Geoffrey Duncan v Taylorgraphic Pty Ltd

[1996] IRCA 20

DECISION NO:   20/96

INDUSTRIAL RELATIONS COURT
OF AUSTRALIA
VICTORIA DISTRICT REGISTRY

VI 3946 of 1995

B E T W E E N :

GEOFFREY DUNCAN
Applicant

AND

TAYLORGRAPHIC PTY LTD
Respondent

Before:           Judicial Registrar Murphy
Place:              Melbourne
Date:              9 February 1996

REASONS FOR JUDGMENT

The central issue in this application for a remedy under Division 3 of Part VIA of the Industrial Relations Act (“the Act”) was whether the alleged deficiencies in the applicant’s conduct and performance were such as to constitute a valid reason, pursuant to section 170DE(1) of the Act, for his dismissal. A related issue was whether the applicant had been afforded an opportunity to respond to the allegations of deficient performance and conduct that gave rise to the termination of his employment.

The applicant’s performance as a sales representative
The respondent is a major distributor of greeting cards and gift wrapping.  The applicant is aged 42 and has worked for a period for one of the respondent’s major competitors in sales representative and sales management positions.  The applicant left the industry for a period and on 10 May 1993 joined the respondent as a sales representative.

He commenced employment on a salary of $26,000 per annum, provision of a company vehicle and commission.  The commission structure in the original agreement was subsequently altered at a date that is not material.  Thenceforth the applicant’s commission entitlements were that he was to be paid $250 in any month in which he achieved a monthly sales budget that had previously been set for him by the respondent’s National Sales Manager in Sydney.  The respondent has a number of sales representatives in Victoria and for each a sales budget was set in each financial year.

After the applicant commenced employment he was allocated a sales territory that extended from the south-eastern suburbs of Melbourne to Lakes Entrance in East Gippsland.  The applicant’s immediate supervisor when he joined was the Victorian State Sales Manager, Mr Murray Sumpter.  Upon joining the respondent the applicant was assisted by Mr Sumpter to familiarise himself with the territory and the duties involved in his position.  After three months the applicant was, in Mr Sumpter’s words, “working to an acceptable level of performance”.

By November 1993 Mr Sumpter reached the conclusion that the applicant’s performance was below the required standard set by the respondent, namely to achieve the monthly sales budgets given to him.  Mr Sumpter also said that at various stages other representatives were also not performing acceptably.  Mr Sumpter counselled the applicant in relation to matters such as “his attitude, his apprehension, and his negativity”.

In the first half of 1994 Mr John Guthrie, the Regional Sales Manager, assumed Mr Sumpter’s duties.  Shortly after that Mr David Giles was appointed National Sales Manager.  The respondent conducted a regular quarterly meeting of its Victorian sales representatives.  At a meeting in around the middle of 1994 Mr Giles indicated to sales representatives that a failure to achieve monthly budgets would result in a note being sent to them.  Budgets for the 1994/5 financial year were circulated in July 1994.  At the time they were circulated Mr Giles indicated to the applicant that “he felt sorry”  for him.  The reason he said that was he believed the applicant “would have a hard job in getting (the budget) because he hadn’t done up to expectation the year before”.  In the 1993/94 financial year the applicant had written 71% of his sales budget, the second lowest performance of the six Victorian sales representatives.  The 1994/95 budget remained the same as the previous year.

In December 1994 Mr Giles wrote to the applicant (Exhibit R8) noting that the respondent must increase its market share in Victoria.  He stated that while the applicant had achieved increases in his sales, over the previous five months certain accounts had slipped back.  Mr Giles described the slipping back as “back-door trickle”.   He emphasised that sales representatives should have been able to increase sales through new outlets, as well as maintaining existing sales levels.  A further matter mentioned in his evidence was that the respondent had been increasing its product range and its prices, so that maintenance of existing sales levels represented a poor performance as far as the respondent was concerned.  Over that five month period the applicant had failed to meet his budget in any month.

On 28th February 1995 Mr Giles again wrote to the applicant (Exhibit R9) pointing out that 47% of the applicant’s accounts were showing a decrease on last year’s actual sales figures.  Mr Giles referred to the fact that the respondent had over that period been  putting new product into the market.  Mr Giles also included in the letter a reference to a circular, under the name of the applicant, advertising porcelain jugs.  He sought a response from the applicant as to whether or not the applicant was conducting another business.  The letter concluded as follows :

“Will you also write and give us your considered opinion regarding the reasons for your below average performance.  Let us know of any problems you may have where we can be of assistance.”

The applicant replied to this letter (Exhibit R10) stating that “I have no excuses for not writing budget although some months I feel my budget is too high.”  The letter detailed some new accounts that the applicant had recently obtained and stated that his overall sales were up $17,000 on last year.  The applicant replied to the query about the circular.  He described it as his hobby and denied it interfered with his work.  The letter concluded by stating that the applicant felt confident with his future and said that he expected to receive a bonus cheque for his efforts in March.

On 3 April 1995 Mr Giles again wrote to the applicant (Exhibit R11) noting that the applicant did not achieve budget in March.  The letter went on :

“In my letter to you dated 28th February 1995. I asked you to give us the reasons for your below average performance and if there were any problems we could be of assistance with.  It would seem from your reply there were none.
Geoff, you have been with Taylorgraphic for almost 2 years, and you are up against your own figures and we look to you for real growth.  Even with all the extra new product Taylorgraphic have obtained your performance is still below average.  Each month each sales representative is set a very realistic budget. Most budgets are surpassed.  Unless you can obtain the budget set for your territory we will be forced to make other arrangements in that area.”

The applicant replied to this letter with a statement that his sales figures for March were up 50% from the previous year.  He went on :

“Without making excuses I feel my budget is too high, when we were given our 1994/5 budgets at the Novotel Hotel last year you said and I quote “the person who I feel sorry for with these budgets is Geoff Duncan” an increase of 41% has not fazed me I have shown an increase on last year by around 13%.”  (punctuation as in original)

The letter concluded with a request for Mr Guthrie to join the applicant on the road for a week to “see if he can pick up on anything I am missing”.

In early May Mr Guthrie accompanied the applicant for a period of three days as the applicant went around his territory.  It was Mr Guthrie’s evidence that the trip confirmed what he had already thought about the applicant.  Mr Guthrie gave evidence that three particular matters were raised with the applicant.  These were his failure to properly liaise with key customer decision makers;  his failure to properly attend to and to sell a particular merchandising concept of the respondent;  and failure to remove old stock from customers stores. 

The applicant accepted that these matters were raised with him during the trip and accepted them as criticisms which he intended to pick up on.  The applicant’s evidence was that he would always accept comments and suggestions from Mr Guthrie and felt that was the purpose of the trip.  At the end of the trip the applicant’s evidence was that Mr Guthrie told him that he would have to “work smarter”.  It was Mr Guthrie’s evidence that he had no further discussion with the applicant in relation to his performance prior to his termination.  Mr Giles’ evidence was that he expected that after the trip Mr Guthrie would raise matters arising out of the trip with the applicant.

After the May trip Mr Guthrie forwarded to Mr Giles two handwritten memoranda  (Exhibit R2) about the applicant.  One of them records that the trip had “confirmed what we already know”.  It went on to state that the applicant “lacks personality and is bland”, “does not pick up customer signals”, “cannot see the big picture”, and “has no report (sic) with anyone”.  The memoranda were not shown to or discussed with the applicant.

On 15 May 1995 Mr Giles again wrote to the applicant (Exhibit R12).  The letter read:-

“Once again looking at the monthly sales figures I see you are behind sales budget for the month of April by $9,066.  Budget figure $31,500, Actual sales $22,434.

Year to date sales budget $287,500.00, Actual Sales $223,517.00 showing a short fall of $63,983.00, 22.25% of your budget, with only 2 months of selling left in this financial year.

Geoff, you must remember 94/95 budget sales figures are the same budget figure as 93/94.  Taylorgraphic’s product range since 92/94 has not only grown in quantity but also in standard.  No one can now say sales budgets are unable to be obtained.  Taylorgraphic’s national sales figures show that budgets have been surpassed in most territories.

Your sales figures show you are not obtaining the best from your territory.  95/96 budgets are now being drawn up, which means a higher sales figure will be needed from your territory.  The sales budgets for 95/96 must be obtained.  So unless you are able to give us a workable plan on how you will be able to obtain next years sales budget, as stated in a letter to you last month we will be making new arrangements for your territory.”

The applicant responded to this letter (Exhibit R13) stating that he expected to meet his budget for May.  His response to the request for his plan to meet his budget in the forthcoming financial year was “by careful planning and maximising every sale, as I currently do”.  The applicant mentioned focusing on the bigger customers and produced a list showing how he had increased sales in a number of major accounts during that financial year. 

In early June the applicant was paid a $250 bonus for exceeding his May budget.  The applicant was strongly pressed as to whether he had in fact exceeded the May budget or whether his sales for May had been achieved as a result of the opening of a new account within his territory.  This was a new customer obtained by the respondent’s head office.  I am satisfied that although technically the applicant exceeded his May sales budget he did so as a result of the new account that had not been included in his original sales budget.

In early July Mr Giles arranged a meeting of all Victorian sales representatives.  They were to be presented with their 1995/6 financial year budgets.  Mr Giles arranged to meet the applicant prior to that meeting. The applicant got wind of the fact that his meeting with Mr Giles was prior to the scheduled meeting and concluded that his employment was to be terminated.  He unsuccessfully tried to contact Mr Giles.  On Monday 10 July 1995 Mr Giles met the applicant at a motel where the sales meeting was to take place later that day.  He handed the applicant a letter (Exhibit R14) which read as follows :

“On reviewing the result of your territory for your 94/95, it is clear you will be giving a sales return of around $65,000 below budget.  This is not a good result.

The sales figures you have written in year 94/95 give me real concern as your territory will have an increased budget sales figure for 95/96 and budgets must be obtained.

Geoff, we asked you last month to give us a workable plan on how you would achieve the 95/96 sales budget, your reply;  “By careful planning and maximising every sale as I currently do”.  Your answer gives me concern as it is clear your planning hasn’t worked for you over the past two years and you give me no reason why it should work for you in 95/96.

It is clear by your sales result over the past two years you are unable to obtain the sales result Taylorgraphic requires from you and your territory.  I am now left with no other option than to inform you of the termination of your employment with Taylorgraphic Pty Ltd which takes effect as from the date of this letter.”

The applicant was paid his outstanding entitlements including four weeks pay in lieu of notice.

What were the reasons for the termination ?
Mr Guthrie’s evidence was at the beginning of 1995 he formed the view that for the long term “I couldn’t see where we were going to get any growth out of (the applicant)”.  At some stage during that period Mr Guthrie recommended to a director of the respondent, and possibly Mr Giles, that the applicant’s services be terminated.  Mr Guthrie did not advise the applicant of this recommendation.  His evidence was that he had been targeting the applicant for assistance because he was concerned that “we were not getting a lot of dollars from that territory”.  On the other hand Mr Guthrie also said that if things got better “we would keep him on”.

The respondent’s position in relation to the applicant was essentially crystallised in the last sentence of Exhibit R11 above.  When asked how he came to the decision to terminate the applicant’s employment Mr Giles said :

“It was a series of events and I guess that this was the last event (the trip and memo from Mr Guthrie) that .... confirmed to me that we had to take action.  After all, when you look at the circumstance, it had gone on for a long time and there comes a time when we have to bring something to a close.”

Counsel for the respondent’s submission was that essentially the applicant’s services were terminated because he failed to meet the sales budget set for him.  He was terminated because of the failure in his performance.  It was submitted that the applicant had been on notice that his performance was in issue for months, culminating in an explicit statement in the letter to the applicant dated 3 April (Exhibit R11).  In unchallenged evidence Mr Sumpter indicated that at one stage the applicant had told him that his job was on the line.  The applicant also gave evidence that after he received the letters from Mr Giles dated 3 April (Exhibit R11) and 15 May (Exhibit R12) he read them as a threat that his services may have been terminated.  The applicant maintained however that as a result of his achieving budget in May 1995 he believed that he had a “breather” until the coming financial year.

Counsel for the applicant sought to argue that there were factors other than the matters referred to in the correspondence between the parties that were the reason for the termination.  In particular, it was argued that the applicant was singled out among all the other sales representatives and/or there was some animosity against the applicant by Mr Giles. 

The allegations were denied by Mr Giles.  He admitted that during the early part of 1995 the applicant’s year to date performance against budget was the fourth lowest of thirteen representatives.  He maintained however that he had sent letters regarding performance to other representatives.  Mr Giles further said that the applicant had been targeted to increase the performance of his territory and not on any arbitrary basis. 

Mr Giles said that the decision to terminate the applicant was for the reasons set out in the termination letter (Exhibit R14).  He said that the applicant had not been achieving the sales that the respondent expected from the territory.  He did not see any potential for growth from the applicant.  The applicant in his reply to the request for a plan to achieve budget  for the forthcoming year had confirmed to him that the approach of the applicant in the past was not working and that the matter had to be brought to a close.

The Court accepts the evidence of the respondent that it had a valid reason to terminate the applicant’s employment. The applicant had only achieved his budget in one month out of twenty-four months. In that particular month the budget had been achieved as a result of crediting to him sales of a customer that was not in the original territory when the budget was set. In the 93/94 financial year the applicant had achieved 71% of his budget, and in the 94/95 financial year, 80% of his budget. The respondent had in its letters of 3rd April and 15 May (Exhibits R11 and R12) effectively required the applicant to increase his performance. The respondent had also offered the applicant the assistance of the trip with Mr Guthrie in May. The failure of the applicant to both substantially increase his performance (he achieved 76% of budget in June) as well as his failure to provide what Mr Giles saw as an acceptable proposal to address the previous failures, meant that the respondent had a sound reason to dispense with the applicant’s services. The respondent has discharged its onus of proof and has not breached section 170DE(1) of the Act.

Procedural unfairness
Before terminating the applicant’s employment the respondent was required to comply with the provisions of section 170DC(a) of the Act. It is clear that the applicant was terminated for reasons related to his “conduct or performance”.  In the recent decision Byrne v Australian Airlines Ltd (1995) 131 ALR 422, the High Court has indicated that procedural unfairness is also related to whether or not a termination is “harsh, unjust or unreasonable”.

Here it was argued that the respondent accorded the applicant an adequate opportunity to respond to the allegations of conduct or performance that were putting his position in jeopardy.  It was uncontested however that there was no discussion between Mr Giles (or Mr Guthrie) and the applicant in relation to his conduct or performance between 15 May 1995 and 10 July 1995, the date of his dismissal.  Mr Giles’ evidence was that he had expected that Mr Guthrie would discuss the matters arising out of the trip with the applicant, but the latter acknowledged that while the trip confirmed his earlier recommendation to dismiss the applicant, he didn’t say anything to the applicant about losing his job.

The two events that occurred after the letter to the applicant of 15 May and his dismissal on 10 July were the applicant’s reply outlining his plan for the next financial year (Exhibit R13), and the applicant’s budget performance in May and June.  The applicant, as indicated, achieved his budget in May because of the new national customer, but only achieved 76% of his budget in June.  For the whole financial year he, as indicated in Mr Giles’ letter of termination (Exhibit R14), came in $65,000 below budget. 

The way the respondent dealt with the applicant effectively denied the applicant any opportunity, close to or at the time of his dismissal, to give any explanation in relation to his overall performance, to defend his plans for the forthcoming financial year and to comment on the adverse conclusions reached by Mr Guthrie after the trip in early May.

While decisions such as Selvachandran v Peteron Plastics Pty Ltd  (Industrial Relations Court of Australia, Northrop J, 7 July 1995),  Gibson v Bosmac Pty Ltd (1995) 130 ALR 245, and Nicolson v Heaven & Earth Gallery Pty Ltd (1994) 1 IRCR 199, indicate that the requirements of s170DC are informal but substantive, the significant time gap between the last communication relating to performance between the applicant and the respondent, and the actual date of termination, operated unfairly, and breached s170DC of the Act.

In Saliba v Cold Seas Pty Ltd (Industrial Relations Court of Australia, Moore J, 7 November 1995), a case dealing with the dismissal of a salesman on the grounds of lack of performance, the Court said : 

“However, the evidence does not disclose that the difficulties he was having were raised with him at, or at some point reasonably close to, the time of his termination so as to enable him to explain to the employer his account of why it was his duties as a salesman were not being performed to the entire satisfaction of the employer.”

In Perrin v Des Taylor Pty Ltd (Industrial Relations Court of Australia, Moore J, 10 March 1995) the Court said this about s170DC of the Act :

“Its purpose is at least twofold.  It is to give the employee the opportunity to demonstrate that the allegations have no foundation in fact or they should not be viewed as reflecting on the employee’s capacity.  In the present case, the applicant may have been able to show that the complaints about slow delivery of parts had no factual foundation or that there was an explanation for their slow delivery that did not relate to any want of effort on his behalf.

A second purpose of s170DC is that an employee with whom an allegation has been raised may be able to persuade the employer that, while the allegation is of substance, there are factors that should persuade the employer not to terminate the employment.  They may be extenuating personal circumstances or they may involve undertakings about future conduct.”

It was common ground that Mr Giles took no action to ascertain whether the applicant had taken any action to improve his performance as a result of the trip with Mr Guthrie in May.  It was also common ground that Mr Guthrie at no stage during the May trip or subsequently, discussed with the applicant the fact that his employment may be terminated, or that the conclusions Mr Guthrie came to after the trip were to be relevant to his future.

As a matter of fairness to the applicant it would not have been difficult for Mr Giles to put squarely to the applicant the unsatisfactory nature of his response to a request for a plan for the coming financial year.  He could have raised the “technical” achievement of budget in May and his failure to achieve budget in June, as well as his overall general failure to meet budget in the previous two years.  He could have raised the conclusions of Mr Guthrie in Exhibit R2. Mr Giles could have asked for a response to all these matters before he was dismissed.

These are what the requirements of “a fair go” Nicolson (above, at 210) required in the circumstances. The Court is satisfied that the respondent has not met its obligations under s170DC of the Act.

Was the termination in breach of s170DE(2) ?
In view of my finding that the respondent has breached s170DC of the Act it is strictly unnecessary for the Court to reach any conclusion on the question as to whether the termination was in breach of s170DE(2) of the Act. The aspects of procedural unfairness discussed above lead to the conclusion, however, that the termination breached s170DE(2). While the applicant’s failure to perform made the termination decision reasonable, the failure to accord a modicum of procedural fairness at a time reasonably close to the dismissal made it harsh or unfair. The applicant has discharged his onus of proof that the termination breached s170DE(2) of the Act.

Remedy
The failure of the respondent to meet the requirements of s170DC of the Act means that the Court must now consider the application for a remedy under s170EE. It was common ground that reinstatement was impracticable. The applicant, through his Counsel, sought the maximum compensation available of six months remuneration. In Nicolson (above, at 212) the Court indicated that in assessing compensation for breach of the Act, the Court must take into account what would have been likely to occur had the breach not occurred. At 213 Wilcox CJ said :

“If I had reached the question of compensation, I would have assessed it on the basis that the procedural irregularity deprived (the applicant) of a chance of retaining his employment.”

I accept the submission of Counsel for the respondent that irrespective of the breach of the Act, the applicant’s employment with the respondent would not have long endured. He had lost the confidence of both Mr Guthrie and Mr Giles. At best, had he been accorded procedural fairness around the time when he was actually dismissed, he may have been able to persuade Mr Giles to keep him in employment for a short period. The Court is satisfied that that period would not have been more than one month. At the end of that time the Court is satisfied that the applicant would have voluntarily left the respondent or been lawfully terminated. It is possible, but most unlikely, that his performance would have so improved that he remained employed.

At the date of his dismissal the applicant was earning $519.25 per week gross.   In addition the applicant had the use of a motor vehicle that he said was worth $56.00 per week to him.  The applicant would have been unlikely to have earned any commission.  The applicant’s financial loss, for the one month period that his employment is likely to have continued, therefore totals approximately $2,500.00.

There was much argument and evidence about the applicant’s hobby of collecting and, from time to time, selling porcelain jugs.  It was asserted that this hobby was, in fact, a part-time business.  The Court accepts the applicant’s evidence on this point, and finds that it was essentially a hobby.  The applicant has attempted to mitigate his losses by applying for other positions, but has been unsuccessful. 

Effect of the Industrial Relations and Other Legislation Amendment Act 1995
The amendments to s170EE of the Act effected by the Industrial Relations and Other Legislation Amendment Act 1995 apply to these proceedings. The amendments to s170DE of the Act by the above Act do not.

The amendments made to s170EE arguably confer a wider discretion on the Court in relation to remedy. The nature of the discretion in the original provision was discussed in Liddell v Lembke (1994) 127 ALR 342. Whatever may be the effect of the change, the discretion must still be exercised within the scope and purpose of the Act.

In this proceeding I have found that the respondent breached ss170DC and 170DE(2) of the Act. I have also found that it was likely that the employment would, but for the breach of s170DC, have terminated within one month. I have also found that the financial loss to the applicant consequent upon the above breach of s170DC was $2,500.00.

Having found a breach of the Act and consequent financial loss I am not satisfied that there are any discretionary reasons why the applicant should be denied a remedy that reflects what I have found to be his financial loss. I therefore propose to order that the respondent pay to the applicant the sum of $2,500.00 in compensation.

MINUTES OF ORDERS

THE COURT ORDERS:

1. That the respondent, within 21 days, pay to the applicant the sum of $2,500.00 in compensation.

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 seventeen (17) pages are a true copy of the reasons for judgment of Judicial Registrar Murphy.

Associate:                   
Dated:  9 February 1996

Solicitors for the Applicant:               Ryan Carlisle Thomas
Counsel for the Applicant:                 Ms Jane Patrick

Solicitors for the Respondent:                      Mr Peter Tillman
Counsel for the Respondent:             Mr J B Richards

Dates of hearing:  15 December 1995 and 15 January 1996
Date of judgment:  9 February 1996

C A T C H W O R D S

INDUSTRIAL LAW - UNFAIR TERMINATION - sales representative failing to meet budgets - whether VALID REASON for dismissal - failure to raise matters of CONDUCT AND PERFORMANCE close to time of dismissal - whether PROCEDURAL FAIRNESS accorded - HARSH, UNJUST OR UNREASONABLE TERMINATION - relevance of amending legislation to REMEDY.

Industrial Relations Act 1988 ss.170DC, 170DE, 170EE.

CASES:Byrne v Australian Airlines Ltd (1995) 131 ALR 422

Selvachandran v Peteron Plastics Pty Ltd (Industrial Relations Court of Australia, Northrop J, 7 July 1995)

Nicolson v Heaven & Earth Gallery Pty Ltd (1994) 1 IRCR 199

Saliba v Cold Seas Pty Ltd (Industrial Relations Court of Australia, Moore J, 7 November 1995)

Perrin v Des Taylor Pty Ltd (Industrial Relations Court of Australia, Moore J, 10 March 1995)

Liddell v Lembke (1994) 127 ALR 342

Gibson v Bosmac Pty Ltd (1995) 130 ALR 245

GEOFFREY DUNCAN -v- TAYLORGRAPHIC PTY LTD

No. VI 3946 of 1995

Before:  Judicial Registrar Murphy
Place:  Melbourne
Date:  9 February 1996

INDUSTRIAL RELATIONS COURT
OF AUSTRALIA
VICTORIA DISTRICT REGISTRY

VI 3946 of 1995

B E T W E E N :

GEOFFREY DUNCAN
Applicant

AND

TAYLORGRAPHIC PTY LTD
Respondent

MINUTES OF ORDERS

Judicial Registrar Murphy     9 February 1996

THE COURT ORDERS:

1. That the respondent, within 21 days, pay to the applicant the sum of $2,500.00 in compensation.

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