CATCHWORDS INDUSTRIAL LAW - TERMINATION OF EMPLOYMENT - whether valid reason for dismissal - employee's duty to obey lawful and reasonable orders - whether order lawful and reasonable where employee may breach obligation of confidentiality - whether termination harsh, unjust or unreasonable - whether breakdown in the employment relationship. INDUSTRIAL LAW - TERMINATION OF EMPLOYMENT - REMEDIES - whether reinstatement impracticable - meaning of 'impracticable' - whether compensation should be awarded - method of calculating compensation. INDUSTRIAL LAW - review of Judicial Registrar's decision - hearing de novo. Industrial Relations Act 1988 (Cth) s170DB, s170DE, s170EDA, s170EE, s377 'The Employee's Duty to Obey Unreasonable Orders', G.J. McCarry (1984) 58 ALJ 327 Adami v Maison De Luxe Ltd (1924) 35 CLR 143 Suttling v D-G of Education (1985) 3 NSWLR 427 Pastrycooks Employees v Gartrell White (No. 3) (1990) 35 IR 70 Lister v Romford Ice & Cold Storage Co Limited [1957] AC 555 Australian Telecommunications Commission v Hart (1982) 65 FCR 41 at 47 R v Darling Island Stevedoring and Lighterage Co Limited Ex parte Halliday and Sullivan (1938) 60 CLR 601 Clouston and Co. Limited v Corry [1906] AC 122 Laws v London Chronicle (Indicator) Newspapers (Limited) [1959] 1 WLR 698 Liddell v Lembke (1994-95) 127 ALR 342 Nicholson v Heaven & Earth Gallery Pty Ltd (1994) 126 ALR 233 Cox v South Australian Meat Corporation (unreported 13 June 1995, Industrial Relations Court of Australia) Messervy v Maldoc Pty Limited (unreported, 30 June 1995, Wilcox CJ) YILMAZ IZDES v L.G. BENNETT & CO PTY LIMITED t/as ALBA INDUSTRIES No. WI 307 of 1994 Beazley J 14 September 1995 Sydney IN THE INDUSTRIAL RELATIONS COURT ) OF AUSTRALIA ) ) No. WI 307 of 1994 WESTERN AUSTRALIAN ) DISTRICT REGISTRY ) BETWEEN: YILMAZ IZDES Applicant AND: L.G. BENNETT & CO PTY LIMITED t/as ALBA INDUSTRIES Respondent CORAM: BEAZLEY J PLACE: SYDNEY DATE: 14 September 1995 SHORT MINUTES OF ORDER The Court declares: 1. There was no valid reason for the termination of the applicant's employment. The Court orders that: 2. Within 14 days of the date of this order, the respondent pay to the applicant the sum of $22,500. 3. The respondent file and serve any affidavit evidence in relation to the value of the motor vehicle and superannuation which were part of the applicant's salary package within 14 days of the date of this order. 2. 4. The applicant file and serve any affidavit evidence in response within a further 14 days. 5. The matter be listed for further directions on Tuesday 17 October 1995 at 9.30 am. 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 ) ) No. WI 307 of 1994 WESTERN AUSTRALIAN ) DISTRICT REGISTRY ) BETWEEN: YILMAZ IZDES Applicant AND: L.G. BENNETT & CO PTY LIMITED t/as ALBA INDUSTRIES Respondent CORAM: BEAZLEY J PLACE: SYDNEY DATE: 14 September 1995 REASONS FOR JUDGMENT BEAZLEY J: The applicant, who was dismissed from his employment with the respondent on 3 August 1994, has brought proceedings claiming that the termination contravened Division 3 of Part VIA of the Industrial Relations Act 1988 (the Act) and was in breach of his contract of employment. The application was heard by a Judicial Registrar. The Judicial Registrar found that there was a valid reason for the termination and that it was not harsh, unjust or unreasonable. However, she found that the respondent had failed to give the applicant adequate notice of termination in breach of s 170DB(1). She thus ordered the payment of the sum of $1730 pursuant to s 170EE(5). The applicant now seeks review of the Judicial Registrar's decision pursuant to s 377(1) of the Act. Background The respondent carries on the business of manufacturing margarine and refining edible oils and fats. The business, which is located in Perth, is a small operation, employing about 11 to 12 people. Its managing director is Mr Andrew Bennett (Mr Bennett), whose father commenced the business about 20 years ago. Mr Bennett does not have any technical qualifications or experience in the food manufacturing field. His background is in business. He did not become involved on a full time basis with the respondent until about May 1994. The applicant is a food technologist. He holds a Bachelor of Science degree in Chemical Engineering from the Middle East Technical University, Ankara, Turkey, which he attained in 1976. Thereafter, the applicant had a series of jobs in Turkey and Australia. Immediately prior to his employment with the respondent, he was employed by EOI Foods in Sydney. EOI Foods is also a manufacturer of edible oils, fats, margarines and other foods. In late 1992, the respondent, through a personnel agency, advertised for a food technologist. The advertisement specified that the job involved "Research and Product Development". The advertisement continued: "Reporting to the Operations Manager, you will be integrally involved in the formulation, production and manufacture of various industrial margarines...Our client offers you integral involvement with research, clients and product development". By letter from the agency dated 11 December 1992 the applicant was offered the position at a salary of $45,000 plus car. The applicant accepted and moved to Perth from Sydney with his family, commencing his employment on 5 January 1993. The letter specified that the position offered was that of food technologist. However, the applicant alleges that during the course of interview, Mr Bennett offered him the position of factory manager. He says that when he received the letter of offer, he confirmed with Mr Tony Pymont (Mr Pymont), the respondent's operations manager, that, notwithstanding the terms of the letter of appointment, his position was as factory manager. Whilst Mr Bennett did not agree that this had occurred, he conceded that Mr Pymont promoted the applicant to factory manager about two months after he commenced his employment, but says that, initially, the employment was as food technologist. Mr Pymont, on the other hand, said that he was appointed as factory manager within a couple of days of commencing his employment, at the applicant's request that he be given that title. He said that it made no difference to his duties. The applicant also alleges that during the course of interview, Mr Bennett offered him a second car for the use of his wife. That became an issue between the parties at about the time of his dismissal. The dispute as to the applicant's position is the first in a series of disputes between the parties as to the nature and extent of the applicant's employment responsibilities. These disputes include the existence or extent of the applicant's responsibility for quality assurance, record keeping and for the testing and writing of comparative reports of competitors' products. These disputes, together with his relationship with other employees and his participation with the respondent in a joint venture project for the establishment of a margarine factory in China (the China joint venture) provide the background to his dismissal on 3 August 1994. The way these disputes arose and led to his dismissal is best revealed by examining the matter chronologically. 1993 During the initial period of his employment, the applicant had between 6 to 8 staff members under his control. For the most part, these staff members were operators. Although the applicant was not provided with any job specification, either as a food technologist or as factory manager, he said that he had a number of targets he wished to achieve. Those targets were: (i) to get good quality oils; (ii) to put in place the correct processes so as to comply with the requirements of the Department of Health; (iii) to make new products and introduce them into the market; (iv) to train staff so as to increase their technical expertise; (v) to design and commission equipment; and (vi) to increase sales. Mr Bennett did not specifically comment on these targets in his evidence. He said however that one of the reasons the applicant had been employed was to do product development and to purchase the necessary equipment to carry this out. Mr Bennett also said that the applicant was to be responsible for quality assurance, was required to carry out routine testing on the respondent's own products and was to test competitors' products with a view to product development. The evidence reveals that the applicant and Mr Bennett had a different understanding of the meaning of quality assurance. I shall return to that issue later. It suffices to say at this point that up until about October or November 1993, the relationship between the applicant and the respondent was sound and Mr Bennett had noted an improvement in production. One consequence of the good relationship which developed between the two was that, together with a number of other parties, the applicant and respondent entered into the China joint venture. However, the respondent withdrew from the joint venture in July 1994, due to financial problems associated with another of Mr Bennett's investments. The respondent's withdrawal caused the applicant a great deal of distress and has given rise to litigation between the parties. The applicant believes that his dismissal on 3 August 1994 was due, in part, to Mr Bennett's desire to get him out of the joint venture. Threatened dismissal on 8 February 1994 In about October or November 1993, Mr Bennett noted difficulties in the relationship between the applicant and the respondent's general manager, Mr Pymont, to whom the applicant reported. The relationship deteriorated to the point where, at a management meeting on 8 February 1994, Mr Pymont threatened the applicant with dismissal "if there is a continuation of, intimidation, rude personal accusations, and insults towards [him]." According to the minutes of meeting, the matter was resolved with a mutual agreement "to improve (the) working relationship". March and April 1994 In the minutes for the March management meeting, there is a reference to quality control, the need to maintain official records and to have a product recall procedure. In the minutes for the April meeting there is again a reference to quality assurance records. It was suggested in cross-examination of the applicant that this entry was a reference to Mr Bennett's dissatisfaction with the quality assurance records. The applicant responded to this suggestion by claiming that the matter was only raised because the respondent was planning to sack him. 3 and 4 May 1994 The next major issue arose in early May 1994. According to Mr Bennett, there had been some product returns from the respondent's customers. On 3 May 1994, Mr Bennett held a meeting with the applicant and Mr Pinesi, the respondent's salesperson, at which this matter and the question of record keeping were discussed. The applicant denied that the product returns were the subject of discussion at the meeting, although he admitted that at about this time Mr Pinesi had prepared about 15 pages of complaints from customers. The applicant complained in his evidence that Mr Pinesi never tested or investigated the problems but simply wrote complaints. Mr Bennett gave evidence that although the applicant had revised the respondent's records system, he did not consider it to be adequate, notwithstanding that the matter had been raised at earlier meetings. The applicant denied that there was any discussion at the meeting of the respondent's records system. Later however, he agreed that Mr Bennett had addressed the question of quality recording but that he had told Mr Bennett that the system "was good enough". Indeed, when asked whether he considered Mr Bennett "was going overboard by complaining about this quality at the time", the applicant responded: "I was bored actually, because he was not correct in that issue". Mr Bennett said that he also explained to the applicant that he wanted him to provide a report of the respondent's competitive product testing in lay terms so that Mr Pinesi could use it in his sales and promotional work. The applicant objected to producing the type of report requested. He said that such a report was not scientifically sound and could involve a breach of confidentiality. He said that he was particularly concerned about any breach of confidentiality as he could be sued by companies that he had worked for previously. On 4 May 1994, Mr Bennett wrote to the applicant in the following terms: "Following our discussion yesterday, I am writing to serve notice that unless I see a major improvement in:- 1. Quality assurance control and recording. 2. Factory staff supervision and management. Your position with Alba will be terminated. As I mentioned yesterday you have been requested on at least three occasions, in writing over the last three months to upgrade our production records, specifically to enable accurate monitoring of quality. This has not been done. This is an area of your specific responsibility. General factory supervision has also been below my required standard. Cleanliness, scheduling of repairs to plant and equipment, water waste management, allocation of staff resources, are all areas that your performance has been unacceptable. Yilmaz you also seem unable to foster any team spirit, with our two most senior staff refusing to work under you direction. Yilmaz there is no doubt that there have been some significant improvements in the fifteen months since you joined the staff. These improvements were expected and indeed were the reason for your employment. The time has now come to focus on areas where your performance is unsatisfactory. I will monitor your progress in these two areas over the next few weeks with a view to assisting you to achieve a significant improvement by the end of May." The applicant saw this letter as part of a plan to get rid of him, both from his employment and from the China joint venture. His fears were exacerbated by a fax which he received at the time, which he presumed, correctly, had been sent to him by Mr Bennett. The fax was headed: "NOTICE TO ALL STAFF RE: EARLY RETIREMENT". The document, which was in particularly poor taste, referred to a scheme to be implemented by management to put workers over 35 on early retirement. The applicant was aged about 43 at the time. On its face therefore it could have referred to the applicant, and he read it as such. Mr Bennett gave evidence that the fax was a joke and was not directed at or to anyone. He said it was one of a number of faxes which were circulating in Perth at the time and he sent it around because he considered it to be humorous. The applicant responded to the 4 May letter by letter dated 6 May 1994, in which he said: "...I found your notice unfair, including conflicts and not reflecting 'the realities'." He then went on to outline a number of areas which he accepted were his responsibility. However, he expressly rejected quality control or testing as part of that responsibility. He was also critical of other aspects of the respondent's business, including factory cleanliness, maintenance, equipment repairs and staff levels. He complained that Mr Pymont had dismissed two of his staff without consultation with him. He also said that Mr Pymont and Mr Pinesi could not contribute fairly to the team effort that Mr Bennett required "because of their lack of required education, qualifications and experience". He said he had given them as much assistance as he could but "[t]hat was one way of contribution and they don't work under my direction." Mr Bennett said that he was shocked by the applicant's assertion that he was not responsible for quality control and testing as that was part of the reason the applicant had been employed. Although the applicant used the term "quality control" in his letter, I am of the opinion that he meant it in the sense that he used the term "quality assurance" at other times. It is thus convenient to return to the differences which the applicant and Mr Bennett had in relation to quality assurance. The applicant consistently denied that he was ever made responsible for quality assurance. He also drew a distinction between quality assurance and quality control or quality assurance application, conceding that he was responsible for the latter. According to the applicant, the essential difference between the two concepts related to the degree of control necessary before one could have effective responsibility for quality assurance. He stated, for example, that if a person had responsibility for quality assurance: "You will control or will get the authority to control all the quality assurance applications." ... "You can do the tests but if somebody else decides about the results of the tests, it is not quality assurance. That means the quality assurance responsibility is going to different people." He said he had never been given responsibility for quality assurance as both Mr Bennett and Mr Pymont had the authority to authorise the release of out of specification products. Had he been given responsibility, that task would have fallen solely to him. He also considered that responsibility for quality assurance involved responsibility for customer relationships, including investigation of customer complaints. He was not given responsibility for this either. That responsibility resided in Mr Pymont. The applicant stated that he had done a lot of work in the quality improvement area, for example, by setting up a laboratory and by doing most of the testing of products. However: "...for quality assurance that means controlling quality in all aspects for testing, the releasing or holding, or reprocessing and for the customer contacts. So in quality assurance area...-I wasn't responsible for...all those activities. I wanted, but the responsibility was..never given to me." The extent of the applicant's feelings in relation to his responsibility for quality assurance is perhaps best illustrated by the following evidence: "I never accepted the quality assurance responsibility. First of all, the initial processing of Alba without changing the process equipment and the process order was totally wrong and that was not giving a good quality product. Alba was selling some oils to the market including some soap in it and that was out of health department requirements. If I had accepted that responsibility that means I was suiciding myself. It's something like that so I didn't accept responsibility at the beginning and I was knowing that when I started at Alba. I never accepted the responsibility because of that reason. " There was also confusion about the applicant's responsibility for testing. The applicant stated in his evidence that he in fact carried out about 95% of the routine testing of the respondent's products. He said that he did this "voluntarily" and that if he left it to the operators to do, he "would not get the result". He said that, in all, he had conducted about 8000 tests and said he was happy to do it. The applicant was cross examined as follows as to what he meant when he asserted that he only did the testing voluntarily: "Let us assume one day you got out of bed and you said today I am not going to do the tests because it is voluntary. Could you say to Mr Bennett: no tests today, it is voluntary?---I never thought this one. I was always feeling responsible for the operation of the company as a manager at the factory operations... Let us get back to the testing. If you had not voluntarily - let us call it "voluntarily" for the moment decided to do the testing, who would have done it in the factory?---Actually, operators were doing the tests and before I started testing in early days of my- in the company, some operators were doing the tests. But my aim was - was improve the quality and development the image of the company, increase their reputation. So I felt that if I left them doing all the tests I wouldn't achieve the end result. So I started to do testing and at the end I managed and left some of the simple tests to them". The 23 May 1994 restructure Immediately after the exchange of correspondence in early May to which I have referred above, the applicant went on holidays. During that time, Mr Pymont assumed responsibility for the factory and reported to Mr Bennett that equipment was not being sterilised. Mr Bennett considered that to be a matter of major concern, as, in his 6 May 1994 letter, the applicant had said he would not be responsible for quality control. Because of these problems, Mr Bennett decided to come into the business full time and to restructure the management of the respondent. Under the new arrangement, all senior staff, that is the applicant, Mr Pymont and Mr Pinesi, were to report directly to him. The applicant "as technical manager" was to report on: * Quality assurance and testing. * Product development. * Process development. * Research. * Engineering. * Cost reduction. * Technical support of sales. * Planning participation. The restructuring meant that the applicant no longer reported to Mr Pymont and was no longer responsible for day to day production. That role was taken over by Mr Pymont. The applicant's job became a wholly technical one. According to Mr Bennett, product testing of competitors' products remained part of his duties, being an integral aspect of product development. The applicant was critical of the restructuring. In particular, he was critical of the responsibility given to Tony Pymont for production and planning. He said that Mr Pymont had no formal qualifications and very little experience to carry out this work. He considered this to be a matter of concern and raised it with Mr Bennett. He also raised the question of quality assurance. His complaint remained that he was not given authority for quality assurance and thus should not and did not have responsibility for it. He also complained that the staff who carried out product testing reported to Tony Pymont and not to him so that he could not control them. In addition, he was critical that he was not given any role in respect of rejected products, a function which was left entirely with Mr Pinesi, but which he say was an integral part of quality assurance. However, the matter remained unresolved. According to Mr Bennett, the applicant's performance deteriorated after the 23 May 1994 restructure although he makes no specific complaint of his performance until an incident on 8 July 1994. He said, however, that the applicant continued to be critical of Mr Pymont and doubted his capacity to perform the role of production manager. 8 July 1994 suspension The applicant said that after the restructuring he was not very busy and only had to work about 1 hour per day. During June or early July, the applicant and Mr Bennett had discussions about a redundancy package. However, they were not able to reach agreement. The applicant recollected that there were also discussions in respect of redundancy on 6, 7 and 8 July 1994. Mr Bennett did not contradict this. The applicant said that he was very upset at the time of these redundancy discussions "because it was very high pressure" On 8 July 1994, Mr Pymont was in charge of producing a catering margarine. It was the first time Mr Pymont had undertaken that task and Mr Bennett had requested the applicant to assist him. The batch turned out to be unsatisfactory and Mr Bennett considered it to be unsaleable. Mr Bennett suspected that because of the applicant's antagonism towards Mr Pymont, the applicant had sabotaged the production. Mr Bennett spoke to the applicant who told him it was not his job to do testing and that he would only do it voluntarily. Mr Bennett suspended the applicant for a week on full pay as he did not have time to deal with the issue at the time as he was due to go overseas. He investigated the matter on his return. He concluded there had not been any sabotage of the process and that Mr Pymont and the applicant had been equally at fault. However, no action was taken against Mr Pymont over the incident. 25 July 1994 In late July, the extent of the applicant's responsibilities was again the subject of discussion. The applicant had been asserting for some time that he should be exonerated from responsibility for quality control up until that time. Also about this time, the applicant informed Mr Bennett that he did not wish to prepare comparative reports of opposition products. These matters were discussed at a meeting on 25 July 1994. On 26 July 1994, Mr Bennett wrote to the applicant, summarising the matters which had been in issue over the preceding 6-7 months. The letter also referred to the China joint venture, the litigation arising from the respondent's withdrawal from the joint venture and discussions about "a severance payment because I considered our working relationship would deteriorate beyond regard because of our legal dispute". The letter concluded: "Yesterday 25/7/94 you again refused to perform your duties. This situation is unacceptable to me. I believe you have deliberately provoked an unworkable situation." We will meet tomorrow at 10 am to discuss the above. Be advised that your termination is under consideration and this could be the outcome of tomorrow's meeting...". There is no evidence of any specific incident on 25 July. The only evidence is a statement in Mr Bennett's affidavit that, on that day, the applicant refused to perform his technical duties as he was requested to do. The applicant viewed this development as part of a continuing campaign "to (get) at him" in relation to the China joint venture. Mr Bennett denied this was so. Mr Bennett and the applicant met on 27 July 1994. A number of issues were raised. The applicant raised the problems he had in preparing the comparative reports which Mr Bennett wanted. He said such reports were unscientific in nature, that there were ethical and moral issues involved in this type of activity and there could be problems with breach of confidentiality. He said that he asked Mr Bennett for an indemnity if he insisted on comparative analysis and reporting being done. He also said he had raised the question of an indemnity many times with Mr Bennett from February 1994. According to the applicant, Mr Bennett refused to provide an indemnity. Mr Bennett said that during the course of the meeting he offered to get legal advice on the question of the comparison reporting of competitor's products. This was recorded in handwritten notes which Mr Bennett made either at or shortly after the meeting. He denied that the applicant had requested an indemnity in relation to the comparative testing and reporting. The applicant, on the other hand, denied that Mr Bennett had offered to get legal advice on the issue of comparative reporting. Later in the day of the 27 July, Mr Bennett gave the applicant a letter which he said contained the agreement they had reached at the meeting. It contained the following 6 points: "1. You accept responsibility for job specifications as contained in my letter 23/5/94 ( copy attached). 2. You have authority to ensure all product conforms to product specifications. Written authorization with reasons must be provided before any out of spec product is allowed to leave the premises. 3. Quality reporting will be in a useable, understandable manner. Direct comparisons between Alba and opposition products are not required. 4. Alba will make no change to it's position regarding a second car, quality responsibility prior to today, or your suspension. 5. You are not restricted to set working hours and I am happy for your time to be adjusted to the work at hand. 6. Our disagreement regarding the proposed joint venture in China will not affect your work performance at Alba." The letter concluded: "We have spent a lot of time discussing your work performance. I expect you to complete your duties in a co-operative, professional manner and will not tolerate further disruption to my business." The applicant denied that the letter recorded an agreement. Rather, he said, it was a summary of what was discussed at the meeting. When he received the letter he made notations on it as to the matters he did not accept or which he wanted qualified and returned it to Mr Bennett. In particular, he did not accept that respondent's position on item 4. He wanted the right to authorise "out-of-spec" product to be confined to himself and Mr Bennett and continued to press for exoneration from responsibility for quality assurance before 27 July 1994. Notwithstanding that he thought he had reached agreement with the applicant as recorded in the letter, he considered that they would have to "agree to disagree" on the issues raised by the applicant. In my opinion, Mr Bennett's concession supports the applicant's evidence that the letter represented the points which had been discussed at the meeting and that it did not record an agreement reached between them. 3 August 1994 Matters came to a head on 3 August 1994. Mr Bennett said that he requested the applicant to test two products for the purposes of product development. One was a product manufactured by the applicant's former employer, EOI. The other was a Kraft product. The applicant refused to test either product. In his evidence, the applicant said he had refused to test the Kraft product because he had tested it previously, on 28 July. He produced the gas chromatometer readings of the product to support his evidence. Mr Bennett said he was not aware that any earlier testing had been done on the product and the applicant did not tell him that at the time. So far as he was concerned, the applicant "bluntly refused" to test the two products. He said that the applicant also raised the issues of responsibility for quality control and the authorisation of out of specification stock. Mr Bennett refused to deal with those issues at the time. Mr Bennett said that when the applicant refused to carry out the testing, he returned to his office and prepared two letters. About an hour later he gave the following letter to the applicant: "Your demands regarding responsibility for past quality and whether or not Tony Pymont is able to authorize release of out of specification product, are under consideration. In the meantime I require routine testing to be done. This has always been part of your functions at Alba. If you refuse to conduct these tests you will be dismissed forthwith. Please consider your Position and advise me in writing urgently." He said that the applicant responded by saying: "I'm not going to discuss this." Mr Bennett asked him whether he was going to do the testing. He said that the applicant again responded that he was not going to discuss it and he said he was not going to do the testing. Mr Bennett then handed the applicant the second letter advising him that his employment was terminated. Mr Bennett said that he prepared the second letter at the same time as the first because: "I would have taken bets on what he was going to do." The applicant gave a different account of these events. He said that Mr Bennett came to him with the EOI product and told him to "[a]nalyse this product and write me a comparison report, detailed report". He said that he told Mr Bennett that these matters had been discussed on 27 July and that he had rejected any requirement that he do comparison reporting. He said that he said to Mr Bennett: "...if you take responsibility, I'll do it and I asked the indemnity". He said that Mr Bennett responded "It's rejected". He said that Mr Bennett went away, returned about 3-4 minutes later and handed him the first letter. He said that he told Mr Bennett that he was not being asked to do routine testing but to test a competitor's product. He said that Mr Bennett then said "(n)ot accepted". He was then handed the second letter terminating his employment. He said he responded to the letter by saying: "You were planning this" at which point Mr Bennett smiled and said "What were you expecting?" Later, under cross-examination, the applicant said that he told Mr Bennett at the time that he had previously done the testing on the Kraft product. He said that Mr Bennett did not then insist on the Kraft product testing but continued to insist that the EOI product testing and reporting be performed. He said that he never refused to do testing but that he refused to do the comparative reporting. It is clear from the evidence that Mr Bennett had difficulties with the applicant's approach to his work and to other staff. He described the applicant's attitude to other staff members as "arrogant, pompous, condescending". Mr Pymont described him as "arrogant, egotistical, and [it was] very unpleasant working with him...he would be very critical of what you would say or do, he was always reporting that he was a technical person and that you were beneath him". Mr Pymont was particularly critical of the applicant's approach to other staff, stating that, if any problem arose, he would blame staff for it and "call the staff a liar if they tried to defend themselves". He conceded, however, that at times he had countermanded directions which the applicant had given to staff. There was no investigation of this issue and it is impossible to determine whether Mr Pymont's intervention was justified or whether he was merely meddling in the applicant's area of operation. Whatever be the position, such incidents reflect the poor state of relationships between the senior employees in the company. Mr Bennett gave evidence that because of the applicant's poor relationship with staff, he had to "promote" one staff member "sideways" and another went on to night duty, as the applicant could not get on with them. Mr Bennett had taken these steps as he considered these staff members were too valuable to lose. Mr Bennett was not one sided in his approach to the applicant. He acknowledged the good work the applicant had done. However, it was clear from the evidence that the incident on 3 August 1994 was a culmination of months of an unsatisfactory relationship during which, as Mr Bennett saw it, the applicant had refused to improve the quality recording system, refused to make certain product modifications and refused to do product reporting because he was concerned about his potential liability for breach of his duty of confidentiality to his former employer, EOI. Mr Bennett thought this refusal was a planned attempt to frustrate his management of the respondent. Termination of employment Section 170DE provides: "(1) An employer must not terminate an employee's employment unless there is a valid reason, or valid reasons connected with the employee's capacity or conduct or based on the operational requirements of the undertaking, establishment or service." (2) A reason is not valid if, having regard to the employee's capacity and conduct and those operational requirements, the termination is harsh, unjust or unreasonable. This subsection does not limit the cases where a reason may be taken not to be valid." The respondent bears the onus of establishing that there was a valid reason for dismissal. If the respondent is able to establish that there was a valid reason for the dismissal, the onus is upon the applicant to establish that the dismissal was harsh, unjust or unreasonable: s 170EDA. Did the applicant refuse to carry out a lawful and reasonable direction of the respondent? The respondent contends that the applicant's refusal to carry out testing as directed by Mr Bennett on 3 August, taken in conjunction with the history of warnings in relation to his work performance, constituted a valid reason for the dismissal within s 170DE(1). It is well settled by the authorities that any direction to an employee must be both lawful and reasonable: see Adami v Maison De Luxe Ltd (1924) 35 CLR 143; Suttling v D-G of Education (1985) 3 NSWLR 427; Pastrycooks Employees v Gartrell White (No. 3) (1990) 35 IR 70; Lister v Romford Ice & Cold Storage Co Limited [1957] AC 555; Australian Telecommunications Commission v Hart (1982) 65 FLR 41 at 47; R v Darling Island Stevedoring and Lighterage Co Limited; Ex parte Halliday and Sullivan (1938) 60 CLR 601; cf the academic debate upon the issue in 'The Employee's Duty to Obey Unreasonable Orders', G.J. McCarry (1984) 58 ALJ 327. Whilst reliance is placed upon events dating back to February 1994 as providing a valid reason for the dismissal, the principal reason for the termination was the applicant's alleged refusal to carry out testing on 3 August. It is thus convenient to deal with that incident first. In doing so, I propose to refer separately to the refusal to test each of the products. The applicant says that he had tested the Kraft product on 28 July 1994. If the applicant was falsely alleging that Mr Bennett was acting unreasonably on 3 August, it is likely that his version would have painted Mr Bennett's actions in the worst possible light. However, his evidence that Mr Bennett did not insist on further testing of this product is a response which might have been expected in the circumstances and which would have been a reasonable response. Further, the chromatometer report is independent evidence that the test was done on 28 July 1994. These factors lead me to the view that the applicant's evidence on this matter is credible. If the applicant's evidence on this is accepted, his refusal to do the test was understandable and reasonable. However, even if one accepts Mr Bennett's evidence that he did not know, and the applicant did not tell him, that the testing had been carried out earlier, the incident demonstrates the woeful state of communication between the parties. In my opinion, a manager, acting reasonably, would have known whether a task such as this had or had not been done. If the manager did not know, a check should have been made before issuing a direction that the task be performed. However, it must be recognised that mistakes and oversights can and do occur. Had the applicant been acting reasonably, he would have told Mr Bennett that he had already done the testing on the product. Thus, even on Mr Bennett's version, the problem on 3 August in relation to this product was due to Mr Bennett's conduct, as much as it was to that of the applicant's. Accordingly, on either view of the evidence, I do not consider that the refusal to carry out the testing of the Kraft product constituted a valid reason for the termination. The direction to test the EOI product raises different considerations. The applicant believed that the direction to carry out the testing could involve him in a breach of confidentiality. Prior to leaving EOI, the applicant had signed a confidentiality agreement. The terms of the agreement were not in evidence. However, I accept that the applicant had raised the issue of breach of confidentiality with Mr Bennett on more than one occasion. I consider that the applicant's concern with a possible breach of confidentiality was both real and reasonable. He said that he had requested an indemnity if he was required to carry out testing that may have involved him in a breach of confidentiality. He said that Mr Bennett had refused to give him an indemnity. Mr Bennett said that he had offered to get legal advice on the issue. The evidence is not clear whether he intended this to be an offer that he would get legal advice or that he would provide the applicant with the opportunity to obtain advice. Whatever be the position, at the time that Mr Bennett issued the direction on 3 August, legal advice had not been obtained by either the applicant or Mr Bennett. There is no evidence to enable me to form any opinion as to whether such testing would or could have involved a breach of confidentiality. However, on either the applicant's or Mr Bennett's version, I consider that Mr Bennett's direction was unreasonable in the circumstances. It was given in the knowledge that the question of confidentiality had been a source of real concern to the applicant in respect of the testing of EOI's products. On either version that issue remained unresolved. It was a serious issue. If such testing could have involved a breach of confidentiality, I consider that a direction to carry it out, was, at the least, unreasonable. I also consider it to have been unreasonable to insist on the testing whilst the issue remained unresolved. I have proceeded thus far on the basis that the direction given on 3 August was a direction to test only. I have done so without making a specific finding to that effect. I have already referred to the fact that there was no oral evidence before me. Notwithstanding the extreme disadvantage I am at in not having heard the parties give evidence, I am inclined to accept the applicant's evidence that he was directed to test and report. In the first place, it would have achieved nothing for the applicant to have merely tested the product. He would have had to report, in some fashion, on the results of the testing. Secondly, the letter of 27 July indicates that Mr Bennett still required "reporting" in a "useable, understandable manner" in relation to competitors' products. It seems unlikely therefore, on the first occasion that Mr Bennett directed the applicant to carry out comparative testing, that he did not include a direction to report. It is quite possible that Mr Bennett may not have used the phrase "comparison report". However, I am inclined to the view that he required some report on the EOI product. If that is the case, I consider that the direction was unreasonable in the absence of some clarification of the question whether the applicant would thereby be involved in a breach of confidentiality, or alternatively in the absence of the provision of an indemnity to the applicant. Accordingly, I am of the opinion that the events of the 3 August did not provide a valid reason for the termination of the employment. The respondents also rely on the events of 8 July and 25 July as providing a valid reason for the termination. There is insufficient evidence in relation to 25 July to support the respondent's submission. Nor do I consider that the events of 8 July, of itself, provided a valid reason for termination. It was another example of lack of communication, and quite likely, a lack of co-operation between the applicant and Mr Pymont. The manner in which Mr Bennett dealt with the incident at the time suggests that the respondent did not consider that it provided a valid reason for termination. Alternatively, it would have been harsh, unjust or unreasonable to have dismissed the applicant on 3 August because of that incident. The incident had occurred almost 4 weeks earlier. The applicant had been suspended over it. Mr Bennett had investigated it and found the applicant and Mr Pymont at fault. However, he took no action against Mr Pymont and no further action against the applicant at the conclusion of the investigation. At the most, this incident could only have supported a dismissal, which was not harsh unjust or unreasonable, if it was viewed as part of an accumulation of events. As I have rejected the incident of 3 August, and any occurrence on 25 July, as providing a valid reason, I do not consider that this incident on its own can support a lawful termination. Even if I am wrong in finding that the events of 8 and 25 July and 3 August, either singly or in combination, did not provide a valid reason for the termination, I am of the opinion that the dismissal was harsh, unjust or unfair. In determining whether a refusal to carry out the lawful and reasonable directions of an employer constitutes a valid reason for termination, it is necessary to have regard to all the circumstances, including the nature and degree of the employee's conduct. In Clouston and Co. Limited v Corry [1906] AC 122, Lord James of Hereford stated at 129: "There is no fixed rule of law defining the degree of misconduct which will justify dismissal." In Laws v London Chronicle (Indicator) Newspapers (Limited) [1959] 1 WLR 698, Lord Evershed M.R. (Jenkins and Willmer LJJ agreeing) stated at 700: "The question must be - if summary dismissal is claimed to be justifiable - whether the conduct complained of is such as to show the servant to have disregarded the essential conditions of the contract of service." In Pastrycooks Employees v Gartrell White (No. 3) Hungerford J in reviewing these, and other authorities, stated at 74: "Permeating all of those earlier cases on this aspect of the law was the concept that the act of misconduct or of disobedience had to strike at the fundamental aspect of the relationship of employer-employee so as to make it plain that the conduct complained of was such that the non-offending party may properly conclude that the offending party no longer intended to be bound by the provisions of the employment contract. In other words, so it seems to me, the test comes down to the question whether the employee's conduct has been so inconsistent with his duties under the employment contract that it strikes down any reasonable suggestion that the employer-employee relationship can be continued in the future." The directions given on 3 August 1994 were given in a situation where the relationship between the parties had broken down. The parties were involved in litigation against each other; Mr Bennett had, on 8 July 1994, acted impetuously towards the applicant in suspending him when, subsequent investigation revealed that the applicant was not solely at fault for the problem which arose on that day and Mr Pymont was not disciplined over the incident; alternatively, the respondent had not treated the applicant and Mr Pymont equally over this incident; and there was a misunderstanding between the parties as to what the applicant's job entailed. In addition, certain management matters contributed to and even exacerbated this breakdown. The respondent sought to give the applicant responsibility for quality control and assurance notwithstanding that, as from 23 May 1994, the staff performing tests for the purposes of quality control were not under his direction or control. Further in relation to quality assurance, Mr Pymont had authority to release an out-of-spec product. This was so, notwithstanding Mr Pymont was not answerable to the applicant and did not have any technical qualifications. There was, therefore, some justification in the applicant's agitation about this issue. The evidence disclosed that Mr Pymont's lack of qualifications was a source of particular friction between the two. These various factors demonstrate a deficiency in managerial organisation and direction. When there is added to that the separate relationship created through the China joint venture, where the commercial and financial interests of both parties were at stake, it is not surprising that the relationship should develop the difficulties which these events reveal. In my opinion, where the breakdown in the employment relationship is occasioned by the conduct of both parties as it was here, the termination was harsh, unjust or unreasonable. Relief to be granted That leaves for determination the question of what relief should be granted. Section 170EE provides: "(1)In respect of a contravention of a provision of this Division (other than section 170DB or 170DD) constituted by the termination of employment of an employee the Court may make the following orders: (a) an order requiring the employer to reinstate the employee by: (i) reappointing the employee to the position in which the employee was employed immediately before the termination; or (ii)appointing the employee to another position on terms and conditions no less favourable than those on which the employee was employed immediately before the termination; and (b) if the Court makes an order under paragraph (a): (i) any order that it thinks necessary to maintain the continuity of the employee's employment; and (ii)an order requiring the employer to pay to the employee the remuneration lost by the employee because of the termination. (2) If the court thinks, in respect of a contravention of a provision of this Division (other than section 170DB or 170DD) constituted by the termination of employment of an employee, that the reinstatement of the employee is impracticable, the Court may make an order requiring the employer to pay to the employee compensation of such amount as the Court thinks appropriate." The applicant seeks reinstatement. In Liddell v Lembke (1994-95) 127 ALR 342, Wilcox CJ and Keely J stated at 360: "Plainly, it was Parliament's intention that the primary remedy for unlawful termination should be reinstatement and that compensation should be available only where this was impracticable. The precise meaning of "impracticable" in this context should be left to another day; the question is one of general importance and it was not fully argued in this case. But, although "impracticable" does not mean "impossible", it means more than "inconvenient" or "difficult". The imposition of such a stringent limitation on the court's power to award compensation, rather than order reinstatement, is inconsistent with the notion that Parliament intended the court to have an open discretion whether to intervene at all." Gray J, in a separate judgment, took a much wider view. He stated at 367-8: Pursuant to s 170EE(2), the remedy of compensation is available only "If the Court thinks...that the reinstatement of the employee is impracticable...". ... Reinstatement is therefore required if it can be done. If the employer is still employing or able to employ someone to perform the same or similar tasks, then reinstatement will be practicable. However, in Nicholson v Heaven & Earth Gallery Pty Ltd (1994) 126 ALR 233 at 244 Wilcox CJ stated: "It is important to note that Parliament stopped short of requiring that, for general compensation to be available, reinstatement be impossible. The word 'impracticable' requires and permits the court to take into account all the circumstances of the case, relating to both the employer and the employee, and to evaluate the practicability of a reinstatement order in a commonsense way. If a reinstatement order is likely to impose unacceptable problems or embarrassments, or seriously affect productivity, or harmony within the employer's business, it may be "impracticable" to order reinstatement, notwithstanding that the job remains available." This approach was followed by Von Doussa J in Cox v South Australian Meat Corporation (unreported 13 June 1995, Industrial Relations Court of Australia). I also agree that this is the correct approach to the meaning of the section. I do not consider reinstatement to be reasonably practicable in the present case. The respondent is a small company. The managing director, is, in effect, the owner of the business. The relationship had broken down between the parties at the time of the dismissal. There were severe personality problems between the applicant and other employees at all levels, as well as between the applicant and Mr Bennett. Although the applicant considered that he could play a useful and effective role in the company, and Mr Bennett had not, at the time of the hearing, replaced him, I consider that the animosity which exists between the applicant and others in the company is such that reinstatement is not reasonably practicable. Accordingly, I do not propose to order the applicant's reinstatement. That leaves the question of whether compensation in lieu of reinstatement should be ordered. As at the date of the hearing, the applicant had not found alternative employment and was on social security payments. He had moved away from Perth and returned to live in Sydney. He has lost the benefit of the car which was part of his employment package, as well as superannuation. He had been unemployed for nearly 8 months as at the date of the hearing. In those circumstances I am of the opinion that but for s 170 EE(3), the applicant should be compensated in an amount which reflects this loss. However, under that subsection, compensation awarded under s 170 EE must not exceed the amount of remuneration which the applicant would have received in the period of 6 months immediately following his termination, if the termination had not occurred. In the present case, that amount would include the value of the car and superannuation contribution: see Messervy v Maldoc Pty Limited (unreported, 30 June 1995, Wilcox CJ). As there was no evidence as to what value should be attributed to the value of the superannuation and the car, the parties should be permitted to adduce written evidence and submissions on this point. However, that should not delay the payment of compensation directly related to the wages component of the applicant's salary. I certify that this and the preceding 34 pages are a true copy of the Reasons for Judgment of the Honourable Justice Beazley. Associate: Dated: 14 September 1995 APPEARANCES The Litigant appeared in person Counsel for the Respondent: Mr Curlewis Solicitors for the Respondent: Messrs Phillips Fox Date of hearing in Perth: 30 March 1995