Yilmaz Izdes v LG Bennett and Co Pty Limited trading as Alba Industries [1995] IRCA 170

IN THE INDUSTRIAL RELATIONS) COURT OF AUSTRALIA ) WESTERN AUSTRALIA ) DISTRICT REGISTRY ) No. WI 307 of 1994 B E T W E E N YILMAZ IZDES - Applicant -v- L G BENNETT & CO PTY LIMITED trading as ALBA INDUSTRIES PERTH - Respondent BEFORE: JUDICIAL REGISTRAR WHEELER DATE: 27 JANUARY 1995 PLACE: PERTH REASONS FOR JUDGMENT Delivered extempore and revised from the transcript. The applicant in this matter is 43 years of age and commenced employment with Alba Industries on 5 January 1993. He was dismissed on 3 August 1994. He seeks reinstatement and compensation for what may be broadly described as the "lost benefits" of employment to date. He seeks, in the alternative, compensation for his dismissal. He seeks damages for breach of the contract of employment in that there was an alleged failure to give reasonable notice and he seeks that pursuant to the accrued jurisdiction of the court. The witnesses in this case consisted of the applicant, Mr Izdes himself, Mr Bennett and Mr Pymont. I can deal first with some relatively uncontentious matters. Mr Izdes obtained a Bachelor of Science Degree in Chemical Engineering, has had a variety of industrial experience; most relevantly and most recently, prior to his employment with the respondent, employment with EOI Foods in Sydney. EOI Foods is a producer of edible oils, cake mixes and the like. He was their Research and Development Engineer. In late 1992 Alba advertised for a Food Technologist. It was a critical position with the respondent as the advertisement, Exhibit R, makes clear and this was also made clear in the evidence particularly of the applicant and of Mr Bennett. The applicant was employed by the respondent either initially as Factory Manager or initially as Food Technologist and very shortly thereafter as Factory Manager. There was a dispute as to which of those was the correct sequence, but it seems, in any event, the title under which he was first employed is not particularly relevant. Both titles appear, on the evidence, to have covered a similar range of duties although that of Factory Manager is, perhaps, the broader. His remuneration was $45,000 a year plus a car and superannuation. After his employment the applicant suggested and implemented many changes in the factory, its equipment, its procedures, its staff training and he developed new products. All parties agreed that the applicant made, in all of these areas, a very important contribution to the business of the respondent. I should add, in passing, that Mr Pymont, one of the respondent's witnesses, was inclined to down play the contribution made by the applicant, but both in the applicant's estimation and in Mr Bennett's his contribution was very significant. Some time after his initial employment, a number of disputes arose. They seem to have centred around the applicant's view of his work and of his responsibilities. It is difficult to summarise an employment history that became increasingly turbulent, but it is, perhaps, fair to say that the first of the difficulties arose around the question of what has been described as quality assurance. The applicant was unhappy about the ability of others to release out of specification products, that is, products which did not conform to the relevant specifications. On the respondent's part, concerns about quality control generally are reflected in a number of the documents produced in evidence. For example, in the minutes of management meetings on 8 February 1994 (Exhibit 9), on 15 March 1994 (Exhibit 4) and on 3 May 1994, (Exhibit 10). As explained by Mr Bennett in his evidence, quality control and quality assurance included such matters as the need for batch control and appropriate recall procedures so that products about which there had been complaints could be identified. Other customers who had received similar products could also be identified and, if necessary, products could be recalled. Additionally, such procedures would allow identification of the particular processor who had produced that particular batch. Mr Bennett explained that he required these procedures and discussed them on a number of occasions with the applicant and was unhappy with the way in which implementation of that area of quality assurance was proceeding. Mr Bennett saw this area as one of the applicant's areas of responsibility. In Exhibit E1, which is a letter to the applicant dated 4 May 1994, Mr Bennett formally warned the applicant that the areas of quality assurance control and recording needed a major improvement and he warned in that letter that if he did not see such an improvement then the applicant's position with Alba would be terminated. He also, in that letter, expressed concern about what might broadly be described as the applicant's relationships with other employees. By his reply dated 6 May 1994, Exhibit E2, the applicant said, inter alia, that in relation to quality control, and I quote: "This area is out of my responsibility in our agreement with Alba and Drake Executive for my employment. I can help you as before but I cannot accept any responsibility." In my view, in the light of the technical expertise of the applicant and the role which he had already played in Alba's business, that is a somewhat extraordinary response. It appears from the evidence that the applicant had a very special definition of quality assurance and took the view that he was not to be regarded as responsible for quality assurance if he was not responsible and, perhaps, solely responsible for the whole of the activities which could be defined as coming under that heading, including, as I have mentioned earlier, the release of out of specification products which seems to have been a matter of particular difficulty. The response of Mr Bennett to that letter was to restructure somewhat the management of the company, which he did on 23 May, and he conveyed the results of the restructure to Mr Izdes in Exhibit F, his letter dated 23 May 1994. As that letter makes clear, the applicant was then definitely to be responsible for quality assurance and testing and product development, among other areas. The issue of quality assurance and quality management flared again on 8 July with the production of a batch of margarine which was essentially too light in colour. Mr Bennett blamed both Mr Pymont, who actually produced the batch, and the applicant who, it was said, did not assist Mr Pymont sufficiently with it. That appears particularly from Exhibit L, which is Mr Bennett's letter to the applicant dated 26 July 1994 dealing with a range of issues, that one among them. And, again, in that letter Mr Bennett concluded by saying that: We will meet tomorrow at 10.00am to discuss the above. Be advised that your termination is under consideration and this could be the outcome of tomorrow's meeting. I also advise to have a witness of your choosing with you. Please also note that you will be given full opportunity to reply to the above. A discussion duly took place it seems on 27 July and among the issues discussed at that meeting was that of the second major problem area, that of testing and reporting on competitors' products. If I can summarise the competing tensions in relation to that field generally, Mr Bennett's evidence was that it was necessary to test competitors products basically for two reasons. One was in order to assist with product development; that was, if it was known what was in a competitors' product it would be easier for the respondent to develop an appropriate product to compete with it. The other was to assist sales staff, who would be able to explain to customers and potential customers how it was that particular products developed by the respondent compared with products the customers might be accustomed to using from other sources. The applicant's evidence was that he had two difficulties with testing and reporting upon products of competitors. One related, it seems, to an area of confidentiality. That was never fully developed or explained during the course of the evidence. It was clear that a concern was that the applicant had in fact worked for one of the major competitors with the respondent and did not want to breach any confidentiality when he dealt with that competitors' products, and that is understandable. In relation to other competitors, concerns about confidentiality and the like are not so clear. In any event, the other thing which the applicant said about that comparison testing and report was that there was no point in it because each individual batch of a product was different and that from testing one batch one could gain no information, or, no necessarily reliable information, as to the specifications and usual composition of the product in question. As to whether there was any point in testing competitors' products I accept on that aspect the evidence of Mr Bennett and I do so primarily because of the documentation which has been produced in evidence. I note that Exhibit J, a document dated 19 July 1989 and apparently produced by EOI, purports on the basis of analysis of one 15 kilo carton of All-Fry, a product manufactured by the respondent, to arrive at conclusions as to the comparative value of that product when compared with certain products produced by EOI. I note also that among the annexures to Exhibit L is a hand-written memo produced by the applicant himself and dated 28 April 1994 in which he draws apparently from test results of competitors' products broad conclusions as to the advantage, if any, possessed by the respondent's product. He comes to the conclusion that the advantage is only in price, if at all. Those documents seem to confirm what common sense would tend, in any event, to indicate that; even allowing for a range of appropriate variations, some value is to be gained from the producer of products such as this from testing competitors' products and drawing conclusions as to comparative composition and value. In any event, those concerns having been discussed at the meeting of 27 July, Mr Bennett said in his evidence that in order to compromise with the applicant's concerns, that is the concerns as to confidentiality, he determined that the applicant would not be required to do direct comparison reporting (e.g. of the type found in exhibits) but would simply be required to test the product (i.e. simple chemical analysis). He confirmed that in his letter dated 27 July 1994 addressed to the applicant. The letter, as sent, appears as Exhibit N2. Exhibit N1, a document produced by the applicant is said to contain annotations written by the applicant, indicating where he disagreed with certain of the points contained in that letter. I note that one of the points which is not annotated by the applicant so as to indicate any disagreement is point 3 which reads: Quality reporting will be in a useable, understandable manner. Direct comparisons between Alba and opposition products are not required. In the context of the evidence the concept of, "Quality reporting" clearly refers to the quality of Alba's own and of competitors' products. After that meeting and the correspondence of 27 July, it appears that the relationship between the applicant and the respondent did not generally improve. Indeed the annotations on Exhibit N1 certainly show outstanding areas of dispute. An incident then occurred on 3 August, the date of the dismissal, which requires some detailed examination. The applicant's evidence in relation to it was broadly in these terms: The applicant said that on 3 August he went to work. At about 2 or 3pm Mr Bennett brought him a sample of an EOI product and there was a label on the product showing that was who had produced it. He asked the applicant to analyse the product and to write a comparison report. Mr Izdes said that he had discussed that issue on 27 July and further indicated that he knew the formulae that EOI used and that it would be a breach of confidentiality to test the product. Mr Bennett went away and 3 or 4 minutes later came back with a letter bearing the date of 3 August, which letter is Exhibit O1, and which is brief and I can read the whole of it. It reads: Your demands regarding responsibility for past quality and whether or not Tony Pymont is able to authorise release of out of specification product are under consideration. In the meantime I require routine testing to be done. This has always been part of your functions at Alba. If you refuse to conduct these tests you will be dismissed forthwith. Please consider your position and advise me in writing urgently. Mr Izdes said that he replied to this letter that the product was not an Alba product and it was not a routine test. He further says that he said to Mr Bennett that if he wanted the applicant to do the test he should give him an indemnity. Mr Bennett then said that that was not accepted and handed Mr Izdes the second document, Exhibit O2, which reads: In view of your response to my letter today you are hereby dismissed. Please leave the premises immediately. Please return tomorrow after 3pm to collect all money due to you. I do not think I need to read the remaining paragraph of the letter. Mr Izdes says that he said to Mr Bennett that Mr Bennett had been planning this and Mr Bennett's reply, smiling, was to the effect of: what were you expecting. Now, in contrast to that account, Mr Bennett's account of the event of that day was as follows: He said that, again on 3 August, he needed testing of two products which he agreed were indeed competitors' products. He needed testing on the machine called the gas chromatograph and he needed, if necessary, what was called the drop point of the product to be ascertained. He said, using those test results, it would then be possible to determine whether Alba would be able to produce a similar product. Mr Bennett denied that he required anything more than a test and a production of test results. He says Mr Izdes refused to test both products and his first reaction to the request was to ask for a letter saying that he was not responsible for the quality of the products up until that date and that he wanted further to be informed as to what was happening about out of specification stocks. Mr Bennett replied that these matters were not relevant and indicated his view that this was part of routine testing. He says that he again asked the applicant to test these products and the applicant refused to discuss the matter further. He says he then wrote up and had typed the letter I have already read, Exhibit O1, and that that probably took him about an hour. That he gave the letter, O1, to the applicant and walked back to his office and that the applicant then walked into his office, put the letter on the desk and said: no, he would not do the test and he would not discuss it. He then dismissed the applicant and wrote the letter, Exhibit O2. Now, in relation to that incident, which appears to me to be critical in this case, I accept the evidence of the respondent, Mr Bennett, and I do so for a variety of reasons. Firstly, it seems to me that the documentary evidence and, particularly, the record of the meeting on 27 July clearly shows a desire to compromise with the applicant so far as possible. Secondly, it is clear from the evidence that Mr Bennett had reason to want to compromise with the applicant and to retain his services if possible. The evidence, which was not disputed, was that the applicant had made a very technically significant contribution and that he has not been replaced to date by a person of equivalent qualifications. Indeed, the applicant puts the technical contribution which he is able to make as a reason for favouring his reinstatement and Mr Bennett in his evidence accepts that the applicant did play a very important role in that regard. Thirdly, the terms of Exhibit O1 itself sit better with the respondent's version of events. The first paragraph deals with responsibility for past quality and release of out of specification products, the very matters which Mr Bennett says were the subject of Mr Izdes immediate response when he asked for the products to be tested. Now, the applicant has suggested that the respondent had other reasons for wanting to get rid of him, and that this was part of a plot, a scheme, to achieve that end. If it was so, it was orchestrated with an unusual level of deviousness; one would not normally expect, in circumstances of that kind, Mr Bennett to be dealing with irrelevancies, apparent irrelevancies, such as past quality products and out of specification products in such a letter. Finally, I base my finding also on the demeanour of the witnesses. I would be reluctant to base my views on that alone but it is nevertheless striking that under cross-examination the applicant would often simply respond to any question touching even peripherally on the area of quality assurance by giving what was, in effect, a speech on a subject of his choosing rather than responding to the substance of the particular question. I have anxiously considered whether language difficulties might have accounted for that response, but in view of the applicant's evidence in chief and the way he was able to conduct himself when he personally conducted cross-examination of witnesses, I have rejected that as an explanation. In the light of that demeanour under cross-examination I can the more readily accept Mr Bennett's evidence that the applicant responded to a request to test a competitor's product by bringing up his own pet subjects and by refusing to discuss alternatives. Once Mr Bennett's evidence as to that incident is accepted, almost everything else follows from it. The applicant was a senior employee hired in order to make a vital contribution to the company, including product development. His refusal to cooperate in a task directed to that end, the fact that he was the only person in the company with the expertise to do so, and those factors considered in the light of his previous refusals to accept responsibility for quality assurance tasks which clearly seem to be within his technical province, in my view justified his dismissal. I find that it was for a valid reason and, particularly in the light of the past warnings, the past negotiations, I do not find that there was any harsh, unreasonable or unfair conduct. I should also perhaps add that it follows from that there is no question of the breach of the contract of employment apart from questions of notice. Section 170DB(1) of the Act provides that: An employer must not terminate an employee's employment unless (a) the employee has been given either the period of notice required by subsection (2) or compensation instead of notice, or, (b) the employee is guilty of serious misconduct, that is, misconduct of a kind such that it would be unreasonable to require the employer to continue the employment during the notice period. The only remaining question is that of notice. Section 170DB (I) of the Act - It is common ground that the notice period under section 170DB in this case would have been 2 weeks and it is common ground that that notice was not given. The only question then is whether there was, within the meaning of the term, serious misconduct. The question is essentially whether the conduct was such as to amount to a repudiation of the contract of employment. This was an incident which, if isolated, would not have constituted serious misconduct. It is submitted on behalf of the respondent that, in the light of the previous conduct, which I have very briefly outlined, and coming from a senior manager whose duty is not just to perform specific tasks but to cooperate in promoting the employer's business generally, the conduct is rendered sufficiently serious. On the other hand, it should be noted that although this was not the first incident in which the applicant had misconducted himself it was certainly the first of its particular kind and it was apparently not premeditated. Further, it was a test which, while it was required to be done in order to develop further products, was not required to be done that particular instant, or, indeed, as far as one can tell, that particular day. That is, it was not a critical test in the sense that, for example, the testing of a batch of the respondent's product before its release on sale would have been. On balance, and with some considerable hesitation, I formed the view that, although the applicant has demonstrated an unfortunate attitude to his duties, this incident, even in the context of that unfortunate attitude, is not such as to constitute a repudiation of the contract of employment or "serious misconduct" and therefore, in my view, there has been a breach of section 170DB(1)(a). Quantifying the compensation for that, I note that in evidence the applicant's salary only was quantified and that was $45,000 per annum. There was a reference to non-salary benefits, but no way of calculating their value. Section 170EE(5) allows the court to make an order requiring the employer to pay to the employee an amount of damages equal to the amount of the compensation which, if it had been given by the employer to the employee when the employment was terminated, would have resulted in the employer not contravening that section. Based on the only amount which I am able to quantify, that is the $45,000 per annum salary, that comes to an amount of $1730 for the 2 weeks notice period. There will therefore be orders in these terms: 1. The respondent pay the applicant damages in the sum of $1730 pursuant to section 170EE(5). 2. The application is otherwise dismissed. I certify that this and the preceding 13 pages are a true copy of the reasons for judgment of Judicial Registrar Wheeler. Associate: Date: For the Applicant: Mr Y Izdes Solicitors for the Respondents: Phillips Fox Counsel for the Respondent: Mr I Curlewis Dates of Hearing: 29 November 1994, 13 December 1994, 24 and 27 January 1995 Date of Judgment: 27 January 1995