Fabian Ricca v Courtney & Patterson Pty Ltd [1995] IRCA 406

INDUSTRIAL RELATIONS COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY VI 2605 of 1995 B E T W E E N : FABIAN RICCA Applicant AND COURTNEY & PATTERSON PTY LTD Respondent Before: Judicial Registrar Murphy Place: Melbourne Date: 23 August 1995 REASONS FOR JUDGMENT (Ex Tempore) (Revised from Transcript) In this application for a remedy under Part VIA of the Industrial Relations Act (the Act), the central issues were, first, whether the respondent had a valid reason to terminate the applicant's employment and, secondly, the extent of the duty of the employer to afford an employee procedural fairness when contemplating the termination of his or her employment for reasons relating to performance. The Facts The respondent is a large new and used car dealer operating in the northern suburbs of Melbourne. It employs over 215 people. The applicant has had some 10 to 12 years experience in the motor trade with the bulk of that in the area of finance and insurance aspects of dealership operations. The applicant commenced employment with the respondent in March 1994 as Business Manager in the Finance and Insurance Department (the department). At the time he was responsible for finance and insurance aspects of the used car side of the respondent's business. Another Business Manager, Mr Coleman (Coleman), dealt with new cars. In October 1994, Mr Larry Wallace (Wallace) was appointed General Manager of the respondent and became the applicant's superior. From the time Wallace commenced employment he had concerns about both the performance of the department and the applicant's performance in particular. His evidence was that he requested both Coleman and the applicant to maintain a running log of all customers of the dealership, whether they became customers of the department or not. Proper recording of these details had been the subject of an earlier memorandum from the Managing Director of the respondent, Mr Kerwick (Kerwick). It was Wallace's evidence that despite requests from him for the preparation of the logs, they were not forthcoming from the applicant. The only logs adduced in evidence were for the period January/February 1995. The applicant claimed the earlier logs existed but on this point I find that they did not. In late November 1994, Coleman left. The applicant had a discussion with Wallace and successfully sought to perform Coleman's job as well as his own. From the applicant's viewpoint, the departure of Coleman was attractive as it presented an opportunity for him to increase his commission earnings. While Wallace had reservations about this, he agreed. Also, about this time, the applicant was awarded a $50 per week pay increase, and was paid some commissions in advance by the respondent. A short time after taking sole responsibility for the department the applicant advised Wallace that he needed assistance in the discharge of his duties. It was the applicant's evidence that he suggested someone experienced in the trade, while Wallace's evidence was that he essentially wanted a clerical type. I accept Wallace's evidence that he determined to employ someone from outside the trade and to train that person in the position. In January this year the new employee, Ms Mulder (Mulder), commenced. The applicant was asked to train her in the procedures of the department. At this stage the applicant was very busy and difficulties arose with Mulder. It is unnecessary to detail the difficulties. The matter culminated in a meeting between the applicant and Wallace at which the applicant offered his resignation. This meeting, according to Wallace's diary note, took place on 22 February. After a discussion with Wallace, the applicant did not persist with his offer. Wallace gave evidence that he gave the applicant an opportunity not to resign, and conceded that, despite his prior concerns with a number of aspects of the applicant's performance, those matters probably did not justify his termination, and that he wanted to give the applicant a chance. Wallace's prior concerns had included the applicant's inability to train Mulder, his failure to lift the performance of the department to an agreed revenue target of $1 million per month, and two incidents involving missing cash. After this incident, problems continued with Mulder. She made a complaint of harassment against the applicant which he denied. Staff and the respondent's major finance provider were having reservations about her. The applicant was having difficulty training her, given his heavy workload. On 10 March, Wallace agreed to take over her training from the applicant. In late March Mulder disappeared and abandoned her employment. At this stage Wallace discussed with Kerwick future plans for the department. It was agreed to seek the services of an outside consultant to assess and restructure the department. It was Kerwick's evidence that the purpose of the consultant was to see if the respondent could address the problems in the department with the current staff. It is significant that Wallace gave evidence that it was his view at that stage that it was unlikely that the applicant would pass scrutiny by an outside consultant. The consultant, Mr Krol, commenced work in early April. The applicant, on Wallace's evidence, was told that Krol was not there to undermine his position or to sack him. Krol was to be there for 3 months, and one of his functions was to train a new person. Krol was to be in charge of the applicant. The Used Car Manager at the time gave evidence that he was told that Krol was there to streamline the department. On 11 April, Krol produced a report for Wallace that was critical of the department in general and the applicant in particular. It in effect recommended that the applicant was not suitable to remain in a restructured department, could not be retrained, and was not up to standard in a number of respects. It was Kerwick's evidence that, following receipt of that report, he accepted Wallace's recommendation that the applicant be terminated. Kerwick said: "I believe it was as a result of views in that [report] we decided to terminate the applicant." On about 11 April, it came to Wallace's attention that the applicant intended to take 2 weeks' holiday commencing 2 days later. Wallace formed the view that the applicant was avoiding Krol and the implications of his report. On 13 April, the applicant was told by Wallace that he "was not seen as part of a solution to the problem" of the department and had to leave. The applicant was paid his outstanding holiday pay, commissions and 2 weeks pay in lieu of notice. The evidence which I have just set out was essentially common ground. What was not common ground was the extent of the applicant's failings in the performance of his duties and the extent to which these alleged failings were brought to his attention. For the respondent, Wallace claimed that he raised with the applicant the keeping of proper records, and it was not done. The applicant continually broke promises and did not meet requests. Further, despite agreements that the dealership should achieve a monthly sales volume of $1 million through the department, this was not achieved despite a buoyant industry and special promotions. Despite requests by Wallace of the applicant to produce month to date figures, this was not done. When matters relating to performance were raised, the applicant would continually provide excuses and blame others. Wallace claimed that he told the applicant that his job depended on his performance, and that he must lift his game or "he would be gone." He said: "It was particularised all the time." Wallace formed the view that the applicant lied to him, and he gave evidence that he "would have told him about changing his ways." The applicant denied that his performance was deficient. He further denied that he ever received warnings in the terms alleged. The respondent's counsel relied heavily on diary notes made by Wallace to support a submission that the evidence showed that the applicant was fully aware that his performance and position was on the line. These diary notes were tendered as part of the business records of the respondent and are a combination of notes of conversations relating to the applicant and reflections about the applicant and others by Wallace. It is of interest that the notes provide little support for Wallace's evidence that he put the applicant on notice on a number of occasions that his position was on the line. There is reference to "excuses wearing very thin;" "expecting Fabian to be a lot more professional in his future dealings if he wants to say;" "you are on notice about blaming others; once more and your (sic) out." This last entry is dated 22 February 1995. It is the same day as the conversation about the resignation. The next significant entry is 29 March when Mulder abandoned her employment. It was at this stage that Wallace and Kerwick agreed to retain the services of a consultant. The notes record a suggestion by a finance company to retain a consultant: "to fully address the entire F and I structure." On 5 April the notes record that the applicant had disappointed Wallace, "once too often," and unless he could prove himself to Krol, "he would be out." Wallace did not give evidence that he put this to the applicant at the time. Indeed it is contrary to his evidence which was that Krol was not there to undermine the applicant. It is also significant that the Used Car Manager of the respondent at the time gave evidence that as far as he was concerned he had no difficulties with the applicant's performance of his duties. There is much force in the submission by counsel for the applicant that, even if Wallace's evidence is accepted in full, the applicant was the subject of a number of hollow threats. In the Court's view, the period from the date of the offer of resignation is the most important. The notes do not record, except for the ambiguous entry on 5 April, any sort of ultimatum over that period. If Wallace had given ultimatums in the terms he claimed, it is a matter of surprise that he failed to diarise them. The respondent did not have any formal personnel manual at the time which would allow it to address the concerns it had relating to the applicant's performance. The way in which it chose to do so was by retaining Krol to give Wallace a report that was, in a sense, a foregone conclusion. If the applicant's performance had been of such a level of concern, it is surprising that Wallace was unable to produce any documents which specified the areas of concern. It is also significant that the applicant never had Krol's conclusions put to him; rather Wallace maintained that the adverse conclusions of Krol were matters which the applicant had previously had an opportunity to respond to. While I have reservations about the applicant's evidence, I find Wallace's evidence on the questions of warnings exaggerated. On this basis I am satisfied that, while some aspects of the applicant's work performance were brought to his attention by Wallace in quite forceful terms, I am not satisfied that the applicant's performance as a whole was ever raised with him in a formal manner which would indicate that, unless he addressed specific areas of concern, his employment would be terminated. Did the respondent meet the requirements of section 170DE(1) of the Act? The meaning and application of section 170DE of the Act has been the subject of consideration by this Court in a number of recent cases, including Johns v Gunns Limited, (Northrop J, 18 May 1995); Drury v BHP Refractories Pty Limited, (Wilcox CJ, 16 June 1995); Gibson v Bosmac Pty Limited, (Wilcox CJ, 5 May 1995); and Selvachandran v Peterson Plastics Pty Ltd, (Northrop J, 7 July 1995). The decisions indicate that the respondent employer has to satisfy the Court that it had a "sound, defensible or well-founded" (Selvachandran) reason to terminate the applicant's employment. Whether the reason given meets this test must be considered within, "the practical sphere" of the employment relationship. Here counsel for the respondent submitted that the reason for the termination, which was that in a number of aspects the applicant had failed to properly discharge his duties, was valid. Counsel for the applicant on the other hand submitted that the reasons adduced by the respondent just did not add up; rather they showed that the applicant had been receiving mixed signals. The signals were criticism by Wallace, yet the provision of an outside consultant to rebuild the department. Counsel for the applicant placed particular reliance on the failure of the respondent to ever give the applicant a written warning that his employment was in jeopardy. He referred to a number of authorities on this issue. In the Court's view, the cases I have referred to indicate that the issue is not whether any warning about performance was in writing, but whether the employee was made fully aware that the nature of the deficiencies in his or her performance was such that the employer was contemplating ending the employment relationship. There will be many instances where performance or conduct causes an employer concern. The requirements of a valid reason to terminate the employment mean, however, that the conduct must be serious enough that the employer treats the continuation of that deficient performance or the conduct as sufficient reason to terminate the relationship. The existence of a written warning will be an important and weighty evidentiary factor in characterising the employer's attitude. Here I am not satisfied that, in the period from the withdrawal of the offer of resignation to the date of termination, the respondent viewed the applicant's performance that seriously. Whatever Wallace's private reservations over that period, he failed to diarise any warnings. He did not recommend termination of the applicant's employment to Kerwick. On the contrary, the two agreed to retain a consultant to streamline the department. Having regard to my earlier findings about the failure of the respondent to fully bring home to the applicant that his employment was in jeopardy, I am not satisfied that the respondent, when it terminated the applicant's employment on 13 April, had a valid reason to do so. The respondent has breached section 170DE(1) of the Act. Lest I am wrong in this conclusion, and the respondent did have a valid reason to terminate the applicant's employment, I should say immediately that the manner and circumstances of the termination were such that it was in breach of sections 170DE(2) and 170DC of the Act. The applicant was terminated as a result of Krol's conclusions. Krol essentially recommended it. Yet the applicant was never given the opportunity to respond to those conclusions. He was misled by Wallace as to Krol's role. Once Krol was retained, it was clear from Wallace's evidence that he had little chance of retaining his employment. In terminating him on 13 April, without presenting Krol's conclusions to him, and providing him with an opportunity to respond or mend his ways, he was denied a fair go. The termination here breached sections 170DE(2) and 170DC of the Act. Remedy The applicant now has other employment. He did not strongly seek reinstatement. Neither party strongly asserted that it was the appropriate remedy. I find that reinstatement is impracticable. In determining the appropriate amount of compensation, the starting point is the loss that the applicant has suffered. At the date of his termination he was paid two weeks salary, his accrued holiday pay, and commissions. He was unemployed until 12 July. Over that period he received an undisclosed amount of unemployment benefit. From 12 July he has been earning a gross wage which is close to his previous wage. He also has a vehicle provided by his current employer. He is entitled to commission in his new position, but the extent of his likely earnings in the new few months did not emerge in the evidence. In the nine month period prior to his termination the applicant's gross earnings were approximately $5,500 per month. Taking into account the payments made to him upon termination, the applicant's approximate loss of gross wages until he obtained alternative employment was $11,000, being two months at the rate of his previous average earnings. In determining an appropriate award of compensation, I have regard to the principles set out in Nicolson v Heaven & Earth Gallery Pty Limited, (1994) 1 IRCR 199 where at 212 Wilcox CJ said it was proper to take into account what would have happened had the actual termination not occurred. The Court is thus to take into account the likelihood of the applicant retaining his employment had the respondent accorded him procedural fairness by way of putting him on notice in an appropriate way as to the deficiencies of his performance. Here the Court has regard to the generally satisfactory nature of the applicant's performance prior to the departure of Coleman. The Court also has regard to the evidence of Kerwick that employees of the respondent retain their employment provided they perform to industry standards. Further, from December 1994 the applicant was labouring alone in the department, whereas previously there had been two staff. I find on the evidence that Mulder was effectively of no assistance, and, in any event, she abandoned her employment at the end of March. On the other hand, the Court cannot ignore the possibility that Wallace, a person of apparently firm disposition, would have made life intolerable for the applicant following receipt of the Krol report. This may have resulted in either a lawful termination by the employer, or a consensual termination by the parties. The Court also notes that in human experience most employees do not voluntarily leave their employment unless they have another position to go to. This was virtually the applicant's position when he unsuccessfully proffered his resignation. I am not satisfied that the applicant necessarily had a very short future at the respondent in April 1995. I am satisfied that there was a reasonable likelihood that his employment would have persisted for about two months. The Court also has regard to the recent discussion by the Court in Aitken v The Construction Mining Energy Timberyards Sawmills and Woodworkers Union of Australia, Western Australian Branch, (Lee J, 7 August 1995), where the learned Judge emphasised the public purpose of the provisions of Part VIA of the Act. Having regard to all of these matters and to his approximate actual loss occasioned by the termination, I am satisfied that a proper award of compensation is the sum of $11,000. Costs on accrued claim In opening, counsel for the applicant foreshadowed a claim in the accrued jurisdiction of the Court for $3,200 in outstanding commissions. This foreshadowed claim had, prior to the hearing, been the subject of a Notice of Motion to obtain the relevant documents to support the claim. The claim was abandoned at the end of the first day of hearing. This occurred after the respondent had provided full details to the applicant of its commission calculations, and advised him that commissions outstanding were not paid upon termination to business managers within the industry. Having regard to the applicant's evidence that he ascertained that what the respondent said was in fact the case at the end of the first day of hearing, and the fact that the respondent had not previously taken that defence to the demand, but rather just ignored it, I am not satisfied that it is proper to characterise that part of the proceeding as instituted "vexatiously or without reasonable cause" pursuant to section 347 of the Act. I therefore refuse the application for costs. The order of the Court That the respondent pay to the applicant the sum of $11,000 within 21 days. MINUTES OF ORDERS THE COURT ORDERS: 1. That the Respondent pay to the Applicant the sum of $11,000 within 21 days. I certify that this and the preceding fourteen (14) pages are a true copy of the reasons for judgment of Judicial Registrar Murphy. Associate: Dated: 25 August 1995 Solicitor for the Applicant: Clements Hutchins & Co. Counsel for the Applicant: Mr O'Grady Solicitor for the Respondent: Alan Wainwright J. Okno & Co. Counsel for the Respondent: Mr G. Watkins Date of hearing: 21 & 22 August 1995 Date of judgment: 23 August 1995