CATCHWORDS INDUSTRIAL LAW - Redundancy - valid reason - operational requirements - procedural fairness - harsh, unjust or unreasonable - Termination of Employment convention - reinstatement - compensation. Industrial Relations Act 1988, ss.170 DB, 170 DC, 170 DE, 170 EE Cases: Bostik (Australia) Pty Ltd v Gorgevski (No.1) ((1992) 36 FCR 20) Janceski v South Pacific Tyres (Industrial Relations Court of Australia, Parkinson JR, 5 April 1995) Carydias v The Greek Orthodox Community of Melbourne and Victoria (Industrial Relations Court of Australia, Staindl JR, 31 March 1995) Fenton v Casey College of TAFE (Industrial Relations Court of Australia, Parkinson JR, 8 December 1994) Mallen v Beasam Pty Ltd (Industrial Relations Court of Australia, Parkinson JR, 26 October 1994) Hunt v STA Tech Engineering Pty Ltd (Industrial Relations Court of Australia, Ryan JR, 23 September 1994) Palumbo v Commercial Butchers Pty Ltd (Industrial Relations Court of Australia, Ryan JR, 30 August 1992) Papadopoulos v The Colonial Mutual Life Assurance Society Ltd (Industrial Relations Court of Australia, Ryan JR, 16 August 1994) Kelsall v Bryan Snooks and Anor (Industrial Relations court of Australia, Parkinson JR, 3 August 1994) Nicholson v Heaven & Earth Gallery Pty Ltd (1994) 126 ALR 233 Minister of State for Immigration and Ethnic Affairs v Teoh (High Court of Australia, Mason CJ, Deane, Toohey, Gaudron and McHugh JJ, 7 April 1995) CHRIS KARAMBELIS -v- COMPACK PACKAGING PTY LTD No. VI 2610 of 1995 Before:Murphy JR Place: Melbourne Date 4 May 1995 IN THE INDUSTRIAL RELATIONS COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY No VI 2610 of 1995 B E T W E E N: CHRIS KARAMBELAS Applicant AND COMPACK PACKAGING PTY LTD Respondent MINUTES OF ORDER Judicial Registrar Murphy 4 May 1995 THE COURT ORDERS THAT: 1. The respondent pay the applicant by way of compensation the sum of $8,198.00 within 21 days of this date. NOTE: Settlement and entry of orders is dealt with in Order 36 of the Industrial Relations Court Rules. IN THE INDUSTRIAL RELATIONS COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY No VI 2610 of 1994 B E T W E E N: CHRIS KARAMBELAS Applicant AND COMPACK PACKAGING PTY LTD Respondent BEFORE: JUDICIAL REGISTRAR MURPHY PLACE: MELBOURNE DATE: 4 MAY 1995 REASONS FOR JUDGMENT Introduction On 1st December 1994 the applicant was terminated from his position as Quality Manager of the respondent. The reason given by the respondent was that the position had become redundant. The applicant disputes this; he also alleges that he was not accorded procedural or substantive fairness nor was the matter discussed with him prior to the termination. He issued proceedings under Part VIA of the Industrial Relations Act ("the Act") and seeks six months compensation based on his annual salary of $42,630.00 per annum. Background Evidence The applicant is a qualified Mechanical Engineer and has 5 years experience in the area of Quality Assurance. The respondent is a small to medium sized company involved in contract packaging. It has about 88 employees and also uses casual labour. At the time the applicant commenced employment in October 1993, its operations were divided into 4 plants. The management structure of the respondent consisted of a Managing Director, a General Manager and a Manager for each of the 4 plants. The applicant in his position, at first described as Quality Engineer and later changed to Quality Manager, reported to the General Manager. At the time that the applicant commenced employment, it was envisaged that his duties would involve the respondent obtaining from Ford Australia a quality assurance certification known as Q1. That certification requires the preparation of various operating procedures manuals, the training of staff in those procedures and then an audit by an external authority leading to a certification accepted in the automotive industry. Another form of quality assurance certification is known as ISO9001. It was envisaged when he commenced employment that following the obtaining of Q1 certification, first within plant No. 2 of the respondent and then for the respondent's total operations, the ISO9001 certification would also be obtained. When he commenced employment it was envisaged that the Q1 certification would take 2 years to achieve. His letter of appointment referred to him implementing the quality project and "the ongoing upgrading to follow." The applicant commenced his duties and produced a blueprint directed towards obtaining the Q1 certification for plant No.2. In his evidence he stated that he was responsible for the overall quality assurance function within the respondent. He sought to implement what is known as "total quality management" across the operations of the respondent. After he commenced employment, he assumed the duties of Occupational Health and Safety ("OHS") Officer as the incumbent was unable to properly discharge those duties. He also assumed some duties in the human resources function. The respondent led no evidence to criticise the discharge by the applicant of any of his duties prior to his termination. In September 1994 Paul Smart ("Smart") commenced employment as Operations Manager of the respondent. He was brought into the respondent's operation at the initiative of the Managing Director who felt that both he and the General Manager should focus their energies on expanding the respondent's operations and that an Operations Manager was required who had experience to attend to the factory operations of the respondent. As part of his duties Smart was to review the operations of the respondent. Soon after he commenced, Smart was briefed by the applicant as to the progress in the obtaining the Q1 certification and expressed admiration for the work that had been done. Subsequently, Smart prepared for the Managing Director and the General Manager a 20 page organizational document and strategy plan. That organizational document proposed to restructure the operations of the respondent. Part of that restructure involved Smart assuming some of the duties undertaken by the applicant with the balance of the quality assurance function being devolved to the Plant Managers and the employees underneath them. Smart would also use external consultants as necessary. The plan involved the applicant's position becoming redundant and the termination of the applicant's employment. Smart gave evidence that he was left with responsibility to implement the redundancy of the applicant by the other two senior Managers. He sought industrial and legal advice in relation to the matter. He decided that there would be no consultation with the applicant as he did not want to prolong the agony. Smart's evidence was that prior to the decision to terminate the applicant, he had reviewed the applicant's resume and noted that it had a quality focus. He had considered whether there were any other positions available within the respondent, or likely to become available, and found that there were not. He also considered whether it would be possible to have the applicant work part-time in either quality assurance or OHS but the company could not afford this either. After the termination he arranged for the OHS representatives in the plants to take a more senior role until a payroll officer received training in the area and assumed the title of OHS Officer. In cross-examination Smart conceded he was aware that the applicant was a member of a professional association. He chose not to advise the association of the pending redundancy. He conceded that it was possible the association may have been able to suggest various alternatives to redundancy had it been so advised. He maintained however that there was no real alternative to redundancy as the size of the respondent and its functions were such that a dedicated position in quality assurance could not be justified. A short time prior to 1 December 1994, there was an exchange of correspondence between the applicant and Smart about his punctuality. Smart wanted the applicant to commence duties earlier than the applicant had been accustomed to and wrote to him to that effect. The applicant replied denying any lack of punctuality and pointing to his employment contract which provided that his hours were flexible. Smart denied that there was anything irregular in raising the question of his punctuality in circumstances where the decision had already been taken to terminate his employment. The applicant's reply to Smart's letter referred to the fact that the applicant had not been invited to the Christmas party. This is consistent with the decision being made by Smart to terminate the applicant's employment at that time. On 1 December 1994 the applicant attended work and was called into the board room to meet Smart and the General Manager Hodges. He was then advised that there was to be re-organization of the respondent and his services were no longer required. He was offered a termination package consisting of 8 weeks salary which was "the statutory period of notice and a redundancy payment". He was also offered out-placement services to the value of $4,100.00 and a financial planning program to the value of $250.00. He was to be paid his outstanding annual leave entitlement. The letter contained a release which he was to execute in exchange for the total amount of money which came to $9,392.01. He was to leave immediately. The applicant was shocked by the proposal and queried Smart. Smart indicated that the organization chart had not yet been settled but that the decision had been taken. Smart was heavily pressed in cross-examination as to whether the proposed organization structure which eliminated the applicant's position had in fact been settled at the date of termination. Smart maintained that 75% of the restructure had been determined and committed to paper. The balance was not finalised. He maintained however that the decision that he would assume the quality management function and delegate its implementation to those below him had been made. Subsequent to the applicant's termination Smart's title became "Operations/Quality Manager." During the termination discussion, the applicant sought to contact his professional association and, after doing so, sought details of the reasons for the redundancy in writing. He was invited to return later that afternoon. Later that afternoon Smart refused to give him any written details but maintained that the reason was the dissemination of his quality assurance function to other employees. The applicant then issued these proceedings. The applicant was not paid the termination package but he has received his outstanding annual leave entitlements. Findings on the Evidence The crucial contested issue in this matter is whether this was a genuine redundancy. The applicant's representative referred to the lack of any corroborating documentary evidence for Smart's evidence that indeed the respondent had determined to re-organize its operations to devolve the applicant's functions. Despite the lack of any corroborating evidence, I accept Smart's evidence. I find that the respondent took a decision to abolish the position of Quality Manager and to replace that function by the Operations Manager, Smart, assuming some of the duties with the balance being devolved to lower level management and factory floor employees. This organizational structure is consistent with the evidence of the trends in industry which was led. I accept Smart's evidence that the respondent is still committed to obtaining accreditation under the Q1 standard and to the ISO9001 standard. I reject the argument that there were other extraneous reasons for the termination of the applicant's employment such as his punctuality or his alleged over-zealous pursuit of his duties as OHS Officer. I find that the respondent, having made the decision to achieve its quality assurance function and certification in a different manner, had no real alternative but to terminate the employment of the applicant. His other duties of OHS Officer and some human resources duties were not sufficient to justify a full-time position in a small operation such as that of the respondent. Did the respondent have a valid reason under Section 170 DE(1)? It follows from these findings that the respondent has discharged its onus that it had a valid reason to terminate the applicant's employment under s.170 DE (1) of the Act. I find that the respondent had a valid reason based on its operational requirements. Having made these findings, I reject the argument of the applicant that there has been any breach of s.170 DC of the Act. The decision of the respondent to terminate the applicant's employment was related to its operational requirements and not to any performance issues of the applicant. Was the termination in breach of Section 170 DE(2) of the Act The respondent virtually conceded that the manner of the termination did operate harshly on the applicant. There was no prior consultation with him or his professional association. He was not given any opportunity to suggest lesser or other alternatives to his redundancy. The respondent maintained however that this did not mean that the termination was in breach of s.170 DE(2) because, had such consultation taken place, it would only have delayed the termination date by a period at most 2 - 4 weeks. In all likelihood, it was argued, given the size of the respondent, any discussions or consultations relating to the redundancy would have been of a short duration. Smart had considered all the possibilities open and the applicant's input would have made little or no difference. The respondent did however admit that the manner in which the matter had been dealt with did not comply with the recommendation relating to the redundancy set out in Schedule 11 to the Act. It was the respondent's position, however, that had consultation actually occurred, then the termination would have been unassailable because this was a genuine redundancy and the respondent had offered to the applicant a redundancy package which was substantially in excess of industry standards. The representative for the applicant referred the Court to a number of cases where industrial tribunals have held that even in the case of a genuine redundancy, a failure to consult the employee or the union resulted in the termination being characterised as harsh, unjust or unreasonable. Recent cases in this Court where this issue has been discussed include: Janceski v South Pacific Tyres (Industrial Relations Court of Australia, Parkinson JR, 5 April 1995), Carydias v The Greek Orthodox Community of Melbourne, and Victoria (Industrial Relations Court of Australia, Staindl JR, 31 March 1995), Fenton v Casey College of TAFE (Industrial Relations Court of Australia, Parkinson JR, 8 December 1994), Mallen v Beasam Pty Ltd (Industrial Relations Court of Australia, Parkinson JR, 26 October 1994), Hunt v STA Tech Engineering Pty Ltd (Industrial Relations Court of Australia, Ryan JR, 23 September 1994), Palumbo v Commercial Butchers Pty Ltd (Industrial Relations Court of Australia, Ryan JR, 30 August 1992), Papadopoulos v The Colonial Mutual Life Assurance Society Ltd (Industrial Relations Court of Australia, Ryan JR, 16 August 1994), Kelsall v Bryan Snooks and Anor (Industrial Relations Court of Australia, Parkinson JR, 3 August 1994). These cases represent strong authority for the proposition that in the usual course, even in the case of a genuine redundancy based on the operational requirements of an employer, an employer must consult with the employee, and in appropriate cases, with the relevant union, in order to avoid the termination breaching s.170 DE(2) of the Act. Here the respondent's evidence was that the reason why it failed to engage in the consultation was a desire to minimise the impact of the redundancy on the applicant. While this motivation may have been laudable it denied the applicant and his professional association the opportunity to make any contribution as to the need for, alternatives to, timing of, and manner of the proposed redundancy of the applicant. Whether that consultation would have ultimately made any difference to the ultimate outcome is not to the point. Both Schedules 10 and 11 to the Act set out norms relating to terminations which could have been followed here by the respondent and were not. Part III of both the Convention (Schedule 10) and the Recommendation (Schedule 11) provide for consultation by an employer with unions in the event of planned redundancies. An expressed aim of those provisions is to avert or minimise any terminations and to mitigate the effects of such actions on the employees concerned. Section 170 CA(1) of the Act states that the object of Division 3 of Part VIA of the Act is to "give effect, or further effect to" the Convention and Recommendation. In my view it is consistent with the recent decision of the High Court in Minister of State for Immigration and Ethnic Affairs v Teoh (High Court of Australia, Mason CJ, Deane, Toohey, Gaudron and McHugh JJ, 7 April 1995) to have regard to the provisions of the Convention (Schedule 10) and the Recommendation (Schedule 11) in determining whether a particular termination was harsh, unjust or unreasonable as these "ordinary non-technical" words (Bostik (Australia) Pty Ltd v Gorgevski (No.1) (1992) 36 FCR 20 at 29) are to be applied to the modern day employment relationship. Having regard to these matters and the authorities I have referred to, the failure by the respondent to consult the applicant or his professional association before his termination means that its conduct must be characterised as in breach of s.170 DE(2) of the Act and I so find. Was there a breach of s.170 DB of the Act? The respondent offered the applicant payment in lieu of notice. The offer however was part of an overall termination package which required the applicant upon acceptance to release the respondent from further liability and to keep the details confidential. Such a conditional offer of the payment of the compensation required under s.170 DB is inadequate and in breach of the clear obligation contained in that provision. I find therefore that there has been a breach of s.170 DB(1) of the Act. Remedy Although the applicant has been unemployed since his termination and has made extensive efforts to obtain employment, he does not seek reinstatement to his former position. Smart's evidence was that the position no longer existed and that the respondent is well advanced in its quality assurance function under the revised structure put in place by him. Having regard to his evidence, and in particular the small management structure of the respondent, and the expressed preference of the applicant, I am satisfied that it is impracticable to reinstate the applicant to his employment with the respondent. Compensation The respondent's actions in making acceptance of the notice and redundancy payment of 8 weeks pay conditional upon a release and a confidentiality agreement placed the applicant in a difficult position. He did not accept the offer and thus, as I have indicated, has been paid nothing in lieu of notice. In determining an appropriate amount of compensation I am required on the authority of Nicholson v Heaven & Earth Gallery Pty Ltd (1994) 126 ALR 233 to have regard to what would have happened had the breach of the Act not occurred. The respondent's counsel argued that consultation which was required would at most have extended the applicant's employment by up to a month. The applicant's representative noted however that the complete changed organizational structure had only recently been put in place. The termination of the applicant had denied him the opportunity to negotiate to participate either on a full or part-time basis. In considering what would have happened had the breach of the Act not occurred I am of the view that it is highly unlikely that the applicant would have retained his employment with the respondent. I accept Smart's evidence that the applicant was not suitably qualified for other positions and that the small management structure of the respondent was such that maintaining a dedicated quality assurance position was thus uneconomical. From this I conclude that proper consultation, which would have rendered this termination lawful, would have only lasted at most two weeks. At the end of that period of consultation the applicant would have been terminated. He would, I find, have been offered the same redundancy package. The respondent offered the applicant eight weeks salary as a notice and redundancy payment. It also offered out-placement and a financial planning programme. It had no legal obligation to make the last two offers but presumably did so in order to attempt to ensure that the termination did not breach s.170 DE(2). It further argued that the notice and redundancy amount exceeded industry standards. There is some attractiveness in the respondent's argument that in the event that the Court finds that the termination did contravene s.170 DE(2), it has avoided any liability to compensate the applicant by reason of the amounts which it has already offered to him. I am satisfied that, having regard to the length of service, the nature of the position and the level of salary, payment of 8 weeks salary comprising notice and a redundancy payment was in accordance with industry standards. The respondent's argument, however, fails to address the finding above that the applicant would have been employed for an additional two weeks had he been terminated in a manner which did not infringe s.170 DE(2). Having regard to that finding, and the respondent's offer, albeit conditional, to pay the applicant 8 weeks salary upon termination, it is appropriate to award the applicant compensation based on a combination of those two amounts. I therefore propose to award compensation calculated on the basis of 10 weeks salary which, based on his annual salary of $42,630.00 is an amount of $8,198.00. That amount includes an amount of damages for the breach of s.170 DB referred to above. MINUTES OF ORDERS: THE COURT ORDERS THAT: 1. The respondent pay the applicant by way of compensation the sum of $8,198.00 within 21 days of this date. 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 ten (10) pages are a true copy of the reasons for judgment of Judicial Registrar Murphy. Associate: Dated: Appearances: Representative for the Applicant: Mr G Considine of APESMA Counsel for the Respondent: Mr B Shaw Solicitors for the Respondent: Herbert Geer & Rundle Date of Hearing: 19 April 1995 Date of Judgment: 4 May 1995