The Cassandra Complex
The Discovery of the Flaw
As described in part one, the Accident Compensation Corporation, due to a toxic mix of circumstances, derailed the entire new levy and entitlement process for self-employed earners who receive PAYE Income Payments for the purposes of the PAYE Rules.
As I mentioned, this process became a ghost in the machine and a matter that had never been directly appealed as it is not possible to appeal an entitlement that has never been acknowledged under law by the Corporation.
One has to be aware that the process was inherently flawed and the courts and the government had allowed themselves to be persuaded that the Corporation's actions were lawful based purely on the Corporation's own assertions.
The Corporation's flawed and wholly unlawful "reasoning" was to, in effect, become the "law" that would be applied to all the earners in question from the 1st of April 2008 to the current time of this writing.
As I said in part one of this article, the only chance that this aberration in process would be identified was if someone reverse engineered the entire levy entitlement process. Who would do such a thing? The Corporation had created a system that naturally resulted in having to pay out a fraction of what the law required.
The Corporation has very little interest in law but it has always been highly motivated and determined to deny entitlement where ever and whenever it is possible. The IRD was blind to the situation though it should not have been at certain levels.
Clearly what was needed was a lay advocate who had never done a earnings related claim for a self-employed earner so was determined not to make a fool out of himself.
For this indeed was the case. I had gone to my accountant to go over my end of year documents for Cassandra Shield around April of 2017. This accountant told me of a client who was having problems with ACC and asked if I was willing to look at it.
I agreed to do so but I knew I had some spadework to do. As an unqualified ACC lay advocate who had gone toe to toe with ACC more than once I am completely dependent on being right. If I make a material mistake I will not only lose for the client but I would be open to attack from the Corporation on future appeals.
As it happened this person was a self-employed person who had received a PAYE Income Payment in the form a schedular payment less than four weeks before her incapacitating injury.
To my mind these earnings counted as earnings received immediately before incapacity so therefore my client was entitled to a payout under the employee formula contained in the entitlement clause 38 accordingly.
I noted that the Corporation had already stated that they also were treating these earnings as earnings received immediately before incapacity and therefore the client was entitled to have her compensation calculated under clause 38.
So far so good but the decision provided declined to provide entitlement. Like the Corporation back in 2008 I looked at the matter from the entitlement side of the consideration.
I had nothing outside of the most basic understanding of the law's requirements. All the weekly compensation claims I had dealt with were PAYE Salary and Wage claims where the Corporation seeks to decline based on incapacity arguments as their go to.
Once the incapacity argument was won the system took over and the correct compensation provided. This was a whole new level. The Corporation had accepted incapacity on this claim but had declined the client based on vague reasoning around status of earner in relation to the earnings in question.
My original assessment led me to conclude that the claim had been assessed under the wrong formula. The Corporation had issued a decision under clause 38 (2)(c) and I decided that the correct formula should have been the much simpler, and as it happens, the far more lucrative clause 38 (2)(a).
I asked the Corporation to issue a fresh decision and it duly did so, once again deciding to the decline the claim. The 38 (2)(a) formula did not apply because the claimant was not in her first year of self-employment was the reasoning.
A red flag popped up immediately. The Corporation had issued a decision on a requirement was completely absent in the legislation.
(2) The amounts that apply under this subclause are,—
(a) for claimants who first commenced receiving earnings as self-employed persons in the tax year in which the incapacity commenced, the amount calculated using the following formula:
a ÷ b
As anyone with the most rudimentary reading and comprehension skills can clearly see, the legislation that was being applied is completely absent of any first year of self-employment consideration.
I would not be much of an advocate if I failed to spot that highly pertinent consideration and I searched the ACC case law database to see what the courts had to say about a 38 (2)(a) claim.
As it turned out the courts had absolutely nothing to add to the matter. There was not one 38 (2)(a) appeal on record. I noted this fact in the context of how unhelpful that was to the task of addressing the question I sought to seek an answer on.
However one other claim did show up that was an appeal that centered on the Shareholder Employee entitlement found under clause 39 (2)(a).
Bartrom was a case that the Corporation was relying on to support its contention on the first year of self-employment determination it had provided.
I also noted that the formulas for both self-employed clause 38 claimants and shareholder-employee clause 39 claimants were wholly identical. This seemed to be a good place to start my enquires.
The case is Bartrom v ACC and Bartrom's estate had lodged an appeal claiming that the estate had the legal right to claim backdated earnings under clause 39(2)(a). The appeal was lost but the judgment was extremely informative.
The District Court gave a detailed analysis of the entitlement and ruled that the entitlement must be considered under the legal term "strictly interpreted law". That judgment was appealed and lost again at the High Court who reinforced the District Court's decision in detail.
There were three factors of interest to me in this case. I had learned about the application of strictly interpreted law, I noted that Bartrom's first year of employment as a shareholder-employee was TEN years before the year of incapacity in question and that neither the District Court nor the High Court had a single word to say on that matter.
So I was now looking at legislation that contained no such test and two comprehensive judgments that were also absent of any such test yet the Corporation was clearly stating that this first year of self-employment test was the test they were applying.
The argument they were relying on was not even advanced as a legal consideration by the Corporation's counsel in the Bartrom appeals yet here ACC was, relying on the judgment that alerted me to the fact that there was something seriously wrong in the process.
The matter seemed clear to me. The Corporation was trying duck liability under clause 38 (2)(a), the legislation was strictly interpreted and the claimant had earnings immediately before incapacity in the form of PAYE Income as I had determined under the IT Act 2007 RD 3.
I put forward these arguments to ACC accounting. The first accountant came back to me with reasoning so flawed that I required another response. Another interpretation came back, also flawed so again I argued for another response.
Another accountant steps in and gives me yet another interpretation. So I now had five different interpretations (counting the original decisions) of a process that was supposed to be strictly interpreted law.
In the meantime I had filed for an appeal and off we went to a review hearing. That hearing went badly sideways and in all honesty I considered quitting ACC advocacy. Unfortunately for the Corporation I decided to keep at it.
The Corporation's lawyer went after my client from angles that I had not considered relevant to the matters we were actually appealing. I was very tired on the day due to various reasons.
This unexpected attack combined with the lawyer's demeanor, in that he kept looking away whenever I tried to make eye contact, alerted me to the fact something very wrong was going down. My client and I agreed afterwards that we were not likely to win.
We lost the review. The reasoning provided was all over the place as the reviewer sought to implement the ACC's unlawful but widely accepted construct to the circumstances at hand. It was also evident that he viewed my client and myself in a dim light.
After a day or so to recover my equilibrium from my worst review ever I settled in for what I predicted to be quite the dispute. I appealed the review decision and the DC was notified. It takes a long time to get these appeals heard and in the meantime I was determined to keep at it.
I considered the facts that I had before me and the fact of the absence of any case law itched at the back of my mind. One night I started to ponder. What reason could there be for there being no case law at all for over ten years?
One possible reason was...no that can't be possible, it has to be something else. But there is no case law and the only reason that seems to make sense is if..... lets put this to the test.
I sent a request under the Official Information Act asking a range of questions and there was one I was particularly interested in getting an answer to. That question was : How many self-employed earners have been paid entitlement under clause 38 (2)(a) since 2005?
At this stage I was not aware of the 2008 amendments and oblivious to how pertinent their discovery would turn out to be. I knew that the law had been changed in 2005 and 2008 was not on my radar. Yet.
One can imagine my shock when the answer came back. ACC could not answer the question because there was no auditing system in place to provide an answer. The agency that could tell me the cost of avocado cutting related injuries to down to the cent value in any given year could not provide me with a single example of the clause in question being paid out under.
Red flags were now in abundance and I knew for certain that the Corporation had misapplied clause 38 at some inherent level. The problem was I had no idea how. I went over the legislation repeatedly.
There were many sections and schedules to examine and understand that was present in two of the most complex pieces of legislation in law. To make things worse there were sections in play that were complete red herrings at some stages in the process but still an abstract consideration to be accommodated in others.
Some sections seemed to sit in contradiction with each other. The answer had to be in there somewhere. Of course it just so happened that I had to become converse in parliamentary process, ACC law and income tax law to achieve this.
As the appeal date grew closer I had gotten a grasp on much of what was required and as a result of this more advanced understanding I had identified certain areas of interest.
The first was that I noticed that the IRD documentation was not accurately presenting the earnings as PAYE as required by the IT Act 2007. It was clear that schedular payments were being treated as their own category of Income and not a category of earnings under the PAYE Income Payment system.
The second was the invoice that states:
"Your invoice has been calculated based on schedular payments that were declared to Inland Revenue by your employer. Schedular payments are treated as self-employed earnings because no ACC levy is deducted".
The question that became dominate in my thinking was, what is the legislation the Corporation is relying on to empower itself to unilaterally alter the legal status of a claimants earnings?
There can be no doubt that the Corporation is doing just that but as hard as I tried I could not find any legislation that allowed it. This combined with the fact of the fatally flawed IRD documentation prompted me to consider just why it is that no ACC levy is deducted?
It was at this point that my attention switched firmly to the levy processes in legislation. I had seen Schedule 4 before but upon reading it had made the same mistake as the Corporation did in 2008 and assumed s 221 was there for salary and wage earners.
I decided to have another look, this time to focus fully on the question if Schedule 4 did indeed only apply to salary and wage earners. Something leapt out at me immediately.
(a) any amount included in the earnings as an employee of an employer as if such amount were a PAYE income payment (or, as the case may require, salary or wages under section RD 5 of the Income Tax Act 2007) of the employee for the purposes of the PAYE rules; and
I could see now that salary and wages was not the entire consideration but rather a sub consideration in the wider consideration of PAYE Income Payments. I read section 221, noted that all "employers" were supposed to levy all "employees" at the time of payment, and noted that those payments could only be PAYE Income Payments under tax law.
In Schedule 4 clause 22 I noted that the clause was a definition clause that applied to the application of Schedule 4 and by virtue of that fact section 221. The definitions that applied, according to this clause were the definitions that applied in the Income Tax Act 2007 YA 1.
The definition of employee under the IT Act 2007 is any person who receives a PAYE Income Payment.
The definition of PAYE Income Payment under YA 1 is the wording provided in RD 3.
RD 3 states that PAYE Income Payments are salary and wages, other and schedular payments.
It was at that moment that much became clear to me. The entitlement was silent in the legislation as it had been unlawfully nullified by the Corporation. The Corporation was failing to levy the payments as required by law and then refusing to pay entitlements as a result.
This explained the complete absence of case law, the wildly varied reasoning from ACC accounting on what was supposed to be strictly interpreted law and the alternative reality presented by the resulting entitlement process.
Documented flaws in the entitlement process
Naturally I lost no time in raising this highly pertinent matter with the Corporation and equally naturally the Corporation did not want to have a bar of it. This takes me to the next instalment which details the misfeasance and corruption that has taken place since.