Fair Work Act 2009

s.394 - Unfair dismissal

Eric Rossi v Low Latency Media Pty Ltd T/A Frameplay

Application for unfair dismissal remedy - not covered by a modern award or enterprise agreement - jurisdictional objection - whether applicant paid in excess of high-income threshold - jurisdictional objection dismissed.

• [1] On 20 July 2021, Mr Eric Rossi lodged an unfair dismissal application under s.394 of the Fair Work Act 2009 (the Act). Low Latency Media Pty Ltd T/A Frameplay (LLM) objected to the application stating that Mr Rossi was not protected by the unfair dismissal provisions because he was not covered by an award or enterprise agreement and was paid in excess of the high-income threshold.

• [2] The parties filed written submissions and the hearing was held on 11 October 2021.

• [3] Mr Rossi gave witness evidence, and witness statements tendered by the Respondent included:

• Mr Jonathan Troughton, Chief Executive Officer.

• [4] Both parties were granted leave for legal representation.

• [5] Mr Rossi was the co-founder and sole director in Australia of Low Latency Media Pty Ltd, a start-up company providing advertising services within video games. Mr Troughton, the Chief Executive Officer resides in the US. Mr Troughton also a co-founder of LLM, transferred LLM's shareholding to Frameplay Corporation in 2019, resulting in LLM as an Australian subsidiary.

• [6] Mr Rossi was paid director fees from December 2018 till November 2019.

• [7] It was in November or December 2018 that Mr Rossi became an employee of LLM, and a written contract of employment was entered into from 1 January 2019 with Low Latency Media Pty Ltd T/A Frameplay. The contract of employment provides that Mr Rossi was employed in the position of full-time Chief Technology Officer, reporting to the CEO and the remuneration comprised of $170,000.00 per year inclusive of superannuation. It is not contested that Mr Rossi was not paid any other additional payments such as commissions or bonus payments.

• [8] The contract of employment provides the following clause in respect to variation:

will be of any force or effect unless agreed to in writing by both the Company and the Employee.

• [9] Witness statements and the evidence of Mr Rossi conflicted regarding the nature of payments made in 2021. Mr Rossi states the discrepancies related to back payments for 2020, some of which had already been subject to tax treatments, while LLM stated the payments were unauthorised.

• [10] LLM submit that Mr Rossi was not protected by the unfair dismissal provisions at the time of his dismissal on 2 July 2021. It submits that Mr Rossi was paid an income of $178,971.19 exclusive of superannuation which exceeded the high-income threshold.

• [11] LLM submits that it is a small business and employed 14 employees, including Mr Rossi at the time of his dismissal. Mr Rossi was dismissed for reasons set out in the letter of termination dated 2 July 2021. It submits that the dismissal was sound, defensible, and well founded.[1]

• [12] Mr Rossi paid himself as he managed the payroll function, which LLM say was not the function of a director and the amounts that he paid himself were in breach of his contract of employment.[2]

• [13] In relation to the jurisdictional objection, LLM submit that the salary term of the contract amounts to $153,000.00 plus superannuation of $17,000.00. It also submits that for the 12 months before termination of employment, Mr Rossi paid himself $178,971.19 excluding superannuation.[3]

• [14] Mr Blake's witness statement which was not contested states that as the first investor into LLM he held shares, was on the board of directors in the US from June 2020, and director of the Australian subsidiary from July 2021. He further states that Mr Rossi "was not required, or entitled to, exclusively manage the Australian finances." As the sole director in Australia, Mr Rossi did not give anyone access to the bank accounts including the Chief Financial Officer.[4]

• [15] Mr Blake states that Mr Rossi's contract provided for a salary of $170,000.00 inclusive of superannuation which was confirmed at a board meeting; he also states that at no time had Mr Rossi sent a request to the Board or the executive about altering his salary.

• [16] Mr Troughton, the CEO tendered witness statements which were not tested in cross examination. He states that Mr Rossi was employed as the Chief Technology Officer and its sole director in Australia. While Mr Rossi maintained control over the company's finances and payroll, he states that it was never agreed that it should rest with the Director alone. Further, he states that he could not direct him to hand over the function to the CFO and many discussions over the matter resulted in aggressive retaliations by Mr Rossi.[5] Mr Troughton states that management of Mr Rossi was hampered and difficult because of the distance between Australia and the US, and the closure of international borders. He also stated that Mr Rossi would disconnect from calls or video conferences.

• [17] Mr Troughton submits that the salary as prescribed by the contract was correct and Mr Rossi had no authority to change his salary. As the salary sum reference in the payslips was altered to reflect $127,853.88 net per annum from 26 January 2021 until his dismissal, Mr Troughton conducted a reconciliation of all payments made by Mr Rossi to himself. Mr Troughton maintains that Mr Rossi made unauthorised payments to himself. LLM's Commonwealth Bank transaction history shows all payments made to Mr Rossi over the 2020-2021 financial year amount to $126,145.22 net. In addition, Mr Troughton attached to his witness statement a reconciliation of all payslips for the same period which amounted to the same net figure as the bank statement, except for two transfers recorded in payslips of over $10,000.00 net.[6]

• [18] Among the payments Mr Rossi made to himself, Mr Troughton identified transaction descriptors that were unauthorised, those included Eric backpay, PM pay and ER loan repayment.[7] Mr Troughton states that the transaction history supports the single touch payroll report attached and marked 'B' to Exhibit R1, which was prepared, signed off and submitted by Mr Rossi. Further Mr Troughton states that grossing up the net figure with the appropriate tax amounted to $178,971.19 and this figure represents Mr Rossi's earnings both in the form of cash transferred from LLM and evident in payroll records.

• [19] LLM submit that the circumstances of this case are unusual and its unique circumstances concern the fact that Mr Rossi had control over what he paid himself. Uncontested evidence is that Mr Rossi was paid $170,000 plus superannuation, then $170,000 inclusive of superannuation and in both situations the payment exceeded the high income threshold. A third sum of $140,000 including superannuation was then introduced from February 2021, which LLM describe as a "unilateral mistake" made by Mr Rossi.

• [20] LLM rely on the contract which specifies that any variation must meet clause H4, on the evidence of payments made in the period preceding his dismissal and the "unilateral mistake" by Mr Rossi where he reduced the payment sum. LLM describe the reduction in salary as a mistake because Mr Troughton communicated that he had raised the funds necessary which voided the January 2021 Board decision to reduce co-founder salaries. Specifically, LLM submit that s.332 (1)(b) "amounts applied or dealt with in any way on the employee's behalf or as the employee directs", is relevant, and the amounts paid despite their reason were paid by Mr Rossi and were in excess of the high income threshold. Mr Troughton's evidence of his analysis of transaction history accords with the single touch payroll report to the ATO. LLM say the sum paid to Mr Rossi totals $126,145.22 net of tax, or gross earnings received of $178,971.19.

• [21] Mr Rossi submits that he was a co-founder and director of the business from January 2018, became an employee from November 2019 and was dismissal on 2 July 2021. It is submitted that Mr Rossi meets the minimum employment period and disputes the Respondent's jurisdictional objection that his annual rate of earnings was greater than the high-income threshold.

• [22] Mr Rossi states that an employment contract dated January 2019 provides for a salary of $170,000.00 per annum inclusive of superannuation, however, he further states that at the 20 January 2021 Board meeting, his salary was reduced to $140,000.00 inclusive of superannuation. Mr Rossi gave evidence that he was in attendance at the Board meeting together with the 3 other directors of Frameplay Corporation, where the rationale for the salary reduction for the founders of LLM was cashflow, and the amendment was agreed to by Mr Rossi.[8]

• [23] Mr Rossi tendered in evidence email communication between the Respondent's CFO and in house accountant.[9] It is submitted that the Board decision to change the salary from January 2021 supersedes the contract of employment and the reduced sum was the annual salary at the time of the dismissal.

• [24] Mr Rossi refers to the payslips tendered by the Respondent that shows an annual rate of pay of $127,853.88 excluding superannuation and states that the sum disputes the jurisdictional argument on the basis of high-income threshold.

• [25] Mr Rossi submits that the Respondent's reliance on the variation term in the 2019 contract, and the fact that Mr Rossi paid himself are irrelevant considerations to the jurisdictional argument.

• [26] Mr Rossi also submits that he did not receive two net payments of over $10,000 which were included in payslips in August 2020. However, he states that the two amounts are still owing to him and relate to back pay.[10] Mr Rossi gave evidence that the amounts were reflected in payslips for the reasons that tax was paid on the amounts to the ATO, and the figures were relied on for tax and JobKeeper incentives.

• [27] In relation to the Respondent's reliance on the single touch payroll report submitted to the ATO, Mr Rossi states that he did not submit the report, that it was submitted after his dismissal on 2 July 2021 and the amount recorded as paid to him is incorrect.[11] Mr Rossi tendered in evidence the ATO cover page of the single touch payroll report which showed it was prepared by Mr Morris and submitted on 2 July 2021.[12]

• [28] The matter of jurisdiction must be established before an unfair dismissal can be considered on its merits. LLM object to the application on the grounds that Mr Rossi was not covered by a modern award or enterprise agreement and that his income exceeded the high-income threshold. Mr Rossi does not dispute that a modern award or enterprise agreement did not apply, but he objects that he was paid in excess of the high-income threshold. Pursuant to s.396 of the Act, initial matters to be considered include:

• Whether the application was made within the statutory time frame;

• Whether the person is protected from unfair dismissal;

• Whether the dismissal was consistent with the Small Business Dismissal Code; and

• Whether the dismissal was a case of genuine redundancy.

• [29] The application was made within 21 days of the dismissal, there is no argument that the dismissal is a genuine redundancy, however, should Mr Rossi be protected from unfair dismissal then the matter of the Small Business Dismissal Code will be a relevant consideration as LLM submit that it employed fewer than 15 employees.

• [30] Section.382 of the Act is relevant to the determination of whether Mr Rossi is protected from unfair dismissal. Relevantly, s.382 of the Act provides:

When a person is protected from unfair dismissal

(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

(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.

• [31] Section 332 of the Act defines earnings as follows:

(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.

However, an employee's earnings do not include the following:

(a) payments the amount of which cannot be determined in advance;

(c) contributions to a superannuation fund to the extent that they are contributions to which subsection (4) applies;

Note: Some examples of payments covered by paragraph (a) are commissions, incentive-based payments and bonuses, and overtime (unless the overtime is guaranteed).

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) [Extent to which subsection applies to superannuation contributions]

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;

(b) 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.

• [32] The high-income threshold is an amount prescribed in reg. 2.13 of the Fair Work Commission Regulations 2009. The amount is indexed annually and for the financial year 2020-2021 the amount is $158,500.00.

• [33] For the purposes of s.382 of the Act, I am satisfied that Mr Rossi was not covered by a modern award or enterprise agreement and that he has completed the minimum employment period.

• [34] Mr Rossi was engaged under a written contract of employment that provides for an annual salary of $170,000.00 per annum inclusive of superannuation. In this matter, superannuation is not included for the purposes of 'earnings." There is no evidence of Mr Rossi's superannuation contributions not being captured by s.332(4). Further there is no evidence of additional payments made that were determined in advance such as commissions, bonus or allowance. While Mr Rossi received director fees, neither party stated that the payments constituted earnings for the purposes of s.382(b)(iii) or s.332 of the Act.

• [35] Mr Rossi submits that at the time of the dismissal, his salary was below the high-income threshold due to the decision at the January 2021 Board meeting to reduce the co-founder salaries which was subsequently communicated in writing, albeit in email. However, LLM submits that the salary as provided in the contract was not amended at the direction of the Board, nor agreed to in writing as required under clause H4 of the contract of employment. It also relies on the payments made by Mr Rossi under his control to himself and submits that the additional payments made which amount to more than the high income threshold are captured by s.332(1)(b).

• [36] The high income threshold concerns a person's sum of annual rate of earnings, and other amounts (if any) in accordance with the regulations. The Act defines "earning" as wages and amounts applied or dealt with on the employee's behalf or as the employee directs.

• [37] In terms of what encompasses earnings, LLM rely on s.332(1) (b) "amounts applied or dealt with in any way on the employee's behalf or as the employee directs". Section 332 of the Act expressly includes and excludes particular amounts or benefits from the meaning of earnings. LLM also refer to regulation 3.05 (6) and state that the payments made by Mr Rossi to himself are captured. Relevantly, Regulation 3.05 (6) (a) states:

(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) (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.

• [38] It is apparent that regulation 3.05(6) does not apply to the payment of money. The regulation refers to the payment of piece rates and benefits other than payment of money. Examples captured by the regulation relates to vehicle allowance, and other benefits such as health insurance, parking costs, family related benefits paid by the employer and the like, which have been considered by Commission decisions.[13] Regulation 3.05 (6) is intended to capture benefits which will require the Commission to estimate the real or notional value, provided all of Regulation 3.05(6) is considered because of the use of the word "and" after each subsection. It is my view that Regulation 3.05(6) does not apply in this matter.

• [39] Turning to s.332(1) of the Act, wages is identified separately in (a) and (b) relates to "amounts applied or dealt with", however earnings does not include payments made which cannot be determined in advance ((s.332(2)((a)). LLM submit that the additional payments made by Mr Rossi to himself were unauthorised, while Mr Rossi submits the payments were back pay for outstanding wages earned the previous year and tax already paid. Mr Rossi's claim for back pay was identified in the email of 28 January 2021 to all directors when he sought clarification over the adjustment to his annual rate of pay. Given the contest regarding the payments, I cannot conclude that the payments were determined in advance and captured by s.332(1)(b).

• [40] According to the authority of Zappia v Universal Music[14] it is necessary to establish the rate of pay at the time of the dismissal. The Full Bench considered an appeal relating to the payment of the annual rate of earnings where the sum varied at the time of the dismissal compared to the amount earned in the 12 months prior. The Full Bench agreed with the decision that the "natural way of construing the expression annual rate of earnings in s.382 is by reference to the annual rate of earnings at the time of the applicant's dismissal."[15]

• [41] This decision therefore rests on what was Mr Rossi's annual rate of earnings at the time of his dismissal. Given the contested evidence of whether Mr Rossi lawfully reduced his annual rate of earnings from 8 February 2021, the circumstances leading to the amendment to the salary are relevant.

• [42] Mr Rossi had full management of the rate of pay that he paid himself and recorded in fortnightly payslips. It is submitted by Mr Rossi that at the January Board meeting there was a discussion and agreement among the four directors (including himself) that the salaries of the two co-founders of LLM would be reduced to $140,000.00 per annum. It is not disputed that a meeting took place, however, it is disputed that an agreement to reduce salaries occurred.

• [43] Mr Rossi tendered in evidence email correspondence dated 28 January 2021.[16] The first email is from Mr Li Wu, the CFO sent to Peter Morris, the Financial Controller, with the Board copied in. The email states:

Per board agreement, Founders pay will be revised to $140,000 in local currency effective Feb 1, 2021.

• [44] A subsequent email exchange on the same day from Mr Rossi to Mr Wu and all concerned, sought clarification of his understanding of the decision. It states:

Could you reconfirm my understanding. This pay cycle (26/1) both founders will skip pay and then from the next pay cycle, both founders will commence pay again but at the revised amount? Is this correct?

Also, Is the outstanding founders backpay from mar/apr/may last year still applicable given the revised amount? And is the plan to have that backpaid at completion of series A?

• [45] A further email on the same day from Peter Morris clarified the annual figures from the effective date. In the email, he states that he required clarification because he had accrued Mr Rossi's wages. The email from Mr Morris reads:

As this will begin on the 1st of Feb, based on the fortnight payrun schedule, is 6 days in the next payrun. The other 4 days at the usual $170,000 rate?

For the last payrun, f/n ending Jan 25th, I've accrued a full wage for Eric. Should this be reversed?

• [46] Mr Troughton's witness statement states that Mr Rossi had no authority to lower his salary.[17] In his further witness statement he states that Mr Rossi omitted relevant emails in relation to the correspondence of 28 January 2021. He also states that he advised Mr Rossi after the email exchanges that "The Board discussed that if we didn't raise funds we would have to vary our pay to make up for it. I have raised the funds and we won't issue new paperwork".[18]

• [47] Mr Troughton provided no evidence of the email exchange, nor board minutes to challenge the evidence of the adjustment as reflected by the email exchange as tendered by Mr Rossi. In his witness statement, Mr Blake did not provide any detail of the discussion or decision at the board meeting regarding founder salaries. He states that Mr Rossi did not request an adjustment to his salary and this statement is agreed by Mr Rossi. However, Mr Rossi states in his witness statement that Mr Troughton called the meeting and Mr Blake requested that the co-founder's salary be reduced to $140,000.00. Mr Blake's witness statement makes no reference to the discussion or decision regarding founder salaries. LLM had an opportunity to counter the evidence regarding the decision to reduce salaries but all that was provided was a statement by Mr Troughton.

• [48] Further, LLM tendered in evidence 12 payslips issued to Mr Rossi at the reduced annual salary sum. Based on the evidence, Mr Morris, the Financial Controller accrues wages for payment, LLM had access to the payroll system, even though Mr Rossi managed the payment of wages and bank account, therefore the payment at the reduced sum would have been known to LLM.

• [49] LLM provided no evidence of weight to contest the decision at the Board meeting, the outcome as evidenced by the emails of 28 January 2021 and any action regarding the pay records reflecting the salary of $140,000 per annum (including superannuation) from February 2021, if in LLM's view, that the sum was incorrect. While Mr Rossi managed the payroll function, there is no evidence that the parent company was in the dark in relation to the financial records, rather the evidence is that Mr Morris accrued wages for LLM, and Mr Wu advised Mr Troughton that he was aware that Mr Rossi was paying himself initially at the rate of $170,000 plus superannuation instead of $170,000 inclusive of superannuation.

• [50] LLM bears the responsibility for satisfying the Commission of its jurisdictional argument, it has failed to demonstrate that Mr Rossi's annual rate of earnings at the time of the dismissal was not less than the high-income threshold. The evidence weighs in Mr Rossi's favour that a decision to reduce salaries was made and agreed to by Mr Rossi, further the decision was actioned and remained in place until the dismissal

• [51] I am satisfied that Mr Rossi was not covered by a modern award or enterprise agreement and that his annual rate of earnings was $127,853.88 excluding superannuation. Consequently, I find that Mr Rossi is a person protected from unfair dismissal and entitled to make an application.

• [52] LLM's jurisdictional objection is dismissed. The matter will now proceed to programming for hearing of Mr Rossi's unfair dismissal application.

[1] Jurisdictional objection schedule to employer's response at [10].

[2] Outline of submissions of the Respondent at [2.6] - [2.9].

[3] Outline of submissions of the Respondent at [3.8] - [3.9] and Exhibit R2, witness statement of Michael William Blake at [61].

[4] Exhibit R2, witness statement of Michael William Blake at [34] - [35].

[5] Exhibit R1, witness statement of Mr Jonathon Troughton dated 10 September 2021 at [28] - [38].

[6] Exhibit R3, witness statement of Mr Jonathon Troughton dated 6 October 2021 at [8] - [10] and attachments marked A and B.

[8] Exhibit A1, witness statement of Mr Eric Rossi at [6] and [9] - [17].

[9] Submissions of the Applicant at [10] - [14] and exhibit A1, witness statement of Mr Eric Rossi at [9] - [17].

[13] See for instance Jerome Monteiro v Valco Group Australia Pty Ltd T/A Valco Group Australia [2019] FWC 2410 and Sam Technology Engineers Pty Ltd v Andrew Bernadou [2018] FWCFB 1767.

[14] Francesco Zappia v Universal Music Australia Pty Limited T/A Universal Music Australia [2012] FWAFB 6108 at [9].

[16] Exhibit A1, attachment B to witness statement of Eric Rossi.

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