Blake, Chuck C and Anor v Sitefate Pty Ltd and Anor Jackson, Paul H and Anor v Airwarm Pty Ltd and Anor McCarthy, Brian and Anor v Impulse Airlines Pty Ltd
[1997] FCA 782
•30 July 1997
FEDERAL COURT OF AUSTRALIA
EMPLOYMENT LAW - Termination of employment - Alleged unlawful termination of employment - Pilots formed companies supplying piloting services to airlines operators - whether individual pilots were employees of airline operator.
Industrial Relations Act 1988 (now Workplace Relations Act 1996) Division 3, Part VIA.
CHUCK C BLAKE and AUSTRALIAN FEDERATION OF AIR PILOTS v SITEFATE PTY LIMITED and AIR TRANSPORTATION GROUP PTY LIMITED (ACN 002 682 733)
VI 1384 of 1995
AND
PAUL H JACKSON and AUSTRALIAN FEDERATION OF AIR PILOTS v AIRWARM PTY LIMITED and AIR TRANSPORTATION GROUP PTY LTD (ACN 002 682 733)
VI 1385-1386 of 1995
AND
BRIAN McCARTHY and AUSTRALIAN FEDERATION OF AIR PILOTS v IMPULSE AIRLINES PTY LIMITED
VI 1663 of 1996
JUDGE: WILCOX J
PLACE: SYDNEY
DATE: 30 JULY 1997
IN THE FEDERAL COURT OF AUSTRALIA ) ) NEW SOUTH WALES DISTRICT REGISTRY ) VI 1384 OF 1995 ) GENERAL DIVISION )
BETWEEN: CHUCK C BLAKE
First ApplicantAUSTRALIAN FEDERATION OF AIR PILOTS
Second ApplicantAND: SITEFATE PTY LIMITED and AIR TRANSPORTATION GROUP PTY LIMITED (ACN 002 682 733)
Respondents
JUDGE: WILCOX J PLACE: SYDNEY DATED: 30 JULY 1997
MINUTES OF ORDER
THE COURT ORDERS THAT:
The application by Air Transportation Group Pty Limited for review be allowed.
The order made by the Judicial Registrar on 14 March 1997 against Air Transportation Group Pty Limited be set aside.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA ) ) NEW SOUTH WALES DISTRICT REGISTRY ) VI 1663 of 1996 ) GENERAL DIVISION )
BETWEEN: BRIAN McCARTHY
First ApplicantAUSTRALIAN FEDERATION OF AIR PILOTS
Second ApplicantAND: IMPULSE AIRLINES PTY LIMITED
Respondent
JUDGE: WILCOX J PLACE: SYDNEY DATED: 30 JULY 1997
MINUTES OF ORDER
THE COURT ORDERS THAT:
The application for review be allowed.
The order made by the Judicial Registrar on 14 March 1997 be set aside and, in lieu thereof, it be ordered that the application be dismissed.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA ) ) NEW SOUTH WALES DISTRICT REGISTRY ) VI 1385-1386 of 1995 ) GENERAL DIVISION )
BETWEEN: PAUL H JACKSON & AUSTRALIAN FEDERATION OF AIR PILOTS
First ApplicantAUSTRALIAN FEDERATION OF AIR PILOTS
Second ApplicantAND: AIRWARM PTY LIMITED and AIR TRANSPORTATION GROUP PTY LTD (ACN 002 682 733)
Respondents
JUDGE: WILCOX J PLACE: SYDNEY DATED: 30 JULY 1997
MINUTES OF ORDER
THE COURT ORDERS THAT:
The application by Air Transportation Group Pty Limited for review be allowed.
The order made by the Judicial Registrar on 14 March 1997 against Air Transportation Group Pty Limited be set aside.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA ) ) NEW SOUTH WALES DISTRICT REGISTRY ) ) GENERAL DIVISION )
No. VI 1384 of 1995
BETWEEN: CHUCK C BLAKE
First ApplicantAUSTRALIAN FEDERATION OF AIR PILOTS
Second ApplicantAND: SITEFATE PTY LIMITED and AIR TRANSPORTATION GROUP PTY LIMITED (ACN 002 683 733)
Respondents
No. VI 1385-1386 of 1995
BETWEEN: PAUL H JACKSON
First ApplicantAUSTRALIAN FEDERATION OF AIR PILOTS
Second ApplicantAND: AIRWARM PTY LIMITED and AIR TRANSPORTATION GROUP PTY LIMITED (ACN 002 682 733)
Respondents
No. VI 1663 of 1996
BETWEEN: BRIAN McCARTHY
First ApplicantAUSTRALIAN FEDERATION OF AIR PILOTS
Second ApplicantAND: IMPULSE AIRLINES PTY LIMITED
Respondents
JUDGE: WILCOX J PLACE: SYDNEY DATED: 30 JULY 1997
EXTEMPORE REASONS FOR JUDGMENT
Before the Court are applications to review decisions of a Judicial Registrar in connection with three claims of unlawful termination of employment. The three cases were heard together by the Judicial Registrar and a similar course has been taken in respect of the applications for review. Both before the Judicial Registrar and before me, a central issue has been whether the applicants, or any of them, were employees of the airline operator that was named as a respondent.
I put the matter in that way because other respondents were also named in relation to two of the claims, they being companies controlled by first officers (Sitefate Pty Limited) or flight captains (Airwarm Pty Limited) who were engaged to fly on behalf of the airline operator. It appears these companies have now ceased to carry out any activity, and are without assets.
I also use the words “airline operator” because there have been changes, from time to time, in the identity of the company that operates an airline known to the public as “Impulse”. For present purposes, it is not necessary to chronicle the various transfers and changes of name that have occurred. I am content to use the word “Impulse” to refer to the operator of the airline, as that person was from time to time.
It appears Impulse took over the business of Oxley Airlines in about 1991. For some time it continued to use the trading name "Oxley", but then adopted the name "Impulse". At that time it engaged pilots and first officers as conventional employees. It was not until 1993, apparently, that there was discussion about the possibility of Impulse’s pilots and first officers forming pilot-providing companies that would supply services to it.
The evidence in relation to the conception of the scheme is sparse. It is confined to some evidence from Gregory Miles who was, at the time, employed by Impulse as a first officer. He said the idea was mentioned to him by a captain employed by Impulse, Maurice McBain. Mr McBain had apparently had some discussion with an executive officer of Impulse, but the evidence does not reveal the identity of this person, or whether Mr McBain presented the idea to the executive or vice versa. In any event, Mr Miles was attracted to the idea and agreed to become one of the first two directors of the company that was formed as Sitefate Pty Limited.
Sitefate was registered about the middle of 1993; Mr Miles became a shareholder and foundation director on 1 June. Sitefate quickly entered into a contract to supply first officers' services to Impulse. Mr Miles subsequently qualified as a captain for the Beechcraft 1900 aircraft whereupon he ceased to be a member of Sitefate and instead became a shareholder (and director) of Airwarm.
Apparently the separation of the first-officers' company from the captains' company continued until 1995, when problems with rostering prompted a decision to form a new company, Air Crews Control Pty Limited, covering both captains and first officers. Mr McCarthy, one of the three applicants, became a member, indeed a director, of Air Crews Control.
Two of the present applicants, Paul Jackson and Chuck Blake, became associated with Impulse in late 1994. It seems each was aware of the existence of Impulse and made their initial contact with officers of that company. There is some difference, as between the two of them, as to the way in which each was interviewed, selected and informed of employment. In both cases, however, the interview and selection procedure involved both senior employees of Impulse and people who turned out to be directors of the relevant pilot-providing company. Mr Jackson was employed as a captain. In his case the relevant company was Airwarm; Mr Blake was employed as a first officer, so the company was Sitefate.
It is clear from the evidence given by these two applicants that neither was well briefed about the scheme whereby pilots became members of the relevant pilot-providing company, which would in turn supply services to Impulse. However, each of them signed the documents necessary for the issue to him of shares in the relevant company. Each was aware of the existence of the company and its name.
In terms of day-to-day operations, there was little difference between what happened in fact and what would have happened if the applicants had been directly employed by Impulse. This was largely, I think, because of the way in which civil aviation operations are regulated in Australia. The person primarily responsible for an airline's operations, from a safety point of view, is the Chief Pilot. The Chief Pilot of Impulse, at all relevant times, was an employee of the company, in the conventional sense. Under the regulations, the Chief Pilot had responsibility to ensure that every crew member was appropriately qualified and in a proper condition to fly; that he or she complied with the regulations as to medical condition, sobriety, rest periods, etc. No matter how the supply of flight crew was organised, the Chief Pilot necessarily had that ultimate control.
On the other hand, the evidence indicates that rosters were prepared, not by an employee of Impulse, but by a director of the relevant pilot-providing company. The system was that Impulse would prepare an operations schedule, on the basis of which it indicated to the relevant pilot providing company how many crew would be required. The company would then roster its members to provide these services. Rostering was undertaken by one or other of the (usually) two directors, or perhaps some other member of the company who volunteered, or was persuaded, to perform the task. When the roster was determined, details would be made known to members of the company and each rostered member would attend for duties as stipulated. There was a procedure that, on the day before attending for duty, the person would contact the Impulse office to confirm his or her availability and receive any last minute instructions about changes in arrangements. This contact was made by the member directly with an Impulse employee. It was explained in evidence that this was done because it was more efficient than having the contact through an intermediary, such as a director of the pilot-providing company.
As I have said, the Chief Pilot had the right to veto the use of any particular pilot. There is no evidence that he ever exercised this right. I assume he would not have done so except for very good reason, arising out of his responsibilities under the regulations. However, the fact is there was a right of veto. It is also true that, in operating the plane, the pilot was subject to any instructions of Impulse that might bear upon safety matters and, I suppose, on keeping to schedules, etc. The pilot was supplied in order to enable Impulse to fulfil its schedules and any reasonable instruction on that matter would, no doubt, have been regarded as binding upon the pilot.
Having regard to all these matters, it is obvious that Impulse exercised a high degree of control over the work of individual captains and first officers. But I do not think this factor is as significant as it would be in some other industries. As it seems to me, a high degree of crew control is an inevitable feature of the operation of an airline. The industry is heavily regulated, with detailed responsibilities being placed upon the Chief Pilot. Mr Reitano, counsel for the applicants, argues I should not shrink from the ramifications of this fact. He says that, having regard to the regulatory framework, it may not be possible to operate an airline except by using people who are properly called "employees". I accept that theoretical possibility, but it is necessary to look at other aspects of the evidence before reaching the conclusion that, because of this high degree of control, all flight crew are employees.
Several matters, in my view, point in the opposite direction. First, although it is true the Chief Pilot had the right to veto the use of a particular pilot on a flight, nobody in Impulse chose the people who would be rostered to make that flight. The rostering was done by people acting on behalf of the pilot-providing company, not on behalf of Impulse. Other than in exceptional circumstances where there was a good reason, in the Chief Pilot's opinion, to veto the use of a particular person, the pilot selected by the pilot-providing company undertook the flight.
This ability to choose who will make a particular flight is something that points in favour of a conclusion that the scheme was for a company to provide services to Impulse, rather than that the people attending for duty were doing so as Impulse employees. I accept there may be situations in which a company employee has a role in rostering his or her colleagues. It seems that East-West Airlines involves a pilot in the task of rostering crew. Whether that pilot also undertakes normal flight duties, or is somebody with only management functions, is not revealed by the evidence. However, in the present case it is clear that rostering decisions were made by people who were not answerable to the management of Impulse for their choice, and were subject only to the Chief Pilot's veto of particular individuals pursuant to his statutory responsibilities.
Another matter which, in my opinion, tells against the view that this was an employee/employer relationship is the system of remuneration. The evidence reveals that the payment made by Impulse was calculated by fixing an annual rate for the category of persons involved - captains or first officers, as the case might be - and multiplying this by the number of persons required. I gather the annual rate bore some relationship to the usual market rates for salaries and allowances of that category of persons but with the addition of five per cent, as a profit to the pilot-providing company. Having regard to this evidence, it is obvious there was a close correlation between the cost of hiring employees directly and the cost of acquiring crew services through a pilot-providing company, in the sense that the calculation of cost was done on much the same lines. The evidence does not disclose where the advantage lay; Impulse may have obtained crew services more cheaply, by paying only five per cent in addition to salaries and allowance rather than the normal employer's add-ons to salaries.
Notwithstanding the method of calculation of the fee, a significant factor is that the remuneration of individual members of the pilot-providing companies was not directly proportional to the amount of work they did. Two witnesses made clear that members were paid a regular fortnightly amount, regardless of the amount of flying they had undertaken during that period. They also referred to the possibility that the pilot-providing company could obtain work from an operator other than Impulse. This apparently did not happen in the lifetime of Sitefate and Airwarm, but it did happen for Air Crews Control. However, an individual member who flew extra hours to service an additional contract like this was not entitled to an increase in remuneration proportional to the extra work. The proceeds of his or her effort simply went into the coffers of the company and was distributed more or less evenly between all members. Similarly, if a person was not used in a period, remuneration continued. In other words, there was no direct correlation between the work an individual member did and the income of that person. This would be unusual in an employer/employee relationship.
The other matter that weighs heavily with me is that I have had the benefit of hearing evidence of several people who were involved in the operation of the pilot-providing companies.
Mr Reitano argues the companies were part of what should properly be regarded as a sham arrangement, Impulse truly being the employer of the individual pilots. However, when one talks about a "sham", it is usual to ask who set out to deceive. I have no evidence that any person in the Impulse management was party to a sham. There is also no evidence to the contrary; the relevant people did not give evidence before me. But I have seen some of the pilots who were involved in setting up the companies. They include Mr Miles, who was one of the moving parties with Sitefate and an early director of Airwarm, and Mr Nockles, who was the moving party with Air Crews Control.
It seems to me apparent that both these men thought what they were doing was advantageous to themselves and their colleagues. They spoke of getting rid of the “master and servant” relationship. They each spoke of extra opportunities for professional and personal growth and the possibility of getting work with airline operators other than, or additional to, Impulse. I think they both visualised a company that would, in time, develop contacts with a number of airlines, and perhaps have a significant number of members. The company would blossom and provide members with opportunities for management experience and greater income.
I think there was a great deal of unfounded optimism about this approach. Having heard evidence about the operation of pilot-providing companies, I am far from convinced they represent an advantage for pilots. While stripping away the “master and servant” relationship, they also remove many of the advantages that adhere to that relationship, from the viewpoint of the servant. I also think they overlook the problem of rosters being worked out by people who, at the workplace although perhaps not within the company, are equals, with the possibility of jealousies and resentments developing. However, this is simply to say that, in my view, pilot-providing companies may not be a good idea. It is not to say there was any lack of genuineness about their creation, or the enthusiasm of those who created them. I think it is clear that the people who founded the companies saw themselves as establishing real companies, in which they and their colleagues would play a real and beneficial role. This, to my mind, is inconsistent with the notion of a sham.
I think it is also clear the witnesses saw the duties they performed in regard to rostering as important, and saw a real relationship between the directors of the pilot-providing companies and the members. The evidence provides an example of this. As one might expect, there are examples of instructions being given by the Chief Pilot or the Deputy Chief Pilot, on the Impulse letterhead, to all pilots or all Beechcraft 1900 crew. But there is also evidence of an occasion when a Beechcraft captain, Mr Regan, took it upon himself, as a director of Airwarm, to comment to Mr Jackson about the way Mr Jackson had conducted a flight. The comment did not relate to safety; it related to a decision made by Mr Jackson to wait for fuel at Williamtown rather than leave immediately and re-fuel at Port Macquarie. Mr Regan was of the view that the latter course would have enabled Mr Jackson to arrive at Brisbane earlier than he did, which, he thought, might have allowed a passenger to make an overseas connection. In effect, Mr Regan reprimanded Mr Jackson for his decision. I am not concerned whether the reprimand was justified or not, or whether the matter was well handled. The important point is that Mr Regan thought he had the authority to take this course.
If the pilot supply arrangement was a sham, and Mr Regan and Mr Jackson were simply fellow captains working for Impulse on an equal footing, I do not think it would have crossed Mr Regan's mind that he had the right to administer a reprimand; and I think Mr Jackson might have protested against the giving of the reprimand, as well as the way it was carried out.
I reach the conclusion that none of the present applicants are employees of Impulse with some regret. I think, in each case, the person has been shabbily treated. It is probably fair to say the shabbiness of treatment stems as much, if not more, from actions of the pilot-providing company as from actions of Impulse. But the result was they were unfairly deprived of effective employment and income. However, they are only entitled to a remedy against an entity that was, in law, their employer. Unfortunately for them, when one considers all relevant factors - and that is the appropriate manner of determining the question - it cannot be concluded in any of the three cases that the relevant person was an employee of Impulse.
In my view, each application ought to have been dismissed by the Judicial Registrar. I propose, in each case, to allow the application for review and set aside the determination as against Impulse. Orders were also made against Sitefate, in the case of Mr Blake, and Airwarm, in Mr Jackson’s case. No application was made in respect of those orders and they will be left intact.
I certify that this and the preceding eleven (11) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Wilcox
Associate:
Dated: 30 July 1997
Counsel for the Applicant: R Reitano Solicitor for the Applicant: R L Whyburn & Associates Counsel for the Respondent: P Menzies QC Solicitor for the Respondent: Bull Son & Schmidt Date of Hearing: 29 and 30 July 1997 Date of Judgment: 30 July 1997
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