FEDERAL COURT OF AUSTRALIA Automotive, Food, Metals Engineering, Printing and Kindred Industries Union v Mechanical Engineering Services Pty Ltd [2007] FCA 1736 INDUSTRIAL AND EMPLOYMENT – redundancy – incorporation of award and certified agreement entitlements into employment contract – enforcement of award – exercise of discretion to make an order – notice of termination – when notice by post is presumed to be received Corporations Act 2001 (Cth) ss 443A, 443D, 556(1) Corporations Regulations 2001 (Cth) Sch 8A Evidence Act 1995 (Cth) s 160 Workplace Relations Act 1996 (Cth) ss 719(6), 720 Workplace Relations Act 1996 (Cth) (pre-2005 amendments) ss 149(1)(d), 170 MB, 170MH, 178(6) Australasian Meat Industry Employees Union v South Australia(1999) 89 IR 139 Finance Facilities Pty Ltd v Commissioner of Taxation (Cth) (1971) 127 CLR 106 Julius v Bishop of Oxford(1880) 5 App Cas 214 Macdougall v Paterson (1851) 11 CB 755 [138 ER 672] Mitchell v R (1996) 184 CLR 333 Printing and Kindred Industries Union v Vista Paper Products Pty Ltd (1994) 57 IR 414 Textile, Clothing and Footwear Union of Australia v Givoni Pty Ltd (2002) 121 IR 250 AUTOMOTIVE, FOOD, METALS ENGINEERING, PRINTING AND KINDRED INDUSTRIES UNION AND ORS v MECHANICAL ENGINEERING SERVICES PTY LTD VID 524 of 2007 FINKELSTEIN J 16 NOVEMBER 2007 MELBOURNE IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY VID 524 of 2007 BETWEEN: AUTOMOTIVE, FOOD, METALS ENGINEERING, PRINTING AND KINDRED INDUSTRIES UNION & ORS (as per attached Schedule) Applicants AND: MECHANICAL ENGINEERING SERVICES PTY LTD Respondent JUDGE: FINKELSTEIN J DATE: 16 NOVEMBER 2007 PLACE: MELBOURNE REASONS FOR JUDGMENT 1 Several former employees of the respondent, Mechanical Engineering Services Pty Ltd (MES), sue to recover unpaid redundancy entitlements which they claim are due to them under their respective contracts of employment. The obligation to provide redundancy payments is to be found in the Skilled Engineering Ltd Mechanical Workshop Certified Agreement 2003-2006 and the Metal, Engineering and Associated Industries Award 1998. The employees contend, however, that the certified agreement and the award were incorporated into their contracts of employment and their claim is in contract. If the claim in contract is not successful, the employees have an alternative basis for claiming redundancy payments, namely under the award. In addition, the employees seek to recover losses for short notice of termination and long service leave. Finally there is a claim for penalties and compensation under s 719(6) of the Workplace Relations Act 1996 (Cth). 2 The dispute has come about in the following circumstances. Skilled Engineering Ltd operated a mechanical engineering workshop at Yallourn where workers were covered by both the certified agreement and the award. Skilled was party to the certified agreement. The certified agreement made provision for redundancy entitlements which were to "remain in place for the life of [the] agreement". The award also made provision for redundancy. The award provisions were less favourable than those under the certified agreement which, by operation of cl 5 of the certified agreement, had priority over the award. 3 On 24 November 2004 Skilled sold its mechanical engineering business to MES. By cl 9.1 of the sale agreement MES covenanted to offer to each employee of Skilled a position with MES on terms and conditions no less favourable than those governing the employees' employment on the date of the offer. By cl 9.3 MES assumed liability for all employee entitlements including any entitlements for notice or redundancy on termination. 4 In anticipation of the sale agreement being executed, on 12 November 2004 MES wrote to employees at the workshop and offered them employment with MES. The relevant parts of the letter of offer read: "At the meeting on Friday 12th November Skilled informed employees of its decision to sell the Workshops (sic) business including the Workshops (sic) property, plant and equipment, to MES. Completion of the sale is scheduled for Monday 22 November 2004. On behalf of MES I am pleased to offer to employ you in the same position and on the same terms and conditions as you currently enjoy with Skilled, effective from the date on which MES completes the purchase or (sic) the Workshop business. It is a specific condition of MES' purchase of the Workshops (sic) business and binding upon MES that all the benefits you accrued with Skilled are preserved, including continuity of service and accrued entitlements (e.g. annual, long service and sick leave, RDO's, time off in lieu and any entitlements on termination of employment). If you accept our offer of employment these entitlements will automatically be transferred from Skilled to MES. As an employee of MES the Skilled Engineering Limited Mechanical Workshop Certified Agreement 2003-2006 (in conjunction with the Metal Engineering and Association Industries Award 1998) will continue to govern your employment with MES during and after the transmission of the Workshops business to MES." (Emphasis added) 5 The offer was discussed at a meeting of employees and representatives of Skilled and MES. The employees were told by the representatives of Skilled and MES that all employee entitlements, including redundancy entitlements, would be carried over to the new company if the employees accepted employment with MES. They were also told that the certified agreement concluded with Skilled would continue to apply. Statements were made to the effect that if the employees chose not to "sign up" with MES they would not receive redundancy payments from Skilled. 6 Many Skilled employees accepted the offer and commenced working with MES. As things turned out, MES did not conduct the Yallourn operation which somehow had been transferred to Mechanical Engineering Corporation Pty Ltd (MEC), a related company. MES supplied the staff who worked at Yallourn. 7 By December 2006 MEC was in financial difficulty. On 27 December 2006 an administrator was appointed. The administrator was Mr Crisp of RSM Bird Cameron Partners. Shortly after his appointment, Mr Crisp decided that unless MEC could procure a reliable supply of labour he would close the Yallourn business. The problem was that since late 2006 MES had been in dispute with its employees about the terms and conditions of their employment. The employees had imposed work bans and the company retaliated by locking them out. It looked like the dispute might last for some time. 8 On 15 January 2007 Mr Crisp wrote to many MES employees informing them of his appointment and that he would close the Yallourn business unless he could secure a reliable supply of labour. Mr Crisp referred to the industrial dispute between MES and its employees and said this dispute had impaired the ability of MEC to complete its contracts and led to it being placed into voluntary administration. Mr Crisp offered employees a position with MEC. He described the "key features" of the offer as follows: "1. Pay rates and bonuses would be as per the attached schedule. 2. Term of Agreement to be four (4) years. 3. Yearly wage increases of 4% p.a. each year after the first year. 4. RDO allowance of 1 day per 28 day period. 5. Salary sacrifice option for employees whom elect to take income protection insurance." The offer was conditional upon acceptances from "a satisfactory number and range of employees (as determined by [Mr Crisp]) from the skilled employees concerned." The offer was open for acceptance "by close of business on 19 January 2007." 9 Also on 15 January 2007 MES wrote to the employees advising them of the appointment of an administrator over MEC and that MES had written to the AMWU and CFMEU to inform them of the situation. 10 Not one employee accepted Mr Crisp's offer. The reason for rejecting the offer varied from employee to employee. I have evidence from two, Mr Scholtes and Mr Rea. Mr Scholtes said that he did not accept the offer for two reasons. First, he perceived it to be "inferior" to the agreement on foot with MES and secondly, because attempts made on his behalf to contact Mr Crisp to clarify "certain aspects" of the offer were unsuccessful and ultimately re-directed back to MES management. 11 Mr Rea's reasons for not accepting the offer were that employees had been "locked out" by MES and that the offer was not "over and above what [the employees had] gone out in protest for". 12 It is likely that when the offer was rejected the employees failed to understand its significance. It was significant in two respects. First, the offer was for employment under a four year fixed term contract. That was highly unusual. Most contracts of employment are terminable on relatively short notice. Here the employees were being offered guaranteed long term employment. The second significant aspect was that if the offer was accepted, Mr Crisp would be personally responsible for the payment of the employees' entitlements for the duration of the contract by reason of s 443A of the Corporations Act 2001 (Cth). Thus, the employees traded an offer of four years guaranteed employment for redundancy entitlements which, on any view, cannot exceed 28 weeks pay (including 6 weeks accrued long service leave). The dispute now is how those entitlements are to be calculated. That depends upon the source of the obligation to make the payments. 13 The employees contend that their entitlements derive from the certified agreement as incorporated into their contracts of employment. This contention is based on the letter of offer which is said to incorporate the certified agreement into the employment contract. In fact the certified agreement terminated on 31 August 2006 in accordance with section 170MH of the pre-amendment Workplace Relations Act. The termination is said not to effect the contract argument. 14 The argument that the certified agreement and the award were incorporated into the contract cannot succeed. MES' offer was to employ a worker "in the same position and on the same terms and conditions" as the worker enjoyed with Skilled. The evidence does not suggest that those terms and conditions incorporated the certified agreement and the award. 15 It was said that the letter of offer, by stating that the certified agreement and the award "will continue to govern [all employees'] employment with MES during and after the transmission of the Workshops (sic) business to MES", had the effect of incorporating the certified agreement and the award. I do not agree. First, the language of the sentence is not contractual, that is, it is not couched in the terms of a promise. Secondly, on a fair reading the sentence does no more than record facts. The effect of s 170MB of the pre-amendment Workplace Relations Act was that the certified agreement would continue to govern the employees' employment with MES as a statutory instrument. The effect of s 149(1)(d) was that the award would continue to apply. 16 To the extent that one can look to the surrounding circumstances to determine the objective intention of the parties as regards the incorporation of the certified agreement and the award into the employment contracts, the result is the same. While the parties intended the certified agreement and the award to apply, it did so by operation of law. There was, therefore, no need to incorporate those instruments into the contract. Without that need there is no reason to assume that the parties intended to incorporate them as part of their contract. 17 The employees have an alternative claim in contract. This claim is based on the paragraph of the letter of offer that concerns the accrual of benefits. The contention is that pursuant to the certified agreement employees were entitled to redundancy on the termination of their employment with Skilled in November 2004 and MES assumed the obligation to make those payments. The argument is based on the third paragraph of the letter of offer (see [4] above). 18 I do not read the letter of offer as having the effect contended for. By the sale agreement MES promised to stand in substitution for Skilled as regards the employees' entitlements so that they would not be adversely affected by the transmission of the business. The object was to treat employees as if their service had not come to an end. The paragraph in contention does no more than state what was the effect of the contract. This would have been understood by the workers when they were told all their benefits "are preserved, including continuity of service…". 19 In any event, even if the third paragraph did more than inform workers of the situation, I do not read the statement that accrued benefits "will automatically be transferred from Skilled to MES" as imposing an obligation to make redundancy payments as if employees had been made redundant on 12 November 2004. To the contrary, if it is contractual the contract is that the employee will be deemed to have been employed by MES for the period the employee was employed by Skilled. 20 The final argument that is pressed by the employees is for redundancy payments under the award. Although made late in the day, MES now concedes that the workers are entitled to the benefits of the award. That, however, is not to say that MES concedes that it should make any payment to employees. On the contrary, MES argues that the power conferred by s 719(6) of the Workplace Relations Act, which empowers the Court to order an employer to pay an employee any under payments due under an award, is discretionary and the discretion should not be exercised in the employees' favour. 21 In Printing and Kindred Industries Union v Vista Paper Products Pty Ltd (1994) 57 IR 414, 433 Wilcox CJ said that s 178(6) of the pre-amendment Workplace Relations Act (the predecessor to s 719(6)) did confer a discretion whether or not to make an order for the payment of money due under an award. That case has been referred to with approval in later decisions: see Australasian Meat Industry Employees Union v South Australia (1999) 89 IR 139, 159 per von Doussa J and Textile, Clothing and Footwear Union of Australia v Givoni Pty Ltd (2002) 121 IR 250, 268 per Goldberg J. I observe that the contrary argument, namely that the word "may" in s 178(6) of the pre-amendment Workplace Relations Act was used to confer a power and not a discretion, was not advanced. See as to this approach cases such as Julius v Bishop of Oxford (1880) 5 App Cas 214, 222-223 per Cairns LC; Macdougall v Paterson (1851) 11 CB 755, 766 [138 ER 672, 677] per Jervis CJ, cited in Finance Facilities Pty Ltd v Commissioner of Taxation (Cth) (1971) 127 CLR 106, 134-135 per Windeyer J; Mitchell v R (1996) 184 CLR 333, 345-346 per Dawson, Toohey, Gaudron, McHugh and Gummow JJ. Be that as it may, the current view is that there is a discretion and I must to decide whether that discretion should be exercised against the employees. 22 MES puts forward two matters which it says are relevant to the discretion. The first concerns the financial position of MES. According to an affidavit affirmed by Mr Graham Mark Herbert on 26 September 2007 MES appears to be close to, if not already, insolvent. It has been served with a statutory demand for unpaid tax in the sum of $266,711.39. It owes Westpac $92,710.42. It no longer has any employees and does not trade. Its only income is derived from the lease of the Yallourn workshop, which is $20,000 per month. Its only other asset, the Yallourn workshop, has negligible realisable value. 23 I do not believe, however, that the financial position of MES, no matter how bad it is, is a basis to exercise my discretion against the employees. First of all, in exercising the discretion it is necessary to take into account s 720 of the Workplace Relations Act. In summary, that section provides that an employee may sue an employer to recover wages, superannuation contribution or any amount that the employer was required to pay to the employee. In my view, it would require a very special case to refuse to make an order under s 719(6) when an employee may be entitled to sue for the same amount in an action under s 720. 24 I acknowledge that at an earlier point in time MES had the ability to apply to the Industrial Relations Commission for an order reducing the employees' redundancy entitlements on the basis of its poor financial position. If that application had been made in my view it would have had little prospect of success because it would have affected an accrued entitlement. 25 Finally, as things presently stand it is likely that MES will be wound up in insolvency or will become subject to a deed of company arrangement. In either case employee entitlements, in particular redundancy payments, will be given priority. In the case of a winding up they are given priority by s 556(1) of the Corporations Act. If the company becomes subject to a deed of company arrangement the usual practice is for the deed to adopt s 556(1): Corporations Regulations 2001 (Cth) Schedule 8A 'Deed of Company Arrangement – Prescribed Provisions'. 26 MES' argument stands on only a marginally better footing when it comes to the second matter it says is relevant to the exercise of discretion – the employees' rejection of the administrator's offer of employment. It says that the rejection was unreasonable and the workers are the authors of their own loss. Although the argument is not hopeless, I cannot accede to it. I am sure that the job offer was rejected because the employees, and perhaps the union, were ignorant of the true benefits it conferred. Moreover, neither the administrator nor MES bothered to explain those benefits to the employees. Not having done so it hardly lies in the mouth of MES to complain that the offer was rejected. 27 For these reasons I will in due course make an order for payment under s 719(6) of the Workplace Relations Act. I will leave it to the parties to work out the figures. 28 There are two other matters to attend to. The first relates to the notice given to the employees in January 2007 informing them that their employment with MES would cease on 1 March 2007. Clauses 4.3.1(a) and (b) of the award require that the employees be given five weeks notice. This notice, in the form of a letter was dated and posted to employees on 25 January 2007. At least one of the employees, Mr Rea, received his notice on 29 January 2007. Section 160 of the Evidence Act 1995 (Cth) creates a rebuttable presumption that a posted article sent to a person at a specified address in Australia is taken to be received on the fourth working day after having been posted. I will presume that the notice that went to other employees was received by them on 31 January 2007 (taking into account the Australia Day public holiday on 26 January and the weekend of the 27 and 28 January 2007). 29 On one view the notice was invalid being short served by about one week. The other view is that it should be treated as having validly terminated the employees' employment because both MES and the employees acted upon the letter treating the notice as being effective. In the circumstances while the notice is valid the employees have been short changed one week's pay, and it should be paid to them. 30 Finally, there is the claim for payment of long service leave. It is now common ground that the employees are entitled to long service leave pay if it has not been paid. If there are difficulties determining the amount due the matter can be re-listed. I certify that the preceding thirty (30) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein. Associate: Dated: 16 November 2007 Counsel for the Applicants: M McNamara Solicitor for the Applicants: Maurice Blackburn Counsel for the Respondent: C O'Grady Solicitor for the Respondent: Workplace Legal Date of Hearing: 20 September 2007 Date of Judgment: 16 November 2007 SCHEDULE OF PARTIES AUTOMOTIVE, FOOD, METALS ENGINEERING, PRINTING AND KINDRED INDUSTRIES UNION First Applicant DAVID ALDERSON Second Applicant HARDY ALKO Third Applicant STEPHEN ATTRILL Fourth Applicant WAYNE BASTIN Fifth Applicant ALLAN BENNETT Sixth Applicant PATRICK BROWN Seventh Applicant STEVEN BUHAGIAR Eighth Applicant JOHN CROPLEY Ninth Applicant JASON CURRY Tenth Applicant ALAN DINGWALL Eleventh Applicant JOHN GEREMIA Twelfth Applicant TERRY GRECH Thirteenth Applicant SYDNEY GRIMA Fourteenth Applicant PETER HABER Fifteenth Applicant RAY JORDAN Sixteenth Applicant BRETT KISTEMAKER Seventeenth Applicant HUBERT KERKVLIET Eighteenth Applicant JOHN KUKLINSKY Nineteenth Applicant RALPH MARSHALL Twentieth Applicant KEITH McKENDRY Twenty-First Applicant GEOFF MORLAND Twenty-Second Applicant JOSEPH MICALLEF Twenty-Third Applicant DAVID MITCHELL Twenty-Fourth Applicant GREGORY NICKLEN Twenty-Fifth Applicant GEOFFREY REA Twenty-Sixth Applicant CHRISTOPHER ROBERTSON Twenty-Seventh Applicant JOHN SCHOLTES Twenty-Eighth Applicant KEVIN SIMM Twenty-Ninth Applicant IAN STRONG Thirtieth Applicant DAVID WARD Thirty-First Applicant DAVID WARNER Thirty-Second Applicant DAVID WAWRZKOW Thirty-Third Applicant – and – MECHANICAL ENGINEERING SERVICES PTY LTD Respondent