Editors --- "Income maintenance period: whether a payment in lieu of notice is a termination payment; meaning of 'reasonable expenditure'" [2009] SocSecRpr 45; (2009) 11(4) Social Security Reporter, Article 8

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Income maintenance period: whether a payment in lieu of notice is a termination payment; meaning of 'reasonable expenditure'

FINCH and SECRETARY TO THE DEEWR

(2009/745)

Decided: 29th September 2009 by D.G. Jarvis

Background

On 1 September 2008 Finch learned that she was to be made redundant from 8 September 2008. At the time she was working part-time and was in receipt of parenting payment single (PPS) at a reduced rate. She advised Centrelink and was told to provide her separation certificate when she received it. On 1 October 2008 she received a final payment of $13,332.91 from her employer which was made up of a redundancy payment of $9278.84, payment in lieu of notice of $3191.92 and an amount for annual leave of $862.15. On 2 October 2008 she used $10,696.06 to repay her car loan and some of the remaining money to pay bills, her credit card and rent.

Finch was initially paid the full amount of PPS. On 23 October 2008 she provided her separation certificate to Centrelink. A decision was made by a Centrelink officer that an income maintenance period (IMP) of 88 days applied to her PPS. A debt was raised of $439 for the one full instalment of PPS paid before the date the IMP was imposed. Finch applied for review of that decision. It was subsequently affirmed by an Authorised Review Officer (ARO) and by the Social Security Appeals Tribunal (SSAT). Finch applied to the Tribunal for review of the SSAT decision.

The issues

The issues before the Tribunal were:

(a) whether the IMP was correctly calculated;

(b) whether Finch was in severe financial hardship during the IMP;

(c) whether her expenditure was unavoidable or reasonable; and

(d) whether the Tribunal should exercise its discretion under s 1068A-E9 to determine that the whole or part of the IMP did not apply.

The evidence

Finch’s evidence was that she did not know an IMP would be imposed despite having previously worked for Centrelink. She said she spoke to Centrelink about her redundancy and was not advised that an IMP would apply. Under cross examination she conceded that she had thought that there would probably be a five week waiting period. She said that she did not recall reading a clause about IMPs on the back of the standard letters sent to her by Centrelink regarding her fortnightly payments and before this situation arose she did not even know what an IMP was.

The Tribunal accepted her evidence that she provided the separation certificate to Centrelink within a day or two after she received it.

Finch’s evidence about how she spent the termination payment was that she repaid her car loan because she was worried that she would not be able to meet the fortnightly repayments. She needed the car as transport for herself and her young son and to travel from her home in Broken Hill to Adelaide for medical appointments as she was suffering from a heart condition. She bought new tyres for her car because of the trips to and from Adelaide. Much of the remainder of the termination payment was spent on bills and rent.

Finch said that she did not wait to receive her separation certificate before she spent her termination payment as she was panicking about whether she would survive her redundancy financially, and was not thinking ‘normally’. She tried to redraw money from her car loan once she realised that an IMP was to be imposed but could not.

Legislation

Section 1068A-E4 of the Social Security Act 1991(the Act) deems a person who has received a ‘termination payment’ to have received ordinary income for a period equal to the period to which the payment relates.

The term ‘termination payment’ is defined by s.1068A-E12 to mean:

‘(a) a leave payment relating to a person’s employment that has been terminated;

or

(b) a redundancy payment.’

Section 1068A-E9 sets out when an IMP may be reduced, and provides as follows:

1068A E9 If the Secretary is satisfied that a person is in severe financial hardship because the person has incurred unavoidable or reasonable expenditure while an income maintenance period applies to the person, the Secretary may determine that the whole, or any part, of the period does not apply to the person.

Section 19C(2) of the Act provides in effect that a person in Finch’s situation is in severe financial hardship if the value of her liquid assets is less than the maximum fortnightly rate of PPS she would be entitled to if the IMP did not apply.

‘Liquid assets’ is defined in s.14A(1) to include cash and readily realisable assets.

The expression ‘unavoidable or reasonable expenditure’ is defined in s.19C(4):

‘(4) Unavoidable or reasonable expenditure, in relation to a person ...to whom an income maintenance period applies, includes,... the following expenditure:

(a) the reasonable costs of living that the person is taken, under subsection (6) or (7), to have incurred in respect of:

...

(iii) if an income maintenance period applies to the person—that part of the period that has already applied to the person;

(k) any other costs that the Secretary determines are unavoidable or reasonable expenditure in the circumstances in relation to a person.

However, unavoidable or reasonable expenditure does not include any reasonable costs of living other than those referred to in paragraph (a).’

Was the IMP correctly calculated?

On behalf of Finch submissions were made that Centrelink incorrectly calculated the IMP as it included the amount she received which was a payment in lieu of notice. The Secretary agreed that there was a payment in lieu of notice, but submitted that this did not affect the calculation of the IMP, since it was still a termination or redundancy payment pursuant to the Act.

The Tribunal considered whether a payment in lieu of notice was a ‘termination payment’ within the meaning of the statutory definition. It concluded that it was not. It was not a leave payment. It was a lump sum payment which Finch’s employer chose to make instead of giving her one month’s notice as required in her contract of employment. It could not be said to be a redundancy payment which is a payment made by an employer in consequence of the redundancy of an employee, usually calculated by reference to a formula that is dependent on the number of years of service of the employee who is being made redundant.

The Tribunal concluded that in the absence of a provision deeming the payment to be treated in any other way it should be treated as a payment of income paid on the day on which it was received and the IMP should not have included the period to which this payment related.

The Tribunal noted that Centrelink’s internal policy guide states that:

‘Leave and redundancy payments can include:

...

• Payment in lieu of notice.’

It noted that while the Tribunal should adhere to a policy guide unless there is a cogent reason to do otherwise (Drake v Minister for Immigration and Ethnic Affairs (1979) 2 ALD 60), in this case the fact that the Centrelink guide did not reflect the correct legal effect of the relevant sections of the Act was a cogent reason not to follow it.

Severe financial hardship

The Tribunal next considered whether the IMP could be reduced due to Finch being in severe financial hardship.

The Tribunal accepted her evidence that there were some periods during the IMP and after she paid out her car loan when her liquid assets were less than the maximum fortnightly rate of PPS which was $567.90. Therefore she was in severe financial hardship. However it noted that the discretion under s.1069A-E9 to reduce the IMP is only enlivened when severe financial hardship has arisen because the person has incurred ‘unavoidable’ or ‘reasonable’ expenditure during the IMP.

Was the repayment of the car loan an unavoidable or reasonable expense?

The Tribunal noted that the terms ‘unavoidable’ and ‘reasonable’ were not defined under the Act and considered that as both terms were used they must be intended to have separate meanings. Although the Tribunal considered the car loan repayment was not an unavoidable expense since Finch could have continued to make fortnightly repayments it also had to consider whether it was ‘reasonable’.

The Tribunal considered the following:

1. Finch’s submission that she was not aware that an IMP would be imposed and it was very important that she did not lose the car through being unable to meet the fortnightly repayments;

2. Finch had previously worked for Centrelink and was aware that in some circumstances preclusion periods could be imposed and she should have read her letters carefully.

3. Finch paid out the loan on the day after she received her termination payment when she had no other employment and so left herself very short of liquid funds.

The Tribunal concluded that the loan repayment was not reasonable and so should not be disregarded. It cited other cases that had drawn similar conclusions: Bazzi and Secretary, Department of Family and Community Services [2000] AATA 794;Nicola and Secretary, Department of Education, Employment and Workplace Relations [2008] AATA 134; Bailey and Secretary, Department of Education, Employment and Workplace Relations [2009] AATA 173, and Goldfinch and Secretary, Department of Family and Community Services [2000] AATA 837.

The Tribunal concluded that the discretion in s.1068A-E9 to determine that the whole or part of the IMP did not apply to Finch could not be exercised.

Formal decision

The decision under review was remitted to the respondent for reconsideration in accordance with the Tribunal’s reasons.

[C.E.]