Bove v Scalzo Trading Co Pty Ltd
[1996] IRCA 431
•13 Sep 1996
DECISION NO: 431/96
CATCHWORDS
INDUSTRIAL LAW - TERMINATION OF EMPLOYMENT - Whether VALID REASON - PROCEDURAL FAIRNESS - No opportunity to employee to defend himself against allegations, because no opportunity given in respect of conduct and performance during the period after warning letter and before termination - REINSTATEMENT IMPRACTICABLE - COMPENSATION.
Industrial Relations Act, 1988 ss: 170DC, 170DE(1), 170DE(2), Regulation 30B.
Income Tax Assessment Act, 1936 s: 27A(1)
State of Victoria -v- Commonwealth of Aust, Number M46/1994, High Court, unreported, 4 September 1996
Jones -v- Dunkel (1959) 101 CLR 298
Hurskin -v- Australian Jewish Press Pty Ltd, Industrial Relations Court of Australia, Millane JR, Matter Number VI 4239 of 1995, unreported, 13 June 1996
May -v- Lilyvale Hotel Pty Limited, Industrial Relations Court of Australia, Wilcox CJ, Matter Number NI 1963R of 1995, unreported, 1 December 1995
Kenefick & Ors -v- Australian Submarine Corporation, Industrial Relations Court of Australia, Wilcox CJ, Matter Numbers SI 290, 292, 293, 294, and 295 of 1994, unreported, 26 July 1996
Selvachandran -v- Peteron Plastics Pty Ltd (1995/96) 62 IR 371
BOVE -v- SCALZO TRADING CO. PTY LTD (A.C.N. 005 318 810)
VI 4535 of 1995
Before: PATCH JR
Place: SYDNEY (Heard in Melbourne)
Dates of hearing: 22 & 23 January 1996 and 7 & 8 February 1996
Date of judgment: 13 September 1996
IN THE INDUSTRIAL RELATIONS COURT
OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
VI 4535 of 1995
BETWEEN:
ANTHONY PAUL BOVE
Applicant
AND
SCALZO TRADING CO. PTY LTD
(A.C.N. 005 318 810)
Respondent
MINUTES OF ORDERS
13 September 1996 PATCH JR
THE COURT ORDERS THAT:
1. The respondent is to pay the applicant the sum of $8,000.00 as compensation for the unlawful termination of his employment, within 21 days of today.
2. Of that sum, the respondent is to pay directly to the applicant only that sum which remains after the deduction of such tax as the respondent is obliged to the deduct on the basis that the compensation payment to the applicant is an Eligible Termination Payment within the meaning of section 27A(1) of the Income Tax Assessment Act 1936.
3. The parties are to attempt to reach agreement on the amount of tax to be deducted by the respondent.
4. If agreement is reached, consent orders may be filed pursuant to Order 35, Rule 10.
5. The matter is to be listed before me for telephone directions at 9.30am on 4 October 1996.
6. If consent orders are filed and signed by me, prior to that date, the matter is to be removed form the list.
7. Liberty to apply on 3 days notice.
Note: Settlement and entry of orders is dealt with by Order 36 of the Industrial Relations Court Rules
IN THE INDUSTRIAL RELATIONS COURT
OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
VI 4535 of 1995
BETWEEN:
ANTHONY PAUL BOVE
Applicant
AND
SCALZO TRADING CO. PTY LTD
(A.C.N. 005 318 810)
Respondent
REASONS FOR DECISION
13 September 1996 PATCH JR
The applicant contends that his employment was unlawfully terminated in breach of sections 170DC and 170DE(1) of the Industrial Relations Act 1988 (“the Act”). The applicant seeks compensation, conceding that, in the circumstances, reinstatement is impracticable.
At the time that the parties’ written submissions were received the applicant also argued that the termination of his employment was in breach of section 170DE(2) of the Act. However, on 4 September 1996 the High Court declared that section of the Act to be beyond the legislative power of the Commonwealth. (See State of Victoria -v- Commonwealth of Aust, Number M46/1994, High Court, unreported, 4 September 1996).
As a result of that decision, I will not deal with the applicant’s submissions in relation to section 170DE(2) of the Act.
I note here that the resolution of this matter was greatly delayed by the fact that the applicant’s legal representatives were some months late in lodging their written submissions.
BACKGROUND FACTS
The respondent is a medium sized business, selling processed food to wholesalers. It has about 50 employees in Victoria, and a lesser number of employees in some other states. The applicant’s employment commenced on 6 March 1995, and was terminated on 18 August 1995. He was employed as an “Accounts Manager” - which terminology was used to describe the position of a salesperson, with responsibility for looking after sales to a large number of account customers, as well as developing new accounts (customers).
The applicant was directly responsible to Mr Rob Richards, the Sales Manager. The General Manager of the company was Mr Quin Scalzo. He was the Chief Executive Officer of the company. The applicant was employed by the respondent because of his experience in sales in the food industry. He had knowledge of some aspects of the industry that, in the then opinion of the respondent’s management, would have proved valuable in developing the respondent’s market base.
Although the applicant was “on the books” of Morgan and Banks, an employment agency, he was not actively seeking alternative employment. However, the respondent contacted him via Morgan and Banks, and after some negotiations, he agreed to take up the position with the respondent.
PROBATIONARY PERIOD
At some time after the commencement of his employment, the applicant was given a letter (dated 6 March 1995 but given to him later than that date) in which a probationary period of six months was set out. The applicant never accepted a probationary period as a condition of his employment. For that reason alone, he was not “serving a period of probation” within the meaning of Regulation 30B to the Act.
Furthermore, as the attempt to impose a probationary period was made by the respondent after the applicant had commenced his employment, it cannot be said that the period of probation was “determined in advance”, in accordance with Regulation 30B. For that reason also the applicant was not “serving a period of probation” within the meaning of the regulation.
WAS THERE A VALID REASON FOR THE TERMINATION OF THE APPLICANT’S EMPLOYMENT?
In Selvachandran -v- Peteron Plastics Pty Ltd (1995/96) 62 IR 371, his Honour, Justice Northrop, interpreted the expression “valid reason” in section 170DE(1) of the Act as referring to a “sound, defensible and well founded reason” for the termination of an employee’s employment. The burden of proof in respect of the existence of a valid reason for the termination of the applicant’s employment lies on the respondent.
A number of criticisms of the applicant’s performance are set out in Exhibit 48, which was a letter of warning to the applicant from Mr Quin Scalzo. The letter was signed and delivered on 5 July 1995, although dated 3 July. The “concerns” of the respondent were listed in that letter, as follows:
“a lack of proactivity in fostering new and existing sales, reflected in your budget deficit to date of 35% on the G.P. figure for Melbourne sales.
negative feedback from customer demonstrating an inability to manage a positive sales relationship by controlling and servicing the customer to the level required by this Company.
lack of initiative to re-gain sales previously lost by the business or achieve new substantial business or firm inquiries.
lack of urgency in follow up of direction from managers.
regular administration errors in the placement and maintenance of account orders.
inappropriate allocation of time and resources to key accounts.”
Later in the letter it said, “Clearly we cannot allow the situation to continue. As things stand we have lost ground in sales and even more alarmingly for us, appear to have alienated some long standing customers”.
We must inform you that you have one month to demonstrate that you can rectify the situation. The following:
sales figures to meet or exceed budget for that month, with particular attention focuses on the Melbourne customers.
A call rate of approximately 15 physical calls per week will be required. More importantly however, is some demonstrated feedback and follow-up to those calls. What sales, enquires, etc have they generated.
a monthly and weekly plan which will demonstrate some strategic approach to regaining lost sales and obtain new business.
No further negative feedback from any customer.”
It is to be observed that the criticisms made in the letter dated 3 July 1995 (Exhibit 48) were made less than four months after the applicant had commenced employment with the respondent.
During that time the applicant’s relationship with his immediate manager, Mr Richards, had deteriorated to the point of animosity.
Mr Richards had made considerable play out of what were, in my opinion, relatively minor incidents concerning the applicant. On one occasion, for example, Mr Richards had strongly criticised the applicant for making a short detour on the way back to the office to pick up some healthy food for lunch, rather than eat what the applicant had described as “greasy food from some take away joint” (or words to that affect). The time involved in that detour was minimal, yet Mr Richards used the incident to criticise the applicant for showing a “lack of urgency” in his work. In my opinion, Mr Richard’s criticism of the applicant in relation to that particular incident was too hasty and unjustified. It soured the relationship between him and the applicant.
Another criticism, (which came under the heading of “negative feedback from customers”) was an incident involving the late delivery of a consignment of sesame seeds to a customer of the respondent’s called Mauri Ingredients, in South Australia.
On 26 June 1995 the respondent received an angry fax from their customer as follows:
“I refer to our o/n 3239 which was due 31/5/95.
I have been given several arrival times for this container none of which have been accurate. The
last date I was given was A.M. delivery Friday 23/6/95 but I have just returned from our warehouse and guess what.We actually ran out of stock 16/6/95. When I rang to find out the whereabouts of our stock you supplied 60 bags to get us out of trouble, but thats almost gone now and we face being out of stock again. I need to know precisely when the remainder of our stock will arrive because if there is going to be another prolonged delay I will have to try and get some somewhere else.
Is there a problem I don’t know about? Do we owe you money? Please advise. (Today if possible).”
The receipt of such a fax understandably caused a flurry of activity within the respondent’s organisation. The applicant was ultimately blamed for the problem. It was said that it was his responsibility to “manage” the accounts (Mauri was one of his accounts) and to ensure that the customer was kept satisfied.
In fact, the applicant had kept a close eye on the delivery, up to and including the afternoon before the expected delivery date. He had been assured by those responsible in the shipping department of the respondent that the delivery would be made the next morning, and had communicated that assurance to the customer.
But the shipping department had failed to ensure that the delivery was loaded at the warehouse within time, and this in turn had resulted in the delivery not occurring on time. The applicant cannot be blamed for that.
Some criticism can perhaps be made of the applicant for failing to check, after the time that delivery was due, that it had in fact occurred. However, the main cause of the customer’s anger was the fact of non delivery - something which was beyond the applicant’s control.
It is to be noted that that fax was received a short time before a meeting at the end of June - which meeting was followed by the warning letter dated 3 July 1995.
The apparent ease with which the applicant was blamed for the problem with Mauri demonstrates that the working relationship between him and the company’s management (Mr Richards in particular) had deteriorated significantly. From sometime before the end of June Mr Richards had been examining the work of the applicant with a sharply critical eye.
In respect of the criticism relating to “regular administration errors in placement and maintenance of account orders”, I do not accept that this amounts to a valid reason for the termination of the applicant’s employment.
The applicant’s induction, when he first commenced employment with the respondent, was not as detailed as the respondent’s witnesses attempted to assert. In this respect, I accept the applicant’s evidence. In particular, he was not properly trained in the use of the computer system employed by respondent - a computer system which necessitated, inter alia, the making of regular and detailed entries concerning the day to day management of each salesperson’s accounts. It was this lack of proper training which resulted in the applicant making errors early on in the period of his employment - the frequency of which declined as he became more familiar with computers and the respondent’s system.
In my opinion the respondent has not established any proper evidentiary basis to demonstrate a “lack of urgency in follow up of directions from managers”. This is largely, in my opinion, a subjective viewpoint stemming from Mr Richards - and is an expression of the deteriorated working relationship between Mr Richards and the applicant.
In respect of “negative feedback from customers” there was one other significant account, apart from the Mauri account, in respect of which the applicant was criticised. This was the John Lewis account.
In my opinion, the allegation of poor performance in respect of this account is unfounded. The applicant said that another salesperson, Ms De Kusel had responsibility of this account. The applicant’s assertion is objectively proven by Exhibit 47 which demonstrates that she indeed did the bulk of the dealings with this customer.
Ms De Kusel was not called to rebut the applicant’s evidence, and no explanation was given for the respondent’s failure to call her. In my opinion, the inference should be drawn that she was not called because her evidence would not have assisted the respondent’s case. See Jones -v- Dunkel (1959) 101 CLR 298.
The criticisms in respect of “a lack of productivity in fostering new and existing sales” and a “lack of initiative to regain sales previously lost by the business or achieve new substantial business or firm inquiries” are really one and the same.
When the applicant commenced employment with the respondent he was given a large number of customers as his responsibility, and was given a budget. This budget was expressed to be a yearly budget.
At no stage did the applicant meet that budget.
It is to be observed that the period of employment was only just over five months. Although the applicant had had experience in the food industry before, he was not familiar with most of the customers and was, in that sense, breaking new ground. Success in sales depends to a significant extent on personal interaction between the salesperson and the customer. This, in turn, depends on the building up of a rapport between the salesperson and the customer - on an individual level - not merely at the level of company to company. Because of those factors, it was to be expected that in the first few months of his employment, the applicant would have considerable difficulty meeting the monthly average of the yearly budget. At no time did he do that.
It was this failure to meet budget which was the most serious of the respondent’s criticisms of the applicant’s employment.
Exhibit 54 was a summary of budget results prepared by the applicant. Its accuracy was not challenged by the respondent. The applicant, who had responsibility for accounts in both Victoria and South Australia, had the following results for Victoria:
March 66%
April 51%
May 74%
June 55%
July 65%
August Not known
His results for South Australia were:
March 63%
April 196%
May 93%
June 71%
July 96%
August (to 17 August - 103%).
It is to be seen that the Victorian sales (which formed the strong majority of his client base) were well down, but that the South Australian sales were, overall, above budget.
The respondent attempted to downplay the significance of the South Australian figures, by asserting that senior management had had a role in some successful sales to South Australia. Be that as it may, it is a factor which must have been predictable when the budgets were set.
The fact that the Victorian sales were significantly below budget cannot be ignored. However, this criticism, and the others set out in Exhibit 48, were reasons for the termination of the applicant’s employment only in the sense that the alleged failure to improve his performance in respect of the various matters, in the period after 5 July, led to the termination of his employment.
On analysis, the applicant’s employment was not terminated, for the criticisms set out in the letter dated 3 July 1995 (Exhibit 48). In fact, his employment was terminated for the alleged failure to improve sufficiently in the month or so following the delivery of that letter to him.
The only evidence of any significance concerning his performance in July was that relating to his sales figures. No evidence of any moment was given in relation to the other criticisms set out in Exhibit 48.
As Millane JR observed in Hurskin -v- Australian Jewish Press Pty Ltd, (Industrial Relations Court of Australia, Matter no VI 4239 of 1995, unreported, 13 June 1996): “It is not the role of the Court or, indeed, the object of the legislation, to require employers to keep on underperforming employees.”
Nonetheless, this principle (as Millane JR found in that case) does not necessarily mean that all underperformance is capable of providing a “sound, defensible and well founded reason” for the termination of an employee’s performance. The criticisms have to be looked at in context.
In my opinion, given the short time for which the applicant was employed by the respondent, given the fact that, in respect of the overall body of the accounts that the applicant was given to manage, there had been a history of sales decline, and given the fact that the applicant was only given one month in which to improve (after only 5 months in the job), in my opinion, the criticism of the applicant for failing to meet the monthly average of the yearly budget does not amount to a sound, defensible and well founded reason for the termination of his employment.
It follows that the termination of the applicant’s employment was not for a valid reason, and unlawful.
WAS THE TERMINATION OF THE APPLICANT’S EMPLOYMENT IN BREACH OF 170DC OF THE ACT?
Section 170DC of the Act is as follows:
“An employee must not terminate an employee’s employment for reasons relating to the employee’s conduct or performance unless:
(a) the employee has been given the opportunity to defend himself or herself against the allegations made; or
(b) the employer could not reasonably be expected to give the employee that opportunity.”
True it is that the applicant was put on notice that his job was in jeopardy and that he was informed of the reasons for this.
However, he was never given the opportunity to demonstrate that his performance had, in the crucial period following 5 July 1995, improved.
I do not accept that any sufficient discussions occurred such that it could be said that the applicant was given the opportunity to defend himself referred to in the section.
It is not enough for the respondent simply to assert that the applicant’s performance did not improve. There may well have been reasons for this which the applicant could have explained. There may well have been (and almost certainly were) aspects of his performance which the applicant wished to highlight. For example, in July, the applicant claims that he was able to obtain a significant amount of new business both in Victoria and South Australia. He was never given the opportunity to bring that to the attention of the respondent’s management, and to argue that this demonstrated that his performance was beginning to lift in a significant way, and that he should, therefore, not be dismissed.
Section 170DC of the Act is not a matter of mere procedural nitpicking. It is an important section of the Act which has been inserted for sound reasons of commonsense and which is based on simple concepts of justice, in order to give employees the right to respond to criticisms made of them by their employers - in such a way that they may avert, if the response is reasonable, the ultimate industrial sanction of dismissal.
In my opinion, section 170DC confers upon employees the right to be consulted (subject to section 170DC(b). The right is one which employers cannot arbitrarily negate. If they do so, it is done at their peril, and lays them open to a finding that the termination of an employee’s employment was unlawful. That has occurred in this case.
REMEDY
Is the reinstatement of the applicant impracticable?
In my opinion, reinstatement is impracticable. The personal relationships between the applicant and the management of the respondent, (particularly Mr Richards) had deteriorated to such an extent as to make it likely that his reinstatement would cause serious disharmony within the workplace. Furthermore, the applicant now enjoys fresh employment.
Compensation
I do not accept the respondent’s submission that “it was inevitable that the applicant would be dismissed”, and that the procedural requirements “may have taken another one or two weeks”.
It is entirely possible, in my opinion, that if the respondent’s management had viewed the applicant’s performance objectively, they may well have decided that things were on the mend, and that he should be given a further, and relatively lengthy, chance to improve.
On the other hand, there is a significant possibility that the applicant’s performance would not have continued the improvement that it began to show in July and August 1995. It is possible that that improvement was a transitory matter, due to seasonal fluctuations. I should say however, that, in my opinion, it seems that the applicant was applying himself diligently and that at least a significant part of the improvement, particularly the efforts that the applicant made to get fresh business (see Exhibit 53) can be put down to this application.
Nonetheless, just as it is not possible to say with any degree of certainty that he would have been dismissed, it is not possible to say with any degree of certainty that the applicant’s employment would have continued.
The applicant’s remuneration package at the time of the termination of his employment was composed of $42,000 per annum in salary and $10,000 per annum as the value of the motor vehicle provided to him. (That latter figure was presented to the Court as an agreed fact under section 191 of the Evidence Act.)
The applicant obtained new employment on 15 January 1996. He received pay in lieu of notice up to 18 September 1995.
It follows that the applicant lost a total of 17 weeks remuneration, which, calculating $42,000 at $807.69 per week and $10,000 at $192.30 per week, comes to $16,999.96.
The applicant’s current salary is $38,000 per annum (he has a car in his new job). It follows that he continues to lose $4,000 per annum by way of salary difference.
In my opinion, this is not a case where it is appropriate to take into account the likelihood of continuing economic loss (see May -v- Lilyvale Hotel Pty Limited, Industrial Relations Court of Australia, Wilcox CJ, Matter Number NI 1963R of 1995, unreported, 1 December 1995). This is because it is necessary to significantly discount the likelihood that the applicant would have remained in continuing employment, and to arrive at what, in the opinion of the Court, is an appropriate figure. (See Kenefick & Ors -v- Australian Submarine Corporation, Industrial Relations Court of Australia, Wilcox CJ, Matter Numbers SI 290, 292, 293, 294, and 295 of 1994, unreported, 26 July 1996).
The two most significant facts on the question of compensation, which have to be balanced one against the other, are the fact that the applicant has actually lost 17 weeks remuneration and the fact that there is a significant possibility that the applicant’s employment would have been terminated, for failure to perform, at some time during that 17 week period.
In my opinion, an appropriate figure for compensation in these circumstances is a figure approximately equal to 8 weeks remuneration, namely $8,000.00.
As such a payment is an Eligible Termination Payment (see section 27A(1) of the Income Tax Assessment Act, 1936), it will be necessary to deduct tax at the appropriate rate from that gross sum so that the resulting balance only is to be paid to the applicant.
As no submissions were received in respect of the appropriate rate of taxation to be deducted, it is not possible for the Court to make final orders.
The Court expects that the parties will act in good faith and be able to reach agreement on the appropriate rate of tax to be deducted, and the resulting balance which is to be paid to the applicant.
ORDERS
The orders that the Court makes are as follows:
The respondent is to pay the applicant the sum of $8,000.00 as compensation for the unlawful termination of his employment, within 21 days of today.
Of that sum, the respondent is to pay directly to the applicant only that sum which remains after the deduction of such tax as the respondent is obliged to the deduct on the basis that the compensation payment to the applicant is an Eligible Termination Payment within the meaning of section 27A(1) of the Income Tax Assessment Act, 1936.
The parties are to attempt to reach agreement on the amount of tax to be deducted by the respondent.
If agreement is reached, consent orders may be filed pursuant to Order 35, Rule 10.
The matter is to be listed before me for directions at 9.30am on 4 October 1996.
If consent orders are filed and signed by me, prior to that date, the matter is to be removed form the list.
Liberty to apply on 3 days notice.
I certify that this and the preceding seveteen (17) pages
are a true copy of the reasons for decision of
Judicial Registrar Patch as recorded in the transcript
and revised by the Judicial Registrar.
Associate: Renee Cauchi
Dated: 13 August 1996
APPEARANCES
Counsel appearing for the applicant: Mr Neville Kenyon Solicitors for the applicant: Mr John Kotsifas Counsel appearing for the respondent: Mr Frank Parry Solicitors for the respondent: Mr Peter McDougall Dates of hearing: 22 & 23 January 1996 and 7 & 8 February 1996
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