Taz-West Electrical Pty Ltd v Nielsen
[2000] TASSC 54
•1 June 2000
[2000] TASSC 54
CITATION: Taz-West Electrical Pty Ltd v Nielsen [2000] TASSC 54
PARTIES: TAZ-WEST ELECTRICAL PTY LTD
v
NIELSEN, Wayne Michael
TITLE OF COURT: SUPREME COURT OF TASMANIA (FULL COURT)
JURISDICTION: APPELLATE
FILE NO/S: FCA 109/1999
DELIVERED ON: 1 June 2000
DELIVERED AT: Hobart
HEARING DATE: 23 March 2000
JUDGMENT OF: Cox CJ, Underwood J, Slicer J
CATCHWORDS:
Workers Compensation - Assessment and amount of compensation - Weekly earnings - Tasmania - Total incapacity - Characterisation of portion of wages as "directors' fees" - Whether included in "normal weekly earnings" in the Workers Rehabilitation and Compensation Act 1988, s69(1)(a).
Workers Rehabilitation and Compensation Act 1988 (Tas), s69(1)(a).
Workers Compensation Act 1926 (NSW), s11(1)(a).
Johns Perry Hayward Pty Ltd v Greaves (No 2) A13/1991; Brambles Holdings Ltd t/as Brambles Shipping v Pincott A30/1994, considered.
Aust Dig Workers Compensation [211]
REPRESENTATION:
Counsel:
Appellant: W T McMillan
Respondent: R J Phillips
Solicitors:
Appellant: W T McMillan & Co
Respondent: Phillips Taglieri
Judgment Number: [2000] TASSC 54
Number of paragraphs: 19
Serial No 54/2000
File No FCA 109/1999
TAZ-WEST ELECTRICAL PTY LTD
v WAYNE MICHAEL NIELSEN
REASONS FOR JUDGMENT FULL COURT
COX CJ
UNDERWOOD J
SLICER J
1 June 2000
Orders of the Court
Appeal dismissed.
Serial No 54/2000
File No FCA 109/1999
TAZ-WEST ELECTRICAL PTY LTD
v WAYNE MICHAEL NIELSEN
REASONS FOR JUDGMENT FULL COURT
COX CJ
1 June 2000
On 27 February 1997, the respondent worker was injured in the course of his employment with the appellant employer ("the Company") and totally incapacitated for work. While the respondent's entitlement to weekly compensation is not in dispute, the quantum of his entitlement is.
Pursuant to the Workers Rehabilitation and Compensation Act 1988 ("the Act"), s69(1)(a), the respondent is entitled to be paid:
"69 ¾ (1) …
(a)… weekly rate payments equal to ¾
(i)the normal weekly earnings of the worker; or
(ii)the ordinary time rate of pay of the worker for the work in which, and for the hours during which, the worker was engaged immediately before the period of incapacity ¾
whichever is the greater; "
Another relevant section is s70(2)(ac):
"70 ¾ …
(2) The normal weekly earnings of a worker shall be determined in accordance with the following provisions:¾
…
(ac)in computing normal weekly earnings, any amounts paid to the worker at the discretion of the worker's employer by way of bonus, gratuity or other similar payment is to be excluded;"
The respondent began his employment with the Company on 11 October 1995, working as an electrician. His agreed rate of pay was $25 per hour. The respondent was also a director of the Company. At a meeting of the directors of the appellant Company on 7 January 1996, the following resolutions were passed:
"DIRECTORS
REMUNERATION: Resolved that remuneration paid to Directors be reduced to $12.50 per hour effective from January 7th, 1996, except for Thompson, Leonard Maxwell who was paid $25 per hour for the month of January, 1996 until the date of his resignation.
Further resolved that a bonus be payable periodically to the Directors equal to $12.50 per hour effective from January 1st, 1996. It was agreed that no bonus would be paid to Thompson, Leonard Maxwell, for the period until his resignation."
The resolutions were put into effect and thereafter for each hour the respondent worked as an employee of the Company he was paid:
(a) $12.50 characterised as wages; and
(b) $12.50 variously characterised as directors' fees, bonuses or remuneration.
Clearly, the second payment was not a bonus, gratuity or similar payment paid at the discretion of the employer within the meaning of s70(2)(ac). Nor was it a payment by way of "directors' fees" as that term might be understood as relating to the remuneration of a director in his capacity as such for conducting the business of the Company. The evidence showed that no other payment was or had been made to directors by way of fees of that nature, their only payment additional to wages before the resolutions and the combined payments thereafter being by way of dividends derived from the Company's profits.
At the time of the respondent's injury, he was being paid as above.
It appears that the purpose of the resolutions was to lower the amount of payments classified as wages which were paid by the Company to the respondent and co-workers who were also directors. By reducing the total amount it paid as wages, the Company was able to reduce its workers compensation insurance premiums.
The respondent contended that the calculation of his normal weekly earnings should take into account both of the payments he was entitled to receive for each hour that he worked as an employee of the Company, ie $12.50 characterised as wages and $12.50 payable pursuant to the further resolution. This contention was rejected by the Workers Rehabilitation and Compensation Tribunal insofar as it excluded directors' fees from the calculation. The respondent appealed against that ruling pursuant to the Act, s63, and his appeal was upheld by Evans J, who noted in his Reasons for Judgment:
"The Act does not define 'earnings'. In construing the words 'earnings of the worker' in the Act, s69(1)(a), I am mindful of the following passage from the decision of Heerey J in Bortolazzo and Saffron v Comcare Australia [1997] 515 FCA (12 June 1997):
'… the Act is social legislation which ought to be construed, in the event of ambiguity, liberally in favour of injured employees: McDermot v Owners of SS Tintoretto [1911] AC 35, Wilson v Wilsons Tileworks (1960) 104 CLR 328 at 335. But a liberal interpretation is one thing, rewriting the statute is another.
… The underlying policy is that an injured employee should not be worse off during the period of incapacity as a result of work-related injury. However, it follows conversely that the injured employee should not be better off.'
Whilst the above observation relates to the Safety, Rehabilitation and Compensation Act 1988 (Cth), I consider it to be equally apposite to the Act under consideration.
The amount a worker 'is earning' is the subject of the Workers Compensation Act 1926 (NSW), s11(1)(a), which provision was dealt with by the High Court in J & H Timbers Proprietary Limited v Nelson (1972) 126 CLR 625 and Cage Developments Proprietary Limited v Schubert (1983) 151 CLR 584. These decisions are authority that a reference to the amount a worker is earning is a reference to the amount he is earning as a worker by his own physical and mental exertion. In Johns Perry Hayward Pty Ltd v Greaves (No 2) A13/1991, Wright J said of the term 'earnings' in the Workers Compensation Act 1988, s69(1)(a): 'In my opinion a man earns what he receives by way of recompense for the exercise of his labour or skill'. That passage was quoted in Brambles Holdings Ltd t/as Brambles Shipping v Pincott A30/1994 by Underwood J, who, at 11, observed that the underlying rationale behind workers compensation legislation is the provision of compensation for physical incapacity to earn income. As to the calculation of 'average weekly earnings', Underwood J said at 13:
'The task is to measure the fruits of the worker's labour and skills, and to exclude from that exercise any amount that profit derived from capital investment and any income attributable to the supply of materials.'
Ascertaining the normal weekly earnings of a worker involves establishing the recompense the worker was entitled to receive from his or her employer in return for the labour and skills he or she provided to the employer as an employee. In the context of this matter, there is no difficulty about establishing the appellant's entitlement. For each hour he worked as an employee of the respondent, the appellant was entitled to receive $12.50 characterised as wages and $12.50 characterised as directors' fees."
His Honour rejected the ruling of the learned Commissioner to the following effect:
"The fact that the second component was paid on a calculation per hour by reference to his work hours as a servant suggests the artificial nature of the payment but the quantum of this fee and the manner in which it is calculated are matters that fall purely within the internal management of the company and I believe cannot alter the nature of the actual payment.
Accordingly I am not satisfied that the worker during the relevant period of incapacity was entitled to a weekly payment calculated at the rate of $25 per hour but rather one calculated in relation to $12.50 per hour in respect of the wage or income received by him in respect of the exercise of his labour as a servant for the company."
Evans J held that it was not to the point that the manner of calculating the remuneration paid to workers who were directors was a matter for the internal management of the Company. He held that the respondent was entitled to be paid by the Company a total sum of $25 for each hour he worked and that he could have enforced that entitlement by action if the Company had refused to pay. I fully agree with his Honour's reasons and conclusions. The payments of $25 for each hour worked were made by way of recompense in respect of the exercise of the appellant's labour or skill as an electrician employed by the Company. As such, they amounted to earnings notwithstanding that the Company, for its own reasons, chose to call some parts by different names. The fact that some advantage may have been obtained in respect of workers compensation insurance premiums is not to the point either. Even were there reason to suppose that the insurer was improperly disadvantaged or even misled (and none has been demonstrated), that is a matter between the Company and the insurer. I would dismiss the appeal.
File No FCA 109/1999
TAZ-WEST ELECTRICAL PTY LTD
v WAYNE MICHAEL NIELSEN
REASONS FOR JUDGMENT FULL COURT
UNDERWOOD J
1 June 2000
In my opinion, no fault can be found in either the reasoning or the conclusion of the learned judge at first instance from whom this appeal is brought.
The issue before Evans J was whether the learned Workers Compensation Commissioner erred in not taking into account certain payments described as "directors' fees" when calculating the amount of weekly payments payable to the respondent.
The respondent was an electrician. He began work for the appellant at the end of 1995. He was paid at the rate of $25 per hour for work done as an electrician for the appellant. The respondent was also a director of the appellant. Of course, a person can be both a director and an employee of a company. With respect to this, Hoare J said in Argent Pty Ltd v Huxley [1971] Qd R 331 at 333 - 334:
"It is perfectly true that a director as such is not a servant of the company. (Hutton v West Cork Railway Co (1883) 23 Ch D 654, per Bowen LJ at p 672). The observations of Cozens Hardy J in Re Newspaper Pty Syndicate Ltd [1900] 2 Ch D 34, must be considered in the light of the facts of that case. If a director of a company regularly performs duties and is paid a fixed salary per annum he becomes a servant of the company. (In re Beeton & Co Ltd [1913] 2 Ch 270). It is important to bear in mind that when a private family company utilises the services of a director who exercises all management functions, it may in some circumstances be proper to infer a relationship of master and servant between the company and that person without direct proof of the creation of that relationship. After all, a director who performs the functions of manager of a company does not have a conversation with himself in his two capacities. It is necessary to examine what he does in fact. If he performs functions in a way in which an employed person normally does it maybe proper to infer a master and servant relationship from that actual performance. When a salary is paid to a director of a private company who performs duties of a nature normally done by a servant, then, in the absence of other evidence, it may be proper to infer that the person to whom the salary was paid was, in fact, a servant of the company (re Beeton & Co Ltd (supra))."
See also Lee v Lee's Air Farming Ltd [1960] 3 All ER 420.
On 7 January 1996, the respondent and the other three directors of the appellant held a meeting. At that meeting one of the directors, Mr Thompson, gave notice of his intention to resign and the following resolution was passed:
"directors remuneration: | Resolved that remuneration paid to Directors be reduced to $12.50 per hour effective from January 7th, 1996, except for Thompson, Leonard Maxwell who was paid $25 per hour for the month of January, 1996 until the date of his resignation. Further resolved that a bonus be payable periodically to the Directors equal to $12.50 per hour effective from January 1st, 1996. It was agreed that no bonus would be paid to Thompson, Leonard Maxwell, for the period until his resignation." |
With respect to the passing of that resolution, the learned Workers Compensation Commissioner said:
"The worker gave evidence and explained that in January 1996 he and his fellow directors, agreed to split the payment of their income to represent half as wages and half as directors fees. He said that this was done for the purpose of minimising the wages payable and thereby to make savings in respect of the employer's workers compensation insurance premium. At the same time an income protection insurance policy was taken out to protect each of the working directors in respect of that component of their earnings classified as directors fees."
On 27 February 1997, the respondent suffered an accident that arose out of and in the course of his employment. It was common ground that the respondent thereby became entitled to weekly payments pursuant to the provisions of the Workers Rehabilitation and Compensation Act 1988. The Act, s69(1) provided the respondent with an entitlement to payment of "normal weekly earnings". The respondent claimed that his normal weekly earnings should be calculated by reference to his earnings at the rate of $25 per hour. The appellant, or presumably its insurer, contended that normal weekly earnings should be calculated by reference to the sum of $12.50 per hour as the other $12.50 constituted directors' fees, not earnings, notwithstanding that the weekly amount of directors' fees paid to the appellant was calculated by multiplying the number of hours worked as an electrician by $12.50. With respect to this issue, the learned judge at first instance said:
"The amount a worker 'is earning' is the subject of the Workers Compensation Act 1926 (NSW), s11(1)(a), which provision was dealt with by the High Court in J & H Timbers Proprietary Limited v Nelson (1972) 126 CLR 625 and Cage Developments Proprietary Limited v Schubert (1983) 151 CLR 584. These decisions are authority that a reference to the amount a worker is earning is a reference to the amount he is earning as a worker by his own physical and mental exertion. In Johns Perry Hayward Pty Ltd v Greaves (No 2) A13/1991, Wright J said of the term 'earnings' in the Workers Compensation Act 1988, s69(1)(a): 'In my opinion a man earns what he receives by way of recompense for the exercise of his labour or skill'. That passage was quoted in Brambles Holdings Ltd t/as Brambles Shipping v Pincott A30/1994 by Underwood J, who, at 11, observed that the underlying rationale behind workers compensation legislation is the provision of compensation for physical incapacity to earn income. As to the calculation of 'average weekly earnings', Underwood J said at 13:
'The task is to measure the fruits of the worker's labour and skills, and to exclude from that exercise any amount that profit derived from capital investment and any income attributable to the supply of materials.'
Ascertaining the normal weekly earnings of a worker involves establishing the recompense the worker was entitled to receive from his or her employer in return for the labour and skills he or she provided to the employer as an employee."
In my view, that passage in his Honour's reasons for judgment correctly expresses the law. The Act, s70, defines the "normal weekly earnings" to which the respondent was entitled as the "average weekly earnings of the worker over the period of 12 months ending at the commencement of the period of incapacity". The question for the learned Workers Compensation Commissioner was what had the respondent earned as an employee of the appellant during the relevant period of 12 months. The answer to the question is to be found by ascertaining the amount of money paid by the appellant during the relevant period in return for the respondent's labour, not as a director, but as an employee. This depends upon what was in fact paid for work as an electrician, not upon the description attributed to such payment or part of it by the directors of the company or anyone else for that matter. Once this is understood, it is quite clear that the respondent's normal weekly earnings fell to be calculated with reference to the hourly rate of $25 and not $12.50.
In the calculation of "normal weekly earnings", the Act, s70(2)(ac), provides that there is to be excluded therefrom "any amounts paid to the worker at the discretion of the worker's employer by way of bonus, gratuity or other similar payment". Quite clearly no part of the total hourly payment of $25 could be described as discretionary, or by way of bonus, gratuity or other similar payment. Further, the provisions of the Act, s69(5) exclude from the calculation of normal weekly earnings any payments made pursuant to the respondent's personal accident insurance policy.
Although said in the context of slightly different legislative provisions, the observations of Cawthorne J in The Corporation (Murcat Pty Ltd) v Grant Desmond Schlein [1993] SAWCAT 89 at 3 are apposite to the relevant provisions of the Act:
"The object of the provisions of the Act is to provide the worker by way of compensation the equivalent to the earnings which he could have counted on receiving if there had been no disability."
Murcat was a case in which the employee/director received irregular payments for his labour which were recorded in the books of his company as "director's loan".
I would dismiss the appeal.
File No FCA 109/1999
TAZ-WEST ELECTRICAL PTY LTD
v WAYNE MICHAEL NIELSEN
REASONS FOR JUDGMENT FULL COURT
SLICER J
1 June 2000
I have had the opportunity of reading in draft form the Reasons for Judgment of the learned Chief Justice and Underwood J. I agree with their reasoning and conclusion. I would dismiss the appeal.
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