100319295

WESTERN AUSTRALIAN INDUSTRIAL MAGISTRATES’ COURT

PARTIES DAVID JOHN HAYMAN

CLAIMANT

 -v-

 DONALD F MUNRO & ASSOCIATES PTY LTD

RESPONDENT

CORAM MAGISTRATE WG TARR IM

DATE  THURSDAY, 28 AUGUST 2003

CLAIM NO M 108 OF 2003

CITATION NO. 2003 WAIRC 09564

_______________________________________________________________________________ 

Representation

Claimant  Mr G MacNish (of Counsel) of Cocks Macnish. 

Respondent Mr P Patterson (of Counsel) of Taylor Smart. 

_______________________________________________________________________________

Reasons for Decision

(Given extemporaneously at the conclusion of the hearing, extracted from the transcript of proceedings and edited by His Worship)

1         This is a claim by the Claimant, who was at the time a certified practising accountant employed by the Respondent.  The claim is a claim made pursuant to the provisions of the Long Service Leave Act 1958 and it is a claim for an entitlement under that Act.

2         The Long Service Leave Act 1958 (the Act) is an Act to provide for the granting of long service leave to certain employees whose employment is not regulated under the Industrial Relations Act 1979, and for matters incidental thereto.  It is not in dispute but section 4 of the Act defines “employee” and “employer” and it would seem that there cannot be any doubt that the Claimant would fall within the definition of “employee” and the respondent falls within the definition of “employer” and therefore the Act has clear application in relation to this claim.

3         Section 8 of the Act provides, inter alia, that:

“An employee is entitled in accordance with, and subject, to the provisions of this Act, to long service leave on ordinary pay in respect of continuous employment with one and the same employer …”

4         The same section deals with other situations which are not relevant to these proceedings.

5         It is not in dispute that the Claimant was employed by the Respondent from 12 July 1982 until 30 June 2000, and that the employment period for the purpose of calculation of any leave entitlement was a period of 17.98 years.

6         Section 9(2) of the Act makes provision for payment in lieu of the long service leave entitlement where the employment of an employee is terminated without him having taken the leave during the period of employment.

7         In my view, it is clearly the intention of the legislation that employees who come within the definition of the Act are entitled to long service leave, but the Act does provide in section 5 under the heading “Limited contracting-out of long service leave” for an employer and an employee to agree that the employee may forego his entitlement to long service leave under the Act if the employee is given an adequate benefit in lieu of that entitlement and the agreement is in writing.

8         It has been suggested to me that there are not many authorities on the term “agreement”, but I would have thought that in looking at section 5(b) the ordinary meanings of the words must apply, and that is that any agreement made under section 5 must be in writing.

9         The Shorter Oxford Dictionary has a definition of “agreement” and, among other things, under the sub-heading of "law" it says:

“A contract duly executed and legally binding.”

10     Other words like “a coming into accord”, “a mutual understanding” are also used, but it seems to me that any agreement must include the meeting of the minds of the parties, and any agreement in writing must clearly evidence that meeting of the minds, and in particular in relation to section 5, I would have thought any agreement should clearly identify it as being an agreement made pursuant to section 5, an agreement to forego the employee's long service leave entitlement, and I would have thought any agreement should include the adequate benefit to be provided in lieu of the long service leave entitlement, as provided in section 5(a).

11     The Respondent is wanting me to accept as the agreement in writing, firstly, the minutes of the meeting of the directors of the Respondent company on 29 July 1996 which, under a heading of “Succession Planning” refers back to some resolutions that were made during a meeting on 9 April 1994, and the meeting of 29 July 1996 adds to those items:

“1.  Annual leave to be taken into consideration when calculating equity.

2. Long Service Leave is not to be paid to retiring partners.”

12     That sentence in the minutes falls way short of what I would expect an agreement under section 5 of the Act to include, and I have mentioned those.  I have been invited to add to those minutes the “Rough workout of likely equities as at 30/6/2000”, which was marked as exhibit B.  Because there was no mention of long service leave in that document I am asked to find that it was accepted that long service leave may or had been foregone under the provision of section 5, and I have been asked to conclude that the adequate benefit in lieu, as it is described in the section, somehow be found from those figures.

13     I had not turned my mind to section 26 of the Act, but Mr Macnish has drawn my attention to it, which would support, I believe, my view in relation to the requirements under section 5 that any agreement made under that section be kept, or the details of that agreement be kept by the employer.

14     There has been no evidence presented during the proceedings which would comply with the requirement under section 26 of the Act.  In fact, it seems to me that it is after the event that there has been an attempt to prove that an agreement existed.  I think that is clear on the evidence before me.  More than has been done in relation to long service leave between the employee and the employer, as shown in these proceedings, would need to have been done before I could find that the employee is not entitled to long service leave.

15     I find that there was no agreement under section 5, and, therefore, the employee is entitled to long service leave as provided for in section 8 of the Act.

16     Section 8 provides for long service leave on ordinary pay.  “Ordinary pay” is defined in section 4, as follows:

“ordinary pay” means subject to subsection (2)of this section, (which does not have relevance to these proceedings) remuneration for an employee’s normal weekly number of hours of work calculated on the ordinary time rate of pay applicable to him, as at the time when any period of long service leave granted to him under this Act commences, or is deemed to commence, … but does not include shift premiums, overtime, penalty rates, commissions, bonuses, allowances, or the like;

17     It has been suggested in these proceedings that the additional amount paid to the employees by way of superannuation and other benefits should be classified and found to be bonuses in relation to the remuneration, but it seems to me that when one looks at the items that are mentioned under the ordinary pay definition, it contemplates those payments, for example, shift premiums, overtime, penalty rates, commissions, bonuses, allowances, or the like which an employee may normally be entitled to while he is working, but while on long service leave he is not.  He is not entitled to shift bonuses, obviously because he is not working shifts, overtime for the same reason, and also penalty rates.

18     The evidence before me is that the claimant and the other directors were paid a base salary of $63,000.00 per year plus an amount annually, which has increased from $15,000.00 in 1993 to a figure of $40,000.00 over the years, and certainly over the last year of the employee's employment.  While there has been an increase in the amount paid, there has been no increase in the base salary, and on the evidence I have heard, the figure of $40,000.00, it would seem, has been calculated as the maximum amount on which the respondent could obtain a tax benefit, and although, while it has been suggested the tax benefit benefits the company, it also benefits the trusts which in turn benefits the employees or partners.

19     The younger directors, I have been told, receive less than that, and that was because the taxation benefit of any superannuation paid to them was less than the amount of $40,000.00 which would be the benefit, or the maximum amount paid in relation to those longer serving employees.

20     But in any event, the most effective way, it would seem, to obtain a tax benefit in relation to the employees was to pay $63,000.00 per annum as a base figure, and then, through salary sacrificing or the payment of superannuation, pay up to an additional $40,000.00.  The effect was that each director received one way or another $103,000.00 during the year.

21     There was a hypothetical directors' situation put to Mr Virgo and the answer he gave, I would have thought, was predictable.  If a director was to proceed on long service leave his annual remuneration would not be affected.  Whether he was on leave or not, he would still receive $103,000.00 per year.

22     There has been some evidence given to support that, and there was a letter (exhibit E) dated 3 December 1996 which was sent to the Deputy Commissioner of Taxation because of, as was explained, the need to establish a reasonable benefit limit.  The letter sent by Munros to the Deputy Commissioner of Taxation showed that the value of the benefits received as part of the total remuneration package, which included the superannuation, was the equivalent at that time to $103,000.00.  In fact, it was $63,000.00 plus, in 1993, $15,000.00, which was increased to $20,000.00 in 1994, and then $25,000.00 in 1995.

23     So it seems to me in that letter the Taxation Department was being advised that the total remuneration package included what the respondent is claiming today to be a bonus.

24     The Deputy Commissioner of Taxation responded to that letter by accepting the salaries for the purpose of the reasonable benefit limit as being from $99,086.00 through to $101,743.00 which, as I said, would equate to the current figure of $103,000.00.

25     I have been referred to a number of cases.  The matter of Hall v Moran Healthcare Group (WA) Pty Ltd 79 WAIG 272 to some extent supports the Claimant's view that where a salary is packaged it is the total remuneration which applies in relation to long service leave, including any component which has been salary sacrificed.  It seems to me that would support the view the superannuation paid by an employer in the circumstances of this case must be part of the annual remuneration of the employee.

26     The other cases that I was referred to by the Respondent go towards the submission that there should be an agreement and I have dealt with that issue.

27     In conclusion, my finding is that the Claimant is entitled to long service leave under the Act and for the purpose of calculation I find that the Claimant's annual remuneration, which should be used for the calculations, to be $103,000.00 per year.

28     In relation to costs I have referred to regulation 53 of the Industrial Magistrates’ Courts (General Jurisdiction) Regulations 2000 in relation to the action being frivolously or vexatiously defended but I find that there were some issues which needed deciding.  It is not uncommon in a lot of cases for the case to be fought on grounds which, in hindsight, might seem to have been not worth taking on, but until the decisions are made I suppose each party has a right to argue its case.  So I do not think I could find that the defence has been frivolous or vexatious.  It was intended by the legislators that this Court be a no costs Court, and I realise at times that creates some financial hardship for parties, but unless it can be shown a parties’ claim or defence was frivolous or vexatious costs are not awarded.

29     There will be an order that the Respondent pay to the Claimant the sum of $30,865.67 plus interest at the Supreme Court Act rate with effect from 30 June 2000, and there will be an order that the Respondent pay the Claimant's costs fixed at $40.00.

WG Tarr

Industrial Magistrate