Daniel v Real Estate Network Pty Ltd
[1996] IRCA 496
•18 October 1996
DECISION NO: 496/96
C A T C H W O R D S
INDUSTRIAL LAW - TERMINATION OF EMPLOYMENT - VALID REASON - meaning of “valid reason” - whether reason given for termination the reason for termination - whether the reason given for termination proven on the balance of probabilities - whether arrangement for splitting wages between the employee and his wife a sham - duty of the Court to protect the revenue of the Commonwealth
Industrial Relations Act 1988 ss.170CA, 170DB, 170DC, 170DE(1),
170DE(2), Schedule 10, Schedule 11
Industrial Relations Regulations Reg. 30B(1)(c)
Income Tax Assessment Act 1936
CASES: The State of Victoria & Ors v Commonwealth of Australia
(1996) 138 ALR 129
Sharrment Pty Ltd and Others v Official Trustee in Bankruptcy
(1988) 82 ALR 530
Petera Pty Ltd v EAJ Pty Ltd (1985) 7 FCR 375
Selvachandran v Peteron Plastics Pty Ltd (1995-96) 62 IR 371
Sangwin v Imogen Pty Ltd (unreported, von Doussa J,
No. SA 1161R of 1995, 8 March 1996)
Burke v Reander Pty Ltd (unreported, Millane JR, VI 6336 of 1995,
17 September 1996)
Nettlefold v Kym Smoker Pty Ltd (unreported, Lee J, No. TI 1334 of 1995, 4 October 1996)
Kerr v Jaroma Pty Ltd, (unreported, Marshall J, Nos. VI 3306 of 1995 and VI 3307 of 1995, 7 October 1996)
BERTRAM DANIEL - v - REAL ESTATE NETWORK PTY LTD
No. VI 1229 of 1996
Before: Judicial Registrar Millane
Place: Melbourne
Date: 18 October 1996
INDUSTRIAL RELATIONS COURT
OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
VI 1229 of 1996
B E T W E E N :
BERTRAM DANIEL
Applicant
A N D
REAL ESTATE NETWORK PTY LTD
Respondent
MINUTES OF ORDERS
Judicial Registrar Millane 18 October 1996
THE COURT DECLARES THAT:
The respondent’s termination of the applicant’s employment on 17 January 1996 contravened Division III Part VIA of the Industrial Relations Act 1988.
AND THE COURT ORDERS THAT within 21 days of the date of making these orders:
The respondent pay to the applicant -
(a)compensation in the sum of $1057.69; and
(b)unpaid annual leave entitlements of $837
less any amount payable to the Commissioner of Taxation pursuant to the Income Tax Assessment Act 1936 and actually paid.
The respondent pay to the appropriate fund superannuation contributions of $2925.52 and liberty is granted to each party to apply to the Court on reasonable notice for further orders in respect to the nomination of the fund into which the contributions are to be paid.
.../2.
AND THE COURT DIRECTS:
The District Registrar of the Industrial Relations Court of Australia, Victoria District Registry, to forward to the Commonwealth Attorney-General a copy of these reasons for judgment and the evidence of the witnesses and to make available, as may be required, the full transcript of the proceeding and the exhibits for inspection by any officer authorised to inspect by the Commonwealth Attorney-General or by the Commissioner of Taxation.
NOTE: Settlement and entry of orders is dealt with by Order 36 of the Industrial Relations Court Rules.
2
INDUSTRIAL RELATIONS COURT
OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
VI 1229 of 1996
B E T W E E N :
BERTRAM DANIEL
Applicant
A N D
REAL ESTATE NETWORK PTY LTD
Respondent
Before: Judicial Registrar Millane
Place: Melbourne
Date: 18 October 1996
REASONS FOR JUDGMENT
By an application made on 29 January 1996 the applicant seeks compensation from his former employer arising out of alleged contraventions of Division III Part VIA of the Industrial Relations Act 1988 (the Act). The applicant also makes a claim in the Court’s accrued jurisdiction. With regard to the unlawful termination claim the applicant alleges breaches of section 170DE(1) and (2) and section 170DC of the Act. However, since hearing the evidence in this case the decision of the High Court of Australia in The State of Victoria & Ors v Commonwealth of Australia (1996) 138 ALR 129 has overtaken this proceeding and the Court must, by reason of the invalidity of section 170DE(2) of the Act, decide the case according to the law declared by the High Court.
The accrued jurisdiction claim relates to an alleged written, but not signed, employment agreement, providing as it does for termination by either party on the giving of three months’ written notice to the other party. In relation to the alleged breach of the agreement (see Exhibit A7), the applicant seeks damages representing eleven weeks’ payment of wages less monies earned by him in alternative employment during the eleven week period. The eleven week claim takes into account one week’s compensation paid in lieu of notice. There was one week of no employment or receipt of income from alternative employment and for the remaining ten weeks of the alleged period of notice pursuant to the written agreement, the shortfall in income claimed by the applicant is $4730.
In addition to the abovementioned claims the applicant also seeks an order for the payment of $2925.52 representing unpaid superannuation entitlements as well as unpaid annual leave entitlements of $837.
The respondent at hearing contested all the matters claimed; although in his opening the respondent’s counsel, Mr Bingham, told the Court that the respondent accepted that there was an amount of $2925.52 payable by way of superannuation payments and annual leave entitlements.
After the abovementioned statement was made to the Court by Mr Bingham the parties were given the opportunity to attempt to agree on the quantum of the claims made in the Court’s accrued jurisdiction. Ms Doyle, appearing for the applicant, subsequently informed the Court that all these matters could not be agreed upon; although there was an acceptance by the respondent that some monies were payable for both the annual leave and superannuation claims, the amount of which required determination by the Court after the hearing of evidence.
Apart from contesting the accrued jurisdiction claims, the respondent argued that the applicant’s position was a temporary one with an agreement to review all his terms and conditions of employment within three to six months. The defence filed by the respondent referred to the applicant’s employment being “... on a trial basis subject to review at any time after three months from commencement.”. If it was unsuccessful in establishing the rather novel probationary employment defence, the respondent alleged further that the reason for terminating the applicant’s employment some eight months after the commencement of his employment was his lack of capacity and management skills in performing the functions of a general manager.
The reason for the inability of the parties to at least agree on the quantum of the outstanding annual leave and superannuation entitlements soon became apparent to the Court. Both sides conceded that the remuneration agreed upon before the applicant commenced his employment as general manager of the respondent’s Ivanhoe and Greensborough real estate offices, comprised a base wage of $55,000 per annum together with a car allowance of $115.00 per week, the wage component of which was to be split between the applicant and his wife. I have used the word “conceded” rather than “agreed” because the respondent’s managing director and principal witness in this proceeding, Chris Dzanovski (Dzanovski), when cross-examined on this matter showed a marked reluctance to acknowledge any full-blooded agreement on the base wage to be paid, much less any other terms attaching to the employment of the applicant. Notwithstanding his reluctance to acknowledge an agreement to the payment of the base wage at the rate alleged, Dzanovski did concede that he instructed Roula Fotinatos (Fotinatos), his secretary and the respondent’s book-keeper, to pay the wages at the rate of $55,000 per annum, split between the applicant and his wife as to $35,000 and $20,000 respectively.
The diffidence of Dzanovski in responding to direct questions about any agreed wage was no doubt contributed to by his knowledge that the arrangement to split income between the applicant and his wife, the latter of whom performed no work on behalf of the respondent, was no more than a sham designed to reduce the incidence of taxation payable by the applicant and, by reason of this reduction in the incidence of income tax payable, also allow the respondent to negotiate a reduction in the gross wages paid to the applicant from the asking sum of $60,000 per annum to $55,000 per annum.
After hearing the applicant’s evidence describing the abovementioned arrangement, it came as no surprise to find that the applicant’s witness, Nigel Blaze (Blaze), was evasive and non-responsive in the evidence he gave. Blaze is an accountant and the applicant’s cousin. He attended the initial interview prior to the applicant commencing employment in May 1995 as an adviser and was called to give evidence corroborating, amongst other things, the applicant’s claim that at the initial interview the income splitting arrangement was raised. Blaze was keen to suggest to the Court that when the income splitting arrangement was raised at the meeting of the three men, it was mentioned by him as a solution to the problem of one party seeking a $60,000 wage when the other party was only prepared to pay a lesser figure. According to Blaze he mentioned the arrangement subject to the qualification that it was appropriate to split the incomes if the arrangement was relevant and justifiable. He explained to the Court that the qualification meant that so long as the applicant’s wife “... could be deemed to have performed some services ...” then the arrangement could be justified. I found Blaze’s evidence on this matter entirely unconvincing and given with a view to distancing himself from any decision to implement a false wages arrangement. Neither the applicant nor Dzanovski referred to any discussion at their meeting about the applicant’s wife performing any work at all on behalf of the respondent company. It is more likely than not that the participants in that meeting all understood that the proposed arrangement was a commercial sham; one in which it was never contemplated that the applicant’s wife would perform any services in return for the payments of income made to her between May 1995 and 25 January 1996 when the applicant’s employment was terminated (see Exhibit R6). In making this observation I have borne in mind Justice Lockhart’s description of this term in Sharrment Pty Ltd and Others v Official Trustee in Bankruptcy (1988) 82 ALR 530 at 537 where he said:
“A ‘sham’ is therefore, for the purposes of Australian law, something that is intended to be mistaken for something else or that is not really what it purports to be. It is a spurious imitation, a counterfeit, a disguise or a false front. It is not genuine or true, but something made in imitation of something else or made to appear to be something which it is not. It is something which is false or deceptive.”
At hearing it was argued by the applicant that his wages were in fact $55,000 per annum and his claim before the Court should be quantified by reference to the base wage figure. The respondent argued to the contrary alleging that the wages were those actually paid; that is to say, wages at the rate of $35,000 per annum. If the respondent is correct in its argument then the sums payable for outstanding superannuation contributions, annual leave entitlements as well as any shortfall are less than the amounts claimed by the applicant.
At hearing it appeared that no group certificate for the financial year ending 30 June 1996 had been provided to the applicant and the applicant had not then filed a tax return for the last financial year. No evidence was given as to whether any group certificate was provided by the respondent for the year ending 30 June 1995 and what, if any, tax return was filed by the applicant for that fiscal year.
In the course of the hearing the Court drew to the parties’ attention the obligation it has to protect the revenue of the Commonwealth (see the discussion of this matter by Wilcox J (as he then was) in Petera Pty Ltd v EAJ Pty Ltd (1985) 7 FCR 375).
In recognising the arrangement for what it is, I must conclude that the applicant’s true annual wages were $55,000 per annum and he was, in fact, paid at that rate even though the respondent’s book-keeping procedures were such that it purported to employ two people for that gross sum, giving the applicant two pay envelopes in each pay period, one for himself and the other for his wife. On this rate of payment the applicant is entitled to an order for unpaid annual leave of $837 as claimed and a further order for unpaid superannuation entitlements of $2925.52 to be paid by the respondent into the appropriate superannuation fund.
It follows from my finding that the applicant’s true wages were the sum of the two amounts paid to the applicant and his wife and my finding that the purpose of the arrangement was to reduce the incidence of taxation payable by the applicant on the income actually earned from his employment with the respondent, that this is a matter requiring the Court to take whatever steps are necessary to ensure that the revenue of the Commonwealth is protected. Accordingly, I propose to direct the District Registrar of the Court to forward to the Attorney-General a copy of these reasons for judgment and the evidence of the three witnesses and to make available, as may be required, the full transcript of the proceeding and the exhibits for inspection by any officer authorised to inspect by the Attorney-General or by the Commissioner of Taxation.
THE CONTRACT OF EMPLOYMENT
It is agreed by the parties and Blaze that at a meeting held prior to the commencement of the applicant’s employment as a general manager in May 1995, the terms and conditions of his employment were the subject of some detailed discussion.
The applicant contends that at the meeting held to discuss the terms and conditions of his employment a number of matters were agreed upon and included:
(a)a salary at the rate of $55,000 per annum to be split in the way already discussed above;
(b) a car allowance of $115 per week;
(c)superannuation payments to be paid at “... the current legislated rate”;
(d) the provision of a mobile telephone;
(e)a performance bonus to be determined after a three month period when trading figures were to hand;
(f)the opportunity for equity participation by the applicant in the business to be discussed at a later time;
(g) four weeks annual leave;
(h)a three month period of notice of termination of the contract by either party;
(i)the provision by the applicant to the respondent of a written job description; and
(j)the execution of a written contract of employment prior to the applicant commencing his employment with such document to be sent to the respondent by Blaze.
Blaze’s evidence was not that all of the abovementioned items had been agreed to. For instance, he spoke of it being resolved that a salary less than that sought would be offered to the applicant with Blaze leaving it up to the other two men to resolve the question of whether the salary would be split between the applicant and his wife. The impression I gained from Blaze was that matters set out above in parts (a) to (h) were discussed at the meeting, however, his evidence fell short of saying that those matters were all agreed upon other than the alleged three months’ notice period. On the equity participation issue Blaze told the Court “... it was discussed that it would be considered at the end of the six months’ period”.
Blaze did not go so far as to say that there was an agreement that he prepare a written contract for execution by the respondent before the applicant commenced his employment. What he did say was that he did prepare a draft document taken from the applicant’s contract of employment with his former real estate employer, Fletcher & Parker, which document he faxed to the applicant prior to the applicant commencing his employment with the respondent. The applicant claims to have annotated his former written contract of employment and provided that to Blaze for the purpose of Blaze preparing an agreement for execution by the respondent (see Exhibit A1). Exhibit A7 was tendered in evidence through Blaze as a copy of a facsimile document entitled “Terms of Engagement”. This facsimile document bears the date 22 January 1996 because, according to Blaze, he faxed this copy of the document through to the applicant at the applicant’s request, having been informed by the applicant that the respondent had still not signed the earlier document. The applicant’s evidence was that Dzanovski repeatedly promised to sign the document he had read and a copy was provided to him on a number of occasions to replace the allegedly “lost” document.
Dzanovski denied any agreement to execute a written agreement containing the terms set out in Exhibits A1 and A7, or at all. He further denied seeing the document relied on by the applicant before approximately November 1995, some six months after the applicant had commenced employment. More significantly, he disputed the terms allegedly agreed to during the pre-employment discussions, other than those terms referred to in parts (a), (b), (c), (d) and (g) set out above. Whilst he agreed that there was to be provision of a mobile telephone he also referred to an agreement to pay the applicant’s telephone bills. Dzanovski agreed that there was discussion of equity participation but alleged that that issue as well as a 10% performance bonus and all the applicant’s terms and conditions were to be reviewed in three to six months to allow Dzanovski time to assess the applicant’s capacity.
It was alleged by Dzanovski that he took notes at the initial meeting (see Exhibit R4) which notes were not shown to the other two participants.
The written document relied on by the applicant contains some sixteen clauses introducing many terms not the subject of discussion at the meeting which ever version of the discussion is relied upon. The document makes no reference to the terms alleged by the applicant in parts (a) to (g) and (i) to (j) set out above, saying only that “... the Employer agrees to pay the remuneration set out in the Letter of Appointment”. Neither side referred to or relied on any letter of appointment.
As can be seen from my earlier comments on the commercial arrangements made by the parties, I was not greatly impressed by the three witnesses’ candour and willingness to give evidence against the interests of the case they were then pursuing. Both the applicant and Dzanovski gave evidence that was from time to time inconsistent, contradictory and, in Dzanovski’s case, demonstrated that he was prepared to tailor his evidence to fit his case. This meant that on each of the many occasions the evidence diverged on substantive issues, it has been necessary to evaluate the evidence where possible by reference to other matters that might make one version of the events more likely than another.
With the terms of the agreement alleged, I note that Blaze failed to corroborate the allegation that at the initial meeting Dzanovski agreed to sign any agreement prepared by Blaze much less one in the form tendered to the Court. Further, Blaze tendered in evidence a copy of a facsimile document dated 22 January 1996 alleging that this was a facsimile of the earlier document he also sent by facsimile to the applicant before the applicant commenced his employment. Blaze referred in evidence to his file but produced no documentary evidence of any document created prior to January 1996 or any evidence of the sending of earlier documents to either the applicant or Dzanovski. Of more significance is the fact that the written agreement, save for the term referring to the three month period of notice to be given on termination of the contract, neglected to set out any of the other terms the applicant and Blaze claimed were discussed at the meeting. This is a rather curious omission even if one allows for the obvious lack of experience and skill in those persons attempting to use an existing document as a prototype. The content of the written agreement and these additional matters suggest to me that the written agreement came about late in the piece; drafted in an effort to shore up the applicant’s position once he perceived that, from at least November 1995, there were problems emerging in his relationship with Dzanovski.
In any event the written document does not of itself advance the applicant’s case very far because the only term it purports to record is that relating to the notice period which both the applicant and Blaze allege was raised and agreed to orally at the initial meeting.
All the abovementioned matters lead me to the conclusion that any terms and conditions of employment are those which can be said to have been expressly agreed to at the meeting and those which might otherwise be implied by law.
Insofar as there is evidence of any express agreement it appears that parts (a) to (d) and (g) set out above were agreed to and acted upon. I understood Dzanovski’s evidence to be that parts (e) and (f) were agreed to subject to the review of these matters within three to six months; although he was keen to suggest that such review applied to all the terms and conditions of employment.
By a cheque paid to the applicant and dated 15 December 1995 (Exhibit R7) the applicant was paid what was identified in the respondent’s records as a 10% commission payment amounting to $817.85. Dzanovski in his evidence denied ever paying any performance bonus or other payments other than the agreed wage and expenses. The notes he alleged he kept of the initial interview (Exhibit R4), have a reference to what appears to be a “10% on performance” item; although at hearing Dzanovski claimed when asked to read his writing contained in that document that the record read “10% on review”. Looking at the document in its entirety and having heard Dzanovski’s evidence, I am satisfied that references made to the word “review” elsewhere in the document clearly show that the phrase does not include that word but may include the word “performance”, “premium” or some other word. When Dzanovski was asked to read the phrase to the Court, I am satisfied that he actively misled the Court in order to advance his version of the contract.
The evidence of Fotinatos that she was instructed by Dzanovski to pay the commission to the applicant, and this came about by reason of an agreement or arrangement between the applicant and Dzanovski, and the payment of the commission sum to the applicant contradict Dzanovski’s assertion that there were no additional payments made. The payment is also consistent with the payment of a “10% bonus” some six months or so after the commencement of the applicant’s employment on 24 May 1995. In other words, the payment of the 10% commission is only explicable by reference to the agreement to pay a bonus on performance, there being no evidence of any other kind of arrangement in existence for the payment of additional sums to the applicant after some months of employment.
Dealing only with the period of notice alleged, there is no contemporaneous written record of this alleged term, as the notes allegedly made by Dzanovski make no reference to it at all.
At the time the applicant was interviewed by Dzanovski for the position with the respondent the applicant was then finished or coming to the end of his employment with Fletcher and Parker, brought about, it was said, by some disagreement over the revelation of allegedly confidential information to the former employer’s rivals. As I have already noted the applicant had a written agreement with Fletcher and Parker which contained provision for three months’ notice of termination.
Both the applicant and Blaze claimed that the matter of three months’ notice was raised at the meeting and agreed to. However, because of my overall dissatisfaction with the evidence of the three principal witnesses and the absence of any independent or circumstantial evidence to establish the agreement to this particular contractual term, my conclusion is that the applicant has not discharged the burden he carries of establishing an agreement to this term. Because of this, any claim for damages for breach of contract for the eleven week period must and does fail. The period of one week’s notice given by the respondent otherwise complies with the minimum requirements of section 170DB of the Act.
PROBATIONARY EMPLOYMENT
Regulation 30B of the Industrial Relations Regulations excludes from the benefit of Division III Part VIA of the Act employees serving a period of probation or a qualifying period of employment. It does so in the following way:
“30B(1) Subject to subregulation (2), for the purposes of section 170CC of the Act, the following employees are excluded from the operation of Subdivisions B, C, D, and E of Division 3 of Part VIA of the Act.
(a) ...
(aa) ...
(b) ...(c)an employee serving a period of probation or a qualifying period of employment, if the duration of the period or the maximum duration of the period, as the case requires:
(i) is determined in advance; and
(ii)is reasonable, having regard to the nature and
circumstances of the employment;
(d) ...”
To say that there was a probationary period of employment determined in advance in this case ignores the fact that even on Dzanovski’s evidence any review was to take place from between three and six months after the date of commencement of employment. I am not satisfied that a purported agreement to review some or all of the terms and conditions of employment at any time between three and six months can be said to be synonymous with a period of probation determined in advance during which period the contract of employment may be ended without notice. In the present case it is not necessary for me to decide that question one way or another because, if it is accepted (and I have not accepted Dzanovski’s evidence on these factual matters) that there was probationary period determined in advance and such period was a reasonable one having regard to the nature and circumstances of the employment, that period and the right to terminate the applicant’s employment in that period without justifying that step, had long expired by the time Dzanovski saw fit on 17 January 1996 to give the applicant notice of termination of his employment.
Dzanovski did try and suggest that from late November 1995 onwards the applicant was not available to meet with him and took two weeks’ holiday in December on short notice. This conduct, Dzanovski claimed, thwarted his efforts to conduct a review in accordance with the alleged agreement to do so. At all relevant times Dzanovski was the managing director of the real estate business and worked in an office in close physical proximity to the applicant. The suggestion that in some way the applicant was able to avoid any review from three months after the commencement of his employment until 24 November 1995, is an extraordinary and implausible one in all the circumstances. Accordingly, I find that the applicant, for the purposes of this proceeding is not excluded by Regulation 30B(1)(c) of the Industrial Relations Regulations from the operation of the relevant subdivisions of the Act.
VALID REASON - section 170DE(1)
In his decision in Selvachandran v Peteron Plastics Pty Ltd (1995-96) 62 IR 371, His Honour Justice Northrop interpreted the phrase “valid reason” to mean a reason that is “sound, defensible or well founded”. It is argued by the respondent that at the date of termination Dzanovski genuinely believed that there were valid reasons; namely, reasons demonstrating a want of capacity in the applicant to perform the duties of general manager and these reasons were held on reasonable grounds. In asserting this the respondent relied on the decision of Justice von Doussa in Sangwin v Imogen Pty Ltd (unreported, von Doussa J, No. SA 1161R of 1995, 8 March 1996).
There is clearly some tension between the accepted meaning of the phrase “valid reason” since Selvachandran’s case which appears to be an objective test and any interpretation of other decisions in this Court suggesting that a mistaken but honest belief held on reasonable grounds by an employer can be relied upon to justify termination.
Since the High Court decision in The State of Victoria & Ors v Commonwealth of Australia an understanding of what constitutes a valid reason is all the more important because of the invalidity of section 170DE(2) of the Act. Each party was granted an opportunity to provide a further submission to the Court following the handing down of the High Court decision. The applicant’s counsel, Ms Doyle, provided the Court with a well reasoned and compelling argument in favour of the view that the removal of section 170DE(2) from consideration in unlawful termination cases does no more than preclude the Court from considering the effects of the termination on the employee. This argument was supported by a detailed analysis of the origins of the phrase “valid reason” and its inclusion in the Convention Concerning Termination of Employment at the Initiative of the Employer (Schedule 10 to the Act) and the Recommendation Concerning Termination of Employment at the Initiative of the Employer (Schedule 11 to the Act).
Section 170CA of the Act directs the Court to give effect, or further effect, to both the Convention and the Recommendation and any reasonable interpretation of the Act, the Convention and the Recommendation should lead to the conclusion that the employer, in order to discharge the burden of proof it carries, must justify the termination. For instance, a wrong accusation of misconduct or an accusation which is trivial when viewed in the context of the employee’s entire work record can hardly provide sound, defensible or well founded reasons for termination; much less satisfy any notion of fairness in the termination process (see my decision in Burke v Reander Pty Ltd (unreported, Millane JR, VI 6336 of 1995, 17 September 1996)).
Following on from the decision of the High Court, there are now at least two decisions in this Court; namely that of Justice Lee (in Nettlefold v Kym Smoker Pty Ltd, (unreported, Lee J, No. TI 1334 of 1995, 4 October 1996)) and Justice Marshall (in Kerr v Jaroma Pty Ltd, (unreported, Marshall J, Nos. VI 3306 of 1995 and VI 3307 of 1995, 7 October 1996)) both of which clearly support the view that the employer must, objectively speaking, justify the termination. Arguably a reason for termination which is harsh (not because of its effect on the employee but because, for instance, it is a trivial one), unjust or unreasonable is not a reason that is likely to justify termination. In saying this I am also acceding to Ms Doyle’s submission that the jurisprudence developed thus far in relation to the phrase “harsh, unjust or unreasonable” should not to be put aside in its entirety because it has relevance to a proper determination of what constitutes a valid reason.
THE REASONS FOR TERMINATION
By letter dated 17 January 1996 (Exhibit A2) handed to the applicant by Dzanovski on or about the same date, the respondent informed the applicant of the following:
“Following on from our discussions, I have spent a great deal of time assessing a number of issues relating to the company.
I regret to advise that, the company cannot financially support the position of a General Manager, and the position will cease to exist as from.25 January 1996. (sic)
This letter is a formal notice that your employment in that capacity will cease as from the close of business of that date.
Should you wish to remain with our company on (sic) a different capacity I would be pleased to discuss this issue with you.
I appreciate your assistance and your support during your time with the company.”
The matters referred to in the letter point to a redundancy as the reason for termination and not any performance or capacity based matters. In defending the proceeding the respondent denied that it had a financial imperative forcing it to make the applicant’s position redundant. What it did rely on was a long list of, in some cases minor, in others serious, incidents dating back to approximately October 1995 demonstrating, it was argued, the applicant’s lack of capacity to perform the duties of a general manager.
In his submissions to the Court counsel for the respondent grouped the allegations into various categories. For convenience I deal with a selection of allegations made in the order set out in the respondent’s submissions.
(a) Lack of ability to employ and retain appropriate staff
The abovementioned allegation appears to relate to an alleged high turnover of staff during the applicant’s period as general manager due to dissatisfaction with the applicant, poor management style and a failure, in one instance, to check all the references of a new staff member who was subsequently charged with defrauding a previous employer or employers. As with so many of the allegations made by the respondent these allegations lacked the support of any credible and admissible evidence.
The allegation concerning the hiring of a staff member subsequently charged with fraud offences, illustrates one significant matter and that is that Dzanovski appeared willing to do and say anything which might attribute blame or lack of capacity to the applicant. As managing director Dzanovski had an overriding power to hire and fire staff. He attended the final of three interviews conducted with the employee, Campbell, and it is obvious from his own evidence that he accepted her appointment to the respondent’s staff. It was conceded by the applicant that he had not been able to contact one personal referee and this was known to Dzanovski. Dzanovski claims to have said to the applicant after the final interview that, “... there is something about this girl that just doesn’t sit right, can you please look into it”. The expression by Dzanovski of this remarkable insight is denied by the applicant. It is unlikely that Dzanovski ever said these words and this is just one instance of him tailoring his evidence to suit his case and, further, it is unlikely that he would allow the hiring of the staff member to proceed if he was not satisfied with the potential employee’s suitability for the position. Moreover, nothing in the evidence permits the conclusion that if the applicant had pursued one further reference or made any other enquiries, the respondent would have been in a position to know of any fraud in advance of the hiring of this woman. The fraud only came to the attention of both the applicant and the respondent when the employee was charged with fraud offences by the police.
(b) Lack of commercial understanding
Two rather trivial matters were relied on as evidence of the applicant’s lack of commercial understanding. The first was Fontinatos’ belief that because the applicant had asked particular questions concerning commission statements and employee commencement forms, he appeared to lack the knowledge she as a secretary and bookkeeper employed by the respondent would expect someone in the applicant’s position to have. At hearing the relevance of Fontinatos’ expectations was objected to and that objection was upheld by the Court. The second was the allegation that the applicant failed to appreciate the rights and liabilities of tenants and landlords in commercial leasing situations and, in particular, the liability of a tenant to repair a front door lock of leased premises.
The applicant’s response to the abovementioned matters was that companies have different ways of setting out documents and his duties and real estate experience were primarily confined to residential properties rather than leased properties. In other words, he did not deny the allegations so as much as he offered a reasonable explanation for what occurred, bearing in mind that there was no allegation made by the respondent that the applicant represented to the respondent that he was an expert in commercial leasing matters.
On the evidence I was not satisfied that the matters relied on were of such importance or consequence that they could singularly or collectively constitute a want of skill to perform the duties of a general manager, a position the applicant had previously held for some two years with his former employer. His uncontested evidence is that he has twenty-one years experience in real estate and was primarily engaged in real estate management since “... the early 80s”.
(c) Lack of ability to conduct auctions
During the period of his employment the applicant conducted two to three auctions apparently without success. Of course, the lack of success in selling a property at auction cannot of itself point to an inability to conduct auctions. There are no doubt many skilled auctioneers who fail to sell numerous properties at auctions. As with many of the allegations made, there was a lack of any clear evidence from the respondent addressing precisely what deficiency there was in the applicant’s skills and what steps were taken to bring these matters to the applicant’s attention at the time. Furthermore, the allegation was based on the unsupported assumption that as a general manager the applicant had a duty to conduct some or any auctions.
(d) Inability to exercise financial control
It was agreed that one of the applicant’s duties was to discuss with vendors and settle a written schedule of advertising in relation to the property to be sold. I am satisfied on the evidence that the placing of the advertisements was then primarily the responsibility of Dzanovski. One property referred to as the Headline property failed to sell at auction, having until the auction an agreed advertising budget of $1500. There was a dispute between the applicant and Dzanovski about the authorisation by the vendor of any further advertising subsequent to the failed auction. It seems from the applicant’s evidence that he contended that there was oral authorisation for further advertising by the placement of another couple of advertisements. The respondent spent some $1480 above the authorised amount. Dzanovski claims that the additional expenditure came about because the applicant told him that the vendor had authorised further advertising until the property was sold. It was conceded by Dzanovski that the respondent at times over spent the authorised budget for advertising on properties. I find it unlikely that any authorised expenditure verbally notified to Dzanovski was notified in terms that suggested that the vendor authorised unlimited further expenditure on advertising until the property was sold.
It is now apparent that there is a dispute between the respondent and the vendor about the additional expenditure and in March, after the applicant had left his employment, the respondent asked the applicant for clarification. It is not apparent from the respondent’s evidence how much of the additional expenditure is disputed by the vendor. I am not satisfied on the respondent’s evidence that the issue of over spending on advertising on this one property was known to the respondent before termination and was a matter which might found this termination. If it was, it is a case where Dzanovski seems to have proceeded to over spend without any written authority from the vendor. He did so at least partly in accordance with his practice of over spending without written authorisation as occurred from time to time with other properties and partly because of the representation made to him by the applicant. The applicant’s evidence was vague on this matter when he was questioned about the arrangement for further advertising with the vendor. I was left with the impression that he probably did not have the oral authority he claimed he had and for that reason the respondent may have incurred some loss.
The failure to supervise the leasing of a property by Campbell, whilst she was employed by the respondent, allegedly led to the loss of rental and a long standing landlord client. I was not satisfied on the evidence that property management was one of the duties exclusively allocated to the applicant. If it was a duty he was obliged to fulfil, it seems on the evidence that Dzanovski was similarly involved in property management but also seems also to have been unaware of the deception practiced by the employee in failing to pay rent for some months and leasing a client’s property without notifying her employer of this arrangement.
(e) Lack of professional conduct
If there is a criticism to be made of the applicant regarding his professional conduct, then the sale of the Longstaff Street property provides one. The respondent in that sale acted for the vendors who required no less than $300,000 for the sale price, apparently because of a dream a family member had about receiving this sale price.
The applicant found purchasers who were keen on purchasing the property and, in order to bring about a sale, entered into an agreement with them to pay to them $1250 from the commission the respondent received from the vendor on the sale. It is alleged by the applicant that he informed Dzanovski of this arrangement and Dzanovski agreed to it. Whilst it is accepted that an agent may negotiate a reduction in the commission payable to the agent by the vendor client for the purpose of bring about a sale, this particular arrangement was one where the vendor had no knowledge that the agent had struck a deal with the purchaser over the payment of part of the vendor’s commission payment to the purchaser.
It was common ground that the applicant informed Dzanovski at the time of the sale, in or about October 1995, that there was some arrangement on reducing the commission payment and because of this Dzanovski was aware of this some months before the settlement in mid January 1996. According to Dzanovski what he knew was that part of the commission would be sacrificed for a sale. The letter dated 6 October 1995 sent by the applicant to the purchasers sets out the following arrangement (Exhibit R2):
“Just to confirm that EJ Doherty Real Estate Network Pty. Ltd. has agreed to the payment of $1250.00 for promotion done on behalf of the Company and will be paid on the 12th of January, 1996.”
It was again common ground that the purchasers did not, nor were they intended, to perform any promotional work for the respondent. The arrangement was a sham.
As can be seen from the wages arrangements entered into between the applicant and the respondent, neither the applicant nor Dzanovski is a stranger to sham commercial arrangements where the arrangements advance their own commercial interests. In his cross-examination Dzanovski acknowledged that he saw the letter to the purchasers in October or November 1995; claiming to have then told the applicant that the company did not do business in this way. The settlement of the property occurred in mid January 1996 and, therefore, the occasion for payment of the commission monies was delayed for some months after Dzanovski became aware of the extent of the deception. It is also alleged by Dzanovski that he asked the applicant to inform the vendors of the arrangement, however, his evidence on this matter as with most of his evidence lacked credibility. He appears to have done nothing to directly rectify this matter prior to settlement and prior to the attempts by the purchasers to enforce the agreement.
(f) Lack of attending to work
There was an attempt by the respondent to argue that the applicant in the latter part of 1995 arrived late at and left work early as well as being away from the office for unexplained periods. As general manager the applicant’s duties covered both the Ivanhoe and Greensborough offices and involved him in going out to different locations to value properties. Dzanovski did not provide any credible evidence on this matter and for that reason I reject the respondent’s submission that the applicant’s attendance at work was so wanting that it amounted to misconduct justifying dismissal.
FINDINGS
A valid reason is one that is a contemporaneous reason; that is to say, a reason existing and known to the employer at the date of the termination it purports to justify. When Dzanovski handed the letter of 17 January 1996 to the applicant, he did so without reference to any of the many matters he sought to rely on at hearing as reasons for termination. At first it was agreed by Dzanovski that he said nothing to the applicant when he handed him this letter, however, Dzanovski contradicted this evidence in his cross-examination by then trying to suggest that he raised issues relating to the applicant’s performance when the letter was handed over. I am satisfied on the evidence that there was no discussion of any of the allegations made against the applicant at the time the letter was handed to the applicant.
To the extent that matters of performance or capacity are relevant to providing contemporaneous reasons for termination, there has been a clear breach of section 170DC of the Act as no opportunity was afforded to the employee to defend himself against the many allegations of misconduct, poor performance or lack of capacity. Further, I am not satisfied that Dzanovski discussed these matters with the applicant, gave him an opportunity to improve his performance or warned him that his employment was at risk. An employer acting reasonably would usually take these steps.
I am invited by the applicant to treat the many complaints made as being invented after termination to avoid the applicant’s submission that this termination was not a genuine redundancy. As can be seen from some of the matters I have considered above, I am satisfied that there were from time to time matters relating to the applicant’s conduct, capacity and performance which may have been a cause of concern. The ethical matter to do with the obvious conflict of interest in contracting with purchasers to pay some portion of the vendor client’s commission to the purchaser is a serious matter, however, Dzanovski’s inaction when he was clearly aware of the conduct suggests that he was either happy for the arrangement to progress to settlement or simply waived whatever opportunity he had to remonstrate with the employee and discipline him over this matter. Accordingly, it is not the case that all the matters complained about did not occur. Rather, this is a case where the employer has caste about and fixed on every event, trivial or not, to try and justify a termination on capacity and performance issues in preference to meeting the burden of proof it carries to establish a bona fide redundancy as well as the application of appropriate selection criteria when it disposed of the position of general manager. If there is any invention in the respondent’s case it comes about by reason of its attempt to assert that the performance and capacity issues were the reasons given for termination and not the reason expressed in the letter of termination.
When the applicant responded to the letter of termination by seeking three months’ notice, he was met on 24 January 1996 with the following response (Exhibit A4):
“I’m in receipt of your undated letter.
You misrepresent the terms of your engagement as General Manager. You were engaged on a trial basis. The trial has not proved satisfactory. The company’s obligations to you will cease on 25 January 1996. Do you wish to stay with the company in another capacity?”
As I have already observed, if there was any trial or probationary period of employment no notice of termination was given during that period and the opportunity to act had long since passed.
Dzanovski has not replaced the applicant with another general manager; instead he performs the duties of the general manager himself. This lends weight to the argument that the termination was in fact an ill-considered attempt to effect a redundancy, which in all the circumstances, could not be sustained as a bona fide one. At the same time there was obviously some disenchantment with the applicant’s performance in various areas from the October/November 1995 period when the applicant redoubled his efforts to press Dzanovski to execute the written agreement the applicant had prepared. Bearing these matters in mind, I am not satisfied that the reason given in the letter of termination was the reason necessarily motivating the employer to bring the applicant’s employment to an end, but was nevertheless the reason that must be proven on the balance of probabilities to establish the respondent’s defence.
On the evidence the respondent has failed to establish that the reason given at termination was a sound, defensible or well founded reason for termination. Otherwise, the matters of performance, conduct and the applicant’s capacity to fulfil the requirements of the position of general manager are relevant only insofar as they provide, where proven, circumstances which may be considered by the Court in determining the appropriate remedy and the extent of any compensation payable.
The applicant has now bought into another real estate agency business and alleges that he is earning $30,000 per annum, which sum included a car allowance together with an 80% share of the profits. At the date of hearing the applicant claimed that the business was yet to receive any profits. The circumstance of new employment, as well as the obvious difference between the two men who would need to work in close proximity to one an other, permits me to conclude that reinstatement (which was not sought by the applicant) is impracticable.
Both in evidence-in-chief and cross-examination, the applicant responded to a question about his wife’s current earnings by stating that she was unemployed. However, in cross-examination he immediately contradicted his earlier evidence by saying that his wife currently earns $240 per month from cleaning the offices he now works from.
The applicant produced in evidence (Exhibit A6) five copy commission and salary statements from the employer he commenced employment with on 5 February 1996, some two weeks after the date of termination. The statements show that in the period between 5 February and June 1996 the applicant received $12,649 by way of salary and car allowance for approximately five months or an average of $2,538.80 per month. This shows that after five months or so of employment his rate of income exceeds a rate applicable to the $30,000 sum inclusive of a car allowance he says he is paid at.
The applicant’s lack of candour and the conflicting evidence on matters, particularly to do with his and his wife’s salary positions, leave me with some considerable doubt as to his true earnings position since termination. He carries the onus of proving his loss and the nexus between any loss and the unlawful termination of his employment by the respondent. I am not satisfied on the evidence given by the applicant that there is a loss proven other than the loss of one week’s wages for the week preceding his employment on 5 February 1996. In concluding that his loss is confined to the one week’s wages, I have taken into account the amount of compensation paid in lieu of notice. The one week’s wages amounts to $1057.69 gross.
MINUTES OF ORDERS
THE COURT DECLARES THAT:
The respondent’s termination of the applicant’s employment on 17 January 1996 contravened Division III Part VIA of the Industrial Relations Act 1988.
AND THE COURT ORDERS THAT within 21 days of the date of making these orders:
The respondent pay to the applicant -
(a)compensation in the sum of $1057.69; and
(b)unpaid annual leave entitlements of $837
less any amount payable to the Commissioner of Taxation pursuant to the Income Tax Assessment Act 1936 and actually paid.
The respondent pay to the appropriate fund superannuation contributions of $2925.52 and liberty is granted to each party to apply to the Court on reasonable notice for further orders in respect to the nomination of the fund into which the contributions are to be paid.
AND THE COURT DIRECTS:
The District Registrar of the Industrial Relations Court of Australia, Victoria District Registry, to forward to the Commonwealth Attorney-General a copy of these reasons for judgment and the evidence of the witnesses and to make available, as may be required, the full transcript of the proceeding and the exhibits for inspection by any officer authorised to inspect by the Commonwealth Attorney-General or by the Commissioner of Taxation.
NOTE: Settlement and entry of orders is dealt with by Order 36 of the Industrial Relations Court Rules.
I certify that this and the preceding twenty-six (26) pages are a true copy of the reasons for judgment of Judicial Registrar Millane.
Associate:
Dated: 18 October 1996
Solicitors for the Applicant: Slater & Gordon
Counsel for the Applicant: Ms R. Doyle
Solicitors for the Respondent: Best Hooper
Counsel for the Respondent: Mr P. Bingham
Date of hearing: 5 & 6 August 1996
Date of judgment: 18 October 1996
0
0