Sato v Maurice Alexander Management Pty Ltd [2020] QIRC 213

Queensland Industrial Relations Commission|2020-12-08

INDUSTRIAL LAW - Whether applicant has an entitlement to long service leave - when does entitlement to long service leave arise - certified agreement purporting to oust statutory entitlement to long service leave - effect of certified agreement on service - effect of certified agreement on entitlement - can loading paid on hourly rate be set off against entitlement - designation of loading for long service leave - was loading properly attributable to long service leave - discretion to refuse claim - application allowed.

AMWU v Berri Pty Ltd [2017] FWCFB 3005

Livermore v Coles Supermarkets Pty Ltd [2019] QIRC 165

Queensland Independent Education Union of Employees v Beerwah & District Kindergarten Association Inc [2008] ICQ 18

Williams v Macmahon Mining Services Pty [2009] FMCA 511; (2009) 231 FLR 59

Williams v Macmahon Mining Services Pty Ltd (No.2) [2009] FMCA 763

Williams v MacMahon Mining Services Pty Ltd [2010] FCA 1321

Workpac v Rossato [2020] FCAFC 84

[1] Ms Kaori Sato makes application for an order that she be paid long service leave ('LSL'). Her claim was previously couched in terms of the entitlement arising under the Industrial Relations Act 2016 (Qld) ('the current IR Act'), however it appears uncontroversial between the parties that any entitlement she has will have arisen under the (now repealed) Industrial Relations Act 1999 (Qld) ('the IR Act').

[2] The parties to these proceedings filed agreed facts on 8 June 2020.

[3] Ms Sato was employed continuously by Maurice Alexander Management Pty Ltd ('MAM') as a casual Flight Attendant between 27 March 2006 until 24 September 2016, a total of ten and a half years.

[4] Ms Sato's total actual hours of service with MAM were 14,893.58hrs.

[5] During her employment Ms Sato's conditions were regulated by inter alia:

The Flight Attendants' Association of Australia Domestic/Regional Division Casual Flight Attendants Enterprise Agreement 2006 ('the 2006 agreement');

The Flight Attendants' Association of Australia Domestic/Regional Division Casual Flight Attendants Enterprise Agreement 2010 ('the 2010 agreement'); and

The Flight Attendants' Association of Australia Domestic/Regional Division Casual Flight Attendants Enterprise Agreement 2015 ('the 2015 agreement').

[6] On or about 7 November 2019, some three years following the cessation of her employment, Ms Sato issued a letter of demand[1] to MAM through her union, the Flight Attendants' Association of Australia ('the FAAA'). The letter of demand asserted an entitlement to the payment of LSL pursuant to the Industrial Relations Act 2016 (Qld).

[7] On or about 16 December 2019 MAM responded[2] to the letter of demand denying any liability for LSL. In doing so MAM relied on:

An alleged discussion resulting in an agreement by MAM to allow LSL to begin accruing from 27 October 2010; and

The provisions of cl 13.1.1 of the 2006 Agreement.

[8] There were no further communications of substance between the parties. On 14 April 2020 Ms Sato filed these proceedings[3].

[9] Subsequent to unsuccessful conciliation before another Member, the parties consented to a hearing on the papers and directions were issued for the filing of agreed facts and written submissions.

[10] In addition to the agreed facts, the written submissions filed by MAM further narrow the scope of the dispute between the parties. In written submission filed 16 July 2020 MAM separates Ms Sato's employment into three distinct periods that coincide with the operation of the enterprise agreements identified above.

[11] MAM submits that it does not dispute that the second and third periods (under the 2010 and 2015 agreements) count as service for the purpose of determining an entitlement to LSL[4]. MAM submits that the focus of their submissions is the first period of employment covered by the 2006 agreement.

[12] Ms Sato contends that her entitlement to LSL arose on the completion of ten years of continuous employment i.e. on 27 March 2016 in accordance with the terms of s 43 of the IR Act. Ms Sato submits that the various agreements regulating her employment conditions between 2006 and 2016 have no bearing on her entitlement conferred by s 43 the IR Act.

[13] The written submissions filed by MAM contain five separate grounds upon which it is submitted Ms Sato's application should be refused. The first three grounds all rely on the Commission accepting a construction of cl 13.1 of the 2006 agreement that it would have the effect of excluding Ms Sato's service between 27 March 2006 and 27 October 2010 for the purpose of calculating an entitlement to LSL under the IR Act.

[14] The fourth ground contends for a characterisation of cl 13.1 of the 2006 agreement as an agreement between the parties to satisfy an obligation to pay LSL and makes a submission that the obligation to Ms Sato has been satisfied by the loading paid pursuant to cl 13.1.1.

[15] The fifth ground seeks an exercise of the Commission's discretion pursuant to s 475 of the current IR Act to avoid Ms Sato 'double dipping', an argument which is premised on a conclusion that Ms Sato has already had the benefit of her entitlement.

[16] The pivotal question for determination is around the construction of cl 13.1.1. It is a question of whether cl 13.1 excludes Ms Sato's entitlement to LSL and/or whether it operates to exclude Ms Sato's service between March 2006 and October 2010 from any subsequent entitlement calculation. Alternatively, if it does not so operate, whether the loading paid pursuant to cl 13.1 has conferred part or all of the entitlement to Ms Sato already.

[17] I note that in correspondence to Ms Sato dated 16 December 2019[5] MAM asserts:

In 2015 while in discussion around EBA, MAM agreed to accrue LSL from 27th October 2010 (Certified date of EBA)

[18] While this assertion purports to outline what MAM agreed to with respect to the effect of the 2010 agreement on the subject of LSL, it provides no insight into any mutually agreed or understood position of the parties with respect to the treatment of LSL under the 2006 agreement.

[19] I note that no arguments have been advanced by the parties in written submissions, nor have I been directed to e.g. evidence of prior negotiations[6] that could be said to provide insight into any agreement as to the effect of cl 13.1.1 in the 2006 agreement. I am therefore unaided in the task of construction by any extrinsic material and must look to the language of cl 13.1.1 to ascertain its effect.

13.1 A Flight Attendant shall be paid a base hourly rate as set out in clause 39. This hourly rate of pay includes:

13.1.1. a casual loading that is paid in lieu of any entitlement to paid annual leave, paid personal leave (including sick leave), long service leave or payments for notice of termination or redundancy; and

13.1.2 expenses incurred during the course of a Flight Attendant's duty as follows:

Miscellaneous expenses.
Grooming allowance.

[21] The terms of cl 13.1.1 are not ambiguous. Their plain meaning is evident. The objectively clear function and intent of cl 13.1.1 is to record a bargain between the parties that obliges MAM to pay the specified hourly rate said to include inter alia a casual loading. In return for this, employees relinquish any entitlement to inter alia LSL. Critically, it is the employee's entitlement that is displaced by the loading.

[22] There is no provision in cl 13.1.1 or elsewhere in the 2006 agreement that purports to address the status of Ms Sato's service during the period of the 2006 agreement. There is no provision or transitional provision in the 2010 or 2015 agreements that purports to excise Ms Sato's service during the term of the 2006 agreement for the purposes of calculating her LSL entitlements.

[23] There is no evidence of any agreement by Ms Sato, either in the 2006 agreement or her employment contract, that her service during the life of the 2006 agreement would not be recognised. All that is relinquished by Ms Sato in the bargain made in cl 13.1.1 is her entitlement to inter alia paid LSL.

[24] The question then is: what (if any) is the effect of Ms Sato relinquishing her 'entitlement' to be paid LSL under the terms of the 2006 agreement?

[25] I note generally that cl. 13.1.1 purports to apply to a suite of statutory entitlements. Some of these entitlements will arise by way of accrual from the commencement of employment e.g. annual and sick leave, whilst others are calculated by reference to service but are contingent on certain events e.g. LSL on ten years' service, or a severance payment in the event of redundancy.

[26] The use of the term 'any' entitlement in cl 13.1.1 reflects the contingent nature of the bargain i.e. it does not descend to specifics. Instead it purports to impose a blanket exclusion on a broad range of statutory entitlements that might (or might not) become vested in an employee during the life of the agreement.

[27] It would seem that MAM was prepared to take a speculative approach with the bargain made by cl 13.1.1 i.e. requiring them to pay a loading to employees for e.g. an entitlement to redundancy payments that employees might never acquire during the life of the 2006 agreement, or at all.

[28] This approach might be explained by the fact that each of the entitlements listed in cl 13.1.1 are acquired through service e.g. annual or personal leave accruing in a specific allocation per year of service, and notice and redundancy entitlements that will be calculated by reference to length of service.

[29] The benefit to MAM, while largely inconsequential at the commencement of an employee's employment, increases exponentially as the debt otherwise carried by MAM for accrued entitlements is purportedly satisfied by the loading. But unlike annual leave, not all of these entitlements accrue or vest in the employee with each day of service.

[30] Before turning to the meaning of 'entitlement' more broadly, it is of assistance to note that the IR Act relevantly deals with 'entitlement' as follows:

(1) This section applies to all employees, other than seasonal

(2) An employee is entitled to long service leave on full pay of -

(a) for the first 10 years continuous service - 8.6667 weeks;

(b) if the employee has completed at least a further 5 years

continuous service - another period that bears to 8.6667

weeks the proportion that the employee's further period

(3) An employee who has completed at least 7 years continuous

service is entitled to a proportionate payment for long service

leave on the termination of the employee's service.

(4) However, if the employee's service is terminated before the

employee has completed 10 years continuous service, the

employee is entitled to a proportionate payment only if -

(a) the employee's service is terminated because of the

(b) the employee terminates the service because of -

(i) dismisses the employee for a reason other than the

(d) the termination is because of the effluxion of time and -

(i) the employee had a reasonable expectation that the

until the employee had completed at least 10 years

than under this Act, is entitled to leave that is at least as

favourable as the entitlement under this section....

[31] I note the contrast with the language of the current IR Act where s 95 refers to an employee having 'completed' 10 years continuous service.

[32] Notwithstanding the clearer language of the current IR Act, I am satisfied the language of s 43(2) of the IR Act is to the same effect given the references to further benefits for 'completion' of a further 5 years found at s 43(2)(b) and the limited entitlement to pro rata LSL expressed in s 43(3) and (4) in the context of an employee having 'not completed' 10 years continuous service.

[33] The meaning of 'entitlement' to LSL was discussed by Hall, P in Queensland Independent Education Union of Employees v Beerwah & District Kindergarten Association Inc_[7]_ where he said:

The Early Childhood Education Award - State was made on 10 December 1990 and was operative from 1 December 1990. (The date of the Commission's decision to make the Award was 29 November 1990). The Award was made under the Industrial Relations Act 1990. By s. 240 of that Act, an employee who had completed 15 years' continuous service with the same employer was entitled to 13 weeks' long service leave on full pay. An employee who had not completed 15 years' continuous service was not entitled to any long service leave at all. I do not explore the future entitlements of an employee who returned to work with the same employer after taking 13 weeks' leave. However, an employee who had completed 10 years' continuous service with the same employer was, if his employment was terminated by death, resignation or dismissal (otherwise than for serious misconduct), entitled to payment of a sum of money calculated in accordance with a formula at s. 240(1)(b)(ii). It follows that the scheme of the Industrial Relations Act 1990, was comparable to the scheme discussed by Barwick CJ in Stein v Saywell [1969] HCA 16; (1968-1969) 121 CLR 529 at 541. The right to physical leave accrued to an employee after 15 years' continuous service. The right to payment in lieu of leave accrued on termination after 10 years' continuous service. Long service leave did not accrue from day to day. An employee who left his employment after, e.g. 9 years' service, left with neither the grant of leave nor the payment of money. However, subject to some comments which I shall subsequently make in fairness to the members of the Full Bench of the Commission who made the Early Childhood Education Award - State 2003, there was no reason why an industrial instrument made under the Industrial Relations Act 1990 might not proceed on an entirely different conceptual basis.

[34] While I note that Hall P was discussing the concept of entitlement in the context of the Industrial Relations Act 1990 (Qld), the method of calculating an entitlement upon the occurrence of a specified period of service remains a consistent approach throughout all subsequent iterations of the applicable legislation in Queensland. His comments are apposite to my consideration of the terms of the IR Act.

[35] The (then) President's conclusion as to when entitlement arises is, in my view, the obvious conclusion on a plain reading of the IR Act i.e. that the 'entitlement' to LSL does not arise until the employee has served the requisite period service[8].

[36] Putting any potential impact of the 2006 agreement to one side for the moment, if one were to calculate the point in time where Ms Sato had an entitlement to LSL arising under the IR Act[9], it would undoubtedly be 27 March 2016 i.e. the date she completed 10 years continuous service. So, in the same way that Ms Sato had no entitlement to a redundancy payment during the 2006 agreement, she similarly had no entitlement to LSL during the 2006 agreement.

[37] The only possible exception might be where it can be demonstrated that her entitlement to LSL was determined differently to the manner prescribed by the IR Act. This was the exception considered by Hall P when he contemplated an instrument that 'proceeds on an entirely different conceptual basis'.

Does the 2006 agreement proceed on a different conceptual basis to the IR Act and thereby displace Ms Sato's entitlement in some other way?

[38] I note that Hall P in Queensland Independent Education Union of Employees v Beerwah & District Kindergarten Association Inc_[10]_ was dealing with an attempt by an employee to evoke the operation of an industrial instrument that had been superseded by a subsequent instrument.

[39] The employee was attempting to rely on the older instrument because the terms governing the entitlement to LSL in that defunct instrument were more beneficial to her. This is broadly the opposite of the scenario confronting Ms Sato and MAM, though it remains relevant given the consideration of the questions around the application of a defunct instrument to the calculation of LSL entitlements.

[40] On the question of the manner in which a defunct instrument might influence or alter the notion of entitlement, Hall P again in Queensland Independent Education Union of Employees v Beerwah & District Kindergarten Association Inc makes these important findings:

If the concern was only with the Early Childhood Education Award - State, I should accept that Ms Kramer had an accrued right to have her entitlement to long service leave in respect of service prior to 12 October 2003, calculated pursuant to the formula at clause 5.5(8). Of course, one is not concerned only with the Early Childhood Education Award - State. One is concerned with the Early Childhood Education Award - State 2003, the Award which applied when the quantum of Ms Kramer's entitlement to long service leave fell to be calculated and an award which does not adopt the formula at clause 5.5(8). Because the Early Childhood Education Award - State 2003 contains no material transitional provision, one is inevitably concerned also with s. 20 of the Acts Interpretation Act 1954...

... Section 20 of the Acts Interpretation Act 1954 relevantly provides:

(a) revive anything not in force or existing at the time the repeal or amendment takes effect; or

(b) affect the previous operation of the Act or anything suffered, done or begun under the Act; or

(d) affect a penalty incurred in relation to an offence arising under the Act; or

(e) affect an investigation, proceeding or remedy in relation to a right, privilege, liability or penalty mentioned in paragraph (c) or (d)."

The critical issue is whether the right to calculate "length of leave" pursuant to clause 5.5(8) of the Early Childhood Education Award - State, which was clearly perceived by the Full Bench of the Commission which made the Award to be an element of the accrued entitlement at clause 5.5(2), is an "accrued right" for the purposes of s. 20(2)(b) , compare Abbott v The Minister for Lands [1895] UKLawRpAC 18; [1895] AC 425 at 431 (PC).

"It maybe as Windeyer J observes that the power to take advantage of an enactment may without impropriety be termed a 'right'. But the question is whether it is a 'right accrued' within the meaning of the enactment which has to be construed.".....

....This case is not Chief Adjudication Officer and Anor v Maguire [ 1999] EWCA Civ 1060; [1999] 1 WLR 1778. In that case, Mr Maguire became entitled to a disability pension. The pension was not payable until claimed. Before Mr Maguire made a claim the statute was repealed and replaced by a statute which allowed folk such as Mr Maguire to claim a pension in futuro but contained no transitional scheme to preserve Mr Maguire's unclaimed entitlement under the earlier statute. That entitlement was held to be a "right accrued". At 1788, Simon Brown LJ summarised the underlying principle as follows:

"What to my mind all these cases establish is essentially this: that whether or not there is an acquired right depends upon whether at the date of repeal the claimant has an entitlement (at least contingent) to money or other certain benefit receivable by him, provided only that he takes all appropriate steps by way of notices and/or claims thereafter.".

An analogous case "might" have arisen if the Early Childhood Education Award - State had been set aside and replaced after Ms Kramer had worked for ten continuous years but before she had asked for her leave. Chief Adjudication Officer and Anor v Maguire, ibid, "might" have supported an entitlement to calculate the quantum of leave under clause 5.5(8). I take the precaution of saying "might" because analogy between changes to rights against the public purse and changes to the rights and obligations between citizens may be difficult to maintain.

A simpler route to the conclusion, viz., that Ms Kramer did not have a "right" accrued is that outlined by Keene JA in Australand Corporation (Qld) Pty Ltd v Johnson and Ors [2007] QCA 302 at para 111, in dealing with the counter-part provision of the Acts Interpretation Act 1901 (Commonwealth):

"...The idea that the extent of a party's right or interest is commensurate with the nature of the orders which a court may make to protect or enforce the right or interest is one which has long been familiar to lawyers. In considering the operation of s. 8(c) of the Acts Interpretation Act, one may test the suggestion that a party has an accrued right by asking what order could be made by a court in favour of that party had the court come to pronounce on the liability of the other party prior to the repeal of the statute which conferred the right.".

[41] As noted above, pursuant to cl 13.1.1, Ms Sato relinquishes only her 'entitlement' to inter alia paid LSL. Clause 13.1 says nothing about the manner in which the entitlement arises, and nothing about the effect of service during the period of the 2006 agreement.

[42] Further, none of the subsequent agreements contain any transitional provisions preserving the bargain made at cl 13.1.1[11] or excising her service during that period.

[43] In my view it cannot be said that cl 13.1.1 proceeds on a different conceptual basis to s 43 of the IR Act. All cl 13.1.1 does is purport to displace Ms Sato's entitlement to LSL. There is nothing about the language of the clause that could cause its operation to extend beyond October 2010. The bargain to relinquish entitlement to LSL entered by Ms Sato operated only during the life of the 2006 agreement.

[44] It must also be remembered that cl 13.1 is a bargain that deals with much more than LSL. There are multiple statutory and other entitlements purportedly relinquished in exchange for the 'all up' hourly rate. Cl 13.1 was not exclusive to Ms Sato. The fact that she had no LSL entitlement to relinquish during the life of the 2006 agreement does not mean she offered no consideration. It was a collective agreement. She and the other employees bound by cl 13.1 relinquished a broad range of entitlements.

[45] Had Ms Sato's entitlement to LSL arisen during the life of the 2006 agreement then cl 13.1.1 could be given effect. But Ms Sato's entitlement to LSL arose after she completed 10 years of continuous service when her employment was covered by the 2015 agreement, and nothing in that agreement impedes her entitlement to be paid according to the provisions prescribed in the IR Act.

[46] In all of the circumstances the proper construction of cl. 13.1.1 does not allow for the exclusion of Ms Sato's service during the period of the 2006 agreement for any subsequent calculations of LSL entitlements, or at all.

[47] Further, to the extent that it excludes 'entitlement' to paid LSL, cl 13.1.1 can only exclude an entitlement to LSL that arose during the life of the 2006 agreement. The absence of transitional or other provisions carrying this arrangement forward into the 2010 and 2015 agreements has the effect that the bargain specific to cl 13.1.1 ended upon the commencement of the 2010 agreement.

[48] Having arrived at this construction I now turn to its impact on the five arguments made by MAM in their written submissions.

In circumstances where the 2006 Agreement covers the field with respect to long service leave, the 1999 IR Act has no work to do during the period which the 2006 Agreement applied. As a consequence, any service under the 2006 Agreement by Ms Sato (i.e. the First Period of Employment) cannot be service recognised by the 1999 IR Act for the purposes of long service leave.

[50] This submission summarises the first argument of MAM opposing Ms Sato's claim. I do not accept that cl 13.1.1 'covers the field' as submitted or at all. Clause 13.1.1 of the 2006 agreement is exclusively concerned with displacing the 'entitlement' to LSL. It does not seek to prescribe the entitlement to LSL or the method by which it is calculated.

[51] This is in stark contrast to the subject clause in Compass Group (Australia) Pty Ltd v Bartram[12] that unmistakably purports to prescribe the LSL entitlement (albeit by deferring to the provisions of another instrument) in a way that leaves no doubt that the intention was for the clause in that agreement to 'cover the field' on the question of all aspects of LSL.

[52] Further, as noted above, cl 13.1.1 does not include any agreement that would nullify the service of Ms Sato during the life of the 2006 agreement. The highest it rises is to an exclusion of any entitlement to LSL that might happen to crystallise in that period i.e. by virtue of ten years continuous service.

[53] Clause 13.1.1 says nothing about, and has no impact on, the service given by Ms Sato in the relevant period. It merely purports to negate the entitlement in the same way that it e.g. negates an employee's entitlement to a redundancy payment notwithstanding that their position may in fact be redundant.

[54] For these reasons the first argument advanced by MAM must fail.

[55] MAM further submits that s 170LZ of the Workplace Relations Act 1996 ('WRA') established the State Interaction Rule ('SIR'). Section 170LZ of the WRA relevantly provides:

Subject to this section, a certified agreement prevails over terms and conditions of employment specified in a State law, State award or State employment agreement, to the extent of any inconsistency.

[56] MAM submits that, for the life of the 2006 agreement, the SIR continued to operate in subsequent statutory iterations during the work choices amendment era and into the period of operation of the Fair Work Act 2009 ('the FW Act')[13].

[57] In the absence of any argument from Ms Sato to the contrary, I accept MAM's submission that, for the duration of the 2006 agreement, the inconsistency between cl 13.1.1 and the IR Act provisions dealing with LSL entitlements would be resolved with cl 13.1.1 prevailing with respect to Ms Sato's entitlement. Had Ms Sato completed 10 years continuous service during the life of the 2006 agreement, cl 13.1.1 would have operated to negate the statutory obligation imposed on MAM by the IR Act.

[58] But, consistent with my construction of cl 13.1.1 that I have outlined above, the effect of cl 13.1.1 prevailing over the IR Act only impacts Ms Sato's entitlement to LSL. I do not accept the submission by MAM that the prevailing power given to cl 13.1.1 by SIR means that Ms Sato's service during that period did not count[14].

[59] For these reasons the second argument advanced by MAM must also fail.

[60] MAM pre-emptively draws the Commission's attention to s 113A of the FW Act (in the event that Ms Sato may attempt to rely on it) and submits, for a variety of reasons, that s 113A does not operate to enliven a 'previously excluded period of service'[15].

[61] Section 113A relevantly provides:

113A Enterprise agreements may contain terms discounting service under prior agreements etc. in certain circumstances

(a) an instrument (the first instrument ) of one of the following kinds that came into

operation before the commencement of this Part applies to an employee on or

(b) the instrument states that the employee is not entitled to long service leave;

(d) immediately after the first instrument ceases to apply, an enterprise agreement

(the replacement agreement) starts to apply to the employee.

(2) The replacement agreement may include terms to the effect that an employee's service with the employer during a specified period (the excluded period ) (being some or all of the period when the first instrument applied to the employee) does not count as service for the purpose of determining whether the employee is qualified for long service leave, or the amount of long service leave to which the employee is entitled, under this Division or under a law of a State or Territory.

(3) If the replacement agreement includes terms as permitted by subsection (2), the excluded period does not count, and never again counts, as service for the purpose of determining whether the employee is qualified for long service leave, or the amount of long service leave to which the employee is entitled, under this Division or under a law of a State or Territory, unless a later agreement provides otherwise. This subsection has effect despite sections 27 and 29.

[62] The arguments by MAM must fail entirely because they are again founded on the premise that there was a previously excluded period of service. This is a construction of cl 13.1.1 that I have rejected. There was no exclusion of Ms Sato's service during the period of the 2006 agreement, only her entitlement to LSL.

[63] For this reason, the third argument must fail.

[64] As an alternative to the submissions that Ms Sato's service during the period of the 2006 agreement was not included as part of the requisite service for LSL, MAM argues that it has already satisfied its obligation to pay Ms Sato by payment of the loading expressed to be in lieu of any entitlement to inter alia LSL.

[65] MAM seeks to distinguish this matter from the facts confronting the Full Bench of the Federal Court of Australia in Workpac v Rossato[16] ('Rossato'). MAM submits that cl 13.1.1 represents an agreement to satisfy an obligation to provide long service leave with payment of a casual loading[17]. This is said to be distinct from the scenario in Rossato where it was argued that a casual loading paid to an employee could be applied against amounts owing for annual leave in circumstances where the employee was found to be 'other than a casual employee' for the purposes of the Fair Work Act 2009.

[66] I have no difficulty in accepting the distinction. This is not a matter where Ms Sato contends that she was other than a casual employee, and where MAM seeks to set off a casual loading paid against leave entitlements found to exist. In this matter, the argument by MAM is that loading paid was expressly designated by cl 13.1.1 for payment for the entitlements cited. These included LSL. Notwithstanding this distinction, the broader discussion in Rossato is instructive.

[67] In Rossato White J examines the jurisprudence on 'set off' at some length. He summarises the principles as follows[18]:

For the purposes of the resolution of the present case, the authorities reviewed above may be taken to stand for the following propositions concerning the entitlement of an employer to set off in analogous circumstances:

(a) the issue may require the application of the parties' contract: Poletti v Ecob at 332. If they agree that a sum of money is paid and received for a specific purpose which is over and above or extraneous to an award entitlement, the contract precludes the employer from later seeking to rely on the payment as satisfying an award obligation which is outside the agreed purpose of the payment: ibid. If the payment was made for the purpose of satisfying the kind of award obligation sought to be satisfied, it may be brought into account as satisfaction or part satisfaction of that obligation. If it was paid for some other purpose, then the employer cannot bring the payment into account: Discount Lounge Centre at [23]. Stated more generally, an employer cannot later reallocate an amount agreed to be paid to an employee in respect of subject A (for example, ordinary hours of work) to meet a claim in respect of subject B (for example, overtime): Ray v Radano at 478‑9 (Sheldon J); Pacific Publications at 419; Discount Lounge Centre at [57]. The focus is on the purpose of the payment. If it arises out of the same purpose as the award obligation, it can be set off: ANZ v FSU at [48]‑[52]. I will refer to this as the "Contractual Principle";

(b) the issue may involve application of the common law principles concerning payment by a debtor to a creditor: Poletti v Ecob at 332‑3. When there are outstanding award or enterprise agreement entitlements, a payment designated by the employer as being for a purpose other than satisfaction of the award entitlement cannot be regarded as having satisfied the award or enterprise agreement: ibid. I will refer to this as the "Designation Principle";

(c) close regard must be had to the character of the payment on which the employer relies for the claimed set off and the purpose (usually, the agreed purpose) for which it was made; and

(d) the purpose for which a payment was made will be a question of fact in each case. It may be express or may be implied from the parties' agreement or from the employer's conduct: James Turner at [21(3)]. The "designation and appropriation" are matters to be determined by reference to the whole of the evidence: ANZ v FSU at [56].

As was noted in Poletti v Ecob, the Designation Principle is derived from the law of debtor and creditor. The common law principle assumes the existence of two or more liabilities, so that the debtor has a choice as to the debt which the payment will discharge or reduce. In Cory Brothers & Company Limited v The Owners of the Turkish Steamship "Mecca" [1897] UKLawRpAC 17; [1897] AC 286 at 293, Lord Macnaghten said:

When a debtor is making a payment to his creditor he may appropriate the money as he pleases, and the creditor must apply it accordingly. If the debtor does not make any appropriation at the time when he makes the payment the right of application devolves on the creditor.

In Moree Plains Shire Council v Goater [2016] FCAFC 135, the Full Court (Rares, Katzmann and Markovic JJ) elaborated aspects of the application of the principle:

[59] [A] mere intention to appropriate a payment that the debtor does not communicate to the creditor is not sufficient, and the creditor is free to apply the money, when received, as it chooses ... [T]he debtor's intention to appropriate a payment can be inferred from all of the circumstances, even though the debtor does not expressly state that intention at the time of making the payment ...

The Contractual and Designation Principles may not be an exhaustive statement of the circumstances in which set off may or may not be appropriate. The parties' contractual arrangement and the principles of estoppel may be applicable in some circumstances. It is possible that the principles may require some adaptation, at least in the manner of expression, in some circumstances, for example, when the payments are made in compliance (or purported compliance) with statutory or regulatory obligations and not pursuant to the parties' agreement.

The authorities have expressed the required connection between the purpose with which the payment was made and the award/enterprise agreement in question in various ways. Expressions such as "properly attributable" and "close correlation" have been used and, in Pacific Publications, the payment was described as "independent" of the award entitlement. In Transpetrol, Rares J suggested that these relationships could be determined flexibly.

None of the authorities, with the exception of Williams v MacMahon Mining (No. 2), have addressed the significance, if any, to be attached to the unlawfulness of the payments on which the employer relies for the claimed set off, when that unlawfulness is made apparent by an subsequent finding of the Court.

[68] In order to address MAM's submission, it is necessary to consider the features of the agreement between Ms Sato and MAM during the first period of employment i.e. the period of operation of the 2006 agreement. It is necessary in my view to consider whether the loading paid was 'properly attributable' to LSL entitlements.

[69] To identify what was agreed, the 2006 agreement must be read in conjunction with the contract of employment signed by Ms Sato at the commencement of her employment in March 2006.

[70] Clause 13.1 captures the agreement with respect to 'Base Hourly Rate'. It provides that the base hourly rate specified at cl. 39 of the 2006 agreement covers all of the following:

a casual loading paid in lieu of any entitlement to:
- - Paid annual leave;
- - Paid personal leave (including sick leave);
- - LSL;
- - Payment for notice of termination;
- - Payment for redundancy;
Expenses incurred in the course of duty:
- - Miscellaneous expenses;
- - Grooming allowance.
A payment in lieu of shift penalties.

[71] At cl. 39 of the 2006 agreement there is a table under the heading 'Wage and Additions Schedule'. The table sets out inter alia an hourly rate ranging from $27.03 to $28.68 applying variously between 1 March 2006 and 31 January 2008.

[72] There is no provision in the 2006 agreement that identifies a parent Award. Significantly, there is no provision that identifies the amount of the loading referred to or what (if any) portion of the loading is purported to be attributable to the entitlement to LSL. The amount of the loading, and the apportionment to the various entitlements covered is entirely indiscernible.

[73] In addition to the 2006 agreement, a casual employment contract ('the contract') was signed by Ms Sato on 16 May 2006 and is attached to the submissions filed by MAM on 16 July 2020[19]. The contract has an attached schedule which, at part D describes Ms Sato's salary as a 'Casual Hourly Rate of Pay' of $27.03.

[74] I note that there is no reference in the contract to any loading with respect to the Casual Hourly Rate of Pay, nor is there any suggestion in the contract that the Casual Hourly Rate of Pay is intended to cover not only wages, but also e.g. LSL.

[75] Neither the contract nor the schedule contains any reference to a parent Award or the 2006 agreement. While it is unclear whether Ms Sato was aware of the terms of cl 13.1.1 she was bound by all the terms of the 2006 agreement by virtue of cl 2(c).

[76] Notwithstanding that there purports to be a loading on the hourly rate, there is no point of reference in either the 2006 agreement or the contract that would allow identification of the amount of the loading. Both instruments are wholly uninformative on these matters, and the absence of precision reflects the somewhat nebulous nature of the bargain.

[77] For the reasons that follow, I consider that this absence of detail defeats MAM's submission that the debt to Ms Sato for LSL is satisfied by the loading.

[78] As I noted above, cl 13.1.1 purports to 'buy out' a lengthy list of statutory (and other) entitlements with the payment of a loading. Some of the entitlements named are routinely claimed during the course of employment e.g. annual or sick leave, while others identified in cl 13.1.1 are less routine, or may not even arise at all during an employee's employment e.g. severance entitlements for redundancy or LSL.

[79] It is clear from cl 13.1.1 that MAM was prepared to pay the loading regardless of whether the employees covered by the 2006 agreement were (or would become) entitled to all of the entitlements named.

[80] In my view, the loading paid pursuant to cl 13.1.1 is not designated as payment towards any specific entitlement. It is paid to compensate whatever contingency (or combination of contingencies) might arise with respect to each individual employee covered by the 2006 agreement, and only during the life of that agreement[20].

[81] In Williams v Macmahon Mining Services Pty[21] Lucev, FM was considering a set off argument in respect of the following clause in an employment contract that provided for a flat hourly rate of pay of $40 per hour:

The rate of pay is all inclusive and takes into account all responsibilities, disabilities, allowances...and includes payment for all hours necessary to undertake your rostered duties, and as a casual employee, a loading in lieu of paid leave entitlements. The rate includes compensation for any necessary shift, public holiday and weekend work.

[82] In this instance the Federal Magistrate was dealing with circumstances where an employee who had been paid as a casual was found to be other than a casual, and the set off exercise was in the context of the employer seeking to set off casual loading against leave entitlements. While a distinction can be made with that scenario from the exercise in this case, the reasoning with respect to consideration of the designation of the amounts paid is apposite.

[83] In the first instance, Lucev FM relevant held:

75.The evidence of Mr Williams discloses that he agreed to be paid a loading in lieu of paid leave entitlements, including annual leave. That is reinforced by the Contract of Employment. There is no doubt, on the evidence, that the employer intended that the loading to be paid would be paid in lieu of paid leave entitlements, including annual leave. Thus, the parties appear to have turned their minds as to whether or not the payment to be made to Mr Williams might include remuneration allocatable to annual leave. If not expressly, then certainly impliedly, the parties have allocated remuneration to cover annual leave entitlements, and which are capable, at least on their face, of being appropriated to the statutorily guaranteed entitlement to be paid accrued annual leave on termination. The arrangement appears to have been entered into for the purpose of discharging Macmahon Mining's obligations in respect of paid leave entitlements, including annual leave. Thus, there appear to have been monies which the employer has either impliedly or expressly appropriated to meet a particular incident of the employment relationship, namely annual leave, and which can now be used by way of set-off against any entitlement that Mr Williams has to be paid annual leave.

76.There will therefore be a declaration that Macmahon Mining is entitled to set-off any sum of money appropriated from the casual loading paid to Mr Williams in lieu of annual leave.

77.The Court notes that the casual loading does not specifically identify which leave entitlements it is being paid in lieu of, but by reason of the statutory guarantee of annual leave in s.232 of the WR Act, it must have been at least in lieu of that leave entitlement. That may give rise to a difficult issue of quantification in terms of the amount of money to be allocated out of the loading to the annual leave entitlement. That difficulty might well be compounded by the fact that the loading also includes compensation "for any necessary shift, public holiday and weekend work." In the circumstances, the evidence is not such as to allow the Court to determine what sum might be allocated as a set-off in lieu of the annual leave entitlement. For that reason there will be an order that the parties confer with respect to that issue. If it cannot be resolved, it may be that the Court will have to hear further submissions as to the amount of any set-off.

[84] The description by Lucev FM of the clause in Macmahon reveals many relevant similarities with cl 13.1.1. Further, even though the clause in Macmahon merely refers to the loading covering 'paid leave entitlements' the descent of cl 13.1.1 into more specific descriptions of leave fails to assist in clarifying how the loading is allocated to each of those categories of leave.

[85] Ultimately the parties in Macmahon were unable to provide any greater clarity as to the amounts allocated to, in that case, annual leave. Lucev FM consequently went on to find in Williams v Macmahon Mining Services Pty Ltd (No.2)[22] that:

87.... However, in the Court's view, the loading is not specifically a casual loading, and it does not identify particular paid leave entitlements which it is said to be in lieu of. Furthermore, it was not set at a specified amount. It is therefore not possible to accurately quantify the amount of the loading or the leave entitlements it was said to be in lieu of. The evidence therefore does not establish the essential building blocks for the claimed set-off.

88.In any event, Mr Williams now raises the argument that s.173 means that the term of the Flat Hourly Rate clause that provides that a loading is payable in lieu of paid leave entitlements is a term of no effect. The effect of s.173 was not a matter considered by the Court in Macmahon Mining Services (No.1). The Court accepts that s.173 has the effect of making the provision purporting to pay a loading in lieu of annual leave entitlements to be of no effect. A similar conclusion must follow insofar as the loading purports to be in lieu of sick leave entitlements.

89.Mr Williams is also correct in noting that a casual loading is compensation for the loss of a basket of amenities and entitlements, not limited to leave, but including, for example, termination and redundancy benefits. In those circumstances, Macmahon Mining cannot allocate the notional 20% casual loading solely against annual leave, sick leave and public holidays. Proper allocation of any casual loading would require consideration of the wider basket of amenities and entitlements suggested by Mr Williams. And the difficulty with that course is that the evidence simply does not establish any basis on which those entitlements can be allocated in a specific way against specified quantums so as to allow the proper calculation of any set-off.

90.In all the circumstances, the set-off claim must fail.

[86] The parties in Macmahon cross-appealed to the Federal Court[23]. In considering the findings with respect to the set off argument, Barker, J went on to conclude:

67.In any event, as the Federal Magistrate found, the Contract does not attempt to make any particular allocation between different types of leave, which it contends have been provided for in advance. It simply asserts the hourly rate is inclusive. In doing so it simply purports to justify the payment of a more generous hourly rate by asserting it is inclusive of any of the nominated benefits. This is a plain attempt to contract out of the payment of those benefits without regard to whether or not they are actually payable at the time of payment of the hourly rate.

[87] I note that Barker, J was ultimately more attracted to Mr Macmahon's arguments relying on s 173 of the WR Act that emerged late in the set off dispute. I note that s 173 of the WR Act has no application in this matter. However, Barker J was in no way dismissive of the findings of Lucev FM with respect to the lack of specific or clear allocation of the loading to the nominated entitlements.

[88] In my view, MAM is confronted by the same quantification difficulties identified by Lucev FM in the passage sited above. While I accept the distinction made by MAM i.e. that this is not a case of an employer seeking to set off one debt against another, and while I accept that cl 13.1.1 has at least identified that LSL entitlements were intended to be compensated by the loading, there are simply none of the basic elements available to even begin a reliable set off calculation.

[89] It follows that I reject the submission that Ms Sato's claim for LSL was satisfied by the loading paid pursuant to cl 13.1.1.

[90] The final submission of MAM is that I ought to exercise a discretion under s 475 of the current IR Act and refuse Ms Sato's application on the basis that she has had the benefit of the loading. It is said that if her claim was granted that she would be 'double-dipping'.

[91] I agree that s 475 provides me with such a discretion. For all of the above reasons I am not inclined to exercise my discretion to refuse payment to Ms Sato.

[92] Given the entirely indiscernible amount of the loading paid to Ms Sato, and the broad range of entitlements and other matters it was said to cover, I am completely unable to be satisfied as to what (if any) benefit she has enjoyed from the loading, or to what it was attributed.

[93] Given my findings above, it is not necessary for me to deal at length with submissions made on behalf of Ms Sato.

[94] As an aside, I note that no submission was made by Ms Sato as to the validity of cl 13.1.1 generally. I have, throughout my consideration of this matter, had a sense of unease about the validity of cl 13.1.1. Given that the IR Act was in operation at the time of certification of the 2006 agreement and given the provisions of s 43(6) of that Act, I have felt (perhaps merely intuitively) that cl 13.1.1 would struggle to pass a 'no disadvantage' test required for certification.

[95] However, I have not been taken to any of the history of the clause or the circumstances that were presented to the Australian Industrial Relations Commission ('AIRC') when the 2006 agreement was certified. I know nothing of the submissions that were made or how the AIRC was convinced to certify the 2006 Agreement. In the absence of such evidence it is not open for me to speculate.

[96] Further, I note that Ms Sato makes reference to the impact of s 27(2)(g) of the Fair Work Act 2009 giving paramount operation of the IR Act LSL provisions. Notwithstanding that this provision commenced operation in July 2009, Ms Sato would appear to be satisfied that there were transitional provisions protecting the operation of the 2006 agreement until it was replaced[24].

[97] Apart from the submissions challenging its effect on LSL entitlements, no challenge has been made by Ms Sato to the proposition that the 2006 agreement was validly operating in relation to her employment until its replacement in October 2010. In the circumstances I do not consider it necessary to consider the issue further.

[98] For all of the foregoing reasons I am satisfied that Ms Sato had an entitlement to LSL upon her completion of 10 years continuous service with MAM. It is uncontroversial that Ms Sato's entitlement crystallised in March 2016.

[99] Further, MAM makes no challenge to the calculations of the entitlement contained in Ms Sato's application and in her submissions and as such I accept those calculations.

[100] In all of the circumstances I am prepared to order payment to Ms Sato in accordance with her statutory entitlement.

The application for payment of Long Service Leave is granted.

The respondent must pay Ms Kaori Sato the amount of $8253.55 (less applicable taxation) within 14 days of the date of this Order.

[1] Exhibit 'KS2' to the Applicant's submissions filed 18 June 2020.

[2] Exhibit 'KS3' to the Applicant's submissions filed 18 June 2020.

[3] The proceedings initially named the FAAA as the applicant but leave was granted to amend the Application on 7 May 2020.

[4] MAM submissions filed 16 July 2020 at paragraph 8.

[6] See for example AMWU v Berri Pty Ltd [2017] FWCFB 3005 at [114].

[8] See also the decision of Hartigan IC in Livermore v Coles Supermarkets Pty Ltd [2019] QIRC 165 at [17]- [20].

[9] Save for exceptions contained in s 43(4) of the IR Act.

[11] I note that cl 13.1.1 is replicated in the 2010 agreement though, no doubt due to the operation of the Fair Work Act 2009 MAM correctly concedes that service during the life of that agreement is recognised for the purpose of calculating LSL.

[13] See paragraph 25 of the submissions of MAM filed 16 July 2020.

At a glance

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Judgment (213 paragraphs)

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Legislation Cited (7)

Cases Cited (1)