Benge v BlueScope Steel (AIS) Pty Ltd (No.2)
[2020] FCCA 515
•13 March 2020
FEDERAL CIRCUIT COURT OF AUSTRALIA
| BENGE & ANOR v BLUESCOPE STEEL (AIS) PTY LTD (No.2) | [2020] FCCA 515 |
| Catchwords: INDUSTRIAL LAW – Fair Work Act 2009 (Cth) – Claims for relief under s.545 of the Fair Work Act 2009 (Cth) by employees of respondent for amounts claimed to be due to them under their written employment contracts for pre-paid overtime not paid to them as and from 10 January 2016 in contravention of s.323 of the Fair Work Act 2009 (Cth) – judgment answers questions dealing with the proper construction of the employment contracts – whether there were any valid variations to the employment contracts justifying the non-payment of pre-paid overtime as and from 10 January 2016 – whether in the circumstances the applicants consented to the termination and non-payment of pre-paid overtime by continuing to work for the respondent after the pre-paid overtime was terminated and not paid to them – whether the respondent repudiated the employment contracts by not paying pre-paid overtime to the applicants as and from 10 January 2016 – whether in the circumstances the applicants accepted any repudiation. |
| Legislation: Fair Work Act 2009 (Cth), ss.12, 139, 323, 545 Federal Circuit Court Rules 2001 (Cth) |
| Cases cited: Abod Pty Ltd v Kingston Finance Pty Limited [2019] NSWSC 242 |
| First Applicant: | ROSS BENGE |
| Second Applicant: | PETER CONNELLY |
| Respondent: | BLUESCOPE STEEL (AIS) PTY LTD |
| File Number: | SYG 2795 of 2016 |
| Judgment of: | Judge Dowdy |
| Hearing dates of Evidence: | 2 April 2019, 3 April 2019, 4 April 2019 & 5 April 2019 |
| Hearing dates of Submissions: | 27 August 2019 & 28 August 2019 |
| Date of Provision by Parties of Agreed Chronology: | 28 November 2019 |
| Delivered at: | Sydney |
| Delivered on: | 13 March 2020 |
REPRESENTATION
| Counsel for the Applicants: | Mr A. Howell of Counsel |
| Solicitors for the Applicants: | Crawford de Carne Lawyers |
| Counsel for the Respondent: | Mr G. J. Hatcher SC with Mr K. Brotherson |
| Solicitors for the Respondent: | Hall & Wilcox |
THE ORDERS OF THE COURT ARE AS FOLLOWS:
Order that Questions (1)(a) – (e) in the order made on 19 February 2020 in this proceeding be answered as follows:
Question 1(a)
What is the proper construction of the employment contracts of the Applicants dated respectively 4 November 2010 and 9 November 2011 with particular reference to the annual salary / remuneration review provisions?
Answer
See the Reasons for Judgment, and in particular [17] – [18] thereof.
Question (1)(b)
Whether in the events and circumstances which happened in 2015 and 2016 the Respondent acted in accordance with or validly varied the respective employment contracts pursuant to the terms of those contracts or otherwise at general law, such that as from 10 January 2016 it was entitled to pay to the Applicants an aggregate salary not containing a pre-paid overtime component?;
Answer
No.
Question 1(c)
Whether the Applicants, by continuing to work for the Respondent after the removal and non-payment of a pre-paid overtime component from 10 January 2016, consented to the same?
Answer
No.
Question (1)(d)
Whether the Respondent, by not paying a pre-paid overtime component to the Applicants from 10 January 2016, repudiated the said employment contracts and, if so, whether the Applicants accepted such repudiation?
Answer
Yes, the Respondent repudiated the employment contracts, but the Applicants did not accept such repudiation.
Question (1)(e)
What are the legal consequences flowing from the answers to the above questions?
Answer
Prima facie, the Respondent has contravened s.323 of the Fair Work Act 2009 (Cth) by failing to pay amounts payable to the Applicants under their respective written contracts of employment.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 2795 of 2016
| ROSS BENGE |
First Applicant
| PETER CONNELLY |
Second Applicant
And
| BLUESCOPE STEEL (AIS) PTY LTD |
Respondent
REASONS FOR JUDGMENT
Introduction & Background
By Amended Statement of Claim the Applicants, who are one former employee and one current employee of the Respondent (Bluescope), allege that Bluescope has contravened s.323 of the Fair Work Act 2009 (Cth) (FW Act) by failing to pay amounts payable to them under their respective written contracts of employment with Bluescope (employment contract(s)).
It is common ground between the Applicants and Bluescope that:
a)Bluescope has for many years operated a steelworks manufacturing and processing facility at Port Kembla (PKSW);
b)the First Applicant (Mr Benge) commenced employment with Bluescope on 29 November 2010 under an employment contract dated 4 November 2010 and ceased employment on 2 December 2016;
c)the Second Applicant (Mr Connelly) commenced employment with Bluescope in November 2007. In November 2011 he commenced a new role and signed an employment contract dated 9 November 2011;
d)each Applicant worked in the Coke and Ironmaking Department at the PKSW, although in different roles;
e)each employment contract provided an annualised salary which included payment for shift allowance, annual leave loading, public holidays and a component of weekly pre-paid overtime, whether worked or not, of five hours for Mr Benge and six hours for Mr Connelly;
f)as and from 10 January 2016 Bluescope ceased paying the Applicants annualised salaries which included pre-paid overtime, and commenced paying them aggregate salaries which did not include a component of pre-paid overtime;
g)for the purposes of this proceeding the difference between the annualised salary and the aggregate salary relates to the aggregate salary not including a component of pre-paid overtime;
h)immediately prior to 10 January 2016 Mr Benge was receiving the annualised salary of $118,170.52 per year, but as and from that date Bluescope commenced paying him the aggregate salary of $95,995.00 per year, being a reduction of $22,175.52 per year and approximately 18.8%;
i)immediately prior to 10 January 2016 Mr Connelly was receiving the annualised salary of $145,515.76 per year, but as and from that date Bluescope commenced paying him the aggregate salary of $121,616.00 per year, being a reduction of $23,899.76 per year and approximately 16.4%;
j)the workforce at the PKSW fell into two groups:
i)the first group was comprised of employees who were “wages” employees covered by an enterprise agreement made under the FW Act negotiated between Bluescope and a number of Unions, but primarily the Australian Workers Union (AWU), in their role as bargaining agents for the wages employees;
ii)the second group was comprised of “staff” employees who were not so covered by an enterprise agreement under the FW Act. Staff employees were further differentiated as being either:
a.“fortnightly staff” who obtained benefits such as overtime, shift penalties, annual leave loading and long service leave; and
b.“monthly staff” who were comprised of senior management and professional employees and who received a salary in full compensation for all the requirements of their roles; and
k)at all material times the Applicants were fortnightly staff employees who were paid fortnightly in arrears.
The Applicants commenced the proceeding in this Court by filing the original Statement of Claim on 12 October 2016. At that time there was a Third Applicant, Mr Timothy Hore, but he settled his case with Bluescope prior to the first day of the hearing of submissions. They claim that in breach of s.323 of the FW Act Bluescope has failed to pay to them their annualised salary, which they contend they were entitled to continue to be paid in full after 10 January 2016, such that they have failed to receive the following amounts for which, under s.545, they seek relief enforcing their entitlement and compensation for the financial loss suffered by them in the following amounts:
a)Mr Benge - $21,829.12 from 10 January 2016 up to 2 December 2016 when his employment ceased; and
b)Mr Connelly - $459.61 per week from 10 January 2016 and accruing to date.
By its Amended Defence Bluescope first denies that as and from 10 January 2016 the Applicants suffered any financial loss and damage.
Second, Bluescope pleads that it had a right to vary the employment contracts of each of the Applicants, which it did following an appropriate period of consultation and with notice, such that Bluescope is not in breach of s.323 of the FW Act.
Third, that because the Applicants “… did not express interest in redundancy… and continued after the adjustment to pay arrangements on 10 January 2016 to work in their employment … in doing so confirmed their consent to the change.”: see [39] of the Amended Defence.
I note that the Applicants made certain admissions pursuant to Notices to Admit Facts administered by Bluescope, and that Bluescope at [5] of its Written Submissions dated 22 March 2019 accepted as not in dispute the facts set out at [7] of the Written Submissions of the Applicants filed on 8 March 2019, except for certain qualifications concerning [7(viii) and (xiii)].
In its Concise Statement filed on 5 May 2017 Bluescope stated (and it does not appear to be disputed) that:
[16]The Applicants are part of a class of employees represented by the AWU numbering at least 144, each of whom could maintain the same claim on the same basis as the Applicants.
At the hearings Mr Howell of Counsel appeared for the Applicants and Mr Hatcher SC with Mr Brotherson of Counsel appeared for Bluescope. It was agreed that any questions and issues relating to loss, damage, compensation, quantum and penalties should abide the answers to the questions formulated on 19 February 2020.
Mr Benge
Mr Benge had initially commenced working at the PKSW on 13 December 1992 as a BHP Engineering Site Coordinator. In 1997 his work division was outsourced, but he returned to working directly for Bluescope on 29 November 2010, with his employment ending on 2 December 2016 when his position was voluntarily made redundant. Prior to being made redundant he was in charge of co-ordinating major engineering projects in the Coke Making section of the PKSW. He had never been a member of a Union since he had left University, until he joined the AWU on 19 April 2016 (after most of the events the subject of this proceeding had already occurred).
The relevant terms of Mr Benge’s employment contract were:
Private & Confidential
4 November 2010
Ross Benge
Dear Ross
I am delighted to offer you the position of Asset Improvement Co-ordinator in the Coke Plant 1 Asset Development department at BlueScope Steel’s Australian and New Zealand Steel Manufacturing Businesses’ effective from 29 November 2010.
This position will be based at Port Kembla and report to Phil Leschnik, Principal Asset Maintenance Engineer.
This letter of offer details your remuneration package and terms and conditions of employment.
I encourage you to carefully read this document and should you require any further clarification please contact me on (02) 4275 3408.
Remuneration
Your Annualised Salary for this position will be $[omitted] per annum with a Base Salary of $84,000.28 per annum.
Your Annualised Salary includes payment for shift allowance, annual leave loading and an additional 5 hours overtime paid at penalty rates. You will be required to work these additional hours when requested by the department.
Salary and other payments (where applicable), less income tax instalments and other authorised deductions, will be paid directly into your designated bank account fortnightly.
Salaries are reviewed annually and are adjusted at the Company’s discretion to take into account factors such as the Company’s performance, individual performance and the market generally. Your salary will next be reviewed in September 2011. (salary review and adjustment provision)
………………………………………………
Performance Management
BlueScope Steel considers its employees should have access to market competitive salaries and receive regular performance feedback so they can be recognised for their performance and contribution to business success. Performance objectives applicable to your position will be discussed and formalised with your manager at the commencement of your employment. The Company will conduct a performance review annually and your performance will be assessed by reference to the performance management system established by BlueScope Steel. (performance management provision)
Mr Connelly
Mr Connelly commenced employment at the PKSW in November 2007 as a Steel Treatment Process Controller and in November 2011 moved into the position of a Relief Systems Controller and entered into his employment contract on 9 November 2011. At all material times his role was to supervise nine wages employees who operated plant and performed industrial cleaning and he was never a member of any Union until he joined the AWU on 2 December 2015.
It was agreed by Counsel that for the purposes of this proceeding the employment contract of Mr Connelly dated 9 November 2011 was effectively in the same terms as that of Mr Benge, and that there was no distinguishing feature between the contractual terms of the two employment contracts.
Proper Construction of the Salary Review and Adjustment Provision
At the hearing Counsel accepted that the salary review and adjustment provision was a term of a commercial contract and that the usual construction principles applied, as summarised by the plurality comprised of French CJ, Hayne, Crennan and Kiefel (as she then was) JJ in Electricity Generation Corporation v Woodside Energy Ltd & Ors (2014) 251 CLR 640 at 656 – 657 at [35], as follows:
[35] Both Verve and the Sellers recognised that this Court has reaffirmed the objective approach to be adopted in determining the rights and liabilities of parties to a contract. The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding “of the genesis of the transaction, the background, the context [and] the market in which the parties are operating”. As Arden LJ observed in Re Golden Key Ltd [2009] EWCA Civ 636 at [28], unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption “that the parties … intended to produce a commercial result”. A commercial contract is to be construed so as to avoid it “making commercial nonsense or working commercial inconvenience”.
Further in this connection I note that the instruments under consideration must be construed as a whole: see Australian Broadcasting Commission v Australasian Performing Right Association Limited (1973) 129 CLR 99 at 109 per Gibbs J.
Nevertheless, there was fundamental disagreement between the parties about whether, in particular, the salary review and adjustment provision entitled Bluescope to review and adjust the Applicants’ salaries by reducing them or whether the provision only empowered Bluescope to increase the salary or to not make any adjustment at all. Further, Mr Hatcher SC submitted that Bluescope was given a discretion to generally reduce salaries divorced from and not dependent upon the annual review spoken of by the salary review and adjustment provision.
In my view, the salary review and adjustment provision upon its proper construction required and mandated as follows:
a)Bluescope had an obligation to carry out, and the Applicants each had an entitlement to, a single annual review of their current salaries;
b)when conducting the annual salary reviews, Bluescope was obliged to take into account the “individual performance” of the relevant Applicant whilst also being entitled to take into account other relevant factors, including Bluescope’s own performance and the steel market generally;
c)the obligation on Bluescope to take into account “individual performance” aligned with the performance management provision, which obliged Bluescope to “conduct a performance review annually” of the Applicants;
d)having taken into account the relevant factors, including “individual performance”, Bluescope was entitled to exercise a discretion to adjust by reduction the Applicants’ salaries, as long as that discretion was not exercised arbitrarily, capriciously or unreasonably. The fact that the discretion to adjust was reserved entirely to only one party to the employment contracts, namely Bluescope, does not render the salary review and adjustment provision uncertain or invalid: see the cases noted by Pembroke J in Abod Pty Ltd v Kingston Finance Pty Limited [2019] NSWSC 242 at [10] – [11], and in particular the discussion of the relevant principles in the decision of Sundberg J in Drambo Pty Ltd v Westpac Banking Corporation Ltd (1966) 2 ACCR 479 at 533 – 534 to which Pembroke J refers;
e)the fourth word “and” is conjunctive in sense and links the annual salary review spoken of with Bluescope’s discretion to adjust, such that the discretion can only be exercised at the time of, and linked to, the annual salary review; and
f)except under and pursuant to the salary review and adjustment provision Bluescope had no legal right to unilaterally reduce the salaries of the Applicants. As has recently been noted by French CJ, Bell, Keane and Gordon JJ, “…parties to a contract cannot, generally speaking, be obliged to give up contractual rights without their consent…”: Ainsworth v Albrecht (2016) 261 CLR 167 at 186 [59].
In other words, in my view the point and purpose of the salary review and adjustment provision is to allow for a reconsideration of the level of salary at the time the annual review takes place. Unless it is taken to permit a reduction it is hard to see what work it could otherwise reasonably do, because an employer does not need a contractual right either to increase an employee’s salary or to leave an employee’s salary unchanged. Obviously in an industrial relations context it might be thought to be unlikely that an adjustment would result in a reduction of salary, which might well lead to the resignation of the employee affected by the reduction. However, the relevant factors required to be taken into account, such as Bluescope’s performance, the “individual performance” of the relevant employee and the state of the steel market, evince an intention that poor performance by Bluescope, underperformance by the individual employee and a contraction or worsening of the steel market could rationally lead to a reduction in salary. This sense and construction is consistent with the explication of the words “review” and “adjustment” by Fraser JA, with the agreement of Keane JA (as he then was) and Chesterman J, in Callide Coalfields (Sales) Pty Ltd v CS Energy Limited [2008] QCA 408 at [41], where his Honour said:
[41] …“review”…mean[s] “the act of looking over something (again), with a view to correction or improvement” (of the contract), rather than in the sense merely of “survey” … reference to dictionaries confirms that one of the principal meanings of the word “adjustment” is “the act of adjusting: act of adaptation to a given purpose”; “the process of adjusting; setting right, regulating, arranging, settling, harmonising, or properly disposing”.
(dictionary citations omitted)
Did Bluescope Validly Vary and Reduce the Salaries of the Applicants as and from 10 January 2016 under the Salary Review and Adjustment Provision?
Leaving aside for the moment the events of 2015, the evidence establishes that the annual reviews of the Applicants provided for by the salary review and adjustment provision normally occurred around, and its result advised to them, by letter in September of each year. For Mr Benge there are in evidence salary review letters dated 1 September 2013 and 1 September 2014 and Mr Connelly received such letters dated 7 September 2012, 6 September 2013, 1 September 2014, 1 September 2017 and 1 September 2018. The procedure and the interrelationship between salary reviews and performance reviews was explained by Ms Deanne Howard, who was Manager People, Manufacturing for Bluescope, at [75] – [76] of her affidavit sworn 30 June 2017, in the following terms (and which evidence was not in dispute):
[75] As to paragraph 10 of the Hore Affidavit, there is one process for performance reviews which are conducted in mid-year and end of year and a separate annual process for salary review. The processes are separate but the outcome of the performance review process does flow into the salary review process. An employee’s salary review happens without the particular employee’s direct involvement or input; the employee is notified of any salary increase after the process is completed.
[76] As to paragraph 11 of the Hore Affidavit, it was not the Respondent’s standard practice to discuss the elements of an annualised salary with the employee during the performance review process. It is an employee’s base salary that is the subject of the review, not other elements that the employee receives as part of their remuneration. As set out in paragraph 75, an employee’s salary review happens without the particular employee’s direct involvement or input.
I find that in mid-2015 Bluescope was in a dire and perilous financial position and there was a substantial risk of the necessity to close the PKSW and the consequent loss of employment by its employees. Bluescope publically at this time proclaimed its perilous financial position and the need to reduce the costs of the operation of the PKSW, and Mr Howell at the hearing disavowed any suggestion that Bluescope’s claims in this regard were some sort of charade or mechanism to effect the reduction of its employee costs. Further, from at least 10 June 2015 the Applicants became aware of the parlous financial position of Bluescope and its need to reduce the costs of the PKSW.
On 10 June 2015 Bluescope made an Australian Stock Exchange (ASX) Release in the following terms:
Date: 10 June 2015
Release Time: IMMEDIATE
STEELMAKING AT PORT KEMBLA
BlueScope notes media speculation this morning that a decision has been taken that steelmaking at Port Kembla will close. No such decision has been made.
We continually review ways to improve competitiveness and better serve our customers.
The global steel sector is continuing to change and we must adapt with it. Our costs of manufacturing steel are too high and we are seeking a game-changing approach that will significantly reduce costs. These issues are being discussed as part of the current Enterprise Agreement negotiations at Port Kembla.
BlueScope must maintain an internationally competitive steelmaking business that will support reinvestment.
On 31 July 2015 representatives of Bluescope met with a number of representatives of the AWU and advised them that the Bluescope business was in a serious situation and that it needed to target a saving of some $60,000,000 for combined staff and wages costs.
On 11 August 2015 a Key Message Board (KMB) announcement by Bluescope advised staff members that there would not be a general salary increase in 2015 because Bluescope was facing the worst and most extreme business conditions which it had faced in recent decades and its remuneration strategy would have to change to better reflect Bluescope’s current trading conditions. Relevantly the KMB announcement was as follows:
Key Messages – Salary Review & STI
11 August 2015
Context
· The Strive to Thrive (S2T) program was launched earlier this year, and some good initial cost reductions have been achieved.
· However, we continue to see deterioration in external markets caused by an oversupply of steel flooding out of China – forcing global steel prices and margins to sharply drop below levels seen during the GFC.
· The BlueScope Australia New Zealand (BANZ) S2T program is all about resetting our cost base and finding a ‘game-changing’ approach to how we operate.
· These are extreme business conditions, the worst we have experienced in recent decades. In order to overcome the situation we are in, every aspect of our business is being considered.
· In order to assist our business continue to be sustainable, we have changed our remuneration strategy to better reflect our current trading conditions.
Key Changes
Changes to BANZ Staff Remuneration Plan
Today we are announcing three specific changes to our current remuneration approach:
1. There will not be a general salary increase in 2015;
2. The FY2015 STI will be honoured but capped and generally will pay lower than previous years;
3. The 2016 STI and Discretionary Bonus Plan have been suspended.
Key Messages
Salary Review 2015 – no general salary increase
· Market analysis shows that as BlueScope employees we are paid well.
· Given the current economic position, BANZ simply cannot afford an additional compounding cost burden.
· As a result, there will not be a salary increase awarded to BANZ staff, as normally occurs in September.
· This decision relates to all BANZ salaried employees in Australia, New Zealand and the Pacific Islands including the Chief Executive, General Managers and Executives.
· In exceptional circumstances, and after careful calibration, a limited number of increases may be applied.
(emphasis added)
…………………………..………………………………………………………….
I find that this KMB announcement would have been received by the Applicants by paper hard copy on or about 11 August 2015. The KMB announcements referred to below would have also been received by the Applicants by paper hard copy on or about the dates they bear.
On 24 August 2015 Bluescope and the AWU requested the President of the Fair Work Commission (FWC) to arrange an urgent mediation in relation to the future of steelmaking in Port Kembla in connection with the BlueScope Port Kembla Steel Works Agreement 2012 and the BlueScope Steel Springhill Workplace Agreement 2012. Vice President Hatcher was appointed to conduct the mediation in the FWC (FWC Mediation).
Also on 24 August 2015 announcements and reports to the ASX were made by Bluescope which confirmed that it needed ongoing annual costs savings of $200,000,000. On 27 August 2015 a preliminary conference in the FWC Mediation took place with President Ross and Vice President Hatcher presiding and representatives of Bluescope and various Unions, including the AWU, in attendance.
By letter dated 1 September 2015 to Mr Connelly, Bluescope stated as follows:
1 September 2015
Peter Connelly
BlueScope Steel Limited
Dear Peter
Our recent FY2015 financial results illustrated two things: 1) BlueScope recorded its best financial result in five years and 2) the Company is operating in two tiers, with the profitable areas of our business subsidising other areas that are making losses.
This has been made worse by the continued deterioration in external markets caused by an oversupply of steel flooding out of China - forcing a sharp drop in global steel prices and margins, the worst in recent decades, to levels below what we experienced during the GFC.
BlueScope has a challenge to remain market competitive, especially in our Australian and New Zealand steelmaking businesses. We have a range of initiatives underway to improve our financial position, reset our cost base and ensure a sustainable future.
In view of this situation we must take a prudent approach to remuneration, which is why it has been decided that there will not be a general salary increase in 2015 and increases will only apply in exceptional circumstances.
To acknowledge the hard work and commitment you have shown, I am pleased to advise that you will be awarded a payment of $8,180 under the STI Plan. This payment will be made to you on 23 September.
All BlueScope people have had an important and valuable role in supporting the Company and helping achieve the FY2015 result.
Thank you for your contribution, commitment and understanding as we face these challenges together. I look forward to working with you in the year ahead to meet the expectations of our stakeholders as we work toward a sustainable future for BlueScope.
Yours Sincerely
Richard Lorenc
Peter,
Thanks for your efforts this year.
It’s been a big one!!
Richard
I note that Mr Benge does not appear to have received a similar or equivalent letter to this one sent to Mr Connelly.
At [40] of its Amended Defence it is pleaded by Bluescope that “…individual performance was not an issue that required consideration in 2015 for salary review purposes”. Mr David Bell, who was the Manager of the Coke and Ironmaking Department at the PKSW, gave evidence consistent with this which I accept, that as a result of Bluescope’s decision as advised in the KMB announcement of 11 August 2015 that it did not intend to give any general salary increase in 2015 to staff employees, it followed for Bluescope rightly or wrongly that “individual employee performance was not an issue that required consideration in 2015 for staff salary review purposes”: see [33] of his affidavit of 30 June 2017.
Having regard to its date and content, I find that the letter of 1 September 2015 constituted Bluescope’s annual salary review for 2015 of Mr Connelly under the salary review and adjustment provision. My finding in this regard is fortified by the parties in their agreed chronology having described it as “Letter re the Second Applicant’s salary review”. Whatever else might be thought about this letter’s validity arising out of the failure by Bluescope to conduct an individual salary review of Mr Connelly, the simple fact of the matter is that no discretion was exercised by Bluescope to reduce his salary. Bluescope’s decision was simply not to increase his salary.
On 1 September 2015 the AWU issued a media release which noted that it was working constructively with Bluescope on a cost saving plan to save the PKSW and also noted its determination that any reduction in costs should be distributed fairly between management and workers.
Then by KMB announcement dated 4 September 2015 Bluescope formally and publically raised for the first time at the PKSW its intention to remove the pre-paid overtime component from the annual salaries of staff employees, in the following terms:
Review of Structural Pay Arrangements in Coke & Iron
September 2015
Context
· PKSW needs to save at least $200m of
permanent annual cost reductions to maintain
steelmaking in the Illawarra.· The company recently commenced a review of
pay arrangements for all employees (Staff &
Award) as part of the 2A cost saving program. The review has determined that there
are opportunities to reduce cost by aligning pay
arrangements within Coke & Iron with those
within PKSWKey Points
The review has found that there are cost savings that
can be made by the removal of the prepaid overtime
components in the annualised salary.· The Company will commence discussions with
employees with regard to a timetable to revert
pre-paid over time arrangements to post-paid overtime arrangements.· This approach will allow for a turn down in
costs when required while also recognising that
employees who work ‘over time’ will be paid
additional penalties as detailed within the EA and Company Policies.· In conjunction with the removal of ‘pre-paid’ overtime the company intends to revert the existing Annualised or Aggregated pay
arrangements to a Pay Levelling system. This will predominately effect team members on shift work where shift allowances
and penalties will be paid on an ‘as worked basis’.· The target date (31/10/15) for implementation of
the review findings is being accelerated to
enable an accurate run rate position by October 2105 for the November MTU· Other issues identified for further review are
o A change in rosters for 4 day weeks for day work teams
o The cessation of rostered shift training days on overtime
o Review of the application of Engineering
‘Desired State’ arrangements in C&I.o Review work arrangements such as 9 day
fortnights for day work teams· EA pay arrangements and conditions will
remain in place and the base for the appropriate
employees· The company acknowledges that these
arrangements have been in place for several
years and may cause some concern.· It is intended to provide a suitable transition timetable to allow employees adjust to the alternate systems.
Next Steps
· Managers will arrange sessions with their teams to
discuss.Authorised by: Dave Bell Manager Coke & Iron
(emphasis added)
Mr Benge sent an email dated 10 September 2015 to Mr Albert Manzini, who was the Coke Plant Asset Development Manager, which whilst conceding that Bluescope’s business was in a “very precarious position, that’s a given. And, we must all chip in to lower the “bottom line” by some $50.00/ton or 200 million $ per annum, again that’s a given”, pointed out for Bluescope’s consideration:
a)that removal of pre-paid overtime would equate to a 20% or greater reduction in his wages which was not easy to digest;
b)that he had a contract of employment which was an annualised salary package which he never understood as being variable in nature and subject to major negative change with a stroke of an accountant’s pen; and
c)the reference to “adjustment” in the salary review and adjustment provision contemplated minor changes and not adjustments in excess of 20%.
On 11 September 2015 the FWC Mediation in relation to wages employees commenced.
By email dated 14 September 2015 Mr Richard Lorenc in his role of Ore Preparations Operations Manager at the PKSW sent an email to a number of staff employees, including Mr Connelly, in the nature of questions and answers in relation to the removal of annualised salaries and which included at questions 21 and 24 the following:
21. Why are we moving to Pay Levelling and Salaried (OT eligible) instead of Annualised or Aggregate?
-The objective of the steelworks remaining viable will not be realised unless all employees are willing to accept urgent sacrifices in the historical cost of employment terms and conditions, along with major improvements to productivity.
-Annualised and aggregate salary arrangements are costly to the business, embedding significant overtime payments which largely are not worked, and embedding payment arrangements that are in excess of the entitlement in the EA (eg: payment of penalties on PCL and RDOs).
-Moving away from Annualised salaries will save the business a substantial amount of money per annum for additional hours not worked.
24. What is the next stage of the process?
The Company is consulting with employees regarding the change. The current targeted implementation date for all of Coke and Iron is by 31/10/15.
Mr Stephen Coyle, who was a staff employee in the Coke and Ironmaking Department at the PKSW, sent an email to Mr Manzini dated 24 September 2015 on behalf of certain named staff employees, including Mr Benge, asking whether “the legality of implementing unilateral change and breaching existing individual employment contracts had been considered?” and reserving “the right to seek legal and / or union representation at a later date as required”.
On 8 October 2015 the wages employees of Bluescope voted to accept, and the relevant Unions including the AWU entered into, a Memorandum of Agreement (MOA) as a result of the FWC Mediation. Clause 4.1 of the MOA relevantly provided that, as regards wages employees:
4. Prepaid Overtime
4.1 Subject to clause 4.2, all existing arrangements, including arrangements made contained in departmental agreements, involving pre-payment of overtime are abolished. Annualised pay arrangements will cease.
Clause 7 of the MOA noted:
7. Cost savings
It is agreed that the matters contained in this Agreement satisfy BlueScope’s target of employee cost savings (within an overall target of $200 million in business cost savings) necessary to support the survival of the Port Kembla Steelworks.
On 22 October 2015 Ms Jacqueline Fitzgerald, who was the Manager Employee Relations for Bluescope, authorised a KMB announcement under the heading of “Change to PKSW Pay Arrangements” which advised as follows, effective from the pay period commencing 15 November 2015:
Key Message Board
Change to PKSW Pay Arrangements
Context
· As a result of the focus on the $200m cost saving target in Manufacturing, a review of the pay arrangements across PKSW was initiated.
· Communications commenced in August 2015 in various departments to remove annualised & aggregate salary arrangements, and revert to paying employees on an “as worked” basis or “pay levelling”.
· A significant concern raised by employees was the impact of moving to variable pays between each pay period. Discussions occurred in the recent FWC mediation sessions about annualised and aggregate salaries being removed for all employees on those arrangements in PKSW.
· A revised aggregate pay arrangement was created which will still provide employees for the most part with a stable pay each cycle, however deducts penalty rates on penalty shifts when they are taken as Personal/Carer’s Leave.
· All employees currently on annualised or aggregate salaries will transition to these revised aggregate pay arrangements.
Information for Employees
· Where employees are currently paid an annualised or aggregate salary, this will be replaced with a revised aggregate pay arrangement, which includes elements averaged across the year in the way current aggregate salaries work. However:
o Overtime will not be included in the salary, and will instead be paid only as it is worked; and
o Penalty rates will be deducted when employees take Personal/Carer’s Leave on penalty shifts eg weekend shifts and public holiday shifts.
· Annualised pay arrangements will cease. Arrangements contained in departmental agreements involving pre-payment of overtime are to be discontinued.
(emphasis added)
On 26 October 2015 Bluescope published an ASX Release (also confirmed by a KMB announcement) which in its first paragraph advised as follows:
BlueScope today announced the decision to continue to make steel at Port Kembla subject to ratification of the new Enterprise Agreements. The Board’s announcement follows ‘game-changing going cost-out’ commitments by employees, unions and the NSW Government.
Mr Benge then sought legal advice on his position, and he received a written advice from Kells Lawyers dated 3 November 2015 which recited the relevant facts and gave legal advice to him in the following terms:
Our advice to you
We have advised you that you have a legally enforceable contract of employment with the Steelworks. Many of the terms and conditions of that contract are set out in the letter dated 4 November 2010. The remuneration is set out in that document. For the purpose of this advice it is worth setting out in full.
Remuneration
Your annualised salary for this position would be [omitted] per annum with a base salary of [omitted] per annum.
Your annual salary includes payment for shift allowance, annual leave loading and additional five hours overtime pay at penalty rates. You will be required to work these additional hours when requested by the department…
We have advised you that this provision, and indeed any other fundamental provision of the contract of employment, cannot be varied by the Steelworks without your agreement.
You could insist upon the Steelworks honouring its contractual agreement with you. You are under no obligation to resign. Effectively the Steelworks can seek to enter into negotiations with you where you agree to the variants. They cannot force you to agree to the proposed variants. This is a matter for negotiation.
Put in another way, the Steelworks cannot unilaterally impose upon you a substantial variation to the contract of employment. Effectively this would be like you saying to the Steelworks that you are not prepared to work on Wednesdays and therefore not complying with the agreement. Either party can only vary any fundamental term of the contract with the other party’s consent.
Mr Benge forwarded a copy of this advice to Ms Howard attached to an email dated 4 November 2015, which stated:
Hi Deanne,
As discussed last Friday afternoon, my colleague Tino Garcia and I have taken our concerns to a legal professional.
*Note: Tino and I started at the same time and have identical employment contracts.
I have attached a copy of our legal advice for you to peruse.
Please give me a call at your convenience to discuss this.
Thank you.
Ms Howard responded to Mr Benge’s email by her email dated 5 November 2015, which stated that Bluescope was:
… satisfied it is acting lawfully in adjusting the current approach of “annualised salaries” for staff to the identified aggregate salary arrangement… Relevant employees will each shortly receive a letter of confirmation as to the details of their own particular arrangement… The real adjustment is that the unsustainable pre-payment of overtime that may not be worked will no longer apply – going forward payment for overtime will arise where it has been necessary and worked.
By KMB announcement dated 9 November 2015 Bluescope’s intended termination of annualised salaries, which included pre-paid overtime, was deferred from the intended date of 15 November 2015 until 10 January 2016.
On 10 November 2015 Mr Benge sent an email to Mr Manzini in which, in short, he asserted that he and other staff members in the same position as himself were not members of a Union and had not been involved in, nor had agreed to, the FWC Mediation process “… or anything else as suggested/declared in the KMB dated 9-11-2015”, and that his employment contract was “legally enforceable”.
By its Decision dated 18 November 2015 the FWC approved new enterprise agreements for the wages employees at the PKSW.
By letter dated 27 November 2015 Mr Manzini for Bluescope wrote to Mr Benge, stating relevantly as follows:
Dear Ross,
Re: Salary Payment Arrangements
BlueScope’s current financial situation has required a wide-ranging review of arrangements to assist in sustaining steel-making at Port Kembla. As you are aware, this has included a review of salary payment arrangements.
As a result of this review, and also as previously notified, the Company confirms it will cease the current annualised salary agreement, and in its place implement an aggregate salary arrangement effective as of the pay period commencing 10 January 2016 (paid on 26th January 2016).
Under the aggregate salary arrangement, your base salary and total fixed remuneration are unchanged. A summary of your current total fixed remuneration is attached.
…
Your aggregate salary arrangement will not however contain any pre-paid additional hours (overtime) component. Overtime payments will only be made where the time has been worked as required by the Company.
Based on your current position and applicable hours of work arrangements, your notional aggregate salary will be $95,995 per annum or $3,692 per fortnight.
Bluescope is appreciative of your commitment to the Company during this difficult time. If you have any questions about these arrangements please do not hesitate to contact me.
(emphasis added)
I find that Mr Manzini’s letter of 27 November 2015 formed no part of, and was not related to, an annual salary review under the salary review and adjustment provision in Mr Benge’s employment contract. The letter was quite separate from any annual salary review, as is confirmed by the evidence which was not in dispute of Ms Howard at [66] of her affidavit of 30 June 2017:
[66] As to paragraph 13 of the Connelly Affidavit, the removal of prepaid overtime was not linked to or part of the Respondent’s salary review process. The removal of prepaid overtime (which did not affect all staff employees as not all staff received prepaid overtime) was the subject of a separate communication and consultation process as discussed above conducted in the light of the BlueScope savings requirement and efforts to keep the Steelworks open.
Further, as Ms Howard stated when cross-examined by Mr Howell concerning [66]: “There was no salary review process in 2015, so that’s the context”.
Finally, Mr Hatcher SC in oral submissions, when he handed up MFI-1, which comprised a bundle of documents evidencing the process leading to the termination of pre-paid overtime and of which the first document was the KMB announcement of 11 August 2015 and the last documents the letter to Mr Benge of 27 November 2015 and the equivalent letter to Mr Connelly dated 3 December 2015 (see [48] below), said:
MR HATCHER: Now, let me make it clear, your Honour, there is evidence that this wasn’t a normal salary review. We don’t contend anything other than this was a very extraordinary circumstance. One, no doubt, that my client hopes it will never encounter again and, indeed, I suspect much of Australia hopes it will never encounter again.
Later in oral submissions Mr Hatcher SC, whilst confirming that “nothing like the traditional annual review” had occurred, appeared to move to suggest that the documents comprising MFI-1 could be taken as an annual salary review within the terms of the employment contracts of the Applicants. If that was the intended force of this later submission, I ought to note that I reject it.
By his email dated 3 December 2015 Mr Benge responded to Mr Manzini’s letter of 27 November 2015, relevantly as follows:
I do not accept that your proposed forced changes are legal under common law based on the two points as detailed above.
I do not accept your letter – RE: BlueScope Steel - Salary Payment Arrangements dated 27 November 2015, is applicable to the terms and conditions of my employment as set out in my employment contract.
My presence at work on Monday the 11th of January does not in any way express any form of acceptance of your proposed changes.
My attendance on and from that date merely serves to confirm that I am a company level 1 staff officer and as such will honour my commitment’s to my plant and the greater company.
In observing company protocols, I trust that you will forward this very resolute “letter of grievance” to Dave Bell, Deanne Howard and the legal boffins to ensure it receives immediate attention.
I look forward to the companies earliest response in order to resolve this impass before it escalates any further.
Yours sincerely and without prejudice.
Ross Benge - proud level 1 staff officer !
On 9 December 2015 Mr Connelly met with Mr Lorenc who handed him a letter dated 3 December 2015 which was in relevantly identical terms to the letter of Mr Manzini to Mr Benge dated 27 November 2015. After Mr Connelly had reviewed the letter, he said to Mr Lorenc words to the effect of:
I disagree with this unilateral variation of my employment contract.
By letter dated 22 December 2015 Mr Connelly and other staff employees of the Coke and Ironmaking Department advised Mr Bell, in connection with the letters they had received detailing the proposed changes to their remuneration packages, in substance as follows:
a)they disagreed with the proposed changes to their employment contracts; and
b)they believed that the terms of their remuneration packages described in their individual employment contracts constituted legally binding contracts.
Then on 10 January 2016 the annualised salaries of the Applicants were purportedly terminated by Bluescope. As I have previously noted, Mr Benge left the employment of Bluescope on 2 December 2016, but Mr Connelly continues his employment with Bluescope at the present time.
On 13 January 2016 the AWU applied to the FWC to conciliate a dispute concerning the staff employees at the PKSW. There was a conference before Vice President Hatcher on 25 January 2016, and he then issued a Recommendation [2016] FWC 527 on 27 January 2016 (Recommendation). At [1] of the Recommendation Vice President Hatcher stated as follows:
[1] The Australian Workers' Union (AWU) has applied for the Commission to deal with a dispute with BlueScope Steel (AIS) Pty Ltd (BlueScope) under the dispute settlement procedure contained in the Manufacturing and Associated Industries and Occupations Award 2010 (Award). The dispute concerns changes to the remuneration structure of staff employees of BlueScope arising out of the “rescue package”, negotiated to avoid the closure of the Port Kembla Steelworks in August-November 2015.
The Recommendation then further set out the background to the dispute, including the circumstances outlined above relating to the removal of pre-paid overtime for staff employees of Bluescope from 10 January 2016. The main focus of the Recommendation was upon the allegation by the AWU that monthly staff employees had been the subject of disparate favourable treatment which had spared them the effects of the change to remuneration arrangements purportedly imposed on fortnightly staff employees such as the Applicants. Accordingly, Vice President Hatcher made certain recommendations for the provision of information by the AWU to Bluescope concerning disparate favourable treatment of pay arrangements, to which Bluescope was to respond. It does not appear to be suggested that this Recommendation had any legal effect or standing. Further, Vice President Hatcher disavowed dealing with the legal issues relating to, and the validity of, the removal of pre-paid overtime for fortnightly staff employees such as the Applicants, stating at [20] as follows:
[20] A number of other issues were raised by the AWU in the course of the conference before me. Many of them, I consider, reflect a general adverse reaction to the changes in remuneration arrangements to which I have earlier referred. However I note that in some cases it is suggested that the implementation of the changes on 10 January 2016 involved a breach of staff employees' contracts. I do not propose to express any view about this, and it will be up to the parties to obtain their own legal advice if this issue is pressed any further. However I would venture the observation that it would be highly desirable, to the extent this has not already been done, for the contractual entitlements of staff employees post 10 January 2016 to be set out in writing and agreed upon in a form which is consistent and unambiguous.
On the basis of the above evidence, I find that:
a)Bluescope never during 2015 sought to review and adjust Mr Benge’s salary under the salary review and adjustment provision which authorised the reduction of his salary as and from 10 January 2016;
b)Bluescope did conduct an annual review during 2015 of Mr Connelly’s salary under his salary review and adjustment provision which resulted in its letter to him dated 1 September 2015 which neither reduced nor increased his salary for the ensuing year (see [26] above), and thereafter Bluescope was precluded from reducing his salary under the salary review and adjustment provision until the next salary review due to be advised to him in September 2016. Alternatively, if I am wrong in this finding, Bluescope never during 2015 conducted a review and adjustment of Mr Connelly’s salary under his salary review and adjustment provision which authorised the reduction of his salary as and from 10 January 2016; and
c)the removal of the pre-paid overtime component of the annualised salaries of the Applicants as and from 10 January 2016 and the steps and actions taken by Bluescope preparatory thereto were not related or pursuant to the salary review and adjustment provisions in their employment contracts.
Accordingly, Bluescope never validly varied by reduction the salaries of the Applicants as and from 10 January 2016 under the salary review and adjustment provisions.
Unilateral Variation of Employment Contracts by Bluescope at General Law Outside the Terms of the Employment Contracts
Paragraph [39] of the Amended Defence pleads in part as follows:
[39]…The Respondent states further that it retained a right to vary the pay arrangements of the Applicants (including for factors such as company performance, individual performance and the market), which it did following an appropriate period of consultation and written notice. The Respondent also states that there were compelling business reasons justifying the change, and as already stated it was a change being implemented across the Steelworks in circumstances where the Unions had pressed for the impact of cost savings to be shared equally across the Respondent’s workforce, i.e. both wages employees covered by the 2012 Steelworks Agreements and staff employees...
If and insofar as Bluescope asserts, by [39] of its Amended Defence or otherwise, that it had a general right outside of the terms of the employment contracts to unilaterally reduce the salaries of the Applicants, I reject that assertion and argument as I have presaged at [17(f)] above. It is trite law that a contract cannot be varied unilaterally, but only by bilateral consensus and with the formation of a further contract supported by consideration. With reference specifically to contracts of employment Reynolds JA, with the agreement Moffitt P and Samuels JA, stated in Stratton v Illawara County Council (1979) 2 NSWLR 701 at 705:
It is well settled that it is not open to either party to a contract of service to change its terms by unilateral act.
Accordingly, Bluescope had no general right to unilaterally reduce the salaries of the Applicants under their employment contracts as and from 10 January 2016.
Further, I reject any suggestion to the effect that:
a)the perilous and parlous financial position of the PKSW in 2015 empowered Bluescope to unilaterally vary the employment contracts; or
b)any perceived inherent reasonableness of the termination of pre-paid overtime in the context of the perilous and parlous financial position of the PKSW empowered Bluecope to unilaterally vary the employment contracts in that regard.
In Tanaka v Tokyo Network Computing P/L [2003] NSWSC 1114 the employer company had reduced the salary of its Chief Executive Officer by 10% because it faced a dire financial position and possible liquidation, but Bryson J at [83] stated:
[83]It is no less a repudiation of the contractual obligations because in the company’s circumstances a reduction [i.e. in the salary of the Chief Executive Officer] was unavoidable.
Did the Applicants Consent to the Variation and Reduction of their Salaries from 10 January 2016?
Bluescope knew quite well that at all material times the First and Second Applicants objected to the purported termination of their annualised salaries and the removal of the component of pre-paid overtime, as may be seen from [70] – [71] of Mr Bell’s affidavit of 30 June 2017:
[70] From the time the October KMB was issued, and into 2016, a number of individual staff employees, including the First Applicant, and groups of employees (which included the Second and Third Applicants), have objected, sometimes in writing, to the cessation of the payment of prepaid overtime and their annualised salary.
[71] In some cases, emails or documents were sent directly to Mr Manzini, Mr Lorenc or Mr McNally. In these cases, the emails or documents were forwarded to me by the recipients.
Similarly, Ms Howard at [40] – [41] of her affidavit of 30 June 2017 stated:
[40]From the time the October KMB was issued and continuing into 2016 a number of individual staff employees, including the First Applicant, and groups of employees (which included the Second and Third Applicants), have raised with the Respondent (including in writing) objections to a number of changes that were implemented following the MOA, including the removal of their annualised salary and the implementation of an aggregate salary system.
[41]In some cases, emails or documents were sent directly to Mr Manzini, Mr Lorenc or Mr McNally. In other cases the emails or documents were sent to Nicole Lane, who reported to me at the time. Where the emails or documents were not sent directly to me or I was not copied on the email, the emails or documents were forwarded to me or my HR team by the recipients.
The evidence is overwhelming that the Applicants made clear to Bluescope expressly during the second half of 2015 their firm refusal to accept any variation to their employment contracts and any removal of the pre-paid overtime component of their employment contracts: as to Mr Benge see [31], [34], [38], [39] and in particular [42] and [47] above and as to Mr Connelly see [48] – [49] above. They never deviated at any time from a resolute rejection of the removal of the pre-paid overtime component of their employment contracts, but chose to stand upon the letter of their bond, as I find below they were entitled to do.
As recorded at [6] above, Bluescope has pleaded at [39] of the Amended Defence that the Applicants consented to the removal of pre-paid overtime subsequent to 10 January 2016 by continuing to work at the PKSW, Mr Benge working up until 2 December 2016 and Mr Connelly continuing to work for Bluescope to date. This amounts to a claim of implied consent. It is clear law that a contract may be varied either expressly or by implication. As Ellicott J stated in Commonwealth of Australia v Crothall Hospital Services (Aust) Ltd (1981) 36 ALR 567 at 576 – 577 (with the agreement of Blackburn and Deane JJ):
It is open to the parties to a written contract to vary it. This may be done in writing or, except where the contract is required by law to be evidenced in writing, by oral agreement. The agreement to vary may be express or implied from conduct: see generally Halsbury's Laws of England 4th ed, vol 9, paras 566–70; Anson's Laws of Contract 18th ed, pp 318 et seq; Goss v Lord Nugent (1833) 5 B & Ad 58; 110 ER 713, Bruner v Moore [1904] 1 Ch 305; Tallerman & Co Pty Ltd v Nathan's Merchandise (Vic) Pty Ltd (1956) 98 CLR 93 at 144.
Likewise, in Moratic Pty Ltd v Gordon (2007) 13 BPR 24,713 at 24,719 [21] and 24,720 [24] Brereton J said:
[21]The terms of a contract may be varied by implied agreement arising from a course of dealing between the parties, and a party that seeks to rely on a term incorporated as a result of a course of dealing need not show that the other had actual knowledge of the term [Henry Kendall & Sons v William Lillico & Sons Ltd [1969] 2 AC 31 at 90, 104–105 and 130; Proprietors Strata Plan 30102 v Energy Australia (NSWCA, 29 September 1997, BC9704799, p 5], because the issue depends not on the actual subjective intentions of each party, but on what each was reasonably entitled to conclude from the attitude of the other [McCutcheon v David MacBrayne Ltd [1964] 1 WLR 125 (Lord Reid); Chattis Nominees Pty Ltd v Norman Ross Homeworks Pty Ltd (1992) 28 NSWLR 338 at 343–4 (Cohen J); Pondicil Pty Ltd v Tropical Reef Shipyard Pty Ltd (FedCA, Cooper J, 1994, BC9406064; Hardwick Game Farm v Suffolk Agricultural Poultry Producers Assn [1967] 1 WLR 287 (Lord Diplock)]… Moreover, contractual variation requires a mutual intention to vary the existing contractual terms, and consideration.
[24]Finally, consideration is required to support a contractual variation…
This plea fails for the reasons given below in connection with the associated issue of repudiation.
Repudiation by Bluescope and any Acceptance of Repudiation by the Applicants
Whether there has been repudiation is a question of fact and an actual and subjective intention to repudiate is not required. Rather, as stated by Deane and Dawson JJ in Laurinda Pty Limited v Capalaba Park Shopping Centre Pty Limited (1989) 166 CLR 623 at 658:
An issue of repudiation turns upon objective acts and omissions and not upon uncommunicated intention. The question is what effect the lessor's conduct "would be reasonably calculated to have upon a reasonable person" (per Lord Herschell L.C., Carswell v. Collard (1983) 20 R. (H.L.) 47, at p. 48; Forslind v. Bechely-Crundall (1922) S.C. (H.L.) 173, at p. 190). It suffices that, viewed objectively, the conduct of the relevant party has been such as to convey to a reasonable person, in the situation of the other party, repudiation or disavowal either of the contract as a whole or of a fundamental obligation under it.
A repudiatory breach does not bring the contract to an end and the innocent party does not have to accept the repudiation.
In my view, Bluescope’s removal of pre-paid overtime after 10 January 2016 from the employment contracts of the Applicants constituted a repudiation of the employment contracts, because the contractual remuneration provided by the employment contracts was a fundamental term.
That this is so was explained by Judge LJ (Nourse and Tuckey LJJ agreeing) in the decision of the English Court of Appeal of Cantor Fitzgerald International v Callaghan [1999] 2 All ER 411 (Cantor Fitzgerald) at 419 – 421:
In reality it is difficult to exaggerate the crucial importance of pay in any contract of employment. In simple terms the employee offers his skills and efforts in exchange for his pay: that is the understanding at the heart of the contractual arrangement between him and his employer.
(at 419)
In fact direct authority can be found in R F Hill Ltd v Mooney [1981] IRLR 258 at 260, where Browne-Wilkinson J, as he then was, observed:
‘The obligation on an employer to pay remuneration is one of the fundamental terms of a contract. In our view, if an employer seeks to alter that contractual obligation in a fundamental way, such as he sought to do in this case, such attempt is a breach going to the very root of the contract and is necessarily a repudiation.’
… In Rigby v Ferodo Ltd [1988] ICR 29 (Rigby), in the House of Lords, it was common ground that—
‘the unilateral imposition by an employer of a reduction in the agreed remuneration of an employee constitutes a fundamental and repudiatory breach of the contract of employment which, if accepted by the employee, would terminate the contract forthwith.’ (See [1988] ICR 29 at 33.)
The point was not therefore argued, and in the end was not central to the decision. Strictly speaking the agreement between counsel is not binding on this court. On the other hand Lord Oliver, in a speech adopted by the House, noted the principle agreed between the parties without expressing any hesitation or reservation about it. That alone is highly persuasive that counsel in Rigby’s case had accurately formulated the relevant principle.
(at 420)
Where however an employer unilaterally reduces his employee’s pay, or diminishes the value of his salary package, the entire foundation of the contract of employment is undermined. Therefore an emphatic denial by the employer of his obligation to pay the agreed salary or wage, or a determined resolution not to comply with his contractual obligations in relation to pay and remuneration, will normally be regarded as repudiatory. To the extent that Gillies v Richard Daniels & Co Ltd [1979] IRLR 457 suggests otherwise, it does not accurately reflect the relevant legal principles.
I very much doubt whether de minimis has any relevance in this field. If the amount at stake is very small, and the circumstances justifying a minimal reduction are explained to the employee, then the likelihood is that he would be prepared to accept new terms by way of mutual variation of the original contract. However an apparently slight change imposed on a reluctant employee by economic pressure exercised by the employer should not be confused with a consensual variation, and in such circumstances an employee would be entitled to treat the contract of employment as discharged by the employer’s breach.
In the present case the amount in issue was not in the context of the overall package very great, although the sums at stake were not trivial. However the refusal to pay was deliberate and determined, motivated by a desire improperly to pressurise the defendants into harder work. The decision wholly undermined the contract of employment and constituted a repudiatory breach.
(at 420 – 421)
In Actrol Parts Pty Ltd v Coppi(No.2) (2015) 257 IR 179 (Actrol v Coppi) at 192 – 193 [42] Bell J in the Supreme Court of Victoria held that the unilateral withdrawal by Actrol, as employer, of Mr Coppi’s use, as an employee, of a Mazda utility motor vehicle constituted a repudiatory breach of his contract of employment. His Honour cited Cantor Fitzgerald with evident approval at 191 – 192 [40], and went on at 192 [41] to state:
[41] Citing this and other authorities, Irving states that “[a] unilateral reduction in the employee’s remuneration is almost always a serious breach [of the contract of employment] and a threat to do so in the future is almost always a repudiation” (Mark Irving, The Contract of Employment, (2012) 303 [6.17]). The authorities bear this statement out. I have already referred to Cantor Fitzgerald International. There is also Foggo v O’Sullivan Partners (Advisory) Pty Ltd (2011) 206 IR 87 (New South Wales Supreme Court) where unilateral refusal to pay a contractual bonus was held to be a repudiatory breach (Foggo v O’Sullivan Partners (Advisory) Pty Ltd (2011) 206 IR 87 at [107]-[109] (Schmidt J)). Then there is Chapman v Goonvean & Rostowrack China Clay Co Ltd [1973] 1 WLR 678 where Lord Denning MR held that removing the contractual benefit of free bus transport to and from work was a repudiatory breach of contract (Chapman v Goonvean & Rostowrack China Clay Co Ltd [1973] 1 WLR 678 at 681). I would also refer to Rigby v Ferodo Ltd [1987] IRLR 516; [1988] ICR 29 (House of Lords) where Lord Oliver (Lord Bridge, Lord Fraser, Lord Brightman and Lord Ackner agreeing) started with the common ground:
that the unilateral imposition by an employer of a reduction in the agreed remuneration of an employee constitutes a fundamental and repudiatory breach of the contract of employment which, if accepted by the employee, would terminate the contract forthwith (Rigby at 33).
Finally, Tracey J in Harpham v CEP Union [2016] FCA 1473 at [82] said as follows:
[82] It may be accepted that the CEPU repudiated Mr Harpham’s contract of employment when it substantially reduced his remuneration package in 2009: see Cantor Fitzgerald International v Callaghan [1999] 2 All ER 411 at 420–1. Moreover, after 1 July 2009, the CEPU breached Mr Harpham’s employment contract by paying him less than the sum that had been contractually agreed in September 2008.
However, the Applicants did not have to accept Bluescope’s repudiation and in my view did not do so, but continued their employment under the employment contracts which meant that they were still entitled to be paid the pre-paid overtime component. They never affirmed or consented to any contract of employment which did not contain a component of pre-paid overtime. Their continued employment after 10 January 2016 did not evince or constitute any consent to the removal of pre-paid overtime from their employment contracts.
As I have recorded at [6] above, Bluescope pleads that the Applicants are to be taken to have consented to the removal of the pre-paid overtime component from their annualised salaries because they continued to be employed by Bluescope after 10 January 2016. At the hearing of an interlocutory application on 22 March 2019, and on the last day of the hearing of evidence on 5 April 2019, I confirmed to the parties that this matter would be decided on the pleadings. I adhered to that position and restrained Counsel from raising issues not pleaded, including at one point of the hearing not permitting Mr Howell to raise a loss of opportunity case. Nevertheless, I find for the sake of completeness that there is nothing in the large body of evidence before me which has any tendency to suggest that the Applicants by word, act or deed unilaterally gave up or precluded themselves from asserting their rights to the pre-paid overtime component of their annual salaries by any form of estoppel, waiver, election, affirmation, acquiescence or consent. In particular, none of the actions of the AWU in or outside of the FWC Mediation or the Recommendation itself had any effect on the legal rights of the Applicants vis a vis Bluescope. The AWU was never the agent of the Applicants who never manifested any assent to the AWU changing or varying their legal position or relationship with Bluescope.
In particular, I should record with respect to those parts of the Written Submissions of Bluescope which seek to amplify the nature of the Applicants’ alleged consent to the removal of the pre-paid overtime component, that none of the following matters establish such consent:
a)the removal by the MOA of pre-paid overtime for wages employees of Bluescope;
b)that in earlier years the Applicants may have accepted variations to their employment contracts;
c)that the annualised salary arrangements of the Applicants reflected departmental agreements for wages employees in the areas in which the Applicants worked, and the wages employees had given up pre-paid overtime by the MOA;
d)the AWU’s espoused position that the position of wages employees and salary employees should equally suffer from any reductions “across the board”; and
e)the Applicants not seeking to avail themselves of any voluntary redundancy option, which in my view in the circumstances they were not obliged to seek or take.
It is of course usually the case in circumstances of dismissal that there is no profit in an employee refusing to accept a repudiatory dismissal by keeping the contract on foot. This is because he or she will not receive remuneration after the dismissal, since the right to receive remuneration is dependent upon the employment services continuing to be rendered, and Courts will not generally grant specific performance to a contract of personal service: Visscher v Giudice (2009) 239 CLR 361 (Visscher) at 380 [54] per Heydon, Crennan, Kiefel (as she then was) and Bell JJ.
However, in this case Bluescope did not dismiss the Applicants and thereby destroy the employment relationship, which continued with the Applicants performing the same employment duties after 10 January 2016 as they had performed before, apart from, consistently with the position they had taken, not availing themselves of optional overtime opportunities offered by Bluescope for which they would have been paid.
In Visscher at 381 – 382 [58] the judgment of the plurality continued:
[58]In Rigby v Ferodo Ltd [1988] ICR 29 the employer purported to reduce its employees’ wages during the currency of the employment relationship. The employees made it clear that they were unwilling to accept the reduction and never did accept it. Lord Oliver of Aylmerton said (Rigby at 34 - 35):
“Whatever may be the position under a contract of service where the repudiation takes the form either of a walk-out by the employee or of a refusal by the employer any longer to regard the employee as his servant, I know of no principle of law that any breach which the innocent party is entitled to treat as repudiatory of the other party’s obligations brings the contract to an end automatically. No authority has been cited for so broad a proposition and indeed [counsel for the appellant] has not contended for it. What he has submitted is that where there is a combination of three factors, that is to say, (a) a breach of contract going to an essential term, (b) a desire in the party in breach either not to continue the contract or to continue it in a different form and (c) no practical option in the other party but to accept the breach, then the contract is automatically brought to an end. My Lords, for my part, I have found myself unable either to accept this formulation as a matter of law or to see why it should be so. I entirely fail to see how the continuance of the primary contractual obligation can be made to depend upon the subjective desire of the contract-breaker and I do not understand what is meant by the injured party having no alternative but to accept the breach. If this means that, if the contract-breaker persist, the injured party may have to put up with the fact that he will not be able to enforce the primary obligation of performance, that is, of course, true of every contract which is not susceptible of a decree of specific performance. If it means that he has no alternative to accepting the breach as a repudiation and thus terminating the contract, it begs the question. For my part, I can see no reason in law or logic why, leaving aside for the moment the extreme case of outright dismissal or walk-out, a contract of employment should be on any different footing from any other contract as regards the principle that ‘an unaccepted repudiation is a thing writ in water and of no value to anybody’ … (Citing Howard v Pickford Tool Co Ltd [1951] 1 KB 417 at 421 per Asquith LJ)”
In Rigby at 35 Lord Oliver of Aylmerton, in the paragraphs of his speech following the two paragraphs cited by the High Court in Visscher above, continued:
My Lords, the one thing that is clear in this case is that the appellant [employer] had no intention whatever of terminating the contracts of employment with its workforce except by compelling the acceptance of new contractual terms which Mr. Rigby and his fellow C.S.E.U. members were, as they made it quite clear, unwilling to accept and which they never did accept. Faced with that situation the appellant could have chosen to terminate their contracts on proper notice. It chose not to do so. It could have dismissed them out of hand and faced the consequences. It chose not to do so. It continued to employ them, week by week, under contracts which entitled them to a certain level of wages but withheld from them a part of that entitlement. I can, in those circumstances, see no answer at all to Mr. Rigby's claim and the trial judge and the Court of Appeal were, in my judgment, plainly right in the conclusions at which they arrived.
It has been submitted that there was some sort of implied acceptance on the part of Mr. Rigby of the appellant's repudiation by working on. At the trial this was put on the basis of estoppel, waiver and acquiescence. All three were rejected by the trial judge and, in my judgment, he was, on the facts which he found, quite plainly right to reject them. I can, for my part, see no other basis upon which it can be argued that the continued working by Mr. Rigby and his acceptance for the time being and under protest of the wage that the appellant, with full knowledge of his lack of agreement, chose to pay him is to be construed as an acceptance by him either of the repudiation by the appellant of the original continuing contract or of the new terms which the appellant was seeking to impose.
(emphasis added)
A similar case to Rigby and the present case is Burdett-Coutts v Hertfordshire County Council [1984] IRLR 91 (Burdett-Coutts), where the defendant employer County Council purported from 31 March 1983 to reduce the plaintiff employees’ pay, which reduction was rejected by the employees. It was held by Kenneth Jones J that the purported reduction in pay amounted to a fundamental breach of contract having the effect of repudiating the employment contracts, and he rejected the County Council’s argument that by the employees staying at their post, continuing in their employment, and taking the lower sums which had been paid to them, they had by implication waived their rights to treat the contracts as having been brought to an end and that fresh contracts had arisen by implication.
Kenneth Jones J said at 93 [10] – [11] of Burdett-Coutts:
[10]What happened afterwards was that these ladies allowed 31 March to pass and stayed at their posts, taking the lower sums which were paid to them… the argument [of the County Council] could have been put in a slightly different way and have the same effect in the end; that these ladies, by implication, have waived their right to treat the contract as having been brought to an end and have, as I say, by implication after that entered into some fresh contract. I cannot accept that that is a true construction to put on their activities because it has been made abundantly clear to the defendants from a date prior to 31.3.83 that they were not in any way prepared to accept the new terms, or amendments, which had been put forward by the defendants…
[11] What is the position? In my judgment the defendants have sought unilaterally to impose amendments to the contracts of employment here. By so doing they are in breach of those contracts and have repudiated them. The plaintiff, faced with the choice which every innocent party to a contract has, has not accepted that repudiation but is standing on the original contract and saying, as she is entitled to say, 'I can now recover the total wages which should have been paid to me under the original contract'.
It follows in my view that the Applicants in the circumstances of this case were not obliged to, and did not, accept the repudiation by Bluescope of the employment contracts constituted by Bluescope’s removal of pre-paid overtime as and from 10 January 2016.
Remedies
Section 323 of the FW Act relevantly provides as follows:
Method and frequency of payment
(1)An employer must pay an employee amounts payable to the employee in relation to the performance of work:
(a) in full……
………………………………………………………………………..
It is admitted on the pleadings that up until 9 January 2016:
a)the Applicants were entitled under s.323 of the FW Act to be paid their annualised salaries;
b)as such their entitlement to an annualised salary was a “safety net contractual entitlement” pursuant to the combined effect of the definition in the Dictionary found in s.12 of the FW Act and s.139(1); and
c)section 545 of the FW Act entitled employees such as the Applicants to apply to the Court to enforce “safety net contractual entitlements”. I note that s.545 empowers the Court to grant injunctions and award compensation.
In my view, consequent on the findings above and the answers to the questions posed, there was no relevant change to the factual and legal position of the Applicants after 9 January 2016. They continued to be entitled to be paid their annualised salaries, but Bluescope did not pay them in full. I note that in its final Written Submissions dated 9 August 2019, Bluescope pointed out that the Applicants had never couched their claims in this proceeding as a claim for breach of contract and contended that the Applicants could not establish that their annualised salaries constituted a “safety net contractual entitlement” for the purposes of the FW Act, and thus their claims must fail. It was submitted that their claims under s.323 of the FW Act required that the Applicants establish that their claim for pre-paid overtime related to the payment for the performance of work and that nothing in the statutory regime established by the FW Act gave them an entitlement to be paid for overtime that had not been performed. Paragraphs 2 to 7 of the Written Submission contended:
[2] Whilst the present proceedings have been argued, and defended, as a breach of contract case, it is important to note that the pleadings do not contain any prayer for relief for a breach of contract. The Court has drawn this to the Applicants’ attention, yet even at this stage there is no application to press such a claim.
[3] The claim is only one alleging nominated breaches of the Fair Work Act 2009 (FW Act). The Applicants have paid little to no attention to the “gateway” provisions to that legislation. If the Applicants cannot establish to the Court’s satisfaction that the annualised salary is a safety net contractual entitlement for the purposes of the FW Act then their claims must fail.
[4]So far as relevant to the claim under s.323 of the FW Act, the Applicants need to establish that their claim relates to payment for the performance of work, and yet the evidence is that it does not. The change the Respondent has implemented is to ensure that employees are paid for work performed on overtime, rather than denying payment for such work.
[5]In order to bring a claim under s.545 of the FW Act, the Applicants need to establish that they had a safety net contractual entitlement (ss12, 61(2), 139(1) and 542). Again, so far as relevant, they would in particular need to show that the claim related to “annualised wage arrangements that have regard to patterns of work in an …enterprise; and … provide an alternative to the separate payment of wages and other monetary entitlements” (s.139(1)(f)). A safety net contractual entitlement under the FW Act operates within strict confinements. The introduction of this provision into the FW Act did not create an open-ended statutory regime for the review of contracts dependent on notions of fairness as for example at one time s.106 of the Industrial Relations Act 1996 (NSW) did.
[6] The evidence in the case is clear that the prepaid overtime in issue no longer has any regard to the patterns of work at the Respondent’s enterprise, either immediately before or after 10 January 2016.
[7] More particularly, the Applicants would need to point to an entitlement to be paid for overtime not performed. That is, there must be a separate source of entitlement to the payment of money for overtime not worked other than the annualised salary arrangement itself. No such entitlement exists.
I reject Bluescope’s submissions in this regard. In my view the Applicants’ entitlement to pre-paid overtime under their annualised salaries falls squarely within the words of s.323 of the FW Act as “amounts payable to the employee in relation to performance of work”. The fact that the Applicants might not necessarily each week be called upon to perform overtime does not make their annualised salaries, and the pre-paid component of it, any the less “amounts payable to [them] in relation to the performance of work”. There is a large body of authority which considers the words “in relation to” and which establishes that they are words of amplitude. It is sufficient for present purposes to cite Hill J in Australian Competition and Consumer Commission v Maritime Union of Australia (2001) 114 FCR 472 at 487 [68] where he stated as follows:
[68] It may be accepted that there will always be a question of degree involved where the issue is the relationship between two subject matters. The words "in relation to" are wide words which do no more, at least without reference to context, than signify the need for there to be some relationship or connection between two subject matters: see Smith v Commissioner of Taxation (Cth) (1987) 164 CLR 513 at 533 per Toohey J and PMT Partners Pty Ltd (In liq) v Australian National Parks and Wildlife Service (1995) 184 CLR 301 at 328 per Toohey and Gummow 11. But the phrase is both "vague and indefinite": see per Taylor J in Tooheys Ltd v Commissioner of Stamp Duties (NSW) (1961) 105 CLR 602 at 620. Like the phrase "in respect of", the phrase "in relation to" will not, at least normally, apply to any connection or relationship no matter how remote: see Technical Products Pty Ltd v State Government Insurance Office (Qld) (1989) 167 CLR 45 at 51 per Dawson 1. The extent of the relationship required will depend upon the context in which the words are used.
Further, even if I was wrong in my view that the Applicants’ claims do fall within the terms of the FW Act, on the general principle that a legal wrong ought not to be without a legal remedy, it is conceivable that r.16.01 of the Federal Circuit Court Rules 2001 (Cth) may be of relevance. Rule 16.01 states as follows:
16.01Court may make any judgment or order
The Court may, at any stage in a proceeding on the application of a party, give any judgment or make any order even if the claim was not made in an originating process.
However, as all issues relating to compensation and quantum, if any, are agreed to be for a later time, I will confine myself presently to merely stating that, in my view, the Respondent has in the relevant circumstances prima facie breached s.323 of the FW Act.
I certify that the preceding eighty-six (86) paragraphs are a true copy of the reasons for judgment of Judge Dowdy
Associate:
Date: 13 March 2020
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