Timothy John Fleetwood-Hine and Tool Properties (Aust) Pty Ltd [1995] IRCA 7

INDUSTRIAL RELATIONS COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY VI 1525 of 1994 B E T W E E N : TIMOTHY JOHN FLEETWOOD-HINE Applicant AND TOOL PROPERTIES (AUST) PTY LTD Respondent Before: Judicial Registrar Chancellor Place: Melbourne Date: 23 January 1995 REASONS FOR JUDGMENT This is an application pursuant to Section 170 EA of the Industrial Relations Act ("the Act") by Tim Fleetwood-Hine ("Mr Hine") seeking compensation in respect of the termination of his employment as sales manager by Tool Properties (Aust) Pty Ltd ("Tool Properties"). The Application originally named four Respondents but by consent the matter was discontinued against the first, third and fourthnamed Respondents. This matter had not been referred to the Commission for conciliation pursuant to Section 170 EC of the Act. A mediation of the matter had been convened by the Registrar of this Court and was attended by both parties. I was assured by both parties that attempts at resolution had been exhausted and that both parties were ready to proceed. I was satisfied that it was not appropriate to refer the matter to the Commission and proceeded to hear the Application in its merits. Background Mr Hine was employed as sales manager by Tool Properties in approximately late July 1993 when he was appointed to the position by Mr Ambrose Power, one of the directors of the company. Previously Mr Hine had worked as a land salesman with one of Mr Power's associated companies, having been in that position since approximately January 1993. This involved Mr Hine in selling blocks of land in Kerang on a commission only basis. Mr Power was happy with Mr Hines' performance at Kerang and was obviously quite impressed by his work. Tool Properties is primarily involved in the business of the purchase, development, sub-division and sale of rural blocks of land. Given that the company is the owner/vendor of the blocks its sales persons do not have to be licenced real estate agents, although Mr Power himself has been so licenced for over 30 years. Tool Properties is essentially owned by two companies, one a Power family company and the second a Reynolds family company. Mr Ambrose Power gave evidence of the background of Tool Properties leading up to the appointment of Mr Hine as sales manager. In the two financial years prior to Mr Hine's appointment Tool Properties had traded at a loss. Mr Ambrose Power had overall responsibility for the day to day running of the company but was playing a less active role. The other senior officer of the company, Mr Noel Reynolds had little to do with the day-to-day operations but was in charge of the overall financial position of the company. Ambrose Power's son, Robert Power was employed as the development manager responsible for purchasing and developing blocks to the point where they were ready for sale. Noel Reynold's son, Derrick Reynolds was in charge of the clerical, financial and conveyancing aspects of the individual sales. Derrick Reynolds and Mr Power's youngest son, Andrew Power had joint responsibility for the land sales division and salespersons. Wendy Wade, who was the receptionist and general office person, appears to be the only non-Reynolds or Power family member in full time employment with Tool Properties and she had been employed by the company for many years. Noel Reynolds and Ambrose Power were unhappy with the performance of their sons Derrick and Andrew respectively, in the sales division and felt that they were too young and immature for the position and advised their sons accordingly. Mr Ambrose Power was impressed with Mr Hine's experience, personality, ideas and performance and recommended him. Mr Hine was duly appointed to what I find was the newly created position of sales manager which combined the duties previously undertaken by Derrick Reynolds and Andrew Power. Derrick become involved full time in his clerical, financial and conveyancing role and Andrew was moved to another position. After a meeting between Ambrose Power, Mr Hine and Mr Hine's accountant a remuneration package involving payment of a weekly retainer, payment of an override commission, the provision and maintenance of a car and payment of mobile phone bills was agreed upon. On the basis of the evidence, I form the view that the directors were hoping that Mr Hine would be able to turn around what was a deteriorating position with respect to the company's level of sales and profitability and justified the creation of his position on that basis. The termination On Thursday 11 August 1994 after just over 12 months in the position as sales manager, Mr Hine was called in to Mr Ambrose Power's office. Also present was Mr Robert Power. Although there is some disagreement as to the exact content of the conversation, in general terms it amounted to the fact that Mr Ambrose Power indicated to Mr Hine that the company was losing money, that Mr Hine was not the answer, that Mr Hine was not producing the results expected of him and that his position of sales manager would cease. At some stage during the same day Mr Ambrose Power suggested two alternative employment options to Mr Hine, one a land sales position at Numurkah and the second, with a different but associated company, selling blocks of land in Kerang. As I understand it the second option was very similar to the position that Mr Hine occupied before his appointment as sales manager with Tool Properties, and Mr Hine asked for some time to consider it. He was paid his outstanding holiday pay of four weeks but indicated he would take two weeks to consider his position. The position at Numurkah was never a viable alternative to Mr Hine involving as it did both relocation and uncertain result and I accept Mr Hine's evidence that he indicated this to Mr Power on 11 August 1994. His employment with the Respondent was therefore at an end. The Respondent argued that this was not a termination of employment, but merely a mutual recognition on Mr Hines part that he was not performing satisfactorily in the position and would move elsewhere within Tool Properties or an associated company. The evidence does not support this contention. In the Respondent's Affidavit sworn on 15 September 1994 Mr Ambrose Power said in part:- "the Applicant was informed by the Respondent that his performance in his position as sales manager was inadequate. It was mutually agreed between the Applicant and the Respondent that the Applicant was ineffective in various roles including the recruitment and management of staff... It was agreed by the Applicant and Respondent that it was necessary to alter the Applicant's employment duties..." Mr Power's evidence was contrary to that sworn in the Affidavit. In cross examination he effectively conceded that Mr Hine did not make any direct response and that there was no mutual agreement reached. His evidence seemed to indicate that questions of recruitment and management of staff were not even raised at the meeting. Mr Power's willingness to be self serving and misleading in his affidavit meant that his evidence had to be considered with extreme caution. I find that when Mr Hine entered the meeting he expected his employment to continue as he had received no prior indication to the contrary. The decision of the Respondent to terminate his employment as sales manager was presented as a fait accompli. Mr Hine was naturally quite shocked and in the circumstances I reject any suggestion that silence on his part could somehow constitute a consent to or acceptance of what was taking place. Clearly there was an act on the part of the employer which amounts to a termination of employment within the meaning of the Act on 11 August 1994. Reasons for Termination Pursuant to Section 170 DE the Respondent alleged that there were two valid reasons for the termination of employment. The first being Mr Hine's lack of capacity to carry out the role as sales manager together with his failure to perform in that role. The evidence of Mr Hine and Mr Ambrose Power indicates that both men basically saw Mr Hine's duties as sales manager as involving the recruitment, training and motivation of sales staff, the maintenance of a good sales team and the maintenance of a satisfactory sales level. However, I note that no specific job specification or guideline was provided nor were any specific sales target or targets set by Tool Properties to Mr Hine. In relation to recruitment I find that Mr Hine basically maintained the same method by advertising for sales consultants in the professional columns of The Age. From time to time during Mr Hine's period as sales manager both Angus Power or Robert Power sat in on job interviews and they seemed to generally agree with Mr Hine's assessment of potential recruits. In his evidence Mr Ambrose Power said his main complaint was the quality of recruiting but this does not seem to have been a problem raised by Mr Power during Mr Hine's period as sales manager and is inconsistent with Mr Power's own assessment of the recruits at the time they were appointed. In relation to training I note that Mr Hine designed and introduced a training program and training schedule for the new recruits in their first week with the company. This involved things such as talks, videos, lectures and feedback sessions. Both Robert and Ambrose Power spoke to the recruits during the training week and were in general terms aware of the content of the training programme and made no particular complaints at the time of its implementation. The only real criticism seems to be that for two days of the first week the recruits were sent out into country Victoria to locate and inspect the company's blocks and surrounding amenities. Perhaps it might have been wiser to have sent an experienced person with the recruits to ensure that they found the relevant blocks, however there was a feedback session held upon return which was at least partly adequate. Further, Mr Hine visited the sales representatives out on the blocks on most weekends. Overall, I find that the training was performed in a satisfactory manner. In relation to maintenance of a good sales team I note that when Mr Hine commenced as sales manager the sales consultants were retained on a commission only basis. Mr Hine suggested a base retainer be paid to assist the recruits in meeting travelling and accommodation expenses in an attempt to provide them with a greater stability of income and employment, particularly in the early weeks. In my view this was a sensible suggestion and ultimately a $275.00 retainer was introduced to be subsequently deducted from future commission earned. Regular sales meetings were held with agendas prepared. Unfortunately, many of the sales persons lasted only a short period of time but, after listening to all of the evidence I form the view that this was generally due to the poor economic climate and difficulty in selling the land which had been a problem for at least the two preceding years. The sales strategy of advertising mainly in the Herald Sun country property section remained essentially unchanged under Mr Hine. Mr Hine introduced a crack back presentation book and colour brochures which seemed to me to be an improvement although Mr Ambrose Power gave evidence to the contrary. In general terms I find that Mr Hine brought a greater sense of professionalism to the sales staff. This view was reinforced after hearing evidence from several past and present sales representatives namely Peter Heenan, David Reynolds, Dimitrious Pandazis, Marc Antoine and Robert Barnes. Although the gross sales position did not improve over the twelve month period my impression was that this was largely due to economic and market factors outside the control of Mr Hine who I believed tried his hardest despite the difficult circumstances. I find that Mr Hine performed satisfactorily in his role as sales manager and that lack of capacity or performance was not a valid reason for termination. Even if Mr Hine's performance as sales manager had been so unsatisfactory as to constitute a valid reason for termination, I find that his termination on that basis would have been in breach of Section 170 DC of the Act. No adequate guidelines or targets were set and it was not made sufficiently clear to Mr Hine that his performance had to improve or that his employment may have been in jeopardy if his alleged shortcomings were not overcome. Apart from Ambrose Power urging upon Mr Hine the need to improve sales figures, and this was only done in a very informal manner and without quoting any actual figures, there seems to have been little else put to Mr Hine. Robert Power was moved downstairs for a short time in January 1994 allegedly to toughen things up but, although Ambrose Power, Noel Reynolds and Robert Power may have been very concerned and may have discussed matters regularly amongst themselves these concerns were never specifically put to Mr Hine. At the very most Mr Hine was only told that the company could not afford the low sales figures to continue. I accept Mr Hine's evidence that he was left with the impression that he was performing adequately and that his job was not in jeopardy. There is no evidence that he was specifically warned or counselled. He was not given the opportunity to defend himself in relation to his alleged unsatisfactory performance. The second reason given for termination was that it was based on the operational requirements of the business. The position of sales manager had been newly created for Mr Hine but had not resulted in any improvement in the business. The Respondent suffered a loss of over $500,000.00 to June 1994 being its third successive year of trading at a loss. It was a further loss of $38,000.00 in July 1994 that triggered the decision to terminate Mr Hine and re-structure the sales division. The Respondent's directors felt they could not justify continuing the employment of a sales manager in the face of losses of that magnitude. The position had not achieved its desired goal. Immediately upon Mr Hine's termination as sales manager, Mr Robert Power took on the dual responsibilities of development manager and overseeing the sales team. The only aspect of Mr Hine's job that was not taken on by Mr Robert Power was the driving to country blocks with staff, either in the training period or on weekends. This aspect was performed by one of the more experienced sales team members, Marc Antoine. In what was a small family company the position of sales manager ceased to exist. I find that pursuant to Section 170 DE(1) this constitutes a valid reason for the termination of Mr Hine's employment as sales manager of the Respondent. Was the termination harsh, unjust or unreasonable? This is basically a redundancy type situation. I accept the description of a redundancy as adopted in Needham v Shepparton Preserving Company Ltd 1991 AILR 395 that:- "it is not necessary for all of the work to have disappeared. Organisational restructuring may result in a position being abolished and the functions or some of them being given to another or split amongst others". Both the State Industrial Commissions and this Court have been willing to intervene to test whether redundancies have been harsh, unjust or unreasonable. The Applicant argued that his termination was in breach of Section 170 DE(2) of the Act. President Zeitz of the Victorian Employee Relations Commission considered the applicability of a "harsh, unjust or unreasonable" provision to a redundancy situation in Shearer v Action Mercantile Pty Ltd 1993 5 VIR 149 and said at page 151:- "Contemporary industrial standards require that where a redundancy is being considered, an employer should consult with and give as much notice to the employee to be affected unless there is good reason why that should not occur". Further, that decision established that in relation to the selection of the Applicant for redundancy an objective analysis of the comparative strengths and weaknesses of the Applicant should be carried out and the Respondent should establish selection criteria that can be objectively assessed as fair and reasonable. In my opinion Mr Hine was denied procedural fairness by the Respondent in this matter. According to Mr Ambrose Power the Respondent was concerned about its financial situation and the ineffectiveness of the new sales manager position in assisting that situation as early as January 1994. Despite this there was no consultation with Mr Hine as to how the situation might be improved or as to how the position might be restructured. There is no suggestion that there was an objective evaluation carried out as to how the restructure would take place. For example, it may have been appropriate that aspects of the development manager's role were brought into Mr Hine's portfolio and not vice versa. If the position was to go, Mr Hine was not given any input as to what may be appropriate alternate employment, the options were merely put as a fait accompli. By failing to give Mr Hine any notice of his impending termination he was given no opportunity to consider his options, reorganise his affairs, or indeed seek appropriate re-employment elsewhere. I therefore find that the termination was harsh, unjust or unreasonable and in breach of the Act. Events subsequent to the termination The evidence indicates that the decision to terminate Mr Hine was made by Mr Ambrose Power and Mr Noel Reynolds. Subsequent to the decision being made Mr Power has become aware of other matters which he indicated would have justified Mr Hine's termination. Mr Hine admitted that he knew of two and perhaps three Tool Properties salesmen who were involved in selling their own properties. There seems to have been a risk that they were selling these properties either using Tool Properties facilities and time or alternatively as a result of leads generated by Tool Properties advertising and publicity. Despite this Mr Hine had not reported his knowledge of these matters to Mr Ambrose Power. Mr Power suggested that where a potential conflict of interest existed Mr Hine breached his duty to his employer by his failure to report. Mr Hine's general view as to what salesmen should and should not do in relation to their employment and his duty to regulate such matters was also criticised. Mr Hine was also aware of one salesman obtaining a personal fee for arranging agistments on blocks which he had sold on behalf of Tool Properties. The arrangements were made using Tool Properties time and facilities. Again, a conflict of interest was alleged. The Powers knew of this matter prior to the termination and, although very unhappy about it, it was specifically said not to be a matter relied upon in the termination which Mr Robert Power confirmed was for economic reasons. However, when combined with the other matters of which Mr Ambrose Power subsequently become aware, this took on more importance. Further, Mr Hine was involved in a very strange arrangement with one of Tool Properties salesman Steve Nightingall. Mr Hine admitted in evidence that he occasionally used another name, John Richards. Mr Hine allowed Steve Nightingall to take out a pager in the name of John Richards and to have it registered at Mr Hine's home address. Steven Nightingall was one of the Tool Properties salesman who was involved in selling properties of his own. I found Mr Hine's explanation to the Court as to why he allowed such an arrangement to take place to be extremely vague and most unsatisfactory. The Respondent's sought to rely on three decisions in support of the proposition that this subsequently acquired information could be relied upon to justify its termination of the Applicant:- - Shepherd v Felt and Textiles of Aust Limited 1931 45 CLR 359 - Lane & Ors v Arrowcrest Group Pty Ltd 1990 99 ALR 45 - Hospital Employees Federation of Australia v Western Hospital 4 VIR ..310 Obviously, these cases were not decided in relation to the Industrial Relations Act but in the context of terminations which were the subject of a common law claim or which were alleged to have been harsh, unjust or unreasonable. Section 170 DE(1) of the Act introduced a specific requirement that an employer must not terminate an employee's employment unless there is a valid reason or valid reasons. In my view the valid reason or reasons must be known to the employer at the time of the decision to terminate and must be the true reason or reasons relied upon in reaching the decision to terminate, otherwise there is a clear breach of Section 170 DE(1) of the Act. After acquired knowledge of poor performance, misconduct, breach of duty or whatever cannot be relied upon to overcome such a breach. However, after acquired knowledge may be relevant in relation to the question of remedy - see for example Nicholson v Heaven & Earth Gallery Pty Ltd (20 September 1994) where Chief Justice Wilcox considered the likely long term security of the Applicant's employment as being a factor relevant to the assessment of compensation, and the likely time within which employment may have been lawfully terminated after adequate investigation and notice was observed. In any event, these matters have not altered my assessment of the appropriate compensation in Mr Hine's case. On the day following his termination as sales manager Mr Hine attended at Tool Properties in order to clear out his office and hand in his keys. He also requested payment of a 1% override commission in relation to the alleged sale of three blocks of land - Derrick, Koren and Skidmore. Mr Hine and the other salesmen normally received their commission payments on a Thursday and, indeed, Mr Hine had received a payment on Thursday 11 August, the day of his termination. Mr Hine agreed in cross examination that there had to be an unconditional contract of sale signed, a satisfactory deposit paid and a three day cooling off period completed before a commission became due and payable. These criteria were not met in relation to the Skidmore block where there was no unconditional contract signed, and the Derrick and Koren blocks, where there was a holding deposit only and not a satisfactory deposit paid. This would explain why commissions were not paid with respect to each of these blocks on 11 August or earlier. Despite this Mr Hine presented an invoice to Robert Power on 12 August seeking authorisation for payment of commission on those three blocks. It also seems that despite the fact that these sales had not matured and that there was considerable uncertainty about their proceeding, that these matters were not brought to the attention of Robert Power. Indeed, it is probable that Mr Hine indicated that the sales would happen. Without further investigation Robert Power accepted Mr Hine's advices and authorised payment on the invoice and co-signed a cheque for $1,057.50 being commission of $1,410.00 less tax. Mr Hine said that he requested payment because he was surprised by his termination, his income was at an end and he was not in a healthy financial position. However, at that time he still had the option of returning to his Kerang position, albeit on a lesser income, and he had just received a cheque for four weeks holiday pay. Robert Power became aware of the uncertainty surrounding the three blocks and on Monday 15 August rang Mr Hine and requested repayment. Mr Hine replied that the cheque was cashed, the money spent and that he was unable to make repayment. In cross examination Mr Hine eventually agreed that the money should be repaid upon request. It had still not been repaid at the time of the hearing. When Mr Hine attended at Tool Properties on 30 August to discuss the Kerang option with Ambrose Power he was met by an agitated Noel Reynolds who told him that he had taken commissions he shouldn't have and wanted immediate repayment. The discussions with Ambrose Power did not take place and a short time later Ambrose Power spoke to Mr Hine and advised him that he would back his partner of 25 years and that Mr Hine would no longer be considered for employment within the group. Mr Power also sought the immediate return of Mr Hine's company supplied motor vehicle. Mr Hine was never asked for his explanation in relation to the commission matter and Mr Ambrose Power was of the view that if Mr Hine took up the Kerang option then some satisfactory arrangement would have been made. Mr Power agreed that occasionally where deals were in the pipeline advances were given. It was only because Mr Noel Reynolds was not so forgiving and at his insistence that discussions between Mr Power and Mr Hine ceased. Having previously argued that there was not a termination on 11 August the Respondent argued that it was on 30 August that Mr Hine's employment was terminated. It argued that his summary dismissal was justified by his alleged dishonesty in taking commissions to which he knew he was not properly entitled and refusing to make repayment upon request. Clearly, there had already been a termination on 11 August and even if there had not been, given the lack of opportunity to respond and Mr Power's view of the matters summary dismissal could not have been lawfully carried out. In those circumstances the only relevance of Mr Hine taking the commissions on 12 August was that it was a contributory factor to an alternate job position being withdrawn and therefore may be relevant on the question of compensation. In my view it was at the very least a very foolish and ill considered act on the part of Mr Hine. Remedy The Applicant did not seek reinstatement. He said that there had been a complete and total breakdown in the relationship between the parties. Apart from this Court proceeding there were other proceedings issued by the Respondent against the Applicant in other jurisdictions. In view of the small family nature of the organisation and the obvious degree of animosity, conflict and mutual lack of trust and the removal of the position of sales manager I find that reinstatement is impracticable. The evidence indicated that Mr Hine was not made any payment in lieu of notice. Given that he had worked only just over one year I find that two weeks notice is appropriate to comply with Section 170 DB of the Act. Section 170 DB(5) requires that compensation instead of notice should take account of all amounts payable under the employee's contract of employment. Taking into account Mr Hine's basic wage, average commission, car allowance and mobile telephone account payment I find that all amounts payable totalled $1,114.00 per week. The total amount payable in lieu of notice is therefore $2, 228.00. The Applicant also seeks compensation. The Act provides that the Court may order compensation of such amount as it thinks appropriate. In assessing the question of compensation I take into account the following matters:- · The Applicant's prior erratic and generally short term work history; · The circumstances in which the Applicant came to be in the position of sales manager; · The length of time of the Applicant was in that position; · The Applicant's general knowledge of the Respondent's difficult financial situation; · What would have been the appropriate period of notice and consultation had the Respondent acted with procedural fairness; · And, the Respondent's initial offer to the Applicant of his original position selling land at Kerang and the Applicant's contribution to that offer being withdrawn. In all the circumstances something in the vicinity of six weeks remuneration in addition to the sum paid by way of notice would seem to be appropriate. I am definitely of the view that compensation should not be paid beyond that six week period, as one of the major factors in assessing appropriate compensation should be an assessment of the Applicant's re-employment and earnings following termination. The Applicant admitted assisting Steven Nightingall in the sale of one or two blocks of land after his termination but seemed remarkably vague about the amount of commission received. The Applicant has shown a prior propensity to be misleading about his work and income. The resume he presented to the Court was misleading in that it left out certain insurance company positions which Mr Hine previously held and which obviously caused him some embarrassment. His response to cross examination on those matters was singularly unimpressive. Further, Mr Hine had entered into a Part X bankruptcy arrangement in mid-1994. The Minutes of the Meeting of Creditors held on 26 July 1994 state that Mr Hine indicated that he was earning $340.00 per week with Tool Properties (presumably a net figure with respect to his basic wage), with a car and small commission. Given that his commission exceeded his weekly wage Mr Hine was forced to concede in cross examination that his description of the commission was misleading. Further, the Controlling Trustees Affidavit indicated that Mr Hine was employed as a sales person by Tool Properties on a gross weekly salary of $419.00. No mention was made of any commissions. In cross examination Mr Hine effectively agreed that with the proposition that the inference could properly be drawn that he misled the Trustee as to the true level of his income and breached his duty of disclosure. Given the strange and unexplained nature of Mr Hine's relationship with Steve Nightingall and his propensity to understate his income or mislead as to his work in circumstances that suit him, I am not prepared to award compensation beyond that additional six week period. The Court Orders:- 1. Pursuant to Section 170 EE(5) the Respondent pay the Applicant damages in the sum of $2,228.00. 2. Pursuant to Section 170 EE(2) the Respondent pay the Applicant compensation in the sum of $6,650.00. 3. There be a stay of 21 days with respect to the total sum payable of $8,878.00. NOTE: Settlement and entry of orders is dealt with by Order 36 of the Industrial Relations Court Rules. I certify that this and the preceding twenty one (21) pages are a true copy of the reasons for judgment of Judicial Registrar Chancellor. Associate: Dated: 23 January 1995 Solicitors for the Applicant: Mr M Irving of Maurice Blackburn & Co. Solicitors for the Respondent: Tucker Pietrzak Counsel for the Respondent: Mr J Ribbands