Coleman v Harmon Partners (Administration) Pty Ltd
[1996] IRCA 296
•02 July 1996
DECISION NO: 296/96
CATCHWORDS
INDUSTRIAL LAW - complaint of UNLAWFUL TERMINATION - whether termination for VALID REASON of OPERATIONAL REQUIREMENTS - whether HARSH UNJUST OR UNREASONABLE - COMPENSATION
Industrial Relations Act 1988, ss 170EA, 170DE(1), 170DE(2), 170EE(3), 170EE(5)
Slifka v J.W. Sanders Pty Limited North J unreported, Industrial Relations Court of Australia, 19 December 1995.
Mohazabv Dick Smith Electronics Pty Ltd (1995) 62 IR 200
Quinn v Jack Chia (Aust) Ltd (1991) 43 IR 91
Quality Bakers of Australia Ltd v Goulding; Wickham v Quality Bakers of Australia (1995) 60 IR 327
Mifsud & Ors v Pacific Dunlop Tyres and Goodyear Tyres (trading as South Pacific Tyres) (1996) AILR 3-265
Fenton & Gallagher v Casey College of TAFE Parkinson JR unreported, Industrial Relations Court of Australia, 8 December 1994
BARBARA KAYE COLEMAN v HARMON PARTNERS (ADMINISTRATION) PTY LTD
VI 5232 of 1995
Before : PARKINSON JR
Place: MELBOURNE
Date: 2 JULY 1996
IN THE INDUSTRIAL RELATIONS COURT
OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
VI 5232 of 1995
B E T W E E N:
Barbara Kaye COLEMAN
Applicant
A N D
HARMON PARTNERS (ADMINISTRATION) PTY LTD
Respondent
MINUTES OF ORDER
2 July 1996 PARKINSON JR
THE COURT ORDERS THAT:
The respondent pay to the applicant the sum of $19,110.00 in
compensation.
Time for payment is twenty one days from the date of order.
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 5232 of 1995
B E T W E E N:
Barbara Kaye COLEMAN
Applicant
A N D
HARMON PARTNERS (ADMINISTRATION) PTY LTD
Respondent
REASONS FOR DECISION
2 July 1996 PARKINSON JR
This decision is in relation to an application made pursuant to s170EA of the Industrial Relations Act 1988. The applicant was employed by the respondent on 2 January 1990. Prior to that date she was employed by a firm known as Touche Ross (“the former employer”), the partners of which included some of the partners and directors of the respondent.
On 1 January 1990 the respondent commenced its business. The applicant was offered employment by the respondent. The evidence of the applicant was that the employment was offered on the basis that she would transfer all existing entitlements, together with there being a recognition of prior service with the former employer for the purposes of annual leave and long service leave. The evidence of the applicant was that at the time of the offer of employment by the respondent she queried whether her prior service with Touche Ross would be recognised for long service leave entitlements. She was advised by Mr John Rogers, a partner at the former employer and a partner and director of the respondent, that this would be the case. I accept that this was part of the arrangement which was made, and it was upon this basis that the applicant agreed to commence employment with the respondent.
The applicant was employed as a computer operator and her commencing salary was 29,000.00. Her agreed hours of work were 9.00 am to 5.30 pm Monday to Friday. The applicant continued to work these hours during the entirety of the employment. During the course of her employment her salary was increased, and as at the date of termination it was $38,220.00 per annum.
On 13 September 1995 the applicant was called to a meeting with Mr John Hutchins and Mr Heinz Mai at approximately 8.15am. She was informed by Mr Hutchins that the respondent no longer had a full-time position available for her and that she would from the following week be working on a part-time basis. There was on any version of the events of that morning a fundamental alteration to the terms and conditions of the applicant’s employment. This is not a case where there was a mere variation to terms of insignificant consequence, or a variation of a type which would have reasonably been contemplated in the original agreement, such as a minor variation to duties.
The alteration was so fundamental as to affect the applicant’s hours of work by reducing them substantially from 37.5 hours per week to a mooted four hours per day, paid at an hourly rate of $20.00 per hour, with no sick leave or annual leave entitlement. It is my view that this fundamental alteration had the effect of terminating the existing employment and proposing a new employment as a part-time employee, on a casual basis.
The applicant advised the respondent that this alteration to her employment status would not be acceptable to her. She also indicated that she did not wish to work less hours than she was presently working and that the reduction in hours of work was not acceptable to her. The applicant was asked by the respondent to consider taking the part-time position until she could find another job. This she declined.
It was submitted on behalf of the respondent that there was no termination of employment at the initiative of the employer because the applicant could have remained in the employment of the respondent albeit on lesser hours and wages, had she so desired. It was put that the applicant chose to terminate the employment. I do not accept this submission as having any foundation in law. Nor is it sustainable on the facts of this case as I find them. On any view of the facts of this case, there was a fundamental variation to the terms of the contract between the parties without the agreement of one of the parties. In pure contractual terms, this unilateral action on the part of the respondent resulted in the repudiation of the terms of the contract by the respondent. The applicant elected to treat the repudiation as bringing the contract to an end. This she was entitled to do. The conduct on the part of the respondent was in contractual terms a termination of the employment of the applicant and a proposal to substitute a new employment on a part-time basis. In contractual terms there was a termination of employment. A useful examination of the law of contract in this context is to be found in the decision of North J in Slifka v J.W. Sanders Pty Limited (unreported, Industrial Relations Court of Australia, 19 December 1995). His Honour said, at p 5-7:
An alternative test - the law
The respondent submitted that the proper approach to determining
whether the termination was at the initiative of the employer is to
apply the test used to ascertain whether there has been a termination
of a contract of employment at common law. In Western Excavating
(E.C.C.) Ltd v Sharp [1978] ICR 221 at 226, Lord Denning MR
stated the test which he described as the “contract” test as follows:
“If the employer is guilty of conduct which is a significant breach
going to the root of the contract of employment, or which shows that
the employer no longer intends to be bound by one or more of the
essential terms of the contract, then the employee is entitled to treat
himself as discharged from any further performance. If he does so,
then he terminates the contract by reason of the employer’s conduct.
He is constructively dismissed.”
The Court of Appeal applied the test in the interpretation of the
statutory definition of “unfair dismissal” in paragraph 5(2)(c) of
Schedule 1 of the Trade Union and Labour Relations Act 1977,
which included the circumstance where:
“the employee terminates that contract, with or without notice, in
circumstances such that he is entitled to terminate it without notice
by reason of the employer’s conduct.”
It preferred the “contract” test to the “unreasonableness” test. The
latter test required the employer to act reasonably in the treatment of
employees. If the treatment was so unreasonable that the employee
could not be expected to put up with it any longer, the employee was
justified in leaving. The employee could leave without notice and
could claim compensation for unfair dismissal.
The preference expressed by the Court of Appeal depended primarily
on the form of expression used in paragraph 5(2)(c), the context of the
provision and its history. The Court of Appeal was also of the view
that the “unreasonableness” test had proved to be too indefinite and
productive of conflicting decisions and decisions based on whimsical
grounds.
Given the primary reasons which the Court of Appeal expressed for
preferring the “contract” test, the case is not of much assistance in
determining the proper approach to the interpretation of the
expression “at the initiative of the employer” in s.170EA. The form
of expression, the context and the history of s.170EA are quite
different from the form of expression, context and history of
paragraph 5(2)(c). In particular, s.170EA may well apply where the
contract of employment was terminated by the employee as a result of
conduct of the employer which fell short of evincing an intention not
to be bound by the contract of employment.
As to the operation of Part VIA Div 3 of the Act, it has been stated many times in decisions of this court that the question is not whether the conduct had the effect of terminating the contract of employment, but rather whether there was a termination of employment at the initiative of the employer which is the type of termination of employment contemplated by s170EA of the Act. To look at the question in purely contractual terms is not an appropriate approach to the provisions of the Act, although in this case the practical result would be the same. As to whether there was a termination of employment at the initiative of the employer, it is appropriate to set out an extract from the Full Court decision of Mohazabv Dick Smith Electronics Pty Ltd (1995) 62 IR 200 which considers the nature of the termination which is contemplated in s170EA. As will be seen from the extract, the critical issue is whether or not the termination of employment occurred at the initiative of the employer. The Full Court stated at p 203:
Section 170CA provides that the object of Div 3 of Pt VIA is to give effect to the Convention concerning Termination of Employment at the Initiative of the Employer and the Recommendation concerning Termination of Employment at the Initiative of the Employer which are Schs 10 and 11 of the Act respectively. Section 170CB provides that an expression has the same meaning in the Division as it has in the Convention. The terms "termination" and "termination of employment" are defined in the Convention as meaning "termination at the initiative of the employer". Accordingly the terms "termination" and "termination of employment" in the Act have the same meaning. The Convention does not, however, define the expression "at the initiative of the employer" and its meaning in the Convention must be gleaned from the Convention as a whole. This expression does not appear in the Act and is imported into the Act by s170CB.
At p. 204-05 their Honours continued:
It is necessary to consider the ordinary meaning of the expression
"termination at the initiative of the employer" in context in the
Convention having regard to its object and purpose. The word
"initiative" is relevantly defined in the New Shorter Oxford
Dictionary in the following way:
"initiative 1. The action of initiating something or of taking the first
step or the lead; an act setting a process or chain of events in motion;
an independent or enterprising act."
And in the Concise Macquarie Dictionary in the following way:
"initiative 1. an introductory act or step; leading action; to take the
initiative. 2. Readiness and ability in initiating action; enterprise: to
lack initiative."
These definitions reflect the ordinary meaning of the word
“initiative". Viewed as a whole, the Convention is plainly intended to
protect workers from termination by the employer unless there is a
valid reason for termination. It addresses the termination of the
employment relationship by the employer. It accords with the
purpose of the Convention to treat the expression "termination at the
initiative of the employer" as a reference to a termination that is
brought about by an employer and which is not agreed to by the
employee. Consistent with the ordinary meaning of the expression in
the Convention, a termination of employment at the initiative of the
employer may be treated as a termination in which the action of the
employer is the principal contributing factor which leads to the
termination of the employment relationship. We proceed on the basis
that the termination of the employment relationship is what is
comprehended by the expression “termination of employment”: Siagian
v Sanel (1994) (1994) 1 IRCR 1 at 19; 54 IR 185 at 201. In
many, if not most, situations the act of the employer that terminates
the employment relationship is not only the act that puts in train the
process leading to its termination but is, in substance, the entire
process. An example would be a situation where the employer
decided to dismiss an employee and did so orally or in writing with
immediate effect. Other situations may be more complex as
exemplified by the circumstances considered by Moore J in Grout v
Gunnedah Shire Council (1994) 1 IRCR 143; 57 IR 243 where an employee
had given written notice purporting to terminate the employment
relationship. The notice was not reasonable but was accepted by the
employer which later refused to allow the employee to withdraw the
notice. A question arose as to whether that was a termination of the
employment at the initiative of the employer and his Honour held it
was. His Honour said at 160-161; 259:
"I have already said that Div 3 concerns termination at the
initiative of the employer. The respondent submits that
'initiate' means 'to begin, commence, enter upon; to introduce,
set going, or initiate': see Shorter Oxford English Dictionary.
In this matter, it is submitted, it was the applicant and not the
respondent that initiated the termination by writing the letter of
18 May. This, in my opinion, gives the expression
'termination' in the Act, read in conjunction with Art 3 of the
Convention which speaks of 'termination ... at the initiative of
the employer', a narrow meaning that was not intended. A
principal purpose, if not the sole purpose, of Div 3 is to provide
an employee with a right to seek a remedy in circumstances
where the employee did not voluntarily leave the employment.
An employee may do some act which is the first in a chain of
events that leads to termination. An example would be an
employee who engaged in misconduct at work which
ultimately led to the employer dismissing the employee.
However, that situation and the present are not situations where
the termination was at the initiative of the employee. In both
instances the step or steps that effectively terminated the
employment or purported to do so were taken by the employer."
I am satisfied that the conduct of the respondent led directly to the termination of the employment. But for the initiative of the employer, the termination of the employment would not have occurred. The respondent initiated the termination of the employment by advising the applicant that her full-time employment was no longer available to her. The interview between the applicant and the respondent’s directors on 13 September 1995 at which this advice was given, was the point at which the termination of employment was initiated by the employer and was also the point at which the employment contract was terminated, albeit on notice. The fact that the applicant declined to accept what was in law an offer of employment on different and lesser terms and conditions (see in this regard Quinn v Jack Chia (Aust) Ltd (1991) 43 IR 91), does not establish that the termination of employment was at the initiative of the employee. The respondent had by its actions initiated the termination of the employment at the time it advised the applicant that she no longer had a full-time permanent position in the company.
The respondent sought to rely upon there being agreement between the parties as to the date for cessation of work as somehow indicating that there was agreement to the termination of employment. I do not accept that this date was anything other than a nominated date by the respondent, convenient to it in the circumstances. I accept the applicant’s evidence that she was advised of the date rather than consulted as to its appropriateness. In any event, an agreement as to a cessation date, after there has been a termination of employment, does nothing to alter the status of the termination of employment as being at the initiative of the employer. I am satisfied that the court has jurisdiction to hear and determine this application and I now turn to consider the matters arising pursuant to s170DE(1), s170DE(2)and s170DC of the Act. I turn to consider the operation of s170DE(1) and S170DE(2) of the Act.
The respondent contends that the reason for the termination of employment was as a result of the operational requirements of the business. Its evidence was that in May 1995 Mr John Rogers left the partnership and that when he departed he took with him a number of clients of the respondent. He also took with him two employees of the respondent. The departure of Mr Rogers was the reason the respondent said it was necessary to reduce the number of “non-productive” employees of the business. By the term “non productive” the respondent refers to non-fee generating employees. The result was that in September 1995 the respondent decided to terminate the applicant’s employment. The reason for the selection of the applicant was given as being on account of her being the most senior non-fee generating employee. It was decided by the respondent that the applicant’s work could be allocated to other employees and contracted out.
Some part of the applicant’s evidence was directed to whether the reduction in staff was necessary in circumstances where the departure of one partner had already led to a reduction in staff, and that whilst fees had reduced so too had drawings and associated obligations to the additional partner. The question which arises in this regard when considering the operation of s170DE(1) is not whether it was open to the respondent to take a different course, but rather whether the decision made was a bona fide decision based upon the operational requirements of the business. This approach to s170DE(1) is discussed by Beazley J in Quality Bakers of Australia Ltd v Goulding; Wickham v Quality Bakers of Australia (1995) 60 IR 327 at p 333, wherein her Honour said:
In the present case, there is evidence that Quality Bakers was engaged in a cost-effectiveness appraisal of its bread carting operations and that it had decided not to service customers it identified as unprofitable. It made a consequential decision that the number of bread runs had to be reduced. Mr Goulding's solicitor submitted that Quality Bakers had to prove that its approach to this restructuring was justified on economic or financial grounds and that it had not done so. I do not agree. Part VIA provides, relevantly, that there must be a valid reason for any termination of employment based upon the operational requirements of the business. An employer might decide to make certain positions redundant with the sole intention of increasing the profitability of an already profitable business. Such a decision would relate as much to the operational requirements of the business as would a decision as to redundancies taken in the case of a business which was in a parlous financial condition or when a certain type of work was no longer undertaken by the business. If the submission was correct, it would be necessary in every case of termination because of a redundancy for an employer to call expert economic or financial evidence to support an operational decision to make jobs redundant and the court would become the arbiter of whether the employer's operational decision was justified. There is nothing in the Act to justify such an approach.
In Mifsud & Ors v Pacific Dunlop Tyres and Goodyear Tyres (trading as South Pacific Tyres) (1996) AILR 3-265 and Fenton & Gallagher v Casey College of TAFE (unreported, 8 December 1994), I observed that a decision by a respondent to reorganise or restructure the business, provided it is a bona fide decision, is a decision for the respondent and not a decision which the court will seek to second guess or to substitute its own view of the appropriateness of the course of action taken.
In the circumstances, I am satisfied that the respondent did make a decision as to its capacity to continue to employ the number of administrative employees that it then employed. This decision was made in the face of a marked reduction in the number of clients retained by the business, together with a reduction in fees generated. The respondent determined that it was able to operate in these circumstances with less staff than it had previously, and that the operational requirements of the business were that a reduction in administrative staff occur. The evidence of Mr Hutchins and contained in exhibit R5 was that whilst a new employee was to be employed to replace the applicant and to provide advice as to the future distribution and conduct of her functions, this arrangement was on reduced hours of work. The evidence was that the duties of the applicant were distributed to other employees of the respondent. It was conceded by a number of witnesses called on behalf of the applicant that there was a reduction in income for the business and that it was reasonable that a reduction in administration expenses occur. I am satisfied that the reason relied upon by the respondent for the termination of the employment was a bona fide reason. The respondent has established in accordance with the onus that it bears pursuant to s170EDA of the Act, that the termination of employment occurred as a result of the operational requirements of the business. Subject to the operation of s170DE(2) I am satisfied that the respondent had valid reason for the termination of the applicant’s employment based upon the operational requirements of the business.I turn now to consider the operation of s170DE(2) of the Act.
I am satisfied that the termination of employment was harsh, unjust and unreasonable. This is because there was no forewarning to the applicant as to the possibility of loss of her full-time employment. Nor was there any consultation with her prior to the decision being made and conveyed to her. A final and irrevocable decision had been made to terminate her employment and offer her part-time work prior to any discussion with the applicant. The timing of the decision and the reason for the haste with which the alterations to the employment status were to be implemented was a matter about which there was a paucity of evidence.
In view of the length of service of the applicant with the respondent, and the terms upon which she agreed to be employed by it in 1990, the applicant was entitled to be given substantial forewarning of the likelihood of the loss of her full-time position. I am satisfied on the evidence of the applicant, whose evidence I prefer to that of Mr Hutchins and Mr Mai, that save for the discussion as to the part-time position, no alternatives were discussed, nor was the applicant invited to contribute to such a discussion.
I am also satisfied that the timing of the decision to terminate her employment, being as it was so close to the applicant becoming entitled to long service leave, was harsh. The respondent was aware of the imminent long service leave entitlements of the applicant. It did nothing to mitigate the effect of the decision upon the applicant. The alternative employment offered to the applicant did not enable long service leave entitlements to continue to accrue, nor was there any provision in the termination payments for a recognition of the loss of this long service leave entitlement. The termination of employment was to take effect less than six months before the applicant accrued long service leave entitlements. I am satisfied that an agreement was reached as to recognition of prior service with Touche Ross for the purposes of accrual of long service leave and superannuation entitlements with the respondent prior to the applicant commencing employment. The failure of the respondent to take into account these matters constituted the termination of employment as harsh, particularly in view of there being no fault attributable to the applicant for the termination of the employment.
The applicant has established that the termination of her employment was harsh, unjust and unreasonable. There has been a contravention of s170DE(2) by the respondent.
During the course of these proceedings I asked the parties to address me in relation to the award provisions which applied to the applicant. Of particular relevance to these proceedings, as it is a redundancy situation, is the entitlement of the applicant pursuant to any contract or award to a payment of an amount in severance payment. I was not addressed in relation to this matter. No submissions were put in relation to the award and counsel for the respondent informed the court that as the respondent was not relying upon the award it was not relevant for consideration. Parties in proceedings arising under s170EA ought be aware of the need to inform the court as to the most fundamental aspects of the employment, in this case how the employment was governed and what the terms of employment were.
S170DB
I am satisfied that the applicant was entitled to notice in addition to that given to her by the respondent. The applicant had been in fact employed by the respondent for a period of five and 1/2 years. Aside from any agreement as to recognition of service for other purposes, the applicant was entitled pursuant to s170DB(2) to a notice period of at least four weeks. Her age also entitled her to an additional week’s notice pursuant to that section. In all, the applicant was entitled to a notice period of five weeks. She was given notice of two weeks. The applicant is entitled to damages pursuant to s170EE(5) for the amount representing the additional notice period of three weeks.
The applicant had not at the time of trial obtained alternative employment. I am satisfied that an order for reinstatement would be impracticable having regard to the applicant’s feelings about the manner in which she was treated, and the need for a close personal working relationship to be maintained between the directors and anyone performing the duties which the applicant had previously performed in the workplace. The applicant seeks no order for reinstatement. The applicant has not found alternative employment of any substance, however she was offered employment which she declined. I am satisfied that it is appropriate in all the circumstances of this case to make an order for compensation, and in so doing to take into account the applicant’s lost earnings to the date of the trial of this matter.
Whilst the applicant was employed by the respondent for a period of five and 1/2 years, I am satisfied that it was represented to her that she would have all service recognised for superannuation and long service leave purposes. I am further satisfied that, given the applicant’s history with the previous firm, of which all of the partners of the respondent were members, together with her service with the respondent, the applicant was likely to have remained in the employ of the respondent for a significant period. On the evidence in these proceedings she would have remained at least until her entitlement to long service leave accrued in March 1996. That is a period of six months. There is no evidence to suggest that but for the termination of employment by the respondent the employment was likely to cease in the foreseeable future. I have considered whether in assessing compensation any account ought be had of the fact that alternative part-time employment was offered to the applicant by the respondent and refused. I have decided that it is not appropriate to take this offer into account because the offer was one which provided for significantly reduced terms and conditions of employment, and one which, whilst purporting to be permanent part-time, had all the hallmarks of a casual employment, precluding as it did annual leave and sick leave. In the circumstances, the applicant did not act unreasonably in deciding that she would prefer to seek a full-time position. The amount of compensation ordered will not be reduced as a consequence of this matter.
The applicant is entitled to compensation. The amount of compensation is limited by S170EE(3) to an amount not more than the remuneration the applicant would have earned but for the termination of the employment in the period of six months immediately following the termination of the employment. Remuneration in this context includes all wages and other entitlements, including the benefit of annual leave and long service leave accruals. The applicant’s annual salary at the date of the termination of the employment was $38,220.00. I am satisfied that but for the termination of the employment by the respondent on 13 September 1995 the applicant’s employment would have continued. Counsel for the respondent submitted that the downsizing of the respondent inevitably meant that the employment would not have continued for very long. Whilst this is a matter to take into account in determining the quantum of any compensation, it was very significantly the timing and the manner of termination of employment in this case which in my view constituted it as harsh. I am satisfied that but for the wrongful conduct of the respondent the applicant’s employment was likely to have continued for at least a further six months. Further I have taken into account the fact that despite this being a case of redundancy, no recognition of this fact was made in the termination payment which was made to the applicant.
The order of the court will be that the applicant be paid compensation in the amount of $ 19, 110.00, being a sum equivalent to the remuneration which would have been earned in the period of six months immediately following the termination of employment. In this amount compensation is made for the additional notice period which was not provided for pursuant to s170DB of the Act. Therefore I will make no additional order under s170EE(5) for damages.
As to any component in the order for long service leave entitlement, neither party fully addressed the issue of this entitlement in the course of the proceedings. In the course of the proceedings I made it clear to the parties that the issue of long service leave may be an issue in the quantum of any compensation order if such an order be made. Whilst I am satisfied that an agreement existed as to recognition of prior service for superannuation and long service leave purposes, I am not satisfied that the operation of any award or any state legislation establishing any actual entitlement or quantum of entitlement has been fully canvassed in these proceedings. I am unable as a consequence to determine the question of what entitlement or quantum of entitlement, if any, would have accrued to the applicant in the period of six months after the date of the termination of employment, so as to make any monetary assessment or to determine whether such an amount would fall within the expression “remuneration which would have been received” as that expression is used in s170EE(3) of the Act. The compensation order does not therefore make any provision for long service leave.
I certify that this and the preceding fifteen (15) pages
are a true copy of the reasons for decision
of Judicial Registrar Parkinson.
Associate:
Dated: 2 July 1996
APPEARANCES
Solicitors for the applicant: Hassall & Byrne
Counsel appearing for the applicant: Ms B Wearne
Solicitors for the respondent: Brian Ward & Partners
Counsel appearing for the respondent: Ms L Fleming
Date of hearing: 22 May 1996
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