Singleton v Transcomm Financial Planning Services Pty Ltd
[1996] IRCA 345
•23 July 1996
DECISION NO: 345/96
INDUSTRIAL RELATIONS COURT
OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
VI 4230 of 1995
B E T W E E N :
NEIL ANDREW SINGLETON
Applicant
AND
TRANSCOMM FINANCIAL PLANNING SERVICES PTY LTD
Respondent
Before: Judicial Registrar Murphy
Place: Melbourne
Date: 23 July 1996
EX-TEMPORE REASONS FOR JUDGMENT
Proceedings and issues.
These proceedings commenced with an application pursuant to s170EA of the Industrial Relations Act (“the Act”) filed on 11 August 1995. Attached thereto were claims for additional relief, including a declaration that the respondent could only terminate the employment of the applicant upon the giving of reasonable notice or payment in lieu thereof, as well as a claim for damages. The proceedings were referred to a judge of the court and on 13 November 1995 an order was made that the parties exchange contentions of fact and law. These were exchanged and as a result of a further order the proceeding was remitted for hearing before a judicial registrar.
At the commencement of this trial the parties agreed that the application under s170EA of the Act was to be set to one side. Although it was conceded by the respondent to have been brought bona fide the parties sought a determination by the Court in its associated jurisdiction as to what was the period of reasonable notice for the termination of the contract of employment, and what damages, if any, flowed from the giving of that notice of termination.
The applicant's position as a financial planner.
The respondent, as its name implies, is involved in the provision of financial planning advice. It was established as a subsidiary of Transcomm Services Pty Limited, the service company of Transcomm Credit Co-operative Limited. Its aim was to provide services for customers of the credit union and the clients and members of the Public Transport Commission (“the PTC”). The applicant is aged 47 and holds a degree in economics. He is a member of the Securities Institute of Australia and the Financial Planners Institute. In his professional life he has held a number of positions in merchant banking, stock broking and funds management. As his professional career developed he tended towards funds management. For two years prior to joining the respondent he worked as a licensed securities dealer with Winchcombe Carson. In that position the company provided him with overhead services and he shared the fee income he generated with it.
In September 1991 the applicant was contacted by Mr Graham Hogarth, the General Manager, Financial Planning, of the respondent. Some time previously the two had been involved in an organisation providing financial advice. The parties agreed (Exhibit A1) that from 2 October 1991 the applicant would be employed by the respondent. He was to be on a salary of $40,000.00 per annum, and a bonus scheme. He was also to be offered 10 per cent non-contributory equity in the respondent “in recognition of the fact that financial planning is a long term relationship building profession.”
The letter of appointment also provides that client files held before joining the respondent would remain the applicant's property upon departure.
The letter governed the employment relationship between the parties until an Administrative/Remuneration Agreement 1994/95 dated 22 August 1994 (Exhibit A2) was entered into. That agreement provides a gross salary of $60,000.00 per annum. It provides a bonus scheme wherein the applicant was entitled to a bonus at the rate of 50% of “that part of total commissions which exceed salary”, superannuation at the rate of 7.5% of his gross annual salary, and $750.00 for death and disability cover per annum. He was also entitled to a concessional staff loan, and dividends, “in accordance with company policy”.At that stage the applicant held a 20% equity in the respondent, Mr Hogarth 20% and the service company the balance. At some stage during the applicant's employment the respondent agreed to pay his $1,200.00 annual membership of the Australia Club.
The applicant's earnings.
The applicant was very successful in his position with the respondent. His gross earnings for the financial year 1992/93 were $124,552.00, for 1993/94 - $214,496.00, and for 1994/95 - $162,117.00. His average earnings over the three financial years were $167,054.00, while his average commission earnings were $88,458.00 per annum. In the 1994/95 financial year the applicant had a commission budget of $240,000.00 but he was able to write $313,729.00. Exhibit A3 sets out the brokerage written by him. For the last three years he has written 63% of the brokerage of the respondent. The respondent over the period 1992-1995 essentially consisted of the applicant and Mr Hogarth, with some administrative support. The business grew so that by July 1995 some $58 million was under management. Of this, about half was held on behalf of clients serviced by the applicant, and the balance by Mr Hogarth.
The income or brokerage of the respondent comes in two forms. The first is up-front fees where an investment is placed with a particular institution. A second type of fee is paid on a periodic basis to the respondent by financial institutions. This is known as trailing income and grows as the amount under management grows. By 30 July 1995 the trailing income of the respondent was of the order of $165,000.00 per annum. Of this, 60% was attributable to clients of the applicant. This meant that, all things being equal, the applicant could expect that brokerage income each year, leaving aside additional income he might write, was substantial.
The nature and future of the business.
The respondent relied for its client pool on retiring PTC employees and referrals of credit union members. In addition, both the applicant and Mr Hogarth sought additional private clients, referrals from other fund managers, and from other parts of the public sector. The Operations Reports for 1994/95 shows that PTC and credit union clients for that year were 81%, private 14%, and 5% from fund managers. The comparable figures for 1993/94 were 91%, 7% and 2% and for 1992/93 87%, 10% and 3%.
The respondent over the period 1992-95 benefited from a major redundancy program within the PTC. The Board Minutes of 24 April 1995 (Exhibit R3) record that in 1993 there were nearly 4000 redundancies, while only 500 to 1000 were expected in the 1995/96 financial year. Evidence was led from Mr Kourlis that redundancies for 1994/95 were 1500, while for 1995/96 there were 680. The February to May 1995 Operations Reports of the respondent (Exhibit R4) notes the much lower flow of people taking redundancy, compared to the previous year. The June 1995 Operations Report notes the end of the financial year and “the end of the major Redundancy Program (covering the last four years). Redundancies will be much slower in the new financial year.”
The October 1994 Board Minutes (Exhibit R2) noted that business was slowing down, the number of interviews were down, and stiff competition. The December 1994 Board Minutes (Exhibit R1) referred to the need for the respondent to be “market oriented” and for directors to “assist in externally marketing” the respondent. The Minutes also state:
“N Singleton expressed concern at the future of the company.... Has a feeling of instability.”
The April 1995 Minutes (Exhibit R3) note: “Source of income from people leaving will be reduced dramatically..... We need to market Financial Planning more aggressively.”
The profit and loss accounts for the respondent show a profit of $48,071.00 for the half year to 30 December 1994, and losses in the months of April, May, June and July of 1995. Its profit for the year 1994/95 was $34,367.00 compared to $300,134.00 for 1993/94.
The applicant gave evidence, not challenged at the time to any significant extent, that the respondent was seeking to generate additional clients outside its traditional PTC and credit union client base. He had had discussions with other employer groups in the public sector including the Gas and Fuel Corporation and the Airports Corporation. Further, he gave evidence that he expected that redundancies during 1995/96 were at a managerial level and thus had a higher net worth than previous redundancies. Mr Kourlis contested this part of his evidence and pointed to the experience of the respondent in the 1995/95 year, where total income was only $167,000.00 compared to $433,898.00 in 1994/95.
The issues to be determined.
The Board of the respondent decided on 30 July 1995 that the applicant's position was redundant. It is unnecessary for me to find that the dismissal was for the reason proffered at the time. He had been paid his salary for August in advance. He was paid his outstanding annual leave entitlements and some commission. It is necessary for me to make a finding on the salary package of the applicant at the date of his termination.
I am satisfied that the salary package of the applicant was, as alleged by counsel for the applicant, on an annual basis a salary of $60,000.00, a concessional rate staff loan $1,295, death and disability insurance $750.00, superannuation $4,500.00, and an annual club membership allowance of $1,200.00, a total of $67,745.00 per annum. In addition to that the applicant was entitled to a bonus and any dividends declared by the respondent.
Reasonable notice.
The first issue is what is the period of reasonable notice that the respondent was required to give the applicant when it gave him notice of termination of employment on 30 July 1995? The authorities on this issue are extensive. They are noted in the decisions Grout v Gunnedah Shire Council (No. 1) 1 IRCR 143 at 151-152 and Grout v Gunnedah Shire Council (No. 2)1 IRCR 499 at 512. I was also referred to Dunstan v National Mutual Life Association of Australasia Ltd. (1992) 5 VIR 73 and Walton v Wollondilly Abattoirs Co-op Ltd (1993) 50 IR 81. In Grout (No. 2) (above) Moore J said:
“However it has been accepted that in determining what is a reasonable period of notice, regard can be had to the period for which it was likely, apart from the wrongful dismissal, that the employee would have continued in the employment from which he or she was dismissed.”
The significant factors supporting counsel for the applicant's contention for a long period of notice here are that the applicant was well qualified, and established in his career. This was a relatively senior position, and certainly highly remunerative. His length of service was nearly four years. It was put by counsel for the applicant that on the authorities a period of nine to twelve months was a reasonable period of notice. Counsel for the respondent put it that the applicant was effectively a salesman, and that a period of one to three months was the maximum period allowable on the authorities.
Here I note that each case must be determined on its own facts. I have regard to the traditional indicia mentioned, and I further note the statement in Grout (No. 1) (above) at 152:
“The principal purpose of the requirement that the period be reasonable is to allow the recipient of the notice sufficient time after the notice is given either to seek other employment or employ another employee.”
Here the applicant gave evidence that he made alternative employment arrangements in his profession within three or four months by taking over, with Mr Hogarth, a financial planning organisation known as Money Managers. He gave evidence that in "the profession" of financial planning there was a strong loyalty factor among clients. At this stage some 60 to 70% of clients that he serviced at the respondent have in fact moved their funds to his new business venture. This is confirmed by a dramatic downturn, commencing in January 1996, some two months after the establishment of the applicant's new business venture, in the trailing income reported by the respondent.
A further factor that I consider is that I am unable to accept the applicant's evidence that he felt that his position at the respondent was secure. The Board Minutes and Operations Reports that I have referred to illustrate that there was clear uncertainty at the respondent from at least December 1994. This indication of uncertainty in the security of his position is a factor that on the authority of both Grout (No.2) (above) and Walton (above) I am required to take into account. I have also had regard to the fact that at the time he was given his notice on 30 July 1995 his 1995/96 remuneration had not been agreed with the respondent. Given that the respondent had just reported losses for the months of April, May and June 1995, and subsequently reported a loss in July 1995, it is likely that the occasion of the renegotiation of his 1994/95 remuneration would have provided an occasion where his employment may have been terminated.
Having regard to these considerations I am satisfied that six months is a reasonable period of notice at the time when notice was given, namely 30 July 1995. Such a period is comparable with that in Dunstan (above). There are differences on the facts but the period is also to be regarded as reasonable to both parties. It can also be seen as reasonable given that it took the applicant three to four months to obtain alternative employment by becoming involved in a business. A further factor is that on the evidence it is reasonable to allow a certain period to allow him to build up a new client base and generate commission income.
The losses suffered.
The applicant is entitled to be put in the position he would have been in had the employment agreement terminated on 30 January 1996, namely six months after 30 July 1995, or he was paid what he would have earned in lieu thereof. His remuneration package excluding bonus and dividends was, as I have found worth $67,745.12 per annum. Six months is $33,872.56. I find that no dividends were declared in the 1993/94, 1994/95 or 1995/96 financial years. I am satisfied that given the position of the respondent at the end of 1994/95 financial year it is unlikely that dividends would have been declared and received during the period of notice.
I further find that the applicant has not been paid the sum of $2,141.00 being 25% of the share of his July 1995 bonus of which he was paid 75% shortly after he was dismissed. The respondent attempted to set off some personal expenses against this amount, but I am satisfied that it has not proved that any amount should be offset against this amount. On the basis of the authorities cited to me I also exclude a two week ex-gratia payment made by the respondent to the applicant after his termination.
What bonus income would have been earned over the notice period?
The respondent was swept into disarray by the departure of the applicant. Trailing income continued but Mr Hogarth was unable on his own to match the commissions written by the applicant. The average commission income earned by the applicant in 1994/95 was $8,072.00 per month. Given that the number of redundancies by the PTC about halved in 1995/96 it is likely that his commission earning would have been reduced in 1995/96. On the other hand other steps may have been taken to diversify the client base. Further there was evidence that the trailing income was on the increase. It is clear from the Operations Reports that even if the applicant stayed with the respondent in the latter half of 1995 things would have been difficult for the respondent. Doing the best I can with these contingencies I am satisfied that it is reasonable to expect that the applicant's commission income in 1995/96 would have been 50% of his 1994/95 income. This means that I am satisfied that it is likely, in addition to his salary package, he would have earned $48,000.00 in commission in the 1995/96 financial year. In the six month period to 30 January 1996 he would thus have earned $24,000.00 in commission. His total remuneration package for the period of six months reasonable notice therefore comes to $33,872.56, plus $24,000.00, a total of $57,872.56. From this I deduct $4,615.48 being the amount he has already been paid, leaving $53,257.08. I add the 25% bonus for July, $2,141.00, making a total of $55,398.08. In mitigation the applicant has earned $13,966.00 from his business over the 7.5 months it has been in operation. I deduct 2.5 months for the period to 30 January 1996, a total of $4,655.00. This leaves a net total of $50,743.08. On this amount I allow interest at the rate of 12 per cent from 11 August 1995, a total of $8,589.32, making a total amount of $59,332.40.
MINUTES OF ORDERS
THE COURT ORDERS THAT:
The applicant's application pursuant to s170EA of the Act is dismissed;
The respondent within 21 days pay to the applicant the sum of $59,332.40.
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 nine (9) pages are a true copy of the reasons for judgment of Judicial Registrar Murphy.
Associate:
Dated: 23 July 1996
Solicitors for the Applicant: A J Macken & Co.
Counsel for the Applicant: Mr D Staindl
Solicitors for the Respondent: Rogers & Gaylard
Counsel for the Respondent: Mr S Woods
Date of hearing: 22 & 23 July 1996
Date of judgment: 23 July 1996.
C A T C H W O R D S
INDUSTRIAL LAW - TERMINATION OF EMPLOYMENT -reasonable NOTICE OF TERMINATION - TERMINATION PAY - WAGES IN LIEU OF NOTICE - claim in associated JURISDICTION.
Industrial Relations Act 1988 ss.170EA
CASES:Grout v Gunnedah Shire Council (No. 1) 1 IRCR 143
Grout v Gunnedah Shire Council (No. 2)1 IRCR 499
Dunstan v National Mutual Life Association of Australasia Ltd. (1992) 5 VIR 73
Walton v Wollondilly Abattoirs Co-op Ltd (1993) 50 IR 81
NEIL ANDREW SINGLETON -v- TRANSCOMM FINANCIAL PLANNING SERVICES PTY LTD
No. VI 4230 of 1995
Before: Judicial Registrar Murphy
Place: Melbourne
Date: 23 July 1996
INDUSTRIAL RELATIONS COURT
OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
VI 4230 of 1995
B E T W E E N :
NEIL ANDREW SINGLETON
Applicant
AND
TRANSCOMM FINANCIAL PLANNING SERVICES PTY LTD
Respondent
MINUTES OF ORDERS
Judicial Registrar Murphy 23 July 1996
THE COURT ORDERS THAT:
The applicant's application pursuant to s170EA of the Act is dismissed;
The respondent within 21 days pay to the applicant the sum of $59,332.40.
NOTE: Settlement and entry of orders is dealt with by Order 36 of the Industrial Relations Court Rules.
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