Golja v Lord T/As Kelvin Lord and Co

[1996] IRCA 143

DECISION NO:143/96

CATCHWORDS

INDUSTRIAL LAW - UNLAWFUL TERMINATION - COMPENSATION - Industrial Relations Act 1988 (Cth) s170EE(3) - priniciples for assessing compensation thereunder

Industrial Relations Act 1988 (Cth)

Slifka v J W Sanders Pty Limited (North J, 19 December 1995, unreported)
Tranter v Council of the Shire of Wentworth (Marshall J, 24 October 1995, unreported)
APESMA on behalf of Cross v Deniliquin Council (Moore J, 14 December 1995, unreported)
Municipal Officers Association v Lancaster (1981) 37 ALR 559

Western Excavating (E.C.C.) Ltd v Sharp [1978] ICR 221

Liddell v Lembke (1994) 127 ALR 342; 56 IR 447

Perrin v Des Taylor Pty Ltd (Moore J, 10 March 1995, unreported)
Cox v South Australian Meat Corporation (Von Doussa J, 13 June 1995, unreported)

Lloyd John Boris GOLJA  v.  Kelvin Ernest LORD t/as KELVIN LORD & CO

WI 1193 of 1995

CORAM:  MADGWICK J
PLACE:    PERTH

Date of Hearing:      19 February 1996
Date of Judgment:    21 February 1996

IN THE INDUSTRIAL RELATIONS COURT OF AUSTRALIA
WESTERN AUSTRALIA
DISTRICT REGISTRY
  No. WI 1193R of 1995

BETWEEN  Lloyd John Boris GOLJA
  Applicant

AND  Kelvin Ernest LORD
  trading as KELVIN LORD & CO
  Respondent

CORAM:  MADGWICK J
PLACE:    PERTH
DATE:     21 FEBRUARY 1996

REASONS FOR JUDGMENT

MADGWICK J:         This is an application for review of the decision of a Judicial Registrar at the behest of the erstwhile employer whom I shall call “the respondent”.

The employment

The erstwhile employee (“the applicant”) had been a high school teacher, having graduated in science with a major in physics.  He then worked for the Australian Patent Office in Canberra as an examiner of patents and had undertaken some supervisory duties.  The respondent was in practice in Perth as a patent attorney.

In February 1986, the applicant began work with the respondent in Perth as a technical assistant, having accepted a written offer of employment.  In that written offer, the “starting salary was to be $26,000 [per annum] to be paid weekly”.  The terms and conditions of the employment generally were to be governed by “the Professional Engineers Award or equivalent”.  An offer of about $1,000 to assist the applicant to relocate to Perth from the ACT was made.  The letter continued:

“It is our intention that you will acquire sufficient knowledge and experience to become a Registered Patent Attorney in due course.  As you know, this will entail passing the Patent Attorneys’ examinations.  Ultimately, at some stage after you have become a registered patent attorney there could be the possibility of us entering into a partnership agreement if this was desired by both parties.

Employment may be terminated by either side on giving three months’ notice in writing.”

During the course of his employment, the applicant qualified to become and was registered as a Registered Patent Attorney whereafter the respondent listed the applicant by name on his letterhead.

The termination of the employment

Nine years to the day after the applicant commenced employment with the respondent, he was given written notice of termination of his services.  Three months’ notice, in accordance with the initial written offer of employment, was given. 

The circumstances of the communication of this letter, however, need explaining.  The applicant says that, without warning, while he was dictating a specification for a provisional patent application, the respondent came into his office and sat down.  As he did so, he said that he was terminating the applicant’s employment and handed him the termination letter.  The applicant asked the respondent why the latter was terminating his services and the respondent said that the reasons were in the letter.  The reason given in the letter was as follows:

“The major reasons for my decision to give you notice of termination is the business restructure that has occurred in the firm.  I have been left with no alternative to terminate your services.”

The applicant was shocked because there had been no business restructure discussed with him nor had he observed any business restructure to take place within the firm.  Conversation ensued in which the applicant sought further explanation and the respondent stuck to the line that the reason was as stated in the letter.  The respondent declined to say what the business restructure was or to add anything to what was said in his letter.  The applicant clearly expressed his dismay. 

The respondent said that, if the applicant found alternative employment within the three months’ period of notice given to him, they would look at terminating his employment earlier.  He then said that he did not want the applicant in the office for the next three months and indeed wanted him to leave the office “now”.  He said:

“If we need you we know where to contact you although I don’t think that likely.

The respondent required the applicant to bring him up to date on the status of the file he was working on and he asked for the tape which the applicant had been using for dictation.  The applicant handed it to him together with the notes of instructions received from the client.  The applicant then discussed his other files which took about 15 to 20 minutes.  At the end of that time the respondent told the applicant to pack up his gear, take whatever belonged to him and leave the office, which he did.

In his evidence the respondent said that there was a noticeable decline in his business during 1994.  In 1993, having had as his professional staff, three technical assistants and the applicant, who by that stage was qualified as a patent attorney, one of the technical assistants resigned and was not replaced.  Another technical assistant departed in late 1994.  In late 1994, he began considering options for restructuring the business in light of the recession and the decline in staff numbers.  The option he favoured “included abolishing the patent attorney position occupied by the applicant”.  The applicant’s

“skill base lay primarily in the area of physics.  During the early 1990s we had obtained very little work in the physics related areas.  With a general slow down in work I concluded in early 1995 that I could not justify the ongoing employment of the applicant in this position.  I also concluded at this time that the interests of the firm would be best served by employing staff whose skills were slanted towards the chemistry related fields.  I believed that this was consistent with what I perceived to

be the growth areas for the 1990s including bio-technology related inventions...  By February 1995 there was almost no new business coming into the firm which could be said to be within the applicant’s main area of expertise.  Indeed there was really no work within the firm at that stage which required the kind of physics based skills possessed by  the applicant.”

Dealing with the applicant’s account of what occurred on 10 February 1995, the day of receipt of the termination letter, the respondent said:

“I was reluctant to have any further discussion with the applicant because there was simply nothing further that I could usefully add.  I felt uneasy about having to give notice to the applicant just as I would find it difficult to terminate the services of any employee...  I can recall the applicant commenting to the effect that he was “stunned”....”.

The unlawful dismissal

There was no dispute that there was some downturn in new work coming into the firm but, as the Judicial Registrar found,

“the applicant was never consulted in relation to the restructure and the respondent openly in evidence expressed the view that consultation with him on the restructure ... would have been of no effect and a waste of time.”

The Judicial Registrar noted that, before any suggestion that the applicant would be dismissed, the respondent had employed other technical assistants with qualifications in the areas that would offer new business in the years to come.  The Judicial Registrar said:

“The respondent may have been able to justify termination after consultation on the basis that the operational requirements warranted technical assistance with different qualifications to the applicant.  I have my doubts, but it might have been possible to justify that position.  The respondent may have been able to demonstrate that operational requirements justified taking steps (as he had) to employ these additional technical assistants even before he terminated the applicant.  I have even more doubts about that proposition and legitimate justification of it but, even assuming such justification, the applicant is entitled to reasonable compensation for an unfair, unjust and unreasonable termination.

The approach of the Judicial Registrar to compensation

It being accepted on all hands that reinstatement was impracticable, the Registrar turned to the question of compensation.  He rejected the possibility that the applicant’s employment might have continued indefinitely if the respondent had consulted the applicant before acting to terminate his employment.  It having emerged at the hearing that there were some minor reasons for termination said to be associated with the applicant’s conduct, the Registrar said:

“I can see that there is a real possibility that if the applicant had been accorded procedural fairness and had been adequately consulted, nevertheless the respondent would have, in due course and within a reasonably short timeframe, terminated the employment because of his wish to use technical assistants with different qualifications.

On the other hand... in assessing compensation, I have taken account of the benefits which the applicant enjoyed in the job from which he has been dismissed, including the statutory entitlement not to be dismissed otherwise than upon compliance with certain conditions...  I have noted that the applicant received no additional salary benefits by way of a severance benefit and no payments in lieu of long service leave which would have been due after one more year of employment.”

In all these circumstances, the Judicial Registrar thought that “substantial but not maximum compensation is warranted” and that “in my view appropriate compensation in this case is $15,000 over and above the [notice] payments made from 10 February to 31 March and in addition to annual leave entitlements which should also be paid to the applicant if that has not already occurred”.

A new job during the notice period

As matters transpired, the respondent never did make any request to the applicant to come back during what the respondent regarded as the notice period. 

As matters also transpired, the applicant was astute to find alternative employment which he did on 7 March 1995, four weeks after having received the notice of termination in the circumstances recounted above.  By the time the matter was before the Judicial Registrar, the applicant was in that new employment on a salary of $45,000 per annum, $3,000 per annum less than his salary with the respondent (where sometimes he had performance bonuses paid as well).  The position at the time of the review before me was that the applicant’s employment with the other firm of patent attorneys was continuing on a permanent basis.  It is worth stating that, including the respondent’s practice, there are only three firms of patent attorneys in Perth. 

The respondent did not become aware that the applicant was so employed until 31 March.  He had been paying the applicant the equivalent of his annual salary on a weekly basis since 10 February and, when he became aware of the applicant’s new employment, he promptly stopped doing so. 

Common groundThe Judicial Registrar preferred the evidence of the applicant rather than the respondent where there was any conflict.  As the matter came before me there was really no relevant conflict of any consequence.

For the purposes of the review, the general findings of fact of the Judicial Registrar were accepted, including his characterisation of events as being that the employment was terminated, whether by notice or otherwise, on 10 February 1995 by the respondent, that in the circumstances, this was harsh, unreasonable or unjust. It was also accepted that the employment had not been terminated on 7 March by the applicant’s having taken  another post during the period of the notice.

Analysis of the Judicial Registrar’s approach

Both counsel, in analysing the amount of compensation awarded by the Registrar, submitted it was likely that the Registrar had awarded what he thought was:  (a) the balance of the three months’ notice; (b) an amount equivalent to 9/10ths of the two months’ long service leave to which the applicant would have become entitled one year after 10 February 1995; and (c)the balance by way of a severance payment.  Allowing for a rounding of figures, Mr Long for the respondent demonstrated that what was awarded, if one assumed that the calculations were made having regard to rates of remuneration on a net of tax basis, was severance payment at the rate of about one week per year’s service. 

The competing positions of the parties

In substance, the issue before me was the appropriate quantum of compensation. 

It was submitted for the respondent that the notice given by the respondent would have terminated the contract of service on 10 May 1995, that during the three months of that notice the applicant was still obliged to hold himself ready and available for work as requested, that his taking employment with the other firm of patent attorneys was necessarily an act inconsistent with that continuing contractual obligation and so, from that time, he ceased to be entitled to his wage;  therefore no regard should be had to the remaining approximately two months of the notice period after he obtained the other work in compensating him.  Accepting as generally appropriate such a conceptual basis as was imputed to the Judicial Registrar by both counsel, Mr Long, on behalf of the respondent relied on the finding that the employment would not have lasted long even had the respondent behaved properly in relation to consultation and so on, and that compensation should be awarded on the basis that the balance of the contractual notice period should not play a part, once employment was obtained, except to the limit of the difference between the two wages.  Further, the -notional component of “severance pay” should be reduced on account of the applicant’s evidently high re-employability and his actually fairly prompt re-employment.  Support by analogy for the reduction of the notional severance pay period and for non-payment notionally of the balance of the notice period was said to be found in Tranter v Council of the Shire of Wentworth (Industrial Relations Court of Australia, Marshall J , 24 October 1995, unreported).  It was submitted that long service leave was not a right after nine years’ service, and that contingencies might have prevented its crystallisation;  in particular, the applicant might have had his services lawfully terminated within the extra year. 

Finally, it was pointed out that a proper and principled approach should be taken to the tax liability of an applicant in relation to his award of compensation:  see Slifka v J W Sanders Pty Limited (Industrial Relations Court of Australia, North J, 19 December 1995,  unreported).

Counsel for the respondent accepted the point about tax and the matter was stood over to enable the parties to seek to come to agreement as to that aspect. 

As to the other aspects, it was submitted on behalf of the applicant that the appalling treatment of a fairly senior professional employee, by unceremoniously bundling him out of his office with no notice, amounted to conduct quite inconsistent with any intention to behave  towards the applicant in a way which would permit the maintenance of the employment relationship and was therefore a repudiatory breach of contract which the applicant was entitled to accept and did, so that there was a constructive dismissal of the applicant or, in the language of the Act, a termination of his employment at the initiative of the employer, on the 10 February 1995.  The applicant thereupon became entitled by way of damages to three months’ notice and there was no warrant for setting off against these damages wages in fact earned elsewhere from 7 March to 10 May 1995. 

It was submitted that, following the conceptual basis for compensation imputed to the Judicial Registrar, one week’s pay for each year of service as “severance pay” would be modest and reasonable.  As to the long service leave, it would have become due after ten years’ service;  the applicant  was close to receiving that entitlement as at the date of this termination and it necessarily seems that the Judicial Registrar found, despite his having thought that the work might come to an end soon enough anyway, that either it would not have come to an end within a year or would have done so very close to the expiry of the ten year period, so that in the marketplace any reasonable employer would have paid the pro-rata entitlement. 

It was at first submitted that compensation should also include a modest component for the very considerable distress, embarrassment and hurt which the applicant must have suffered and did suffer.  However, after discussion the parties agreed to make private arrangements in respect of this item.

Thus, leaving aside questions of taxation liability of the award in the applicant’s hands, the full $15,000 awarded by Judicial Registrar was well justified.  Pending the parties’ enquiries into the tax position, it is for me to deal in principle with the compensation.

Principles for compensation

In Slifka, supra, North J, with respect, rightly stressed the importance of a principled and reasoned approach to compensation and demonstrated how easy it is to undervalue it if such an approach is not taken.  In that case, His Honour gave primacy to “the sum which the application would have received or would have been likely to have received if the respondent had not terminated the employment”, relying upon the injunction in subsection 170ee(3) “to have regard to” such remuneration.

There can be no doubt of the importance of that injunction in subsection 170ee(3).  Its meaning is that one must take into account the remuneration which an employee would have or would have been likely to have received and to give it weight as a fundamental element in making the determination, but that  the Court is not confined to consideration of that to which the Court must have regard:  see the discussion in APESMA on behalf of Cross v Deniliquin Council (Industrial Relations Court of Australia, Moore J, 14 December 1995, unreported) of Municipal Officers Association v Lancaster (1981) 37 ALR 559 at 578-9 and 590 and other cases. The latter point is as important as the former.

In this case, what the Judicial Registrar did, it would seem, and what counsel in their common approach, rightly in my view wish me to do is to approach the matter upon the basis of what remuneration the employee would have received, had the employer terminated the employment on reasonable terms, having regard broadly to market considerations and to general conceptions of fairness.  Admittedly this is imprecise, but assessments by Courts of what is “reasonable”, “fair” and so on usually are.  Nevertheless they are an everyday feature of judicial activity.

Of Tranter, supra, since there were faint echoes in argument that it is an acceptable way to assess compensation to choose the maximum which can be awarded, namely six months’ pay, and then deduct from it what was in fact earned in that six month period, I wish only to say that I doubt that that case is authority for any such proposition and, if it is, I respectfully disagree.  Section 170ee is clear:  (a) “compensation of such amount as the Court thinks appropriate” is to be awarded (s 170ee(2)); (b) the Court is to have regard to the remuneration that the employee would have received or been likely to receive if the employer had not terminated the employment (and see above as to what this means); and (c) there is simply an upper limit on the amount of compensation of six months’ pay under s 170ee(3).  It is only after the deduction of what is appropriately deducted in the course of assessing compensation, that the six-month “cap” is applied.  That this is the correct approach is well settled.Albeit in the context of a slightly different argument (that the limit in the section represented a maximum amount to be awarded only in cases of the most serious contravention of the Division) Von Doussa J, in Cox v South Australian Meat Corporation (Industrial Relations Court of Australia, 13 June 1995, unreported) said of the operation of s 170ee(3):

I respectfully agree with Moore J in Perrin v Des Taylor Pty Ltd (10 March 1995, as yet unreported) that the statutory limits found in s.170EE(3) and (4) do not provide a range where the statutory limit is to be seen as the maximum amount to be awarded only in the most grievous or serious contravention of a provision of Division 3. The provisions simply provide limits to the jurisdiction of the Court so as to preclude awards of compensation in excess of those amounts. In my opinion the proper approach to assessing compensation is to make the assessment independently of those limits then, if there is a need to do so, to apply the relevant limit to establish the point of cut off. See also Liddell v Lembke [(1994) 127 ALR 342 at 368; 56 IR 447 at 474 per Gray J].

Moneys earned in new job - deductible?

Turning then to what should be done in this particular case, I am on reflection happy enough to accept the legal analysis made by counsel for the applicant of the events of 10 February 1995.  An alternative analysis might be that the giving of notice was the operative event in terminating the employment and/or the employment contract and that the respondent’s very churlish behaviour towards the applicant in breach of contract: see Western Excavating (E.C.C.) Ltd v Sharp [1978] ICR 221, was neither necessarily repudiatory nor accepted, so that it merely sounded in damages

But in my view nothing turns on acceptance of one or the other of these analyses.  It is “compensation” under the Act which is to be assessed.  There should be no double-counting.  The applicant was paid in effect two wages between 7 March and 31 March (subject to the difference in salary rates of $3,000 per annum) and he ought not to be compensated as if he had not received such payment. 

Were the matter to be dealt with entirely in contract, the position might well be different.  If an employer chooses to pay an employee in lieu of notice, as of course is very commonly done, and the employee gets another job within what would have been the period of notice, there is no obligation on the employee to pay back some of what he has received.  If, in working out a period of actual notice, the employee is able to find a second part-time job, he need not, to the extent of the earnings in the second job, refund any of the wages paid by the principal employer.  Where, as here, there was a stated requirement that the employee remove himself from the workplace but hold himself available for work, it would need to be shown that the employee could not possibly have responded to a call for work.  As the anticipated calls for work here might confidently be inferred simply to have been to explain what was going on with this or that file, to the extent that that was not apparent from the file, it is by no means clear to me that fulfilment of that obligation, if the applicant was so obliged, was not also capable of being fulfilled while he had other full-time employment.  He was, after all, a fairly senior professional employee and it is commonly the position that such employees need not account for every second of their time with bundy‑clock accuracy.  Nevertheless, here in my view there should be allowed to the respondent what the applicant earned with his new employer.  Compensation ought not to proceed upon the fictional basis that, if one has had a contractual benefit, e.g. as here payments conceived of as being by way of wages during a notice period, one has not had that benefit. 

Slifka - not exclusive of other possible approaches

On the other hand, compensation is not a narrow notion.  Its central idea is that the injured party should  be put back into the position, as far as money can do it, that he/she  would have been in had the legal wrong not occurred.  Certainly, this would ordinarily include any loss of actual remuneration foregone, as in Slifka, but it is not limited to that.  It is trite law that one can and should be compensated for the loss of an opportunity for financial benefit and for loss of a possibility of financial benefit, by a process of valuing the opportunity or the possibility, as the case may be.  Slifka should not be understood as indicating the contrary.  This is of significance to the present case.  The applicant was not only deprived of income that he might have earned from the respondent.  His likely ability to be employed in the future was also impaired.  Had his employment not been unlawfully terminated, he might have presented to any other potential employer as an employee of long standing who simply desired a change, or better opportunities, e.g. on the basis that the mooted partnership had not materialised.  That is a very different position from that of a senior professional employee in a small employment market who has been put out of his office on no notice and who would be forced to confess to a new employer, if he is truthful, as he ought to be, that he has had to take Court proceedings to try to secure a fair payout.  If the noise in some quarters about the operation of the unfair termination of employment provisions of the Act is any guide,  confession of the last circumstance might be seen by some employers as a black mark. 

The applicant, as is common, also lost what one might call economic stability:  the capacity to count on future regular income, to budget expenditures and to borrow money, if desired, accordingly.  It can hardly be disputed that these factors have an economic value even if it is not easy to quantify them.  Likewise, the disturbance of one’s life and the time taken by the necessity to seek other work to come at some economic cost, even if it is difficult to value.  Economic life and loss are not only formal.  Unpaid housework, for example, has economic value, as is recognised in the assessment of damages for personal injury.

It is with considerations such as these in mind that one can look at the suggested notional component of severance pay.  It seems to me that, all in all, nine weeks’ pay on this account, being a week’s pay for each year of service, is a modest and reasonable claim.  It is not to the point that the applicant was not out of work for nine weeks.  The claim would still be reasonable and perhaps sufficient in this regard if he had been out of work for six months.  It is common across industry, and the Court should not close its eyes to the fact, that where there is any rough quality of bargaining power, or with humane and reasonable employers even where bargaining power is unequal, severance pay is paid in redundancy and like situations for what one might call disturbance factors of kinds that I have touched upon.  In many a case, such a payment turns out to be something of a windfall for the employee;  in many a case it turns out to be woefully inadequate, had it ever been intended, which it was not, as a form of income maintenance until other work was found.  I would award nine weeks pay on that account.

Long service leave

I would also award the full amount of two thirds of thirteen weeks’ pay based on the very high likelihood that the applicant would either, absent the unlawful termination of February 1995, have likely worked for the respondent long enough to have received three months’ long service leave or, had his services lawfully been terminated on account of redundancy or like factors, have been paid that pro-rata entitlement as part of arrangements which would have prevented the termination of services from being harsh, unjust or unreasonable.  He was, I repeat, very close to the ten year period.

Short-term wage differential

Lastly, I would award $1,500 being for the difference in pay rates for the first six months of the applicant’s employment in his new employment, during which time he was paid at the rate of $3,000 per annum less than he had been receiving from the respondent.

I will leave it to counsel to agree on the arithmetic.  Final orders will await a decision on the taxation aspects valuably agitated in Slifka.

I am indebted to counsel for their efficiently presented and thoughtful submissions.

I certify that this and the preceding 13 pages are a true copy of the Reasons for Judgment of His Honour Justice Madgwick.

Associate:  

Dated:       21 February 1996

APPEARANCES

Counsel for the Applicant:      Peter De Zwart

Solicitor for the Applicant:      Parker & Parker

Counsel for the Respondent:    Jon Long

Solicitor for the Respondent:   J A Long & Co

Date of hearing:  19 February 1995