FEDERAL COURT OF AUSTRALIA INDUSTRIAL LAW - TERMINATION OF EMPLOYMENT - termination of employee as part of reorganisation of employer's business - experienced long serving employee dismissed and recently employed employee retained - whether the termination was based on operational requirements of the business. Industrial Relations Act 1988 s 170DE(1) Cosco Holdings Pty Ltd v Thu Thi Van Do, Full Court of Federal Court, 4 December 1997, unreported, applied JOHN WILLIAM EVANS v ALTO PARTS PTY LIMITED NI 2283 of 1996 MOORE J SYDNEY 12 FEBRUARY 1998 IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NI 2283 of 1996 BETWEEN: JOHN WILLIAM EVANS Applicant AND: ALTO PARTS PTY LIMITED Respondent JUDGE: MOORE J DATE OF ORDER: 12 FEBRUARY 1998 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The orders of the Judicial Registrar of 2 June 1997 are set aside. 2. The sum of $20,312.72, plus interest, presently invested by the District Registrar by order of the Court of 4 November 1997, be paid to Alto Parts Pty Limited. 3. The application under s 170EA is dismissed. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NI 2283 of 1996 BETWEEN: JOHN WILLIAM EVANS Applicant AND: ALTO PARTS PTY LIMITED Respondent JUDGE: MOORE J DATE: 12 FEBRUARY 1998 PLACE: SYDNEY REASONS FOR JUDGMENT This is an application for a review of a determination by a Judicial Registrar of an application under s 170EA of what was then entitled the Industrial Relations Act 1988 ("the Act"). The applicant, Mr John Evans, alleged that his employment with Alto Parts Pty Limited ("Alto") was terminated in contravention of s 170DE(1) of the Act. The Judicial Registrar determined, in an ex tempore judgment, that it had been and ordered Alto to pay to Mr Evans, in total, the sum of $20,312.72. A review is a hearing de novo but it was agreed that the review could be conducted by reference to the evidence and exhibits before the Judicial Registrar though supplementary evidence was called in the review on one issue only concerning the computation of compensation. There is a fair measure of common ground about the facts. Mr Evans commenced employment with Alto in January 1991 and his employment was terminated on 2 October 1996. He was then 61 years old. The termination of his employment arose as a result of the reorganisation of the business of Alto. That business involved the sale of spare parts in the automotive industry. Prior to the reorganisation of its business in 1996, it operated from four sites. A decision was taken to rationalise its operations. In the result, it was proposed it would operate from new premises in Ryde and the workforce would be reduced from 85 to 74 employees. In September 1996, employees were invited to indicate whether they wished to apply for a position in the reorganised structure and complete a "register of interest" form indicating a desire to be employed in the new organisation. This led to 9 employees accepting voluntary redundancy packages and left 76 employees seeking continuing employment on the basis that 74 positions were available. It is against this background that the contentious issue arises concerning the termination of Mr Evans' employment. Prior to the reorganisation, Mr Evans was employed in a position described as Dealer Marketing Manager or Administrator. Mr Evans described his duties as calling on Ford dealers, both rural and metropolitan, selling or promoting Alto Ford as well as Ford genuine products. It also involved calling on Hyundai dealers as Alto also had a franchise on Hyundai. Mr Evans was based in Gordon but travelled in New South Wales as part of his duties. I accept this description of his job. Mr Evans gave evidence about his understanding of a job undertaken by Ms Samantha Patterson who had commenced employment with Alto in either May or June 1996. Her duties, he said, had involved promoting or selling a range of car polishes, chamois and other products but it did not involve the sale of products associated with the Ford Motor Company. It was a new line of products that had been taken on by Alto. The evidence of Mr Evans about Ms Patterson's duties when she was first employed by Alto, is consistent with evidence given by two other witnesses. One was Mr John Starling who gave evidence on behalf of Mr Evans. Prior to the reorganisation he had been the Parts Merchandising Manager and the direct supervisor of Mr Evans. He said that Ms Patterson had been employed by Alto at Gordon to do specialised jobs with the franchised dealers in the metropolitan area. The nature of her work when first employed by Alto was discussed in more detail by Mr Malcolm Ryan. He was the Group General Parts Manager of Alto for the period leading up to and immediately after the reorganisation and was the senior manager responsible for both Mr Starling and Mr Evans. Mr Ryan gave evidence on behalf of Alto. He explained that as a result of changes in the market and the market share of Alto, a decision had been taken to sell products that had not previously been sold by Alto. To that end, Ms Patterson had been employed to firstly assess where Alto stood in the marketplace by doing market surveys and then to do test sampling on other products. Alto took on a distributorship for DuPont Paints, Maguire polishes and other products. When Ms Patterson had been initially engaged it was not as a full time field position but it involved some input into the marketing strategy of Alto. She was also involved in promotional work involving give-away products and gifts. I accept Mr Ryan's description of the nature of the work for which Ms Patterson was engaged. As earlier noted, it accords with the slightly more general evidence of Mr Evans and Mr Starling. At the time the decision was made to terminate Mr Evans' employment a decision was also made to retain in employment Mr Starling and Ms Patterson. It was contended by counsel for Alto that this decision involved retaining Ms Patterson to continue to do the work she had been originally engaged to do and deciding which of Mr Starling and Mr Evans would be retained to perform work of the type that had been done by Mr Evans before the reorganisation. Counsel for Mr Evans contended that the choice was effectively a choice as to whether Mr Evans or Ms Patterson would do the work that had been done by Mr Evans. It was submitted on Mr Evans' behalf that if that was the choice that had been made, then it was not a sound or defensible one given the very long experience of Mr Evans in the industry and the negligible experience of Ms Patterson. The decision to terminate Mr Evans' employment was effectively made by Mr Ryan. In his cross examination he conceded, in substance, that if the position proposed for Ms Patterson as part of the reorganisation involved simply going to Ford dealers and discussing with them their businesses and advising them, then Mr Evans plainly was far more experienced than Ms Patterson and she "could not match (him)". However, the evidence does not support the contention that Ms Patterson was retained simply to do the work that formerly had been done by Mr Evans. Firstly, Mr Starling said that with some minor qualification, he was doing work of the type done by Mr Evans after the reorganisation. As to the work done by Ms Patterson after the reorganisation, I accept the evidence of Mr Starling that in December Ms Patterson did some work involving visits to Ford dealerships, which was work of the type that had been done by Mr Evans. Mr Evans had been on leave for approximately a month, commencing a few days after the transfer to Ryde and the termination of Mr Evans' employment. I also accept the evidence of Mr Starling that before he went on leave, he was approached by Ms Patterson, who indicated that she would be calling on dealers and asked for advice as to how she might go about it. I infer that, at the latest within days of Mr Evans' employment being terminated, Ms Patterson knew she would be asked to call on dealers. However, the evidence is unclear as to whether at this time it was proposed she would do work of the type that had been done by Mr Evans though it plainly does not establish that this was all she would do. The following is a passage from Mr Ryan's evidence: "Mr Starling has given some evidence that after he and Samantha Patterson were allocated to the dealer area, that they both made some trips to the country. I think he went to Coffs Harbour or she went to Coffs Harbour and he went to the country to visit dealers. I suggest that the purpose of Ms Patterson going to see the dealers was not to sell car polish?---The - you're talking about somewhere in December? Yes?---Now, many, many changes took place after October including the tremendous decline as I have already said, something like 50 per cent of our business. We'd also had some redundancies and some people take some voluntary redundancies, we also had some people leave us and we were in a situation where we started to again revisit the whole structure of our business and one of the things was we did start to look at that I wasn't available to get out into the marketplace as quickly as I could and we did ask and did start to break the territories up into an area where Samantha Patterson was actually starting to look after, in total, both some visitation to the Ford dealers and also the products that we were asking her to sell. So, yes, she did start to look after some dealers for us." The clear import of Mr Ryan's evidence was that Ms Patterson was retained in October 1996, because Mr Ryan wanted her to continue to do work of the type she had been engaged to do in June 1996 as part of a process of redirecting an aspect of the business of Alto. In December 1996, which was some time after the implementation of the reorganisation, Ms Patterson did, as part of her duties, work of the type formerly done by Mr Evans for the reasons explained by Mr Ryan in his evidence. That is, because there was a further decline in Alto's business after the reorganisation and further staff losses. I accept Mr Ryan's evidence. No finding was made by the Judicial Registrar that he was not a credible witness and this evidence is consistent with the evidence of Mr Starling. It may be accepted that the Judicial Registrar made the following finding: "I am not convinced that the difference between the work performed by the applicant and the work performed by Ms Patterson was a great one". However the basis upon which that finding is made is not clear. If it is a reference to the work both did before the reorganisation it is contrary to the evidence of Mr Evans, Mr Starling and Mr Ryan. If it is a reference to the work done by Ms Patterson after Mr Evans termination then it is probably a reference to the work done by Ms Patterson in December 1996. It is against this factual background that it is necessary to consider whether the termination of Mr Evans' employment was in contravention of s 170DE of the Act which provides: "(1) An employer must not terminate an employee's employment unless there is a valid reason, or valid reasons, connected with the employee's capacity or conduct or based on the operational requirements of the undertaking, establishment or service." It is clear that the decision to terminate Mr Evans' employment was taken as part of a genuine restructuring of the business of Alto necessitating a reduction in the number of employees. There is, in my opinion, no basis for suggesting that as part of the reduction in the number of employees it was not necessary for Alto to decide which of Mr Starling, Mr Evans and Ms Patterson would be retained to fill two positions associated with the marketing and selling of products in the lines of products Alto sold. It may be accepted that it is incumbent upon the employer to demonstrate the existence of a valid reason: see s 170EDA. The proper construction of s 170DE(1) has recently been considered by a Full Court of this Court in Cosco Holdings Pty Ltd v Thu Thi Van Do, 4 December 1997, unreported. The first point to be made is that the provisions of s 170DE(1) do not require, indeed do not permit, consideration of matters such as fairness, reasonableness or justice. I think it can fairly be said that the decision of the Judicial Registrar, given before the judgment of the Full Court, was influenced by her perception of the fairness or reasonableness of the termination of Mr Evans' employment given the abrupt way it happened and his age, experience in the industry and length of service with Alto. I share her view about those matters but they are not relevant save to the extent that they bear upon whether a valid reason existed of the type discussed by the Full Court. Having regard to the reasons for judgment of Northrop ACJ and the joint reasons for judgment of Lindgren and Lehane JJ, the touchstone for considering whether there was a valid reason is whether, for present purposes, the reason for termination was genuinely based on operational requirements. It is unnecessary, in this matter, to consider in more detail the reasons of the Full Court in Cosco. I say that because I am clearly satisfied that there was, in the present case, a rational and justifiable basis for Mr Ryan concluding that both Mr Starling and Ms Patterson should be retained in employment with the consequence, having regard to the need to reduce the number of employees, that Mr Evans' employment would be terminated. Mr Ryan wanted Ms Patterson to continue to do the work she had been engaged to do in June 1996. He did not see the need to retain Mr Evans. It was reasonably open to him to make both decisions. I can well understand that Mr Evans may have believed, and may still believe, he was displaced by someone without the skills and experience he had. However, the issue raised by s 170EA is a limited one. In my opinion, the termination of Mr Evans' employment was for a valid reason based on the operational requirements of Alto's business. It follows the termination was not in contravention of s 170DE(1) of the Act. I dismiss the application under s 170EA and will make consequential orders dealing with the orders made by the Judicial Registrar. I certify that this and the preceding five (5) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Moore Associate: Dated: Counsel for the Applicant: Mr D Epstein Solicitor for the Applicant: Mr G Caristo Counsel for the Respondent: Ms K Nomchong Solicitor for the Respondent: Mr R Fitzgerald Date of Hearing: 3 February 1998 Date of Judgment: 12 February 1998