DECISION

Fair Work Act 2009
s.604 - Appeal of decisions

Sam Technology Engineers Pty Ltd
v
Mr Andrew Bernadou
(C2017/4495)

Appeal against decision ([2017] FWC 3228) of Commissioner Ryan at Melbourne on 7 August 2017 in matter number U2017/3288 – permission to appeal granted – appellable error established – appeal upheld – decision quashed – question whether employee earned more than the high income threshold remitted to another member.

Introduction

[1] Mr Andrew Bernadou was employed at Sam Technology Engineers Pty Ltd (STE) as a Business Development Manager from 6 March 2014 until 10 March 2017. Mr Bernadou has applied for an unfair dismissal remedy under s.394 of the Fair Work Act 2009 (the Act). STE has raised three jurisdictional objections, including that Mr Bernadou earned more than the $138,900.00 high income threshold applicable at the time. This question of jurisdiction fell for consideration by Commissioner Ryan.

[2] The Commissioner accepted Mr Bernadou’s salary was $125,000.00 and STE’s submission that 60% of the usage of Mr Bernadou’s car was for private purposes, such that $12,000.00 of his $20,000.00 car allowance had been for personal use. He added this $12,000.00 to Mr Bernadou’s salary before adding a further $1,530.00, having accepted STE’s submission that a 50% private usage component should be applied for laptop and telephone reimbursements and concluded that the total ($138,500.00) was below the high income threshold of $138,900.00. Commissioner Ryan then proceeded to dismiss STE’s jurisdictional objection that Mr Bernadou earned more than the high income threshold and returned the unfair dismissal application to the general unfair dismissal list for determination of the remaining jurisdictional objections and the merits.

[3] On 15 August 2017, Sam Technology Engineers Pty Ltd (STE) lodged an appeal, for which permission is necessary, against the decision of Commissioner Ryan (Decision). 1 On 18 August 2017, Deputy President Clancy ordered that the operation of the whole of the Decision and the directions which had been issued on 10 August 2017 be stayed, pending the determination of the appeal.

[4] On 6 September 2017, we granted STE permission to appeal, principally for two reasons:

• We were persuaded that there exists a disparity of approaches in decisions of individual members of the Commission, such as to warrant some clarity being delivered by a consideration of the issues by a Full Bench. This appeal squarely raises the proper treatment of motor vehicle allowances for the purposes of determining whether and what amounts form part of a person's earnings and whether, as a consequence, they are outside or inside the jurisdiction of the Commission because of the high income threshold; and

• We were persuaded that there was at least an arguable case of error in the decision at first instance, in as much as the Commissioner did not appear to turn his mind to the relevant question of deciding whether Mr Bernadou's annual rate of earnings is less than the high income threshold. Rather the Commissioner purported to make a finding taking the employer's case at its highest, and deciding whether or not, on that case, the high income threshold had been exceeded. We were satisfied this was arguably an incorrect approach. 

[5] We also considered that because the treatment of motor vehicle allowances in assessing whether or not an employee or former employee's income exceeds the high income threshold is a matter of more general interest, we would invite submissions from peak industry bodies, the ACTU and the Minister for Employment.

[6] The parties, together with the Australian Taxation Office (ATO), the ACTU, the Australian Chamber of Commerce & Industry (ACCI) and the Australian Industry Group (Ai Group), filed submissions on the substantive appeal and we heard oral argument on 4 December 2017.

Permission to Appeal

[7] An appeal under s.604 of the Act is an appeal by way of rehearing and the Commission’s powers on appeal are only exercisable if there is error on the part of the primary decision maker. 2 There is no right to appeal and an appeal may only be made with the permission of the Commission.

[8] This appeal is one to which s.400 of the Act applies. Section 400 provides:

(1) Despite subsection 604(2), the FWC must not grant permission to appeal from a decision made by the FWC under this Part unless the FWC considers that it is in the public interest to do so.

(2) Despite subsection 604(1), an appeal from a decision made by the FWC in relation to a matter arising under this Part can only, to the extent that it is an appeal on a question of fact, be made on the ground that the decision involved a significant error of fact.

[9] In the Federal Court Full Court decision in Coal & Allied Mining Services Pty Ltd v Lawler and others, Buchanan J (with whom Marshall and Cowdroy JJ agreed) observed that the test under s.400 is “a stringent one”. 3 The task of assessing whether the public interest test is met is discretionary involving a broad value judgment.4 In GlaxoSmithKline Australia Pty Ltd v Makin a Full Bench of the Commission identified some of the considerations that may attract the public interest:

“... 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.” 5

[10] It will rarely be appropriate to grant permission to appeal unless an arguable case of appellable error is demonstrated. This is so because an appeal cannot succeed in the absence of appellable error. 6 However, the fact that the member at first instance made an error is not necessarily a sufficient basis for the grant of permission to appeal.7

[11] We granted STE permission to appeal for the two reasons set out above in [4].

[12] As will be apparent from that which follows, we have decided to uphold STE’s appeal and to quash the Decision.

Decision under appeal

[13] The Commissioner noted that the Act provides that a person is only protected from unfair dismissal if “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.” 8 The Commissioner detailed other relevant statutory provisions, including s.329 and s.332 of the Act and Regulation 3.05 of the Fair Work Regulations 2009.

[14] It was noted by the Commissioner that Mr Bernadou’s contract of employment provided:

“Remuneration

Your base salary will be $125,000 per annum, (inclusive of all overtime leave loadings and superannuation). Salaries are paid weekly by electronic fund transfer, direct to your nominated account.

Car allowance of $15000 per annum plus $5000 after 12 months service.

Computer plus company phone.”

[15] Commissioner Ryan identified the issues for consideration as the treatment of superannuation, the car allowance and other allowances. He found that Mr Bernadou’s salary of $125,000.00 was not inclusive of superannuation paid by STE and therefore, all of the $125,000.00 formed part of Mr Bernadou’s earnings.

[16] The parties were in dispute as to the percentage of the $20,000.00 car allowance that should be attributed to earnings. At the hearing on 9 June 2017, Mr Bernadou tendered his vehicle log book for the period 10 March 2016 to 10 March 2017 and also petrol receipts for a similar period. Given STE did not have an opportunity to review this material prior to the hearing, the Commissioner allowed STE time to review the exhibits and make submissions as to the split between business and private use of the car allowance, which Mr Bernadou was then permitted to respond to. The parties agreed that the further submissions would be in the form of a Statutory Declaration.

[17] Commissioner Ryan ultimately found that the dispute between the parties as to the car allowance did not need to be resolved. He considered it sufficient, for the purpose of the disposition of the high income threshold, to accept STE’s submission that 40% of the usage of the car was for business purposes and the remaining 60% of the usage of the car was for private purposes, notwithstanding Mr Bernadou’s submission that 6.95% of the allowance was for private use and therefore, 93.05% was for business use. The Commissioner therefore concluded $12,000.00 of the car allowance had been for personal use. He added this $12,000.00 to Mr Bernadou’s earnings of $125,000.00, bringing the total earnings to $137,000.00.

[18] The Commissioner then addressed the telephone and laptop reimbursements. In relation to these, STE had provided a statement from an accountant that suggested in relation to these reimbursements, a private usage component of 50% should be attributed. The Commissioner noted, “This statement was not given as sworn evidence nor was it tested in any way”. 9 However, for the purpose of disposing of the high income threshold issue, the Commissioner was prepared to accept this statement and having calculated the amounts equating to half of each of the $1,560.00 telephone reimbursement ($780.00) and $1,500.00 laptop reimbursement ($750.00), added a further $1,530.00 to Mr Bernadou’s earnings.

[19] As this $138,530.00 total was still below the high income threshold of $138,900.00 applicable at the time, the Commissioner proceeded to dismiss STE’s jurisdictional objection that Mr Bernadou earned more than the high income threshold.

The Appeal

[20] The issue before the Commissioner was whether Mr Bernadou’s “annual rate of earnings, and such other amounts (if any) worked out in relation to the person in accordance with the regulations,” was less than the high income threshold (s.382(b)(iii) of the Act).

Submissions

[21] In outlining its grounds for appeal, 10 STE contends that the Commissioner erred by not including payments made to Mr Bernadou for petrol and tolls as additional components of his car allowance. It submitted these were not reimbursable expenses as they were additional parts of the car allowance. STE said petrol invoices were forwarded to STE weekly for payment and toll invoices were submitted monthly for payment. In addition to the car allowance of $20,000.00, STE submitted that $3,355.00 in petrol and tolls was paid to Mr Bernadou. It said a 60:40 (private/business) calculation should be applied to that amount, bringing Mr Bernadou’s earnings to approximately $139,000.00, which is therefore above the high income threshold. In the alternative, STE submitted that the full amount of $3,355.00 in petrol and tolls should form part of Mr Bernadou’s earnings, bringing his total earnings to in excess of $140,000.00. STE did not file further submissions ahead of the hearing of the appeal proper, electing to rely on the Appeal Book it had prepared.

[22] Mr Bernadou relied on the statement he had prepared and filed for the permission to appeal hearing on 6 September 2017. He took issue with the 60:40 (private/business) ratio the Commissioner had applied and submitted his private use of his vehicle was 14%, relying on advice to this effect from the ATO, which he had received in response to an application he made to vary the rate of withholding from his allowance payments. He also relied on the contents of the vehicle log book he had submitted to the Commissioner, covering the period 10 March 2016-10 March 2017, and submitted that the parties had agreed that petrol and toll expenses were to be treated as reimbursable expenses.

[23] In a written submission, the ATO advised it has previously outlined the distinction between ‘allowances’, which are generally salary or wages, and ‘reimbursements’, which are fringe benefits in Taxation Ruling TR 92/15. 11 In this ruling, an ‘allowance’ is described as a predetermined amount paid to cover an estimated expense that is paid regardless of whether the recipient incurs the expected expense. In contrast, ‘reimbursements’ are payments in which the recipient is compensated exactly, in whole or in part, for an expense already incurred by him or her. Reference was also made to the Superannuation Guarantee Ruling SGR 2009/2, and its adoption of the concept of an ‘expense allowance’, which is an allowance paid with the reasonable expectation that the money will be fully expended by the employee in the course of providing their services. An expense allowance is not considered to be salary or wages for superannuation guarantee purposes, with the ruling stating:

“An expense allowance is not given for the purposes of the employee, but rather in recognition of the expenditure that the employee will incur in the course of providing their services.”

[24] The ATO’s written submission further stated that if an allowance is paid with the expectation that it would not be used, or would only partly be used, in the course of providing the employee’s services, it is ‘salary or wages’ for superannuation guarantee purposes. More specifically, the ATO submission made reference to the $20,000 car allowance payable to Mr Bernadou and stated, “superannuation guarantee would have been payable on the $20,000 car allowance as the allowance is not one that could reasonably be expected to have been fully spent by the employee in the course of providing their services.” 12 The position of the ATO was that as the $20,000 car allowance would be ordinary income and not a fringe benefit, it would be assessable.13 At the hearing before us, Mr Ingersoll confirmed an allowance which is paid in the expectation that not all of it will be expended is treated as income for taxation purposes.14

[25] Also addressed in the ATO submission was PAYG Withholding. The ATO stated that employers are generally required to withhold tax from allowances and where it is expected that an allowance would be fully or partly expended in the course of the employee providing their services, the Commissioner for Taxation may reduce the rate or amount of PAYG tax their employer has to withhold from the allowance, to the extent that the expenses would be deductible to the employee. It was said that this ensures the tax withheld will likely match the employee’s estimated end-of-year tax liability. Further, it was stated in the submission, “PAYG tax would have to be withheld on all or most of the relevant $20,000 car allowance as the allowance is not one that could reasonably be expected to have been fully spent in the course of providing services.” 15

[26] During discussion about Mr Bernadou’s withholding variation application at the hearing, the ATO confirmed that when lodging an application for variation of PAYG, the taxpayer is required to disclose the amount of the allowance that he or she will receive in the next financial year and an estimate of the percentage amount they will have as a deduction against it. Any variation granted by the ATO is based on this information. At the end of the financial year, the income from the allowance would be declared and if the deductions match the estimate, there would be no further tax liability. However, if the deductions were less than the estimate, there would be an additional tax liability. 16

[27] The Ai Group submitted the Commission has adopted three broad approaches in responding to the question of how, under the Act, to address a monetary payment which is described as a vehicle allowance:

a) The whole of the allowance is treated as earnings;

b) The whole of the allowance is treated as a reimbursement, and thus is excluded from wages by s.332(2)(b) of the Act; or

c) The proportions of business and private use are determined and the allowance is apportioned according to the level of private use.

[28] In addressing the first approach, the central proposition in the written submission of the Ai Group was that where an employee is provided with a monetary payment described as a vehicle allowance in the circumstances, like the current case, the whole of it should properly form part of an employee’s earnings. Having cited the Oxford Dictionary definition of wages (“a fixed regular payment earned for work or services, typically paid on a daily or weekly basis”), the Ai Group submitted it provides clear support for the proposition that a cash allowance should properly be described as wages and, accordingly, included in an employee’s earnings where it is paid to an employee as a result of their work or service and is a fixed and regular amount. It further submitted that an allowance can properly be described as being paid to an employee as a result of their work or service where it is paid as a result of the employee’s service, rather than in response to specific expenditure. 17

[29] Relying on various decisions of single members of the Commission, 18 the Ai Group submitted the correct approach to a vehicle allowance is that where, like the salary component of an employee’s earnings, an allowance is expressed as a regular, fixed amount that cannot be unilaterally withdrawn by the employer, it is functionally indistinguishable from salary, so properly should be characterised as wages under s.332 of the Act and therefore, earnings.

[30] As to the second approach, the Ai Group submitted that the Commission should look at the substance or true character of a payment when determining whether it constitutes ‘earnings’ under the Act, such that a vehicle allowance might be held to be excluded from earnings when the particular facts of the case reveal that it was intended to be a reimbursement for particular expenses.

[31] The Ai Group submitted that the third approach, whereby the Commission has apportioned the value of a monetary vehicle allowance between private and business, is incorrect because it fails to draw the ‘critical’ distinction between monetary and non-monetary benefits, placing a ‘notional monetary value’ on what already has a monetary value.

[32] Ultimately the Ai Group submitted the authorities support the proposition that a vehicle allowance should form part of an employee’s earnings under s.332 of the Act where the allowance:

a) is fixed and regular;

b) cannot be unilaterally withdrawn by the employer;

c) is paid regardless of the amount of travel actually undertaken.

[33] The Ai Group did not regard an amount that is paid in anticipation of an expense that will be incurred as a reimbursement and maintained there is a distinction between what the employer and the employee agree to pay as earnings and the tax deductibility of certain expenses in the hands of the employee.

[34] The contention of ACCI was that under the Act, there is no proper basis for apportionment where a private car is used for work purposes and this sort of arrangement differs from circumstances in which an employee is provided with a company vehicle from which they derive a private benefit. ACCI submitted that the Commissioner had neglected to make the ‘important’ distinction between the payment of a motor vehicle allowance and the use of a company issued vehicle.

[35] As to the former situation, ACCI submitted that on the face of Mr Bernardou’s contract of employment (and the contracts examined in the various decisions of single members of the Commission, also cited by the Ai Group), 19 the entitlement to be paid the car allowance was unconditional, it was guaranteed and paid irrespective of how much he travelled and there was no requirement to account for travel or expenditure on the vehicle, such as petrol and servicing costs, or to account for mileage. These facts, it was submitted, supported a conclusion that the allowance is properly characterised as earnings. ACCI also made the submission that it is not available to an employee to unilaterally apply an alternative ‘purpose’ to a car allowance that was neither apparent nor intended when the parties agreed to the payment of it.

[36] ACCI submitted situations in which an employee derives a private benefit from a company-supplied vehicle were to be contrasted. In those situations, ACCI submitted, the approach in H.W Fewings v Kunbarllanjnja Community Government Council (Fewings) 20 stands.

[37] The ACTU characterised both company issued motor vehicles and the payment of motor vehicle allowances as ‘motor vehicle benefits’. Having reviewed a range of Commission authorities, 21 it submitted motor vehicle benefits provided for work purposes, including the value of work use and any incidental use by an employee, are not earnings for the purposes of 382(b)(ii) of the Act. It defined incidental personal use as including use that:

a) is not contemplated in the agreement between employer or employee;

b) is unauthorised;

c) is of limited benefit to the employee, for example, due to restrictions on the make and model of the vehicle due to company requirements;

d) is a minority proportion of the total use; or

e) is use where the cost of the motor vehicle benefit is fully covered by the employer's calculated outlay for a work-related vehicle.

[38] The ACTU further submitted that the use of a vehicle that was provided for work purposes to travel between an employee's home and work should be considered incidental use. The ACTU relied on the definition of 'Incidental' from the Oxford Paperback Dictionary, 22 as being not only "occurring as a minor accompaniment", but "liable to occur in consequence of or in connection with something" and submitted that the use of a vehicle to get to and from work where the vehicle is provided primarily for work purposes, will invariably be incidental in at least one of these senses.

[39] The proposition advanced by the ACTU was that motor vehicle benefits provided as part of a salary package in lieu of salary are to be included in earnings in the proportion that the benefit is used for personal use. Further, if there was no agreement about the value of the benefit or the agreed amount is unreasonable, the ACTU submitted the Commission can determine an amount and should generally follow the Fewings formula, or an approach consistent with it, with the focus to be on actual use rather than when the benefit was merely available to be used.

[40] At the hearing before us, the ACTU submitted that the proper meaning of the term ‘earnings’ in s.332 of the Act, in light of the purpose of that provision and the “traditional” authorities, requires the Commission to exclude the business use of a motor vehicle necessary to perform the job, whether it's provided as a non-monetary benefit or as an allowance. 23 The ACTU submitted earnings must involve reward for services and hence must include a benefit to the employee and drew upon the definition of ‘earnings’ from the Macquarie Dictionary, which it said included ‘remuneration’ and case law definitions24 of ‘remuneration’ as the reward payable for the performance of work.

[41] The ACTU submitted that questions of tax assessment should not inform the meaning of earnings and that in this case, the parties had agreed on an allowance that had features of a salary payment and features of a payment that was necessary in order for Mr Bernadou to perform the job. The ACTU further submitted, because all earnings must involve a reward, the provision must be read as only catching those benefits that are a reward and are of benefit to the employee. It argued the evidence indicated a vehicle was required and the allowance was connected to the STE's consideration of the cost of otherwise providing a vehicle, submitting this suggested that were STE to provide the vehicle, if it had chosen to procure the vehicle elsewhere, the $20,000 figure would be reduced or not paid at all. In these circumstances, the ACTU submitted the full $20,000.00 would not have otherwise been paid as salary and it was appropriate that the Commission apportion the business and personal use.

[42] Ultimately, the ACTU’s position was that it was open to the Commission to take the view that it must apportion the business and personal use of the car allowance first and then determine only the personal use is caught by s.332 or, in the alternative, take the view that the car allowance is not caught by that provision because there is no agreed value as to the personal benefit but the personal use component of it is a reward, and so in the broader sense is caught by the inclusive and non-exhaustive s.332 of the Act.

Relevant legislative provisions

[43] Section 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.”

[44] Section 332 of the Act defines “earnings” 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

(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 291-175 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.” (our emphasis)

[45] No regulations have been made for the purposes of s.332(1)(d) or s.332(2)(d) of the Act. However, regulation 3.05(6) of the Fair Work Regulations 2009 (the Regulations), which has been made for the purpose of s.382(b)(iii) of the Act to ascertain whether a person is protected from unfair dismissal, requires the inclusion of particular types of non-monetary benefits. Regulation 3.05(6) provides as follows:

“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) the FWC 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) the FWC can estimate a real or notional money value of the benefit;

the real or notional money value of the benefit estimated by the FWC is an amount for subparagraph 382(b)(iii) of the Act.” (our emphasis)

Consideration

[46] The first basis upon which we granted permission to appeal was to clarify the correct approach in determining whether and what amounts of a motor vehicle allowance paid to an employee form part of that employee’s “earnings” and whether, as a consequence, they are outside or inside the jurisdiction of the Commission because of the high income threshold.

[47] There has been a disparity of approaches in decisions of individual members of the Commission, several of which we were referred to by the parties appearing at the hearing before us. The different approaches adopted have been:

1) To treat the whole of the allowance as earnings;

2) To treat the whole of the allowance as a reimbursement, and thus exclude it from the calculation of earnings by virtue s.332(2)(b) of the Act; or

3) To adopt the method of apportionment used in Fewings to determine the proportions of business and private use of the allowance and treat the private use proportion of the allowance as earnings.

[48] At the outset, we do not take issue with the method of apportionment adopted by the Full Bench in Fewings and consider it entirely appropriate for circumstances in which an employee has a company-supplied vehicle (from which he or she derives a benefit) and a reasonable monetary value has not been agreed for its private use. We consider that the Fewings method of apportionment is appropriate to enable the Commission to estimate the real or notional value of the benefit in the manner contemplated by regulation 3.05(6) of the Regulations, which deals with benefits other than the payment of money. A car allowance, however, is a payment of money. Therefore, regulation 3.05(6) is not relevant to the determination of whether the payment of a car allowance to an employee takes the employee above the high income threshold.

[49] It follows that the payment of a car allowance to an employee is not an amount “worked out in relation to the person in accordance with the regulations” 25 and therefore will only take the employee above the high income threshold if it is part of the employee’s “annual rate of earnings” within the meaning of s 382 of the Act.

[50] Section 332 of the Act provides a definition of “earnings” which includes particular payments and benefits such as “wages” and excludes particular payments and benefits such as “reimbursements”. A car allowance is not ordinarily considered to be one of the payments or benefits falling within the items listed in the definition of “earnings” in s.332(1), for the following reasons:

(a) a car allowance is not part of an employee’s “wages”, save for circumstances where the car allowance is, in reality, paid to the employee as a means of providing the employee with additional income and there is no requirement or expectation that the employee will have to use their car for work purposes (s.332(1)(a));

(b) a car allowance is typically paid directly to the employee and is not an “amount applied or dealt with in any way on the employee’s behalf or as the employee directs” (s.332(1)(b));

(c) a car allowance is not a “non-monetary benefit” because it is an entitlement to a payment of money (s.332(1)(c) & s.332(3)); and

(d) a car allowance is not an amount or benefit prescribed by the regulations (s.332(1)(d).

[51] It is also clear that a car allowance is not ordinarily within the scope of any of the payments or benefits referred to in s. 332(2) of the Act, which are excluded from the definition of “earnings”. This includes a “reimbursement” (s. 332(2)(b) of the Act). An allowance will usually consist of the payment of a definite predetermined amount to cover an estimated expense, and will be paid regardless of whether the recipient incurs the expected expense. In contrast, the Macquarie dictionary defines the word “reimburse” as “to make repayment to for expense or loss incurred; to pay back; refund; repay”. 26 In order to be properly characterised as a reimbursement, the payment in question must be “made by reference to actual cost, that is to say that there would need to be some correspondence between the payment and the expenditure incurred, even if the reimbursement were to be but partial reimbursement”.27 The ordinary meaning of the words “allowances” and “reimbursements” are mutually exclusive, because “an allowance is an amount generally granted in anticipation of expenditure being incurred, whereas reimbursement is an amount repaying that expenditure or a part of it.”28

[52] In many cases, car allowances are paid to an employee to cover an estimated or potential expense, and will be paid regardless of whether the employee incurs the expected expense. In such circumstances the car allowance would not be a “reimbursement” within the meaning of s.332(2)(b) of the Act because there is no correspondence between the car allowance and the actual expenditure incurred.

[53] Therefore, a car allowance will not ordinarily fall within the scope of any of the payments or benefits specifically “included” or “excluded” in the definition of “earnings” provided for in s. 332 of the Act.

[54] We are of the view, however, that the definition of “earnings” in s.332 of the Act is non-exhaustive and as such, “earnings” should be given its ordinary meaning (subject, of course, to the payments and benefits referred to in s.332(1) being included in the meaning of “earnings” and the payment and benefits referred to in s.332(2) being excluded from the meaning of “earnings”). Our reasons for so concluding are as follows.

[55] First, many of the words and expressions in the dictionary of the Act (s.12) are defined by the use of the word “means”. This may be contrasted with the use of the expressions “include” and “do not include” in s.332 to define “earnings”. The distinction between these approaches favours the conclusion that the word “include” in s.332 is not intended to be exhaustive. 29 Although the word “includes” can, in some cases, be interpreted as “means and includes” and thereby provide an exhaustive definition, this is only where the provision in which it appears reveals that intention.30 Section 332 does not reveal that intention; the draftsperson(s) carefully discriminated between the use of “means” and “includes”.

[56] Secondly, the ordinary meaning of “earnings”, as defined in the Macquarie Dictionary, is "money earned; wages; profits". 31 This would include payments to an employee such as loadings. There is no reference to loadings in s.332(1) of the Act. It follows that the full content of the ordinary meaning of the word “earnings” extends beyond those payments and benefits specifically referred to in s.332(1) of the Act. This supports the conclusion that the definition of “earnings” in s.332 of the Act was not intended to be exhaustive.32

[57] It falls then to consider whether a car allowance paid to an employee falls within the ordinary meaning of “earnings”.

[58] The ordinary meaning of “earnings” was considered by Lord Davey in Midland Railway Co v Sharpe: 33

“Now what does a man earn? He earns the sum which is the fruit of his labour; whatever he receives by way of remuneration for the services he gives, or, as Lord Macnaghten said in Abram Coal Co v Southern [1903] AC 306, a man’s ‘earnings’ are ‘the full sum for which the man is engaged to work’.”

[59] Lord Davey’s definition of “earnings” has been applied in a number of Australian cases. 34 One such case is Leighton v Australian Telecommunications Commission,35 where Justice Abadee dealt with a claim for common law damages for loss of earning capacity arising from a workplace injury. His Honour considered whether the unexpended portion of a daily travel allowance, regularly paid to the plaintiff prior to his injury, should be taken into account in calculating damages recoverable by him. Having recourse to the meaning of the word “earnings” given in Midland Railway Co v Sharpe, his Honour ultimately found that the surplus or saved portion of the daily travel allowance formed part of the measure of damages for diminution of earning capacity. Justice Abadee, at 261, reasoned:

“The evidence in this case clearly establishes that there was a saved surplus part of the allowance, deliberately saved by the plaintiff to support his family. The part of the balance was of value to him. The allowance was regularly paid. There was no accounting for excess or expenditure. Part of the allowance was regularly saved. To the plaintiff it was part of his earnings. The loss of the balance is, on the evidence, something that in my view, the plaintiff should be reasonably compensated for.”

[60] It is clear from these cases that the ordinary meaning of “earnings” extends beyond “wages” and may include other payments of value to employees such as a car allowance. However, it is necessary to give further consideration to the question of whether an employee’s “annual rate of earnings” within the meaning of s.382(b)(iii) of the Act includes a gross car allowance paid to the employee or the saved or private benefit of that allowance.

[61] Care must be taken when considering cases in which the word “earnings” has been construed in different statutory contexts. For example, in Mutual Acceptance Company Limited v The Federal Commissioner of Taxation 36 the High Court held that the gross payment of a weekly car allowance constituted part of the workers’ “wages” within the meaning of the Pay-roll Tax Assessment Act 1941-42. However, “wages” were defined in that act to include any “allowances paid or payable … to any employee as such”. The car allowance was held to be such an allowance. In so finding, Justice Williams pointed out (at 406) that the Pay-roll Tax Assessment Act is not “concerned with pecuniary benefit in the sense of the profit that an employee derives from the payments which he receives from his employer, but with the actual remuneration which he is entitled to receive in respect of his employment, quite irrespective of the expenses to which he has been put to earn that remuneration.” The definition of “wages” in the Pay-roll Tax Assessment Act at that time was so wide that it included payments which would not be part of the taxable income of the employee. The fact that pay-roll tax is assessed on what an employer is bound to pay as “wages” was also relevant to the analysis.

[62] In Counsel v Repatriation Commission, 37 the Full Court of the Federal Court considered the meaning of the word “earnings” in the phrase “loss of salary or wages, or of earnings on his or her own account” in s.24(2A)(e) of the Veterans’ Entitlements Act 1986 (Cth). Justice Carr reasoned as follows in relation to this issue:

“[53] I would acknowledge that, depending upon the context, the word "earnings" is ambiguous in that it could mean gross earnings or it could mean a figure which results after deducting expenses from gross earnings.

[54] There is nothing in Part II (the relevant Part) of the Act which requires any dissection of a veteran's earnings, whether for the purpose of quantifying any rate of entitlement, or any other purpose for that matter. In other words, the amount of the earnings lost through incapacity is irrelevant to the amount payable as the special rate.

…

I would not give "earnings" a restricted meaning so as to require a veteran to show a loss after calculating appropriate deductions. That alone would raise many complicated issues about what would be appropriate deductions for this purpose - a factor to which the House of Lords referred in Abram Coal Company Limited. I do not see why it should be assumed that the appropriate deductions should be those allowable under the Income Tax Assessment Act 1936 (Cth). Under that Act the economic activities of a taxpayer are regarded in terms of receipts which may be income (either under ordinary concepts or as statutorily-defined income) from which there may be deductions (not necessarily those which would be regarded as expenses according to generally-accepted accounting principles) which result in assessable income.”

[63] In Counsel v Repatriation Commission, Justices Gray and Goldberg agreed with the conclusion reached by Justice Carr. Justice Gray also expressed the view (at [18]) that “in construing the word ‘earnings’, the statutory context is the most important factor”.

[64] Part of the relevant statutory context in which the word “earnings” is used in s.382(b)(iii) includes other expressions used in the Act to deal with payments made to employees as consideration for their work. Sections 16 and 18 of the Act define an employee’s “base rate of pay” and “full rate of pay” respectively as follows:

“16 Meaning of base rate of pay

General meaning

(1) The base rate of pay of a national system employee is the rate of pay payable to the employee for his or her ordinary hours of work, but not including any of the following:

(a) incentive-based payments and bonuses;

(b) loadings;

(c) monetary allowances;

(d) overtime or penalty rates;

(e) any other separately identifiable amounts.

…

18 Meaning of full rate of pay

General meaning

(1) The full rate of pay of a national system employee is the rate of pay payable to the employee, including all the following:

(a) incentive-based payments and bonuses;

(b) loadings;

(c) monetary allowances;

(d) overtime or penalty rates;

(e) any other separately identifiable amounts.”

[65] Parliament made a conscious choice to use an employee’s “earnings”, rather than their “base rate of pay” or “full rate of pay”, to define the cut-off point at which employees, who are not covered by a modern award and/or do not have an enterprise agreement that applies to them, are excluded from protection against unfair dismissal. An employee’s “earnings” are higher than the “base rate of pay” of an employee but are narrower in scope than the “full rate of pay” of the employee, because “earnings do not include the … payment of amounts which cannot be determined in advance” such as incentive based payments, bonuses and overtime (unless the overtime is guaranteed). 38

[66] The purpose of s.382(b)(iii) of the Act is to exclude from protection against unfair dismissal a high income employee who is not covered by a modern award and/or do not have an enterprise agreement that applies to that employee . A “high income employee” is excluded from protection against unfair dismissal by reference to their “annual rate of earnings” (and any amount worked out under the regulations) and not by reference to their “base rate of pay” or “full rate of pay”. To reach a conclusion that an employee is a “high income employee” by including the whole of a car allowance paid to them at the time of their dismissal, in the sum of their “annual rate of earnings”, in circumstances where there is a requirement on the part of the employee to use their car for work purposes, without any reference to what portion of that car allowance, if any, the employee actually derived personal benefit from, is inconsistent with the purpose of s.382(b)(iii) of the Act. In this context, “earnings” are what an employee receives for the work done by the employee in the course of their employment, rather than an amount paid to an employee to meet an expense incurred by the employee in undertaking such work.

[67] Consistent with the purpose to which we refer in the previous paragraph, it has long been held, for the purpose of determining whether an employee is above the high income threshold for protection against unfair dismissal, that the focus is on the private benefit derived by an employee from the provision of a fully maintained motor vehicle. The provision of the vehicle for business purposes is not included in determining whether the employee has exceeded the high income threshold. A Full Bench of the Australian Industrial Relations Commission in Rofin Australia Pty Ltd v Newton 39 endorsed the following approach taken by Senior Deputy President Watson40 in determining whether any part of the provision of a fully maintained motor vehicle to an employee should be included as part of the employee’s remuneration:

“1. The private benefit derived by an employee through the provision to such an employee of a fully maintained motor vehicle will constitute remuneration for the purpose of s 170 CC(3) and (4), and

2. For the purposes of determining remuneration, the focus should be upon the private benefit derived by the employee and the provision of a motor vehicle for business purposes would not form part of the remuneration.

…Where a motor vehicle is provided to an employee in lieu of salary that might otherwise have been paid, it is appropriate that the private benefit derived by the employee from the provision of the motor-vehicle be counted as part of the employee’s remuneration.” 41

[68] It must be recognised that previous legislation used the term “remuneration” to work out whether an employee exceeded the high income threshold. 42 “Remuneration” was held to mean “the reward payable by an employer to an employee for the work done by that employee in the course of his or her employment with that employer”.43 However, “remuneration” ordinarily involves the same considerations as “earnings”.44 We do not discern any intention on the part of the legislature to alter the point at which an employee exceeds the high income threshold by replacing “remuneration” with “earnings” as the relevant means by which the threshold is assessed.

[69] It would be somewhat incongruous to adopt an approach whereby:

(a) an employee who was provided with a fully maintained motor vehicle where the employee was required to use their vehicle for work purposes (but derived a private benefit because he or she did not use the vehicle solely for business purposes) had only the private benefit (but not the proportion attributable to the use of the vehicle for business purposes) included as part of their “annual rate of earnings” for the purpose of determining whether they exceeded the high income threshold, but

(b) an employee who was paid a car allowance in circumstances where the employee was required to use his or her car for work purposes (but derived a private benefit because they did not use the whole of the car allowance for business purposes) had the whole of the car allowance included as part of their “annual rate of earnings” for the purpose of determining whether they exceeded the high income threshold.

[70] Many of the cases in which it has been held that "earnings" means gross earnings have been decided, in part, on the basis that there would be “endless difficulties” if the court had to find out the figure which results after deducting expenses from gross earnings. 45 No such problem arises in the context of a car allowance provided to an employee. As has been the case for at least 20 years46 in relation to the provision of a fully maintained car to an employee, there is no significant barrier to the determination and calculation of the private benefit component of either the provision of a fully maintained car or the payment of a car allowance to an employee.

[71] We are fortified in our view that a car allowance should be treated in the manner we propose when regard is had to the exclusionary provisions in s.332(2), for example the exclusion of reimbursements from earnings in s.332(2)(b). It seems to us that if an employee uses his or her motor vehicle for work purposes and makes a claim for a motor vehicle mileage payment, this would properly be described as a reimbursement. Yet, if that same employee has been paid a vehicle allowance in anticipation of some work related use of the employee’s vehicle, should the proportion of the allowance paid in advance which can be attributed to work related private vehicle use be treated as “earnings”? We think not.

[72] For the reasons set out above and having regard to the relevant statutory context, we are of the view that a car allowance should be treated in the following way for the purpose of calculating an employee’s "annual rate of earnings" within the meaning of ss.332 and 382(b)(iii) of the Act:

(a) If a car allowance is paid to an employee in circumstances in which there is no requirement or expectation that the employee will have to use his or her car for work purposes, then the whole of the car allowance is, in reality, part of the employee’s wages and is therefore included in their “earnings”; or

(b) If a car allowance is paid to an employee at the time of their dismissal in circumstances in which there is a requirement or expectation that the employee will have to use his or her car for work purposes, then it will be necessary to determine and calculate the private benefit, if any, derived by the employee from the car allowance. To that end, we suggest the following methodology, which is based on the approach taken in Fewings:

1. Determine the annual distance travelled by the car in question. The amount of the annual distance will be as follows:

a. if the car allowance has been paid for at least 12 months prior to the dismissal - the distance travelled by the car over the 12 months immediately prior to the dismissal; or

b. if the car allowance has been paid for a period of less than 12 months prior to the dismissal, determine the distance travelled by the car in the period during which the car allowance has been paid and then extrapolate that distance over a period of 12 months to calculate an annual distance. For example, if an employee moved into a new position with his or her employer 6 months prior to his or her dismissal, received a car allowance during that 6 month period, and drove his or her car for 10,000 km in that 6 month period, the assumed annual distance travelled by the car for the purpose of calculating the employee’s “annual rate of earnings” would be 20,000 km.

2. Determine the percentage of the annual distance travelled which was for business use, which would not include travel between the employee’s home and usual place of work. If the car allowance has been paid for a period of less than 12 months prior to the dismissal, determine the business use percentage of the distance travelled in the period during which the car allowance was paid.

3. Multiply the annual distance calculated in accordance with paragraph 1 above by the business use percentage calculated in accordance with paragraph 2 above. This provides the annual distance travelled for business purposes.

4. Estimate the cost per kilometre for a car of the type used. This information can be obtained from the RACV, NRMA or like motoring organisations.

5. Multiply the annual distance travelled for business purposes by the estimated cost per kilometre. The result is the annual cost of using the car for work purposes. Compare that annual cost with the amount of the annual car allowance. The amount of the annual car allowance will be as follows:

a. if the car allowance was paid for at least 12 months prior to the dismissal - the amount of the car allowance paid to the employee in the 12 months immediately prior to the dismissal; or

b. if the car allowance has been paid for a period of less than 12 months prior to the dismissal, determine the amount of the car allowance paid in that period and then extrapolate that payment over a period of 12 months to calculate an annual amount of the car allowance. For example, if an employee in a business other than a small business was employed in that business for a period of 9 months prior to his or her dismissal, and received a car allowance of $2,000 each month in that 9 month period, the assumed annual car allowance for the purpose of calculating the employee’s “annual rate of earnings” would be $24,000 ($2,000/month x 12 months = $24,000).

6. If the amount of the annual car allowance exceeds the annual cost of using the car for work purposes, the difference is the private benefit to the employee of the car allowance, which forms part of their "annual rate of earnings".

[73] We are satisfied the second basis upon which we granted appeal has been established. The approach the Commissioner adopted was erroneous in that he did not turn his mind to the relevant question of deciding whether Mr Bernadou's earnings were in excess of or underneath the high income threshold. As the passage below reveals, the Commissioner’s finding was simply based on taking the employer's case at its highest, and deciding whether or not, on that case, the high income threshold had been exceeded:

“Determination of the Issue of car allowance

[23] The dispute between the parties does not need to be resolved. It is sufficient for the purpose of the disposition of the high income threshold for the Commission to accept the Respondent’s case that only 40% of the usage of the car by the Applicant was for business purposes and that the remaining 60% of the usage of the car by the Applicant was for private purposes. On this basis the $20,000.00 car allowance should be split into an amount of $8,000.00 for business use and an amount of $12,000.00 for personal use. The $12,000.00 becoming part of the wages of the Applicant for the purposes of s.322(1)(a).

[24] So far the earnings of the Applicant are made up of a salary of $125,000.00 (which includes an amount of voluntary superannuation contributions) and an amount of $12,000.00 paid to the Applicant to cover his private use of his own car. The total of $137,000.00 falls below the high income threshold.

Other reimbursements

[25] The Respondent contended, based upon the view expressed by the Respondent’s accountant, that half of two other reimbursements paid to the Applicant should be treated as being for personal benefit and not a reimbursement for business purposes. The two reimbursements were a telephone reimbursement of $1,560.00 per annum and a laptop reimbursement of $1,500.00 per annum. The Respondent provided a statement from Mr Dunn, Managing Director of The Accountancy Practice P/L who said of these two reimbursements:

“In relation to the telephone and laptop reimbursement, I estimate (based on my 28 Years of experience as an accountant) a private usage component of 50% based on normal work usage by staff.”

This statement was not given as sworn evidence nor was it tested in any way. However, for the purpose of disposing of the high income threshold issue I am prepared to accept the statement of Mr Dunn and the Respondent’s reliance on it.”

(our emphasis)

[74] The Commissioner was required to determine for himself what the sum of Mr Bernadou’s annual rate of earnings was and whether or not that sum was less than the high income threshold. It is apparent from the submissions made by STE and Mr Bernadou that the purpose of the car allowance is disputed, as are the additional payments made by STE to Mr Bernadou for fuel and road toll expenses. These matters were not dealt with by the Commissioner, despite having been raised before him. They require determination following evidence and submissions.

Conclusion

[75] For the reasons given we:

a) Grant permission to appeal;
b) Uphold the appeal;
c) Quash the decision in [2017] FWC 3228; and
d) Refer for future programming so that it can be heard and determined, the question “whether, at the time of his dismissal, Mr Bernadou’s annual rate of earnings, and such other sums (if any) worked out in relation to him in accordance with the regulations is less than the high income threshold?”.

DEPUTY PRESIDENT

Appearances:

Mr J Schmidt for the Appellant.

Mr A Bernadou on his own behalf.

Mr M Ingersoll and Mr P Wynter for the Australian Taxation Office (ATO).

Mr D Bray for the Australian Industry Group (Ai Group).

Ms A Matheson for the Australian Chamber of Commerce & Industry (ACCI).

Mr J Fleming for the Australian Council of Trade Unions (ACTU).

Hearing details:

2017.

Sydney together with Melbourne and Canberra (video link):

December 4.

Printed by authority of the Commonwealth Government Printer

<PR601484>

 1   [2017] FWC 3228

 2   This is so because on appeal the Commission has power to receive further evidence, pursuant to s.607(2); see Coal and Allied v AIRC (2000) 203 CLR 194 at [17] per Gleeson CJ, Gaudron and Hayne JJ.

 3   (2011) 192 FCR 78 at [43].

 4   O’Sullivan v Farrer (1989) 168 CLR 210 per Mason CJ, Brennan, Dawson and Gaudron JJ; applied in Hogan v Hinch (2011) 85 ALJR 398 at [69] per Gummow, Hayne, Heydon, Crennan, Kiefel and Bell JJ; Coal & Allied Mining Services Pty Ltd v Lawler and others (2011) 192 FCR 78 at [44] -[46].

 5   [2010] FWAFB 5343, 197 IR 266 at [27].

 6   Wan v AIRC (2001) 116 FCR 481 at [30].

 7   GlaxoSmithKline Australia Pty Ltd v Makin [2010] FWAFB 5343 at [26]-[27], 197 IR 266; Lawrence v Coal & Allied Mining Services Pty Ltd t/as Mt Thorley Operations/Warkworth [2010] FWAFB 10089 at [28], 202 IR 388, affirmed on judicial review in Coal & Allied Mining Services Pty Ltd v Lawler (2011) 192 FCR 78; NSW Bar Association v Brett McAuliffe; Commonwealth of Australia represented by the Australian Taxation Office [2014] FWCFB 1663 at [28].

 8   Fair Work Act 2009, s.382(b)(iii).

 9   [2017] FWC 3228 at [25].

 10   Attachment to Notice of Appeal lodged on 15 August 2017.

 11   Taxation Ruling TR 92/15 Income tax and fringe benefits tax: the difference between an allowance and a reimbursement.

 12   ATO Submission dated 15 November 2017 at [13].

 13   Ibid at [23].

 14   Transcript PN 247-248.

 15   ATO Submission dated 15 November 2017 at [19].

 16   Transcript PN 231-238.

 17   Relying on a what it submitted was a similar proposition considered by Latham CJ in Mutual Acceptance Co Ltd v Federal Commissioner of Taxation (1944) 69 CLR 389 at 396.

 18   Pasznicki v Expro Group Australia Pty Ltd [2016] FWC 2298, Ni Mhorain v UON Pty Ltd [2016] FWC 4427 and Wigglesworth v Warringah Plastics Pty Ltd [2016] FWC 7555.

 19   Ibid.

 20   [Print no. Q0675] (7 May 1998).

 21  Rofin Australia Pty Ltd v Newton 78 IR 78, H.W Fewings v Kunbarllanjnja Community Government Council [Print no. Q0675] (7 May 1998), Matura v Leica Geosystems [2014] FWCFB 6735, Chang v Ntscorp Ltd [2010] FWA 1952, Davis v PT Western Plains[2016] FWC 492, White v Programmed Facilities Management [2013] FWC 8647, Baker v Rio Tinto [2014] FWC 6741, Coventry v Southern Gulf Catchments Ltd [2012] FWA 1546, Lawson v Novotec Building Products [2013] FWC 300, Fitzhenry v Linde Material Handling [2015] FWC 1094, Davidson v Adecco Australia Pty Ltd [2012] FWA 8393 and Keays v ECS Instruments Pty Ltd [2013] FWC 1211.

 22   2nd edition, 1997.

 23   Transcript PN 290.

 24   Rofin Australia Pty Ltd v Newton 78 IR 78 at 81 and Australian Education Union v Victoria (Department of Education and Early Childhood Development) [2015] FCA 1196 at [36].

 25   s.382(b)(iii) of the Act

 26   Roads and Traffic Authority of New South Wales v Federal Commissioner of Taxation (1993) 116 ALR 482 at 487

 27   Ibid at 488

 28   Ibid at 490

 29   R v Gray; Ex parte Marsh (1985) 157 CLR 351 at 365

 30   YZ Finance Co Pty Ltd v Cummings (1964) 109 CLR 395, at pp 398-399, 402

 31   Counsel v Repatriation Commission (2002) 122 FCR 476 at [46]

 32   Buckle v Josephs (1983) 47 ALR 787 at 792

 33   [1904] AC 349 at 351

 34   See, for example, Leighton v Australian Telecommunications Commission (1990) 34 IR 250 at 260; May v Lilyvale Hotel Pty Ltd (1995) 68 IR 112 at 116; Shead v Summit Western Pty Ltd (1998 81 IR 347 at 358

 35   (1990) 34 IR 250

 36   (1944) 69 CLR 389

 37   (2002) 122 FCR 476

 38   s.332(2)(a) of the Act

 39   (1997) 78 IR 78

 40   Condon v G James Extrusion Company (1997) 74 IR 283

 41   Rofin Australia Pty Ltd v Newton (1997) 78 IR 78 at 82-83

 42   s.170CC(3)(b) of the Workplace Relations Act 1996 (Cth)

 43   Rofin Australia Pty Ltd v Newton (1997) 78 IR 78 at 81

 44   May v Lilyvale Hotel Pty Ltd (1995) 68 IR 112 at 116

 45   See paragraphs [61]-[62] above

 46   Rofin Australia Pty Ltd v Newton was decided in 1997