Burke v Reander
[1996] IRCA 454
•17 September 1996
DECISION NO: 454/96
C A T C H W O R D S
INDUSTRIAL LAW - TERMINATION OF EMPLOYMENT - whether employer/employee relationship or independent contractor - whether termination at the initiative of the respondent - VALID REASON - meaning of VALID REASON - whether employer discharged ONUS OF PROOF that termination connected with OPERATIONAL REQUIREMENTS of its business - PROCEDURAL FAIRNESS
Industrial Relations Act 1988 ss.170CA(1), 170DB(5), 170DC, 170DE(1),
170DE(2), 170EDA(1)(b), 170EE(5), Schedules 10 & 11
Income Tax Assessment Act 1936
CASES: The State of Victoria & Ors v The Commonwealth of Australia
(unreported, High Court of Australia, No. FC 96/024, 4 September
1996)
Stevens v Brodribb Sawmilling Company Pty Ltd (1985-1986)
160 CLR 16
Re: Porter; Re Transport Workers Union of Australia (1989) 34 IR 179
Australian Mutual Provident Society v Chaplin & Another (1978)
18 ALR 385
Quinn v Jack Chia (1992) 1 VR 567
Kenefick & Ors v Australian Submarine Corporation Pty Ltd
(unreported, Full Court of the Industrial Relations Court of Australia,
Nos SI 94/290, 292, 293, 294, 295, 26 March 1996)
Bechara v Gregory Harrison Healey & Co, (unreported, Madgwick J,
No. NI 1129 of 1994, 19 April 1996)
Selvachandran v Peteron Plastics Pty Ltd (1995-96) 62 IR 371
Brackenridge v Toyota Motor Corporation Australia Ltd (1996)
64 IR 77
JACKI BURKE - v - REANDER PTY LTD
No. VI 6336 of 1995
Before: Judicial Registrar Millane
Place: Melbourne
Date: 17 September 1996
INDUSTRIAL RELATIONS COURT
OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
VI 6336 of 1995
B E T W E E N :
JACKI BURKE
Applicant
A N D
REANDER PTY LTD
Respondent
MINUTES OF ORDERS
Judicial Registrar Millane 17 September 1996
THE COURT DECLARES THAT:
The termination of the applicant’s employment by the respondent on 5 December 1995 contravened Division III Part VIA of the Industrial Relations Act 1988.
AND THE COURT ORDERS THAT within 21 days of the date of making these Orders:
The respondent pay to the applicant the following sums less any amount payable to the Commissioner of Taxation pursuant to the Income Tax Assessment Act 1936 and actually paid:
(a) compensation in the sum of $19,900.00;
(b) damages pursuant to section 170EE(5) of the Industrial
Relations Act 1988 in the sum of $900.00; and
(c) annual leave entitlements in the sum of $3,600.00.
NOTE: Settlement and entry of orders is dealt with by Order 36 of the Industrial Relations Court Rules.
INDUSTRIAL RELATIONS COURT
OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
VI 6336 of 1996
B E T W E E N :
JACKI BURKE
Applicant
A N D
REANDER PTY LTD
Respondent
Before: Judicial Registrar Millane
Place: Melbourne
Date: 17 September 1996
REASONS FOR JUDGMENT
The applicant makes application to this Court pursuant to Division III Part VIA of the Industrial Relations Act 1988 (the Act) alleging contravention of section 170DE(1) and section 170DC. At hearing the applicant also sought to rely on section 170DE(2) of the Act, however, the decision of the High Court of Australia in The State of Victoria & Ors v The Commonwealth of Australia (unreported, High Court of Australia, No. FC 96/024, 4 September 1996), has since declared that, amongst other provisions, this provision and section 170EDA(1)(b) of the Act are not valid. The applicant seeks compensation as a remedy for any contravention of the Act. She also seeks the payment of the week’s salary in lieu of notice pursuant to section 170DB. In the Court’s accrued jurisdiction, the applicant makes a further claim for pro-rata unpaid annual leave entitlements for four weeks amounting to $3,600.00.
The respondent relies principally on two jurisdictional defences. The first is that the applicant was an independent contractor; there being no relationship of employment. The second is that, if there was an employer/employee relationship, it was not terminated at the initiative of the respondent because the applicant resigned. Apart from these lastmentioned defences the respondent also alleges in the alternative that it had a valid reason or reasons for terminating the applicant’s employment; namely redundancy, whilst also denying that any termination at its initiative was procedurally unfair.
The corporate respondent trades under the business name of Entre Nous. Its business is essentially that of an introduction service charging a fee for the introduction of single professional people to each other with a view to these clients forming friendships and romantic attachments.
In or about November 1994 the applicant commenced employment with the respondent as a consultant being paid commission for the sale of the respondent’s introduction services. At the commencement of the relationship the respondent’s business was then being conducted from residential premises in Copelen Street, South Yarra with a team of consultants all engaged in canvassing clients for its introduction services.
Rosalind Eileen Neville (Neville) is the registered proprietor of the business name Entre Nous and a director of and shareholder in the respondent company. She works in the business and, at the date the applicant commenced her consultancy with the company, Neville trained and managed the team of consultants. This involved her in training them on how to contact prospective clients; mainly, it seems, by telephone and inviting them to the premises to sell to them a program or membership for introduction services.
It is alleged by the applicant that when she first commenced as a consultant with the respondent, after completing a period of training with Neville, she received what she recalled was a written contract and was required to sign it before she could sell any services to a client. That contract was contained in a folder which also contained a document setting out what was referred to as the House Rules. She recalls signing the contract but claims that she was never given a copy of the document. The respondent did not dispute the existence of this written contract but was unable to produce any executed document at hearing, much less provide any explanation for its unavailability.
Throughout the period of her relationship with the respondent it is alleged that the applicant exercised little discretion in the way she went about her work. This allegation was exemplified by reference to the House Rules which clearly required her to comply with specific rules of procedure and conduct. For instance, contained in these House Rules were rules (a) precluding the consultants from eating their lunch away from the respondent’s premises; (b) precluding them from making any more than one personal telephone call during the day; and (c) requiring them to devote their time to telephone canvassing when they were not with clients.
Apart from the direct supervision and control of her work tasks, the applicant alleges that: (i) the starting and finishing times each day were fixed so that each consultant was named in a roster and required to cover the hours set out in the roster; (ii) if there were no clients during any period she was rostered to work, she was required to remain at the premises effectively on the roster until the appointed finishing time; (iii) she was not ever in a position where she was able to nominate or send anyone else to take her place on the roster should she have fallen ill or have decided that she wanted to attend to other work interests during her rostered period; (iv) when she initially commenced as a consultant her commission was paid on a sliding scale correlating to the number of sales accrued for the week (v) she was also paid a gross amount by cheque made out to her personally; and (vi) the equipment used in the business by the applicant as a consultant was the respondent’s equipment.
In approximately February 1995 the respondent shifted its business premises to The Como Centre in South Yarra. At or about that time the consultants were provided with a further written agreement and instructed to sign and return it to the respondent. The original of the agreement signed by the applicant and the respondent and dated 10 April 1995 was tendered in evidence (Exhibit A1). It is a document the applicant concedes she probably read before signing it although she points to there having been no discussion about the terms and conditions contained in the ten pages of typed document.
There was a dispute between the applicant and the respondent concerning the identity of the person who made alterations to certain parts of that document, each being signed by the two people executing the document on behalf of the company. Only one of the respondent’s signatories to that document gave evidence and that was Neville. No explanation was offered to the Court for the failure of the other signatory to attend to give evidence where the respondent was the party seeking to rely on the terms of this document.
It is the applicant’s contention that the hand written entries on the first page of Exhibit A1 and the signature on the last page of that document are the only insertions or alterations made to the document by her. Page two of Exhibit A1 appears to be a photocopied page to which an alteration was made to the definition of the word “Fee” to show that it referred to “Commission”. Page four of the Exhibit shows a deletion of paragraph 4.3 of the document including the insertion of the words “NOT APPLICABLE”. The paragraph deleted is that which prohibits a Sales Consultant from undertaking any other business, profession or occupation without the proper written consent of Entre Nous.
Paragraph 7 of Exhibit A1 is also deleted. It is a paragraph concerning leave entitlements and, but for its deletion from the document, provides for four weeks unpaid leave in each twelve month period as well as requiring a medical certificate to be provided by the Sales Consultant if any sick leave is taken the day following a weekend or public holiday or there is sick leave on two or more consecutive days.
Paragraph 8 of Exhibit A1 provides for termination by the respondent of the Sales Consultant’s contract in certain circumstances, which include the circumstance where the Sales Consultant fails to comply with any lawful direction by any officer or duly authorised agent of Entre Nous. Paragraph 8.1(e) provides Entre Nous with a discretion to terminate the contract if the Sales Consultant is unable to attend to her responsibilities and duties for twenty-one consecutive days, or an aggregate of twenty-one business days in any twelve month period, provided that the business days are not days in which the Sales Consultant is entitled to leave. The lastmentioned sub-paragraph has also been deleted.
The April 1995 agreement, whilst it clearly states that the respondent seeks to secure the services of the Sales Consultant who has agreed to be an independent agent with the respondent on the terms and conditions contained in the document, also gives the respondent significant control over and supervision of the performance of the Sales Consultant’s work. For instance, paragraph 3.1 of the agreement requires the Sales Consultant to comply with all lawful directions given by the respondent through the sales manager or any person duly authorised by Entre Nous. Further, paragraph 3.2 requires compliance with all of the House Rules apparently annexed to the agreement and by reason of the terms of the agreement forming part of that agreement.
Consistently with the abovementioned terms, it was the applicant’s contention that she was required to comply with any directions given to her by Neville. Those directions ranged from changing the way in which the respondent’s programs were sold on a week to week basis should she be directed to do so by Neville, to complying with whatever new House Rules applied as and when they were implemented. In fact, it is the applicant’s case that the House Rules were strictly enforced by Neville. Any failure to comply was brought to an offender’s attention, with an indication that they should find somewhere else to work if they were unable to comply with these rules. The effect of Neville’s evidence is that she agreed that her word was “law” in the operation of the respondent’s business. This concession, coupled with the matters set out in the documents, indicates a significant degree of direct control over the consultants.
It is the applicant’s recollection that when she executed Exhibit A1 it did not contain the alterations I have referred to above. Neither was she present when these alterations were made, nor was she consulted about the making of any alterations. Had the alterations been made on the document prior to her signing it, it was the applicant’s evidence that because of her own usual practice she would have signed those alterations also.
A copy of the House Rules was tendered in evidence bearing the date 31 March 1995 together with the applicant’s signature. It is a lengthy document, which I do not propose to set out fully in my reasons for judgment. However, a perusal of the two page document demonstrates a significant degree of control over not only the performance of the Sales Consultant’s duties; for instance: “TELEPHONE - Answer all lines Good Morning/Evening ENTRE NOUS except line 4“, but also over the Sales Consultant’s personal behaviour; for instance:
“DOMESTIC ISSUES
Toilet: Put the toilet lid down. Leave the basin clean after you.
Tea Room: Please don’t pour milky coffee all over the sink. Pour it down the plug hold carefully. Don’t leave dirty cups lying about. Put your teabag in the rubbish - do not leave it in the sink. Rosalind is allergic to the sound of a metal spoon stirring on a china cup so please use a plastic spoon. We all hate to be treated like a servant, so clean up after you.
You are welcome to free coffee and tea. Sales Consultants on night shift, may make a toasted sandwich from supplies in the freezer.
Client’s use only: Coffee bags, Earl Grey tea and biscuits and the fine bone china coffee mugs.
You are welcome to leave food in the fridge during the day but please take it home overnight. Housekeeper is likely to throw it out thinking it’s Rosalind’s.Hours
ENTRE NOUS does not provide for lunch or dinner breaks. If you wish to take half an hour for lunch or dinner add it on to your shift, ie. 10 till 6 shift with half hour for lunch becomes 10 till 6.30pm.”
The House Rules are signed by the applicant beneath a statement which reads “I have read these House Rules, know them, and agree to abide by them whilest (sic) contracted/employed by Reander Pty Ltd”. Of itself the statement contemplates an employment relationship with the person signing the document.
Whilst Neville conceded that the respondent had executed the agreement and signed the alterations, she told the Court that as far as she was concerned the alterations were made by the applicant and the respondent signed them accepting the alterations at the time. In view of other evidence given by Neville and referred to later in this judgment and, more importantly, the obvious degree of control and direction she reserved in running the business, it is unlikely that the respondent would have permitted one of its Sales Consultants to dictate the terms of the written document in making such extensive and far-reaching alterations to the document prepared by it and which it required the Sales Consultant to sign. Taking these matters into account, I am satisfied that the alterations were made by the respondent after the applicant signed the document and were not the subject of any prior discussion with the applicant.
There is one further noteworthy matter contained in Exhibit A1 and that is the references to the “Employment Period” in paragraph 1.1(a). In the definition section, “Employment Period” is defined as:
“... the period commencing on the Commencement Date and continuing:
(a) for an initial probationary period of one month during which time the
Sales Consultant’s performance level will be assessed by
an agent or agent of Entre Nous;
(b) on satisfactory completion of the one month probationary period the
Sales Consultant will be an Independant Agent on a weekly basis and
thereafter until either party gives not less than one week’s prior written
notice of termination;
(c) until the Sales Consultant attains the age of [65] years;
(d) until terminated in accordance with this document.”
The abovementioned matters are strong indicators of a relationship of employment; in that they are inconsistent with what is generally understood to be a contract for the provision of services.
One of the reasons I have dwelt on the provisions of Exhibit A1 is that it is contended by the respondent that its provisions were incorporated into a subsequent oral arrangement entered into with the applicant; such arrangement governing the relationship with the respondent until the date of termination on 6 December 1995. In my view that document does little to assist the respondent’s case because by its terms it strongly suggests a relationship of employment even though it sets about trying to establish a relationship of principal and independent contractor. Moreover, despite the terms of the document the evidence demonstrates that the respondent did not always act in accordance with those terms. For instance, for the few days sick leave taken by the applicant during 1995 the applicant’s company was paid but where she had one week’s leave in the latter part of the year, annual leave payments were not made. More significantly, when the applicant assumed the duties of sales manager in about May 1995, it was common ground that the arrangement between the parties changed from one where the applicant received payment whether it was by way of commission or salary, to one where the applicant’s corporate entity Kenley Holdings Pty Ltd received payments from the respondent to the date of termination. There was no evidence called which in any way supported a contention that there was express or implied agreement that the terms of Exhibit A1 would bind the corporate entity.
It was not contested that when the respondent moved its business to The Como Centre it moved to larger premises with an increased workload, a larger team of Sales Consultants, providing telemarketing services and undertaking research as well as selling its introduction programs. At that time it became apparent the respondent needed a sales manager. Because the applicant demonstrated her worth as a Sales Consultant in the months preceding the move, she was approached by Neville and asked if she would attempt these additional duties. In other words, it was initially contemplated that she would work both as a Sales Consultant and a manager. She continued to receive commission payments as a Sales Consultant and was offered and paid a 2% commission bonus on what the sales team brought in each week; recompensing for her sales manager’s duties.
As a Sales Consultant the applicant had been well rewarded because she was clearly successful in that role. A Sales Consultant earns her commission by building up a private diary of clients and contacts. It became apparent that it was not realistic for the applicant to continue in the dual role of sales consultant and manager because of the significant management workload which included training and controlling staff. This workload directly interfered with the applicant’s ability to pursue and develop her client diary and contacts, thereby affecting her commission earnings as a Sales Consultant. It was then agreed that she should cease to perform any Sales Consultant duties. She thereafter became a full-time manager with a duty statement prepared by her, she said, on the respondent’s computer at the respondent’s premises and dated 18 May 1995. That duty statement, it was agreed, was given by the applicant to Neville for her perusal and was returned to the applicant indicating an acceptance of the duty statement. The contents of the statement are set out in full as follows (see Exhibit A3):
“Manager - Sales & Marketing Commence 18/5/95
Official Title “Membership Manager”
1 Ensure Sales reach a minimum of $125,000 per month.
Aim to achieve sales of $150,000 per month South Yarra and $60,000
each branch office.
2 To liaise with Administration Manager so that jobs required from other
departments such as OPS or Administration happens.
3 Create a standard training manual that is adhered to to the letter
a telemarketers
b researchers
c sales consultants
to be completed and in use by no later than 1 July.
4 Recruit team of 10 for South Yarra plus an additional 4 ready to go
into the city office by 1 September. The secret of success will be
recruitment, recruitment, recruitment.
5 Maintain good staff attitude by motivation, counselling and continuous
training. Encourage staff to join SWAP and other networking
organisations get new ideas, for recruiting and picking up business
(sic).
6 Create teams with a leader in each, who encourages and trains her
members. The leader will carry her weaklings in order to get figures
on the board. The competition will ensure that Dems are not lost by
junior members of the team if they are going for the monthly and
annual prize.
7 Maintain a high level of customer service and good public relations.
8 Attend monthly planning meetings to develop a promotions,
advertising and marketing strategy to take advantage of seasonal
functions and celebrations and to overcome the quieter seasons.
9 Manage Telemarketing & Market Research Department. Achieve
results of 150 appointments per week and 3000 leads. Improve the
standard of staff, results and presentation to the public.
10 Organise official training and motivational events to include all staff at
ENTRE NOUS to enhance the efficiency, attitude and productivity of
ENTRE NOUS as a market leader world wide.
$900 per week
2% of sales
1% extra if sales exceed $130,000 for the South Yarra office
1% of sales of branch offices”
It is apparent from the abovementioned duty statement that the applicant then agreed to undertake the management role of sales and marketing at a remuneration of $900.00 per week together with 2% of the sales, 1% extra if sales exceeded $130,000 for the South Yarra office and 1% of sales for any branch offices. The amount of her remuneration was determined at that level, she claims, to ensure that she earned no less than she had been earning as a Sales Consultant. The remuneration was paid in accordance with the duty statement from about May 1995 (see Exhibit A4) because from that date the invoices paid to Kenley Holdings Pty Ltd refer to the regular hours worked, the base rate of payment of $900 and any bonus entitlement. In other words, there was no longer any invoicing for Sales Consultant commissions after 18 May 1995.
EMPLOYER/EMPLOYEE RELATIONSHIP
The existence of this relationship must be determined by reference to the facts of each case. The leading authority on this question is the High Court decision in Stevens v Brodribb Sawmilling Company Pty Ltd (1985-1986) 160 CLR 16. At page 24 of that decision Justice Mason (as he then was) says:
“... A prominent factor in determining the nature of the relationship between a person who engages another to perform work and the person so engaged is the degree of control which the former can exercise over the latter. It has been held, however, that the importance of control lies not so much in its actual exercise, although clearly that is relevant, as in the right of the employer to exercise it: Zuijs v. Wirth Bros. Pty. Ltd. (30); Federal Commissioner of Taxation v. Barrett (31); Humberstone v. Northern Timber Mills (32). In the last-mentioned case Dixon J. said:
“The question is not whether in practice the work was in fact done subject to a direction and control exercised by an actual supervision or whether an actual supervision was possible but whether ultimate authority over the man in the performance of this work resided in the employer so that he was subject to the latter’s order and directions.”
But the existence of control, whilst significant, is not the sole criterion by which to gauge whether a relationship is one of employment. The approach of this Court has been to regard it merely as one of a number of indicia which must be considered in the determination of that question: Queensland Stations Pty. Ltd. v. Federal Commissioner of Taxation (33); Zuijs’ Case; Federal Commissioner of Taxation v. Barrett (34); Marshall v. Whittaker’s Building Supply Co. (35). Other relevant matters include, but are not limited to, the mode of remuneration, the provision and maintenance of equipment, the obligation to work, the hours of work and provision for holidays, the deduction of income tax and the delegation of work by the putative employee.”
The list of relevant matters referred to in the abovementioned decision is not an exhaustive one as many other factors may be relevant on a case by case basis. Indeed, it is often a very difficult task to choose between the competing concepts because the relationship under consideration has features compatible with either or both relationships. This concern was highlighted by His Honour Justice Gray in his decision in Re: Porter; Re Transport Workers Union of Australia (1989) 34 IR 179 at page 184 where he says:
“A court determining whether a particular relationship is that of employment or of some other kind can therefore only resort to the process of balancing all of the factors, or as they are called in Stevens and other cases, the “indicia”. In truth, the result may be a matter of impression. It is unfortunate that this is so. It should not be necessary for people to obtain a decision of a court, in order to know the true nature of their relationship. Unfortunate or not, that is the case. Although the parties are free, as a matter of law, to choose the nature of the contract which they will make between themselves, their own characterisation of that contract will not be conclusive. A court will always look at all of the terms of the contract, to determine its true essence, and will not be bound by the express choice of the parties as to the label to be attached to it. As Mr Black put it in the present case, the parties cannot create something which has every feature of a rooster, but call it a duck and insist that everybody else recognise it as a duck.”
Looked at as a whole the relationship between the applicant and the respondent was that of employee and employer despite the attempt by the respondent in the agreement entered into in April 1995 to alter the truth of that relationship by putting a different label upon it. In its decision in Australian Mutual Provident Society v Chaplin & Another (1978) 18 ALR 385, the Privy Council set out a number of principles applicable to cases of this kind. One was that where there is a written contract the Court must confine itself to determining the nature of that relationship by reference to the terms of the contract subject to one exception and that is that where the subsequent conduct of the parties amounts to an agreed addition to or modification of the original written contract, that conduct may be considered and taken into account by the Court (see pages 392 et seq).
In the present case it is arguable that the written agreement between the applicant and the respondent was by agreement modified by the subsequent conduct of the parties in not only altering the applicant’s duties so that she moved from a sales consultancy to that of sales manager in a salaried position, but was also modified by the applicant acquiescing to the respondent’s suggestion that a corporate entity be used to receive the payments of the salary. There was no evidence that there was any intention that the corporate entity would, or in fact did, enter into any direct contractual relationship with the respondent. What is apparent is that the action in interposing the corporate entity between the applicant and the respondent was merely a device, the use of which was beneficial to both parties. Accordingly, I am not satisfied on the evidence that the imposition of the corporate entity between the applicant and the respondent is a matter which sufficiently overrides the conclusion that the relationship was one of employment rather than a contract for services.
TERMINATION AT THE INITIATIVE OF THE RESPONDENT
This is a case where the respondent argues that because of a downturn in its business which seriously eroded the profitability of the business by November 1995, it was necessary for the respondent to alter the structure of the business from that which had fixed costs to one run on variable costs. This meant, it is alleged, getting rid of some of the employees as well as the research and telemarketing departments. It ultimately meant, it is alleged, that the respondent no longer required the services of a sales manager but was happy to keep the applicant on as a Sales Consultant; that is to say, if she returned to her former position where she worked on a commission only basis.
The relationship between the applicant and Neville appears to have been a good working relationship until November 1995. Having had the opportunity to hear the evidence of both these women and observe their demeanour, I have concluded that the evidence of the applicant is the most reliable of the two. In cross-examination Neville persistently avoided answering difficult questions. Her answers to question, both in evidence-in-chief and in cross-examination, concerning the financial fortunes of the company during 1995 were vague, unconvincing and at times contradictory. Because of this I am not satisfied that Exhibit A8 which sets out a budget analysis for the respondent company between January 1995 and December 1995 is an accurate reflection of the financial position of the company in that period. That analysis was prepared by the respondent and tendered in evidence by the applicant. The document fails to record the receipts for the months of November and December 1995, matters crucial to the argument concerning the financial well-being of the company, however, it purports to show a result in both months where the company has entirely failed to achieve its goals for each month. In other words, on the face of it the document suggests that the target for monthly receipts in November 1995 was $125,000 and the company fell below that target by $125,000. In her evidence, Neville alleged that there were receipts of some $70,000 in each of the months of November and December 1995. On a number of occasions Neville conceded that she did not know all the figures for the profits and losses of the company, however, she was able to say without any reference to any documents that the monthly expenses for the company in 1995 were $120,000 each month. If this was so then there were only two months, March and August, in which the company had receipts exceeding its expenses and its regular target for each month of $125,000 in receipts was only pitched at some 4% above expenses. This evidence is inconsistent with the evidence that the downturn in the business receipts manifested itself in the second half of the year.
Apart from giving evidence herself, the applicant called a further witness, Rosalind Ellen Jones (Jones) who was a Sales Consultant with the respondent between January 1995 and December 18, 1995. Jones also has an application before this Court for unlawful termination of her employment. I am satisfied on the evidence of Jones and the applicant that there was some difficulty in the months preceding the applicant’s termination in December 1995, because the payments made to various employees and/or consultants were made by cheques that were not honoured. Not surprisingly, this caused some concern generally in the respondent’s workforce. By 20 November 1995 a decision was taken at a management meeting attended by the applicant to shut down the telemarketing and research departments and this decision, as well as the difficulties the staff were having in cashing their cheques, suggest that the company was under some financial pressures at that time.
It was common ground between the applicant and Neville that in late November on at least one or two occasions Neville made some passing comment to the applicant about her returning to sales at which time the applicant responded by reassuring her that they, meaning the company and the staff, had previously ridden out some of the seasonal troughs in the business and they would do so again. Neville agreed that there was no detailed discussion about the applicant foregoing her management position and returning to sales until a telephone discussion on the evening of 5 December 1995.
In the lead up to the lastmentioned telephone conversation, it appears that there were problems in the workplace with staff who were unhappy and concerned about the receipt of their entitlements. One of the Sales Consultants employed at that time was the applicant’s sister, Katherine. On 5 December 1995 the applicant’s husband rang Neville at approximately 10.00am to inform her that the applicant was suffering from a migraine and would not be attending work that day. The applicant’s evidence was that it was a severe migraine which affected her vision and disabled her for work that day. In the latter part of that day the applicant received a telephone call from Jones during which call there was some discussion between them about matters occurring at the work place and the fact that the applicant’s sister Katherine had resigned that day.
On Tuesday evening at approximately 8.00pm Neville rang the applicant at home. It was the applicant’s evidence that in that conversation she commenced by telling Neville she had heard that her sister had resigned, however, she was cut off by Neville who at first asked her what she was going to do, then told her the respondent could no longer afford her and finally told her that unless she went back into sales she had to “get out”. The response from the applicant was that she could not go back into sales. Because the applicant then had a dependent husband and three children, going back into sales entailed giving up a salaried position for one where she would be reliant on commission only. When the applicant indicated that she could not go back into sales, she claims that Neville told her to come in and obtain her “stuff” as well as instructing her not to speak to any staff when she came in. The telephone conversation ended abruptly at that point.
Neville’s version of the telephone conversation is that she had had a very stressful day on Tuesday, 5 December 1995 because she had been required to terminate the services of five staff. When she telephoned the applicant and told her that she could no longer afford to pay a sales manager’s wage and that the applicant would have to resume sales work, the applicant “really flew off the handle ...” informing Neville that she would come to the office in the morning to collect her pay, and then terminated the telephone conversation.
On balance I am inclined to accept the applicant’s version of the telephone discussion on 5 December 1995. A number of matters have influenced me in concluding that her evidence is the most reliable given on this matter. The first is that Jones specifically pointed to a conversation with Neville on 5 December 1995 when Neville expressed her belief that there was a conspiracy involving the applicant and some staff. She informed Jones that she did not want the applicant back and was intending to telephone her and sack her that night. Secondly, Neville’s evidence indicates that on 5 December 1995 there were staff difficulties, with a move by her to terminate some five staff members that day, not to mention her belief that a conspiracy was afoot. It was not clear from Neville’s evidence whether those terminations were a consequence of any operational requirements rather than her fear that they were conspiring in some way against the interests of the respondent. It is, therefore, more likely than not that when she telephoned the applicant on the evening of 5 December, she had by then decided to bring the applicant’s employment to an end and was also by then aware, because of comments made by the applicant in late November 1995, that the applicant would not contemplate, without the guarantee of a regular salary, returning to a sales position where she was required to rebuild a consultancy practice and a client diary in a declining business climate.
Insofar as I am required to determine whether there was termination at the initiative of the respondent, I have concluded by reference to the abovementioned matters that the acts of the respondent brought about the termination of the applicant’s employment on 5 December 1995. The respondent’s move to radically alter the applicant’s duties and remove her salary base amounted to a repudiation of her contract of employment which the applicant was entitled to and did accept as bringing her employment to an end (see Quinn v Jack Chia (1992) 1 VR 567). There was no evidence called by the respondent or submission made to suggest that the contract of employment expressly or impliedly permitted the alteration to the applicant’s duties and salary structure as contemplated by the respondent. By the time the applicant attended the respondent’s offices on the following morning, she did so to collect her personal effects and the outstanding monies owed to her. Whilst on 6 December 1995 there may have still been some suggestion that the applicant could return to sales, I am not satisfied that it was then contemplated by Neville that the applicant would or should remain in employment with the respondent. On 6 December 1995 there was some discussion over the amount of monies then owing to the applicant and the need for the applicant to have an Employment Separation Certificate. On the lastmentioned matter Neville then typed an Employment Separation Certificate which stated the following (Exhibit A6):
“1 The last date that Jacki Burke worked under contract for Reander Pty
Ltd T/A Entre Nous: 4 December 1995
2 The reason she left was because the company could not afford to
continue to pay her salary. Instead she was offered a job on commission only
which she has declined.
3 Not applicable according to her contract.”
It is apparent from the abovementioned document that even as late as 6 December 1995 Neville treated the applicant as an employee by providing her with this document.
SECTION 170DE(1) - REDUNDANCY
The respondent carries the burden of showing that there is a causal nexus between the termination of the applicant’s employment and any operational requirements of the business.
Where there is an alleged redundancy the decision of the Full Court of the Industrial Relations Court of Australia in Kenefick & Ors v Australian Submarine Corporation Pty Ltd (unreported, Nos SI 94/290, 292, 293, 294, 295, 26 March 1996) is authority for the proposition that for the employer to discharge the burden of proving that there was a valid reason for the termination of the applicant based on its operational requirements, it must show both that its operational requirements brought about the need to reduce its workforce and that there was a valid reason for selecting the applicant for redundancy. The relevant passages for that decision are set out as follows:
“Section 170DE(1) is concerned with the termination of the employment of an individual employee. As was said in relation to s.170DC, the terminations in this case were for two reasons. Both were based on the operational requirements of the respondent. One reason was the need to reduce the workforce, the other was to retain some rather than other employees of the existing workforce. Without both steps, no individual would have been terminated. The decision to reduce the overall numbers of welders in the hull shop did not of itself lead to the termination of individual appellants, and the process of selection was only commenced after the decision to reduce overall numbers had been taken. Consequently, the respondent carried the onus of showing that there was a valid reason for the selection of each appellant.
This conclusion is consistent with the scheme of s.170DE and s.170EDA(1). The scheme of the sections provides for the employer to carry the onus on matters peculiarly within the knowledge of the employer, and for the employee to carry the onus on matters peculiarly within the knowledge of the employee. Thus, in the present case, the respondent made the decisions concerning the selection of each particular appellant, and determined the basis on which the selection was to be made. The respondent should justify those decisions. To cast on the employee the onus of showing that the basis of selection has been harsh, unjust or unreasonable would be inconsistent with the apparent intention that this legislation should accord an accessible and inexpensive means by which a dismissed employee can seek a remedy. That consideration derives particular force when it is remembered that often an individual employee will not know why he or she has been selected for retrenchment.”
Section 170CA(1) of the act spells out the objects of Division III in the following way:
“170CA(1) The object of this Division is to give effect, or give further
effect, to:
(a) the Termination of Employment Convention; and
(b) the Termination of Employment Recommendation, 1982, which the
General Conference of the International Labour Organisation adopted
on 22 June 1982 and is also known as Recommendation No 166, and
a copy of the English text of which is set out in Schedule 11.”
Section 170DE(1) and section 170EDA(1) of the Act provide as follows:
“170DE(1) An employer must not terminate an employee’s employment unless there is a valid reason, or valid reasons, connected with the employee’s capacity or conduct or based on the operational requirements of the undertaking, establishment or service.
“170EDA(1) If an application lodged under section 170EA alleges that a termination of employment of an employee contravened section 170DE(1) then, in any consent arbitration arising from the application or in any proceedings arising on the referral of the application to the Court:
(a)the termination is taken to have contravened subsection
170DE(1) unless the employer proves that, apart from
subsection 170DE(2), there was a valid reason, or valid
reasons, of a kind referred to in subsection 170DE(1); and
(b)if the employer so proves, the termination is nevertheless
taken to have contravened subsection 170DE(1) if the
applicant proves that, because of subsection 170DE(2), the
reason or reasons proved by the employer were not valid.”
The enactment of the abovementioned provisions gives effect to the requirements of the Convention and the Recommendation No 166 (see Schedules 10 and 11 respectively).
In his decision in Selvachandran v Peteron Plastics Pty Ltd (1995-96) 62 IR 371, His Honour Justice Northrop considered the meaning of the phrase “valid reason” and reached the following conclusion:
“Section 170DE(1) refers to "a valid reason, or valid reasons", but the Act does not give a meaning to those phrases or the adjective "valid". A reference to dictionaries shows that the word "valid" has a number of different meanings depending on the context in which it is used. In the Shorter Oxford Dictionary, the relevant meaning given is: "2. Of an argument, assertion, objection, etc; well founded and applicable, sound, defensible: Effective, having some force, pertinency, or value." In the Macquarie Dictionary the relevant meaning is "sound, just, or well founded; a valid reason."
In its context in s 170DE(1), the adjective "valid" should be given the meaning of sound, defensible or well founded. A reason which is capricious, fanciful, spiteful or prejudiced could never be a valid reason for the purposes of s 170DE(1). At the same time the reason must be valid in the context of the employee's capacity or conduct or based upon the operational requirements of the employer's business. Further, in considering whether a reason is valid, it must be remembered that the requirement applies in the practical sphere of the relationship between an employer and an employee where each has rights and privileges and duties and obligations conferred and imposed on them. The provisions must "be applied in a practical, commonsense way to ensure that" the employer and employee are each treated fairly, see what was said by Wilcox CJ in Gibson v Bosmac Pty Ltd (1995) 60 IR 1, when considering the construction and application of s 170DC.”
Part III of the Recommendation contains what is referred to as Supplementary Provisions Concerning Terminations of Employment for Economic, Technological, Structural or Similar Reasons (see paragraphs 19 to 26 inclusive). These provisions generally spell out the sorts of steps an employer should take in order to avert or minimise termination of an employee for reasons associated with the operational requirements of the business rather than by reason of any conduct or performance issues. The failure to take these matters into consideration when making a decision to terminate by reason of the business’ operational requirements, may make that decision one that is not justified. So that selecting an employee for redundancy based on the operational requirements of the business without taking steps to avert or minimise the need for any termination is a relevant consideration in determining whether at the date of termination there existed a sound, defensible or well founded reason for termination. Arguably, a redundancy based on the operational requirements of the business is not defensible as the reason for termination if the employer selects an employee for redundancy when there is; for instance, suitable alternative employment available. Of course, all these matters need to be considered in each case by having regard to the nature and size of the employer’s operations and the opportunities available to avert or minimise the consequences of a decision to change the way in which the business operates.
The Full Court in Kenefick’s case took the view that the process of selection was one step taken by the employer leading to termination and therefore the onus fell on the employer to show that it had a valid reason for selecting the employee for termination. It follows from what I have said that in my view the employer carries the burden of establishing on the balance of probabilities all the matters that are relevant to determining that the decision to terminate was a sound, defensible or well founded one. Consideration of the standards of industrial fairness spelt out in the Convention and the Recommendation relate to the defensibility of the reason offered for termination and, therefore, the onus of proof concerning these matters must rest with the employer.
Whilst I accept that there may have been a downturn in the respondent’s business at the relevant time and that there was a desire to move from fixed costs such as salaries to a variable cost structure which may have required a reduction in staff numbers as well as some of the departments into which the respondent had expanded during 1995, on the evidence there is no clear nexus drawn between these matters and the termination of the applicant’s employment. I found Neville’s evidence vague and unreliable when it came to offering any clear explanation about the operations of the company, its finances and the need to reduce her workforce. The fact that the company was required to reduce its workforce for any reason does not of itself prove that it also had a need to select the applicant for termination. The applicant not only managed all the relevant departments but also managed the Sales Consultants who were continuing to work with the respondent in its business; a business which continues to operate until the present time. Accordingly, I am not satisfied on the evidence given that this was a redundancy connected with the operational requirements of the respondent. Further, looking only at matters to do with the selection of the applicant for any redundancy, the respondent failed to lead any proper evidence to satisfy the Court that if a reduction in staff numbers was required there was a valid reason for the selection of the applicant for redundancy. Because of my findings on these matters it is not necessary for me to consider the implications of the High Court decision invalidating section 170DE(2) of the Act.
Further, taking into account the matters occurring on or about 5 December 1995, I am not satisfied that redundancy was in fact the dominant reason for the decision to bring the applicant’s employment to an end on the evening of 5 December 1995. With the applicant’s sister resigning on 5 December 1995 and Neville’s belief that there was some conspiracy afoot involving the applicant, it is more likely than not that she moved to bring the applicant’s employment to an end as a result of these matters and not as a result of any bona fide decision to no longer employ a person to manage the staff.
Because of the abovementioned findings the respondent has not reached the standard of proof required to discharge the onus it carries in satisfying the Court that there was a sound, defensible or well-founded reason for termination.
If I am correct in my finding that the reason for termination on 5 December 1995 was not a redundancy but a reason related to Neville’s fears concerning the activities of her staff, it follows that the failure to address this issue with the applicant on 5 December 1995 and afford her the opportunity to explain any alleged conspiratorial conduct, was a breach of the procedural fairness provision of the Act; namely, section 170DC.
REMEDY
The applicant does not seek reinstatement. Having regard to the size of the respondent’s operation and the close proximity within which the applicant and Neville would need to work, I am satisfied that reinstatement is in this case impracticable.
The applicant seeks compensation for the period since termination. She was unemployed from the date of termination until April 1996 when she commenced two part-time positions earning a gross weekly income of $300.00. In the period between the date of termination and commencing her part-time position, she did not earn any personal income, although Kenley Holdings Pty Ltd which is now used by the applicant’s husband to run a marketing business, has earned some income in that time. The income earned by the company, however, has not been distributed to the applicant.
It is alleged by the respondent that the applicant failed to mitigate her loss. I am satisfied on the applicant’s evidence that she made numerous unsuccessful attempts to find employment prior to April 1996. The fact that she declined the opportunity to accept the lesser position which carried with it the uncertainty of having to develop a diary of clients and earn commissions in a business the respondent claims was declining, is not a matter which can be relied upon to reduce this woman’s claim for compensation. The respondent sought to rely on the decision of His Honour Justice Madgwick in Bechara v Gregory Harrison Healey & Co, (unreported, Madgwick J, No. NI 1129 of 1994, 19 April 1996). However, that case is distinguishable on its facts. In that case His Honour found that the applicant’s failure to accept a timely offer of reinstatement to her former position was a circumstance which should be taken into account when assessing appropriate compensation. The decision is not an authority for the proposition that if an employee’s contract of employment is repudiated in circumstances where there is an attempt to demote the employee and change the structure by which they are rewarded, then the employee can not justify a claim for compensation over the period in which they may have reasonably worked in a lesser position. The employee is entitled to accept the repudiation of the contract and seek employment with a regular salary elsewhere.
The respondent also relied on the decision of Her Honour Justice Beazley in Brackenridge v Toyota Motor Corporation Australia Ltd (1996) 64 IR 77 where the employee was demoted as a disciplinary measure but remained in her employment. In that case there was no termination. The case is not an authority for saying that an employee must accept a demotion or change of duties not contemplated by the contract of employment, or run the risk of not being compensated for the period in which they could have worked with the same employer in a lesser position.
At the date of termination the applicant’s base salary was $900.00 per week together with a percentage of the commission which fluctuated according to the sales made. Depending on the commission received her earnings ranged between the base rate and more than $1,400.00 gross per week. Accordingly, in assessing the appropriate amount of compensation payable it is necessary to consider average earnings including the opportunity to receive a percentage of commissions in the period between May 1995 and December 1995. It is also appropriate to take into account the applicant’s ongoing losses because she is only able to earn $300.00 gross per week for two part-time positions. No submission was put to the Court on the amount of the applicant’s average weekly earnings. Doing the best I am able to with the invoice books, a sum of $1300.00 gross per week represents average earnings at least since 18 May 1995. An appropriate amount of compensation directed primarily at loss of remuneration is a gross sum of $20,800.00 for the period to April 1996 less one week’s notice of $900.00 payable pursuant to section 170DB of the Act ($19,900.00).
The applicant has also made a claim for annual leave entitlements and that, by the time her employment was terminated, would have amounted to some four weeks’ ordinary pay if it is accepted that the employment relationship commenced from the beginning of December 1994. This gives an entitlement to a sum of $3,600.00.
MINUTES OF ORDERS
THE COURT DECLARES THAT:
The termination of the applicant’s employment by the respondent on 5 December 1995 contravened Division III Part VIA of the Industrial Relations Act 1988.
AND THE COURT ORDERS THAT within 21 days of the date of making these Orders:
The respondent pay to the applicant the following sums less any amount payable to the Commissioner of Taxation pursuant to the Income Tax Assessment Act 1936 and actually paid:
(a) compensation in the sum of $19,900.00;
(b) damages pursuant to section 170EE(5) of the Industrial
Relations Act 1988 in the sum of $900.00; and
(c) annual leave entitlements in the sum of $3,600.00.
NOTE: Settlement and entry of orders is dealt with by Order 36 of the Industrial Relations Court Rules.
I certify that this and the preceding twenty-five (25) pages are a true copy of the reasons for judgment of Judicial Registrar Millane.
Associate:
Dated: 17 September 1996
Solicitors for the Applicant: Mulcahy Mendelson & Round
Counsel for the Applicant: Mr C. O’Grady
Solicitors for the Respondent: Law Partners
Counsel for the Respondent: Mr S. Gerber
Date of hearing: 10 & 11 July 1996
Date of judgment: 17 September 1996
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