Michael Varis v KP Welding Construction T/A KP Welding Construction

[2014] FWC 2622

[2014] FWC 2622

FAIR WORK COMMISSION

DECISION

Fair Work Act 2009
s.394—Unfair dismissal

Michael Varis
v
KP Welding Construction T/A KP Welding Construction
(U2013/14144)

VICE PRESIDENT LAWLER SYDNEY, 18 APRIL 2014

Application for relief from unfair dismissal - case turning on its own facts - no matters of principle.

[1] The Respondent operates a small steel fabrication business in Darwin. At the time the Applicant, Mr Varis, ceased working for the Respondent, it had about 6 employees.

[2] Mr Varis had worked for the Respondent since about 2007 and had become a good friend of the Respondent’s principal, Mr Sackley. Mr Sackley’s children called Mr Varis “Uncle Mick”. Mr Varis is not a formally qualified welder but had developed significant welding skills through practice over the years and was an employee who had been entrusted with the equivalent of a foreman’s role on many jobs.

[3] Prior to July 2012 Mr Varis was engaged as an employee and paid as an employee with PAYE tax deducted. At the end of this period his wage rate stood at $30 per hour, as evidenced by the original time and wages book produced at the hearing.

[4] As at July 2012 only one of the Respondent’s workers was engaged as a sub-contractor. That worker (the Contractor) was a qualified welder with a significant level of skill and experience and was the most highly paid person in the Respondent’s workforce.

[5] In early July 2012 Mr Varis had a serious motorcycle accident, unrelated to his work. He was absent from work, recovering from that accident, until after the middle of August 2012.

[6] It is common ground between the parties that upon notifying the Respondent of his intention to return to work following his injury, Mr Varis and Mr Sackley had a conversation about Mr Varis’ remuneration (the August 2012 conversation). Mr Varis sought a wage rise. Mr Sackley agreed that a wage rise was sought and gave evidence that he said that he was prepared to increase Mr Varis’ wage to $44 an hour - $1 per hour less than the amount being paid to the Contractor. [I note that that individual has since requested a return to wages, which request was granted by the Respondent as indicated by the changes in recording of payments for that individual in the time and wage records of the company.]

[7] Mr Sackley gave evidence, which I accept, that he was certainly not prepared to pay Mr Varis more than this more highly qualified and more experienced tradesman. Where the parties differ strongly is the basis upon which Mr Sackley agreed to increase the rate of Mr Varis’ remuneration.

[8] Mr Sackley gave unequivocal evidence that he informed Mr Varis that he was prepared to pay $44 per hour but that if he was to pay that rate, it would be only on the basis that Mr Varis worked as a sub-contractor (that is, with Mr Varis being paid a gross amount less GST but with no PAYE tax deduction). I note that even assuming such a change of status from employee to sub-contractor, the increase Mr Sackley was prepared to agree involved a significant real increase to the after-tax remuneration being received by Mr Varis.

[9] Mr Varis strongly rejected any such discussion and insisted that he continued to be engaged as an employee. Mr Varis gave a version of the August 2012 conversation in which he claimed that Mr Sackley had expressly acknowledged that Mr Varis would be considered as the employee albeit be paid at the rate of $44 - $45 per hour.

[10] Mr Sackley’s evidence in relation to that conversation is supported by an objective analysis of the original time and wages book of the Respondent for the 2012-2013 and, in particular, the first page in that book relating to Mr Varis. There is a notation “Away ‘Insured’” against a line indicating a period from early July 2012 to August 2012, followed by an notation “sub contractor as at 20/8/12”. Prior to these entries the original time and wages books show regular ‘employee’ entries. Thereafter, the entries only show dates and payments.

[11] Different coloured pens with a distinctly different written appearance have been used to make entries in the time and wages books, as one would expect if they were being kept honestly and had not been manipulated in the fashion suggested by Mr Varis. I am satisfied from an analysis of the original time and wages record that, on the balance of probabilities, the notation “Sub Contractor as at 20/8/12” was made at about that time. That notation is in a distinctive pen colour and line weight. Other entries with the same distinctive colour and line weight support that conclusion.

[12] I reject Mr Varis’ contention that the notation was added after the event in a dishonest fashion to support the Respondent’s case.

[13] I reject as improbable Mr Varis’ claim that, during the August 2012 conversation, Mr Sackley promised to pay him as an employee at a rate that delivered a pay net wage of $44 per hour. A net wage at that rate implies a gross wage approaching $70 per hour. I accept the evidence of the Respondent that he never would have agreed to pay such a figure because it was financially unsustainable and was far more than the rate being paid to the Contractor, a more qualified and more experienced worker.

[14] Following the August 2012 conversation, Mr Varis’ remuneration was increased to $44 per hour and paid at that rate until the events that led to the breakdown in the relationship. That amount was paid by the Respondent on the basis that Mr Varis was a contractor - that is, Mr Varis was paid a gross amount (presumably less GST but) with no PAYE tax deducted and remitted to the ATO.

[15] Matters came to a head after the end of the 2013 financial year when Mr Varis came to prepare his tax return and discovered that no PAYE tax had been deducted and remitted on his behalf by the Respondent to the ATO. I accept that Mr Varis had proceeded on the basis of a belief that he was an employee and that the money deposited into his account by the Respondent was net of PAYE tax. Having spent his income without making any provision for income tax, Mr Varis found himself facing the possibility of a significant tax bill.

[16] Mr Varis sought to have the issue addressed by the Respondent and gave evidence, which I accept, of a protracted delay by the Respondent’s in responding to his concerns and successive attempts to address the issue. I accept that Mr Varis was fobbed off for a time. Eventually Mr Varis lost patience and ceased attending work but retained the Respondent’s utility and tools for a period of two weeks until, finally, there was a further conversation in which there was a sharp disagreement between Mr Varis and Mr Sackley about the basis on which Mr Varis had been engaged.

[17] I accept that the evidence of the Respondent that during this conversation Mr Varis used extremely vulgar and abusive language about the Respondent’s wife and that the Respondent dismissed him for that misconduct. Mr Varis denied using the abusive language attributed to him by Mr Sackley however having observed Mr Varis’ demeanour during the determinative conference and his resort to emotional and abusive language during the determinative conference I am satisfied on the balance of probabilities that the abusive language alleged by Mr Sackley was in fact used and I prefer Mr Sackley’s evidence in that regard.

[18] On the evidence, there can be little doubt that, as a question of mixed fact and law, Mr Varis was an employee in the period since his return to work from the motorcycle accident in August 2012. I do not consider it necessary to conduct a detailed analysis of the indicia emerging from the authorities, including in particular the leading authority in the High Court of Hollis v Vabu((2001) 207 CLR 21) (see also Abraham Abdalla v Viewdaze Pty Ltd t/as Malta Travel ([2003] AIRC 504)). The case is clear cut. It is sufficient to note that Mr Varis worked exclusively for the Respondent in the period, was not a qualified tradesman, did not provide his own tools, did not have a company, did not advertise and was manifestly subject to the control of the Respondent.

[19] Notwithstanding that that was the legal position, I accept that Mr Sackley genuinely believed that from August 2012 Mr Varis was a sub-contractor rather than an employee.

[20] Given my finding that Mr Varis was an employee it is still necessary to consider, of course, whether the dismissal was harsh, unjust or unreasonable, and in particular, whether each of these matters is referred to under s.387 of the Fair Work Act.

Section 387(a) whether there was a valid reason for the dismissal related to the person’s capacity or conduct (including its effect on the safety and welfare of other employees)

[21] I am satisfied that Mr Varis’ refusal to attend work and his retention of the Respondent’s utility and tools, together with the abuse he directed at Mr and Mrs Sackley constituted a valid reason for the dismissal. Clearly, there are other circumstances that bear upon whether the dismissal has harsh, unjust and or unreasonable notwithstanding the existence of that valid reason. Mr Varis’ reaction in the conversation that led to the termination of his engagement was understandable as a human reaction.

Section 387(b) whether the person was notified of that reason; and (c) whether the person was given an opportunity to respond to any reason related to the capacity or conduct of the person

[22] The dismissal was a summary dismissal as an immediate response to the misconduct in the form of extreme abuse directed at Mr Sackley and his wife. There was no prior notification and Mr Varis was not given an opportunity to respond. Moreover, this is unsurprising in the circumstances where Mr Sackley genuinely believed that Mr Varis was a contractor whose services could be terminated without being concerned about unfair dismissal.

Section 387(d) any unreasonable refusal by the employer to allow the person to have a support person present to assist at any discussions relating to dismissal

[23] No such occasion arose.

Section 387(e) if the dismissal related to unsatisfactory performance by the person—whether the person had been warned about that unsatisfactory performance before the dismissal

[24] The dismissal did not relate to unsatisfactory performance.

Section 387(f) the degree to which the size of the employer’s enterprise would be likely to impact on the procedures followed in effecting the dismissal; and (g) the degree to which the absence of dedicated human resource management specialists or expertise in the enterprise would be likely to impact on the procedures followed in effecting the dismissal

[25] The Respondent’s business is very small and has no dedicated human resource management specialists or expertise. This clearly affected the procedures that were followed in effecting the termination of Mr Varis’ services. I am satisfied that, subjectively, Mr Sackley acted in good faith in acting as he did.

Section 387(h) any other matters that FWC considers relevant

[26] I have considered all of the circumstances of the matter including the facts and circumstances set out above and the matters advanced by Mr Varis as well as Mr Varis’ age and length of service and the nature of the prior relationship between the parties.

[27] I accept that Mr Varis genuinely believed that the Respondent was looking after the tax liability in respect of the payments made to him and was therefore understandably deeply aggrieved when he discovered shortly after the end of the 2013 financial year that he faced potentially a significant tax bill in the circumstances where the money in respect of which that tax was due had long since been spent by him. His anger is all the more understandable given the delay in the Respondent (including both Mr Sackley and his wife) in addressing the issue when Mr Varis sought to raise it with them repeatedly over an extended period and

[28] On a fine balance I am not persuaded that this dismissal was harsh, unjust or unreasonable notwithstanding the understandable resentment that Mr Varis feels about the circumstances.

[29] I prefer Mr Sackley’s evidence as to the August 2012 conversation. I find that Mr and Mrs Sackley acted in good faith in treating Mr Varis as a contractor following the August 2012 conversation. Even if Mr and or Mrs Sackley had responded quickly to the issue when it was first raised by Mr Varis, their position would have been no different. I am not persuaded that their delay justified the extreme abuse that Mr Varis directed to both of them immediately before the dismissal.

[30] However, even if I had found the dismissal was harsh, unjust or unreasonable, I would have exercised my discretion to decline a remedy in all the circumstances. The small size of the business and the total breakdown in the personal relationship between people who were once friends renders reinstatement a wholly inappropriate remedy. I am not persuaded that it would be just in all the circumstances to award compensation to Mr Varis.

[31] Mr Sackley did not commit to pay in the order of $70 per hour to Mr Varis as an employee and I am satisfied that Mr Sackley did inform Mr Varis that he would be working as a sub-contractor if he wished to receive a wage rate of $44 per hour and that consequently deduction of tax would be Mr Varis’ responsibility (even if that did not register or ‘sink in’ with Mr Varis).

[32] If the issue had been brought to a head at an earlier time, Mr Sackley may well have agreed to withhold appropriate tax and remit it on behalf of Mr Varis as an employee based on a wage of $44 per hour (or something approaching that amount). However, the fact remains that the issue was not brought to a heard until after the end of the 2012-2013 financial year and Mr Varis has received the benefit of the full amount of the agreed rate of $44 per hour over the period. There was never any circumstance where Mr Sackley or the Respondent would have paid tax on top of that agreed rate of $44. Having heard the witnesses, I am satisfied that Mr Varis would not have been prepared to remain working with the Respondent unless Mr Sackley had capitulated and agreed to meet Mr Varis’ tax bill. I am satisfied that, even if the Sackleys had responded to Mr Varis’ concerns in a timely way, there is no chance that the Respondent would have agreed to what Mr Varis wanted. For this reason, I am satisfied that the working relationship would have come to an end, even if there had been no dismissal. I do not see how an award of compensation against the Respondent would afford ‘a fair go all round’.

[33] I recognise that Mr Varis has a genuine, continuing and deep belief that he has been wronged and deserves to be compensated. However, for the reasons given I cannot endorse those feelings as well founded as a matter of law.

[34] The application for an unfair dismissal remedy is dismissed.

VICE PRESIDENT

Appearances:

The Applicant on his own behalf

Mr. D. Sackley and Mrs. C. Sackley for the Respondent

Hearing details:

2014:

Darwin;

3 February

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