Gibbs v The Mayor, Councillors and Citizens of City of Altona

[1992] FCA 374

Re: F.W. HERCUS PTY. LTD.
And: ANDREW JOHN SHORT
No. S I5 of 1991
FED No. 374
Industrial Law

COURT

IN THE FEDERAL COURT OF AUSTRALIA

SOUTH AUSTRALIA DISTRICT REGISTRY
INDUSTRIAL DIVISION
O'Loughlin J.(1)

CATCHWORDS

Industrial Law - redundancy - Metal Industry Award 1984 - Part II - Draughtsmen, Production Planners and Technical Officers - dismissal due to financial circumstances beyond the control of the employer - whether the employee is thereby entitled to severance pay - proper interpretation of relevant clause.

HEARING

ADELAIDE

#DATE 29:5:1992

Counsel for the Respondent : Mr P.J. Day

Solicitors for the Respondent: Mellor Olsson

(A director of the appellant, Mr P. F. Hercus made submissions on behalf of the appellant).

ORDER

THE COURT ORDERS THAT:

1. The appeal be allowed.

2. The order of the learned Industrial Magistrate be set aside.

3. The application of the respondent be dismissed.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

The issue for determination in this appeal is whether the respondent was entitled to redundancy pay when he lost his job. He had been employed as a draughtsman by the appellant for 4 years or more when his employment was terminated in late 1990 as a result of a down-turn in work. It was agreed that termination had resulted solely from economic circumstances that were beyond the control of the appellant. If the respondent was thereby entitled to redundancy compensation, it would be because clause 31 of the Metal Industry Award 1984 - Part II - Draughtsmen, Production Planners and Technical Officers ("the Award") applied to his circumstances.

1. In the Court below, the learned Industrial Magistrate found in favour of the respondent and calculated his entitlement at $3,376. The application of clause 31 had been disputed but there had been no dispute over the figure of $3,376 or the manner in which it had been calculated.

2. The Magistrate found that at the time of his dismissal the respondent was one of three draughtsmen employed by the appellant and that his position had not been filled after termination; instead the remaining two draughtsmen had thereafter attended to all drafting work. Her Honour also found that:
   

"The termination was not associated with any technologicalchange. The applicant was terminated at about the same time as various other employees in various sections of the respondent's workplace who were also terminated because there was a downturn of trade. Due to a reduction in orders the whole enterprise operated at a reduced level of output."

1. An employee's entitlement to redundancy or severance pay is referred to in clause 31(c) of the Award in these terms::
   

"... an employee whose employment is terminated for the reasons set out in paragraph 31(a)(i) hereof shall be entitled to the following amount of severance pay..."

1. Thus any entitlement must flow from the presence of the reasons that are set out in the earlier paragraph and not otherwise. In fact, as a reading of paragraph 31(a)(i) shows, there is only one reason referred to in that provision; it states:
   "Where an employer has made a definite decision that
   

the employer no longer wishes the job the employee has been doing done by anyone and this is not due to the ordinary and customary turnover of labour and that decision may lead to termination of employment, the employer shall hold discussions with the employees directly affected and with their union."

1. The appellant advanced two arguments on appeal. First, it said that the concept of redundancy only arises as a result of a free choice made by an employer; where, as here, the decision to terminate was forced upon the employer because of the state of the economy, it could not be said, so the argument proceeded, that "the employer no longer wishes the job the employee has been doing done by anyone....". Secondly, it argued that the termination of the respondent's employment was, in any case, "due to the ordinary and customary turnover of labour".

2. I do not believe that there is any substance in the second argument. Its basic proposition is that a study of economic history reveals a pattern of peaks and troughs - of good times and bad times - of prosperity and recession. Thus, when it became necessary to terminate the respondent's employment, it was, according to the appellant's argument, because of the cyclical nature of the economy - because the country was currently experiencing a recession. According to the appellant, people loose their jobs during a recession and gain employment when prosperity returns; in other words, the termination of the respondent's employment as a result of the recession was an example of "the ordinary and customary turnover of labour". I am confident that the phrase "the ordinary and customary turnover of labour" does not apply and was never intended to apply to such broad and extended economic circumstances. In my opinion, the phrase is intended to cover such employees as seasonal workers or those who, by virtue of the industry in which they work, know that their employment is intended to be of limited duration; sections of the building industry may, for example, fall into this category.

3. In the supplementary Termination, Change and Redundancy case (1984) 9 IR 115, ("the supplementary TCR case") the Commission said, when speaking of its primary decision, that "it was not our intention that the redundancy provisions should apply to the 'ordinary and customary turnover of labour'..." (p 128). The Commission went on to say:
   

"... (W)e have some difficulty in finding a suitable expression to make our intention clear. There is no doubt that we did not intend the redundancy provisions to apply where an employee is dismissed for reasons relating to his/her performance, or where termination is due to a normal feature of a business."

1. In my opinion it would be fanciful to categorise a recession as a "normal feature of a business".

2. In the Orford and Bundaberg Foundry decisions (Prints J8518 and J8542) Commissioner Cox had to consider whether the circumstances of dismissal in each of those cases amounted to the "ordinary and customary turnover of labour". In each case it was acknowledged that the reason for dismissal was shortage of work, but in each case it was submitted on behalf of the employer that termination was occasioned by recurring factors that were normal features of the employer's business. On facts that were stronger and more favourable to the employer than those in the present case, Commissioner Cox rejected that argument. Both those decisions related to clause 42(A)(i) of the Metal Industry Award 1984 - Part 1 but the terms of that clause are the same as those contained in clause 31 of the Award. In each case the decision of the Commissioner had followed the making of an application by the Metal and Engineering Workers' Union to vary the Metal Industry Award - Part 1 pursuant to s.113 of the Industrial Relations Act 1988; each application sought the insertion into that last mentioned award of a special clause that would grant the relevant employee an amount of severance pay. In coming to his decisions that each employee should, in each case, receive the benefit of a severance payment Commissioner Cox relied in part on the remarks of the Commission in the supplementary TCR case to which I have already referred.

3. It is, in my opinion, quite clear that the circumstances that governed the respondent's retrenchment do not constitute an example of "ordinary and customary turnover of labour" and it is equally clear that the provisions of clause 31 of the Award were never intended to have such a wide application. I move therefore to a consideration of the appellant's primary argument.

4. In concluding that the respondent was prima facie entitled to a redundancy payment the learned Magistrate said:-
   

"In my view the word 'job' in this context does not refer to the general category or class of work performed by the applicant but is directed to the particular duties required of the applicant in accordance with his own particular contract of employment. When the definition refers to the 'job' not being done by 'anyone' it contemplates circumstances where the employee's function is still being performed but the specific job or position of the employee is no longer required to be done by anyone."

1. I agree with the first sentence but I must say, with respect, that I have difficulty in accepting the adequacy of the second sentence. It concerns me that the learned Magistrate did not then, nor elsewhere in her reasons, attach any significance to the presence in paragraph 31(a)(i) of the word "wishes" and the context in which that word appears. It seems to me that, unaided by authority or precedent, a neutral reading of the paragraph emphasises that it relates to those cases where, an employer has made a final commitment (that is, a definite decision) as a consequence of the personal wish of the employer. The use of the word "wishes" strongly suggests that one is required to assess subjectively those favourable circumstances that motivated the employer and caused him to make a "definite decision". Thus, if the circumstances that led to the making of the "definite decision" were unfavourable, one would not expect to see the word "wishes" used. If the Award had intended to ignore the personal wishes of the employer it would have been a simple matter to insert a provision such as:
   

"Where an employer has made a definite decision that the employer no longer has a need for the job the employee has been doing to be done by anyone else..."

1. These words would remove any need to make an assessment of the subjective wishes of the employer. They would merely call for an objective inquiry; if it transpired that there had been a loss of regular employment through no fault of the employee there would be a prima facie entitlement to a compensatory payment irrespective of the cause of the redundancy.

2. It is now accepted that technological change that has been implemented by an employer with consequential job losses is a classic example of a situation that justifies redundancy payments. Another equally well known example is the merger of two business houses: takeovers and corporate reorganization can also fall into this category. Yet another example is a deliberate decision to close down a production line or a section of a factory, not because of adverse economic circumstances or a downturn in the economy, but because the employer can gain economically from the closure. In each of these cases the "wish" of the employer stands in the forefront and is closely associated with his "definite decision".

3. But I find it very difficult to apply such a rationalization to the facts of this case and the language of the Award. I cannot readily see that it was the "wish" of the appellant that the respondent's job would no longer be done by anyone. Rather, I see the loss of the respondent's job as a consequence that both the employer and the employee have been forced to suffer because of outside economic forces. Unfortunately, the learned Magistrate did not address this important issue in her reasons.

4. It is apparent that the language of clause 31(a)(i) derives from the judgment of Bray C.J. in The Queen v The Industrial Commission; Ex parte Adelaide Milk Supply Co-operative Limited (1977) 16 SASR 6 ("the Amscol case"). That case was not one where the Court was called upon to determine whether a particular employee was or was not entitled to a redundancy payment; rather the matter was one of jurisdiction. The Full Court determined that the Industrial Commission had a general jurisdiction to include redundancy provisions in an award.

5. The proposed new clause in the Amscol case was in these terms:
   

"(a) 'Dismissal by reason of redundancy': An employee dismissed shall be taken to be dismissed by reason of redundancy if the dismissal is attributable wholly or partly to:

(i) The fact that his employer has ceased or intends to cease, to carry on the business for the purposes for which the employee was employed by him, or has ceasedor intends to cease, to carry on that business in the place where the employee was so employed, or

(ii) The fact that the requirements of that business for the employees to carry out work of a particular kind, or for employees to carry out work of a particular kind in the place where he was so employed, have ceased or diminished or are expected to cease or diminish. This includes: technological automation, mechanization change, re-organization, rationalization or centralization in the processing industry; fall in demand of products for whatever reason; or retrenchment of employees or an employee for any reason whatsoever." (Emphasis added)

1. The breadth of this provision is, of course, much greater than that in the Award that is now under consideration. The underlined section makes it clear that it was intended to include those cases of redundancy where the cause was extraneous financial forces. It is of particular significance to the case advanced on behalf of the respondent in the present appeal that Bray C.J., having referred to the proposed clause, said of it at p.8:
   

"... I agree with Bright J. that the concept of redundancy in the context we are discussing seems to be simply this, that a job becomes redundant when the employer no longer desires to have it performed by anyone. A dismissal for redundancy seems to be a dismissal, not on account of any personal act or default of the employee dismissed or any consideration peculiar to him, but because the employer no longer wishes the job the employee has been doing to be done by anyone."

In the Termination, Change and Redundancy case (1984) 8 IR 34 ("the T.R.C. case") the Commission referred to this passage from the judgment of Bray C.J. at pp 55-56 in these terms:-

"It (the A.C.T.U.) also relied on the definition of the Chief Justice, Mr Justice Bray in the South Australian Supreme Court which, it contended, was the commonly accepted meaning of redundancy in Australia: Reg v. Industrial Commission (S.A.); Ex parte Adelaide Milk Supply Co-operative Ltd (1977) 44 SAIR 1202 at

1205. This definition:

(a) refers to a job becoming redundant and not to a worker becoming redundant;

(b) recognizes that redundancy situations may not necessarily involve dismissals; and

(c) emphasizes that the job or work has disappeared through no fault on the part of the employee. A key element in that definition is that the employer no longer requires to have the work done by anyone."

1. In my opinion and notwithstanding the use by the draughtsman of the Award of the language of the Chief Justice, it would be wrong to read this passage from his judgment in isolation. Rather, it must be read in light of the remarks of Bright J. with whom Bray C.J. was expressing agreement. Bright J. said at pp.26-27:
   

"The word 'redundant' does not occur in the (Industrial Conciliation and Arbitration Act, 1972-1975 (S.A.)). In its industrial sense it is not defined in the Oxford Dictionary. The application which I have already set out attempts a definition for the purpose of the proposed award. A consideration of the cases leads me to think that the question of the redundancy of an employee is linked to the question of the continued utility of the job which he is performing. In other words it does not relate to the personal competence of the employee in the job which he is performing. If I am right in this, then in its widest form the concept of redundancy connotes that an employee becomes redundant whenever (and for whatever reason) his employer no longer desires to have performed the job which that employee was doing." (Emphasis added).

1. Clause 31 of the Award addresses the concept of redundancy even though the word "redundant" is not used. The question that must therefore be resolved in this appeal is whether the language of the Clause is sufficiently wide to embrace all redundancies irrespective of cause. This means that it is essential to recognize the sense in which the concept of redundancy is being used in the award that is under consideration. For example, some would say that when seasonal fruit-pickers are laid off at the end of the harvest, they (or their jobs) have become redundant; few would argue that common usage of the word "redundant" does not extend to such cases. However it is quite clear that the relevant provision of the award was not intended to use the concept of redundancy in that wide form.

2. The decision of the Australian Conciliation and Arbitration Commission in Municipal Officers' (South Australia) Award 1973 (1978) 204 CA 287 which also dealt with jurisdiction, brought into sharp relief the difficult question of causation. That was an appeal by some Local Government Councils against the insertion in the Municipal Officers' (South Australia) Award 1973 of a redundancy provision. The clause under appeal allowed for redundancy payments upon the happening of any one of three events: the amalgamation of two or more Councils, the introduction of technological change or extreme financial stringency.

3. The Commission rejected arguments that were advanced on behalf of the Councils to the effect that "redundancy clauses should not be inserted in awards unless there is an instant problem about redundancies" adding:
   

"... that if it can be shown that it is possible that for reasons which have not as yet occurred, but which can be identified, redundancy may be occasioned then it is proper to insert into awards redundancy clauses to cover those reasons." (p 290)

1. Even so, the Commission concluded that, in respect of the particular award that was then under consideration, the general redundancy provisions "should be confined to situations which will be within the control of the employer" (p 290). As a result the reference to "extreme financial stringency" was removed and redundancy payments were limited to loss of employment as a result of technological change or the amalgamation of two or more Councils.

2. Some years later, a different situation emerged. In Shop, Distributive and Allied Employees' Association (N.S.W.) v Countdown Stores (1983) 7 IR 273. Fisher P. discussed the payment of retrenchment pay with respect to employees retrenched on account of three basic causes - first, technological change, next, company merger, takeover or reconstruction and finally, redundancy caused by economic recession. His Honour concluded (p.293) that the Commission should separately consider awards of severance pay upon retrenchments in the three nominated areas having earlier pointed out that in most cases there is a benefit for the employers when retrenchment occurs as a result of technological change or merger; his Honour said:
   

"Although causes are

sometimes complex the decided cases usually concern retrenchment for reasons of technological redundancy or for structural changes in industry, mergers, takeovers or other restructuring. In most but not all of these cases there is an element of advantage to employers. Advanced planning and extensive forewarning is possible. Some allowance for the financial contingencies of change including severance pay can be incorporated in company planning. Broadly, the prospect of change is to the company's commercial advantage." (p 289)

1. This brief excursion into the authorities makes it clear that it is permissible to include in an award a provision for compensation for redundancy even though that redundancy has been brought about by adverse economic factors and even though the consequential termination of employment runs counter to the personal wishes of the employer. Nevertheless, if such a financial burden is to be visited upon an employer at a time when, more likely than not, the employer is under financial constraints, then the language of the relevant award should make it abundantly clear. The Commission intended, in the TCR case (p 61) that there should not be any fundamental distinction in principle based on the causes of redundancy; see also the supplementary TCR case at p.128; it was therefore the task of the draughtsman of the Award, armed with this authority, to reflect the decision of the Commission in the language of the Award. In my opinion this has not been achieved; as presently drafted clause 31 does not entitle an employee to redundancy compensation where, as here, his job has become redundant as a result of financial strictures that are beyond the control of his employer.

1. I have earlier referred to the Orford and Bundaberg Foundry decisions, both of which assisted me in coming to the conclusion that the termination of the respondent's employment could not be classified as the "ordinary and customary turnover of labour". I am conscious that in each of those decisions the learned Commissioner made findings that are inconsistent with the conclusion that I have reached. In Orford he said:-
   

"The material also shows that Orford does not want the job that was done by Mr Hill to be done by anyone." (p 7)

In Bundaberg Foundry he said:

"Further I have concluded that the company no longer wishes the job done by Mr Lutz done by anyone, although it was said that the job is being done in part by a foreperson." (p 7)

1. Whilst I respect these findings of the learned Commissioner I cannot agree that they accurately reflect the proper application of the relevant provisions of the Award to those cases where termination of employment has been caused by economic circumstances over which the employer has no control; furthermore it would seem that they were findings that were not necessary for his respective decisions. In each case the Commissioner's primary task was to determine whether a case had been made out for a variation in the relevant award for the benefit of a particular employee.

2. In my opinion this appeal must be allowed, the orders of the learned Magistrate should be set aside and, in lieu thereof the application should stand dismissed.