Bernstone v Accident Rehabilitation and Compensation Insurance Corporation

IN THE DISTRICT COURT HELD AT NAPIER Decision No. 39 95 UNDER The Accident Rehabilitation and Compensation Insurance Act 1992 AND IN THE MATTER of an appeal pursuant to 64 94 0012. section 91 of the Act BETWEEN DAVID BERNSTONE of Hastings, Freezing Worker Appellant (Appeal No. DCA 164/94) AND ACCIDENT REHABILITATION AND COMPENSATION INSURANCE CORPORATION a body corporate duly constituted under the provisions of the said Act Respondent HEARD on the 22nd day of March 1995 APPEARANCES A E Lankovsky for appellant D S Luping for respondent DECISION OF JUDGE A W MIDDLETON The issue in this appeal is whether the holiday pay received by the appellant at the termination of his employment is subject to the abatement provisions of s.47 of the Accident Rehabilitation and Compensation Insurance Act 1992. The facts are not in issue. The appellant suffered personal injury by accident on 7 March 1994 and cover was accepted by the respondent under the Act and the appellant received weekly compensation. In accordance with the provisions of his employment contract, the appellant's employment was terminated at the expiration of 30 calendar days from the date of the accident because he was unable to attend work for the continuous period of 30 days. On 5 April 1994 the 2 employer notified the appellant of his termination and in accordance with the provisions of s.13 of the Holidays Act 1991 paid him the sum of $1,987.52 by way of outstanding holiday pay entitlements. The respondent was advised that this payment had been made and, in turn, had advised the appellant that it would cease the payment of weekly compensation for a four week period from 14 April 1994 to 11 May 1994. This assessment was made by the respondent on the basis that it considered that the sum received by way of holiday pay equated to four weeks earnings had the appellant continued to be employed in his previous employment. After the four week period the respondent resumed payment of weekly compensation. Subsequently, as the appellant's health improved, he applied for and was re-appointed to his former position. The appellant applied for a review of the respondent's decision to abate weekly compensation. The Review Officer held that there was no conflict between the provisions of s.47 of the Accident Rehabilitation & Compensation Insurance Act 1992 and the Holidays Act. She considered that as holiday pay was earned during the year it constituted earnings which continued to accrue during the period of incapacity. She declined to accept the appellant's submission that the appellant was not in receipt of earnings immediately prior to the termination of his employment. Section 47 is the section in issue, in this appeal, and states: "Section 47 - Abatement of compensation for loss of earnings or loss of potential earning capacity - (1) In determining the weekly compensation for loss of earnings or loss of potential earning capacity payable in respect of the incapacity of a person, the weekly earnings of the person shall be reduced by 30 cents for every $1 of earnings in excess of $50 [50.70] a week but not in excess of $80 [81.10] a week and by 70 [71] cents for every $1 of earnings in excess of $80 [81.10] a week. (1A) If, following the application of subsection (1) of this Section, the total of the compensation for loss of earnings or loss of potential earning capacity and the earnings from employment of the person exceeds the weekly earnings of the person as determined under Sections 40 to 43, 45, or 46 of this Act, the compensation for loss of earnings or loss of potential earning capacity shall be further reduced so that the total of that compensation and the earnings of the person do not exceed the weekly earnings as so determined. (2) For the purposes of this section, earnings include any payment made on the termination of employment (other than as redundancy or superannuateon; and those earnings shall be deemed to be being derived at the same rate after the termination of employment as the earner received earnings immediately before that termination. For the purposes of this section, earnings do not include compensation for loss of earnings or loss of potential earning capacity or any other compensation payable under this Act." 3 Mr Lankovsky conceded that holiday pay is a source deduction payment which pursuant to the definition of "earnings as an employee" in Regulation 2 of the Accident Rehabilitation & Compensation Insurance (Earnings Definitions) Regulations 1992, constitutes earnings which could be expected to be governed by the abatement provisions in s.47. I do not consider that there is any argument against this concession because it is clear that holiday pay comes within the definition of "earnings as an employee" Mr Lankovsky's principle submission relates to s.47(2) in that while the appellant had suffered his injury on 7 March 1994 and was thereafter in receipt of weekly compensation, he did not have earnings at the time his employment was terminated on 5 April 1994 because s.47 (2) specifically excludes "compensation for loss of earnings" from the definition of "earnings". He submitted that s.47(2) requires the abatement to be based on the appellant's earnings "immediately prior to termination". He submitted that as the appellant was in receipt of weekly compensation only, he therefore had no earnings "immediately before that termination". He submitted that the Review Officer erred in trying to equate the accrual of holiday pay during the period in question as constituting "earnings" at that time because they did not become payable and therefore a source deduction payment, until after his unemployment had been terminated. Mr Lankovsky submitted that while he conceded that holiday pay could properly be classed as "earnings", the intention of s.47(2) was to prevent an employee being unfairly advantaged through the payment of a lump sum where otherwise he or she would be subject to the abatement provision. He submitted further that while there were two significant exceptions for payments for superannuateon and redundancy, a payment of holiday pay entitlement arising from termination of employment, falls within a similar category which he classified as "legitimate". Ms Luping submitted that the Review Officer was correct in her decision and in the finding that the abatement in respect of the appellant's holiday pay should be spread over the period of four weeks. She submitted that holiday pay is different from redundancy compensation because it is an emolument for employment. Ms Luping submitted that: " Simply because he was in receipt of earnings weekly compensation prior to termination of his employment, does not mean he was not in receipt of "earnings". It is a separate issue as to whether the holiday pay he received of $1,987.52 on termination of his employment constitutes earnings for the purpose of s.47. Ms Luping further submitted that the payment constituted assessable earnings and that the respondent was correct to make deductions in respect of those earnings. 4 The purpose of s.47 is to cover a situation where an injured person is able to earn during the period of incapacity and the section makes provision for the reduction of weekly compensation by way of abatement to reflect those earnings. Both parties agree that the payment of holiday pay constitutes "earnings". The principle and only issue which I see in this appeal is the interpretation of s.47(2). I agree with Mr Lankovsky's submission that in order for the abatement provision to apply, the appellant, on the termination of his employment, must have the holiday payment abated at the same rate as the earnings he received "immediately before that termination". As the section then excludes from the definition of earnings the receipt of weekly compensation, I agree with Mr Lankovsky that this appellant had no earnings immediately before the termination of his employment and therefore is not subject to the abatement provisions. Ms Luping made no submissions in relation to the inclusion of the words "immediately before that termination". It could perhaps be contemplated that the legislature had in mind that "immediately" in that context meant "the next proximate period of earnings" but it did not say so. I consider that the wording of the subsection is unfortunate and was no doubt intended to apply to a payment such as holiday pay and that the intention of the abatement provision was that the rate of abatement should have been determined on the basis of the appellant's earnings as assessed for the calculation for the payment of weekly compensation and not the "earnings immediately before that termination". If the intention was that abatement should be at the same rate as the appellant's earnings as assessed under s.39 the section certainly does not say so. I consider that the actual words used in the section support Mr Lankovsky's submission. The appeal is therefore allowed. There will be costs to the appellant of $700.00 DATED at WELLINGTON this 28" day of APRIL 1995 buuuddub A W Middleton District Court Judge ac164-94.doc(mh)