Robert Howarth and Newland Australia Pty Ltd [1995] IRCA 363

C A T C H W O R D S INDUSTRIAL LAW - TERMINATION OF EMPLOYMENT - UNLAWFUL TERMINATION - RESTRUCTURE - REDUNDANCY - RETRENCHMENT - performance allegedly taken into account in selecting applicant for retrenchment - applicant not counselled re performance or consulted re redundancy Industrial Relations Act 1988, S170DC, S170DE, S170EA, S170EE. CASES:

Nicolson v Heaven and Earth Gallery Pty Ltd [1994] 1 IRCR 199

Gibbs and City of Altona [1988] 42 IR 255

Gregory and Philip Morris [1988] 80 ALR 455 at 473

Byrne v Australian Airlines Limited and Frew and Australian Airlines Limited [1990] 52 IR 10

Re Professional Engineers (Local Governing Authorities Vic) Award [1986] 15 IR 175

Termination, Change and Redundancy Case [1984] 8 IR

Termination, Change and Redundancy Supplementary Case [1984] 9 IR 115

ROBERT HOWARTH AND NEWLAND AUSTRALIA PTY LTD No. VI-95/1094 Before: Ryan JR Place: Melbourne Date: 10 August 1995

IN THE INDUSTRIAL RELATIONS COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY Matter No VI-95/1094 B E T W E E N: ROBERT HOWARTH Applicant AND: NEWLAND AUSTRALIA PTY LTD Respondent RYAN JR MINUTES OF ORDER 10 AUGUST 1995 THE COURT ORDERS THAT: The respondent pay to the applicant compensation in the sum of $12,000, the first $4,000 immediately, the second $4,000 by 10 October 1995 and the remaining $4,000 by 10 December 1995. 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 Matter No VI-95/1094 B E T W E E N: ROBERT HOWARTH Applicant AND: NEWLAND AUSTRALIA PTY LTD Respondent COURT: RYAN JR PLACE: MELBOURNE DATE: 10 AUGUST 1995 REASONS FOR JUDGMENT CLAIM FOR UNLAWFUL TERMINATION OF EMPLOYMENT The applicant was recruited by the respondent in May 1993. He had 26 years sales experience with 20 years in the chemical and cleaning industries. He had had experience as a State and National Sales Manager. The respondent company describes the principal activity in the 1994 Annual Return (Exhibit J) as "cleaning material manufacturer". The registered office is in Bondi Junction, New South Wales. The principal business address is in West Heidelberg, Victoria. The company has designated sales territories in Queensland, South Australia, Western Australia, Victoria and Tasmania (Exhibit H). There are distributors in Darwin and New South Wales (Exhibit 1). The Product is also exported to Singapore, New Zealand, Papua New Guinea and Fiji (Exhibit B). The applicant seeks reinstatement as a remedy for what he claims was unlawful termination of his employment by the respondent on 20 December 1994. He claims that when he began with the respondent on 31 May 1993 he was "partially responsible" for the Victorian sales team and national accounts and after about four weeks he became responsible for national sales and distribution. He also described his involvement in sales as "shared with the managing director", then Mr Reg Rowsell. Rowsell looked after the Queensland, Tasmanian and Victorian sales teams and "long term personal" accounts while the applicant was responsible for national and key accounts and for sales training and motivation. It is clear from the evidence that until July 1994 Rowsell and Mr David Feller were the moving forces behind the respondent company. Feller had been Managing Director of a group of companies for over 20 years. The respondent was an important company in the group. Rowsell was Managing Director of the respondent company and was responsible to Feller in his role as Managing Director of the group. In July 1994 Rowsell resigned effective 3 August. He left to set up his own company. His secretary and one other employee went with him. Feller assumed the role of Managing Director of the respondent company and maintained his long term role of Managing Director of the overall group. The applicant attended a meeting of the directors of the respondent company on 5 August. The minutes of the meeting (Exhibit B) indicate that: 1. the resignation of Rowsell as Managing Director took effect on 3 August 2. Howarth was to act as Managing Director and was to be located in Sydney. 3. There was to be no direct replacement of Rowsell in Victoria 4. Mr Ray Calleja was to become General Manager 5. the applicant had been appointed major accounts manager responsible for existing and future national accounts, distributors and "the investigation and perusal of big business" 6. Mr Noel Brown had been appointed sales manager with responsibility for "monitoring and enhancing performance of all Victoria sales executives 7. two new directors were to be appointed to join Feller namely Calleja and Mrs Robyn Feller The applicant claims that no mention or complaint was made at this meeting as to his performance and no suggestion was made that his changing role was in any way linked to performance. Organisation charts tendered by the respondent indicate that: 1. Brown had joined the respondent company in May 1994 as Victorian Sales Manager and that from that date the respondent claims Brown and the applicant "shared responsibility for the Victorian sales staff" 2. Rowsell and the two employees who left with him were not replaced 3. the termination of the applicant in December 1994 was described as a "retrenchment" and the respondent claims that the applicant was not replaced and that his job function as National Accounts Manager was carried out thereafter by Brown with assistance from sales staff 4. the accountant who had reported first to Rowsell as Managing Director and then later to Feller as Managing Director resigned in February 1995 and was not replaced 5. the Accountant's job was carried out thereafter by William May, Business Manager to the group and a key adviser to Feller in his role as Managing Director of the respondent company. May is not strictly speaking an employee. He describes himself as a consultant and as business manager both of the group and the respondent company. May and Feller were the only witnesses for the respondent at the hearing. Evidence from Rowsell, Calleja and Brown might well have assisted in determining any counselling or warning that was ever given to the applicant in respect of performance and Calleja and Brown might have been able to cast light on whether the applicant was consulted in any significant fashion about the events that led to his termination. However the Court must deal with the application on the basis of the evidence submitted at trial. This consisted of sworn evidence from the applicant and from Feller and May and nineteen documents, nine tendered by the applicant and ten by the respondent. The applicant's basic position is that without any consultation or warning Feller telephoned him before 8:00 am on 13 December 1994 and said that he had bad news and that the applicant had to go. The applicant claims he was stunned and when he asked for an explanation he was told that he was a victim of a partnership split and that he was expected to act like a professional and leave things tidy. The applicant states that he gave an assurance that he would so act and would tidy up over the next day or so. He also claims that Feller said: "If you had won the Ansett account I would have kept you on." Feller's description of the telephone conversation is quite similar. He states that he said: "Rob....I have bad news...we are not improving our situation...I find I cannot go on any longer with things as they are...I will have to retrench you." Feller states that he believes he referred to retrenching the applicant, "as of now" but that he also spoke of "two weeks notice". Feller agrees that the applicant appeared shocked and indicated that he would do everything possible to assist and "to the best of my recollection he (the applicant) offered to assist Noel (Brown)....and said that he appreciated that he had been in a position of trust". The applicant is adamant that at no stage during the telephone conversation was there any discussion of his performance or any mention of redundancy. He also claims that there was no reference to his performance or mention of redundancy or any discussion of the adverse financial position of the company between 15 August and 13 December. He states that when he attended his office on 14 December Calleja, in the presence of Brown, indicated that he wanted the applicant to terminate his employment there and then, and handed the applicant a piece of paper. In cross-examination the applicant conceded that the piece of paper was Exhibit 3, a termination summary dated 15 December. The applicant claims that he signed the summary on 14 December but dated his signature 15 December. He also described Calleja as "completely out of control". The applicant did not elaborate but he seems to be implying that Calleja was very angry and wanted the applicant to leave immediately. Exhibit 3 states that the applicant was terminated on 13 December but paid to 27 December and that he was paid for 21 days including 12 days annual leave, 4 days "balance of term" and 5 days "held on commencement". The gross payment stated to have been made at termination was $4,037.88 less group tax of $1,220.20 giving a net figure $2,817.68 to which was added a sum of $251.69 making a net payment of $3,069.37. May gave evidence as to what he considered the respondent's adverse trading position as a result of analysis he undertook in November/December 1993. He states he: 1. met Feller monthly from January 1994 2. in November 1994 reported that expenses and especially wages were too high and resulted in an unfavourable and unacceptable gross profit to sales ratio 3. in conjunction with Feller decided at a meeting in Sydney in December 1994 that one manager had to go in Victoria and that it should be the applicant because his performance was "not up to standard" and Noel Brown was "held in high regard". The Court notes that May: 1. supports evidence from Feller that the termination of the applicant was primarily based on a perception of operational requirements justifying a restructure and reduction of expenses particularly by way of the retrenchment of the applicant who was described as "the highest paid of the respondent's managers" 2. confirms the evidence of Feller that performance was a criterion in termination 3. is in no position to give any evidence of any counselling of the applicant in respect of performance or, for that matter, consultation in respect of redundancy 4. suggested that the applicant would have been counselled by Rowsell and Calleja but was unable to give any admissible evidence to that effect The Court has already noted that Rowsell and Calleja did not give evidence and in cross-examination the applicant denied that Feller, Calleja or Brown referred to adverse performance of the company or the applicant himself. Feller alleged that he discussed performance with the applicant in the presence of Brown at a meeting in the bar at the Hyatt Kingsgate Hotel on 3 August 1994 and that he specifically called Brown in for the meeting. Feller claims he told the applicant that "he did not have the following of the sales staff" and that he (Feller) "would have to look at the position". The Court placed no weight on this evidence of alleged counselling on 3 August. The meeting was never put directly to the applicant in cross-examination. Brown was not available to corroborate Feller's claims. Feller gave evidence that at that stage "he did not know the man" (the applicant) and he was not sure of the applicant's response other than that the applicant indicated that he would "do anything he could in the structure". Furthermore, in response to a direct question from the Court as to whether he had on 3 August or at any other time dealt directly with the applicant's performance, Feller gave a curious response: "Yes - I think I did....they were heady days...I would have had a discussion on performance" The Court does not have before it acceptable evidence that Feller, Calleja, Brown or May discussed performance with the applicant before or after July 1994. The Court notes that the applicant's termination was allegedly based, at least in part, on performance and that in selecting the applicant for retrenchment May and Feller have claimed that performance was taken into account. S170DC provides that an employer must not terminate an employee's employment for reasons related to the employee's conduct or performance unless the employee has been given the opportunity to defend himself or herself against the allegations made. In Nicolson v Heaven and Earth Gallery Pty Ltd [1994] 1 IRCR 199 at 209 the Chief Justice said of S170DC(a): "The paragraph does not require any particular formality. But this does not mean that it is unimportant or capable of perfunctory satisfaction. S170DC carries into Australian Labour Law a fundamental component of the concept known to lawyers as natural justice or, more recently, procedural fairness. The relevant principle in that a person should not exercise legal power over another, to that person's disadvantage and for a reason personal to him or her, without first affording the affected person an opportunity to present a case. The principle is well established in public administrative law. It was accepted into international labour law when Article 7 was inserted in the Termination of Employment Convention. S170DC is directly modelled on Article 7. The principle is, I believe, well understood in the community. It represents part of what Australians call 'a fair go'. In the context of S170DC, it is not to be treated lightly. The employee is to be given the opportunity to defend himself or herself 'against the allegations made'; i.e. the particular allegations of misconduct or poor performance that are putting the employee's job at risk. S170DC(a) is not satisfied by mere exhortation to improve." The Court has concluded that the operational requirements of the respondent could have been a valid reason pursuant to S170DE(1) for termination of the applicant. In reaching that conclusion the Court has noted: · the evidence of the three witnesses at the trial