Griggs v Noris Group of Companies
[2006] SASC 23
•3 February 2006
SUPREME COURT OF SOUTH AUSTRALIA
(Full Court)
GRIGGS v NORIS GROUP OF COMPANIES (INCLUDING SA HELICOPTERS PTY LTD ACN 069 223 463 & CAPTURED PTY LTD ACN 008 134 772)
Judgment of The Full Court
(The Honourable Justice Perry, The Honourable Justice White and The Honourable Justice Layton)
3 February 2006
EMPLOYMENT LAW - THE CONTRACT OF SERVICE AND RIGHTS, DUTIES AND LIABILITIES AS BETWEEN EMPLOYER AND EMPLOYEE - THE CONTRACT OF SERVICE GENERALLY - FORMATION AND CONSTRUCTION
INDUSTRIAL LAW - SOUTH AUSTRALIA - PROCEDURAL AND EVIDENTIARY MATTERS RELATING TO COURT AND COMMISSION - PRINCIPLES AFFECTING EXERCISE OF JURISDICTION - REGARD TO EQUITY, GOOD CONSCIENCE AND SUBSTANTIAL MERITS
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - CONSTRUCTION AND INTERPRETATION OF CONTRACTS - IMPLIED TERMS
Appeal against a decision of the Full Bench of the Industrial Relations Court that neither the terms of the employment contract nor s 154 of the Fair Work Act 1994 entitled the appellant to payment in respect of an accrued entitlement to time off in lieu of payment for overtime ("TOIL") as at the date of termination of employment - where there was no express term for such a payment - whether a term for payment of accrued TOIL could be inferred in the contract - whether a term could be implied in the contract as both reasonable and necessary - whether s 154 of the Fair Work Act permitted an order for payment in respect of accrued TOIL.
Held: the parties had not directed their minds to the issue of payment in respect of untaken TOIL and that such a term could not be inferred - term could not be implied as it was not necessary for the effective operation of the contract - further, implying such a term would contradict an express term of contract that there was to be no entitlement to additional payment for overtime - where contract is partly written and partly oral, not necessary to satisfy the five conditions identified in BP Refinery v Shire of Hastings before a term can be implied - in any event, an implied term would not satisfy the test in BP Refinery - consideration of s 154 of the Fair Work Act - s 154 does not confer additional jurisdiction but requires the Court to act in accordance with equity and good conscience when applying the statutory and common law principles relevant to claims within its jurisdiction - s 154 did not authorise an order in respect of a claimed entitlement which was independent of the claim in contract - appeal dismissed.
Cross-appeal by respondent against decision that appellant was entitled to be paid the value of an accrued entitlement to annual leave as at the date of termination of employment - whether an employee, who by virtue of terms incorporated into a contract of employment by the Fair Work Act, has accrued an entitlement to annual leave, is entitled to be paid the monetary equivalent of that entitlement on termination of employment - where no express provision in either the contract of employment or statute for payment of untaken accrued annual leave upon termination of employment - where notice of intention to terminate employment, whether employment comes to an end at the giving of the notice or at the end of the notice.
Held: The Fair Work Act expressly provides for the method of calculation of accrual of annual leave when employment ends - implicit that an employee is entitled to payment in respect of an accrued but untaken entitlement where the employment comes to an end - a valid notice of termination brings a contract of employment to an end at the expiry of the period of notice, not at the time when notice is given - cross-appeal dismissed.
Industrial and Employee Relations Act 1994 (SA); Fair Work Act 1994 (SA) s9, s 11, s 12, s 13, s 14, s 15, s 16, s 19A, s 26(b), s 71, s 154, Sch 4; Industrial Law Reform (Fair Work) Act 2005 (SA); District Court Act 1991 (SA) s 10; Magistrates Act 1985 (SA); Workplace Relations Act 1996 (Cth); Industrial Relations Act 1972 (SA) s 81; Industrial Conciliation and Arbitration Act 1972 (SA), referred to.
Hawkins v Clayton (1988) 164 CLR 539; Riverwood International Australia Pty Ltd v McCormick (2000) 177 ALR 193; Byrne v Australian Airlines Ltd (1995) 185 CLR 410; Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337; Walkley v Dairy Vale Co-operative Ltd (1972) 39 SAIR (Pt 1) 327; H G Collett Pty Ltd v Alsop (1982) 49 SAIR (Pt 1) 309; McLaren v The Corporation of the City of Adelaide (1991) 58 SAIR 557; Featherston v Tully [2002] SASC 243; (2002) 83 SASR 302; Grout v Gunnedah Shire Council (1994) 125 ALR 355; (1994) 1 IRCR 143; Hill v C A Parsons Co Ltd [1972] 1 Ch 305; Beydoun and Beydoun v Brown [2005] SAIRC 1, applied.
B P Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266; Peachey v Duncan and Co [1918] NZLR 821; House v The King (1936) 55 CLR 499; H A W Jones Pty Ltd v Neille (1967) WAR 181; Gordon v Carroll (1975) 27 FLR 129; Fryar v Systems Services (1995) 130 ALR 168, distinguished.
Colliery Employees' Federation v Northern Proprietors' Association (1904) AR (NSW) 182; Santos Ltd v Saunders (1988) 49 SASR 556; Qantas Airways Ltd v Gubbins (1992) 28 NSWLR 26; Minister for Immigration and Multicultural Affairs v Eshetu [1999] HCA 21; (1999) 197 CLR 611; Eagle Star Insurance Co Ltd v Yuval Insurance Co Ltd [1978] 1 Lloyd's Rep 357; Ory & Ory v Betamore Pty Ltd & Ors (1993) 60 SASR 393, discussed.
Tempo Services Ltd v Robinson [2005] SASC 161; (2005) 91 SASR 439; Long Service Leave (Engine Drivers') Award Case [1961] AILR 308; Trittenheim Pty Ltd & Others v H & H Gill Nominees Pty Ltd (1994) 63 SASR 434; Birrell v Australian National Airlines Commission (1984) 5 FCR 447; APESMA v Skilled Engineering Pty Ltd (1994) 122 ALR 471; (1994) IRCR 106; Dietrich v Dare (1980) 30 ALR 407; Automatic Fire Sprinklers Pty Ltd v Watson (1946) 72 CLR 435; Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41; De Francesco v Barnum (1890) 45 Ch D 430; Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206; Alpha Trading Ltd v Dunnshaw-Patten Ltd [1981] QB 290, considered.
WORDS AND PHRASES CONSIDERED/DEFINED
"Equity, good conscience and the substantial merits of the case."
GRIGGS v NORIS GROUP OF COMPANIES (INCLUDING SA HELICOPTERS PTY LTD ACN 069 223 463 & CAPTURED PTY LTD ACN 008 134 772)
[2006] SASC 23Full Court: Perry, White and Layton JJ
PERRY J. I am indebted to White J for his analysis of the issues involved in this complex matter. I agree with his reasons and the conclusions which he reaches.
The appeal and cross-appeal should be dismissed.
WHITE J: The appeal in this case raises an issue of whether an employee who has accrued an entitlement to time off in lieu of payment for overtime worked (“TOIL”) is entitled, on termination of his employment, to payment of the monetary equivalent of that accrued entitlement. Put more shortly, the issue is whether the appellant is entitled to be paid the value of the TOIL accrued but not taken as at the date of termination of his employment.
In the Industrial Relations Court (“the IR Court”), the appellant succeeded on this issue at first instance before an industrial magistrate (“the Magistrate”)[1] and on appeal to a single judge.[2] However, the Full Bench of the IR Court held that neither the terms of the appellant’s contract of employment, nor considerations of equity and good conscience[3] entitled the appellant to payment in respect of his accrued entitlement to TOIL as at the date of termination of employment.[4]
[1] [2004] SAIRC 47.
[2] [2004] SAIRC 83.
[3] Industrial and Employee Relations Act 1994, s 154 (now the Fair Work Act 1994).
[4] [2005] SAIRC 51.
The cross-appeal raises another important issue: is an employee who has, by virtue of the terms incorporated into the contract of employment by s 71 and Schedule 4 of the Industrial and Employees Relations Act 1994 (“IERA”),[5] accrued an entitlement to annual leave at the time of termination entitled to be paid the monetary equivalent of that entitlement on the termination of the employment? The Magistrate held that the appellant was entitled to be paid the value of his accrued entitlement to annual leave as at the date of termination. That finding was upheld on appeal to the single judge and on further appeal to the Full Bench of the IR Court.
[5] By the Industrial Law Reform (Fair Work) Act 2005 the IERA was renamed the Fair Work Act 1994. As most of the events relevant to this appeal occurred whilst the Act was known by its former name, it will be referred to in these reasons by the acronym “IERA”.
Background Circumstances
The appellant commenced full time employment with the respondent group of companies[6] on or about 5 January 1998 as a maintenance repairer, trainee licensed aircraft maintenance engineer and maintenance controller. A written contract of employment was entered into between the parties. Clauses 5-10 inclusive of that contract provided as follows:
[6] No point was taken at any stage in the proceedings in the Industrial Relations Court or in this Court about the way in which the respondent has been named.
5. Hours of Work
Due to the nature of work to be carried out, no set hours can be given. It is envisaged however that a minimum of 40 hours a week will be fulfilled. Days off and holidays will be by negotiation and acceptable to both parties. Communications must be maintained at all times in case of urgent calls. Should this not be possible you are to advise management at the earliest convenient moment or prior to if possible.
6.Wages/Salary Package
A salary of $50,000 per annum will be paid. Company vehicle in the form of one tonne utility or similar will be supplied inclusive of all operating costs and fuel. Salary adjustments are by mutual negotiation and not prior to 12 months service.
7.Overtime/Shiftwork
As required without penalty.
8.Annual Leave
Annual leave will be allowed and subject to negotiation. It must be realised that annual leave may not be available at all times due to the nature of employment, however best endeavours will be made to fulfil any request. No penalty will be paid on annual leave neither will it be accumulative.
9.Sick Leave
Sick leave will be paid up to 10 days a year accompanied by a Doctor’s Certificate. The Noris Group will pay WorkCover.
10.Special Leave
Leave required in special circumstances will be available by mutual negotiation.
The Magistrate rejected a submission of the appellant that his employment was governed by either the Aircraft Engineering (Aviation) General Industry Award (an award of the Australian Industrial Relations Commission) or by the Metal Industries (South Australia) Award (an award made by the South Australian Industrial Relations Commission). Those findings were not challenged by the appellant at either level in the appellate hierarchy in the IR Court.
It can be seen that the contract of employment did not specify fixed hours of work. It specified simply that “a minimum” of 40 hours each week was envisaged (cl 5). Although specified as a minimum, it seems to have been intended that 40 hours would be the ordinary hours of work in each week. Days off and holidays were to be by negotiation (cl 5). The salary was $50,000 per annum in addition to the provision of a company vehicle (cl 6). That amount was increased in September 2000 to $55,000 per annum.
Under the heading “Overtime/Shiftwork”, cl 7 provided simply “[a]s required without penalty”. In an industrial award and employment context the word “penalty” is often used to refer to the higher rate of pay which is applicable in respect of work performed in defined circumstances, for example, by way of overtime or on weekends or public holidays. The liability to pay the “penalty” is imposed on the employer to deter it from requiring the worker to work outside the ordinary hours, or to compensate the worker for the perceived disadvantages of having to work at times when the worker would otherwise be at rest and recreation.[7] Hence cl 7 of the contract could reasonably have been construed as indicating that the appellant was entitled to be paid in respect of any overtime worked (ie, time in excess of 40 hours per week) but only at his ordinary time rate of pay, ie, without any loading on that rate. Likewise, cl 8 could have been construed as indicating that payment during a period of annual leave would not include any loading, such as the 17½ per cent loading fixed by a number of industrial awards. However, the understanding of the parties in January 1998 was that the appellant had no entitlement to any payment at all in respect of overtime. Each considered apparently that the written contract had given effect to a term orally agreed upon when the contract was being negotiated that no payment would be made in respect of overtime.
[7] Cf Tempo Services Ltd v Robinson [2005] SASC 161 at [40]; (2005) 91 SASR 439 at 447.
Variation of the Contract of Employment
The Magistrate found that in February 1998 (ie, about one month after the commencement of the employment) cl 7 of the written contract was varied by an oral agreement between the parties. That oral agreement was that the appellant would not be entitled to payment in respect of overtime but that he would be entitled to take time off in lieu of payment for all overtime worked (“TOIL”). That finding was in accord with evidence given by the appellant and by a witness called by the respondent, a Mr Dinan. The appellant’s evidence on this topic was as follows:
Q.… Mr Dinan was discussing the offer of a job with you, there was this discussion about your salary of $50,000.
A.Correct.
Q.And in the course of that discussion did he not say to you that the company did not pay overtime?
A.That was correct.
Q.And that instead they paid a salary well in excess of what might otherwise have been expected for the position?
A.That is correct.
Q.Now, some weeks after you commenced, probably three or four weeks after you commenced, you and Mr Dinan had a further conversation in relation to working overtime.
A.That is correct.
Q.And he reiterated that the company did not pay for overtime.
A.That is correct.
Q.Were you actually asking to be paid for overtime?
A.I asked him to be paid for overtime because the original agreement said 40 hours per week, or minimum of 40 hours per week, sorry. And at that time I was working 60 hours plus.
Q.In the course of this discussion – that’s to say the discussion three or four weeks after you commenced, so it’s either late January or early February of 1998 – Mr Dinan made clear to you that in respect of overtime that you worked, you were expected to take time off in lieu.?
A.That’s correct.
Q.Or as it has often been described in discussions, what’s called TOIL?
A.That’s correct.
Q.And you understood that to be an acronym for time off in lieu?
A.Yes.
Q.And at the very latest, from that time to – your employment came to an end in May of last year, you understood that overtime, pursuant to your contract of employment, was to be compensated by taking time off in lieu?
A.That is correct.
…
Q.…You understood at the very latest from that time, that is to say that discussion late January or early February of 1998, until the conclusion of your employment in May of last year, that you had no entitlement to be paid overtime?
A.There was no entitlement to be paid overtime. It would be taken as time off in lieu of overtime. Correct.
The finding by the Magistrate as to the contract variation in February 1998 has not been challenged at any stage in the appellate hierarchy. Accordingly, whatever may have been the true position under the written contract, and whether or not the parties’ understanding in February 1998 of the true effect of the written contract was correct, the effect of the oral agreement was to bring into operation a new agreement with respect to overtime. The elements of that agreement were that the appellant would work overtime as required. He would not be entitled to any additional payment at all in respect of that overtime but instead would be entitled to take an equivalent amount of paid time off work at a time which was mutually convenient to him and the respondent.
The Claim for Payment of TOIL
In April 2002, the appellant gave notice of termination of his employment to the respondent. Pursuant to that notice, his employment came to an end on 5 May 2002. The Magistrate found that the appellant worked substantial amounts of overtime during his employment. Although in the period from February 1998 to May 2002, the appellant had taken 16 days as time off in lieu of overtime, the Magistrate accepted that as of 5 May 2002 he had an accrued entitlement to TOIL in the order of 4,798 hours. That finding suggests that the Magistrate accepted that the appellant was working, on average, in excess of 22 hours overtime each week in the period from February 1998 to 5 May 2002. That finding was not in issue on the appeal to this Court.
Following the cessation of his employment, the appellant submitted a claim to the respondent for payment of the monetary equivalent of the TOIL accrued but not taken as at 5 May 2002. This Court was informed that the appellant asserted an entitlement to payment of approximately $115,000.[8]
[8] It does not seem that the quantum of the appellant’s claim has been fixed by the IR Court. Nor have any final orders been made by the Magistrate. No point has been taken at any stage in the appellate hierarchy about the competence of the appeals in those circumstances.
The Decisions in the IR Court
The Magistrate did not rest his finding in favour of the appellant on any contractual entitlement. Instead, the Magistrate invoked s 154 of the IERA which provides:
(1) In exercising its jurisdiction, the Court or the Commission-
(a) is governed in matters of procedure and substance by equity, good conscience, and the substantial merits of the case, without regard to technicalities, legal forms or the practice of courts; and
(b) is not bound by evidentiary rules and practices but may, subject to subsection (2), inform itself as it thinks appropriate.
(2) The Court and the Commission must observe the rules of natural justice.
The Magistrate regarded s 154 as vesting a discretion in the IR Court. Invoking that discretion, the Magistrate held that the appellant should be paid the monetary equivalent of the accrued TOIL as at the date of termination of his employment. His reasoning appears in the following paragraphs:
When applying s 154 what is involved is the application of a discretionary power. As s 154 indicates the discretion to be exercised must be done so in accordance with principles of equity, good conscience and the substantial merits of the case.
Hours had accrued which were by agreement to be taken as TOIL. The applicant only took 16 days of TOIL during the entire period of employment. The respondent never policed the taking of TOIL, instead it left it up to the applicant to make his own arrangements. I accept that the applicant was unable to take TOIL other than the 16 days because of his workload.
In my view in applying the discretionary power contained in s 154 equity, good conscience and the substantial merits of the case must result in the applicant being entitled to be paid the monetary equivalent of the accrued TOIL hours, that is hours worked in excess of 40 hours per week.[9]
[9] [2004] SAIRC 47 at [84]-[86].
On appeal to a single judge, that decision was upheld by the Senior Judge in the IR Court who held:
The fact remains however, that the employer had the benefit of the worker’s labour and in the absence of his ability to exercise his rights pursuant to the TOIL arrangement, it seems to me, that the worker should be properly compensated for his labour. I therefore reach the conclusion that the proper application of s 154 of the Act compels a conclusion that the worker’s undischarged entitlements pursuant to the TOIL agreement, as at the end of the contract of employment, should be payable as wages.[10]
[10] [2004] SAIRC 83 at [44].
On further appeal, the Full Bench first considered whether the appellant had any contractual entitlement to be paid on termination the monetary equivalent of his accrued TOIL and held that he did not. It held further that both the Magistrate and the Senior Judge had erred in the exercise of what the Full Bench regarded as “the discretion” vested by s 154. The Full Bench considered that it should exercise the “discretion” afresh. It concluded:
[I]n our respectful opinion, whilst we think it is unfortunate that Mr Griggs lost the benefit of his accrued TOIL the evidence provides no basis upon which to invoke s 154. There was not, for example, any evidence that would justify a finding that Noris had deliberately or in bad faith prevented Mr Griggs from taking TOIL so as to deprive him of its benefit. There was no evidence to negate a finding that Mr Griggs lost his accrued right to TOIL because he failed to exercise his rights prior to resigning.[11]
[11] [2005] SAIRC 51 at [55].
The Claim in Contract – An Inferred Term
In the proceedings before the Magistrate, it does not seem that the appellant asserted that there was a contractual entitlement to payment in respect of his accrued TOIL entitlement. If that claim was pressed, it was done so only faintly. The appellant could not point to any express term of the contract entitling him to be paid on termination the value of any untaken TOIL. Mr McNamara QC, who appeared for the appellant before this Court, submitted however that a term to that effect should be found to have existed in the contract. This submission was put on two alternative bases.
First it was submitted that it could be inferred that it was an actual term of the contract that the monetary value of the TOIL accrued as at the date of termination would be paid to the appellant. Such a term should be inferred, it was said, because it was the actual intention of the parties that payment should be made in those circumstances. The alternative submission was that a term entitling the appellant to payment in respect of the untaken TOIL as at date of termination should be implied by the Court into the contract. It was submitted that such a term should be implied not by reason of any established industrial usage or practice or past dealing between the parties but rather because an intention to incorporate such a term should be imputed to the parties. Mr McNamara relied on the following passage in the judgment of Deane J in Hawkins v Clayton:[12]
[I]t is necessary to identify two distinct stages in the ascertainment of relevant terms. Those stages may well overlap and it will often be unnecessary to distinguish between them in practice. The first stage is essentially one of inference of actual intention: what, if any, are the terms which can properly be inferred from all the circumstances as having been included in the contract as a matter of actual intention of the parties? The second stage is one of imputation: what, if any, are the terms which are, in all the circumstances, implied in the contract as a matter of presumed or imputed intention?
[12] (1988) 164 CLR 539 at 570.
The appellant accepted that the relevant time for assessment of the actual or imputed intention of the parties was the time when the contract was varied in February 1998. That is in accord with the conventional position in the common law.[13] It was not suggested that there had been any variation of the contract of employment by the subsequent conduct of the parties.
[13] See for example Riverwood International Australia Pty Ltd v McCormick (2000) 177 ALR 193 at 204, per Lindgren J.
In my opinion, a number of terms additional to those orally agreed upon can be inferred as being actually intended by the parties in relation to their agreement for TOIL. A term that the respondent would provide reasonable opportunities to the appellant in which to take the time off to which he was entitled can be inferred. Given the interest of the appellant in taking the time off at a time which suited him, it can perhaps be inferred that it would be the appellant who would in practice initiate the arrangement for taking the time off from time to time. It could perhaps be inferred that the parties intended that the entitlement to TOIL should not accrue to such an extent that, in practical terms, it became impossible for the appellant to exercise his entitlement. These additional terms can be inferred because it is reasonable to suppose that the parties did intend that the agreement would be effective and the terms are necessarily incidental to its effectiveness. However, those considerations do not provide a basis upon which it can be said that the parties had any actual intention as to what the position should be if the employment was terminated at a time when there was an untaken entitlement. It cannot be concluded, in my opinion, the parties had any actual intention as to what should occur in those circumstances. Adapting the language of Deane J in Hawkins v Clayton,[14] it cannot be inferred or assumed as a matter of actual fact that the parties ever directed their mind to that question or that, if they did, that there was any actual joint intention which can be expressed as a contractual term. On the contrary, it is much more likely that this was a topic to which the parties did not advert at all.
[14] (1988) 164 CLR 539 at 570.
I would reject the appellant’s submission concerning an inferred term.
The Claim in Contract – An Implied Term
In relation to the implied term for which the appellant contended, the question to be considered is whether the implication of that term is necessary for the reasonable or effective operation of the contract.[15] The term is not to be implied simply because the Court might think it reasonable to do so in the circumstances.
When the court picks up a written contract in order to construe the writing, it must “place itself in thought in the same factual matrix as that in which the parties were” … But, having construed the writing, the court cannot take its pen and add a clause merely because it thinks the addition would be reasonable or fair or prudent. Though the parties are assumed to be reasonable and that hypothesis governs the construction of the express terms on which they have agreed, their hypothetical reasonableness warrants no alteration in their contractual rights by imputing to them an agreement to an additional term to which they have not agreed in fact and which is not implicit in the terms to which they have agreed.[16]
[15] Byrne v Australian Airlines Ltd (1995) 185 CLR 410 at 422 per Brennan CJ, Dawson and Toohey JJ, at 442 per McHugh and Gummow JJ.
[16] Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 401 per Brennan J.
In short, in order that the term be implied, it must be shown to be necessary and not just reasonable.[17] In a contract of the present kind, which is partly written and partly oral, it is not necessary that the five conditions identified in BP Refinery (Westernport) Pty Ltd v Shire of Hastings[18] be established before a contractual term may be implied.
[17] Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 346 per Mason J.
[18] (1977) 180 CLR 266 at 283.
In the circumstances of the present case, I do not think it can be said that the insertion of the implied term sought by the appellant is necessary for the reasonable or effective operation of the contract. The parties had agreed that the appellant would be entitled to time off in lieu of payment for overtime. A term that the appellant would be entitled to payment in respect of any accrued entitlement to time off as at the date of termination was not necessary to make that agreement effective. The contract was capable of being performed on both sides without such a term. Indeed, with the advantage of hindsight, it can be seen that the contract did operate satisfactorily during its currency without such a term. It becomes even more difficult to regard such a term as necessary for the reasonable or effective operation of the contract when it is remembered that the parties had, at the same time as agreeing on the arrangement for TOIL, expressly agreed that there was not to be any entitlement to, or liability for, an additional payment in respect of overtime.
Although the BP Refinery test does not have to be satisfied, it is also useful to consider the appellant’s claim against the background of that test. In my opinion, the implied term would fail to meet at least two of the criteria specified in BP Refinery. The first is that the implied term for which the appellant intended cannot be said to be so obvious that “it goes without saying”.[19] From the respondent’s perspective it may have been concerned that the entitlement to TOIL should be used in the way in which it was intended, ie, that time should be taken off at or about the time at which the entitlement to it accrued. It might have been very concerned not to allow a circumstance to be created by which the TOIL could be “banked” so as to provide an additional monetary entitlement on termination, or to constitute a contingent liability for which account should be made in its financial statements. It may have wanted the appellant to understand that the entitlement to TOIL should be utilised during the currency of the employment and, in particular, to act accordingly by taking the TOIL at times when there was no or little work for the appellant to carry out, rather than “banking” the entitlement as a nest egg. Similarly, from the appellant’s point of view, he might have been concerned to ensure that he would be able to use the TOIL for rest and recreation when it was available rather than having the employer require him to accrue it. It is to be remembered that the imputed intention of the parties is to be considered at the time the contract was varied in February 1998, not at the time of termination of the appellant’s employment when it was known that he had, on the Magistrate’s findings, accrued an entitlement to a substantial amount of TOIL.
[19] Ibid at 283.
In addition, the implied term for which the appellant contends appears to contradict an express term of the contract, namely, the term that the appellant would not be entitled to any additional payment in respect of overtime. Even if not inconsistent, it hardly seems reasonable to impute to the parties an intention that whilst the appellant should have no entitlement to payment for overtime, he should have an entitlement to payment in respect of the time off which was to be the substitute for that entitlement.
In my opinion, therefore, the appellant’s claims in contract fail. The decision of the Full IR Court in this respect was correct.
Equity and Good Conscience
As already noted, the Full IR Court held that considerations of equity, good conscience and the substantial merits of the case in accordance with s 154 of the IERA did not entitle the appellant to payment in respect of his accrued entitlement to TOIL.
The appellant submitted that the Full IR Court had taken an unduly narrow view of the operation of s 154; that it had overlooked the number of hours of TOIL which he had accrued, and that it had wrongly thought it necessary that he establish some form of unfairness or sharp practice before the section could be invoked. The respondent submitted that s 154 governed the manner in which the IR Court should exercise the jurisdiction vested in it by other provisions, but that it was not a source of jurisdiction or power in the IR Court to do whatever at all which it thought fair and reasonable in any matter coming before it which, in the respondent’s submission, it had been invited to do in this case.
A stipulation that a decision-maker is to act in accordance with equity and good conscience and the substantial merits of the case is not uncommon. Such a stipulation, or an equivalent, appears in many statutes vesting powers in a court, tribunal or a statutory decision-maker. The expression has its origins in the legislation in the 16th Century establishing the Courts of Requests and Courts of Conscience. The reference to “equity” is not a reference to the equitable principles developed by the English Courts of Chancery – but a reference to the good sense and natural justice of the matter. At times, it has been held that the expression means that the decision-maker is empowered to do whatever it might think appropriate to achieve fairness between the litigants. For example, in Colliery Employees’ Federation v Northern Proprietors’ Association[20] Cohen J said:
… the words “equity and good conscience” leave this Court, in my opinion, in the position that, whilst not infringing any positive law of the country, it may do that which it believes to be right and fair and honest between man and man … .[21]
[20] (1904) AR (NSW) 182 at 185.
[21] See also the decision of Gallagher J in Long Service Leave (Engine Drivers’) Award Case [1961] AILR 308.
However, it is now accepted that the meaning of the expression “equity and good conscience and the substantial merits of the case” varies according to the context in which it is used. In particular, it is necessary to have regard to the nature of the decision-maker and the nature of the decision to be made. In Santos Ltd v Saunders Legoe J said, in respect of the then comparable provision in s 88(a) of the Workers’ Rehabilitation and Compensation Act 1986:
Similar provisions appear in legislation relating to the setting up of administrative tribunals in a number of different Acts in recent times. No doubt such provision is to be adapted to the particular type of tribunal which is directed to proceed in that way. The nature of the application under consideration in the proceedings will likewise vary from case to case.[22]
Likewise, in Qantas Airways Ltd v Gubbins, Gleeson CJ and Handley JA said:
The words “equity, good conscience and the substantial merits of the case” are not terms of art and have no fixed legal meaning independent of the statutory context in which they are found … .[23]
The varying content which s 154(1) may have in the cases to which it applies is evident from its own terms. It is expressed to apply to both the IR Court and to the Industrial Relations Commission (“the Commission”). It is to be expected that the content and application of s 154(1) will be more limited in those cases in which the IR Court is, for example, exercising the jurisdiction to hear and determine a question of law referred to it by the Commission (IERA s 12(a)), than it will be in those cases in which the Commission is exercising its jurisdiction to make awards regulating remuneration and other industrial matters (IERA s 26(b)).
[22] (1988) 49 SASR 556 at 564.
[23] (1992) 28 NSWLR 26 at 30. See also Trittenheim Pty Ltd & Others v H & H Gill Nominees Pty Ltd (1994) 63 SASR 434 at 442 per Olsson J.
The nature and jurisdiction of the Industrial Court is particularly important in considering the application of s 154 in relation to it.
The IR Court is a court of record (IERA s 9). It is comprised of judges and magistrates (IERA s 16). Each of the judges must be either a judge of the District Court or a person who is eligible for appointment to that Court (ie, a legal practitioner of at least seven years standing).[24] An industrial magistrate is a magistrate under the Magistrates Act 1985 who is assigned by the Governor to be an industrial magistrate.[25] The Court is vested with jurisdiction to interpret an award or enterprise agreement (s 11(1)), to hear and determine a question of law referred to it by a Magistrate or by the Commission (s 12(a)); to hear and determine jurisdictional or other questions about the validity of determinations of the Commission as part of proceedings brought pursuant to another provision of the IERA (s 12(b)); to make declaratory judgments where jurisdiction to do so is conferred by other provisions of the IERA (s 13)); to hear various kinds of monetary claims by employees or employers (s 14(b), (c) and (d)); and finally, to make orders directed to the enforcement of compliance with a provision of the IERA, an award or enterprise agreement (s 15).
[24] District Court Act 1991 s 10.
[25] IERA s 19A(1).
This brief survey of the composition and jurisdiction of the IR Court is sufficient to indicate that it is established as a court of law and that it is expected to apply the principles of the common law and of statutes in the resolution of the claims which come before it. It is reasonable to suppose that it is expected to act judicially in the determination and enforcement of the rights of the parties who appear before it. It does not have an arbitral function, ie, in establishing new rights and entitlements. In my opinion, the application of s 154 is to be determined with those considerations in mind.
General Observations
A number of general observations can be made about s 154. The first is to note that s 154(1) commences with the words “in exercising its jurisdiction”. Thus, s 154(1) is not itself a source of additional jurisdiction. It is a statutory direction as to the manner in which the jurisdiction elsewhere vested in the IR Court and the Commission is to be exercised. In Minister for Immigration and Multicultural Affairs v Eshetu, Gleeson CJ and McHugh J said that provisions like s 154:
“… are intended to be facultative, not restrictive. Their purpose is to free tribunals, at least to some degree, from constraints otherwise applicable to courts of law, and regarded as inappropriate to tribunals.[26]
To similar effect is the statement of Goff LJ in Eagle Star Insurance Co Ltd v Yuval Insurance Co Ltd,[27] in respect of a like provision in an arbitration agreement, that it enabled the arbitrator “to view the matter more leniently and having regard more generally to commercial considerations than would be done if the matter were heard in Court”.[28] This statement was cited with approval by Duggan J (with whom Matheson J agreed) in respect of the comparable provision in s 13(1) of the Commercial Tribunal Act 1982 which was considered in Ory & Ory v Betamore Pty Ltd & Ors.[29] Section 154(1) is not therefore to be construed as though it is a freestanding source of jurisdiction to the IR Court and the Commission.
[26] [1999] HCA 21 at [49]; (1999) 197 CLR 611 at 628.
[27] [1978] 1 Lloyd’s Rep 357.
[28] Ibid at 363-4.
[29] (1993) 60 SASR 393 at 414.
The second matter to note is that s 154 provides that each of the IR Court and the Commission are “governed” in matters of procedure and substance by equity, good conscience etc. Although in some contexts, the word “govern” is used to mean the exercise of a restraining influence or the holding of something in check, in this context, it indicates, in my opinion, that the IR Court and the Commission are to act in accordance with equity, good conscience, etc. This is the effect of a number of decisions of the IR Court.[30] In my opinion, those decisions are, in that respect, correct.
[30] Walkley v Dairy Vale Co-operative Ltd (1972) 39 SAIR (Pt 1) 327; H G Collett Pty Ltd v Alsop (1982) 49 SAIR (Pt 1) 309; McLaren v The Corporation of the City of Adelaide (1991) 58 SAIR 557.
The third general observation is that the direction that the IR Court and Commission are governed in the exercise of their jurisdiction by equity, good conscience etc relates both to matters of procedure and substance. The reference to “substance” indicates that the IR Court and Commission are to have regard to equity, good conscience and the substantial merits of the case in relation to the issues of substance which arise in matters before them and not just in the matters of evidence or procedure which may arise. Further, the presence of s 154(1)(b) and s 154(2) indicate that s 154(1)(a) is intended to encompass more than the ability to receive evidence not otherwise admissible in courts of law and more than a requirement to observe the requirements of procedural fairness.
As a final general observation, I note that s 154(1)(a) consists of two distinct parts: first, it provides that the IR Court and Commission are governed in matters of procedure and substance by equity, good conscience and the substantial merits of the case; secondly, it enjoins both to act without regard to technicalities, legal forms or the practice of the courts. Those two parts are really counterparts. In most cases, the IR Court and Commission would probably fail to act in accordance with equity, good conscience etc if they did give priority to technicality, legal forms or some of the rules of practice of courts.[31] There is therefore a real sense in which the second part of s 154(1)(a) informs the meaning of the first part. In short, a just claim is not to be defeated by technical difficulties.
[31] Cf Minister for Immigration v Eshetu (1999) 197 CLR 611 per Callinan J at 667.
Section 154 and s 14(a) of the IERA
In the present case, the jurisdiction being exercised by the Magistrate was the jurisdiction vested in the IR Court by s 14(a) of the IERA. Section 14(a) provides:
The Court has jurisdiction to hear and determine monetary claims of the following kinds -
(a)a claim for a sum due to an employee or former employee from an employer or former employer under—
(i)this Act, an award, enterprise agreement or contract of employment; or
(ii)the Commonwealth Act, or an award or agreement under the Commonwealth Act;[32]
[32] The Commonwealth Act is defined to mean the Workplace Relations Act 1996 (Cth).
The jurisdiction being exercised by the IR Court in this case was the hearing and determination of a claim for a sum due to a former employee under a contract of employment. In another case, it could be a claim by an employee (or former employee) for payment of a sum due under the IERA itself, an award of the Commission, an enterprise agreement approved by the Commission, an award of the Australian Industrial Relations Commission, or an award or industrial agreement made under the Commonwealth Act. Whichever limb of s 14(a) is relied upon in a particular case, it is in the hearing and determination of that claim that the IR Court is required to act in accordance with equity and good conscience, etc. Section 154 cannot be construed as authorising the IR Court to ignore the limits of the jurisdiction vested in it by s 14(a). For example, it is essential to the exercise of the jurisdiction that the relationship between the applicant and the respondent is contended by at least one party to be (or to have been) that of employee and employer. If the IR Court determines that there was no contractual relationship at all between the parties, or that where such a contractual relationship exists, it was not a contract of service, it is not authorised by s 154 to order the payment of any sum to the applicant, however meritorious the applicant’s claim may otherwise have been. If it were otherwise, the IR Court would no longer be exercising a jurisdiction under s 14(a). It would be treating s 154 as an independent source of jurisdiction.
Other examples could be given. The IR Court could not, for example, in the purported exercise of the jurisdiction pursuant to s 14(a), order payment of a sum said to be due under the IERA or the Workplace Relations Act 1996 (Cth) for which no provision was made in either Act, simply because it considered that it would be in accordance with equity, good conscience or the substantial merits of the case to do so. As already noted, the IR Court is a court of law and should apply relevant legal principles.
Assistance as to the relationship between s 154 and s 14(a) can be derived from the decision of the Full Court in Featherston v Tully.[33] The Full Court was then answering certain questions of law which had been referred by a single member of the Court sitting as the Court of Disputed Returns considering a challenge to the validity of an election result. Section 107(3) and s 107(4) of the Electoral Act 1985 provided:
(3) An election will not be declared void on the ground of—
(a) a defect in a roll or certified list of electors; or
(b) an irregularity in, or affecting, the conduct of the election,
unless the Court is satisfied on the balance of probabilities that the result of the election was affected by the defect or irregularity.
(4) An election may be declared void on the ground of the defamation of a candidate but only if the Court of Disputed Returns is satisfied, on the balance of probabilities, that the result of the election was affected by the defamation.
[33] [2002] SASC 243 at [156]-[158]; (2002) 83 SASR 302 at 341-2.
Section 103(1) of the Electoral Act 1985 (SA) provided that the Court of Disputed Returns “was to be guided by good conscience and the substantial merits of each case without regard to legal forms or technicalities”. In relation to that provision, Bleby J, with whom Mullighan J agreed said:
The Court is obliged to act judicially, to apply the requirements of the Act and the common law and to afford all parties and legitimate interveners the principles of natural justice. However, the common law criteria which I consider are applicable, as well as the requirements of s107(3) and s107(4), require a judgment to be made about whether there has been an election at all, whether the statutory electoral procedures have been so abused that there has been no election and whether, in the circumstances stated in s107(3) and s107(4) the result of the election was affected by the relevant defect or irregularity. Without the provisions of s106, some might take the view that the only way of reaching a conclusion on those requirements is to hear evidence from every relevant elector as to their inability to vote, how they would have voted, how they in fact voted or, if the relevant circumstances had been different, how they would have voted. It might be said that at least a sufficient number of such people would have to give evidence in order to reach such a conclusion.
Section 106 avoids the need for any such requirement. It means, in the context of this Act, that the Court must exercise its judgment according to its good conscience and according to what it considers to be the substantial merits of the case as to whether the respective common law or statutory criteria have been met. It permits resort to a common sense judgment in all the circumstances. However, the Court's judgment cannot be merely arbitrary. It must still apply the common law principles. In the case of s107(3) and s107(4) it must apply the well known standard of being satisfied on the balance of probabilities that the result of the election was affected by the defect, irregularity or defamation as the case may be.
The section therefore has a useful function, but it does not, as was suggested in the course of the petitioner's argument, allow the Court to create new law.[34]
[34] [2002] SASC 243 at [156]-[158]; (2002) 83 SASR 302 at 341-2.
In my opinion, a similar approach is appropriate in relation to the exercise of the jurisdiction vested in the IR Court by s 14(a). An applicant (ordinarily) bears the onus of satisfying the IR Court of each of the matters necessary for the existence of the entitlement claimed. In considering whether applicants have established the matters necessary for the entitlement they claim, the IR Court is to apply the statutory and common law principles relevant to the claim, but in doing so, is to act in accordance to what it considers to be the equity, good conscience and substantial merits of the case. It is not, however, authorised to ignore the limits of its jurisdiction, or the relevant statutory or common law principles relating to the claim or, in an arbitrary way, to impose a liability simply because it considers it fair and reasonable to do so.
What that means in the present case is that the IR Court, having found that there was no applicable industrial award, was required by s 154 to exercise the jurisdiction pursuant to s 14(a) by reference to the real merits and justice of the claim under the contract. The IR Court had to apply contractual principles but it was not to be constrained by technicality or by matters of little substance or by rules of practice derived from previous decisions on similar sets of circumstances.
The Magistrate did not seek to apply s 154 to a claim in contract. As already noted, his reasoning seems to have been that because the appellant had accrued a substantial entitlement to TOIL which he had been unable to exercise as at the date of termination of his employment, equity, good conscience and the substantial merits of the case indicated that the respondent should pay him the monetary equivalent of that entitlement, and that s 154 authorised an order to that effect. The reasoning of the Senior Judge appears to have been similar. In my respectful opinion, that reasoning involved a misapplication of s 154.
As the appellant’s claim was finally presented, the IR Court was not being asked to enforce an entitlement for which the contract of employment provided, or even an entitlement which, but for some minor deficiency or minor lack of satisfaction with specified criteria, would otherwise have been payable pursuant to the contract.[35] The IR Court was not being asked to refuse to give effect to some disqualifying factor provided for in the contract or derived from the applicable common law principles.[36] It was being asked, under the guise of a claim for a sum due under the contract, itself to create the entitlement, and then to make an order enforcing it. Section 154 did not authorise orders to that effect.
[35] For example, the circumstances in Long Service Leave (Engine Drivers’) Award case [1961] AILR 308 in which the Coal Industry Tribunal held that certain service should be regarded as continuous for the purposes of computation of a long service leave entitlement despite interruptions to that service.
[36] For example, the circumstances considered in Peachey v Duncan and Co [1918] NZLR 821 where the fact that a contract was not in writing as required by the Statute of Frauds was held not to disentitle the respondents to payment pursuant to the contract.
Accordingly, in my opinion the Full IR Court was correct in determining, in the circumstances of this case, that an invocation of s 154 did not entitle the appellant to payment after termination of his accrued entitlement to TOIL.
I do not wish to be understood, by the examples earlier given, as indicating that the circumstances in which s 154 may be applicable are limited to those circumstances. The categories of case in which it may be applied are not closed. But whenever s 154 is invoked in relation to a claim pursuant to s 14(a), it must be in the determination of the claim for the sum due under the Act, award, enterprise agreement or contract of employment in question (or, as the case may be, under the Commonwealth Act or an award or agreement under the Commonwealth Act).
In H G Collett Pty Ltd v Alsop Olsson J suggested that the predecessor of s 154 should appropriately be applied by:
first asking what is the strict legal situation and secondly posing the subsequent question as to whether, on the totality of the evidence, an application of the concepts of equity, good conscience and the substantial merits of the case demands some variation of or departure from an application of strict legal principles. In some cases equity will demand an adherence to the strict legal position established by the evidence. In other instances equity, good conscience and the substantial merits of the case will compel the Court to a different final conclusion.[37]
[37] (1982) 49 SAIR (Pt 1) 309 at 328.
In many cases, that approach has proved useful. However, it should not, in my respectful opinion, distract the IR Court from the proper exercise of its jurisdiction. The IR Court is exercising one jurisdiction only in a case of this kind, namely, the jurisdiction pursuant to s 14(a). The approach suggested by Olsson J should not be understood, in my opinion, as suggesting that the IR Court first exercise a jurisdiction pursuant to s 14(a) and then exercise a separate jurisdiction according to the perceived requirements of equity, good conscience and the substantial merits of the claim. In my opinion, the preferred approach is to regard the IR Court as exercising a single jurisdiction in the course of which it is not to feel constrained by technical or minor shortcomings where the justice of the case indicates otherwise.
There is one final comment which I would wish to make before leaving this aspect of the appeal. Both the Full IR Court and the Magistrate referred to s 154 as vesting in the Court a discretion. The Full IR Court went on to say that the exercise of the discretion could be disturbed on appeal only in accordance with the principles established in House v The King.[38] For myself, I do not regard s 154 as vesting a discretion in a court, or at least a discretion of the kind to which the appellate principles discussed in House v The King apply. It is a statutory direction to the Court as to the way in which it should exercise its jurisdiction.[39] It is a provision which governs all proceedings in the IR Court and Commission although, as noted above, its precise meaning and application in any given case will vary. Accordingly, where the IR Court is hearing an appeal from a decision involving the application or possible application of s 154 it should not be constrained by the principles established in House v The King as to the circumstances in which it is appropriate to interfere with the decision at first instance.
[38] (1936) 55 CLR 499.
[39] H G Collett Pty Ltd v Alsop (1982) 49 SAIR (Pt 1) 309 at 328.
In my opinion, the appeal with respect to the TOIL should be dismissed.
The Cross-Appeal
By the cross-appeal, the respondent complains of the refusal of the Full Bench of the IR Court to set aside the order in favour of the appellant that he be paid the monetary value of his accrued annual leave as at the date of termination of his employment.
As already noted, cl 8 of the contract of employment provided for annual leave. However, apart from indicating that there should be an entitlement to such leave, it made no provision for the computation of the entitlement nor the manner in which it should be taken. In these circumstances, s 71 of the IERA is applicable.[40] The effect of s 71 which is relevant for present purposes is that the minimum standard for annual leave provided for in Sch 4 of the IERA is to be understood as incorporated into every contract of employment, unless the provisions of the contract are more favourable to the employee. Clause 3 of Sch 4 provides for the manner of accrual of an employee’s entitlement to annual leave:
An employee’s entitlement to annual leave accrues as follows:
(a)an employee is entitled to 4 weeks’ annual leave for each completed year of continual service; and
(b)if an employee’s employment comes to an end and the period of service is not exactly divisible into complete years – the employee is entitled to 1/3 of one week’s annual leave for each completed month of the remainder.
[40] Section 71 provides:
(1) A contract of employment is to be construed as if it provided for annual leave in terms of the minimum standard for annual leave in force under this section unless—
(a) the provisions of the contract are more favourable to the employee; or
(b) the provisions of the contract are in accordance with an award or enterprise agreement.
(2) The minimum standard for annual leave in force under this section is—
(a) the standard set out in Schedule 4; or
(b) a standard substituted for that standard on review by the Full Commission under subsection (3).
…
There is no express provision in Sch 4 for payment on termination in respect of annual leave entitlement which has accrued but which is untaken. In these circumstances (absence of any prescription in either the contract of employment or in Sch 4) the respondent’s submission was that the appellant had no entitlement on termination to payment of his accrued annual leave and that the IR Court had been wrong to so order. The respondent sought to support that contention by contrasting the position under the IERA with the position under the Act which it replaced, namely, the Industrial Relations Act 1972.[41] Section 81(4) of that Act had provided:
Every employee shall, in respect of annual leave, whether granted pursuant to this section or to an award, be entitled to payment in lieu of annual leave or proportionate leave on termination of employment and such payment shall be made irrespective of the reason for, or the manner of, such termination.
Thus, the 1972 Act made express provision for payment on termination in respect of untaken annual leave. The absence of an equivalent provision in the IERA indicated, in the respondent’s submission, a legislative intention that payment in lieu of annual leave was not contemplated by the IERA.
[41] Formerly known as the Industrial Conciliation and Arbitration Act 1972.
There are authorities in which it has been held that a term entitling an employee, on termination, to payment in respect of accrued annual leave should not be implied into a contract of employment[42] but I do not consider that they should govern the outcome in this case.
[42] For example H A W Jones Pty Ltd v Neille (1967) WAR 181 at 184; Gordon v Carroll (1975) 27 FLR 129 at 143-6.
In the present case, an intention that an employee should be entitled to payment in respect of untaken leave should be inferred from the terms of Sch 4 itself. The terms of cl 3(b) of Sch 4 have been set out above. It provides expressly for the accrual of the employee’s entitlement to annual leave when the employee’s employment comes to an end. The employee is then entitled to one-third of one week’s annual leave for each completed month of service less than one year. That entitlement does not accrue at all until the employment comes to an end, at which time of course the taking of any leave becomes inapplicable. If the employee was not entitled to payment in respect of the accrued entitlement, cl 3(b) would serve no purpose at all. The legislature should not be regarded as having intended that consequence. On the contrary, the presence of cl 3(b) indicates, in my opinion, a legislative intention that the employee should be entitled to payment in respect of the untaken annual leave, and cl 3(b) provides for the computation of the amount of that entitlement. Sch 4 should therefore be understood as implicitly entitling the employee to payment on termination in respect of annual leave.
The respondent sought to avoid this conclusion by contending that any untaken period of leave had to be taken by the employee in the period between the giving of notice and the conclusion of the employee’s service. The respondent submitted that where an employee or an employer give notice of intention to terminate the employment, the employment comes to an end on the giving of the notice and not at the conclusion of the period of notice. That being so, the respondent submitted that the employee’s entitlement could be calculated as at the date upon which notice was given and, if the employee wished to avail himself or herself of that entitlement, the annual leave could be taken during the period of notice. In support of the submission as to the effect of giving notice, the respondent referred to the judgment of Gray J in the decision of the Full Bench of the IR Court of Australia in Fryar v Systems Services.[43] In Fryar one issue was whether s 31 of the Industrial Relations Act 1972 (SA) provided “an adequate alternative remedy” to a dismissed employee such that the IR Court of Australia should not consider an application for relief in respect of that dismissal pursuant to the terms of the Industrial Relations Act 1988 (Cth). Section 31(1) of the Industrial Relations Act 1972 (SA) read:
Where an employer dismisses an employee, the employee may, within 21 days after the dismissal takes effect, apply to the Commission for relief under this section.
In his judgment, Gray J considered the question of when a dismissal, for the purposes of s 31, takes effect. He held that “[a] dismissal on proper notice is a dismissal when the notice is given, not when it expires”.[44] The respondent submitted that the passage from Gray J just quoted should be applied to all cases of termination on notice. That submission cannot be accepted. Gray J was expressing a view only on the question of when a dismissal for the purposes of s 31(1) of the Industrial Relations Act 1972 (SA) occurs, and not the different question of when employment following the giving of notice of termination comes to an end. That Gray J was not intending to express a principle having any wider application is apparent from the passage which immediately follows the sentence relied upon by the respondent:
The giving of notice by one party to a contract, in accordance with the terms of the contract, is an irrevocable act. Once such notice is given, it will operate inexorably and the contract will come to an end at its expiration. The party who has given the notice cannot withdraw it. The other party cannot refuse to accept it. Proper notice is not merely a warning that some action will be taken at the end of the notice period, it is itself the act which operates to bring about the end of the contract when the notice expires.[45] (Emphasis added.)
The true position at common law is that a valid notice of termination brings the contract of employment to an end when the notice expires.[46]
[43] (1995) 130 ALR 168.
[44] (1995) 130 ALR 168 at 186.
[45] (1995) 130 ALR 168 at 186. See also the decisions of Gray J in Birrell v Australian National Airlines Commission (1984) 5 FCR 447 at 457; APESMA v Skilled Engineering Pty Ltd (1994) 122 ALR 471 at 484; (1994) 1 IRCR 106 at 118.
[46] Grout v Gunnedah Shire Council (1994) 125 ALR 355 at 365; (1994) 1 IRCR 143 at 151; Hill v CA Parsons Co Ltd [1972] 1 Ch 305 at 313-4.
There is a further reason why the respondent’s submission in this respect should not succeed. On its face, cl 3(b) of Sch 4 applies to all circumstances where an employee’s employment comes to an end. It is not confined only to those circumstances in which employment comes to an end as a consequence of the giving of notice by one party or the other. It appears on its face to be of equal application in circumstances where a contract for a fixed duration comes to an end, or where a contract which is to continue until the completion of a specific task comes to an end, as well as to circumstances where the contract comes to an end in consequence of a repudiatory act by one party which is accepted as terminating the contract by the other. The respondent’s submission, if correct, would give cl 3(b) no operation in those circumstances.
Quite apart from an analysis based on legislative intention, there is at least one alternative analysis which would lead to the same conclusion. Section 71(1) of the IERA provides (relevantly) that a contract of employment is to be construed as if it provided for annual leave in terms of the minimum standard. That is, s 71(1) requires a fiction to be assumed. If the parties did in fact agree to include the terms specified in Sch 4, including the term relating to accrual of an entitlement on the employment coming to an end, then it would be appropriate to infer an actual intention by the parties that the employee should be entitled to payment in respect of annual leave for the accrual of which they had expressly provided. There being no other purpose for cl 3(b) it should be inferred, in the fiction which must be applied, that the parties did intend that payment should be made on termination in respect of untaken leave.
Those conclusions make it unnecessary to consider whether a term implying an entitlement, on termination of employment, to payment in respect of untaken annual leave should now be implied by law into the contract of employment.[47]
[47] Cf Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 345-6 per Mason J.
In my view, the Full Bench of the IR Court was correct, for either of the first two reasons which I have given, in dismissing the respondent’s appeal against the finding that it was liable to pay the appellant the monetary equivalent of his accrued entitlement to annual leave. The Full Bench in this case adopted the reasoning of Judge Parsons in Beydoun and Beydoun v Brown[48] which was to the effect that Sch 4 implicitly provided for payment, on termination, of accrued entitlements to annual leave. In my opinion it was correct to do so.
[48] [2005] SAIRC 1.
Conclusion
For these reasons, I would dismiss both the appeal and the cross-appeal. I would hear the parties as to costs.
LAYTON J: I have had the advantage of reading the draft reasons for decision of White J. I disagree with the conclusion which his Honour reaches with regard to whether an entitlement to be paid the monetary equivalent of accrued time off in lieu of payment for overtime (“TOIL”) should be implied into the appellant’s contract. For reasons which I set out hereafter, I conclude in the circumstances of this case, that such a term should be implied into the contract of employment between the parties.
The term which I consider should be implied is that, in the event that the contract of employment is terminated by either party before the appellant has taken all the TOIL accumulated to the date of termination, the appellant is entitled to be paid for such accrued overtime at an ordinary rate of pay (“the implied term”).
I do however agree with the approach taken by White J as to the interpretation and application of s 154 of the Industrial and Employees Relations Act 1994. I also agree with the dismissal of the cross appeal for the reasons given by White J.
Background
The background circumstances are set out in some detail in the reason given by White J, however, for the purposes of enabling these reasons to be comprehensive I highlight the following matters.
The appellant since 1988 has had an association with the members of the Noris family (being in essence the respondent group of companies), as well as Douglas Dinan (“Dinan”). The respondent owned the Tea Tree Gully Hotel. Dinan was the Manager of the hotel. The appellant began to carry out maintenance at the hotel on a part-time casual basis which continued up until he entered into a contract for full-time employment with the respondent ten years later in January 1998. The relationship between the appellant, the respondent and Dinan before the appellant entered into the contract in January 1998, was described by Dinan as being “very strong”. The appellant was living in a house owned by the respondent, and Mr Noris had “treated Phil like a son”.
Dinan also had a close relationship with the appellant and had taken him on as a silent partner in carting general freight interstate for ten years. Dinan was keen to assist the appellant to gain apprenticeship training and at the same time to be able to obtain a good wage. The written contract between the appellant and the respondent arose as a result of a request by the appellant to put the full-time employment offer with the respondent in writing. Dinan also thought a written contract was a good idea. As Dinan said “we just got one of the girls to type out what we had discussed”.
The resultant written contract was a simply expressed document. The appellant was to be “Responsible for the repair and upkeep of all [the respondent’s] Assets inclusive of all privately owned or operated assets” (clause 4). These assets included a holiday house, hotels and other properties. The respondent was also required to finance study courses (clause 12), and provide assistance to enable the appellant to finance the purchase of a house owned by the respondent (clause 13).
The full terms were as follows:
1. Commencement Date
Employment to commence on the 5th Day of January 1998.
2. Position / Classification
Maintenance repairer, Trainee Licensed Aircraft Maintenance Engineer, Maintenance Controller.
3. Status
Full Time Employment
4. Job Description
Responsible for the repair and upkeep of all the Noris Groups Assets inclusive of all privately owned or operated assets. To be of assistance to the best of your ability to any employee or member of the Noris Group in any matter as directed by Management or nominated person. Record keeping as required or as necessary to complete given tasks to the highest degree of ability.
5. Hours of Work
Due to the nature of work to be carried out no set hours can be given. It is envisaged however that a minimum of forty hours a week will be fulfilled. Days off and holidays will be by negotiation and acceptable to both parties. Communications must be maintained at all times in case of urgent calls. Should this not be possible you are to advise management at the earliest convenient moment or prior to if possible.
6. Wages / Salary Package
A salary of fifty thousand dollars per annum will be paid. Company vehicle in the form of a one tonne utility or similar will be supplied inclusive of all operating costs and fuel. Salary adjustments are by mutual negotiation and not prior to twelve months service.
7. Overtime / Shift Work
As required without penalty.
8. Annual Leave
Annual leave will be allowed and subject to negotiation. It must be realised that annual leave may not be available at all times due to the nature of employment, however best endeavours will be made to fulfil any request. No penalty will be paid on annual leave neither will it be accumulative.
9. Sick Leave
Sick leave will be paid up to ten days a year accompanied by a Doctors certificate. The Noris Group will pay WorkCover.
10. Special Leave
Leave required in special circumstances will be available by mutual negotiation.
11. Superannuation
Superannuation will be paid at six percent of the gross salary into an approved fund. This amount will be adjusted as per Government rate and regulations.
12. Study Courses
The Noris Group undertake to finance any course undertaken as long as it is within the purpose of this letter of appointment. The funding of these courses may be subject to a contract of employment guarantying a length of stay as mutually agreed.
13. Purchase of House
As part of this letter of appointment you are to complete the purchase of the property situated at no. 3 Dinan Court Tea Tree Gully for an amount to be negotiated but not less than $125,000-00. The Noris Group will use its best endeavours to assist with any financing that are required to fulfil this transaction.
14. Probationary Period
A probationary period of ninety days from the employment start date will be in force. On or before the expiration of this period either party may terminate this agreement without penalty or recourse.
15. Payment of Wages
Wages will be paid weekly by cheque. The Noris Group reserves its right to pay wages by direct bank transfer in the future.
16. Lines of Authority
Claude and Maria Noris Company Directors
Douglas Dinan Managing Director
John Dinan Manager / Walkers Arms
Stefan Berson Chief Engineer / Noris Dinan AviationBeverley Larsson Company Administrator
17. Uniforms
Uniforms will be supplied through the company administrator. Safety equipment will also be supplied with the exception of footwear, which will remain the employee’s responsibility.
18. Company Administration Manual
All Company manuals have to be complied with as and when they become available inclusive of the Noris Dinan Aviation Operations Manual.
19. Termination of Employment
The Noris Group will issue three written notices of non-compliance before employment is terminated.
A minimum of 30 days written notice is required should you wish to terminate your employment.
20. Confidentiality
As part of this letter of appointment you are required to sign a copy of the Companies Confidentiality Agreement. A copy of this agreement and this letter of appointment will be made available to you on request to the Company Administrator.
I agree with the analysis of White J as to the terms expressly agreed by the parties in relation to overtime when the written contract was signed and also the express terms of agreement of the oral variation which occurred in February 1998, about a month after the commencement of the contract. In particular, I agree that whilst cl 7 of the written contract could reasonably have been construed as indicating that the appellant was entitled to be paid at his ordinary rate of pay without loading in respect of any overtime worked in excess of 40 hours per week, the understanding of the parties at the time of the commencement of the contract in January 1998 was that the appellant had no entitlement to any payment in respect of overtime whatsoever, and that each party considered that the written document had given effect to this understanding.
I also agree that the evidence of the appellant, which is relevantly set out by White J, indicated that the effect of the oral agreement after the appellant had been working significant overtime, for which he received no added benefit, was to bring in a new agreement as to overtime. Namely, that that the appellant would work overtime as required and that instead of additional payment for that overtime, he was entitled to take an equivalent amount TOIL at a time which was mutually convenient to him and the respondent.
The conversation which led to the oral variation was again simply expressed. There was no reference to matters such as any restriction on accumulation of overtime, in contrast to the express provision in cl 8 of the written contract that annual leave not be cumulative. There was no express reference to what would happen if leave was not taken or could not be agreed or the appellant was unable to take TOIL because of his work commitments. There was no express agreement as to what should happen if either party terminated the contract when the appellant had an accrued entitlement to TOIL. Nor was there any express agreement as to what should happen if there was a cessation of the business of the respondent, or sickness or death of the appellant and the appellant had an accrued entitlement to TOIL. There was also no express agreement as to how arrangements to take TOIL would be made or any agreement which required TOIL to be taken regularly or for the entitlement and its implementation to be monitored. In short there was no express agreement for the conditions of its taking, nor for contingencies.
At the time when the new oral arrangement was entered into, it was known that the appellant was working more than 40 hours per week. The evidence of the appellant was that at that point he was working 60 hours plus per week. The finding of the Industrial Magistrate was that the appellant “for the most part worked hours in excess of 40 hours a week for the duration of his employment”.
On this appeal the following findings of the Industrial Magistrate were not challenged. Over the period of the employment, from the time of the oral agreement in February 1998 to termination of employment on 5 May 2002 after 30 days notice, the appellant had accrued 4,798 hours of unpaid overtime which had not been taken as TOIL. He had only taken 16 days TOIL over that period. The hours worked were accurately recorded in the appellant’s diaries. The respondent had never ‘policed’ the taking of TOIL and instead left it up to the appellant to make his own arrangements. The appellant was unable to take TOIL other than the 16 days because of his workload.
It is on these background facts that I will now consider the issue of the implied term.
Implied terms
In considering whether any term or terms of employment should be implied in relation to contract of employment, I consider that the following principles are relevant.
·A contract of employment is by its nature a bilateral contract.[49]
·The consideration for work is wages and the consideration for wages is work. The right to wages depends on whether the consideration has been performed.[50] This is sometimes referred to as the work/wages bargain.[51]
·Before determining whether or not a contractual term is to be implied into a contract of employment the express terms and the actual intention of the parties must first be identified.[52]
·There are five conditions which are required to be satisfied when a court considers whether the implication of a term is necessary for the reasonable and effective operation of the contract.[53] However, a number of the conditions overlap and in the case of employment contracts, particularly where it is clear that the formal contract is not complete, a rigid approach is to be avoided and a degree of flexibility is appropriate.[54]
[49] Dietrich v Dare (1980) 30 ALR 407, 411.
[50] Automatic Fire Sprinklers Pty Ltd v Watson (1946) 72 CLR 435, 452.
[51] B W Napier, ‘Aspects of the Wage-Work Bargain’ (1984) 43 Cambridge Law Journal 337.
[52] Hawkins v Clayton (1988) 164 CLR 539, 570.
[53] Byrne v Australian Airlines Ltd (1995) 185 CLR 410, 422; BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266, 283.
[54] Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41, 121; Byrne v Australian Airlines Ltd (1995) 185 CLR 410, 422; Hawkins v Clayton (1988) 164 CLR 539, 573.
The five conditions are that the term must:
1be reasonable and equitable;
2be necessary to give business efficacy to the contract;
3be so obvious that “it goes without saying”;
4be capable of clear expression; and
5not contradict any express terms.[55]
[55] BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266, 283.
In applying these principles, I start by noting that the written contract of employment is sparse and the circumstances in which it was reduced to writing as referred to earlier, were relatively simple and somewhat ad hoc. For reasons previously referred to, the written contract did not correctly articulate the agreement of the parties with respect to a significant issue of the payment of overtime. The oral variation does not contain express agreement on dealing with contingencies and in particular the rights of the appellant to any accrued TOIL entitlement on termination of employment.
It is an essential and fundamental right of an employee to be either remunerated, or to receive some other agreed benefit, from the employer for work performed according to the contract for the benefit of the employer. In this case, the express oral variation to the contract was that the appellant receive an additional benefit over and above the payment of $50,000.00 for work performed by him in excess of 40 hours per week. The benefit which was agreed between the parties was that the appellant would be able to take time off from work equivalent to his overtime, and that he would be remunerated for that time off. This was clearly intended by the parties to be an additional advantage to him which did not form part of the original agreement.
This variation was entered into at a time when the parties were close and the appellant was a person whom the respondent wished to assist on a personal basis. There was no reference to matters previously discussed and in particular the accrued rights of the appellant in relation to TOIL not taken at the time of termination of employment.
On the facts found, the overtime work performed by the appellant was for the benefit of the respondent. The appellant at the time of terminating his employment had an accrued entitlement to TOIL.
I also note that the very concept of TOIL is that it is time off in lieu of payment. In other words, the concept itself recognises that payment would usually be required for the performance of overtime. TOIL provides instead an entitlement to be paid for an equivalent period of time during which no work is being performed.
I now turn to the five conditions, recognising that in discussing them, there is a degree of overlap of the circumstances which are relevant to each condition.
First, I have concluded that it is reasonable and equitable that the appellant should receive a benefit for his labour. To deprive him of the benefit of his overtime on the basis that he should have taken the time off before he terminated his employment, when it was found that he was not able to take TOIL earlier because of his work commitments, is in my view unreasonable. The appellant cannot be forced to remain employed with the respondent for the approximately 120 weeks it would take for him to use his accrued overtime as leave. Specific performance could never be required of the appellant.[56]
[56] See eg De Francesco v Barnum (1890) 45 Ch D 430, 438.
Similarly, it is unreasonable that the respondent should be able to take advantage of the 4,798 hours of work performed by the appellant for its benefit as this would effectively be an unjust enrichment for the respondent. In my view, this first condition is therefore appropriately remedied by the implied term.
Second, the express contract lacks business efficacy, as there would not be in effect a bilateral contract between the parties if the appellant is not able to receive benefit for his labour. The fundamental principles of an employment relationship would be defeated and the matters referred to in relation to the first condition are also applicable to this condition.
Third, turning to the condition that an implied term “goes without saying”. This is a reference to what is sometimes referred to as the “officious bystander test” which was derived from the remarks of Mackinnon LJ in Shirlaw v Southern Foundries (1926) Ltd,[57] who said:
Prima facie that which in any contract is left to be implied and need not be expressed is something so obvious that it goes without saying; so that, if while the parties were making their bargain, an officious bystander were to suggest some express provision for it in their agreement, they would testily suppress him with a common ‘Oh, of course!’
[57] [1939] 2 KB 206, 227.
Having regard to the close relationship between the parties, the fundamental nature of an employment contract, and the clear intention of the respondent to benefit the appellant and reward him for overtime, if it had been pointed out to the parties by such a bystander that circumstances might arise whereby the appellant would be unable to take TOIL and unless he was paid he would receive no benefit for his labours, the respondent would have responded as follows. Whilst ordinarily the benefit for overtime was to be TOIL and not payment, if the appellant was unable to take TOIL in circumstances such as termination of employment when there was an accrual of overtime, then of course the appellant should not go unrewarded and instead should receive payment for his labours. On the other side of the coin, the appellant would be most unlikely to have agreed to a proposal that would prevent him from receiving payment for his labours in such circumstances.
The English Court of Appeal in Alpha Trading Ltd v Dunnshaw-Patten Ltd took an analogous approach in somewhat similar circumstances.[58] In that case it was agreed by the defendants that the plaintiffs’ commission was to be paid out of the proceeds of a contract for the sale of goods if the plaintiffs introduced a purchaser. The plaintiffs did introduce a company which entered into a contract with the defendants, however, this contract was not completed because of a default by the defendants and no proceeds were received. The Court of Appeal ordered that the plaintiffs be paid commission, because it was obvious that the defendants should not be able to deprive the plaintiffs of the benefit of their labours. The Court implied a term to the effect that the defendants’ should not do anything which would prevent the plaintiffs receiving the commission for their labours. In my view, this test is also fulfilled by the implied term for payment.
[58] [1981] QB 290.
Fourth, the implied term is capable of clear expression, as I have articulated it.
Fifth, in my view such an implied term does not contradict any express term. There was no contradiction or inconsistency, as the parties did not at the time when the contract was varied, address the issue of accrued rights to TOIL at the time of termination of employment. Nor indeed were any aspects of the conditions and contingencies of what should happen if TOIL could not be taken by reason of circumstances such as sickness or death discussed. There was a gap or omission for which no allowance was made. It was wrongly assumed by the parties that TOIL would always be able to be taken. I therefore disagree with the conclusion which White J has reached that such an implied term would be inconsistent with an express term. This is particularly so when payment for work performed is such a fundamental and essential requirement for an employment contract.
In summary, I consider that a term providing an entitlement to be paid for the equivalent value of the accrued TOIL entitlement should be implied into the contract of employment between the parties.
I would therefore allow the appeal and order that the decision of the Full Bench of the Industrial Relations Court be set aside and that the cross appeal be dismissed.
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