Zafiriou v Saint-Gobain Administration Pty Ltd

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMON LAW DIVISION

S CI 2011 490

ARTHUR ZAFIRIOU	Plaintiff
v
SAINT-GOBAIN ADMINISTRATION PTY LTD	Defendant

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JUDGE:	Emerton J
WHERE HELD:	Melbourne
DATE OF HEARING:	6 – 10 August 2012; 12 – 16 November 2012; 22 – 23 November 2012
DATE OF JUDGMENT:	24 July 2013
CASE MAY BE CITED AS:	Zafiriou v Saint-Gobain Administration Pty Ltd
MEDIUM NEUTRAL CITATION:	[2013] VSC 377

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EMPLOYMENT – Contract of Employment – Termination of senior manager – Whether termination was for reasons of ‘redundancy/retrenchment’ or whether termination was a dismissal on performance grounds – Incorporation of disciplinary procedure as a term of the contract of employment – Whether a failure to formally caution the senior manager prior to dismissal amounted to a breach of an implied term of trust and confidence – Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr R Millar	Macpherson + Kelley
For the Defendant	Mr C O’Grady Mr A McNab	Peter Vitale

TABLE OF CONTENTS

Introduction......................................................................................................................................... 2

Background......................................................................................................................................... 3

Saint-Gobain................................................................................................................................... 3
Mr Zafiriou’s position.................................................................................................................. 4
The new broom.............................................................................................................................. 6
Performance issues....................................................................................................................... 9
The termination and following................................................................................................. 10

Mr Zafiriou’s Claim......................................................................................................................... 12

The contract of employment.......................................................................................................... 13

The Abrasives Redundancy Claim............................................................................................... 17

When is a termination ‘for reasons of redundancy/retrenchment’?................................... 17
Was the reorganisation the cause (or one of the causes) of Mr Zafiriou’s termination?.. 23

The restructure in the 100 day plan......................................................................................... 26
The termination plan................................................................................................................ 35
Mr Chaur’s conduct in the week prior to termination..................................................... 38
Termination ‘not a redundancy’......................................................................................... 43

Were there performance reasons for Mr Zafiriou’s termination?........................................ 46

DIFOT compliance................................................................................................................... 48
Reporting.................................................................................................................................. 55
Inappropriate emails................................................................................................................. 58
The cultural clash..................................................................................................................... 59
Was there a lack of complaint?................................................................................................. 61
Conclusion on performance concerns....................................................................................... 62

Conclusion on Abrasives Redundancy Claim........................................................................ 64

Disciplinary Procedure Claim........................................................................................................ 72

Trust and Confidence Claim.......................................................................................................... 82

Ceramics Redundancy Claim........................................................................................................ 83

Conclusion......................................................................................................................................... 88

HER HONOUR:

Introduction

The plaintiff, Mr Arthur Zafiriou, was employed in senior positions with the defendant[1] from July 1987 until 26 October 2010, when his employment was abruptly terminated. The then recently appointed managing director, Mr Steven Chaur, expressed himself to be dissatisfied with Mr Zafiriou’s attitude, performance and willingness to work constructively with him and other members of the management team and gave as his reason for terminating Mr Zafiriou’s employment his unsatisfactory work performance. Immediately upon termination, Mr Zafiriou was required to leave the defendant’s premises, receiving a payment in lieu of four weeks’ notice of termination.[2] Mr Zafiriou was offered an ex gratia payment representing further five months’ salary, which he declined to accept, as it would have compromised his ability to bring legal proceedings.
[1]Or companies associated with or acquired by the defendant. Mr Zafiriou’s employment relevantly commenced with a smaller company subsequently acquired by Saint-Gobain.
[2]Along with his accrued annual leave and long service leave.

Mr Zafiriou was a party to a written contract of employment[3] with the defendant which, among other things, governed the circumstances in which his employment could be brought to an end. The contract of employment was for an indefinite period, but provided that either party could terminate the contract upon the giving of four weeks’ notice. However, it also provided that where the employer terminated the employee’s employment ‘for reasons of redundancy/retrenchment’, the employee was entitled to a severance payment.[4]
[3]Dated 16 September 2005.
[4]And accrued sick leave as well as accrued annual and long service leave.

Mr Zafiriou alleges that his employment was terminated because his position had been made redundant, that the rationale of unsatisfactory performance was contrived to avoid having to make a redundancy payment and that he is entitled to a large payment under the redundancy clause of the employment contract given his long years of service. In the alternative, he says that his employment could only have been terminated for unsatisfactory performance if the defendant had first complied with its disciplinary and termination procedures, which required it to give him a number of warnings and opportunities to improve his performance before terminating his employment. He says further that there has been a breach of an implied term of trust and confidence in the employment contract.

The Court is therefore asked to construe the contract of employment and to determine Mr Zafiriou’s rights under the contract, having regard to the circumstances of his termination. For the reasons that follow, I have concluded that Mr Zafiriou’s employment was not terminated for reasons of ‘redundancy/retrenchment’, that the disciplinary and termination procedures did not apply to require the giving of formal warnings and opportunities to improve before Mr Zafiriou’s employment could be terminated, that Mr Zafiriou had no prospect of transferring to a related company and ultimately being made redundant from that company, and that Mr Zafiriou is therefore not entitled to the payments and damages that he claims.

Background
Saint-Gobain

The defendant is a part of a multinational conglomerate (‘Saint-Gobain’) founded in France in the nineteenth century. Saint-Gobain has significant operations in Europe, North and South America, and in Asia and the Pacific region, including in Australia and New Zealand. It is principally involved in the manufacture and distribution of construction materials and packaging products.

In 1999, Saint-Gobain acquired a Victorian company, Flexovit Abrasives Australia Pty Ltd, which became Saint-Gobain Abrasives Pty Ltd (‘Abrasives’). Flexovit was originally a privately held company whose major shareholders were its founders in Australia, Mr Roger Freeman and Mr Geoff Freeman. It made, imported and distributed industrial abrasive products such as grinding wheels, sanding belts and discs and carbide burs. Following Saint-Gobain’s acquisition of Flexovit, Mr Zafiriou, who was a long-standing employee of Flexovit, became an employee of Abrasives. The Freeman brothers continued to hold senior positions in Abrasives, with Mr Roger Freeman occupying the role of managing director until his retirement in June 2010.

At the time of Mr Zafiriou’s termination, Saint-Gobain’s operations in Australia were also carried out through a number of other divisions or companies, including, most relevantly, Saint-Gobain Industrial Ceramics Pty Ltd (‘Ceramics’), for which Mr Zafiriou also worked on a part-time basis.

Mr Zafiriou’s position

Mr Zafiriou is a qualified accountant with almost 30 years’ experience in accounting and senior management roles.[5] He joined Flexovit in 1987. He was initially appointed as the company accountant, but after Flexovit acquired another abrasives company[6] in late 1990, Mr Zafiriou’s role expanded to include the finance functions of the two companies and the implementation of a computer system that would integrate their operations. His title was changed to Financial Controller. He remained in this role until approximately 1996, when he was given additional duties and his title was changed to Commercial Manager. When Saint-Gobain purchased Flexovit in 1999 and the management structures of the two companies[7] were consolidated, Mr Zafiriou’s title was changed to General Manager – Commercial Operations. He had a number of different areas of responsibility, including information technology (‘IT’), finance, customer service and warehouse operations. The integration of Flexovit into the Saint-Gobain group as Abrasives was completed in approximately 2003, and Mr Zafiriou remained responsible for the same aspects of the Abrasives business thereafter. He continued to report directly to the Managing Director of Abrasives, Mr Roger Freeman, until Mr Freeman’s retirement in mid-2010.
[5]He holds a Bachelor of Business degree from Victoria College and is a Fellow of the CPAs. Mr Zafiriou began his career as an accountant at Craven Print and Pack before moving on to Pilkington ACI.
[6]Carborundum Abrasives.
[7]Saint Gobain already had a presence in Australia in the form of Norton Abrasives in Sydney.

Mr Zafiriou’s responsibilities were initially solely with Abrasives, but in May 2005 he was offered the opportunity to take over as general manager of Ceramics on a part-time basis. At the date his employment was terminated, Mr Zafiriou’s responsibilities were spread across Abrasives and Ceramics, with 70% of his time devoted to Abrasives and 30% of his time given to his role as general manager of Ceramics. As Mr Zafiriou’s principal duties were with Abrasives, Ceramics reimbursed Abrasives for Mr Zafiriou’s services and Mr Zafiriou was effectively ‘on loan’ to Ceramics from Abrasives for part of his working week. In his capacity as general manager of Ceramics, Mr Zafiriou reported to Mr Laurent Tellier, who was then based in China.

As at 30 June 2010, Mr Zafiriou’s responsibilities at Abrasives included IT, ACCC compliance, insurance, legal affairs, occupational health and safety and the management of the motor vehicle fleet, as well as responsibility for warehousing, distribution, logistics and customer service. He was involved in two major restructuring projects: ‘Project Cooper’ and ‘Project Spartan’. Project Cooper involved the closure of a manufacturing facility in Lidcombe, New South Wales, and Project Spartan involved centralising the distribution and customer service functions for the east coast in Melbourne. Project Cooper was completed in September 2010 and Project Spartan in early October 2010.

Mr Zafiriou was also charged with co-ordinating the ‘High Jump’ IT project, which involved the labelling and scanning of products to improve warehouse efficiency. The High Jump project was completed in September 2010, when the system went live.

It is apparent that during his long years of service at Abrasives, Mr Zafiriou accumulated a range of responsibilities and that under the management of Mr Freeman he enjoyed significant freedom and flexibility in the functions that he undertook. He was involved at a high level in many important initiatives at Abrasives and considered himself to be Mr Freeman’s right hand man and his likely successor as managing director of Abrasives.

By contrast, Mr Zafiriou’s ongoing role at Ceramics was uncertain, as its local manufacturing operations were in decline. The manufacturing capacity was reduced by half in late 2009, and there was a proposal to close the manufacturing plant altogether. Ceramics ultimately closed its manufacturing operations in Australia in August 2011. Had his employment not been terminated in October 2010, Mr Zafiriou proposed to resume working at Abrasives on a full time basis when this occurred.

The new broom

Although Mr Zafiriou hoped to become the managing director of Abrasives upon Mr Freeman’s retirement, Mr Steven Chaur, an external candidate, was appointed to this position. Mr Chaur joined Abrasives on 12 May 2010.

Mr Zafiriou admits to being disappointed that he was passed over for the position of Managing Director. However, Mr Zafiriou spoke to Mr Chaur shortly after his appointment to confirm that he wished to stay on. It is common ground that both Mr Chaur and Mr Zafiriou expressed themselves to be content for Mr Zafiriou to remain at Abrasives as a senior member of the leadership team.

Immediately upon his appointment, Mr Chaur set about formulating a plan for the future of the Abrasives business in order, he told the Court, to bring Abrasives into alignment with the global group framework and to lift customer satisfaction. Mr Chaur’s plan was completed in July 2010 and submitted for approval to his superior, Mr Gonzague de Pirey, in Paris. It was referred to throughout the proceeding as the ‘100 day plan’.

According to Mr Chaur, the 100 day plan was an ‘external and unbiased management view of the company in the first 100 days’,[8] resulting in the identification of a number of areas for change and improvement. One of the key actions proposed was to ‘align the organisation structure to a simpler and focused functional organisation’.[9] The 100 day plan therefore contained a proposal to restructure management along functional lines. Among other things, it involved reducing the number of direct reports to the managing director from ten to six.
[8]Transcript of Proceedings, Zafiriou v Saint-Gobain Administration Pty Ltd (Supreme Court of Victoria, S CI 2011 490, Emerton J, 6 -- 10 August 2012; 12 -- 16 November 2012; 22 -- 23 November 2012) 852 (‘Transcript’).
[9]Transcript 996.

Viewed broadly, the 100 day plan identified problems in sales and marketing and proposed significant management changes in those areas. The major changes proposed in the 100 day plan were to the sales and marketing areas of the Abrasives business, not to the areas managed by Mr Zafiriou. Nonetheless, there were to be some changes to Mr Zafiriou’s role.

The 100 day plan described Mr Zafiriou’s existing role as ‘GM Commercial Operations’ to include ‘procurement, warehousing & logistics, customer service, NZ conversion operations, IT/BPCS, company secretary (for ASIC), ACCC legal compliance and: General Manager Industrial Ceramics (2 days per week)’. Mr Zafiriou did not disagree with this description of his existing responsibilities, although it did not include a number of his other smaller responsibilities such as company secretariat, insurance, car fleet management and the like. Under the revised management structure, Mr Zafiriou was designated as ‘GM Supply Chain’, with responsibilities for procurement, warehousing and logistics, demand planning, customer service, grain procurement and GM Industrial Ceramics (part time).

It follows that it was proposed that Mr Zafiriou gain some functions (grain procurement and demand planning) and lose others, notably IT. There was some uncertainty about whether he in fact lost the ACCC compliance function (it appears that he did not), but he did ultimately lose the company secretariat role, albeit not as a result of the 100 day plan.[10] Furthermore – and this was clearly a matter of considerable personal importance to Mr Zafiriou – his title was to be changed from ‘General Manager – Commercial Operations’ to ‘General Manager – Supply Chain’.[11] Whether or when the title change occurred (as a matter of both fact and law) and when Mr Zafiriou learned of the proposal to change his title is a matter of dispute.
[10]An email from the CFO, Mr Kevin Jessup, to Mr Freeman on 19 August 2010 records a request from Mr Gonzague de Pirey in Paris for Mr de Pirey to be appointed as a director of Abrasives, for Mr Freeman to remain a director, for Mr Chaur to be appointed as a director and for Mr Jessup to replace Mr Zafiriou as company secretary. The removal of Mr Zafiriou as company director was part of a global change that had nothing to do with the 100 day plan or Mr Chaur’s plans for Mr Zafiriou’s future role with Abrasives.
[11]I shall refer to these positions as GM – Commercial Operations and GM – Supply Chain.

Mr Zafiriou says that he first heard of the proposed title change on 8 October 2010 when an organisational chart was attached to a generally circulated email announcement about proposed changes to the sales and marketing division. The organisational chart showed him to be the ‘General Manager – Supply Chain’. However, Mr Chaur gave evidence that the change to Mr Zafiriou’s title was discussed with Mr Zafiriou as early as 12 August 2010 at a meeting between Mr Chaur and Mr Zafiriou in Mr Chaur’s office (the ‘August meeting’). Mr Zafiriou recalls the August meeting but denies that there was any such discussion. However, it was common ground that the loss of the IT function was discussed at the August meeting. At the very least, therefore, Mr Zafiriou was told about the most significant proposed change to his responsibilities on 12 August 2010.

Apart from the management reorganisation, part of Mr Chaur’s plan to break down what he perceived to be the ‘silo culture’ at Abrasives involved instituting regular meetings between senior managers. He convened weekly ‘hot spot’ meetings[12] on Monday mornings to facilitate the exchange of information and ideas. In addition, there were to be monthly and quarterly meetings to deal with issues in more depth. Mr Chaur said that he wanted to improve communications between the different areas in the company, and he wanted his senior managers to approach their areas of the business more analytically. He told the Court that he identified a lot of anecdotal decision making and found not a lot of fact-based management when he arrived at Abrasives. As a result, Mr Chaur introduced weekly and monthly meetings to encourage the management team and their subordinates to start analysing data and make decisions based on that analysis.
[12]Otherwise known as ‘web’ (weekly executive briefing) meetings.

As will be seen, Mr Zafiriou’s performance at ‘hot spot’ meetings and his alleged failure to provide monthly reports in a timely fashion became a source of frustration for Mr Chaur.

Performance issues

So far as Mr Chaur was concerned, his first six months as managing director of Abrasives were marked by serious and ongoing complaints from a major customer, Blackwoods,[13] and a number of other customers about the timely delivery of orders. Emails tendered in evidence show persistent complaints from Blackwoods about deliveries, referring specifically to Abrasives’ non-compliance with its obligation to ‘Deliver in Full on Time’ (‘DIFOT’). DIFOT compliance fell within Mr Zafiriou’s area of responsibility, whether he was designated as GM – Supply Chain or as GM - Commercial Operations.
[13]Blackwoods is part of the Westfarmers Group, which includes Bunnings, also a customer of Abrasives.

In his evidence, Mr Zafiriou contended that Abrasives’ DIFOT compliance was generally satisfactory and that the problem was principally caused by the customer’s method of calculating DIFOT compliance. He also pointed to teething problems with the new warehouse arrangements following the implementation of Project Spartan and to difficulties caused by the resignation of the Western Australian sales manager.

Mr Chaur gave evidence that he was frustrated by this approach, as he thought that it revealed a lack of customer focus. He said he was concerned that Mr Zafiriou was dismissive of complaints and displayed an unwillingness or inability to carefully analyse the data to identify the source of the problem and to propose a solution that was satisfactory to the customer. In Mr Chaur’s view, it was necessary to work with the customer to assuage the customer’s concerns, wherever the fault lay.

In his evidence, Mr Chaur also expressed frustration at what he considered to be Mr Zafiriou’s tardiness in complying with monthly reporting requirements and providing reports to weekly ‘hot spot’ meetings. Mr Zafiriou denies that there was any problem with his compliance with reporting requirements or participation in ‘hot spot’ meetings. He asserts that he performed well and points to the successful completion of the major projects with which he was charged: Project Cooper, Project Spartan and High Jump.

The termination and following

On 18 October 2010, Mr Chaur sent the Human Resources Manager, Ms Pam White, an email referring to matters that needed attention in order to ‘complete the restructure by the start of November’. These matters included the following:

3. Zafiriou – please advise contractual termination clause (either party notice period), assume 6 – 8 months pay.

On 20 October 2010, Mr Chaur again sent an email to Ms White in which he said he would come back to Ms White with a ‘plan’ regarding Mr Zafiriou’s termination.

On Friday, 22 October 2010, Mr Chaur asked Mr Zafiriou to prepare a detailed report on the Blackwoods situation, to be presented to senior managers on Monday, 25 October 2010. Mr Zafiriou prepared his report on Blackwoods over the weekend and presented it to Mr Chaur and others on the Monday. He subsequently reported to his colleagues that the presentation had gone well.

However, the following day, 26 October 2010, Mr Zafiriou’s employment was summarily terminated in a meeting with Mr Chaur and Ms White. The reason given to Mr Zafiriou for the termination was his unsatisfactory work performance, although Mr Chaur expressed the view that he did not need a reason to terminate Mr Zafiriou’s employment under the terms of the contract of employment. It is common ground that prior to his employment being terminated, Mr Zafiriou was not given any formal warnings that his performance was unsatisfactory or that his employment was in danger of being terminated for unsatisfactory performance. It would be fair to say that Mr Zafiriou was shocked and outraged to be dismissed in this manner.

The day before Mr Zafiriou’s termination, on Monday 25 October 2010, Mr Chaur sent an email to his superiors in France and the US, and to Mr Freeman, setting out his reasons for terminating Mr Zafiriou’s employment and describing how he proposed to dismiss Mr Zafiriou (the ‘25 October email’). The 25 October email sets out Mr Chaur’s reasons for dismissing Mr Zafiriou and a ‘termination plan’ based on a dismissal with one month’s notice and an ex gratia payment to bring the termination payment to six months. Mr Chaur told his colleagues that the role was not being made redundant and would be re-filled prior to December 2010 and that he had already commenced a confidential market search for a new general manager. He also told them that making Mr Zafiriou redundant would cost around $750,000 and was ‘not an option to consider’.

Following Mr Zafiriou’s termination, the supply chain manager who reported to him, Mr George Mihailidis, was asked to act in the position of GM – Supply Chain and, after the position had been advertised, Mr Mihailidis was appointed to that role. Mr Mihailidis was appointed to a position that differed in many respects from the position occupied by Mr Zafiriou, and on a lower salary. Furthermore, Mr Mihailidis’ previous position as manager of the supply chain was not filled until May 2011, at which time the role was renamed ‘Production/Inventory Planner’.

Mr Zafiriou’s position with Ceramics was filled at short notice by Mr Roger Freeman, who effectively came out of retirement (or semi-retirement) to step into the breach.[14] Mr Tellier, who was based in China at the time, was not warned of Mr Zafiriou’s dismissal, despite Mr Chaur’s intention that he be informed before the dismissal occurred. Mr Tellier was annoyed about this, as he found himself with a business to run (at least in the short to medium term) in a far away country without a general manager. As events unfolded, Mr Freeman was drafted to act in that role until the Ceramics business was finally closed in August 2011.
[14]Upon retirement as Managing Director of Abrasives, Mr Freeman had taken on a role as a ‘delegate’ for Saint Gobain.

On any view, therefore, no single individual was appointed to perform the combination of functions or duties that were performed by Mr Zafiriou prior to the termination of his employment. There was, in effect, a restructuring of duties and responsibilities following Mr Zafiriou’s departure. One of the critical questions in this proceeding is whether the restructure was the cause of Mr Zafiriou’s termination in that he became surplus to the requirements of Abrasives as a result of the reorganisation or whether Mr Zafiriou’s termination on performance grounds caused the reorganisation.

Mr Zafiriou’s Claim

Mr Zafiriou pleads his claim in a number of ways, all of which are based in contract:

(a)He alleges that his employment was terminated because his position as GM – Commercial Operations for Abrasives was made redundant. He claims under the redundancy term in the contract of employment to be entitled to payment of $811,688.91 less an amount of $66,668.96, being $744,999.95 (the ‘Abrasives Redundancy Claim’);
(b)Alternatively, he claims that his employment could only be terminated because of unsatisfactory performance or unacceptable behaviour if the defendant complied with the process set out in the defendant’s disciplinary policy. He contends that compliance with this process would have led to his employment with Abrasives continuing for a further 12 months and that he would therefore have received a further 12 months remuneration in the sum of $264,850.00 (the ‘Disciplinary Procedure Claim’);
(c)Alternatively, he alleges that the contract of employment contained a term that the defendant would not without reasonable cause, conduct itself in a manner likely to destroy the relationship of trust and confidence between it and him. He asserts that this term obliged the defendant to, amongst other things, give him 12 months warning of the termination of his employment. He asserts he would have received a further 12 months remuneration (less 4 weeks pay in lieu of notice) being $244,405.83 (the ‘Trust and Confidence Claim’);
(d)By further and better particulars provided under cover of a letter from his solicitors dated 7 June 2012, Mr Zafiriou claims that had the defendant complied with its disciplinary policy:
(i)Mr Zafiriou would have been offered continuous employment with the defendant to work for the business of Ceramics;
(ii)his employment with Ceramics would have been under substantially the same terms and conditions that applied at the time of his dismissal, including the terms governing his remuneration;
(iii)his employment with Ceramics would have continued until at least the time that Ceramics restructured its business in August 2011; and
(iv)Mr Zafiriou’s employment with Ceramics would have then been made redundant and he would by then have had the benefit of:
(A)an additional 10 months remuneration in the sum of $220,7089.33;
(B)a redundancy payment in the sum of $744,999.00;
(C)a further severance payment in the sum of $18,392.36;
(D)a bonus and the benefits of accruing entitlements to annual leave and long service leave;

(v)Had he not been terminated on 26 October 2010, Mr Zafiriou also claims that he would have had the opportunity to seek suitable alternative employment. He seeks damages of $35,000 under this head.
(the ‘Ceramics Redundancy Claim’)

The contract of employment

As it falls to the Court to construe the contract of employment, it is convenient to set out the relevant terms.

Two aspects of the contract of employment are particularly important: the provisions relating to termination of employment in clause 22 and the provision referring to the incorporation in the contract of the defendant’s policies and procedures, which is clause 6.

Pursuant to clause 4.1, the contract of employment came into force on 1 July 2005 and would continue thereafter until terminated by either party in accordance with the provisions of clause 22.

Clause 22 relevantly provides:

22.1This contract may be terminated by either party, by giving the period of written notice specified in the table below. This shall not prevent the employer from summarily dismissing the employee for serious misconduct or other justifiable cause.

Period of continuous service

Period of notice

1 year or less

1 week

Over 1 year and up to the completion of 3 years

2 weeks

Over 3 years and up to completion of 5 years

3 weeks

Over 5 years

4 weeks

….
22.4If the employer terminates the employee’s employment for reasons of redundancy/retrenchment, no compensation other than a payment, as detailed below, shall be payable.

(a) Notice period:

4 months’ pay

(b) Severance pay per year of service:

1 months pay

(c) Annual leave:

all accrued plus 17.5%

(d) Long service leave (over 5 years’ service)

all accrued

(e) Sick leave

all accrued

The contract of employment therefore provides for ongoing employment pursuant to its terms unless and until terminated by one of two means: by giving the period of written notice specified in the table under clause 22.1 or by the employer terminating the employee’s employment for reasons of redundancy/retrenchment under clause 22.4.

The contract of employment does not define ‘redundancy/retrenchment’. However, clause 7 contains the following definition of ‘Redundant Employee’:

An employee whose employment is terminated as being surplus to existing requirements by reason of the closing down or reorganisation of the whole or part of the employer’s operation or by amalgamation of the employer’s operations with the operations of another employer.

Curiously, the expression ‘Redundant Employee’ appears nowhere else in the contract of employment.

As to the status of company policies and procedures, the alleged incorporation of which underlies the Disciplinary Procedures Claim and is a part of the Ceramics Redundancy Claim, clause 6.1 provides as follows:

The employee shall comply with the employer’s policy and procedures as displayed or advised from time to time and as amended from time to time, at the employer’s discretion. The employer’s policy and procedures are deemed to be included in and form part of this contract, as do any subsequent policy and procedures and/or amendments.

Mr Zafiriou contends that the following company procedures must be treated as part of the employment contract: the Saint-Gobain Pacific Companies Disciplinary Procedure HR-101 (Revision No 4 of 14 November 2005) (the ‘Disciplinary Procedure’) and the Saint-Gobain Pacific Companies Termination of Employment procedure HR-104 (Revision No 6 of 21 May 2007) (the ‘Termination Procedure’).

The Termination Procedure is expressed to apply to all employees in the company. It describes the policy of the defendant to be ‘committed to ensuring that termination of employment will be lawful, fair and just. Employees are to be treated with respect, in a courteous and professional manner and in accordance with the principles of natural justice’. However, the Termination Procedure is scant on detail: it refers to the Disciplinary Procedure for details regarding the process to be followed when dismissing ‘staff’.

The Disciplinary Procedure contains ‘the guidelines to be followed when disciplinary action is required’ and is expressed to apply to ‘all employees in the organisation’. The procedure to be followed is prescriptive. It involves a series of meetings in which the unsatisfactory performance or unacceptable behaviour is detailed, the employee is given the opportunity to respond to the allegations, a determination is made as to whether a warning should be issued, remedial action with timeframes for review is recommended, and the employee is advised that dismissal may result if the behaviour is continued. It requires the completion of a disciplinary action report. These steps[15] are to be repeated no less than three times, save in the case of ‘gross/serious misconduct’ where, if the allegation can be substantiated, the disciplinary process may move to the final warning stage and termination proceedings initiated.
[15]Or similar.

Furthermore, there is dispute as to the defendant’s power under the contract of employment to change Mr Zafiriou’s title or position.

Clause 8 of the contract of employment concerns the position, position description and duties of the employee. Clause 8.1 defines the employee’s ‘position’ to be the position stated in Schedule A and as comprising the duties and responsibilities contained in the position description attached as Schedule B. Clause 8.2 provides that following reasonable consultation with the employee, the position description may be amended from time to time, at the employer’s discretion, to reflect the changing requirements of the position. The ‘position’ of the employee, however, is not to be amended in this fashion. Clause 3 generally provides that any variation to the contract of employment shall be agreed by the parties and shall be in writing.

What the ‘position’ of the employee is, as opposed to his or her ‘position description’ is not entirely clear. However, in Mr Zafiriou’s case, Schedule A covered matters that might to regarded as the fundamental terms of his employment: his salary (including a range of benefits), his entitlements to holiday and sick leave, as well as the period of notice required for termination. Schedule A also contained the title of his position at any given time.

Schedule A to Mr Zafiriou’s employment contract was amended from time to time (pretty much annually), essentially to provide for increases in salary. His position is described as ‘General Manager – Commercial Operations’ or as ‘General Manager, Commercial’ in each of the discovered Schedules A.

Schedule B, at least as at 26 October 2006, described Mr Zafiriou’s position generally as being responsible for ‘the commercial operations of the company within established policies’. Specific responsibilities and authorities included controlling operations in the management of logistics and IT, reviewing and appraising the results of commercial activities, planning and developing the structure of the commercial operations and IT to ensure appropriate staffing, organising the details of insurance, taxation and legal and company matters and the handling of agreements, assisting in the administration of the company’s business affairs and supervising statistical records, credit and stock control.

The Abrasives Redundancy Claim
When is a termination ‘for reasons of redundancy/retrenchment’?

The contract of employment does not define the circumstances in which employment will be terminated for reasons of ‘redundancy/retrenchment’. However, a ‘Redundant Employee’ is, relevantly, an employee whose employment is terminated as being surplus to existing requirements by reason of the reorganisation of the whole or part of the employer’s operation.

Mr Zafiriou sought to adduce evidence about what the parties meant by ‘redundancy/retrenchment’ by having the person responsible for drafting the contracts of employment within Abrasives describe what the parties intended when the employment contracts were being drafted. That evidence was ruled inadmissible, because it amounted to evidence of the subjective intentions of the parties. In Codelfa Construction Pty Ltd v State Rail Authority of NSW[16], Mason J (with whom Stephen and Wilson JJ concurred) stated ‘the true rule’ that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning, but it will not be admissible to contradict the language of the contract which has a plain meaning. To the extent that prior negotiations tend to establish objective background facts which were known to both parties and the subject matter of the contract, evidence of them will be admissible. But in so far as they consist of statements and actions of the parties which are reflective of their actual intentions and expectations they are not receivable.
[16](1982) 149 CLR 337, 352.

In this case, evidence was given by the former HR manager of Flexovit and Abrasives, Ms Kathy Hobbs, about the circumstances in which employment contracts were originally prepared by Flexovit. Ms Hobbs gave evidence that when she joined Flexovit in 1997, there was little in place in the way of human resources policies or procedures and there were no written employment contracts; employees simply entered into oral arrangements with Mr Freeman. Ms Hobbs said that she set out to formalise the existing arrangements.[17] She prepared a standard contract with variations to the redundancy clause. The contracts were known as contracts A, B, C and D. Contract A was the clerical contract that had the same entitlements as the enterprise bargaining agreement, Contract B was for supervisors and Contract C was for middle managers and State managers. Mr Zafiriou was on Contract D, which was for senior managers and executives.
[17]She based the employment contracts on a contract that she had obtained from her previous employer, which was changed to reflect the practices of the company at that time.

Ms Hobbs gave evidence that the standard form contract was presented in draft to the management committee and then subsequently given to all employees for discussion. The HR department held information sessions to explain the contracts and make sure that the employees were happy to sign them. For this purpose, she prepared a series of overhead slides to use in training sessions. A set of slides apparently based on the original slides prepared by Ms Hobbs was in evidence. In relation to ‘Redundant Employee’, the relevant slide contains three dot points each followed by a single word: ‘Surplus’, ‘Reorganisation’ and ‘Amalgamation’. The slide for ‘Redundancy’ is equally unhelpful: it contains four dot points: ‘Notice’, ‘Severance’, ‘Annual Leave Long Service Leave’ and ‘Sick Leave’.

In my view, Ms Hobbs’ evidence, while explaining some of the objective background facts which were known to the parties at the time the original contracts were entered into between Flexovit and its employees, is of little or no assistance. The contracts to which she referred in her evidence pre-dated the contracts between the defendant and its employees, although she gave evidence that she recalled there being few differences between the older and newer contracts. Ms Hobbs’ evidence sheds no light on how the terms ‘redundancy’ and ‘retrenchment’ in the contract of employment are to be understood. This must be ascertained by reference to the terms of the contract of employment as a whole, and to the commonly understood meaning of those words. In construing the relevant clauses, the Court must determine what a reasonable person would understand by the language in which the parties have expressed their agreement.

The concept of redundancy does not have a fixed meaning. However, in Fosters Group Ltd v Wing,[18] the Court of Appeal held[19] that a clear guide to the meaning of redundancy was to be found in the judgment of the Full Court of the Supreme Court of South Australia in The Queen v Industrial Commission of South Australia; ex parte Adelaide Milk Supply Co-operative Limited,[20] in which Bray CJ said:

[T]he concept of redundancy in the context we are discussing seems to be simply this, that a job becomes redundant when the employer no longer desires to have it performed by anyone. A dismissal for redundancy seems to be a dismissal, not on account of any personal act or default of the employee dismissed or on any consideration peculiar to him but because the employer no longer wishes the job the employee has been doing to be done by anyone.[21]

[18](2005) 148 IR 224 (‘Wing’).

[19]Ibid 230—1.

[20](1977) 16 SASR 6.

[21]Ibid 8.

To similar effect, Bright J opined that the question of the redundancy of an employee was linked to the continued utility of the job he is performing and does not relate to the personal competence of the employee in that job.[22]
[22]Ibid 26—7.

In Wing, the Court of Appeal was concerned with a re-allocation of duties following a restructure. The Court referred with approval to the joint judgment of Spender, Dowsett and Allsop JJ in Dibb v Commissioner of Taxation,[23] in which their Honours considered the ‘employer’s prerogative’ to rearrange the organisational structure by breaking up the functions, duties and responsibilities attached to a single position and to distribute them among the holders of other positions. Their Honours referred in turn to the analysis of Ryan J in Jones v Department of Energy and Minerals,[24] in which Ryan J identified the critical feature in such a circumstance to be ‘whether the holder of the former position has, after the reorganisation, any duties left to discharge.’[25]
[23](2004) 136 FCR 388.
[24](1995) 60 IR 304.
[25]Ibid 308.

In Hodgson v Amcor; Amcor v Barnes & Ors,[26] Vickery J reviewed the authorities on what constituted a redundancy,[27] including those referred to above, to derive the following general propositions:
[26][2012] VSC 94.
[27]Queen v Industrial Commission of South Australia; ex parte Adelaide Milk supply Co-operative Limited (1977) 16 SASR 6; Whittaker v Unisys Australia Pty Ltd (2010) 26 VR 668; Quality Bakers of Australia Ltd v Goulding (1995) 60 IR 327; Fosters Group Limited v David Kou Tien Wing [2005] VSCA 322.

(a) A job becomes redundant when the job of the employee ceases to exist because the employer, for whatever reason, whether by way of reorganisation, mechanisation, change in demand or other reason, no longer desires to have it performed by anyone;

(b) This can occur either when the role no longer exists or the duties have so changed that for all practical purposes the original role no longer exists;

(c) However, redundancy is not limited to the circumstances where the employer no longer desires to have the work previously performed by the terminated employee done by anyone;

(d) A redundancy may also arise upon the redistribution of job functions, where the duties performed by an employee are redistributed among other employees. In this case the employer still requires the duties to be performed, but the reorganisation may give rise to a redundancy. In this event, although the duties remain to be performed, ‘for all practical purposes the original role no longer exists’ because the duties are divided and assigned amongst others. In such a case the question is whether any function or duty remains to be performed by the employee. A redundancy will occur if, after the reorganisation, the employee in question is left with no duties to discharge;

(e) Redundancy will not arise where the termination of employment is carried out solely because of any personal act or default of the employee terminated or for any consideration peculiar to that employee.[28]

[28]Hodgson v Amcor; Amcor v Barnes & Ors [2012] VSC 94, [371].

In this case, the (otherwise superfluous) definition of ‘Redundant Employee’ in the contract of employment indicates that a redundancy will occur where the employment or position is ‘surplus to the requirements of the company by reason of a closing down, reorganisation or amalgamation’. The concept of the employment or position being surplus to the requirements of the employer is a critical feature of a redundancy under the contract of employment.

This is consistent with dictionary definitions of ‘redundant’ and ‘redundancy’. The Macquarie Dictionary (5^th ed, 2009) relevantly defines ‘redundant’ to mean:

… denoting or relating to an employee who is or becomes surplus to the needs of the employer

The Oxford Dictionary of English (3^rd ed, 2010) relevantly defines ‘redundancy’ as:

The condition of having more staff in an organisation than is necessary. Hence, the state or fact of losing a job because there is not further work to be done; a case of unemployment due to reorganisation, mechanisation, loss of orders, etc

and ‘redundant’ as:

Of a person: no longer needed at work; unemployed because of reorganisation, mechanisation, change in demand, etc

‘Retrench’ is variously defined as to cut down, reduce, curtail and to sack or dismiss as part of an effort to economise.

Mr Zafiriou submits that the term ‘retrenchment’ refers to a different concept from that of redundancy and that it provided support for a liberal approach to be taken as to the circumstances which would enliven an entitlement to redundancy payments. I disagree that ‘retrenchment’ in the context of the contract of employment means something different from ‘redundancy’. Although ‘redundancy’ often applies to a position or role and ‘retrenchment’ to a person whose position or role is made redundant, the contract of employment refers to a ‘redundant employee’, thus conflating the two terms. In my view, the term ‘retrenchment’ adds nothing to the term ‘redundancy’ in the contract of employment. In either case, the employment or position of the individual is surplus to the needs of the company and the individual’s employment is terminated for that reason.

It is therefore necessary for Mr Zafiriou to establish, on the balance of probabilities, that his employment or position became surplus to the requirements of Abrasives by reason of a ‘closing down, reorganisation or amalgamation’. The ‘closing down, reorganisation or amalgamation’ must have been the cause of Mr Zafiriou’s employment or position becoming surplus to requirements, not its consequence.

It is common ground that once Mr Zafiriou’s employment was terminated, his duties and functions were redistributed among other employees and Mr Freeman. As a result, no single employee carried out the particular combination of duties or functions that Mr Zafiriou performed as at 26 October 2010. Mr Zafiriou’s position at Abrasives as the person ultimately responsible for the supply chain was taken up by his former subordinate, Mr Mihailidis, who took on the role of GM – Supply Chain in addition to his existing role as ‘supply chain manager’ for a time, and Mr Zafiriou’s role at Ceramics was performed by Mr Freeman until the closure of that business. It is not clear exactly where what Mr Zafiriou saw as the commercial parts of his job went, but I infer that they were distributed to other employees.

The end point is that following Mr Zafiriou’s departure, Mr Zafiriou’s duties were not performed by a single employee, but distributed among a number of persons. The redistribution of duties involved a ‘reorganisation’ of roles and functions at Abrasives. So much is not in dispute. The principal controversy between the parties is whether the reorganisation was a consequence of Mr Zafiriou’s termination or whether the reorganisation was the reason for Mr Zafiriou’s termination.

Was the reorganisation the cause (or one of the causes) of Mr Zafiriou’s termination?

Mr Zafiriou opened his case on the basis that his position was made redundant by the 100 day plan and ‘dressed up’ as a termination on performance grounds. He contended that Mr Chaur had decided to get rid of him from the outset, because Mr Chaur did not have any use for a person performing the collection of functions making up the role of GM – Commercial Operations, which was a ‘mini CEO’ position, and that the position that he held when his employment was terminated had little to do with the role that he occupied before Mr Chaur started. According to Mr Zafiriou, the redundancy was presented as a dismissal on performance grounds so as to avoid having to make a large redundancy payment because his job was no longer required.

In final submissions, however, Mr Zafiriou submitted that even if the plan to make Mr Zafiriou’s position redundant could not be sourced in the 100 day plan, it was likely that once Mr Zafiriou’s role had been redefined as GM – Supply Chain, Mr Chaur realised that this (lesser) role was essentially the role already being performed by the by supply chain manager, Mr Mihailidis, and that Mr Mihailidis could be drafted to perform the role of GM – Supply Chain much more economically than Mr Zafiriou, Mr Chaur decided to get rid of Mr Zafiriou altogether. In this sense, so it is contended, Mr Zafiriou became surplus to requirements and was made redundant.

On this version of events, in the last few days of Mr Zafiriou’s employment Mr Chaur implemented a plan to make Mr Zafiriou’s termination appear to be a performance based dismissal. However, the 100 day plan continues to be relevant in that it gives an insight into what changes Mr Chaur was thinking of making and where he was headed. Importantly, the 100 day plan contained the proposed change from the position of GM – Commercial Operations to GM – Supply Chain.

According to Mr Zafiriou, the change of title from GM – Commercial Operations to GM – Supply Chain was not simply a re-naming process: it reflected the fact that Mr Chaur had identified a need for a specialist supply chain person and Mr Zafiriou’s position as GM – Commercial Operations was not of that nature. That was the reason for his termination.

Mr Zafiriou’s final position is, therefore, that the termination of his employment was the culmination of a restructuring process which began soon after Mr Chaur’s appointment and ended with Mr Chaur concluding that there was no longer a need for Mr Zafiriou’s position. According to Mr Zafiriou, Mr Chaur simply did not want a single person performing the collection of duties that made up Mr Zafiriou’s position. These were a collection of odd responsibilities that added up to a ‘mini CEO’ position, and Mr Chaur did not want a ‘mini CEO’ in the company. Mr Chaur decided to abolish the ‘mini CEO’ position and replace it with a position that was one of a series of equal direct reports focused upon supply chain management without the Ceramics responsibilities, the ACCC responsibilities and the corporate functions. Abolishing the ‘mini CEO’ position amounted to a redundancy.

This is supported, so Mr Zafiriou contends, by Mr Chaur’s evidence that what he needed at the time ‘with all the issues with the customers and the angst that [the company] was facing’[29] was somebody to focus on supply, distribution and procurement, which were the areas in which the business was falling down. As a result, according to Mr Zafiriou, Mr Mihailidis’ job as GM – Supply Chain was ‘at least 50% different’ from the role that he had performed, because the components involving Ceramics, ACCC compliance, legal compliance and so forth were not included. In addition, it was transparently not to be a position that would be perceived by the incumbent or by other managers as the ‘number two’ or the ‘mini CEO’ position.
[29]Transcript 1110.

When asked whether Mr Zafiriou’s termination was the result of restructuring or the restructuring the result of Mr Zafiriou’s termination, Mr Zafiriou’s counsel answered as follows:[30]

The answer is that the restructuring meant that the job was no longer required. There was a period of ongoing restructuring leading up to 25 October, the scaling down of the role over that period. But on 25 October, Mr Chaur decided he wanted to replace the current role, the mini-CEO role of accumulated functions with a simpler, cleaner and manifestly lesser position within the structure and he started to take steps to fill that role. That much is evident from his email of 25 October and the following day the termination occurred.

[30]Transcript 1322—3.

Despite the shift in when he says the plan to make him redundant was devised, Mr Zafiriou placed considerable importance on the change to his title that first appeared in the 100 day plan. He submitted that whether Mr Chaur intended to make his position redundant sooner or later was of little moment, as the change to his title itself gave rise to a redundancy. Mr Zafiriou contended that despite Mr Chaur’s intentions, there was no change to Mr Zafiriou’s position as GM – Commercial Operations prior to his termination, as a change of position could only have taken place with the written consent of Mr Zafiriou, having regard to the terms of clause 8.1 of the contract of employment. There was no such consent in writing. Mr Zafiriou therefore remained the GM – Commercial Operations right up until his termination. Because Mr Mihailidis was appointed as the GM – Supply Chain upon Mr Zafiriou’s termination, the position of GM – Commercial Operations was made redundant.

The redundancy case is therefore put on the basis that:

(a) Mr Chaur had no need for a person performing the combination of functions and duties that were performed by Mr Zafiriou and, in particular, no need for a ‘mini CEO’ or ‘MD in waiting’. That role was made redundant either by the 100 day plan or subsequently; and

(b) When Mr Zafiriou was dismissed, he still occupied the role of GM – Commercial Operations. That position was not replaced. The GM – Supply Chain position was a different and lesser role. Mr Zafiriou’s termination made redundant the role of GM - Commercial Operations.

The restructure in the 100 day plan

In his evidence, Mr Chaur described the 100 day plan as a summary of his observations in his first 100 days with Abrasives.[31] He said he made the plan alone and sought to record his unbiased and objective view of what he saw within Abrasives upon arrival. Among other things, the 100 day plan was his opportunity to obtain approval from Paris to refocus and restructure the company, and to create the new positions and make the redundancies necessary for the changes he wished to effect.
[31]He described ‘100 day plan’ as a common business term to describe a plan formulated by a new CEO or managing director in his or her first hundred days in the new organisation.

One of Mr Chaur’s early observations was what he described as ‘a strong silo culture’ within Abrasives. He said that when he joined Abrasives he was shocked how ‘oppositional and hostile’ the culture was. He had been used to working in management teams where there was a high level of collaboration and where people treated each other with dignity and respect. In his first couple of meetings at Abrasives people swore at one another, dismissed suggestions and opportunities, reinforced territorial claims and warned others off. He said he found it a very difficult culture to come to terms with. As a result, he sought to create stronger, clearer functional groups, to foster collaboration and to create stronger team unity in what he described as a ‘results-driven’ culture. [32]
[32]Hence, the goals of the 100 day plan refer to ‘[encouraging] a single, accountable, collaborative and achievement based local culture’, ‘[moving] the local culture from a manufacturing lead to a customer lead organisation‘, ‘[driving] strong marketing/product management disciplines’ and so on.

The 100 day plan proposed a management restructure, which was to be completed prior to the end of August 2010. The rationale for the restructure was ‘to streamline the SGAP senior management group and re-allocate job responsibilities to best match areas of functional control’.[33] The 100 day plan was directed to the creation of clear functional groups to replace ‘the current silo lead organisation’.[34]
[33]Courtbook, Zafiriou v Saint-Gobain Administration Pty Ltd (Supreme Court of Victoria, S CI 2011 490, Emerton J, 6 – 10 August 2012; 12-16 November 2012; 22 – 23 November 2012) 1136 (‘Courtbook’).
[34]Ibid.

The organisational chart in the 100 day plan representing the existing management team shows ten direct reports to the managing director, including Mr Zafiriou as GM Commercial Operations.[35] A number of managers (in addition to general managers), including a ‘Commercial Manager’, were also direct reports. The proposed management team, by contrast, consisted of only six direct reports, including Mr Zafiriou.[36]
[35]Courtbook 1137. Two of the six direct reports are designated ‘General Manager Marketing’ and ‘General Manager Sales’, with those positions yet to be filled. There were no equivalent positions under the arrangement that Mr Chaur inherited from Mr Freeman.
[36]Who is again named as the General Manager Commercial Operations in some of the versions of the 100 day plan.

As a result, of the ten individuals reporting to the managing director under the existing arrangements, only the four most senior were to remain as direct reports to the managing director under the proposed new arrangements. One of them was Mr Zafiriou.[37]
[37]Courtbook 1139.

The proposed management team comprised four general managers – GM Manufacturing, GM Supply Chain, GM Sales and GM Marketing – along with the CFO and HR Manager.[38] The new structure therefore reflected the functional areas of the business – manufacturing, supply chain, sales and marketing – and was intended by Mr Chaur to be a ‘more effective and clear organisational structure’, to create ‘defined functional roles’, to ‘eliminate any cross role confusion and boost decision making performance’, and to ‘focus on sales and marketing disciplines to drive the business forward with customers’.
[38]Courtbook 1140. There is some confusion as to whether the 100 day plan made a change to Mr Zafiriou’s title. In the organisational charts in early versions of the 100 day plan, he is repeatedly referred to as ‘General Manager Commercial Operations’. Organisational charts in later versions of the 100 day plan give Mr Zafiriou’s title as ‘General Manager Supply Chain/Ind Ceramics’ (CB1419 and CB1412). However, outside the organisational charts, Mr Zafiriou’s position in the proposed leadership team is consistently given as ‘GM Supply Chain (Arthur Zafiriou)’. At least one of the discovered versions of the 100 day plan has the following annotation on the organisational chart for Commercial Operations – Future, which gives Mr Zafiriou’s title as ‘General Manager Commercial Operations & General Manger (sic) Industrial Ceramics Aust’:
(SC) 5^th Nov 2010 – note there was an error in the org chart as it was not updated before the Final document went to GdP in July 2010. However the titles reflected on slide 6 are correct in this original document. Subsequent documents after this final draft were updated to be correct. (CB1183)
Although Mr Zafiriou suggested that this annotation was evidence of the attempt to conceal his redundancy in that it was made after he had been dismissed in an attempt to cover up the fact that there had been no change to his title, or at least not one that he was told about and accepted, I do not find the annotation to be helpful in deciding the redundancy issue one way or the other. In his evidence, Mr Chaur said that as he produced the 100 day plan himself and, because he did not have advanced word processing skills, he used the organisational charts that were already in existence as the basis for his own. The (unamended) 100 day plan contained an error when it referred to Mr Zafiriou as the General Manager of Commercial Operations in the proposed structure. I accept this evidence.

When he was asked why he proposed to change Mr Zafiriou’s title from GM – Commercial Operations to GM – Supply Chain, Mr Chaur said that he did not understand what ‘commercial operations’ meant, that it did not define the real duties that Mr Zafiriou had to perform and that when he deconstructed Mr Zafiriou’s role, the significant part of it was procurement, warehousing and logistics. His objective was to ‘call a spade a spade’, so if the role was one related to supply chain, it should be called ‘supply chain’. This would make it was easier to understand, not only within the organisation, but in its global context and among affiliates and suppliers outside of the organisation.[39] Mr Chaur explained that his definition of ‘supply chain’ was all-encompassing: it was ‘everything from the procuring and planning for the procurement of goods to the logistics and supply of those goods into [the] organisation, production planning and also the supply of goods on time and in full to [Abrasives’] customers’.[40]
[39]The restructure involved making redundant the Commercial Manager and the CPD Product Manager, and demoting two general managers to product managers.
[40]Transcript 860.

Mr Chaur told the Court that he did not regard the change in title as a demotion. He said he was not changing Mr Zafiriou’s role in any way, other than in respect of IT. The new title was cleaner and reflective of what the company needed. When asked what he intended to change regarding Mr Zafiriou’s seniority, Mr Chaur said:

Look, at that point in time there was absolutely no intention to do anything with Mr Zafiriou other than to relocate IT.[41]

[41]Transcript 859. However, (at Transcript 870) Mr Chaur explained that he wished to move IT out of Mr Zafiriou’s area, first, because IT generally sits in Finance and, secondly, because Mr Zafiriou saw himself as a mini CEO and had created an impenetrable silo around his part of the organisation, and Mr Chaur felt that with all of the IT directives coming from Mr Zafiriou, there would be problems in implementing the proposed new IT system, which needed to have support across the organisation. It needed to be managed by somebody like him or the Financial Controller to be able to bring in all the other departments within the organisation.

I find that the 100 day plan did not make significant change to Mr Zafiriou’s duties. It provided for Mr Zafiriou to lose responsibility for IT and the small New Zealand manufacturing operations (referred to as ‘New Zealand conversion’) and to gain procurement and demand planning. As Mr Chaur pointed out in his evidence, under the 100 day plan, Mr Zafiriou still had the same people reporting to him, and he retained responsibility for Ceramics, ACCC compliance, company secretariat and so on. Mr Zafiriou was taken in cross-examination through the so-called ‘commercial’ functions that he performed at the time Mr Chaur joined Ceramics (company secretariat, ACCC compliance, insurance, car fleet management and so on) and conceded that they took up small amounts of time relative to his other responsibilities and /or that he continued to perform the function up until the time of his termination.[42] The 100 day plan did not contemplate that any of these functions would be taken away from Mr Zafiriou.[43]
[42]In his evidence, Mr Zafiriou was taken through each of the commercial functions in question and gave the following evidence:
Company secretariat: was only a small proportion of his total work (Transcript 170);
ACCC compliance: he retained that responsibility up to the end (Transcript 767);
Motor vehicles: it wasn’t discussed to be taken away (Transcript 173);
OH&S: it wasn’t ever suggested that it would be removed (Transcript 176);
Legal issues concerning intellectual property: only occasional and when the responsible person was not in a position to deal with them (Transcript 176).
[43]The role as Company Secretary was re-assigned to the CFO some time later, but not as a result of the implementation of the 100 day plan.

Nonetheless, Mr Zafiriou contended that the 100 day plan contained the seeds of his redundancy, having regard to the following:

(a) references to a ‘modern organisational structure’ and to aligning the organisational structure ‘to a simpler and focussed functional organisation’ reflect an intention to make structural changes;

(b) references to the capable management of the procurement team ‘led by George Mihailidis’;

(c) the ‘lengthy’ listing of Mr Zafiriou’s functions and what is described as the proposal of a ‘significantly changed set of responsibilities’;

(d) the acknowledgement that Mr Zafiriou’s proposed new role was ‘down scaled’ and positioned him less as the ‘MD in waiting’;

(e) the acknowledgement that Mr Zafiriou would not be pleased about losing IT but that ‘the redefinition of the wider leadership structure was more important’;

(f) the reference to Mr Zafiriou filling ‘odd fit job functions’ over time and to the defendant realigning job tasks to other roles.

I do not accept that these matters reveal a plan or intention to make Mr Zafiriou’s position redundant. For the reasons that I have given, I reject the proposition that the 100 day plan gave Mr Zafiriou a ‘significantly changed set of responsibilities’, or that the ‘core’ part of Mr Zafiriou’s duties, which he described as ‘commercial’, was effectively stripped away from him and that he was required to perform a logistics role for which he was not specifically qualified as an accountant. The evidence was that Mr Zafiriou retained all of his ‘commercial’ duties other than IT. Furthermore, he conceded that that procurement, warehousing and logistics made up the bulk of his duties in July 2010 prior to any changes being made.

As to the ‘down scaling’ of Mr Zafiriou’s role, Mr Chaur told the Court that by changing Mr Zafiriou’s title and making modifications to his responsibilities, he intended to focus Mr Zafiriou’s attention on his important supply chain duties and to have him work within a coordinated team of senior managers. Hence, under the heading ‘Other Impacts’, the impacts of the 100 day plan on the role ‘GM Commercial’ are described as follows:

GM Commercial – role is down scaled to have a clearer focus on Supply Chain. This also clarifies Arthur’s role in the new structure and positions him less as the ‘MD in waiting’. Arthur won’t be pleased about losing IT but redefinition of the wider leadership structure is more important.[44]

[44]Courtbook 1144.

Mr Zafiriou gave evidence that under Mr Freeman, he had ‘reach’ across the whole Abrasives business. The fact that Mr Zafiriou’s ‘reach’ may have been restricted by the requirement to focus his attention on the supply chain does not, in and of itself, support Mr Zafiriou’s case for a redundancy. It is not unusual for the duties of senior executives to change, depending on the company’s requirements and changes in the market place. As a senior executive of Flexovit and subsequently Abrasives, Mr Zafiriou was well accustomed to changes in his duties from time to time. He gave evidence that throughout his employment his duties and his involvement in different parts of the business had changed. When it was put to him that his involvement in various aspects of the business had ‘ebbed and flowed’ over the years, Mr Zafiriou’s agreed that this description was ‘reasonable’.[45] He also agreed that he could not be described as ‘surplus to requirements’ based on the 100 day plan and that there was no proposal in the 100 day plan to make him redundant.[46]
[45]Transcript 180.
[46]Ibid.

Nonetheless, Mr Zafiriou described the role of GM – Supply Chain as ‘a major step down from being General Manager – Commercial Operations’[47] and as a ‘lesser role’.[48] He said that as part of his role in commercial operations, he was involved in ‘the actual procedure, the legal, the projects, cost and benefit and analysis of major projects … it was more of a general role’ and that he saw his role as being ‘slimmed down and specialised’.[49] He said:

While you could recruit a supply chain specialist to do this role, you couldn’t recruit somebody [like that] to do my role.[50]

[47]Ibid 1286.

[48]Ibid.

[49]Ibid 182.

[50]Ibid.

Mr Zafiriou relied heavily on Mr Chaur’s statements that Mr Zafiriou was not to be a ‘mini CEO’ or ‘MD in waiting’. He argued that this showed an intention to make Mr Zafiriou’s position redundant. According to Mr Zafiriou, there was ample evidence that Mr Chaur didn’t want someone ‘swanning around as number 2’, which was what Mr Zafiriou did as GM – Commercial Operations and, as a result, Mr Chaur moved to make the position of GM – Commercial Operations redundant.

In the 25 October email, Mr Zafiriou referred to Mr Zafiriou as having ‘built himself a company role that far outweighs the requirements of our current company’, and stated that he had built his role into that of a ‘mini CEO’ and seemed unaccountable to anyone but himself. However, as Mr Chaur pointed out in cross-examination, the term ‘mini CEO’ was coined by him, as was the description of Mr Zafiriou as ‘MD in waiting’. In fact, there was no position of ‘mini CEO’ or ‘MD in waiting’ either under Mr Freeman or subsequently. Explaining his use of the term ‘mini CEO’, Mr Chaur said that that was the way he saw Mr Zafiriou portraying himself around the organisation, in that Mr Zafiriou did not want to get his hands dirty, and did not want to get too involved in a lot of the day-to-day activities. According to Mr Chaur, Mr Zafiriou was more comfortable directing people, but this presented a problem for Mr Chaur in that he needed Mr Zafiriou to be hands-on in the business and ‘down in the detail’ like the rest of the managers, including Mr Chaur himself.[51]
[51]Ibid 1111.

When Mr Chaur was asked in cross-examination whether he no longer wanted someone in the ‘mini CEO’ role, he responded that what he did not want was somebody who saw himself as being at the top of the heap in an impenetrable silo and not wanting to be collaborative and engaging across the organisation. He expected Mr Zafiriou to be collaborative and engaging, but that was not what he saw.[52] When Mr Chaur was asked about the statement in the 25 October email explaining his decision to dismiss Mr Zafiriou that he, Mr Chaur, could ‘not operate under this regime’ and whether he agreed that he found a mini CEO with an accumulation of responsibilities to be untenable, Mr Chaur said:

No, the untenable part of it was that Mr Zafiriou was quite – he operated in a manner that he was a controlling centre of his domain and I just found over time that, that … he was quite oppositional in terms of taking on working with other departments within the organisation, particularly across projects. He was quite dismissive of me as the MD in terms of my requests and the timings and the weight that I put towards things that I asked him to do and I actually needed someone who was going to be a little more collaborative across the organisation.[53]

[52]Ibid.

[53]Ibid 1111—2.

Mr Chaur emphasised that the role that he wanted Mr Zafiriou to perform in the new structure was predominantly the role that he was already performing: Mr Zafiriou would still look after Ceramics, warehousing and logistics, along with company secretariat and all of his other duties.[54] Mr Chaur continued:

There’s no correlation to the fact that I didn’t want a mini CEO. What I didn’t want is the attitude that Mr Zafiriou displayed.[55]

[54]Ibid 1112.

[55]Ibid.

I accept this evidence. It is apparent from the context in which Mr Chaur made reference to Mr Zafiriou acting as ‘mini CEO’ and ‘MD in waiting’ that these terms were used by Mr Chaur to describe what he regarded as problematic and dysfunctional about the way that Mr Zafiriou operated within the organisation. They did not describe Mr Zafiriou’s formal position with the company.

As to the loss of the ‘number 2’ position in the company, Mr Chaur disputed that Mr Zafiriou held the 2-IC position when he joined the company. Whatever the de facto hierarchy, the organisational charts show Mr Zafiriou to have been one of ten direct reports to Mr Freeman and to have become one of six direct reports to Mr Chaur under the 100 day plan. Mr Zafiriou retained his position as a direct report to the managing director in a streamlined leadership group. Mr Chaur said:

What I wanted was clarity in the organisation as to the functional responsibilities that each of my line managers held and I wanted to develop a collegiate culture where people worked together in a leadership group, and I wanted to have six senior people who were responsible to me to act as my 2-ICs.[56]

[56]Ibid 1004.

It may well be that the sharper focus required by the 100 day plan on supply chain management diminished Mr Zafiriou’s influence within Abrasives, and that Mr Zafiriou was very important to Mr Freeman in practice but was destined to be less important to Mr Chaur. That is not to the point. The question for the Court is whether Mr Zafiriou is able to establish a contractual entitlement to a redundancy payment based on having been made redundant or retrenched. The fact that changes were made to his role that he found unpalatable, and which might be said to involve a loss of influence, does not assist Mr Zafiriou in this case, for he does not seek to enforce the term in the contract of employment governing dismissal. Rather, Mr Zafiriou seeks to enforce the term in his contract that entitles him to a special payment if he is made redundant or retrenched. Under the contract of employment, a redundancy would occur if his employment or position became surplus to existing requirements by reason, relevantly, of a reorganisation in the company. Mr Zafiriou must establish, not that he was asked to perform lesser duties or that his job title was changed so as to amount to a constructive dismissal, but that the role that he previously performed was no longer required to be performed by anyone or, if it was required to be performed, that its components were distributed among other employees as part of a reorganisation or restructure, leaving him with no further duties to perform.

Pursuant to the 100 day plan devised by Mr Chaur, Mr Zafiriou retained nearly all of the functions and duties that he had under Mr Freeman. His role as GM – Supply Chain put him at the head of one of the four functional areas of the business. With the exception of IT and the small New Zealand operations, Mr Zafiriou continued to have the same responsibilities under the 100 day plan as he had previously. He managed the same staff and he retained the same salary and other benefits.

Although there is a dispute about whether Mr Zafiriou was told about the change to his title – Mr Chaur says he was, but Mr Zafiriou says he only learned of the title change in on 8 October when changes to the sales and marketing division resulting from the 100 day plan were announced – it is common ground that important parts of the 100 day plan affecting Mr Zafiriou were made known to him at the August meeting, notably the removal of IT from his area of responsibility. Although he was not happy about losing responsibility for IT, Mr Zafiriou made no specific complaint about any other aspect of the proposal and continued to carry out his duties for Abrasives as before, including after 8 October 2010.

The reorganisation in the 100 day plan did not have the effect that the work that Mr Zafiriou previously performed was no longer required to be performed by anyone or that it was required to be performed but distributed among other employees as part of the reorganisation. It follows that I do not accept that Mr Zafiriou was made redundant as part of the 100 day plan or that his redundancy was foreshadowed in or facilitated by the 100 day plan. Mr Zafiriou continued to be actively engaged in a very senior position in Abrasives right up to 26 October 2010 and his employment or position was not, in any sense, surplus to the company’s requirements.

The termination plan

In final submissions, Mr Zafiriou contended that a plan to make his position redundant was devised in the last days of his employment. On the final day of evidence, the defendant produced an email from Mr Chaur to the HR Manager, Ms White, dated 20 October 2010, in which Mr Chaur said he would get back to Ms White with a ‘plan’ for Mr Zafiriou’s termination. Mr Zafiriou submits that this speaks of Mr Chaur applying himself to the task of developing a strategy for terminating his employment as part of a restructure.

Mr Zafiriou says that by October 2010, Abrasives no longer required a person to be employed in Mr Zafiriou’s position and that the stage was effectively set for a reorganisation of responsibilities under which Mr Zafiriou’s position could be merged with the position of supply chain manager. At the heart of Mr Zafiriou’s case is the allegation that Mr Chaur came to realise that the role of GM – Supply Chain overlapped so completely with the supply chain management role already performed by Mr Mihailidis that it would be cheaper to make Mr Zafiriou’s position redundant and leave Mr Mihailidis with complete responsibility for supply chain management.

Mr Zafiriou submits that while Mr Chaur may have had his doubts about the position of GM – Commercial Operations from the outset, it would have been overplaying his hand to act on those doubts in the early days. As time went on, however, Mr Chaur ‘was in a position to remove the position that was perceived as being next below him in order to implement a management structure of equal general managers in the second tier below him’.[57] According to Mr Zafiriou, the old collection of roles and responsibilities making up his role of GM – Commercial Operations was no longer required. The ongoing role was for a logistical role that was quite different from Mr Zafiriou’s role when his employment was terminated. Thus, when Mr Mihailidis was appointed as Acting GM – Supply Chain, he was given no ‘commercial’ functions and no role with Ceramics. His was, according to Mr Zafiriou, ‘a manifestly different role’ from the role that Mr Zafiriou had performed.[58]
[57]Ibid 1283.
[58]Ibid 1299.

In this context, Mr Zafiriou points to the fact that many components of his role had ceased to exist or were coming to an end as 2010 progressed as a result of the completion (or imminent completion) of Project Cooper, Project Spartan and High Jump. Furthermore, he says that as part of the ‘scaling back’ of his role, various components of his job were taken away, such as responsibility for IT, his company secretariat responsibilities and those for the New Zealand manufacturing operations. In addition, the conclusion of Mr Zafiriou’s role with Ceramics was imminent. Mr Zafiriou gave evidence that he had a conversation with Mr Chaur in about September 2010 in which he alerted Mr Chaur that Abrasives would have to budget for his return to Abrasives on a full-time basis. This, according to Mr Zafiriou, provided an incentive (or a further incentive) to remove him from Abrasives altogether.

Mr Zafiriou urges the Court to closely examine the events leading up to the termination of his employment on 26 October 2010. These events, he says, show Mr Chaur to have applied himself to the task of developing a strategy for terminating Mr Zafiriou’s employment, giving cause for scepticism about the genuineness of the alleged supply chain issues that were cited as the reason for his sacking. According to Mr Zafiriou, the termination did not proceed as a performance-based termination, which would have required no planning.

Mr Zafiriou refers in particular to the following chain of events:

(a) Mr Zafiriou’s prospective termination was referred to by Mr Chaur in an email to Ms White dated 18 October 2010 (the ’18 October email’) which addressed various items of unfinished business from a proposed ‘restructure’ to be completed by the beginning of November;

Clause 6.1 is expressed in general terms and refers to the suite of policies and procedures displayed or advised by the defendant from time to time. However, not all of the defendant’s policies and procedures will be applicable to all of its employees all of the time. Certain policies and procedures will apply to some employees but not to others. Thus, whether a policy is incorporated in a contract of employment will depend not only on whether it is expressed to apply to the employee or category of employee in question, but also on whether it is capable of applying to such an employee having regard to its terms. Thus, for example, while the Disciplinary Procedure is expressed to apply to ‘all employees’, it cannot apply to the managing director, because it requires steps to be taken by his ‘supervisor’ in the company. The managing director has no ‘supervisor’. The question remains, however, whether the Disciplinary Procedure was intended to apply to senior managers like Mr Zafiriou.

The starting point for this inquiry is the Termination Procedure, for that is the gateway through which the Disciplinary Procedure becomes relevant to the dismissal of an employee. The Termination Procedure deals with a number of ways in which termination of employment may occur. It deals with dismissals under the rubric of ‘staff dismissals’, and refers to the Disciplinary Procedure for the process to be followed, warning that approval for a dismissal will only be given if all relevant procedures have been followed in order to ensure that the Workplace Relations Act 1996 has not been breached.

The application of the Disciplinary Procedure to ‘staff dismissals’ is therefore a function of the requirements of the Workplace Relations Act 1996. The staff dismissal policies in the Termination Procedure, and therefore the processes in the Disciplinary Procedure prefiguring dismissal, are directed to employees who are able to bring an unfair dismissal claim under that Act. Senior managers at Abrasives, especially those earning close to a quarter of a million dollars per annum, do not fall into this category of employee.

The Disciplinary Procedure itself contains a number of indicators that it was not intended to apply to senior managers such as Mr Zafiriou. Like the relevant part of the Termination Procedure, it is grounded in the industrial framework governing the employment of less senior employees: it refers to the ‘Appropriate Statutes’ as the ‘Relevant Awards’ and the ‘Workplace Relations Act 1996’, and the ‘Code of Conduct’ is defined as ‘Current Enterprise Agreements’. Industrial awards and enterprise agreements were not relevant to Mr Zafiriou’s employment and the requirements of the Workplace Relations Act played no part in his termination.

Furthermore, the Disciplinary Procedure contemplates that the employee will have a ‘supervisor/manager’, who can manage the process up to a particular point, following which the process will be escalated to the HR Department and the HR manager. Mr Zafiriou had a ‘supervisor/manager’ in a technical sense in that he reported to Mr Chaur, but the management of the disciplinary process by the HR Department or HR Manager after the first warning would not have involved an escalation of the process so much as its downgrading.

In this case, adherence to the Disciplinary Procedure would have required Mr Chaur to sit down with Mr Zafiriou on the first occasion to detail ‘the nature of the breach of [his] obligations’, allow him to respond, determine whether a warning was necessary, recommend remedial action with timeframes for review and so on. Thereafter, Ms White would have been required to carry out these steps a further three times.

Insofar as the Disciplinary Procedure requires the ‘supervisor/manager’ or the HR manager to issue warnings, make recommendations for remedial action and set timeframes for review, it contemplates that there will be ongoing and intensive supervision of the employee. I consider it unlikely that the parties intended a senior manager to be subject to such intensive oversight. Mr Zafiriou held a position that required him to exercise a high degree of autonomy in carrying out his duties and to enjoy the trust and confidence of the managing director and his senior colleagues. He accepted that it would be unworkable to have someone looking over his shoulder while he performed his duties. In my view, his position and role within the company was incompatible with the type of oversight or supervision contemplated by the Disciplinary Procedure.

Furthermore, it is questionable whether the HR Manager would be qualified to carry out the supervision required. It is one thing for Mr Chaur to spell out to Mr Zafiriou his dissatisfaction with Mr Zafiriou’s responsiveness to customer complaints, compliance with reporting requirements, the quality of analysis in his reports and, more generally, to criticise Mr Zafiriou’s lack of initiative, his failure to embrace analytical and fact based management, his lack of collegiality and support for his colleagues. However, it would be quite another for Ms White to attempt to do the same. Ms White would be reporting second hand a set of complaints arising from the managing director’s perception that he was not receiving the level of performance and support that he expected from a senior manager. Given Mr Zafiriou’s seniority and the nature of the complaints made about his performance, a person in Ms White’s position would struggle to manage the process.

In my view, the fact that the overarching problem for Mr Chaur was what he described as a ‘fundamental breakdown in the relationship between Mr Zafiriou and the company’ brings into stark relief the limitations of the performance management arrangements in the Disciplinary Procedure for senior management. Such arrangements are suited to relatively confined and measurable breaches of duty or failures of performance, but entirely unsuited to the management of problems in the leadership team where the ‘unsatisfactory performance’ is unlikely to be in the nature of a simple failure to obey a direction or comply with a prescribed process.

I have little doubt that Mr Zafiriou would have considered it both inappropriate and demeaning to be supervised in the manner contemplated by the Disciplinary Procedure by Mr Chaur, let alone by Ms White. To be subjected to intensive oversight by the HR Manager would not be commensurate with his seniority, or consistent with the complexity of the senior management functions that he was expected to perform. Mr Zafiriou’s duties were not limited to routine and easily supervised and assessable tasks, but required him to deal with complex commercial, logistical and management issues demanding the deployment of skills, knowledge, experience and judgment.

I therefore consider to be fanciful the proposition that the parties to the contract of employment intended the managing director and the HR manager to closely supervise Mr Zafiriou for up to 12 months if he was not performing his duties satisfactorily. Apart from the difficulties involved in the supervision of an employee of Mr Zafiriou’s seniority, the organisation could ill afford to have a senior manager performing at a sub-optimal level for that length of time. Having regard to the damage that could be inflicted on the business if senior managers were allowed to underperform for lengthy periods while they were being ‘managed out’ in accordance with the Disciplinary Procedure, I consider it very unlikely that it was intended to apply to them.

I have concluded that the Disciplinary Procedure did not apply to an employee of Mr Zafiriou’s seniority. Whether it was not incorporated in the contract of employment because the parties cannot be taken to have intended to incorporate a policy that was inapplicable to the employee, or whether it was incorporated but had no effect because it had nothing to say about the employee’s rights or the company’s obligations to him, is of no moment. In either case, the defendant was under no obligation to give Mr Zafiriou the series of warnings mandated by the Disciplinary Procedure.

As to the Termination Procedure, it expressed the company’s commitment ‘to ensuring that termination of employment will be lawful, fair and just’ and to treating employees in accordance with the principles of natural justice. In my view, none of these aspirations imposed a requirement for the formal performance management of Mr Zafiriou prior to dismissing him.

Mr Chaur gave evidence that he did not put in place any formal performance management process because Mr Zafiriou was the most highly paid executive on his management team and he expected matters to be resolved by discussion, ‘as one professional talking to another’.[108] Mr Chaur said that he raised with Mr Zafiriou on numerous occasions his tardiness in providing information when requested. He tried to raise issues in a conciliatory sort of way by taking Mr Zafiriou aside after a weekly meeting and speaking to Mr Zafiriou ‘maturely and professionally to remind him of the expectation that things be delivered in time’. He said he had many discussions with Mr Zafiriou over a number of months in relation to the provision of reports on time, the way in which he interacted with colleagues on a non-collegiate basis, about his lack of attention to detail and the fact that he came to weekly meetings with no information. Mr Chaur’s evidence was, in substance, that he believed that having conversations with Mr Zafiriou in an informal way and on a non-confrontational basis was the appropriate way to manage him and to encourage him to improve his performance.
[108]Transcript 880.

I have found that Mr Chaur had discussions with Mr Zafiriou about the matters that provoked his concern.[109] However, Mr Chaur did not specifically put Mr Zafiriou on notice that he would be dismissed if his performance did not improve and it might be argued that Mr Zafiriou was denied the opportunity to improve his performance as a result.
[109]See above [196].

Where there are no prescriptive measures or guidelines to be followed, the content of an obligation to ensure that termination of employment be lawful, fair and just and that the employee be treated in accordance with the principles of natural justice, will depend on the circumstances. Mr Chaur said that he spoke to Mr Zafiriou as one professional to another. This would not usually involve dispensing threats. In my view, a senior employee like Mr Zafiriou would be expected to understand that consistent under-performance would place him at risk of losing his job and that he should, in any case, endeavour to improve his performance. If Mr Zafiriou did not appreciate the seriousness of Mr Chaur’s complaints, that does not, in my view, give rise to a breach of natural justice or unfairness.

If the Termination Procedure required the defendant to engage in performance management and give Mr Zafiriou an opportunity to improve his performance as alleged, that obligation was satisfied by the discussions ‘as one professional to another’ that Mr Chaur had with Mr Zafiriou about his performance. There was, in my view, no breach of the Termination Procedure.

If I am wrong about the defendant’s need to comply with the Disciplinary Procedure or in respect of its compliance with the obligation to act fairly towards Mr Zafiriou and accord him natural justice, I estimate that, given the need to resolve issues of under-performance by senior managers promptly in order to minimise damage to the company, the steps contemplated by the Disciplinary Procedure or required as a matter of fairness or natural justice would have been completed quite speedily, say, within four months or less.[110]
[110]Allowing approximately one month for each set of warnings under the Disciplinary Procedure.

I consider the prospects of Mr Zafiriou improving his performance and regaining the confidence of Mr Chaur so as to be able to retain his position in the company to be poor. Given the nature of Mr Chaur’s complaints, and what he identified as a fundamental breakdown in the relationship between Mr Zafiriou and the company, it is unlikely that Mr Zafiriou could have so modified his behaviour and changed the way in which he performed his duties to persuade Mr Chaur to set aside the doubts he harboured about Mr Zafiriou’s willingness to work constructively with him. Mr Zafiriou struck me as an intelligent man, but also as a person who liked to do things his way. He had a long and apparently successful history with Abrasives, in that he had risen to a very senior position. He had developed a relationship with Mr Freeman that allowed him, as Mr Chaur said, to be the ‘king of his domain’ and to determine what he would and would not do in the company. He most likely had a deeper knowledge of the hardware business than the recently arrived Mr Chaur and was dismissive of some of the changes that Mr Chaur was trying to make. He was not, in my view, a person who was readily amenable to changing the way in which he operated in the company.

So much is apparent from the tone and content of the emails which, while not relevant to assessing the genuineness of Mr Chaur’s performance concerns, are relevant to the Court’s assessment of the likelihood of successful performance management of Mr Zafiriou. Those emails reveal a resistance to criticism, a willingness to find fault with others and the ready establishment of battle lines when crossed. In particular, they reveal a tendency to ‘bunker down’ with a small number of close colleagues and to criticise, often in colourful terms, other colleagues. Having regard to the content of the emails, I find it unsurprising that Mr Chaur found Mr Zafiriou to be confrontational towards his colleagues, defensive of his position and dismissive of Mr Chaur’s initiatives.

Furthermore, although very little was made of it by either side in the course of the trial, there was evidence of a meeting between Mr Freeman, Mr Zafiriou and Ms White in September 2009,[111] in the course of which Mr Freeman complained about Mr Zafiriou’s performance in terms that are strikingly similar to the complaints made by Mr Chaur a year later. Mr Freeman complained of tardiness in reporting, in providing information when requested and in performing necessary administrative tasks. He also complained about an inappropriate email, aggressive responses at meetings, Mr Zafiriou taking ‘pot shots’ at people and poor communication with the former sales manager. Mr Zafiriou’s recorded responses show him not to have accepted these criticisms.
[111]Also attended by the HR manager, Pam White, who took extensive minutes.

It is not the function of this court to determine whether all or any of these complaints were justified. I note that Mr Zafiriou received a positive performance appraisal thereafter. However, Mr Zafiriou’s responses to the complaints are familiar. He does not acknowledge the substance or the seriousness of the complaints, particularly regarding his relationships with other managers, and points to his successes in a what he considers to be the more important areas of his responsibility.

In my view, Mr Zafiriou displays little insight into his behaviour. I find, as a result, that he was unlikely to modify his behaviour to accommodate Mr Chaur. I find, on the balance of probabilities, that formal performance management would not have resulted in Mr Zafiriou keeping his job.

The Disciplinary Procedure Claim is not made out.

Trust and Confidence Claim

In his statement of claim, Mr Zafiriou alleges breach of an implied term of trust and confidence in the employment contract arising from the fact that the defendant:

(a) did not give him reasonable warning of the termination, reasonable warning being 12 months;

(b) did not give consideration to any alternative positions Mr Zafiriou could have held;

(c) did not consult with Mr Zafiriou as to the termination;

(d) did not have regard to Mr Zafiriou’s years of service with the defendant;

(e) did not advise or properly advise Mr Zafiriou that it had any concerns about his performance or the quality of his work;

(f) did not give Mr Zafiriou any opportunity to address any concerns it may have had about his performance or the quality of his work;

(g) did not give Mr Zafiriou a reference.

According to Mr Zafiriou, in moving directly to termination of employment and by-passing the contemplated process of warnings and opportunities to improve, Mr Chaur acted in a way that was destructive of the relationship of trust and confidence between the parties. He contends that Mr Chaur overlooked the prospects of consultation and redeployment to avoid the need for termination and that, with his years of service and dedication to the business of the defendant, Mr Zafiriou deserved to be treated better. These actions, so Mr Zafiriou contends, were in breach of its obligations under the implied term of trust and confidence.

Mr Zafiriou claims payment of 12 months’ remuneration and damages arising from damage to his reputation and prospects.

This claim was only faintly pressed by counsel for Mr Zafiriou. It was barely touched upon in oral submissions and it was described in written submissions as another way of getting to the same point as the Disciplinary Claim. The allegation that the defendant breached the employment contract by failing to provide appropriate performance management and an opportunity to address concerns is common to this and the Disciplinary Procedure Claim. Although Mr Zafiriou claims further damages for damage to his reputation or prospects, he led no evidence and made no submissions in support of this part of his claim.

As a result of the cursory manner in which this claim was presented, the Court heard little or no argument on the application of an implied term of mutual trust and confidence to dismissals. However, the purpose of such a term is to facilitate the proper functioning of the contract, to preserve the relationship and protect the employee from oppression, harassment and loss of job satisfaction.[112] The term has been held to be inapplicable to dismissals, as the duty not to damage or destroy the relationship does not apply to the exercise of the power to terminate the relationship.[113]
[112]Malik v Bank of Credit and Commerce International SA [1998] AC 20, 36—8.
[113]See Mark Irving, The Contract of Employment (LexisNexis Butterworths, 1^st Ed, 2012) 36 referring to Gillies v Downer EDI Ltd [2011] NSWSC 1055; Russell v Trustees of Roman Catholic Church (2007) 69 NSWLR 663; Rogan-Gardiner v Woolworths Ltd [2010] WASC 290; Johnson v Unisys Ltd [2003] 1 AC 518; Eastwood v Magnox Electric plc [2005] 1 AC 503; Reda v Flag Ltd [2002] IRLR 747.

It is unnecessary decide this question. Even if the implied term were applicable to dismissals, the Trust and Confidence Claim would fail for the reasons that the Disciplinary Claim failed.

The Trust and Confidence Claim is not made out.

Ceramics Redundancy Claim

Mr Zafiriou claims that had Abrasives complied with the Disciplinary Procedure, he would have been offered continuous employment with Ceramics under substantially the same terms and conditions that applied at the time of his dismissal, including the terms governing his remuneration. He submits that his employment with Ceramics would have continued until at least the time that Ceramics restructured its business in August 2011 and that his position with Ceramics would then have been made redundant and he would, by that time, have had the benefit of ten months remuneration, a redundancy payment, a further severance payment and the opportunity to seek suitable alternative employment, the loss of which also sounds in damages.

The Ceramics Redundancy Claim is based upon email from Mr Tellier to Mr Freeman dated 26 October 2010 in which Mr Tellier lamented the ‘extremely complicated’ situation for Ceramics as a result of Mr Zafiriou’s dismissal and said:

Should I have been informed in advance, the solution I would have proposed would have been to have him [Mr Zafiriou] for a mission 100% for Ceramics for a few months in order to solve the on going subjects and then to find with this mission a satisfactory end for all parties involved (while preparing a transition locally).[114]

[114]Courtbook 2083.

However, this claim, based as it is on Mr Zafiriou working full time for Ceramics until its eventual closure and then being made redundant, was not supported by the evidence given by Mr Tellier.

Mr Tellier was the general manager for Saint-Gobain Ceramics for Asia-Pacific. He gave evidence that in 2010, the Australian business represented about 5% of the Asia-Pacific Ceramics business. The Ceramics business was therefore quite small and, although it needed a general manager to take care of some issues, it could not afford a full-time general manager. Before Mr Tellier joined Ceramics, the arrangement was made that Mr Zafiriou would spend 30% of his time as general manager of Ceramics.

Mr Tellier explained that by the time he joined Ceramics in 2007, consideration was already being given to closing down Ceramics’ manufacturing business in Australia. By 2009 and 2010, it was recognised that the manufacturing operation would have to be closed down quite soon. It had been agreed that when Ceramics no longer needed him, Mr Zafiriou would return full time to Abrasives.

Mr Tellier was taken to his email of 26 October 2010. The email was written after he had been informed by Mr Zafiriou himself that Mr Zafiriou’s employment had been terminated. Mr Tellier had been given no warning that he was about to lose his managing director in Australia. Mr Tellier gave the following explanation for the email:

It was clear that not being informed about the termination of Mr Zafiriou’s contract with Abrasives, I did not have any plan to manage the business on the very short-term basis. Myself being located in China, extremely busy, and the Australian operation not representing a very significant part of my turnover, I did not want, myself, to assume this role even for one week or even one month, this would not have been possible with my other responsibilities in China. The second reason was at the time I was still not totally clear if the contract of Mr Zafiriou was terminated already or not, so I wanted to check with Mr Freeman before we make any definitive move, as this would lead [leave] me in a dangerous situation. We could find a temporary position situation where Mr Zafiriou would help to manage the transition to find a successor and to train him because the second most senior guy we had in the team was a service guy, good in service but obviously not adequate to manage profit and loss accounts, business reviews, EHS and labour renegotiation.

In other words, Mr Tellier was not consulted about Mr Zafiriou’s termination, he was ‘caught short’ without a manager, and he thought it might be possible for Mr Zafiriou to remain in his position a little longer to enable Mr Tellier to replace him.

Mr Tellier confirmed as much later in his evidence:

… if I was aware of the termination of Mr Zafiriou I would have probably discussed internally if we could have been able to find a mission for him for one, two or three months to be able to recruit his successor, to train his successor.[115]

[115]Transcript 371.

Mr Tellier was asked whether Ceramics had the ability to fund Mr Zafiriou’s salary and employment benefits if he was engaged full-time by Ceramics. He answered that Ceramics was bleeding money in 2010, and was not looking to add costs. Since 2005, the operating profit of Ceramics had been below $150,000 per year, so it did not have the money for a full-time general manager.

Mr Tellier was asked specifically whether it was contemplated that Ceramics would continue employing Mr Zafiriou until September 2011. He said as follows:

No, the mission I had in mind was a transition mission to make sure that the transition was properly – and then while we were looking for a long-term solution for the operation. At the time the difficulties, I was not about to give the date at which the facility would be closed, because at the time one of the businesses which is owned by the Australian operation was being divested by Saint-Gobain, and it was not clear if this business could be finally divested or not, so until we had clarity on that it was impossible for me to make any final plan for closing of the plant. In terms of mission, what I had in mind was to find a successor or nominate somebody reporting to him passing him all the files all information and note the urgency and move on.

Mr Tellier was asked whether Ceramics had made any provision for a redundancy payment if it employed Mr Zafiriou. He replied that Ceramics did not have an employment contract with Mr Zafiriou, not only because Mr Zafiriou was not an employee of Ceramics, but also because Ceramics was not making any money and it ‘was not supposed to’ make a severance payment for Mr Zafiriou.

I take this answer to be that it was not intended that Ceramics would take on the responsibility for any redundancy payment.

Asked whether he would have been looking to retain Mr Zafiriou full time at Ceramics for a few months in order to solve ongoing issues, Mr Tellier said:

No, legally speaking, I don’t know what form it would have been, it could have taken, probably he would have stayed an employee of Abrasives for one month during the duration because it would have been very complex to (inaudible) employment at Ceramics, but we never had occasion to work on it.

A little later, Mr Tellier said:

If I had known what Mr Chaur, the termination of Mr Zafiriou’s employment, I would have studied an option to have the termination postponed for one month probably or several months to make sure the transition was being done correctly and so on. It would have been an option among other options.

Counsel for Mr Zafiriou pursued this by putting to Mr Tellier that he was talking about taking on Mr Zafiriou 100% for Ceramics until the role with Ceramics came to an end. Mr Tellier responded emphatically:

No, no, no, no, I never said that. If you look at my email it’s quite clear, it’s to solve the ongoing subjects and to find a transition locally. There is no mention in this email at all to have this mission until the eventual closure of Ceramics for the simple reason that at that time I was not sure if this would happen and when this would happen.

Mr Tellier agreed that it might have been an option to have Mr Zafiriou work full time for Ceramics a few months, but by ‘a few’, he meant ‘one, two, three months’. He said that he would have proposed this but would have had to examine under what conditions, what costs would be incurred by Ceramics and so on. In this context, he said:

Let’s say for example if Abrasives had asked me to take over the contract of Mr Zafiriou to Ceramics, obviously I would have not do that. The liability for my business would have been very huge.[116]

[116]Transcript 381.

Indeed, Mr Tellier speculated that if Mr Zafiriou had gone to work full time for Ceramics, he would have kept his contract with Abrasives and would have recharged 100% of his costs to Ceramics for a ‘few’ months.

Counsel for Mr Zafiriou put to Mr Tellier that at the end of those few months, Mr Tellier would expect the Ceramics business to have come to an end and for there to be no further need for Mr Zafiriou’s services. Mr Tellier said he could not agree with that because he was not aware at that time of the date for the closure of the plant. Furthermore, the closure may have taken a while (a year or a year and a half) and it was not a long-term solution to have Mr Zafiriou working within Saint-Gobain, given his feelings (‘frustration’) about his termination by Abrasives.

As to the proposal in the 26 October email that there would be ‘a satisfactory end for all parties involved’, Mr Tellier said he meant mainly for Abrasives and Ceramics. As for Mr Zafiriou, if Ceramics could have him working for a month or two and then leaving happy, Mr Zafiriou would also be included in the satisfactory ending.

Despite the best efforts of counsel for Mr Zafiriou in cross-examination, Mr Tellier would not agree that Ceramics would have been prepared to take on Mr Zafiriou for any length of time. He would not, in any event, agree that Ceramics would have taken on the liability for Mr Zafiriou’s redundancy when the role of general manager was no longer required. In my view, it is quite clear from his evidence that Mr Tellier was looking to protect his business and interested only in managing the transition to another manager. On the basis of Mr Tellier’s evidence, which I accept, the proposition that Mr Zafiriou would have moved to Ceramics on a full-time basis until made redundant when Ceramics finally closed its doors is unsustainable.

The Ceramics Redundancy Claim as pleaded[117] is based on implementation of the Disciplinary Procedure to give Mr Zafiriou some additional time with Abrasives before the termination of his employment. I have found that the Disciplinary Procedure did not apply to employees of Mr Zafiriou’s seniority. Nonetheless, it could be argued that the same opportunity would have arisen for Mr Zafiriou to move temporarily to Ceramics had Mr Tellier been warned of Mr Zafiriou’s impending dismissal.
[117]Not included in pleadings but in letter from Mr Zafiriou’s solicitors to the Defendant’s solicitors dated 7 June 2012.

It is difficult to say what might have happened in this circumstance, but it is clear that it could have resulted in no more than three months reprieve for Mr Zafiriou. However, there is a large question mark over Mr Chaur’s willingness to keep Mr Zafiriou on Abrasives’ books, having made up his mind to replace him and to ask him to leave the company straight away. Having regard to the way in which Mr Chaur went about dismissing Mr Zafiriou, I think it unlikely that Mr Chaur would have been willing to retain Mr Zafiriou as an employee of Abrasives in order to enable Mr Tellier to better manage the transition at Ceramics.

I have considered whether the Ceramics Redundancy Claim could be recast as a claim for three months’ remuneration, being the time that Mr Zafiriou might have worked at Ceramics pending the appointment of his replacement. On balance, I have concluded that such an outcome was unlikely.

The Ceramics Redundancy Claim is not made out.

Conclusion

Mr Zafiriou held a senior position with Abrasives. Under Mr Freeman, by Mr Zafiriou’s account, he had considerable influence and was involved in much of the important decision-making. When Mr Chaur took over as managing director, Mr Zafiriou was required to focus on the supply management part of his job and to defer to Mr Chaur’s new requirements for reporting and accountability. Mr Zafiriou had difficulty in doing so, no doubt because he regarded it as an attempt to clip his wings. Eventually, Mr Chaur lost patience and decided that he would be better served by a different person in the role of GM – Supply Chain.

I have concluded that Mr Zafiriou was dismissed for performance reasons. His position was not made redundant and there was a continuing requirement for his duties to be performed. Mr Zafiriou was dismissed because Mr Chaur formed the view that he was not the right person to perform those duties or, indeed, any duties in a senior management position.

I have also concluded that the defendant was entitled to terminate Mr Zafiriou’s contract of employment with four weeks’ notice and that it was not required to carry out the performance management described in the Disciplinary Procedure or, indeed, any formal performance management.

Furthermore, the claim based on Mr Zafiriou being relocated full time to Ceramics until the demise of that company in August 2011 is not made out, having regard to the evidence of Mr Tellier.

None of the claims are made out. The proceeding will be dismissed.

Period of continuous service	Period of notice
1 year or less	1 week
Over 1 year and up to the completion of 3 years	2 weeks
Over 3 years and up to completion of 5 years	3 weeks
Over 5 years	4 weeks

(a) Notice period:	4 months’ pay
(b) Severance pay per year of service:	1 months pay
(c) Annual leave:	all accrued plus 17.5%
(d) Long service leave (over 5 years’ service)	all accrued
(e) Sick leave	all accrued

[2013] VSC 377

24 July 2013