Kenefick v Australian Submarine Corporation

[1995] IRCA 368

INDUSTRIAL LAW - TERMINATION OF EMPLOYMENT - Claim of UNLAWFUL TERMINATION - REDUNDANCIES - Selection of employees to be terminated - Criteria adopted:  skills, flexibility, commitment, time keeping, attitude, performance and supervisory requirement - In selection process reference made to file noting personnel who had come under notice and been counselled - Whether a process of selection that took account of performance and conduct resulted in a requirement that the affected employees be advised and afforded an opportunity to make a defence - Whether employer had onus of proving that these employees, rather than other employees in the same category, were the employees most appropriate for retrenchment - Whether process of selection meant that terminations were harsh, unjust or unreasonable.

Industrial Relations Act 1988, ss.170DC, 170DE and 170EDA.

No. SI. 290 of 1994

TREVOR KENEFICK and AUTOMOTIVE FOOD METALS & ENGINEERING UNION
v  AUSTRALIAN SUBMARINE CORPORATION PTY LTD

No. SI. 292 of 1994

PETER DIGGLE and AUTOMOTIVE FOOD METALS & ENGINEERING UNION
v  AUSTRALIAN SUBMARINE CORPORATION PTY LTD

No. SI. 293 of 1994

IAN CHEONG and AUTOMOTIVE FOOD METALS & ENGINEERING UNION

v  AUSTRALIAN SUBMARINE CORPORATION PTY LTD

No. SI. 294 of 1994

PETER HILL and AUTOMOTIVE FOOD METALS & ENGINEERING UNION

v  AUSTRALIAN SUBMARINE CORPORATION PTY LTD

No. SI. 295 of 1994

BRONTE NAGEL and AUTOMOTIVE FOOD METALS & ENGINEERING UNION
v  AUSTRALIAN SUBMARINE CORPORATION PTY LTD

CORAM:       WILCOX CJ
PLACE:       SYDNEY (HEARD IN ADELAIDE)
DATE:        11 AUGUST 1995

IN THE INDUSTRIAL RELATIONS COURT )
OF AUSTRALIA  )   No. SI. 290 of 1994
SOUTH AUSTRALIAN DISTRICT REGISTRY)

BETWEEN:  TREVOR KENEFICK

First Applicant

AUTOMOTIVE FOOD METALS & ENGINEERING UNION

Second Applicant

AND:AUSTRALIAN SUBMARINE CORPORATION PTY LTD

Respondent

CORAM:    WILCOX CJ
PLACE:    SYDNEY (HEARD IN ADELAIDE)
DATE:     11 AUGUST 1995

MINUTES OF ORDER

THE COURT ORDERS THAT:

1. The application for review be granted.

1. The orders made by Judicial Registrar Farrell on 20 April 1995 be set aside and, in lieu thereof, it be ordered that the application be dismissed.

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

IN THE INDUSTRIAL RELATIONS COURT )
OF AUSTRALIA  )   No. SI. 292 of 1994
SOUTH AUSTRALIAN DISTRICT REGISTRY)

BETWEEN:  PETER DIGGLE

First Applicant

AUTOMOTIVE FOOD METALS & ENGINEERING UNION

Second Applicant

AND:AUSTRALIAN SUBMARINE CORPORATION PTY LTD

Respondent

CORAM:    WILCOX CJ
PLACE:    SYDNEY (HEARD IN ADELAIDE)
DATE:     11 AUGUST 1995

MINUTES OF ORDER

THE COURT ORDERS THAT:

1. The application for review be granted.

1. The orders made by Judicial Registrar Farrell on 20 April 1995 be set aside and, in lieu thereof, it be ordered that the application be dismissed.

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

IN THE INDUSTRIAL RELATIONS COURT )
OF AUSTRALIA  )   No. SI. 293 of 1994
SOUTH AUSTRALIAN DISTRICT REGISTRY)

BETWEEN:  IAN CHEONG

First Applicant

AUTOMOTIVE FOOD METALS & ENGINEERING UNION

Second Applicant

AND:AUSTRALIAN SUBMARINE CORPORATION PTY LTD

Respondent

CORAM:    WILCOX CJ
PLACE:    SYDNEY (HEARD IN ADELAIDE)
DATE:     11 AUGUST 1995

MINUTES OF ORDER

THE COURT ORDERS THAT:

1. The application for review be granted.

1. The orders made by Judicial Registrar Farrell on 20 April 1995 be set aside and, in lieu thereof, it be ordered that the application be dismissed.

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

IN THE INDUSTRIAL RELATIONS COURT )
OF AUSTRALIA  )   No. SI. 294 of 1994
SOUTH AUSTRALIAN DISTRICT REGISTRY)

BETWEEN:  PETER HILL

First Applicant

AUTOMOTIVE FOOD METALS & ENGINEERING UNION

Second Applicant

AND:AUSTRALIAN SUBMARINE CORPORATION PTY LTD

Respondent

CORAM:    WILCOX CJ
PLACE:    SYDNEY (HEARD IN ADELAIDE)
DATE:     11 AUGUST 1995

MINUTES OF ORDER

THE COURT ORDERS THAT:

1. The application for review be granted.

1. The orders made by Judicial Registrar Farrell on 20 April 1995 be set aside and, in lieu thereof, it be ordered that the application be dismissed.

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

IN THE INDUSTRIAL RELATIONS COURT )
OF AUSTRALIA  )   No. SI. 295 of 1994
SOUTH AUSTRALIAN DISTRICT REGISTRY)

BETWEEN:  BRONTE NAGEL

First Applicant

AUTOMOTIVE FOOD METALS & ENGINEERING UNION

Second Applicant

AND:AUSTRALIAN SUBMARINE CORPORATION PTY LTD

Respondent

CORAM:    WILCOX CJ
PLACE:    SYDNEY (HEARD IN ADELAIDE)
DATE:     11 AUGUST 1995

MINUTES OF ORDER

THE COURT ORDERS THAT:

1. The application for review be granted.

1. The orders made by Judicial Registrar Farrell on 20 April 1995 be set aside and, in lieu thereof, it be ordered that the application be dismissed.

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

IN THE INDUSTRIAL RELATIONS COURT )
OF AUSTRALIA  )   No. SI. 290 of 1994
SOUTH AUSTRALIAN DISTRICT REGISTRY)

BETWEEN:  TREVOR KENEFICK

First Applicant

AUTOMOTIVE FOOD METALS & ENGINEERING UNION

Second Applicant

AND:AUSTRALIAN SUBMARINE CORPORATION PTY LTD

Respondent

No. SI. 292 of 1994

BETWEEN:  PETER DIGGLE

First Applicant

AUTOMOTIVE FOOD METALS & ENGINEERING UNION

Second Applicant

AND:AUSTRALIAN SUBMARINE CORPORATION PTY LTD

Respondent

No. SI. 293 of 1994

BETWEEN:  IAN CHEONG

First Applicant

AUTOMOTIVE FOOD METALS & ENGINEERING UNION

Second Applicant

AND:AUSTRALIAN SUBMARINE CORPORATION PTY LTD

Respondent

No. SI. 294 of 1994

BETWEEN:  PETER HILL

First Applicant

AUTOMOTIVE FOOD METALS & ENGINEERING UNION

Second Applicant

AND:AUSTRALIAN SUBMARINE CORPORATION PTY LTD

Respondent

No. SI. 295 of 1994

BETWEEN:  BRONTE NAGEL

First Applicant

AUTOMOTIVE FOOD METALS & ENGINEERING UNION

Second Applicant

AND:AUSTRALIAN SUBMARINE CORPORATION PTY LTD

Respondent

CORAM:    WILCOX CJ
PLACE:    SYDNEY (HEARD IN ADELAIDE)
DATE:     11 AUGUST 1995

REASONS FOR JUDGMENT

WILCOX CJ: Australian Submarine Corporation Pty Ltd ("ASC") seeks review of decisions made by a Judicial Registrar in relation to claims of unlawful termination of employment made by five former employees, Trevor Kenefick, Peter Diggle, Ian Cheong, Peter Hill and Bronte Nagel and their union, Automotive Food Metals and Engineering Union ("AFMEU"). The claims were heard together by the Judicial Registrar. She decided that the terminations offended both s.170DC and s.170DE of the Industrial Relations Act 1988 and awarded compensation to each employee. ASC does not contest the Judicial Registrar's findings of fact, and did not adduce additional evidence at the review hearing. The company argues that the Judicial Registrar erred in law in relation to both s.170DC and s.170DE and should have dismissed each application. It also contends that the amount of compensation awarded to each employee was excessive, primarily because it was assessed without reference to the redundancy payment made to the employee. The applicants, for their part, contend that the compensation awards were inadequate.

The facts

ASC is a contractor to the Australian Government for the construction of six Collins class submarines.  The submarines are being constructed at Osborne, Port Adelaide, where ASC employs a large workforce.  The premises occupied by ASC include a hull shop in which the submarine hulls are constructed.  Immediately before the terminations, on 7 December 1994, ASC employed about 170 welders in the hull shop.  However, over the preceding months, it had become apparent that, unless new orders were obtained, there would be insufficient work to occupy this number of welders, and the other tradesmen and (non-tradesmen) operators who worked with them.  The Government was considering ordering two additional submarines but no decision had been announced. 

In the meantime, in May 1994, ASC submitted to the Department of Defence a revised time-table for completion of the initial six submarines, the revision being intended to ensure a more efficient operation, with an overtime level acceptable to both the company and its employees.  While the submission was still under consideration, in August 1994, the company made a presentation to its employees, and their union representatives, outlining the consequences of any failure to obtain the additional order.  According to this presentation, there would be over-manning and retrenchments would be necessary.  In October 1994 the Defence Department approved the revised time table.  Shortly afterwards, on 30 November 1994, the Government published a White Paper, "Defending Australia", in which it announced that it did not propose to consider ordering additional submarines until 1996-1997, at the earliest.

This announcement precipitated activity at Osborne.  The Managing Director of ASC, Hans Ohff, told the media that "about 50 people" would have to be retrenched.  This estimate was apparently related to the whole Osborne workforce, at that time numbering 546 production employees plus administrative staff. 

A meeting of the project's Joint Consultative Committee ("JCC") was scheduled for the following day.  JCC was a standing committee of representatives of ASC management and the three unions (including AFMEU) concerned with the site.  The ASC General Manager, Douglas Bews, attended the meeting.  The meeting dealt with several routine items of business before being joined by Mr Ohff, and two AFMEU officers, Pat Johnstone and Stephen Acton, apparently specifically to discuss the proposed retrenchments.  Mr Johnstone was federal organiser of AFMEU and Mr Acton Assistant Secretary of its South Australia Branch.  The minutes of the meeting are in evidence.  Their accuracy has not been challenged.  Under the heading "ASC Production Award Redundancies", they include the following:

"Management confirmed that Production Award redundancies are to be activated due primarily to revised labour profiles and confirmation on 30 November 1994 that Boats 07 & 08 are not included in the Government White Paper.

Management added that it could not confirm numbers involved but it would involve less than 50.

The Committee was also advised that as soon as more details became available union officials/stewards would be advised and management confirmed that it would pay the three Christmas public holidays to any employees who were retrenched.

When asked about possible consideration of volunteers, management responded that the current EBA details that any redundancies will be on the choice of management, however if there were any interested employees who wish to register their interest in volunteering, management would consider them.

As a consequence to the aforementioned management confirmed that the two new proposed operator positions would now not proceed.

NOTE:Management stated at a later meeting that after the current numbers for redundancy had been affected ie 36 production and 4 staff, it was not expected that another round of redundancy would be needed until early 1996."

The references to "ASC Production Award" (in the heading) and "EBA" require explanation.  On 5 September 1989 Deputy President Keogh of the Australian Industrial Relations Commission ("AIRC") made an award entitled "Australian Submarine Corporation Pty Ltd Production Award 1989".  The award was to apply to all ASC employees.  ASC was the only employer bound by its provisions.  The award covered many topics.  Clause 28 concerned redundancy.  The clause dealt with several aspects of that matter, the first being discussions before termination:

"(a)(i)       Where the company has made a definite decision that it no longer wishes the job the employee has been doing done by anyone and this is not due to the ordinary and customary turnover of labour and that decision may lead to termination of employment, the company shall hold discussions with the employees directly affected and with their union or unions.

(ii)The discussions shall take place as soon as is practicable after the company has made a definite decision which will invoke the provisions of paragraph 28(a)(i) hereof and shall cover, inter alia, any reasons for the proposed terminations, measures to avoid or minimise the terminations and measures to mitigate any adverse effects of any terminations on the employees concerned.

(iii)For the purposes of the discussion the company shall, as soon as practicable, provide in writing to the employees concerned and their union or unions, all relevant information about the proposed terminations including the reasons for the proposed terminations, the number and categories of employees likely to be affected, and the number of workers normally employed and the period over which the terminations are likely to be carried out.  Provided that the company shall not be required to disclose confidential information the disclosure of which would be inimical to its interests."

Subsequent subclauses related to notice of termination by the employer, transfer to lower paid duties, severance pay and other subjects.  The prescribed severance pay varied according to length of service, being a maximum of eight weeks' pay for employees with continuous service of four years or more.

The award was subsequently amended.  The amendments do not matter.  A more material event was the certification by AIRC on 20 January 1994 of an Enterprise Bargaining Agreement ("the EBA") negotiated between the company and three unions, including the Automotive, Metals and Engineering Union, a union that was the predecessor, before an amalgamation, of AFMEU.

The EBA came into force on 20 November 1993 and continued until 6 June 1995.  Consequently, it applied at the time of the subject terminations.  The agreement applied to all persons employed in accordance with the 1989 award and bound the parties to that award.  The preamble (cl.3) referred to the parties' commitment "to developing and maintaining an internationally and nationally competitive company" and the need for improved efficiency.  Clause 4 stated, amongst other things, that the agreement "represents a package in resolution of all items".  Clauses 5 and 6 dealt with productivity payments and clause 7 with "Security of Employment/Redundancy".  It provided:

"The company aim is to keep all production employees fully engaged by successfully undertaking the building of the existing submarines and the securing of new business.  Should redundancies be necessary, the company will determine which employees are to be made redundant giving due regard to appropriate consultation processes.

With regard to the existing Severance Pay provisions contained within Clause 28(d) of the ASC Production Award, entitlements will be amended to provide 2.5 weeks for each completed year of service.

The 'Notice' period contained within Clause 28(b)(i)(1) shall be amended to provide 4 weeks 'paid out' in lieu of notice provided.

The maximum total amount payment under Severance Pay C28(d) and Notice of Termination by Employer C28(b)(i)(1) and C28(b)(1)(2) will be 52 weeks.

Employees made redundant with service in excess of two years will be granted a pro rate entitlement of Long Service Leave.

Further, employees made redundant will have Annual Leave Loading paid on a pro rata basis.

The table of payments incorporating notice, severance and long service leave totals per years of service are included in the attached Schedule 'E'".

Two points should be noted about this clause.  First, the opening paragraph states that "the company [that is, ASC] will determine which employees are to be made redundant".  It does not provide for union participation in that decision, or require consultation with the union.  There was evidence before the Judicial Registrar that the terms of the paragraph were discussed during the negotiations that led to the agreement.  The ASC representatives insisted that the company, alone, should determine who should be retrenched, if this became necessary.  Second, the clause amends the severance pay provisions of the award, providing substantially higher benefits than those available under the award.

The only other EBA provision warranting mention is clause 10 dealing with Dispute Avoidance Procedure.  This clause revised the relevant award provision in accordance with a schedule to the EBA that applied to all disputes "including disputes alleging unfair dismissal".  It provided a series of grievance mechanisms culminating in notification of the dispute to AIRC.

As the JCC minute of 1 December 1994 noted, the management representatives at that meeting could not immediately state the number of necessary retrenchments.  According to Mr Bews, there was discussion at the meeting (not noted in the minutes) as to whether the retrenchments should be made before Christmas.  Mr Ohff offered to postpone action until after Christmas but Mr Bews thought it would be fairer to everybody to resolve the issue before then.  Nobody disputed that view or argued for a postponement.  So Mr Bews proceeded immediately after the meeting with the necessary action.  During the course of 1 December, after consultation with the managers of each section, he decided that ASC should retrench 36 production personnel (five fitters, three pipe fitters, five pipe welders, nine welders, one boilermaker, six electricians and seven operators) and four staff.  Welders, boilermakers and operators were employed in the hull section.  On that same day he sent letters to each of the unions concerned with the site, and to the Commonwealth Employment Service, notifying them of the redundancies.

On 2 December, the manager of the hull shop, Ian Dawson, consulted his senior foreman, Stephen Hickey, about the people who might be retrenched.  They examined a company document (exhibit R7 at the hearing before the Judicial Registrar) that Mr Dawson described in evidence as "the original list of personnel re the warning procedure and personnel of concern to the department".  This list recorded the names of hull shop personnel who had come under notice for one of a variety of reasons.  It included people who had been counselled for misbehaviour, poor productivity or unreliability, and also employees on WorkCover (workers compensation).  The names of all nine eventually-retrenched welders were on this list.  Mr Dawson explained in evidence that he regarded the list as "a base from which over the years the previous management and myself had concerns with individuals".  He discussed the list with Mr Hickey.  They removed the names of people who had left the company and those they thought had improved and ought not to remain on the list.  At the end of this process, Mr Dawson said in evidence, he had "a number of people (whom he) thought less than satisfactory by comparison with the remainder of the workforce".

Sometime later that day, or on Monday, 5 December, Mr Bews instructed the managers about selection of people for retrenchment.  He asked them to make objective assessments of employees in the target categories, by reference to seven stated criteria:  skills, flexibility, commitment, time keeping, attitude, performance and supervisory requirement.

Mr Dawson again consulted Mr Hickey.  They prepared a list of names, which was based on exhibit R7 but said to take account of the specified criteria.  Mr Dawson took it to Mr Bews.  Mr Bews did not accept it immediately.  He sent Mr Dawson back for a further discussion with Mr Hickey.  The two men reviewed each name on their list and then examined the roll of all hull shop personnel.  As a result of this process, some names were deleted from the preliminary list.  Mr Dawson took the revised list to Mr Bews on the Monday evening.

Following the JCC meeting of 1 December, the unions invited members interested in voluntary retrenchment to notify them of that fact.  A number did so.  On Tuesday, 6 December, the unions gave Mr Bews the volunteers' names.  Mr Bews gave the names to Mr Dawson, so he might consider the volunteers employed in the hull shop.  Mr Dawson again consulted Mr Hickey.  At some stage Geoffrey Hartley, the senior welding foreman, was called in to discuss which welders should be retrenched.  As a result of these discussions, on the Tuesday, Mr Dawson settled his final list of recommended hull shop retrenchees.  The list included some volunteers, but they were all named on exhibit R7.  Mr Dawson took the list to Mr Bews.  Mr Bews went through it with Mr Dawson.  He removed some names.  Mr Bews said in evidence that he made the final selection; the process was designed to ensure that the company would retain "the right worker for the right job".  Mr Bews said nobody was selected for retrenchment because of his conduct or capacity; "the grounds for selection were our requirement for labour. ... you have to look at your workforce and see which ones are best to retain to ensure that the job is completed satisfactorily and most cost-effectively".  He said a number of people "on warning" were not selected "because they were shown up in the evaluation of the criteria as people more worthwhile retaining than the people who were selected".  He described the exercise as "a marginal assessment" and continued:

"I mean, if you're going through a downturn of work and you need a reduced number of people, you have to select someone, and you have to make sure that you've got a continuing ability to continue the project in the best way possible, that you've got a core workforce to take on any further work that's obtained at a later date, and you've got enough people to carry on the in-service report of the submarines once they're constructed.  Now, all those requirements need skill and ability, and really I believe it's the company's decision to decide what skills and ability are required for those continuing processes."

Some retrenched employees were on WorkCover but Mr Bews denied that he took this into account in making his selection.  He said he did not know, in some cases, that the employee was on WorkCover; in any event, the proportion of retrenched employees who were on WorkCover was about the same as the proportion of total employees on WorkCover.  He added: 

"... if you're going through a redundancy, you can't be expected to keep everybody that's on WorkCover, and get rid of all your able-bodied people, if you're going to continue a project through to completion".

On Wednesday, 7 December, termination notices were delivered to the selected employees.  The terminations were made effective immediately.  A redundancy payment, calculated in accordance with the EBA, was made to each terminated employee.

On the following day, the unions notified the AIRC of a dispute.  There was a hearing before Commissioner Simmonds but the evidence does not disclose what happened at the hearing, except that no order was made.  On 21 December 1994 the subject applications were filed in this Court.

The hearing before the Judicial Registrar

The applications were heard together over five days, 27 to 31 March 1995.  Evidence was given on behalf of ASC by Mr Bews, Clive Starr, the company's Enterprise Relations Manager, Mr Dawson, Mr Hickey and Mr Hartley.  Each of the applicants gave evidence, as did Mr Acton on their behalf.  On 20 April the Judicial Registrar handed down a decision in which she summarised the evidence concerning selection of the retrenchees.  In the course of doing this, she referred to the criteria mentioned by Mr Bews and went on: 

"I have no doubt that each of the Respondent's witnesses did all that was required of them as honestly as they could.  However, I am not satisfied that these broad ranging criteria were capable of being applied objectively. 

The priority and weight to be given to each criterion was not clear.  There was no evidence of an objective measure for the items of 'attitude' and 'commitment'.  The pre-existing list (R7) did not relate to the criteria.  In my view the employer has failed to demonstrate that, in accordance with Section 170DE(1) of the Act, it had valid reasons for choosing to terminate the employment of these Applicants rather than any other welders in the hull shop.

If I am wrong about the employer bearing the onus of proof in establishing fair selection criteria and this matter does in fact go to the issue of whether or not the termination of employment of these Applicants was harsh, unjust or unreasonable then I would have found that the termination of the employment of these Applicants was harsh, unjust or unreasonable in accordance with Section 170DE(2) of the Act.

The Applicants' representative argued that termination of their employment was in breach of Section 170DC of the Act because the reasons for selection of the employees as set out in  the Affidavit of Mr Bews and in the evidence of the employer's witnesses related to the conduct or performance of the Applicants.  It was not in dispute that the Applicants had no opportunity to respond to allegations about their conduct or performance.  Their employment was terminated without any reason being given to them other than that there was a need for redundancies.  In my view if any part of an employer's criteria for selection of employees for redundancies relates to those employees' performance or conduct then the employees must be given the opportunity to respond to those allegations about their conduct or performance prior to dismissal.

Counsel for the Respondent argued that the termination of these employees did not relate to their conduct or performance but rather that what occurred here was a comparison between employees all of whom were satisfactory.  The employees who were not selected were more satisfactory.  This reasoning is faulty in my view.  In my view the termination of these Applicants breached S.170DC of the Act."

The Judicial Registrar then dealt with remedy.  She noted that the applicants did not seek reinstatement and said she thought compensation was the appropriate remedy.  She then stated her decision on the amount of compensation in each case.

As is apparent from the passage in her reasons I have quoted, the Judicial Registrar held against ASC in respect of both s.170DC and s.170DE. At the hearing before me, ASC argued that she erred in law in relation to both sections. I will deal with them separately.

Section 170DC

Section 170DC of the Industrial Relations Act provides:

"170DCAn employee 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."

The Act says nothing about the onus of proof of an allegation of contravention of s.170DC. In the absence of a special provision, the usual rule applies: the party asserting a fact must prove it. An applicant who relies on a breach of the section must establish facts that indicate a probable contravention. The employer need not negative contravention.

In the present cases, nothing turns on onus, in relation to s.170DC. The relevant facts are not in dispute. It is clear that none of the five employees was informed of his prospective termination, in advance of the event, or the reason he had been selected for retrenchment. Although it appears that any shortcoming of conduct or performance that caused an employee's name to be listed on exhibit R7 was discussed with the employee at the time of that listing, none of the five applicant-employees was afforded the opportunity of stating reasons why that shortcoming ought not to lead to his selection for retrenchment. If s.170DC applied to these terminations, it was contravened.

Counsel for ASC accept that their client failed to comply with the requirements of s.170DC. Their argument is that the section did not apply to these terminations. They say that s.170DC applies only where an employee's conduct or performance is the reason for the termination of the employee's employment. If the termination is dictated by some other factor, the section has no application. They argue that, in a genuine redundancy situation, as here, the reason for the termination of each employee's employment is the need to reduce the workforce; this is so, even if conduct or performance is the reason, or one of the reasons, why a particular employee, rather than someone else, was chosen for termination. They say there is a fundamental difference between a redundancy situation and one covered by s.170DC. In the first case, someone must go; the task is to select the most dispensable employee or employees out of a group of satisfactory employees. In the second case, no one need go; the only reason for any termination is the conduct or performance of a particular employee. Counsel say that, in a redundancy situation, it is natural for employers to select for retrenchment the person or persons least valuable to them; this may be because of aspects of conduct or performance that show each selected person to be less satisfactory than others. But they say this does not mean that the termination was for reasons related to conduct or performance; the termination occurred because the position was redundant.

Counsel point out that para.(a) of s.170DC requires the employee to be afforded an opportunity "to defend himself or herself against the allegations made"; it is concerned with a situation where there are unresolved allegations causing the employer to consider terminating the employee's employment. They say this situation is remote from that in the present cases. There had been difficulties concerning some or all the employee-applicants, but these difficulties had not led to termination of their employment. Absent the redundancies, their employment would have continued indefinitely. There were no current allegations against which these people needed to defend themselves; they were chosen because they were regarded as the least valuable employees amongst a group of satisfactory employees whose number needed to be reduced.

Counsel for the applicants put a different view. They do not dispute that ASC was faced with a genuine redundancy situation; the company needed to reduce its workforce. Nor do they dispute Mr Bews' decisions about the number or categories of people to be retrenched. They disavow any attack on the motives of those involved in selecting the retrenchees. Counsel do not claim the selection of particular people was caused by a desire to get rid of them. It is enough, they argue, to enliven s.170DC that a selection process includes consideration of some aspect of an employee's conduct or performance. Counsel point out that it is not uncommon for employers to select retrenchees by criteria that have nothing to do with conduct or performance; for example, "last-on, first-off". In that situation, they say, s.170DC is irrelevant. However, once the employer decides to have regard to conduct/performance criteria, the decision to terminate the employment of each retrenchee stems not only from the redundancy situation but also from the employer's assessment of that person's conduct or performance. The decision to terminate the employee's employment is for a reason "related to" that person's conduct or performance, notwithstanding that there is also a reason related to the redundancy.

An employer may have more than one reason for terminating an employee's employment.  If so, a provision of Subdivision B of Division 3 of Part VIA that relates to a reason will apply, notwithstanding that a different provision applies to another reason.  The termination will be lawful only if every reason complies with the pertinent statutory provisions.  However, this principle is not relevant to the present cases.  There were not two reasons for termination of the present applicants' employment.  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.

There are difficulties in applying s.170DC to the situation that confronted Mr Bews in early December 1994. There were then no allegations against any of the people nominated by Mr Dawson. There had been problems about some of them. But they were listed by Mr Dawson because, in his opinion, they did not meet Mr Bews' criteria as well as others. If there was an allegation current on 6 December, it was that. This was not an allegation about conduct or performance but an assessment of relative merit. It would be difficult for an employee to rebut an assessment of that nature.

Counsel for the applicants stress that not all the volunteers were selected for retrenchment. They say, if all employees were regarded as satisfactory, it would have been appropriate to accept all the volunteers. This might be a powerful submission, depending on the facts, if the applicants' case was that the claim of redundancy was false, a device for clearing out unsatisfactory employees without complying with S.170DC. But counsel disavow that claim. In a genuine redundancy situation, it is not unreasonable for an employer to determine who shall go by considering its own needs, rather than accepting all who volunteer.

With respect to the contrary opinion of the Judicial Registrar, my view is that s.170DC has no application to these cases. The terminations were not unlawful by reason of that section.

Section 170DE (1)

The other section pursuant to which the Judicial Registrar upheld the applicants' claims was s.170DE. That section reads:

"170DE(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 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."

Section 170DE must be read with s.170EDA(1). It deals with onus of proof under s.170DE:

"170EDA(1)If an application under section 170EA alleges that a termination of employment of an employee contravened subsection 170DE(1):

(a)the termination is taken to have contravened subsection 170DE(1) unless the employer proves that, apart from subsection 170DE(2), there was a valid reason, or valid reasons, of a kind referred to in subsection 170DE(1); and

(b)if the employer so proves, the termination is nevertheless taken to have contravened subsection 170DE(1) if the applicant proves that, because of subsection 170DE(2), the reason or reasons proved by the employer were not valid."

The effect of s.170EDA(1) is that the employer bears the onus of proving, under s.170DE(1), the reasons for the termination of employment and that it or they were connected with the employee's capacity or conduct or based on the employer's operational requirements. If these matters are established, it is for the employee to show that the termination was nonetheless harsh, unjust or unreasonable.

There is no doubt that ASC decided, on 1 December 1994, to retrench 40 employees for a valid reason connected with its operational requirements. The applicants do not dispute Mr Bews' evidence that, in the light of the decision announced in the White Paper, ASC had excess production capacity, including in the hull shop. Considerations of efficiency dictated a reduction of the labour force, at a faster rate than would have been achieved by natural attrition. However, the applicants argue this conclusion does not satisfy subs.(1) or, therefore, the employer's evidentiary onus. They say the employer must also establish that there was a valid reason connected with the employee's capacity or conduct, or the operational requirements of the undertaking, for selecting these particular employees. ASC did not attempt to do this. It confined its evidence to the need to reduce the numbers of particular categories of employees and the selection process. The company did not adduce evidence that the selected persons were those most appropriate for termination. On the evidence, the Court could hold only that Mr Bews believed them to be so. If the applicants' submission is correct, there is a gap in ASC's case; the Court would have to apply s.170EDA(1)(a) and hold that the terminations contravened s.170DE(1).

I do not think the applicants' submission is correct. It adds an unacceptable gloss to s.170DE(1). The subsection forbids an employer to terminate an employee's employment unless there is a valid reason etc. for the termination. Northrop J referred to the meaning of "valid", in this context, in Selvachandran v Peteron Plastics Pty Ltd (7 July 1995, not yet reported).  After referring to dictionary definitions, he said: 

"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 subsection 170DE(1)."

I respectfully agree, and I think it follows that the reason must be genuine, that there must be a causal relationship between the reason and the termination and that the termination must be a logical response to the employee's capacity or conduct or the employers operational requirements.  Of course, there is often more than one logical way of dealing with a problem.  While the subsection requires the employer to establish that the termination was a logical way of dealing with the problem of employee capacity or conduct, or operational requirements, that gave rise to it, it does not require proof that this was the only logical course.  The subsection was designed to inhibit capricious terminations, not to put the Court in the employer's managerial chair.

If this is correct, the applicants' argument must fail.  A logical response to ASC's overstaffing problem was to reduce the production staff by the determined numbers.  Further, it was logical to select the applicants, employees who fell within an identified over-staffed category, notwithstanding that it might also have been logical to select different employees within that category.  The five applicant-employees were terminated because ASC needed to reduce the number of welders.  This need was based on its operational requirements.  That is all that ASC must prove under subs.(1).  If the selection was done unfairly, as between employees in a particular category, that is a matter to be considered under subs.(2).

Section 170DE(2)

I have already stated the terms of s.170DE(2). The onus of proof under this subsection rests on an applicant, not the employer. Although s.170DE(2) is commonly regarded as being related to substantive unfairness, a termination may be harsh, unjust or unreasonable because of procedural unfairness. There are Federal Court decisions to that effect in cases arising under awards: see Bostik (Australia) Pty Ltd v Gorgevski (No.1) (1992) 36 FCR 20; Byrne v Australian Airlines Pty Limited (1994) 47 FCR 300. In cases arising under the Industrial Relations Act, procedural unfairness is less likely to give rise to a finding that the termination was harsh, unjust or unreasonable; but only because the Act has a specific provision (s.170DC) dealing with procedural unfairness. If there is procedural unfairness, the termination will probably be held unlawful under that section. However, there may be cases where s.170DC does not apply, because the termination was not for reasons related to the employee's conduct or performance, yet the termination decision is affected by procedural unfairness making it harsh, unjust or unreasonable. The applicants argue these are such cases. They put three reasons.

First, the applicants say the selection criteria were unacceptably vague and subjective.  It will be recalled that Mr Bews specified seven criteria:  skills, flexibility, commitment, time keeping, attitude, performance and supervisory requirement.  With the exception of time keeping, which was capable of objective determination if records were available, these were matters for judgment; they could not be measured.  Moreover, unless Mr Bews carefully explained the criteria to his managers, there was room for misunderstanding about some of them.  But Mr Bews claimed he did explain the criteria to the managers and that claim was not challenged.  Particularly having regard to the Judicial Registrar's acceptance of the integrity of the selection process, there is no reason to doubt that Mr Bews did what he said.

I understand the view that it is preferable, in a retrenchment situation, to limit the use of subjective criteria.  In Corkery v General Motors-Holden's Limited (1986) SAIR 531 at 539, Stanley J, of the South Australian Industrial Court, advocated reliance on "such matters as length of service, efficiency, experience and attendance records where such matters can be objectively checked".  Where there is little or no difference in the contribution that particular employees can make to an employer's enterprise, that might be the best approach.  But it seems that welders are not all equal, at least in relation to submarine hulls.  The work is intricate and difficult.  Much of it must be performed in cramped and uncongenial conditions.  Although all the welders in the hull shop had acceptable trade qualifications, some handled these challenges better than others.  The achievement of maximum productivity being a matter of critical importance to ASC, the company cannot fairly be criticised for selecting criteria designed to maximise the productivity of its retained employees rather than a formula, such as "last-on, first-off", that might cost it some of its best employees.

It seems to me that the problem about criteria such as those specified by Mr Bews is not so much the fact of their adoption, but the burden they impose on those who have to apply then.  Because they require subjective assessments, the affected employees cannot really make a contribution to the selection decision.  The risk of unfairness is high.  The criteria need to be determined at a senior level.  But if they include such day-to-day factors as commitment, attitude and supervisory requirement, there must be input by a supervisor working close to the relevant employees.  At the same time, there is a risk of such a person being influenced by an extraneous factor, such as personal like or dislike.  So it seems desirable that the person who compiles the list of recommended retrenchees be required to justify each name to a superior officer.

The course taken by ASC in early December 1994 satisfied this prescription.  The criteria stipulated by Mr Bews were not inappropriate.  They imposed a burden on him and his managers but he appears to have ensured that his managers understood the criteria and consulted appropriately before submitting their lists to him.  In the case of the hull shop, Mr Bews did not accept the first list.  He sent Mr Dawson away to consult some more.  The list was revised in the light of this consultation and the unions' list of volunteers for retrenchment.  Even so, Mr Bews then went through the list himself, making the final decisions.

Counsel for the applicants criticise Mr Bews for failing to discuss the proposed criteria with representatives of the unions.  They speculate that Mr Bews did not do this because he was aware that clause 7 of the EBA permitted the company to select retrenchees.  This is probably correct.  It would not have been inconsistent with clause 7 for Mr Bews to consult Mr Acton about criteria; but, apparently, he did not think to do so.  Nor, apparently, did Mr Acton think to ask him to do so.  On 1 December Mr Acton had details of the categories of employees to be retrenched.  They included categories covered by AFMEU.  Yet he did not seek to participate in the selection of criteria.  I can understand that it might have been difficult for him to suggest which individuals should be retrenched, the relevant employees apparently all being AFMEU members; but I see no difficulty in him suggesting criteria.  Presumably, he did not do so because he thought this was a matter to be determined by ASC alone.   Especially in the light of that attitude, I cannot say that the terminations were harsh, unjust or unreasonable because of ASC's failure to consult AFMEU about criteria.

The applicants' second complaint of procedural unfairness is linked to the first:  ASC's failure to follow the procedure specified by clause 28 of the 1989 production award.  It will be recalled that this clause applied "(w)here the company has made a definite decision that it no longer wishes the job the employee has been doing done by anyone and this is not due to the ordinary and customary turnover of labour".  In such a case, the company must "hold discussions with the employees directly affected and with their union or unions".

Counsel for ASC argue that this clause is not applicable to these redundancies because they arose "from an excess of labour throughout the production workforce, rather than a definite decision that particular jobs are no longer to be 'done by anyone'".  They say that ASC did not identify particular jobs; rather it selected employees from particular categories after the number of retrenchees in each category were determined.  In any event, they say, ASC complied with the clause by consulting with the unions, both in the JCC meeting and in separate contacts in the period 1 to 6 December. 

Counsel for the applicants accept that there were discussions between ASC and AFMEU.  But they say these discussions did not satisfy clause 28 because they did not involve the employees themselves.

For the reason just stated, I agree that the discussions between ASC and AFMEU did not satisfy the requirements of clause 28.  But the reason points up the problem of applying the clause to a situation such as that applying on 1 December.  With which employees should it consult, in relation to the selection process?  To hold a separate consultation with each employee would have taken a long time, unduly extending the anxiety of all employees and their families.  And what purpose would they have been served?  The question that would have concerned each individual employee was whether he or she would be selected for retrenchment.  At that stage, the company could not have been answered that question.  No doubt, Mr Bews could have called a mass meeting of employees; but this would not have been an effective consultation with them.  It is difficult to see that it could have achieved more than the giving of information, the company conveying the same information as that already provided to the unions.  I think clause 28 was drafted with a different situation in mind:  the elimination of a relatively small number of specific jobs, their occupants being readily identifiable and able meaningfully to be consulted.

There is a question whether the operation of clause 28 survived the making of the EBA.  It will be recalled that the EBA stated that the agreement "represents a package in resolution of all items".  ASC argues this means that the EBA clause concerned with redundancies excludes the award provisions on that topic.  Whether or not this is correct, the terminations cannot be stigmatised as harsh, unjust or unreasonable simply because of ASC's failure, precisely and literally, to apply clause 28.  The company observed the spirit of the clause.  Once again, it is noteworthy that Mr Acton did not complain about failure to comply with clause 28.  It seems that nobody thought of the point until the present hearing.  It was not raised before the Judicial Registrar.

The applicants' final basis for arguing that the terminations were harsh, unjust or unreasonable is the use of exhibit R7.  It will be remembered that Mr Dawson and Mr Hickey used this list in selecting the names Mr Dawson took to Mr Bews.  All the retrenched welders were named in exhibit R7.  Counsel say it may be good management practice to keep a worker performance file, and to use that file in selecting retrenchees, but only if the file is kept up to date and employees have the opportunity of challenging any adverse facts recorded against their names.  The evidence in the present cases is that, when Mr Dawson and Mr Hickey first went to exhibit R7, it had not been updated since February 1994; so it took no account of events (including improvements in performance) during the preceding nine months.

I agree that a performance file needs careful handling.  It would be unfair for an employer to record an alleged defect of conduct or performance, and to take the entry into account in making a redundancy selection, without giving the employee an opportunity of challenging the allegation.  Before anything is recorded, the employee should be told about the allegation and permitted to contest its accuracy before a person not previously involved.  If the employee accepts the accuracy of the allegation, it is not unfair to take it into consideration in selecting retrenchees.
If the employee challenges its accuracy, I see no unfairness in taking into account the finding of the reviewer; the employee has had an opportunity to make a defence before an impartial person.  In either case, the file should be regularly updated and any subsequent redeeming conduct noted.

Exhibit R7 does not state particular allegations.  In relation to poor performance or conduct, it simply notes the date on which the particular employee was "counselled", the deficiency being identified in the broadest of terms.  In this form, the file is not very helpful.  But it is also not very damaging.  The matters, within these deficiencies, for which an employee might be counselled vary from the serious to the trivial.  It would be irrational to include an employee on a retrenchment list simply because he or she had at some time been counselled.  Mr Dawson and Mr Hickey did not do this.  They used exhibit R7 as a starting point.  They discussed between themselves all the persons named in the exhibit.  They did not place them all on their retrenchment list.  At the behest of Mr Bews, they later went through the entire roll of hull shop employees, apparently comparing the people on their provisional list with the other employees.

It is true that exhibit R7 was not updated before Mr Dawson and Mr Hickey began their work.  But they updated it during the course of their deliberations.  They removed some people from the list because of improved conduct or performance.  I do not think the use of exhibit R7 made the terminations harsh, unjust or unreasonable.

No attempt was made to show that the selections were substantively unfair; that is, that some or all of the applicants had claims for retention superior, on Mr Bews' criteria, to retained welders.  Because of the subjective nature of the criteria, this would be a difficult case to establish.  It is understandable that it was not attempted.  But the result is that there is no material that enables the Court to hold the terminations harsh, unjust or unreasonable on this basis.

The Judicial Registrar expressed the opinion that it was for the employer, under s.170DE(1), "to demonstrate that ... it had valid reasons for choosing to terminate the employment of these Applicants rather than any other welders in the hull shop". She went on to say that, if she was wrong about that (as I respectfully think), but the issue was relevant under subs.(2), "then I would have found that the termination of the employment of these Applicants was harsh, unjust or unreasonable" under s.170DE(2). As I follow her reasoning, she would have made that finding because of her dissatisfaction with the subjective nature of the selection criteria. I have already discussed that topic. The Judicial Registrar did not support any of the other bases of "harsh, unjust or unreasonable" that were put to me.

Orders

In my opinion the subject terminations did not contravene either s.170DC or S.170DE of the Act. I interpret those sections differently to the Judicial Registrar. I think the applications should have been dismissed. That being so, I need not deal with counsel's submissions regarding the quantum of compensation awarded to each applicant-employee.

I propose to order, in each case, that the application for review be granted, the orders made by the Judicial Registrar be set aside and, in lieu thereof, it be ordered that the application be dismissed.

I certify that this and the preceding thirty-three (33) pages are a true copy of the Reasons for Judgment of
Chief Justice Wilcox.

Associate:

Dated:     11 August 1995

APPEARANCES

Counsel for the AFMEU:              Paul Heywood Smith

Solicitor for the AFMEU:            Simon Blewett

Counsel for the Australian

Submarine Corporation:              Stephen Walsh, QC and Michael Davies

Solicitor for the Australian

Submarine Corporation:              Ward & Partners

Dates of hearing:                   13 and 14th July 1995