Michael Slifka v J W Sanders Pty Ltd [1995] IRCA 238

INDUSTRIAL RELATIONS COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY VI 2741 of 1994 B E T W E E N MICHAEL SLIFKA Applicant A N D J W SANDERS PTY LTD Respondent REASONS FOR JUDGMENT The Applicant brings his claim for compensation pursuant to Division 3 Part VIA of the Industrial Relations Act 1988 (the Act). He alleges that he was employed by the Respondent as a salesman until late 1994 when, in about October or November 1994, the conduct and actions of the Respondent were such that there was a constructive termination of his employment. He also makes a related claim for payment of an additional amount of ordinary pay, being the difference between the rate of pay of $628 gross per week, paid to him for long service leave, calculated over some 13 weeks. The ordinary rate of pay, he contends, was payable at the rate of $750 gross per week. The Respondent denies any termination of the Applicant's employment at its initiative, and counters by contending that in or about November 1994 the Applicant either abandoned his employment or resigned. On the question of the alleged shortfall in payment of long service leave entitlement, the Respondent contends that the rate of $628 per week is the correct rate as the difference claimed is referrable to the amount of a bonus sum paid by agreement to the Applicant. Only two witnesses gave evidence, the Applicant and James William Sanders (Sanders), the latter of whom described himself as a Company Director and proprietor of the Respondent company. At the outset it should be noted that neither witness impressed the Court as being straightforward and responsive to questions asked of them. Accordingly, in arriving at my decision I have where possible relied on the documentary evidence. Otherwise, I have preferred the evidence of the Applicant as a result of the striking contradictions and inconsistencies in the employer's case. The Background The Respondent supplies wholesale electrical equipment to the building trade. For some 16 years the 56 year old Applicant worked at the Respondent's premises, together with Sanders. As at 1994 the workforce at the Respondent's premises comprised only 4 people, including the Applicant and Sanders. Apart from the work years spent together, the acquaintance of the protagonists dates back to the 1960s. It is fair to say that both the Applicant and Sanders liked to do things in their own way. Whilst acknowledging this, Sanders also made it abundantly clear that "my will must take precedence as owner and he kept trying to alter it to his own way". At times over the long employment relationship there had been some passing volatility between them. Notwithstanding their differences from time to time, the employment relationship endured until late 1994, when a dispute arose out of the arrangements for the Applicant's long service leave entitlement and the rate at which he was to be paid for this leave. There was never any concern expressed as to the Applicant's performance or capabilities as an employee. He was variously described as "excellent" or "good". The Rate of Payment It is contended by the Applicant that between 1988 and 1991 his employment package included a bonus or commission of 5% of the Respondent's gross takings in excess of $1 million. In approximately April 1994 his package was reformulated and consisted of the following items: a) $750 gross per week ($530 net); b) a 1994 Magna Executive model motor vehicle, for both work and private use, including maintenance and petrol expenses; c) a fully paid for mobile telephone; d) approximately $200 per annum rental paid on the Applicant's private telephone; and e) a $10,000 bonus or commission if the Respondent achieved a turnover of more than $1 million. When he was paid for his 13 weeks of long service leave entitlement on 14 October 1994, the rate of payment applied by the Respondent was $628 per week, rather than the alleged ordinary pay entitlement as provided for in Section 64 of the Employee Relations Act 1992 (Vic). If the Applicant is correct in his allegation his claim amounts to a $1586 gross shortfall in the money received for his long service leave entitlement. The abovementioned claim was disputed by Sanders, who contended that in April 1994 the Applicant had asked Sanders to increase the payment of the bonus on a weekly basis because he was finding it hard to live on his existing wage. It was agreed that this payment would be adjusted at the end of the year. Up until April 1994 Sanders alleged that the Applicant had an existing bonus payment of $100 per week. By reason of the agreement entered into, this was increased to $222 per week. Indeed, the 2 pages of the wages book for 1994/95 tendered in evidence (Exhibit A5) show a weekly salary of $528 together with a sum of $222 in the column entitled "Overtime and Allowances", giving a total of $750 paid each week as a gross figure, until the Applicant took long service leave on 14 October 1994, when the salary was paid at the rate of $628 gross. On its face the extract from the wages book supports the contention that the Applicant's ordinary pay as at October 1994 was neither $750 per week nor $628 per week as paid, but in fact $528 per week. No clear explanation was offered by either party for this discrepancy, apart from the Respondent saying that at the time the salary package was renegotiated the Applicant was already in receipt of a $100 bonus payment each week. Relying on the wages book, I am not satisfied that the Applicant has discharged his burden of proof in establishing on balance a contractual entitlement to the additional payment as ordinary pay in accordance with the Employee Relations Act 1992. The Arrangement for Long Service Leave In 1993 the Applicant's entitlement to long service leave accrued. Sanders argued that from the time this leave accrued, and in the early part of 1994 he on many occasions discussed the taking of this leave with the Applicant. On the other hand, the Applicant says that the long service leave was first mentioned in about April 1994, when his salary package was reconsidered. It was not until mid to late September 1994 that the Applicant approached Sanders and informed him that he wanted only a few weeks of his long service leave entitlement. According to the Applicant initially this was agreed to. Both men agreed that at the end of September 1994 the Respondent gave the Applicant a set of figures which showed a calculation of his full long service leave entitlement and his annual leave entitlement. It is not clear whether the typed calculation contained in Exhibit A1 was first given to the Applicant in draft form, before being typed, however there is no dispute that the Applicant received this document some time prior to taking long service leave, and that he was asked by the Respondent to check the calculations with his accountant. Rather than confine itself to a period of 6 weeks entitlement to long service leave Exhibit A1 purports to calculate the Applicant's entitlement to long service leave and annual leave for a period of some 18 weeks to 20 February 1995. It is the Applicant's contention that when he received this document he simply thought it represented his general entitlement to that leave. Notwithstanding this belief, he did ask Sanders the next day what the calculation meant and was told "That's how it has to be done". The Applicant alleges that he repeated his request to take only 6 weeks. Two days before the commencement of his long service leave on Friday 14 October 1994 the Applicant confirmed that he only wanted 6 weeks off and that he was returning on 28 November 1994. The Applicant's recollection is that Sanders again agreed to this period and there was no further discussion of this before he commenced his leave. The Applicant was busy on his last day of work prior to starting his long service leave and when he received his cheque for the full amount of his long service leave entitlement together with annual leave he tried to ask Sanders what this payment meant, however, he alleges that Sanders would not tell him. Because he was going away for one week on the following day the Applicant delayed further discussions with Sanders until his return. On the Wednesday following his return from holidays the Applicant went to the Respondent's premises to see Sanders to discuss the problem. According to the Applicant Sanders responded to his query by refusing to speak to him - "he shouted and ran away from me". The Applicant assumed at that stage that he would still have 6 weeks off work and on his return solve the problem. Interestingly enough, Sanders concedes that on or about 28 October at 5.10pm the Applicant came into the Respondent's office and tried to see him, telling Sanders "You can't do this to me". Sanders alleges that he responded by saying "It's 5.10pm, ... I'm tired, ... you've had plenty of notice, ... not now, ... I'm tired". I conclude from this behaviour that Sanders was not prepared to give the Applicant the opportunity to discuss the issue with him at all. Until the latter part of October the Applicant still had possession of the company car and office keys. Notwithstanding his belief that he would return to his employment within 6 weeks, the Applicant consulted solicitors, Messrs Macpherson & Kelley, for advice on his position. On his instruction they forwarded a letter dated 31 October 1994 to the Respondent (Exhibit A2). This letter alleged, amongst other things, an agreement to 6 weeks long service leave, noting that the pay received was for 13 weeks, not 6 weeks. The solicitors' letter then drew the Respondent's attention to s78 of the Employee Relations Act 1992 which precludes employees from working for reward while taking long service leave. Having drawn the Respondent's attention to this provision it was then pointed out by the solicitors that, on the Applicant's return to work after 6 weeks leave, the Respondent would "arguably" be in breach of the relevant legislation. The solicitors' recommendation to the Applicant was that he draw his 6 weeks entitlement from the monies paid to him by the Respondent and return the balance to the Respondent. Clearly the solicitors' letter contemplated that the Applicant would remain in his employment. To understand some of the Respondent's reaction to the abovementioned correspondence it should also be noted that the solicitor's letter included the Applicant's claim for payment at the rate of $750 per week for his long service leave entitlement, rather than at the rate paid of $628 per week. The letter prompted a response; namely a telephone call from Sanders to the Applicant requesting the return of the company car and the keys to the Respondent's premises. This much was conceded by Sanders, who arranged for the Applicant to leave the car and keys outside the Applicant's home, from where Sanders collected the vehicle. It was the Applicant's evidence that at this point in time he believed his employment was at an end. The original cheque paid on 14 October 1994 for long service leave and annual leave was not presented by the Applicant until his solicitors advised him to cash the cheque, keep 6 weeks of the proceeds and return the balance to the Respondent. Again it is not disputed that this action prompted some toing and froing of monies between the parties, culminating in the Applicant retaining the full amount as his entitlement to the balance of his long service leave and annual leave payments on termination. Before the first date for the Applicant's return to employment arrived Sanders wrote directly to the Applicant on 17 November 1994 (Exhibit A3) returning the monies sent, and setting out some of the history of the arrangements for long service leave as alleged by the Respondent. Putting to one side the statements in Sander's letter concerning the early exchange between him and the Applicant on the Applicant's long service leave arrangements, Sanders asserts the following in his correspondence: "At a later date you changed your mind and indicated that 6 weeks was sufficient. I disagreed with this and suggested you think about it whilst on holiday. We discussed this matter on 2 other occasions and I finally conceded (under pressure) that if you felt an irresistible desire to return you could do so and take time off later to suit. On 13/10/94 you then advised my PC Clerk to draw you a cheque for 6 weeks only. I counterhanded (sic) this illegal request and had a cheque drawn for the correct amount. When I handed you this cheque you objected and I explained that it had always been agreed that you would be paid in full with the proviso as above. You then commenced your long service leave. One week later you arrived at work and attempted to reopen the matter. I explained that you had received three weeks written notice of your entitlements without comment or complaint. Your approach to a Solicitor and the resultant information that your return to work would be an illegal action by both parties negates my offer of your return, but does not alter the context of your original request for L.S.L. and my agreement to same. Your attendant mischievous claims re pay rises to the order of 17% plus annual bonus of $10,000.00 is as astounding as your misrepresentation of facts to your Solicitor. In closing I express my deep regret that you have chosen this course of action that can only destroy your relations with this Company. Any further discussions will only be entered into on your return in February 1995, or if you so desire through your Legal Representative. ..." Sanders letter and the evidence given by him clearly assert that, in his view, the original request was for all the long service leave entitlement, with an agreement as to the amount payable (Exhibit A1). This arrangement was changed by the Applicant requesting only 6 weeks long service leave, which request Sanders finally acceded to. Even so, in his view the arrangement to pay the full amount of long service leave entitlement and annual leave entitlement was unchanged by the concession made. The Respondent asked the Court to view the concession made in a particular work context; that is to say, a course of prior conduct where employees were paid their full annual leave entitlements at Christmas and, if they chose an early return to work, they were permitted to take the balance of their leave during the year. The Applicant did not challenge the existence of this arrangement with the Respondent's employees, although he did not concede that this particular arrangement was applicable to his long service leave entitlement. If nothing else, the Respondent's letter of 17 November 1994 highlights logical and legal flaws in its case. When the Applicant went on long service leave on 14 October 1994, there was at the very least an agreement with his employer that he could take 6 weeks of his long service leave entitlement or, as is contemplated in s67 of the Employee Relations Act 1992, there was an agreement to split the Applicant's long service leave. However, Sanders is and was wedded to the notion that the Applicant should be paid for the entire period of his long service leave and that this was agreed to. It was never alleged by Sanders that there was any express agreement made with the Applicant that the arrangements that had hitherto applied to the employees' Christmas leave were to be applied to the long service leave entitlement. This arrangement appears to have been assumed by Sanders. Even if the Court accepts Sanders assertion that the Applicant agreed to be paid in full, the Respondent's case ignores the unenforceability of the agreement he relies on (see s78 of the Employee Relations Act 1992) to have the Applicant work for reward while he was still on long service leave. It is clear from Sanders' letter that the Applicant attempted to obtain payment before he left for the limited period of the agreed long service leave and was thwarted in this action by Sanders. The Applicant's actions both then and within a week of his long service leave, when he returned to ask why he had been paid the full amount of his long service leave entitlement, are consistent with a belief that he was only to be paid for 6 weeks leave. Having received notification from the Applicant's solicitors that the Respondent may be in breach of the Employee Relations Act 1992 when the Applicant returned to work as agreed on 28 November 1994, Sanders made the unilateral decision to return to what he alleged was the "original request" for long service leave. I find on this evidence that as at the date of the commencement of his long service leave there was an agreement to split the long service leave entitlement. However, there was no agreement by the Applicant to accept a sum greater than the amount payable for the 6 weeks leave and no express or implied agreement to be paid in full for his long service leave, irrespective of whether or not he took all that leave. Termination of Employment at the Initiation of the Employer The conduct of each party following the commencement of the long service leave and the reaction to the other party's interpretation of the arrangements provide the factual basis for deciding whether there was an unlawful termination of the Applicant's employment. In his letter dated 17 November 1994, Sanders does refer to the Applicant's return to work in February 1995. During his subsequent encounter with the Applicant on 28 November 1994 each man agreed that, despite what the Applicant described as Sanders' "threatening" behaviour, Sanders still spoke in terms which indicated to him that Sanders was expecting the Applicant to return to work in February 1995. Nevertheless, I am satisfied that in all other respects Sanders' behaviour was inconsistent with any intention to continue the contract of employment. Apart from the concluding comments in his letter of 17 November 1994 and the repossession of the company vehicle and office keys, when the Applicant attempted to return to his employment on 28 November 1994 Sanders refused to allow the Applicant to resume his employment. The Applicant contends that on 28 November when he entered the Respondent's premises to recommence work, Sanders "picked up a tape recorder and he said 'You are a trespasser ... you are on long service leave and if you don't go I'll call the police'." In reply the Applicant said "Call the police, I only asked for 6 weeks long service leave and it's up". The Applicant claims that Sanders again threatened to call the police and took off his glasses and said "If you don't go now I won't be responsible". The Applicant interpreted this last action and the words accompanying it as a physical threat. By then the Applicant believed that his employment had been terminated, despite Sanders' reference to him still being on long service leave. Following the abovementioned incident the Applicant returned to his solicitors who, on his instructions, wrote a further letter to the Respondent dated 6 December 1994 (Exhibit A4). Essentially that letter notified the Respondent that the actions of Sanders were being treated by the Applicant as a wrongful termination of the Applicant's employment and the solicitors sought to negotiate a financial settlement. It would be fair to say that prior to the Applicant's attempt to return to his employment on 28 November 1994 he knew that the Respondent did not want him to return until the expiration of his long service leave entitlement. The claim that he had been underpaid was also a matter of contention and by attempting to return the balance of the long service leave payment as well as relying on the agreement to allow him to return to work within 6 weeks the stage was set for a head on confrontation. Sanders told the court that he liked to "run the business in the way I see fit". He provided no plausible explanation for his insistence on the employee taking all his long service leave entitlement, or, at the very least, accepting payment for the full period and returning to work at an earlier date. It was Sanders' belief that in September, when the Applicant asked for long service leave the request was for the full period and that was really the end of the matter so far as he was concerned. He did concede that he was angry when the Applicant attempted to return to work on 28 November 1994, otherwise his evidence was full of contradictions. For instance, having agreed with the proposition that he thought the Applicant was a "trespasser" on 28 November 1994, Sanders denied that he had told the Applicant that he was a trespasser and further asked the Court to accept that he (Sanders) was calm and in control during his last conversation with the Applicant. According to Sanders he had refused to let the Applicant return to work because he was acting on the advice given by the Applicant's solicitors to the effect that such a return would be illegal. Despite being "extremely annoyed and upset because of the lies he (the Applicant) told his solicitors" and the lies in the solicitor's letter, Sanders accepted the advice from those solicitors that the Applicant's return to work would be illegal. At that stage Sanders did not have any intention to terminate the Applicant's employment. He felt that "considering the lies told and the fictitious agreement, I didn't see it as being prudent for him (the Applicant) to be at work because it would only lead to trouble and I then opted for his (the Applicant's) original agreement". Sanders action in, and explanation for, repossessing the company vehicle and the Applicant's keys was certainly not consistent with an intention that the Applicant remain in the Respondent's employment. "I took the car back one week later because of the lies he told his solicitor ... I thought he was a crazy, mixed up man". The Applicant did not resume his employment in February 1995 and by at least December 1994 was actively seeking alternative employment. His solicitor's letter of 6 December 1994 (Exhibit A4) was a clear indication to the Respondent that the Applicant was of the view that his employment had been terminated and that he was then accepting that termination. No evidence was produced by the Respondent to indicate that it took any steps thereafter to clarify its position regarding the Applicant's return to work or, indeed, to communicate its belief that his employment had not been terminated such that he was still then welcome and able to return to his employment. Constructive Termination At common law if an employer evinces an intention to repudiate a contract of employment its actions may be the basis for establishing a constructive termination; that is to say, the employee may treat the contract as having been brought to an end (see Western Excavation Ltd v Sharp (1978) 1 CR 271). There are now a number of decisions in this Court which consider the question of termination at the initiative of the employer (see Siagian v Sanel Pty Ltd (1994) 122 ALR 333 at page 351, Association of Professional Engineers Scientists and Managers (Australia) & Anor v Skilled Engineering Pty Ltd (1994) 122 ALR 471 at page 482, and Grout v Gunnedah Shire Council (1994) 125 ALR 355). In Grout's case Mr Justice Moore said at page 372: "A principal purpose, if not the sole purpose, of Division 3 is to provide an employee with the right to seek a remedy in circumstances where the employee did not voluntarily leave the employment. An employee may do some act which is the first the first in a chain of events that leads to termination. An example would be an employee who engaged in misconduct at work, which ultimately led to the employer dismissing the employee. However, that situation and the present are not situations where the termination was at the initiative of the employee. In both instances the step or steps which effectively terminated the employment or purported to do so were taken by the employer." The test in determining whether the employment was terminated at the initiative of the Respondent is clearly an objective one and requires an act, or acts, on the part of the employer inconsistent with the continuation of the contract of employment. The evidence in this case leads inexorably to the conclusion that by repossessing the company car and keys, by threatening the Applicant and by treating the Applicant as a trespasser at the employer's premises, it was the act or acts of the Respondent which gave rise to the termination of the Applicant's employment by 28 November 1994. It cannot be said that the Applicant made a voluntary decision to leave his employment in the sense required by the authorities to constitute a resignation (see Weller v Transport Superannuation Board 4 VIR 353 and Achal v Electrolux Pty Ltd (1993) 50 IR 236). On the facts the Respondent has been unable to justify the action it took and, even if the Respondent's version of the events leading up to 28 November 1994 is accepted, the termination of this long-serving employee's employment was manifestly harsh, unjust and unreasonable. The Respondent's refusal to discuss any of the matters concerning the Applicant's long service leave with the Applicant at any stage up to 28 November 1994 is a further indication of the failure to afford procedural fairness to the employee. Accordingly, I find that the Respondent's actions amount to an unlawful termination in contravention of Division 3 Part VIA of the Act. Remedy The Applicant seeks compensation in preference to reinstatement and I have no hesitation in finding that it would be impracticable to return him to his former employment place, where he would have to work in an office of 4 persons in close proximity to Sanders. Other matters influencing the exercising of my discretion include: · the Applicant's return to full time alternative employment from January 1995; and · an incident in April this year when the police attended upon the Applicant to question him in connection with a break-in at the Respondent's premises in January 1995. No charges have been laid, however it is clear that the employment relationship has completely broken down. On 12 January 1995 the Applicant commenced employment at BDL Electrical Wholesalers, earning $505 gross per week. He has since improved his employment position by transferring to MCI Electrical Wholesalers, from 20 February 1995. His salary package with his present employer consists of $625 gross per week, a 1993 fully maintained Commodore motor vehicle, which is also available for private use and a mobile telephone. The Respondent contends that the Applicant has not suffered any compensable loss due to payment of his long service leave entitlement and the recommencement of his employment in early January 1995. This contention however, ignores the fact that if the date of termination is treated as 28 November 1994, as at that date the Applicant was entitled to receive the balance of his annual leave and long service leave entitlements as well as 5 weeks compensation in lieu of notice pursuant to s170 DB of the Act. Once his employment was terminated it could not be said that he was on long service leave. In effect the amount payable for long service leave would be treated as arrears of pay pursuant to s81 of the Employee Relations Act 1992. The damages payable for the failure to comply with s170DB of the Act and calculated at $628 per week, amount to $3,140. The Respondent made a belated attempt to argue that the Applicant was an award employee. The Applicant denied any knowledge of employment pursuant to an award and, in the absence of the production of an existing and applicable award I am not prepared to find that any ceiling for compensation should be limited in the manner contemplated by s170EE (3)(a). In calculating appropriate compensation I have taken into account, amongst other things: a) the short period between the expiration of the notice period and the commencement of the Applicant's employment on January 1995; b) the shortfall in the Applicant's income and employment benefits from 12 January 1995 to the date of hearing; c) the fact that the Applicant's current earnings do not contain a component for bonus payments or private telephone rental; and d) the fact that the 56 year old Applicant's job security has been seriously undermined in circumstances where he had a long and continuous period of service and, no doubt, an expectation that he would remain in the employment of the Respondent. During the time of his long period of service there was no complaint concerning his performance or conduct. I have assessed appropriate compensation at $8,000 together with the damages payable pursuant to s170EE (5) of the Act at $3,140. THE COURT ORDERS THAT: 1. Within 14 days of the date of these orders the Respondent pay to the Applicant the sum of $3,140.00 pursuant to s170EE(5) of the Industrial Relations Act 1988. 2. Within 14 days of the date of these orders the Respondent pay to the Applicant the sum of $8,000.00 by way of compensation. I certify that this and the preceding nineteen (19) pages are a true copy of the reasons for judgment of Judicial Registrar Millane. Associate: Dated: 7 June 1995 Solicitors for the Applicant: Messrs Macpherson & Kelley Counsel for the Applicant: Mr P Misso Solicitors for the Respondent: Messrs Arnold Thomas & Becker Counsel for the Respondent: Mr L W Maher Date of hearing: 25 May 1995 Date of judgment: 8 June 1995