INDUSTRIAL RELATIONS COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY VI 2119 of 1995 B E T W E E N : ROBERT JOSEPH MASUT Applicant AND THE WATERMAN GROUP PTY LTD Respondent Before: Judicial Registrar Murphy Place: Melbourne (Heard at Morwell) Date: 8 September 1995 REASONS FOR JUDGMENT This application under Part VIA concerns an employment relationship which, like many personal relationships, just spluttered out. It is a matter of regret that, given that the principals were once friends, it came before the court for determination. Background evidence The Respondent is a financial services organisation specialising in the insurance industry. Its principal is Neville Waterman (Waterman). The Applicant first became associated with the Respondent in 1989 when he had a life insurance agency agreement with a major life assurance company. The Respondent, in return for a share of commissions, provided overhead services and accommodation to the Applicant. The Respondent was then operating as a managing agent with up to 25 people associated with it on a similar basis. This business relationship continued until April 1994. In early 1991, the Applicant commenced to operate his life insurance agency through a company, Robert Masut & Associates Pty Ltd. Henceforth until February 1995 all payments made by the Respondent were made to this entity. During 1993/94, consumer sentiment apparently turned against life insurance and the Applicant became disillusioned with what he was doing. After discussions with Waterman, the Applicant sold his list of clients, his "register", to another agent in April 1994. At the time the Applicant decided to sell his register, he discussed with Waterman (they had become close friends) what he would do in the future. Waterman proposed, and the Applicant accepted, that he would join the "roll-over"division of the Respondent. In that division another person was earning substantial sums by way of commission and Waterman believed that there was room for the Applicant to also work there. With the expectation that this would occur, in about September 1994 the Applicant renewed the registration of his company. Subsequently plans between the Applicant and Waterman changed. He did not join the roll-over division. Rather, Waterman offered him the opportunity to work with the general insurance division of the Respondent. The proposal was that the Applicant would, in effect, work with an employee of the business, Wayne Gallagher, in that division. It was proposed that the Applicant would not be charged rent by the Respondent and would be entitled to receive 75% of the commissions generated in that part of the business. Waterman indicated to the Applicant that he should be able to generate approximately $1,000 per month commission in the division. The Applicant commenced in May 1994, but the earnings were much lower than expected. This caused him considerable distress. In July he had a conversation with Waterman during which he told him that he could not survive on what he was earning. At that stage, both the Applicant and the two other people working in the organisation were dissatisfied with what they were being paid. Negotiations occurred between Waterman, and the Applicant and the other employees. I am satisfied that, at that point, Waterman proposed to the Applicant that he become an employee. Negotiations then occurred as to what the Applicant would be paid. At first, Waterman proposed $2,600 per month plus $450 per month car allowance, with 7 weeks holiday. This proposal was not brought to fruition. Rather, Waterman first had to prepare a position for the Applicant. He decided to describe the Applicant as a Risk Management Consultant. The Applicant would be required to first develop a large bank of prospects by telephone canvassing and then would, by appointment, go out and market various insurance products and services. A job description to this effect was tendered. The hope was, at that stage, the Applicant would generate income by November. The arrangement was the Applicant would commence without pay in August, but payment would commence in September. Payment would be at the rate of $600 per week. The Applicant executed an Employment Declaration dated 19 September 1994 and a payment schedule in evidence shows two net payments of $461, which assume a gross payment of $600 per week, were made on 15 September 1994. In September the Applicant advised Waterman that he could not survive on the amount that he was receiving. Waterman offered to pay the Applicant a gross sum of $600 per week and the Applicant was to be responsible for taxation. The monies would be paid to the Applicant's company. Subsequently, the two amounts which had been deducted for taxation were paid to the Applicant's company. A document headed "Robert Contract" was tendered. It referred to various employment details including hours of work and went on "$600 gross per week (paid to company for this year)". The relationship deteriorates From the evidence, it is difficult to distil what, over the period September 1994 to February 1995, the Respondent wanted the Applicant to do. It was the Applicant's evidence that he was to telephone canvass to establish a large bank of prospects. He was to arrange interviews to see those prospects. At first he was to arrange interviews for Waterman. He was then to develop enough prospects and appointments to give himself sufficient work to also be out in the field on a full-time basis. The Applicant gave evidence that Waterman would alter the appointment goals from day to day. The Applicant also performed, during this period, other office work in the general insurance division of the Respondent and assisted Waterman. In November there was a discussion about the Applicant's remuneration for the forthcoming year. Waterman offered $700 per week and asked the Applicant to travel around, using his own car, selling insurance products. The Applicant rejected this. The Respondent then offered him $850 per week and he was just to work in the Latrobe Valley area. In fact, no change in the $600 per week remuneration occurred during 1994 or before the termination of the Applicant's employment. Just before Christmas the Applicant asked about holiday pay. Waterman at first replied that, as the Applicant was a contractor, he was not entitled to that amount. The Applicant denied that he was a contractor and said that he was employed and, as such, was entitled to holiday pay. Waterman relented and paid the Applicant, through his company, $1,800 as three weeks holiday pay. When the office reopened early in January, the Applicant was still telephoning potential customers for the prospect bank. Another employee, Gallagher, was attempting to establishing a computerised data bank with only limited success. The Applicant was asked by Waterman to perform a day's gardening at Waterman's home, which he did. He was also given two days off with pay. Waterman, the Applicant, and two other employees went on two fishing trips during business hours in January. During one of these trips, Waterman discussed with the Applicant the prospect of the Applicant earning $1,560 per week when the Applicant was generating $10,000 in commission income. The Applicant gave evidence that in late January he was given a document, not produced in evidence, that he would be paid $1,560 per week commencing in May. Waterman claimed that any amounts discussed were conditional on commission earnings. During January the Applicant had still not left the office to actually go out selling the Respondent's products. He was making appointments for Waterman who was the one out in the field. Early on Wednesday, 2 February, Waterman proposed to the Applicant a fishing trip that night. This was agreed. The Applicant and another employee, Johnson, then left the office for a couple of hours to buy some gear. The fishing in fact did not proceed that night. The next morning, on 3 February, Waterman attended at the office. A conversation occurred in which Waterman complained that the Applicant had been absent from the office the previous day and was not performing. The Applicant explained the absence from the office. The Applicant also explained that he had not been given an opportunity to perform by Waterman because he had not actually been out selling the products. The Applicant said he had just been making appointments, waiting for the data base to be established, and assisting Waterman himself. Waterman explained that he could not afford to pay the Applicant and that his financial position was deteriorating. Waterman said that he was finding it hard to write business and that, if he could not write the business, then the Applicant could not succeed either. Waterman's version of this final conversation was more elaborate. He said that he had explained to the Applicant on many occasions that his position was dependent on his performance and that the performance was not there. Waterman explained that the number of successful prospects from the interviews that had been arranged had fallen dramatically and there was discussion about whether the right type of client was being targeted. Waterman denied that the issue of the absence from the office the previous day was of any significance in the conversation. In the conversation Waterman told the Applicant he would have to finish up but there was a further week's work telephoning there for him. Subsequently, the Applicant did perform another three days' work, solely moving partitions, and was paid for that work. The Applicant then brought these proceedings. Preliminary ruling on employment At the hearing, Waterman took the preliminary point that he did not employ the Applicant. After hearing some evidence, I ruled that the Applicant was employed by the Respondent and undertook to give reasons later. My reasons for that ruling were that Waterman accepted in his own evidence that "in spirit" there was an employer/employee relationship between the parties. Waterman maintained, however, that because the Applicant was paid through his company, then the relationship was not one of employment. It is clear from the evidence that the relationship between the Respondent and the Applicant had all the features of an employment relationship. These features included the right to control, a detailed job description, the Applicant being part of the organisation, fixed hours of work, the provision of holiday pay, and non delegation of duties. The only indicia not consistent with a contract of employment was the fact that the Applicant was paid through his company. The mode of remuneration has been described in the case of Australian Insurance Employees Union v W.P. Insurance Services Pty Ltd (1982) 42 ALR 598, 606 as a neutral indicia where it is a matter of financial convenience. I am satisfied that here that was the case. Here, on the Respondent's own evidence, it intended to employ the Applicant. Having regard to this evidence, I am satisfied that there was an employment relationship between the Applicant and the Respondent. The fact that the Applicant was paid through his company was only a matter of convenience for the Applicant and did not alter the true underlying employment relationship between them. What was the reason for the termination? A major difference between the parties was the reason for the termination. It was the Applicant's version that in the conversation on 3 February at which he was told he would need to finish up, Waterman gave prominence to the fact that the Applicant had been absent from work the previous day when he rang the office. I am satisfied on the evidence of Waterman that the absence from work the previous day was not a reason for the termination. I am satisfied that the reason for the termination was Waterman's perception that he did not have a viable position for the Applicant. I accept his evidence that, from the time that the Applicant sold his register, he was trying to assist the Applicant. He did this by offering him work first in the roll-over division and then in the general division of his business. He also did this by paying the Applicant's wages through the Applicant's company. I am satisfied that there is nothing about the Applicant's performance that was the reason for the termination of his employment. Rather, I am satisfied on the evidence that the financial position of the Respondent deteriorated during the latter half of 1994 and did not improve in January 1995. I am satisfied that this deterioration had been discussed in general terms between Waterman and the Applicant. I am satisfied that this deterioration in the financial position of the Respondent, combined with Waterman's perception that the Applicant would not be able to succeed in generating sufficient commission income when he actually went out in the field selling, was the reason for the termination of employment. The way that Waterman used the Applicant in January supports this conclusion. The fact that he was working at Waterman's home, given days off, and taken fishing, is an indication that during January there was just insufficient work for the Applicant to do. This was then combined with Waterman's perception, based on his own experience, that the market had become difficult. I am satisfied that this led him to take the decision to terminate the Applicant's employment. I accept that as far as the Applicant was concerned, he met the changing performance goals set by Waterman. I am satisfied, however, that Waterman formed the view that there was not going to be a viable position for the Applicant, and that he really should have ceased the arrangement a good bit earlier. When the matter is considered in this way, I am satisfied that the Respondent had a valid reason, pursuant to s170DE(1) of the Act, related to its operational requirements, to terminate the Applicant's employment. I am further satisfied that the valid reason did not relate to the Applicant's performance or conduct. Although I am satisfied that the Respondent had a valid reason to terminate the Applicant's employment, I am satisfied that the termination breached the Act because Waterman gave the Applicant no payment in lieu of notice and no real warning to the Applicant that the termination was to occur. In relation to the former Waterman said he believed that this was inapplicable because he thought that he had retained the Applicant's company. In these circumstances, given my finding of an employment relationship, there has been a breach of s.170DB(2) of the Act. I am further satisfied that the failure to warn or consult with the Applicant prior to the termination renders the termination in breach of s.170DE(2) of the Act. Although I accept the Respondent's evidence that on a number of occasions the Applicant was made aware that the future of his position depended on the position "working out", I am satisfied that this was not a sufficient method of consultation with the Applicant when the Respondent formed the view that the relationship could not continue. Waterman's response to this lack of consultation was that at first he was dealing with a person he regarded as a friend, and, secondly, he regarded the matter as being on a company to company basis. While Waterman's position is understandable, given the prior relationship between the parties and the fact that he only had two or three other employees at the time, he could have made the position much clearer and less traumatic for the Applicant. He could have ameliorated the impact of what was essentially the redundancy of the Applicant. Having regard to these matters, I am satisfied that the Respondent, in terminating the Applicant in the circumstances that it did, has breached s.170DE(2) of the Act. Remedy There was no suggestion by the Applicant that he sought reinstatement to the Respondent. I am satisfied that reinstatement was not practicable. In considering compensation, I am satisfied that, had the termination not occurred as it did on 3 February, then the termination would have occurred very shortly thereafter. I accept Waterman's evidence that the business was haemorrhaging financially and that market conditions had deteriorated. Waterman also stated that he regretted not ending the relationship earlier. Although I am prepared to accept that the Applicant has a successful history in the insurance industry, I am not satisfied that the Respondent would have maintained his employment for any significant period but for the actual termination. This is consistent with the evidence that business has not picked up and that the Applicant was not replaced by a permanent employee. Having regard to these matters I am satisfied that the Applicant is entitled to a modest amount of compensation only. An appropriate amount is based on four weeks pay at the rate of $600 per week. I therefore propose to award $2,400 compensation for the breach of the Act. I also propose to award damages in the sum of $600 for breach of s.170DB(2) of the Act. The total amount that the Respondent is therefore ordered to pay the Applicant is $3,000. MINUTES OF ORDERS THE COURT ORDERS: 1. That the Respondent pay to the Applicant the sum of $3,000 within 21 days. I certify that this and the preceding twelve (12) pages are a true copy of the reasons for judgment of Judicial Registrar Murphy. Associate: Dated: 8 September 1995 Solicitor for the Applicant: Rennicks Gippsland Counsel for the Applicant: Mr P. Pascoe Mr N. Waterman, a director of the Respondent, appeared for the Respondent. Date of hearing: 20 July 1995 Date of judgment: 8 September 1995 C A T C H W O R D S INDUSTRIAL LAW - TERMINATION OF EMPLOYMENT - CONTRACT OF EMPLOYMENT - VALID REASON - REDUNDANCY Industrial Relations Act 1988 ss.170DB, 170DE CASES: Australian Insurance Employees Union v W.P. Insurance Services Pty Ltd (1982) 42 ALR 598 ROBERT JOSEPH MASUT v THE WATERMAN GROUP PTY LTD No. VI 2119 of 1995 Before: Judicial Registrar Murphy Place: Melbourne (Heard at Morwell) Date: 8 September 1995 INDUSTRIAL RELATIONS COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY VI 2119 of 1995 B E T W E E N : ROBERT JOSEPH MASUT Applicant AND THE WATERMAN GROUP PTY LTD Respondent MINUTES OF ORDERS Judicial Registrar Murphy 8 September 1995 THE COURT ORDERS: 1. That the Respondent pay the Applicant the sum of $3,000 within 21 days. NOTE: Settlement and entry of orders is dealt with by Order 36 of the Industrial Relations Court Rules.