Fair Work Act 2009

s.394 - Application for unfair dismissal remedy

Application for an unfair dismissal remedy - Jurisdictional objection - High income threshold - High income threshold not exceeded - Jurisdictional objection dismissed.

[1] On 19 August 2019 Mr Paul Barnes made an application for unfair dismissal remedy against Appian Software Australia Pty Limited (Appian). Mr Barnes commenced employment for Appian on 3 November 2014 and was dismissed on 12 August 2019. Mr Barnes set out in his Form F2 application that the contract of employment included a base salary plus commission, and commission was paid monthly.

[2] On 26 August 2019 Appian filed both a Form F3 Employer response to the application, and a Form F4 Objection to the application objecting on the basis that Mr Barnes was not covered by an award or agreement, and earned more than the high income threshold.

[3] Mr Barnes was invited to respond to Appian's objection and on 25 September filed a submission that various amounts that Appian submitted should be included in determining Mr Barnes' income should be excluded. On 26 September 2019 the matter was allocated to my chambers. On 9 October I issued a notice of listing and directions requiring that the Respondent file submissions and/or evidence in response to Mr Barnes' material by 18 October, and Mr Barnes may file submissions and evidence in reply by 25 October, with a hearing on 29 October if required.

[4] At the hearing Mr Barnes represented himself, and Mr Chris Winters appeared as in-house General Counsel for Appian with Ms Connolly, a Senior Human Resources Manager with Appian.

[5] Section 382 of the Fair Work Act 2009 (FW Act) provides when a person is protected from unfair dismissal and includes the following:

(i) a modern award covers the person;

(ii) an enterprise agreement applies to the person in relation to the employment;

(iii) the sum of the person's annual rate of earnings, and such other amounts (if any) worked out in relation to the person in accordance with the regulations, is less than the high income threshold."

[6] Mr Barnes has asserted that he was covered by the Commercial Sales Award although as noted by Appian he did not raise this issue in his original response to the jurisdictional objection.

[7] Appian referred to the coverage clause of the Commercial Sales Award which includes the following at clause 4.1;

"This occupational award covers employers throughout Australia with respect to Commercial Travellers, Merchandisers and Advertising Sales Representatives and those employees unless any other modern award contains classifications that apply to such persons, in which case the other modern award prevails."

[8] Appian also referred to clause 3.1 of the Commercial Sales Award which included the following definitions;

"Commercial Traveller means a person employed, substantially away from the employer's place of business, for the purpose of soliciting orders for, or selling articles, goods, wares or merchandise or material for wholesale sale, for resale, or for use in or in connection with the production and/or preparation and/or distribution of commodities for sale by the customer"

"Advertising Sales Representative means a person employed, substantially away from the employer's place of business, in soliciting orders, obtaining sales leads or appointments or otherwise promoting sales for, or selling advertising space or time of any kind"

"Merchandiser means a person who is employed away from, or substantially away from, the employer's place of business in promoting the employer's products, re-ordering stock and preparing display units and gondola ends, and who in conjunction with these principal functions may solicit orders as a minor feature of the employee's work"

[9] Appian submitted that it was not in the advertising business nor did it sell merchandise. Further it relied on the Full Bench decision in Graham v Globus Australia Pty Ltd[1] where it was found the definition of "Commercial Traveller" related to individuals selling on a wholesale basis.

[10] Mr Barnes made no further submissions on the issue. I am satisfied on the basis of the material before me that Mr Barnes was not covered by the Commercial Sales Award or any other Award.

[11] Section 333 of the FW Act provides that the high income threshold is the amount prescribed by, or worked out in the manner prescribed in the regulations. Regulation 2.13 of the Fair Work Regulations 2009 (FW Regs) provides that as of 1 July 2019 the figure is $148,700.

[12] Section 332 of the FW Act defines earnings and reads as follows:

• (1) [Meaning of earnings]

(a) the employee's wages; and

(b) amounts applied or dealt with in any way on the employee's behalf or as the employee directs; and

(c) the agreed money value of non-monetary benefits; and

(d) amounts or benefits prescribed by the regulations.

(2) [Excluded amounts]

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

• (b) reimbursements;

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

• (d) amounts prescribed by the regulations.

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

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 the contributions that the employer makes to a superannuation fund to the extent that one or more of the following applies:

(a) the employer would have been liable to pay superannuation guarantee charge under the Superannuation Guarantee Charge Act 1992 in relation to the person if the amounts had not been so contributed;

(b) the employer is required to contribute to the fund for the employee's benefit in relation to a defined benefit interest (within the meaning of section 291-175 of the Income Tax Assessment Act 1997) of the employee;

(c) the employer is required to contribute to the fund for the employee's benefit under a law of the Commonwealth, a State or a Territory.

[13] Regulation 3.05 explains how to work out amounts for the purposes of assessing whether the high income threshold applies in relation to a dismissal, and includes Reg 3.05(6) that provides for circumstances where a non-monetary benefit that has not been for an agreed amount may be included for the purposes of the unfair dismissal jurisdiction.

[14] Reg 3.05(6) reads as follows:

(a) the person is entitled to receive, or has received, a benefit in accordance with an agreement between the person and the person's employer; and

(b) the benefit is not an entitlement to a payment of money and is not a non-monetary benefit within the meaning of subsection 332(3) of the Act; and

(c) the FWC is satisfied, having regard to the circumstances, that:

• (i) it should consider the benefit for the purpose of assessing whether the high income threshold applies to a person at the time of the dismissal; and

• (ii) a reasonable money value of the benefit has not been agreed by the person and the employer; and

• (iii) the FWC can estimate a real or notional money value of the benefit;

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

[15] Appian submits that at the time of his dismissal Mr Barnes had total annual compensation over the period of the prior 12 months (August 2018 through July 2019) of $160,270.80. Appian submits that the compensation was comprised of:

• (1) $140,922.60 base salary;

• (2) $2,772 in an annual medical allowance;

• (3) $1,293 in mobile phone reimbursement for his mobile phone, which was used for personal use;

• (4) $10,677.87 in superannuation payments above Appian's maximum compulsory contribution of $20,531.40 per annum;

• (5) $9,996.57 in income from the sale of stock options that vested in January and April 2019.

[16] Mr Barnes indicated in email correspondence to the FWC on 26 September that he disagreed that he did not qualify for unfair dismissal protection because of the high income threshold.

[17] Appian submitted in its submission of 18 October that Mr Barnes was paid $140,922.60 in regular earnings in the period from 1 August 2018 through 31 July 2019 which Mr Barnes accepted.

[18] Appian submits that as shown in an exhibit to the statement of Ms Ashley the medical allowance payment was made directly to Mr Barnes and Mr Barnes had sole control over the direction of how such payment could be used. Mr Barnes said in his email of 26 September that he agreed that the health insurance stipend should be included. At the commencement of the hearing on 29 October Mr Barnes confirmed that he accepted that medical allowance should be included.

[19] On that basis it appeared that the parties accepted that Mr Barnes' annual rate of earnings was no less than $143,694. I put to the parties that it appeared the inclusion or exclusion of the disputed phone reimbursement figure was a moot issue as for Mr Barnes' annual rate of earnings to exceed the high income threshold, the Respondent would need to succeed in its argument that either of the disputed superannuation payments, or the disputed stock options would need to be counted. The parties accepted that proposition and so the hearing proceeded to focus on superannuation and stock option issues.

[20] Ms Karen Astley, a Director of Appian provided a statement dated 18 October 2019 that was admitted as evidence.[2]

[21] Ms Astley said in her statement that Appian had made superannuation payments of $31,209.27 to Mr Barnes during the 1 August 2018 to 31 July 2019 period and attached to her statement copies of payslips where the payments are labelled "SG Contribution".

[22] In submissions Appian said that employers are not required to make payments in excess of 9.5% of the maximum super contributions base, and referred to the Fair Work Commission Benchbook which says "any superannuation paid in excess of compulsory contributions may be included in the calculations of the employees earnings".

[23] Appian accepted in its submission that it was under no obligation to make the excess superannuation payments and made them voluntarily, however submitted the reason is irrelevant. I asked Mr Winters in relation to the additional superannuation whether or not the additional payments were contingent on his performance.

[24] Mr Winters submitted that it depended on the meaning of performance. He said the commission structure included bringing in new business and also for renewals by customers which may or may not be attributable to the performance of the employee. Mr Winters accepted that the payments of commission were not guaranteed regardless of other variables and also accepted that if Mr Barnes did not receive the contingent commission payments he would not receive the additional superannuation payments.

[25] Mr Barnes submitted the only guaranteed superannuation entitlement he had was 9.5% of his base salary and there is no documentation indicating he would be paid more than that. He said that the additional superannuation payments in excess of the maximum compulsory contribution were specifically related to performance based "commission" payments, and "commissions" are specifically excluded from the calculations for high income assessment in the legislation, and these payments cannot be determined in advance.

[26] Mr Barnes submitted that Appian makes additional payments to sales employees based on "commissions" received, on a voluntary basis. Mr Barnes submitted his employment agreement with Appian does not include provision for superannuation payments beyond the requirements of government legislation (clause 2.3 and section 7).

[27] Mr Barnes said that as there is no documentation confirming or guaranteeing superannuation payments beyond the statutory requirements, it seems unreasonable to include these payments as the value "cannot be determined in advance" and the payments are made at the discretion of Appian without contractual agreement.

[28] Mr Barnes said that the superannuation payments for July 2019 were made by Appian after they seemingly had decided to terminate his employment.

[29] Commission payments which cannot be determined in advance are excluded from the calculations for high income assessment, as such payments fall within the definition of section 332(2)(a).[3] However additional superannuation contributions are not excluded, and may be included within the calculation of earnings.[4]

[30] However, this matter is distinguishable from additional superannuation contributions that are a set figure and are known and agreed in advance. It was accepted in this case that the additional superannuation payments were made in connection with commission payments and the issue here is whether the additional superannuation that was specifically related to the commission are excluded or included for the high income assessment.

[31] Under section 332(2)(a), the exclusion focuses on the amount of the payment indeterminable in advance. Accordingly, even if a commission or bonus payment is under an agreed formula in advance, it would remain excluded because the actual amount is uncertain.

[32] In Jenny Craig Weight Loss Centres Pty Ltd v Margolina[5] the Full Bench stated:

"It seems clear enough that the legislature intended to exclude bonus payments which are contingent, either because they depend on performance in some way or because management reserves the right to modify or discontinue them. On the evidence in this case it seems that both the annual bonus and the one-off five year bonus are contingent in the relevant sense. In relation to the five year bonus, there is a specific reservation of the right to alter or discontinue the plan. It is unclear, although it is likely that the same reservation applies in relation to annual performance bonuses. This cannot be determined in advance because the remuneration policy provides that: 'Management has the right to modify and discontinue the remuneration plan at its discretion'"

[33] I do not accept Appian's submission that because the additional superannuation contributions were not excluded by s.332(2)(c) it follows that they should therefore be included. It is apparent that if Mr Barnes did not receive the contingent commission payments he would not receive the additional superannuation payments.

[34] I am satisfied on the basis of the material before me that the additional superannuation contributions were payments contingent upon commissions, and payments unable to be determined in advance and therefore were payments excluded by s.332(2)(a).

[35] Ms Astley said in her statement that Appian's third party equity compensation record keeper Merrill Lynch maintains Appian's official records of transactions of stock options and stock grants to Appian employees. Ms Astley provided with her statement a report generated from Merrill Lynch showing Mr Barnes exercise sale of stock options granted to him.

[36] Ms Astley said the report showed three total trades of 840 shares of Appian stock during the period 1 August 2018 through 31 July 2019 resulting in income of $23,731 in US dollars, amounting to $34,884.57 in Australian dollars. Ms Astley said that the equity compensation provided to Mr Barnes was part of his overall compensation package as an Appian employee and was in no way tied to sales of Appian software or professional services.

[37] Ms Astley also provided as an attachment to her statement a printout from a Finance website showing the trading of Appian stock on a monthly basis over the period 1 August 2018 through 31 July 2019. Ms Astley said that it shows the minimum price of Appian stock was US $22.61 during the month of October 2018. Ms Astley said that had Mr Barnes sold the 840 shares of Appian stock at this lowest point, he would still have had income of $22,385.75 in Australian dollars at the current exchange rate.

[38] Ms Astley said had Mr Barnes sold his Appian stock at the lowest possible price cited in his response to Appian he still would have made earnings of $15,594.35.

[39] Ms Astley said that she arrived at this figure as follows;

• (1) 800 of the shares sold by Mr Barnes had an option "strike price" of US $4.105 per share. Ms Astley said his net income per share would have been US $13.005 had he sold at US $17.11, for a total income of US $10,404;

• (2) 40 of the shares sold by Mr Barnes had an option "strike price" of US $12 per share and his net income per share would have been US $5.11 had be sold at $17.11 per share, for a total income of $204.4;

• (3) This combined total income of $10,608.40 would be the equivalent of $15,594.35 in Australian dollars at the current exchange rate.

[40] In submissions Appian said that Mr Barnes had substantial income from sale of stock purchased pursuant to options granted to him as a part of his compensation. Appian said that this income was determinable in advance as the value of Appian stock is known on a daily basis as it trades on the NASDAQ.

[41] Appian submitted while commissions are based on sales which may or may not occur, and incentives-based payments and bonuses are based on incentives that may or may not be reached, by contrast once Mr Barnes stock compensation vested, Mr Barnes had the right to earnings from the sale of that stock - it was only up to Mr Barnes to determine when he wanted to cash in on those earnings and to take a risk to earn more money.

[42] Appian said it could not prevent him from selling the shares or limit his income and only Mr Barnes could control his sales. Appian submitted that Mr Barnes chose to sell Applian stock on specific dates, but because he could have made more money or less money on other dates does not equate it to a commission or incentive-based payment where the recipient is uncertain whether the payment will occur.

[43] Mr Winters explained that as a part of compensation to employees Appian offers Stock Options. Mr Winters said in Mr Barnes case the stock options were offered in the first instance in 2015 and in the second instance in 2017. Mr Winters said those options vest 20% per year for 5 years. He said that it is an option to buy stock for a certain price so the option purchase price offered to Mr Barnes in 2014 was at $8.21 cents. He said in the meantime the stock split so the exercise price was halved and Mr Barnes has the option of buying twice the number of shares so his remaining options were valued at $4.105 cents in US dollars for him to exercise those options. Mr Winters said every year on the anniversary he has the right to exercise those options and sell to the public at whatever the price was on the public market and keep that as income for himself.

[44] Mr Winters said this is only conditioned on his remaining in employment with Appian in order to get the vesting of the option awards.

[45] I asked Mr Winter the purpose of offering the stock options and he said it was a means of attracting and retaining employees. I asked Mr Winters whether I should regard the stock options as part of an employee's cashable salary or wages. Mr Winters submitted the stock options fell within the meaning of regulation 3.05(6) of the FW Regulations.

[46] Mr Barnes says that Stock Options do not have a known value until they are sold on the open stock market, in this case the NASDAQ. Mr Barnes said when he joined the company in November 2014, and in 2017, prior to the NASDAQ IPO, stock options were allocated. Mr Barnes said that the share price has greatly varied since the initial listing (between $17.11 and $59.47) and the value cannot be determined in advance.

[47] Mr Barnes said that when both of those stock options were granted the company had not yet listed. Mr Barnes reiterated that for the options to have any value they need to be transacted or traded. He said he traded some stock options in the previous twelve months and he said he had one set of options remaining however he does not have access to them now because he had been dismissed.

[48] Mr Barnes questioned how you could know the value of the shares on the market at any point in time in the future. Mr Barnes said he believed the stock options were an enticement to employment.

[49] Mr Winters said if the annual rate of earning is determined prospectively, at the time of his termination Mr Barnes still held 200 shares of Appian stock vesting in January 2020 and that amount of income vesting would still put him over the high income threshold because the strike price was at $4.105 US dollars currently trading at $44 so the income would be in excess of $11,000 or $12,000 dollars.

[50] Following the hearing on 29 October 2019, I sent an email to the parties seeking clarification as to whether Mr Barnes purchased the stock options or whether they were a gift or grant. Mr Barnes responded confirming that the stock options were a gift/grant.

[51] A Full Bench of Fair Work Australia in decision in Zappia v Universal Music Australia Pty Ltd[6] said as follows;

"[9] On the appeal, Mr I Latham, of counsel, who appeared for the appellant both at first instance and on the appeal, submitted that his Honour had erred in his construction of the expression 'annual rate of earnings'. In our view his Honour was clearly correct. Section 382 of the Act relevantly provides that a person is protected from unfair dismissal at a time if, at that time, 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. It is clear that the time at which the annual rate of earnings must be ascertained is at the time of the termination of the person's employment. What needs to be ascertained is the annual rate of earnings at that time, not the annual earnings to that time (the amount earned in the 12 months to that time)."

[52] I do not accept Appian's submission regarding the stock options on the basis that the stock options are not properly a portion of Mr Barnes annual rate of earning at the time of his termination.

[53] It is my view that the stock options are not earnings within meaning of s.332(1)(a). I am also inclined to the view that the stock options are excluded by s.332(2)(a) because they are payments the amounts of which cannot be determined in advance. The value of stocks are not realised until they are traded.

[54] Appian has pressed its case on reliance on regulation 3.05(6). Assuming my earlier finding that the stock options are excluded is wrong, I still would not be satisfied that the stock options should be considered on the basis of regulation 5.05(6).

[55] Whilst it could be argued that the stock options are a benefit as described in regulation 3.05(6)(a), and it could also be argued that the stock options are not an entitlement to the payment of money or a non-monetary benefit within the meaning of s.332(3), I am not satisfied that the Commission should consider the benefit for the purpose of assessing whether the high income threshold applies.

[56] The fact that Mr Barnes decided to sell a portion of the stock options he obtained in 2015 and 2017, at a particular time in the 12 month period prior to his termination does not bring the profit he obtained from that sale within the meaning of his annual earnings at the time of termination.

[57] I hold the same view regarding the remaining 200 shares not sold when he was terminated. Whilst it may be the case that the value of the remaining stock options at the time of his termination were as Appian has said, in the order of approximately $15,500 Australian dollars at that time, that value derives from the increased value of the stock options that were initially obtained some years earlier, and is not related to his annual rate of earnings at the time of termination. Further, the value of the stock options cannot be considered annual earning if they are not sold for many years.

[58] For the reasons set out above the jurisdictional objection is dismissed. The matter will be listed for a directions hearing on 13 November 2019.

Ms C Connolly appearing on behalf of the Respondent

[1] [2016] FWCFB 5495

[3] See also Jenny Craig Weight Loss Centres Pty Ltd v Margolina [2011] FWAFB 9137 at para 19

[4] Roberts v High Professional Productions Pty Ltd [2010] FWA 3462

[5] [2011] FWAFB 9137 at para.19

[6] [2012] FWAFB6108

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