Fargie v Freedom Foods (Aust) Pty Ltd

[1996] IRCA 498

DECISION NO: 498/96

IN THE INDUSTRIAL RELATIONS COURT
OF AUSTRALIA
VICTORIA DISTRICT REGISTRY

VI 6235 of 1995

B E T W E E N:

Charles FARGIE
Applicant

A N D

FREEDOM FOODS (AUST) PTY LTD
Respondent

REASONS FOR DECISION

14  October  1996  PARKINSON JR

This is a decision in relation to an application made pursuant to Section 170EA of the Industrial Relations Act 1988. The applicant was employed by the respondent as a storeman and driver on 1 July 1991 and the employment terminated on 12 December 1995 as a result of allegations made as to unauthorised stock removal. The respondent’s business is the packaging and supply of health food and related products to retail outlets. I turn now to set out the background to this matter and my findings as to the evidence.

The applicant’s duties were to select and fill orders according to invoice and to make deliveries of orders.  The respondent conducted a stock management system which resulted in all goods being selected according to an invoice system.  The process also required accounting for stock movements internally and externally to the premises.  The respondents system was computerised.  Not all stock movements were the subject of a generated paper invoice, although electronic records were generated in respect of all transactions.  Evidence was given by Ms Oliver, the accounts officer of the respondent, as to the procedure to be applied to staff sales and purchases.  This procedure required that any staff purchase be notified to the accounts department and entered upon the computer.  Such purchases were usually cash sales.  In the event that there was no person in the accounts area, the usual course was for a note to be made and left in the department, accounting for the product selected by the staff member.

As a consequence of a change of ownership of the respondent’s business, alterations were made to the stock control methods.  These alterations involved a more stringent attention to the protocols required.  The evidence of Mr Fraser and  Mr Clark and Ms Oliver was that the staff were advised that there was a concern about stock handling and recording and that they were informed on numerous occasions that the failure to comply with the stock control methods was a serious matter and would have consequences of instant dismissal for any person detected.  I accept this evidence.  Mr Fraser and Mr Clark observed the applicant removing stock from the premises and their evidence which was confirmed by the applicant was that no invoice accompanied the selections.  It was Mr Fraser who reported the stock removal to Mr Woods, on that same Friday evening. Mr Fraser, who was a workmate and described himself as a friend of the applicant, was subpoenaed to give evidence in these proceedings.  It is appropriate to note that he was clearly distressed in relation to the matter and he is to be commended for his integrity and conduct in relation to these proceedings. 

The applicant’s evidence is that on Friday 8 December 1995 at approximately 3:00pm he was handed a letter from Mr Woods, the General Manager of the respondent, accepting his resignation.  His evidence is that discussions had been ongoing as to a pay rise and in the course of those discussions he had written a letter to the respondent confirming that he had an offer of alternative employment and seeking a pay rise from the respondent to induce him to remain in the respondent’s employ.  There was no explanation by the respondent as to the reason why Mr Woods elected to treat the applicant as having resigned his employment.  The letter seeking the initial pay rise was provided at the request of Mr Woods and does not either expressly or impliedly purport to resign the employment.  I can only conclude that the respondent’s response was a crude attempt to forestall the applicant seeking any further pay rises. 

The applicant’s evidence, which I accept was that he was distressed as a consequence of the actions of the respondent in purporting to accept his resignation.  He made various attempts to discuss the matter with Mr Woods.  None of these attempts during working hours were successful, although he did speak to Mr Woods briefly on the latter’s mobile telephone, who advised that he did not have time to discuss the matter and would discuss it on Monday.  The applicant was thus left in the uncertain position of not knowing what his ongoing employment situation was with the respondent. 

The applicant’s evidence is that subsequent to speaking to Mr Woods and being told that it would wait until Monday, he collected some orders he was to deliver on his way home, together with a number of items for personal purchase and left the premises.  His evidence is that he had created a list of the personal items, however he did not leave the list with the accounts department and nor did he advise any person in accounts or in the warehouse of the nature and number of the items he had taken on personal account. 

The applicant says that the distress he was feeling as a consequence of the respondent’s conduct resulted in his omitting to follow the usual course for cash sales of recording the items. I accept that this is the case, however it is necessary to determine whether such an explanation is a reasonable one in the circumstances.  In this case the applicant failed to follow the stock control procedures which I am satisfied were well known to the employees of the respondent and ought to have been known to the applicant.  I am not satisfied that the applicant in his conduct acted with malice or in any way intentionally.  The question is whether if the conduct was not malicious or intentional, could it found valid reason for the termination of the employment. 

In this case I am satisfied that there were two aspects to the reason for the termination of the employment.  The first was a belief in the respondent that the applicant had intentionally taken the goods and had no intention to make payment for the items.  The second is that he had failed to comply with the respondents clear and specific stock control methods, by removing items of stock for personal use without authority or completing the appropriate steps. 

I am satisfied that the applicant failed to comply with the stock control measures and that on returning to work on Monday took no steps to obtain an invoice or to make payment on the goods.  The evidence of the applicant is that he forgot.  The evidence of the respondent is that it is for precisely that reason that such stringent stock control and accounting methods have been implemented.  Whilst I accept the applicant’s explanation for the conduct, and am not satisfied on an application of the Briginshaw standard that he was dishonest and had no intention to make payment or account for the items, nevertheless, the failure of the applicant to comply with the stock control requirements of the respondent by removing product from the premises, for personal use, provides the respondent with a valid reason for the termination of the employment.

Transactions which involve the personal benefit of the employee, or at least transactions in which the employee has a personal interest, require the utmost of discretion and probity on the part of an employee.  It is for the employee to ensure that in accepting the benefit of staff purchases at the discount price offered, that there is compliance with the reporting requirements of the respondent.  Notwithstanding the applicant being upset at the time, the actual selecting of the goods by him was, I am satisfied, a calculated act and done by reference to a list.  I am satisfied that having regard to the method with which the applicant obtained the goods, it was therefore reasonable in the circumstances to expect that the applicant would comply with the stock reporting requirements and this he did not do. 

At the time of the decision to terminate the employment the respondent had information from other employees which provided it with sufficient reason to be concerned.  As it eventuated the applicant agreed that he had taken the items without invoice and without noting them to the respondent.  This is not a case where the fact of the conduct complained of occurring has not been established by the respondent. 

There was significant amount of evidence called on behalf of the applicant and cross-examined upon, as to the conduct of other persons and the deficiencies of the respondent’s system.  This evidence was relied upon as accounting for, explaining or mitigating the applicant’s own failures.  In my view it is not sufficient explanation for an employee to point to deficiencies in the stock control system, such deficiencies in no way explain or mitigate the conduct of the applicant.  As to the conduct of others of similar nature, if such conduct is not the subject of tacit or explicit acceptance or endorsement by the respondent it is of no assistance to the applicant.  I am not satisfied that there was tacit or explicit acceptance of improper stock control or stock movement by the respondent. 

For the reasons set out above I am satisfied that the respondent had valid reason for the termination of the applicant’s employment.  I have considered the written submissions of the parties as to the recent High Court Decision in State of Victoria v Commonwealth of Australia (1996) 138 ALR 129. Counsel for the applicant in written submissions filed in accordance with my direction, submitted that the decision does not affect the proper interpretation of s170DE(1) as requiring that for the reason for termination to be “valid” it must be sound defensible and well founded.  The written submission also contended that the phrase “valid reason” ought be read expansively so as to contemplate a consideration of the impact of the decision to terminate upon the employee. I accept that s170DE(1) is to be construed in the context of and with regard to the relevant conventions on which it is founded. I accept the submission that for a reason to be valid it must not be capricious. In my view a further aspect is that the conduct complained of and alleged against the applicant ought be true. In this case the conduct complained of was the unauthorised removal of stock, contrary to the policy and procedures of the respondent, such policy and procedures being in the knowledge of the applicant. The result is that whilst the assumptions of the respondent in attributing criminal conduct to the applicant were wrong, the fundamental issue in this proceeding is that the conduct complained of was the unauthorised act and the respondent has established the fact of that conduct. In my view this is an interpretation consistent with the approach which has been taken to s170DE(1). In this regard I refer to the decision of Northrop J in Selvachandran v Peteron Plastics Pty Ltd (1995) 62 IR 371. It is also consistent with the approach of Lee J. in Nettlefold v Kym Smoker Pty Ltd (unreported, IRCA, Lee J, 4 October 1996)
 where in considering the meaning of the term “valid reason” his Honour said :

(at page 6),

“Neither counsel made any submissions on the question whether the phrase "valid reason" used in sub-s170DE(1) of the Act imposed a requirement that in all the circumstances a termination of employment at the initiative of an employer not be unjust or unfair. The terms of the Act suggest that such a construction is arguable. Section 170CA of the Act states that the object of Div 3 of Pt VIA is to give further effect to the Termination of Employment Convention ("the Convention") the text of which is set out in Schedule 10 of the Act.  Art 8 of the Convention requires a contracting party to the Convention to ensure that a worker who has been dismissed is entitled to challenge that dismissal in an appropriate tribunal if the worker considers that his or her "employment has been unjustifiably terminated" and pursuant to Art 9 of the Convention that tribunal is to be empowered "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".

The following remarks of Northrop J in Selvachandran v Peteron Plastics Pty Ltd (1996) 62 IR 371 at 373 on the meaning of the expression "valid reason" are pertinent:

"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."

As LD Denning stated in Woods v W M Car Services (Peterborough) Ltd [1982] ICR 693 it is an implied term of an employment contract that an employer be "good and considerate" to its employees.

By giving effect to the Convention the Act seeks to establish a balance between the right of an employer to duly manage an enterprise in which labour is employed and the right of an employee, and of the community, not to have the asset represented by the capacity of employees who provide such labour, whether skilled or unskilled, depreciated by incompetent or capricious management of labour by an employer. ”

I am also inclined to the view that for a reason to be relied upon for terminating a persons employment, there must be a proportion between the matter relied upon and the penalty of termination imposed. Where termination of employment is a penalty so ought of proportion in response to the conduct complained of, such a termination of employment is unlikely to be for valid reason. To this extent at least the section contemplates those matters which were formerly the subject of expression in s170DE(2) of the Act.

I am not satisfied that in this case, save for the usual but unfortunate affects upon the applicant of the loss of the employment, that there are any factors which would militate against the respondent having a valid reason for the termination of the applicant’s employment. I am also satisfied, having regard to the seriousness to the operation of any business of their stock control methods, the warnings in the course of the employment as to the respondents’ concerns and the possible consequences for breach of stock handling policy, that the penalty imposed was not disproportionate. I am satisfied that the respondent had a valid reason for the termination of the applicant’s employment, which reason was based upon the applicant’s conduct and consequently there has been no contravention of s170DE(1) of the Act.

I turn now to consider the matters arising from the operation of s170DC of the Act. The applicant was first interviewed at approximately 9.00am. In the course of that interview the complaint of the respondent as to the particular incident of stock removal and the particular items involved was put to the applicant and whilst not expressly stated, although clearly implicit from the nature of the discussions which were held, it was put that the respondent took the view that the applicant had breached those procedures and had improperly removed stock. The applicant had an opportunity to explain the conduct and to put to the respondent any matters or reasons which would have caused such an omission. The only matter that was raised by the applicant was that he forgot and that he intended to pay for the goods. The applicant left that interview and was called back by Mr Woods to attend a meeting with Mr Woods and Mr Heir, the Managing Director. At that second meeting the applicant was informed that his employment was terminated as a consequence of the stock issue. The applicant was questioned as to why he had not complied with stock control procedures. The applicant’s evidence is that he was then told his employment was terminated because of the removal of the stock. His evidence is that he was told by Mr Heir that he had 15 minutes to leave or the police would be called and he would be charged with theft. The evidence of Mr Woods confirms that this was the case. I am satisfied that the applicant was given adequate opportunity to explain his conduct and to respond to the allegations made as to his conduct in relation to the stock. Two interviews took place. Section 170DC does not require a consideration of the same matters which arise in s170DE(1) and which I have discussed earlier. It requires a consideration of whether the opportunity given to the applicant to respond to the allegations against him was adequate. In this regard I refer to the decisions of Wilcox CJ in Nicholson v Heaven and Earth Galleries (1994) 57 IR 50 and Gibson v Bosmac Pty Ltd (1995) 60 IR 1.

I am satisfied that the matters of concern to the respondent, in particular his failure to comply with the stock control procedures and his failure to invoice or pay for the items of stock were put to the applicant and that he had adequate opportunity to respond to these matters. I am not satisfied that there has been a failure to comply with s170DC of the Act.

Section 170DB - Minimum Notice Provisions.
It is clear that the respondent has failed to make the minimum notice payment provided for by s170DB of the Act. I have earlier found that I am not satisfied the applicant was guilty of gross misconduct of the type which would result in it being unreasonable to continue the employment during the notice period. Consequently the applicant was entitled to the notice period provided in s170DB of the Act being a period of 3 weeks. He is entitled to damages for the failure to pay that amount or to accord the notice period. This Order is for an amount in damages, such amount being ordered after the cessation of the employment relationship. The damages are payable as a gross amount, which I have assessed at $1,749.00. The applicant is responsible for any taxation liability and any other statutory liabilities which may exist.

I certify that this and the preceding nine (9) pages
are a true copy of the reasons for decision of
Judicial Registrar Parkinson.

Associate      :          Paul Ferguson
Dated             :          14  October  1996

APPEARANCES

Counsel appearing for the applicant        :          Mr. M. Perica
Solicitors for the applicant  :          Slater & Gordon

Counsel appearing for the respondent     :          Mr. A.E. Dix

Solicitors for the respondent  :          Victorian Employer’s Chamber
  of Commerce & Industry

Dates of hearing  :          9 & 10  September  1996

IN THE INDUSTRIAL RELATIONS COURT
OF AUSTRALIA
VICTORIA DISTRICT REGISTRY

VI 6235 of 1995

B E T W E E N:

Charles FARGIE
Applicant

A N D

FREEDOM FOODS (AUST) PTY LTD
Respondent

MINUTES OF ORDERS

14  October  1996  PARKINSON JR

THE COURT ORDERS THAT:

1.Pursuant to Subsection 170EE(5) of the Industrial Relations Act 1988 the respondent pay to the applicant damages in the sum of $1749.00.

2.The application pursuant to Section 170EA of the Industrial Relations Act 1988 be otherwise dismissed.

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

CATCHWORDS

INDUSTRIAL LAW - complaint of UNLAWFUL TERMINATION -
whether applicant guilty of SERIOUS MISCONDUCT - whether VALID REASON - whether applicant failed to comply with stock control procedures -

Industrial Relations Act 1988, ss170DB, 170DC, 170DE(1), 170DE(2), 170CA, 170EA

Gibson  v Bosmac Pty Ltd (1995) 60 IR 1
Nettlefold v Kym Smoker Pty Ltd (unreported, IRCA, Lee J, 4 October 1996)
Nicholson v Heaven & Earth Galleries (1994) 57 IR 50
Selvachandran v Peteron Plastics Pty Ltd (1995) 62 IR 371
State of Victoria v Commonwealth of Australia (1996) 138 ALR 129
Woods v W M Car Services (Peterborough) Ltd [1982] ICR 693

FARGIE v FREEDOM FOODS (AUST) PTY LTD
VI 6235 of 1995

Before:  PARKINSON JR
Place:  MELBOURNE
Date:  14  October  1996