Hadchiti, Raymond v Sheen Panel Service
[1997] FCA 757
•12 AUGUST 1997
FEDERAL COURT OF AUSTRALIA
INDUSTRIAL LAW - TERMINATION OF EMPLOYMENT - alleged UNLAWFUL TERMINATION - EMPLOYMENT RELATIONSHIP - employee relinquishing position to be trained in order to purchase business - purchase not proceeding - whether VALID REASON for termination.
Workplace Relations Act 1996 (Cth) ss 170DB, 170DC, 170DE, 170EA, 170EE.
RAYMOND HADCHITI and FAWZI HADCHITI v.
SHEEN PANEL SERVICE
VI 1143 and VI 1144 of 1997
Before: MURPHY JR
Place: MELBOURNE
Date: 12 AUGUST 1997
IN THE FEDERAL COURT OF AUSTRALIA ) ) VICTORIA DISTRICT REGISTRY ) VI 1143 and VI 1144 of 1997 ) GENERAL DIVISION )
BETWEEN: RAYMOND HADCHITI
First ApplicantFAWZI HADCHITI
Second ApplicantAND: SHEEN PANEL SERVICE
Respondent
JUDGE: MURPHY JR PLACE: MELBOURNE DATED: 12 AUGUST 1997
MINUTES OF ORDER
THE COURT ORDERS THAT:
A. In proceedings No VI 1143 of 1997:
1.The respondent pay to the applicant, after payment of any taxation that might be due, the net sum of $10,556.
B. In proceedings No VI 1144 of 1997:
1. The application is dismissed.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA ) ) VICTORIA DISTRICT REGISTRY ) VI 1143 AND VI 1144 of 1997 ) GENERAL DIVISION )
BETWEEN: RAYMOND HADCHITI
First ApplicantFAWZI HADCHITI
Second ApplicantAND: SHEEN PANEL SERVICE
Respondent
JUDGE: MURPHY JR PLACE: MELBOURNE DATED: 12 AUGUST 1997.
REASONS FOR JUDGMENT
Introduction
The respondent owns and operates a number of panel beating businesses including one at North Melbourne (“the business”). These proceedings under s 170EA of the Workplace Relations Act 1996 (Cth) (“the Act”) are a sequelae to an aborted attempt by the second applicant to purchase the business from the respondent. The applicants are brothers and were employed at the business until 4 December 1996. The respondent in opening admitted a breach of s 170DE(1) of the Act in respect of the first applicant. The respondent’s defence to the second applicant’s application for a remedy was that as a result of arrangements entered into during negotiations for the proposed purchase of the business, he was no longer employed when he and his brother were bundled off the premises on 4 December 1996.
The second applicant’s disenchantment with spray painting.
The second applicant is aged twenty-six and commenced with the respondent in 1989 as an apprentice spray painter. It was common ground that he developed into a good tradesperson. In the second half of 1996, soon after the birth of his first son, the second applicant formed the view that he should seek to advance himself by moving into management. It emerged in the respondent’s evidence that a further factor was that in October the respondent had appointed a new workshop foreman, Mr Brad Gibbons, and the second applicant was put out that he did not have the position. The first applicant, who had joined the respondent as a detailer/cleaner in September 1996, also encouraged his older brother to seek advancement.
In November the second applicant approached a Bayswater based director of the respondent, Mr Martin Stone, to advise him that he didn’t want to work as a spray painter any more and to ascertain whether there were any positions as assistant manager available for him. Mr Stone advised that he would make enquires. A week or so later the two had a further discussion in the office at North Melbourne. Mr John Barry, the North Melbourne manager, was also present. The second applicant had also previously raised his disenchantment with Mr Barry. Mr Stone advised the second applicant that there was no management position available for him within the respondent and none likely to arise in the forseeable future. The second applicant told him how much he was interested in becoming an assistant manager. Mr Stone asked the second applicant whether he would be interested in purchasing the business. Around that time the respondent had been advertising to sell the business under a licence arrangement. The second applicant replied that he couldn’t buy into the business because he didn’t know how to operate it. The second applicant’s evidence was that he said to Mr Stone: “I don’t care if you don’t want to pay me or whatever, till - just to see what I can do in the office”. On the second applicant’s account Messrs Stone and Barry did not reply to this.
The respondent’s version was that when the second applicant expressed an interest in buying the business, and an inability to know whether he could actually run it, Mr Stone said to him that he would be willing to show him how to run it but not at the respondent’s cost. The second applicant agreed. Arrangements were then made to secure a replacement spray painter.
A key question which emerged was what was said about the effects of this decision on the second applicant’s continuing employment status with the respondent. The second applicant denied that anything was said. He said that he was to become assistant manager when a replacement spray painter was recruited. Mr Stone said it was made clear that the recruitment of the replacement involved the second applicant relinquishing his position. Mr Barry’s evidence was that the second applicant was aware that his position in the paint shop had to be replaced and “therefore he resigned that position”. He said that the second applicant used either the words “resign” or “quit”.
The position was an important one in the workshop and Mr Barry put advertisements in place to replace the second applicant. The second applicant participated in the interviews for the successful spray painter and Mr Vukovic was selected. The second applicant said he participated to ensure that whoever was selected did not damage the good workshop that he had established. Mr Barry gave evidence that the second applicant was introduced during the interview as the proposed licensee of the business. The second applicant had further said that he wanted a good spray painter working for him when he took over the business. After Mr Vukovic commenced the second applicant then moved into the office to learn various aspects of the business.
A key difference in the evidence was the second applicant’s status at this stage. The second applicant maintained that he was assistant manager. Messrs Stone and Barry gave evidence that he was working alongside Mr Barry and being trained in all aspects of the business in order to ascertain whether he was able to successfully purchase the business. It was the respondent’s account that it had an interest in the second applicant being suitable because of the licensing arrangements that were part of the proposed sale.
Around the time that Mr Vukovic was recruited the second applicant’s pay ceased and his outstanding holiday pay was paid into his bank account. The second applicant’s account was that he queried this with Mr Barry, who told him to contact Mr Stone. The second applicant said that he telephoned Mr Stone and asked him if he was still an employee. Mr Stone said “yes, no worries, I won’t shortchange you in any way. You’ve got all your long service leave and what have you. Just try out being assistant manager.” The second applicant said that Mr Stone told him that if he was no good he would go back to the paint shop. Mr Stone denied this conversation.
Mr Barry’s account was that the second applicant was finding it difficult to make ends meet as he was not being paid. He said that he had lent him $100. The second applicant had queried the office about his pay and Mr Barry had confirmed his original offer to come in and learn the business without being paid. The second applicant had agreed with that but said he was finding it hard.
While the second applicant was in the office, Mr Stone also discussed the proposed purchase with him. According to the second applicant Mr Stone was pressuring him to move fairly rapidly. On 29 November Mr Stone faxed to the second applicant a “Statement by a Vendor of a Small Business” (Exhibit A1). This contained details of financial and other aspects of the business. The second applicant took it to his accountant who said that the figures look good. After this the second applicant spoke to the first applicant about it. The first applicant had some experience in running his own business.
The meeting on 3 December.
On 3 December Mr Stone called the applicants to a meeting at the Bayswater office of the respondent. Another director of the respondent, Mr Barry Denys, also participated in this meeting. At that meeting the parties engaged in a negotiation about the sale of the business. A number of issues were to be resolved. It was agreed that the price would be $150,000. There was also a discussion about the lease terms, and a particular term was agreed. It was also agreed that there would be a monthly licence fee of five per cent. Messrs Stone and Denys agreed to waive the licence fee for the first two months. Mr Stone also agreed that Mr Barry would remain with the business on a part-time basis for twelve months. Mr Barry had not been consulted about this prior to the meeting but when contacted by Mr Stone later that afternoon, agreed.
At the end of that meeting it was the respondent’s version that there was a concluded agreement that the second applicant would purchase the business - a “handshake deal”. In particular, both Messrs Stone and Denys were adamant that the issue of the agreement being subject to finance was not discussed. Mr Stone said that all conversations he had with the second applicant were on the basis that the second applicant had access to family funds to finance the purchase. The applicants were to advise the respondent of a date to settle and this was likely to be 1 January 1997. The next step would be contact between legal advisers to exchange contracts. Mr Denys’ account was that the question of the funds for the deal did not arise at the meeting. He had been earlier advised by Mr Stone that the applicants had the funds available.
The applicants’ version was that there was no such deal. Rather the second applicant said that the first applicant was to revert to Mr Stone the following day to advise whether the second applicant would proceed on the terms discussed. The first applicant said that it was the second applicant who was to make the contact. Mr Barry, who was not at the meeting, gave evidence that he was advised by Mr Stone late that afternoon that agreement had been reached. He shook hands with the applicants to congratulate them when they returned. The applicants were “rapt”. They had a deal and intended to take over on 1 January.
On that evening the applicants discussed the details of the purchase with their family. Their father, whose name was on the title of property that was to provide some security, refused to make available the title. He was concerned about the $8,000 monthly lease payment. The applicants were thus unable to obtain finance. The first applicant formed the view that to proceed was too big a risk and told his brother that he shouldn’t proceed.
The following day the first applicant contacted Mr Stone and told him that the second applicant would not be proceeding with the purchase on the terms discussed. He asked whether the purchase could proceed on a time payment basis. Mr Stone rejected this. Shortly after this Mr Stone contacted the second applicant who told him he could not raise the money. He was unimpressed with the information and made his displeasure known. Mr Stone then contacted Mr Barry and asked him to ask the applicants to leave the premises. Mr Stone contacted the second applicant a couple of days later and apologised for being abusive on the telephone.
Findings - on what basis did the second applicant go into the office?
As has been seen there were significant conflicts in the evidence. What emerged as common ground was that the second applicant was dissatisfied with working in the paint shop and wanted to better himself by moving to management. Next the respondent did not have a position as assistant manager available. The respondent had the business on the market however. I accept that the second applicant expressed an interest in purchasing the business. This was conditional upon him satisfying himself that he was able to actually run the business. On the second applicant’s own version he said he was prepared to learn the operation of the business without pay.
The key issue at this point is the second applicant’s status when he moved to the office. The respondent maintained that he had ceased as its employee. It had replaced him with Mr Vukovic. The second applicant’s own evidence was that he was told by Mr Stone that he was still its employee, still had his long service leave and could go back to the paint shop if he didn’t purchase the business. Mr Barry’s evidence was that the second applicant had resigned or “quit”. Mr Barry maintained that the second applicant told him this, and that the second applicant was “completely aware that the position in the (paint) shop had to be replaced, and therefore he resigned that position....”
There are two related issues to be resolved. The first is whether or not the second applicant’s employment status changed when he moved from being a spray painter to working alongside Mr Barry in the office. The second is whether there was any agreement between the parties that in the event that the proposed purchase did not proceed, the second applicant would remain in the employ of the respondent and in what capacity.
There was a direct conflict between the evidence of the second applicant and Mr Barry as to whether the former said he quit or had resigned. Before choosing the preferable account it is of assistance to consider later events in the narrative. First, it is difficult to accept the second applicant’s account that he was assistant manager. Mr Stone said that there was no position as assistant manager. More significant is the fact that the second applicant’s holiday pay was paid out. This supports the respondent’s account that the basis on which the second applicant went to the office was that he was not to be paid. This is consistent with the respondent’s version that the second applicant had evidenced an intention that he did not wish to return to spray painting. He did not wish to return to the paint shop as he was keen to purchase the business. The second applicant’s own evidence supports all these propositions. The second applicant’s evidence thus complements Mr Barry’s that the move of the second applicant to the office, combined with the filling of the spray painter position by Mr Vukovic, amounted to the second applicant resigning his position as spray painter. The cessation of his pay, and payment of outstanding annual leave, is consistent with this. It is also inconsistent with appointment to the position of assistant manager. While I am unable to accept Mr Barry’s evidence of the second applicant’s alleged comments, the effect of the second applicant’s actions was that he was resigning as spray painter.
I find that the second applicant and the respondent agreed that in order to ascertain whether the former was in the position to proceed with the purchase of the business the latter would train him in the skills and duties necessary to actually run the business. While those skills and duties coincided with those of an assistant manager of the respondent, that was not the basis on which the second applicant was being trained. The parties agreed that until the question of whether the second applicant would proceed to purchase the business was resolved, the second applicant would not be paid. The arrangement had benefits for both sides. The respondent had the opportunity to sell the business to someone who it knew was likely to make a success of it. On the other side, the second applicant had the opportunity, if he succeeded in learning the skills, to move to management and ownership of his own business. I am not satisfied however that the basis on which the second applicant went into the office was that he was appointed an assistant manager.
The second issue is whether there was any agreement as to the second applicant’s position should the proposed purchase not proceed for any reason. There was a direct conflict on this issue. The second applicant gave evidence that he was told by Mr Stone that in the event that the purchase did not proceed he would still have his job in the paint shop. Mr Stone denied this statement or any conversation to this effect. Mr Barry supported Mr Stone to the extent that he had loaned the second applicant $100 and at that time he had confirmed the second applicant’s original offer to learn the business without pay. The actions of the second applicant in participating in the selection of his successor are inconsistent with Mr Stone’s supposed confirmation of his continuity of employment as a spray painter. If the second applicant believed that he had the ability to revert to spray painting in the event he did not purchase the business, then that is information very relevant to the terms on which Mr Vukovic was engaged. Further, the statement that he had long service leave accrued, attributed by the second applicant to Mr Stone, is unlikely. The second applicant had not accrued long service leave because he had not served the requisite ten years. The second applicant may have believed he had long service leave accrued. This belief can be explained by Mr Stone’s evidence that there was at one stage some confusion on this point. Further, from the respondent’s viewpoint, it was in it’s interests to keep the pressure on the second applicant to purchase the business by not giving him a way of opting out of the path from the paint shop floor to owning and operating a business.
A comparison of the demeanour of the two protagonists on this issue does not resolve the conflict. The second applicant’s responses on his status while in the office were unresponsive and self-serving. Mr Stone, on the other hand, was prone to exaggeration and vagueness in his responses to questions on conversations between the parties. The matter has to be resolved on the inherent likelihood of the competing versions. Having considered the matter, I am unable to accept the second applicant’s account that he had a conversation with Mr Stone during which the latter confirmed that he was still the respondent’s employee, and, more critically, that the second applicant could revert to the paint shop in the event that the purchase did not proceed. The second applicant’s evidence that he had borrowed $100 from Mr Barry and did not repay it because he was waiting to sort out his pay with Mr Stone, lacked credibility. On his own evidence he had agreed to work without pay because the respondent had no management position for him. Further, it is difficult to see why Mr Stone would want to sort out the second applicant’s pay when Mr Vukovic had been appointed to the position of spray painter.
I accept the account of Messrs Stone and Barry that the second applicant agreed to relinquish his position in the paint shop in order to have the opportunity to train in operating the business and then, if he was able to do this successfully, to purchase the business. I am satisfied that the second applicant was disenchanted with spray painting. Faced with no prospect of a move into management but the prospect of learning the skills to run a business, and the opportunity to purchase the business, it is inherently likely that, as alleged by Mr Stone, the transition to the office occurred without any agreement that in the event that the purchase did not proceed, the parties would revert to the status quo ante. The fact that the respondent ceased his pay and paid out his annual leave supports this as the most probable chain of events.
The parties, I am satisfied, did not directly address the position of the second applicant in the event that he was unsuitable or the proposed purchase fell through. They implicitly did so by the second applicant participating in the selection of his successor, Mr Vukovic. That, combined with the payment of the second applicant’s accrued annual leave, is a strong indication that from the respondent’s viewpoint the second applicant had only one path to go: either purchase the business or depart. I am unable to accept the second applicant’s account of any statement or arrangement to the contrary.
Did the respondent have a valid reason to terminate the second applicant’s services?
My preference for the respondent’s version of events surrounding the second applicant’s move from the paint shop to the office leaves for determination as the remaining issue whether the second applicant remained an employee of the respondent. I am satisfied that he did. The evidence was that while he was being trained by Mr Barry he was performing duties for the benefit of the respondent. That was the quid pro quo of the arrangement. He was under Mr Barry’s direction and control. He had the use of the respondent’s vehicle and a key to the premises. The only factor that made the relationship atypical was that the second applicant was not being paid. That was by mutual agreement and does not displace the other traditional indicia consistent with an employment relationship. Further, apart from the lacuna on remuneration, there were no features consistent with any other relationship. I am satisfied that in the interim period prior to a concluded agreement for the purchase of the business, the second applicant remained an employee of the respondent.
The only reason why the second applicant’s employment was terminated was that the purchase did not proceed. Given the circumstances in which this occurred, and the earlier events surrounding the transition to working in the office, the respondent’s decision to terminate the second applicant’s services was defensible. The respondent had no available management position. The second applicant had relinquished his position in the paint shop. He had participated in the selection of his successor. He was being trained by the respondent in the skills necessary to run the business. I accept the evidence of the respondent’s witnesses that he had reached an oral agreement with the respondent to purchase the business. He broke that agreement. The reason on which the second applicant relied to do so had not been previously raised as a possible impediment. The basis on which the parties had hitherto been operating was destroyed. The respondent had no further obligation to the second applicant and was entitled to terminate their relationship. While the manner of the termination left something to be desired, there was a sound underlying basis, in the circumstances of what had transpired, for the respondent to act in the way it did. It is not for the Court to substitute its own view of what should have happened. The termination was based on the respondent’s operational requirements and was valid. There has been no breach of s 170DE(1) of the Act.
Section 170DC of the Act is not applicable. The termination was not based on any “allegation” against the second applicant. Section 170DB is also not applicable as the second applicant was not being paid and thus the respondent was under no obligation to pay him any amount in lieu of notice. The second applicant’s application is dismissed.
Remedy for the first applicant.
The respondent admitted a breach of s 170DE(1) of the Act in relation to the first applicant. The first applicant did not seek reinstatement to his position. He sought compensation under s 170EE(2). My conclusions in relation to the termination of the second applicant’s employment do not apply to the first applicant. He had been working as a detailer/cleaner since September 1996. He was not part of the negotiations under which the second applicant relinquished his position as a spray painter. His first involvement in the proposed purchase was on 3 December. Mr Stone gave evidence that the first applicant was to be the “front of office” person in the business that the second applicant was to purchase. While the first applicant’s involvement in the meeting of 3 December obviously did not impress Mr Stone, this did not provide him with a defensible basis to terminate the first applicant’s services.
At the time that he was terminated the first applicant was earning $406 per week net. Despite some efforts at obtaining alternative employment he has been unable to find another job. Assuming that his employment would have continued had he not been unlawfully terminated, his losses to date exceed the limit under s 170EE(3) of the Act. There was no material put by the respondent to suggest that the first applicant’s employment would not have so continued. On the contrary, it appears that the respondent has become busier since December last year. Thus there was no material to reach the conclusion that the first applicant’s employment would not have continued for at least six months after December 1996. Six months remuneration at $406 per week net totals $10,556. His losses to date reach that amount and are the proper measure of compensation for the respondent’s admitted unlawful termination of employment.
ORDER:
A. In proceedings No VI 1143 of 1997:
1.The respondent pay to the applicant, after payment of any taxation that might be due, the net sum of $10,556.
AND
B. In proceedings No VI 1144 of 1997:
1. The application is dismissed.
I certify that this and the preceding eight (8) pages are a true copy of the Reasons for Judgment herein of Judicial Registrar Murphy .
Associate: KAREN HALSE
Dated: 12 AUGUST 1997.
Counsel for the Applicants: MR S STUCKEY Solicitor for the Applicants: ANTONY SDRINIS & CO Counsel for the Respondent: MS L FLEMING Solicitor for the Respondent: ALPASS & ASSOCIATES Dates of Hearing: 26 & 27 MAY 1997 Date of Judgment: 12 AUGUST 1997
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