McPherson v Accident Rehabilitation and Compensation Insurance Corporation

IN THE DISTRICT COURT Decision No. 35 95 AT WELLINGTON DCA No. 57/94 UNDER The Accident Rehabilitation and Compensation Insurance Act 1992 AND IN THE MATTER of an appeal pursuant to 64/ 94 0441. Section 91 of the Act BETWEEN I.N. McPHERSON APPELLANT AND THE ACCIDENT REHABILITATION AND COMPENSATION INSURANCE CORPORATION RESPONDENT Heard at Auckland on: 5 December 1994 A. Little as counsel for the appellant N. Morrison as counsel for the respondent Date of Decision: 50 march lags RESERVED DECISION OF JUDGE J.W. IMRIE I have decided to revoke the decision of the Corporation and allow the appeal. 2. Introduction: The issue is the Corporation's decision to abate the appellant's holiday pay for the period 12 March 1993 to 15 June 1993 pursuant to s.47(2) of the Act. On 5 March 1993 the appellant suffered a work injury when he fractured his right ankle. By letter dated 18 March 1993 the Corporation confirmed acceptance of cover. Entitlements followed including weekly compensation. On 3 May 1993 a consultant orthopaedic surgeon reported that he expected the appellant to remain off work for at least three months and be fit for light work subsequent to that. On or about 24 May 1993 the Corporation received a letter from the company that employed the appellant prior to his injury. That letter recorded that the employer had paid to the appellant money for unused holidays equalling twelve weeks payments. The appellant tried to pay the holiday pay back to the employer, but the employer refused to accept it back and he held on to it until his redundancy in August 1994. By a decision letter dated 13 July 1993 the Corporation advised the appellant that he had been overpaid compensation. That letter reads:- 3. "I have to advise that you have been overpaid compensation for the period 12 March 1993 to 15 June 1993. The overpayment was caused by your employer paying your holiday pay as a result of the company taking you off their books. The net overpayment amounts to $2,986.51 being gross overpayment of $4, 189.95 less deductions of $1,203.44. . . . As you have requested, the Corporation is withholding $30 per. week from your weekly compensation entitlement. ...' By application dated 29 September 1993 the appellant sought review of the Corporation's decision. The review was heard on 22 November 1993. The Review Officer sought further information and in a written decision dated 23 February 1994 upheld the Corporation's decision. The issue at the review hearing was largely whether the holiday payment was "any payment made on the termination of employment" within the meaning of those words used in s.47(2). The Review Officer said:- "My view is that Mr Mcpherson's employment with Weddel Tomoana was terminated in April 1993, irrespective of the fact that the question of re-employment was left open, and certain residual obligations of the employer under the contract of employment were not at that date discharged. The intention of the company clearly appears to have been that all its on-going obligations in respect of Mr Mcpherson were to cease at April 1993." 4 . There was a second issue about which the officer said:- "The second issue concerns whether the abatement provision should apply to the first payment of holiday pay ($722.40) which was paid on 13 March 1993. The information from Weddel Tomoana (5 December 1993) clearly states that they have taken responsibility for paying the first week following the injury (although at that date had not paid it). That makes clear to me that the $722.40 payment was not in respect of the first week following the injury. It follows that I am satisfied that the abatement provisions of s.47 also apply to the $722.40 payment. " Prior to the hearing of the appeal each counsel filed written submissions. The thoroughness of those submissions is to their credit. Also prior to the hearing of the appeal Mr Little filed an affidavit from the appellant clarifying certain matters. That affidavit reads:- "1. I was employed by Weddel Tomoana on 2 April 1957. I started as an apprentice fitter and turner at that time and continued in employment after my apprenticeship was completed. 2. I had my accident which is the subject of this proceeding at work on 5 March 1993. I went on to ACC a week after my accident. 3. I received a letter from Weddel Tomoana on 7 April 1993. The letter stated that the company was taking me off their books. The letter also stated: Should you received a full clearance to resume normal duties you will be able to do so provided seasonal requirements and seniority obligations are met. 5. 4. MY job at the time of the accident as a fitter and turner was not a seasonal job. The only seasonal workers at Weddel Tomoana were the production workers on the chains. As a maintenance worker, I was a permanent employee. As far as I was concerned, the reference to seasonal requirements in the letter did not relate to me. The reference in the letter to seniority obligations, if it applied to me at all, meant that workers with longer service and who were seasonal workers would be taken on before workers of lesser service. Seniority also applied in relation to the selection of workers for redundancy. I was one of the longest serving employees in the maintenance department at Weddel Tomoana. I do not believe that the reference to seniority in the letter of 7 April 1993 affected my return to work from ACC. Annexed hereto and marked with the letter 'A' is a true copy of the letter of 7 April 1993. 5. DURING the time I was on ACC, Weddel Tomoana made some maintenance workers redundant. They were made redundant on a last on first off basis. I was not selected for redundancy. 6. I went back to work on 12.9.93. ACC negotiated with Weddel for me to go back to work part-time. When I went back, my previous service was recognised. I received the same service related benefits I was receiving when I was 'taken off the books'. I was not treated as a new worker. 7. EVENTUALLY, I went back to full-time until I was made redundant when Weddel went into receivership in August 1994. At the time I was made redundant, I was paid five weeks long service leave pay which I had earned for working 35 years with the company. I had accrued this entitlement on 2 April 1992. 8. I did not attend the Review hearing of my claim in November 1993 because I mistakenly went to the wrong venue. Although I had been told the correct venue was the 6. Council rooms in Hastings, I went to the Court building because I had dealt with other ACC matters there." Appeal Hearing: At the hearing of the appeal Mr Little summarised some of the points made in his written submissions, Mr Morrison did likewise, and Mr Little replied to Mr Morrison's submissions. In his written submissions Mr Little made the following points:- 1. The Corporation decided to abate the appellant's earnings related compensation for the period of thirteen weeks because of payments of holiday pay the appellant received following the work accident and while he was absent from work. It is apparent that the Corporation decided to abate the appellant's compensation in this way because the Corporation considered he had received a termination payment from his employer. 2. Although the appellant accepts in principle that he received at least one payment which was assessable for abatement, he challenges the Corporation's decision to abate more than one week's compensation on the grounds that:- (a) The Corporation has the power to divide payments by the level of the incapacitated person's assessed weekly income where that payment is a termination payment (s.47(2)) and 7. (b) Only one of the payments the appellant received from his employer was assessable for abatement and that payment was not a termination payment. 3. There was no basis for abating compensation in respect of the first payment of holiday pay made during the week ending 13 March 1993, because this was a week during which no compensation was payable by the Corporation. He referred to s.47(1) and said that the abatement provisions apply in relation to the assessment for compensation when compensation is payable. For a week in which no compensation is paid or payable, the abatement provisions cannot apply. The week in which one week's holiday pay was paid was not a week for which compensation was paid or payable, and was therefore not a week for which any abatement could be made. 4. The second payment of holiday pay was made in the week ending 1 May 1993. This is a week for which earnings related compensation was payable and paid. It is accepted that holiday pay, being a source deduction payment (Accident Rehabilitation and Compensation Insurance (Earnings Definitions) Regulations 1992, Regulation 2) constituted earnings for the purposes of s.47 and was, therefore, assessable for abatement. However, that payment of holiday pay was only assessable for abatement for the week in which it was paid out. The payment of holiday pay in the week ending 1 May 1993 could not be relied upon to abate compensation payable over several weeks as the Corporation has done. 5. Section 47(2) requires that there must actually be a termination of the employment. In the appellant's case the employment was not terminated. 8. The evidence shows that the employer disclosed a clear intent not to terminate the appellant's employment. For example:- (a) In its letter dated 21 May 1993 the company states:- "Because of the duration of his absence from work the company has now taken him off the books, which means he has picked up all further money owing to him for unused holidays." (b) The employer does not say the appellant's employment has been terminated. (c) In its letter dated 7 April 1993 the employer states that the company takes the appellant's name off their books in accordance with standard company policy. (d) The letter also directs the appellant to maintain regular contact with the company through the employment office. (e) The letter also states:- "We expect you to contact us once a month or if there is any significant change in your incapacity it is likely to affect your availability for work." (f) The letter also states:- 9. "Should you receive a full clearance to resume normal duties you will be able to do so provided seasonal requirements and seniority obligations are met." 6. Mr Little submitted that the employer was not terminating the appellant's employment. Rather the letter places him on a continuing obligation to maintain contact with the company, and he is able to return to work upon full clearance subject to "seasonal requirements and seniority obligations". 7. A suitable dictionary definition of "terminate" is "bring or come to an end" and of "termination" is "the act or an instant of terminating; the state of being terminated". 8. The evidence shows that in the appellant's case there is no ending of his employment since he has continuing obligations and the option to return to work upon clearance to do so. Points Made in Verbal Submissions by Mr Little: In his verbal submissions Mr Little made the following points:- 1. The accident was on 5 March. The first week was paid as holiday pay. That week was abated by the Corporation. There was no reason to abate that week. The employer had to pay that. The Corporation was not concerned with that. 2. In respect of the holiday pay for several weeks, the employer decided to pay the appellant out after five weeks of incapacity. They took him off 10. their books. The Corporation took that as a termination within s.47(2) and abated the compensation. The issue is whether what the company did amounted to termination i.e. was the holiday pay a termination payment. 3. There was no termination. There would have to have been a termination in fact, that is, in accordance with the contract of employment. Clause 22 of the contract of employment requires notice to be given to the employee. There is nothing that constitutes a notice of termination. The letter of 7 April 1993 simply refers to taking him off their books. However the letter places on the appellant certain obligations. What happened when the appellant returned to employment shows that the employment was not terminated. There was no need to apply for a job. He returned with seniority. His long service entitlement was not paid out until he was made redundant in August 1994. 4. Frustration was not a matter for the Review Officer because the employer had never claimed frustration. For frustration one of the parties would have had to claim frustration. 5. To decide what constitutes employment the Corporation relies on the decision of the Court of Appeal in The Wellington Area Health Board v The Wellington Hotel Hospital, Restaurant and Related Trades Union (1992) 2 ERNZ 166. That case can be distinguished. The termination contained a condition which meant that the worker could re-apply for employment. The question was whether the worker could use the grievance provisions. The Court of Appeal found that the employment was terminated. In that situation the worker could rely on breach of contract rather than the grievance provisions. 11. In his submissions Mr Morrison made the following points:- 1. Hebden v Forsey & Son (1973) ICR 607 is authority for the principle that where the obligations under a contract of employment cannot be performed the contract can be considered terminated by reason of frustration. 2. In the Wellington Area Health Board case the Court of Appeal drew a distinction between employment and a contract of employment. Section 47(2) requires the employment to be terminated. It has been terminated in this case as there was no more work performed under the contract. 3. The employer's payment of all holidays due is indicative of the employer's intended belief that employment was terminated. 4. That is consistent with the provisions of the Holidays Act 1981 and particularly s.13. The appellant's contract of employment included the provisions of the Holiday Act. 5. In relation to the holiday payment made for the week ending 13 March 1993 Mr Morrison submitted:- (a) That week's holiday pay was paid by the employer in a week when the employer had statutory obligations which require otherwise. (b) Section 16 of the 1992 Act requires the employer to meet its obligations under s.38. Section 14 of the Holidays Act 1981 confirms that obligation. 12. (c) The payment made by the employer should be deemed to accord with those provisions. That therefore raises an overpayment by the employer in meeting his obligation, and a residual entitlement to the employee of holidays owed. This is a matter for resolution between the employer and the employee. Verbal Submissions of Mr Morrison: In his verbal submissions Mr Morrison made the following points:- 1. The first issue is a non issue. Payment for the first week should not have been abated - sections 16 and 38 of the 1992 Act and s.14 of the Holiday Act. The parties cannot contract out. This is now a matter between the employer and the employee. 2. In respect of the second period he agreed with Mr Little that the issue is whether there was termination. "Taken off the books" is the first clue. 3. The Review Officer relied on frustration. The Hebden case shows that a contract may be ended even if there are on-going responsibilities. Termination of employment does not mean that all responsibilities end. Mr Morrison referred to the following passage from the Wellington Area Health Board case:- "The obligations to work and to remunerate may end, but other obligations may continue. Employment in the sense of the activity or state of affairs to which the contract relates may end, but the contract under which those obligations arose (the 13. contract of employment itself) will remain in existence while there are continuing rights and obligations under it. Examples of the latter are obligations of confidence on the part of the employee, obligations on the employer to pay a commission or share of profits of an amount only ascertainable at a later date, or obligations as in this case to offer re-employment in certain circumstances. It is important to bear in mind this distinction between the employment activity and the employment contract under which it is carried on." 4. On a practical view of the evidence the employer has paid out the full entitlement to holiday pay. When one leaves one's employment one gets paid out one's holiday pay. 5. That is confirmed by the Holidays Act. That Act provides for entitlement to holidays and employment. The only provision in the Act for payment for holidays (instead of the holidays themselves) is when employment is terminated. 6. The appellant was on weekly compensation and receiving 80% of his earnings. He suddenly received $8,000 which is equal to ten weeks pay. It is consistent with s. 47 that the holiday pay should be abated. 7. The section allows exceptions e.g. superannuateon and redundancy. 8. On hindsight the employee should have arranged things differently with the employer. 9. Mr Morrison accepted the affidavit of Mr Mcpherson. 14. 10. In connection with long service leave Mr Morrison said it is important to remember the difference between long service leave and holiday pay. While holidays accumulate from day to day, entitlement to long service leave goes from the beginning of employment to the end, even with a break. 11. The contract of employment continued and long service leave entitlement could continue. 12. The contract of employment is not determinative as to whether or not the employment is terminated. The fact that there has been no express notice of termination should not be determinative. In his reply Mr Little made three points:- 1. If the argument that ending of employment means that the employment is terminated, that would mean that all ACC recipients had their employment terminated. In fact a person can be on ACC and still be an employee. Termination of employment must have an appropriate legal meaning, and termination of employment means termination of the contract of employment. 2. The fact that the employer has paid holiday pay and put the employer in breach of s. 14 of the Holidays Act, should not be relied on as termination. The employer may have acted improperly. Mr Morrison submitted that the policy of the section is not to allow the worker to benefit. In fact the worker is penalised and does not receive money he was entitled to i.e. he can no longer use the holiday pay. That is a matter 15. between employer and employee, but the employee should not be penalised for what the employer did. Consideration and Decision: Section 47 of the 1992 Act reads:- "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 a week but not in excess of $80 a week and by 70 cents for every $1 of earnings in excess of $80 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. 16. (3) The amounts specified in subsection (1) of this section shall be adjusted as provided for in section 70 of this Act." Section 16 of the 1992 Act reads:- "16. No contracting out - (1) The provisions of this Act shall have effect notwithstanding anything to the contrary in any contract or agreement; but nothing in this Act shall prevent any contract or agreement providing for greater benefits than, or benefits additional to, those provided under this Act. (2) No sick leave entitlement or other right of an employee shall be reduced by reason of the liability of any employer to make any payment under this Act." Section 13 of the Holidays Act reads:- "13. Entitlement to annual holidays when employment terminated - Where the employment of a worker is terminated before he has taken the whole of any annual holiday to which he has become entitled, his employer shall be deemed to have allowed to the worker, from the date of the termination of the employment, the balance of the holiday not already taken, and shall pay forthwith to the worker, in addition to all other amounts due to him, holiday pay for that balance. " Suitable dictionary meanings of the word "termination" are:- 1. from the Shorter Oxford English Dictionary "the action of determining or ending" and 2. from the Collins English Dictionary "ending" or "concluding". 17. Accordingly, the phrase in s.47(7) "on the termination of employment" means "on the ending of employment". The argument as to whether the appellant's employment was terminated concentrated on the letter dated 7 April 1993. Termination is a question of fact. That question depends largely on the letter but not entirely. For example if the appellant or the employer did not regard his employment as having been terminated those would be circumstances to be taken into account in deciding whether in fact it had been terminated. The letter dated 7 April 1993 reads:- "Dear Mr McPherson We wish to advise you that owing to your extended absence on A.C.C., we will be taking your name off our books as from 7th April 1993. This action is taken in accordance with standard Company policy. Please call at the Wages Office to uplift your final pay and any wages due to you after obtaining the normal gear clearance. During the period when you are not available for work because of your incapacity you should maintain regular contact with the Company through the Employment Office. We expect you to contact us once a month or if there is any significant change in your incapacity that is likely to affect your available for work. When you have received A.C.C. clearance to resume work, you may be required to return to the workplace under an A.C.C. funded work rehabilitation trial. This means a contractual arrangement is negotiated between the Company and A.C.C. to allow you to ease yourself back into the workplace on the basis of your ability to do the work required. 18. Should you receive a full clearance to resume normal duties you will be able to do so provided seasonal requirements and seniority obligations are met." I consider that the letter interrupted Mr Mcpherson's employment rather than terminated it. Phrases such as "during the period you are not available for work,", "you should maintain regular contact with the company,", "We expect you to contact us once a month or if there is any change in your incapacity that is likely to affect your available for work,", "you may be required to return to the workplace under an A.C.C. funded rehabilitation trial" and "Should you receive a full clearance to resume normal duties you will be able to do so ..." are phrases which indicate that the employee/employer relationship continues. There is another point about the letter that suggests it does not terminate Mr Mcpherson's employment and that is that it does not say his employment is terminated. No such word as "termination" or "ending" is used. It could have been. The Shorter Oxford English Dictionary says that the meaning of the phrase "to take one's name off the books" is to have one's name removed from the official list (of members etc.). On that basis the phrase "we will be taking your name off our books as from 7th April 1993" in the letter meant that the employer was removing Mr Mcpherson's name from its list of employees, that is, terminating his employment. However, the correspondence shows that the employer meant less than that when it used the phrase in its letter. 19. By letter dated 8 December 1993 the Corporation asked the employer "What is meant by "taken him off the books"? Does this mean that Mr Mcpherson is still employed by Weddell? The company replied by letter dated 15 December 1993. The part of its letter that relates to the question I have just set out reads:- "When an employee has been absent from work for health reasons, the company has their names taken out of our current computer lists, so that they do not continue to accumulate holidays or sick entitlement." Once again the company did not say that Mr McPherson was no longer employed by it. It could easily have said that his employment had been terminated or ended. My conclusion is that the appellant's employment was not terminated by the letter dated 7 April. The appellant's name was taken out of his employer's current computer lists so that he did not continue to accumulate holiday or sick pay entitlements. It is also relevant that Clauses 22(b) and (c) of the collective employment contract to which the employer was a party contains provisions for notice which read:- "(b) Not less than one hour's notice shall be given on either side of the intention to terminate a worker's engagement in the case of an hourly worker, and not less than a week's notice in the case of a weekly worker. 20. (c) Where the employment of a worker is terminated by either party without the requisite notice, one hour's wages in the case of hourly workers and one week's wages in the case of weekly workers shall be paid or forfeited, as the case may be, by the defaulting party." There may be a distinction between employment and a contract of employment. However, no notice of intention to terminate Mr Mcpherson's employment was given, and in the this case I consider that that was a circumstance which indicated that Mr Mcpherson's employment was not terminated. The inference I draw from Mr Mcpherson's affidavit that he did not regard his employment as terminated is another circumstance which indicates it was not. The fact that the holiday pay was paid to Mr Mcpherson and that s. 13 of the Holidays Act provides that it should be paid out on termination of employment does not mean his employment was terminated. It may simply mean that the employer incorrectly considered it had to make payment when it removed Mr Mcpherson's name from its current computer list so he did not continue to accumulate holiday pay entitlement. I have not been referred to any provision in the 1992 Act which places the burden of proof on the appellant. That means that the Corporation has to prove on the balance of probabilities that the holiday pay was a "payment made on the termination of employment" within the meaning of those words used in s.47(2). It has not done that and accordingly the holiday pay should not be abated under s.47(1). The decision of the Corporation is revoked and the appeal is allowed. 21. The appellant is entitled to costs. Leave is reserved to have the sum fixed if agreement cannot be reached. .. ..........." (J. W. Imrie DCJ)