Sutton v BearingPoint Australia Pty Ltd

LEGISLATION CITED: Industrial Relations Act 1996 s106, s108A

Bartolacci v Permanent Custodian (1992) 44 IR 388 CASES CITED: Lozevski v Goodman Fielder Consumer Foods Pty Ltd (2004) 144 IR 28 Shankland v Beta Alistine Pty Ltd [2007] NSWIRComm 111 Virtue v NSW Department of Education and Training (1999) 92 IR 428

HEARING DATES: 26 October 2007, 22 August 2008

APPLICANT Mr A Moses of counsel Solicitor Ms M Crawford Holding Redlich LEGAL REPRESENTATIVES: RESPONDENT Mr P Newall of counsel Solicitor Ms F Inverarity Truman Hoyle Lawyers

Application under s 106 of the Industrial Relations Act 1996

1 These are proceedings brought by the applicant, Mary Sutton, against the respondent, BearingPoint Australia Pty Ltd, under s 106 of the Industrial Relations Act 1996 ("the Act"). They are constituted by an amended summons. The respondent has sought by motion to have the proceedings struck out because they are precluded from having been instituted by s 108A of the Act. 2 S 108A is in the following terms 108A Employment contracts in respect of which applications cannot be made (1) An application cannot be made for an order under this Division if the application relates to a contract of employment under which: (a) a remuneration package that exceeds the remuneration cap is paid or received (or is payable or receivable) during the period of 12 months immediately before the application is made (or, if the application concerned relates to a contract that has been terminated, immediately before the termination), or (b) a remuneration package is paid or received (or is payable or receivable) during a period of less than 12 months immediately before the application is made (or, if the application concerned relates to a contract that has been terminated, immediately before the termination) that would, if the remuneration package had been paid or received (or been payable or receivable) for a period of 12 months, have exceeded the remuneration cap. (2) An application cannot be made for an order under this Division by a person who is a partner carrying on a business if: (a) the application relates to a contract between that partner and the other persons carrying on that business in partnership, and (b) the share of the net profits, or payments contingent on the net profits, of the business that are paid to or received by (or payable to or receivable by) the applicant during the period of 12 months immediately before the application is made (or, if the application relates to a contract that has been terminated, immediately before the termination) exceed: (i) $200,000, or (ii) if an amount is prescribed for the purposes of paragraph (b) of the definition of "remuneration cap" in subsection (3) - that amount. (3) In this section: "contract of employment" means any contract or arrangement under which work is done by a person in the capacity of an employee, and includes a related condition or collateral arrangement with respect to such a contract. "employment benefit" means a benefit provided to an employee at the cost of his or her employer (being a benefit of a private nature) and, without limitation, includes: (a) contributions payable to a superannuation scheme by an employer in respect of the employee, including any liability of that employer to make any such contributions or to pay costs associated with that scheme, or (b) the provision by an employer of a motor vehicle for private use by the employee, or (c) any other benefit prescribed by the regulations for the purposes of this definition. "monetary remuneration" includes any performance-related bonus or incentive payment. "remuneration cap" means: (a) $200,000, except as provided by paragraph (b), or (b) any greater amount prescribed by the regulations (being a regulation that increases the amount by reference to increases in the amount referred to in section 83 (1) (b)). "remuneration package" means the total value of monetary remuneration and employment benefits payable or receivable under a contract of employment. 3 The amended summons seeks to have a finding of unfairness and consequential relief made with respect to "…the contract or arrangement between the Applicant and the Respondent whereby the Applicant performed work in the taxation consultancy industry for the Respondent." 4 I shall take the summary of matters of fact and law set out in the summons at its highest in favour of the applicant for the purpose of considering this interlocutory application. The summons asserts that in about July 2004 an arrangement was made between the applicant personally and the respondent whereby she performed certain services for the respondent. Payment for those services was made through invoices submitted by Roland Jackson Group ("RJ") through Link Recruitment. The applicant was an employee of RJ. RJ was a family company of which the sole director and shareholder was the applicant's partner. 5 Subsequently, there were discussions between the applicant and representatives of the respondent about whether she would become a "permanent" full time employee of the respondent. Those discussions did not culminate in any employment contract. In about July 2005, the arrangement whereby the applicant performed work for the respondent was varied in that Link Recruitment ceased to be involved. Thereafter, the applicant continued to perform work for and at the direction of the respondent and tax invoices were submitted to the respondent by RJ at the rate of $950 per day. The respondent paid those tax invoices direct to RJ. RJ paid certain monies to the applicant as an employee of that company. 6 These strike out proceedings have been conducted on the basis that the respondent paid to RJ remuneration that exceeded the remuneration cap contained within s 108A, namely $200,000 on an annualised basis. However, the applicant received about $170,000 per annum from RJ. The respondent's submissions

7 The respondent's principal submission was, to quote from [22] of Mr Newall's written submissions, "On the Applicant's pleadings and affidavit material the remuneration paid or payable under the contract sought to be impugned , that is, the contract between the family company Roland Jackson Group and the Respondent, exceeded $200,000 in the twelve months before the contract was terminated." 8 This submission is plainly incorrect by reference to the claim made in the amended summons. What is sought to be declared unfair and thereby impugned in the proceedings is, as I have previously set out, "…the contract or arrangement between the Applicant and the Respondent whereby the Applicant performed work…" The amended summons is predicated on the basis that there was in existence a contract or arrangement between the applicant personally and representatives of the respondent directly pursuant to which RJ would become a contractor to the respondent and submit invoices for payment to the respondent for making the applicant available to perform work personally for the respondent. It is that contract or arrangement, presumably postulated in the alternative, that is sought to be impugned. As I understand the basis for the proceedings as contained within the amended summons, there is no suggestion that any remuneration was paid or payable by the respondent directly to the applicant. 9 I understood that Mr Newall conceded this in the course of his submissions. The following exchange took place with Mr Newall as recorded in the transcript. "HIS HONOUR: So if we go back to the point that you were just making, you said the only contract which was attacked was between RJ Group and the respondent and I just do not read and cannot read the summons in that way.

NEWALL: Let me try and deal with that, your Honour, as best one can. Whilst A(1) of the summons seeks an order declaring void or otherwise altering what is said to be a contract or arrangement between the applicant and the respondent, it seems clear that the contract between the applicant and her employer the Roland Jackson Group is not sought to be impugned. The only contract to which my client is a party at all is a contract which it had with the Roland Jackson Group by which the applicant's services were engaged to perform work in our premises.

HIS HONOUR: That is asserted by the respondent, but it is not asserted by the applicant.

NEWALL: Well, there is only one contract to which we are a party and it is that one it seems to us. Can I put it this way, your Honour. There are only two contracts in existence within the compass of the facts here. One is a contract between my client and Roland Jackson Group. The other peripherally is a contract between the Roland Jackson Group and Ms Sutton. She says it employed and paid her some money. Well and good. That contract is not in the frame.

HIS HONOUR: But that is what you say or assert, but that is not what the summons says, so the cause of action is based on an allegation of the existence of either a contract or arrangement between the applicant and the respondent.

NEWALL: We perceive it in this way what your Honour, I mean, if your Honour is right, of course, and Ms Sutton simply hasn't anything to do with a contract involving my client, noting that Roland Jackson Group are not a party to these proceedings, that is a decision obviously taken by Ms Sutton's representatives, not her present representatives, but her former representatives at some point - noting that the whole thing would fall over, we apprehend that it would be said against us, oh well, the contract which existed between Roland Jackson Group and BearingPoint was an arrangement, that is to say, within the meaning of the Act a collateral or related condition or arrangement to the contract under which work was performed. We apprehend that is going to be the argument. If that argument fails, of course, then the thing necessarily goes away, but might I say I am not sure we have any ability to bring an interlocutory challenge on that basis, perhaps that doesn't matter, but we apprehend that it must be said and it can only be said for there to be any proceedings brought at all that the contract between Roland Jackson and my client is a related condition or collateral arrangement to the contract of employment between the applicant and the family company.

We say that must be so because, although the summons, as your Honour has pointed out, with respect, pleads there was a contract between the applicant and the respondent, or contract or arrangement, it has been altered to say, perhaps relevantly, the respondent can't be a party to a complaint about a contract between the family company and the respondent per se, so if there is anything within the meaning of section 105 that catches us it can only be in relation to a collateral contract to the contract between the family company and the respondent. It can only be a related or collateral contract to the contract between the family company and the applicant. Otherwise we are just not caught.

But I apprehend it will be said that we are for the reason that our arrangement with the family company is a related or collateral one. I am happy to be wrong about that, frankly, but I have to proceed on the basis that is what is being asserted, particularly when I see the amended summons in the words in which it now appears. And, indeed, it follows that the applicant has to agree that the contract between the family company has to argue that the contract with my client was a related or collateral contract to the employment contract otherwise she hasn't got any ability to challenge anything before the court or what is before the court is not challenged. That is my attempt to answer your Honour's point, to deal with the proposition your Honour has raised with me. 10 It is clear from the provisions of s 108A which I have previously set out that the remuneration cap only applies where the proceedings "relate to" a contract of employment which makes provision for remuneration exceeding the cap. 11 As the applicant submitted, taken at its highest in favour of the applicant, the amended summons is directed to a contract or arrangement which was not itself a contract of employment but which anticipated that a contract of employment would exist between the applicant and RJ. 12 Having asserted on an alternative basis that the contract between RJ and the respondent was a related or collateral contract to the employment contract between the applicant and RJ, Mr Newall said there was no relationship between the applicant and the respondent as alleged in the summons. Again, this fails to address the assertion made in the amended summons and is not helpful in dealing with the applicant's case. As I have said, these interlocutory proceedings must be conducted on the basis that the assertion made by the applicant in the amended summons can be taken at its highest in favour of the applicant. 13 In the course of Mr Newall's submissions, I enquired of him how I could determine for the purpose of these interlocutory proceedings whether one contract was a related condition to a contract or arrangement or was a collateral arrangement without having heard some evidence about these matters. I understand Mr Newall to have submitted that the contract or arrangement sought to be impugned did fall within s 108A(3), but that he conceded that there was no evidentiary basis for such an assertion. 14 In my opinion, a determination as to whether something is a collateral arrangement or a related condition involves a determination of law arrived at by reference to a factual basis. Whilst I have not been able to find any authoritative judicial pronouncement on what may be a "related condition" (and perhaps it is a concept which is so simple that none is required), there is some discussion on what constitutes a "collateral arrangement". I refer in particular to the discussion by Hungerford J in Bartolacci v Permanent Custodian (1992) 44 IR 388. His Honour said at 398, "The phrase 'collateral arrangement' requires consideration in terms of the meaning of the two words which comprise it. 'Collateral' in its commonly accepted meaning, according to The Concise Oxford Dictionary 6th ed, 1976, means a 'side by side, parallel; subordinate but from same source; contributory, connected but aside from main subject, course, etc'. The proposition that somehow a collateral arrangement could relevantly be within the section as sitting side-by-side with or parallel to, but not related to, a contract or arrangement under which work is performed in an industry does not sit comfortably with what the word 'collateral' ordinarily means. It seems to me that to be collateral to something there must be some necessary connection with or necessary relation to the primary thing, that is, subordinate to but from the same source, and even though that which is collateral may be separate or aside from the main subject. In other words, in the context of s 275, unless there be some necessary connection or relationship between the collateral arrangement and the primary contract or arrangement under which work is performed, then, in my view, there would be no relevant function for 'collateral arrangement' to perform in the context of s 275 which is essentially concerned with what might be called in a shorthand way 'work contracts or arrangements'." (Original emphasis). 15 The discussion by Hungerford J must throw some doubt upon whether there is a necessary correlation of collateral arrangements so that if something is collateral to something else, the latter is necessarily collateral to the former. Concepts of primacy and subordination would appear to indicate to the contrary. In order to be persuaded for the purpose of these interlocutory proceedings that s 108A(3) must apply in accordance with its terms, I would need to be satisfied that the contract or arrangement between the applicant and the respondent was an arrangement collateral to the contract of employment between the applicant and RJ. (I repeat, Mr Newall did not make any such submission). It may be arguable that the reverse applies namely that that contract of employment was collateral to the primary contract or arrangement between the applicant and the respondent. (This consideration does not deal with a related issue, namely whether or not a contract that is argued by the applicant to exist in the alternative, can constitute a collateral arrangement for the purpose of s 108A(3).) In the same way whether something is related or not may also involve a question of fact. (Arguably, concepts of relationships do not necessarily involve circumstances of primacy and subordination). 16 It is notorious that interlocutory strike out applications should not be dealt with until an appropriate time in the proceedings, namely when any factual material which is necessary for the determination of the preliminary point is available to the Court. (See, for example, Virtue v NSW Department of Education and Training (1999) 92 IR 428). It is obvious from what I have said that a determination as to whether the contract or arrangement which is sought to be impugned in these proceedings comes within s 108A(3) can only be made after a factual enquiry has been undertaken. Mr Newall did not seek to argue that the Court currently had before it sufficient evidentiary material upon which to make such a determination. Accordingly, this strike out application must fail. 17 For completeness, I refer also to a submission made by Mr Moses, counsel for the applicant, in resisting the strike out application. Mr Moses emphasised that s 108A is framed by reference to a remuneration package which is payable or receivable by an individual, being the person who performs the work. That is, arguably, the definition of remuneration package by reference to monetary remuneration and employment benefits payable or receivable must direct attention to what is payable to or receivable by the individual rather than what is paid to or receivable by a contracting corporate entity. In so submitting, Mr Moses relied upon my analysis of s 108A in Shankland v Beta Alistine Pty Ltd [2007] NSWIRComm 111. At [13] I said, "There are a number of indicia that, in my opinion, lead in the aggregate to a construction of s 108A and in particular the definition of employment benefit which result in a conclusion contrary to that contended for by the respondents. They are as follows: 1) There is a reference in s 108A(1)(a) and (b) to a remuneration package which is paid or received, or payable or receivable. This must be a reference to that which is paid or payable to, or received or receivable, by or on behalf of the applicant. 2) The definition of "remuneration package" refers to the aggregation of the "value" of monetary remuneration and employment benefits. The reference to "value" is more indicative, in my opinion, of a value to the employee. It would be odd and almost nonsensical to refer to a value of something to the employer. In the same vein, "value" should be contrasted with "cost". The definition of "remuneration package" involves assessing in monetary terms the value to the employee of the benefits that are payable to or receivable by him or her pursuant to the contract of employment. 3) Indeed, there is a reference to "cost" within the definition of employment benefit itself. This is not intended, in my opinion, to refer to the quantification of the cost but is more indicative that the benefit is payable by the employer to the employee's account and as an expense of the employer. 4) In terms of the provision of a motor vehicle, the definition of employment benefit directs attention to the resultant benefit to the employee. 5) FBT is a tax on the value of certain benefits, referred to as "fringe benefits" that are provided, in general terms, by employers to employees or to associates of employees, associated with the employment relationship. The tax is payable by an employer who provides the fringe benefit. The manner in which the tax is calculated and the circumstances in which it applies to the provision of a motor vehicle is a matter of some complexity to be determined by the relevant statute and rulings issued from time to time by the Commissioner of Taxation. Hopefully, these brief observations, which are all that it is necessary to make to determine these proceedings, are non-controversial. 6) Although Clause 7. of the applicant's contract of employment compels the employer to pay FBT, this contractual compulsion is also reflective of the compulsion to pay FBT provided by the relevant taxation legislation. The mere fact that an employer is liable to pay FBT on the provision of a motor vehicle to an employee whether by statute or contractual obligation is not determinative, in my opinion, as to whether or not the liability to pay FBT is an employment benefit for the purpose of s 108A(3). 7) FBT is, as I have said, a tax payable by an employer for the provision of certain benefits to employees. Whilst there is a cost to the employer, by reason of the payment of FBT, that tax cannot constitute a benefit provided to an employee for the purpose of the definition of employment benefit in s 108A(3). The emphasis, as I have said, is directed to the assessment of the value of the benefit in the hands of the employee. Clearly, the acquisition or leasing costs of a vehicle, as well as the cost of registration, insurance, repairs, maintenance and running costs and the like, would all fall within the rubric of a value to the employee, because these are costs which he or she would have to bear personally if it were not for the provision of a motor vehicle for private use by the employer. It matters not that an employee providing his or her own vehicle might acquire one of a lesser value, because the applicant has clearly contracted to have included within his remuneration package a motor vehicle of a make, model and recommended retail price determined by, and selected by, him. FBT falls outside this concept. 8) The obligation of an employer to pay FBT on a fringe benefit made available to an employee may be contrasted with the tax payable on salary and other remuneration and which is deducted by an employer from monies received by an employee. This tax, deducted under the PAYG scheme, is tax which is payable by the employee as income tax and which is compulsorily collected for the Australian Taxation Office by employers. That tax clearly is to be taken into account when determining the amount of remuneration payable by an employer to an employee for the purpose of s 108A." 18 There is also a detailed consideration of the provisions of s 108A within the judgment of Haylen J in Lozevski v Goodman Fielder Consumer Foods Pty Ltd (2004) 144 IR 28 commencing at [50]. 19 In light of these authorities, I agree with the submission of Mr Moses that s 108A cannot apply to the totality of the monies and any other benefits paid by the respondent to RJ on an annualised basis, assuming that that contract or arrangement falls within s 108A(3). 20 For these reasons the strike out application fails and the motion is dismissed. 21 The parties agreed that in all the circumstances of the proceedings, costs should be reserved, and I accede to this submission. Orders

22 I make the following orders. 1. The respondent's strike out motion is dismissed. 2. Costs are reserved with liberty to apply.

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