Ellis v Saks Design Pty Ltd

[1996] IRCA 360

DECISION NO:  360/96

CATCHWORDS

INDUSTRIAL LAW - complaint of UNLAWFUL TERMINATION - whether applicant was employee or independent contractor - whether termination at the initiative of the employer - whether termination for VALID REASON of CONDUCT OR PERFORMANCE - COMPENSATION

Industrial Relations Act 1988, ss 170EA, 170DE(1), 170EE(2)

Re Election in the Transport Workers Union of Australia; Ex parte Porter (1986) AILR 388
Bennett v E Z Risdon Golf Club Inc.  (1996) 64 IR 1
Building Workers Industrial Union v Odco Pty Ltd Full Court (1991) 99 ALR 735
Coleman v Harmon Partners (Administration) Pty Ltd, Parkinson JR, unreported, VI/95 5232, 2 July 1996
Slifka v. JW Sanders Pty Ltd, North J, unreported, VI 94/2741R, 19 December 1995

GILLIAN ELLIS v SAKS DESIGN PTY LTD
VI 6258 of 1995

Before:  PARKINSON JR
Place:  MELBOURNE
Date:  2 AUGUST 1996

IN THE INDUSTRIAL RELATIONS COURT
OF AUSTRALIA
VICTORIA DISTRICT REGISTRY

VI 6258 of 1995

B E T W E E N:

Gillian ELLIS
Applicant

A N D

SAKS DESIGN PTY LTD
Respondent

MINUTES OF ORDERS

2 August 1996  PARKINSON JR

THE COURT ORDERS THAT:

1. The respondent pay to the applicant compensation in the sum of           $4,147.20.

1. Time for payment is twenty one days from the date of order.

NOTE:   Settlement and entry of orders is dealt with by Order 36 of the Industrial Relations Court Rules

IN THE INDUSTRIAL RELATIONS COURT
OF AUSTRALIA
VICTORIA DISTRICT REGISTRY

VI 6258 of 1995

B E T W E E N:

Gillian ELLIS
Applicant

A N D

SAKS DESIGN PTY LTD
Respondent

REASONS FOR DECISION

2 August 1996  PARKINSON JR

This is an application made pursuant to s170EA of the Industrial Relations Act 1988. The applicant was engaged by the respondent as a sales assistant and store coordinator. During the course of the employment the applicant was responsible for deliveries and collections of garments from the various retail outlets of the respondent, together with sales from the wholesale premises.

There is dispute between the parties as to the terms upon which the applicant was engaged and continued to be engaged by the respondent. The initial question in this proceeding is whether the applicant was an employee of the respondent. In the absence of an employee/employer relationship between the parties there is no jurisdiction in the court to entertain the s170EA application. The respondent contends that the applicant was not an employee.

The applicant was described as having been initially engaged by the respondent as an independent contractor by an agreement to provide services to the respondent.  The terms of the initial arrangement between the parties were said not to constitute a contract of employment.  The applicant’s case is that at some time in the course of the engagement the status of the applicant changed from that of independent contractor to that of employee.  The respondent contends that there was no such alteration.

The applicant was engaged by the respondent by what was described as an independent contractor arrangement, notwithstanding a reluctance and an express concern on the part of the respondent as to the appropriateness of such an arrangement.  The applicant pressed for this arrangement, which in her view would enable her to make more beneficial taxation arrangements.  The evidence was that the applicant advised the respondent that she was not prepared to work for the respondent on any basis other than as an independent contractor.  The respondent reluctantly agreed to the arrangement.

The applicant’s evidence is that the arrangement as to independent contracting continued from 30 November 1994 until late June 1995.  Her evidence was that the employment was entered on this basis because of the taxation benefits which the applicant perceived to accrue as a result.  During that period the respondent’s accountant, Mrs Arthur, on a number of occasions expressed her concern as to the arrangement and the failure to account for the applicant pursuant to the group payroll arrangements.  Mrs Arthur’s evidence was that she clearly believed that the applicant ought to have been included on the group tax accounting of the respondent.  She drew to the respondent’s attention the fact that penalties existed for failure to comply with the group tax requirements.

The applicant’s evidence is that in late June 1995, following a discussion with Mrs Lofts, a director of the respondent, and in the knowledge of Mrs Arthur, she transferred herself from being an independent contractor to being an employee, by recording her name in the group payroll records and commencing to deduct PAYE taxation instalments from her wages.  Her evidence was that this occurred as a result of a number of approaches made by the respondent’s accountant, Mrs Arthur, and the directors of the respondent.  The respondent’s evidence is that there was never any approval by the respondent’s officers or any person authorised on its behalf for the applicant to alter her engagement arrangements to that of employee in or around June 1995, and that the transfer occurred without its knowledge or approval.

It is necessary for me to determine whether there was an employment relationship between the applicant and respondent at the time of the termination of the employment.  On the evidence before the court there are two possible occasions where the nature of the relationship may have been established.  The first occasion was at the point of engagement of the applicant on 30 November 1994, and the second at end June 1995 when the “transfer”, the validity of which is in dispute, occurred.  I turn first to the point of engagement on 30 November 1994.

The question of whether there exists an employment relationship is a question of fact to be determined having regard to all of the circumstances of the arrangements between the parties.  The description given to the arrangement by the parties is not determinative of this question.  See in this regard the decision of Gray J in Re Election in the Transport Workers Union of Australia; Ex parte Porter (1989) AILR 388.  This decision and the decision of the High Court in Stevens v Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16 were the subject of consideration by Ryan J in Bennett v E Z Risdon Golf Club Inc. (1996) 64 IR 1 at pages 6 and 7. In Bennett the individual was designated by the written contract to be a ‘contractor’ and to have responsibility for all of “his/her own sick leave, annual leave, taxation provisions at no extra cost to the club.”  After considering all of the relevant indicia his Honour concluded at p 7:

Ultimately, the approach to be taken to a case like the present
           has to be resolved by the impression which the court retains after
           balancing all the factors tending one way or the other.

His Honour then cited with approval the decision of Gray J in Porter.

My findings as to the circumstances of the performance of work by the applicant are set out as follows.  The respondent by its directors exercised day-to-day supervision and control over the work of the applicant.  The applicant was paid an hourly rate for the performance of her duties, and that rate was calculated in the invoices tendered on the basis of regular attendance of at least 37 hours per day, 6 days per week, although initially the applicant worked lesser hours.  During the course of the employment the applicant’s hours of attendance at the respondent did not vary in any way which would indicate that she was in control of the allocation of her time or resources.  The applicant was paid on a weekly basis and I am satisfied that this payment would have been made irrespective of whether an invoice of any type was generated by the applicant.  The applicant was not able to determine independently any aspect of her day-to-day working life.  She worked full-time for the respondent from January 1995, and whilst there is limited evidence of the applicant performing paid work for another person in this time, it was not performed during her designated full-time working hours at the respondent.  Her working hours, place of work and days of work were dictated by the respondent pursuant to arrangements determined by the directors of the respondent.  The applicant had no responsibility for the supply of any business equipment, work premises, or the provision of additional labour at or under her own direction or control for the purposes of servicing the requirements of the respondent.  The applicant was in no different position to any of the other employees of the respondent located at its wholesale or retail outlets.

The respondent relied upon the negotiations as to the hourly rate of pay and upon the fact that there was to be no payment of sick leave or annual leave as identifying that the applicant was not an employee.  I refer to the decision in Bennett and make the following additional observations which are pertinent to the present case.  There are many instances both within and outside of formal industrial regulation where an employee may not receive payment for sick or annual leave absences, sometimes because it is included as a component of the hourly rate of pay and otherwise because there is not an award obligation to make such payments.  The fact of the non-payment or non-entitlement to these payments does not of itself establish that the applicant was not an employee of the respondent.  In any event there was no evidence before me to identify any basis upon which any such entitlements may have arisen in an employment situation.  Neither party referred the court to any award or contract which imposed any obligation on the respondent to provide such conditions in the event that the applicant was an employee.  I was referred to the decision of the Full Court of the Federal Court of Australia in Building Workers Industrial Union v Odco Pty Ltd (1991) 99 ALR 735, and in particular the following written submission was made by counsel for the respondent in relation to the application of that decision to this case:

Nevertheless, the Court went on to find that the persons it was there concerned with were not employees because:

“....the agreement that Troubleshooters workers are not to receive annual leave or sick leave or any payment referable to those entitlements and that no deduction of income tax is to be made from their remuneration signifies a mutual intention that they are not to be regarded as employees” (at p.755) .

I do not agree with the respondent’s submission that the Full Court in Odco found that the persons with whom it was there concerned were not employees because of the matters set out in the extract above.  There is no doubt that these matters are relevant factors in determining the nature of the relationship where they are established as entitlements arising out of an employment agreement.  Their absence in the Odco circumstances was one of many factors which suggested to the Court that the relationship between the parties was one of independent contracting.  There were numerous other factors referred to in that case, not the least of which was the fact that the persons concerned were able to indicate availability or non-availability for work or for particular jobs; that in respect of any employees an obligation existed by a federal award for the payment of benefits such as sick leave and annual leave; and that obligations for payment of various forms of insurance were borne by the individual and not by the respondent.

Further, there was a complex structure of business arrangements found by the court to have been genuinely established for the operation of a business of supplying labour.  The structures and operations of the business in Odco were not merely paper transactions designed to disguise the nature of the relationship.  This is not the case in this circumstance.  In the present case there is no document establishing the terms of any sub-contract or independent contract agreements or arrangements between the respondent and the company Gillian Ellis Fashions Pty Ltd (“the company”).  There is no evidence of any arrangement or agreement between the company and the applicant as to the provision of services by the applicant.  The only documentation which exists in relation to the entire arrangement are the invoices drawn by the applicant in the name of or on behalf of the company on a weekly basis.  The applicant was paid her wages on a weekly basis by the respondent in the same manner as any other employee of the respondent.  The circumstance of the engagement is characterised by indicia which lead me to conclude that the applicant was an employee.  The only indicia to the contrary are the payment of the applicant by directing the monies to the company after receipt of an invoice, the failure to make payment for sick leave or annual leave, and the failure to make deductions for PAYE taxation.  I am satisfied that the applicant was an employee of the respondent from the initial engagement by the respondent.

The respondent also relied upon the applicant never having been granted any authority by it in June 1995 to alter her status from independent contractor to that of employee.  I have found that the applicant was an employee of the respondent from the first day she commenced work at the respondent’s premises on 30 November 1994.  It is appropriate however to note that the separation certificate signed as at the date of termination of employment recognised employment of the applicant by the respondent from 7 July 1995.  This document was signed by a director of the respondent.  Further, the applicant was on the payroll from June 1995 until November 1995 without any issue being raised by any party.  I do not accept that the applicant acted deceitfully or in a calculated manner contrary to the wishes of the respondent.  I am satisfied that this arrangement was to regularise what was in fact the true state of affairs between the parties, and was in accord with the desire of the respondent.

I turn now to consider the other jurisdiction issue raised by the respondent.  It was submitted by the respondent that there was a mutual agreement to part company, reached between the applicant and the respondent on the date of the termination of the employment.  It is contended by the respondent that as the applicant, on its evidence, agreed to leave the employment, there was not a termination of employment at the initiative of the employer.  The evidence of the respondent is that the applicant conceded that she was not happy in the employment and would be happier if she were able to find alternative employment.  As a consequence, it was agreed in a meeting on 27 November 1995 that the applicant would leave the employment of the respondent on 12 December 1995.

There are two troubling aspects to this contention. First, it is apparent from the evidence of both parties that the events which lead to the conversation on 27 November occurring were incidents involving the applicant or her partner, about which the respondent was unhappy and had expressed that unhappiness. There was a further conversation in the third week of the notice period where the applicant was paid out the balance of her notice and left the respondent. The conversation on 27 November 1995 as to the termination of the employment was arranged by the respondent and would not have occurred but for the dissatisfaction expressed by the respondent. This is not a case where it is alleged that the applicant resigned her employment. The applicant’s evidence was that she was told she would be given three weeks notice and that she could look for another job. The respondent’s evidence was that the applicant was asked whether she would not be happier if she sought a job elsewhere, and that the applicant agreed that she would be. The applicant denied that this was said to her. Whilst I make a separate finding later in this decision as to which version of the conversation I prefer, it is appropriate to consider whether the respondent’s version of the conversation would constitute a termination of the employment of the type contemplated by s170EA of the Act.

The respondent’s written submission states:

The Act makes it clear, in s. 170DE, that the jurisdiction of the Court to deal with harsh, unjust or unreasonable termination of employment is founded upon the employer’s conduct.  The section expressly provides that: :an employer must not terminate... Accordingly, if the termination of employment is achieved by agreement or by the employee’s conduct (ie. resignation), the Court has no jurisdiction. [original emphasis]

The respondent further relies upon the application of contractual principles in contending that

It is clear as a matter of law that a contract of employment can be terminated (or varied) by agreement.  As was stated in Marriot v Oxford and District Co-op. Society (No. 2) [1969] 3 WLR 984, 988:

“...if the parties agree consensually to vary the terms of the contract of employment, or rescind it and substitute a new contract of employment, the plain fact is that the contract is not terminated by the employers, but by consent.”

I do not agree that this is the appropriate approach to be taken to the application of s170EA of the Act. In Coleman v Harmon Partners (Administration) Pty Ltd, unreported, VI/95 5232, 2 July 1996, I considered this matter.  The following extract, at p. 5-7 is pertinent:

As to the operation of Part VIA Div 3 of the Act, it has been stated many times in decisions of this court that the question is not whether the conduct had the effect of terminating the contract of employment, but rather whether there was a termination of employment at the initiative of the employer which is the type of termination of employment contemplated by s170EA of the Act. To look at the question in purely contractual terms is not an appropriate approach to the provisions of the Act, although in this case the practical result would be the same. As to whether there was a termination of employment at the initiative of the employer, it is appropriate to set out an extract from the Full Court decision of Mohazabv Dick Smith Electronics Pty Ltd (1995) 62 IR 200 which considers the nature of the termination which is contemplated in s170EA. As will be seen from the extract, the critical issue is whether or not the termination of employment occurred at the initiative of the employer. The Full Court stated at 203:

Section 170CA provides that the object of Div 3 of Pt VIA is to give effect to the Convention concerning Termination of Employment at the Initiative of the Employer and the Recommendation concerning Termination of Employment at the Initiative of the Employer which are Schs 10 and 11 of the Act respectively.  Section 170CB provides that an expression has the same meaning in the Division as it has in the Convention.  The terms "termination" and "termination of employment" are defined in the Convention as meaning "termination at the initiative of the employer".  Accordingly the terms "termination" and "termination of employment" in the Act have the same meaning.  The Convention does not, however, define the expression "at the initiative of the employer" and its meaning in the Convention must be gleaned from the Convention as a whole.  This expression does not appear in the Act and is imported into the Act by s170CB.

At p. 204-05 their Honours continued:

It is necessary to consider the ordinary meaning of the expression "termination at the initiative of the employer" in context in the Convention having regard to its object and purpose.  The word "initiative" is relevantly defined in the New Shorter Oxford Dictionary in the following way:

"initiative 1. The action of initiating something or of taking the first step or the lead; an act setting a process or chain of events in motion; an independent or enterprising act."

And in the Concise Macquarie Dictionary in the following way:

"initiative 1. an introductory act or step; leading action; to take the initiative. 2. Readiness and ability in initiating action; enterprise: to lack initiative."

These definitions reflect the ordinary meaning of the word “initiative".  Viewed as a whole, the Convention is plainly intended to protect workers from termination by the employer unless there is a valid reason for termination.  It addresses the termination of the employment relationship by the employer.  It accords with the purpose of the Convention to treat the expression "termination at the initiative of the employer" as a reference to a termination that is brought about by an employer and which is not agreed to by the employee.  Consistent with the ordinary meaning of the expression in the Convention, a termination of employment at the initiative of the employer may be treated as a termination in which the action of the employer is the principal contributing factor which leads to the termination of the employment relationship.  We proceed on the basis that the termination of the employment relationship is what is comprehended by the expression “termination of employment”:  Siagian v Sanel (1994) 1 IRCR 1 at 19; 54 IR 185 at 201. In many, if not most, situations the act of the employer that terminates the employment relationship is not only the act that puts in train the process leading to its termination but is, in substance, the entire process. An example would be a situation where the employer decided to dismiss an employee and did so orally or in writing with immediate effect. Other situations may be more complex as exemplified by the circumstances considered by Moore J in Grout v Gunnedah Shire Council (1994) 1 IRCR 143; 57 IR 243 where an employee had given written notice purporting to terminate the employment relationship. The notice was not reasonable but was accepted by the employer which later refused to allow the employee to withdraw the notice. A question arose as to whether that was a termination of the employment at the initiative of the employer and his Honour held it was. His Honour said at 160-161; 259:

I have already said that Div 3 concerns termination at the initiative of the employer.  The respondent submits that 'initiate' means 'to begin, commence, enter upon; to introduce, set going, or initiate':  see Shorter Oxford English Dictionary.  In this matter, it is submitted, it was the applicant and not the respondent that initiated the termination by writing the letter of 18 May.  This, in my opinion, gives the expression 'termination' in the Act, read in conjunction with Art 3 of the Convention which speaks of 'termination ... at the initiative of the employer', a narrow meaning that was not intended.  A principal purpose, if not the sole purpose, of Div 3 is to provide an employee with a right to seek a remedy in circumstances where the employee did not voluntarily leave the employment.  An employee may do some act which is the first in a chain of events that leads to termination.  An example would be an employee who engaged in misconduct at work which ultimately led to the employer dismissing the employee.  However, that situation and the present are not situations where the termination was at the initiative of the employee.  In both instances the step or steps that effectively terminated the employment or purported to do so were taken by the employer."

I am satisfied that the conduct of the respondent on the respondent’s version of the conversation constituted a termination of employment at the initiative of the employer.  That conduct was the convening of the meeting and the suggestion to the applicant that she would be happier if she sought a job elsewhere.  This conversation occurred for the purpose of bringing about the cessation of the applicant’s employment.  But for the initiative of the employer, the termination of the employment would not have occurred.

As to my findings on which version of the conversation I prefer, I have been assisted by the contents of the employment separation certificate completed by a director of the respondent, Mrs Lofts.  That separation certificate identifies that the applicant’s employment had been terminated, and that the reason for the termination of employment was unsatisfactory work performance.  This document was contemporaneous with the events surrounding the cessation of the employment, being completed by Mrs Lofts at the point the applicant left the workplace, and identifies a reason for the cessation of the employment which accords with the applicant’s evidence as to the circumstances of the termination.  I prefer the applicant’s evidence as to the termination of the employment.  I am satisfied that the applicant’s employment was terminated at the initiative of the respondent.

For the reasons set out above, I am satisfied that the court has jurisdiction to entertain the application brought pursuant to s170EA of the Act. I turn now to the substantive aspects of the application arising pursuant to s170DE(1) and (2) of the Act.

The respondent did not contend that it had valid reason to terminate the applicant’s employment.  I am not satisfied that the respondent had valid reason for the termination of the applicant’s employment.  There is no evidence of poor work performance on the part of the applicant.  There is no allegation of misconduct, and save for the allegation that the applicant converted her employment status without authority there is no aspect of the applicant’s conduct which may be criticised.

As to this latter allegation, I am satisfied that there was confusion between the parties as to their respective intentions.  I am satisfied that the applicant genuinely believed she was transferring to the payroll of the respondent at its request and desire.  I am satisfied she could reasonably have come to this conclusion on the basis of the various discussions she had with Ms Arthur.  I am also satisfied that the applicant did indeed refer in passing to the fact of her employment in a discussion with Mrs Lofts.  Mrs Lofts was unable to recall whether there had been discussions as to a pay increase for the applicant of 75 cents per hour when she undertook additional duties at about the same time.  I am satisfied on balance that the conversation did take place.

I am not satisfied that the respondent had valid reason for the termination of the applicant’s employment. I find that the respondent contravened s170DE(1) of the Industrial Relations Act 1988 in terminating the applicant’s employment.

I turn now to consider the question of remedy.

The applicant contends that an order for reinstatement would be impracticable because she has obtained alternative employment which she prefers, and is now working hours which are suitable to her.  I am of the opinion that an order for reinstatement would be impracticable.

The applicant seeks an order for compensation pursuant to s170EE(2) of the Act in the sum of $13,196.30, an amount calculated net of tax. I turn now to consider this claim. The applicant’s alternative employment commenced on 31 January 1996. Although initially casual, she became a permanent employee in April 1996. In this employment the applicant earns an hourly rate of pay in excess of that paid by the respondent. I accept the submission of the respondent that her earnings are reduced by her own decision to work less hours per week. I am not therefore satisfied that the applicant suffers an ongoing reduction in earnings as a consequence of the unlawful termination of employment by the respondent. The applicant was accorded three weeks notice by the respondent, part of which was made as payment in lieu. The period in which the applicant was not in receipt of wages income was between 12 December 1995 and the date of the commencement of the new employment. This is a period of six weeks. The respondent submits that the applicant’s remuneration at the termination of employment was the sum of $691.20 per week for a 48 and 1/2 hour week, and that this constituted an hourly rate of $14.25. That is a gross amount. I accept that calculation and the submission in this regard. The respondent submits that the maximum amount of compensation available to the applicant is the sum of $4,147.20 representing the lost income in a six week period. For the reasons set out below I agree with this submission.

In assessing compensation I am required to have regard to the actual loss of the applicant.  See in this regard Slifka v. JW Sanders Pty Ltd, North J, unreported, VI 94/2741R, 19 December 1995. That loss may be ongoing in circumstances where an applicant has been unable to obtain alternative employment, and it is appropriate to take such ongoing loss into account in determining the compensation. However in this case the applicant’s substantive losses ceased at the time she obtained alternative employment. This fact, together with the applicant’s preference for her new employment over her old, satisfies me that the applicant’s compensable loss ought be limited to the period in which she was unemployed. That is the order appropriate in all the circumstances to be made pursuant to s170EE(2). The order of the court will be that the respondent pay to the applicant compensation in the sum of $4,147.20. That sum represents the wages lost by the applicant as a consequence of the termination of the employment.

I certify that this and the preceding fourteen (14) pages
are a true copy of the reasons for decision of
Judicial Registrar Parkinson.

Associate:
Dated:: 2 August 1996

APPEARANCES

Counsel appearing for the applicant:  Mr P McDermott
Solicitors for the applicant:  Dunhill Madden Butler

Counsel appearing for the respondent:  Mr A Flower
Solicitors for the respondent:  Davis Ford

Date of hearing:  4 June 1996