Kerr v Jaroma Pty Ltd

[1996] IRCA 470

DECISION NO 470/96

CATCHWORDS

INDUSTRIAL LAW - application for recovery of wages - whether applicants engaged in work covered by award classification - TERMINATION OF EMPLOYMENT - whether applicants terminated for VALID REASON of OPERATIONAL REQUIREMENTS - meaning of “valid reason”

Industrial Relations Act 1988 ss 170DE, 170EA, 170EDA, 179

ILO General Survey (1995) on the Termination of Employment Convention (No 158) and Recommendation (No 166), 1982
ILO Report VIII (1), Termination of Employment at the Initiative of the Employer, International Labour Conference 67th Session, 1981
Motels Accommodation and Resorts Award 1992

Andersen v Umbakumba Community Council (1994) 1 IRCR 457
Selvachandran v Peteron Plastics Pty Ltd (1995) 62 IR 371
Jones v Dunkel (1958-1959) 101 CLR 298.
Christine May v Lilyvale Hotel Pty Limited, Industrial Relations Court of Australia, NI 95/1963R, Wilcox CJ, 1 December 1995, (unreported)
Annette Louise Johnson v Halsmoree Pty Ltd, Industrial Relations Court of Australia, DI 104 of 1994, von Doussa J, 31 May 1995, (unreported)
Kenefick v Australian Submarine Corporation Pty Ltd (1996) 65 IR 366
Messervy v MaldocPty Limited (1995) 63 IR 61
State of Victoria & Ors v Commonwealth of Australia, High Court of Australia, M46 of 1994, 4 September 1996, (unreported)

No. VI 3306 OF 1995

IAN KERR v JAROMA PTY LTD trading as Treasury Motor Lodge

No. VI 3307 of 1995

HELEN KERR v JAROMA PTY LTD trading as Treasury Motor Lodge

JUDGE:    Marshall J
PLACE     Melbourne
DATE:     7 October 1996

IN THE INDUSTRIAL RELATIONS  )
COURT OF AUSTRALIA          )
VICTORIA DISTRICT REGISTRY   )   
  No. VI 3306 of 1995

BETWEEN:                   IAN KERR

Applicant

AND:      JAROMA PTY LTD trading as
  Treasury Motor Lodge

Respondent

JUDGE:    Marshall J
PLACE:    Melbourne
DATE:     7 October 1996

ORDER

THE COURT ORDERS THAT:

1.The respondent shall pay the applicant the sum of $5,720 on or before 28 October 1996.

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

IN THE INDUSTRIAL RELATIONS  )
COURT OF AUSTRALIA          )
VICTORIA DISTRICT REGISTRY   )   

No. VI 3307 of 1995

BETWEEN:                 HELEN KERR

Applicant

AND:      JAROMA PTY LTD trading as
  Treasury Motor Lodge
  Respondent

JUDGE:    Marshall J
PLACE:    Melbourne
DATE:     7 October 1996

ORDER

THE COURT ORDERS THAT:

1.The respondent shall pay the applicant the sum of $5,720 on or before 28 October 1996.

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

IN THE INDUSTRIAL RELATIONS  )
COURT OF AUSTRALIA          )
VICTORIA DISTRICT REGISTRY   )   
  No. VI 3306 of 1995

BETWEEN:                   IAN KERR

Applicant

AND:      JAROMA PTY LTD trading as
  Treasury Motor Lodge

Respondent

No. VI 3307 of 1995

BETWEEN:                 HELEN KERR

Applicant

AND:      JAROMA PTY LTD trading as
  Treasury Motor Lodge
  Respondent

JUDGE:    Marshall J
PLACE:    Melbourne
DATE:     7 October 1996

REASONS FOR JUDGMENT

BACKGROUND

The applicants are husband and wife and were employed by the respondent to manage a small inner city motel four days per week, from Sunday morning to Thursday morning, on a live-in basis.

On 14 June 1995 the applicants filed applications pursuant to s170EA of the Industrial Relations Act 1988 (“the Act”) in the Victoria District Registry of the Court. They sought remedies of reinstatement and/or compensation. On 17 August 1995, Deputy President Drake of the Australian Industrial Relations Commission (“the Commission”) certified that the Commission had been unable to settle the matter by conciliation.

On 25 October 1995 the applicants each filed an amended application and statement of claim pursuant to s179 of the Act. By the statement of claim they allege that Jaroma Pty Ltd is a respondent to the Motels, Accommodation and Resorts Award 1992 (“the award”). They allege further that they were employed under the award classification “Hospitality administration and front office grade 1”. They allege breach of the award and seek a sum representing underpayment of wages for the period of their employment, together with interest.

The matter was heard by the Court on 16 and 17 September 1996.  At the conclusion of the hearing on 17 September, I made the following orders in respect of each application:

“1.It is declared that the termination of the employment of the applicant by the respondent contravened s170DE(1) of the Industrial Relations Act 1988 (‘the Act’).

2.The application pursuant to s179 be dismissed.

3.The amount of compensation for breach of s170DE(1) be reserved.”

In addition, I made the following directions in respect of each application:

“1.The applicant is directed to file and serve on or before 1 October 1996 a document setting out details of remuneration earned by him/her within the six months following the termination.

2.The parties are directed to file and serve an agreed document stating the value of board and lodging to the applicants by 24 September 1996 or in the alternative written submissions on or before 1 October 1996 containing contentions as to the value of such board and lodging.”

I reserved my reasons for decision to a date to be fixed, pending receipt of the material referred to in the directions.  What follows are my reasons for making orders 1 and 2 above and for deciding to order the amount of compensation to each applicant referred to at the conclusion of the judgment.

The employment relationship

In opening, counsel for the respondent submitted that the applicants were engaged by the respondent as independent contractors, and that therefore there was no relevant legal relationship between each applicant and the respondent capable of attracting the jurisdiction of the Court under s170EA of the Act. The respondent submitted further that if the Court were to find that the applicants were engaged as independent contractors, it must dismiss the s179 applications.

In the alternative, the respondent submitted that if the applicants were employees, they were required to perform, and did perform, duties which did not come within any classification referred to in the award.  The respondent further submitted that if the Court were to find that the applicants were employees, they were terminated for a valid reason based on the operational requirements of the respondent’s business.

Most of the evidence in these proceedings was directed to the issue as to whether there was a relevant legal relationship between the parties.  Ultimately, it was conceded by counsel that the applicants were employees of the respondent.

Section 179 application

The applicants allege that they were employed under the award classification “Hospitality administration and front office grade 1”.  That classification appears in the award under the heading “Administration - front office” and provides as follows:

“Hospitality administration and front office grade 1

(b)(i)  Shall mean an employee who has not achieved the appropriate level of training and who is primarily engaged in one or more of the following:

(1)front office duties such as receptionist, telephonist, cashier or reservations;

(2)performs basic clerical and routine office duties such as collating, filing, photocopying and delivering messages;

(3)general clerical duties such as typing, basic data entry and calculation functions;

(4)accounts;

(5)night auditing - in addition to any of the above duties such employee may also be required to perform any of the duties of Hospitality services grade 2 or below;

(6)guest relations officer.”

Clause 6 of the award sets out the parties who are covered by the award.  It provides that the award is binding upon inter alia:

“(i)...

(ii)The following, in respect of all employees employed by any of them whether the said employees are members of the union or not;

(1)...

(2)...

(3)The employers who employ at any establishment specified in Schedule A, employees who come within clause 4 of this award and who perform work of any classification set out in clause 9 of this award.”

The respondent admitted that it was bound by the award.

It is clear that the award only applies to employees who perform work in classifications referred to in it.  There is no “all others” classification.

Counsel for the respondent submitted that the applicants were not primarily engaged in any one or more of the duties numbered (1) to (6) of the classification “Hospitality administration and front office grade 1”, but were rather engaged primarily in a management function which on occasions subsumed some of those duties.  He further submitted that on other occasions the applicants were obliged to perform duties which did not come within that classification at all.  He contended that when regard is had to the overall classification structure provided for by the award, it was clear that “Hospitality administration and front office grade 1” was a classification intended to cover junior clerical and administrative positions in motel operations.  Indeed, in clause 9 of the award that classification is ranked as a level 2 position, which is second lowest in the classification structure.

Counsel for the respondent further submitted that the classification under which the applicants claimed to be employed was not intended to cover persons who performed managerial functions even though, due to the size of the operation, those persons might of necessity undertake clerical and administrative tasks.

Counsel for the applicants conceded that the classification under which the applicants claimed to have been employed was low down in the award structure, but submitted that this did not compel the conclusion that the applicants could not come within that classification.  He submitted that the Court should be directed by the prefatory words “primarily engaged in” in the definition.  He contended that the evidence of the applicants disclosed that in performing their duties the applicants were primarily engaged in one of more of the activities listed under that classification, even though they also performed managerial type tasks.  He submitted that the label of “manager” when applied to the applicants had to be understood in the context of their relationship to the owner/managers of the motel.  He also submitted that the “Hospitality administration and front office” classification was graded by reference to levels of training, and that the applicants’ low grading was referable to the fact that they had not achieved the appropriate level of training to come within a higher grade.

In my view the evidence does not disclose that the applicants were primarily engaged in any of the duties of the “Hospitality administration and front office grade 1” classification.  Rather, it reveals that they were primarily engaged in a supervisory function which involved them performing from time to time one or more of those duties referred to in the classification in which they alleged they were employed.  In my opinion, the scope of the award does not include persons employed as live-in managers of motels.  The relatively low level nature, in the context of the entire classification structure, of the allegedly applicable classification tells against it being applied to the most senior employees working in the motel, i.e. the managers.

Section 170EA application

Findings of fact

I make the following findings of fact.  In July 1994 Mr Stevens placed a newspaper advertisement for a live-in couple to assist in the management of the motel.  Mr and Mrs Stevens are directors of the respondent which, in turn, is the lessee of the motel.  At that time the position of live-in manager was the subject of a roster arrangement which required the managers to live on the motel premises seven days a week.  The position was offered to the applicants at that time, but they declined it because their domestic situation rendered the accommodation unsuitable to living-in on a seven days a week basis.

In November 1994 the managers whom the respondent had appointed in the previous July left the motel in sudden circumstances.  Mr Stevens approached the applicants and suggested that the respondent was prepared to alter the roster arrangement in a way which might be more suitable to their domestic arrangements if they would take on the position.

At that time the applicants were working at a motel in Ringwood on a one month relief assignment which required them to live in seven days a week.  Mr Stevens gave evidence that the position offered to the applicants at that time was in the nature of a relief position for a minimum of six weeks.  Both applicants denied that this was so.  Both applicants gave evidence that they understood the position which they were being offered to be a position which would continue indefinitely.

I prefer the evidence of the applicants.  I found both applicants to be credible, frank witnesses.  I accept the evidence of the applicants that they would not have accepted the position if they had known it to be in the nature of a relief position.  In addition, the respondent failed to call Mrs Stevens to give evidence in circumstances where she was present during the course of the relevant conversation between the two couples.  See Jones v Dunkel (1958-1959) 101 CLR 298.

During this initial discussion it was settled that the applicants would live in at the motel on a four days per week basis.  It was also agreed that they would be paid remuneration at the rate of $100 per day to be shared between them which, the Court was informed, was industry standard.  Little was discussed at that meeting in relation to the running of the motel.

The applicants commenced work on 4 December 1994.  The management roster required the applicants to live in four days per week from Sunday morning to Thursday morning.  On Thursday mornings at approximately 8.30 am a hand over would occur at which Mr and Mrs Stevens would assume management of the motel.  On Sunday mornings, management of the motel would be handed back to the applicants.

It was the evidence of Mr Stevens that in mid-December 1994 he and his wife sold their home for financial reasons.  They subsequently purchased a unit and took possession of it in early April 1995.  Mr Stevens’ evidence was that thereafter  he and his wife decided that they wished to become more involved with the business.  His evidence was that:

“... something that we couldn’t understand or explain had changed a little bit and we didn’t know what.  We just felt that we had to go back to - put it back on track or find out what was happening.”

Mr Stevens’ evidence was that in order to become more involved with the business, he and his wife proposed to revert to the management arrangement under which the managers who had been appointed in June 1994 had worked.  This proposed alteration to the roster would require the managers to live in seven days a week.  Mr Stevens gave evidence that about a week before he terminated the employment of the applicants he approached an employment agency which specialised in placing persons in the hospitality industry with a view to employing a management couple who would suit the proposed new arrangement.

On 18 May 1995 Mr Stevens approached the applicants as they were in the process of cleaning the kitchen after the breakfasts had been served.  He said words to the effect of “I have some bad news for you”.  Mr Stevens conceded in cross examination that he did not discuss the proposed change with the applicants prior to terminating their employment on 18 May 1995.  He agreed that he had not given the applicants the opportunity to be considered for the revised management position.

The applicants had been employed some twenty-four weeks prior to their termination.  Upon termination they were paid two weeks pay which Mr Stevens conceded in cross examination he had described to the applicants as “holiday pay”, and a further one week’s pay in lieu of notice.

Valid Reason

Counsel for the respondents submitted, on the basis of the authority of Selvachandran v Peteron Plastics Pty Ltd (“Selvachandran”) (1995) 62 IR 371, that the respondent had a valid reason for the terminations based on the operational requirements of the undertaking. Specifically, the reason for the terminations was the decision of Mr and Mrs Stevens to adopt a more “hands-on” role in relation to the day-to-day running of the motel. This decision necessitated a change in the management roster which required the managers to live in on a seven day a week basis. I do not readily see how the desire of the Stevens’ to adopt a more “hands-on role” is consistent with having people other than the applicants employed as full time live-in managers unless Mr and Mrs Stevens were to take on that role themselves.

In any event, I do not see the decision in Selvachandran as providing a defence to the respondent on the question of compliance with s170DE(1) of the Act. It cannot be assumed that a mere desire by an employer to change the way it conducts its business which, in turn, leads to the termination of the employment of some of its employees, will necessarily found a valid reason for the terminations based upon the operational requirements of the undertaking.

In State of Victoria & Ors v Commonwealth of Australia (High Court of Australia, M46 of 1994, 4 September 1996, unreported)(“Victoria v Commonwealth”) in the joint judgment, at 59, the High Court made it clear that a redundancy situation may nonetheless lead to an infringement of s170DE(1) of the Act. The joint judgment states that:

“... if s170DE(1) is read according to its terms, that aspect of it which requires that there be a valid reason for termination connected with operational requirements would operate to prevent a State from determining the number and identity of those to be made redundant. This operation is, nonetheless, avoided by reason that s6 of the Act is to be read down in the manner earlier indicated.”

See also at p60:

“If read according to their terms, the prohibitions in ss 170DB, 170DC, 170DE(1) and 170DF leave the States free to determine the number and identity of those whom they wish to employ, the term of their employment and, save for s 170DE(1), the number and identity of those whom they wish to dismiss on redundancy grounds. However, in this last regard, the effect of reading down s6 is that the States are not bound by s 170DE(1) to the extent that it would otherwise operate to prevent them determining the identity and number of those they wish to make redundant.” (emphasis supplied)

In Kenefick v Australian Submarine Corporation Pty Ltd  (“Kenefick”) (1996) 65 IR 366, 372-373 a Full Court of this Court held that the termination of employment of some employees on redundancy grounds contravened s170DE(1) of the Act in circumstances where the employer had not attempted to discharge its onus under s170EDA(1)(a) of the Act.

While the present cases do not per se involve redundancies, the abovementioned references to the recent High Court decision and to Kenefick illustrate that a decision to terminate employment taken for operational reasons from the subjective view of the employer will not necessarily result in a termination for a valid reason.  There still must be  a reason for such a termination which, on independent objective analysis, is capable of being proved by the employer to be valid.

In Selvachandran, Northrop J held at 373 that “the application of s170DE(1) should always be considered and decided before consideration is given to the additional limitations on the right of an employer to terminate the employment of an employee imposed by ss 170DE(2) and s170DC.”

As observed in Victoria v Commonwealth at 57, s170DE(2) of the Act “goes not to the reason for termination but to the overall effects of the termination.” It is the duty of the Court to focus upon the requirements of s170DE(1) of the Act, undistracted by s170DE(2) of the Act which the High Court found to be beyond the constitutional power of the Parliament. In that context, it is pertinent to observe that the joint judgment in Victoria v Commonwealth at 56 referred to Art 4 of Convention 158 as “...leav(ing) the general word ‘valid’ as (its) cornerstone”. Convention 158, in its English version, is reproduced as Schedule 10 of the Act.

The word “valid” in the context of s170DE(1) was examined by Northrop J in Selvachandran in the following way at 373:

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

It is noteworthy that Northrop J referred to the adjective “defensible” in considering what is a valid reason. I make this observation because the International Labour Office (“ILO”) entitled its 1995 General Survey on Convention 158 and Recommendation 166 (reproduced as Schedule 11 of the Act) as “Protection against Unjustified Dismissal” (emphasis supplied).  See also the ILO’s 1981 report from its 67th Conference Session entitled “Termination of Employment at the Initiative of the Employer”, where reference is made to the requirement to “justify” a termination.  At 14 of the 1981 report it is said that:

“The requirement of justification for dismissal is here understood to consist of a requirement that an employer must have a valid reason in order to be entitled to dismiss a worker; or, in other terms, a right of the worker not to be dismissed without justification.” (emphasis supplied)

The 1981 report was part of the “preparatory work” in relation to Convention 158.  See Andersen v Umbakumba Community Council  (“Andersen”) (1994) 1 IRCR 457, 461.

Unlike some countries referred to in the General Survey, Australia, through its National Parliament has adopted the general term “valid” as the criterion by which terminations are adjudged.  At paragraph 88 of the 1995 General Survey the following is said:

“88  The more general the terms used in the applicable provisions, the more the definition of valid reasons for termination of employment depends on how these provisions are interpreted by the bodies that apply them (courts, industrial tribunals, arbitrators or other bodies).  To understand the extent to which the reasons considered in practice as justifying termination of employment correspond to the valid reasons covered by the Convention, it is therefore important for countries which ratify the Convention to communicate the decisions which form the basis of case-law or to provide relevant information on how the provisions are applied in practice.”

Paragraphs 96 to 98 of the General Survey deal with “Reasons based on the operational requirements of the undertaking ...”.  These paragraphs are as follows:-

“96  The concept of the ‘operational requirements’ of the undertaking is not defined in the Convention or the Recommendation.  The report presented by the Office for the first discussion at the Conference stated that these reasons ‘generally include reasons of an economic, technological, structural or similar nature.  Dismissals resulting from these reasons may be individual or collective and may involve reduction of the workforce or closure of the undertaking”.  In its General Survey of 1974 on Recommendation No. 119, the Committee pointed out that reasons relating to the operational requirements of the undertaking were generally defined by reference to redundancy or reduction of the number of posts for economic or technical reasons, or due to force majeure or accident.

97   In one country, the following reasons are given as examples:  rationalization or modernization of undertakings, establishments or services, a fall in production, changed market or economic conditions requiring the dismissal of one or more workers and failure of the worker to adapt to the work or technique.  In France, it has been ruled that a termination of employment is not for an economic reason if it is the result of a reorganization that has not been carried out in the interests of the undertaking.

98   Reasons related to the operational requirements of the undertaking, establishment or service could also be defined in negative terms as those necessitated by economic, technological, structural or similar requirements which are not connected with the capacity or conduct of the worker.  Sometimes specific conditions and procedures apply to termination of employment for these reasons, such as the employer’s obligation to prove that the termination of the contract of employment is dictated by operational requirements when he invokes this reason, or a restriction on the number of workers whose employment can be terminated for this reason within a year, or the obligation to take social factors into account.”

As is clear from Kenefick, a reason which is based on the operational requirements of an undertaking does not thereby become “valid” because of it being so characterised from the subjective view of the employer.  The question remains as to whether the employer has satisfied its onus of proof in showing that a reason it alleges to be based on its operational requirements, in fact, was justified or objectively defensible in the circumstances.  The Court will in each case determine, in the particular circumstances prevailing, whether any termination alleged to have been taken due to operational requirements was nonetheless effected for a valid reason, i.e., one which is defensible or justifiable on an objective analysis of the relevant facts.

In this case it is alleged that the termination of the applicants was for a valid reason based on the operational requirements of the undertaking.  I do not accept that submission.  In my view, the termination of each applicant was not defensible or justifiable on any objective analysis of the facts.  The applicants had been good employees and had an expectation of continuing employment in an undertaking which was not alleged to be under any financial difficulties.  Their employer simply decided, with no notice to them, that it no longer required them and that it would engage replacement employees under different arrangements to that which applied to the applicants.  It did not inquire if the applicants were interested in taking up work under the new arrangements.

To find that a termination in such circumstances was valid would be to make s170DE(1) of the Act a dead letter in circumstances where an employer alleges that it has terminated an employee for reasons connected with the operation of the undertaking.

In any event, I do not accept that in these cases the respondent has discharged its onus of proof under s170EDA(1)(a) of the Act. It has not persuaded me that it terminated the employment of the applicants for a valid reason connected with the operational requirements of its undertaking. I do not accept that the s170DE(1) of the Act, properly read, permits the termination of a good serving employee who is simply “tapped on the shoulder” and told she or he is no longer required because she or he no longer fits into an employer’s vision for its business.

One must remember when one is construing legislation which is based upon an International Convention that a generous approach must be taken to the interpretation of such legislation.  See Andersen at 461.

Accordingly, I am of the view that in terminating the employment of each of the applicants, the respondent contravened s170DE(1) of the Act.

Reinstatement

There was no evidence before the Court of the applicants’ desire to be reinstated.  For all the Court knows, each of them may not wish to work again for the respondent.  I do not consider that in the absence of evidence as to the desire of an applicant to be reinstated that the Court should make a reinstatement order.  In such circumstances it is my view that it would be impracticable to do so.

Compensation

But for the terminations, in my opinion, each of the applicants would have been likely to have continued in their employment for a long period of time.  They performed their duties well and were not the subject of any criticism.  Even if the respondent had raised with the applicants the prospect of them working on a full time basis it cannot be assumed that they would have declined to accede to working under new arrangements.  They may have seen this as a better alternative than losing their jobs.

It is appropriate to award the maximum allowable compensation of 26 weeks’ wages to each applicant.  Each of them received $200 gross per week.  They also received free board and breakfast during their employment.  I consider that a loading should be added to their wages to reflect receipt of that benefit.  This Court has adopted that approach on at least three occasions at judge level.  See Messervy v Maldoc Pty Ltd (1995) 63 IR 61, Christine May v Lilyvale Hotel Pty Limited, Industrial Relations Court of Australia, NI 95/1963R, Wilcox CJ, 1 December 1995, No. 628/95 (unreported) and Annette Louise Johnson v Halsmoree Pty Ltd, Industrial Relations Court of Australia, DI 104 of 1994, von Doussa J, 31 May 1995, No. 233/95 (unreported).

The applicants provided written submissions which contended that an amount of $40 each per week was an appropriate sum.  The respondent considered that the appropriate figure was $10.  Whilst it is always difficult to be precise about the monetary value of such a benefit I believe that an appropriate amount in the circumstances would be $20 per week to each applicant, thus bringing the total remuneration of each applicant to a sum of $220.  Accordingly the Court will order that the sum of $5,720 be paid to each applicant within twenty-one days of the date of these reasons for judgment and consequential orders.

I certify that this and the preceding 24 pages are a true copy of the Reasons for Judgment herein of his Honour Justice Marshall.

Associate:  

Date:  

Counsel for the Applicant:            Laurence Maher
Solicitor for the Applicant:           Cain and Lamers

Counsel for the Respondent:           Bruce Shaw
Solicitor for the Respondent:          Gabriel & Co

Date of hearing:  16 and 17 September 1996

Date of judgment:  7 October 1996