Smith v Quasar Constructions Pty Ltd
[2015] FCCA 557
•28 August 2015
FEDERAL CIRCUIT COURT OF AUSTRALIA
| SMITH v QUASAR CONSTRUCTIONS PTY LTD & ANOR | [2015] FCCA 557 |
| Catchwords: INDUSTRIAL LAW – Termination – non payment for accrued leave – purported surrender of leave entitlements – statutory entitlements cannot be contracted out – accuracy of leave records – estoppel – failure to keep proper records after purported surrender of entitlements. |
| Legislation: Annual Holidays Act 1944 (NSW), ss.2, 3, 4, 4B, 9 Annual Holidays Amendment Act 1997 (NSW) Evidence Act 1995 (Cth), s.140(1) Fair Work Act 2009 (Cth), ss.14, 16, 22, 44, 61, 87, 88, 90, 91, 324, 535, 545, 546, 547, 550 Fair Work Regulations 2009 (Cth) |
| Australian Timber Workers Union v Monaro Sawmills Pty Ltd [1980] FCA 43; (1980) 42 FLR 369 Metropolitan Health Service Board v Australian Nursing Federation (2000) 99 FCR 95; [2000] FCA 784 Transport Workers' Union of Australia v Coles Supermarkets Australia Pty Ltd [2014] FCCA 4 |
| Applicant: | LUKE SMITH |
| First Respondent: | QUASAR CONSTRUCTIONS PTY LTD |
| Second Respondent: | JAMES CRAWFORD |
| File Number: | SYG 2868 of 2013 |
| Judgment of: | Judge Driver |
| Hearing dates: | 17 February, 12 March, 29 April 2015 |
| Delivered at: | Sydney |
| Delivered on: | 28 August 2015 |
REPRESENTATION
| Solicitors for the Applicant: | Mr A Barwick of Hugh & Associates Lawyers |
| Counsel for the Respondents: | Mr Moir |
| Solicitors for the Respondents: | Vincent Young Lawyers |
ORDERS
The Court declares that the First Respondent contravened s.44 of the Fair Work Act 2009 (Cth) (Fair Work Act) by failing to pay to the Applicant annual leave in accordance with s.90(2) of the Fair Work Act upon termination of the Applicant’s employment.
The Court declares that the Second Respondent was involved in the contravention of the First Respondent in relation to the contravention in order 1 above and pursuant to s.550 of the Fair Work Act is thereby taken to have contravened s.44 of the Fair Work Act.
The Court declares that the first respondent contravened s.535 of the Fair Work Act by failing to keep proper leave records after October 2009 and that the second respondent was involved in that contravention as managing director.
The parties are to bring in short minutes of order within 14 days concerning the payment due to Mr Smith based on the Court’s findings as to his leave entitlements at the time of termination, together with any necessary explanation of those proposed orders.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 2868 of 2013
| LUKE SMITH |
Applicant
And
| QUASAR CONSTRUCTIONS PTY LTD |
First Respondent
| JAMES CRAWFORD |
Second Respondent
REASONS FOR JUDGMENT
Introduction and background
Several decades ago the applicant (Mr Smith) established a construction business in Sydney. Mr Smith engaged the services of the second respondent (Mr Crawford). In 1997 he became an equal partner in the business with Mr Smith. During the 1990s Mr Smith and Mr Crawford used several corporate vehicles (including the first respondent, Quasar Constructions) to conduct the business. Mr Smith and Mr Crawford were at various times either employees or independent contractors. Their spouses were also involved at a time when separate corporate vehicles provided the services of Mr Smith and Mr Crawford to the business pursuant to contracts for services.
During the period from 1 July 2001 to 30 June 2006, Mr Smith and Mr Crawford were employed by a different entity, Quasar Constructions (NSW) Pty Ltd (Quasar NSW). Due to a restructuring, Mr Smith’s and Mr Crawford’s employment was transferred from Quasar NSW to Quasar Constructions on 1 July 2006. Although prior service before 2001 was originally an issue, it is no longer necessary to determine whether there was a transfer of employment before 1 July 2001. At the time of the restructuring in 2006, Quasar Constructions recognised the prior service of Mr Smith and Mr Crawford with Quasar NSW from 2001 for the purposes of accruing annual leave and other leave entitlements.
There was a degree of artificiality in the employment arrangements entered into at various times because Mr Smith and Mr Crawford at all times up to 2012 jointly ran the business. They were the directors of both Quasar Constructions and Quasar NSW. The employment of Mr Smith and Mr Crawford was not regulated by any award or enterprise agreement.
In about October 2009, Mr Smith and Mr Crawford entered into separate agreements with Quasar Constructions to forego all of their statutory leave entitlements. This appears to have been done on the basis of advice that it would reduce the liabilities of the business. Also, in 2009 and 2010 Mr Smith encountered personal and health difficulties. He was off work for a significant period. Mr Crawford became the managing director of Quasar Constructions in 2008. He progressively assumed the dominant role in the business. This combination of factors led to friction between Mr Smith and Mr Crawford and conflict over the management and control of the business, and their respective interests in it. Matters came to a head in 2012 when Mr Smith withdrew a sum of money that Mr Crawford alleged he was not entitled to. Mr Crawford terminated the employment of Mr Smith on 29 February 2012. There are unresolved disputes between the men relating to Mr Smith’s financial stake in the business and the withdrawal of funds. Those matters are not the subject of these present proceedings but it is appropriate to point out at the outset, that these proceedings are but a small element of a more broad ranging dispute.
The present proceedings
The present proceedings began with an application purportedly under the Fair Work Act 2009 (Cth) (Fair Work Act) on 20 November 2013.
In the application, Mr Smith asserts that Quasar Constructions contravened s.44 of the Fair Work Act on 29 February 2012 when it failed to pay him an amount for untaken annual leave. Mr Smith further asserts that Mr Crawford was a person involved in the contravention within the meaning of s.550 of the Fair Work Act.
The application of 20 November 2013 stated that Mr Crawford was, among other things:
a)“an Officer and indirect shareholder of the First Respondent;”
b)“a manager of the First Respondent with responsibility for the overall direction and management of the day to day operations of the First Respondent;”
c)“by reason of the matters particularised above … responsible for ensuring that the First Respondent complied with its legal obligations to its employees under the FW Act in relation to payment of annual leave.”
In support of the application, Mr Smith relies on his Affidavit dated 28 October 2013 and his supplementary affidavit dated 20 August 2014.
In the application, Mr Smith seeks the following relief:
1. A declaration that the First Respondent contravened Section 44 of the Fair Work Act 2009 (Cth) (“Act”) by failing to pay to the Applicant annual leave in accordance with Section 90(2) of the Act upon termination of the Applicant’s employment.
2.A declaration that the Second Respondent was involved in the contravention of the First Respondent in relation to the contravention alleged in paragraph (1) above and pursuant to Section 550 of the Act is thereby taken to have contravened Section 44 of the Act.
3. An order pursuant to Section 545(3) of the Act that the First and Second Respondents pay the Applicant the amount of $58,451.47 for untaken annual leave or such other amount as is determined by the Court.
4. An order pursuant to s547(2) of the Act that the First and Second Respondents pay interest on any amount ordered to be paid pursuant to an order made in accordance with paragraph (3) above.
5. An Order that the First Respondent pay a pecuniary penalty in the amount considered appropriate by the Court in relation to any contraventions so found by the Court pursuant to s546(1) of the Act.
6. An order that the Second Respondent pay a pecuniary penalty in the amount considered appropriate by the Court in relation to any contraventions so found by the Court pursuant to s546(1) of the Act.
7. An order pursuant to Section 546(3)(c) of the Act that any pecuniary penalty ordered by the Court to be paid by the First and Second Respondents be paid to the Applicant.
The respondents oppose that relief sought.
The respondents rely on the following evidence:
a)affidavit of James Crawford dated 14 October 2014;
b)affidavit of Greg Ross dated 14 October 2014;
c)affidavit of Ann-Marie Worth dated 13 October 2014;
d)supplementary affidavit of James Crawford dated 10 February 2015; and
e)supplementary affidavit of Ann-Marie Worth dated 10 February 2015.
I also received the following exhibits:
A1Email to Mr Crawford from Polczynski Lawyers, 22.03.2012;
A2Affidavit of Service, 02.09.2014;
A3Payroll report (attachment to affidavit of Ms Worth, 20.03.2014);
R1Diaries x9;
R2Quasar Constructions Employee Information form; and
R3CD and documents produced under subpoena from the Department of Immigration.
Issues for determination
The principal dispute between the parties is whether Mr Smith is owed any payment for annual leave. This involves the following issues:
a)first, at issue is whether Quasar Constructions’ leave records are incorrect and, if so, the extent to which they may be relied on by any of the parties to these proceedings;
b)secondly, there is the question whether the amount of annual leave actually taken by Mr Smith during his employment with Quasar Constructions exceeded the amount accrued to him.
As at the date of termination, Mr Smith’s base rate of pay as defined by s.16 of the Fair Work Act was an amount of $3,173.08 per week.
Upon termination, Quasar Constructions made no payment to Mr Smith that was said to be in satisfaction of an obligation to pay accrued annual leave to him.
By way of letter from his solicitors dated 31 May 2013, Mr Smith made a request to Quasar Constructions to conduct a reconciliation of its annual leave records and make payment of any annual leave owing to him. Quasar Constructions did not respond to this request.
At all times during the relevant period of Mr Smith’s employment, Quasar Constructions was required to keep records in relation to Mr Smith’s annual leave accruals, as follows:
a)in the period from 1 July 2001 to 26 March 2006, pursuant to s.9 of the Annual Holidays Act 1944 (NSW) (Annual Holidays Act);
b)in the period from 27 March 2006 to 30 June 2009, pursuant to s.836 of the Workplace Relations Act 1996 (Cth) (Workplace Relations Act) and Regulation 2.19.12 of the Workplace Relations Regulations 2006 (Workplace Relations Regulations); and,
c)in the period from 1 July 2009 to 29 February 2012, pursuant to s.535 of the Fair Work Act and Regulation 3.36 of the Fair Work Regulations 2009 (Cth) (Regulations).
Mr Smith submits that Quasar Constructions’ records of his annual leave are not complete and have not at all times complied with statutory record-keeping requirements. In particular, in the period subsequent to June 2010, Quasar Constructions allegedly failed to keep a record that set out leave taken by Mr Smith and the balance of his leave from time to time[1].
[1] Affidavit of Luke Smith dated 20 August 2014 at [11]; see also Regulation 3.36 of the Regulations
Quantum of accrued annual leave owing to Mr Smith upon termination
Mr Smith submits that the last accurate annual leave record kept by Quasar Constructions was the Leave Accruals report generated on 24 June 2010[2]. Exhibit LS12 records that as at 24 June 2010 Mr Smith had accrued but untaken annual leave of 473.86 hours, which is 62.35 days[3].
[2] refer to "LS12" to the Affidavit of Luke Smith dated 20 August 2014
[3] The next Leave Accruals report prepared by Quasar Constructions is "LS13" to the Affidavit of Luke Smith dated 20 August 2014 and was stated to be for the period 1 October 2010; it records a leave balance of 0.00 hours in circumstances where Mr Smith claims he had not in fact taken any paid annual leave in the period June 2010 to October 2010
In the period from 25 June 2010 to 29 February 2012, Mr Smith claims that he accrued a further 33.6 days of annual leave pursuant to s.87 of the Fair Work Act.
Mr Smith concedes that he took 10 days of annual leave in the period from 25 June 2010 to 29 February 2012[4].
[4] refer to the Affidavit of Luke Smith dated 20 August 2014 at [15]
Mr Smith submits that as at termination, he had accrued a total of 85.95 days of annual leave (17.19 weeks) in his employment with Quasar Constructions, calculated at his base rate of pay of $3,173.08.
Thus, upon termination of the employment, Quasar Constructions was allegedly liable to pay Mr Smith an amount of $54,545.25 (17.19 x 3,173.08).
Mr Smith seeks orders in accordance with the application filed on 20 November 2013, as well as the further relief sought below.
Since the commencement of the proceedings, Quasar Constructions has adduced evidence which discloses that it engaged in contraventions apart from its failure to pay Mr Smith an amount for untaken annual leave upon the employment ending. In particular, its failure to accrue annual leave and to keep the prescribed records after the Agreement was made. Mr Smith submits that it is therefore appropriate that declarations be made against Quasar Constructions as set out in section B of his submissions:
The Applicant repeats and relies upon his submissions above.
The Applicant submits that the First Respondent contravened section 44 of the Fair Work Act by failing to pay the Applicant an amount of $54,545.25 (or such other sum determined by the Court) for untaken annual leave upon the employment ending as required by the National Employment Standards under section 90(2) of the Fair Work Act.
The Applicant submits that the First Respondent contravened section 44 of the Fair Work Act by failing to progressively accrue annual leave for the Applicant in the period after 24 June 2010 up to 29 February 2012, as required by the National Employment Standards under section 87(2) of the Fair Work Act.
The Applicant submits that the First Respondent contravened section 535(1) of the Fair Work Act, in the period after 24 June 2010 up to 29 February 2012, by failing to make and keep a record containing details of the Applicant's accrual of annual leave, any annual leave taken by the Applicant and the balance of the Applicant's entitlement to that annual leave from time to time, as required by Reg.3.36 of the Fair Work Regulations.
Mr Smith further submits that it is appropriate that declarations be made against Mr Crawford that he was involved in the contraventions of Quasar Constructions. Mr Smith seeks an order pursuant to s.545(2)(b) of the Fair Work Act that Mr Crawford pay compensation for the loss suffered by Mr Smith because of Quasar Constructions’ contraventions. It is said to be appropriate that declarations be made against Mr Crawford to ground such relief, and to meet the public interest in observance of the statutory requirements, having regard to the seriousness of Mr Crawford’s conduct[5].
[5] See Fair Work Ombudsman v Jaycee Trading Pty Ltd & Anor (No.2) FCCA 2128 (12 December 2013), per Judge Emmett at [59]-[63]
Respondents' defences
Following the service of the evidence by the respondents, it became apparent that they wish to raise a number of arguments that inform the question of the quantum, if any, of Mr Smith’s annual leave entitlements owing upon termination.
First, Quasar Constructions relies upon what is described in the affidavit of Mr Crawford made on 14 October 2014 as the “Applicant's extended periods of absence”. Mr Smith counters that he made a claim on income protection insurance during these periods and there is no evidence that he took and was given periods of annual leave.
Secondly, Quasar Constructions relies upon the purported agreement that Mr Smith entered into with Quasar Constructions on or about 22 October 2009 to forego “any current or future statutory entitlement to Annual Leave”[6]. Mr Crawford deposes that the reason for the agreement was to “improve the financial position of the First Respondent”[7].
[6] Affidavit of James Crawford dated 14 October 2014 at [39]
[7] Affidavit of James Crawford dated 14 October 2014 at [40]
Thirdly, Quasar Constructions alleges that for a variety of reasons its own leave records are incorrect[8]. Mr Smith denies that the evidence establishes that Mr Smith took and was given periods of annual leave in the disputed periods.
[8] Affidavit of Greg Ross dated 14 October 2014 at [17]-[25], and [38]-[85]
I have been assisted by oral submissions made by the representatives of the parties at trial and by pre and post hearing submissions prepared by them.
Consideration
Uncontentious matters
The facts, about which there does not seem to be an issue, are as follows.
Quasar Constructions was at all material times a “national system employer” within the meaning of s.14 of the Fair Work Act.
Quasar Constructions was incorporated on 15 June 1995. Mr Smith became a director of Quasar Constructions from this date. Mr Crawford became a director of Quasar Constructions from 1 July 2001. Mr Crawford is presently the managing director of Quasar Constructions. Mr Crawford has held that position since 2008.
Mr Smith was employed by Quasar Constructions from 1 July 2006 until his employment was terminated on 29 February 2012. At all times Mr Smith was a full time employee working a 38 hour week.
During the period from 1 July 2001 to 30 June 2006, Mr Smith was employed by Quasar NSW. Due to a restructuring, Mr Smith’s employment was transferred from Quasar NSW to Quasar Constructions on 1 July 2006. At the time of the restructuring, Quasar Constructions decided to recognise Mr Smith’s prior service with Quasar NSW for the purposes of accruing annual leave and other leave entitlements.
It follows that Mr Smith’s employment with Quasar Constructions included his service with Quasar NSW from 1 July 2001 to 30 June 2006 for the purpose of accruing annual leave entitlements.
At all material times, Mr Smith’s employment was not regulated by any award or enterprise agreement. In other words, Mr Smith was at all times an award-free employee of Quasar Constructions and Quasar NSW.
As at the date of termination (29 February 2012), Mr Smith’s base rate of pay as defined by s.16 of the Fair Work Act was the weekly amount of $3,173.08.
Upon termination, Mr Smith was not paid any amount for untaken annual leave by Quasar Constructions.
Mr Smith ceased to be a director of Quasar Constructions on 22 May 2014.
Legal framework
Mr Smith’s annual leave entitlement was, from time to time, regulated by different legislation.
Mr Smith’s annual leave entitlement was, up until 1 January 2010, governed by the Annual Holidays Act, s.3(1)(b) of which entitles employees to four weeks of annual holiday. Upon termination an employee is entitled to payment in lieu of leave not taken[9].
[9] Annual Holidays Act, s.4
From 1 January 2010, Mr Smith’s annual leave entitlement was governed by s.87 of the National Employment Standards (NES) of the Fair Work Act. However, the “transfer of employment” provisions of the NES did not cover a situation where an employee became employed by a second employer before the commencement of the NES on 1 January 2010[10].
[10] Fair Work Act, s.91(2)
The legislative background to this is as follows.
On 27 March 2006, the Australian Fair Pay and Conditions Standard (AFPCS) of the Workplace Relations Act came into force. Section 232 of the Workplace Relations Act prescribed minimum annual leave entitlements under the AFPCS in relation to employees of a national system employer.
Clause 15E(1) of schedule 8 to the Workplace Relations Act provided:
15E Relationship between preserved State agreements and Australian Fair Pay and Conditions Standard
(1) The Australian Fair Pay and Conditions Standard does not apply to an employee in relation to a matter if the employee’s employment is subject to a preserved State agreement that deals with that matter in relation to the employee.
Clause 34 of schedule 8 to the Workplace Relations Act preserved the Annual Holidays Act as a notional agreement preserving state award (Annual Holidays NAPSA). Clauses 15E(1) and 32 of schedule 8 to the Workplace Relations Act had the effect that, from 27 March 2006, Quasar Constructions was bound to observe the terms of the Annual Holidays NAPSA, rather than s.232 of that Act.
The Annual Holidays NAPSA also became a transitional instrument in force until 1 January 2010 – the so-called Fair Work (safety net) provisions commencement day.
Item 6 of schedule 4 to the Fair Work (Transitional Provisions and Consequential Amendments) Act 2009 (Transitional Act) provides:
6 Accruing entitlements: leave accrued immediately before the FW (safety net provisions) commencement day
(1) This item applies if, immediately before the FW (safety net provisions) commencement day, an employee has an accrued entitlement to an amount of paid annual leave or paid personal/carer’s leave, whether the leave accrued under Part 7 of the WR Act, a transitional instrument or otherwise.
(2) The provisions of the National Employment Standards relating to taking that kind of leave (including rates of pay while taking leave), or cashing-out that kind of leave, apply, as a minimum standard, to the accrued leave as if it had accrued under the National Employment Standards.
Section 87 of the Fair Work Act relevantly provides:
87 Entitlement to annual leave
Amount of leave
(1) For each year of service with his or her employer, an employee is entitled to:
(a) 4 weeks of paid annual leave; ...
Section 90(2) of the Fair Work Act provides:
90 Payment for annual leave
....
(2) If, when the employment of an employee ends, the employee has a period of untaken paid annual leave, the employer must pay the employee the amount that would have been payable to the employee had the employee taken that period of leave.
By virtue of s.61(3), ss.87 and 90 are provisions of the NES. Section 44(1) provides that an employer must not contravene a provision of the NES.
Sub sections 22(5) and (6) of the Fair Work Act deal with the recognition of an employee’s prior service for the purposes of the NES if there is a transfer of employment from one employer to another. The meaning of “transfer of employment” is set out in s.22(7).
Section 91 of the Fair Work Act provides that s.22(5) may or may not apply in certain transfer of employment situations for the purposes of accruing annual leave under the NES.
Item 11 of schedule 4 to the Transitional Act clarifies the intended operation of the transfer of employment provisions of the NES:
11 References to transfers of employment
References to a transfer of employment in:
(a) provisions of the National Employment Standards; and
(b) subsections 22(5) and (6) of the FWAct, as those provisions apply for the purposes of the National Employment Standards; do not cover a situation where the employee became employed by the second employer (within the meaning of subsection 22(7) of the FW Act) at a time before the FW (safety net provisions) commencement day.
Thus, item 11 of schedule 4 clarifies that the transfer of employment provisions under the NES (and the Fair Work Act generally) do not apply in respect of an employee who is purported to become employed by the second employer at a time before 1 January 2010.
In the present case, it is agreed that Mr Smith was employed by a “predecessor employer” in the period from 1 July 2001 to 20 June 2006, at which time his employment transferred to Quasar Constructions.
It follows that this transfer of employment situation is governed by the provisions of the Annual Holidays Act, rather than the transfer of employment provisions under the NES pursuant to the Fair Work Act.
Section 4B of the Annual Holidays Act relevantly provides[11]:
4B Protection of annual holiday entitlements on transfer of business
Part 8 of Chapter 2 of the Industrial Relations Act 1996 applies for the purposes of determining a worker’s entitlements under this Act when the worker is employed by an employer as a result of the transfer of business (within the meaning of that Part) to that employer from another employer on or after the commencement of this section.
[11] Section 4B was inserted into the Annual Holidays Act by the Annual Holidays Amendment Act
1997 (NSW). The date of commencement of s.4B was 1 August 1997: see >
Section 4B of the Annual Holidays Act commenced prior to the transfer of Mr Smith’s employment from a “predecessor employer” to Quasar Constructions on 1 July 2001. Accordingly, in this situation Part 8 of Chapter 2 of the Industrial Relations Act 1996 (NSW) (Industrial Relations Act) applies for the purpose of determining Mr Smith’s entitlements under the Annual Holidays Act.
Relevantly, s.102 of the Industrial Relations Act provides as follows:
102 Continuity of service for determining entitlements
(1) This section applies for the purpose of determining a transferred employee’s entitlements as an employee of the new employer under an industrial instrument or the industrial relations legislation.
(2)For the purpose of determining those entitlements:
(a) the continuity of the employee’s contract of employment is taken not to have been broken by the transfer of business, and
(b) a period of service with the former employer (including service before the commencement of this section) is taken to be a period of service with the new employer.
(3) Service with the former employer includes service that because of this section or a former Act is taken to be service with that employer as a result of a previous transfer of the business.
Section 101 of the Industrial Relations Act defines a “transferred employee” to be a person who becomes an employee of an employer (i.e. “the new employer”) as a result of the transfer of business to that employer from another employer (i.e. “the former employer”).
In addition, s.101 defines a “transfer of business” to mean:
… the transfer, transmission, conveyance, assignment or succession, whether by agreement or by operation of law, of the whole or any part of a business, undertaking or establishment.
It is not disputed that there was the requisite continuity of service concerning the prior service period, and that Mr Smith has established that there has been a “transfer, transmission, conveyance, assignment or succession” of “the whole or any part of a business undertaking or establishment” from a “predecessor employer” from Quasar NSW to Quasar Constructions[12].
[12] Annual Holidays Act, s.4B
Mr Smith’s contentions
Mr Smith identifies the following issues in the proceedings:
a)What was the amount, if any, of untaken paid annual leave Quasar Constructions was required to pay to Mr Smith when his employment ended with the Quasar Constructions?
b)Did Quasar Constructions contravene a civil remedy provision of the Fair Work Act in relation to Mr Smith’s annual leave entitlements, including its record keeping obligations?
c)If the Court is satisfied that Quasar Constructions has contravened a civil remedy provision, was Mr Crawford involved in the contravention by Quasar Constructions?
d)What orders should be made by the Court?
Amount of untaken paid annual leave
The amount of any untaken paid annual leave that was owing to Mr Smith when his employment ended with Quasar Constructions was the central, factual contest between the parties at the hearing.
Period of Mr Smith’s employment
Mr Smith first addressed the question of the relevant period of his employment for the purposes of determining the amount of any untaken paid annual leave.
Mr Smith was employed by Quasar Constructions in the period from 1 July 2006 to the date of termination of his employment, 29 February 2012.
Mr Smith was employed by Quasar NSW in the period from 1 July 2001 to 30 June 2006.
On or around 1 July 2006 Mr Smith’s employment was transferred from Quasar NSW to Quasar Constructions[13].
[13] Affidavit of Greg Ross dated 14 October 2014 at [17]
Mr Smith does not press a submission that he was employed by a former employer in the period from 15 June 1995 to 1 July 2001 and that any such employment transferred from a former employer to Quasar NSW at any time. In consequence, it is agreed that it is not necessary for the Court to consider whether there was a transmission of business or transfer of employment as at 1 July 2001 or to consider the status of Mr Smith’s work relationships with any entity or entities prior to 1 July 2001.
Mr Smith’s relevant period of employment for the purposes of his annual leave accrual is therefore 1 July 2001 to 29 February 2012.
Mr Smith was an employee during the relevant period of employment
Despite the apparent artificiality of the employment relationship, the parties are not in dispute that the nature of the work contract between Mr Smith and Quasar NSW, and later, between Mr Smith and Quasar Constructions, was that of a genuine contract of service.
At the time that Mr Smith became an employee of Quasar NSW, it came about as a result of a considered decision by Mr Crawford following professional advice and in the knowledge that Quasar NSW would assume legal obligations as Mr Smith’s employer[14].
[14] 12 March 2015, Transcript of Proceedings (T), 146-147
Quasar Constructions employed Mr Smith from 1 July 2006 up until the date that it dismissed him on 29 February 2012.
There is no evidence that Mr Smith or Quasar Constructions have at any time sought to assert rights or obligations inconsistent with those that pertain to an employment relationship and a contract of service. There is no evidence that Mr Smith or Quasar Constructions performed the contract in a manner inconsistent with that of a contract of service.
Annual leave accrual with Quasar NSW
As the critical factual dispute concerns the amount of any untaken paid annual leave owing to Mr Smith, it is appropriate to start with an examination of the evidence relating to Mr Smith’s annual leave accrual from his employment with Quasar NSW.
Quasar Constructions’ evidence is that as at 29 June 2006 Mr Smith had an annual leave accrual from his employment with Quasar NSW of 630.15 hours (Quasar NSW closing balance)[15].
[15] Affidavit of Greg Ross dated 14 October 2014 at [17]
Mr Smith’s key submission in relation to the Quasar NSW closing balance is that it should be accepted by the Court as a correct record of the amount of Mr Smith’s accrued entitlement to annual leave with Quasar NSW as at 29 June 2006.
Mr Smith’s rights to accrue annual leave during his employment with Quasar NSW straddled two pieces of legislation.
As noted above, during the period 1 July 2001 to 26 March 2006, the Annual Holidays Act applied as the statutory source of law for the parties' rights and obligations in relation to annual holidays.
Section 3(1)(b) of the Annual Holidays Act defines a worker's entitlement to an annual holiday as follows:
(1)Except as otherwise provided in this Act, every worker shall at the end of each year of the worker’s employment by an employer become entitled to an annual holiday on ordinary pay.
Such annual holiday shall:(a) …,
(b) where any such year of employment ends after 30 November 1974, be of four weeks.
Under the Annual Holidays Act, Mr Smith accrued four weeks of annual holidays per annum in the period of his employment with Quasar NSW from 1 July 2001 to 26 March 2006, which is approximately 18.96 weeks of annual leave (4.74 years x 4 weeks = 18.96).
Section 2 of the Annual Holidays Act defines a “week”, in relation to any worker, to mean the worker's ordinary working week.
Section 3(2) of the Annual Holidays Act provides for the periods in which an annual holiday shall be given and taken:
An annual holiday shall be given and taken either in one consecutive period or two periods which shall be of three weeks and one week respectively, or if the worker and the employer so agree, in either two, three or four separate periods and not otherwise.
Section 3(6)(a) of the Annual Holidays Act provides for the period of notice an employer must give a worker to take an annual holiday:
The employer shall give each worker at least one month’s notice of the date from which the worker’s annual holiday shall be taken.
On 27 March 2006 the Workplace Relations Amendment (Work Choices) Act 2005 (Cth) (Work Choices Act) commenced operation. The Annual Holidays Act ceased to have legislative force on that date as an Act of the NSW Parliament for persons whose employment became subject to the Workplace Relations Act (now repealed).
In the period of his employment with Quasar NSW from 27 March 2006 to 30 June 2006, Mr Smith accrued annual leave as a minimum entitlement under the Australian Fair Pay and Conditions Standard, Division 4, Part 7, Workplace Relations Act. Section 232(2) of the Workplace Relations Act sets out the guarantee of annual leave as follows:
An employee is entitled to accrue an amount of paid annual leave, for each completed 4 week period of continuous service with an employer, of 1 / 13 of the number of nominal hours worked by the employee for the employer during that 4 week period.
(emphasis added)
Sub sections 229(1)-(2) of the Workplace Relations Act defined the meaning of “nominal hours worked” as follows:
(1) For the purposes of this Division, if an employee is employed by an employer to work a specified number of hours per week, the number of nominal hours worked, by the employee for the employer during a week, is to be worked out as follows:
(a) start with:
(i) the specified number of hours; or
(ii) if the specified number of hours is more than 38 hours--38 hours;
(b) deduct all of the following:
(i) the number of hours (if any) in the week when the employee is absent from his or her work for the employer on leave which does not count as service;
(ii) the number of hours (if any) in the week (other than hours mentioned in subparagraph (i)) in relation to which the employer is prohibited by section 507 from making a payment to the employee.
(2) If an employee is employed on a full‑time basis, but the terms and conditions of the employee's employment do not determine the number of hours in a week that is to constitute employment on a full‑time basis for the employee, the employee is, for the purpose of subsection (1), taken to be employed to work 38 hours per week.
Quasar Constructions adduced evidence and sought to cross-examine Mr Smith to the effect that the terms and conditions of his employment with Quasar NSW were in writing and were comprised by or reflected in an Employment Letter/Contract dated 1 July 2001[16].
[16] Affidavit of James Crawford dated 14 October 2014 at [21] and Tab 8; Affidavit of Ann-Marie
Clause 5.1 of the Employment Letter/Contract specified Mr Smith’s working hours as follows[17]:
The working hours commence at 7.00am and finish at 5:30pm (“Business Hours”), with half an hour for lunch break, and is based on a 6 day working week.
[17] Affidavit of James Crawford dated 14 October 2014, Tab 8, page 36
On Quasar Constructions’ case, the total ordinary hours specified by clause 5.1 of the Employment Letter/Contract would therefore be 60 hours per week (10 hours per day x 6 days = 60).
If Mr Smith’s terms and conditions of his employment with Quasar NSW were set by the Employment Letter/Contract, then:
a)in the period 1 July 2001 to 26 March 2006, Mr Smith’s ordinary working week, for the purposes of the Annual Holidays Act[18], consisted of 60 hours per week; and
b)In the period 27 March 2006 to 30 June 2006 (a period of slightly more than 12 weeks, but say 12 weeks), Mr Smith’s nominal hours worked during a week for the purposes of Division 4 of the Workplace Relations Act was 38 hours per week[19].
[18] Annual Holidays Act, s.2
[19] Workplace Relations Act, s.229(1)(a)(ii)
In the period 27 March 2006 to 30 June 2006, Mr Smith worked 456 nominal hours (12 weeks x 38 = 456), and accrued an annual leave entitlement of 1/13 of those hours, which is 35 hours (0.92 weeks).
Since the Quasar NSW closing balance of annual leave accrual at 29 June 2006 was 630.15 hours, an amount of 595.15 hours can be attributed to the period 1 July 2001 to 26 March 2006 (630.15 – 35 = 595.15).
If a "week" for the purposes of the Annual Holidays Act is calculated as 60 hours, then the number of weeks that Mr Smith had owing to him as untaken annual leave as at 26 March 2006 was 9.92 weeks (595.15 ÷ 60 = 9.92).
Quasar Constructions has alleged that Mr Smith "was entitled to accrue 759 hours and 35 minutes of annual leave" between the period 1 July 2001 and 29 June 2006[20]. This is really a submission of law which is evidently premised upon an assumption that Mr Smith’s ordinary working week for the purpose of defining a "week" under the Annual Holidays Act was 38 hours per week; however, this is otherwise unsupported by the evidence and contradicted by the case Quasar Constructions puts in relation to the application of the Employment Letter/Contract which specified Mr Smith’s working hours in a "working week"[21].
[20] Affidavit of Greg Ross dated 14 October 2014 at [19a]
[21] The parties agree that Mr Smith was award-free in his employment. In consequence, his maximum ordinary hours of work were not set by an industrial instrument, and prior to the AFPCS, were not set by statute
Mr Smith asserts that the correct accrual, calculated in hours, for the period 1 July 2001 to 26 March 2006, based upon Mr Smith’s working hours under the Employment Letter/Contract, was 18.96 weeks x 60 = 1,137.6 hours.
In either event, the Quasar NSW closing balance is an amount less than the maximum amount of annual leave that Mr Smith could have conceivably accrued at law in the period of his employment with Quasar NSW. It gives rise to an inference that Mr Smith took a period or periods of authorised annual leave during his employment with Quasar NSW that were recorded by Quasar NSW and that served to reduce his annual leave accrual as reflected in the Quasar closing balance.
Quasar Constructions seeks in the proceedings to impugn the veracity of the Quasar NSW closing balance[22]. It does so, not on the basis that it wrongly calculated or inflated the rate of accrual, but rather, on the basis that it failed to reduce the accrual from time to time to reflect periods of annual leave that it alleges Mr Smith took. I return to this issue in detail below.
[22] Affidavit of Greg Ross dated 14 October 2014 at [17]-[25]
Annual leave accrual with Quasar Constructions
The Quasar NSW closing balance was transferred to Quasar Constructions on or about 26 June 2006 and became the opening balance for Quasar Constructions’ annual leave records in relation to Mr Smith[23].
[23] Ibid, at [17] and [21]
Mr Smith’s rights to accrue annual leave during his employment with Quasar Constructions also as mentioned above straddled two pieces of Commonwealth legislation, namely the Workplace Relations Act (relevant provisions addressed above) and the Fair Work Act.
The Workplace Relations Act was repealed as and from 1 July 2009[24]. However, the Transitional Act prescribed that Division 4, Part 7 of the Workplace Relations Act[25] continued to apply for a bridging period from 1 July 2009 to 31 December 2009, following which the NES commenced to apply[26].
[24] Transitional Act, s.2(1), Schedule 1
[25] Refer to ibid, Schedule 4, item 2
[26] Ibid, s.2(1)
Part 2-2, Division 6 of the Fair Work Act comprises the NES relating to minimum standards for annual leave.
Section 87(1)(a) of the Fair Work Act prescribes the amount of annual leave to which an employee is entitled:
For each year of service with his or her employer, an employee is entitled to:
(a) 4 weeks of paid annual leave; …
Section 87(2) of the Fair Work Act prescribes the accrual of leave by an employee:
(2) An employee's entitlement to paid annual leave accrues progressively during a year of service according to the employee's ordinary hours of work, and accumulates from year to year.
Section 88 of the Fair Work Act prescribes the taking of annual leave by an employee:
(1) Paid annual leave may be taken for a period agreed between an employee and his or her employer.
(2) The employer must not unreasonably refuse to agree to a request by the employee to take paid annual leave
Section 90 of the Fair Work Act prescribes the payment of annual leave:
(1) If, in accordance with this Division, an employee takes a period of paid annual leave, the employer must pay the employee at the employee's base rate of pay for the employee's ordinary hours of work in the period.
(2) If, when the employment of an employee ends, the employee has a period of untaken paid annual leave, the employer must pay the employee the amount that would have been payable to the employee had the employee taken that period of leave.
Section 16 of the Fair Work Act defines base rate of pay as follows:
(1) The base rate of pay of a national system employee is the rate of pay payable to the employee for his or her ordinary hours of work, but not including any of the following:
(a) incentive-based payments and bonuses;
(b) loadings;
(c) monetary allowances;
(d) overtime or penalty rates;
(e) any other separately identifiable amounts.
The evidence discloses that Quasar Constructions kept annual leave records that recorded Mr Smith’s annual leave accrual up until at least 22 October 2009, at around which time Mr Smith signed a document titled "Members Consent" (sic) whereby he purportedly agreed to forego all current and future statutory entitlements to annual leave (Agreement)[27]. The respondents conceded at hearing that the Agreement is void.
[27] Affidavit of James Crawford dated 14 October 2014 at [39] and Tab 12
Following the making of the Agreement, the evidence of Quasar Constructions is that it ceased to keep annual leave records in relation to Mr Smith[28]. Notwithstanding that evidence, the uncontested evidence is that Quasar Constructions issued a Board Report in May 2010 containing a Leave Accruals record that showed Mr Smith had total hours of accrued annual leave of 473.86 hours as at 24 June 2010 (24 June 2010 Leave Accruals record)[29] (473.86 hours is equivalent to 62.35 days (473.86 ÷ 7.6 hours)).
[28] 12 March 2015, T 112
[29] Affidavit of Luke Smith dated 20 August 2014 at [9(d)] and "LS12"
The next Leave Accruals record dated after 24 June 2010 records a zero annual leave balance for Mr Smith[30].
[30] Ibid, "LS13"
Mr Smith submits that the 24 June 2010 Leave Accruals record should be accepted by the Court as prima facie evidence of the amount of the untaken paid annual leave that was owing to Mr Smith as at 24 June 2010. This is because Quasar Constructions has not sought to argue that it made a miscalculation of the rate of accrual for Mr Smith, but rather, that it simply failed to take into account periods of annual leave that would have served to reduce the balance of the accrual. Such an argument is not supported by the evidence.
In the period from 25 June 2010 to 29 February 2012, Mr Smith claims that he accrued a further 33.6 days of annual leave pursuant to ss.87(1)(a) and (2) of the Fair Work Act.
Mr Smith submits that the total amount of annual leave accrued up to 29 February 2012 was 19.19 weeks.
Mr Smith concedes he took 10 days of annual leave in the period 16 December 2011 to 23 January 2012[31], leaving a balance of untaken paid annual leave of 17.19 weeks.
[31] Ibid, at [15]
As at the date of termination, Mr Smith’s base rate of pay as defined by s.16 of the Fair Work Act was an amount of $3,173.08 per week[32].
[32] Affidavit of Luke Smith dated 28 October 2013 at [16]
Accordingly, Mr Smith submits that Quasar Constructions was required, in compliance with the NES, to pay him on 29 February 2012 an amount for untaken paid annual leave of $54,545.25 ($3,173.08 x 17.19 weeks), less permitted deductions[33].
[33] Fair Work Act, s.324
Upon termination, and subsequently, Quasar Constructions has made no payment of accrued annual leave to Mr Smith[34].
[34] Affidavit of Luke Smith dated 28 October 2013 at [16]
Quasar Constructions is thus alleged to have breached s.90(2) of the Fair Work Act by failing to pay Mr Smith an amount of $54,545.25, less permitted deductions, for untaken paid annual leave when his employment ended on 29 February 2012.
The respondents’ contentions
The first and second respondents oppose the relief sought in the application filed 20 November 2013.
It is common ground that Mr Smith was engaged by both Quasar NSW and by Quasar Constructions as a full-time employee. It is also common ground that Mr Smith accrued four weeks (or 20 days) of annual leave each year during his employment. Based on a total of 10 years eight months’ service, Mr Smith accrued annual leave in the overall amount of 42.66 weeks (or 213.88 days). On his own case, therefore, Mr Smith took at least 25.47 weeks (or 127.35 days) of annual leave during the period that he was employed.
The respondents contend that the principal issue to be resolved in these proceedings is whether the total amount of annual leave taken by Mr Smith during his employment exceeded what had accrued to him.
The respondents submit that Quasar Constructions never kept any statutory records of the annual leave taken by Mr Smith over his many years of employment. This fact reflects that Mr Smith enjoyed a unique and privileged position in the Quasar Constructions’ business above and beyond being an employee; he was a director and effectively a 50% shareholder in the business. As such, Mr Smith’s annual leave arrangements were informal, self-regulated and, to a large extent, exceptional from other employees.
Notwithstanding the absence of statutory records, the respondents contend that there is reliable documentary and witness evidence showing that Mr Smith took periods of leave which, in aggregate, actually exceeded his accrued annual leave entitlement. They have summarised this evidence in Schedules to their submissions.
The respondents submit that periods of leave taken by Mr Smith and identified in the Schedules should reasonably be characterised as annual leave, being consistent with the purpose of annual leave for any worker: to provide a break in employment.
The Court’s assessment of the viva voce evidence, and in turn the credibility of the witnesses, is said to be critical in determining this issue. If it is accepted that the evidence of the respondents’ witnesses should be preferred over that of Mr Smith, then the respondents submit that the Court cannot be satisfied to the civil standard that he has an entitlement under the provisions of the Fair Work Act.
The standard of proof is on the balance of probabilities, with the onus of proof on Mr Smith.
The respondents further submit that ultimately, if the Court finds that there has been a contravention of the type alleged in the application, then the Court has a discretion as to whether or not to make an order for compensation in favour of Mr Smith, and whether to impose any penalties against the respondents (and, if so, at what level of penalty).
The respondents contend that on his own case, Mr Smith was a controlling mind of the employer and he was complicit in his annual leave not being recorded throughout the period of his employment. In his capacity as a joint director and effectively a 50% equity holder, Mr Smith personally approved the directors’ annual leave being written-off in the company’s books. Mr Smith derived personal financial gain from this. As a result of Quasar Constructions’ annual leave liability being reduced, Quasar Constructions was able to improve the position of its balance sheet. This in turn placed Quasar Constructions in a better financial position, which enabled it to become more competitive when tendering for construction projects. This in turn led to Quasar Constructions increasing its revenue and becoming more profitable, which ultimately led to an increase in the amount of dividends paid to the directors. Mr Smith continued to enjoy regular periods of paid leave at the company’s expense, even though the company’s books under Mr Smith’s control and influence did not reflect this.
The respondents contend that, in those circumstances, Mr Smith’s allegation that Mr Crawford was “involved” in Quasar Constructions’ alleged contravention rings hollow. The true person involved was Mr Smith himself.
Resolution
Mr Smith’s claim
The application seeks declarations in respect of the following two allegations made against the respondents:
1.A declaration that the First Respondent contravened Section 44 of the Fair Work Act 2009 (Cth) (“Act”) by failing to pay to the Applicant annual leave in accordance with Section 90(2) of the Act upon termination of the Applicant’s employment.
2.A declaration that the Second Respondent was involved in the contravention of the First Respondent in relation to the contravention alleged in paragraph (1) above and pursuant to Section 550 of the Act is thereby taken to have contravened Section 44 of the Act.
The two contraventions alleged by Mr Smith are further addressed in the grounds of the application as follows:
10.On and following 29 February 2012, the First Respondent contravened Section 44 of the Act by failing to pay the Applicant an amount for untaken annual leave on or following termination in accordance with Section 90(2) of the Act (“contravention”).
11.The Second Respondent:
(a)aided, abetted, counselled or procured the contravention;
(b)by act or omission was directly or indirectly knowingly concerned in or party to the contravention;
and in the circumstances, is a person involved in the contravention within the meaning of Section 550 of the Act.
The elements of the two contraventions alleged by Mr Smith are determined by the terms of the relevant section. The elements of the first contravention, alleged under s.90(2), are as follows:
a)a person was an employee of an employer;
b)the employment of the person came to an end;
c)when the employment of the person ceased:
i)the person had a period of untaken paid annual leave;
ii)the employer failed to pay the person the amount of annual leave that would have been payable had the person taken that period of leave.
It is common ground that the elements under a) and b) are satisfied in that Mr Smith was an employee of Quasar Constructions, and his employment was terminated.
It is also common ground that the employer did not make any payment for annual leave to Mr Smith when his employment ceased.
What is really in dispute, therefore, is the element in c) i) above.
The elements of the second contravention, alleged under s.550, are the same as those set out above, and in addition the person alleged to be involved in the contravention:
a)has aided, abetted, counselled or procured the contravention; or
b)has been in any way, by act or omission, directly or indirectly, knowingly concerned in or party to the contravention.
These elements are in dispute between the parties.
The onus of proofof the disputed elements of the two single contraventions alleged in these proceedings is on Mr Smith[35]. The burden of proof on Mr Smith is on the balance of probabilities[36].
[35] Transport Workers' Union of Australia v Coles Supermarkets Australia Pty Ltd [2014] FCCA 4 at [16]; Australian Timber Workers Union v Monaro Sawmills Pty Ltd [1980] FCA 43; (1980) 42 FLR 369 at 371 (Sweeney and Evatt JJ)
[36] Evidence Act 1995 (Cth) (Evidence Act), s.140(1)
While the proceedings are civil in character, they are nonetheless penal. Thus, although Mr Smith must prove the elements of the contraventions on the balance of probabilities, the Court must take into account the nature of the cause of action, the nature of the subject matter of the proceeding and the gravity of the matters alleged[37].
[37] Evidence Act, s.140(2)
The allegations against the respondents are serious. It follows that any evidence establishing the alleged contraventions by them must be cogent and not be produced by “inexact proofs, indefinite testimony or indirect references”[38].
[38] see LHMU v Arnotts Biscuits Ltd [2010] FCA 770; (2010) 188 FCR 221 at [13] (Logan J)
In his submissions, Mr Smith is now raising new allegations that the respondents have engaged in contraventions of the Fair Work Act which are separate and additional to those set out in the application[39]. It is now alleged that Quasar Constructions has contravened s.535(1) of the Fair Work Act by failing to keep records relating to Mr Smith’s annual leave accrual. Mr Smith now also asks the Court to make declarations against, and impose penalties upon both respondents[40].
[39] Mr Smith’s Submissions (AS) [114]-[115] and [120]. Mr Smith is now raising an additional two alleged contraventions by Quasar Constructions, and likewise in respect of Mr Crawford
[40] AS [128]-[130]
The respondents complain about delay by Mr Smith in raising these new matters and assert prejudice. They claim to have been taken by surprise. They claim to have been denied the opportunity to put on evidence about Quasar Constructions’ record keeping systems for employee leave entitlements generally. Nevertheless, the respondents conceded that they failed to keep proper records. In light of that concession, it is, in my opinion, appropriate for the Court to deal with the additional issue, although it will be important to give the parties the opportunity to make further submissions (and if necessary present further evidence) bearing upon any issue of penalty.
Legislative framework
Before addressing the evidence on the principal issue, it is useful to revisit the legislative background.
Mr Smith’s claim spans over 10 years and four distinct periods of industrial law:
a)from 1 July 2001 to 26 March 2006, the law of New South Wales;
b)on and from 27 March 2006 to 30 June 2009, the Workplace Relations Act;
c)on and from 1 July 2009 to 31 December 2009, the Fair Work Act transitional period pending the commencement of the NES;
d)on and from 1 January 2010, the Fair Work Act including the NES[41].
[41] It is common ground that Mr Smith was award-free in his employment: see AS footnote 9
As I have already noted, before the commencement of the Work Choices Act on 27 March 2006, Mr Smith’s annual leave entitlements were governed by the Annual Holidays Act. The Annual Holidays Act provides for a period of annual leave of four weeks on “ordinary pay” where the year of employment ends after 30 November 1974[42].
[42] Section 3(1)
The definition of “ordinary pay” is set out in s.2(2) of the Annual Holidays Act. “Ordinary pay” is the worker’s remuneration for his “normal weekly number of hours of work” in an ordinary working week. Where no “normal weekly number of hours” is fixed for a worker under the terms of his employment, the average weekly hours worked during the year preceding the annual leave are used for the purpose of calculation[43].
[43] Section 2(2)(b)
On 27 March 2006, the AFPCS of the Workplace Relations Act came into force[44]. Section 232 of the Workplace Relations Act prescribed minimum annual leave entitlements under the AFPCS in relation to employees of a national system employer.
[44] Work Choices Act, s.2(1)
Clause 15E(1) of schedule 8 to the Workplace Relations Act provided:
15E Relationship between preserved State agreements and Australian Fair Pay and Conditions Standard
(1) The Australian Fair Pay and Conditions Standard does not apply to an employee in relation to a matter if the employee’s employment is subject to a preserved State agreement that deals with that matter in relation to the employee.
Clause 34 of schedule 8 to the Workplace Act preserved the Annual Holidays Act as a notional agreement preserving state award (AH NAPSA). Contrary to Mr Smith’s submissions[45], clause 15E(1) and 32 of schedule 8 to the Workplace Relations Act had the effect that, from 27 March 2006, Quasar Constructions was bound to observe the terms of the Annual Holidays NAPSA, rather than s.232(2) of that Act.
[45] AS [26] and [27]
Under the Transitional Act, which commenced on 1 July 2009, the Annual Holidays NAPSA continued in force as a transitional instrument until 1 January 2010 – the so-called Fair Work (safety net) provisions commencement day[46].
[46] Transitional Act, s.2(1)
Item 6 of schedule 4 to the Transitional Act provided that:
Accruing entitlements: leave accrued immediately before the FW (safety net provisions) commencement day
(1) This item applies if, immediately before the FW (safety net provisions) commencement day, an employee has an accrued entitlement to an amount of paid annual leave or paid personal/carer’s leave, whether the leave accrued under Part 7 of the WR Act, a transitional instrument or otherwise.
(2) The provisions of the National Employment Standards relating to taking that kind of leave (including rates of pay while taking leave), or cashing-out that kind of leave, apply, as a minimum standard, to the accrued leave as if it had accrued under the National Employment Standards.
From 1 January 2010, Mr Smith’s annual leave entitlement was governed by s.87 of the Fair Work Act.
Section 87 of the Fair Work Act relevantly provides:
87 Entitlement to annual leave
Amount of leave
(1) For each year of service with his or her employer, an employee is entitled to:
(a) 4 weeks of paid annual leave; ...
Section 90(2) of the Fair Work Act provides:
90 Payment for annual leave
(1)If, in accordance with this Division, an employee takes a period of paid annual leave, the employer must pay the employee at the employee’s base rate of pay for the employee’s ordinary hours of work in the period.
(2) If, when the employment of an employee ends, the employee has a period of untaken paid annual leave, the employer must pay the employee the amount that would have been payable to the employee had the employee taken that period of leave.
The “base rate of pay” for an employee is defined in s.16(1) of the Fair Work Act. It is common ground that Mr Smith’s base rate of pay as defined was the weekly amount of $3,173.08, at the time of his dismissal.
By virtue of s.61(3), ss.87 and 90 are provisions of the NES. Section 44(1) provides that an employer must not contravene a provision of the NES.
The provisions of the NES (see Division 6 – Annual Leave, Part 2-2 of the Fair Work Act) do not mandate that a period of annual leave can only be taken by an employee if it is actually recorded by the employer.
Rather, s.88(1) provides that “paid annual leave may be taken for a period agreed between an employee and his or her employer.” Thus, the key defining concept under s.88(1) is agreement between the parties for the employee to take a period of paid annual leave. The Fair Work Act does not limit the mode of agreement: it may be oral, in writing or implied by conduct. In addition, s.90(2) provides for payment for annual leave when the employment ends “if . . . the employee has a period of untaken paid annual leave”.
Thus, while the failure by an employer to maintain accurate annual leave records may expose them to a penalty for breach of its record-keeping obligations under s.535 of the Fair Work Act, this is a separate issue from whether under s.90(2) Mr Smith had a period of untaken paid annual leave when his employment ended.
Mr Smith in his submissions embarks upon a lengthy analysis of the relevant legislation prior to 27 March 2006, in order to assert that the correct accrual of his annual leave for this period was 1,137.6 hours[47]. He contrasts this with the closing balance of 630.15 hours recorded in Quasar NSW’s leave accrued report as at 29 June 2006[48]. From this comparison, Mr Smith then asks the Court to draw an inference that he took periods of authorised annual leave which were recorded by Quasar NSW against the leave accrual balance[49]. In effect, Mr Smith is inviting the Court to infer that Quasar NSW’s leave accrued report was likely to be accurate as at 29 June 2006.
[47] AS [28]-[36]
[48] Affidavit of Greg Ross dated 14 October 2014 at [17] and Exhibit GR-02, Tab 3
[49] AS [37]
The respondents have contended that Mr Smith’s analysis is based on a misconstruction of his “Employment Letter/Contract” dated 1 July 2001[50]. On its terms, clause 5.1 of the Employment Letter/Contract does not specify Mr Smith’s actual working hours, but rather the working hours of Quasar NSW’s business; the so-called “Business Hours”, during which Mr Smith is to perform work.
[50] Affidavit of James Crawford dated 14 October 2014, Exhibit JC-03, Tab 8
Secondly, the respondents assert that Mr Smith’s analysis is contrived because he has never accepted the veracity of the Employment Contract/Letter during these proceedings[51]. Indeed, Mr Smith described the letter in his evidence as “a fabrication”[52] or “a concoction”.[53] Somewhat disingenuously, however, the respondents also attack Mr Smith’s credit as a witness.
[51] T 18.19-22; T 33.44-46
[52] T 31.46
[53] T 33.30-31
Thirdly, the respondents contend that Mr Smith significantly overstates the amount of annual leave which accrued to him under the Annual Holidays Act prior to 1 July 2006. As noted earlier, Mr Smith accrued four weeks of annual leave on “ordinary pay” under the Annual Holidays Act, for each year of his service during this period. He thus accrued 20 weeks of annual leave (5 years x 4 weeks) on “ordinary pay” during this period. Mr Smith accepted that the $96,000 gross annual salary specified in the Employment Contract/Letter was reflective of his salary with Quasar NSW[54]. This equates to a weekly gross salary of $1,846.15. The Quasar NSW leave accrued report records the value of Mr Smith’s accrued leave at 29 June 2006 as “$26,695.52”. The respondents note that Mr Smith’s submissions overlook this figure. Based on Mr Smith’s weekly gross salary of $1,846.15, this figure is said to equate to 14.46 weeks of annual leave being recorded in the Quasar NSW leave accrued report.
[54] T 20.40-46
The respondents thus submit that, on a proper analysis, it is apparent that the Quasar NSW leave accrued report serves only to indicate that the total amount of annual leave recorded by Quasar NSW during the period of Mr Smith’s employment from 1 July 2001 to 30 June 2006 was just 5.54 weeks (out of a maximum entitlement of 20 weeks).
The evidence – documents
The Employment Letter/Contract dated 1 July 2001 specifies in clauses 7.1 and 7.2, Mr Smith’s annual leave entitlements consistent with the provisions of the Annual Holidays Act[55]. The Employment Letter/Contract also identifies that Mr Smith’s sick leave entitlements were limited as follows:
6.1 One (1) day will be credited on completion of each months (sic) work to a maximum of seven (7) days per annum. (Non cumulative).
[55] Affidavit of James Crawford dated 14 October 2014, Exhibit JC-03, Tab 8
A memorandum issued by Ms Worth and dated 26 June 2006 is in evidence[56]. The memorandum advised the employees of Quasar NSW that their employment contracts would be transferred to Quasar Constructions from 1 July 2006 and that their prior service with Quasar NSW would be recognised for annual leave purposes. The memorandum was received by Mr Smith[57].
[56] Affidavit of Ann-Marie Worth dated 13 October 2014, Annexure B
[57] T 77.22-26
The Leave Accrual Report of Quasar NSW as at 29 June 2006 and the Leave Accrual Report of Quasar Constructions as at 24 June 2010[58] are also in evidence and are relied on by Mr Smith as a “correct record of the amount of the Applicant’s accrued entitlement to annual leave”[59]. The latter report purports to record Mr Smith’s accrued annual leave in an amount of 473.8 hours, or $24,447 as at 24 June 2010.
[58] Affidavit of Luke Smith dated 20 August 2014, Annexure LS12
[59] AS [17] and [52]
Subsequent Leave Accrual Reports of Quasar Constructions purport to record Mr Smith’s accrued annual leave as “zero” or below.[60] This is explained by the next document.
[60] Ibid Annexures LS13 to LS 26
On 22 October 2009, Mr Smith and Mr Crawford each signed a document in the following terms[61]:
[61] Affidavit of James Crawford dated 14 October 2014, Exhibit JC-03, Tab 12
Quasar Constructions Pty Limited
A C N 069 663 403
Members Consent
I the undersigned being a Director of the above named company, hereby agree to forego all current and future statutory entitlement of Annual Leave and Long Service Leave.
Thereafter, Quasar Constructions did not maintain any annual leave accruals in respect of Mr Smith and Mr Crawford as a consequence of this agreement[62].
[62] Affidavit of Greg Ross dated 14 October 2014 at [36] and Exhibit GR-02, Tab 7
Mr Smith’s diaries for the calendar years 2001 to 2012 are in evidence[63].
[63] Exhibit R1
Mr Smith’s diaries include notations in his handwriting for particular times when he took leave. Mr Smith’s diaries also include “blank days”.
Mr Smith’s statements of accounts for his American Express (AMEX) credit card are in evidence[64]. They include Mr Smith’s handwritten notations which distinguished between items of personal expenditure, such as private holiday accommodation, and items of work-related expenditure.
[64] Affidavit of Greg Ross dated 14 October 2014, Exhibit GR-02, Tabs 9, 11, 12, 14, 15, 17 and 19
Mr Smith submits that the AMEX statements give the Court “no clue” as to whether the employer failed to record annual holidays taken by Mr Smith during the relevant periods identified in the AMEX statements. I agree. I am unwilling to draw inferences from the AMEX records that particular periods of annual holidays were taken by Mr Smith that were not recorded elsewhere.
Records held by the Department of Immigration relating to Mr Smith’s overseas trips since 2001 are in evidence[65]. Those records include copies of the “Outgoing Passenger Cards” signed and completed by Mr Smith. Mr Smith has marked “Holiday” or “Visiting Friends/Relatives” as the “Main reason for overseas travel” in respect of numerous trips, including to New Zealand (2003), Singapore (2006), Fiji (2005) and Thailand (2008 and 2011). It does not follow, however, that Mr Smith did not work during these trips.
[65] Exhibit R3
Also in evidence are planning calendars prepared by Quasar Constructions’ Construction Manager, Mr Greg Ross for the purpose of attempting to demonstrate unrecorded annual leave taken by Mr Smith[66]. The planning calendars were only prepared after the commencement of the proceedings because, as Mr Ross explained, “as far as the company was concerned, [Mr Smith’s annual leave] wasn’t an issue prior to the commencement of the legal proceedings.”[67] The planning calendars include notes made by Mr Ross about the annual leave allegedly taken by Mr Smith.[68] I did not find this subjective, after the event construction from someone with no direct knowledge of the actual events at all helpful.
The evidence – the witnesses
[66] Affidavit of Greg Ross dated 14 October 2014 at [41]; Exhibit GR-02, Tabs 8, 10, 13, 16, 18, 20, 21, 23, 25, 26
[67] T 113.18-20
[68] T 114.47
Luke Smith
Throughout the period of his employment, Mr Smith was a director and, in effect, 50% owner of Quasar NSW and Quasar Constructions. He was employed in “a senior managerial capacity” and he took periods of annual leave until his employment was terminated on 29 February 2012[69].
[69] Affidavit of Luke Smith dated 28 October 2013 at [3], [6]-[10]
Mr Smith expressed his belief that the Leave Accrual Report in Annexure LS12 correctly stated his annual leave entitlement as 24 June 2010[70]. Since that date, Mr Smith took a period of annual leave to travel to Thailand for about 10 days in December 2011[71]. He was also off work on leave due to depression from December 2008 to February 2010[72].
[70] Affidavit of Luke Smith dated 20 August 2014 at [10]
[71] Ibid [15(a)]
[72] Ibid [14]
In cross-examination, Mr Smith acknowledged that he owned the companies that he worked for and at all times he had joint control of the affairs of Quasar Constructions and Quasar NSW, along with Mr Crawford[73]. He further stated that Mr Crawford and himself agreed “on advice” from the company accountant to become full-time employees of Quasar NSW from 1 July 2001[74]. Mr Smith acknowledged that he was paid his normal salary during all periods of leave from work from 1 July 2001 until his employment with Quasar Constructions was terminated[75].
[73] T 14.15-18; T 15.17-18; T 16.4-7; T 16.13-14
[74] T 21.46-47
[75] T 27.1-11; T 81.45-46
Mr Smith also stated in cross-examination that he willingly entered the Agreement signed by him on 22 October 2009 to forego his past and future entitlement to accrued annual leave, again acting on the advice of his accountant[76]. He understood at that time that he would obtain some measure of personal benefit from this agreement, including greater profitability of Quasar Constructions and higher directors’ dividends.[77] In response to questions from me, Mr Smith stated that he took no action to rescind the Agreement[78]. He admitted that, in reality, the Agreement did not preclude him from taking paid annual leave, because he actually did take periods of annual leave after signing it[79]. In this regard, Mr Smith stated that he simply continued his pre-existing practice of taking annual leave after he entered the Agreement, notwithstanding that his annual leave accruals were henceforth recorded as nil[80].
[76] T 79.13-17
[77] T 78.14-17
[78] T 78.19-23
[79] T 78.28-30
[80] T 78.32-36
In the face of these concessions, it is difficult to understand Mr Smith’s submission that some kind of “estoppel” operates to prevent Quasar Constructions from asserting that Mr Smith took unrecorded annual leave after the Agreement was made on 22 October 2009. It is clear, on Mr Smith’s own evidence, that he took periods of unrecorded annual leave after 22 October 2009. For example, Mr Smith admits in his affidavit evidence that he took 10 days of annual leave to attend a family holiday in Thailand during December 2011/January 2012 even though his leave accruals recorded “.00”[81]. On Mr Smith’s own case, there is no inconsistency between the making of the Agreement and the subsequent taking of annual leave by him. To my mind, the only issue of estoppel concerns the accuracy of the information upon which the Agreement was based.
[81] Affidavit of Luke Smith at [15(a)] and Annexures LS13 to LS 26
Mr Smith’s assertion that the Agreement “frustrated the Applicant’s ability to accrue annual leave under s.87 of the Fair Work Act”[82] only means something if one assumes that the Agreement was legally enforceable. Of course, the Agreement had no such legal effect. The parties were not at liberty to contract out of the statutory obligation under s.87, other than to confer additional benefits[83]. As the Agreement was not legally enforceable, there is no inconsistency between the existence of the Agreement and Quasar Constructions’ submission that Mr Smith took periods of paid annual leave subsequent to the making of the Agreement.
[82] AS at [68]
[83] McLennan v Surveillance Australia Pty Ltd (2005) 142 FCR 105; [2005] FCAFC 46; Regional Express Holdings Ltd v Clarke (2007) 165 IR 251; [2007] FCA 957; Textile, Clothing and Footwear Union of Australia v Givoni Pty Ltd (2002) 121 IR 250; [2002] FCA 1406 (“Givoni”); Metropolitan Health Service Board v Australian Nursing Federation (2000) 99 FCR 95; [2000] FCA 784
Mr Smith made a number of denials in cross-examination. He denied that his income as a salary earner was split with his then de facto partner, Melissa Simmons when he became an employee of Quasar NSW in July 2001[84]. He also denied the veracity of the Employment Letter/Contracts dated 1 July 2001 and addressed to himself (and, by extension, the similar letter addressed to Ms Simmons)[85]. Mr Smith denied the suggestion that he had taken the periods of annual leave identified in Mr Ross’ affidavit, including those periods relating to overseas holidays.
[84] T 61.38-45. Mr Smith confirmed in cross-examination that Ms Simmons was both his de facto partner at the time as well as a former director of Quasar Constructions: T 38.5
[85] T 31.46; T 33.30-31; Exhibit R2
Greg Ross
Mr Ross is the manager responsible for employment issues in Quasar Constructions’ business[86]. He reports to the managing director, Mr Crawford and provides supervision to Ms Annie Worth, the Accounts Manager responsible for employment records.
[86] Affidavit of Greg Ross dated 14 October 2014 at [12]-[16]
Mr Ross stated that Mr Smith took periods of annual leave which were not recorded in the leave accrual records of Quasar NSW or Quasar Constructions[87]. The reason was simply that Mr Smith (like Mr Crawford) was “the boss”[88]. Mr Smith was not required to notify to Mr Ross or Ms Worth as to his intention to take annual leave or his actual absence on leave. Like Mr Crawford, Mr Smith did not obtain anyone’s permission to take annual leave: “they just took leave as and when they could.”[89] These arrangements were “never questioned”.
[87] Ibid at [38]
[88] Ibid at [40]
[89] Ibid at [39]
In his oral evidence, Mr Ross confirmed that the two directors did not need to seek his approval for taking annual leave[90]. Nor were the directors required to submit a leave application form[91]. Consequently, Mr Ross did not “keep tabs” on the periods of annual leave taken by Mr Smith and Mr Crawford[92].
[90] T 110.29-30
[91] T 110.32
[92] T 110.34-35
As a matter of practical reality the two directors governed their own employment and determined their own duties[93]. However all employees of Quasar Constructions and Quasar NSW, including the two directors, took leave during the Christmas/New Year shutdown period[94]. This annual shutdown occurred every year that Mr Smith was employed[95].
[93] T 110.37-46
[94] T 116.35-36. See also affidavit of Greg Ross at [42]
[95] Affidavit of Greg Ross at [42]
Mr Ross also confirmed that Quasar Constructions ceased to keep any annual leave records relating to Mr Smith after the Agreement was made in October 2009[96]. Based on the mistaken belief that the Agreement was legally enforceable, no thought was given by Mr Ross to the question of whether Mr Smith was owed any payment for annual leave on his termination[97].
[96] T 112.1-4
[97] T 110.4-6; T 110.8-11
Ann-Marie Worth
Ms Worth was originally employed by Mr Smith as his bookkeeper, commencing in 1996[98]. As the business grew, she became the accounts manager responsible for, amongst other things, the employment records of Quasar NSW and later Quasar Constructions.[99]
[98] Affidavit of Ann-Marie Worth dated 10 February 2015 at [9]
[99] Affidavit of Ann-Marie Worth dated 13 October 2014 at [4] and [5]
There was no formal process for Ms Worth to record the leave taken by Mr Smith, whether it was annual leave, sick leave or some other type of leave[100]. Ms Worth was not provided with any leave request or approval forms in relation to Mr Smith’s periods of leave[101]. Consequently, Ms Worth did not process the periods of leave taken by the two directors in the same way she did for all other employees of Quasar NSW and Quasar Constructions[102]. The two directors apparently took the usual Christmas/New Year shutdown as annual leave[103]. Outside the shutdown period, “they took leave as and when the requirements of the business, or their positions in the business, allowed them to do so”. These arrangements reflected the fact that they were “really the owners of the First Respondent’s business.”[104]
[100] Ibid [17]
[101] Ibid [19]
[102] Ibid at [18]
[103] Ibid [20]
[104] Ibid.
In her oral evidence, Ms Worth stated that the Employment Letter/Contracts dated 1 July 2001 and Employee Information Forms in Exhibit R2 and Exhibit JC-03, Tabs 7A and 8 were prepared and issued by herself “under instructions from the accountant at that time” for the Quasar group of companies (Chung Lee)[105]. Ms Worth personally issued the letters by hand to the two directors, for them to take home to their partners[106].
[105] T 124.28-46
[106] T 125.4-16
Under cross-examination, Ms Worth said that she had been unable to locate signed copies of the letters, but she did remember seeing signed copies of all four letters[107]. She confirmed that she had knowledge of the agreement made in 2009 to forego the directors’ annual leave entitlements[108]. Under instructions from Mr Ross or the company accountant at the time (Daniel Burns) or both, she ceased to keep any annual leave records for Mr Smith from October 2009[109].
[107] T 126.12-17; T 126.41-43
[108] T 128.3-7
[109] T 131.30-36
James Crawford
Mr Crawford has been in business with Mr Smith since at least 1997 through the Quasar group of companies. On 5 March 1997, Mr Crawford and Mr Smith became directors of Quasar NSW[110]. Mr Crawford became a director of Quasar Constructions on 1 July 2001, the day he commenced as a full-time employee of Quasar NSW[111].
[110] Affidavit of James Crawford dated 11 February 2015, Annexure A
[111] Affidavit of James Crawford dated 14 October 2014 at [6] and [20]
Mr Crawford currently holds the position of Managing Director of Quasar Constructions[112]. His employment was transferred from Quasar NSW to Quasar Constructions on 1 July 2006[113].
[112] Ibid [1]
[113] Ibid [24]-[26]
The circumstances under which Mr Smith took two extended periods of leave absent from work were described in Mr Crawford’s evidence[114]. Mr Smith was on paid leave from December 2008 to February 2010 due to a depressive illness. Mr Smith’s illness led him to have another extended paid absence from work during the period between July 2010 and January 2011. On both occasions, Mr Crawford exhibited a compassionate approach toward Mr Smith: “Take as much time as you need”.[115]
[114] Ibid [29]-[35] and [37]-[38]
[115] Ibid [32]
Subsequently, Mr Crawford decided to terminate Mr Smith’s employment on 29 February 2012 due to what he regarded as an unauthorised withdrawal by Mr Smith from Quasar Constructions’ bank account of a large sum of money[116]. As at the date of the hearing, those funds had not been returned to Quasar Constructions by Mr Smith[117]. Mr Crawford also gave evidence that Mr Smith has outstanding loans totalling over $1.4 million[118].
[116] Exhibit JC-03, Tab 10
[117] See the concession by Mr Smith’s solicitor: T 6.31-44
[118] Affidavit of James Crawford at [10]-[12], [47]-[50] and Exhibit JC-03, Tabs 6 and 16
In oral evidence, Mr Crawford stated that the agreements entered by him and Mr Smith to waive their annual leave entitlements were essentially a one-off, and no similar agreements were entered in relation to any other person in the Quasar group[119]. The agreements were based on advice from the accountant acting for the two directors: “The advice was to improve our balance sheet to give us better opportunities in terms of tendering.”[120]
[119] T 136.30-39
[120] T 136.41-45; T 137.1-3; T 142.23-26
Under cross-examination Mr Crawford stated that, as a consequence of the agreements, payments made to Mr Smith were only ever treated as salary payments and not as leave payments[121]. However, Mr Crawford never said to Mr Smith (after they signed the Agreement) that he was not entitled to take paid leave[122]. Mr Crawford acknowledged that he did not turn his mind to the question of whether Mr Smith should be paid out any annual leave on termination[123]. “[T]he only reason” for this was the signed agreements purporting to waive annual leave.[124]
[121] T 145.27-30
[122] T 145.14-20
[123] T 142.1-3
[124] T 142.7-9
Mr Crawford did not become aware of the unenforceability of the agreements until he received the letter dated 31 May 2013 from Mr Smith’s solicitors[125]. Mr Crawford indicated that no money for annual leave was thereafter paid to Mr Smith for other reasons, “because of the loan account, the money owed to the business”[126].
[125] T 155.19-40. The letter from Mr Smith’s solicitors is Annexure LS4
[126] T 156.8-9
Issues of credit
Mr Smith’s submissions acknowledge that the absence of relevant statutory records means that these proceedings are (at least in part) “a battle reduced to oath against oath.” Immediately prior to the passage from Ray v Radano[127] quoted by Mr Smith, Sheldon J at 480 summed up the situation:
No doubt in the house of perjury there are many mansions, but few would be as frequented as the courts in which embittered parties contest claims for past remuneration after severance of employment.
[127] [1967] AR (NSW) 471
There were a number of features of Mr Smith’s evidence which the respondents claim were highly damaging to his credibility:
a)Mr Smith at times refused to answer questions or did not give responsive answers, despite being given repeated counselling and warnings by me[128];
b)Mr Smith kept asking questions rather than simply answering the ones put to him[129], despite being given repeated warnings and corrections by me[130];
c)Mr Smith treated some questions with disdain[131];
d)Mr Smith made some “speeches”[132] and gave unwarranted commentary[133];
e)Mr Smith at times showed hostility rather than answering questions directly[134];
f)Mr Smith tried to guess the underlying purpose of the questions, rather than just answering them[135];
g)Mr Smith was, at times, evasive: following my question that time away from work over the Christmas/New Year shutdown counted as annual leave, Mr Smith was asked directly if he took annual leave during those shutdown periods and he eventually answered: “I may have, yes”[136].
[128] T 13.9-10; T15.35-37; T37.4-9
[129] T 13.6-7; T17.15; T18.34-40; T41.14-17; T43.28-29; T43.36-45; T63.29-32; T80.39-42
[130] T 18.42-45
[131] T 31.4-9
[132] T 15.16-30; T 72.41-45; T 76.14-27
[133] T 70.18-31; T 70.40-41
[134] T 21.16-17; T 82.32-34
[135] T 14.18-19
[136] T 28.1-23
Mr Crawford, Mr Ross and Ms Worth were more impressive witnesses. They gave direct responses to the questions asked during their cross-examination, and they made appropriate concessions (contrary to their interests) without having to be pressed. For example:
a)Mr Ross readily conceded that he did not necessarily know what work for the company Mr Smith might be undertaking at any given time[137];
b)Mr Ross freely acknowledged the annual leave entitlements of employees and the record keeping obligations of an employer[138];
c)Mr Ross conceded that Mr Smith could choose to work from home on a particular day[139] and that directors needed to undertake business travel[140];
d)Mr Ross acknowledged that, during board meetings in late 2009 which led to the Agreement being entered, no one suggested that the leave accruals on balance sheets were inaccurate[141];
e)when it was suggested to Ms Worth that Mr Smith had no involvement in the keeping of employment records after October 2009, Ms Worth went further and conceded that Mr Smith did not have involvement in the keeping of employment records at any time[142];
f)for the most part, Mr Crawford gave simple “yes” or “no” responses during his oral evidence, and he appeared to focus on the question he was being asked, not the question that he might think was around the corner[143]; in that regard, Mr Crawford clearly heeded the advice given by me at the outset of his evidence[144];
g)Mr Crawford readily agreed that some of the projects undertaken by Quasar Constructions are worth tens of millions of dollars[145] and that the Quasar business has generated a lot of goodwill over the years[146];
h)Mr Crawford did not shy from the fact that the decision to terminate Mr Smith’s employment was made by him[147];
i)Mr Crawford conceded that as managing director he has ultimate responsibility in relation to employment issues[148]; and
j)Mr Crawford conceded that Mr Smith did not personally receive anything of value in exchange for waiving his annual leave entitlement in the October 2009 agreement[149].
[137] T 107.34-36
[138] T 109.25-47; T 110.1-2
[139] T 111.1-3
[140] T 111.12-13
[141] T 112.6-8
[142] T 130.2-5
[143] see generally T 139-151
[144] T 137.11-16
[145] T 139.24-25
[146] T 139.39-41
[147] T 140.9-10
[148] T 140.27-29
[149] T 144.42-43
Mr Crawford frankly acknowledged that from around October 2009 onwards there was no attempt by Quasar Constructions to comply with the annual leave requirements relating to Mr Smith’s employment[150].
[150] T 145.35-37
Notwithstanding those issues going to credit, I do not regard Mr Smith as a witness whose evidence cannot be accepted unless corroborated. Mr Smith is obviously a deeply embittered man. That coloured his evidence but does not destroy his credibility. Further, this is not a case which in my view essentially turns on credibility. His credibility is plainly relevant to the extent that it is necessary to determine when he worked and what leave he took after he purported to bargain away his accrued legal entitlements. However, it does the respondents little credit to seek to now deny the basis upon which accrued legal entitlements were bargained away in 2009 and the simple fact that no records were kept thereafter is a matter of significance.
Quasar Constructions’ assertion Mr Smith exhausted annual leave entitlement
Quasar Constructions’ case in defence of the application amounts to an assertion that its own statutory annual leave records in relation to Mr Smith (and the annual leave records kept by Quasar NSW) are false and cannot be relied upon because Mr Smith took recorded and unrecorded annual leave in excess of what he had accrued during his period of employment with Quasar NSW and Quasar Constructions. It alleges that had all of Mr Smith’s annual leave been recorded, it would have served to reduce his annual leave balance to a negative balance.
Mr Smith submits that the onus of proof lies with Quasar Constructions to establish on the balance of probabilities that Mr Smith took periods of unrecorded annual leave since it is the party that raises these allegations of fact. I do not accept that but I take particular note of two things:
a)Quasar NSW and Quasar Constructions kept leave records that were relied upon for the purposes of the 2009 Agreement; and
b)thereafter there is no reliable documentary evidence of leave taken by Mr Smith, although the evidence suggests that he took significant leaving following the Agreement.
The evidentiary predicament of an employer that asserts, in the absence of proper leave records, that an employee has taken more annual leave than the employee admits to, has been judicially acknowledged. In Ray v Radano[151], Sheldon J observed:
... An employer who neglects to keep the statutory records, which, in their probative effect, are as much a protection to himself as to the employee, deserves little sympathy if he loses in a battle reduced to oath against oath.
[151] [1967] AR (NSW) 471 at 480
To the extent that Quasar Constructions alleges that it or Quasar NSW failed to keep accurate annual leave records in relation to Mr Smith’s employment prior to the making of the Agreement, this is disputed by Mr Smith. Following the making of the Agreement, it is apparent that at some point Quasar Constructions literally wiped Mr Smith’s leave balance and ceased to keep leave records for him. Indeed, Quasar Constructions’ decision not to keep any annual leave records following the Agreement was a deliberate one.
The failure of Quasar Constructions to keep any annual leave records at all after the making of the Agreement especially compounds the evidentiary difficulties in establishing what periods of paid annual leave from October 2009 Mr Smith took until his employment ended. Counsel for the respondents appropriately conceded in his opening statement to the Court that the records kept following the Agreement are of no use[152].
[152] 12 March 2015, T 101:35
Estoppel following making of the Agreement
In relation to the factual assertions made by Quasar Constructions that Mr Smith took unrecorded annual leave after 22 October 2009 (when the Agreement was made), Mr Smith submits that Quasar Constructions is estopped from making that assertion. I reject that submission. There was a mistake made by the parties as to the efficacy of the 2009 Agreement and I cannot accept the proposition that the respondents were estopped from attempting to establish what annual leave Mr Smith took following that agreement. I am, however, willing to accept the accuracy of the records kept up until the time of the Agreement and upon which it was based.
Apart from anything else, the evidence as to the unreliability of the records prior to the Agreement is itself unpersuasive.
Evidence of Mr Ross
Quasar Constructions’ evidence to the effect that its own leave records and those of Quasar NSW are incorrect is comprised almost entirely by the evidence of Mr Ross, arising out of his own review of the leave accrual records[153]. Mr Ross gave evidence that he is presently an independent contractor and not an employee of Quasar Constructions [154].
[153] Affidavit of Greg Ross dated 14 October 2014 at [17]-[25], [38]-[85]
[154] 12 March 2015, T:107–108
No evidence was given by either Mr Crawford or Ms Worth that corroborated Mr Ross' evidence that Mr Smith took annual holidays or annual leave in excess of his accrual. Whilst Mr Crawford deposed in his affidavit of 14 October 2014 to Mr Smith having taken two periods of "extended absence", he acknowledged in cross-examination that the nature of those absences was not holidays[155].
[155] Ibid, T 147:35-45
Mr Ross conceded in his evidence that Mr Smith was "never required" to seek his approval to take periods of annual leave or to notify himself or Ms Worth "of his intention to take any leave, or his actual absence from work"[156]. Mr Ross gave evidence under cross-examination that suggested he had a limited knowledge of the work Mr Smith might be performing on any one given day and conceded it was possible Mr Smith may be performing duties when overseas or interstate[157].
[156] Affidavit of Greg Ross dated 14 October 2014 at [39]
[157] 12 March 2015, T:107
In relation to Quasar Constructions’ evidence that goes to the allegation of unrecorded annual leave generally, Mr Smith makes the following criticisms. Quasar Constructions has not adduced any evidence of an agreement between Mr Smith and Quasar NSW, or between Mr Smith and Quasar Constructions, for Mr Smith to take a period of annual leave in the relevant periods. Equally, there is no evidence that Quasar NSW or Quasar Constructions gave notice to Mr Smith or otherwise directed Mr Smith to take a period of annual leave in any of the relevant periods. Given the concessions made by Mr Ross that he was not Mr Smith’s manager and did not question Mr Smith’s absences since Mr Smith was the "boss"[158], one would reasonably expect that any evidence of an agreement or direction to take annual leave would have been given by Mr Crawford (and possibly recorded in the Board Meeting Minutes). Such evidence would be persuasive to a finding that Mr Smith did indeed take annual leave because the different statutory regimes since 2001 have provided rules for the giving and taking of annual leave[159].
[158] Affidavit of Greg Ross dated 14 October 2014 at [40]
[159] Annual Holidays Act, s.3; Workplace Relations Act, s.236; Fair Work Act, s.88(1)
Mr Ross exhibited evidence that Mr Smith did take periods of annual leave that were in fact recorded by Quasar Constructions[160]. Whilst there is no record of when that leave was taken, the fact that Mr Smith’s accrual was adjusted from time to time suggests that either he and/or Quasar Constructions did follow a process in recording the amounts of annual leave taken (It is noteworthy that Mr Crawford had a significantly higher accrual than Mr Smith as at 24 June 2010[161], which suggests that either Mr Crawford took very little annual leave or that he is guilty of the very same accusation levelled against Mr Smith of not taking steps to record his leave).
[160] Affidavit of Greg Ross dated 14 October 2014 at [71] and GR-02, Tab 22
[161] 12 March 2015, T 144
Mr Ross exhibited a number of documents to his affidavit affirmed 14 October 2014 that he considered were evidence that Mr Smith was absent from work for particular periods. He conceded in cross-examination that the documents did not constitute the statutory or formal leave records of Quasar Constructions in relation to Mr Smith[162].
[162] Ibid, T 113:20-40
The documents exhibited to Mr Ross' affidavit that are said by Mr Ross to comprise evidence of Mr Smith taking unrecorded annual holidays and annual leave consist of:
a)documents titled "Planning Calendar" (planning calendars) for the years 2001, 2002, 2003, 2004, 2005, 2006, 2007, 2008, 2011 and 2012[163]; and
b)extract photocopies of American Express Gold Card Statements of Account (AMEX records) for various periods recording debits from 14 November 2001 up to no later than 14 February 2005[164].
[163] Exhibit Gr-2, Tabs 8, 10, 13, 16, 18, 20, 21, 23, 25, 26
[164] Ibid, Tabs 9, 11, 12, 14, 15, 17, 19
Planning calendars
Mr Ross deposed that he "reviewed the unrecorded leave taken by the Applicant and recorded it on yearly planning calendars"[165]. As such, the planning calendars are not contemporaneous business records of the Quasar Constructions or Quasar NSW and have no intrinsic evidentiary value; their only purpose is to record in a graphic format the periods of annual leave that Mr Ross believes Mr Smith took in those particular years.
[165] Affidavit of Greg Ross dated 14 October 2014 at [41]
I give little weight to the planning calendars. Mr Ross has recorded on the planning calendars a number of entries under the "Notes" section that purport to record "Annual Leave Taken", such as annual leave alleged to have been taken by Mr Smith during Christmas shutdown periods[166]. To simply ascribe the Christmas shutdown periods as "annual leave taken" and record them on a document created for the purpose of the Proceedings does not make it evidence and is to attempt to answer the ultimate question for the Court, namely whether Mr Smith did in fact take a period of unrecorded annual leave at such times. Whilst Mr Ross did depose to the two directors taking leave from work during shutdown periods[167], he elsewhere conceded that he never questioned Mr Smith’s absences from work[168] and acknowledged that Mr Smith may perform work outside of business hours such as when travelling[169].
[166] For example, see Exhibit GR-2, Tab 20
[167] Affidavit of Greg Ross dated 14 October 2014 at [42]
[168] Ibid, at [39] and [40]
[169] 12 March 2015, T 111:1-15
Mr Smith submits that Mr Ross has overreached in the use of the planning calendars in his evidence. I accept that submission. For example, Mr Ross deposes at [56] of his affidavit that Mr Smith took one day of leave on 8 May 2003 for the birth of his son, and refers back to the planning calendar behind Tab 13; however, as noted, the planning calendars are not evidence of Mr Smith’s periods of leave. Furthermore, there is no corroborating evidence Mr Smith took leave on that day and in any event, there is no evidence that any such absence was not afforded to him by Quasar NSW as personal leave or parental leave as opposed to annual leave. Mr Ross repeats the same error elsewhere in his affidavit affirmed 14 October 2014 in relation to the planning calendars[170].
[170] Affidavit of Greg Ross dated 14 October 2014 at [65], [74], [80] and [82]
AMEX records
Mr Ross deposes that he "consulted the First Respondent's records relating to credit card statements in the name of the Applicant, which were paid either by the First Respondent or Quasar NSW"[171].
[171] Ibid, at [41]
Mr Smith notes that in fact the AMEX records exhibited to Mr Ross' affidavit relate to the period of Mr Smith’s employment with Quasar NSW only. No AMEX records have been tendered into evidence that relate to the period of Mr Smith’s employment with Quasar Constructions.
Quasar Constructions seeks to rely upon the AMEX records to show that Mr Smith incurred expenditure interstate or overseas in the period from 14 November 2001 up to no later than 14 February 2005 as evidence that he took unrecorded periods of annual leave.
Mr Smith submits and I accept that the AMEX records do not support Quasar Constructions’ case that Mr Smith took periods of unrecorded annual holidays in the period from 14 November 2001 to 14 February 2005, for the following reasons.
First, it is self-evident that the AMEX records are not evidence of Quasar Constructions having failed to record the annual holidays taken by Mr Smith in the period 14 November 2001 to 14 February 2005; that is not their intrinsic purpose. Rather, they are credit card statements that show expenditure incurred by Mr Smith; some of the details of the debit transactions in the AMEX records bear hand-written notations marking them as personal expenditure and some do not, but in any event, this gives the Court no clues as to whether Quasar NSW failed to record annual holidays taken by Mr Smith in that period.
Secondly, Quasar Constructions has failed to produce the records of the annual holidays Mr Smith did actually take in the period 14 November 2001 to 14 February 2005 that were recorded by Quasar NSW. In the period of Mr Smith’s employment with Quasar NSW, it was required to keep prescribed records containing particulars of the annual leave taken by Mr Smith (in addition to particulars of the entitlement and accrual)[172]. These records were required to be transferred to Quasar Constructions and to be kept for a period of at least six years after the records were made[173].
[172] Industrial Relations (General) Regulations 2001 (NSW), Regulation 11; Workplace Relations Regulations 2006 (Cth), s.2.19.12
[173] Industrial Relations (General) Regulation2001 (NSW), Regulation 14
I note that Quasar Constructions has produced a document titled "Leave Accrual Report Quasar Constructions (NSW) Pty Ltd" which is said to be "the Applicant's closing Annual Leave entitlements with Quasar NSW dated 29 June 2006"[174]. However, this record contains no particulars of the annual leave taken by Mr Smith, such as dates or periods. This makes it impossible to know whether the periods that Quasar Constructions now alleges (in some cases over 13 years after the event) were indeed unrecorded annual leave. Mr Smith evidently took some annual leave that served to reduce the Quasar closing balance by 29 June 2006, but there is no evidence as to when he took such annual leave and whether it overlaps with the allegations now made by Quasar Constructions.
[174] Affidavit of Greg Ross dated 14 October 2014 at [17] and GR-2 at Tab 3
Mr Smith addresses a number of specific problems in Quasar Constructions’ reliance upon the AMEX records as proof of periods of unrecorded annual holidays. These are addressed with reference to the years to which they relate and confirm my view that no weight should be attached to the AMEX records.
Mr Ross' treatment of the period 2006 to 2012
Mr Ross deposes in his affidavit affirmed 14 October 2014 at [66] to [85] that Mr Smith took periods of unrecorded annual leave in the period from January 2006 to the end of the employment on 29 February 2012. The bulk of this period constitutes Mr Smith’s employment with Quasar Constructions.
Quasar Constructions has not tendered the prescribed records required to be kept by law which would evidence the periods of annual leave taken by Mr Smith in the period of his employment from 1 July 2006 to 29 February 2012, which makes it impossible to test reliably the assertion of unrecorded leave, although leave was undoubtedly taken after the Agreement was entered into.
2006, 2007, 2008 and 2011
Mr Ross deposes that he notes that "the Applicant took 4 days of leave between the period 2 January 2006 and 6 January 2006, being the First Respondent's Christmas shut down period"[175]. He deposes that he notes that "the Applicant took 4 days of leave between the period 22 December 2006 and 29 December 2006, being the First Respondent's Christmas shut down period"[176]. In relation to 2007, he deposes that he notes that "the Applicant took 4 days of leave between 2 January 2007 and 5 January 2007, being the First Respondent's Christmas shutdown period"[177]. In relation to 2008, he deposes that he notes that "the Applicant took 4 days of leave between 7 January 2008 and 10 January 2008, being the First Respondent's Christmas shutdown period"[178]. In relation to 2011, he deposes that he notes that "the Applicant took 4 days of leave between 4 January 2011 and 7 January 2011, being the First Respondent's Christmas shutdown period"[179].
[175] Ibid, at [67]
[176] Ibid, at [68]
[177] Ibid, at [70]
[178] Ibid, at [73]
[179] Ibid, at [79]
The only documentary evidence relied upon by Mr Ross in support of the assertion that Mr Smith took periods of unrecorded leave in 2006, 2007, 2008 and 2011 appears to be the planning calendars located at Tabs 20, 21, 23 and 25 respectively. I have noted the limited evidentiary value of those calendars.
The evidentiary basis for Mr Ross' assertion is otherwise unclear; he does not depose as to his observations about Mr Smith in the relevant periods. Mr Ross also gave evidence under cross-examination that suggested he had a limited knowledge of the work Mr Smith might be performing on any one given day and conceded it was possible Mr Smith may be performing duties when overseas or interstate[180]. This would suggest Mr Ross is not well placed to give evidence as to the proper character of Mr Smith’s absences from work. It is probably correct that Mr Smith was absent from the workplace during annual shutdowns but it does not follow that he did no work. Neither does it follow that leave taken during the annual shutdowns went unrecorded up to 2009.
[180] 12 March 2015, T 107
Mr Ross' allegations about Mr Smith taking unrecorded leave in the period 2006 to 2011 cannot be accepted because the allegations cannot be adequately tested.
Mr Smith’s construction of his residential premises
Mr Ross has also deposed that it was his "recollection that between the calendar years 2002 and 2003 the Applicant took two months of leave for the purpose of constructing his family home"[181]. This of course relates to the period of Mr Smith’s employment with Quasar NSW. Mr Ross does not appear to go so far as to suggest Mr Smith took this leave as a holiday. In any event, the evidence is vague and unsatisfactory if its purpose is to show that Mr Smith took periods of unrecorded annual leave.
[181] Affidavit of Greg Ross dated 14 October 2014 at [84]
Bundle of documents from the Department of Immigration (Exhibit #R3)
The respondents tendered a bundle of documents from the Department of Immigration[182].
[182] Exhibit R3
Mr Smith was not cross-examined over the content of Exhibit R3.
Exhibit R3 has only limited evidentiary value in the proceedings to the Quasar Constructions’ case because it does not show or tend to show that Mr Smith took annual leave that was not recorded by Quasar NSW or Quasar Constructions.
Exhibit R3 does, however, corroborate aspects of Mr Smith’s evidence:
a)Mr Smith’s trip to Fiji in 2001 was for business and not for holidays;
b)Mr Smith took a holiday in the period commencing 16 December 2011.
These matters support Mr Smith’s credit to that extent.
Findings supported by the evidence
I make the following findings on the principal issue to be determined on the evidence:
a)the process by which Mr Smith took annual leave was informal, flexible and substantially paperless, and this process together with the Agreement supports the inference that the annual leave taken by Mr Smith was not recorded after October 2009;
b)the employer deserves some latitude for the absence of statutory records owing to the role and responsibilities of Mr Smith;
c)Mr Smith probably took periods of annual leave during the Quasar Construction’s annual shutdowns, but it was probably recorded up until the Agreement, and this leave at a maximum accounted for approximately two weeks out of four weeks of annual leave accrued to him each year after the Agreement;
d)Quasar NSW and Quasar Constructions recorded annual leave taken by Mr Smith up until the time of the 2009 Agreement but not thereafter;
e)the available evidence does not establish that the records relied upon for the purposes of the 2009 Agreement were not accurate;
f)Mr Smith took extended leave due to incapacity but such leave cannot properly be characterised as annual leave;
g)Mr Smith probably took other leave between 2009 and 2012 but the extent of it cannot be determined.
It follows and I find that the records relied upon to establish Mr Smith’s accrued leave entitlements for the purposes of the 2009 Agreement are the best available evidence and should be relied upon. There is no reliable evidence of his entitlements thereafter.
Involvement by Mr Crawford
Prior to becoming managing director in 2008, Mr Crawford could not bear any greater responsibility for a failure to keep proper records than Mr Smith. Upon becoming managing director, however, he was the controlling mind of Quasar Constructions and was involved in the contraventions by Quasar Constructions as alleged within the meaning of s.550 of the Fair Work Act.
There is abundant evidence of Mr Crawford’s involvement in the alleged contraventions by Quasar Constructions.
It should first be noted that all three of the alleged contraventions by Quasar Constructions find their genesis in the 2009 Agreement. It was the Agreement that caused Quasar Constructions to:
a)delete Mr Smith’s annual leave accrual from its records[183];
b)cease to keep records in relation to Mr Smith’s annual leave at some time after the Agreement[184];
c)cease to accrue annual leave for Mr Smith[185]; and
d)not pay Mr Smith any amount for annual leave upon the employment ending[186].
[183] Affidavit of Greg Ross dated 14 October 2014 at [36]
[184] 12 March 2015, T 131
[185] Ibid
[186] 12 March 2015, T 142
Mr Crawford and Mr Smith were both instrumental in the events that led to the making of the Agreement that inevitably caused Quasar Constructions to breach its legal obligations to Mr Smith. It appears, however, that Mr Crawford played a larger role.
In his affidavit affirmed 14 October 2014, Mr Crawford deposed at [40] that he was the person who had "raised the prospect of foregoing… statutory entitlements". At [41], he deposed that "(d)uring the board meetings, I had discussed the reasons why I thought it was appropriate for the directors of the First Respondent to forego Annual Leave entitlements. I had also discussed such reasons with the Applicant over the telephone prior to raising this issue at board meetings".
Under cross-examination, Mr Crawford sought to distance himself from the decision, claiming that it was not his idea but the accountant's[187]. In fairness to Mr Crawford, this evidence may be supported by the Board Meeting Minutes[188]. However, there can be no question that Mr Crawford enthusiastically embraced the advice from the accountant, promoted it to Mr Smith and implemented it. The evidence is also clear on Mr Crawford’s own admission that he was motivated to have Mr Smith forego his annual leave entitlements for the financial benefit of Quasar Constructions[189] and to increase the value of the shareholders' interests[190]. It should be noted that it is common ground that Mr Smith was not a direct shareholder of Quasar Constructions in his personal capacity.
[187] Ibid
[188] Exhibit JC-03, tab 13, page 49 at point 2.03
[189] Affidavit of James Crawford dated 14 October 2014 at [41]
[190] Ibid, at [46]
Mr Crawford admitted that he was responsible in relation to the employment issues of Quasar Constructions, and that he had delegated certain responsibilities to Mr Ross[191].
[191] 12 March 2015, T 142
Mr Crawford gave evidence that the decision about what to pay an employee upon termination was a decision made in combination with Mr Ross and the accountants. He admitted that he understood: the obligations of an employer to accrue four weeks of annual leave progressively; that the entitlement accrues from year to year; that paid annual leave may be taken as agreed with an employee during the employment; that an employer must keep records of annual leave; and, that an employer must pay out any accrued but untaken annual leave upon termination[192].
[192] Ibid, P-140
Mr Crawford also admitted that he made the decision to terminate Mr Smith’s employment. He said that he did not turn his mind to the question of whether any annual leave should be paid out to Mr Smith at that time and that the only reason why was because of the Agreement[193]. The fact that Mr Crawford made the decision to terminate Mr Smith’s employment is critical because it was within Mr Crawford’s authority at that time, and only within his authority, to direct Quasar Constructions to reconstruct the leave accrual records for Mr Smith and pay him the amount for untaken annual leave that Mr Smith had accrued up to 29 February 2012.
[193] Ibid, P-142
In all, the evidence demonstrates the conscious involvement of Mr Crawford in the acts of Quasar Constructions that constitute the alleged contraventions. Mr Crawford was a person responsible for ensuring that Quasar Constructions complied with its legal obligations to Mr Smith, including in relation to the accrual and payment of annual leave and the keeping of proper records. This contrasts with the position of Mr Smith; the evidence is that he had no involvement in employee issues or the keeping of employment records[194].
[194] Ibid, P-130
Conclusions
I find that Quasar Constructions breached the Fair Work Act by failing to pay Mr Smith his accrued leave entitlements and by failing to keep proper records from 2009. I find that Mr Crawford was involved in both contraventions in his capacity as managing director.
I find that Mr Smith was entitled to be paid his leave entitlements foregone in the 2009 Agreement but not otherwise. That is because there is no reliable evidence available to determine his remaining leave entitlement after the Agreement. The parties should bring in an appropriate order quantifying the entitlement foregone in the Agreement.
Although I will hear from the parties further as necessary, I am not currently minded to impose any penalty for the contraventions for the reasons given above.
I certify that the preceding two hundred and fifty-eight (258) paragraphs are a true copy of the reasons for judgment of Judge Driver
Associate:
Date: 28 August 2015
Worth dated 13 October 2014 at [9] and Annexure "A"; T, 17 September 2014, 16-26