Liang Cai v Australia Natural Milk Association Pty Ltd

[2019] FWC 1649

[2019] FWC 1649

FAIR WORK COMMISSION

DECISION

Fair Work Act 2009
s.394—Unfair dismissal

Liang Cai
v
Australia Natural Milk Association Pty Ltd
(U2018/9738)

COMMISSIONER MCKINNON MELBOURNE, 13 MARCH 2019

Application for unfair dismissal remedy – genuine redundancy.

Introduction

[1] Liang Cai was employed by Australian Natural Milk Association Pty Ltd (ANMA) from June 2015 until 14 September 2018. On 14 September 2018, his employment was terminated on the grounds of redundancy. At the time of his dismissal he was employed as General Manager.

[2] Cai has applied for an order granting a remedy for unfair dismissal under section 394 of the Fair Work Act 2009 (the Act). Under section 385, a person has been unfairly dismissed if the Commission is satisfied that the person has been dismissed; the dismissal was harsh, unjust or unreasonable; the dismissal was not consistent with the Small Business Fair Dismissal Code and the dismissal was not a case of genuine redundancy. 1

[3] Cai asserts that his dismissal was not a case of genuine redundancy. He also takes issue with ANMA’s assertion that it was a small business employer at the time of his dismissal. He says the dismissal was not consistent with the Small Business Fair Dismissal Code.

[4] The matter was conciliated on 19 October 2018 but not settled. After seeking the views of the parties, I determined that a hearing would be the most effective and efficient way to resolve the matter. The matter was heard on 31 January 2019 in Melbourne. ANMA was represented with permission.

Preliminary matters

[5] The application was filed within the standard 21 day time limit required by the Act.

[6] Section 382 sets out when a person is protected from unfair dismissal. Under section 382, a person is protected from unfair dismissal if, at the relevant time:

•  They have completed at least the minimum employment period; and

•  They are either covered by a modern award, employed under an enterprise agreement that applies to them or earn an annual income of less than the “high income threshold”.

[7] There is no dispute that Cai was dismissed from his employment, that his period of employment with ANMA was longer than the minimum employment period and that his annual income of $100,000 gross plus superannuation was less than the high income threshold. Cai is protected from unfair dismissal.

Relevant history

[8] ANMA is in the process of establishing a business to manufacture, package and export powdered milk, predominantly for the Chinese domestic market. It commenced production in August 2015. 2 The Directors of the business are Xiao Xing Sun, Qingchun Fan, Dongmei Hua and Jianyi Li.

[9] Cai was employed in 2015 as a Production Engineer. He was promoted to the role of General Manager on 3 April 2017. According to Cai, his role involved duties including arranging quotations and preparing for building construction, looking after sales and customers, purchasing materials and handling suppliers, dealing with equipment problems and factory issue lists, planning annual reports and managing auditor reports.

[10] From approximately June 2017 until his dismissal, Cai and ANMA were in dispute over the terms of his contract of employment, relating to alleged promises made to Cai on or about 23 March 2017 by its Director, Xiao XingSun, when he accepted the General Manager role. 3

[11] In October 2017, ANMA was notified that it would need to submit its milk powder formulas for certification to the China Food and Drug Administration (CFDA) by 1 January 2018. 4

[12] On 21 December 2017, an interim injunction was issued by the NSW Supreme Court 5 against ANMA in connection with a dispute between ANMA and one of its former directors. The effect of the injunction was to prevent ANMA from submitting its formulas for registration to the CFDA until April 2018. According to ANMA, the litigation also caused reputational damage and related customer losses after January 2018.6

[13] On 9 March 2018, shareholders of ANMA met and relevantly resolved as follows:

1. To appoint Jianyi Li as a Director of ANMA;

2. To seek CFDA registration for two brands;

3. To strengthen ANMA food safety and quality assurance system management; and

4. To protect ANMA business information and technology from a confidentiality perspective.

[14] Shortly after the shareholders meeting but on the same day, the ANMA Board met and resolved, relevantly, to:

1. Strengthen food safety and quality assurance system management;

2. Confirm three individuals, including Cai, as the “key persons” in the management team; and

3. Apportion work between them as follows:

a. Jianyi Li would report to the Board, and take responsibility for daily business operations;

b. Cai would report to Li and take responsibility for production, quality assurance, safety “etc”; and

c. Jiaguang Wu would report to Li and take responsibility for financial affairs, documentation, confidentiality and the like; and

4. Address financial difficulties by seeking to raise additional shareholder capital investment.

[15] In April 2018, ANMA submitted two of its formulas for registration to the CFDA. The CFDA was replaced by the State Administration for Market Regulation (SAMR) shortly thereafter, resulting in further delays in the certification of formulas for export. 7 Around the same time, ANMA leased an adjacent factory for use in connection with its future production plans.8

[16] On 7 May 2018, Cai says he was advised that if he refused to sign his employment contract, he would lose his role as General Manager. 9

[17] Between 12 and 14 June 2018, Cai and Li exchanged correspondence in response to Cai’s request for information about the status of his contract of employment, the ANMA Directors and how Li’s position had been authorised.

[18] On 15 June 2018, there was a meeting between Cai, Li, Wu, Phil Marsom (Production Manager) and Mark Ma (Quality Control Officer). The discussion covered matters including Cai’s contract of employment and his perception that many of his responsibilities had been taken away since the appointment of Li as Managing Director. Cai challenged Li’s qualifications and experience. He complained that he had been mistreated for the past four months because he had not cooperated on the writing of a report for Hua’s husband. Li repeatedly asked Cai if he was going to sign his contract of employment and Cai repeatedly refused. Li advised that he would report to the Board. 10

[19] On 20 June 2018, Cai emailed Li asking about whether planned production was to commence, as he had not been advised since his return from leave. Li replied to Cai expressing concern about his copying company information to his personal email address. Cai then advised that his work email account password and settings had been changed, and he felt his email had been accessed. He explained that he was copying to his personal email for “further reference”. 11

[20] On 21 June 2018, a management meeting was held. ANMA confirmed Li’s appointment as Managing Director and announced a new organisational chart 12, explaining the different roles and responsibilities. Cai was tasked with managing ANMA’s production and food safety departments, while Li was to look after sales, public relations and warehouse management. Employees were reminded about their hours of work and advised not to send company information to their personal email addresses. Cai was requested by Li to compile weekly reports for the Board. Production for Aoheng Pregnancy formula was discussed. Cai questioned a number of issues raised at the meeting and advised that he may need to contact the Board directly “if there is any bully, misbehaviour issues in the management team.”

[21] Shortly after the management meeting, there was another meeting between Cai, Li and Wu. Cai asked why his job had been cut down and again alleged that it was because he had refused to make a report for Hua’s husband. A job description for Cai’s role was discussed, together with the new organisational chart. Li gave Cai feedback from the Board on the contractual dispute and suggested two options for resolution of the dispute: that Cai resign from ANMA in return for a negotiable package, or remain as General Manager on the terms offered by it. 13

[22] On 5 July 2018, Cai sought to communicate with the management team at ANMA about concerns with the production of Aoheng milk formula in May/June 2018. 14

[23] On 10 July 2018, unsatisfied with the response he had received, Cai sent a report to the ANMA Board alerting it to potential risks related to the recent Aoheng production, including what he considered serious food safety breaches. He complained about being “isolated from everything” under the new Managing Director, Li. 15 He asked the Board to take remedial action immediately before the product was shipped.

[24] On 12 July 2018, Marsom sent an email to Cai documenting his own concerns about ANMA’s decision to send product despite a range of safety issues, including possible metal contamination, no certificate of authenticity, incorrect expiry dates, mixed Australian and Chinese cans, uncalibrated machines and inaccurate product testing during production.

[25] On a date in July 2018 that is not established, but subsequent to 10 July 2018, it is not in dispute that Cai contacted Dairy Food Safety Victoria (DFSV) about concerns with ANMA’s food safety practices. The communication triggered a food safety audit by DFSV.

[26] On 20 July 2018, Cai emailed Ma requesting meeting minutes for the previous week and expressing concern that the minutes would not be an accurate record of the meeting in relation to the food safety concerns.

[27] On 26 July 2018, employees were told ANMA was having difficulty with wages, and that everyone would need to stay at home. Employees were told no one would be allowed to access the factory without approval.

[28] On 27 July 2018, notice of a four week paid stand down from 30 July 2018 to 24 August 2018 was confirmed to employees in writing. 16 According to Cai, only he and Marsom actually remained at home during the stand down while the other three employees attended for work.

[29] On 27 August 2018, Cai returned to work. Li offered him the option of remaining at home for the rest of the year. The offer was not accepted and Cai worked from 27 August 2018 to 7 September 2018.

[30] On 4 September 2018, the Directors of ANMA met again. The minutes of the Directors’ meeting on 4 September 2018 record ANMA continuing to operate at a financial loss. Only two production orders had been filled since December 2017, which was considered “inadequate to support the company’s daily operation”. Matters affecting the business’ financial position were noted as including the litigation commenced in December 2017 and related interim injunction. The Directors resolved as follows:

1. To call for further capital or loans to address ANMA’s financial position;

2. To enter into a restructure period for at least 2-3 months and make the positions of General Manager, Managing Director and all operational employees redundant; and

3. To appoint Director Qinchun Fan as temporarily in charge of daily operation and production.

[31] On Monday 10 September 2018, ANMA issued a letter to Cai referring to their “informal meeting today”, advising that it was “considering” making his role as General Manager redundant and proposing a meeting the following day to discuss any suggestions he may have to avoid the redundancy, or “any other matters” relevant to the proposal. It advised that it would consider any suggestions or matters raised by Cai “before we make a final decision in this regard”. There is no evidence that any informal meeting actually occurred on that day and there is no evidence that Cai was even at work on 10 September 2018. The letter has the appearance of having been pre-prepared.
[32] The same day, ANMA sent another letter to Cai, referring to his “failure to attend work today” and its “repeated attempts to contact” him by phone. It repeated the contents set out above, noted that he did not have approval for his absence, and requested a meeting the following day, 11 September 2018 at 4.15pm.

[33] On 11 September 2018, ANMA sent another letter to Cai confirming that his absence on 10 and 11 September 2018 was not approved and accusing him of unauthorised absence. It referred to the Board’s “considering a restructure” of ANMA, due to changes in its financial outlook and production approval issues. It confirmed that his role was being considered for redundancy and rescheduled the proposed meeting for 12 September 2018 at 4.00pm. It indicated that ANMA would consider whether he could “reasonably be redeployed into any other roles within the company.” Cai responded to the effect that he needed time to get some advice.

[34] ANMA agreed to extend the time for a proposed meeting to 13 September 2018 at 11.00am. It advised that if no response was received, the Board “would need to move forward to make a decision on the next steps.”

[35] On Friday 14 September 2018, ANMA wrote to Cai to advise that, in the absence of his response and “having reviewed other areas within the business”, there were “currently no vacancies or opportunities for redeployment within the business” and confirmed that his position was redundant, effective immediately. It advised that as a small business employer, no redundancy pay would be paid but that the remainder of his entitlements would be paid the following Monday, 17 September 2018.

Was the dismissal a case of genuine redundancy?

[36] As earlier stated, section 385 of the Act provides that a person has been unfairly dismissed if the Commission is satisfied of certain matters, including that the dismissal was not a case of genuine redundancy. The expression ‘genuine redundancy’ is defined in section 389 of the Act, as follows:

“389 Meaning of genuine redundancy

(1) A person’s dismissal was a case of genuine redundancy if:

(a) the person’s employer no longer required the person’s job to be performed by anyone because of changes in the operational requirements of the employer’s enterprise; and

(b) the employer has complied with any obligation in a modern award or enterprise agreement that applied to the employment to consult about the redundancy.

(2) A person’s dismissal was not a case of genuine redundancy if it would have been reasonable in all the circumstances for the person to be redeployed within:

(a) the employer’s enterprise; or

(b) the enterprise of an associated entity of the employer.”

Did ANMA no longer require Cai’s job to be performed by anyone because of changes in its operational requirements?

[37] Cai’s role was not clearly defined but I am satisfied that at the time of dismissal, his role as General Manager encompassed primarily the responsibility for ANMA’s production and food safety departments, reporting to Li. This was the effect of the Board’s March 2018 resolution 17 which was reinforced in late June 2018 following the management meeting.18

[38] There is no dispute that ANMA was in a loss making financial position at the time of the dismissal. It had been since inception. I accept Mr Marsom’s evidence to the effect that as an industry ‘greenfields’ site, it expected to run at a loss until the site was commissioned, although there is some evidence that the site had already been commissioned and was producing up to 300,000 cans of milk powder in the period prior to Li’s appointment as Managing Director.

[39] Be that as it may, there is no dispute that production levels had dwindled to insignificant proportions by the time of Cai’s dismissal. ANMA’s capacity to continue to produce milk powder for export had for some time been constrained by legal action as well as local and foreign regulatory requirements. Delays experienced as a result of Chinese certification changes were longer than initially anticipated, for reasons beyond ANMA’s control. ANMA was also being audited by DFSV, including in connection with Cai’s notification of potential food safety breaches. Much of Cai’s role had been subsumed by Li, and his remaining responsibilities appear to have been significantly curtailed due to the lack of production on site. I am satisfied that ANMA no longer required Cai’s job to be performed by anyone at the time of his dismissal.

[40] Whether that circumstance arose because of changes in ANMA’s operational requirements is less clear, because of the lapse in time between the events affecting ANMA’s business between December 2017 and April 2018 (related to the interim injunction on seeking certification and changes in Chinese government regulatory processes) and ANMA’s decision to ‘restructure’ the business in September 2018.

[41] There is some merit in Cai’s submission that ANMA had other reasons for wanting to bring an end to his employment. Cai, together with Marsom, had been instrumental in alerting DFSV to food safety concerns at ANMA. Cai had an ongoing and unresolved contractual dispute with ANMA. ANMA had concerns about Cai’s willingness to work cooperatively with it and about his performance. In my view these matters contributed to ANMA’s decision to stand down employees for four weeks in July 2018 and to the offer it made to Cai to remain at home on full pay for the rest of the year in late August 2018.

[42] The ANMA Board resolved to make a range of positions redundant, but its decision was only implemented in part. Cai and Marsom lost their jobs, while Li, who as Managing Director occupied one of the two specific positions targeted by the Board for redundancy, remained employed. He stopped working for two months and was paid for the period. I am satisfied that the other two employees, Wa and Ma, also remained employed and were called upon to perform particular work as required. As Li stated, the factory “still needed to be run” in a reduced capacity.

[43] The situation changed after the Board meeting in September 2018. According to Li, ANMA’s shareholders did not want to continue contributing money to the tune of $100,000 per month while there was no production or sales, and given the uncertainty about when ANMA’s Chinese export applications would be approved. 19 The Board made a series of decisions directly in response to shareholder concerns, including the decision to make Cai’s position redundant. Li’s evidence was persuasive on this matter and I accept it. I find that the reason Cai’s job was no longer required to be performed by anyone was a change in ANMA’s operational requirements in response to shareholder concerns about the financial viability of the business, as well as their reluctance to guarantee further operating capital after September 2018 for anticipated ongoing expenses.

Did ANMA comply with any obligation in a modern award or enterprise agreement that applied to the employment to consult about the redundancy?

[44] It is not in dispute that Cai was neither covered by a modern award nor an enterprise agreement. I find that there were no relevant consultation obligations on ANMA in relation to Cai’s redundancy for the purposes of section 389(2) of the Act.

Would it have been reasonable in all the circumstances for Cai to be redeployed?

[45] Contrary to its repeated assertions in correspondence sent to Cai leading up to his dismissal, I am not satisfied that ANMA actually considered any alternative role for Cai before it decided to make his position redundant.

[46] However, there is no evidence that there were any such alternative available roles into which Cai could have been redeployed, either in ANMA or its associated entity, South Australia Luheng Pty Ltd (SAL). Absent any evidence to the contrary, I am not satisfied that it would have been reasonable for Cai to be redeployed within either ANMA or its associated entity, SAL.

Conclusion

[47] For the reasons set out above, I find that the dismissal was a case of genuine redundancy for the purposes of section 389 of the Act.

[48] Given my finding in relation to genuine redundancy, it is not necessary to consider whether the dismissal was inconsistent with the Small Business Fair Dismissal Code or whether it was harsh, unjust or unreasonable. Cai was not unfairly dismissed.

[49] The application is dismissed.

COMMISSIONER

 1   Fair Work Act 2009 (Cth), s.385

 2   Exhibit 14

 3   Exhibit 14

 4   Exhibit 14

 5   2017/375991

 6   Directors’ meeting minutes, 4 September 2018

 7   Exhibit 14

 8   Exhibit 15

 9   Exhibit 6

 10   Exhibit 5

 11   Exhibit 5

 12   Exhibits 8 and 10

 13   Exhibit 9

 14   Exhibit 23

 15   Exhibit 23

 16   Exhibit 4

 17   Exhibits 9, 11

 18   Exhibits 7, 9

 19   Audio file of hearing, 31 January 2019

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