Vetter v Evoqua Water Technologies Pty Ltd

[2019] FCCA 3123

FEDERAL CIRCUIT COURT OF AUSTRALIA

VETTER v EVOQUA WATER TECHNOLOGIES PTY LTD [2019] FCCA 3123

Catchwords:
INDUSTRIAL LAW – SMALL CLAIMS – consideration of scope of small claims jurisdiction – incentive target schemes – application for payment of outstanding incentive payments – application dismissed.

Legislation:

Fair Work Act 2009 (Cth), ss.12, 61, 139, 542, 548, 570.

Applicant: BERND VETTER

Respondent: EVOQUA WATER TECHNOLOGIES PTY LTD

File Number: MLG 1537 of 2019

Judgment of: Judge Mercuri

Hearing date: 14 October 2019

Date of Last Submission: 14 October 2019

Delivered at: Melbourne

Delivered on: 1 November 2019

REPRESENTATION

Advocate for the applicant: In person

Solicitors for the applicant: None

Advocate for the respondent: Ms Wilton

Solicitors for the respondent: None

ORDERS

1. The applicant’s application filed 17 May 2019 be dismissed.

2. The respondent’s name in these proceedings be amended to “Evoqua Water Technologies Pty Ltd”.

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT MELBOURNE

MLG 1537 of 2019

BERND VETTER

Applicant

and

EVOQUA WATER TECHNOLOGIES PTY LTD

Respondent

REASONS FOR JUDGMENT

Introduction and claims

1. This is an application in the court’s small claims jurisdiction under the Fair Work Act 2009 (Cth) (“the FW Act”). The applicant alleged that he had an entitlement to an incentive payment.[1]

   [1] Applicant’s application filed 17 May 2019, Annexure to Part I page 1.

2. The respondent asserted that:[2]

   a)the applicant’s claim does not fall within the court’s small claim jurisdiction and therefore ought to be dismissed; or

   b)if the court does have jurisdiction, that the applicant has not established an entitlement to an incentive payment and therefore the applicant’s claim ought to be dismissed.

   [2] Respondent’s response filed 17 June 2019 page 2 at paragraphs [2] and [3].

Issues

1. This claim therefore gives rise to the following issues for determination:

   a)Does the court have jurisdiction?

   b)If so, what are the terms of the incentive scheme?

   c)Did the applicant meet the requirements of the incentive scheme so as to qualify for a payment as claimed?

Background

1. It was common ground the applicant was initially employed by Siemens Ltd in 1987.  In 2013, Siemens Ltd established Siemens Water Technologies Pty Ltd (“SWT”) which took over Siemens Ltd’s Industry Industrial Automation Water Technologies business.[3]  The applicant was offered and accepted employment with SWT in 2013.[4] 

   [3] Applicant’s response and cross claim filed 25 June 2019, Annexure A.

   [4] Applicant’s response and cross claim filed 25 June 2019, Annexure A.

2. Ultimately, SWT was sold to the respondent in 2014 and it appears from the applicant’s evidence that there was a change in name to the respondent’s current name in January 2015.[5]

   [5] Transcript page 7 at lines 45 and 46.

3. The applicant produced a letter which evidenced the transfer of his employment from Siemens Ltd to SWT dated 3 September 2013.[6]  However, he did not produce the corresponding letter from his transfer to the respondent.

   [6] Respondent’s response filed 17 June 2019 page 2 paragraphs [2] and [3].

4. In any event, it was common ground that each of these transactions constituted a transmission of business and the applicant was offered and accepted employment with the transferee on the same terms and conditions of employment previously enjoyed.

5. The applicant’s employment came to an end on 28 December 2018.[7]  It was common ground the applicant did not receive an incentive payment as part of his termination payment. 

   [7] Applicant’s application filed 17 May 2019 Part F paragraph [21].

6. The applicant’s role within the business was in corporate communication and marketing.  His evidence, which I accept, was that given his level of seniority within the business, he had at all times participated in an incentive scheme.[8]  He said when he was with Siemens Ltd, 20% of his remuneration consisted of an incentive component.[9]  This continued at SWT and more recently, during his employment with the respondent.

   [8] Transcript page 13 at lines 30 and 31.

   [9] Applicant’s application filed 17 May 2019, Annexure to Part I page 1.

7. I also accept the applicant’s evidence that the incentive scheme was based on annual targets which were set by his employer.  He said whilst employed by Siemens Ltd, the incentive scheme included an individual target. However, since the respondent took over the business, there was a change in focus to global revenue and global profit.[10]

   [10] Transcript page 6 at lines 40 to 44.

8. It was common ground that the applicant was provided with a management incentive plan target statement for the 2018 fiscal year which contained, among other things, an incentive target.  It also contained a table headed ‘fiscal year 2018 plan weighting’ and then set out a measure and a weighting.  It was common ground that the two measures relevant to the applicant’s incentive program were global earnings before interest, taxes, depreciation and amortization (“EBITDA”) and global sales. 

9. The applicant conceded that the global EBITDA was not met in that fiscal year.[11]  However, he said that the global sales component was met. Therefore, given that the global sales had a 30% weighting, he was entitled to 30% of his incentive target amount, which he claimed was $5,889.90.[12]

   [11] Applicant’s application filed 17 May 2019, Annexure to Part I page 1.

   [12] Applicant’s application filed 17 May 2019, Annexure to Part I page 1.

10. The respondent said the target statement which the applicant relied upon had been altered from the initial document which was provided to him.[13]  It was asserted that the applicant had altered this document.

    [13] Transcript page 27 at lines 20 to 23.

11. More importantly, the respondent said the target statement could not be viewed in isolation, but rather must be read together with the plan design which contained additional management incentive plan (“MIP”) criteria.[14] 

    [14] Transcript page 26 at lines 10 to 13.

Does the court have jurisdiction?

1. 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 in this jurisdiction if:

   a)an applicant indicates they wish to have their matter dealt with as a small claim;[15] 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.

   [15] Fair Work Act 2009 (Cth) s 548.

2. 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.

3. 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).

4. 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;

5. As stated, the respondent submitted this court lacks jurisdiction to deal with these claims under the small claims provisions of the FW Act.[16]

   [16] Respondent’s response filed 17 June 2019 page 2 at paragraph [2].

6. It was submitted by the respondent that under the rules which regulate the respondent’s incentive plan, whether any payment is made as well as the amount of any such payment, is at the respondent’s discretion.[17]  As such, it was submitted that the applicant does not have a contractual entitlement per se to an incentive payment which would give rise to the court’s jurisdiction.

   [17] Transcript page 28 at lines 9 to 15.

7. This argument is somewhat circular.  It is true that the annual incentive plan rules provide a certain level of discretion to the plan administrator in determining when, how and what payments will be made.[18] However, there is no evidence that the terms of that document form part of the applicant’s employment contract. 

   [18] Exhibit B, tab 1.

8. It is clear on the evidence and I find that:

   a)the applicant was initially employed by Siemens Ltd and it was a term of his employment that 20% of his remuneration was ‘at risk’; that is, up to 20% of his remuneration was by way of an incentive payment;[19]

   b)when the applicant was offered employment by the respondent, it was on the same terms and conditions as his employment with Siemens Ltd, which therefore included a 20% incentive program;[20]

   c)whilst the terms of the incentive scheme were altered after the respondent took over the business, there was no evidence that the rules relied upon since were made available to the applicant, or that they were otherwise incorporated into his employment contract.[21]

   [19] Applicant’s application filed 17 May 2019, Annexure to Part I page 1.

   [20] Exhibit A.

   [21] Transcript page 29 at lines 14 to 29.

9. In those circumstances, I do not accept the respondent’s submission that the discretion in the incentive plan rules impacted upon the applicant’s entitlement to bring a claim in this jurisdiction.

10. In any event, for the purposes of establishing jurisdiction under the small claim provisions, the applicant needs to be able to assert an entitlement under a contract that relates to an incentive based payment.[22] 

    [22] Fair Work Act 2009 (Cth), s. 548(1A).

11. The issue here is not whether the applicant has an entitlement to an incentive based payment. Rather, it is whether the targets specified by the respondent have been met after the exercise of the discretion by the relevant person under the incentive plan rules.

12. Based on the above reasons, I am satisfied that the court has the jurisdiction to deal with the applicant’s claim.

What are the terms of the incentive plan?

1. The respondent submitted that the incentive plan for 2018 must be read by reference to the target statement and the plan design document.[23]  The applicant conceded that in 2017, he received both of these documents.[24] 

   [23] Transcript page 26 at lines 10 to 13.

   [24] Transcript page 15 at lines 22 to 25.

2. Indeed, there was evidence before the court that after receiving those documents, he queried the move away from the inclusion of an individual or local component in the calculation of the incentive payment.[25]

   [25] Exhibit B tab 4.

3. It was not in dispute that the plan design for the 2017 financial year specified some additional MIP criteria which included that the ‘Global EBITDA results must reach a minimum payout level of 85% for any MIP component to pay out’.[26]  The applicant conceded in cross examination that his understanding from the 2017 plan design was that if the global EBITDA did not reach 85%, no incentive payment was payable.[27]

   [26] Exhibit B tab 5.

   [27] Transcript page 15 at lines 1 to 5.

4. The applicant gave evidence that in 2018, he received the target statement annexed to his application.[28]  That document not only contained the 2018 plan weighting as between the global EBITDA or global sales, but also contained actual figures against each of those measures.  In particular, in relation to the global EBITDA, it referred to a range of ‘$US235 – 255M’ and in relation to global sales, it contained a range of ‘US$1.33 – 1.36b’.[29]

   [28] Applicant’s application filed 17 May 2019, Annexure to Part I page 4.

   [29] Applicant’s application filed 17 May 2019, Annexure to Part I page 4.

5. The applicant’s evidence was that he understood these figures to be the target ranges he had to seek to achieve to qualify for an incentive payment.[30]  The applicant conceded that the global EBITDA was not achieved, but said that the global sales did fall within the range specified.  It was on this basis that he sought payment of 30% of the incentive target.[31]

   [30] Transcript page 25 at lines 29 to 47.

   [31] Applicant’s application filed 17 May 2019, Annexure to Part I page 1.

6. The respondent produced an email sent to the applicant attaching a copy of the 2018 target statement.[32]  This version of the target statement was different from that annexed to the applicant’s application, in that it did not contain the target ranges.  Moreover, the respondent produced a number of target statements for other employees also for the 2018 financial year.[33]  None of them contained actual target figures.

   [32] Exhibit B tab 7.

   [33] Exhibit B tabs 6 and 8.

7. When asked about this discrepancy, the applicant said he could not explain the difference between the two forms.[34]  When asked if he had changed the document himself, he responded ‘Not to my knowledge. No.’[35]

   [34] Transcript page 16 at lines 27 to 31.

   [35] Transcript page 16 at lines 33 to 36.

8. It was suggested that the court should infer that the changes to the 2018 target statement produced by the applicant were in fact made by him.

9. The respondent did not produce any evidence that the applicant had been provided with a copy of the 2018 incentive plan. 

10. However, the respondent’s current Managing Director, Mr Slavko Grbic, gave evidence about the information he received regarding the 2018 incentive plan.  He produced an email attaching his 2018 target statement and the 2018 incentive plan.[36] 

    [36] Exhibit B tab 6.

11. When asked about this, the applicant said he did not ask for or receive one and:[37]:

    Because there was so much upheaval in 2017 about the complication of it – how it was put together – that for me it was basically a case that in 2018 was simplified and that’s why the band figures for the profit and for the sales were put into the target statement and not going further with a whole range of implications of how things are being worked out in terms of a design perspective.[38]

    [37] Transcript page 15 at lines 27 to 29.

    [38] Transcript page 15 at lines 39 to 43.

12. On balance, I find this explanation implausible. 

13. Even if I were to accept that the applicant had been provided only with the 2018 target statement, and further that the version of the target statement attached to his application including the range of figures was the one provided to him, that does not address the fundamental issues in this case, namely:

    a)when the incentive payment was payable; and

    b)what the interaction was between the global EBITDA and the global sales figures.  

14. For example, one view of that document is both the global EBITDA target and the global sales target must be achieved before any payment is made, and the percentage weighting goes to the calculation of the overall incentive payment. 

15. Whilst the applicant makes the point that there is no reference in the target statement to a link between the EBITDA figure and the sales figure, in circumstances where during the previous year there was a clear link, one would expect that if there were to be such a significant change, this would be expressly stated. 

16. Moreover, the inclusion of a range of figures rather than a single figure further suggests that this was not included in the original document.  If the figure was intended to specify the target before an incentive payment entitlement arises, there was no need for the upper range to be specified.  All that was required is the lower range.

Conclusion

1. For each of these reasons, the applicant has failed to establish that he was entitled to an incentive payment as claimed. 

2. I therefore dismiss the applicant’s application. 

3. The respondent sought an order for costs.

4. Section 570 of the FW Act limits the circumstances in which a court may order that a party to a proceeding in a court in relation to a matter arising under the FW Act may be ordered to pay costs incurred by another party.

5. I am not satisfied that any of those circumstances arise in this case and I am not prepared to make an order for costs.

I certify that the preceding forty-seven (47) paragraphs are a true copy of the reasons for judgment of Judge Mercuri

Associate: 

Date:              1 November 2019