[2010] FWA 1952 |
|
DECISION |
Fair Work Act 2009
s.394 - Application for unfair dismissal remedy
SENIOR DEPUTY PRESIDENT HAMBERGER |
SYDNEY, 9 MARCH 2010 |
Unfair Dismissal – jurisdiction - high income threshold.
Background
[1] On 10 December 2010, Mrs Lynn Chang (the applicant) filed an application with Fair Work Australia (FWA) pursuant to s.394 of the Fair Work Act 2009 (the Act). Mrs Chang alleges that the termination of her employment with NTSCORP Ltd (the respondent) on 27 November 2009 was harsh, unjust or unreasonable.
[2] On 13 January 2010, the respondent filed a response to Mrs Chang’s application asserting that she was not protected from unfair dismissal at the relevant time because the sum of the applicant’s earnings and other non monetary benefits exceeded the high income threshold. The applicant also asserted that the applicant’s termination was a case of genuine redundancy.
[3] On 22 January 2010, a Notice of Listing was issued indicating that the matter was ‘listed for Jurisdiction (High income threshold/no award) Conference/Hearing’ before a member of FWA on 26 February 2010. The parties were also directed to file an outline of submissions and any witness statements and other documentary material they intended to rely on in relation to the jurisdictional objection.
[4] Consistent with the Notice of Listing, a hearing was held before me on 26 February 2010. The applicant was represented by Mr Britt, of counsel, and the respondent by Mr Nixon, of counsel. The applicant gave evidence on her own behalf. Evidence was given on behalf of the respondent by Mr Warren Mundine (CEO) and Ms Manju Saini (Management Accountant).
Statutory Framework
[5] Section 394(1) of the Act provides that a person who has been dismissed may apply to FWA for an order under Division 4 of Part 3-2 of the Act granting a remedy. Section 396(b) states that FWA must decide whether the person was protected from unfair dismissal before considering the merits of an application lodged pursuant to s. 394(1).
[6] Regarding the protection of a person from unfair dismissal, s. 382 of the Act provides:
“382 When a person is protected from unfair dismissal
A person is protected from unfair dismissal at a time if, at that time:
(a) the person is an employee who has completed a period of employment with his or her employer of at least the minimum employment period; and
(b) one or more of the following apply:
(i) a modern award covers the person;
(ii) an enterprise agreement applies to the person in relation to the employment;
(iii) the sum of the person’s annual rate of earnings, and such other amounts (if any) worked out in relation to the person in accordance with the regulations, is less than the high income threshold.
Note: high income threshold indexed to $108,300 from 1 July 2009”
[1] In relation to earnings, s. 332 of the Act provides:
“332 Earnings
(1) An employee’s earnings include:
(a) the employee’s wages; and
(b) amounts applied or dealt with in any way on the employee’s behalf or as the employee directs; and
(c) the agreed money value of non-monetary benefits; and
(d) amounts or benefits prescribed by the regulations.
(2) However, an employee’s earnings do not include the following:
(a) payments the amount of which cannot be determined in advance;
(b) reimbursements;
(c) contributions to a superannuation fund to the extent that they are contributions to which subsection (4) applies;
(d) amounts prescribed by the regulations.
Note: Some examples of payments covered by paragraph (a) are commissions, incentive-based payments and bonuses, and overtime (unless the overtime is guaranteed).
(3) Non-monetary benefits are benefits other than an entitlement to a payment of money:
(a) to which the employee is entitled in return for the performance of work; and
(b) for which a reasonable money value has been agreed by the employee and the employer;
but does not include a benefit prescribed by the regulations.
(4) This subsection applies to contributions that the employer makes to a superannuation fund to the extent that one or more of the following applies:
(a) the employer would have been liable to pay superannuation guarantee charge under the Superannuation Guarantee Charge Act 1992 in relation to the person if the amounts had not been so contributed;
(b) the employer is required to contribute to the fund for the employee’s benefit in relation to a defined benefit interest (within the meaning of section 292-175 of the Income Tax Assessment Act 1997) of the employee;
(c) the employer is required to contribute to the fund for the employee’s benefit under a law of the Commonwealth, a State or a Territory.”
[2] Regulation 3.05(6) of the regulations provides:
“ Benefits other than payment of money
(6) If:
(a) the person is entitled to receive, or has received, a benefit in accordance with an agreement between the person and the person’s employer; and
(b) the benefit is not an entitlement to a payment of money and is not a non-monetary benefit within the meaning of subsection 332 (3) of the Act; and
(c) FWA is satisfied, having regard to the circumstances, that:
(i) it should consider the benefit for the purpose of assessing whether the high income threshold applies to a person at the time of the dismissal; and
(ii) a reasonable money value of the benefit has not been agreed by the person and the employer; and
(iii) FWA can estimate a real or notional money value of the benefit;
the real or notional money value of the benefit estimated by FWA is an amount for subparagraph 382(b)(iii) of the Act.”
[3] Section 333 of the Act provides for the high income threshold which was $108,300 per annum at the relevant time.
Consideration
[4] It was not contested that the applicant had completed six months service (s.382 (a)), nor did either party suggest that she was covered by an enterprise agreement or a modern award (ss. 382(b) (i) and (ii)). The question to be determined is whether s.382 (b) (iii) applies to the applicant. In particular, the respondent submitted that the applicant was not protected from unfair dismissal at the time of the dismissal as the sum of her annual rate of earnings and other amounts worked out in accordance with the Regulations was more than the high income threshold of $108, 300.
[5] The respondent bears the evidentiary onus to support its motion that the applicant was not protected from unfair dismissal. The wording of Regulation 3.05 (6) (c) indicates that FWA has a degree of discretion in deciding whether it should consider a benefit for the purposes of assessing whether the high income threshold applies to a person at the time of dismissal. Once it has been determined that a benefit meets the criteria contained in r.305 (6) (a) and (b), FWA must consider whether it is satisfied that each of r.305 (6) (c) (i), (ii) and (iii) apply.
[6] First I must determine what the applicant’s earnings were at the time of her dismissal. It was not in dispute that the applicant received an annual salary of $100,272 1 (composed of $68,569 wages, $16,060 reportable fringe benefits by way of salary sacrifice and tax exempt fringe benefits for meal and entertainment by way of salary sacrifice of $15,6432).
[7] With regard to this last amount of $15,643 per annum in the form of meals and entertainment, the applicant was allocated $300 per week for these exempt fringe benefits at her request 3. She would purchase meals and entertainment with her own money and the costs of these purchases were reimbursed by the respondent, upon the presentation of proof of purchase by the applicant, on a monthly basis. As explained by Ms Saini in her statement, the actual value of these exempt fringe benefits to the applicant was $330 per week. This is because the input tax credit that the respondent nominally received for purchasing the exempt fringe benefits were given to the applicant. Although the applicant was reimbursed for 100% of her exempt fringe benefits, the GST that was paid to purchase those exempt fringe benefits was not deducted from the $300 of salary that the applicant sacrificed each week in return for the exempt fringe benefits4. This amounted effectively boosted the applicant’s earnings by $1,564 meaning that they were $101,837.
[8] The respondent submitted that other benefits should be taken into account for the purposes of s. 382(b) (iii) of the Act and r. 3.05(6) of the Regulations. These benefits included the private use of a fully maintained motor vehicle and the provision of an internet subscription for the applicant’s personal use. It was not seriously in dispute that these benefits met the criteria in r. 305 (6) (a) and (b), nor that (6) (c) (ii) applied (as there had been no agreement as to the money value of these two benefits). The next issue to be determined therefore is whether FWA can determine a real or notional money value for these benefits.
[9] According to the applicant’s evidence, before she commenced employment with the respondent she had a discussion with Mr Mundine about the use of a company car. ‘In lieu of a salary increase I asked for the use of the oldest car owned by NTSCORP…Warren agreed that the additional cost to the company would be petrol expenses.’ 5 The vehicle provided was a Toyota Rav 4, which had been purchased in July 2001 for $27,819. The vehicle was occasionally used for business purposes during office hours, but was otherwise available for the applicant’s private use, including during the evening, the weekends and when she was on leave6.
[10] The Australian Industrial Relations Commission, under s.638 of the Workplace Relations Act 1996, was required to determine whether award free employees who were seeking an unfair dismissal remedy were excluded from making such an application because their remuneration at the time of their termination exceeded a rate specified by the regulations. This often entailed considering the value of certain non monetary benefits. While there have been some changes in the legislative framework since then, previous decisions of the Commission in relation to this issue can be considered as providing relevant guidance.
[11] Mr Britt took me to the case of H. W Fewings v Kunbarllanjnja Community Government Council 7. In their decision Ross VP, Watson SDP and Bacon C held that the most appropriate method of calculating the value of the motor vehicle component of the applicant’s remuneration was as follows:
1. Determine the annual distance travelled by the vehicle in question.
2. Determine the percentage of the annual distance travelled which was for the applicant’s private purposes.
3. Multiply the figures from 1 and 2. This provides the annual distance travelled for private purposes.
4. Estimate the cost per kilometre for a vehicle of the type used. This information can be obtained from the RACV, NRMA or like motoring organisations.
5. Multiply the annual distance travelled for private purposes by the estimated cost per kilometre. The result is the value of the motor vehicle component of the applicant’s remuneration.
[12] The Fewings approach was implicitly affirmed by the Full Bench in Andersen v STA Travel Pty Ltd 8. In this case it is not possible to use figures from a motoring organisation. Ms Saini’s evidence was that enquiries with the NRMA revealed that it was unable to advise the respondent regarding the running costs of the motor vehicle given its age. However there is sufficient evidence available to provide a good estimate in relation to the actual cost of operating the vehicle. The NRMA outlines its methodology for estimating the cost of operating a vehicle on its website9. It would be consistent with the Fewings approach to apply a similar method to that used by the NRMA, while substituting estimates of actual costs, rather than the industry averages used by the NRMA.
[13] The main criteria used by the NRMA in deriving its cost estimates are depreciation, opportunity cost, vehicle registration and insurance, fuel, vehicle maintenance and Fringe Benefits Tax (FBT).
[14] The original cost price of the motor vehicle in 2001 was $27, 968 10. The applicant attached to her statement an online valuation for the vehicle11. The valuation was between $9,700 and $12,400. Taking the latter figure as the most conservative, this indicates that the vehicle had depreciated in value by $15,568 over eight and a half years. This implies an annual depreciation of $1,831.
[15] Opportunity cost represents the loss of interest foregone as a result of the capital invested in the vehicle after depreciation. Using an interest rate of 6% this gives a figure of $744, based on the evidence of the applicant as to the value of the car.
[16] The evidence provided by Ms Saini indicates that the cost of registration associated with the motor vehicle was $278 and the cost of insurance was $1,192 12.
[17] The cost of fuel purchased for the vehicle over the 12 month period preceding the applicant’s termination was $1,986 13.
[18] The relevant figure for maintenance and repairs of the motor vehicle is $1, 426 14.
[19] As noted above, the vehicle was available to the applicant at all times outside business hours. The applicant gave evidence that she would occasionally use the car during business hours for business purposes and it would also occasionally be used by her colleagues, Ms Lauren White, Ms Jenny Volt and Mr Barazza 15. It is clear that business use was very limited. I estimate that private use was for no more than 10% of kilometres travelled.
[20] The NRMA includes FBT as a factor in calculating the cost for a business in operating a vehicle. The decision by the Full Bench in Fewings which indicated that one should use the costs calculated by motoring organisations supports the inclusion of FBT.
[21] A Full Bench in Rofin Australia Pty Ltd v K J Newton 16 found that a Commissioner was not in error in concluding that, in the circumstances of the case in question, any FBT paid by the employer in relation to the provision of a motor vehicle should not be included as a non-pecuniary part of the employee’s ‘rate of remuneration’ for the purposes of determining whether the specified rate was exceeded. The Full Bench focused on the fact that FBT is a tax paid by the employer. It is not paid to the employee, nor on behalf of or at the direction of the employee, and “such an amount would not fall within the ordinary meaning of the word ‘remuneration’.” The Full Bench did however recognise it might be appropriate to include FBT in a genuine ‘salary sacrifice’ situation.
[22] Under the current legislation, the word ‘remuneration’ is not used. Rather the tribunal has to estimate a real or notional money value of the benefit in question. The applicant’s own evidence is that the car was ‘in lieu of a salary increase.’ While employees pay income tax on their salary, they do not on fringe benefits. As a matter of administration, FBT is payable by the employer. However failure to include FBT in the value of a fringe benefit would be (significantly) to underestimate its value to the employee.
[23] To provide an estimate of the value of the vehicle to the applicant it is therefore necessary to add the amounts I have already referred to for depreciation, opportunity cost, vehicle registration and insurance, fuel, and vehicle maintenance yielding a figure of $7457. To take out the business use one multiplies this figure by 90%, giving $6711. To calculate the FBT payable one multiplies this by 2.0647 and then 0.465%. This is equal to $6,443. Adding this to the figure of $6711 one obtains a total value for the vehicle to the applicant of $13,154.
[24] The applicant’s home internet subscription was paid for by the respondent at a cost of $731. The respondent suggested that it was used for non business purposes at least 50% of the time indicating a figure of $365. Adding FBT provides an estimate of the value of the internet subscription as $715.
[25] I am satisfied that both the provision of a motor vehicle for private use, and the payment of a home internet subscription were benefits enjoyed by the applicant in return for her work and could therefore be regarded as a form of ‘income’. Accordingly they should be taken into account in assessing whether the high income threshold applied to her at the time of her dismissal.
[26] I find that the sum of the applicant’s earnings together with these benefits was $115,706. This exceeds the high income threshold. Accordingly the applicant was not protected from unfair dismissal and her application is dismissed accordingly.
SENIOR DEPUTY PRESIDENT
Appearances:
Mr A Britt for Mrs Chang
Mr S Nixon for Ntscorp
Hearing details:
Sydney
2010
26 February
1 PN372-380
2 Exhibit N3
3 Exhibit N2, Annexure MS-4
4 Exhibit N2, para 13
5 Exhibit C1
6 PN311-315
9 www.nrmabusinessmotoirng.com.au/calculation_criteria.asp
10 Exhibit N2, par [21] & Annexure MS-7.
11 Exhibit C1
12 Exhibit N2, para 21 & Annexures MS-7, 8 ,9.
13 Exhibit N2, para 31 & Annexure MS-16
14 Exhibit N2, par [22] & Annexure MS-11.
15 PN289-294
16 Print P6855
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