FEDERAL COURT OF AUSTRALIA

Comcare v Nicolas [2014] FCAFC 122

THE COURT ORDERS THAT:

1.    The appeal be upheld.

2.    Order 1 of the Administrative Appeals Tribunal’s orders of 4 April 2014 be set aside and in lieu thereof it be ordered that the decision under review is affirmed.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

THE COURT:

1    On 13 May 2011 the respondent (Ms Nicolas) sustained a psychological injury for which Comcare (on behalf of her employer) accepted liability. The question then arose as to what were her “normal weekly earnings” for the purpose of assessing her entitlement to compensation for her resulting incapacity to work.

2    That issue has proved contentious. It involves the application of the Safety, Rehabilitation and Compensation Act 1988 (Cth) (“the SRC Act”).

Background Facts

3    Ms Nicolas works for Centrelink. She commenced working for Centrelink full-time in April 2001. In March 2007 her first child was born and, on her return to work in January 2008, Ms Nicolas resumed part-time work at a regular 30 hours per week with some regular overtime of three to four hours per week.

4    On 8 December 2008 Ms Nicolas was involved in a motor vehicle accident and further reduced her hours of work. Then, because of a combination of her injuries, periods of leave, complications during a further pregnancy, the birth of a second child in April 2009 and spinal surgery in May 2009, Ms Nicolas only worked for two days (in April 2010) between 26 February 2009 and 1 May 2011.

5    On 2 May 2011, Ms Nicolas returned to work. She did so on an agreed graduated return to work program commencing at 12 hours per week, with those hours intended to increase to 22.5 hours per week over a period. She had only worked those initially agreed 12 hours for two weeks (during an 11-day period) before she sustained her psychological injury on 13 May 2011.

6    It is relevant to note here that on 24 May 2011 an insurance claim arising out of the motor vehicle accident on 8 December 2008 was settled and Ms Nicolas received a lump sum order for compensation. During those proceedings it was claimed on her behalf that, as a result of her injuries in that accident, she had suffered a 50% loss of pre-accident earning capacity.

Comcare’s decision

7    When Comcare assessed Ms Nicolas’ entitlement to compensation for her most recent injury (on 13 May 2011) it did so on the basis that Ms Nicolas’ working hours, for the calculation of normal weekly earnings, were 12 hours per week.

The AAT decision

8    Ms Nicolas applied to the Administrative Appeals Tribunal (“the AAT”) for review of Comcare’s decision. The AAT rejected the proposition that 12 hours per week should be adopted for the calculation of normal weekly earnings before the injury sustained on 13 May 2011. The AAT found that Ms Nicolas’ average working week should be regarded as 20 hours and directed that compensation be calculated on that basis.

The appeal to this Court

9    Comcare has appealed. The appeal to this Court is a proceeding in the original jurisdiction of the Court. The appeal must be on a question of law.

10    In our view, the AAT misapplied aspects of the statutory scheme and the appeal must therefore be upheld.

The legislative scheme

11    Section 19 of the SRC Act requires compensation to be paid to an injured employee if the injury results in incapacity for work. The calculation begins with “NWE” which is stated to be “the amount of the employee’s normal weekly earnings”.

12    Section 4 defines “normal weekly earnings” as follows:

4    Interpretation

(1)    In this Act, unless the contrary intention appears:

…

normal weekly earnings means the normal weekly earnings of an

employee calculated under section 8.

13    Section 8 provides a formula for calculating normal weekly earnings. It is critical to the present case. Section 8(1) provides:

8    Normal weekly earnings

(1)    For the purposes of this Act, the normal weekly earnings of an employee (other than an employee referred to in subsection (2)) before an injury shall be calculated in relation to the relevant period under the formula:

(NH x RP) + A

where:

NH is the average number of hours worked in each week by the employee in his or her employment during the relevant period;

RP is the employee’s average hourly ordinary time rate of pay during that period; and

A is the average amount of any allowance payable to the employee in each week in respect of his or her employment during the relevant period, other than an allowance payable in respect of special expenses incurred, or likely to be incurred, by the employee in respect of that employment.

14    Before dealing with other aspects of s 8 it is desirable to refer to other provisions which inform its use. Section 4 provides a definition of “normal weekly hours” for use in the calculation stipulated in s 8(1) as follows:

4    Interpretation

(1)    In this Act, unless the contrary intention appears:

…

normal weekly hours, in relation to an employee, means the average number of hours (including hours of overtime) worked in each week by the employee in his or her employment during the relevant period as calculated for the purpose of applying the formula in subsection 8(1) or (2).

15    Section 9(1) stipulates the “relevant period” for the purposes of s 8 as follows:

9    Relevant period

(1)    For the purposes of calculating the normal weekly earnings of an employee before an injury, a reference in section 8 to the relevant period is, subject to this section, a reference to the latest period of 2 weeks before the date of the injury during which the employee was continuously employed by the Commonwealth or a licensed corporation.

…

16    It will be necessary to return, in due course, to the balance of s 9 in another connection.

17    Section 8(4) and (5) guards against any arbitrary or plainly unfair outcome arising from the operation of s 9(1). It provides:

8    Normal weekly earnings

…

(4)    Where, because of the shortness of the relevant period, it is impracticable to calculate the normal weekly earnings of an employee before an injury under subsection (1) or (2), the normal weekly earnings of the employee before the date of injury shall be taken to be the normal weekly earnings before that date of another employee performing comparable work, being normal weekly earnings from employment by the Commonwealth or a licensed corporation and calculated under subsection (1) or (2), as the case requires.

(5)    Where, because of the shortness of the relevant period, the normal weekly earnings as calculated in relation to the relevant period under subsection (1) or (2) would not fairly represent the weekly rate at which the employee was being paid in respect of his or her employment before the injury, the normal weekly earnings before the date of the injury shall be calculated in relation to such other period as Comcare considers reasonable for the purpose of arriving at an amount that does fairly represent the weekly rate at which the employee was being so paid.

18    Section 8(5) will require specific attention in the present case. One particular issue which may require attention in a particular case is whether the “other period” which may be selected involves an extension of the two-week period stipulated by s 9(1), or permits the selection of a different period, not terminating at the date of the injury.

19    Before attention is given to that question, however, some points should be made about s 8(5), in the context in which it appears.

20    Both s 8(4) and s 8(5) are directed to the possibility that a period of two weeks is too short to yield a fair outcome resulting from the calculation directed by s 8(1) (or s 8(2) which deals with overtime earnings). In the case of s 8(4) the difficulty is the impracticability of calculating normal weekly earnings before an injury, in which case earnings of a comparable employee are to be used. Section 8(5) concerns the possibility that a calculation made using the two-week period directed by s 9(1) would not “fairly represent” the normal weekly earnings of an injured employee. Examples given in argument were employees working on swinging shifts (i.e. some weeks on/some weeks off) and casual employees with uneven working hours.

21    In such a case (and the examples above do not limit the possibilities) it is open to the decision-maker to select another period for the purpose of the calculation. However, it must be emphasised that the period selected is to be used specifically for the purposes of the calculation in s 8(1) or s 8(2). That is to say, an average number of weekly hours worked during the period selected must be multiplied by the average ordinary time rate of pay during that period.

22    One question which may arise is that posed earlier. Is it open to select a different period altogether, or must the period selected be an extension of the two-week period directed by s 9(1), i.e. a period terminating at the date of injury. In any consideration of that question, the operation of the whole of s 9 must be taken into account.

23    In particular, the operation of s 9(1) must be considered in the light of the adjustments directed by s 9(2), (3) and (4). Section 9(1) was set out earlier, but for convenience s 9 is set out here in its entirety:

9    Relevant period

(1)    For the purposes of calculating the normal weekly earnings of an employee before an injury, a reference in section 8 to the relevant period is, subject to this section, a reference to the latest period of 2 weeks before the date of the injury during which the employee was continuously employed by the Commonwealth or a licensed corporation.

(2)    Subject to subsection (3), if, during the period referred to in subsection (1), the minimum amount per week payable to an employee in respect of his or her employment by the Commonwealth or a licensed corporation was varied as a result of:

(a)    the operation of a law of the Commonwealth or of a State or Territory; or

(b)    the making, alteration or operation of an award, order, determination or industrial agreement, or the doing of any other act or thing, under such a law;

any part of that period that occurred before the variation, or last variation, took place shall be disregarded for the purposes of calculating the relevant period.

(3)    Where in any case the application of subsection (2) would require that a period be disregarded for the purposes of calculating the relevant period in relation to an employee, and as a result of disregarding that period:

(a)    it would be impracticable to calculate under section 8 the normal weekly earnings of the employee before an injury; or

(b)    the normal weekly earnings as so calculated would not fairly represent the weekly rate at which the employee was being paid in respect of his or her employment by the Commonwealth or a licensed corporation before the injury;

subsection (2) shall not apply in that case, but the normal weekly earnings of the employee during that period shall be taken to be the amount that would have been his or her normal weekly earnings during that period if the variation had taken effect at the beginning of that period.

(4)    If, during any part of the period calculated under the preceding subsections, the employee’s earnings were reduced, or the employee did not receive any earnings, because of absence from his or her employment for any reason, that part of that period shall be disregarded for the purposes of calculating the relevant period.

24    Section 9(2) has the effect, broadly speaking, that if a legally required increase is made to a rate of pay during the “relevant period” (i.e. the period beginning two weeks before injury), then the pre-increase part of the period is disregarded. Section 9(3) has the effect, again broadly speaking, that if such an adjustment (i.e. disregarding a pre-increase part of a period) would make it impracticable to calculate normal weekly earnings under s 8, or such calculated earnings would not fairly represent normal weekly earnings, then it is presumed that the variation took effect for the whole of the two-week period.

25    In the case of both s 9(2) and s 9(3) the consequence is, in one way or the other, that the injured employee has the benefit, when the calculation under s 8 is made, of the increase to the rate of pay represented by the variation.

26    Section 9(4) is directed to two different circumstances. It should be noted, first, that the possibilities to which s 9(4) is directed concern only “the period calculated under the preceding subsections”. That is to say, the period of two weeks directed by s 9(1) or the lesser period arising from the operation of s 9(2) (where it applies – c.f. s 9(3)).

27    Accordingly, s 9(4) allows periods of reduced earnings, or no earnings, during the two week (or lesser) period to be disregarded.

28    If, nevertheless, earnings calculated by reference to the remaining parts of the two-week period are fairly representative of the weekly rate at which the employee was being paid before the injury, the calculation proceeds in accordance with s 8(1) or s 8(2). If the period is too short, so that the normal weekly earnings calculated in that way would not fairly represent the weekly rate at which the employee was being paid, then s 8(5) remains available to permit the selection of some other period. It is important to emphasise, however, that the judgment to be made under s 9(4) is to be made before, not after, the engagement of s 8(5) because it must be made only in relation to the period directed by s 9, and not some alternative period selected under s 8(5).

29    What period may be selected under s 8(5)? It must obviously be one which meets the purpose of the calculation in which it will be used. That is to say, it must yield a fairly representative average of weekly working hours pre-injury and a fairly representative ordinary time rate of pay pre-injury so that a reliable calculation of normal weekly earnings pre-injury might be made for the purpose of s 19.

30    Subject to that overriding requirement (and to the proper engagement of s 8(5)) there does not appear to be any reason why the particular period chosen must terminate at the date of injury, although that would obviously be a possibility which the decision-maker might adopt.

The reasoning of the AAT

31    The AAT took the view that it should exercise its discretion under s 8(5) to identify a period different to the two weeks immediately before Ms Nicolas’ injury on 13 May 2011. The AAT said:

26.    In my view, the discretion under s 8(5) should be exercised in the Applicant’s favour. Here it was personal leave taken following the motor vehicle accident and maternity leave that led to Ms Nicolas not working, except for a few days, in the period between 8 December 2008 and 2 May 2011. When she returned to work on 2 May 2011, it was on a graduated return to work program commencing with her working four hours per day on three days a week and with the goal of increasing her hours to 22.5 hours per week over the period through to July 2011.

27.    In my view, reliance on the nine working days prior to Ms Nicolas’s injury on 13 May 2011 for the purpose of calculating her normal weekly earnings, does not permit the calculation of an amount that would fairly represent her normal weekly earnings before the injury. Having regard to the comments made by Gyles J in Gray at [14] quoted above, it should be remembered that the calculation is of normal weekly earnings. The nine working days prior to the injury were part of a graduated return to work program agreed between Ms Nicolas and Centrelink. The goal was to lift her working hours from the 12 hours per week worked in the initial period commencing on 2 May 2011, to 22.5 hours per week by the end of July. Thus, it is evident that the parties to the return to work program did not regard 12 hours per week as her normal hours.

(Emphasis in original.)

32    We will return to those passages. Then the AAT said:

28.    In determining what period would be reasonable, it should be noted that in Ms Nicolas’s case, the ‘relevant period’, which was slightly short of “the latest period of 2 weeks before the date of injury” (s 9(1)), involved her working reduced hours as part of a return to work program. As a result, her earnings were also reduced. To that extent, s 9(4) is also relevant and permits the period of reduced earnings to be disregarded for the purpose of calculating the relevant period.

33    In this passage the AAT appears to conclude that the whole of the two-week period pre-injury should be disregarded because it was a period of reduced earnings – i.e. reduced below ordinary earnings. In our view, this conclusion did not accord with the statutory scheme. Ms Nicolas’ earnings in that period were not reduced just because there was an expectation that she might subsequently work longer hours and earn a higher weekly pay. At the date of her injury that possibility had not been realised and is not the matter to which the necessary calculations were directed. Section 9(4) was not engaged. Section 9(4), for the reasons we gave earlier, did not allow the whole period to be disregarded – only those particular parts of the two-week period specified by s 9(1) where there were earnings reduced below the normal. That could not be said to have occurred in Ms Nicolas’ case.

34    The AAT went on to say:

30.    The difficulty in Ms Nicolas’s case is in identifying another period considered reasonable for the purpose of calculating an amount that fairly represents the weekly rate at which she was being paid. …

35    Then the AAT reasoned that the most reliable period to take as a “baseline” was the period before Ms Nicolas’ motor vehicle accident in December 2008. However, weekly working hours in that period could not be adopted without adjustment because, as earlier recorded, Ms Nicolas claimed in earlier proceedings (and accepted before the AAT) that she had lost 50% of pre-accident earning capacity. Taking those matters into account, the AAT concluded:

39.    On this basis, doing the best I can in the absence of any reliable evidence as to her capacity to work after the 2008 injury, and using the 30 hours per week Ms Nicolas last worked in the weeks before the motor vehicle accident as a baseline for her pre-injury hours and, discounting this to allow for her reduced earning capacity as a result of the motor vehicle accident, a figure of 20 hours per week would be reasonable for the purpose of fairly representing her normal weekly earnings before the injury. …

36    There are a number of difficulties with this approach.

37    First, the AAT appears to have reasoned towards a final figure of notional weekly hours, rather than identifying a period which, when applied together with the actual rate of pay then applying, would give a fair basis for the calculation required by s 8.

38    The AAT did not, in fact, identify what period, exactly, was to be substituted for the two weeks pre-injury period directed by s 9(1), unless it did by its reference to “the weeks before the motor vehicle accident”. This, however, may be a semantic criticism which may be put to one side.

39    Secondly, the period in which Ms Nicolas worked 30 hours per week was not a suitable period to select. It was not a reliable guide to the position in 2011. There had been a significant loss of earning capacity since that time.

40    Those matters make the use by the AAT of any period before Ms Nicolas’ motor vehicle accident in December 2008 an approach inconsistent with the statutory scheme.

41    It is now necessary to return to the passage at [26]-[27] of the AAT’s decision where the AAT put aside the two-week period pre-injury as not fairly representative.

42    In that period Ms Nicolas worked all of the hours expected of her for a two-week period. Those hours (and the rate of pay applied to them) gave “the weekly rate at which the employee was being paid in respect of … her employment before the injury”. The importance of that factual circumstance was not altered by the expectation that the hours might increase in the months to come. The task of the AAT was to examine whether the two-week period before the injury on 13 May 2011 was fairly representative of normal weekly earnings pre-injury, not to assess whether those earnings might be expected to increase in the future. Furthermore, if any adjustment was to be made, by selecting a different period, it was necessary to select a period which furnished actual hours and actual rates of pay. Once the period before December 2008 is put aside, there was no other period reasonably available.

43    The only other possibility was to use s 8(4) to make a comparison with a comparable employee, but that could yield no different result because the same working hours would need to be accepted in order for the work to be “comparable”.

44    For this reason also, the AAT did not, in our view, apply the statutory scheme.

Fresh evidence

45    On the appeal to this Court, Comcare relied (although it had not done so before the AAT) on the terms of an agreement made under the Workplace Relations Act 1996 (Cth) (the Centrelink Agreement 2009-2011). This new case was accompanied by a submission that the agreement was a “form of delegated legislation” about which the AAT was obliged to inform itself, independently of the conduct by the parties of their respective cases.

46    It is not necessary to rule on this submission. The agreement was accepted as evidence on the appeal subject to its relevance. It is not relevant to refer to it to decide the appeal. However, we would not accept that Comcare could fail to draw the attention of the AAT to material important for its case and then reasonably complain if the AAT did not refer to it, or take it into account. It is not necessary to say more about the issue in the present case.

Relief

47    In our view, Comcare has made out its case that the AAT failed to apply the statutory scheme.

48    This is one of those cases where this Court might make limited factual findings for the purpose of deciding the appeal (Administrative Appeals Tribunal Act 1975 (Cth) , s 44(7)).

49    It appears to us, on the findings which the AAT did make, that it was not open to the AAT to reject the period of two weeks prior to the injury on 13 May 2011 as the period to be used for the calculation under s 8(1) and that it was an error for the AAT to have done so.

50    The appropriate order is to set aside Order 1 of the AAT and order instead that the decision under review be affirmed.

51    Comcare has accepted that it should pay the costs of the appeal regardless of the outcome. On that basis we would not disturb the costs order made by the AAT.

Associate:

Dated:    22 September 2014