CASE 12/98

Members:
DW Muller SM

Tribunal:
Administrative Appeals Tribunal

Decision date: 17 June 1998

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DW Muller (Senior Member)

This is an application to review an objection decision dated 7 March 1997 which determined that a sum of money received by the taxpayer, upon cessation of employment as part of a Voluntary Staff Separation Program, was not a bona fide redundancy payment.

2. The relevant background to this application is as follows:

• (a) The taxpayer joined the Australian Taxation Office (ATO) in July 1951 and has occupied the following positions:

  23. 7.51  Clerical Assistant
   2. 6.53  Clerk
   6. 2.61  Assessor Gr. 1 to 4
   5. 7.65  Taxation Auditor
  22. 5.75  Advising Officer
  25.11.76  Taxation Auditor
  19. 5.77  Snr. Advising Officer
  21. 1.82  (........)
  23. 1.84  Taxation Auditor
  20.12.84  Director
  March 88  Executive Officer
            

• (b) On 24 February 1992 position number 500000 was created in the Australian Taxation Office.
• (c) The position was classified as Senior Officer Grade B (SOGB).
• (d) On 1 July 1992 the taxpayer was appointed to position 500000.
• (e) Three other persons were appointed to the position and one other person was appointed to a comparable position.
• (f) From mid-1993 through to early 1995 the taxpayer came into conflict with an Assistant Deputy Commissioner (ADC). The nature of the various disputes between the taxpayer and the ADC are not relevant for the purpose of these proceedings, but the fact is, that there were claims and counter-claims, grievances lodged and charges of impropriety laid.
• (g) The taxpayer felt that he was being harassed.
• (h) In June/July 1994 a reorganisation was proposed and piloted.
• (i) The taxpayer's position 500000 became reportable to Position No. 500001. There were no changes to the duty statement, other than the change of immediate supervisor.
• (j) As a result of the reorganisation it was proposed that the four positions, plus the comparable position be reduced in number to two positions.
• (k) The taxpayer was not selected for one of the new positions. He was advised that there were no other positions available at his level. There was no evidence presented to the Tribunal to show how the two positions were filled, or why the taxpayer was not appointed to one of them.
• (l) Toward the end of August 1994, the taxpayer was notified that he would no longer be required to carry out his former role, but instead would be asked to carry out a tax technical operative role with no responsibility for staff.
• (m) From August 1994 to early 1995, the taxpayer was given work which he regarded as meaningless. He did very little work because he spent a large portion of late 1994 and early 1995 on sick leave.
• (n) On 25 November 1994, the Commissioner of Taxation announced a Voluntary Staff Separation Program. The announcement contained the following passages:
  • ``Over the past few years the ATO has undergone rapid and significant change. We have become an innovative organisation, more responsive to the changing needs of the Australian community and better supported by new technology. Changes in our approaches and workloads have given rise to some imbalances in the skills and location of staff.
  • The Agency Agreement has allowed us to balance the ATO-wide staffing and funding picture. However, the shift in workloads across the office combined with low levels of staff separations means that we have too many staff in some locations and not enough in others. The staff imbalances are being felt at the ASO 1 and ASO 2 levels in Melbourne and Sydney.

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    ATC 185

  • After a lot of thought I have decided that the time is right for us to run a Voluntary Separation Program to help address this problem.
  • Another impact of change came home to me during one of our Agency Bargain meetings. I was asked why people who had contributed a lot to the ATO but who were now finding it difficult to cope with the pace of recent change could not be given an opportunity to leave with dignity.
  • I have therefore decided that around 250 further voluntary separation packages will be made available for these people. The offers will be made across all classification levels and all offices. Criteria for these offers will be provided in the Information Kit referred to below.
  • There are two categories to this program:
  • Category One (relates to Clause 5(e)(i) of the APS Redeployment and Retirement (Redundancy) Award 1987)
  • In recognition of current staffing imbalances at the ASO 1 and ASO 2 levels , the ATO will make around 200 separation offers in the Melbourne metropolitan area and around 80 separation offers in the Sydney metropolitan area.
  • Category Two (relates to Clause 5(e)(ii) of the APS Redeployment and Retirement (Redundancy) Award 1987)
  • This category recognises that we have staff at all levels who have worked effectively for many years and now through no fault of their own have found themselves in a rapidly changing environment for which they may not possess the relevant skills and knowledge. To address this, we will be making separation offers to around 250 staff at all classifications and in all regions in accordance with the process and criteria discussed below.''
• (o) On 25 November 1994 Australian Taxation Office Voluntary Separation Program Bulletin 1 was circulated to staff. The Bulletin addressed many topics, including the impact of taxation on any separation package:
  • `` Why are people in category 2 not assessed in the same way as category 1 people for taxation purposes?
  • If you come within Category 2 of the program you will receive a separation package because you are an excess officer under Clause 5(e)(ii) of the Award. That is, the Commissioner has decided that your services cannot effectively be used because of technological or other changes in the work methods of the ATO or changes in the nature, extent or organisation of the ATO.
  • In these circumstances you are not redundant for income tax purposes. You are receiving the separation package because you are having difficulty coping with the level and pace of change in the ATO and not because the position you are holding is no longer required.''
• (p) On 5 December 1994 Bulletin No. 2 was circulated to Australian Taxation Office staff. This Bulletin spelled out in more detail the arrangements being made between the Australian Taxation Office and the Community and Public Sector Union, to put the Voluntary Staff Separation Program into effect.
• (q) On 27 January 1995, the taxpayer submitted a nomination form for consideration under category 2 of the Program. In support of the taxpayer's application, a Deputy Commissioner wrote:
  • ``* I strongly support (blank) application for vol. separation on the basis that he meets the criteria to a high degree. (Blank) has a confrontationist & adversarial style which is more atuned (sic) to the old investigation & audit ways than the current broad based compliance approaches. Also, he has not readily adapted to current EEO policies.
  • * To my knowledge, a number of (blank) supervisors (......,......,.......,......) have worked to assist (blank) to adapt to new approaches. These attempts have failed.
  • * Note Mr (blank) statement to (blank): `I think your service record has showed a high level of achievement in the past. However, you need to recognise that changes occuring (sic) in the ATO & APS make previous ways of operating no

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    ATC 186

    longer acceptable.' I concur with Mr. (blank) assessment.
  • * Note Mr (blank) high incidence of sick leave (4.5 months since August 94).
  • * Mr (blank) is no longer a complex audit case manager. His work now has to be associated with law clarification or impeded debt. Mr (blank) has difficulty with a compliance improvement approach & there is difficulty in utilising him effectively in these areas.''
• (r) On 8 March 1995 the taxpayer was advised of successful nomination for a Voluntary Separation Package and invited to be retired in accordance with Clause 7 of the Australian Public Service (Redeployment and Retirement) Redundancy Award 1987, relating to voluntary retrenchment.
• (s) On 17 March 1995 the taxpayer elected to be retired in accordance with Clause 7 of the Award and nominated 3 May 1995 as his preferred date for actual retirement.
• (t) On 3 May 1995, the taxpayer was given a document headed `` Public Service Act 1922 - Section 76W Notice of Retirement - Excess Officer''. The document was signed by a delegate for the Commissioner of Taxation. The substantive part of the document read as follows:
  • `` Retirement
  • I, (blank), delegate of the Commissioner of Taxation:
    • (1) being satisfied that you are, within the meaning of subsection 7(3) of the Public Service Act, an excess officer;
    • (2) having considered whether it would be in the interests of the efficient administration of the Office to transfer you under section 50 of that Act; and
    • (3) having received your written consent to the giving of this notice;
  • GIVE NOTICE TO YOU, (blank), Senior Officer Grade B, that you are to be retired from the Australian Public Service.
  • Date of Effect
  • This retirement will take effect at the expiration of 3 May 1995.''
• (u) Subsection 7(3) of the Public Service Act provides:
  • ``An officer of a Department is an excess officer for the purposes of a provision of this Act if:
    • (a) the officer is included in a class of officers employed in the Department, which class comprises a greater number of officers than is necessary for the efficient and economical working of the Department;
    • (b) the services of the officer cannot be effectively used because of technological or other changes in the work methods of the Department or changes in the nature, extent or organisation of the functions of the Department; or
    • (c) where the duties usually performed by the officer are to be performed at a different locality and the Commissioner has determined that the provision applies in relation to the re-location of the performance of those duties - the officer is not willing to perform duties at that locality.''
• (v) On 3 May 1995, the taxpayer ceased duties with the ATO.
• (w) The taxpayer received $60,312.85, described as an Eligible Termination Payment (ETP), split into pre-July 1983 and post-June 1983 components.

3. The taxpayer has submitted that an amount of $18,428.00 assessed as ETP should have been assessed as a bona fide redundancy payment within the meaning of the term in section 27F of the Income Tax Assessment Act 1936 (the Act). He submitted that it did not exceed his tax free limit and should not have been included as assessable income.

4. A convenient starting point for the analysis of this situation is Taxation Ruling TR 94/12, dated 31 March 1994. The Ruling outlines the Commissioner's view of the law. This view relates to the requirements for a payment to qualify as a bona fide redundancy payment under section 27F of the Act.

``Bona fide redundancy payments

8. Payments made under redundancy packages will qualify for concessional treatment under section 27F if an employee is dismissed by reason of his or her bona fide redundancy.

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ATC 187

9. Dismissal carries with it the concept of involuntary (on the employee's part) termination of employment and will ordinarily be instigated by the employer. The involuntary nature of dismissal does not prevent the employer, with a view to maintaining industrial harmony and minimising the disruption to employees, from seeking expressions of interest from those employees who would like to accept a redundancy package. It simply means that the employer ultimately decides that the number of staff positions will be reduced and determines which employees will actually be made redundant.

10. The seeking of expressions of interest in a bona fide redundancy situation are different from the acceptance of offers made under an approved early retirement scheme. An expression of interest in a bona fide redundancy situation does not necessarily result in the dismissal of the employee. While the employer will undoubtedly take any expressions of interest into account when he or she is considering which employees are to be dismissed, ultimately it is the employer who decides which employees will actually be dismissed. The acceptance of an offer under an approved early retirement scheme, on the other hand, will usually result in the termination of the employee's employment in accordance with the scheme. In this case the decision to terminate employment is made by the employee.

11. Dismissal also includes the notion of constructive dismissal. Constructive dismissal arises if the employer places an employee in a position where he or she has little option but to tender his or her resignation.

12. Redundancy can be described as the situation where an employer no longer requires employees to carry out work of a particular kind or to carry out work of a particular kind at the same location. Redundancy refers to a job becoming redundant and not to an employee becoming redundant. An employee's job is considered to be redundant if:

• • an employer has made a definite decision that the employer no longer wishes the job the employee has been doing to be done by any one;
• • that decision is not due to the ordinary and customary turnover of labour;
• • that decision led to the termination of the employee's employment; and
• • that termination of employment is not on account of any personal act or default of the employee.

...

38. The consultative process which is undertaken in a bona fide redundancy process is different to the offer made to a class of employees when implementing an approved early retirement scheme. In a bona fide redundancy situation, the employer merely seeks expressions of interest from those employees who would like to accept a redundancy package. Unlike the acceptance of an offer under an approved early retirement scheme, that expression of interest does not necessarily result in the termination of the employee's employment. While the employer will undoubtedly take any expressions of interest into account when he or she is considering which employees are to be dismissed, ultimately it is the employer who decides which employees will actually be dismissed.

39. Under an approved early retirement scheme, on the other hand, the employer makes an offer to a class of employees. If that offer is accepted by an employee, the employee's employment will be terminated in accordance with the scheme. In this case the decision to terminate employment is made by the employee.

Constructive Dismissal

40. Dismissal also includes the notion of constructive dismissal. Constructive dismissal arises if an employer places an employee in a position in which the employee has little option but to tender his or her resignation. For example, an employer may be reducing the size of his or her operations and may offer a voluntary redundancy package to a selected employee. If the employee refuses the offer he or she may be forced to accept another position which may not be commensurate with his or her qualifications and experience or may involve a lower level of remuneration.

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ATC 188

Alternatively, the employee may consider that if he or she does not accept the package, he or she will be dismissed without the benefits available under the package. The termination of employment in these circumstances would amount to constructive dismissal.

Meaning of redundancy

41. Redundancy can be described as the situation where an employer no longer requires employees to carry out work of a particular kind or to carry out work of a particular kind at the same location. Bray CJ in R v. The Industrial Commission of South Australia; ex parte Adelaide Milk Supply Co-operative Ltd & Ors (1977) 44 SAIR 1202 at page 1205; (1977) 16 SASR 6 at page 8 defined redundancy as follows:

`... a job becomes redundant when an employer no longer desires to have it performed by anyone. A dismissal for redundancy seems to be a dismissal, not on account of any act or default of the employee dismissed or any consideration peculiar to him, but because the employer no longer wishes the job the employee has been doing to be done by anyone.'

42. Redundancy refers to a job becoming redundant and not to an employee becoming redundant (Short v FW Hercus Pty Ltd (1993) 40 FCR 511; (1993) 46 IR 128; (1993) 35 AILR 151). An employee's job is considered to be redundant if:

• • an employer has made a definite decision that the employer no longer wishes the job the employee has been doing to be done by any one;
• • that decision is not due to the ordinary and customary turnover of labour;
• • that decision led to the termination of the employee's employment; and
• • that termination of employment is not on account of any personal act or default of the employee.

43. It follows that redundancy is a situation where the dismissal of an employee is not caused by any consideration peculiar to the employee. In some cases, redundancy arrangements may have a purpose similar to those mentioned in subparagraphs (i) to (v) of paragraph 27E(1)(b). Redundancy does not, however, extend to a situation where an employee is dismissed for personal or disciplinary reasons or because the employee was inefficient.

44. Generally, the bona fide redundancy of an employee will be evidenced by the accompanying dismissal of other employees of the employer in similar occupational grounds, although the number of employees concerned is not, of itself, necessarily significant. If a dismissed employee is replaced by another employee with a similar occupational skill, it is likely that the employee was dismissed for reasons other than bona fide redundancy.''

5. The subject of ``bona fide redundancy payments'' was canvassed in two decisions of Deputy President Dr. Gerber of the Administrative Appeals Tribunal. They were Case V67,
88 ATC 505 and
Hollows v FC of T 94 ATC 2032. I respectfully adopt the following passages from those two cases:

V67 [at 508]:

``... I am satisfied that a provision which, put crudely, means `resign or else' has all the hallmarks of leaving a loaded pistol in the hands of an officer and gentleman and telling him that he is about to be court- martialled for hocking the regimental silver. Applied to the instant case, I have concluded that the `option' of a voluntary retirement is a Faustian bargain equivalent to a constructive dismissal; it is not the `voluntary' retirement referred to in sec. 27F(1).''

Hollows [at 2041-2042]:

``33. At first blush, it may seem odd that, in a subdivision of the Act containing labyrinthine definitions, Parliament has not provided a definition of `bona fide redundancy' or `redundancy'. However, when it is recalled that `it is a well-known rule of courts of law that words should be taken to be used in their ordinary sense [ unless a contrary intention is present]' (R v Peters (1886) 16 QBD 636 at 641, per Lord Coleridge CJ), or put another way, `the primary rule of construction of words in a statute is that when the words are familiar and are in common or general use they should be given their ordinary and popular meaning' (R v Dunn & Ors [1973] 2 NZLR 481 at 483), it is, I consider, not so

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ATC 189

surprising. Indeed, both parties' representatives provided me with dictionary meanings to establish what was the ordinary meaning of `redundancy'. Understandably, the meaning of `bona fide' in this context was not in dispute, meaning simply `genuine'.

...

35. The passage (from page 91) of that explanatory memorandum which is directly relevant to the issues here in dispute reads:

`The terms ``dismissal'' and ``redundancy'' are not defined in the legislation and, therefore, should be given their ordinary meanings. ``Dismissal'' carries with it the concept of the involuntary (on the taxpayer's part) termination of his [or her] employment. ``Redundancy'' carries the concept that the requirements of the employer for employees to carry out work of a particular kind, or for employees to carry out work of a particular kind in the place where they were so employed, have ceased or diminished or are expected to cease or diminish. Redundancy, however, would not extend to the dismissal of an employee for personal or disciplinary reasons or for reasons that the employee was inefficient.'

From its opening, that passage indicates that `redundancy', as used in sub-s 27F(1), is intended to have its ordinary meaning.

36. But what is the ordinary meaning of `redundancy'? As noted above, both parties' representatives provided me with dictionary meanings to establish what was the ordinary meaning of `redundancy' and `redundant'. Recourse to dictionaries for assistance in circumstances such as this has long been viewed as appropriate (see for example R v Peters (supra)). The second edition of the Macquarie Dictionary defines `redundancy' at p 1477 as `1. the state of being redundant. 2. a redundant thing, part or amount; a superfluity. 3. the payment made to a redundant employee.' and `redundant' as `1. being in excess; exceeding what is usual or natural; a redundant part. 2. characterised by or using too many words to express ideas; a redundant style. 3. denoting or pertaining to an employee who is or becomes superfluous to the needs of his employer...'.

...

38. Further, as Anderson J pointed out in Falconer v Pedersen [1974] VR 185 at 187:

`One must interpret the phrase as used in its context, assisted as it may be, but not necessarily bound, by one of a variety of dictionary definitions.'

39.... in R v The Industrial Commission of South Australia; Ex parte Adelaide Milk Supply Co-operative Limited & Ors (1977) 44 SAIR 1202, concerning the meaning of `redundancy'. At p 1232 of that decision, Bright J stated:

`The word ``redundant'' does not occur in the [Industrial Conciliation and Arbitration] Act [1972]. In its industrial sense it is not defined in the Oxford Dictionary.... A consideration of the case leads me to think that the question of the redundancy of an employee is linked to the question of the continued utility of the job which he [or she] is performing. In other words it does not relate to the personal competence of the employee in the job which he [or she] is performing. If I am right in this, then in its widest form the concept of redundancy connotes that an employee becomes redundant whenever (and for whatever reason) his [or her] employer no longer desires to have performed the job which that employee was doing.'

At p 1205 of that decision, Bray CJ stated:

`I agree with Bright J that the concept of redundancy in the context we are discussing seems to be simply this, that a job becomes redundant when the employer no longer desires to have it performed by anyone. A dismissal for redundancy seems to be a dismissal, not on account of any personal act or default of the employee dismissed or any consideration peculiar to him [or her], but because the employer no longer wishes the job the employee has been doing to be done by anyone.'

... I consider that their Honours' observations were not restricted to the legislation with which the Court was dealing, but were made in a general

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ATC 190

industrial context which is a context not foreign to the spheres in relation to which sec 27F of the Act applies. Further, as Bright J noted, `the question of the redundancy of an employee is linked to the question of the continued utility of the job which he [or she] is performing'. In any event, I consider that their Honours' abovementioned comments set out what I consider to be the ordinary meaning of `redundancy' and the meaning of that term in the context of sec 27F of the Act.''

6. I am satisfied that, as a result of re- organisation in mid-1994, five positions became two positions. Three positions were, in effect, abolished. The taxpayer's former position was one of the three abolished.

7. I am also satisfied that upon the abolition of the taxpayer's position, management had a problem in finding him work. He was shunted sideways and given practically meaningless tasks. It was a non-too-subtle way of forcing him into retirement, if he wished to retain his dignity. It was a constructive dismissal.

8. I find that after mid-1994, management no longer wished the job previously undertaken by the taxpayer, prior to the reorganisation, to be done by anyone. This decision led to the ultimate termination of the taxpayer's employment.

9. I find that the payment, the subject of this review, was a bona fide redundancy payment.

10. The decision under review is set aside.