Hamilton v Australian Guarantee Corp Ltd and Stanwix v Australian Guarantee Corp Ltd and Archer v Australian Guarantee Corp Ltd and Henderson v Australian Guarantee Corp Ltd

[1998] IRCA 20

IN THE INDUSTRIAL RELATIONS COURT OF AUSTRALIA

TASMANIA DISTRICT REGISTRY

TI 1037 of 1995

BETWEEN:	LANCE HAMILTON Applicant
AND:	AUSTRALIAN GUARANTEE CORPORATION LTD Respondent
JUDGE:		RYAN J
DATE OF ORDER:		5 JUNE 1998
WHERE MADE:		MELBOURNE (HEARD IN HOBART AND MELBOURNE)

MINUTES OF ORDER

THE COURT ORDERS:

1. That the order made on 18 August 1995 be set aside and in lieu thereof it is ordered that the respondent pay to the applicant compensation in the sum of $2,800.

Note:Settlement and entry of orders are dealt with in Order 36 of the Industrial Relations Court Rules.

IN THE INDUSTRIAL RELATIONS COURT OF AUSTRALIA

TASMANIA DISTRICT REGISTRY

TI 1038 of 1995

BETWEEN:	BRENNAN A STANWIX Applicant
AND:	AUSTRALIAN GUARANTEE CORPORATION LTD Respondent
JUDGE:		RYAN J
DATE OF ORDER:		5 JUNE 1998
WHERE MADE:		MELBOURNE (HEARD IN HOBART AND MELBOURNE)

MINUTES OF ORDER

THE COURT ORDERS:

1. That the order made on 18 August 1995 be set aside and in lieu thereof it is ordered that the respondent pay to the applicant compensation in the sum of $3,000.

Note:Settlement and entry of orders are dealt with in Order 36 of the Industrial Relations Court Rules.

IN THE INDUSTRIAL RELATIONS COURT OF AUSTRALIA

TASMANIA DISTRICT REGISTRY

TI 1041 of 1995

BETWEEN:	DALE ANTHONY ARCHER Applicant
AND:	AUSTRALIAN GUARANTEE CORPORATION LTD Respondent
JUDGE:		RYAN J
DATE OF ORDER:		5 JUNE 1998
WHERE MADE:		MELBOURNE (HEARD IN HOBART AND MELBOURNE)

MINUTES OF ORDER

THE COURT ORDERS:

1. That the order made on 18 August 1995 be set aside and in lieu thereof it is ordered that the respondent pay to the applicant compensation in the sum of $550.

Note:Settlement and entry of orders are dealt with in Order 36 of the Industrial Relations Court Rules.

IN THE INDUSTRIAL RELATIONS COURT OF AUSTRALIA

TASMANIA DISTRICT REGISTRY

TI 1042 of 1995

BETWEEN:	LEIGH JACKSON HENDERSON Applicant
AND:	AUSTRALIAN GUARANTEE CORPORATION LTD Respondent
JUDGE:		RYAN J
DATE OF ORDER:		5 JUNE 1998
WHERE MADE:		MELBOURNE (HEARD IN HOBART AND MELBOURNE)

MINUTES OF ORDER

THE COURT ORDERS:

1. That the order made on 18 August 1995 be set aside and in lieu thereof it is ordered that the respondent pay to the applicant compensation in the sum of $900.

Note:Settlement and entry of orders are dealt with in Order 36 of the Industrial Relations Court Rules.

IN THE INDUSTRIAL RELATIONS COURT OF AUSTRALIA

TASMANIA DISTRICT REGISTRY

TI 1037 of 1995

BETWEEN:	LANCE HAMILTON Applicant
AND:	AUSTRALIAN GUARANTEE CORPORATION LTD Respondent

TI 1038 of 1995

BETWEEN:	BRENNAN A STANWIX Applicant
AND:	AUSTRALIAN GUARANTEE CORPORATION LTD Respondent

TI 1041 of 1995

BETWEEN:	DALE ANTHONY ARCHER Applicant
AND:	AUSTRALIAN GUARANTEE CORPORATION LTD Respondent

TI 1042 of 1995

BETWEEN:	LEIGH JACKSON HENDERSON Applicant
AND:	AUSTRALIAN GUARANTEE CORPORATION LTD Respondent
JUDGE:	RYAN J
DATE:	5 JUNE 1998
PLACE:	MELBOURNE (HEARD IN HOBART AND MELBOURNE)

REASONS FOR JUDGMENT

There are before the Court motions for review of decisions of a Judicial Registrar pursuant to Part VIA Div 3 of the Industrial Relations Act 1988 (“the Act”) awarding compensation to each of four former employees of Australian Guarantee Corporation Ltd (“AGC”). The evidence discloses that at about the beginning of 1993, AGC, which is a subsidiary of Westpac Banking Corporation (“Westpac”) with operations in each state of Australia, formulated what was called a “Best Business Program” designed to improve its competitiveness and efficiency. That involved significant reductions in staff numbers. Two employees of AGC in Tasmania were made redundant and retrenched between August 1993 and 11 February 1994. However, it had been decided by the end of 1993 that a more far-reaching restructure of AGC’ staff in Tasmania had to be implemented.

Mr Evans, AGC’s State Manager for Tasmania, points to a letter dated 22 December 1993 which he sent to each member of staff indicating his perception that “further changes will be inevitable until we have the most effective operational structure possible”.  However, there is nothing in that letter to indicate that the further changes would be accompanied by reductions in staff numbers and possibly by redundancies or retrenchments.

By mid December 1994, Mr Evans and AGC’s national Chief Manager, Productivity, Mr Bird, prepared an executive report which was prefaced by the following summary of the recommendations which it contained:

SUMMARY OF RECOMMENDATIONS
Operations:

Reduce the staffing level of Tasmanian operation from 60 to 40 by the following approach:

Staff Reduction

(a)Combine new business departments into one  3

(b)Transfer Collections to Victoria  8

(c)Reduce Human Resources & Operation function  5

(d)Remove position - Snr Mgr Dealer/Consumer    1

Total            17

Additional Staff required in Victoria  3

Net Savings            14

Cost Benefit:

.Reduction of 17 in Tasmania will reduce personnel costs by 32% ($0.600m) in that State.

.HR will be requested to calculate redundancy cost once recommendations are approved.  Estimated cost assuming all 17 are retrenched. - $135,000

.Additional savings, i.e. premises, motor vehicles, further centralisation, etc. can then be calculated.  Estimated benefits here assuming we can sublet current premises (5 year lease at $155 k.pa) are $150,200k.

Timing:

.Planning during January 1995.

.Implementation - February 1995.

The body of that report concluded with this paragraph:

8.     IMPLEMENTATION TIMING

Due to Company policy restricting redundancy activity during December and January, plus the fact that many staff are on leave over this period, the decision taken, along with State Manager VIC, is to undertake planning during January 1995 and implement the changes commencing second week of February 1995.

That report was effectively adopted by the Chief and General Managers of AGC on 23 December 1994 but it was decided that the proposed restructure should not be announced at that time.  The following explanation for that decision has been given by Mr Evans:

21.Because of the closeness to Christmas and impending holiday period, including the fact that I was on holidays for 4 weeks from Christmas and during January, I considered it an inappropriate time to announce the restructure.  Further, I insisted that it should be me rather than anyone from head office who would announce the restructure so that the staff would have the opportunity to discuss any matter they liked with me.  This was in accordance with my “open door policy” for communication which I had established with my staff.

22.In addition, until preparations were made for a smooth transition into the restructuring phase and all preparations could be made for re-employment and the like, I also considered that an announcement that management was contemplating a restructure would be both destabilising and demoralising for the staff.  I felt that such an announcement without clear guidelines as to how the restructure would be implemented would have led to reduced service standards to our clients.  As State Manager I considered that there was an obligation to both the well being of the staff and the provision of service standards to clients.

23.My assessment was that in a fairly small, close knit operation such as the Tasmanian AGC operation it would have been devastating to tell staff that management was contemplating a restructure but at the same time management could not tell staff when the restructure would occur and who would be affected.  An announcement of that kind would be very destabilising for the Tasmanian operation.

Accordingly, on 3 February 1995 the proposed restructure was notified to the Australian Services Union (“the ASU”) by letter of that date in these terms:

I confirm our telephone discussion with Mr Peter Abrams this afternoon wherein we discussed details of an announcement to our staff in Tasmania to be made by the State Manager Tasmania, Mr Evans, on Monday 6 February 1995.

As discussed, the process AGC is about to embark upon in Tasmania is one brought about by structural change and economic necessity.

Detailed analysis of our overheads and processing systems have highlighted areas of inefficiency and cost overruns. Through our Best Business Program, we now have access to vastly improved technology which has further highlighted the need to change our processes in Tasmania.

We believe there is a secure future for the majority of AGC staff in Tasmania, however reductions of approximately 13 from present staffing levels will be necessary.  Redeployment opportunities are being explored both within AGC and our parent company, Westpac Banking Corporation for staff involved in those reductions.  We will be discussing options with affected staff throughout the course of the next two weeks, including transfers, with appropriate company assistance on relocation and resettlement costs.

Where this is not possible and pursuit of redeployment opportunities is unsuccessful, regrettably, retrenchment would occur.  This would be in line with past practice of which you have been aware during our restructuring under the Best Business Programme over the past two years.

Arrangements are under way to avail professional outplacement and counselling services to staff facing redeployment or retrenchment.  We will also be liaising with the local CES in our outplacement endeavours.

May we suggest your office advises the local Hobart state branch of the announcement.  They would then be in the position to respond to any enquiry received from a member.

We ask that these advices be maintained on a confidential basis until our State Manager Tasmania has had the opportunity to address his staff on Monday 6 February, 1995.

Should communication at local level be required, contact should be addressed to:

David Evans

State Manager Tasmania

Tel: [phone]

Policy and other significant matters should be discussed at a national level and I would be available to do so on [phone] when required.

As foreshadowed in that letter, an announcement was made on 6 February 1995 to a general meeting of AGC staff in Tasmania indicating that the staff level would be reduced from 57 to 44 and members of staff were acquainted with the contents of a statement entitled “Tasmanian Restructure” which had been prepared by Mr Evans.  That statement included this passage:

WHO WILL BE AFFECTED?

In the downsizing of this nature, it is necessary to have a “spill” of positions.  Accordingly, I must advise you that effective immediately, all positions are declared vacant.  Over the next week, appointments will be made to each position in the new structure.  In the interim, you are to continue in your present position.

Subsequently, three members of the Tasmanian staff sought and achieved transfer to Brisbane with certain relocation expenses being met by AGC.  At or about the same time, a copy of a new organisation chart for AGC’s Tasmanian operations as affected by the restructure was circulated to all members of staff.  A copy of that chart is reproduced as Appendix 1 to these reasons.

On 7 February 1995, enquiries were made at the instigation of Mr Evans as to whether there were opportunities for redundant AGC employees to be redeployed within the operations of Westpac.  Those enquiries elicited a negative response.  Mr Evans then, in conjunction with senior AGC management staff in Victoria, considered appointments from Tasmania to the following four positions within the proposed new structure:

Manager Credit and Management Services
Area Manager, Commercial
Area Manager, Dealer
Senior Account Manager, Consumer

The selection of an employee to fill each of those positions was made in the light of a review of staff files including performance appraisal and information related to previous positions held by potential appointees.  The appointments provisionally decided upon by Mr Evans and the relevant Victorian officer were then submitted for approval to the appropriate head office General Manager which was given in each case.  As a result, the following appointments to senior management positions were announced to a general meeting of Tasmanian staff on 9 February 1993:

David Blowfield - Manager Credit and Management Services;

Peter Weir - Area Manager, Dealer;

Peter Boulter - Area Manager, Commercial;

Ditmar Shaft - Senior Account Manager, Consumer

On the same day, the newly appointed senior management team, with the exception of Mr Boulter who was in Launceston, met with Mr Evans to consider appointments to remaining positions in the new Tasmanian staff structure.  That meeting occupied several hours and continued into the next day when, it seems, Mr Weir was not present.  Account was taken of the performance appraisal rating given by the last review in late 1994 of each possible appointee to each position in the new structure.  The available points on the rating scale were “excellent”, “highly commendable”, “commendable”, “satisfactory” and “unsatisfactory”.  The selection process in some instances involved the consideration of a particular employee as a possible appointee to more than one position.  It is also said on behalf of AGC that each of the present applicants had reported to one or other of the members of the senior management team before the restructure.  Thus, Mr Weir had been the immediate superior of Mr Archer since December 1994 and of Mr Stanwix since some earlier time and Mr Shaft had been the immediate superior of Mr Henderson for about 18 months and of Mr Hamilton for some shorter time.

At the end of this selection process, ten existing Tasmanian employees including each of the applicants were left without a position and were placed in a redeployment pool.  That part of the process which resulted in each of the applicants, Hamilton, Henderson and Stanwix being passed over for one, but not the only, position for which he was considered, has been described as follows by Mr Evans:

62.Hamilton and Henderson performed the duties of key operators along with Glenn Hancock (“HANCOCK”) in the old structure.  Under the new structure however, there is only one key operator.  We looked at all possible candidates for the position of key operator including Hamilton, Henderson and Hancock and the new Senior Management Team decided that Hancock was the most suitable person for the job.

63.In regard to Henderson we took into account the fact that he had been in the position since September 1994 and was still being trained for the position. Training was on-the-job training, learning the other positions that a key operator would be required to fill.  His performance rating was “C” commendable and this was based on his previous position as an accounting officer.

64.In relation to Hamilton we took into account Hamilton's 15 years’ experience with AGC and the various positions he had carried out including the fact that he had current and past experience as a key operator.  Hamilton’s performance rating was “C” commendable.

65.In relation to Hancock, we took into account his 9 years experience at Esanda Finance Company as well as his experience with AGC as a collections officer, new business officer and key operator.  His performance rating was “HC”, highly commendable.

66.In regard to Stanwix, Stanwix was considered for, amongst other positions, sales executive, dealer.  Stanwix's past performance was acknowledged as well as his achievements in relation to sales targets.  Stephen Smith (“Smith”) was also considered for the position of sales executive, dealer in the new structure.  It was acknowledged that Smith had sales experience and knowledge with dealers and had managerial experience.  In comparison with Stanwix, it was believed that Smith was better able to undertake the new position and was better suited to it.  It was considered that both had identical product knowledge and similar sales experience.  Smith however, had a performance rating of “C” commendable whilst Stanwix had a performance rating of “S” satisfactory.

On 10 February 1995, Mr Evans advised Mr Glenn of the outcome of the selection process by saying, in effect:

We have finalised the new structure. There are ten staff without positions.  In addition to the four people who have expressed interest in transferring there are two others, Downham and Evans who are not available for transfer at the moment.  The other employees are Lance Hamilton and Dale Archer and they don't want to leave Tasmania.  I am still clarifying with Brennan (Stanwix) his mobility.  Leigh Henderson won't be back from leave until 13 February.

Mr Glenn then undertook to endeavour to redeploy those in the redeployment pool and arranged for their staff profiles to be forwarded to Ms Lethbridge, the Manager, Redeployment Victoria and Tasmania for Westpac.  The benefits extended to each of the applicants on the termination of their employment with AGC have been described as follows by Mr Evans:

71.    On retrenchment each employee received the following:

-4 weeks payments of salary in lieu of notice;

-4 weeks payment of salary for the first year of service;

-2 weeks payment of salary for each subsequent year of service;

-payment of all statutory entitlements (including annual holiday leave and long service leave);

-concessional borrowing rates of interest to continue at staff rates for 6 months from 4 weeks after the date of leaving AGC;

-Westpac bankcard and mastercard staff rates to continue for 9 months;

-career transitional and out-placement counselling by Bowden Gilmore & Hunn.

Mr Henderson
On 13 February 1995, Mr Evans notified Mr Henderson that he had not been appointed to a position in the new structure and had been placed in the redeployment pool.  Mr Henderson replied that he had been retrenched twice before and did not want to be retrenched again.  He expressed a willingness to transfer, presumably to another state, but said he would need to speak with his wife and family.  Later, on 15 February 1995, Mr Henderson indicated a desire to apply for a position as New Business Officer, Queensland Consumer, on the Gold Coast which was then available.  He completed an internal application for that position which was endorsed by Mr Evans to the effect that he was suitable for appointment to it.  Mr Henderson was apparently interviewed by telephone by the Manager of AGC’s Gold Coast branch but was later advised, through Mr Evans, that although the interview had been satisfactory he had not been successful in obtaining the appointment.  However, it was indicated on about 23 February 1995 that his application would be sent to Brisbane to enable opportunities for his employment in that city to be explored.  On the following day, Mr Henderson told Mr Evans that he, Henderson, had notified Mr Glenn that he was not interested in positions in Brisbane.  Mr Evans conveyed to Mr Glenn that Mr Henderson was no longer interested in an appointment in Brisbane and that an available position in Melbourne might be another option.  At the next conversation between Mr Evans and Mr Henderson, the latter, according to Mr Evans said, “I've spoken to John Glenn and I'm not interested in moving”.  On 28 February 1995, Mr Evans then read to Mr Henderson and gave him the following letter of that date:

Dear Leigh,

I refer to my advice to all staff of 6th February 1995, declaring a spill of all positions following a restructure of AGC Tasmania and our subsequent discussions.

Unfortunately, it is not possible to offer you a position in this new structure.

Regretfully, I therefore have no alternative but to advise you that you are being retrenched on the grounds of redundancy.

Retrenchment will take effect immediately.  However, in lieu of notice you will receive 4 weeks pay.

Your retrenchment payment is detailed on the attached Payment Schedule and is in terms of the Company's policy.  It is in line with current community standards.  The payment will be credited to your bank account in the normal way.

Professional counselling is available to you.  Information about this is provided in your support kit.

Enquiries as to staff benefits and concessions may be directed to John Glenn or Wendy Shaw located in Human Resources on [phone] or [phone].

The Company has not entered into this decision lightly and I assure you that all efforts have been made to retain you within the Westpac Group.

My best wishes go with you for the future.

Mr Glenn then acquainted Mr Henderson with the contents of the retrenchment package.  Upon its being suggested that the monetary component had been made on the basis of an inappropriate salary rate, that was adjusted and by letter dated 6 March 1995 Mr Henderson was notified that his retrenchment payment had been increased from $8,406.43 to $8,760.83.

Mr Archer
On 6 February 1995, this applicant, in a conversation with Mr Evans, pressed his claims for appointment to the position of Senior Account Manager in the new structure.  Mr Evans replied merely that Mr Archer would be considered along with others but could not be promised a position.  On 9 February 1995, Mr Archer remonstrated with Mr Evans over the appointment of Mr Shaft as Senior Accounts Manager, contending that his, Archer's, claims were superior.  On 10 February 1995 Mr Archer apologised to Mr Evans for his "outburst" of the previous day and asked for information about his situation as he was about to take leave.  According to Mr Evans this exchange then occurred:

Evans:“You don't want to leave Hobart do you?”

Archer:“No I don't, but if I'm going to be made redundant I want to know now.”

Evans:“Well nothing is certain but we will be looking at Westpac for alternate positions. Please keep in touch whilst you are on leave.”

On 24 February 1995, Mr Archer telephoned Mr Evans and was told that it had not been possible to find any position for him within Westpac.  Subsequently, on 28 February 1995, he was handed a termination letter in substantially identical terms to that provided to Mr Henderson on the same day and was similarly acquainted with the terms of his termination package.  Mr Archer was considered by Mr Evans and the newly appointed management team for appointment to some of the positions which they were filling but was not regarded as the most suitable candidate for any of the positions for which he was considered.

Mr Hamilton

On 10 February 1995 this applicant was advised that he was in the redeployment pool and that the prospect of his employment within Westpac would be looked at.  On 13 February 1995, Mr Hamilton complained that a Mr Hancock had been appointed in preference to himself to the position of key operator in the new structure.  He was then told that Mr Hancock's appointment was irreversible and that his prospects of redeployment within Westpac were still being investigated.  Then, according to Mr Evans, Mr Hamilton said “Look I will be happy with a package”. Subsequently, on 15 February 1995, Mr Hamilton was provided with a retrenchment letter like that given to Mr Henderson.  After being acquainted with details of the amount payable upon retrenchment, Mr Hamilton expressed his satisfaction saying that he would be able to pay off his house and do some other things.  As well as the position of key operator, Mr Hamilton was considered for appointment to a number of other positions in the new structure but another candidate was regarded as having better claims to each such position.

Mr Stanwix
After the general staff meeting of 6 February 1995, Mr Stanwix approached Mr Evans and pressed his claims to a sales position in the new structure.  In support of those claims he gave Mr Evans a handwritten memorandum listing his achievements in the position of Sales Executive Dealer since September or October 1994.  That document was before Mr Evans and the senior management team on 9 and 10 February 1995 when they considered Mr Stanwix as a candidate for the positions of Legal/Compliance Executive, Credit Analyst, Management Services Supervisor and Commercial Dealer/Consumer Sales.  However, Mr Stanwix was not appointed to any of those positions.  On 10 February 1995 after Mr Stanwix had been told by Mr Weir that he was in the redeployment pool he spoke to Mr Evans who confirmed what Mr Weir had said and indicated that efforts would be made to find Mr Stanwix a position.  Mr Stanwix pointed out that his wife was due to give birth on 17 February and that it was not a good time.  Mr Evans then asked whether he would be willing to consider a transfer within a short time after the baby had been born.  Mr Stanwix was non-committal saying that he would have to talk to his wife.

On 13 February 1995 Mr Stanwix told Mr Evans that he had spoken to his wife and they would not be able to move in the short term but it might be different in three or four months’ time.  Mr Evans thanked him for that information. On 15 February 1995 Mr Stanwix was handed a termination letter and had the details of his package explained to him by Mr Glenn.

The decision of the Judicial Registrar
Before the Judicial Registrar, Counsel for the applicants “effectively conceded” that there had been a valid reason within the meaning of s 170DE of the Act for the termination of the employment of each of the applicants. However, after the decision of the learned Judicial Registrar and before submissions on the review had been completed, the High Court in Victoria v The Commonwealth (the Industrial Relations Act Case) (1996) 187 CLR 416 held s 170DE(2) of the Act to be invalid because its proscription of a termination of employment that is harsh, unjust or unreasonable, travelled outside the Termination of Employment Convention 1982 which had been relied on as bringing the enactment of s 170DE(2) within the power conferred by s 51(xxix) of the Constitution. 

Section 170DE was in these terms:

(1)An employer must not terminate an employee’s employment unless there is a valid reason, or valid reasons, connected with the employee’s capacity or conduct or based on the operational requirements of the undertaking, establishment or service.

(2)A reason is not valid if, having regard to all of the circumstances of the case, including the employee’s capacity and conduct and those operational requirements, the termination is harsh, unjust or unreasonable.  This subsection does not limit the cases where a reason may be taken not to be valid.

The whole focus of the case before the Judicial Registrar had, accordingly, been on whether AGC’s termination of the employment of each of the applicants had been harsh, unjust or unreasonable.  The learned Judicial Registrar found that each of the terminations answered that description because insufficient notice or warning had been given of the impending redundancies, depriving employees potentially affected by them of an opportunity to seek alternative employment within or outside AGC and Westpac.  He was also influenced by the fact that voluntary redundancies had not been canvassed before the selection of those to be made redundant was undertaken, and by the lack of consultation about the timing and content of redundancy packages.  Other factors invoked by the Judicial Registrar in support of his decision were AGC’s failure to establish objective criteria for the selection of those to be made redundant, the lack of counselling or out-placement services before the terminations were effected and the short period during which each of the applicants was in the “redeployment pool”. In conjunction with the last matter, the Judicial Registrar considered that the “mobility” of each of the applicants should have been discussed with him in the light that redundancy would be otherwise inevitable.

The submissions of counsel on review
Mr Rothman SC who appeared for AGC submitted that it had discharged the onus imposed by s 170DE(1) of proving that it had a valid reason, based on the operational requirements of its undertaking, for terminating the employment of each of the applicants. The only case which the applicants could make after the decision of the High Court in the Industrial Relations Act Case was under s 170DC of the Act which provided:

An employer must not terminate an employee’s employment for reasons related to the employee’s conduct or performance unless:

(a)the employee has been given the opportunity to defend himself or herself against the allegations made; or

(b)the employer could not reasonably be expected to give the employee that opportunity.

However, that section, Mr Rothman argued, depended on the existence of “allegations” of misconduct or unsatisfactory performance and where, as here, the selection had to be made from a body of employees all of whose conduct and performance had been satisfactory, there was no scope for the application of s 170DC.

On the other hand, Mr Hinkley of Counsel for the applicants, submitted that the criteria for the selection of those employees to be retained in Tasmania after the “spill” had been based on the “capacity” within the meaning of s 170DE(1), of those employees considered as being in competition for the reduced number of positions.

Mr Hinkley criticised the use, in the selection of those to be made redundant, of staff appraisals brought into existence for a quite different purpose and some at a time when the subject of the appraisal was performing work markedly dissimilar from that involved in the position for which he was considered after the “spill”. He contended that the staff involved had no inkling when they participated or acquiesced in the making of those appraisals, that the appraisals had the potential to be used to mark them out for redundancy or retention. Another criticism was directed at the short time occupied by the management team in carrying out the selection process and at the fact that not all members of the team participated fully in it. As well, Mr Hinkley pointed out that account was taken of the perceived unwillingness of Mr Archer, and to a lesser extent, Mr Stanwix, to leave Hobart without it ever having been put to either of them that it was likely to be determinative of whether or not he was retained in the employ of AGC. Accordingly, it was argued, AGC could not be regarded as having discharged the onus of establishing that perceived lack of mobility as a valid reason under s 170DE(1).

“Capacity” in s 170DE(1), Mr Hinkley contended, comprehended “lack of capacity”. In the present case, accepting that the termination of the employment of some employees had been based on the operational requirements of its undertaking, since the selection had been based on the capacity of those employees, it was incumbent on AGC to establish the validity of the reason why they had been selected for redundancy.  In that context, because of manifest deficiencies in the selection process, the evidence fell short of establishing a valid reason, connected with their capacity, for terminating the employment of each of the applicants.

As to the application of s 170DC, Mr Hinkley relied on the following passage from the judgment of a Full Court of this Court in Kenefick v Australian Submarine Corporation Pty Ltd (No 2) (1996) 65 IR 366 at 372:

The evidence does not permit this case to be regarded as presenting a choice between employees, all of whom were satisfactory.  Clearly some were more satisfactory to the respondent than others.  Otherwise the respondent would have confined the selection to volunteers or, if there had been insufficient volunteers, would have determined those to be retrenched by lot or some other non-evaluation criterion.  The choice was made based on conduct or performance.  That brought s 170DC into play.  This does not mean that s 170DC will apply to all redundancies.  It is for the employer to choose the basis for selection for redundancy from the pool of eligible employees.  It is only if the employer chooses by reference to conduct or performance criteria that s 170DC will apply.

The present case was assimilated to that in Kenefick in the sense that some of the existing Tasmanian workforce had been regarded as more satisfactory for retention in particular positions than others.  That distinction was based on conduct or performance as disclosed in part by the previous appraisals.  Accordingly, so Mr Hinkley argued, AGC was obliged to identify for each employee under threat of being made redundant what aspects of his or her performance were being relied on and to give that employee an opportunity to respond to those matters. 

Mr Rothman, in reply, contended that even if a breach of s 170DC can be made out, an applicant cannot succeed under Part VIA Div 3 of the Act unless the breach deprives of its validity the reason identified by the employer as required by s 170DE(1). Mr Hinkley sought to meet this contention by arguing that one test of the validity of a reason advanced in an attempt to discharge the onus imposed by s 170DE is whether that reason has been formulated after a fair process of inquiry and assessment of relevant information.

The relationship between s 170DE(1) and s 170DC
It is to be noted that s 170DE(1) of the Act contemplates that an employer may establish a valid reason or valid reasons for the termination of an employee’s employment. Added to that facility are the alternative requirements that the reason or reasons be “connected with the employee’s capacity or conduct” or be “based on the operational requirements of the employer’s undertaking, establishment or service”. In my view, those alternative requirements are to be read distributively so that if the employer seeks to establish more than one valid reason, one may be connected with the employer’s capacity or conduct and the other or others may be based on the operational requirements of the employer’s undertaking.

Given that both s 170DC and s 170DE require a reason or reasons to be ascribed to the termination of an individual employee, I consider that, in relation to each applicant, there were two reasons for the termination of his employment. The first was AGC’s need to reduce its Tasmanian workforce by seventeen. The second was its assessment that the applicant was less suitable to fill an appropriate position in the new Tasmanian staff structure or one of the additional positions created in Victoria than the existing staff member appointed to each of those positions. In this respect the following observations of the Full Court in Kenefick (No 2) (supra) at p 370 can be paraphrased to apply to the termination of each of the applicants:

Section 170DC(a) is directed to the individual termination of one employee’s employment.  Where it speaks of the reasons for the termination, it is speaking of the reasons for the individual termination.  In the circumstances of the present case, the decision to reduce the 170 hull shop employee numbers by nine welders did not, on its own, lead to the termination of employment of any individual.  It was one step in a two step process.  Only after the second step had been taken, was it possible to identify an individual as a person whose employment would be terminated.  The two steps were both necessary to produce the result of the individual termination of employment.  The excess of labour and the application of the criteria for selection were both reasons for the termination of the individual.  In other words, there were two reasons for the termination of each appellant.  This analysis departs from that favoured by the learned Chief Justice.  He said (at 115):

“There was only one reason: the redundancy situation.  That is so notwithstanding that particular retrenchees were selected because of conduct/performance characteristics thought to make them less valuable ASC employees than others.”

In our view, the statement that the employees were selected for termination “because of employment/performance characteristics” indicates that those factors can properly be described as “reasons” for the termination within the meaning of s 170DC.

Contrary to the submissions of Mr Rothman, I do not think that the presence of volunteers for redundancy in Kenefick (No 2) makes that case relevantly distinguishable from the present.  Northrop J in Selvachandran v Peteron Plastics Pty Ltd (1995) 62 IR 371 at 373 made clear that the employer must first discharge the onus imposed by s 170DE(1) before it becomes necessary for the Court to consider whether the additional restrictions imposed by s 170DC have been overcome. His Honour there said:

Section 170DE(1) refers to “a valid reason, or valid reasons”, but the Act does not give a meaning to those phrases or the adjective “valid”. A reference to dictionaries shows that the word “valid” has a number of different meanings depending on the context in which it is used. In the Shorter Oxford Dictionary, the relevant meaning given is: “2. Of an argument, assertion, objection, etc; well founded and applicable, sound, defensible: Effective, having some force, pertinency, or value.” In the Macquarie Dictionary the relevant meaning is “sound, just or well founded; a valid reason”.

In its context in s 170DE(1), the adjective “valid” should be given the meaning of sound, defensible or well founded. A reason which is capricious, fanciful, spiteful or prejudiced could never be a valid reason for the purposes of s 170DE(1). At the same time the reason must be valid in the context of the employee’s capacity or conduct or based upon the operational requirements of the employer’s business. Further, in considering whether a reason is valid, it must be remembered that the requirement applies in the practical sphere of the relationship between an employer and an employee where each has rights and privileges and duties and obligations conferred and imposed on them. The provisions must “be applied in a practical, commonsense way to ensure that” the employer and employee are each treated fairly, see what was said by Wilcox CJ in Gibson v Bosmac Pty Ltd (1995) 60 IR 1, when considering the construction and application of s 170DC.

The requirements of s 170DE(1) should not impose a severe barrier to the right of an employer to dismiss an employee. Nevertheless, in cases similar to the one before the Court, the application of s 170DE(1) should always be considered and decided before consideration is given to the additional limitations on the right of an employer to terminate the employment of an employee imposed by ss 170DE(2) and 170DC. The purpose of these two provisions is to confer a greater protection on employees from termination of employment. In this regard the provisions are not very different from the consequences flowing from an award provision similar to that considered in Byrne v Australian Airlines Ltd (1995) 47 FCR 300; 52 IR 10 and discussed in Johns. There procedural fairness was held to have been imported by implication as well as the substantive protection conferred by the award. The statutory provisions now apply, by reason of the Act, with minor exceptions, to all employees.

The construction and application of ss 170DC and 170DE(2) were considered by Wilcox CJ in Gibson. His Honour discussed s 170DC under the heading “Procedural fairness”. With respect, I agree with his opinion on this matter. I expressed similar views in Johns. But with respect, for reasons already expressed, the question of procedural fairness arises only after a finding has been made that the employer has established a valid reason or reasons under s 170DE(1).

(As already explained, the judgment of the High Court in the Industrial Relations Act Case (supra) makes it unnecessary now to consider whether each applicant has established that the termination of his employment was harsh, unjust or unreasonable within the meaning of s 170DE(2).)

Application of s 170DC to the termination of the present applicants
I accept that the twofold reason for each termination which I have ascribed to AGC was a valid reason or reasons of the kind required by s 170DE(1). However, because one of those reasons or the compound reason was related to the performance of each applicant, the operation of s 170DC was attracted to each termination. That is not to say that s 170DC was applicable to all terminations which resulted from the selection of employees for redundancy brought about by the operational requirements of the employer’s undertaking. For example, the selection could have been made by drawing lots or application of a principle of “last on-first off” which would attract no obligation to accord procedural fairness or natural justice to the employees affected. However, where the selection for termination takes account, even in a comparative sense, of shortcomings in past conduct or performance, the employee is entitled, I consider, by virtue of s 170DC, to an opportunity to deny, explain or palliate the deficiencies which those entrusted with the selection have in mind.

This entitlement does not depend on any articulation by the employer of “concern” about the conduct or performance of the employee who is a candidate for retrenchment. Nor does it depend on any formulation of “allegations” against the employee. Indeed, the fact that “the allegations” contemplated by s 170DC(a) have remained within the breast of the person making the selection may indicate a fortiori a failure to comply with the section. As Wilcox CJ said of s 170DC(a) in Nicolson v Heaven & Earth Gallery Pty Ltd (1994) 57 IR 50 at 60:

The paragraph does not require any particular formality.  But this does not mean that it is unimportant or capable of perfunctory satisfaction. Section 170DC carries into Australian labour law a fundamental component of the concept known to lawyers as “natural justice” or, more recently, “procedural fairness”.  The relevant principle is that a person should not exercise legal power over another, to that person’s disadvantage and for a reason personal to him or her, without first affording the affected person an opportunity to present a case.  The principle is well-established in public administrative law.  It was accepted into international labour law when Art 7 was inserted in the Termination of Employment Convention.  Section 170DC is directly modelled on Art 7.  The principle is, I believe, well understood in the community.  It represents part of what Australians call “a fair go”. In the context of s 170DC , it is not to be treated lightly.  The employee is to be given the opportunity to defend himself or herself “against the allegations made”;  that is, the particular allegations of misconduct or poor performance that are putting the employee’s job at risk.  Section 170DC(a) is not satisfied by a mere exhortation to improve.

The obligation which I have imputed to an employer as arising under s 170DC does not require there to be identified for the employee the other employee or employees who are in competition with him or her for retention in a given position. It requires only, as I have already indicated, that an opportunity be afforded to the employee to be heard in respect of those aspects of his or her conduct or performance which are present to the mind of the selector and might operate in the selection process to the detriment of the employee.

Was s 170DC complied with in respect of the present applicants?
Against the understanding of the relevant sections which I have just outlined I turn to indicate briefly why I have concluded that there was a breach of s 170DC in relation to the applicants.

In the course of describing the selection process which had been engaged in on 9 and 10 February 1995, Mr Evans deposed:

The method we applied was to look at [Appendix 1 to these reasons] and address each position within [it] with all possible candidates for that position based on their experience and capabilities.  This often meant that one person would be considered for two or more positions.  Once we had candidates for the position we discussed each candidate’s suitability for that position.  In assessing the candidates, the new senior management team had reference to a staff performance/salary review schedule.

The schedule referred to contained, as well as a rating from “HC” to “S” already described, a rating under the heading “ATTDE” which I take to refer to “attitude” from 2 to -2. The applicants’ ratings in that column were -0.5 for Mr Archer, 1.5 for Mr Henderson, 1.5 for Mr Hamilton and -1.5 for Mr Stanwix.

In para 59 of his same affidavit Mr Evans acknowledged:

Senior Management under the previous structure also had weekly meetings where the performance of departments were reviewed.  In addition to reviewing the overall departmental performance individual employee results were discussed.  This gave me and the Senior Management the opportunity to review the performance of staff regularly.  The Senior Management team comprised of Gary Howell (in his absence Pete Weir), David Blowfield and Ditmar Shaft.

Under cross-examination, Mr Evans conceded that the members of the management team had views about the past performance and future capacity of the applicants, some of which were positive and some of which were negative.  The negative views were “most certainly” shared with other senior managers in the course of a “frank, honest discussion” and reasons given for them.

As indicated above, each of the applicants had formerly reported to one or other members of the newly formed management team. It is a reasonable inference, not rebutted by the evidence, that those former supervisors conveyed to the other members of the team in the course of the selection process, adverse recollections or impressions of the conduct or performance of the relevant applicant while under his supervision. In my view, the requirement of procedural fairness or natural justice imported by s 170DC required that each applicant should have the opportunity to correct those recollections or impressions or place them in a context which might persuade the other members of the selection team to discount them or even disregard them altogether. It is clear that no such opportunity was given. I also consider that the selection committee’s use of the appraisal rankings led to the termination of the employment of each applicant for a reason related to his performance. To rank an employee’s performance at one of the lower points on a scale from “E” - excellent through “HC” - highly commendable, “C” - commendable, “S” - satisfactory to “U” - unsatisfactory and his “attitude” on a scale from +2 to -2 is by implication to make an “allegation” in the sense used in s 170DC(a) that the employee’s performance has not been as good as it might have been. In those circumstances, the employer, I consider, was obliged to give the employee an opportunity to contend that the ranking was unwarranted, or should not be taken into account because of changed circumstances or the different requirements of the position for which he was in competition as against that in which he had been given the ranking. That obligation, in my view, was reinforced in the present case by the fact that the members of the selection team did not have available to them the written remarks in the body of each appraisal which would have given them some basis on which to assess the appropriateness of the rating designated by the letters or numerals.

The failure of AGC to accord any of the applicants an opportunity of the kind contemplated by s 170DC was pointed up by the fact that Mr Stanwix actually availed himself between 6 and 9 February of an opportunity to submit to the selection team a written memorandum detailing his claims to one of the new sales positions. However, he was not apprised of the fact that account was to be taken of the relatively low performance rating of “S” and “attitude” rating of -1.5 given to him in the last appraisal at the end of 1994 when, apparently, he worked under the supervision of Mr Weir. It will be remembered in this context that Mr Weir participated in the selection process only on the afternoon of 9 February. The Court has been left to speculate on the effect of the selection team as a whole of any adverse comments he may have made on that afternoon and of the absence from the selection process on 10 February 1995 of a team member with direct supervisory knowledge of the performance of Mr Stanwix and Mr Archer.

Relief
It is common ground that reinstatement of any of the applicants has always been impracticable.  It can be said of each applicant, as was observed by another Full Court of this Court in Kenefick v Australian Submarine Corporation [No 4] (unreported, Ryan, von Doussa and Madgwick JJ) at p 7:

But if each appellant sustained a loss, he sustained only a single loss because of the unlawful termination of his employment.  Once illegality had been determined to exist under s 170DC or s 170DE(1), there was no necessity, for the purposes of either the employer’s liability to compensate the appellants or the ascertainment of the quantum of such compensation, to determine whether s 170DE(2) had been breached.  If the question of a breach of s 170DE(2) was not necessary to determine liability in favour of the appellants, any difficulty in assessing compensation could not resurrect such a necessity.

It was accepted in the same case that it was necessary, in determining the loss sustained by each applicant, to take into account the chance that he would, in any event, have had his employment terminated.  The Full Court continued (ibid):

That is logically so because what is really being compensated is each appellant’s loss, predicated upon the chance that his employment would not have been so terminated had the employer obeyed the law.  A chance that his employment would not have been terminated, but for the unlawful termination, cannot be separated from the chance that his employment would have been so terminated.  The evaluation of those chances results in an assessment of whether the employment would probably have been otherwise terminated or not.  Indeed, the appellants’ own approach to the matter of how compensation ought to be assessed implicitly depends upon the notion that these competing chances must be valued.  It was thus inevitable and correct that his Honour should proceed to value those chances.

The difficulty of assessing compensation is compounded in the present case by the fact, as I have accepted, that there was a valid reason for terminating the employment of four employees whose circumstances could broadly be equated with those of the applicants. What each applicant lost as a result of AGC’s breach of s 170DC was the chance of persuading the selection team that he should be appointed to one of the positions designated on Appendix 1 in preference to the person actually appointed to that position. I do not rate very high the chance of any of the applicants of having achieved such a reversal of the selection team’s decision. I am therefore left to make the best intuitive judgment I can in accordance with the guidance given by authorities such as Chaplin v Hicks [1911] 2 KB 786.

Mr Stanwix had 13½ years’ service, having been employed by AGC or its predecessor since he left school.  At the time of the hearing of the review, he was employed by a credit union at a lower annual salary and without the use of a car or the benefit of a concessional home loan with which he had been provided by AGC.  He put his total loss from February 1996 to 30 June 1996 at $14,056.43.  I assess the appropriate compensation for his loss of the chance of retaining employment by AGC at $3,000.  

Mr Archer had been employed by AGC for over 15 years and, like Mr Stanwix, had received benefits in addition to salary in the form of a company car and concessional home loan.  He obtained alternative employment shortly after being retrenched by AGC and derived broadly similar levels of income in the period to 30 June 1996 despite having to defray his own vehicle expenses and provide his own mobile telephone.  His own calculation of his loss to 30 June 1996 was $2,122.06.  I assess the loss caused to him represented by the value of his lost chance of continuing in employment with AGC at $550.

Mr Hamilton had also had a lengthy period of employment, close to 16 years, with AGC and expected to remain in that employment until he reached retiring age.  Since his retrenchment, after one or two “fill-in” occupations, he has derived income as a self-employed contractor to Techmaster Enterprises Pty Ltd.  He put his loss of income, including the benefit of a concessional home loan and bankcard, to 30 June 1996 at $15,075.76.  However, some of the deductions which he made in respect of the acquisition of motor vehicles, a pager and tools in calculating his income as an independent contractor since 13 June 1995 appear to be of a capital nature.  I assess the appropriate compensation for his loss of the chance to have been retained in employment by AGC at $2,800.

Mr Henderson had a significantly shorter period of employment with AGC, having commenced on 16 November 1991.  He was unable to obtain alternative full time work until 13 June 1995 when he obtained a position as a property investment manager with L J Hooker at an annual salary almost $5,000 more than he had been receiving from AGC.  However, he has been obliged in his new employment to maintain and run a car and to provide his own mobile telephone.  He put his net loss to 30 June 1996 at $3,831.98.  I value the loss to him of the chance of continuing in employment with AGC at $900.

Conclusion
For the reasons explained above, the orders of the learned Judicial Registrar will be set aside.  In lieu thereof, I shall order that AGC pay compensation to Mr Stanwix in the sum of $3,000, to Mr Archer in the sum of $550, to Mr Hamilton in the sum of $2,800 and to Mr Henderson in the sum of $900.

I certify that this and the preceding twenty-two (22) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Ryan.

Associate:

Dated:             

Appearances in TI 1037, 1038, 1041 and 1042 of 1995

Counsel for the Applicants:	Mr B Hinkley
Solicitor for the Applicants:	Maurice Blackburn & Co
Counsel for the Respondent:	Mr S Rothman, SC
Solicitor for the Respondent:	Clatyon Utz
Date of Hearing:	17, 18 and 19 July 1996       (Hobart) 9 and 10 September 1996     (Melbourne)
Date of Judgment:	5 June 1998