Varga v PaperCut Software International Pty Ltd

[2019] FCCA 1003

FEDERAL CIRCUIT COURT OF AUSTRALIA

VARGA v PAPERCUT SOFTWARE INTERNATIONAL PTY LTD [2019] FCCA 1003

Catchwords:
INDUSTRIAL LAW – Small claims – applicant claims underpayment of wages, bonus and annual leave entitlements on termination – scope of small claims jurisdiction.

Legislation:
Fair Work Act 2009 (Cth), s.548
Fair Work Regulations 2009, reg.4.01
Federal Circuit Court of Australia Act 1999 (Cth), s.76

Applicant: PATRIK VARGA

Respondent: PAPERCUT SOFTWARE INTERNATIONAL PTY LTD

File number: MLG 2120 of 2018

Judgment of: Judge Mercuri

Hearing date: 16 October 2018

Date of last submission: 16 October 2018

Delivered at: Melbourne

Delivered on: 18 April 2019

REPRESENTATION

Counsel for the applicant: In person

Solicitors for the applicant: None

Counsel for the respondent: Mr Adam Axon

Solicitors for the respondent: Lander and Rogers

ORDERS

1. Within 21 days, the respondent pay to the applicant the following sums:

   (a)

   $1,153.85 in respect of unpaid wages for the period from

   
   

   1 September 2017 to 13 October 2017;

   (b)$625.38 in respect of underpayment of annual leave entitlements on termination; and

   (c)$150.00 in lieu of interest.

2. All other applications be dismissed.

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT MELBOURNE

MLG 2120 of 2018

PATRIK VARGA

Applicant

And

PAPERCUT SOFTWARE INTERNATIONAL PTY LTD

Respondent

REASONS FOR JUDGMENT

Introduction and claims

1. This application came before the court in its small claims jurisdiction under the Fair Work Act 2009 (Cth) (“the FW Act”). The applicant alleges that the respondent breached one of the National Employment Standards (“NES”) in failing to pay him his annual leave entitlements, bonus and salary due under his employment contract.

2. The applicant claims:

   a)unpaid wages in the sum of $1,153.85;

   b)unpaid annual leave entitlements in the sum of $625.38; and

   c)unpaid bonus of $10,541.66.

3. The applicant also claims interest on the total sum owed at the rate of 5.5%, being a total of $667.65.

Background

1. The respondent is a software company which operates in Melbourne, Australia, Portland, Oregon and Bracknell, UK. The applicant commenced employment on a full time basis with the respondent on

   
   

   1 February 2016 as a senior software engineer. 

2. The applicant filed an affidavit in support of his application affirmed

   
   

   13 and filed 15 August 2018.  Annexed to his affidavit was a copy of his employment contract together with his application.[1]  Relevantly, the applicant’s employment contract deals with his remuneration at clause 6 which provides that the applicant will be paid the “Base Fee in arrears on the last day of each month.”[2]

   [1] Annexure A of the affidavit of Patrik Varga affirmed 13 and filed 15 August 2018.

   [2] Clause 6.1(a), Annexure A of the affidavit of Patrik Varga affirmed 13 and filed 15 August 2018.

3. The term “Base Fee” is not defined in clause 1 of the employment contract which contains definitions and interpretation.  However, the term “Base Salary” is defined.  Clause 1 also defines “Bonus” in the following terms:

   Bonus is paid in addition to the Base Salary.  The amount, terms and schedule of any bonus are entirely at the discretion of the employer and as determined by PaperCut directors.

   Commission means the commission which will be paid by PaperCut to the employee calculated as provided for in Schedule 2.

   Earnings Cap means the maximum Remuneration payable by PaperCut to the Employee on account of the Base Fee and Commission.[3]

   [3] Clause 1, Annexure A of the affidavit of Patrik Varga affirmed 13 and filed 15 August 2018.

4. Relevantly, clause 6(b) further provides that the respondent may review the applicant’s remuneration annually and that it may “in its absolute discretion, adjust the Employee’s Remuneration and the Earnings’ Cap as a result of such review.”

5. Clause 13 of the employment contract provides for annual leave.

6. Clause 22 of the employment contract also provides that the agreement can only be varied in writing. 

7. Schedule 1 to the employment contract provides that the base salary is “$110,000 per annum paid in arrears on the last day of every month”.[4]

   [4] Clause 6.1(a), Annexure A of the affidavit of Patrik Varga affirmed 13 and filed 15 August 2018.

8. Schedule 2 to the employment contract relevantly states:

   Commission

   This is a non-sales role.  No Commission applies.  The Employee will have access to the Bonus Scheme.

   Bonus

   As a full-time member of staff, the Employee will be included the company’s employee bonus scheme.  Any bonus is paid in addition to the Base Salary.  The amount, terms and schedule of any bonus are entirely at the discretion of the employer and as determined by PaperCut Directors (emphasis added).[5]

   [5] Schedule 2, Annexure A of the affidavit of Patrik Varga affirmed 13 and filed 15 August 2018.

9. The applicant took a period of parental leave from 29 May 2017 to

   
   

   23 June 2017[6] and then resigned from his employment on

   
   

   14 September 2017, such resignation to take effect on 13 October 2017.

   [6] Annexure B to the affidavit of Patrik Varga affirmed 13 and filed 15 August 2018.

10. After giving notice of his resignation, the applicant says that he had a number of discussions with various representatives from the respondent about the reasons for his resignation and possible changes to his role.  He further asserts that in the week of 18 September 2017, he had a discussion with Ms Sophie Graves, Employee Experience Advocate, who assured him that he would receive the full year’s bonus, notwithstanding his resignation.  Ms Graves did not give evidence in these proceedings and the Respondent does not otherwise dispute that this conversation occurred. 

11. Following further negotiations with various senior members of the respondent, the applicant confirmed that he was asked to withdraw his resignation and was provided with an out of cycle pay review increasing his salary to $125,000 effective from 1 September 2017.[7]  That letter dated 19 September 2017 included the following:

    Your new salary will be effective as of 1 September 2017 and your September pay statement will be reflective of this new increased amount.  For clarification purposes, this out-of-cycle pay review, will replace your usual February pay review in 2018, your next review will be in February 2019.[8]

    [7] Annexure D to the affidavit of Patrik Varga affirmed 13 and filed 15 August 2018.

    [8] Annexure D to the affidavit of Patrik Varga affirmed 13 and filed 15 August 2018.

12. The following facts are not in dispute:

    a)

    the applicant gave notice of resignation on 14 September and his  employment came to an end on

    
    

    13 October 2017;

    b)the applicant continued to be paid at his salary of $115,000 for the remainder of his employment and this was the rate used to calculate his annual leave entitlement on termination; and

    c)the applicant was not paid a bonus on termination. 

13. The applicant also referred to the fact that when discussing the bonus structure both internally and in relevant documentation, representations were made that the bonus scheme was about sharing the organisation’s success.  He felt aggrieved that he had contributed to that success for the relevant period and was not recompensed for that contribution. Moreover, he complained that when he discussed his resignation with the human resources team, he was assured that he would receive the full year bonus, notwithstanding that he was leaving prior to the end of the year. 

14. The respondent filed the following affidavits:

    a)Paula Stupka affirmed 18 September 2018; and

    b)Adam Axon affirmed 18 September 2018.

Paula Stupka

1. Ms Stupka commenced employment with the respondent in or about April 2017 and upon doing so, took over management of the team in which the applicant worked.  Ms Stupka attested to the fact that prior to tendering his resignation, the applicant raised some concerns with her during their monthly catch-ups, particularly with respect to his salary and the improvement of work practices.  Ms Stupka deposed that she was prepared to work with the applicant to address his concerns.

2. Ms Stupka further states that upon receiving the applicant’s letter of resignation on 14 September 2017, she discussed with him the reasons for his resignation and indicated that she wanted to try and work with him to resolve his concerns so that he could remain with the respondent.

3. Ms Stupka then stated that a meeting was held between herself and the applicant on 19 September 2017 which was also attended by

   
   

   Mr Doran, Chief Technical Officer and Mr Smith, Global Head of Development.  At this meeting, she deposed that the following offer was made to the applicant:

   a)he withdraw his resignation;

   b)there be some changes to his role to address some of the concerns he had raised; and

   c)the applicant would be provided with an out of cycle pay increase of $10,000.

4. Ms Stupka stated that the applicant said he would consider the offer overnight.  The following day, the applicant advised Ms Stupka that he rejected the offer.  Ms Stupka deposed that in the period from

   
   

   19 September 2017 until his employment came to an end on 13 October 2017, there was no change to the applicant’s role. 

Adam Axon

1. Mr Axon is the People and Culture Manager and commenced in that role in July 2016.  He deposed that at the relevant time, Ms Sophie Graves was a member of the People and Culture team and reported to him. 

2. Mr Axon further stated that the People and Culture team do not have any role in making any decisions about bonuses awarded by the respondent to eligible staff members.

3. Mr Axon further deposed that in his experience, the respondent has “never awarded a bonus to a former employee that was not currently employed when the bonus was payable”.[9]

   [9] Paragraph 11 of the affidavit of Adam Axon affirmed and filed 18 September 2018.

4. In relation to the bonus plan, Mr Axon stated:

   a)at a global fortnightly meeting which he attended, Mr Doran presented a bonus update at which, amongst other things, the following was said:

   i)on 11 October 2017, the leadership team would be making recommendations to the board as to what bonuses were to be awarded for board approval;

   ii)by mid-October 2017, the bonus amounts would be communicated to all staff;

   iii)by the end of October 2017, the bonuses would be paid; and

   b)he was thereafter advised on or about 11 October 2017 that:

   i)the board had approved the leadership team’s recommendations in relation to the bonuses;

   ii)current employees would receive a 7.5% bonus;

   iii)seven employees who had worked for the company for the entire full 2016/2017 financial year (but who would not be employed at the time the bonus would be payable) would not be awarded a bonus.  The applicant was one of those employees; and

   iv)six of these seven employees, including the applicant, had resigned from their employment.

5. I note that Mr Axon was not a party to the discussions outlined above and was not present when those decisions were made.  Rather his evidence, which is strictly hearsay, is based on what he was told by a

   
   

   Mr Fergusson.

6. Of the seven employees who did not qualify for the bonus on the basis that they had ceased employment prior to the bonus becoming payable, the applicant’s employment was the last to cease on 13 October 2017.  Two of the other employees ceased employment in the first week of

   
   

   July 2017, three in the first week of August 2017 and one in the last week of September 2017.

7. Mr Axon also gave evidence that Ms Graves attended the applicant’s exit interview on his last day of employment (being 13 October 2017) and advised the applicant that he would not receive a bonus.  As noted above,

   
   

   Ms Graves did not give evidence on behalf of the respondent in these proceedings.

8. Mr Axon went on to depose that he met with the applicant on

   
   

   13 October 2017, at the applicant’s request, to discuss his bonus. 

   
   

   During this meeting, Mr Axon explained the respondent’s position that bonuses would not be paid to former employees who were not employed at the time that the bonus became payable. 

9. Mr Axon further deposed that on 17 October 2017, he assisted Mr Chris Dance, CEO to prepare a presentation for the global fortnightly meeting on 17 October 2017, at which time he advised staff of the bonuses for the 2016/2017 financial year and stated that to be eligible to receive a bonus, an employee must be employed by the respondent on the date that a bonus is paid. As this occurred after the applicant’s employment came to an end, this evidence is not relevant to the issues in dispute between the parties.

10. Having said that, in the absence of any evidence to the contrary, I find that prior to 17 October 2017, it had not been expressly stated that in order to be eligible for a bonus payment, an employee had to be employed at the time the bonus became payable irrespective of whether or not the employee had worked for the full financial year in respect of which the bonus was payable.

11. Mr Axon deposed that the bonus for the 2016/2017 financial year was ultimately paid to employees on 31 October 2017.

12. Mr Axon annexed a copy of the presentation which he made on

    
    

    9 August 2017 to all staff about the bonus scheme to his affidavit.[10]  I note that this annexure included a slide entitled “Share the success” stating:

    [10] Annexure AA-1 of the affidavit of Adam Axon affirmed and filed 18 September 2018.

    Profit Share

    Annually in Sept/Oct

    Size is tied to annual performance of PaperCut and whether key goals are met.

13. This same slide formed part of the presentation which Mr Axon stated was undertaken by Mr Doran on 20 September 2017.[11]

    [11] Annexure AA-2 of the affidavit of Adam Axon affirmed and filed 18 September 2018.

Small claims jurisdiction

1. Before turning to deal with the substance of the applicant’s claims in these proceedings, the issue arises as to whether the court has the jurisdiction to deal with these claims within the small claims jurisdiction.

2. This claim is brought in the court’s small claims jurisdiction pursuant to section 548 of the FW Act.  Small claims proceedings can only be dealt with if:

   a)an applicant indicates that they wish to have their matter dealt with as a small claim; and

   b)importantly, the claim relates to an amount referred to in section 548(1A) of the FW Act that an employer was required to pay to or on behalf of an employee:

   i)under the FW Act or a fair work instrument;

   ii)because of a safety net contractual entitlement; or

   iii)because of an entitlement of the employee arising under section 542(1) of the FW Act.

3. Section 542(1) of the FW Act relevantly provides:

   For the purposes of this Part, a safety net contractual entitlement of a national system employer or a national system employee, as in force for time to time, also has effect as an entitlement of the employer or employee under this Act.

4. A “safety net contractual entitlement” is defined in section 12 of the

   
   

   FW Act to mean:

   An entitlement under a contract between an employee and an employer that relates to any of the subject matters described in:

   (a)Subsection 61(2) (which deals with the National Employment Standards); or

   (b)Subsection 139(1) (which deals with modern awards).

5. Section 61(2) of the FW Act does not relate to bonus payments. Relevantly however, section 139(1) identifies the following subject matters:

   a)minimum wages … and

   i)…

   ii)incentive-based payments, … and bonuses;

   …

6. It is therefore arguable that a bonus payment, in the nature of the bonus sought by the applicant, is an amount which falls within section 548(1A) of the FW Act and therefore can be the subject of small claims proceedings. The applicant’s other claims, clearly fall within the court’s small claims jurisdiction.

7. Turning then to consider each of the applicant’s claims.

Relevant rate of pay

1. The applicant claims that his wages for the period from 1 September to 13 October 2017 should have been calculated at the rate of $125,000 not $115,000. 

2. On the basis of the evidence before me, I find that:

   a)Following the applicant having tendered his resignation, various senior members of staff engaged in discussions with him to see whether they could convince him to remain in the company’s employ.

   b)As a result of these discussions, the respondent undertook an out of cycle pay review and awarded the applicant a $10,000 per annum pay increase effective from 1 September 2017.  Whilst these discussions occurred in the context of other discussions about possible changes to his role which might entice the applicant to remain in employment, the correspondence advising the applicant that he would receive a pay increase with effect from 1 September 2017 was not conditional upon him withdrawing his resignation or agreeing to the changes to his role.  Had this been the company’s intention, it was open to them to have made the pay increase conditional upon such a requirement.  It did not do so. 

   c)This is to be contrasted with the clear statements made in the letter of 19 September 2017, which advised the applicant that this out of cycle pay increase would replace the February 2018 pay review as the letter expressly stated that the applicant’s next pay review would occur in February 2019.

3. I find that the employment contract between the applicant and the respondent was varied by this letter so that the applicant’s annual salary was $125,000. I am therefore satisfied that the applicant should have been paid at this rate for the period from 1 September 2017 to the date of his termination. 

4. Moreover, I am satisfied that the applicant’s annual leave payment on termination should have been calculated on the basis of his salary of $125,000.

Bonus claim

1. The position in relation to the applicant’s claim for the bonus payment for the 2016/2017 financial year is not as clear cut.

2. Whilst the respondent does not dispute that Ms Stupka told the applicant that notwithstanding his resignation, he would still be paid his full bonus for the 2016/2017 financial year, ultimately this was a matter for the directors of the respondent to determine. 

3. This discretion is clear from the terms of the employment agreement entered into by the applicant, which expressly states at Schedule 2:

   …the amount, terms and schedule of any bonus are entirely at the discretion of the employer and as determined by PaperCut Directors.[12]

   [12] Schedule 2, Annexure A of the affidavit of Patrik Varga affirmed 13 and filed 15 August 2018.

4. Whilst it might be argued that Ms Stupka in making the statement to Mr Varga regarding his entitlement to a bonus payment, was representing her employer, ultimately she could only represent what the directors of her employer had determined.  On the basis of Mr Axon’s evidence, it is apparent that the directors did not finally determine the bonus amount which employees would be eligible for payment of the bonus until after the applicant’s discussion with Ms Stupka. 

5. Mr Axon’s evidence reveals that the directors decided not to pay any bonuses to any employee who was not employed on the date on which the bonus became payable.  The bonus for 2018 became payable in the October pay cycle and it is not in dispute that the applicant was not employed at that time. 

6. On this basis, the applicant’s claim for payment of his bonus for the 2016/2017 financial year must fail. 

7. The applicant also claims interest of 5.5% on unpaid amounts. The court has the power to order interest on application by a party pursuant to section 76 of the Federal Circuit Court of Australia Act 1999 (Cth). I am satisfied that the applicant is entitled to interest on the sums that he should have received and fix the sum of $150.00 in lieu of interest.

8. For each of these reasons, I order that:

   a)within 21 days, the respondent pay to the applicant the following sums:

   i)

   $1,153.85 in respect of unpaid wages for the period from

   
   

   1 September 2017 to 13 October 2017;

   ii)$625.38 in respect of underpayment of annual leave entitlements on termination; and

   iii)the sum of $150.00 in lieu of interest; and

   b)all other claims made by the applicant be dismissed.

I certify that the preceding fifty-three (53) paragraphs are a true copy of the reasons for judgment of Judge Mercuri

Associate: 

Date:       18 April 2019