The construction point
23 The reason why the parties disagree as to the amount payable to each of the six employees in respect of long service leave is that they differ as to the proper construction of the award, in the light of the addition to cl 48. The argument put by FSU is that the words added to cl 48 made the whole of the award, other than the listed clauses, inapplicable to the subject employees. As cl 3 was rendered inapplicable, the argument goes, there was no longer a definition of "full pay"; anyway the reference to cl 7 and 9 would be meaningless as they also were rendered inapplicable to the subject employees. This meant that "full pay" had to be given its ordinary English-language meaning. FSU argued that, in the present context, that meant the value of the whole TEC package.
24 As we have mentioned, ANZ calculated the long service leave entitlement by reference to notional salary; that is, 65% of TEC. However, counsel for ANZ argued this approach was in fact too generous; the calculation ought to have been made by reference to the salaries specified in cl 9 of the award. Counsel argued the intention behind the amendment of cl 48 was to remove from application to relevant employees only the substantive provisions that were not specified in the addendum; the amendment did not affect adjectival provisions necessary to implement the substantive provisions that were specified to continue to apply.
25 North J rejected ANZ's approach. In paras 29 to 34 of his judgment he said:
"The form of the consent variation to cl 48 is significant. It makes the entire award inapplicable to the specified employees and then proceeds to stipulate particular savings. That form of expression had the effect of rendering cll 3, 7 and 9 inapplicable to these managers and left the meaning of "Full pay" to be determined by reference to the circumstances in which the managers were remunerated, namely, by reference to the value of the TEC salary package.
This construction also reflects the Memorandum of Understanding which recorded the basis upon which the award variation was to be made by consent. The Memorandum of Understanding stated that cll 7 and 9 of the award would be replaced for managers accepting the TEC salary packages. That result was to be achieved by the form of award variation which was annexed to the Memorandum of Understanding and which became the variation made by the Australian Industrial Relations Commission in January 1995. The Memorandum of Understanding contemplated that the Personnel (Domestic) Policies would replace cl 9. In fact, the quantum of each managers remuneration was governed by the applicable letter of acceptance. There was no relevant change made to the policy document. The lack of any change is, however, immaterial. The significant factor was that the Memorandum of Understanding envisaged that cl 9 would no longer apply.
In arriving at this view I have taken into account the fact that some officers of the respondent responsible for producing the guide apparently had a view that the value of the TEC salary package was not prescribed by the award as the basis for calculation of the termination payment for unused long service leave. But, however they arrived at their view, a more reliable indication of the meaning of the award as varied by consent is the direct expression of the intentions of the parties to the agreement to vary the award, which intentions are expressed in the Memorandum of Understanding.
The respondent argued that cl 48 could not have a literal operation. The award would not work if, for instance, the definitions in cl 3 did not apply. There would be no explanation of who was referred to by the word "Employer" or "Union" or "Commission" in the award. Yet, on the Union's argument, cl 3 does not apply because it was not expressly saved in cl 48.
In my view cl 3 did not have any operation in relation to the managers. The definitions contained in cl 3 are not necessary for the proper understanding of the award provisions which are saved by cl 48. The terms "Employer", "Employee", "Union" and "Commission" had a meaning in the context of the Memorandum of Understanding which did not depend upon a specific definition in the award. On the other hand the parties intended that the definition of "Full pay" in cl 3 was to have no application to managers. For these reasons it was not the intention of the parties to preserve cl 3 in relation to managers.
Even if this approach is wrong, and cl 3 was preserved, it is clear that the parties intended that cl 9 would have no application to managers. Consequently, the reference in the definition of "Full pay" to cl 9 was not intended to apply to managers".
26 Upon appeal, counsel for ANZ argued that, prior to the amendment of cl 48, "full pay" was a term of art under the award. It was defined by cl 3 in such a way as to link with cll 7 and 9. So it did not matter what salary a particular employee in fact received; the employee's "full pay" for (inter alia) cl 34 purposes was that specified in cl 9. Counsel contended the amendment of cl 48 did not change the meaning of "full pay"; even though cl 9 was no longer to have any application for the purpose of prescribing salaries to be paid to employees, it continued to provide meaning to the term "full pay".
27 Counsel for ANZ submitted the Memorandum of Understanding provides no assistance; it merely indicates an intention to terminate the application of the award with respect to some matters, including salary, but to preserve it in other respects. Counsel contended the Memorandum of Understanding contains no indication "that the parties turned their minds to the situation created where a provision which continued to apply operated with reference to a provision which no longer applied".
28 Counsel for ANZ also pointed out it was fundamental to FSU's claim of breach of s 178 of the Act that ANZ was bound by the award; yet that depended on the application of cll 5 and 50, neither of which was expressly saved in the cl 48 addendum.
29 Counsel for FSU argued it is erroneous to commence with an assumption that the meaning of "full pay" was intended to be left unaffected by the amendment to cl 48. They said the current award ought to be construed by reference to what is left, not what went before. They said that, even if cl 3 continued to apply, that would not assist ANZ's case; without cl 9, ANZ's construction is unavailable. Counsel argued:
"Both the clear language of cl 48 and its evident intention was to do away with prescribed award salaries for TEC managers for all purposes. Once a manager had adopted the TEC method of remuneration the award salary rates were no longer relevant."
30 It seems to us that the correct view lies between the extremes suggested by counsel. An award is a document that sets out, in a structured way, a series of employees' entitlements. It necessarily contains adjectival provisions which will apply to many, if not all, the entitlements. It must indicate who is to be bound by the award and the obligations it imposes.
31 The agreement embodied in the Memorandum of Understanding envisaged that, for some employees, some of the entitlements provided by the award would be transposed to "personnel (domestic) policies". The intention was to strip the award of those entitlements, so far as it applied to the relevant employees. That did not mean all adjectival clauses were to be stripped away. They were to continue to apply, to the extent necessary to give effect to the entitlements that remained. Those clauses obviously included cll 5 (scope and operation) and 50 (employer respondents). We think they also included cl 3, which included definitions of continuing utility in relation to entitlements retained in the award. However, the retained provisions had to be read in the context of the amendment made to the award by the addendum to cl 48. We agree with counsel for FSU that it is unlikely that those who prepared the consent order of 24 January 1995 contemplated that either cl 7 or cl 9 would have any continuing role in the calculation of the value of untaken long service leave. Those two clauses were being jettisoned, so far as the relevant employees were concerned. A new regime was being established, whereby remuneration would be calculated by reference to TEC entitlements. For "full pay" to have sensible meaning, in the future, it would have to be related to employees' entitlements under the new regime.
32 Moreover, as cl 9 was being abandoned in respect of managers who accepted TEC, it must have seemed unlikely there would ever be a revision of the salaries for managers set out in cl 9. With the passage of time, those salaries would become increasingly outdated.
33 As counsel for FSU submitted, it is necessary to construe the amended clause by reference to what it says, rather than by reference to what it used to say. If the effect of the amendment making cl 9 inapplicable to the relevant employees was also to make part of a cl 3 definition inapplicable to those employees, it must be assumed the parties intended this to happen. Adopting that approach, it seems to us that, after the amendment to cl 48 took effect, the definition in cl 3 of "full pay" had to be read as if it contained no reference to cll 7 and 9. So, in relation to the relevant employees, the definition became "the prescribed salary to which an employee is entitled for the ordinary time which the employee would have worked" etc. The "prescribed salary" needed to be ascertained by reference to the document or documents that then specified the salary applicable to a particular employee.
34 It is important to note that the reference is to "salary". That word may not cover all the emoluments of a person's employment. In Ardino v Count Financial Group Pty Ltd (1994) 126 ALR 49 a question arose to the meaning, in a statutory context, of the word "wages". At 55 Wilcox J referred to a decision of the Court of Appeal in England, Adams v Liverpool Corporation (1927) 137 LT 396, in which Bankes LJ, with the concurrence of Scrutton LJ and Romer J, said (at 397) "where the word used is 'salary' or 'pay' or 'wages' you are entitled to interpret that language as something to which a person is contractually entitled". Wilcox J added:
"A payment made by the employer, that the employee was never contractually entitled to receive, cannot be regarded as 'wages'. It is not sufficient that the payment arose out of the contract of employment."
35 It follows that it is doubtful that FSU is correct in arguing that the multiplier for the purposes of calculating, under the award, the value of untaken long service leave, is the employee's TEC. That would be the case only if, under whatever arrangement the employee had made with ANZ, the employee was contractually entitled to receive, in money, the whole TEC. We gather that would rarely be the case.
36 On the other hand, it seems erroneous to calculate the entitlement simply by reference to the notional salary. That figure may coincide, in a particular case, with the employee's actual salary. However, unless it does so, it will not be the employee's "salary" for cl 3 purposes.
37 We appreciate the advantage of calculating employees' long service leave entitlements by reference to a fixed proportion of the TEC. However, that is not what the award currently provides.
38 It follows that the amount properly payable to each of the six former employees listed in the table is unlikely to be the sum contended for by either party. If determination of that figure were important, in a practical sense, a new computation would be required in relation to each former employee. It might be a complex task. However, in the view we take, this will not be necessary. That is because of our conclusion about the second issue that falls for determination.
The Poletti v Ecob point
39 Counsel for ANZ contended that, even if there was a shortfall in their client's calculation of the long service leave payment due to any of the six former employees, relief under s 178(6) is unavailable. Their argument is that the total amount payable under the award in respect of any particular employee must necessarily be less than the total amount paid to that employee. Counsel for FSU concede this is so. It is apparent from the table set out in para 21 above. In each case, the figure for "LSL claimed" - that is, the amount calculated as being payable to the particular employee on the basis of including the whole TEC in the multiplier - is less than the total amount actually paid. However, counsel for FSU argued that the principle enunciated in Poletti v Ecob (1989) 91 ALR 381; 31 IR 321 prevents ANZ relying on this circumstance. They submitted the two components were characterised at the time of payment, so ANZ cannot offset an over-payment on one account against a liability on another.
40 Poletti v Ecob was a decision of a Full Court of this Court (Keely, Gray and Ryan JJ). It was an appeal against a magistrate's decision imposing penalties, and making orders, in respect of four breaches of the Horse Training Industry Award. The appellant, a horse-trainer, was bound by the award. The magistrate found he had underpaid one Hunt, his stable foreman. Hunt and his family lived in a flat above the stable for which Hunt had not paid rent, except for a short period. On the appeal there were issues about the proper interpretation of the award. There was also an issue as to whether the appellant was entitled to offset against any deficiency in cash payments the rental value of the flat and the value of other benefits taken by Hunt in a "package" provided by the appellant. The Full Court held the appellant was not entitled to do this. In coming to that conclusion, the Full Court followed a unanimous decision of the Industrial Commission of New South Wales in Court Session, Pacific Publications Pty Ltd v Cantlon (1983) 4 IR 415, in which the Commission adopted a minority view expressed by Sheldon J in Ray v Radano [1967] AR (NSW) 471. The view of Sheldon J was expressed (at 478-479) in these terms:
"… if by contract, express or implied, the whole or part of the payment made to the complainant has been in respect of matters which are outside the award entitlement, the payment to that extent cannot be set off. This may include amounts allocated, say, for fares or as a uniform allowance where there is no award entitlement in respect of such matters. This, of course, is recognized in the majority judgment.
But at this stage I must part company from that judgment because I can see no difference in principle between an amount promised in excess of the award requirement whether the promise is for, say, a uniform allowance or for a payment confined to ordinary time only. In each case, the employee works on the basis that he will receive an extra-award payment and, in my opinion, it is not to the point that in one case its subject matter is clothing and in the other additional remuneration for a nominated period of work. If one cannot be set off, neither can the other because their essential character is identical ie, both are payments in fulfilment of a promise extraneous to the award obligation. The award obligation re clothing may be nil, in regard to ordinary time it may be $X. The extraneous promise is to pay $Y and, whether it is in respect of clothing or ordinary time, it is $Y beyond what the award requires. To put it in more concrete terms, if the award rate for 40 hours work is $40 with overtime payable in addition but the employer agrees to pay a uniform allowance of $5 per week, it is common ground that it is no answer to a claim under s 92 for $40 ordinary time and $5 overtime worked to show that in fact $45 went into the employee's pocket. If this is so, I regard it as equally no answer if he got $45 only because the employer agreed to pay him that amount for no more than 40 hours work. In each case, as I see it, the employer cannot allocate to one subject matter what he has already paid in pursuance of a promise related to another subject matter. That would be approbating and reprobating."
41 In Poletti v Ecob (at 393; 332-333) the Full Court made this comment:
"It is to be noted that there are two separate situations dealt with in the passage from the judgment of Sheldon J which has been quoted and in the reasoning of the Commission in Pacific Publications. The first situation is that in which the parties to a contract of employment have agreed that a sum or sums of money will be paid and received for specific purposes, over and above or extraneous to award entitlements. In that situation, the contract between the parties prevents the employer afterwards claiming that payments made pursuant to the contractual obligation can be relied on in satisfaction of award entitlements arising outside the agreed purpose of the payments. The second situation is that in which there are outstanding award entitlements, and a sum of money is paid by the employer to the employee. If that sum is designated by the employer as being for a purpose other than the satisfaction of the award entitlements, the employer cannot afterwards claim to have satisfied the award entitlements by means of the payment. The former situation is a question of contract. The latter situation is an application of the common law rules governing payments by a debtor to a creditor. In the absence of a contractual obligation to pay and apply moneys to a particular obligation, where a debtor has more than one obligation to a creditor, it is open to the debtor, either before or at the time of making a payment, to appropriate it to a particular obligation. If no such appropriation is made, then the creditor may apply the payment to whichever obligation or obligations he or she wishes: see Halsbury's Laws of England, 4th ed, vol 9, pars 505 and 506."
42 The Full Court went on to observe that the principles discussed by Sheldon J in Ray v Radano, and by the New South Wales Industrial Commission in Pacific Publications, appeared not to have been discussed in terms by the Federal Court. However, the Court noted two Federal Court decisions that were consistent with those principles: Lynch v Buckley Sawmills Pty Ltd (1984) 3 FCR 503; 9 IR 469 and Poulos v Waltons Stores (Interstate) Ltd (1986) 10 FCR 429; 15 IR 313. The Court held it was appropriate to apply those principles which, they said, were "specific applications of general principles relating to contracts and debtors and creditors".
43 In Logan v Otis Elevator Co Pty Ltd (1999) 94 IR 218, a Full Court of the Industrial Relations Court of Australia followed and applied Poletti v Ecob.
44 North J was referred to these decisions. He set out his conclusions on the issue at paras 51 to 54:
"The respondent did not challenge the correctness of the principles applied in Poletti or Logan. It argued that the situation in the present case was relevantly different. In particular it pointed to the fact that payment under the Scheme was of the same nature as the payment under cl 34-5 of the award, namely, a payment on termination by reference to long service. In other words, the payments under both the award and the Scheme were for the same incident of employment.
In my view this distinction does not reflect the reasoning applied in Poletti and Logan. In those cases the relevant question was whether the appropriation made by the employer was to discharge an award liability or not. Only if the appropriation was to discharge an award liability could the payment be set off against any amount due under an award. In this case, the payment of the retiring allowance was designated separately and intended to discharge the liability under the Scheme and not under the award.
Neither do the terms of cl 43-3 of the policy assist the respondent. That provision ensures that a payment which is made under the Scheme, if made solely by reference to liability under the Scheme, will discharge the lesser liability under the award. This clause, however, has nothing to say about the situation which arises in the present case where the respondent allocated a specified part of the payment to the discharge of a particular liability.
In the result the payment allocated to long service leave was not sufficient to discharge the liability under the award to pay out unused long service leave. The failure of the respondent to pay the amount due under the award thus constituted a breach of the award."
45 On the hearing of the appeal, counsel for ANZ repeated the argument they had put to North J. In their Outline of Submissions they said:
"While the principle stated in Poletti v Ecob … cannot be gainsaid in a general context, it requires refinement in its application to specific situations. First, the sentence commencing 'the second situation' cannot be taken literally, else the ostensible designation of wages, for instance, to an (over-award) contractual entitlement would leave the award obligation unsatisfied, and double payment of wages would ensue. Secondly, the Full Court's statements leaves open the question of what constitutes a relevant 'designation' in the facts of a particular case.
To be sufficient to satisfy an award obligation, a payment by an employer need only relate to an obligation which is, in point of subject-matter, the same as the award obligation. Thus, for example, if the award provided for overtime at the rate of time and a half, a payment by the employer which ostensibly satisfied a contractual obligation to pay overtime at the rate of double time should be treated as sufficient under the award. It is not necessary for the employer to say in terms: 'This is for award purposes'.
It was not the final payment summaries that designated the payments in question. The character of those payments was given by the terms of the Scheme itself. A designation before payment is contemplated by Poletti v Ecob. The Scheme made it clear that employees received payment under it or under the award, whichever was more advantageous. If payment were made under the Scheme, ex hypothesi the award obligation would at one and the same time be satisfied in accordance with normal over-award principles." [Original emphasis]
46 Counsel for FSU argued the ability of an employer to set off payments depends on how, as a matter of fact, it has designated and appropriated the payments it has made. They referred to a comment in Logan (at 227) that the decisions subsequent to Ray v Radano "focus on the matter of designation and appropriation rather than the nature of the outstanding obligation". Counsel submitted the ability to set off does not arise because of a correspondence between the nature of the obligations. They said:
"On this part of the case it does not matter why the Bank took the course that it did. The question to be asked is: how much did the Bank appropriate for the purpose of discharging its obligation to make long service leave payments? In light of the fact that both creditor and debtor are fixed with the appropriation the question must be determined objectively. His Honour correctly found the answer in the Bank's own documentation, which clearly identified the amount paid on that account.
In light of the applicable principle and the findings of fact, his Honour's conclusion in par [52] that the payment which the Bank now calls in aid was payment of the retiring allowance and 'was designated separately and intended to discharge the liability under the Scheme and not under the Award' was both correct and fatal to the Banks right to set off."
47 For the purpose of resolving this debate it is, we think, useful to return to the passage from Poletti v Ecob quoted in para 41 above. That passage accurately analyses the judgment of Sheldon J in Ray v Radano and enunciates the relevant principle.
48 The first situation noted in the passage is one where "the parties to a contract of employment have agreed that a sum or sums of money will be paid and received for specific purposes, over and above or extraneous to award requirements". In that situation, the Full Court said, "the contract between the parties prevents the employer afterwards claiming that payments made pursuant to the contractual obligation can be relied on in satisfaction of award entitlements arising outside the agreed purpose of the payments." [Emphasis added]. So the critical question is whether the relevant award entitlements arose outside the contractually agreed purpose.
49 It will usually be easy to determine whether there is a coincidence between particular award entitlements and the contractually agreed purpose. Take the case of an agreement for payment of wages of $1,000 per week to an employee who has an award entitlement to receive wages of $800 per week. Discharge of the contractual obligation will clearly also discharge the obligation to pay wages imposed by the award. On the other hand, take the first example offered by Sheldon J, where an employer agrees to pay a clothing allowance. It is no answer to a claim for underpayment of wages to say there was no award obligation to pay a clothing allowance. Similarly with Sheldon J's second example: it is no answer to an overtime claim to say the employee has received an over-award payment in respect of ordinary time.
50 In the present situation it is important to consider what it is the parties agreed, in relation to payment of the Retirement/Severance Allowance. Clause 43.3 of the Scheme includes the following statement:
"Eligible employees receive a payment under either the Retirement/Severance Allowance Scheme or the ANZ Group Award, whichever is more advantageous to the individual."
The amount of this payment is directly related to the long service leave taken by the employee. Under cl 43.7 long service leave taken by an employee is directly set off against the entitlement of Retirement/Severance benefit. So it is accurate to describe the Retirement/Severance benefit as a money entitlement in respect of untaken long service leave. The same description may be applied to the entitlement provided by sub-clause 34.5 of the award.
51 In this situation, it seems to us accurate to say that both the award entitlement and the contractual payment arose out of the same agreed purpose. The situation is akin to a conditional agreement for an over-award wages payment. By way of variation of the above example, assume it was expected that the award wages to which an employee would become entitled over the forthcoming two years would not reach $1,000 per week, but the employer promised to pay the employee $1,000 per week anyway during that time, or the award wages, whichever was the higher. In that situation, it seems to us, it cannot be said the contract between the parties prevents the employer claiming the $1,000 per week is paid in satisfaction of the award obligation.
52 It is inherent in this approach that there must be a close correlation between the nature of the contractual obligation and the nature of the award obligations. But it is not necessary that the same label be used. In the present case, both the award obligation and the obligation imposed by cl 43.5 may aptly be described as obligations to make money payments in respect of untaken long service leave.
53 We do not think this case falls within the first situation discussed in Poletti v Ecob.
54 The question that arises in respect of the second situation is whether the Retirement/Severance Allowance payment "is designated by the employer as being for a purpose other than the satisfaction of the award entitlements". We think that question is also answered by the sentence in cl 43.5 that we have quoted and the terms of cl 43.7. It is evident that it was intended that any payment of Retirement/Severance Allowance would subsume any lesser obligation to make payment under the award in respect of untaken long service leave.
55 Counsel for FSU referred to the notices of payment sent by ANZ to each of the six employees. These notices broke up the total payment into "long service leave" and "Retiring Allowance Eligible Termination Payment". Counsel said those notices irrevocably designated the payments in question. This argument attracted North J. However, with respect to his Honour, it is apparent that the only reason for breaking up the total sum is that different taxation rates apply to long service leave and retiring allowances. The true character of the payment depends on the terms of the Scheme. As suggested, that character is payment in respect of untaken long service leave, the entitlement being calculated upon a more generous basis than under the award.
56 We agree with the statements in Logan (see para 46 above) about the decisions focussing "on the matter of designation and appropriation rather than the nature of the outstanding obligation". However designation and appropriation are matters to be determined by reference to the whole of the evidence. It is not contended, in the present case, that the payments made to the employees were calculated otherwise than by reference to the Scheme. They were payments pursuant to that Scheme, a feature of which is that it subsumes the award obligation. It does not matter that ANZ provided, for tax purposes, a break-up of its calculation.
57 We do not think that the principle in Poletti v Ecob applies to this case. The whole of the money paid to each of the six employees is to be taken into account in determining whether they have received the moneys due to them under the ANZ Group Award. On that approach, ANZ has not contravened the award.