Petty v University of Adelaide

[1997] IRCA 17

DECISION NO:17/97

CATCHWORDS

INDUSTRIAL LAW - TERMINATION of EMPLOYMENT - claim of UNLAWFUL TERMINATION - REDUNDANCY - whether inadequate severance payment constitutes a breach of SECTION 170DE(1) - VALID REASON.

Workplace Relations Act 1996 (C'th) (formerly Industrial Relations Act 1988) Ss 170CD, 170DE(1), 170EA

Leddicoat v Schiavello Commercial Interiors (SA) (unreported) IRCA 569/95, Von Doussa J, 18 October 1995
State of Victoria v The Commonwealth of Australia (1996) 138 ALR 129
Selvachandran v Peteron Plastics Pty Ltd (1995) 62 IR 371
Nettlefold v Kym Smoker Pty Ltd (unreported) IRCA 469/96, 4 October 1996, Lee J
Kerr v Jaroma Pty Ltd (unreported) IRCA 470/96, 7 October 1996, Marshall J
Thomas v Lynch (unreported) IRCA 627/96, 20 December 1996, Wilcox CJ.
Fryar v System Services Pty Ltd (1996) 137 ALR 321
Lupoi v Phillips Fox (unreported) IRCA 485/96, 3 October 1996, Ritter JR

MICHAEL ANDREW PETTY v UNIVERSITY OF ADELAIDE

SA 1050 of 1996

Before  :          RITTER JR

Place  :          PERTH (Heard in Adelaide)

Date of Judgment  :          10 FEBRUARY 1997

IN THE INDUSTRIAL RELATIONS COURT            )
OF AUSTRALIA  )
SOUTH AUSTRALIAN DISTRICT REGISTRY        )

SA 1050 of 1996

B E T W E E N:  

MICHAEL ANDREW PETTY

Applicant

A N D:  

UNIVERSITY OF ADELAIDE

Respondent

MINUTE OF ORDER

10 FEBRUARY 1997  PERTH  RITTER JR

THE COURT ORDERS THAT:

1. The application be dismissed.

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  )

SOUTH AUSTRALIAN DISTRICT REGISTRY        )

SA 1050 of 1996

B E T W E E N:

MICHAEL ANDREW PETTY

Applicant

A N D:

UNIVERSITY OF ADELAIDE

Respondent

REASONS FOR DECISION

10 FEBRUARY 1997  RITTER JR

This application, under section 170EA of the Workplace Relations Act ("the Act"), has taken a somewhat unusual course.  The background of the matter was described in an earlier judgment I delivered on 19 December 1996, the effect of which was to refuse an application by the applicant to adduce further evidence.

The applicant, Mr Petty, was employed by the University of Adelaide from February 1976 until 16 February 1996.  Mr Petty was employed under a Federal award called the Higher Education General and Salaried Staff (Interim) Award (1989) which incorporates within it an award of the South Australian Industrial Relations Commission entitled the University of Adelaide General Staff Award.

Mr Petty was first employed in the computing department of the University.  He worked within that department until in 1983 he had reached the highest level that was applicable under the award structure.  From that point onwards he was involved in what was described as entrepreneurial work for the University which was conducted via a company called Camtech (SA) Pty Ltd ("Camtech").  This company was wholly owned by the University.  Through his involvement with Camtech, Mr Petty enjoyed salaries that were significantly in excess of the rate of pay which was applicable to his classification under the relevant award.  This was despite the fact he remained technically employed by the University and a member of the computing department.  For example, in 1992 Mr Petty enjoyed a salary of $70,059.90.  In 1993, Mr Petty was instructed to take up duties as a board member of Camtech.  The board resolved to appoint Mr Petty as its managing director.  After this appointment, Mr Petty's salary package was $110,000 including a superannuation component of $9,000.  In 1995, in continuing in that role, Mr Petty enjoyed a salary package of $120,500 which included as components superannuation of $9,000 and a car allowance of $10,000. 

There was then a restructuring of Camtech which involved Mr Petty withdrawing from his role as managing director and ultimately from his role as chief executive officer of Camtech.

This meant that Mr Petty had to return to the University to his position in the computing department.  At that time, Mr Petty was informed that there were no duties that he could perform, and Mr Petty was made redundant.  At that time, Mr Petty's substantive salary under the award structure was $52,389.

Upon being made redundant, Mr Petty was paid a redundancy package of two weeks for each completed year of service, which was by that stage 20 years of service, and six months payment in lieu of notice.

The applicant's submission at trial was that the redundancy package should have been applied to his salary package when the chief executive officer at Camtech, being $120,500, or in the alternative, should have been the salary which he was paid whilst last working for the department proper, which was $70,059.90.  It was submitted that the payment of the redundancy package to him on the basis of a salary of $52,389.00 meant that his termination of employment was unlawful.

Mr Weatherill, for the applicant, expressly did not rely on section 170DE(1) of the Act. Indeed it was conceded that there was a valid reason for the termination of Mr Petty's employment, being his redundancy. However, the applicant relied upon section 170DE(2) of the Act.

Section 170DE provided that:

"170DE(1)An employer must not terminate an employee's employment unless there is a valid reason, or valid reasons, connected with the employee's capacity or conduct or based on the operational requirements of the undertaking, establishment or service.

170DE(2)A reason is not valid if, having regard to all of the circumstances of the case, including the employee's capacity and conduct and those operational requirements, the termination is harsh, unjust or unreasonable.  This subsection does not limit the cases where a reason may be taken not to be valid".

Mr Weatherill's submission was that the rate used to calculate Mr Petty's redundancy package was so inadequate that the termination of employment was harsh, unjust or unreasonable.  In making such a submission, Mr Weatherill relied on cases such as Leddicoat v Schiavello Commercial Interiors (SA) (unreported) IRCA 569/95, Von Doussa J, 18 October 1995. Mr Weatherill submitted that the applicant had discharged the onus under section 170EDA(1) and proved the termination of employment was unlawful because there had been a contravention of section 170DE(2) of the Act.

Mr Short, for the respondent, submitted the University had always employed Mr Petty at the salary of $52,389.00.  The University itself never authorised or agreed to pay Mr Petty a salary of $120,500.00.  This salary was agreed to be paid to Mr Petty by Camtech, which was a legal entity quite separate to the University.  Mr Short submitted that this was so even though Mr Petty remained on the records of the University as an employee of it, and despite the relationship between the University and Camtech.

Such was the state of play when I reserved my decision at the end of closing submissions on 2 August 1996. In summary, the applicant's case was that there had been a contravention of section 170DE(2) because of the allegedly inadequate termination payment made to him by the respondent. The applicant accepted that the termination of his employment was a genuine redundancy and it was not alleged that there had been a contravention of the Act by reason of any failure to offer Mr Petty alternative employment within the University rather than terminate his employment.

On 4 September 1996 the High Court handed down it's decision in State of Victoria v The Commonwealth of Australia (1996) 138 ALR 129. The Court there declared section 170DE(2) and section 170EDA(1)(b) of the Act to be constitutionally invalid.

As a result of this, through the Court registry, I requested further written submissions from the parties. The content of these submissions is set out in my judgment delivered on 19 December 1996. In summary, the respondent's submission was that the High Court decision that section 170DE(2) was invalid meant that the applicant's claim was doomed to failure.

The applicant sought to withdraw its concession, made at trial, that there had been a valid reason for termination of employment, pursuant to section 170DE(1) of the Act. Instead, the applicant now submitted that the termination of employment was not valid because the amount of the termination payment was inadequate in all of the circumstances.

The applicant also argued, for the first time, that the termination was not valid because the applicant's position was not genuinely redundant.  The applicant submitted that suitable alternative work was available elsewhere and sought the opportunity to call further evidence in support of this argument.  By my judgment delivered on 19 December 1996, I rejected the application of the applicant to call further evidence.  Accordingly, the submission that the termination of employment was not valid because the applicant's position was not genuinely redundant, must fail.  This is because there is no evidence before the Court that this was so.

What now falls for consideration is firstly whether the applicant may withdraw the concession of the validity of the reason for termination and secondly, if so whether the termination of employment was not for a valid reason, given the allegedly inadequate redundancy payment.

The first issue is not without difficulty.  Ordinarily, the principle of the finality of litigation, which I referred to in my judgment delivered on 19 December 1996, would be of importance.  One manifestation of this principle is that on appeal, a party may not proceed with an argument which was expressly abandoned at first instance: see  Dean v Westham Holdings Pty Ltd (1990) 3 WAR 235.

The situation in the present case is not of the same character as this but the principle behind decisions such as Dean must bear upon the issue at hand. This is of course not a situation where there has been a decision at first instance and an appeal. It is a situation where a concession made at trial is sought to be withdrawn after the conclusion of the hearing, but before a decision has been given. However, the circumstances are somewhat unusual. In addition, a party to a hearing before a Judicial Registrar has an automatic right of review of that decision before a Judge of the Court: section 377 of the Act.

Mr Weatherill, for the applicant, submitted that it would be unfair to prevent the applicant from pursuing the argument in the unusual circumstances of the case. Mr Weatherill referred to the fact that the concession of validity of termination under section 170DE(1) was made in the context of and on the assumption of the constitutional validity of section 170DE(2) of the Act. I have some sympathy for that position.

As I first said in Lupoi v Phillips Fox (unreported) IRCA 485/96, 3 October 1996 at page 4:

"The presence of both sections 170DE(1) and (2) of the Act has effected the judgments given by the Judges and Judicial Registrars of this Court. This is because, on many occasions, the Court has not needed to finally determine whether or not a reason for the termination of employment was valid, absent section 170DE(2).

In my opinion, this has meant that the Court has not, to date, had to direct its attention to the finer meaning of the word "valid" in section 170DE(1). The Court will increasingly have to do this, given the High Court decision".

On the other hand, there is some weight in Mr Short's submission that the applicant should be bound by the tactical decisions that it made at trial. 

The issue is not without difficulty, but in the circumstances I find that I do not need to finally determine it.  This is because, assuming that I were to permit the applicant to withdraw the concession made at the hearing, and argue that the termination of employment was not for a valid reason because of the amount of the redundancy package paid, the application would still fail.

I have earlier set out section 170DE(1) of the Act. In this case, the valid reason was said to be the redundancy of the applicant. On the evidence before the Court, I am satisfied that there was a valid reason, connected with the operational requirements of the respondent, for the termination of the applicant's employment. This was his redundancy, given that there was no position within the University that Mr Petty could fulfil, in February 1996.

Mr Short submitted, and I accept, that the application of a redundancy formula to a particular salary does not mean that a termination of employment, on the basis of redundancy, was not valid.  As Mr Short submitted, the validity of the reason, namely redundancy, is not effected by the application of a formula or the determination of a payment to or forming the redundancy package.

Prior to the High Court decision in State of Victoria v The Commonwealth, the standard test in considering whether there was a valid reason for termination was that set out in Selvachandran v Peteron Plastics Pty Ltd (1995) 62 IR 371 at page 373 by Northrop J. His Honour said:

"In its context in section 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 section 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".

This part of his Honour's judgment has been cited and applied numerous times by Judges and Judicial Registrars of the Court.

In State of Victoria v The Commonwealth, Brennan CJ, Toohey, Gaudron, McHugh and Gummow JJ in their joint judgment said that the terms "harsh, unjust or unreasonable" were not merely a synonym for "valid". Their Honours said that the changing onus in section 170EDA(1) indicated that the legislative intent was that the harsh, unjust or unreasonable criterion was broader than what otherwise would be the test for validity. Their Honours said that "this is reinforced by the nature of section 170DE(2) which, in contrast to section 170DE(1) and Article 4 of the [termination of employment] convention goes not to the reason for termination but to the overall effects of the termination. It recognises that, whilst a reason for termination might be a valid one, the overall effect of the termination in the circumstances might be harsh, unjust or unreasonable".

I have referred earlier to the observations that I made in Lupoi.  Cases decided since Victoria v The Commonwealth have focused on the finer meaning of the word "valid".  In redundancy situations, this has occurred in Nettlefold v Kym Smoker Pty Ltd (unreported) IRCA 469/96, 4 October 1996, Lee J; Kerr v Jaroma Pty Ltd (unreported) IRCA 470/96, 7 October 1996, Marshall J; and Thomas v Lynch (unreported) IRCA 627/96, 20 December 1996, Wilcox CJ.

However, none of these cases specifically indicate that the quantum of a redundancy package is a factor bearing on the validity of the reason for termination of employment.

It is true that there are aspects of these decisions which can be used to support such an argument.  For example, at page 5 of Nettlefold, Lee J said that the terms of the Act suggest as arguable that the phrase "valid reason" imposes a requirement that in all of the circumstances the termination of employment at the initiative of an employer may not be unjust or unfair. However, at page 8, his Honour said that an employer must prove, under the Act, that at the time of dismissal of an employee the operational requirements of the undertaking provided proper grounds for termination of the employee's employment. This directs one's attention to the reason for termination itself and not the redundancy package paid. Further, at page 8 his Honour said that:

"In general terms it may be said that a termination of employment will be shown to be based on the operational requirements of an undertaking if the action of the employer is necessary to advance the undertaking and is consistent with management of the undertaking that meets the employer's obligations to employees".

Marshall J in Kerr, at page 16, referred to the employer having to prove to the Court that there was a reason for "a termination which, on independent objective analysis, is capable of being proved by the employer to be valid".  Further, as Marshall J said at page 17 of Kerr, "it is the duty of the Court to focus upon the requirements of section 170DE(1) of the Act, undistracted by section 170DE(2) of the Act which the High Court found to be beyond the constitutional power of the parliament".

After a detailed review of the matter, Marshall J concluded that:

"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 it's 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".

There is no suggestion in this judgment that an inadequate redundancy package can effect the validity of the reason for termination of employment.

In Thomas v Lynch, Wilcox CJ referred to and quoted from both Nettlefold and Kerr.  At page 11, the Chief Justice said that he thought that he should follow the approach taken in these decisions.  Interestingly, at page 10 the Chief Justice, after reference to Nettlefold, said that he understood the view of Lee J to be that:

"The validity of the employer's reason can not be divorced from it's effect on the employee.  It is not enough that there is a reason for the termination that is defensible from the employer's point of view.  The reason must be one which makes the termination justified, after taking into account that the effect of the termination on the employee".

This dicta can be used to support the applicant's argument. Mr Weatherill submitted, in part, that section 170DE(1) should have a broad construction, given the context of the passing of the legislation which included section 170DE(1). He submitted there is not necessarily a distinction between a reason for termination and the effect of a termination. He submitted the effect of a termination can be part and parcel of a decision to terminate an employee.

Whilst, as I have indicated, this submission gains some support from Nettlefold and Thomas, I do not think I should accept it in the circumstances of this case.  In the absence of direct authority on the issue from a Judge of the Court, I am inclined to the view that the ordinary meaning of the expression "valid reason", even in the context of the legislation before the Court, is such that the amount of the redundancy package paid to an employee is not determinative of whether there was a valid reason for the termination of employment connected with the operational requirements of the employer. 

In preferring this view I draw support from the judgment of Von Doussa J in Leddicoat.  In that case although his Honour found that a substantial inadequacy in a redundancy package meant that a termination was harsh, unjust or unreasonable, his Honour did not suggest that this finding would have lead to a contravention of section 170DE(1) of the Act.

This issue was again considered by Von Doussa J in Fryar v System Services Pty Ltd (1996) 137 ALR 321. This case involved a review of a decision by a Judicial Registrar that there had been a contravention of section 170DE(2) of the Act. The Judicial Registrar had held that there was a valid reason for the termination of employment and that finding was not challenged on review. However, the Judicial Registrar held that the termination of employment was harsh, unjust or unreasonable because of inadequate severance payments. It was submitted to his Honour that the failure to make an adequate severance payment was irrelevant to the reason or the validity of the reason for termination of employment. The submission was that there needed to be a rational link between the harshness, injustice or unreasonableness of a termination and the validity of the reason for termination and that such a link was absent where the only issue was the inadequacy or otherwise of a payment upon termination. His Honour rejected this argument at page 15 of the judgment. However (although the issue was not before his Honour) there was nothing in the judgment which suggested that an inadequate severance payment effected the validity of the reason for termination as opposed to a contravention of section 170DE(2) of the Act.

Further, in the decision of Phillips v Gaze (unreported) IRCA 268/96, Millane JR, 25 June 1996, where the Judicial Registrar reviewed the issue of severance payments and the decisions of Leddicoat and Fryar, there was no indication in the judgment that an inadequate severance payment could effect the validity of reason for termination. 

Accordingly, and for all of the reasons set out above, I reject the submission of the applicant. Therefore, the application under section 170EA of the Act must be dismissed.

I note that in the written submissions dated 20 September 1996, and repeated in the written submissions of 30 October 1996, the applicant said that, "to the extent necessary, we also expressly withdraw any concession expressly or impliedly made that the applicant abandons any action that he may have in contract against the respondent".  In the hearing on 6 December 1996, Mr Weatherill did not submit that the Court should consider whether the respondent breached the contract of employment with the applicant by the termination of his employment and/or the severance payment that was made to him, in the accrued jurisdiction of the Court.  In any event, I do not think that such a claim was properly or clearly before the Court.  It seems appropriate however to record the written submission that was made on behalf of the applicant in this regard.

It also seems appropriate to record a concession made by Mr Short, at trial, that there was no issue that the Court did not have jurisdiction to hear the application under section 170CD of the Act. That is, Mr Short conceded the applicant was not excluded from the jurisdiction of the Court as being "an employee who is not employed under award conditions", and who had remuneration in excess of the amount prescribed under section 170CD of the Act. The parties agreed that Mr Petty was "employed under award conditions".

I certify that this and the preceding thirteen (13) pages
are a true copy of the reasons for decision of

Judicial Registrar Ritter.

Associate:

Date:

APPEARANCES

Counsel for the Applicant:  Mr J Weatherill
Solicitors for the Applicant:  Lieschke & Weatherill

Counsel for the Respondent:  Mr A Short
Solicitors for the Respondent:                  Minter Ellison Baker O'Loughlin

Dates of Hearing:  1 & 2 August & 6 December 1996

Date of Judgment:  10 February 1997

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