other agreements might say and what Jetstar’s competitors may do are of no relevance to the proper interpretation of clause 19.2 of the Agreement in the present matter.

[31] Mr Hogan also put forward contentions that appeared to address the general merit of the outcome that his interpretation would produce. He said that the apparent motivation of the company to seek to meet the insurance obligation in clause 19.2 with a ‘superannuation risk only product’ was to avoid a fringe benefits tax liability, which would likely arise if it were instead to meet the obligation through what Mr Hogan says is the ‘conventional’ or ‘logical’ approach, namely to purchase a separate group insurance policy not contained in a superannuation product. Mr Hogan says that he and other pilots have received a higher taxation bill because the company has sourced the insurance through a super product, and that the company has effectively shifted the taxation burden of the insurance entitlement to pilots. However my task in this matter is to express an opinion in relation to the questions of interpretation that have been posed by the parties, not to make an assessment of the general merit of Jetstar’s decision about how to comply with clause 19.2 of the Agreement.

[32] I appreciate that the changes to the taxation legislation have meant that the present arrangements carry an adverse tax consequence for some pilots. Jetstar acknowledges this. There are also, as noted earlier, some taxation advantages for employees associated with insurance that is provided through a superannuation product. However this has no bearing on the correct interpretation of clause 19.2 of the Agreement, which is the focus of the questions in respect of which the parties have asked me to express an opinion. Whether it is reasonable or desirable for Jetstar to instead meet its accident insurance obligation through a separate non superannuation group insurance product is not a question I have been asked to consider.

[33] In my opinion, Jetstar is in compliance with its obligations under clause 19.2. If Mr Hogan or the AFAP wishes to change the clause so that it provides for a limitation of the kind for which they have contended in these proceedings, they can seek to do so through bargaining for a new agreement, which is presently underway.

Conclusion

[34] Consequent upon my analysis of the construction of the Agreement set out earlier and its application to the facts of the present dispute, I express the following opinions concerning the answers to the questions posed by the parties:

Question: “Does the Jetstar Airways Pilots’ Enterprise Agreement 2015 allow the Respondent to meet the requirements of clause 19.2 (Death Benefit Insurance) via a separate superannuation risk only policy, without the express choice or permission of each employee concerned?”

Answer: Yes

Question: “Does clause 19.2 of the Jetstar Airways Pilots’ Enterprise Agreement 2015 require the Respondent to provide each pilot covered by the Agreement with accident insurance for a death benefit of not less than $500,000 over and above any entitlement available under accident compensation legislation outside of a superannuation risk only product.”

Answer: No

DEPUTY PRESIDENT

Final written submissions:

Mr Hogan: 10 July 2019

Jetstar: 31 July 2019

Mr Hogan (in reply): 8 August 2019

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 1   AE413585

 2   Attachment C to the Form F10 Application