Kenefick v Australian Submarine Corporation Pty Ltd
[1996] IRCA 103
•26 March 1996
DECISION NO: 103/96
IN THE INDUSTRIAL RELATIONS COURT
OF AUSTRALIA
SOUTH AUSTRALIAN DISTRICT REGISTRY
Nos SI 94/290, 292, 293, 294, 295
On appeal from the Chief Justice
B E T W E E N :
TREVOR KENEFICK, PETER DIGGLE, IAN CHEONG, PETER HILL, BRONTE NAGEL and AUTOMOTIVE, FOOD, METALS & ENGINEERING UNION
Appellants
AND
AUSTRALIAN SUBMARINE CORPORATION PTY LTD
Respondent
BEFORE: Ryan, Beazley and North JJ
PLACE: Melbourne (heard in Adelaide)
DATE: 26 March 1996
REASONS FOR JUDGMENT
THE COURT:
An application under s.170EA of the Industrial Relations Act 1988 (“the Act”) was filed on behalf of each of five employees of Australian Submarine Corporation Pty Ltd by their Union, alleging that the termination of their employment was unlawful. The application was heard by Judicial Registrar Farrell, who found that the terminations were unlawful, and ordered that Australian Submarine Corporation Pty Ltd pay compensation to the five employees. Australian Submarine Corporation Pty Ltd sought a review of the exercise of the delegated power by the Judicial Registrar under s.377(1) of the Act. The review was heard by the Chief Justice, who dismissed the application: Kenefick v Australian Submarine Corporation (1995) 131 ALR 197. The five employees and their Union (“the appellants”) now appeal against that decision.
THE FACTS
There is no dispute about the facts. No additional evidence was called on the review. The issues for determination on the review, and on this appeal, were all matters of law. Consequently, it was appropriate for the review to be conducted on the basis of the transcript of the proceedings before the Judicial Registrar. The facts relevant to the appeal are, however, more limited than the facts relevant to the determination of the review, because there are fewer issues to be considered on this appeal. The following account of the facts addresses only the matters of concern on the appeal.
Australian Submarine Corporation Pty Ltd (“the respondent”) manufactures submarines for the Australian Government, at Osborne in South Australia. In December 1994, prior to the terminations with which this case is concerned, the respondent employed 546 production employees. At that time it had held orders for the production of six submarines. In November 1994 the Government published a Defence White Paper which announced that a decision to build the seventh and eighth submarines would not be made until at least 1996. The then existing workforce for six submarines could not be maintained in the absence of orders for more ships. As a result, the respondent decided to reduce its workforce by 36 production employees. The 36 production employees were to come from different trades and from different departments of the respondent’s operation. The five appellants were all welders employed in the hull shop. It is there that the manufactured sections of the hull are assembled. The respondent decided to terminate the employment of, in all, nine welders from the hull shop. Before these terminations, the respondent had employed about 170 persons in the hull shop. The evidence did not disclose how many were welders, but it is evident that a large proportion were welders.
Once the respondent had determined the number of employees whose employment was to be terminated, and the categories of employment from which they were to come, it had to make a selection of individual employees from a much larger pool of employees who all fell within the same employment category, as, for example, welders in the hull shop. The process of selection took place between 30 November 1994, when Mr Ohff, the managing director, announced the decision to make a number of employees redundant, and 7 December 1994, when the process of selection was concluded.
On 1 December 1994 there was a regular meeting of the Joint Consultative Committee, which included representatives of management and the relevant unions. There was discussion about the redundancies announced the day before, but the respondent did not provide details to the meeting. It indicated only that the total number would be less than 50 employees. The unions asked whether the respondent would ask for volunteers, and the respondent replied by saying that it would consider volunteers. The respondent instructed managers of the various departments, such as the hull shop, to discuss the redundancies with the senior foremen and foremen in each department.
Mr Dawson was the manager of the hull shop. In his previous position as assistant manager of the hull shop, he had kept a file at the request of the then manager “to identify personnel of concern on the shop floor”. The “concern” arose from both disciplinary matters and work performance, including levels of skill and quality of work. The file pre-dated the implementation of a formal warning procedure. The information from the file was summarised in a document listing each employee concerned. Mr Dawson described the summary in the following way:
“What you’ve got to realise is this list, before ’93, was used by myself. There was not a warning procedure in place. There was diary notes and other things around the traps at which the current warning procedure was not summarised. I used this document as a summary of personnel who I have had concerns with on the shop floor.” (Transcript 144)
The list was last updated in February 1994. It comprised a list of employee names, a column headed “Other”, with various comments in it, and five columns under the general heading of “Warning System”. Each of the five columns allowed for the insertion of the date of each warning from the first to the fifth warning. In the column headed “Other” there was at least an entry for each appellant in the terms “production level” or “skill level” or both. In relation to three appellants, there were dates entered in the first warning column, or the first and second warning columns. For the other two appellants there was no entry in the warning columns. Mr Dawson used the list of employees of concern (“the concerns list”) as a starting point for selection for redundancy. On 2 December 1994, as instructed by senior management, Mr Dawson had a discussion with the senior foreman in the hull shop, Mr Hickey. Some names were removed from the concerns list because the employees had left the company, changed departments or had improved.
On Monday, 5 December 1994, the respondent advised the unions that the number of redundancies would be 36, and advised how they would be distributed between the various trades including the fact that nine would be welders from the hull shop. The general manager of operations, Mr Bews, met with his managers and senior foremen and told them to make assessments for redundancy on the basis of criteria such as skills, flexibility, commitment, timekeeping, attitude, performance and supervisory requirement. Mr Dawson then reviewed all employees in the hull shop, and further reviewed the list with Mr Hickey and another foreman later that day. The purpose of this review was to revise by reference to the same criteria the concerns list by adding names of persons who had excited sufficient concern between February 1994, when the list had last been revised, and December 1994. Mr Dawson met with Mr Bews later that day. Mr Dawson was told by Mr Bews that the matter could not be finalised because the names of volunteers were not yet available. Nonetheless, letters of termination were prepared on that day.
By Tuesday, 6 December 1994 the list of volunteers was received by the respondent from the unions. Mr Dawson examined the revised concerns list against the list of volunteers. Mr Hickey participated in this review. In assessing the volunteers as against the employees on the concerns list, they used the same criteria, including performance and skill. Mr Hartley, who was the senior welding foreman in the hull shop, was asked by Mr Dawson to express a view on the list compiled by Mr Dawson and Mr Hickey. Mr Hartley agreed with the names on the list, but suggested some further names. His assessment was based on the quality of the welding work done by the employees. After Mr Hartley’s contribution, Mr Dawson met with Mr Bews and finalised the list by discussing each employee on the list and the reasons for selection. Mr Dawson described the reasons discussed in relation to the appellants as follows:
“The main areas of concern for the individuals would be, for example, Trevor Kenefick, quality of workmanship. Performance on the shop floor, and the supervision requirement - ....
In relation to Peter Diggle, do you remember why it was that you thought that he would be a satisfactory candidate for redundancy? --- The reason Peter’s name was selected for redundancy is, over the years from the day of which he started with the company we had a number of workmanship problems, and we had spent an extensive amount of time retraining Peter to get him up to speed to be able to meet the shop floor demands.
......
Peter Hill, do you remember the position with respect to him? --- .... He, over the years - we had a number of complaints via the foreman of his performance and his attitude towards work, both on shift, of which was bought to my attention and one of the reasons why his name was put on to the document. Productivity and performance were mainly of his concern.
......
In relation to Ian Cheong, did you have an assessment yourself in respect of that man? --- Going back early in the piece as a - I think it was as a welding engineer, if not the assistant manager - I had an involvement where Ian was required to do some training on some process named, flux cord arc welding. He refused to do that and it made the task very difficult in trying to get him to carry out the duties.
Did he eventually agree to do the training? --- Yes, after a stand down - he was stood down.
Apart from that can you remember anything else about Mr Cheong and his workmanship? --- He spent - early in the piece he was involved with the union. He and the previous management had numerous discussions on various topics of which I wasn’t privy to. His attitude towards the foreman - he was very outspoken at times and was, in my view, a little negative towards the foreman and management’s approach.
......
In the case of Mr Bronte Nagel, another one of the welders. What was the position there? --- Bronte also had a similar problem to Peter Diggle, where his quality of workmanship and his performance on the shop floor was not adequate to be left to work freely on the shop floor and in other areas. He required extensive supervision, spent a number of weeks in the procedures area.”
The only volunteers selected for redundancy were those whose names had already been on the concerns list. If the respondent had desired to select volunteers only, there would have been sufficient to fill all the welder redundancies. That is to say, the employment of each of the appellants was terminated although there was a volunteer available for termination in place of each of the appellants.
On Wednesday, 7 December 1994 the respondent terminated the employment of the second, fourth and fifth appellants, and advised the first and third appellants that their employment would be terminated from 4 January 1995.
DECISION OF THE JUDICIAL REGISTRAR
Section 170DE(1) and (2)
The Judicial Registrar held that, under s.170DE(1), the respondent carried the onus of showing a valid reason for the termination of each appellant, and not merely a valid reason for termination of the group of redundant employees. She found that this onus had not been discharged because the selection criteria used by the respondent were not clear. The respondent had not therefore shown a valid reason for terminating the employment of each appellant, rather than the employment of the relevant number of other welders in the hull shop. The Judicial Registrar then held that, if she was wrong about the respondent’s failure to discharge the onus of proof under s.170DE(1), the appellants had demonstrated that the terminations were harsh, unjust and unreasonable under s.170DE(2) because of the inadequacy of the selection criteria.Section 170DC
It was common ground that the respondent had not given the appellants an opportunity to respond to the reasons for the terminations. The Judicial Registrar held that this was a breach of s.170DC, because the grounds for termination related to the performance or conduct of the appellants. She rejected the argument that s.170DC did not apply in this case because the respondent simply made a selection between a number of employees, all of whom were satisfactory.The Judicial Registrar awarded compensation to each of the appellants.
THE DECISION ON REVIEW
Section 170 DC
His Honour held at 206 that s.170DC was not applicable and was therefore not contravened in this case. He said:“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.”
His Honour accepted the argument that, for the purposes of s.170DC, there was a difference between a redundancy situation and one covered by s.170DC. In the former, where some employees must go, the task is to select from a group of satisfactory employees those most appropriate for retrenchment. In the latter, where nobody need go, the only reason for the termination is the conduct or the performance of the particular employee. His Honour also said that there was difficulty in applying s.170DC in the present case because no allegations were made against employees. There was only an assessment of relative merit.
Section 170DE(1) and (2)
His Honour held that all the respondent had to show was that there was a valid reason for the reduction in the workforce to satisfy s.170DE(1). The onus under s.170EDA(1) was discharged in this case. He rejected the argument that the respondent carried the onus of establishing a valid reason for selecting each particular employee. This, he held, was a question falling under s.170DE(2), on which the appellants carried the onus. He held that the appellants had failed to discharge the onus by showing that the selection of the particular employees was harsh, unjust or unreasonable. He therefore dismissed the applications.
SECTION 170DC - OPPORTUNITY TO DEFEND AGAINST ALLEGATIONS
Section 170DC(a) provides:
“170DC 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”.
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 206:
“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.
It would be anomalous if s.170DC can be construed as providing an opportunity to an employee to defend himself or herself against allegations of misconduct or inadequate performance made in isolation but as denying the same opportunity to an employee against whom similar allegations are made in the context of a need to select a few employees for termination from a larger pool because of an excess of labour. In both cases an assessment is made by the employer of performance and conduct. In both cases the assessment determines whether or not the employee’s employment is terminated. There is an equal need for the employee to have an opportunity to respond because, in each case a convincing defence to the allegations may persuade the employer not to terminate the employment of that employee. The need for an opportunity to defend is illustrated in the evidence of the appellants in this case. For example, the fifth appellant was selected for retrenchment in part because of the quality of his workmanship. In his affidavit, filed before the Judicial Registrar, that appellant said that no workmanship of his ever had to be repaired but on one occasion when his work had been questioned it turned out that the work had been done by another tradesman.
In our view it would require intractable language to impute to the legislature an intention to make what it obviously regards as a fundamental right to an opportunity to respond to allegations of misconduct or poor performance depend on a distinction between a termination which results from selection from a larger pool of eligible employees and one that does not.
We do not share the view of the Chief Justice that the present case cannot properly be described as involving allegations against the appellants. The concerns list contained direct allegations of inadequate performance. The criteria set by Mr Bews included “performance” and “timekeeping”, and the basis for termination of the appellants was described in the evidence of Mr Dawson, extracted earlier in these reasons, as relating mainly to performance. The fact that the performance was assessed by comparison with that of other employees is not significant. Performance criteria will always have some reference point. The relevant consideration is that a decision is proposed to be made by accepting or rejecting a criticism of the employee. By s.170DC the employee must be given a chance to answer the criticism, whatever be the reference point upon which the criticism is made.
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.
SECTION 170DE - VALID REASON FOR TERMINATION
Section 170DE provides:
“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.
170DE(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.”
The onus of proof under s.170DE is governed by s.170EDA(1), which provides:
“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)”.
The appellants submit that the respondent carried the onus under s.170DE(1) of establishing that there was a valid reason for the termination of each appellant, based on the operational requirements of the respondent. The appellants did not contest the respondent’s need to reduce its workforce, but argued that the respondent carried the onus of establishing that there was a valid reason for the selection of each appellant. It was common ground that the respondent had not attempted to discharge this onus. Thus, if the appellants’ contention were correct, the respondent would have failed to discharge the onus and the appeal would succeed on this aspect.
Section 170DE(1) is concerned with the termination of the employment of an individual employee. As was said in relation to s.170DC, the terminations in this case were for two reasons. Both were based on the operational requirements of the respondent. One reason was the need to reduce the workforce, the other was to retain some rather than other employees of the existing workforce. Without both steps, no individual would have been terminated. The decision to reduce the overall numbers of welders in the hull shop did not of itself lead to the termination of individual appellants, and the process of selection was only commenced after the decision to reduce overall numbers had been taken. Consequently, the respondent carried the onus of showing that there was a valid reason for the selection of each appellant.
This conclusion is consistent with the scheme of s.170DE and s.170EDA(1). The scheme of the sections provides for the employer to carry the onus on matters peculiarly within the knowledge of the employer, and for the employee to carry the onus on matters peculiarly within the knowledge of the employee. Thus, in the present case, the respondent made the decisions concerning the selection of each particular appellant, and determined the basis on which the selection was to be made. The respondent should justify those decisions. To cast on the employee the onus of showing that the basis of selection has been harsh, unjust or unreasonable would be inconsistent with the apparent intention that this legislation should accord an accessible and inexpensive means by which a dismissed employee can seek a remedy. That consideration derives particular force when it is remembered that often an individual employee will not know why he or she has been selected for retrenchment.
REMEDY ON APPEAL
For these reasons we conclude that the respondent contravened s.170DC and s.170DE(1) in the termination of employment of each of the appellants. It is not necessary, in the light of this decision, to determine whether the appellants also established that the terminations were harsh, unjust and reasonable under s.170DE(2).
Having dismissed the applications, the Chief Justice did not determine the appropriate amount of compensation payable to each appellant. The result of this appeal will be to declare the terminations of each appellant to have been in contravention of s.170DC and s.170DE(1) of the Act, and to remit the proceeding to the Chief Justice for determination of the appropriate amount of compensation.
I certify that this and the preceding sixteen (16) pages are a true copy of the reasons for judgment of the Court.
Associate:
Dated:
Solicitors for the applicant: S. Blewett
Counsel for the applicant: P. Heywood-Smith
Solicitors for the respondent: Ward & Partners
Counsel for the respondent: S. Walsh QC and R. Evans
Date of hearing: 8 September 1995
Date of judgment: 26 March 1996
IN THE INDUSTRIAL RELATIONS COURT
OF AUSTRALIA
SOUTH AUSTRALIAN DISTRICT REGISTRY
Nos SI 94/290, 292, 293, 294, 295
On appeal from the Chief Justice
B E T W E E N :
TREVOR KENEFICK, PETER DIGGLE, IAN CHEONG, PETER HILL, BRONTE NAGEL and AUTOMOTIVE, FOOD, METALS & ENGINEERING UNION
Appellants
AND
AUSTRALIAN SUBMARINE CORPORATION PTY LTD
Respondent
BEFORE: Ryan, Beazley and North JJ
PLACE: Melbourne (heard in Adelaide)
DATE: 26 March 1996
THE COURT DECLARES:
The termination of each appellant to have been in contravention of s.170DC and s.170DE(1) of the Industrial Relations Act 1988.
THE COURT ORDERS THAT:
The proceeding be remitted to the Chief Justice for determination of the appropriate amount of compensation.
NOTE: Settlement and entry of orders is dealt with by Order 36 of the Industrial Relations Court Rules.
C A T C H W O R D S
INDUSTRIAL LAW - TERMINATION on grounds of REDUNDANCY - employee selected from pool of employees eligible for REDUNDANCY - OPPORTUNITY TO DEFEND AGAINST ALLEGATIONS must be given if selection from the pool is based on performance or conduct - VALID REASON for termination - ONUS on employer to show both excess of labour and validity and proper application of criteria for selection of the particular employee
Industrial Relations Act 1988 ss. 170DC, 170DE, 170EDA
Kenefick v Australian Submarine Corporation (1995) 131 ALR 197
KENEFICK and Others -v- AUSTRALIAN SUBMARINE CORPORATION PTY LTD
Nos. SI 94/290, 292, 293, 294, 295
Before: Ryan, Beazley and North JJ
Place: Melbourne (heard in Adelaide)
Date: 26 March 1996
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