The operation of the letter agreement
92 As I have detailed above, the letter agreement designated the applicant's employment as casual employment, however under the Award the applicant could not be engaged as a casual employee. Clauses 3.1 to 3.4 of the letter agreement provided for the applicant's rate of pay, which was expressed to include a casual loading and a further loading. Those clauses should be construed together, and with the other terms of the agreement, against necessary background context which includes the Award.
93 The primary terms of the letter agreement sought to exclude statutory entitlements to annual leave, other forms of paid leave to which the applicant was entitled under the National Employment Standards and the Award, and monies payable upon termination, such as pay in lieu of notice, redundancy pay, and severance pay. So much is clear from clause 3.3, the first sentence of clause 3.4, and clauses 6.1, 6.3, 7.1, and 7.2. However, as the Tribunal correctly held at [42], these provisions of the letter agreement were ineffective to exclude the statutory entitlements. That conclusion does not depend upon characterising the provisions of the letter agreement as being void for illegality, or as being contrary to public policy. Rather, the National Employment Standards and the Award have independent statutory force, non-compliance with which rendered the employer liable to a penalty. The terms of the letter agreement were not capable as a matter of law of modifying the employer's statutory obligations. That is because of the hierarchy of terms and conditions of employment referred to in WorkPac v Skene cited at [13] above, which has the National Employment Standards at the apex, beneath which are the terms of the Award, and then the contractual terms. To emphasise and elaborate on what I said at [9] above, contractual terms of employment may provide for additional benefits, but cannot be effective to derogate from the statute and the benefits that it confers, whether under the National Employment Standards, or under the Award: Fair Work Act, ss 44(1), 45, 61(1); Byrne v Australian Airlines Ltd [1995] HCA 24; 185 CLR 410 at 420-1 (Brennan CJ, Dawson and Toohey JJ), citing Josephson v Walker [1914] HCA 68; 18 CLR 691 at 700 (Isaacs J) and Kilminster v Sun Newspapers Ltd [1931] HCA 37; 46 CLR 284. See also, WorkPac v Rossato at [956]. The absence in the Fair Work Act of a provision that directly corresponds to s 173 of the Workplace Relations Act (see [49] above) is immaterial to this outcome. The combined operation of s 44(1) and s 45 of the Fair Work Act has the necessary consequence that no term of a contract of employment can be effective to exclude the statutory requirements for compliance with the National Employment Standards and a modern award.
94 The decision of Gray J in Jeld-Wen Glass, on which the applicant relied, illustrates the potential interaction between the National Employment Standards and instruments governing the employment relationship that are lower in the hierarchy. In Jeld-Wen Glass, at the time of the commencement of the Fair Work Act on 1 January 2010 there remained in operation a statutory individual employment agreement which provided specifically for an employee to receive an extra 1.5 hours of pay each week which was in lieu of any entitlement to any payment for 10 days of sick leave to which the employee was entitled. Gray J held that the effect of the relevant clause of the agreement was to provide that paid personal/carer's leave was to be cashed out. His Honour held that the provision was therefore unenforceable pursuant to s 61(1) of the Fair Work Act. This had the consequence that the employee had no entitlement to receive any monetary payment in substitution for personal/carer's leave, and the employer had no obligation to cash it out. However, his Honour held there had been no contravention of the National Employment Standards by the employer because the employee had not availed himself of any entitlement to personal/carer's leave, and therefore no occasion had arisen for the employer to make any payment.
95 In the present case, the employer's agreement to pay wages at the hourly rate specified in the letter agreement was ineffective to discharge its statutory liability to give the applicant any form of paid leave, such as annual leave and personal/carer's leave. The reasons for this conclusion include the nature of the leave entitlement, which is a composite entitlement to take leave as permitted by and in accordance with the National Employment Standards, and to be paid while on leave in accordance with s 323 of the Fair Work Act: see, WorkPac v Rossato at [226]-[228] (Bromberg J), [916] (White J), and [1012] (Wheelahan J). The purpose is augmented by the prohibitions on cashing out in s 92 and s 100 of the Fair Work Act. In WorkPac v Skene at [125] the Full Court referred to [378] of the explanatory memorandum to the Fair Work Bill 2008 (Cth), where the limitations on cashing out were said to be in "recognition of the importance of employees taking leave for the purposes of rest and recreation". In addition, the payment of wages at the hourly rate which was said by the letter agreement to incorporate loadings was not referrable to any leave actually taken, or accrued, or to any of the other benefits referred to that had actually accrued. Rather, clause 3.3 of the letter agreement provided that the payment of a casual loading of 25% was to compensate the applicant for benefits which the letter agreement purported to exclude. Thus, it was the absence of the benefits to which the loading was referrable and for which it purported to compensate: TransAdelaide v Leddy (No 2) (1998) 82 IR 391; WorkPac v Rossato at [917], [1020]. I do not accept the submission of the respondent that the present case is distinguishable from WorkPac v Rossato on the ground that the contracts in WorkPac v Rossato expressly provided for the payment of a loading "in lieu" of statutory entitlements. Although the letter agreement does not state expressly that the loadings were "in lieu" of statutory entitlements, that is the substance of clauses 3.1 to 3.3, 6.3, and 7.1 of the agreement. I shall return to consider clause 3.4.
96 As I noted earlier, the applicant relied on Equuscorp, and in combination with features of the Fair Work Act such as the prohibition on cashing out paid leave and the inability to have casual employment under the terms of the Award, submitted that the letter agreement was void for illegality, or void as being against public policy. Equuscorp concerned a claim for restitution. There were loan agreements that were entered into as part of an investment scheme in respect of which the promoter had failed to register a prospectus. This failure constituted an offence under s 170 of the applicable Companies Code, for which penalties of $20,000 or imprisonment for five years or both were prescribed. At [23], French CJ, Crennan and Kiefel JJ, citing Miller v Miller [2011] HCA 9; 242 CLR 446, identified three circumstances in which an agreement might be unenforceable on the ground of statutory illegality -
(1) the making of the agreement or the doing of an act essential to its formation is expressly prohibited absolutely or conditionally by the statute;
(2) the making of the agreement is impliedly prohibited by statute. A particular case of an implied prohibition arises where the agreement is to do an act the doing of which is prohibited by the statute;
(3) where the agreement is not expressly or impliedly prohibited by a statute but is treated by the courts as unenforceable because it is a "contract associated with or in the furtherance of illegal purposes", citing Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd [1978] HCA 42; 139 CLR 410 at 432 per Jacobs J, and Nelson v Nelson [1995] HCA 25; 184 CLR 538 at 552 per Deane and Gummow JJ.
97 In relation to the third category of case, at [23] their Honours explained, citing Miller v Miller, that -
[T]he court acts to uphold the policy of the law, which may make the agreement unenforceable. That policy does not impose the sanction of unenforceability on every agreement associated with or made in furtherance of illegal purposes. The court must discern from the scope and purpose of the relevant statute 'whether the legislative purpose will be fulfilled without regarding the contract or the trust as void and unenforceable'.
98 In Gnych v Polish Club Ltd [2015] HCA 23; 255 CLR 414 at [60], Gageler J referred to the tripartite classification in Equuscorp as being useful, but stated that "it is not a comprehensive description of agreements unenforceable for statutory illegality. To shoehorn a given agreement into one of its categories is to adopt an incomplete mode of analysis".
99 The applicant relied on the second and third categories of case referred to in Equuscorp as being applicable to the letter agreement. The applicant submitted that the letter agreement contravened the Award because it purported to provide for casual employment, which was not permitted under the Award in the case of the applicant. The applicant also submitted that for the purposes of the reduction of the basic amounts under s 19(2) of the FEG Act, an amount cannot be attributable to an entitlement if it was paid under an inoperative provision. It was submitted that it followed that in reducing the basic amounts by reference to the casual loading, the Tribunal had indirectly enforced the provisions of the letter agreement relating to casual employment that were in contravention of the Fair Work Act.
100 In Equuscorp, the loan agreements were held to be unenforceable, and the loan monies were held to be irrecoverable by way of restitution. French CJ, Crennan and Kiefel JJ held at [45] that the case before them was "a clear case in which the coherence of the law, and the avoidance of stultification of the statutory purpose by the common law, lead to the conclusion that [the lender] did not have a right to claim recovery of money advanced under the loan agreements as money had and received". Gummow and Bell JJ held at [111] that to permit recovery on the actions for money had and received would stultify the statutory policy evident in the relevant provisions of the Companies Code.
101 In any analysis of whether terms of a contract are unenforceable on the ground of illegality, or inconsistency with statute, it is necessary to identify the terms of the obligation, and the public policy or statutory provision or purpose with which it is alleged to collide, rather than fastening upon labelling the contract as void, or illegal as the first step. In Equuscorp, Gummow and Bell JJ at [94] referred with approval to the following passage from the reasons for judgment of Windeyer J (dissenting) in Brooks v Burns Philp Trustee Co Ltd [1969] HCA 4; 121 CLR 432 at 458, which was also cited with approval in Hollis v Vabu Pty Ltd [2001] HCA 44; 207 CLR 21 at [37], in which Windeyer J cautioned against commencing with a label as a conclusion -
The words used do not matter if the actual legal result they are used to express be not in doubt or debate. But it has always seemed to me likely to lead to error, in matters such as this, to adopt first one of the familiar legal adjectives - "illegal", "void", "unenforceable", "ineffectual", "nugatory" - and then having given an act a label, to deduce from that its results in law. That is to invert the order of inquiry, and by so doing to beg the question, and allow linguistics to determine legal rights. That need not happen if words be used, as Hobbes said that by wise men they should be, only as counters to reckon with; but reckoning becomes difficult if the values of counters are not constant.
102 In the present case, the letter agreement was not directed to any immoral or illegal object such that the agreement as a whole should be sterilised under general law principles on the grounds of public policy. As to inconsistency with statute, in Gnych v Polish Club Ltd at [36], French CJ, Kiefel, Keane and Nettle JJ stated that "the consequence of illegality is a matter of statutory construction whatever category of illegality is involved". I discern no implied legislative purpose in the Fair Work Act to invalidate the legal relationship of employment and all the contractual terms of employment because some of the terms do not mirror the statutory obligations under the Act. For this reason, I do not accept the applicant's case in the precise terms raised by ground 9(i) of the notice of appeal that the applicant's contract of employment was "void and/or inoperative" insofar as it provided for employment to be on a casual basis. Rather, the Fair Work Act, and in particular s 44(1) and s 45, deny operation to those terms of the letter agreement that would displace the employer's statutory obligations. Otherwise, the letter agreement, despite purporting to exclude many statutory entitlements, remained effective to create an employment relationship, and to supply some terms of the employment agreement, such as the applicant's agreement in clause 2.3 honestly and faithfully to serve the employer, and the applicant's obligations of confidence in clauses 10.1 to 10.3. The employer's promise to pay wages at the agreed rate was enforceable by the applicant as a contractual obligation that was concurrent with the employer's superior statutory obligations to pay various allowances in addition to wages, and to give the applicant paid leave. The superincumbent nature of the employer's statutory obligations had the consequence that the letter agreement was simply ineffective to displace the statutory obligations: cf, Gnych v Polish Club Ltd at [65] (Gageler J). That is the substance of ground 9(ii) of the applicant's notice of appeal. As Jeld-Wen Glass illustrates, the contravention of the statute may lie not in the making of the employment agreement, but in the employer's failure to comply with its statutory obligations to comply with the National Employment Standards and the Award, as and when the occasion for compliance arises.
103 In the case of cashing out annual leave and personal/carer's leave, the prohibitions on cashing out are found in s 92 and s 100 of the Fair Work Act, which I have set out under [16] and [19] above. Those sections are within Divisions 6 and 7 respectively of Part 2-2 of the Fair Work Act, and form part of the National Employment Standards: s 61(3). A contravention of those standards is proscribed by s 44(1), which is a civil remedy provision in respect of which a contravener is liable to a penalty: s 539(2), Item 1.
104 As to what constitutes cashing out, this was considered by Gray J in Jeld-Wen Glass. His Honour held at [18], in the context of s 100 of the Fair Work Act, that there was nothing to indicate that the phrases "cashed out" and "cashing out" have anything other than their ordinary meaning, which in that case corresponded with the dictionary meaning "to take in monetary form". His Honour stated that s 100 provides that paid personal/carer's leave must not be taken in monetary form, as distinct from in the form of leave, otherwise than in accordance with terms included in a compliant modern award or enterprise agreement. At [20], Gray J rejected an argument that the prohibition on cashing out applied only to entitlements that had accrued, and held that the prohibition applied equally to entitlements that had yet to accrue, stating, "[t]he mere fact that money was paid in advance would not render the payment any less a payment in substitution for the entitlement than if the payment were made after the entitlement had accrued". In my view, Gray J's reasoning in relation to s 100 applies equally to s 92 and the cashing out of annual leave.
105 Returning to s 19(2) of the FEG Act, as McDougall J remarked in Centennial Mandalong v Delta Electricity [2013] NSWSC 1505 at [69], the answer to the question whether one thing is attributable to another must depend on the reason for which the question is asked. In this case, the reason the question is asked is in order to give effect to the terms and purposes of the FEG Act, the main objects of which include for the Commonwealth to pay advances "on account of unpaid employment entitlements of former employees of employers in cases where the employers are insolvent or bankrupt": s 3(a). In this case a question arises as to whether upon termination of the applicant's employment the employer could have relied on the payments of wages made to the applicant, and upon clauses 3.1 to 3.4 of the letter agreement, to establish that it had discharged its statutory obligation to pay the relevant entitlements to the applicant, namely monies due upon termination on account of annual leave owed under clause 25.7 of the Award and s 90(2) of the Fair Work Act, and severance pay owed under clause 14.3 of the Award. That question needs to be asked because it informs the answer to the question raised by s 19(2) of the FEG Act, which is whether any person had paid amounts to the applicant that were attributable to the entitlements in respect of which an advance is payable. If the employer did not discharge its statutory obligation to pay the relevant statutory entitlements, then they remained unpaid by the employer to the applicant, and in this case, there is no question of payment from any other source being attributable to the applicant's entitlements.