Cosco Holdings Pty Ltd v Do, Thu Thi Van

[1997] FCA 1353

FEDERAL COURT OF AUSTRALIA

Industrial law - termination of employment - proper construction and application of s 170DE(1) - valid rason based on operational requirement - Court to determine the proper construction of the word “valid” and “operational requirement” - onus of proof - effect of the invalidity of s 170DE(2), the harsh, unjust and unreasonable termination provision - consideration of Termination of Employment Convention 1982.

Industrial Relations Act 1988 s 170DE, s 170EDA, s 170EE

State of Victoria v Commonwealth of Australia (138) ALR 129
Selvachandran v Peteron Plastics Pty Ltd (1995) 62 IR 371
Johns v Gunns Ltd (1995) 60 IR 258
Nettlefold v Kym Smoker Pty Ltd (1996) 69 IR 370
Kerr v Jaroma Pty Ltd (Marshall J, Industrial Relations Court of Australia, 7 October 1996, unreported)
Westen v Union des Assurances de Paris (Madgwick J, Industrial Relations Court of Australia, 17 December 1996, unreported)
Kenefick v Australian Submarine Corporation Pty Ltd(No 2) (1996) 65 IR 366, Full Court
Andrews v Uniting Church in Australia Frontier Services (1995) 60 IR 437

COSCO HOLDINGS PTY LTD v THU THI VAN DO AND OTHERS
QG 95, 96, 97, 98, 99 AND 100 OF 1997

NORTHROP, LINDGREN AND LEHANE JJ
SYDNEY (HEARD IN BRISBANE)
4 DECEMBER 1997

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY	QG 95 of 1997

ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA
CONSTITUTED BY A SINGLE JUDGE

BETWEEN:	COSCO HOLDINGS PTY LTD APPELLANT
AND:	THU THI VAN DO RESPONDENT
COURT:		NORTHROP, LINDGREN and LEHANE JJ
DATE OF ORDER:		4 DECEMBER 1997
WHERE MADE:		SYDNEY (HEARD IN BRISBANE)

THE COURT ORDERS THAT:

1. The appeal be allowed.

1. The orders appealed from be set aside and in lieu thereof it is ordered that the application be dismissed.

1. Liberty be granted to the parties to apply in respect of the form of orders dealing with the subsidiary orders made by the trial Judge.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY	QG 96 of 1997

ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA
CONSTITUTED BY A SINGLE JUDGE

BETWEEN:	COSCO HOLDINGS PTY LTD APPELLANT
AND:	LAN NGOC THI QUAN RESPONDENT
COURT:		NORTHROP, LINDGREN and LEHANE JJ
DATE OF ORDER:		4 DECEMBER 1997
WHERE MADE:		SYDNEY (HEARD IN BRISBANE)

THE COURT ORDERS THAT:

1. The appeal be allowed.

1. The orders appealed from be set aside and in lieu thereof it is ordered that the application be dismissed.

1. Liberty be granted to the parties to apply in respect of the form of orders dealing with the subsidiary orders made by the trial Judge.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY	QG 97 of 1997

ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA
CONSTITUTED BY A SINGLE JUDGE

BETWEEN:	COSCO HOLDINGS PTY LTD APPELLANT
AND:	HANH HUU NGUYEN RESPONDENT
COURT:		NORTHROP, LINDGREN and LEHANE JJ
DATE OF ORDER:		4 DECEMBER 1997
WHERE MADE:		SYDNEY (HEARD IN BRISBANE)

THE COURT ORDERS THAT:

1. The appeal be allowed.

1. The orders appealed from be set aside and in lieu thereof it is ordered that the application be dismissed.

1. Liberty be granted to the parties to apply in respect of the form of orders dealing with the subsidiary orders made by the trial Judge.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY	QG 98 of 1997

ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA
CONSTITUTED BY A SINGLE JUDGE

BETWEEN:	COSCO HOLDINGS PTY LTD APPELLANT
AND:	THAO NGOC HOANG RESPONDENT
COURT:		NORTHROP, LINDGREN and LEHANE JJ
DATE OF ORDER:		4 DECEMBER 1997
WHERE MADE:		SYDNEY (HEARD IN BRISBANE)

THE COURT ORDERS THAT:

1. The appeal be allowed.

1. The orders appealed from be set aside and in lieu thereof it is ordered that the application be dismissed.

1. Liberty be granted to the parties to apply in respect of the form of orders dealing with the subsidiary orders made by the trial Judge.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY	QG 99 of 1997

ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA
CONSTITUTED BY A SINGLE JUDGE

BETWEEN:	COSCO HOLDINGS PTY LTD APPELLANT
AND:	LOAN ANH NGUYEN RESPONDENT
COURT:		NORTHROP, LINDGREN and LEHANE JJ
DATE OF ORDER:		4 DECEMBER 1997
WHERE MADE:		SYDNEY (HEARD IN BRISBANE)

THE COURT ORDERS THAT:

1. The appeal be allowed.

1. The orders appealed from be set aside and in lieu thereof it is ordered that the application be dismissed.

1. Liberty be granted to the parties to apply in respect of the form of orders dealing with the subsidiary orders made by the trial Judge.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY	QG 100 of 1997

ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA
CONSTITUTED BY A SINGLE JUDGE

BETWEEN:	COSCO HOLDINGS PTY LTD APPELLANT
AND:	THANH DUC HUA RESPONDENT
COURT:		NORTHROP, LINDGREN and LEHANE JJ
DATE OF ORDER:		4 DECEMBER 1997
WHERE MADE:		SYDNEY (HEARD IN BRISBANE)

THE COURT ORDERS THAT:

1. The appeal be allowed.

1. The orders appealed from be set aside and in lieu thereof it is ordered that the application be dismissed.

1. Liberty be granted to the parties to apply in respect of the form of orders dealing with the subsidiary orders made by the trial Judge.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY	QG 95, 96, 97, 98, 99 and 100 of 1997

ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA
CONSTITUTED BY A SINGLE JUDGE

BETWEEN:	COSCO HOLDINGS PTY LTD APPELLANT
AND:	THU THI VAN DO AND OTHERS RESPONDENTS

COURT:	NORTHROP, LINDGREN AND LEHANE JJ
DATE:	4 DECEMBER 1997
PLACE:	SYDNEY (HEARD IN BRISBANE)

REASONS FOR JUDGMENT

Introduction

These six appeals, which by consent were heard together, involve a narrow but important issue concerning the proper construction and application of s 170DE(1) of the Industrial Relations Act 1988 (“the Act”). At all relevant times, that subsection provided:-

“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.”

The primary question involved in the appeal arises in circumstances where the employer introduced a new operational requirement in its undertaking which resulted in a surplus of employees.  As a result the employer terminated the employment of six employees.  The issue is whether there were valid reasons based on the operational requirements of the employer’s establishment for the termination of the employees’ employment.

The six separate appeals will be explained later in these reasons.  The facts involved in each appeal can be stated shortly.  Cosco Holdings Pty Ltd (“the Appellant”) carried on business in Brisbane.  At its factory it recycled paper and produced paper products from the recycled paper.  For present purposes, it is accepted that this part of its undertaking, relevantly, was divided into five sections, the first of which was the de-inking plant where the raw paper was recycled by the removal of ink and impurities.  The paper so recycled was then wound into large rolls.  These rolls were then delivered to one of the four other sections of the Appellant’s undertaking.  Each of these four sections is often referred to as a process line.  One process line produced toilet tissues, another facial tissues, another serviettes and the fourth produced hand towels.  Normally employees were engaged on one process line only but intermingling between process lines occurred from time to time.  When necessary, casual employees were engaged to fill temporary vacancies in a process line.  These appeals relate to the facial tissues process line of the undertaking of the Appellant.

Prior to 16 September 1995, the facial tissues line operated 24 hours a day, five days a week.  This was achieved by the use of three shifts, the day shift, the afternoon shift and the evening shift.  For the purpose of manning these shifts, the work force was divided into three panels known as the “A”, “B” and “C” panel respectively.  These panels were rotated between the day shift, the afternoon shift and the evening shift.  Normally the same employees constituted a panel but here also there was some degree of intermingling between members of panels and by the use of casuals when necessary.

Normally each panel comprised five employees but at times six employees were engaged on a panel.  In addition another employee was engaged to do maintenance work and to clean.  The maintenance/cleaner worked across the various process lines and on various shifts but was not considered to be a member of a panel.

For reasons which are accepted as valid and reasonable, the Appellant decided to introduce a two shift day, five days a week production line on the facial tissue line.  The evening shift was abolished.  The day shift and afternoon shift were retained but these two shifts could be operated by two panels.  In other words, apart from the occasional requirement, ten employees were required, the remaining five became surplus to requirement.

On 15 September 1995 the Appellant notified five employees that their employment had been terminated with effect from 16 September 1995. They were:-

“1.Ms Thu Thi Van Do, employed by the Appellant from 28 December 1990 to 30 November 1994 and again from 24 January 1995;

2.Ms Lan Ngoc Thi Quan, employed by the Appellant since 21 July 1986;

3.Mr Hanh Huu Nguyen, a leading hand employed by the Appellant since 12 December 1988;

4.Mr Thao Ngoc Hoang, employed by the Appellant on a full time basis from 21 June 1994 until 21 September 1994 and again from 6 April 1995;

5.Ms Loan Anh Nguyen, employed by the Appellant on a full time basis since December 1993.”

On 6 October 1995 the Appellant terminated the employment of Mr Thanh Duc Hua with effect from 7 October 1995.  Mr Hua had been engaged to do the maintenance work and to clean.

After 15 September 1995 the Appellant continued to operate two shifts only on the facial tissue line.  At the time of the hearing of the applications before the trial Judge, the Appellant was still operating two shifts on the facial tissues line.

On 29 September 1995, in conformity with the Act and the Rules of the Industrial Relations Court of Australia then in operation Ms Do, Ms Quan, Mr Nguyen, Mr Hoang and Ms Nguyen each filed in that Court a claim for unlawful termination of employment and an application for a remedy. Each claim was made under s 170EA of the Act. In each application the employee was named as the applicant and the Appellant was named as the respondent. The applications were identified as QI 1330, 1331, 1332, 1333 and 1334 of 1995 respectively. On 13 October 1995 Mr Hua filed a similar application which was identified as QI 1364 of 1995.

In conformity with the Act then in operation, each of the applications was referred to the Australian Industrial Relations Commission for conciliation, see s 170EC and s 170ED of the Act. No agreement was reached.

In due course the applications returned to the Industrial Relations Court to be heard by a Judicial Registrar.  The six applications were heard together.  The hearing of the applications extended over 8 sitting days between 25 March 1996 and 17 December 1996.

During the course of the hearings before the Judicial Registrar, the Appellant, as respondent to the applications, filed its points of contention dated 12 September 1996, the employees, as applicants, filed their points of contention as to liability dated 19 September 1996 and the Appellant filed its reply dated 1 October 1996. A consideration of those documents makes it clear that the only issue, on liability, between the parties was whether the Appellant, as employer, had a valid reason or valid reasons based on its operational requirements to terminate the employment of each of the applicants; see s 170DE(1) of the Act. Earlier, the applicants had sought to rely upon s 170DE(2) but following the judgment of the High Court on 4 September 1996 in State of Victoria v Commonwealth of Australia (1996) 70 ALJR 680; 138 ALR 129 which held that s 170ED(2) was invalid, the applicants abandoned their claims insofar as they were based on that subsection.

On 10 January 1997 the Judicial Registrar gave his decision on the applications. He made orders in favour of the applicant employees. The respondent employer, by motion in conformity with s 377 of the Act, sought reviews of the decisions of the Judicial Registrar. The reviews were by way of re-hearings de novo on evidence presented to the Court constituted by a Judge. The employees remained the applicants and the employer remained the respondent. The applications retained their same identification numbers.

At a directions hearing held on 23 January 1995, the Court, constituted by a single Judge, made orders with respect to the orders that had been made by the Judicial Registrar and gave directions relating to the hearing of the applications before the Court.  In substance, these directions were to the effect that the material that had been presented to the Judicial Registrar should be the material to be presented to the Court.  Provision was made for the leading of further evidence either in chief or in cross-examination, but in the event no further evidence was given.  The only evidence before the Court was the material which had been before the Judicial Registrar.  The six applications were heard together.

The Court constituted by a single Judge heard the six applications on 24 and 25 June 1997. Judgment was given on 30 June 1997. Further orders were made later including 9 July 1997. The details of the orders need not be discussed. It is sufficient to say that one applicant only, Mr Hua, was seeking the remedy under s 170EE(1) of reinstatement and payment of remuneration lost. The other five applicants were seeking the remedy of compensation under s 170EE(2) and (3). The Court made the orders as sought by all of the six applicants.

By notices of appeal dated 18 July 1997, the Appellant appealed from orders made by the trial Judge in each application.  The six appeals, by consent, were heard together.  The main issue in each appeal was the same as that before the Judicial Registrar and the Court constituted by a single Judge.

Relevant statutory provisions

Before turning to the facts in some more detail, reference should be made to the relevant statutory provisions contained in Division 3 of Part VIA of the Act in operation on 15 September 1995. Part VIA was headed “Minimum Entitlements of Employees”. Division 3 was headed “Termination of employment”. The main object of Division 3 was stated in s 170CA(1) as follows:-

“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.”

Subdivision B of Division 3 was headed “Requirements for lawful termination of employment”. The overall effect of this Subdivision was to limit the right (if that is the correct word) of an employer to terminate the employment of an employee. Under s 170DF an employer was prohibited from terminating an employee’s employment for any one or more of specified reasons or for reasons including any one or more of those reasons. Section 170DE(1) prohibited an employer from terminating an employee’s employment unless there was a valid reason connected with the “employee’s capacity or conduct” or unless there was a valid reason “based on the operational requirements” of the employer. In the present case, there is nothing to suggest that the Appellant terminated any of the employees’ employment for a reason connected with the employee’s capacity or conduct. Accordingly s 170DC has no application. That section prohibited an employer from terminating an employee’s employment for reasons relating to the “employee’s conduct or performance” unless the employee had been given the opportunity to answer the complaints made about the employee’s conduct or performance. This matter was not an issue before the Full Court.

Section 170DE(2) provided that a reason for termination under either of the two limbs of s 170DE(1) was not valid if, “having regard to the employee’s capacity or conduct” or “those operational requirements”, the termination was “harsh, unjust or unreasonable”. Since the judgment of the High Court in State of Victoria v The Commonwealth on 4 September 1996, it has been clear that s 170DE(2) has had no operation.

Section 170DD contained provisions applicable where an employer decides to terminate the employment of 15 or more employees “for reasons of an economic, technological, structural, or similar nature, or for reasons including such reasons”.  This section has no application to the facts of this appeal since less than 15 employees were involved.

Subdivision C of Division 3 was headed “Remedies in respect of unlawful termination”. Subsection 170EA(1) enabled a person, being the employee, to apply to the Court “for a remedy in respect of termination of his or her employment”. Sub-section 170EDA(1) provided that if an application under s 170EA alleged that a termination of employment of an employee contravened s 170DE(1):

“(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).”

Subsection 170EDA(2) placed the onus of proof on an employee alleging the termination was harsh, unjust or unreasonable.

Section 170EE specified the remedies that the Court could grant on an application under s 170EA. No further reference need be made to these remedies at this stage.

The nature of the provisions contained in Division 3 and the methodology to be adopted by a Court hearing applications brought under s 170EA were discussed at length by Northrop J in Johns v Gunns Limited (1995) 60 IR 258 and Selvachandran v Peteron Plastics Pty Ltd (1995) 62 IR 371. A number of the sections were considered in detail and the methodology to be adopted in the hearing of applications under s 170EA was explained. No submissions were made during the hearing of the appeal to suggest that those decisions, insofar as they related to the main issue raised by the appeal, should be departed from. In particular, on the facts of this appeal, the Appellant, as the employer carries the onus of proving that it had a valid reason or valid reasons for terminating the employment of each of the respondent employees. Further, it must be remembered that neither the word “valid” nor the expression “valid reason” is defined in the Act or in the Convention.

State of Victoria v The Commonwealth (1996) 70 ALJR 680; 138 ALR 129

There is much of interest in the reasons for judgment of the High Court in State of Victoria v The Commonwealth. One of the issues raised in that matter was the constitutional validity of the provisions contained in Part VIA of the Act and, for present purposes in particular, Division 3 of Part VIA. The Court considered the provisions of s 170DE(1) in the context of the Termination of Employment Convention and the Termination of Employment Recommendation 1982. In the discussion of an aspect of this matter, the Court said at 138 ALR 171:-

“Article 4 of the Convention requires that employment not be terminated without a valid reason.  Article 5 provides that a number of grounds “inter alia, shall not constitute valid reasons for termination”.  Those grounds, even if they would otherwise have constituted valid reasons for termination, are deemed not to be valid reasons.  The use of the words “inter alia” recognises that the list in Art 5 is not an exhaustive one.  There obviously will be other reasons for termination which, having regard to the capacity and conduct of the employee and the operational requirements of the employer, are not valid.  However, the Convention does not specify in detail what those reasons are.  It leaves the general word “valid” as the cornerstone of Art 4.”

In these circumstances, it is for the Court to identify the meaning to be given to the expression “valid reason” appearing in s 170DE(1). In State of Victoria v The Commonwealth, the High Court was constituted by Brennan CJ, Dawson, Toohey, Gaudron, McHugh and Gummow JJ. The quotation above was from the joint judgment of Brennan CJ, Toohey, Gaudron, McHugh and Gummow JJ. Dawson J gave a separate judgment to express an opinion which is not relevant for present purposes. Subject to that opinion, his Honour said at 216:-

“The parties in this case, as in Richardson, did not seek to contest the authority of the Tasmanian Dam case and, proceeding upon the basis of that decision, I agree with the orders proposed by the majority.  Other than where the reasoning of the majority is dependent upon the view taken of the external affairs power in the Tasmanian Dam case, and subject to the following comment, I am able to express my general agreement with their reasons.”

As a result, in these reasons, a reference to opinions expressed by the majority of the Court can be taken to be the opinion of the Court but subject to the reservation expressed by Dawson J.

In Selvachandran, Northrop J discussed the meaning of the words “valid reason”.  At 373 his Honour said:-

“The reasons of an employer for terminating the employment of an employee are solely within the knowledge of the employer.  The employer may state a reason but that reason need not be the actual reason nor need it be the only reason.  This is the rationale for the onus of proof provisions contained in s 170EDA.

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.”

In many subsequent cases the Industrial Relations Court has adopted the view that the word “valid” in the phrase “valid reason” should be given the meaning of sound, defensible or well founded.  The meaning will need to be considered more fully later in these reasons.

In State of Victoria v The Commonwealth, the majority, in a long passage which is subject to the reservation of Dawson J, discusses the constitutional power of the Commonwealth to make laws under the external affairs power and based on treaties or conventions; see 136-148. This is a very helpful passage to read as an aid to the understanding of Part VIA of the Act. Commencing at 149, the Court considers the framework of that Part which was in the same form as the Act relevant for the purposes of this appeal. The purpose of the examination was in the context of determining the validity of the provisions of Part VIA. Commencing at 165, the Court considered Division 3 of Part VIA, termination of employment. For present purposes, the discussion is under a number of sub-headings; including “(i) The legislative provisions”, 165; “(ii) Questions in the case stated”, 166; “(iii) Termination of employment provisions and the external affairs power”, 166. The discussion at pages 166 to 171 is most important and should be read. The discussion refers to the relevant parts of Articles 4, 5, 6, 8 and 9 of the Termination of Employment Convention and their “evident relationship to 170DE(1)”. At 171 the conclusion is expressed that the provisions of s 170DE creating the “harsh, unjust or unreasonable” criterion go beyond the terms of the Convention to a constitutionally impermissible degree”. This conclusion is formally stated under the sub-heading “(v) Conclusions with respect to the termination of employment provisions”, 174. This passage includes the conclusion that s 170DE(2) is invalid.

The sub-heading “(iv) Termination of employment provisions and their application to the States”, 172, has not been mentioned.  Having regard to submissions made by counsel for the respondents, reference will be made later in these reasons to passages appearing under that sub-heading.

The analysis of the relevant provisions of Division 3 of Part VIA set out earlier in these reasons is consistent with the view expressed in State of Victoria v The Commonwealth.

Reasoning of the trial Judge

Despite the voluminous amount of material before the Judicial Registrar, and the trial Judge, the relevant facts are not in dispute.  The Appellant adopted a haphazard method in determining which employees should have their employment terminated.  The trial Judge appears to have found that on the facts, there was a reasonable basis to reduce production on the facial tissue line.  Implicit in this was the finding that it was reasonable to replace the three shift operation with the two shift operation.  To some extent, this finding is supported by the fact that from the time the two shifts came into operation in mid-September 1995 up to the conclusion of the hearing before the Judicial Registrar in December 1996, the Appellant operated the two shift system on the facial tissues line. 

In his reasons for judgment the trial Judge said:-

“There is some objective support for the view that the night shift was terminated and, despite the painstaking and often effective challenge on behalf of the employees to the operational requirements case mentioned by Cosco, I think that there was a reasonably felt need to reduce operations on the facial tissues line.”

This passage constitutes a finding of fact that the change in the operational requirements of the Appellant from three shifts to two shifts on the facial tissues line was reasonable.  This finding was not, nor could it be, challenged by counsel for the respondents.  Nevertheless, the trial Judge held that there was no valid reason based on the operational requirements of the Appellant for the termination of the employment of each of the employees.

As was said earlier in these reasons, the selection of the six employees whose employment was terminated was haphazard. As a result of the change in the number of shifts, one panel of employees became surplus. The panel of employees to be dismissed was chosen by lot. Panel B was the unlucky panel, but the Appellant did not terminate the six persons then comprising Panel B. The Appellant, by its managing director, looked at the individual employees and decided the employment of three of those persons should not be terminated. The Appellant selected two other employees, not being members of Panel B, whose employment should be terminated. This seems to negate the selection by ballot of a panel. None of the two employees who were not members of Panel B but whose employment was terminated was chosen for reasons related to the employees’ conduct or performance. Thus s 170DC had no application. The trial Judge did not accept the evidence of the managing director of the Appellant as to the reasons for selecting these three employees. To some extent it is true to say that the selection of the six employees whose employment was terminated was at the whim of the employer.

The same observations can be made with respect to the sixth employee, Mr Hua.  He was employed for maintenance and cleaning work.  Once the two shift system was introduced, it became apparent there was insufficient work for him.  His employment was terminated in October 1995 but the reason for the termination of his employment was based on the operational requirements of the Appellant.

In summary, the trial Judge found that the reason for the termination of each of the employees was based on the operational requirements of the appellant but that the reason for termination was not a valid reason under s 170DE(1).

Immediately after the passage set out above from the reasons for judgment of the trial Judge, his Honour said:-

However, the extent and consequence for Cosco’s level of employment of such a reasonably felt need are not clear.  Counsel for the employees showed that the effect of the dismissals of facial tissues line employees was to reduce an average staffing level (including casuals) from 18 in the 4 weeks preceding terminations to 13 for the 9 weeks thereafter, but, by December, that level was back to 14 to 15.  Cosco’s total workforce fluctuated between 167 and 174 in the four weeks up to the terminations, between 165 and 175 in the 9 weeks thereafter, and between 170 and 177 in December.  Within two weeks of the terminations of the employees (other than Mr Hua), a considerable increase, sustained at least to the end of 1995, occurred in the de-inking plant.

One could hardly regard a net reduction in Cosco’s non-casual factory floor workforce of more than two or three employees as having been shown to be the consequence of the decision to close the night shift.’

The numbers set out in this passage appear to be misleading since there is no clear distinction between casual employees and other employees.  There was no evidence to show that the five employees notionally in Panel B could have been employed usefully after the two shift system was introduced.  It should be noted that by the end of December 1996, in evidence before the Court directed to the question of remedy, it was clear the workforce of the appellant had been reduced to about 130 employees.

His Honour then referred to the other courses that might have been open to the Appellant to overcome the surplus of employees resulting from the change in shifts or in the selection of employees whose employment would be terminated.  His Honour said:-

“Thus, Cosco is doomed to failure in these proceedings.  It has not been shown that there was any actual “reason .... based on the .... operational requirements of the undertaking” for the termination of services of the number of employees who were terminated.  It has not been shown that there was any such reason for the termination of the services of any of the particular employees terminated.  It is unnecessary, in the light of either of those conclusions to go further but, in my view, however narrowly one may restate the notion of a “valid” reason, it has not been shown that any of these terminations was sufficiently defensible as to be able, in ordinary language, to be termed “valid”.”

There appears to be an inconsistency between the first sentence in this passage and the fact stated earlier in the reasons that “there was a reasonably felt need to reduce operations on the facial tissues line”.  The subsequent facts show that the “reasonably felt need” was in fact true, was implemented and continued to be applied.  The terminations of employment were based on that change in the operational requirements of the appellant.  The Court so finds.

The trial Judge, in his reasons, seems to have imported some concept of whether a termination is harsh, unjust or unreasonable in considering whether a reason for termination based on the operational requirements of the employer is a valid reason.  His Honour referred to a number of authorities; Nettlefold v Kym Smoker Pty Ltd (1996) 69 IR 370 (Lee J), Kerr v Jaroma Pty Ltd (Marshall J, Industrial Relations Court, 7 October 1996), and Westen v Union des Assurances de Paris (Madgwick J, Industrial Relations Court 17 December 1996).  Reference was made also to Kenefick v Australian Submarine Corporation Pty Ltd (No 2) (1996) 65 IR 366 (Full Court). His Honour then continued:-

“It was therefore requisite, in this case, that Cosco should show that the decision to close the night shift on the facial tissues lines (and to do away with a maintenance job) furnished the reason why each of the particular employees was selected to go.  That link, on any reasonable view of the facts, was simply lacking.  The selection of the respondent employees has not been shown to be for a reason based on the operational requirements of the undertaking.  It was based on nothing, in the end, other than Mr Coco’s whim.

It follows that each respondent (sic - applicant) employee was (sic -is) entitled to succeed in the court.”

Thus, the question was whether the reason for the terminations of the employment of each of the employees constituted a valid reason within s 170DE(1). This issue was the subject of the major submissions by counsel for the employees.

Appellant’s submissions on the appeal

The submissions made by counsel for the Appellant were simple. Once the finding was made that the reason for termination for each employee was based on the operational requirements of the employer, that reason was a valid reason if it were “sound, defensible or well founded”. Here, on all of the material before the Court, the reason for termination was valid, it was sound, defensible and well founded. The validity of the reason was not vitiated by any of the matters referred to in s 170DF. It was not vitiated by the absence of procedural fairness provided for in s 170DC since the terminations were not related to the conduct or performance of any of the respondents. There is no suggestion that the decision to replace the three shift operation with a two shift operation was not bona fide based on the appellant’s operational requirements.

It was contended further that s 170DE(1) postulates true alternatives. The subsection prohibits the termination of employment of an employee unless the employer has a valid reason connected with the employee’s capacity or conduct or based on the operational requirements of the employer (emphasis added). To be valid, a reason does not need to be valid in conformity with each of the alternatives. A reason is to be a valid reason with respect to the alternative specified in the appropriate limb of s 170DE(1).

It was contended further that in determining whether there was a valid reason based on the operational requirements of the employer, the Court should not consider whether the termination was just or fair or reasonable as between different employees or as between the employer and the particular employee whose employment was terminated.  The question should be: Was the reason valid in the sense of being sound, defensible or well founded having regard to the operational requirements of the employer ?  Reference was made to what was said by Northrop J in Selvachandran at 374:-

“......normally the issue of whether a reason for termination is valid or not should be considered primarily from the employer’s perspective while the substantive fairness issue should be considered primarily from the employee’s perspective even though the perspective of the employer may be of importance also.  The differing onus of proof provisions support this approach.”

Counsel contended that the trial Judge was in error in concluding that the employer, having decided to terminate the employment of employees on the basis of operational requirements, must nevertheless justify the selection of each particular employee whose employment is to be terminated, by reason of what is fair and reasonable as between all employees.  In so far as the authorities referred to by the trial Judge suggested otherwise were concerned they were distinguishable or should not be followed.

Some general propositions

Before turning to the submissions made on behalf of the respondents, some general propositions should be stated. The provisions of s 170DE(1) apply with respect to each individual employee whose employment has been terminated. In cases like the present where s 170DD does not apply, a group of employees cannot be treated as a single unit for the purposes of s 170DE(1).

The reason for termination need not be the operational requirements of the employer but must be based on those requirements.  The words of the sub-section can be expressed as “a valid reason based on the operational requirements of the employer”.  The same words are used in Article 4 of the Termination of Employment Convention:

“The employment of a worker shall not be terminated unless there is a valid reason for such termination connected with the capacity or conduct of the worker or based on the operational requirements of the undertaking, establishment or service.”

By reason of s 170CB an expression in Division 3 of Part VIA of the Act has the same meaning as in the Termination of Employment Convention. Thus the words “based on” must have the same meaning when used in s 170DE(1) as in the Convention. But this does not assist in the construction of the expression since that expression is not defined in the Convention.

In its context in the Convention and in s 170DE(1) the word “based” is used as a verb. In the Shorter Oxford English Dictionary, the verb “base” is given the meaning “1. To make a foundation for; 2. To place on or upon a foundation or logical basis.”. In the Macquarie Dictionary the verb “base” is given the meaning “19. to make or form a base or foundation for. 20. to establish, as a fact or conclusion (fol. by on or upon)”. The word “on” is a preposition expressing a relationship with some other fact, matter or opinion. Here, the phrase “based on” is used as describing a connection between a subject matter, the reason for termination, and an object, the operational requirements of the employer. The operational requirements of the employer constitute the foundation upon which the termination of employment must be based.

Having regard to the meaning of the word “base” when used as a verb and the grammatical context of s 170DE(1) there is much to be said for the view that in considering whether a reason for termination is based on the operational requirements of the employer, consideration must be given to those operational requirements. To be a valid reason, the reason must be lawful in the sense of not being prohibited, and genuinely must be based on those operational requirements. The word “valid” is used as an adjective qualifying the word “reason” and is used in the sense of sound defensible or well founded with respect to the foundation namely the operational requirements of the employer.

As enacted, s 170DE(2) imposed a limitation on the application of s 170DE(1). Sub-section (2) provided:-

“(2)A reason is not valid if, having regard to the employee’s capacity and conduct and those operational requirements, the termination is harsh, unjust or unreasonable.  This subsection does not limit the cases where a reason may be taken not to be valid.”

The sub-section does not impose a prohibition on termination of employment similar to the provisions of s 170DC and s 170DF. The sub-section is not directed to the question of what constitutes a valid reason for the purposes of s 170DE(1). The sub-section assumes the existence of a valid reason for termination under either of the alternatives contained in s 170DE(1). The sub-section provides that what otherwise would be a valid reason cannot be a valid reason “having regard to the employee’s capacity and conduct” or “having regard to the operational requirements of the employer” if the termination is harsh, unjust or unreasonable. The alternatives in s 170DE(1) are disjunctive. The words used in s 170DE(2) describing the alternatives in s 170DE(1) should be read disjunctively accordingly. Sub-section 170DE(2) requires the Court to have regard to the appropriate reason and then make a decision. The words “have regard to” are to be construed to mean that the decision-maker must consider the matters stipulated and “take them into account and give weight to them”; c/f R v Hunt; Ex parte Sean Investments Pty Ltd (1979) 25 ALR 497 per Mason J at 504. The phrase leaves it open to the decision-maker to decide what weight or influence the matters specified are to have on the decision to be made; c/f Giris Pty Ltd v The Commissioner of Taxation of the Commonwealth of Australia (1969) 119 CLR 365 per Windeyer J at 384.

Under s 170DE(2) the decision to be made is whether the termination of the employment is harsh, unjust or unreasonable. This involves a consideration of the effect of the termination of employment on the employee. In making a decision that the termination is harsh, unjust or unreasonable, the decision-maker, the Court, must have regard, in the manner discussed, to the otherwise valid reason for the termination. If the decision-maker decides that the termination is harsh, unjust or unreasonable, the otherwise valid reason for termination is not valid.

The High Court in State of Victoria v The Commonwealth held that s 170DE(2) was invalid. As a result the sub-section is not to be applied to the facts of this case. Nevertheless, the existence and proper construction of sub-section (2) is of importance in considering the submissions made on behalf of the respondents.

Respondents’ submissions on the appeal

The essential feature of the submissions made on behalf of the respondents was that a reason for the termination of the employment of an employee based on the operational requirements of the employer can never be a valid reason where the employer gives no consideration, or does not have regard, to the effect of the termination on the employee.  Logically,  the same submission would apply where the reason for termination was connected with the employee’s capacity or conduct.  The submission can be expressed in the form of a syllogism:-

“1.A reason for termination of employment of an employee cannot be a valid reason where the employer does not have regard to the effect of the termination on that employee.

2.In terminating the employment of each of the employees, the Appellant did not have regard to the effect of the termination on him or her.

3.Therefore, the reason for termination could not be a valid reason.”

On this analysis, the minor premise can be accepted as being a correct statement of fact.  The issue is whether the major premise is a correct statement of law.  In my opinion it is not and thus the conclusion is not true.

Reasoning on the appeal

From what has been said earlier in these reasons, on its proper construction, it would appear that s 170ED(1), in the context of s 170DF, s 170DC and s 170DE(2), did not require the Court to have regard to the effect of the termination of employment on the employee in determining whether a reason for termination was valid within s 170DE(1). Sub-section 170DE(2) provided protection against an otherwise valid reason for termination. On 4 September 1996, the High Court declared s 170DE(2) to be invalid. Since then, there have been expressions of opinion that a consideration of features similar to the features contained in s 170DE(2) is to be imported into s 170DE(1) with the effect that under s 170DE(1) a reason for termination could never be a valid reason where the employer did not have regard to the effect of the termination on the employee. Those authorities appear to be based on Kenefick, a judgment of a Full Court of the Industrial Relations Court given on 26 March 1996, that is to say, prior to the High Court’s decision. There, the employer formed the opinion that, based on its operational requirements, it would need to terminate the employment of a number of its employees. It was accepted by the employees, as well as by the Court, that there were valid reasons for this opinion. In deciding which employees were to have their employment terminated, the employer had regard to what was described as a “concerns list” which recorded comments relating to the capacity and conduct of each employee of the employer. In selecting the employees who were to have their employment terminated, the employer chose employees with the lowest rating on the “concerns list”. The employer selected these employees without complying with the procedural fairness provisions of s 170DC. The Full Court held, correctly in our view, that s 170DE(1) applied with respect to each employee. The Full Court held that on the facts the employer had not afforded the procedural fairness required by s 170DC to any of the employees and that accordingly the reason for termination of each employee insofar as the reason of the employer was connected with each employee’s capacity or conduct, was not valid. Accordingly, it held that the termination of employment of each employee was prohibited by s 170DC.

The second issue remained. The employer had a valid reason based on its operational requirements for terminating the employment of the total number of employees whose employment was terminated. The trial Judge, Wilcox CJ of the Industrial Relations Court expressed the opinion ((1995) 62 IR 107 at 114) that if an employer had more than one reason for terminating the employment of an employee, a provision of Subdivision B of Division 3 of Part VIA relating to a prohibited reason would apply, notwithstanding that a different provision applied to another reason. His Honour stated that the termination would be lawful only if every reason complied with the relevant statutory provision.

By way of comment, it is noted that if a reason constituted a prohibited reason under s 170DF, the termination was prohibited absolutely. If the termination related to the first limb of s 170DE(1), the termination was prohibited unless procedural fairness was afforded the employee under s 170DC. If that process was afforded, s 170DE(2) imposed a further fetter on the right of the employer to terminate the employee’s employment if the termination related to either limb of s 170DE(1).

This application of the provisions as stated by Wilcox CJ is consistent with authorities, see for example Johns v Gunns Ltd at 267-8:-

“The phraseology used in the operative parts of ss 170DC, 170DE and 170DEF is unusual. The words “an employer must not ....” normally impose a duty on an employer not to do the prohibited act with the result that a breach constitutes a criminal offence. This is not the case here; see s 170EG. The phraseology continues with the words “unless”. The use of this word suggests that the words following the “unless” impose an obligation or duty on the employer in the nature of a condition precedent to be complied with by the employer before the employer terminates the employment of an employee. The obligation or duty is not a true condition precedent since non-compliance does not make the termination illegal, unlawful or non-effective. The non-compliance is described in the Act as a contravention of a provision of Div 3 of Pt VIA of the Act; see s 170EE which will be considered later in these reasons. This section is based on the assumption that the termination of the employment is effective and that remedies may be granted for the contravention found on the basis that the termination is effective.

The reasons of an employer for terminating the employment of an employee are solely within the knowledge of the employer.  The employer may state a reason but that reason need not be the actual reason nor need it be the only reason.  Parliament has, from time to time, devised procedures to transfer to an employer the onus of proving the reason for termination of employment.  Thus s 5 of the Conciliation and Arbitration Act 1904 (Cth) made it a criminal offence for an employer to dismiss an employee by reason of specified circumstances. Section 5(4) provided that in proceedings for an offence, if all the relevant facts and circumstances, other than the reason “set out in the charge as being the reason .... of the .... (dismissal) .... are proved, it lies upon the person charged to prove that .... (the dismissal) .... was not activated by that reason ....”.

In Heidt v Chrysler Australia Ltd (1976) 26 FLR 257, those provisions and earlier authorities relating to them were discussed at length and in particular at 266-271. I set out a passage appearing at 268 which has equal application to cases where s 170DF(1)(a) of the Act applies:

“The provisions of s 5(4) of the Act cast an onus of disproving facts, namely, that the reason for the defendant’s action was not actuated by the reason alleged in the charge. It has been held that a defendant need not prove the reason why he dismissed an employee: Atkins v Kirkstall-Repco Pty Ltd (1957) 3 FLR 439. The mere proof of a reason for dismissal, other than the reason alleged in the charge, does not necessarily negate the reason alleged in the charge. A mere denial of the reason alleged in the charge may not be sufficient to satisfy the onus cast upon the defendant. All the facts and circumstances leading up to the dismissal must be considered, including any reason expressed at the time of the dismissal, as well as any denial of the reason alleged in the charge.”

In the same lengthy passage, at 267 reference is made to averment provisions and what was said by Dixon J in R v Hush; Ex parte Devanny (1932) 48 CLR 487. These views could have equal force in the application of s 170DE(1) and S 170DF(1) of the Act.

The section now corresponding to s 5 of the Conciliation and Arbitration Act is s 334 of the Act. The wording is somewhat different but, for relevant purposes, the effect is the same see Lawrence v Hobart Coaches Pty Ltd (1994) 1 IRCR 92; 57 IR 218.”

See also what appears at 268-9.  The following extract is taken from that passage:-

“On the whole of the evidence, and in particular the evidence just set out, I am not satisfied, on the balance of probabilities, that the temporary absences from work of Mr Johns was not included as a reason of the respondent in terminating the employment of Mr Johns.  Accordingly, on this basis, Mr Johns is entitled to a remedy.

Having come to this conclusion, it is undesirable to express an opinion on the question of whether there has been a contravention by the respondent of s 170DC and whether the respondent has established a valid reason or valid reasons under s 170DE(1).  It must be remembered that ss 170DC and 170DE(2) have application only if the employer establishes a valid reason or valid reasons for termination under s 170DE(1).”

In Kenefick, the Chief Justice said at 114:-

“However, this principle is not relevant to the present cases.  There were not two reasons for termination of the present applicants’ employment.  There was only one reason: the redundancy situation.  That is so, notwithstanding that particular retrenchees were selected because of conduct/performance characteristics thought to make them less valuable ASC employees than others.”

On the appeal in Kenefick, the Full Court came to a different conclusion. The Full Court found that a reason for the termination of each of the employees was related to the first limb of s 170DE(1) and that there had been no compliance with s 170DC. That should have been sufficient to allow the appeal. Nevertheless, the Full Court also considered whether the terminations were based on the second limb namely the operational requirements of the employer.

The Full Court found that there was a valid reason for the employer to reduce its workforce.  At 372 it said:-

“The appellants (the employees) ...... argued that the respondent carried the onus of establishing that there was a valid reason for the selection of each appellant.  It was common ground that the respondent had not attempted to discharge this onus.  Thus, if the appellants’ contention were correct, the respondent would have failed to discharge the onus and the appeal would succeed on this aspect.”

It is to be noted that what the Full Court said on this issue is in the nature of dicta: the Full Court had already found that the terminations were prohibited and that the employees were entitled to remedies. The dicta proceeded on the basis that under the second limb of s 170DE(1), where the employer had a valid reason based on its operational requirements to terminate the employment of employees, the employer had to decide which employees should have their employment terminated. As the Full Court said, the termination of the employment of each employee had been effected for two reasons, each, presumably, under the second limb of s 170DE(1). Both reasons were based on the operational requirements of the employer. The Full Court said at 372-3:

“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 ...... did not of itself lead to the termination of individual (employees) 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.”

With respect, the conclusion stated in the last sentence does not follow the analysis preceding it. The valid reason must be based on the operational requirements of the employer, but this requirement does not impose an obligation on the employer to investigate the personal circumstances of all employees likely to be affected by the operational requirements. The Act does not prescribe any criterion to be considered by the employer. The Full Court appears to have come to this conclusion for reasons based upon s 170DE(2), the harsh, unjust or unreasonable provision. The requirements of that subsection appear to have been introduced into subsection 170DE(1) with the onus of proof being imposed on the employer to deny the effect of the termination on individual employees. This conclusion was reached despite the fact that under s 170EDA(1), if the employer proves that apart from subsection 170DE(2) there is a valid reason for the termination, the employee has the onus of proving that, because of subsection 170DE(2), the reason or reasons proved by the employer were not valid. The different onus of proof requirements formed a major part of the reasoning of the High Court in State of Victoria v The Commonwealth which led to the conclusion that s 170DE(2) was invalid.

The conclusion of the Full Court in Kenefick is set out at 373:-

“This conclusion is consistent with the scheme of ss 170DE and 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.”

With respect to the Full Court of the Industrial Relations Court, I would decline to follow the dicta contained in Kenefick. I disagree with the conclusion reached. It does not accord with the provisions of the Act referred to. I agree with the opinion expressed by the Chief Justice. The true position appears more clearly by reason of the fact that s 170DE(2) is no longer in operation. In any event, in the present case there is no suggestion that a reason for the termination included a reason prohibited by s 170DF or a reason specified in the first limb of s 170DE(1).

The other authorities mentioned by the trial Judge and relied upon by counsel for the respondents, need not be considered in such detail.  Each depends, essentially, on the erroneous dicta of the Full Court in Kenefick.

Judgment in Nettlefold was given by Lee J on 4 October 1996, that is after judgment had been given in Kenefick and in State of Victoria v The Commonwealth. Here the employer claimed it had a valid reason based on operational requirements for terminating the employment of an employee under the second limb of s 170DE(1). Subsequent to the hearing but before judgment, the High Court gave its decision affecting s 170DE(2). Written submissions were provided relating to the effect of that decision on the case before Lee J. At 371 his Honour observed that the terms of the Act and the Termination of Employment Convention suggested that “valid reason” in s 170DE(1) imposed a requirement that in all the circumstances a termination at the initiative of an employer must “not be unjust or unfair”. His Honour referred to those parts of Articles 8 and 9 of the Convention requiring a contracting party to the Convention to ensure that an employee could challenge a termination if the “employment has been unjustifiably terminated” and to enable the tribunal “to examine the reasons given for the termination and the other circumstances relating to the case and to render a decision on whether the termination was justified”. His Honour quoted Lord Denning in Woods v W M Car Services (Peterborough) Ltd (1982) ICR 693 that it is an implied term of an employment contract that an employer be “good and considerate” to its employees.

His Honour referred to the fact that the first limb of s 170EA(1) did not apply and that the employer relied on the second limb only. His Honour referred to s 170EDA of the Act and concluded that the employer was required to prove the reason for termination “and to justify the termination of the employment”. He relied on Kenefick for this proposition.  His Honour then considered the nature of “operational requirements” when used in s 170ED(1) but said that a valid reason based on that ground had to meet the “employer’s obligations to employees”.  These obligations were not stated expressly.  His Honour was not satisfied the employer had made out its case and commented that the employee had done her work well and diligently.  She was very young and a casual employee and that a “good and considerate” employer would be aware that the termination “would cause her embarrassment and the lowering of her self-esteem”.

The facts of Nettlefold suggest that it was a case where, in any event, s 170DE(2), if valid, would have rendered the reason for termination invalid since it was “harsh, unjust or unreasonable”. In conformity with the erroneous dicta contained in Kenefick, his Honour appears, by implication, to have introduced aspects of s 170DE(2) into s 170DE(1). By then, however, it was clear that, as a result of State of Victoria v The Commonwealth, s 170DE(2) had no direct application of its own force.

Judgment in Kerr was given by Marshall J on 7 October 1996.  There the applicants were husband and wife engaged by the employer to manage a motel.  The employer terminated the employment of the employees and sought to defend a claim for a remedy on the basis that there was a valid reason for the termination based on its operational requirements.  On the facts there is much to be said for the view that the employer had not proved a valid reason based on its operational requirements.  The reasons for judgment, however, go beyond a finding to that effect and appear to rely upon other considerations including the opinions expressed in Kenefick.

Commencing at 473 his Honour referred to extracts from the reasons of judgment in State of Victoria v The Commonwealth. The passage cited is taken from that part of the reasons contained under the heading “Termination of employment - Part VIA, Div 3, ss 170CA-170HB” and, in particular, the sub-heading “(iv) Termination of employment provisions and their application to the States”. This sub-heading considers the effect of s 6 of the Act and the application of sections 170DB, 170DC, 170DE(1) and 170DF. Section 6 provides that the Act binds the Crown in right of each of the States. At p 172, the High Court summarises the relevant provisions of the Act which have been referred to earlier in these reasons. The High Court said at 172-3:-

“The prohibitions in ss 170DB, 170DE(1) and 170DF apply only to employees already in employment. They thus do not prevent the States from determining “the number and identity of the persons whom [they wish] to employ”.” And apart from the prohibition in s 170DB on termination without notice and that aspect of s 170DE(1) concerned with dismissal for reasons connected with operational requirements, none is concerned with termination on redundancy grounds. To the extent that s 170DB is concerned with redundancy, it prescribes the steps to be taken before or in association with termination, namely notice or payment in lieu. It is not concerned with “the number and identity of the persons whom [the States wish] to dismiss ...... on redundancy grounds”. However, if s 170DE(1) is read according to its terms, that aspect of it which requires that there be a valid reason for termination connected with operational requirements would operate to prevent a State from determining the number and identity of those to be made redundant. This operation is, nonetheless, avoided by reason that s 6 of the Act is to be read down in the manner earlier indicated.”

In Kerr, Marshall J referred to the last two sentences contained in this passage.

The High Court then considered whether those sections of the Act impaired the right of the States to determine “the term of appointment [of those whom they wish to employ]”. The High Court expanded on this argument and continued at 173 the passage being relied upon by Marshall J in Kerr:-

“If read according to their terms, the prohibitions in ss 170DB, 170DC, 170DE(1) and 170DF leave the States free to determine the number and identity of those whom they wish to employ, the term of their employment and, save for s 170DE(1), the number and identity of those whom they wish to dismiss on redundancy grounds.  However, in this last regard, the effect of reading down s 6 is that the States are not bound by s 170DE(1) to the extent that it would otherwise operate to prevent them determining the identity and number of those they wish to make redundant.”

In these passages, the High Court was not considering the details of the construction and application of s 170DE(1) particularly in the context of the opinions expressed in Kenefick. The issue was the validity of the subsection and the application of s 6 of the Act. The passages were not relevant to the decision in Kerr.

In Kerr, Marshall J then made reference to Kenefick in the circumstances where the employer had not attempted to discharge the onus imposed upon it under s 170EDA(1)(a). His Honour referred to the meaning to be given to the phrase “valid reason” in its application to the second limb of s 170ED(1). He referred to the passage from Selvachandran at 373 on that meaning and referred specifically to the word “defensible”. His Honour referred to a number of observations contained in reports and documents of the International Labour Office and highlighted references to rights of a worker not to be dismissed without justification. He also referred to expressions of opinion contained in those documents relating to the meaning of the words “Operational requirements” of an employer. His Honour referred again to Kenefick, then said at 476:-

“The Court will in each case determine, in the particular circumstances prevailing, whether any termination alleged to have been taken due to operational requirements was nonetheless effected for a valid reason i.e. one which is defensible or justifiable on an objective analysis of the relevant facts.”

It is unfortunate that his Honour departed from the wording of s 170DE(1), namely, “valid reason - based on the operational requirements”, but in the next paragraph he corrected the position. That paragraph is set out:-

“In this case it is alleged that the termination of the applicants was for a valid reason based on the operational requirements of the undertaking.  I do not accept that submission.  In my view, the termination of each applicant was not defensible or justifiable on any objective analysis of the facts.  The applicants had been good employees and had an expectation of continuing employment in an undertaking which was not alleged to be under any financial difficulties.  Their employer simply decided, with no notice to them, that it no longer required them and that it would engage replacement employees under different arrangements to that which applied to the applicants.  It did not inquire if the applicants were interested in taking up work under the new arrangement.”

This passage highlights the error arising from reliance on the opinion expressed in Kenefick. Initially, consideration should be given to the “operational requirements” claimed by the employer to be the basis of a valid reason to satisfy the requirements of s 170DE(1). On any view, on the facts, there was no such foundation. The Court should not, under the guise of “valid reason” have had regard to matters affecting the employee which previously would have come within the harsh, unjust or unreasonable provisions of the invalid s 170DE(2).

In cases of this kind, the Court is required to interpret and apply the provisions of the domestic law of Australia contained in the relevant provisions of the Act. In considering the construction of the Act and external affairs power to support the validity of the statutory provisions, the majority of the High Court in State of Victoria v The Commonwealth said much of interest for present purposes commencing at 142 with respect to the external affairs power, particularly under the sub-headings “(ii) Legislative Power - s 51(xxix)” and “(iii) The legislative implementation of a treaty”. The whole passage should be read. At 142, the High Court makes it clear that entry by the Executive into a treaty is insufficient, without legislation to implement it, to modify the domestic or municipal legal order by creating or changing public or private legal rights and obligations.

There is a very important passage at 146-147 describing the connection between the treaty binding upon the Commonwealth and the domestic law enacted by the Commonwealth necessary to make the domestic law valid.  In this context the “purposive aspect” has relevance.  At 147 the majority said:-

“Where a treaty relating to a domestic subject matter is relied on to enliven the legislative power conferred by s 51(xxix) the validity of the law depends on whether its purpose or object is to implement the treaty. This was explained in a passage with which we respectfully agree, by Dawson J in Richardson v Forestry Commission (1988) 164 CLR 261 at 326:-

“The power to make laws with respect to external affairs contains no expression of purpose and in that respect it is like most of the other powers contained in s 51 of the Constitution. It is not a power to make laws for the purpose of cementing international relations or achieving international goodwill or even for implementing international treaties. The implementation of treaties falls within the power because it is a subject matter covered by the expression ‘external affairs’. And the purpose of legislation which purports to implement a treaty is considered not to see whether it answers a requirement of purpose to be found in the head of power itself, but to see whether the legislation operates in fulfilment of the treaty and thus upon a subject which is an aspect of external affairs.”

In this context, purpose is not something found in the head of power.  Rather, it is a test for determining whether the law in question is reasonably capable of being considered as giving effect to the treaty and therefore as being a law upon a subject which is an aspect of external affairs.”

In this context, reference is made to what the High Court said in State of Victoria v The Commonwealth at 170-171 cited earlier in these reasons in relation to the fact that the Convention does not specify in detail what are valid reasons for termination but leaves the general word “valid” as the cornerstone of the Act. It is for the Courts to determine the proper construction of the word “valid” in the Act. The same observations apply to the words “operational requirements” of the employer appearing in s 170ED(1). On this matter, there is much to support the opinion of Spender J in Mitchell-Collins v The Latrobe Council (1995) 60 IR 480 at 488-490 and the authorities referred to by his Honour in that passage.

In the present case, it is accepted that the change from three shifts to two shifts a day was based on the operational requirements of the employer and the change was genuine.

Finally, reference is made to Westen v Union des Assurances de Paris, Madgwick J (17 December 1996, unreported). There, Madgwick J had published his reasons and made orders in favour of the employee on 28 August and 11 September 1996 respectively. For practical purposes, his Honour had assumed that there were valid reasons under s 170DE(1) of the Act but had applied the harsh, unjust or unreasonable provisions of s 170DE(2) to invalidate those valid reasons. Following the judgment of the High Court on 4 September 1996 in State of Victoria v The Commonwealth, his Honour allowed the matter to be re-opened to determine the “valid reason” issue under s 170DE(1). The judgment and reasons for judgment conclude there was no valid reason for the termination and accordingly the orders stood in favour of the employee. This authority highlights the fact that some authorities suggest the “harsh, unjust or unreasonable” principles of s 170ED(2) are being introduced into the valid reasons provisions of s 170ED(1) with the effect that the invalidity of s 170ED(2) has resulted in no change to the domestic law of Australia.

In Westen his Honour made it clear that reliance was placed on Kenefick, Nettlefold and Kerr.  He expressed the view that, although, after State of Victoria v The Commonwealth, on a proper construction of the words “valid reason” in s 170DE(1) “considerations of the harshness, injustice or unreasonableness of a termination are irrelevant” but concluded that “such considerations are not so irrelevant; indeed they could hardly be so” not to be taken into account.

His Honour referred to the Convention and in particular to Articles 4, 8.1, 8.2, 8.3, 9.1, 9.3 and 10.  His Honour stressed the word “unjustifiably” appearing in Articles 8.1 and 10 when used to describe a termination.  He adopted the views expressed in Nettlefold that a valid reason based on operational requirements require the employer to establish that the “operational requirements” “provided proper ground” for the termination and that the “operational requirements” encompassed “the application of good management to the undertaking” which involved “management of the undertaking that meets the employer’s obligations to employees”.  He referred to discussions in the I L O General Survey 1995, and to passages appearing in Kerr, relating to the concept of “operational requirements”. His Honour concluded that the Commonwealth opted for a broad and general term “valid reason” and “therefore left the policy implications of this to be spelled out by the relevant courts”.

In coming to this conclusion, it appears that his Honour ignored the effect of s 170DE(2) as enacted. That subsection assumed that a reason could be a valid reason under s 170DE(1), even though the effect on the employee was harsh, unjust or unreasonable. If the employee could establish any of these matters, s 170DE(2) had the effect of making an otherwise valid reason invalid. In Westen, his Honour construed the words “valid reason” differently from the meaning given to those words by the Parliament when they were first enacted.

His Honour quite explicitly, applied the principle that the Court could decide the policy to be applied having regard to what the Court considered to be values in conformity with “the courts’ conception of broadly accepted community standards”. He relied upon Kenefick to justify an enquiry as to whether there was a valid reason for the actual termination in question.

His Honour concluded that on the facts before him, he was ill equipped to inquire into the merits of the decision of the employer to re-organise its operations.  His Honour accepted there was a valid reason for the reorganisation but nevertheless held there was no “valid reason” based on that operational requirement for the termination of the employee.  He said:-

“But there is no acceptable evidence that, consistently with such a reorganisation, there was no reasonably practicable alternative to the termination of Mr Westen’s employment or that there was no reasonably practicable and acceptable alternative employment that might have been offered to or arranged with him.  In particular, he was not told why there was no such alternative; nor was he invited to propose one.  In my view, it will often be difficult for an employer to show that there was no such alternative unless the employee has been offered such an explanation and/or opportunity.  It was not a necessary consequence of the staff reorganisation that there would be a termination of any employee’s employment which would be unacceptable to the employee:  often enough an employee in such circumstances can be acceptably accommodated by the employer in another job, whether “equivalent” to the last one or not.”

This passage seems to import a concept of procedural fairness with respect to the second limb of s 170DE(1) similar to the procedural fairness provisions imposed by s 170DC with respect to the first limb of s 170DE(1).

It is not necessary to refer to the other matters referred to in Westen to justify the policy adopted in construing “valid reason” in s 170DE(1). In my opinion the conclusion in Westen is based on principles which are wrong for the reasons already expressed.  Further, the conclusions are not based upon recognised processes of judicial method.  The processes venture into those used in the legislative function.  This Court should decline to adopt those processes.

Conclusions

In the present case, the trial Judge said:-

“The production employees were readily transferable between lines: the work was “unskilled”, it took little training and, on Cosco’s case, it was difficult to choose between employees in terms of their value to the enterprise.  Ordinary staff turnover was high.  Cosco’s net profit for the financial year in question did not appear strained.

In these circumstances, Cosco’s inability to make any case of significance as to why:

(a)volunteers might not have been called for and/or discussed with the employees;

(b)natural attrition might not have been relied upon;

(c)selection by lot was not made a matter of last resort, and adhered to; and

(d)selection, by lot, or otherwise, was not made across the entire workforce, rather than confined to the hapless production employees concerned with facial tissues,

assumed considerable significance, although such factors might be less important in other circumstances.  Such explanations as were advanced were, to say the least, unconvincing.”

The passage cited illustrates the fact that the trial Judge applied principles which I consider inappropriate. The facts are simple. The employer, genuinely, changed its operational requirements. As a result five employees became redundant. As a consequence, a sixth employee became redundant. In all cases, the redundancies arose because of the disappearance of positions. No satisfactory reason was given by the employer for choosing the six employees who had their employment terminated rather than six other employees. To a large extent each was chosen by chance, almost by lot. There is no suggestion that any of the reasons for termination were prohibited by the Act. In the absence of considering whether the terminations were “harsh, unjust or unreasonable”, in determining whether there was a valid reason for the termination of each employee, there are no grounds for concluding that the reasons were other than valid. It is difficult to conclude that in a redundancy situation like the present, the employer is required to search out and consider the effect on all the members of its production workforce before determining which employees are to be terminated. There is nothing in the Act to require an employer to do this. Such a course of action could lead to endless disputations between employees and between employees and the employer. Concepts of unfair dismissal arising from the provisions of s 170DE(2) are not, by reason of s 170DE(2) being declared invalid, to be imported into the concepts of valid reasons used in respect of each of the limbs of s 170DE(1).

The mantra of the unfair dismissal based on s 170DE(2) has been sought to be continued despite the removal of the foundation on which the mantra was based.

In all the circumstances, the Appellant employer has established a valid reason based on its operational requirements for the termination of each respondent employee.  As a result, each of the six appeals should be allowed, the orders made by the trial Judge in each application should be set aside and in lieu thereof each application should be dismissed.

Subsidiary issues

In each appeal, subsidiary issues were raised relating to the calculation of compensation, the awarding of interest, the question whether social security payments should be deducted from the compensation ordered to be paid, and the order that the employer pay the employees’ costs of the applications.  Apart from two of these matters, it is not appropriate that I express an opinion, as dicta, on the issues raised.

The order for costs was based on a misunderstanding of the nature of the applications being determined by the trial Judge.  In truth each was an application brought by the employee.  The employer was not the applicant.  The employer had not instituted the proceedings.  Section 347 did not empower the Court to order that the employer pay the employees’ costs of the applications brought by the employees.  The true position is explained by Gray J in Andrews v Uniting Church in Australia Frontier Services (1995) 60 IR 437.

The other matter relates to the calculation of compensation under s 170EE(2) and (3). Subsection (2) confers a power, in the circumstances specified in the subsection, to “make an order requiring the employer to pay to the employee compensation of such amount as the Court thinks appropriate”.

Subsection (3) prescribes matters to be considered in calculating the amount of compensation.  For present purposes the subsection requires the Court, in working out the amount of compensation pursuant to subsection (2), “to have regard to the remuneration that the employee would have received” if the employee’s employment had not been terminated.

Earlier in these reasons, the meaning to be given to the phrase “have regard to” was discussed.  In its context in subsection (3) the Court is required to take the matter stipulated into account and give weight to it.  This does not prevent the Court taking other relevant matters into account.

Counsel for the respondents, in the course of submissions directed to the issue of the social security payments, referred to Mullany v Active Concrete (1995) 62 IR 237 at 239 where Wilcox CJ said:-

“The Court is required under s 170EE(3), in working out the amount of compensation, “to have regard to the remuneration that the employee would have received or would have been likely to have received if the employer had not terminated the employment”; but the amount must not exceed the amount of remuneration that would have been received by the employee in respect of the period of six months that immediately followed the date of termination.

I think that the subsection directs attention to remuneration received in respect of work done, not money received from other sources and unrelated to work done; for example, social security receipts or gifts received from organisations or persons who take a charitable interest in the employee’s plight.  Accordingly, I do not propose to reduce the amount of compensation to which I think the applicant is otherwise entitled because of the social services payments.”

Counsel informed the Court that this decision has been followed in many subsequent cases.

Attention is drawn to the fact that the Chief Justice in the reasons for judgment did not refer to the power conferred on the Court by s 170EE(2). The Chief Justice may have assumed that subsection (3) required the Court to order payment of remuneration lost. Such a view would be inconsistent with a proper construction of the words “have regard to” in subsection (3). It is also contrary to the proper view that the Court may take other relevant matters into account. I do not express a view on whether the question of social security receipts should be taken into account. If this issues does arise in the future, the proper construction and application of s 170EE(2) and (3) should be considered.

Following the making of the orders appealed from, the trial Judge made orders in each application relating to payment of the amounts awarded.  It is not clear what orders should be made with respect to those orders.  The substantive orders on which they were based have been set aside.  I would grant liberty to apply.  The Appellant is directed to consult with the respondents concerning the orders to be made in relation to these subsidiary orders.  If orders can be agreed upon, they can be made by consent under the provisions of O 35 r 10 of the Federal Court Rules.  If agreement is not reached, the parties should be directed to file and serve within 21 days the orders proposed by each party.  The matter can then be determined by one member of this Full Court.

I certify that this and the preceding thirty-three (33) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice R M Northrop

Associate:

Dated:            4 December 1997

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	QG 95, 96, 97, 98, 99 and 100 of 1997

ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA
CONSTITUTED BY A SINGLE JUDGE

BETWEEN:	COSCO HOLDINGS PTY LTD Appellant
AND:	THU THI VAN DO AND OTHERS Respondents

JUDGES:	NORTHROP, LINDGREN AND LEHANE JJ
DATE:	4 DECEMBER 1997
PLACE:	SYDNEY (HEARD IN BRISBANE)

REASONS FOR JUDGMENT

LINDGREN AND LEHANE JJ

We have had the advantage of reading, in draft, the judgment of Northrop ACJ.  We agree with the orders proposed by his Honour and (subject to what follows) substantially with his reasons.

Facts

The essential facts may, we think, be distilled from the trial judge’s findings as follows:

1. There was a “reasonably felt need” to close down the night shift on the appellant’s facial tissues production line: in other words, the appellant justifiably decided, having regard to its operational requirements, to eliminate that shift.

1. The appellant decided accordingly to reduce its workforce by terminating the employment of the number of its employees who operated the production line during one shift.  For that purpose, the appellant initially chose, by lot, one of three “panels” who worked, in rotation, on the morning, afternoon and night shifts.  That panel comprised six people.

1. The appellant then decided to retain three of the six members of the panel and to terminate, instead, the employment of two members of other panels and of one other employee who was not assigned to a particular production line.  Those three, together with the three members of the panel other than those selected for retention, were dismissed.

1. Apart from the initial selection of the panel, by lot, the selection of employees to go or stay was not made for reasons based on their conduct or performance, so that s 170DC of the Industrial Relations Act 1988 (the Act) did not apply, nor did the reasons for the termination of any of the employees’ employment include any of the reasons referred to in s 170DF(1).

1. In making the selection, the appellant did not consider the individual circumstances of the various employees or the likely particular effect on any of them of the termination of his or her employment: nor did the appellant establish any “justification” for proceeding by way of terminating the employment of the six rather than, for example, by offering voluntary redundancy or considering whether “natural attrition” would soon enough sufficiently reduce the appellant’s workforce.

In those circumstances, the appellant claims that it has discharged its onus (s 170EDA of the Act) of establishing that there was a valid reason for each termination, based on the operational requirements of the appellant’s undertaking, establishment or service (s 170DE(1)).

The legislation: “valid reason”

Section 170DE(1) is crucial to the outcome of this appeal. It provides:

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.

It should be accepted, in our view, that the section is dealing, both in the prohibition and in the two exceptions, with the termination of the employment of an individual employee.  That obviously is so where the termination is for a reason connected with capacity or conduct, but the language of the section makes it clear that it is equally so where the termination is for a reason based on operational requirements: the Full Court of the Industrial Relations Court of Australia so held in Kenefick v Australian Submarine Corporation Pty Ltd (No 2) (1996) 65 IR 366 at 372. Certainly, in our opinion, Kenefick is not in this respect clearly wrong (senior counsel for the appellant invited us to distinguish, but not overrule it) but is, on the contrary, demonstrably right.  To establish that operational requirements justify reducing a workforce by six is not necessarily to establish a valid reason, based on operational requirements, for the termination of the employment of a particular employee.  As will appear, however, it may go quite some distance towards doing so in circumstances where operational requirements found a valid reason for terminating the employment of, for instance, six of a larger number of employees, all of whom perform unskilled work of a similar kind, and where each of those whose employment is terminated is one of that larger number.

To say that the “valid reason” must be “based on” operational requirements must mean that it has a real, not merely specious, foundation in those requirements.  To say, as the section does, in addition that the reason must be “valid” is, no doubt, to add a further element to that requirement of a genuine foundation and it is towards the elucidation of that further element that a number of the authorities to which we were referred are directed: from Selvachandran v Peteron Plastics Pty Ltd (1995) 63 IR 371 to Kenefick and then to cases such as Nettlefold v Kym Smoker Pty Ltd (1996) 69 IR 370, Kerr v Jaroma Pty Ltd (1996) 70 IR 469 and Westen v Union Des Assurances de Paris, 17 December 1996, FCA, Madgwick J.

The Act does not define “valid”. The provisions of the Act relating to termination of employment have, as one of their objects (s 170CA(1)(a)), to give effect to Australia’s obligations under the Termination of Employment Convention 1982 (the Convention) a copy of which forms Sch 10 to the Act. In large measure, including in this context the use of the undefined term “valid”, the Act follows, for obvious constitutional reasons, the terminology of the Convention. That carries with it difficulties of the kind referred to by Gummow J in Applicant A v Minister for Immigration and Ethnic Affairs (1997) 142 ALR 331 at 367, 368: one such difficulty, referred to in argument but not directly relevant to a decision on these appeals, is the use in s 170DC of the phrase “the employee’s conduct or performance” rather than the phrase “the employee’s capacity or conduct” used in s 170DE(1).

Apart from its use of the active voice, rather than the passive, s 170DE(1) almost precisely follows Article 4 of the Convention. That article provides:

The employment of a worker shall not be terminated unless there is a valid reason for such termination connected with the capacity or conduct of the worker or based on the operational requirements of the undertaking, establishment or service.

Article 5 then lists various matters which “shall not constitute valid reasons for termination”: that list appears, in substantially identical form, in paras (b), (d), (e), (f) and (g) of s 170DF(1), the opening words of which, however, do not use of the expression “valid reasons”, but provide instead:

An employer must not terminate an employee’s employment for any one or more of the following reasons or for reasons including any one or more of the following reasons: ...

Then Article 6 of the Convention provides that:

Temporary absence from work because of illness or injury shall not constitute a valid reason for termination.

That provision has its counterpart (which, again, forsakes the use of “valid reason”) in
s 170DF(1)(a) of the Act.

The point for present purposes is that whereas the Convention uses the term “valid reason” consistently in Arts 4, 5 and 6, the Act, while using the term in s 170DE(1), does not use it in s 170DF or in s 170DC. Nevertheless, in our view, the legislature is to be taken to have intended to use the expression “valid reason” in s 170DE(1) in the same sense as it is used in Art 4 of the Convention; and Arts 5 and 6 provide, we think, some guidance as to the sense in which the expression is there used.

Further guidance has been provided by the High Court in State of Victoria v Commonwealth of Australia (1996) 187 CLR 416. Among the numerous issues in that case was the question whether s 170DE(2) of the Act was valid: the High Court held that it was not. That subsection provided:

(2)A reason is not valid if, having regard to the employee’s capacity and conduct and those operational requirements, the termination is harsh, unjust or unreasonable.  This subsection does not limit the cases where a reason may be taken not to be valid.

Section 170EDA(1) then provided for a shifting onus of proof. If an employee, in an application to the Court, alleged termination of employment in contravention of s 170DE(1), the employer bore (as the employer continues to bear) the burden of establishing a valid reason, or valid reasons, of a kind referred to in the subsection; if the employer discharged that burden, it was nevertheless open to the employee to prove (the employee in this respect bearing the onus) that, because of s 170DE(2), “the reason or reasons proved by the employer were not valid”. In that context, Brennan CJ, Toohey, Gaudron, McHugh and Gummow JJ said in their joint judgment, at 517-518:

It is this shifting onus in s 170EDA(1) which indicates that the inclusion of the “harsh, unjust or unreasonable” test is an additional ground of unlawful termination that goes beyond the requirement for the reason for termination to be valid. The terms “harsh, unjust or unreasonable” are not merely a synonym for “valid”. Had the parliament recognised the terms as being synonyms, or even the harsh, unjust or unreasonable test as being a subset of grounds that were not “valid”, then there would be no reason for changing the onus from employer to employee between paras (a) and (b) of
s 170EDA(1).

The changing onus in s 170EDA(1) indicates that the harsh, unjust or unreasonable criterion is broader than what otherwise would be the test for validity.  This is reinforced by the nature of s 170DE(2) which, in contrast to s 170DE(1) and Art 4 of the Convention, goes not to the reason for termination but to the overall effects of the termination. It recognises that, while a reason for termination might be a valid one, the overall effect of the termination in the circumstances might be harsh, unjust or unreasonable. This supports the conclusion that the inclusion of the “harsh, unjust or unreasonable” criterion does not implement the terms of the Convention but goes beyond its requirements and adds an alternative ground for making terminations unlawful. For these reasons, ss 170DE(2) and 170EDA(1) are, at least in part, invalid.

Of particular importance for present purposes is the statement that that which is “harsh, unjust or unreasonable” is not a subset of the characteristics of a reason which render it not “valid”. Thus, if a termination for a reason based on one of the two matters referred to in s 170DE(1) operates, in relation to the employee concerned, in a way that is “harsh, unjust or unreasonable” it does not follow that the reason is not “valid”. A fortiori, a reason for termination, connected with or based on one of the two permitted matters, may be valid even if the termination, though perhaps falling short of being harsh, unjust or unreasonable, may be regarded as unfair. In other words, fairness, reasonableness or justice, as regards the employee, is not the realm of discourse with which “valid” is concerned. No doubt a recognition of that, or at least a fear that it might be so, explains the wish of the parliament to enact s 170DE(2).

Nor do we think that an employer has failed to establish a valid reason based on operational requirements merely because it does not prove that other measures - for instance, natural attrition over a period or voluntary redundancies - would not have achieved the same result as termination.  If other measures might have served the purpose, the necessary genuine basis is not denied; nor, in our view, is the “reason” on that account other than “valid”.  In our view, “valid” in the Convention context is at least primarily to be regarded as providing a compendious way of excluding those reasons which, under Arts 5 and 6, are not valid.  In the statutory context with which we are concerned, the primary work of “valid” is to exclude the reasons listed in s 170DF(1).  If there are other reasons for which an employer may not lawfully dismiss an employee, then equally, no doubt, such a reason will not be a “valid” reason.  Additionally, perhaps, the word “valid” may serve to emphasise that the reason must be genuinely connected with the employee’s capacity or conduct or genuinely based on operational requirements.  In our view, both the context and the decision of the High Court in Victoria v The Commonwealth require the conclusion that it has no wider operation.

It follows that, with respect, we support the view expressed by Northrop ACJ that, to the extent that cases such as Nettlefold, Kerr and Westen hold that the word “valid” should be given a wider meaning, they should be overruled.  We do not think, however, that what we have said is inconsistent with anything decided in Kenefick: it is to be remembered, particularly, that Kenefick was decided before the High Court, in Victoria v Commonwealth, held that s 170DE(2) was invalid. Kenefick is authority for the proposition that where there are two operative reasons for a decision to dismiss an employee, one based on operational requirements and the other connected with the employee’s capacity or conduct, the employer must comply with s 170DC. That, with respect, is in our view correct and follows plainly from the opening words of s 170DC. In Kenefick the Full Court, disagreeing with the decision of Wilcox CJ at first instance, held that there were two operative reasons for the termination of the appellants’ employment.  Whether that is so in any given case is, of course, a question of fact.  It is not a question which arises here: the findings of the trial judge exclude, as an operative reason for any of the terminations with which these appeals are concerned, one based on the employee’s capacity or conduct.

Conclusion

It follows that each of the six appeals should be allowed and the orders made by the trial judge set aside.  Given the findings of fact, it is appropriate to order that each application be dismissed.  We respectfully agree with what Northrop has written about the subsidiary matters and with his Honour’s proposals for their disposition.

I certify that this and the preceding six (6) pages are a true copy of the Reasons for Judgment herein of the Honourable Justices Lindgren and Lehane

Associate:

Dated:            4 December 1997

Counsel for the Appellant:	Mr P Keane QC and Mr P Corkery
Solicitor for the Appellant:	Minter Ellison
Counsel for the Respondent:	Mr M Amerena
Solicitor for the Respondent:	Quinlan Miller & Treston
Date of Hearing:	5-6 November 1997
Date of Judgment:	4 December 1997