Finance Sector Union v Australia and New Zealand

Management category $ A 35977 B 39273 C 42872 D 46821 E 51008

Employees in management categories A - E may voluntarily have their salary rates offset by the provision of non-award employment benefits agreed to in writing by the employer and the employee. The amount after the offset is the salary rate of the employee." 13 The respondent's argument was straightforward - as long as cl 34 applied to the managers, the calculation of the payment for unused long service leave was governed by cll 3 and 9. This result followed because cl 34-3.1 expressly stipulated that the rate of payment was to be "Full pay" and this expression was defined in the award in cl 3, relevantly by reference to the award rates set out in cl 9. 14 The Union, on the other hand, submitted that the construction of the award was altered by the introduction of TEC salary packaging. 15 The TEC salary packaging concept was made available for category C, D and E managers from 1 October 1994 and for category A and B managers from 1 October 1995. The components of a TEC salary package were: 1. Notional / superannuation salary. 2. Cash benefits (Cashtec). 3. Concessional lending. 4. Motor vehicle. 5. Petrol. 6. Superannuation. 16 Each of the components was valued and items 3 to 6 could be taken in kind or in cash. "Notional / superannuation" salary seems to have been set initially at the award rate then being paid, but was in due course to amount to 65% of the total package. The benefit of TEC salary packaging for the respondent was that it gave a fixed value to the cost of employment. The benefit to the managers was that it permitted the cashing out of unused benefits such as the provision of motor vehicles or concessional lending. Thus, managers who, for instance, were entitled to a concessional loan but did not utilise the benefit, before TEC salary packaging, simply forwent the value of it. Under TEC salary packaging that benefit was valued and could be taken either as a concessional loan or in cash. 17 The introduction of the new system involved an agreement between the Union and the respondent, a consent variation to the award, an individual written offer by the respondent to each manager and an individual written acceptance by each manager of the package applicable to that manager. 18 The agreement between the Union and the respondent was contained in a Memorandum of Understanding executed on 20 December 1994 by the respondent and on 21 December 1994 by the Union. It provided, so far as is relevant, as follows: "1. INTRODUCTION The purpose of this memorandum is to record the understandings reached between ANZ and the FSU about the introduction of Total Employment Cost (TEC) Remuneration Packaging for Managers, Category A to E, as the basis for an application to the Australian Industrial Relations Commission to vary by consent the ANZ Group Award, as set out in Attachment 1 to this memorandum. 2. AVAILABILITY OF TEC TEC will be available for Managers Category C, D and E with effect from 1 October, 1994, and for Managers Category A and B from 1 October 1995. … 6. PERSONNEL (DOMESTIC) POLICIES ANZ and FSU note that a number of matters from which Managers Category A to E accepting TEC will be exempted by the operation of clause 48 Exemption, of the ANZ Group Award, will instead be subject to ANZ personnel (domestic) policies. … ANZ Personnel (Domestic) Policies will replace specific Award provisions for Managers accepting TEC as follows: Clause 7. Graded salaries and job evaluation … Clause 9. Salary rates" 19 In consequence of the agreement reflected in the Memorandum of Understanding the award was varied by consent on 24 January 1995 with retrospective effect from 22 December 1994. The variation included the addition to cl 48 of the following: "This award does not apply to employees who are designated Management Category A to E under this award, who sign a written acceptance of Total Employment Cost salary packages, except as to the provisions of clauses …34 - long service leave …" 20 The respondent produced a booklet designed as a guide to the TEC salary packaging system and, generally, distributed it to managers. Each manager was given a letter of offer in which the manager was invited to accept the TEC salary package. Those who desired to accept the TEC package were required to sign a letter of acceptance. 21 The guide was a thick booklet with about 60 pages and some fairly complex explanations, which were inevitable given the nature of the subject matter. The booklet explained the policy leading to the introduction of the system, set out the components of the package, and explained how to calculate the value of each component. 22 The guide seems to reflect a view of the respondent that unused long service leave would not be paid out at the rate of the full value of the TEC salary package. For example, in the guide for Group 4 managers dated October 1994, the use of the concept of notional / superannuation salary is explained. In the text of the explanation is a rectangle bounded by black lines containing the word "Important" in bold by way of a heading. Under the heading are several paragraphs which include the following: "Retirement, resignation or redundancy benefits, including pay in lieu of annual leave, long service leave or retiring allowance, accrue only on the Notional / Superannuation Salary amount. They do not accrue on the TEC Package value or any amount of Cash Benefit which is paid in lieu of unused benefits." 23 The guide explains the role of the award under the TEC salary packaging system as follows: "Award Clauses and domestic policies for TEC Packaging are as follows: ANZ Group Award You will be covered by the following clauses detailed in Clause 48 (Exemption) of the ANZ Group Award if you accept TEC Packaging: … · Clause 34 Long service leave … Domestic Policies Personnel domestic policies will replace the following ANZ Group Award clauses. ANZ and FSU have agreed that these policies will not fall below the minimum set in the ANZ Group Award: · Clause 7 Graded salaries and job evaluation … · Clause 9 Salary rates …" 24 The letter of acceptance form contained an acknowledgment that the signatory had read the relevant guide booklet and the letter continued, relevantly, as follows: "I further acknowledge and understand that: · I will forgo my entitlement to Rostered Days Off, overtime, incentive payments (as defined in clause 6.3 of the ANZ Enterprise Agreement 1994-95) and other ANZ Group Award provisions as detailed in Clause 48 (Exemption) of the ANZ Group Award. · Domestic personnel policies will replace a number of Award provisions as specified in the Memorandum of Understanding on the Introduction of Total Employment Cost Packaging for Managers, Category A to E. · Retirement, resignation and termination benefits will accrue on my Notional / Superannuation Salary amount, and any Cash Benefit I receive is in lieu of unutilised benefits." 25 In the light of this description of events it is convenient to return to the arguments of the parties. 26 The respondent contends that the variation of cl 48 did not render cll 3, 7 or 9 inapplicable. Because cl 48 preserved cl 34 for managers who accepted TEC salary packaging, cll 3, 7 and 9 continued to have an operation as a result of the reference to them in cl 34-3.1. In the result, the award provision for payment of unused long service leave was to be calculated at the award rates set out in cl 9. By reason of the contractual arrangements between the respondent and individual managers who accepted the TEC salary package, the respondent was obliged to pay out unused long service leave calculated at the rate of notional / superannuation salary. But payment of this rate was not an award entitlement. 27 The Union contends that cl 9 became irrelevant under TEC salary packaging and was not intended by the parties to have any function. The notion of a salary rate was replaced by the value of a TEC salary package. Clause 34 was retained. But it was retained for a specific and limited purpose. It governed the entitlement to take long service leave during employment, and also the entitlement to be paid out on termination for any unused part. The meaning of "Full pay" in cl 34-3.1 was pay at the rate of the full value of the TEC salary package. To link the calculation of "Full pay" to the award rate would be to return to the system which had been discarded by the TEC salary packaging concept. 28 In my view the correct construction of the award is the construction contended for by the Union. 29 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. 30 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. 31 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. 32 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. 33 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. 34 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.

HAS THERE BEEN A BREACH OF THE AWARD? 35 The question now is whether the respondent paid the managers in accordance with the award as construed in the way outlined in these reasons. The answer requires reference to some of the terms of the Scheme and the manner in which the final termination payments were made. 36 The relevant terms of the Scheme are contained in the respondent's Instruction Manual as follows: "43 Retirement/Severance Allowance Scheme 43-1 Award reference 59 ANZ Group Award - clause 34 43-3 Policy … Eligible employees receive a payment under either the Retirement/Severance Allowance Scheme or the ANZ Group Award, whichever is more advantageous to the individual. 43-5 Basis of payment Eligible employees whose services terminate for any of the following reasons are entitled to retirement/severance allowance payments: … · Termination by the Bank or at its request for any cause other than serious or wilful misconduct … Amounts payable are calculated as follows: Less than ten completed Nil years of full time service ten completed years of full An amount equal to three time service months' salary at the rate of salary at the date of leaving the Bank's service Plus for each additional An amount equal to 0.36 completed year of full time of one month's salary at service up to 32 additional the rate of salary at the completed years of full time date of leaving the Bank's service service For 43 or more completed An amount equal to 15 years of full time service months salary Salary includes, where applicable, margin and any other allowance which the Bank considers to be salary, ie generally the employee's superannuation emoluments. 43-7 Long Service Leave … Long Service Leave taken by an employee is setoff against the Retirement/Severance Allowance Scheme entitlement in terms of the Bank's right of set off. 43-9 Bank's right of setoff The Bank has the right to make a deduction from any entitlement under the Retirement/Severance Allowance Scheme for any period of Long Service Leave or extended leave of absence taken prior to termination of employment." 37 Clause 34-1 of the award entitled the employees to 13 weeks long service leave after 15 years service and 8.66 weeks for every 10 years service thereafter. Assuming that the payment of unused long service leave and the payment under the Scheme were both to be calculated on the same salary rate, the payment under the Scheme would always exceed the award entitlement. 38 Each of the managers was paid a final amount on termination. Each was given a document entitled "Final Payment Summary" which showed the way in which the respondent calculated the payment made on termination. In each case the following method of calculation was adopted. The respondent calculated the amount due under the Scheme. It seems that the salary rate used for this calculation was the notional / superannuation salary as defined as a component of the TEC salary package. Then, the respondent calculated the unused long service leave entitlement using the notional / superannuation salary as the rate for calculation. This was consistent with the respondent's argument in this proceeding that the award entitlement to payment for unused long service leave was to be calculated at the award rate specified in cl 9. On this view an amount additional to the award entitlement was payable under the TEC salary package agreement and that element was to be calculated at the rate of the notional / superannuation salary. The amount due for unused long service leave under the TEC salary package agreement was designated on the Final Payment Summary as "long service leave". 39 The amount of the payment designated "long service leave" was then deducted from the entitlement due under the Scheme and the difference was designated on the Final Payment Summary in the case of each manager except Mr Leslie as "retiring allowance". In the case of Mr Leslie the difference was designated as an "ex gratia payment". The evidence of Mr McLeod, the Head of Human Resources and Organisation Development, Personal e-Commerce for the respondent was that this described a payment under the Scheme. 40 The designation on the Final Payment Summary by the respondent showed that the payment was intended to discharge two separate elements, namely, the obligation to pay unused long service leave at an above award rate calculated on notional / superannuation salary, and the obligation to pay under the Scheme. 41 Thus, the question arises whether the respondent is able to rely on the payment of the amount designated as a retirement allowance or an ex gratia payment under the Scheme in the Final Payment Summary to discharge the obligation to pay out unused long service leave under the award as construed in these reasons for decision. 42 The Union contended that one reason why the retiring allowance could not be set off against the award entitlement is that the terms of the Scheme set out in the Instruction Manual have the effect that the award entitlement and the retiring allowance entitlement in respect of unused long service leave are cumulative entitlements. The Union submitted that a limited right of set off was provided by the Scheme in cll 43-7 and 43-9. This right was limited to the right to set off from any entitlement under the Scheme a deduction for any period of long service leave actually taken prior to termination of employment. It had nothing to say about the entitlement to unused long service leave due upon termination. 43 It is true that cll 43-7 and 43-9 have an effect limited to allowing a deduction for long service leave taken by the employee prior to termination. However, cl 43-3 tells against the Union's argument. Clause 43-3, which is extracted earlier in par 36 of these reasons, expressly provides that employees are to receive payment of the retiring / severance allowance under the Scheme or payment of unused long service leave under the award, whichever is more advantageous. That provision, in my view, clearly excludes payment under both the award and the Scheme. 44 Further, cl 43-3 discloses an intention that any payment under the Scheme is to discharge the liability for any amount due under the award for unused long service leave. 45 Had the Final Payment Summary designated the full amount due under the Scheme as a retiring / severance allowance, the operation of cl 43-3 would have had the effect that the payment would have discharged the award obligation. Such a treatment of the final payment would have been effective to establish that the award entitlement had been paid. 46 But, as explained earlier in these reasons, the Final Payment Summary designated only part of the payment as referable to long service leave. Only part of that payment was intended to discharge the award obligation. The other part was intended to discharge the obligation under the TEC salary package agreement to pay an over award amount for unused long service leave. 47 It is established that an amount paid for a purpose unrelated to the discharge of an award liability cannot later be assigned by the person making the payment to the discharge of an award liability. In Poletti v Ecob (1989) 91 ALR 381 the Full Court (Keely, Gray and Ryan JJ) said at 393: "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 entitlement by means of the payment. … The … 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." 48 The Union argued that in the Final Payment Summary the respondent assigned an amount to unused long service leave and an amount to the retiring allowance. Consistent with Poletti the respondent could not now rely on payment of the retiring allowance to discharge the award entitlement to unused long service leave. 49 It was contended on behalf of the Union that the circumstances of this case were not relevantly distinguishable from the circumstances in Logan v Otis Elevators Co Pty Ltd [1999] IRCA 4. Mr Logan worked as the local representative of his employer in the Orange area. He claimed monies due under an award for overtime and standing by. He had been paid a salary which the parties accepted included an amount intended to compensate for all overtime and call outs. The trial judge held that the amounts paid in excess of the amount of salary payable under the award could be set off against any entitlement to overtime and call back under the award. The Full Court (Wilcox CJ, Marshall and Madgwick JJ) allowed the appeal on this issue and said in par 30: "The present case is not the 'first situation' discussed in the passage from Poletti v Ecob quoted in para 26 above; the parties did not agree that the difference between the moneys that would be due under the award and the moneys actually paid 'will be paid and received for specific purposes over and above or extraneous to award entitlements'. The case is that of the second situation: 'there are outstanding award entitlements, and a sum of money is paid by the employer to the employee'. However, prior to the hearing of the appeal, neither party sought to designate or appropriate the excess, or any part of it, to any particular obligation owed by Otis to Mr Logan. The whole of the excess was paid and received as an amount appropriate to reflect the difference between the position of a local representative, with all that entails, and an ordinary electrician special class. It is not open to Otis now to change that situation by asking the Court to make a retrospective designation between the various elements that differentiate the situation of a local representative and an ordinary electrician special class. Without such a designation, none of the excess can be reasonably identified as a payment on account of overtime and call-backs and, accordingly, set-off against the overtime and call-back payments due to Mr Logan under the 1989 award." 50 Applying Poletti and Logan the Union submitted that the respondent had failed to pay the amount of unused long service leave in accordance with clause 34-3.1 of the award. The entitlement was to the payment of unused long service leave calculated at the salary rate of the TEC salary package. The Final Payment Summary appropriated part of the payment to long service leave. Insofar as that payment was less than the award amount due there had been an underpayment and a breach of the award. 51 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. 52 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. 53 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. 54 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.

RELIEF 55 The application seeks the imposition of penalties on the respondent for breaches of the award. This case has involved difficult questions of construction of the award. A more appropriate procedure for determining such issues is an application under s 413 of the Act seeking an interpretation of the award. These matters were raised by the Court with the Union in the course of submissions. After judgment was reserved, the Union, on 17 October 2000, sent a letter to the Court which stated: "The purpose of this letter is to set out the Applicant's position on the question of penalty under Section 178 of the Workplace Relations Act in the event that it is successful in establishing that the respondent has acted in breach of the applicable Award. Given that the resolution of the Applicant's application involves a difficult question of construction of the Award, we are instructed that the Applicant does not seek the imposition of a penalty in the event that it succeeds." 56 The position taken by the Union in relation to the imposition of penalties is appropriate in this case. As a result, the Court is not asked to impose any penalties on the respondent and no orders will be made to that effect. 57 The Union seeks orders under s 178(6) for payment of the amount underpaid in breach of cl 34-5 of the award in respect of each of the managers. The amount sought in each case is the difference between the amount allocated to long service leave on the Final Payment Summary and the calculation of the unused long service leave under the award construed in accordance with these reasons by reference to the value of the TEC salary package. 58 There is some contention between the parties as to whether the total amount paid to each manager and allocated separately as long service leave and as a payment under the Scheme exceeds the amount due for unused long service leave calculated under the award construed in accordance with these reasons. 59 As I understand it, the respondent believes that it has made a payment to each manager which in total exceeds the amount due for unused long service leave calculated under the award as construed in these reasons. I feel confident to assume that, if payment of at least that amount has not been made, the respondent will ensure that such payment is made. 60 The question which now arises is whether it is appropriate to order the payment of the difference between the amount allocated to long service leave and the amount held to be due under the award. For this purpose, I assume, as already stated, that the managers have in fact been paid a total amount which exceeds the award entitlement, albeit allocated in part to a payment under the Scheme. 61 It is important to recall that the terms of the Scheme prevent cumulative payment, that is to say, payment under both the award and the Scheme. If an order for payment of the amount underpaid under the award were made without taking into account a resulting overpayment made under the Scheme, the managers would receive more than they would have been entitled to receive under their employment arrangements. As the managers are not entitled to payment both under the award and also under the Scheme, an order for payment of the amount underpaid in the present circumstances would provide a windfall to the managers and work an unfairness on the respondent. 62 On the assumption referred to, the breaches of the award arose because the respondent allocated too little to the award entitlement, even though the entire payment, given the rules of the Scheme, did not result in a payment of an amount which fell short of the amount of the award entitlement. The award breach, thus, arose from an erroneous allocation of the payment in satisfaction of the Scheme obligations rather than the award obligations. 63 The respondent contended that the Court has a discretion under s 178(6) not to order payment of an amount underpaid, and that the Court should exercise the discretion in favour of the respondent in the circumstances of this case. 64 If an order for payment of the underpayment were made there would be a resulting overpayment in the Scheme payment previously made to the managers. Arguably, part of that overpayment would have resulted from an erroneous understanding of the terms of the award, that is to say, as a result of a mistake of law. Payment made as a result of a mistake of law may be recoverable: David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353. It would be a curious result if the Court ordered payment of the underpayment, and later the respondent was able to reclaim an equivalent amount, or part of it, as money paid as a result of a mistake of law. 65 I am presently inclined to refuse an order for payment of the amount underpaid if the respondent agrees not to seek repayment of the amounts already paid to each of the managers. However, this approach requires that the assumption made in pars 59 and 60 of these reasons reflects the actual position. As it may not do so, it is appropriate to stand over the question of making orders for payment of the amounts underpaid until the actual position is clarified. 66 The parties should communicate with my chambers to have the matter listed if necessary. Alternatively, if orders are agreed they may be sent to my chambers to be made by consent without any further appearance. I certify that the preceding sixty-six (66) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice North.

Associate: Dated: 6 December 2000 Counsel for the Applicant: Mr W Haylen QC with Mr R Niall

Solicitor for the Applicant: Ryan Carlisle Thomas

Counsel for the Respondent: Dr C Jessup QC with Mr T Ginnane

Date of Hearing: 28, 29 September and 9 October 2000