TJORPATZIS v E J Love and Co Pty Ltd
[2016] FCCA 2735
•28 October 2016
FEDERAL CIRCUIT COURT OF AUSTRALIA
| TJORPATZIS v E J LOVE & CO PTY LTD & ANOR | [2016] FCCA 2735 |
| Catchwords: FAIR WORK – Real estate agent paid by commission – underpayments – superannuation being deducted from commissions rather than paid in addition to commissions – consequential underpayments of other entitlements – accessorial liability. |
| Legislation: Fair Work Act 2009, s.550 |
| Cases cited: County Securities Pty Ltd v Challenger Group Holdings Pty Ltd [2008] NSWCA 193 Dowling v Kirk [2007] FMCA 2106 Fortune Holding Group Pty Ltd v Zhang [2016] VSC 273 |
| Applicant: | ARTHUR TJORPATZIS |
| First Respondent: | E J LOVE & CO PTY LTD |
| Second Respondent: | GRAHAM EDWARD LOVE |
| File number: | MLG 312 of 2016 |
| Judgment of: | Judge Riley |
| Hearing date: | 13 and 14 September 2016 |
| Date of last submission: | 16 September 2016 |
| Delivered at: | Melbourne |
| Delivered on: | 28 October 2016 |
REPRESENTATION
| Counsel for the applicant: | Joseph D’Abaco |
| Solicitors for the applicant: | Portfolio Law |
| Counsel for the respondents: | Brian G Mason |
| Solicitors for the respondents: | McDonald Murholme |
ORDERS BY CONSENT
The matter be adjourned to 8 December 2016 at 10am for hearing on the issue of penalty (if required).
On or before 11 November 2016, the applicant file and serve an outline of submissions and affidavit (if any) in respect of the issue of penalty.
On or before 25 November 2016, the respondents file and serve an outline of submissions and affidavit (if any) in respect of the issue of penalty.
By 25 November 2016, the first respondent pay:
(a)to applicant the amount of $73,920.84 plus interest in accordance with law, less any applicable deduction of taxation; and
(b)in favour of the applicant the amount of $6,437.51 plus interest in accordance with law to the REI Super superannuation fund No.111695944.
Each party have liberty to apply.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT MELBOURNE |
MLG 312 of 2016
| ARTHUR TJORPATZIS |
Applicant
And
| E J LOVE & CO PTY LTD |
First respondent
And
| GRAHAM EDWARD LOVE |
Second respondent
REASONS FOR JUDGMENT
Introduction
This is an application under the Fair Work Act 2009. The applicant alleges that he was underpaid commissions, superannuation and accrued annual leave and long service leave by the first respondent. The applicant also alleges that the second respondent has accessorial liability for the first respondent’s defaults. The first respondent denies that it underpaid the applicant. The second respondent says that, consequently, he has no accessorial liability.
The applicant is a real estate agent. In 1991, he commenced employment with the first respondent. He remained in the employ of the first respondent until 22 December 2014. That is a period of about 23 years.
The first respondent is a company that operates six real estate offices in the northern suburbs of Melbourne. The first respondent was incorporated on 23 May 1978. At all material times, the second respondent was the sole director of the first respondent. The first respondent has issued 36 shares, 16 of which are held by the second respondent. The other 20 shares are held by a company controlled by the second respondent’s son, Michael.
The first respondent charged its clients commissions on the sale of properties. The applicant and other real estate agents employed by the first respondent were in turn paid commissions consisting of a percentage of the commissions paid to the first respondent.
The amount of the commission paid to the first respondent by any particular client was an agreed percentage of the sale price of that client’s property. The percentage would vary depending on such matters as whether or not the cost of advertising was included.
When the applicant commenced employment with the first respondent, he received a letter of appointment that set out his terms and conditions. Those terms and conditions were occasionally varied over the following 23 years. However, there was no written record of those variations.
The percentage of the commission received by the first respondent that was paid to the applicant varied over time in accordance with various formulae that the parties appeared to well understand and that were not in issue in this proceeding.
The first respondent also paid the applicant a salary. Initially, the salary consisted of an advance on commissions. However, later, the salary was “non-refundable”.
In 1992, compulsory employer superannuation contributions were introduced. The first respondent then paid superannuation contributions for the applicant based on his salary but not his commissions. The applicant did not dispute the lawfulness of that approach.
In 2002, the second respondent asked sales staff to sign new employment contracts that provided for higher rates of salaries and commissions but were to be inclusive of superannuation. The applicant was a spokesperson for all of the sales staff and opposed the new contracts. Ultimately, no one signed the new contracts.
In early 2008, the second respondent gave the applicant a newsletter from the Australian Taxation Office (“ATO”) and suggested to the applicant that he might be able to save some tax. The applicant noticed in the newsletter that there was to be a change to superannuation laws commencing on 1 July 2008. Relevantly, the change was that, from 1 July 2008, ordinary earnings would be defined to include commissions, and employers would be required to pay superannuation on behalf of their employees at the rate of 9% of ordinary earnings.
2 July 2008
The applicant and the second respondent agreed that they had a conversation on 2 July 2008 about superannuation and commissions. However, they were in dispute about the content of that conversation.
The applicant said that:
a)he spoke to the second respondent on behalf of himself and six other sales staff;
b)the second respondent spoke aggressively;
c)the second respondent said that:
i)he would not pay superannuation on top of commissions; and
ii)if the staff did not like it they could all leave;
d)the applicant asked about his position as sales manager;
e)the second respondent replied:
I’m not paying it, if you don’t like it you can leave too, I’m not going to go broke.
The second respondent said that he did not suggest that the applicant should leave as he was concerned about a wrongful termination dispute. The second respondent said that he simply told the applicant that he was not prepared to pay superannuation on top of the commissions. The second respondent said that the applicant was unwilling to shift from his position that superannuation had to be paid on top of the commissions and was unwilling to discuss any agreement.
It was common ground that, immediately after the conversation, the applicant gathered some personal items from his desk, gave the second respondent in his office keys, said that he was resigning and left the office.
6 July 2008
The parties agreed that the applicant and the second respondent met in a café on 6 July 2008. However, they were in dispute about how the meeting came about and what was said at the meeting.
The applicant claimed that the second respondent called him repeatedly and eventually the applicant agreed to meet him. The second respondent said that the applicant asked to meet him at the café and the second respondent agreed.
The applicant said that, on 6 July 2008:
a)he told the second respondent he would not return to work unless the first respondent agreed to pay the applicant superannuation contributions on top of commissions as required by law;
b)the second respondent eventually agreed, and said that he would pay those amounts if the applicant returned to work.
The second respondent said that, on 6 July 2008:
a)he and the applicant discussed the friendship and the good working relationship they had enjoyed for the previous 16 years;
b)the applicant was emotional and talked about old times;
c)at the end of the meeting, the applicant agreed to come back to work;
d)there had been no discussion about the superannuation issue; and
e)the second respondent assumed, as the applicant was well aware of the second respondent’s refusal to pay superannuation on top of the commissions, that the applicant was agreeing to return to work on the terms previously stated by the second respondent.
The applicant said, and it was not disputed, that, at this stage, he had not told his wife that he had resigned from his employment on 2 July 2008.
7 July 2008
On 7 July 2008, the applicant returned to work for the first respondent. There was no further discussion, and no written agreement, about whether or not the first respondent would pay the applicant superannuation on top of commissions.
August 2008
On or about 1 August 2008, in accordance with the usual practice of the office, the applicant submitted to the second respondent the applicant’s commission statement for the second respondent’s approval by leaving it on his desk. That commission statement was not provided to the court. However, similar, subsequent statements were provided. They were handwritten by the applicant and had a number of columns.
The entries in the commission statements identified, in respect of each property that had been sold, the address, the name of the vendor, the sale price, the scale fee received by the first respondent and the amount of commission claimed by the applicant. In most cases, until about August 2011, the second respondent would check the statement, mark it “OK” and initial it. After August 2011, in most cases, the second respondent’s son Michael would carry out that process.
The applicant said that the commission statement remained unapproved on the second respondent’s desk for about a week. The second respondent in his affidavit said he did not admit that the applicant’s commission statement remained unapproved for a week and said that he:
would always try to approve commission statements quickly.
The applicant said that:
a)after the week had passed, he saw his commission statement on the desk of the payroll officer;
b)the applicant asked the payroll officer when he would receive his commissions;
c)the payroll officer said that she could not process the commission claim because the second respondent had not yet told her how to handle the superannuation issue;
d)the applicant asked the payroll officer to speak to the second respondent, to get his direction and process the commission claims;
e)the next morning, the applicant found a commission statement on his desk which showed that the superannuation contributions had been deducted from the commissions payable to him;
f)other sales staff of the first respondent had their superannuation and commissions treated in the same way;
g)the applicant made his displeasure known to the payroll officer, the administration manager and other staff members at the Reservoir office and told them that he would seek reimbursement when he left employment with the first respondent;
h)the applicant at this time was 55 years old, was his family’s sole income earner and had two children who were young adults and still studying;
i)the applicant felt too intimidated to risk jeopardising his job by raising the matter with the second respondent; and
j)the applicant decided to continue in his employment with the first respondent and claim the shortfall in his commissions at a later stage when he left employment with the first respondent.
The second respondent did not admit those allegations, except that he agreed that, “superannuation entitlements were deducted from the commission amounts”. The second respondent said further that he had never threatened the applicant’s employment and the applicant was free to raise any concerns with him without fear of losing his job.
October 2008
The second respondent said in his affidavit that:
a)in about October 2008, two sales staff left;
b)the applicant said he would leave too unless the first respondent paid him a salary of $110,000;
c)the second respondent offered him a $50,000 base salary inclusive of superannuation and a car allowance, plus commissions as agreed;
d)the applicant accepted that offer; and
e)the applicant’s base salary was increased as agreed.
The applicant said that:
a)in about October 2008, two sales staff left; and
b)the second respondent agreed to change his job title and increase his base salary from $15,600 plus superannuation to $36,405 plus superannuation.
June 2010
In June 2010, the second respondent’s business partner died. The partner had run the Thornbury office. The second respondent took over the management of the Thornbury office and appointed his son, Michael, to run the Reservoir office. The second respondent asked the applicant if he wished to buy into the business. However, the applicant did not ever do so, apparently for reasons connected with Michael’s management.
22 December 2014
On 22 December 2014, applicant resigned from his employment with the first respondent.
Between 6 July 2008 and 22 December 2014, the applicant and the second respondent did not discuss the deduction of the applicant’s superannuation contributions from his commissions.
12 January 2015
On 12 January 2015, the applicant commenced employment with another real estate firm.
12 May 2015
On 12 May 2015, the applicant sent an email to the respondents’ solicitor setting out the history of the matter as the applicant perceived it, and saying to the second respondent:
This is your opportunity to be a man of your word.
The applicant said that meant it was the second respondent’s opportunity to comply with his verbal agreement made on 6 July 2008 to pay the applicant superannuation on top of commissions.
20 May 2015
On 20 May 2015, the applicant complained to the ATO in relation to the first respondent’s payment of superannuation on his behalf for the period 1 July 1992 to 31 December 2014.
11 August 2015
By letter dated 11 August 2015, the ATO said it had decided to take no further action in respect of the applicant’s complaint, it being a contractual dispute.
Submissions on credibility
The parties both agreed that the other was an honest witness. Where their evidence differed, each suggested that the other’s recollection had been distorted by their entrenched positions. The applicant also noted that the second respondent was sometimes inclined to say he “would have” done something, thus reflecting that he had no actual memory of some of the events he described. The applicant also said that his memory was more reliable because the events were much more significant to him than to the second respondent.
The first respondent’s liability
I do not accept the applicant’s claim that the second respondent agreed during the meeting on 6 July 2008 to pay the applicant superannuation on top of commissions. I consider that, if the second respondent had said that he would do that, he would have done it. I accept the second respondent’s evidence that superannuation was not discussed at the meeting on 6 July 2008. That means that, when the applicant returned to work on 7 July 2008, nothing had been agreed about any change to his terms of employment. On the second respondent’s own evidence, there was no discussion at the meeting on 6 July 2008 about superannuation.
I accept that the applicant’s 1 August 2008 commission statement remained on the second respondent’s desk for a week without the second respondent doing anything about it. The applicant appeared to have a clear recollection of these events, whereas the second respondent relied on his usual practice. It is also consistent with the second respondent’s reluctance to grapple with the issue.
I accept the other evidence of the applicant regarding the events of August 2008, except in relation to him being intimidated by the second respondent. Seeing them both in the witness box, and knowing that the applicant was well able to negotiate an increase in his terms and conditions in October 2008, I do not find plausible that the applicant was intimidated by the second respondent. Rather, I consider that, in 2008, the applicant simply decided to bide his time, and claim the superannuation owed to him when he ceased employment with the first respondent.
I do not accept the second respondent’s argument that the applicant’s silence, coupled with his return to work on 7 July 2008, in the context of the second respondent’s known position, meant that the applicant had accepted the second respondent’s conditions. There is no more merit in that argument then there would be in the reverse argument, that the second respondent’s silence, coupled with his acceptance of the applicant returning to work on 7 July 2008, in the context of the applicant’s known position, meant that the second respondent had accepted the applicant’s conditions.
The applicant relied on County Securities Pty Ltd v Challenger Group Holdings Pty Ltd [2008] NSWCA 193. In that case, Spigelman CJ said at [21]:
In my opinion, subsequent conduct, especially how a contract for purchase and sale was settled, is relevant, on an objective basis, to the identification of the subject matter of the contract or the determination of necessary terms, as distinct from deciding the meaning of words.
However, for the reason discussed above, I do not consider that the applicant’s return to work can be treated as subsequent conduct that proves any particular term of an agreement that was allegedly reached on 6 July 2008. The return to work was not clearly consistent with one person’s position rather than the other’s.
The other potentially relevant subsequent conduct of the parties is the applicant’s claims for commissions and the first respondent’s treatment of them. The applicant continued, after 6 July 2008, to claim commissions in the same way as he had previously. The first respondent, after 6 July 2008, provided to the applicant commission statements of which the following is an example:
ARTHUR TJORPATZIS
07/08/08 Commission claimed $15,295.00 Less Super @ 9% $1,262.89 Gross Commission due $14,032.11 Less Tax $5,164.11 Nett Commission due $8,868.00 Tax Calculations: Gross YTD 07/07/08 $3,090.03 Commission $14,032.11 $17,122.14 Average weekly earnings $2,853.69 6 wks Tax rate per week $918.78 $5,512.68 Tax paid YTD $348.03 $5,164.65
This document shows that the parties continued to act on the basis that the applicant’s level of commission would continue to be calculated as it had been calculated previously. The difference between the parties was that the applicant believed that he had a right to have superannuation on top of the commission and the second respondent believed the first respondent had the right to deduct superannuation from the commission.
The second respondent was mistaken. The law is clear that the 9% employer superannuation contribution had to be paid on top of ordinary earnings, which were defined to include commissions.
Even if the applicant had acquiesced in the first respondent deducting superannuation from his commissions, the law required the first respondent to pay superannuation on top of commissions. The applicant’s equivocal conduct cannot be relied upon to undermine clear statutory obligations.
The respondents also argued that the parties had agreed to a “total package” and, on that basis, it was permissible for the superannuation to be deducted from commissions. For that argument, the respondents relied on the decision in Fortune Holding Group Pty Ltd v Zhang [2016] VSC 273. In that case, Riordan J said at [36(a)]:
The obligation to make the superannuation contribution is on the employer. In my opinion, in the absence of other circumstances, an offer to pay a salary of $85,000 would not imply that the employer’s compulsory superannuation contributions would be deducted from that sum. Such an inference would normally only be drawn if the employee was offered that sum as a ‘total package’. (citation omitted)
In the present case, I do not accept that the evidence supports a finding that the applicant was offered a “total package”. On the second respondent’s evidence, at the meeting on 6 July 2008, the applicant was not offered anything. Moreover, although Riordan J used the word “offered”, his Honour clearly meant “accepted”.
Indeed, the second respondent said in cross examination (Tr. p79) that he had not adjusted the applicant’s rate of commission and he had deducted the applicant’s superannuation contributions from the commissions. The second respondent also said expressly that he had not renegotiated the applicant’s commission rate.
It is clear on the evidence that the applicant did not accept that what had previously been his level of commission was now to be a total package consisting of a reduced level of commission plus superannuation equal to his previous level of commission. Any such total package could only have been agreed in a transparent and certain manner. Relying on the applicant’s equivocal conduct is not sufficiently certain and transparent. What actually happened in this case is that the parties did not agree on any reduction in the applicant’s level of commission and remained in a stand-off.
It was incumbent on the first respondent, as the employer, to provide the applicant with a clear statement of his terms and conditions. The second respondent obviously intended that the applicant would receive a reduced commission to offset the increase in his superannuation benefits. In theory, that could have been agreed. However, as the second respondent failed to negotiate and achieve a clear agreement with the applicant, the only conclusion to be drawn is that the previous agreement continued.
Consequently, the first respondent was obliged to pay the applicant commissions on the previously agreed basis and pay superannuation contributions on the applicant’s behalf on top of those commissions.
There was ultimately no dispute about quantum in this case. I find that the first respondent failed to pay the applicant, or on his behalf:
a)$6,437.51 in superannuation entitlements; and
b)$73,920.84 in commission and long service and annual leave entitlements.
The second respondent’s liability
The applicant claimed that the second respondent had accessorial liability for the first respondent’s underpayment of the commissions and underpayment of annual leave entitlements. The second respondent denied that he had accessorial liability, because he did not have actual knowledge of the relevant matters.
Section 550 of the Fair Work Act 2009 provides that:
(1)A person who is involved in a contravention of a civil remedy provision is taken to have contravened that provision.
(2)A person is involved in a contravention of a civil remedy provision if, and only if, the person:
(a)has aided, abetted, counselled or procured the contravention; or
(b)has induced the contravention, whether by threats or promises or otherwise; or
(c)has been in any way, by act or omission, directly or indirectly, knowingly concerned in or party to the contravention; or
(d) has conspired with others to effect the contravention.
In Dowling v Kirk [2007] FMCA 2106, Cameron FM, as his Honour then was, reviewed the authorities and then said at [33]:
What these authorities show is that in order for a person to have accessorial liability under s.728(2) of the Act he or she
· must have knowledge of the essential facts constituting the contravention;
· must be knowingly concerned in the contravention;
· must be an intentional participant in the contravention based on actual not constructive knowledge of the essential facts constituting the contravention – although constructive knowledge may be sufficient under paragraph (c) in cases of wilful blindness; and
· need not know that the matters in question constituted a contravention.
The second respondent argued that he could not be liable in relation to any annual leave shortfall because it was not pleaded. I accept that submission.
In relation to commissions, the second respondent submitted that the evidence showed that the second respondent instructed the payroll officer to deduct superannuation from the applicant’s commissions in August 2008, but the evidence did not go so far as to show that the second respondent gave that instruction for all future payments to the applicant.
That submission is not correct. The second respondent said in cross examination that he had to personally authorise the payment of commissions by the first respondent, he was aware that superannuation contributions were deducted from the applicant’s commission payments, he authorised that deduction and he directed the payroll officer to deduct the superannuation contributions from the applicant’s commissions (Tr. p69). That evidence was not confined to a single payment. It seems to me that this evidence can only be understood as the second respondent being entirely aware, and in fact requiring, that the applicant’s superannuation contributions be deducted from his commissions. Anything else would have been contrary to the second respondent’s entrenched position.
Consequently, I accept that the applicant has accessorial liability for the first respondent’s underpayment of the applicant’s commissions.
Penalties
The applicant also claims penalties. The parties were in agreement that penalties would be dealt with separately.
Orders
I will hear the parties on the form of the orders.
I certify that the preceding sixty-two (62) paragraphs are a true copy of the reasons for judgment of Judge Riley
Date: 28 October 2016
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