Marc Lovelady v Service First Compressor Parts Pty Ltd

[2020] FWC 2322

[2020] FWC 2322

FAIR WORK COMMISSION

0BDECISION

Fair Work Act 2009
s.394—Unfair dismissal

Marc Lovelady
v
Service First Compressor Parts Pty Ltd
(U2020/440)

DEPUTY PRESIDENT MANSINI MELBOURNE, 10 AUGUST 2020

Application for an unfair dismissal remedy – jurisdictional objection – genuine redundancy – application dismissed.

[1] This decision concerns an application by Mr Marc Lovelady for an unfair dismissal remedy pursuant to s.394 of the Fair Work Act 2009 (Cth)(Act).

[2] I have determined that Mr Lovelady’s dismissal was a case of genuine redundancy within the meaning of s.389 of the Act and, by reason of s.385(d) of the Act, Mr Lovelady was not unfairly dismissed. The reasons for this decision follow.

Procedural context

[3] On 11 January 2020, Mr Lovelady filed this application alleging unfair dismissal.

[4] As the matter did not resolve after two attempts at conciliation, a program was set for determination and the exchange of materials in advance. The Applicant filed a witness statement and a bundle of documents in support of his application. Service First Compressor Parts Pty Ltd (ABN 72 601 185 755) (the Respondent) filed an initial response and correspondence from his accountant.

[5] I decided that it was appropriate to hold a determinative conference rather than a hearing in this matter as the most effective and efficient way to resolve this matter. The determinative conference was conducted, by telephone, on 4 May 2020. Mr Lovelady (on his own behalf) and Mr Edward Fritsch (former Manager of the Respondent) gave evidence at the determinative conference.

The evidence

[6] The Respondent entity was established to pay wages of employees who supplied labour to EE(A) Airconditioning and Refrigeration Compressors Pty Ltd ABN 43 998 396 018, which traded as John Beal (Vic). John Beal (Vic) provided engineering services for (rebuilding) air conditioning and refrigeration compressors.0F 1

[7] Mr Lovelady was employed by the Respondent and its predecessor entities from 4 September 2012 until 24 December 2019. At the time of the dismissal, Mr Lovelady was in the position of Supervisor Mechanical Engineer, earning an annual income of $75,088 including superannuation, plus a company supplied car and fuel card.1F 2 The Manufacturing and Associated Industries Award 2010 applied to his employment.

[8] Mr Fritsch gave evidence that due to industry decline, changes to technology in the industry, the seasonal nature of the business and significant debts, in November 2019 a decision was made to undergo “a major restructure”. Specifically, it was determined that the Respondent entity, the entity trading as John Beal (Vic) and a third entity (referred to as “Coday”), all with a common director (a Ms Rachel Haslem, Mr Fritsch’s daughter), would cease trading and ultimately be wound up. The operation would be scaled down to a smaller undertaking with Mr Fritsch to operate as a sole trader through a new entity and services provided by independent contractors when there was work available. A certified practising accountant prepared a letter on behalf of the Respondent which verified these matters. It said that, over the past 15 years, the business had run at a significant loss until finally it was unable to continue to operate which is why these changes were made to downsize and remove overheads. The letter also verified that the business experienced a significant seasonal slowdown over winter, to around one quarter of the capacity in November to April each year.2F 3 Prior to this decision, the Respondent factory had been sold to pay off business debts including outstanding employee entitlements.

[9] On 20 November 2019, Mr Lovelady attended a meeting with Mr Fritsch and his accountant Ms Grandovec (of Grandfinancials) (the First Meeting). In that meeting, Mr Lovelady was verbally notified that his role was being terminated as the business was ceasing to operate.3F 4 There was then a discussion about the operational decision and what it meant for Mr Lovelady. According to Mr Lovelady:

•  Mr Fritsch said that he had made the operational decision to cease operating because he no longer wanted the responsibility of having to pay employees’ superannuation or tax, he had got himself into a lot of debt by not paying superannuation and tax in the past and by not having the same overheads he could reduce his outgoings and make more profit which would allow the business to build compressors for stock.

•  Mr Lovelady was advised to take out an ABN and that he could contract his services to John Beal when work was available, at a higher hourly rate ($45.25 per hour). He claims to have been told that everything would stay the same in terms of tools, machines and going about business.

•  Mr Lovelady insisted that he was entitled to payment of notice for termination of his employment and stated that he wanted an opportunity to seek advice.

[10] Later that day, Mr Fritsch confirmed that notice of termination would be paid and that there would be another meeting to discuss these matters and any further questions.
[11] On 25 November 2019, Mr Lovelady was provided written notice that his employment would end.4F 5

[12] On 4 December 2019, there was a further discussion between Mr Fritsch and Mr Lovelady (Ms Grandovec and another business advisor, Mr Duncan Mcfarlane of Macrofinans Insurances were also in attendance) (the Second Meeting). According to Mr Lovelady, this meeting was to discuss and negotiate a way forward and matters discussed included the business rationale for the operational change, the rate and conditions of work on offer as a contractor to a new entity. Mr Lovelady sought a higher hourly rate of $70.00 per hour, based on his advice about the cost of operating as an independent contractor, which was rejected on the basis that the business could not afford it. Mr Fritsch offered that Mr Lovelady could purchase his work car being a tool he would require as a contractor.

[13] Over the following two weeks, Mr Fritsch and Mr Lovelady had further discussions about the conditions of contracting to the new entity.

[14] On 23 December 2019, a separation certificate was completed which described the reason for termination as “business ceasing to operate”.5F 6

[15] Mr Lovelady’s last day of work with the Respondent was 24 December 2019, and entitlements were paid on 25 December 2019.6F 7 At the time of Mr Lovelady’s dismissal, there were four other employees of the Respondent who were also affected by the restructure. Since December 2019, the Respondent entity and the entity trading as John Beal (Vic) have not employed anyone and both entities ceased trading.7F8 Pursuant to a direction, the Commission also received correspondence directly from the Respondent’s certified practising accountant that the Respondent entity had ceased trading but had not been placed into liquidation; it has an outstanding debt to the Australian Taxation Office that is subject of a payment arrangement.8F9

[16] Since January 2020, Mr Fritsch as a sole trader (trading as John Beal Vic/Aus9F 10) has provided compressor rebuild services.

[17] On 6 January 2020, Mr Lovelady approached Mr Fritsch and offered to provide his services to Mr Fritsch as an independent contractor. On 8 January 2020, Mr Fritsch engaged with Mr Lovelady by requesting a price for a specific scope of work. However, as a rate could not be agreed, there was no engagement.

[18] Over the period from January to the hearing on 4 May 2020, five independent contractors provided services to the new entity, including two former employees of the Respondent. Mr Fritsch’s evidence was that these engagements were over the peak season and there were never more than two contractors providing services to him as a sole trader at any given time. Since March 2020, the business had experienced a further downturn due to the coronavirus pandemic in addition to the usual decline over the winter season.

When can the Commission order a remedy for unfair dismissal?

[19] Section 390 of the Fair Work Act 2009 (Cth) (Act) provides that the Commission may order a remedy to a person if:

(a) the Commission is satisfied that the person was protected from unfair dismissal at the time of being dismissed; and

(b) the person has been unfairly dismissed.

[20] Both limbs must be satisfied. I am therefore required to consider whether Mr Lovelady was protected from unfair dismissal at the time of being dismissed and, if I am satisfied that Mr Lovelady was so protected, whether Mr Lovelady has been unfairly dismissed.

[21] Section 382 of the Act provides that a person is protected from unfair dismissal if, at the time of being dismissed:

(a) the person is an employee who has completed a period of employment with his or her employer of at least the minimum employment period; and

(b) one or more of the following apply:

(i) a modern award covers the person;

(ii) an enterprise agreement applies to the person in relation to the employment;

(iii) the sum of the person’s annual rate of earnings, and such other amounts (if any) worked out in relation to the person in accordance with the regulations, is less than the high income threshold.

[22] Section 385 of the Act provides that a person has been unfairly dismissed if the Commission is satisfied that:

(a) the person has been dismissed; and

(b) the dismissal was harsh, unjust or unreasonable; and

(c) the dismissal was not consistent with the Small Business Fair Dismissal Code; and

(d) the dismissal was not a case of genuine redundancy.

Was Mr Lovelady dismissed?

[23] As the Respondent initially argued that there was no dismissal, a threshold issue to determine is whether Mr Lovelady has been dismissed from his employment with the Respondent.

[24] Section 386(1) of the Act provides that a person has been dismissed if:

(a) the person’s employment with their employer has been terminated on their employer’s initiative; or

(b) the person has resigned from their employment but was forced to do so because of conduct, or a course of conduct, engaged in by their employer.

[25] Section 386(2) of the Act sets out circumstances where an employee has not been dismissed, none of which are presently relevant.

[26] A dismissal does not take effect unless and until it is communicated to the employee who is being dismissed, though it may be communicated orally.10F 11 By the plain words of its email of 25 November 2019, I find that Mr Lovelady’s employment with the Respondent was terminated at the initiative of the Respondent effective 25 December 2019.

Other initial matters for consideration

[27] Section 396 of the Act sets out four matters which I am required to decide before the merits of Mr Lovelady’s application may be considered. 

[28] There is no dispute between the parties and I am satisfied on the evidence that:

(a) Mr Lovelady’s application was made within the 21-day period required by s.394(2);

(b) Mr Lovelady was employed by the Respondent for a period of in excess of seven years, the Manufacturing and Associated Industries Award 2010 covered and applied to his employment, he earned less than the high income threshold and therefore he is a person protected from unfair dismissal within the meaning of s.382; and

(c) Mr Lovelady does not dispute that the Respondent is a small business employer within the meaning of s.23 of the Act. However, the dismissal was not by reason of Mr Lovelady’s conduct or capacity but rather was for operational reasons.  I am therefore satisfied that the Small Business Fair Dismissal Code does not apply.11F 12

[29] In relation to the fourth initial matter which I am required to consider, there is a dispute between the parties regarding whether Mr Lovelady’s dismissal was a genuine redundancy. Accordingly, I must decide that question before I decide the merits of the application.

Genuine redundancy (s.396(d))

[30] Under s.389(1) of the Act, a person’s dismissal was a case of genuine redundancy if:

(a) the 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.

[31] Section 389(2) of the Act provides an exception to a genuine redundancy where redeployment is reasonable. It provides that 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 the employer’s enterprise or the enterprise of an associated entity of the employer. “Associated entity” has the meaning given by s.50AAA of the Corporations Act 2001 (Cth).

The employer no longer required the employee’s job to be performed by anyone because of changes in the operational requirements of the employer’s enterprise (s.389(1)(a))

[32] It is necessary to determine whether the Respondent no longer required the job of Mr Lovelady to be performed by anyone because of changes in the operational requirements of the Respondent’s enterprise.

[33] A job involves “a collection of functions, duties and responsibilities entrusted, as part of the scheme of the employer’s organisation, to a particular employee”.12F 13 Where there has been a reorganisation, the question is whether the employee has any duties left to discharge. If there is no longer any function or duty to be performed by that person, their job becomes redundant. An employee’s job may still be genuinely redundant when there are aspects of the employee’s job still being performed by others. The test is whether the job previously performed by the employee has survived the restructure or the downsizing, not whether the duties have survived in some form.13F14

[34] The reference to “changes in the operational requirements of the employer’s enterprise” in s.389(1)(a) of the Act includes circumstances where an employer restructures its business to improve efficiency, productivity, sales, revenue or some other aspect of performance. The operational circumstances of a business which may give rise to a redundancy will reside in the knowledge of the employer. The evidentiary onus is on the employer to provide direct evidence about the nature of the employee’s job and why it is no longer required to be performed as a result of changes in the operational requirements of the employer’s enterprise.

[35] If a dismissal is found to be a genuine redundancy within the meaning of the Act, issues such as whether there was a valid reason for the termination are not relevant because they go to the merits of the claim that the applicant was dismissed harshly, unjustly on unreasonably.14F 15

[36] The circumstances of this case do not involve a redistribution of duties amongst smaller or downsized workforce. The evidence before the Commission is that the Respondent and John Beal (Vic) entities have ceased operations entirely. The Respondent entity no longer employs anyone at all. I am satisfied on the evidence before the Commission that the decision for these entities to stop operating was due to operational reasons related to its significant debt, high operating costs, changes to technology and the seasonal peaks and troughs in demand for its business. That the former manager of the Respondent, Mr Fritsch, has commenced servicing effectively the same customer market, as a sole trader, via a new business entity, with a similar business name and a different operating model; does not change the fact that the Respondent entity no longer requires Mr Lovelady’s role to be performed by anyone because of the changes in the operational requirements.

[37] Accordingly, I am satisfied that the Respondent no longer required Mr Lovelady’s role to be performed by anyone because of changes in the operational requirements of the Respondent’s enterprise.

Compliance with any consultation obligation in a modern award that applied to the employment (s.389(1)(b))

[38] For there to be a genuine redundancy within the meaning of s.389 of the Act, the Respondent must have complied with any obligation in a modern award to consult about the redundancy.

[39] It was not disputed and, as I have found above, the Manufacturing and Associated Industries Award 2010 (the Award) covered and applied to Mr Lovelady’s employment.

[40] The Award included consultations obligations for the Respondent to:

•  Notify Mr Lovelady of its definite decision to introduce major changes in production, program, organisation, structure or technology which was likely to have significant effects on him including termination of his employment;

•  Discuss with Mr Lovelady and his representative (if any) the introduction of the changes, the likely effects and measures to avert or mitigate the adverse effects of such changes;

•  For the purposes of that discussion, provide in writing all relevant information about the changes proposed – nature of the changes, expected effects and any other matters likely to affect employees;

•  Promptly consider any matters raised in relation to the changes by Mr Lovelady and his representative (if any).

[41] On the materials before the Commission, the Respondent appears to have announced its decision to make the operational changes in a relatively unsophisticated manner and at least initially proceeded on the incorrect assumption that all employees would be interested to come on board in a different capacity as part of the new structure and operating model. It understandable that Mr Lovelady queried the fairness of the process. However, it is commonly the case in circumstances of a business closure that the consultation period is short and, as termination of employment by redundancy is a fait accompli, quickly moves to a discussion about ways to mitigate the adverse effects on employees. Further, consultation does not require agreement but rather an exchange of relevant information, views and consideration of those views.

[42] On the evidence before the Commission, Mr Lovelady was initially notified of the definite decision to introduce change to the business structure during the First Meeting on 20 November 2019. I do not accept Mr Lovelady’s repeated contention that he was not given any reasons, which does not accord with his detailed evidence about the discussion that took place in the First Meeting. What is apparent is that Mr Lovelady did not agree with the reasons he was given for the business decision to restructure or the proposed operating model rather than that he was given no reason at all.

[43] By way of the 25 November 2019 email, relevant information was provided to Mr Lovelady in writing and in advance of the Second Meeting at which both the operational change, the effects and measures to mitigate those effects were discussed again with Mr Lovelady.

[44] During the Second Meeting, and on various occasions in the two weeks that followed, the Respondent gave consideration and responded to Mr Lovelady’s proposal for a higher contracting rate and his communicated position that the proposed rate was not enough to cover his operating costs as an independent contractor. Whilst the rate was ultimately not agreed, reasons for this were provided and the Respondent’s response included an offer to sell Mr Lovelady an asset which he would require if he were to provide services as a contractor. I consider these facts support a finding that Mr Lovelady was given an opportunity to raise matters and consideration was given to matters raised by Mr Lovelady.

[45] Accordingly, I am satisfied that there was compliance with the consultation obligations under the Award that applied to Mr Lovelady’s employment.

Was it reasonable in all the circumstances for the person to be redeployed within the employer’s enterprise or the enterprise of an associated entity of the employer (s.389(2))

[46] For the purposes of section 389(2) of the Act, the Commission must consider whether there was a job or a position or other work within the employer’s enterprise (or that of an associated entity) to which it would have been reasonable in all the circumstances to redeploy the dismissed employee. There must be an appropriate evidentiary basis for such a finding.15F 16 The word “redeployed” in section 389(2) of the Act should be given its ordinary and natural meaning, which is to “transfer to another job, task or function”.16F17

[47] If an employer wishes to rely on the “genuine redundancy” exclusion in section 389 of the Act, then it would ordinarily be expected to adduce evidence, on the question of redeployment, as to whether there was a job or a position or other work within the employer’s enterprise (or that of an associated entity) to which it would have been reasonable in all the circumstances to redeploy the dismissed employee. Such evidence would usually include the steps taken by the employer to identify other jobs, positions or work which could be performed by the dismissed employee.17F 18

[48] Whether it would have been reasonable in all the circumstances for the person to be redeployed directs attention to the circumstances which pertained when the person was dismissed. In determining whether redeployment would have been reasonable, a number of matters may be relevant including the nature of any available position the qualifications required to perform the job, the employee’s skills, qualifications and experience, the location of the job and the remuneration offered.   18F 19

[49] It is important, however, to appreciate that because there is a requirement to assess the reasonableness of redeployment “in all the circumstances”, it is not possible to establish binding or decision rules concerning the application of s.389(2) of the Act in all cases; the circumstances of each particular case must be considered.19F 20

[50] The circumstances of this case involve the complete closure of the Respondent and its related entities which were controlled by a common director. There were simply no roles with those entities to which Mr Lovelady could be deployed. Further, that common director has no involvement in the new entity and Mr Fritsch was an employee and not a director of the entities that have now ceased trading.

[51] Even if Mr Fritsch, as a sole trader, were considered an “associated entity” of the Respondent entity within the meaning of s.50AAA of the Corporations Act 2001 (Cth) (which does not appear to be so on the evidence before the Commission), the new operating model meant that there were no permanent employment positions on offer. Mr Fritsch did offer to engage Mr Lovelady when work was required as an independent contractor, at a slightly higher hourly rate. By its very nature, this arrangement involved uncertainty of remuneration and required Mr Lovelady to manage his own superannuation, taxation and make provision for what would have otherwise been entitlements (as an employee) such as to paid leave. Further, I accept that whilst Mr Lovelady entertained that offer he was ultimately not satisfied with the conditions on offer and chose to reject the offer.

[52] In all the circumstances of this case, I do not consider that it was reasonable for Mr Lovelady to be redeployed within the Respondent entity or an associated entity.

[53] For completeness, it is noted that Mr Lovelady’s real complaint appeared to be that the proposal to re-engage his services as an independent contractor is “phoenix activity” and a breach of the general protections provisions at ss.357, 358 and 359 of the Act. Mr Lovelady was afforded all reasonable assistance of the Commission in understanding the differences between the thresholds and available remedies, and of the general rule against making multiple dismissal related applications pursuant to s.725, but elected to pursue this unfair dismissal claim. Although I have made findings about certain matters relevant to determining this unfair dismissal application, any other claims that Mr Lovelady may have, such as for any underpayment of entitlements, are properly to be pursued in a court of competent jurisdiction and ultimately a court would need to reach its own conclusions on those matters.20F 21

Conclusion

[54] Mr Lovelady was obviously a valued employee of the Respondent. It is unfortunate that he has lost his job through no fault of his own, particularly in circumstances where he was even willing to provide services to Mr Fritsch under the new operating model. However, I am satisfied that the Respondent’s dismissal of Mr Lovelady was a case of genuine redundancy within the meaning of s.389 of the Act. It follows, by reason of s.385(d) of the Act, that Mr Lovelady was not unfairly dismissed. I therefore dismiss the application.

DEPUTY PRESIDENT

Printed by authority of the Commonwealth Government Printer

<PR718788>

 1   Applicant’s document list of 30 March 2020 – ASIC Register.

 2   Applicant’s document list of 30 March 2020 - Final Payslip dated 24 December 2019, which also shows that the hourly rate was $38.00 per hour.

 3   Letter from A. Norman Rooke & Partners Pty filed by the Respondent on 19 March 2020.

 4   Applicant’s Statement of Evidence, page 5.

 5   With final entitlements to be paid on 25 December 2019, see Applicant’s document list of 30 March 2020 – Letter of Termination dated 25 November 2019.

 6   Applicant’s document list of 30 March 2020 – Separation Certificate dated 23 December 2019.

 7   At the hearing, Mr Lovelady did not dispute that all entitlements owing were paid; a payslip provided to the Commission confirms that accrued but unused annual leave, RDOs and LSL were paid, see Applicant’s document list of 30 March 2020 – payslip dated 24 December 2019.

 8   Letter from A. Norman Rooke & Partners Pty filed with the Commission on 19 March 2020.

 9   Ibid; see also email from A. Norman Rooke & Partners Pty dated 23 April 2020.

 10   Business name registered on 12 December 2019, see Applicant’s document list of 30 March 2020 – ASIC Register.

 11   Burns v Aboriginal Legal Service of Western Australia (Inc) Print T3496 (AIRCFB, Williams SDP, Acton SDP, Gregor C, 21 November 2000) at [24] and Plaksa v Rail Corporation NSW[2007] AIRC 333 (Cartwright SDP, 26 April 2007) at [8]; citing Barolo v Centra Hotel Melbourne Print Q9605 (AIRC, Whelan C, 10 December 1998).

 12   Iannello v Motor Solutions Australia Pty Ltd [2010] FWA 3125; Groszek v Toyvision International Pty Ltd[2015] FWC 697.

 13   Jones v Department of Energy and Minerals (1995) 60 IR 304 at 308 per Ryan J; applied in Ulan Coal Mines Limited v Howarth[2010] FWAFB 3488; (2010) 196 IR 32 at [17]; cited in Eli Stever v Colas New South Wales Pty Ltd[2020] FWC 3832 at [11].

 14   Kekeris v A. Hartrodt Australia Pty Ltd [2010] FWA 674 at [27] per Hamberger SDP; cited in Eli Stever v Colas New South Wales Pty Ltd[2020] FWC 3832 at [12].

 15   Johnston v Blue Circle Southern Cement Pty Ltd (2010) 202 IR 121 at [48]; cited in Eli Stever v Colas New South Wales Pty Ltd[2020] FWC 3832 at [14].

 16   Technical and Further Education Commission T/A TAFE NSW v Pykett[2014] FWCFB 714; (2014) 240 IR 130 at [36].

 17 Ibid at [25].

 18   Ibid at [36]-[37]; Teterin & Ors v Resource Pacific Pty Limited t/a Ravensworth Underground Mine[2014] FWCFB 4125; (2014) 244 IR 252 at [28]-[29].

 19   Technical and Further Education Commission T/A TAFE NSW v Pykett[2014] FWCFB 714; (2014) 240 IR 130 at [24] and [35]; Ulan Coal Mines Ltd v Honeysett[2010] FWAFB 7578; (2010) 199 IR 363 at [28].

 20   Teterin & Ors v Resource Pacific Pty Limited t/a Ravensworth Underground Mine [2014] FWCFB 4125; (2014) 244 IR 252 at [35].

 21   Bowden v Ottrey Homes Cobram[2013] FWCFB 431 at [24], citing Ellawala v Australian Postal Corporation Print S5109 at [35].