Dec 519/98 S Print Q0675
AUSTRALIAN INDUSTRIAL RELATIONS COMMISSION
s.45 appeal against a decision [Print P9195]
issued by Commissioner Eames on 2 March 1998
(C No. 80032 of 1998)
s.170CE application for relief re termination of employment
H.W. Fewings
and
Kunbarllanjnja Community Government Council
(C No. 80011 of 1998)
VICE PRESIDENT ROSS
SENIOR DEPUTY PRESIDENT WATSON
COMMISSIONER BACON MELBOURNE, 7 MAY 1998
This decision deals with an appeal by The Kunbarllanjnja Community Government Council against a decision by Commissioner Eames on 2 March 1998 [print P9195]. In the decision subject to appeal the Commissioner rejected a submission by the appellant that Mr Fewings was excluded from the operation of subdivisions B, C, D, E and F of Division 3 of Part VIA of the Workplace Relations Act 1996 (the Act) on the basis that he was a non-award employee in receipt of remuneration in excess of the `specified rate'.
It is common ground that the `specified rate' applicable at the time of the applicant's termination was $66,200 and that the applicant was not employed under award conditions.
In the course of his decision the Commissioner found that the applicant's rate of remuneration immediately before the termination was $60,674 which had the following components:
Salary $50,232
Superannuation $3,014
Leave Loading $1,014
Annual Airfares $1,560
Motor Vehicle Benefit $670
Rent $3,328
Telephone $300
Power and Water $556
The Commissioner concluded that the applicant's remuneration did not exceed the specified rate and therefore he was not excluded from the relevant provisions of the Act.
Section 170CC relevantly provides:
"(1) The regulations may exclude from the operation of specified provisions of this Division specified classes of employees included in any of the following clauses:
. . . (e) employees in relation to whom the operation of the provisions causes or would cause substantial problems because of:
(i) their particular conditions of employment; or
(ii) the size or nature of the undertakings in which they are employed.
(2) Without limiting, by implication, the class of persons that may be prescribed for the purposes of paragraph (1)(e), the regulations may identify as a class of employee for the purposes of that paragraph employees not employed under award conditions and to whom subsection (3) and (4) applies.
(3) This subsection applies to an employee if:
(a) the employee's remuneration immediately before the termination of employment was not wholly or partly determined on the basis of commission or piece rates; and
(b) the rate of remuneration applicable to the employee immediately before the termination exceeds a rate specified, or worked out in a manner specified, in the regulations (the specified rate)."
Regulation 30B relevantly provides:
"(1) For subsection 170CC(1) of the Act, the following kinds of employees are excluded from the operation of Subdivisions B, C, D, E and F of Division 3 of Part VIA of the Act:
. . . (f) an employee:
(i) who is not employed under award conditions; and
(ii) to whom subsection 170CC(3) and (4) of the Act applies . . .
. . . (4) For subparagraph (1)(f)(i), an employee is taken not to be employed under award conditions unless the employer is bound, in relation to the employee's wages and conditions of employment, by an award, a certified agreement, an AWA or an old IR agreement."
Regulation 30BB provides:
"For paragraphs 170CC(3)(b) and (4)(b) of the Act, the specified rate is $64000 per year, or that amount as affected by indexation in accordance with regulation 30BF."
Regulations 30BC and 30BE are not relevant to the circumstances before us.
The combined effect of the provisions of the Act and regulations referred to is to exclude Mr Fewings from the operation of Subdivisions B, C, D, E and F of Division 3 of Part VIA if his:
- wages and conditions of employment are not regulated by an award, certified agreement, an AWA or an old I.R. agreement that binds the employer and the employee; and
- rate of remuneration applicable immediately before his termination exceeded $66,200 per year.
Two aspects of the Commissioner's decision were challenged by the appellant:
(i) the assessment of the value of the motor vehicle component of the applicant's remuneration; and
(ii) the failure to take recruitment and termination relocation expenses into account in assessing the applicants' remuneration.
We shall deal with each of these arguments in turn.
1. Motor vehicle calculation
In the proceedings at first instance the Council relied on the evidence of Mr Wilson in support of its contention that the motor vehicle component of the applicant's remuneration was $6,689. Mr Wilson is an accountant and a partner with KPMG. KPMG acted as the Council's auditors for the financial year ended 30 June 1997.
In the course of his examination in chief Mr Wilson was asked how the amount of $6,689 was arrived at and he replied in the following terms:
"Mr Wilson: This is based on a standard form we use by the Australian Taxation Office to calculate fringe benefits on motor vehicles. We have obtained the costs base of the vehicle used by Mr Fewings, that was confirmed by DAS Fleet who Council leases the vehicle from and that was $60,808. An estimate of the kilometres travelled for one year has been - has been made at 26,667 kilometres. Based on kilometres travelled the statutory faction as specified by the Fringe Benefits Tax Act is 11 per cent and we've applied that against the cost base of the vehicle - $60,808 to give $6689.
Mr Barton: Thank you. Now, you say that is a formula used by the Australian Taxation Office?
Mr Wilson: Yes.
Mr Barton: Is there another method that can be used?
Mr Wilson: Yes. There can be an actual cost method which is looking at the full costs of the motor vehicle including fuel, tyres, repairs and maintenance. And one again a percentage can be applied to that or you can look at the log book method which records the number of personal kilometres travelled versus the business kilometres travelled etcetera." [Transcript, 19 February 1998, 11 at lines 2-17]
In reply to the Council's contention that a value of $6,689 should be attributed to the applicant's private use of the Council's motor vehicle, Mr Priestley, appearing on behalf of the applicant, submitted:
"If I can refer you to the contract which was tendered in evidence, Contract of Employment with the heading Index, and in particular clause 17 of that contract. Well, sorry, firstly the contract has no mention anywhere of private uses of motor vehicle. Clause 17 of the contract provides that should there be an agreement between the employer and employee to change the employment - the employees position, remuneration etc, the parties to the agreement shall execute a variation to the agreement.
So, if the council at some stage believed that it had given Mr Fewings private use of the vehicle, then surely that should be reflected in their own document which they drew up and had Mr Fewings sign. That is the first basis upon which I would say there should be no inclusion in the rate of remuneration for the motor vehicle. The - if I am not successful in that submission, then it - my next submission is that on the evidence before you, the most that the employer can establish in regards to the extent of the use of the vehicle for private means is between five and 10 per cent. Now that - between five and 10 per cent of $6689 and that - I took my friend to task before but in the accountants calculations, he has used a fringe benefits tax statutory benefits method. I don't know why seeing they don't pay fringe benefit tax on it but in any event, in accordance with that formula, I accepted that formula as correct for the purposes of this application.
It is per annum the figure of $6689, that is the annual cost of a motor vehicle of the type Mr Fewings was using at work so if you accept Mr Fewings evidence, and there seems very little to - that contradicts - that contradicts it, that five to 10 per cent, well then the value of the motor vehicle will be somewhere between $370 roughly and $670." [Transcript, 19 February 1998, 7 at lines 19-41, and 8 at lines 1-5]
The Commissioner adopted the alternative submission advanced on behalf of the applicant.
In the course of his decision the Commissioner dealt with the motor vehicle component of the applicant's remuneration in the following terms:
"The Respondent used a calculation based on the FBT statutory benefits method based on a vehicle costing $60,808. The calculation amounted to $6689. On cross examination, it was conceded that the Council did not pay FBT. The Applicant attested that he only used the vehicle privately for 5% - 10% of his time. Mr Priestly point out that when one refers to the contract of employment at clause 17 [Exhibit B5], the agreement could have been varied to provide for the private use of a motor vehicle. That was never done and the contract has no mention at all about that use. The Applicant gave evidence that apart from the trip to Adelaide, which was authorised, there was only one other occasion where his partner was seen driving to the school, a distance estimated at 1km. It was conceded by the Applicant that the formula used by the Respondent could be used as a basis of calculation and if one applied the 5% - 10% estimate then the figure at most would be $670. I agree with that approach and therefore $670 will be calculated as part of the remuneration package. [Print P9195 at 3]
On appeal the Council submitted that the Commissioner's conclusion that the value of the motor vehicle benefit was $670 was `a mathematical error'. It was submitted that the correct figure, based on the Commissioner's finding that the vehicle was used for personal use for ten per cent of time, is $6,080.
The Commissioner's error was said to arise in the following way:
1. He used the ATO formula as the basis for his calculation of the value of the motor vehicle.
2. On the basis of the distance travelled the ATO formula calculates the value of the private use of the motor vehicle as being eleven per cent of the cost of the vehicle. The cost of the vehicle in this case was $60,808. Therefore value of the private use of that vehicle is $6,689.
3. The Commissioner found that the applicant only used the vehicle for private purposes for five to ten per cent of the time. He then calculated ten per cent of $6,689 (being the amount arising from the application of the ATO formula).
According to the appellant the Commissioner should have used the ATO approach and concluded that the value of the private use of the motor vehicle was ten per cent of the cost of the vehicle, i.e. ten per cent of $60,808 or $6,080.
We agree that the Commissioner's calculation was in error but we do not agree with the alternative proposed by the appellant.
The ATO formula provides that where the annual distance travelled is between 25,000 and 40,000 kilometres the notional value of the private use of that vehicle is equal to eleven per cent of the cost of the vehicle. In this case the estimated annual distance was 26,667 kilometres and the cost of the vehicle was said to be $60,808. Hence the application of the ATO formula was used by the Council to suggest that the value of Mr Fewings' private use of the vehicle was $6,689 (being eleven per cent of $60,808).
No material was put in the proceedings below, or on appeal, as to the assumptions inherent in the ATO formula. It seems to us that the formula has been developed largely as a matter of administrative convenience in order to simplify the calculation of fringe benefits tax.
The error in the decision subject to appeal arises from the Commissioner's decision to apply the proportion of the time Mr Fewings used the vehicle for private purposes (i.e. ten per cent) to the amount derived from the application of the ATO formula. This method does not result in a reliable estimate of the value of the motor vehicle benefit as a component of Mr Fewings' remuneration.
Nor does the ATO formula relied on by the appellant commend itself to us. As already noted, it appears the ATO formula has been developed for administrative convenience, providing a simple formula to be used for calculating FBT instead of a calculation based on data reflecting actual operating costs and private usage reflected in log books. The statutory percentage applied to the base value of a vehicle seems to incorporate unstated assumptions, for a given level of total kilometres travelled, as to the relationship between the annual cost of running a vehicle and its base value and the proportion of private usage of the vehicle. To illustrate, where a vehicle has a base value of $50,000 and travels 30,000 km in a year, the application of the statutory formula would result in a value for personal usage of $5,500, irrespective of the actual proportion of the total kilometres travelled for personal purposes. The ATO formula would produce the same value of personal usage if actual personal usage was 1,000 km or 29,000 km. By definition, the formula does not shed light on the actual circumstances in relation to a particular vehicle and driver.
In our view the most appropriate method of calculating the value of the motor vehicle component of an applicant's remuneration is 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.
The ATO formula may be used in circumstances where the parties agree that it will provide a reliable estimate. That is not the case in the matter before us.
The party advancing the proposition that an applicant is excluded from the relevant provisions of the Act because regulation 30B(1)(f) carries the burden of establishing the evidentiary basis upon which such a determination can be made. That obligation has not been met in this case. Indeed on the material before us it is impossible to be precise about the value of the applicant's private use of the vehicle supplied by his employer. In this regard the following points may be made on the basis of the material before us:
· Mr Fewings' employment contract [Exhibit B5] makes no reference to a right to use the Council's vehicle for private purposes;
· Mr Fewings sought his employer's permission to use the vehicle during his annual leave - an action which seems to us to be inconsistent with an unrestricted right of private usage [Transcript of 19 February 1998, 36 at lines 1-10, evidence of Mr Fewings];
· the vehicle in question was used by a number of other employees and councillors [Transcript of 19 February 1998, 25 at lines 23-26, evidence o Ms Drydon];
· Mr Fewings gave evidence that he actually used the vehicle for his own personal use for five-ten per cent of the time [Transcript of 19 February 1998, 42 at lines 9-10]. The reference to five-ten per cent seems to refer to the proportion of the total time Mr Fewings used the vehicle. As other employees and councillors also used the vehicle it is not reasonable to infer that five-ten per cent of the annual distance travelled [i.e. 26,667 kilometres] was attributable to Mr Fewings private use of the vehicle.
There is insufficient evidence for us to establish the percentage of the annual distance travelled which can be attributed to the applicant's private use of the vehicle. Nor has any estimate of the cost per kilometre for a vehicle of the type used been provided.
In these circumstances we think that the appropriate course is to remit this matter back to Commissioner Eames for further hearing in light of the principles set out in this decision.
2. Recruitment/termination removal expenses
The appellant submitted that the Commissioner had erred in deciding to exclude recruitment/ termination removal expenses from the calculation of the applicant's remuneration.
The Commissioner dealt with this aspect of the matter before him in the following terms:
"The Respondent had argued that the expenses associated with the recruitment and the termination of the Applicant, in total amounted to $2,265.00, although they had discounted that figure to an amount of $1006, using an annualised calculation. I am not persuaded that any amount associated with this item can in any way be included in the Applicants remuneration. His recruitment occurred well outside the 12 months period which is relevant in making any calculation on remuneration (see Regulation 30BC) and whilst it may have been a cost to the Respondent, it was not part of the Applicants remuneration as such, in my view. The costs associated with his relocation following his termination, like wise, are after the fact of termination, and again are not in my view, part of his remuneration.
This aspect is accordingly disallowed." [Print P9195 at 3]
On appeal the appellant submitted that the sum of $1,184 should be included in the calculation of Mr Fewings' remuneration. This amount was advanced on the following basis:
1. The actual cost to the Council of paying the relevant expenses was $2,664. [We note that in the proceedings below this figure was put at $2,265, but nothing turns on this.]
2. The contract of employment was for 27 months.
3. The recruitment/termination removal expenses provided to Mr Fewings are annualised as follows:
$2,664 |
x |
12 |
= |
$1,184 |
27 |
In examining the proposition advanced regard needs to be had to Mr Fewings' employment contract. Clause 14 of that contract deals with these matters in the following way:
"14.0 JOINING AND REPATRIATION
14.1 For all purposes of this Agreement, the place of repatriation of the Employee shall be deemed to be as specified in Item 8 of the Schedule.
14.2 Travel
Free economy air travel shall be provided upon commencement of employment and on repatriation for the Employee, spouse and a maximum of four (4) dependant children between the nearest airport to the Employee's place of repatriation and the place of employment.
14.3 Transportation of Personal Effects
The Employee, spouse and a maximum of four (4) dependant children shall each be provided with an accompanying excess baggage allowance of twenty (20) kilograms. An additional unaccompanied allowance for personal effects and household goods shall be provided as follows:
(a) Joining and repatriation allowances shall be:
Employee 3 cubic metres
Spouse 3 cubic metres
Dependant children 1.5 cubic metres
1 domestic vehicle (Darwin/ /Darwin) per Employee
Cost of Packaging
The Employer shall meet the cost of the packaging of personal and household effects upon termination of the Agreement.
Uplift Procedures and Insurance
(a) The Employer shall be responsible for the transportation of the Employee's unaccompanied baggage and effects either by land or sea. The Employer shall be responsible for the uplift arrangements, however at the point of recruitment only this responsibility may be delegated to the Employee providing that reimbursement of associated costs shall be met by the Employer immediately following the arrival of the Employee in
(b) The Employer shall be responsible for the cost of Insurance of personal and household effects transported at the termination of the Agreement."
The recruitment removal expenses were paid at the time Mr Fewings commenced employment in 1996. In our view it is inappropriate to annualise these payments in the manner proposed by the appellant.
Section 170CC(3) is critical to the determination of this issue. It provides:
"(3) This subsection applies to an employee if:
(a) the employee's remuneration immediately before the termination of employment was not wholly or partly determined on the basis of commission or piece rates; and
(b) the rate of remuneration applicable to the employee immediately before the termination exceeds a rate specified, or worked out in a manner specified, in the regulations (the specified rate)."
In this case there is no suggestion that that the applicant's remuneration immediately before the termination of his employment was `not wholly or partly determined on the basis of commission or piece rates'. Hence s.170CC(3) is the relevant subsection.
Section 170CC(3)(b) provides that the subsection applies to an employee if the rate of remuneration applicable to the employee `immediately before the termination' exceeds the specified rate. The phrase `immediately before the termination' supports the conclusion that in this case it would not be appropriate to include recruitment removal expenses as these were not part of the applicant's remuneration `immediately before' his termination on 16 January 1998.
The differences in the approaches specified in ss.170CC(3) and (4) are a strong indication that the approach proposed by the appellant is inconsistent with the intention of the legislature.
Section 170CC(4) provides:
"(4) This subsection applies to an employee if:
(a) the employee's remuneration immediately before the termination of employment was wholly or partly determined on the basis of commission or piece rates; and
(b) in accordance with the regulations, the rate of remuneration that is taken to be applicable to the employee immediately before the termination exceeds the specified rate."
Regulation 30BC provides:
"For paragraph 170CC(4)(b) of the Act, the rate of remuneration per year that is taken to be applicable to an employee immediately before termination is:
(a) for an employee who was continuously employed by the employer and was not on leave without full pay at any time during the period of 12 months immediately before termination - the greater of:
(i) the remuneration that the employee actually received in that period; and
(ii) the remuneration that the employee was entitled to receive in that period; or
(b) for an employee who was continuously employed by the employer and was on leave without full pay at any time during the period of 12 months immediately before termination - the total of:
(i) the actual remuneration received by the employee for the days during that period that the employee was not on leave without full pay; and
(ii) for the days that the employee was on leave without full pay an amount worked out using the formula:
Remuneration mentioned in subparagraph (I) x days on leave without full pay |
; or |
days not on leave without full pay |
(c) for an employee who was continuously employed by the employer for a period less than 12 months immediately before termination - the amount worked out using the formula:
remuneration received x 365 |
days employed " |
The method specified in reg. 30BC(c) for calculating the rate of remuneration applicable to a commission or piece rate employee employed for a period of less than 12 months is the same as that advanced by the appellant in these proceedings.
Clearly reg.30BC(c) does not apply in the circumstances of this case as the applicant's remuneration was not `wholly or partly determined on the basis of commission or piece rates'. Further, in our view it cannot be inferred that the methodology used in reg.30BC(c) applies to s.170CC(3).
In our opinion if Parliament had intended reg.30BC(c) to apply in the circumstances specified in s.170CC(3) it would have specifically so provided. It chose not to do so.
The difference in the language used in ss.170CC(3)(b) and (4)(b) together with the fact that reg.30BC only applies to s.170CC(4)(b) supports the view that Parliament intended a different approach to the method of calculating the rate of remuneration applicable to an applicant immediately before termination.
It is also relevant to note that the language used in s.170CC(3)(b) - i.e. `remuneration immediately before the termination' - is different to that used elsewhere in Division 3 of Part VIA. For example for the purpose of calculating ceiling on the compensation which may be awarded to an employee in the event that the Commission concludes that the termination was harsh, unjust or unreasonable s.170CH(8)(a) refers to:
". . . the total amount of remuneration received . . . by the employee for any period of employment with the employer during the period of 6 months immediately before the termination."
The relevance of this point is that if Parliament had intended the construction advanced by the appellant it could have used an expression such as `the total amount of remuneration received in the previous 12 months'. A similar expression was used in s.170CH(8)(a) but was not adopted in s.170CC(3).
The fact that Parliament chose different language in s.170CC(3)(b) to that used in s.170CC(4)(b), reg. 30BC and s.170CH(8)(a) suggests that a different meaning and approach was intended: see Scott v Commercial Hotel Merbein Pty Ltd [1930] VLR 25 at 30.
In short we do not think that the annualisation method employed by the appellant is consistent with the Act and regulations. In relation to the entitlement to relocation expenses on termination we do not think that such expenses can properly be said to form part of an employee's remuneration within the meaning of the Act and regulations. Section 170CC(3)(b) refers to the `rate of remuneration immediately before the termination of employment' exceeding the specified rate. The relocation expenses in this matter are contingent on termination and payable after termination. It follows that such an entitlement cannot be said to form part of the applicant's remuneration `immediately before' the termination of his employment [see further Dircks v National Union of Workers Victorian (General) Branch, Print P3021].
We reject that part of the appeal relating to the Commissioner's decision not to take recruitment and termination relocation expenses into account in assessing the applicant's remuneration.
Given the Commissioner's error in the calculation of the motor vehicle component of Mr Fewings' remuneration we have decided to grant leave to appeal and uphold the appeal in relation to that issue only.
The matter will be remitted to Commissioner Eames pursuant to s.45(7)(c) for further hearing in light of principles we have set out in this decision regarding the method of calculating the value of the motor vehicle component of an applicant's remuneration.
BY THE COMMISSION:
VICE PRESIDENT
Appearances:
B. Barton for the appellant.
W. Priestley for the respondent.
Hearing details:
1998.
Darwin:
April 15.
Decision Summary
Termination of employment - unfair dismissal - appeal - full bench - jurisdiction - specified rate - applicant not employed under award conditions - Commissioner concluded remuneration did not exceed specified rate - appellant challenged assessment of motor vehicle component of remuneration and failure to take recruitment and termination relocation expenses into account - Full Bench agreed Commissioner's calculation of value of motor vehicle was in error - principles of calculating value of motor vehicle component of remuneration -- inappropriate to annualise payments for recruitment removal expenses - recruitment removal expenses not part of remuneration `immediately before' termination - reg.30BC(c) does not apply in this case as applicant's remuneration was not `wholly or partly determined on the basis of commission or piece rates' - cannot be inferred methodology used in reg.30BC(c) applies to s170CC(3) - see Scott v Commercial Hotel Merbein Pty Ltd - relocation expenses on termination cannot form part of remuneration `immediately before' termination - see Dircks v National Union of Workers Victorian (General) Branch - reject part of appeal relating to Commissioner's decision not to take recruitment and termination relocation expenses into account - grant leave to appeal and uphold appeal in relation to Commissioner's error in calculation of motor vehicle component of remuneration - matter remitted back to Commissioner for further hearing in light of principles set out in this decision. | ||||
Appeal by Kunbarllanjnja Community Government Council against decision of Eames C on 2 Mar 98 [Print P9195] | ||||
C No. 80032 of 1998 |
Print Q0675 | |||
Ross VP Watson SDP Bacon C |
Melbourne |
7 May 1998 | ||
Printed with the authority of the Australian Industrial Relations Commission
<Price Code D>
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