NKS Enterprises Pty Ltd v Mekary

HEARING DATES: 03/12/2004 DATE OF JUDGMENT: 07/30/2004

APPELLANT Mr R W Tregnza of counsel Solicitor: Mr D Sheen Austin Dunhill Barwick

LEGAL REPRESENTATIVES: RESPONDENT Mr A G Rogers of counsel Mr D Bliss Shop, Distributive and Allied Employees' Association, New South Wales

INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES IN COURT SESSION FULL BENCH

CORAM: WRIGHT J, President KAVANAGH J STAFF J

Matter No IRC 5360 of 2003 NKS ENTERPRISES PTY LTD v GEORGE MEKARY

Application by NKS Enterprises Pty Ltd for leave to appeal and appeal against the decision of Chief Industrial Magistrate Miller given on 4 September 2003 in Matter No CIM 75989 of 2003. JUDGMENT OF THE COURT [2004] NSWIRComm 210

1 These proceedings concern an application for leave to appeal and an appeal against the decision of the Chief Industrial Magistrate given on 4 September 2003 in which his Honour ordered the appellant to pay the respondent the amount of $44,687.

2 The proceedings before the Chief Industrial Magistrate were brought by the respondent pursuant to s 366 of the Industrial Relations Act 1996 which is in the following terms:

366 Order for recovery of over-award payments under contract of employment (1) An industrial court may, on application, order an employer to pay any amount payable to a person under a contract relating to the employment of the person that remains unpaid.

(2) This section applies only if there is an industrial instrument that fixes the minimum rate or amount of remuneration for the work done under the contract.

3 The respondent had been employed by the appellant between April 2002 and January 2003. There was a written contract of employment. In view of its significance in the proceedings, both at first instance and on appeal, and also its brevity, it is convenient to set the contract out in full, as follows: EMPLOYMENT CONTRACT Date: 16 April 2002 Employer: NKS Enterprises Pty Ltd (ACN 097 376 040) Trading as IGA Supermarket Employee: George Mekary Position Offered: Store Manager The Employer hereby confirms the offer of the above employment to the Employee from the take-over of the store subject to the following terms and conditions: 1. Salary: $55,000 per annum. 2. Company car: Use of a fully-maintained company car, which should be made available for delivery when not in use. (conveniently during working hours) 3. Bonus: 3% on whole store's annual profits, payable quarterly. 4. Superannuation: 9% of salaries per annum. 5. Leave entitlement: Same as current conditions with Woolworths. 6. Review: Salaries package to be reviewed annually. 7. Guarantee employment period: To 31/12/2003. Signed for and on behalf of Accepted by: NKS Enterprises Pty Ltd

4 The respondent was employed by the appellant as "Store Manager" at the appellant's IGA Supermarket at Waterloo. He was, under the contract, guaranteed employment to 31 December 2003. However, as his Honour found, on returning from annual leave on 18 January 2003, the respondent was told by Mr Gu to resign; he refused but was handed a letter by Mr Gu terminating his employment (it will be recalled that Mr Gu had executed the contract of employment on behalf of the appellant employer).

5 His Honour's decision includes the following findings made in respect of the respondent's claim that the award relevant to his employment was the Shop Employees (State) Award: Although the applicant's position was titled "Store Manager", the applicant's duties that he was engaged to do include: Packaging meat trays and breads; taking delivery of stock; filling shelves, pulling boxes, office duties, and supervising employees; Loading groceries into cars; ordering; rostering employees; and supervising and other related tasks. Relevantly the Applicant was not made aware of outgoings of the store such as electricity bills, trucking and delivery expenses and rent/lease costs. Only Mr Gu, who attended to work, at least 5 days per week, and operationally in control of the business knew what these costs were. Final decisions with respect to recruiting and dismissing employees were in the hands of Mr Gu.

6 His Honour also found: In the case of R J Flynn v San Remo Pty Ltd , Macken J. spoke of Mr Flynn, who was a manager of a retail liquor outlet as lacking: "the unfettered discretion that is the hallmark of an independent manager". It is evident that the role of recruiting and terminating employees is the hallmark of an independent manager. This role was a matter that the Applicant did not have unfettered discretion over. In fact it was Mr Gu who exercised and retained the ultimate power and authority in this regard. Furthermore, the Applicant was not permitted access to profit and loss statements, which is critical to properly, and independently managing a store. My Gu had access to these and other data, which allowed him to monitor and retain ultimate control over store operations although he would from time to time tell the Applicant that the store was running at a loss. ... The Applicant's employment at IGA Waterloo was, for the purposes of the award "employed with or connection with" a shop. Additionally under the Area Incidence and Duration clause of the award, it applies to all classes of employees under classifications of the award who work in connection with a retail shop. Two classifications are relevant here. They are - (a) Branch Supervisor, or (b) Shop Assistant in charge of over 25 assistants with the duty of buying. During the negotiations between Mr Gu and the Applicant, Mr Gu indicated that he would be purchasing other stores in North Strathfield and at Oxford Street in Sydney and advised the Applicant when he bought those stores he would be helping him to supervise them. Representation was made that the Applicant could also assist in setting up the stores so that he had a chance to grow and further his career with Mr Gu. This infers that the Applicant was being offered a role to supervise these stores in a manner contemplated by the award under the classification of Branch Supervisor of Grocery Shops. It was clear that the duties performed by the Applicant at Waterloo despite his title of store manager, were of the class of work normally performed by a "Shop Assistant in Charge". There were more than 40 employees at the store and the Applicant had the duty of buying. In my view he would come within the award classification of a "Shop Assistant in charge of 25 or more employees with the duty of buying". Functioning of every employment relationship is based on a contract made between the employer and employee prior to the commencement of the relationship. Whatever the form of the contract, oral or in writing, it will contain terms and conditions agreed to by the parties. Consideration for the contract is the Applicant promising to give a certain part of his time and labour to the direction and control of the employer in return for the employer's promise to pay wages. It was an express term of the written agreement entered into between the parties in return for the Applicant's services he would be paid an agreed remuneration of $55,000 per annum together with a bonus of 3% on the whole store's annual profits, payable quarterly and superannuation of 9% of salary per annum. The agreed and expressed duration of the contract was for a minimum period up to 31 December 2003. By terminating the Applicant's employment the Respondent has breached the agreement. The general right to terminate the contract has been expressly excluded by the term of the contract guaranteeing work to 31 December 2003. That is not a case where the contract of employment has been frustrated by the illness, incapacity or involuntary restraint of the employee or by other means. There is an allegation by the Respondent that the Applicant was not fulfilling his duties to the level expected by the Respondent particularly that the store was not making the turnover expected. However, there is no evidence before me to establish such assertion by the Respondent or that the failure to meet the expected turnover was such as to amount to a breach of the employment contract. All the indications are that the Respondent, unhappy with the profit from the store made a simple economic decision to restructure its organizational structure to reduce costs by in fact terminating the Applicant and re-titling the position of two existing staff members with the titles of Store Manager and Assistant Manager thereby deleting a position with the Applicant's former role now attracting a reduced rate of remuneration.

7 The issues raised by the appellant were succinctly put and may be reduced to the following questions: (i) whether his Honour correctly found that there was an industrial instrument providing a minimum rate of remuneration for work under the contract pursuant to s 366(2) of the Act; (ii) whether an order could be made under the section in respect of the loss of the use of the motor vehicle; (iii) whether an order could be made under the section in respect to the loss of superannuation.

8 Counsel for the appellant submitted that his Honour failed to make a proper determination as to whether there was an industrial instrument fixing the remuneration for the work done under the contract. Counsel contended that his Honour erred because he had regard to the representations made to the respondent prior to entering into the contract and further, that his Honour paid regard to the work performed by the respondent after the contract had commenced.

9 Counsel for the appellant submitted it was impermissible for his Honour to approach the matter on the basis that he had, since the construction of the contract must occur by reference only to the document itself, or in the case of ambiguity, by reference to the factual matrix relevant to the entering into the contract. Although the consideration, it was said, could include reference to discussions leading up to the execution of the written contract, it was argued that it was not permissible to have regard to events subsequent to the making of the contract in order to construe it.

10 In regard to the first question and the proper approach that should be taken in construing the contract, counsel relied on the judgments of the Court of Appeal in LMI Australia v Baulderstone Hornibrook Pty Ltd [2003[ NSWCA 74 and Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310 at 326, 327.

11 We consider that in determining the first question raised, that is, whether there is an industrial instrument fixing the minimum rate for work done under the contract, it is appropriate to consider, in addition to the terms of the contract of employment, the evidence of what work was done and then to ascertain whether there was an award either applicable to that work, or to use the words of s 366(2) an award "that fixes the minimum rate or amount of remuneration for the work done under the contract".

12 We disagree with the appellant's contentions as to the first error alleged. The question raised by s 366(2) involved an issue that is frequently dealt with not only before the Chief Industrial Magistrate but before the Commission and the Commission in Court Session. The way in which the issue is to be approached occurred in a conventional way in his Honour's Decision when he said: It was clear that the duties performed by the Applicant at Waterloo despite his title of store manager, were of the class of work normally performed by a "Shop Assistant in Charge". There were more than 40 employees at the store and the Applicant had the duty of buying. In my view he would come within the award classification of a "Shop Assistant in charge of 25 or more employees with the duty of buying".

13 We do not accept the contention of the appellant that the matter had to be approached by a consideration of authorities dealing with essentially different questions to that which required determination.

14 We therefore conclude, as to the first issue relied on by the appellant, that it has not been demonstrated that the approach taken by his Honour involved error or the conclusion reached was not open to his Honour. In these circumstances, leave to appeal should be refused as to that issue.

15 The other issues raised by the appellant involve slightly different questions which require some further consideration of the statutory context in which s 366 occurs. That section is to be found in Chapter 7 "Enforcement". Part 1 of that Chapter deals with "Breach of industrial instruments" and includes ss 356 to 363.

16 Part 2 of Chapter 7 deals with "Recovery of remuneration and other amounts" and includes ss 364 to 380 and thus the provision under which the proceedings at first instance were taken. Other sections in Part 2 of Chapter 7 which are relevant include s 364 "Definitions", s 365 "Order for recovery of remuneration and other amounts payable under industrial instrument", s 367 "Order for recovery of payments not fixed by industrial instruments" and s 368 "Order for recovery of unpaid superannuation".

17 As noted, s 364 includes a number of definitions. The definition relevant to the present proceedings is that of the "amount payable under an industrial instrument" which provides: amount payable under an industrial instrument, includes: a) remuneration payable to an employee for work done where the industrial instrument fixes the rate or amount of the remuneration, or

b) commission or other amount payable to a person in the circumstances specified in the industrial instrument (other than remuneration for work done), or

c) an amount for which an employee is required under the industrial instrument to be re-imbursed or compensated for an expense incurred or loss sustained by the employee. This definition was relied on by the respondent.

18 Section 366 empowers an industrial court to order an employer to pay any amount payable to a person under a contract relating to the employment of the person that remains unpaid. This section however applies only if there is an industrial instrument that fixes the minimum rate or amount of remuneration for work done under the contract.

19 Section 367 is a provision analogous to ss 365 and 366. As earlier noted, it is entitled "Order for recovery of payments not fixed by industrial instruments" and applies in the circumstances so described. Section 368 provides a detailed scheme enabling an industrial court (which is defined in s 364 as either, relevantly, an industrial magistrate or the Commission in Court Session), to make orders for the recovery of unpaid employer contributions to superannuation. Because of its potential relevance to the construction of s 366, it is appropriate to set out s 368 in full. It provides: 368 Order for recovery of unpaid superannuation (1) An industrial court may, on application, order an employer, who employs any person to do any work for which the employer is required under an industrial instrument to make a contribution to a superannuation fund on behalf of the person, to make a payment to or in respect of that person for the purpose of restoring the person, as far as practicable, to the position that the person would have been in had the employer not failed to make the contribution. (2) Without limiting the generality of subsection (1), an order under this section may direct the employer to pay to the relevant superannuation fund: (a) the amount of the contribution that is unpaid, and (b) the amount that, in the opinion of the industrial court, would have accrued in respect of the contribution in the fund had it been paid to the fund when due. (3) If, at the time an order is made, the employee no longer works for the employer, the industrial court may order the employer to pay the relevant amounts to a superannuation fund nominated by the former employee. (4) A certificate signed, or purporting to be signed, by a trustee of a superannuation fund, or by an agent of such a trustee, as to: (a) the amount of contribution that has been, or should have been, paid in respect of an employee for a particular period of time, or (b) the eligibility of an employee for membership of the fund, or (c) the amount that would have accrued in respect of a contribution or a series of contributions had it been in the fund over a particular period, is evidence of the matters stated in the certificate. 20 The second and third issues depend largely on whether there was "any amount payable" under s 366(1) in respect of the relevant matters.

21 Turning to the second issue, that is, whether an order for payment could be made as to the loss of the use of the motor vehicle, counsel for the appellant referred to the provision of the respondent's employment contract dealing with the company car. It will be recalled that clause 2 of the employment contract was in these terms: 2. Company car: Use of a fully-maintained company car, which should be made available for delivery when not in use.

22 Counsel for the appellant submitted that the use of a motor vehicle is not something which is "payable" and thus is not an "amount payable" for the purposes of s 366. This approach, it was submitted, was consistent with the definition of "amount payable" found in s 364(1). Such "amount[s] payable" must either be (according to the definition) remuneration payable, commission or "an amount for which an employee is required under the industrial instrument to be reimbursed or compensated".

23 Counsel for the appellant submitted that his Honour was thus not entitled to make an order for compensation for loss of the use of the car since such an order would not be for an "amount payable" in any relevant sense.

24 Counsel for the respondent however referred the Court to evidence that payments had been made to the respondent in respect of the reimbursement of moneys expended on petrol. It was submitted that it therefore could not be said that there were not payments made under the contract in respect of the motor vehicle. However, as counsel for the respondent accepted, the point, albeit ultimately a technical one, was whether the loss of the value of the motor vehicle could be said to be an "amount payable" under s 366.

25 Although reliance was placed on the definition of "amount payable", perhaps through legislative oversight, that definition is expressly limited to amounts payable under industrial instruments and therefore does not appear to apply in terms to the expression "amount payable" under a contract in terms of s 366(1) since that provision refers to amounts payable under a contract rather than under an industrial instrument. On the other hand, there is no reason why the expression "amount payable" should not be given a beneficial construction as is usually applied to similar legislative provisions and industrial awards. The Court should therefore approach the construction of s 366 on the basis that the expression "amount payable" is, generally speaking, to be given the same meaning throughout Part 2 of Chapter 7 of the statute.

26 Many of the concepts included in the definition in s 364 could reasonably be said to be within the usual meaning of the phrase "amount payable". By way of example, "amount payable" in s 366(1) includes "remuneration payable to an employee for work done" and "commission or other amount payable … in … circumstances specified" both of which concepts are within the definition in s 364(1). However, we consider that the loss of the use of the motor vehicle could not be said to be an "amount payable" for the purposes of s 366 of the Act. We thus conclude that his Honour erred in ordering the amount of $4,720 to be paid in respect of the loss of the use of the company car.

27 The third question related to whether a payment could be made for the loss of superannuation. Counsel for the appellant submitted that the written contract provided for a superannuation payment of nine per cent per annum. There was no provision as to the identity of the superannuation trustee to whom the amount should be paid or any suggestion that the superannuation payment would be made directly to the respondent. Counsel submitted that ordinarily, in the context of employment relationships, superannuation is paid by the employer to an independent superannuation trustee which is subject to the terms of a superannuation trust deed. Section 366(1) permits an order to be made that an employer pay any amount payable to a person under a contract relating to the employment of the person that remains unpaid. It was argued that there is no provision in the contract that could give any sensible construction suggesting that the payment of superannuation would be made to the respondent himself.

28 In order to consider this question, it is appropriate to have regard to the context provided to the construction of s 366 by s 368. In many ways s 366 is a provision parallel to s 365. The difference between the two provisions is that s 365 enables orders to be made in respect of unpaid amounts under industrial instruments whereas s 366 relates to orders for underpayments of contractual or over-award entitlements to employees whose employment is governed by an award. It may be that s 368 was inserted in the Industrial Relations Act because the legislature considered that the terms of s 365 were not wide enough to deal with superannuation. That is, that the legislature considered that the power in s 365 to order payment of an "amount payable under an industrial instrument that remains unpaid" was not sufficiently wide to deal with the situation of unpaid superannuation contributions. This hypothesis, if correct, would result in the similar verbiage in s 366 being insufficiently wide to justify the order made as to superannuation by the Chief Industrial Magistrate.

29 However we do not consider this was the reason for the enactment of s 368. Rather the section was enacted for other and more particular reasons. A careful reading of its terms and structure shows that s 368 was intended to provide a wide power to the court to order the making of "a payment to or in respect of that person for the purpose of restoring the person, as far as practicable to the position that the person would have been in had the employer not failed to make the contribution". That is, the court was provided with power to order a payment that might be, depending on the circumstances, greater than the unpaid superannuation contributions. The power was to be exercised to restore the employee to the position he or she would have been in but for the failure to pay superannuation contributions; and for that purpose the court was empowered to order an employer in default "… to make a contribution to a superannuation fund on behalf of the person." The width of the power is illustrated by s 368(2) which has already been set out.

30 Other purposes of s 368 were to enable an order to be made that the payment could be made either to the person, or in respect of the person to a superannuation fund nominated by the applicant (s 368(3)), and to facilitate proof of certain evidentiary matters by means of a certificate provided by the trustee of a superannuation fund (s 368(4)).

31 We therefore conclude that the purpose or need for s 368 was not because the phrase "amount payable" in s 365(1), and thus in s 366(1), was considered insufficiently wide to order payment of superannuation contributions but because of the legislature's concern that the complexity of payment of superannuation contributions was such that there was a need to provide a mechanism to provide complete restitution and, if appropriate, payment to a relevant fund, it being apparently considered that mere payment of contributions to the aggrieved employee might not be sufficient to compensate him or her.

32 Having regard to the terms and purpose of s 366 and the importance of superannuation, which is at least an indirect payment to an employee, and also having regard the beneficial approach that is to be adopted in the construction of the relevant provisions, we consider the phrase "amount payable" in s 366 (as well as in ss 364 and 365) is sufficiently wide to encompass the making of orders in favour of an employee as to unpaid superannuation contributions.

33 The conceptual proximity of superannuation payments to wages is illustrated by the seminal case that led to the widespread grant of superannuation contributions in industrial awards. The High Court in Re The Manufacturing Grocers' Employees Federation of Australia; Ex parte The Australian Chamber of Manufactures (1986) 160 CLR 341 at 354 described the claims considered in that case as being "the payment, in lieu of wage increases, of contributions by employers to a fund established or to be established by the employer or the relevant employee organisation, under its own trust deed, in accordance with standards approved by the Australian Government …".

34 In light of the reasons given, we consider that the second and third issues contended for by the appellant are issues where leave to appeal should be granted. Further, that in respect of the issue relating to superannuation the appeal should be dismissed. As to the issue of the loss of value of the use of the motor vehicle, the appeal should be upheld.

35 In respect to the issue of costs, the respondent has been substantially successful, having succeeded in respect of the major question issue in the proceedings and one of the other two issues. The respondent, therefore, should have 90 per cent of his costs of the appeal.

36 We make the following orders in disposition of these proceedings:

leave to appeal refused except as identified in these reasons.

Appeal dismissed except as to order of the Chief Industrial Magistrate in respect of the claim as to the company car where his Honour allowed the amount of $4,720.00.

Leave is granted to the parties to bring in agreed short minutes setting out the amounts, including interest, payable by the appellant to the respondent. In the absence of agreement, leave is granted to the respondent to file short minutes. Any short minutes are to be filed within 21 days.

The stay granted by the Court is dissolved forthwith. The solicitor for the respondent, Mr D Sheen, shall pay within seven days to the respondent, or as he directs in writing, the amount held in trust pending the outcome of the appeal plus the interest accrued thereon.

The appellant shall pay 90 per cent of the respondent's costs, to be assessed in default of agreement.

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