[2014] FWCFB 1976

The attached document replaces the document previously issued with the above code on 24 March 2014.

The document has been edited to correctly identify the date and citation of Commissioner Cloghan’s decision in the subject line.

Timothy Zahara

Associate to Vice President Catanzariti

Dated 25 March 2014

[2014] FWCFB 1976

FAIR WORK COMMISSION

DECISION

Fair Work Act 2009
s.604—Appeal of decision

Foster
v
CBI Constructors Pty Ltd
(C2014/3)

VICE PRESIDENT CATANZARITI
VICE PRESIDENT LAWLER
COMMISSIONER LEWIN

SYDNEY, 24 MARCH 2014

Appeal against decision [[2013] FWC 9536] of Commissioner Cloghan at Perth on 12 December 2013 in matter number U2013/11928.

[1] This is an appeal by Mr Aaron Foster (Mr Foster) against a decision 1 (Decision) and order2 (Order) of Commissioner Cloghan in relation to an application Mr Foster made under s.394 of the Fair Work Act 2009 (the Act).

[2] Mr Foster commenced his employment with CBI Constructors Pty Ltd (the Respondent) on 1 May 2008. On 6 January 2011, Mr Foster was promoted to the position of supervisor. On 10 July 2013, Mr Foster received a letter from the Respondent confirming that his employment was being terminated as of that date following an internal investigation into an alleged safety breach.

[3] On 25 July 2013, Mr Foster made an application to the Fair Work Commission seeking a remedy for unfair dismissal, and on 12 December 2013 Commissioner Cloghan issued an Order and Decision dismissing Mr Foster’s application on the basis that it did not meet the jurisdictional requirements of the Act.

[4] Prior to the hearing of this appeal on 28 February 2014, Mr S Heathcote of APX Law Pty Ltd sought permission to represent Mr Foster, and Mr D Fletcher of K&L Gates sought permission to represent the Respondent. Having formed the view that allowing representation would enable the matter to be dealt with more efficiently, and having regard to s.596 of the Act, permission was granted to both parties to be represented.

Decision at first instance

[5] In order to be protected from unfair dismissal, a person must meet the jurisdictional requirements found in s.382 of the Act:

“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.”

[6] At first instance, it was not in dispute that Mr Foster met the minimum employment period. It was also not in dispute that there was no enterprise agreement that applied to Mr Foster in relation to his employment. However, it was disputed whether Mr Foster was covered by a modern award and whether his annual rate of earnings was less than the high income threshold, with Mr Foster submitting that he satisfied both of these jurisdictional thresholds and the Respondent submitting that he did not satisfy either of them.

[7] The Commissioner found that Mr Foster did not meet either of these jurisdictional thresholds. The Commissioner’s finding with respect to whether or not Mr Foster was covered by a modern award was not subject to appeal, and thus it is sufficient for present purposes to simply note the finding. The Commissioner’s finding with respect to s.382(b)(iii), however, is the subject of this appeal, and warrants some exposition.

[8] The high income threshold is currently, and was at the time of the first instance decision, $129,300. 3 It was not in dispute between the parties that Mr Foster’s salary was, as of 1 November 2012, $122 226 per annum. The crux of the parties’ disagreement was whether or not Mr Foster’s regular overtime payments would, when considered in conjunction with his annual salary, push Mr Foster’s annual rate of earnings beyond the high income threshold.

[9] The term ‘earnings’ is defined in s.332 of the Act as follows:

“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

(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;

(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) ...”

[10] The Commissioner’s reasoning with respect to this issue is set out below:

“[26] “Earnings” as defined in subsection 332(1) of the FW Act includes “the employee’s wages”.

[27] The Australian Concise Oxford Dictionary (ACOD) defines “wage” as “the amount paid at regular intervals, esp by the day or week or month, for time during which workman or servant is at employer’s disposal”. While “wages” is not defined in the FW Act, subsection 332(2) of the FW Act excludes various payments from earnings. Relevant to this application is paragraph 332(2)(a) which reads:

“(a) payments the amount of which cannot be determined in advance.”

[28] The legislative note to paragraph 332(2)(a) states:

“Some examples covered by paragraph (a) are commissions, incentive based payments and bonuses, and overtime (unless the overtime is guaranteed)”. (my emphasis)

[29] Clearly, the legislative context to the meaning of earnings is that amounts which cannot be pre-determined in advance are excluded. For example, bonuses which may be dependent on the performance of the individual or group of employees, are not included because of its indeterminate nature. However, it is important to note that overtime, of itself, is not excluded entirely. Overtime which is guaranteed is included for the purposes of earnings.

[30] On a regular and systematic basis, Mr Foster was required to perform 2.5 hours overtime each week for the purposes of conducting safety pre-start meetings. In addition, Mr Foster worked further overtime each week. All overtime was paid at Mr Foster’s ordinary hourly rate of pay.

[31] This leads to the question of whether Mr Foster was guaranteed or sure that he would receive 2.5 hours each week of overtime. Put differently, could Mr Foster have a confident expectation each week that he would receive 2.5 hours each week in overtime as a result of the pre-start meetings?

[32] For the financial year 2012/2013, Mr Foster’s earnings occurred in 25 fortnightly periods. Of the 25 fortnightly periods, Mr Foster did not work overtime in two fortnights. In those two fortnightly periods, it appears he took annual leave or unpaid leave. Of the remaining 23 fortnightly periods, Mr Foster worked 475.13 hours overtime or an average of 20.66 hours per fortnight. In summary, in the financial year 2012/2013, Mr Foster had a gross payment of $145 040.

[33] Putting aside discretionary overtime, the mandated overtime associated with pre-start meetings was 2.5 hours per week at $61.8553 per hour. Calculated on 46 weeks per year, the total amount is $7 113.35.

[34] The ACOD defines “guarantee” as “thing given...for fulfilment of conditions.” Mr Foster’s contract of employment expressly guarantees payment for work undertaken beyond 38 hours per week. In that respect, the hourly monetary amount, or payment, is guaranteed for overtime worked. However, the legislative note infers that while the amount may be guaranteed, it is the number of hours and corresponding payment which has to be guaranteed.

[35] On the evidence, there is a specific right for Mr Foster to be paid for overtime worked. This amount can be determined in advance and I have no documentary material that the Employer has used its discretion in the past, or intends to do so in the future, to modify the overtime regime for supervisors as it supervisors and pre-start meetings.

[36] The Employer, in its original submissions of 6 November 2013, states:

“It is a requirement within CB&I generally, and at the Facility, that work must not commence until a pre start is completed each day. The pre-start meetings are not contingent upon productivity and business needs” (my emphasis)

[37] The Applicant, in his response, states that the Employer was not contractually entitled to permit him to work additional hours and specifically he:

“was required, in the course of performing my duties as the Warehouse Supervisor, to attend meetings that would otherwise have been outside my normal working hours.

I attended these meetings as directed”.

[38] Further, the Applicant submits that if the Employer had chosen different alternatives, he would not have worked the additional hours.

[39] In reply to these submissions on 18 November 2013, the Employer states that there was “never a day on which a pre-start meeting did not take place and Mr Hughes’ statement [for the Employer] outlines that Mr Foster, along with all other supervisors, was required to attend a mandatory pre-start meeting of 30 minutes to discuss safety and outstanding issues from the previous day”. At no time did the Employer contemplate any of the alternatives suggested by Mr Foster. In short, the work crew commenced at 6:30 am and all supervisors had a pre-start meeting at 6:00 am, Monday to Friday.

[40] I note that in Mr Foster’s offer of employment of 6 January 2011, under the heading of Hours of Work, it refers to how overtime will be paid. This term is complemented in the General Terms document with a term at 4.3 which indicates that the standard working hours of 38 hours may be varied by the Employer.

[41] I am satisfied, on the facts and documentation, that Mr Foster was required and indeed undertook guaranteed overtime of 2.5 hours each week for the purposes of attending pre-start meetings.

[42] The sum of $122 226 and $7 113.35 is $129 339.

[43] I now turn to the issue of superannuation.

[44] The Applicant concedes that, in accordance with subsections 332(2)(c) and (4) of the FW Act, $916.69 forms part of Mr Foster’s annual rate of earnings.

[45] Accordingly, the sum of Mr Foster’s annual rate of earnings is as follows:

Annual salary	$122 226.00
Mandatory overtime	7 113.35
Superannuation in excess of mandatory contribution of 9.25% ($12 222.60 minus $11 305.90)	916.69
	$130 256.04

[46] The Employer does not rely upon the additional discretionary overtime “at this stage”. For that reason, I have not given consideration to this issue.”

The Appeal

[11] The grounds of appeal, as outlined in Mr Foster’s Outline of Submissions, are as follows:

“Significant Errors of Fact

Ground 1 - The Commission erred in finding the Applicant was guaranteed overtime of 2.5 hours per week.

Errors of Law

Ground 2 - The Commission erred in law in that he misconstrued section 332 of the

Fair Work Act 2009 (Cth).

Ground 3 - The Commission erred in law by formulating an incorrect test (‘confident expectation’) to establish whether the Respondent had guaranteed the Applicant an entitlement to work and be paid for overtime work.”

[12] With respect to the first ground of appeal, Mr Foster submitted that, although his employment contract required him to work the overtime he was directed to do, the Respondent was not obliged to permit him to work two and a half hours of overtime each week despite the prevailing practice. Mr Foster further submitted that the allocation of overtime was at the absolute discretion of the Respondent, who could have unilaterally withdrawn the obligation/benefit at any time without notice.

[13] Mr Foster further submitted that the Commissioner should not have considered the Respondent’s history of not exercising its discretion to deny Mr Foster the opportunity to work thirty minutes of overtime each day, or the absence of evidence about its intention to exercise such discretion in the future, as it was irrelevant for the purposes of determining whether or not the overtime was “wages” for the purposes of s.332(1)(a) of the Act.

[14] In reply, the Respondent submitted that whether or not the Commissioner had relied on irrelevant material was immaterial in determining whether or not the requirements of House v The King 4 had been satisfied, which require the primary decision maker to be mistaken as to the facts asserted in order to establish that a ‘significant error’ has been made. The Respondent submitted that the Commissioner was not mistaken as to the fact that the Respondent has not and does not intend to alter the pre-start overtime regime for supervisors at the Kwinana Facility, and that the conclusion reached by the Commissioner was reasonably open to him given that no evidentiary contest on the matter was raised by Mr Foster.

[15] The Respondent further submitted that the evidence of the employer’s practices in relation to the overtime payments was a relevant consideration. The Respondent submitted that it was not the Respondent’s case at first instance, nor did the Commissioner find, that the overtime payments be characterised as wages for the purposes of s.332(1)(a). Instead, the Respondent submitted that its case at first instance, and the Commissioner’s findings, related to whether the overtime payments were an excluded amount from Mr Foster’s earnings by virtue of s.332(2)(a).

[16] The Respondent submitted that, consistent with the principles in O’Sullivan v Farrer, 5 it was open to the Commissioner, in exercising his discretionary decision-making powers, to use the evidence before him to distinguish between “mandatory overtime which can be regarded as guaranteed as the hours performed and the payment for those hours worked do not fluctuate and are able to be ascertained in advance” and “discretionary overtime which is sporadic, indeterminate and therefore the corresponding hours worked and the payment for those hours is not able to be predicted or ascertained in advance.” The Respondent submitted that the Commissioner utilised the powers of the Fair Work Commission to inform itself in determining this issue, and utilised the evidence before him in a reasonable, fair and just manner that was consistent with the decision-making role entrusted by the Act.

[17] In relation to the second two grounds of appeal, Mr Foster submitted that the Commissioner formulated an incorrect test in applying the example found in the legislative note to s.332(2), in which “guaranteed overtime” is cited as an exception to the exclusion of overtime from earnings for the purposes of s.332. Mr Foster submitted that the Commissioner incorrectly equated “guarantee” with “confident expectation” when he asked:

“could Mr Foster have a confident expectation each week that he would receive 2.5 hours each week in overtime as a result of the pre-start meetings?” 6

[18] Mr Foster submitted that overtime will only be “guaranteed overtime” when an employee “has a legal right to insist on being allocated an agreed period of overtime work, and the employer is not entitled to unilaterally take that away.” Thus, Mr Foster submitted, the Commissioner misconstrued s.332 of the Act and formulated an incorrect test, resulting in an incorrect finding that Mr Foster exceeded the high income threshold and was therefore not a protected person for the purposes of the unfair dismissal jurisdiction.

[19] In reply, the Respondent submitted that the Commissioner did not erroneously construe s.332(2)(a) of the Act, as he gave the section its plain, ordinary and grammatical meaning, consistent with principles of statutory interpretation. The Respondent submitted that the Commissioner’s decision on this point was within the scope and purpose of the Act, and that it did not produce an ambiguity or an unreasonable or unjust result so as to warrant the application of further forensic analysis of the legislative context or meaning of s.332(2)(a).

[20] The Respondent relied on the Explanatory Memorandum to the Fair Work Bill 2009 (Cth) which provides the following in relation to s.332(2)(a) of the Act:

“An employee’s earnings do not include payments for which a value not ascertainable in advance (such as variable performance bonuses). This means that payments made, but which were not anticipated or agreed to in advance (either because the type of payment was not anticipated, or the value of the payment was not agreed), will not be included.” 7

[21] The Respondent submitted that the Explanatory Memorandum establishes two types of s.332(2)(a) exclusions:

Payments which are not anticipated; and

Payments which were not agreed to in advance.

[22] The Respondent submitted that Mr Foster was seeking to undermine Parliament’s intention by confining the legislative question in s.332(2)(a) to only those payments that were not agreed to in advance. The Respondent submitted that Mr Foster’s overtime was able to be anticipated as it formed a mandatory part of the Respondent’s occupational health and safety framework, of which Mr Foster played a critical part in discharging his duties as a supervisor.

[23] The Respondent further submitted that the Commissioner’s reference to a “confident expectation” of overtime was a factual finding, not a legal test. The Respondent submitted that the Commissioner posed a rhetorical question and analysed the evidence to conclude that Mr Foster was guaranteed overtime of 2.5 hours a week. The Respondent submitted that the Commissioner did not replace the legislative framework with a “confident expectation” test or apply such a test, but instead applied and only had regard to the notion of what a guarantee is.

Public Interest

[24] In order to grant Mr Foster permission to appeal, the Full Bench must be satisfied that it is in the public interest to do so. 8 In GlaxoSmithKline Australia Pty Ltd v Colin Makin9 a Full Bench summarised the concept of public interest in the following terms:

“Although the public interest might be attracted where a matter raises issues of importance and general application, or where there is a diversity of decisions at first instance so that guidance from an appellate court is required, or where the decision at first instance manifests an injustice, or the result is counter intuitive, or that the legal principles applied appear disharmonious when compared with other recent decisions dealing with similar matters...”

[25] During the course of the hearing, Mr Heathcote submitted for Mr Foster that the public interest was enlivened in relation to this appeal as there is a scarcity of authority on the application of s.332 of the Act. The Respondent submitted, however, that the matter did not raise issues of importance and general application as the Commissioner’s conclusions were consistent with the legislative context of the Act and the intent of Parliament, there was no diversity of decisions at first instance to warrant guidance from an appellate court, the legal principles applied do not appear to be disharmonious when compared with other recent decisions, there was no injustice manifest in the Commissioner’s decision and the result was not counterintuitive.

[26] Having considered both parties submissions on this point, we are of the view that this matter is one that raises issues of importance and general application, and thus it is in the public interest to grant leave to appeal. Given the scarcity of authority on the application of s.332, a decision of the Full Bench of the Fair Work Commission will provide some guidance on the proper application of this section. We are of the view that this guidance is particularly warranted given the importance of issues surrounding remuneration.

Consideration

[27] Pursuant to s.390(1)(a) of the Fair Work Act 2009 (FW Act), the Commission may only grant an unfair dismissal remedy if “it is satisfied that the [employee] was protected from unfair dismissal... at the time of being dismissed”. The expression “protected from unfair dismissal” is defined in s.382:

“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;

[28] The appellant was not covered by a modern award or by an enterprise agreement. Accordingly, he was not protected from unfair dismissal unless the condition in s.382(b)(iii) was met at the time of being dismissed.

[29] At the time of this decision, the regulation issued under s.382(b)(iii), r.3.05 of the Fair Work Regulations 2009, has no application on the facts of this case.

[30] It was common ground between the parties that the employee’s annual rate of earnings was above the high income threshold if the pre-shift overtime is included in the calculation but not if it is excluded.

[31] The jurisdictional issue before the Commissioner was whether the employee’s “annual rate of earnings” exceeded the high income threshold. The answer to that question determined whether the employee was protected from unfair dismissal.

[32] The term “earnings” is defined in s.332:

“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

(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;

(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).”

(underline emphasis added)

[33] Thus the issue became whether the payments received by the appellant for his pre-shift overtime were “payments the amount of which cannot be determined in advance” within the meaning of s.332(2)(a) and therefore not included as part of “the employee’s wages” under s.332(1)(a).

[34] During the course of the hearing, and in the Commissioner’s Decision, much emphasis was placed on the note to s.332 and, in particular, whether the overtime in question was “guaranteed” or not.

[35] If the note has effect according to its terms and the word “guaranteed” in the note means guaranteed in the sense of a legally enforceable right to work the overtime in question then the appellant must succeed.

[36] The starting point in relation to legislative notes, in accordance with s 13(1) of the Acts Interpretation Act 1901 (Cth), is that they form a part of the Act. However, while the note may form part of the Act, it may not lead the Commission to depart from the ordinary meaning of the words of a section that are unambiguous and not inconsistent with any other provision in the statute. 10 Further, it should be noted that the legislative note provides an example. This example must be read in light of s.15AD of the Acts Interpretation Act 1901 (Cth) which provides:

“15AD Examples

If an Act includes an example of the operation of a provision:

(a) the example is not exhaustive; and

(b) the example may extend the operation of the provision.”

[37] There is, therefore, nothing to suggest that the only exception to the example of overtime that is provided for in the legislative note is overtime that is guaranteed, particularly in light of the ordinary meaning of the words of s.332.

[38] However, there is a tension between the construction of the note advanced by the employee and the ordinary meaning of the words s.332(2)(a). Such ambiguity makes it appropriate to have resort to the explanatory memorandum (cf. s.15AB of the Acts Interpretation Act 1901 (Cth)). The explanatory memorandum relevantly provides:

“1327. An employee's earnings do not include payments for which a value is not ascertainable in advance (such as variable performance bonuses). This means that payments made, but which were not anticipated or agreed to in advance (either because the type of payment was not anticipated, or the value of the payment was not agreed), will not be included. A legislative note provides examples of payments that cannot be determined in advance. These payments include overtime (unless the overtime is guaranteed), commissions and incentive-based payments and bonuses.” 11

(underline emphasis added)

[39] The explanatory memorandum makes it clear that s.332(a) is solely concerned with whether or not the payment can be determined in advance. Given the text of the s.332(a) and the guidance of the explanatory memorandum, it seems clear that the purpose of the legislative note is not to exclude all overtime payments as a broad category of payments except for overtime that falls within the terms of the exclusion explicitly set out in the note (that is, overtime that is guaranteed). Instead, it seems clear that overtime that cannot be determined (or ascertained) in advance is excluded from calculating an employee’s earnings for the purposes of s.332. Conversely, overtime that is guaranteed can be determined in advance, and therefore is included in calculating an employee’s earnings for the purposes of s.332.

[40] The proper test is, in accordance with the text of s.332(a), whether the overtime payments that Mr Foster received for attending the regular pre-start meetings were able to be determined in advance. Whether or not the payments were guaranteed in the sense that the Respondent had a legal obligation to allocate 2.5 hours of overtime each week to Mr Foster, or whether Mr Foster had a legal right to the allocation of that overtime is of no assistance in determining whether or not the payments for the pre-start meetings could be determined in advance.

[41] On the evidence before the Commissioner, it is clear that the overtime payments that were made to Mr Foster as a result of the daily pre-start meetings could be determined in advance. In effect, Mr Foster was subject to an ongoing direction from his employer that he must work half an hour’s overtime every day that he worked. Indeed, the evidence at first instance shows that every supervisor was required to attend the 30 minute pre-start meeting every work day. 12 The Respondent had unequivocally directed to all employees that work was not to commence until the pre-start meeting had been commenced.

[42] Until such time that the Respondent notified Mr Foster that it intended to make a modification to this existing arrangement, the overtime payments could be determined in advance. This is in contrast to overtime work that is not anticipated or agreed to in advance, which Mr Foster may have been directed to undertake from time to time. Thus, Mr Foster’s regular overtime payments for the daily pre-start meetings should not be excluded from the calculation of his earnings by virtue of s.332(2)(a) of the Act.

Did the Commissioner misconstrue s.332 of the Act and formulate an incorrect “confident expectation” test?

[43] The Commissioner did not misconstrue s.332 of the Act, nor did he formulate an incorrect “confident expectation” test. The Commissioner correctly sought to determine whether or not the overtime payments for the pre-start meetings could be “pre-determined in advance.” 13 While the Commissioner’s emphasis on the term “guaranteed overtime” was not entirely warranted for the reasons we have given above, there is nothing in his decision to suggest that he misconstrued s.332 of the Act. Further, while the Commissioner did pose a rhetorical question utilising the phrase “confident expectation,” we are not satisfied that the Commissioner did so in the process of formulating a legal test. Instead, the Commissioner posed the question in the process of determining whether or not the overtime payments could be considered guaranteed overtime, eventually concluding that he was satisfied that “Mr Foster was required and indeed undertook guaranteed overtime of 2.5 hours each week...”14 There is nothing in the Commissioner’s judgement to suggest that he formulated and relied upon an incorrect test.

Did the Commissioner make a significant error of fact in finding that Mr Foster was guaranteed 2.5 hours of overtime each week?

[44] Mr Foster has submitted that the Commissioner has made a significant error of fact in finding that Mr Foster was guaranteed 2.5 hours of overtime each week. In order to establish that a significant error of fact has been made, it is not enough that the Full Bench would have arrived at a different conclusion to that of the Commissioner; the relevant question is whether the finding made by the Commissioner was reasonably open to him.

[45] We are not satisfied that the Commissioner has made a significant error of fact in his Decision. It was open to the Commissioner, on the basis of the evidence before him, to make a finding of fact that the Respondent had not in the past, and did not in the future, intend to alter its practice of requiring Mr Foster to work half an hour of overtime on each day that he worked. While it was not necessary for the Commissioner to utilise the term “guarantee” in relation to this finding, we do not consider that the Commissioner made a finding of fact that was not reasonably open to him.

Conclusion

[46] In light of the above findings, we find that Mr Foster has revealed no appellable error in the Decision of the Commissioner. The appeal is dismissed.