John De VUONO v KETRIC
[1994] IRCA 121
•01 December 1994
IN THE INDUSTRIAL RELATIONS COURT
OF AUSTRALIA VI 152 of 1994
VICTORIA DISTRICT REGISTRY
B E T W E E N:
JOHN DE VUONO
Applicant
A N D
KETRIC PTY. LTD.
Respondent
Reasons for Judgment
1 December 1994 PARKINSON JR
In this matter the applicant seeks the following orders:
a declaration that the termination of the applicant’s employment contravenes Division 3 of Part VIA of the Industrial Relations Act1988;
an order that the respondent reinstate the applicant to the position he held prior to the termination;
an order that the respondent pay an amount of compensation to the applicant.
The applicant was employed by the respondent on 11th August, 1989 to perform motor trimming and other upholstery work in the respondent’s business. His employment was terminated by the respondent on 5th April, 1994.
The reason given by the respondent for the termination of the employment was that the applicant was engaging in the business of motor trimmer and upholsterer in direct competition with the respondent. The applicant does not deny the fact of his business, but says that his conduct was endorsed by the respondent.
It was alleged that the applicant engaged in such business by performing for payment work of the same type as that of the respondent, by advertising his own business in local newspapers in competition with the respondent, and also by advertisement in telephone directories. The respondent further alleged that the applicant quoted for work in respect of at least one customer of the respondent, and that he took deliveries for materials for his business at the respondent’s premises.
The applicant did not deny that he was engaged in such business, but says that his conduct was known to the respondent, and that, having not objected to his conduct, the respondent had tacitly endorsed it. The applicant gave evidence that he had, at the commencement of his employment, informed the respondent that he was doing jobs at home, and that he advised the respondent that he “did a little bit of work at home”. He agreed, however, that he did not inform the respondent that he was running a business at or from home, or that he had subsequently registered a business name.
His evidence was that during the course of his employment he had taken delivery of materials for his business at the respondent’s premises, and that the respondent had not only not objected to this but had in fact assisted him in this regard. The applicant gave evidence that, to his knowledge, he had not done work for customers of the respondent or quoted in respect of work which was the subject of quotation by the respondent. The evidence is, however, that on at least one occasion the applicant quoted on work which was already the subject of a quotation by the respondent. The applicant also gave evidence of having borrowed his employer’s equipment in circumstances where he had the consent of the respondent.
Mr. Gillatt of the respondent gave evidence that he had given consent on one occasion for the applicant to privately use a glue gun, and that the respondent was able to have occasional use of the button machine. He denied that he had given consent for the applicant to use the respondent’s equipment for the purpose of running his own business for profit. The respondent denied that he had knowledge of the applicant actually running a registered business in competition with him, although he does acknowledge that he became aware as early as May, 1993 that the applicant was advertising in local papers in competition with him. The applicant’s evidence was that he commenced advertising in 1991, and that this was never brought to the respondent’s attention by the applicant.
The respondent’s evidence was that, far from endorsing the applicant’s conduct, he had, on a number of occasions, expressed his concern at the conduct of the applicant and had requested that he cease advertising and cease the business. His evidence was that he also requested that the applicant stop accepting deliveries for his business at the respondent’s premises. His evidence was that he had made it clear to the applicant that he was unhappy with the applicant’s conduct, and that he was concerned for his business as a result of the applicant’s conduct. The respondent’s evidence was that when such requests were made, the applicant had informed him that what he did in his own time was his own business and not that of the respondent’s.
The applicant denied that these requests were made of him at any time, or that he was in any manner or terms informed by the respondent of the respondent’s concern. The applicant did, however, agree that he had informed the respondent that what he did in his own time was his own business. There was no evidence to suggest that this remark was made in any context referrable to matters other than those the subject of these proceedings.
Mr Penisi gave evidence that the applicant frequently took delivery of materials at the respondent’s premises, and that the applicant was aware of the respondent’s disapproval of such deliveries. His evidence was that whilst he himself also did “odd jobs” at home and had occasionally borrowed his employer’s tools, these odd jobs were merely work for friends and relations and were not for payment. I accept this to be the true position in relation to what was generally acceptable conduct in relation to the employer’s business.
Whilst I am satisfied that the respondent was aware as at May 1993 that the applicant was engaging in upholstery work for profit whilst in the employ of the respondent, I accept the evidence of Mr. Gillatt that once he became aware that the applicant was operating a business in direct competition with his own he expressed his disapproval and requested that the applicant cease such activities, in particular the advertising. I accept that he continued to express his disapproval over the period of time which elapsed before the dismissal. Whilst this disapproval may not have been articulated in precise language, I am satisfied that the applicant understood the nature of the respondent’s concern and the matters being asked of him. I find that the applicant at no time informed the respondent of his intention to operate a “business” in competition with the respondent, nor that he ever informed the respondent that he was advertising such a business. The respondent found this information out by way of third parties. I find that, despite the respondent’s disapproval, the applicant continued to operate his business, and to advertise in competition with the respondent’s business operations.
It was common ground between the parties that an employee owes to his or her employer a duty of good faith and fidelity, and that the duty extends to not engaging in conduct which may be inimical to the business interests of the employer. There is ample authority in this regard. In circumstances where there has been a breach of this obligation by an employee, such breach would, in my opinion, usually constitute a valid reason for the termination of the employment by the employer. This aspect of the obligation arising out of the employment relationship has been recently considered in a decision of Hayne J. in Daily Cleaning Service Pty. Ltd. v Pavlovic (1992) 34 A.I.L.R. 359. The report of his Honour’s decision at page 414 was as follows:
Both parties accepted that there was an implied obligation of
fidelity and good faith in the contract of employment of Pavlovic:
see per Lord Green MR in Hivac Limited v Park Royal Scientific Instruments Limited (1946) Ch 169 at p 174 and per Dixon and McTiernan JJ in Blyth Chemicals Ltd v Bushnell (1933) 49 CLR 66 at pp 81-2. Pavlovic’s conduct was incompatible with the fulfilment of his duty and involved an opposition or conflict between his interest and his duty to his employer, impeded the faithful performance of his obligations and was destructive of the necessary confidence between employer and employee...
In his Honour’s view, the defendant was under an obligation during the subsistence of his employment to look after the interests of the employer and in the words of Dixon and McTiernan JJ in Blythe Chemicals Ltd v Bushnell (supra), “ not to engage in conduct which involved an opposition or conflict between his interest and his duty to his employer”.
In this matter, having regard to my findings that the respondent had not consented, either expressly or implicitly, to the applicant conducting his business in competition with the respondent, I am satisfied that the applicant was in breach of his obligation of good faith and fidelity to his employer and that, as a consequence, the respondent had a valid reason for the termination of the applicant’s employment.
Harsh, Unjust or Unreasonable.
It is contended for the applicant that the respondent’s failure, through Mr. Gillatt, to take any immediate steps to deal with the applicant’s conduct at the time he first became aware of the business operations of the applicant, constituted the termination harsh, unjust and unreasonable, notwithstanding any alleged breach of fidelity or conflict of interest. The applicant relies upon the principle of equitable estoppel in this regard.
I do not accept that in this case the failure by the respondent to take disciplinary action against the employee at the time of first discovering the business operation constitutes of itself either an endorsement or acceptance of the applicant’s conduct. This is apparent if one accepts, which I do, the evidence of the respondent that he complained to the applicant and raised his disapproval. The mere failure to act by dismissing the applicant at the time of discovery, as opposed to taking milder action, does not give cause for the respondent to be estopped from later taking action in relation to the ongoing conduct of the applicant. The ongoing operation of the business by the applicant in the face of the expressed concern of the respondent was sufficient basis for the respondent to take the action it did, when it did.
There is however an aspect of procedural unfairness to this matter. The evidence of Mr Gillatt was that at no time, either at the time of his contemplating dismissing the applicant nor during the period of the employment, did he articulate to the applicant that unless he ceased operating his business and advertising he would be dismissed. Quite some time passed before the respondent took any action, and when he did take action it was to dismiss, without any forewarning to the applicant. The evidence of the respondent was that the in the week ending 31st March, 1994 he observed the applicant taking a further delivery of material for private business purposes. His evidence is that he went home over the Easter break to think about what to do, and decided to terminate the employment. He did not give the applicant any warning of what he was contemplating over that break. He did not raise the issue directly with the applicant prior to terminating his employment, nor did he give the applicant an opportunity to be heard prior to implementing the decision to terminate his employment.
The legislative requirement in S170DC of the Act that an employee be given an opportunity to be heard in relation to allegations made has been the subject of recent consideration by Wilcox CJ in Nicolson v Heaven & Earth Gallery Pty. Ptd., unreported, 20 September 1994. In that case his Honour said, at p. 23-24:
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 in to international labour law when Article 7 was inserted in the Termination of Employment Convention. Section 170DC is directly modelled on Article 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 an opportunity to defend himself or herself “against 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.
I have earlier found that the applicant was on notice as to the respondent’s attitude to his operating the competing business. The applicant was not warned, however, that the consequences of disregarding the employer’s requests would be dismissal. He had no opportunity to be heard in relation to his conduct at the time of the dismissal. It is this failure on the part of the respondent in this case which constitutes this dismissal on procedural grounds, harsh, unjust or unreasonable.
Remedy.
The applicant in this matter has submitted that reinstatement would be impracticable because of the steps which have been taken by him to formalise his business operations into a business premises. Having regard to the reason for the termination being a conflict of interest, and in view of the current arrangements of the applicant, I agree that there is no doubt about the impracticability of reinstatement.
Having regard to the business operations of the applicant, and notwithstanding that the applicant has been employed with the respondent for approximately four years, I am unable to conclude that the employment would have continued for any significant period of time had the respondent complied with the procedural obligations in relation to the termination.
I am not satisfied that there is a reasonable likelihood that the employment would have continued beyond one or two weeks. I therefore find that the appropriate amount of compensation to be awarded in this case is $860.00. That amount is a gross amount.
The order of the court will be:
That in terminating the employment of the applicant, the respondent contravened S170DC of the Act.
That the respondent pay to the applicant compensation in the sum of $860.00.
That the time for payment is twenty-one days from the date of this order.
I certify that this and the preceding nine (9) pages
are a true copy of the reasons for judgment of
Judicial Registrar Parkinson.
Associate:
Dated: 1 December 1994
Solicitors for the applicant: Maurice Blackburn & Co.
Counsel appearing for the applicant: Mr. A. Lawrence
Representatives for the respondent: VECCI
Counsel appearing for the respondent: Mr. B. Shaw
Date of hearing: 28 November 1994
Date of judgment: 1 December 1994
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