Car allowance deci­sion dri­ves unfair dis­missal access

In the recent deci­sion of Sam Tech­nol­o­gy Engi­neers Pty Ltd v Mr Andrew Bernadou [2018] FWCFB 1767 the Full Bench of the Fair Work Com­mis­sion (FWC) con­sid­ered (as part of an appeal) the issue of how to treat car allowances for the pur­pose of deter­min­ing the annu­al rate of earn­ings for unfair dis­missal purposes.

This is impor­tant because if the annu­al rate of earn­ings of an employ­ee exceeds the high income thresh­old ($138,900 per annum at the rel­e­vant time of ter­mi­na­tion in this deci­sion, $142,000 per annum since 1 July 2017) an employ­ee is juris­dic­tion­al­ly barred from pur­su­ing unfair dis­missal pro­ceed­ings. (Unless the employ­ee is cov­ered by a mod­ern award or an enter­prise agree­ment applies to them.)

One of the rea­sons cit­ed by the Full Bench of the FWC for grant­i­ng the employ­er per­mis­sion to appeal was:

“… a dis­par­i­ty of approach­es in deci­sions of indi­vid­ual mem­bers of the Com­mis­sion, such as to war­rant some clar­i­ty being deliv­ered by a con­sid­er­a­tion of the issues by a Full Bench. This appeal square­ly rais­es the prop­er treat­ment of motor vehi­cle allowances for the pur­pos­es of deter­min­ing whether and what amounts form part of a per­son­’s earn­ings and whether, as a con­se­quence, they are out­side or inside the juris­dic­tion of the Com­mis­sion because of the high income threshold.”

The issue was con­sid­ered to be of some sig­nif­i­cance and as a result sub­mis­sions were made not only on behalf of the employ­er and employ­ee but also the Aus­tralian Tax­a­tion Office (ATO), Aus­tralian Indus­try Group (AiGroup), Aus­tralian Cham­ber of Com­merce and Indus­try (ACCI) and Aus­tralian Coun­cil of Trade Unions (ACTU).

Car allowance as opposed to com­pa­ny-sup­plied vehicle

The Full Bench of the FWC not­ed the dis­tinc­tion between a vehi­cle sup­plied by an employ­er to an employ­ee and a car allowance: 

“At the out­set, we do not take issue with the method of appor­tion­ment adopt­ed by the Full Bench in Few­ings and con­sid­er it entire­ly appro­pri­ate for cir­cum­stances in which an employ­ee has a com­pa­ny-sup­plied vehi­cle (from which he or she derives a ben­e­fit) and a rea­son­able mon­e­tary val­ue has not been agreed for its pri­vate use. We con­sid­er that the Few­ings method of appor­tion­ment is appro­pri­ate to enable the Com­mis­sion to esti­mate the real or notion­al val­ue of the ben­e­fit in the man­ner con­tem­plat­ed by reg­u­la­tion 3.05(6) of the Reg­u­la­tions, which deals with ben­e­fits oth­er than the pay­ment of mon­ey. A car allowance, how­ev­er, is a pay­ment of mon­ey. There­fore, reg­u­la­tion 3.05(6) is not rel­e­vant to the deter­mi­na­tion of whether the pay­ment of a car allowance to an employ­ee takes the employ­ee above the high income thresh­old.”

The test to be applied

After an exten­sive con­sid­er­a­tion of the sub­mis­sions and rel­e­vant prin­ci­ples, the Full Bench of the FWC set out the fol­low­ing com­pre­hen­sive test:

“…we are of the view that a car allowance should be treat­ed in the fol­low­ing way for the pur­pose of cal­cu­lat­ing an employee’s ​“annu­al rate of earn­ings” with­in the mean­ing of ss.332 and 382(b)(iii) of the Act:

(a) If a car allowance is paid to an employ­ee in cir­cum­stances in which there is no require­ment or expec­ta­tion that the employ­ee will have to use his or her car for work pur­pos­es, then the whole of the car allowance is, in real­i­ty, part of the employee’s wages and is there­fore includ­ed in their ​“earn­ings”; or

(b) If a car allowance is paid to an employ­ee at the time of their dis­missal in cir­cum­stances in which there is a require­ment or expec­ta­tion that the employ­ee will have to use his or her car for work pur­pos­es, then it will be nec­es­sary to deter­mine and cal­cu­late the pri­vate ben­e­fit, if any, derived by the employ­ee from the car allowance.

To that end, we sug­gest the fol­low­ing method­ol­o­gy, which is based on the approach tak­en in Few­ings:

1. Deter­mine the annu­al dis­tance trav­elled by the car in ques­tion. The amount of the annu­al dis­tance will be as follows:

a. if the car allowance has been paid for at least 12 months pri­or to the dis­missal — the dis­tance trav­elled by the car over the 12 months imme­di­ate­ly pri­or to the dis­missal; or

b. if the car allowance has been paid for a peri­od of less than 12 months pri­or to the dis­missal, deter­mine the dis­tance trav­elled by the car in the peri­od dur­ing which the car allowance has been paid and then extrap­o­late that dis­tance over a peri­od of 12 months to cal­cu­late an annu­al dis­tance. For exam­ple, if an employ­ee moved into a new posi­tion with his or her employ­er 6 months pri­or to his or her dis­missal, received a car allowance dur­ing that 6 month peri­od, and drove his or her car for 10,000 km in that 6 month peri­od, the assumed annu­al dis­tance trav­elled by the car for the pur­pose of cal­cu­lat­ing the employee’s ​“annu­al rate of earn­ings” would be 20,000 km.

2. Deter­mine the per­cent­age of the annu­al dis­tance trav­elled which was for busi­ness use, which would not include trav­el between the employee’s home and usu­al place of work. If the car allowance has been paid for a peri­od of less than 12 months pri­or to the dis­missal, deter­mine the busi­ness use per­cent­age of the dis­tance trav­elled in the peri­od dur­ing which the car allowance was paid.

3. Mul­ti­ply the annu­al dis­tance cal­cu­lat­ed in accor­dance with para­graph 1 above by the busi­ness use per­cent­age cal­cu­lat­ed in accor­dance with para­graph 2 above. This pro­vides the annu­al dis­tance trav­elled for busi­ness purposes.

4. Esti­mate the cost per kilo­me­tre for a car of the type used. This infor­ma­tion can be obtained from the RACV, NRMA or like motor­ing organisations.

5. Mul­ti­ply the annu­al dis­tance trav­elled for busi­ness pur­pos­es by the esti­mat­ed cost per kilo­me­tre. The result is the annu­al cost of using the car for work pur­pos­es. Com­pare that annu­al cost with the amount of the annu­al car allowance. The amount of the annu­al car allowance will be as follows: 

a. if the car allowance was paid for at least 12 months pri­or to the dis­missal — the amount of the car allowance paid to the employ­ee in the 12 months imme­di­ate­ly pri­or to the dis­missal; or

b. if the car allowance has been paid for a peri­od of less than 12 months pri­or to the dis­missal, deter­mine the amount of the car allowance paid in that peri­od and then extrap­o­late that pay­ment over a peri­od of 12 months to cal­cu­late an annu­al amount of the car allowance. For exam­ple, if an employ­ee in a busi­ness oth­er than a small busi­ness was employed in that busi­ness for a peri­od of 9 months pri­or to his or her dis­missal, and received a car allowance of $2,000 each month in that 9 month peri­od, the assumed annu­al car allowance for the pur­pose of cal­cu­lat­ing the employee’s ​“annu­al rate of earn­ings” would be $24,000 ($2,000/month x 12 months = $24,000).

6. If the amount of the annu­al car allowance exceeds the annu­al cost of using the car for work pur­pos­es, the dif­fer­ence is the pri­vate ben­e­fit to the employ­ee of the car allowance, which forms part of their ​“annu­al rate of earnings”.”

Employ­ers should get into gear 

In cal­cu­lat­ing the effect of a car allowance on annu­al earn­ings for unfair dis­missal pur­pos­es employ­ers will need to care­ful­ly con­sid­er any require­ment attached to the allowance and the spe­cif­ic motor vehi­cle and type of trav­el to which the allowance is applied by the employee.

If it is an allowance where there is an expec­ta­tion or require­ment of busi­ness trav­el then the cre­ation and reten­tion of accu­rate doc­u­men­ta­tion and records will be impor­tant, as will a right for the employ­er to be fur­nished with that infor­ma­tion peri­od­i­cal­ly or on demand in the event a cal­cu­la­tion of annu­al earn­ings needs to be made. If they don’t already do so for tax or oth­er pur­pos­es, employ­ers should seek to com­pel employ­ees to keep and pro­vide such records.