Poynton v Animal Supplies (Wholesales) Pty Ltd

[1997] IRCA 23

DECISION NO:23/97

C A T C H W O R D S

INDUSTRIAL LAW - termination of employment - summary termination of employee for selling goods in competition with employer - valid reason for termination - not appropriate in the circumstances to order compensation for technical breach of section 170DC

Industrial Relations Act 1988 ss.170DC, DE, EA, EE

CASES:

Hunter Valley Developments Pty Ltd v Cohen (1984) 3 FCR 344
TWU v National Dairy Limited (No 2) (1994) 57 IR 186
Bi-Lo Pty Ltd v Hooper (1994) 53 IR 224 at 229-230

Gregory v Philip Morris (1988) 24 IR 397 at 413; 80 ALR 455

Byrne v Australian Airlines Pty Ltd (1995) 131 ALR 422

Selvachandran v Peteron Plastics Pty Ltd (1995) 62 IR 371

Sangwin v Imogen Pty Ltd (trading as Carleton Custom Upholstery) IRCA (unreported) Von Doussa J, 8 March 1996, Decision 73/96

Briginshaw v Briginshaw & Another (1938) 60 CLR 336

Blyth Chemicals Ltd v Bushnell (1933) 49 CLR 66 at 81
Vern v Australian Airlines Limited (1995) 61 IR 32 at 43
Bi-Lo Pty Ltd v Hooper (1992) 53 IR 224 at 233

Associated Dominion Assurance Society Pty Ltd v Andrew (1949) 49 SR (NSW 351

POYNTON -v- ANIMAL SUPPLIES (WHOLESALES) PTY LTD

No. VI-6018 of 1995

Before:  Judicial Registrar Ryan
Place:  Melbourne
Date:  11 February 1997

INDUSTRIAL RELATIONS COURT
OF AUSTRALIA
VICTORIA DISTRICT REGISTRY

VI-6018  of 1995

B E T W E E N :

DESMOND POYNTON
Applicant

AND

ANIMAL SUPPLIES (WHOLESALES) PTY LTD
Respondent

MINUTES OF ORDERS

Judicial Registrar Ryan  11 February 1997

THE COURT ORDERS:

1. That the application is dismissed.

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

INDUSTRIAL RELATIONS COURT
OF AUSTRALIA
VICTORIA DISTRICT REGISTRY

VI-6018 of 1995

B E T W E E N :

DESMOND POYNTON
Applicant

AND

ANIMAL SUPPLIES (WHOLESALES) PTY LTD
Respondent

Before:       Judicial Registrar Ryan
Place:        Melbourne
Date:           11 February 1997

REASONS FOR JUDGMENT

EXTENSION OF TIME

The Applicant received written notice of termination on 3 November 1995 and the application for remedy in the claim of unlawful termination of employment was lodged with the Court on 4 December. S170EA(3)(a) required the application to be lodged within 14 days, i.e. 18 November 1995. The application was therefore 16 days out of time.

I have decided to extend time to allow the application to be made on 4 December 1995.

I have reached that decision using the principles set down in Hunter Valley Developments Pty Ltd v Cohen (1984) 3 FCR 344 at 348-349 and have been guided by the application of those principles in respect of S170EA(3) in TWU v National Dairy Limited (No 2) (1994) 57 IR 186 at 188-189.

In my view:

1. the Applicant has given an acceptable explanation for the short delay

1. it is fair and equitable in the circumstances to extend time

1. the Respondent was not allowed to believe the matter had concluded and the Applicant did not rest on his rights

1. the very short delay did not prejudice the Respondent in defending the proceedings

1. the merits of the application can be taken into account given that the parties consented to and urged the Court to hear the substantive evidence and rule on the extension of time application at the conclusion of the hearing

THE CLAIM

The Applicant claims unlawful termination of employment and initially sought reinstatement and compensation and “payment of proportion of telephone and facsimile charges incurred as a consequence of my employment on my home telephone”. The claim of reinstatement was not pursued on the basis that Counsel for both parties conceded reinstatement was inpracticable.

ACCRUED JURISDICTION

In his final address Counsel for the Applicant attempted to pursue a claim of breach of contract on the basis that there was a brief reference to telephone and facsimile charges in paragraph 21 of the initial application or claim of unlawful termination of employment. No leave to pursue such a claim was granted before or during the hearing and Counsel for the Respondent opposed the consideration of such a claim. The claim was not considered.

THE EMPLOYMENT

Late in 1994 the Applicant was appointed by the Respondent as sales representative for Victoria, South Australia and Tasmania. The Respondent sells a wide range of animal products to saddleries, product stores and pet shops. The Respondent does not retail to the public but an associated company, Equine Supplies Pty Ltd, does. The Respondent is a specialist wholesaler to retail traders who retail annual products in the course of their businesses.

It is quite clear that the Applicant’s task was primarily to service the Respondent’s existing customers and solicit additional orders from those customers and from other specialist retail traders. It is also clear that the Applicant was expected to confine his activities to the promotion of the Respondent’s wholesale business and to refer any members of the public who sought or were interested in animal products to the related retailer, Equine Supplies Pty Ltd.

The Applicant had many years experience in the sale of veterinary, animal health and agricultural products. In fact he seems to have worked in these and related fields for in excess of 30 years. He rejected an offer to work for the Respondent on a commission basis but accepted full-time employment of $38,000 p.a. with a car, mobile phone and fax machine provided. He worked from his home at Moyston near Ararat.

The details of the employment arrangement are sketchy. The Court accepts that the Respondent employed the Applicant on a basis of considerable trust, no doubt engendered by the latter’s long experience in this and related industries. The sales territory was huge. There is no evidence that Tasmania was covered by the Applicant apart, perhaps, from the odd phone call. The Court accepts that the Applicant tended to concentrate on the south-west district of Victoria, South Australia near the Victorian border, and the Mornington Peninsula. These areas could be described as within striking distance of Moyston although some of those areas would be several hours drive away from the Applicant’s home.

The Court also accepts that the Applicant serviced other areas of Victoria on an occasional basis but notes that he conceded in evidence that:

1. he never claimed expenses for overnight stays away from Moyston

1. he stayed away from home from time to time while on business for the Respondent but never claimed expenses because he always “stayed with friends”

The Court treats these claims with some scepticism and considers that it is inherently unlikely that the Applicant would have often stayed away from home on company business in circumstances in which he stayed with friends and neither claimed expenses or informed his employer that he was staying away from home on company business but was not claiming expenses.

DIRECT SALE OF GOODS BY THE APPLICANT

It is equally clear, from the admissions of the Applicant in his evidence, that he sold products on his own behalf and for his own benefit, mainly goods supplied by Biochemical Veterinary Research Pty Ltd (BVR) and Schumacher Pty Ltd. He stated that he did this because the Respondent failed to reimburse what he considered legitimate telephone expenses and because the Respondent failed to honour an agreement to pay commission on BVR sales.

I do not accept that the Respondent, through the General Manager, Mr Garforth, agreed to pay commission to the Applicant on BVR sales.

I do not accept that Mr Garforth encouraged or authorised the Applicant to sell BVR products. Indeed, the Respondent, through Mr Garforth, forbade the Applicant to sell animal products other than to the retail trade and then only via the Respondent.

The Applicant gave evidence which was at times inconsistent but he was also candid. He admitted that he had sold directly to people who were not retail traders and that he made these sales on his own behalf.

Furthermore, I do not accept that the Applicant has established a valid and legitimate claim to reimbursement of the disputed telephone expenses. However, even if well founded, such a claim against the Respondent could not justify the Applicant selling goods in direct competition to his employer and, in effect, setting up a business in competition with his employer and utilising his employer’s time, car, telephone and fax to further his own business. This conduct, admitted by the Applicant, was a clear and fundamental breach of his contract of employment and a breach of the Applicant’s duty of fidelity and good faith to his employer and a breach which in certain circumstances could justify summary dismissal for serious misconduct.

MR GARFORTH

Barry Garforth, General Manager of the Respondent company, gave evidence that:

1. the Applicant’s sales performance was poor and unsatisfactory in that existing sales in the Applicant’s territory averaged $50,000 per month when the Applicant began and in the 12 months of the employment never rose above an average of $63,000 a month

1. in September 1995 he “matched” the Applicant’s mobile telephone account and a very high mileage “far in excess” of that recorded by Queensland and New South Wales representatives

1. he concluded from this “matching” process and the fact that the Applicant “never billed the company for overnight expenses” that the Applicant was not covering his sales territory and was not staying away from home overnight but was clocking up mileage in travel which was inconsistent with the paucity of territory apparently travelled on country business

1. in October 1995 he directed the Applicant in writing to report to his son-in-law (i.e. Garforth’s son-in-law, Michael McNamara, formerly Sales Manager - New South Wales but from October 1995, National Sales Manager)

1. he directed Mr McNamara to meet the Applicant on 3 November 1995 and “give (the Applicant) a final warning on sales performance”

1. just prior to 3 November he received a cheque made out to “Des” (i.e. the Applicant) and an invoice debited to “Des”, in the Applicant’s handwriting, and for six or seven items, all but one of which (Oralmat) were sold and distributed by the Respondent

(vii)in consultation with the Respondent’s accountant he (Garforth) decided to terminate the Applicant’s employment and made that decision before 3 November and sighted and approved of a statement severance payout (Exhibit A1) which reads:

“DES POYNTON SEVERENCE PAYOUT  2/11/95

Ordinary hours 40 hours to 9/11/95  $ 742.30
(In lieu of notice)
Annual leave 182.36 hours  $3384.15
Leave loading 17.5%  $ 592.23
  Less tax  $1070.68
  ________
  $3468.00
  ________

An amount of $885.00 has been deducted that you owe to Animal Supplies (Wholesale) P/L for purchases by you in May, June & July 1995.
  $ 885.00
  _______
  Cheque attached     $2763.00
  _______

(viii)At the time of the termination he (Garforth) had “only one indication of improper behaviour” but he considered the cheque to the Applicant and the invoice in the Applicant’s handwriting ample evidence of “gross misconduct” which “superseded...the final warning” planned for 3 November and “turned (the final warning) into a termination”

1. “Mr McNamara went to Melbourne to talk face to face” (to the Applicant) and was required “to convey the decision” (made by Mr Garforth) and “was to terminate the employment”

MR MCNAMARA

Mr McNamara stated in evidence that he:

1. was appointed by his father-in-law as National Sales Manager in October 1995 and that thereafter the Applicant was to report to him

1. contacted the Applicant by telephone “about the second last week in October” and arranged a meeting in a motel in East Melbourne for 3 November

1. discussed the proposed meeting with Mr Garforth

1. described the original purpose of the meeting as “to tell Des what we wanted...to report to me so that I could monitor sales on a regular basis”

1. prior to 3 November Mr Garforth “asked (him) what (he) made” of the cheque (to the Applicant) and the invoice (in the Applicant’s handwriting)

Mr McNamara’s evidence of the termination meeting can be summarised as follows:

“We met at my motel. I presented the cheque and invoice and said “you have been caught out”. I handed the letter and severance cheque (to the Applicant) and said “I am here to terminate your employment”. He did not really say anything. He said “what about the telephone bill?” I said “you will have to speak to Barry Garforth”. He said “how do I get home?” I said “I will drive you home”.

He drove most of the way. During the journey he did not discuss the termination with me. It was a three hour trip. We talked about numerous things...points of interest...the Melbourne Cup. Des initiated the conversation.

Des has dogs. They stay in the car. I got out and unloaded the car. Des came out with the fax machine. We unloaded the boot and cleaned out his personal possessions. There were numerous BVR items in the boot. There were no catalogues in the car. I wished Des all the best. I drove off.

The car was in pretty poor condition. It had over 100,000 kms on the clock. There were dog hairs on the back seats and straw and feed in the boot.”

THE EVIDENCE OF THE APPLICANT

The Applicant gave imprecise and general evidence as to his recruitment and more detailed evidence as to his dispute with Mr Garforth over telephone expenses which Mr Garforth declined to reimburse and over which the Applicant remains in dispute with Telecom Australia.

The Court gained the impression that this dispute over the telephone accounts triggered the Applicant’s claim of unlawful termination of employment. Certainly, his late application for remedy, albeit only 16 days late, seems to have emerged after he had consulted his solicitor for advice on what he clearly considers a valid claim for reimbursement or payment by the Respondent of telephone expenses which he claims were legitimately incurred in the course of his work for the Respondent.

The more important evidence from the Applicant relates to the circumstances of the termination of his employment by the Respondent on 3 November. The Applicant in evidence stated that:

1. he was given no prior indication that the meeting on 3 November might result in his termination

1. “about a week before 3 November” a fax from Mr Garforth referred to a meeting to be arranged with Mr McNamara

1. he telephoned Mr McNamara in Sydney and on Tuesday (31 October) or Wednesday (1 November). Mr McNamara rang back and arranged the meeting on 3 November but at that stage there was no mention of the purpose of the meeting and no criticism of the Applicant’s performance

The Applicant’s version of the meeting can be summarised as follows:

“he (McNamara) handed me a large envelope which he said was termination pay. He handed me a small envelope with the invoice and a cheque from the lass in Bendigo. (At this stage in his evidence the Applicant indicated that he was referring to the cheque that had accompanied the invoice and of which Messrs Garforth and McNamara had given evidence).

He (McNamara) said, “the boss is not happy with you selling on the side”.

I probably said, “bloody hell, you have got to be joking”.

There was no response. I drove to Ballarat from East Melbourne. He (McNamara) drove from Ballarat to Moyston. There was no conversation about the termination.”

In the course of his evidence the Applicant admitted that he sold about $1,380 of BVR product and that he began to sell the product about July 1995. He said:

“I did it because I needed extra money most particularly to pay the telephone account”.

He also said that he believed he had the relevant invoice at home  in Moyston and that he recalled that “the lass from Bendigo” was called Christine.

The Court notes that on the first day of the hearing on 27 August the Applicant was asked to produce the invoice but on the second day of the hearing on 24 September 1996 his Counsel indicated that the Applicant had been unable to locate the invoice at his home in Moyston.

VALID REASON

Counsel for the Applicant asserts that:

1. at the time of termination the Respondent did not have a valid reason for the termination connected with the Applicant’s capacity and conduct or the operational requirements of the Respondent’s business

1. the cheque and invoice in the possession of the Respondent and presented to the Applicant at the termination meeting on 3 November 1995 could not and did not constitute a valid reason for termination

1. the Respondent breached S170DC in that no adequate investigation was carried out and the Applicant was not given an opportunity, prior to the termination, to respond to the allegations of misconduct allegedly constituted by the Applicant selling animal health products from distributors other than the Respondent and, in effect, operating his own business at the expense of and using the resources of the Respondent

Counsel for the Applicant relied in part on Bi-Lo Pty Ltd v Hooper (1994) 53 IR 224 at 229-230:

“An employee is entitled to both substantive and procedural fairness in respect of a dismissal. Substantive fairness will be satisfied if the grounds upon which dismissal occurs are fair grounds. Broadly speaking a dismissal will be procedurally fair if the manner or process of dismissal and the investigation leading up to the decision to dismiss is just.

Where the dismissal is based upon the alleged misconduct of the employee, the employer will satisfy the evidentiary onus which is cast upon it if it demonstrates that insofar as was within its power, before dismissing the employee, it conducted as full and extensive investigation into all of the relevant matters surrounding the alleged misconduct as was reasonable in the circumstances; it gave the employee every reasonable opportunity and sufficient time to answer all allegations and respond thereto; and that having done those things the employer honestly and genuinely believed and had reasonable grounds for believing on the information available at that time that the employee was guilty of the misconduct alleged; and that, taking into account any mitigating circumstances either associated with the misconduct or the employee’s work record, such misconduct justified dismissal.”

The Court is required to objectively assess the subjective actions and beliefs of the employer as at the time of dismissal and not at some subsequent time: Gregory v Philip Morris (1988) 24 IR 397 at 413; 80 ALR 455 at 471.

Whether the employer will satisfy that objective test will depend upon the facts of each case. The gravity of the alleged offence will dictate the nature and extent of the inquiry which the employer must conduct. An employer must ensure that an employee is given as detailed particulars of the allegations against him/her as is possible, an opportunity to be heard in respect of such allegations, and a chance to bring forward any witnesses he/she may wish to answer those allegations: Bi-Lo at 230.

Furthermore, in my view, the Bi-Lo formulation of entitlement to both substantive and procedural fairness in respect of a dismissal should now be read subject to the observations of the High Court in Byrne v Australian Airlines Pty Ltd (1995) 131 ALR 422 at 462 which commence with the statement that:

“the distinction between procedure and substance is elusive”

It has been held that “valid” reason exists where the employer had a “sound, defensible or well-founded” reason for termination of the Applicant’s employment: Selvachandran v Peteron Plastics Pty Ltd (1995) 62 IR 371 at 373.

Dictionary definitions for the word “valid”, whilst wide enough to include a reason based on an honest belief held on reasonable grounds, do not assist in determining whether, on the true interpretation of s170DE(1), such a belief, if later shown to be erroneous, could nevertheless still constitute a “valid reason” for dismissal. The expression “valid reason” must be read in the full context of the Act. The reason must be “valid reason connected with the employee’s capacity or conduct or based on the operational requirements of the undertaking, establishment or service”: Sangwin v Imogen Pty Ltd (trading as Carleton Custom Upholstery) (unreported, IRCA, Von Doussa J, 8 March 1996, Decision 73/96).

In considering the application of Division 3 of Part VIA of the Act, it must be recognised that the provisions are intended to operate in the practical arena of commercial activity, and that in the endeavour to achieve industrial fairness it is necessary to balance the interests and well-being of an individual employee against the interests of the employer, and also to have regard to matters of wider public interest which may be involved. The construction of the Act is not to be considered only from the viewpoint of the employee: Sangwin at 10.

S170DE(1) should not be construed so as to exclude from the notion of a “valid reason” an honest belief held on reasonable grounds by the employer, after inquiry of the type envisaged in Bi-Lo, that a state of fact exists which justifies termination of the employment. I agree with the opinion of Von Doussa J at 12 in Sangwin that:

“if the employer honestly believes on reasonable grounds, after sufficient inquiry, that the employee has been guilty of serious misconduct, a valid ground within the meaning of s170DE(1) exists for terminating the employment of the employee.”

Under s170EDA(1)(a) the onus of proving that a valid reason for dismissal existed rests on the employer. The burden of proof is on the balance of probabilities. That is so even where the alleged valid reason is the commission of an act that constitutes a criminal offence. Nevertheless, the standard of proof required to tilt the scales to the point of reasonable satisfaction in favour of the employer may vary according to the gravity of the fact to be proved. This matter was discussed by Dixon J in Briginshaw v Briginshaw & Another (1938) 60 CLR 336 at 362 where he said:

“But reasonable satisfaction is not a state of mind that is attained or established independently of the nature and consequence of the fact or facts to be proved. The seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question whether the issue has been proved to the reasonable satisfaction of the tribunal.”

The Court is satisfied that:

1. the allegations are very serious and that they have been substantiated and the consequences for the Applicant are grave in that he has been deprived of his employment, has abandoned his claim for reinstatement and will not be the recipient of any order for compensation

1. there was a valid reason for the termination of the employment and the Applicant’s conduct in selling products in competition with his employer was incompatible with his duty as an employee and destructive of the necessary confidence between employer and employee: Blyth Chemicals Ltd v Bushnell (1933) 49 CLR 66 at 81

1. there was sufficient evidence to establish the misconduct: Byrne v Australian Airlines Limited (1995) 61 IR 32 at 43

1. the investigation undertaken by the Respondent, albeit brief, was reasonable in the circumstances given that the Respondent was provided with an invoice made out by the Applicant and a cheque for payment to the Applicant for goods of a type and nature and distributed by the Respondent.

SECTION 170DC

However the Applicant was given no opportunity to defend himself against the allegations when he met Mr McNamara at the motel on 3 November. This was a breach of s170DC but Moore J has observed that the purpose of s170DC is twofold. It is to give the employee the opportunity to demonstrate that the allegations have no foundation in fact. A second purpose of section 170DC is that an employee with whom an alleagion has been raised may be able to persuade the employer that, while the allegation is of substance, there are factors that should persuade the employer not to terminate the employment: Perrin v Des Taylor Pty Ltd (1995) 58 IR 254 at 256.

In this case the allegations were well founded. The Applicant has conceded openly that he sold goods on his own behalf and in competition with his employer and in breach of his employer’s policy. There are no factors likely to persuade an employer in this case that termination was inappropriate and the Applicant had ample opportunity to raise such factors in the car trip from Melbourne to Moyston. The circumstances are not such as would lead the Court to order any compensation for the technical breach of section 170DC and the application for relief for unlawful termination of employment is dismissed.

MINUTES OF ORDERS

THE COURT ORDERS:

1. The application is dismissed.

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

I certify that this and the preceding 10 pages are a true copy of the reasons for judgment of Judicial Registrar Ryan.

Associate:            
Dated:  11 February 1997

Solicitors for the Applicant:             Macpherson & Kelley
Counsel for the Applicant:              Mr Peter Harris

Mr Gordon Jervis, Senior Industrial Advocate, Australian Business Chamber appeared for the Respondent.

Date of hearing:  27 August 1996
  24 September 1996
Date of judgment:  11 February 1997