Turner v Carpet Call (Victoria) Pty Ltd
[1994] IRCA 188
•22 December 1994
IN THE INDUSTRIAL RELATIONS COURT
OF AUSTRALIA VI 181 of 1994
VICTORIA DISTRICT REGISTRY
B E T W E E N
AUSTIN RAYMOND TURNER
Applicant
A N D
CARPET CALL (VIC) PTY. LTD.
Respondent
Reasons for Judgment
22 December 1994 PARKINSON JR
This is an application made pursuant to S 170EA Division 3 of Part VIA of the Industrial Relations Act 1988 (“the Act”).
In this matter the applicant seeks the following orders:
A declaration that the termination of the applicant’s employment contravenes Division 3 of Part VIA of the Industrial Relations Act 1988.
An order that the respondent reinstate the applicant to the position he held prior to the termination.
An order that the employer pay the applicant an amount of compensation.
The proceedings occupied four sitting days and the following witnesses were called to give evidence:
Austin Raymond Turner - the applicant
Peter John Blainey - area manager for the St Albans area
Geoffrey Elliott - salesman for the respondent
Emmanuel Dermanis - proprietor of Carpetmaster
David James Toal - manager of the respondent’s Essendon store
Colin Anthony Jinks - assistant state manager for the respondent
James Leslie Smith - managing director for the respondent
Paul Kelly - sales manager for north western suburbs
Raymond Leslie Burns - company secretary for the respondent
It is appropriate to set out the history of this application and my findings of fact.
Summary of Evidence and Findings of Fact.
The applicant was employed as a sales representative by the respondent on 10th September, 1992 until his summary dismissal on Friday 8th April, 1994. During the period of his employment he was located at various of the respondent’s stores, including the Geelong and Altona Stores. At the time of the termination of his employment, the applicant was working at the St Albans store of Carpet Call. In the course of his employment he was directly responsible to the store manager, Mr Dermanis. He had worked with the store manager at other stores of the respondent and he and the store manager were the only staff employed at the St Albans store.
Sometime during late March or early April, 1994, the store manager Mr Dermanis commenced operating a business in Ballarat Road, Footscray, (trading as Carpetmaster) in competition with the respondent, his employer. I am satisfied that this business was substantially established and open for business during the week commencing 4th April, 1994 which was a week during which the store manager was taking annual leave from the respondent. On Thursday 7th April, 1994, it came to the attention of the respondent that this new store was open and, upon making investigations, the respondent became aware that its St Albans store manager owned and operated the store. It also became aware that there were on the premises of the store various carpet samples from the respondent’s premises. These samples, being the property of the respondent, were being used to assist the promotion of the wares of the store manager in direct competition with the respondent and, it may be added, during a period of time when the store manager was on annual leave paid for by the respondent. As a result of the matter of the carpet samples, the police became involved and charges were laid against the by now ex-store manager.
The respondent then set about inquiring into the conduct of the applicant as to what involvement he had in the establishment of the competitor business, what knowledge he had of the venture, and what assistance he had given to his manager in stocking the enterprise with the respondent’s products or what knowledge he had of this latter matter. The respondent alleges that the applicant was involved in the establishment of the competing business, had knowledge and did assist. The applicant denies all allegations, save for recent knowledge of the operation of the store.
The respondent submitted that the applicant had a duty to his employer to inform the employer of the store manager’s lack of fidelity and good faith.
The applicant denies such a duty existed or that he failed in his duty.
The respondent further submitted that the applicant’s conduct constituted conspiracy with the store manager. This allegation was denied by the applicant.
Other matters raised as to the applicant’s conduct included the whereabouts of the applicant on the 7th April, 1994, the day immediately prior to the termination of his employment, the very low sales record of the store in the two weeks preceding the termination and the alleged unauthorised use of a company vehicle. These were given as evidence of justification for the conclusions of the respondent as to the applicant’s conduct. These issues arose in the context of the respondent’s disbelief of the applicant’s explanation as to his involvement in or knowledge of the competing store.
These matters, whilst relied upon by the respondent as establishing misconduct on the part of the applicant in relation to the establishment of the competitor’s store, did not constitute and were not relied upon as constituting separate evidence of poor work performance. There was no case made out to establish that work performance of itself played any part in this termination and I do find that it did not.
The respondent summarily terminated the applicant’s employment on Friday 8th April, 1994. The termination of the employment occurred at a meeting at the respondent’s head office at Mulgrave. Present at the meeting were the applicant, Mr Smith the respondent’s managing director, Mr Jinks the assistant state manager, and Mr Burns the company secretary.
I am of the view having regard to the evidence of the events leading to the termination of the employment, that the respondent’s reasons for the termination of the applicant’s employment were as follows:
1. That the applicant was a party to or involved in the
establishment of the competing business with or on behalf of
his store manager.2. That the applicant failed to inform the respondent that the
business was being or had been established when he knew this
to be so and when he had an obligation to do so.3. That large amounts of the respondent’s samples were at
the competitor’s premises and were recovered by police, and that their absence from the respondent’s store would have been obvious to the applicant as he was at that time in charge of the store and should have reported their absence to the respondent.4. That the applicant had referred the respondent’s customers to
the Carpetmaster store.
I turn now to deal with my findings of fact as to each of these matters.
As to matter 1: I am satisfied on balance that the applicant did know for at least two weeks prior to the events of the week of termination, that his manager was in the process of establishing a store in competition with the respondent. However, whilst there is some evidence of circumstances upon which inferences as to participation may be drawn, on balance I am not satisfied that the applicant was in any practical sense involved in the actual establishment of the store, nor that he had any beneficial interest in the operation of the store during the time he remained employed by the respondent.
As to matter 2: I am satisfied that the applicant, having known about the store and his manager’s involvement in it, did not inform any management of the respondent as to the operation. The applicant’s evidence on this point was that he “didn’t dob in his mates” (T. 61.30). The applicant in his attitude showed little regard or concern for the interests of the respondent’s business. I find further that the applicant knew or ought to have known that his employer would have been extremely concerned about the conduct of the store manager. I am also of the view that the applicant had ample and convenient opportunity to advise the respondent of the store manager’s conduct in the week preceding his termination but chose not to do so. His evidence was also that the whole matter had nothing to do with him and that he had no more knowledge about what was occurring than a lot of other employees, although when asked about which employees he was able to only name one sub-contractor and by his first name only. The applicant’s attitude was to the effect that the whole matter was no business of his and not his concern (T. 43.5, 61.20). However, he was concerned enough about the matter coming to the attention of the respondent on Thursday 7th April, to telephone the sales manager for the north western suburbs, Mr Kelly, at home to enquire as to the events. His evidence was that he did so because he was merely interested. On the day of the termination of his employment, the applicant went to the Carpetmaster store to meet with Mr Dermanis on his way to the meeting at the respondent’s Mulgrave office. His explanation for this was that he attended out of mere curiosity. His dealings with Mr Dermanis, including a telephone conversation with him the night before and his attendance at the Carpetmaster store on that day, are in my view telling indicators of his knowledge of the store manager’s activities being greater than he has acknowledged in his evidence.
I deal later in this decision with the issue of whether the applicant had any obligation arising out of his employment to inform his employer of his store manager’s conduct.
As to matter 3: As earlier outlined, police attended at the Carpetmaster store and, in the company of the assistant state manager of the respondent, Mr Jinks, seized a large number of carpet samples or drapes. The applicant’s evidence was that he understood that what was seized was discontinued stock samples. His evidence was that he did not know the samples were missing from the St Albans store and could not have known because discontinued stock samples were kept in the rear storeroom and not on display. Mr Dermanis’ evidence was that the samples seized at his premises were the respondent’s discontinued stock samples. However Mr Jinks’ evidence was that the samples seized were current samples and drapes and that there were so many of them that the rear of the police vehicle used to transport them was full and that another vehicle was required to carry the balance. His evidence was that it was obvious that samples were missing from the display area in the St Albans store. The evidence was that approximately 30% of the samples from the St Albans store were seized from the Carpetmaster store (T. 152.15). Evidence was given as to the layout of the respondent’s St Albans store and the location of the displays of carpet samples. The respondent’s premises were not large and it is reasonable to conclude that missing stock of such quantity would be obvious.
Mr Dermanis’ evidence was that he took the samples from the store on the Monday evening, 4th April. The applicant’s evidence was that he was in the store on and from Monday of the relevant week and on days following up until Thursday. His evidence was that he did not observe that any samples were missing.
I accept the evidence of Mr Jinks that there was a substantial amount of samples seized from Mr Dermanis’ store. I also accept his evidence that the samples were of current stock. I have had careful regard to the evidence of the applicant and the witness Mr Jinks as to the layout of the store and the likely location of the samples. I have considered the evidence of Mr Dermanis in relation to the samples, but I do not accept his evidence. Whilst I am not satisfied on balance that the applicant was present at the St Albans store on Thursday 7th April, where he would have certainly observed the absence of such samples, I consider that his evidence as to the length of time he spent in the store subsequent to the removal of the samples would have accorded him adequate opportunity to observe the fact that they were missing. On balance I am satisfied that the applicant would have been aware that a significant number of the stock samples were missing from the store.
Having regard to the fact that the applicant knew that Dermanis had established the competing store, and notwithstanding that he was still employed by the respondent yet was either trading or about to commence trading, it would have been reasonable for the applicant to make enquiries of Dermanis as to the whereabouts of the property of the respondent or to inform the respondent of the missing stock. This he did not do.
As to matter 4: Whilst I accept that in the retail sales industry there may be a common practice of assisting customers to find suitable carpet even if that meant directing them elsewhere, in the present circumstances I am not satisfied that the applicant made any real attempt to meet the needs of customers by promoting the respondent’s product. The evidence of Mr Jinks was that upon attending at the Carpetmaster store on Thursday 7th April, he established from persons present at the time that they had been referred to that store by a person at the St Albans Carpet Call store. The applicant did not deny that he had in fact referred persons to the Carpetmaster store, although he said that he did not do so by name and that he had also referred those persons to the respondent’s nearest competitor and had only done so as he was unable to meet their requirement for cheap carpet. I found the applicant’s evidence (T. 63.5) that the persons referred to the Carpetmaster store were not Carpet Call customers but just someone he met outside in the street, at best, unconvincing. I further find that the applicant did not send the customers to the nearest alternative venue, but rather sent them directly to the Carpetmaster store. I am not satisfied, having regard to the evidence of the respondent that it did sell remnants of carpet at substantially reduced prices, that the applicant made all appropriate attempts to satisfy the customers’ requirements before so referring them. These matters lead me to conclude on balance that there was a deliberate favouritism and preference shown by the applicant towards the Carpetmaster store and that in this respect the applicant had not acted with regard to the interest of the respondent, his employer.
I turn now to deal with the issue of the applicant’s obligations arising out of his employment relationship and whether the reasons for the termination having regard to my findings of fact herein were valid.
Duty of Fidelity or Good Faith and Breach of Express Contractual Duty
Having regard to my findings of fact above, I now turn to first consider the question of whether there is in these circumstances a duty of fidelity and good faith which the applicant has breached, and, second, whether there is any breach of the express contract.
The first issue which arises is whether the implied contractual duty of fidelity and good faith contended for by the respondent extends to imposing an obligation upon a more junior employee to inform management as to the activities of his or her supervisor, which activities may or may not be in breach of the latter’s employment contract.
The respondent’s counsel referred to the statement of the law relating to the
implied duty in Macken McCarry Sappideen, The Law of Employment
(Third Edition), at page 129 and following, wherein the principles underpinning the duty are set out.
It was contended by the respondent that the matters raised in 1 - 4 set out above, in particular the failure to inform the respondent of the store manager’s conduct, constituted a breach of the implied duty of fidelity and good faith.
In so far as the reporting was concerned, this submission assumes that there exists in all circumstances such an obligation. I do not accept that proposition. The relevant authorities suggest that there is no general obligation to report another employee’s misconduct, rather the existence of any such obligation is very much dependant upon the particular facts including the actual circumstances and conduct involved. A mere reluctance to “dob on a mate” would not in my view of itself be an acceptable basis for justifying the failure to meet any obligation which did exist.
In coming to this conclusion I have had regard to the decision of Stephenson LJ in Sybron Corporation and Another v Rochem Ltd and Others [1983] 3 WLR 713 where his Lordship said at page 726:
“ It follows from that decision, which is consistent with Bell v. Lever Bros. Ltd. [1932] A.C. 161 and is binding upon us, that there is no general duty to report a fellow-servant’s misconduct or breach of contract; whether there is such a duty depends on the contract and on the terms of employment of the particular servant. He may be so placed in the hierarchy as to have a duty to report either the misconduct of his superior, as in Swain v. West (Butchers) Ltd. [1963] 3 All E.R. 261, or the misconduct of his inferiors, as in this case... on this point I agree with Walton J. and I refer, again without apology and with approval, to the way in which he put the matter in his judgment below:
‘I do not think that that is any general duty resting upon an employee to inform his master of the breaches of duty of other employees; the law would do industrial relations generally no great service if it held that such a duty did in fact exist in all cases. The duty must, in my view, depend upon all the circumstances of the case, and the relationship of the parties to their employer and inter se. I think it would have been very difficult to have submitted, with any hope of success, that Messrs. Bell and Snelling, having been appointed to rescue the affairs of their employer’s African subsidiary, in effect jointly, ought to have denounced each other.’ ”
I am of the view that the matters relevant to take into account in determining whether such a duty existed or was breached include the seniority of the employee, the nature of the duties of the employee, the workplace environment including its size and location, and the organisational structure of the business. Such a duty is less likely to be imposed in circumstances where the employee is not a managerial or supervisory employee and where the conduct is that of a more senior employee. Generally I would be reluctant to find that there was such a duty on subordinate employees in the absence of unusual circumstances. To some extent however these unusual circumstances are manifest in the present case because of the close physical work environment, the fact that the difference in the level of seniority between the employees was minimal, the fact that the applicant was in sole charge of the shop during the absence of the manager, and the fact that in this case that same manager had repudiated his contract of employment and was no longer intending to present himself for work with the respondent and that this fact was known to the applicant.
All of these factors bring me to the conclusion that the applicant had a duty to inform the respondent as to the establishment of the Carpetmaster business by the store manager and further, that he should have taken positive steps to protect the property of the respondent by informing the respondent of its disappearance.
Breach of contractual duty
The respondent also relied upon the terms of the written contract of employment (Exhibit B4) as a basis for the imposition of a contractual obligation of the nature contended for above. Clauses 1(b), 10, 12 and 13 of the contract impose various obligations upon the applicant.
Clause 1(b) binds the applicant to abiding by the company codes of behaviour as existing from time to time. No evidence was before the court as to any specific code relating to the present circumstances.
Clause 10 imposes obligations upon the applicant to take all reasonable care in the use and protection of the respondent’s property. Having regard to my earlier finding that the applicant knew that there were samples missing and that he failed to make any enquiries or inform the respondent as to that fact,
I have concluded that the applicant failed to carry out his obligations to the respondent in this regard.
Clause 12 precludes employees from undertaking other paid employment without the written consent of their employer. The Clause provides:
“ Other Employment. Employees must not, without the written consent of the employer undertake other paid employment which will conflict with the interests of the employer or which may impair their ability to complete their normal work to the full satisfaction of the employer. “
I do not accept that an ordinary reading of the clause imposes any obligation other than one directly concerned with the applicant’s personal behaviour and conduct. I do not accept that this clause imposes an obligation upon the applicant to report upon the conduct of his manager or supervisor. Finally, in so far as the respondent alleges a breach of this term by reference to the applicant’s conduct relating to the establishment of the Carpetmaster business, I have already found that the applicant was not a party to the establishment of the business, nor was he interested in it in any legal sense during the course of his employment with the respondent.
Having regard to my findings as to the applicant’s conduct and his implied duties and express contractual obligations, I am satisfied that the respondent did have a valid reason to terminate the employment of the applicant on 8th April, 1994.
Summary Dismissal for Serious Misconduct
I turn now to consider whether in the circumstances and having regard to the nature of the applicant’s conduct the respondent was entitled to summarily dismiss the applicant for serious misconduct. The nature of the entitlement to dismiss summarily for serious misconduct is that the conduct of the applicant is so serious as to be inconsistent with an intention to continue with his obligations under the contract. The following extract from the joint judgment of Smithers and Evatt JJ in North v Television Corp. Ltd. (1976) 11 ALR 599 at page 609 is of relevance in this regard. Their Honours said:
“ For the purposes of the application of the common law principles to the facts of this case, the remarks of the Master of the Rolls in Laws v London Chronicle (Indicator Newspapers) Ltd [1959] 2 All ER 285 at 287 and 289, are in point. He said:-
‘... since a contract of service is but an example of contracts in general, so that the general law of contract will be applicable, it follows that, if summary dismissal is claimed to be justifiable, the question must be whether the conduct complained of is such as to show the servant to have disregarded the essential conditions of the contract of service.
...
I..think...that one act of disobedience or misconduct can justify dismissal only if it is of a nature which goes to show (in effect) that the servant is repudiating the contract, or one of its essential conditions; and...therefore...that disobedience must at least have the quality that it is “wilful”; it does (in other words) connote a deliberate flouting of the essential contractual conditions.’
...
Until the terms of the contract are known and identified it is impossible to say whether or not any particular conduct is in breach thereof or is a breach of such gravity or importance as to indicate a rejection or repudiation of the contract.
One cannot begin the inquiry without ascertaining what work... the employee was employed and had undertaken to perform. It is also necessary to ascertain what particular obligations the parties had agreed upon as important or even vital.”
In Blyth Chemicals v Bushnell (1933) 49 CLR 66 Dixon and McTiernan JJ said at 81:
“Conduct which in respect of important matters is incompatible with the fulfilment of an employee’s duty, or involves an opposition, or conflict between his interest and his duty to his employer, or impedes the faithful performance of his obligations, or is destructive of the necessary confidence between the employer and employee, is a ground of dismissal.......But the conduct of the employee must itself involve the incompatibility, conflict or impediment, or be destructive of confidence. An actual repugnance between his acts and his relationship must be found. It is not sufficient that ground for uneasiness as to its future conduct arises.” (Emphasis added).
I find that having regard to the conduct of the applicant, particularly by failing to take action in relation to the missing stock and in referring the respondent’s customers to the Carpetmaster store, it would have been unreasonable to require the respondent to continue the employment during the notice period. I find that in the circumstances the respondent was entitled to summarily dismiss the applicant for misconduct.
I turn now to consider the nature of the procedure adopted by the respondent in investigating the allegations against the applicant and in determining to terminate his employment.
Procedural Fairness and S170DC
I have considered the evidence of the proceedings of the interview which occurred on Friday 8th April, 1994 at the respondent’s Mulgrave store.
In particular I have had regard to the evidence of Mr Burns, the company secretary, as to the events that occurred at that meeting. He was present at the meeting for the purpose of taking notes and was not a participant in the discussions. His notes of the meeting were tendered and are Exhibit B7.
I am satisfied that at the meeting the applicant was given an adequate opportunity to be heard as to the allegations relating to his conduct.
Whilst there were undoubtedly displays of anger on the part of the respondent, in particular the managing director Mr Smith, on hearing the applicant’s version of the events and explanations for not informing the respondent of the store manager’s conduct and other matters, I do not accept that the applicant was not given an adequate opportunity to be heard. I am also satisfied that the respondent did make a full and adequate investigation of the circumstances prior to deciding to terminate the applicant’s employment.
Having regard to the above matters I dismiss the application.
The court orders as follows:
That the application is dismissed.
I certify that this and the preceding seventeen (17) pages
are a true copy of the Reasons for Judgment
of Judicial Registrar Parkinson.
Associate:
Dated: 22 December 1994
Solicitors for the applicant: Ryan Carlisle Thomas
Counsel appearing for the applicant: Ms L Gyfteas
Solicitors for the respondent: Blake Dawson Waldron
Counsel appearing for the respondent: Mr J Bourke
Dates of hearing: 14, 15, 16, 18 November 1994
Date of judgment: 22 December 1994
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