IN THE INDUSTRIAL RELATIONS COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY VI 3824 of 1995 B E T W E E N: Ruben FUENTES Applicant A N D PACIFIC DUNLOP TYRES PTY LTD and GOODYEAR TYRES PTY LTD (trading as SOUTH PACIFIC TYRES) Respondent REASONS FOR DECISION 4 December 1995 PARKINSON JR This is an application made pursuant to s170EA of the Industrial Relations Act 1988. The applicant was employed in June 1994 by the respondent as a tyre builder at its West Footscray plant. His employment was terminated summarily on 30 June 1995. The reason for the termination of the applicant's employment was that he built three tyres during the course of his overtime shift on 28-29 June 1995 which did not comply with the specifications indicated. It was further alleged that the applicant had done this deliberately, and in full knowledge of the fault left the premises of the respondent without drawing the fault to the attention of the supervisor. It was conceded in the proceeding that the applicant had in fact been the tyre builder responsible for the faulty tyres, however the applicant says that he did not deliberately construct faulty tyres, and that whilst he could provide possible explanations as to how the faults occurred, his evidence was that it was a genuine mistake on his part. I turn now to set out the background of this matter and my findings of fact. Background The respondent produces tyres for both the domestic and export market. The size of those tyres range from domestic to large farm equipment such as tractor tyres. At the time of the incident the applicant was allocated to number 5 machine and was engaged in the building of large export tractor tyres. The tyre being constructed was one of the larger tyres produced by the respondent and required the application of eight layers of ply, laid alternatively in a diagonal pattern. The process of building a tyre requires the fixing of layers of tread in specified ply numbers. Each tyre type differs as to the number of ply or layers of tread, and as to the manner of its fixing. The specification for the tyre type being produced on any particular machine at the relevant time is contained in a computer printout which is located at the machine site. The operator is required to follow the specification in building the tyres. In this case some of the tyres produced by the applicant at the end of his shift which commenced on 28 and concluded on 29 June, were missing layers of ply. In the case of two tyres there were two ply missing from the specified construction, and in another, one ply. Each tyre builder is extensively trained at the point of engagement and over a three month period thereafter in the process of construction, and I am satisfied that the applicant was fully informed of the processes and the tasks associated with the construction of the type of tyre he was working on that day. Whilst it is clear that such tyres make up a small proportion of the tyres produced by the respondent, I am satisfied that the process of construction is substantially the same between each type, and in any event that the applicant had previous experience on the construction of tyres with varying ply specifications, up to and including eight ply tyres. I am also satisfied that the machine he was operating on the day in question did not differ materially from any other tyre building machine. Therefore, I conclude that lack of familiarity with the process was not a factor which contributed to the omission of ply layers by the applicant. The evidence was that the applicant had worked on night shift commencing at 3.00am and had continued to work beyond the cessation of the shift to 3.00pm the following afternoon. I am satisfied that the faulty tyres were produced towards the end of his shift, and in the case of two tyres, were probably the last tyres produced by him that day. The respondent's case was that the applicant was dismissed for a gross breach of manufacturing standards. However it is apparent from the evidence, particularly that of Mr Heffner, the production manager, that the principal reason for the termination was that the respondent's officers believed that the applicant had deliberately left out layers of ply so as to increase the number of tyres he produced, and consequently increase his cash bonus. The respondent submits that the only explanation for the missing ply is that the applicant, in a hurry to process the tyres for bonus gain, fast forwarded the machine to miss the application of the layers. The pay rates of the employees in the production area are structured so that a base rate is payable together with a bonus per tyre produced beyond minimum production requirements. The bonus system operates on a 60% , 80% and 100% system. In the tractor tyre production area a limit is placed upon the level of bonus able to be earned by employees in the first twelve months of employment. This is to enable employees to become used to the process, and to prevent the incurring of strain injuries. The applicant, having recently completed twelve months service, had become eligible for a production bonus at an increased rate, and the evidence was that the applicant had recently raised this eligibility with the respondent. The evidence of Mr Tornese as to the explanation given by the applicant was that "he said that he may - was overtired". I am of the view that the evidence does not establish that which was concluded by Mr Heffner and Mr Tornese, that is, that the applicant knew of the defects before he left the factory at the end of his working day. Having worked through the night, the applicant then worked for another four hours that day. The applicant was not a regular night shift worker as he worked rotating shifts of varying kinds, and it is not inconceivable that this may have been a factor in the errors that he made. The applicant's evidence was that he was unaware of the error until he returned to work the following day and was informed by another employee of the fact. Mr Heffner had clearly proceeded under the assumption that the applicant knew of the defects when he left the factory premises. One of the significant factors in his decision to terminate the employment was the fact that he believed the applicant left work knowing of the defects. This is established on the evidence to be untrue. I am satisfied that the applicant was informed by another employee, at the start of his shift on the following day, that such defects had been found. I have had regard to the evidence given by Mr Sgro and Mr Tornese as to the conversation between them and the applicant, and their interpretation of the applicant's responses as being admissions of knowledge and deliberate conduct. Even on the conversation contended for by them as having occurred, there was nothing that constituted an admission by the applicant that he had acted deliberately. The conversations suggested to the contrary. As an example of this, Mr Tornese informed the Court that the applicant said that he had found out about the tyres from the leading hand and that he may have made the mistake because he was tired. I do not accept that the conduct was deliberate, and I do not accept that the applicant acted in such a manner to increase the performance bonus. A consideration of the performance bonus payable to him indicates that he would not on his production levels have been anywhere near eligible to claim at the 100% level as a result of the tyres produced by him on the day in question. Further, the amount claimed was an amount to which he was already entitled, namely the sum of $ 4.50 per tyre in bonus. However, the fact of the conduct being deliberate was not the only reason relied upon by the respondent. The respondent also relied upon there being a gross breach of quality standards. The applicant's explanation in the proceedings for how that mistake might have occurred was that a stopper must have fallen out. The stopper referred to is a piece of metal inserted between each roll of material on the machine, to ensure that the roll cannot engage or progress without the controls being pressed. The evidence of the applicant was that the stoppers frequently fell out of the machines, although the respondent's witnesses denied that it occurred as regularly as the applicant suggested. Mr Sgro, the line supervisor, gave evidence that he inspected the machine within 15 minutes of the conclusion of the applicant's shift and that no stoppers were missing. There is a slim possibility that the stoppers had been displaced but replaced by the next tyre builder or a servicemen after the applicant had left the machine, however this in my view is unlikely. In any event the applicant in ordinary circumstances, having regard to the production process, and the manner in which the bias was laid, ought to have observed that there was a fault in the production process and observed that a layer of ply was missing. In my view a more likely explanation is inattention on the part of the applicant. It is difficult to determine whether this inattention was as a result of fatigue as suggested by the applicant, however this was the explanation he gave to Mr Tornese and Mr Heffner at the time of the incident. S170DE(1) - Valid Reason relating to conduct or performance Whilst in my view the evidence does not establish that the applicant's conduct was deliberate or known to him, nevertheless in this situation I am satisfied that the respondent had a valid reason for the termination of the employment. There is no doubt on the evidence that the applicant produced at least two of the tyres which were found to be faulty. The production standards of the respondent are of major concern to it, and it is entitled to view a failure of the type caused by the applicant as extremely serious. The respondent relies upon its tyre builders to a large extent for quality control, and this is a matter which is recognised in the local industrial agreements. I am satisfied that the respondent had valid reason relating to the work performance of the applicant for terminating the employment. I now turn to consider the application of S170DE(2) of the Act. S170DE(2) - Harsh, Unjust or Unreasonable There are a number of factors in this case which mitigate in favour of the applicant and which, in my view, expose the decision to terminate the employment to a charge of being harsh. These factors, to which I have had regard in this decision, include my finding that the applicant had not deliberately omitted the ply, nor did he have knowledge of its omission prior to leaving the factory, and that the applicant had a clearly excellent record in the production area, with all of his skills and performance assessments being of high quality. Further, he was a person who volunteered to work overtime and was regularly called upon by the respondent to do so. One factor of significance in my decision in this regard was the fact that the applicant had commenced overtime at the completion of a regular eight hour shift, commencing at 3.00am and finishing at 3.00pm. Whilst Mr Heffner relied upon a number of matters as having influenced him to terminate the employment, I am of the view that the belief that the applicant had known of the defect was a significant factor in his decision to recommend the termination of the applicant's employment. His evidence at page 91of transcript of the proceedings on 30 October 1995 in cross-examination was as follows: "If you had formed the view that this was an honest mistake by Mr Fuentes what steps would you have taken then?----- There would have probably been some disciplinary reprimand of some nature had be (sic) brought it to our attention but we, you know, we have a policy that states we ask people if they make a mistake to let us know..." The Industrial Agreement The terms of the industrial agreement provide for a warning process and also for instant dismissal in cases of exceptional breach of quality standards. It was this agreement which was referred to in the letter of termination dated 30 June 1995 (Exhibit R16). I am satisfied that intention and knowledge were significant matters in the decision to terminate the employment. In this regard I have no doubt that the exceptional breach of quality standards referred to contemplates a situation where there has been deliberate conduct resulting in there being a gross quality failure and an evidenced disregard for standards. I am not satisfied that it is designed to include a circumstance where an employee makes a genuine mistake in circumstances where they have had an impeccable production history and there is a reasonable explanation, such as fatigue, which is the case in this matter. In my view the industrial agreement is but one factor relevant for consideration in determining whether or not the termination of the employment was harsh, unjust or unreasonable, and on balance having regard to all of the above matters, I am satisfied that it was harsh. Remedy - S170EE I turn now to consider the question of remedy. In this matter I am not satisfied that an order for reinstatement would be impracticable. The evidence of the line supervisors that they would not trust the applicant is to be viewed in the context of my finding that the applicant had made a genuine mistake and was not deliberate in his conduct. I have decided to make an order for reinstatement and lost remuneration. The remuneration I propose to order is that amount which represented the base rate of pay of the applicant. This is because I am not satisfied that, had respondent taken steps alternative to termination of employment, the applicant would have continued to earn overtime or production bonus on the basis that he was earning it at the time of the termination of the employment. I am not satisfied that the applicant lost the production bonus or overtime as a result of the termination. Further, the order that I make for lost remuneration is in relation to the period between the date of the termination of the employment and the date of decision in this matter being reserved. The amount is lost normal rate of pay of $386.50 between 30 June 1995 and 31 October 1995. That is a period of 16 weeks. The sum is to be calculated and payable as an amount net of tax and other deductions usually made in the course of the employment, with a further deduction made for the net weeks payment in lieu of notice provided by the respondent and the amount of $400.00 earned by the applicant as a result of employment in the period. There is an additional matter for consideration in relation to the amounts earned. In Johns v Gunns Ltd (unreported, TI 148R of 1994, 18 May 1995) Northrop J considered the matters appropriate for deduction from any amount of remuneration lost. In this decision at page 33- 34 his Honour concluded that there ought be a deduction for any social security benefits received. In Mullany v Active Concrete (unreported, NI 747R of 1994, 3 May 1995)Wilcox CJ, in considering the operation of S170EE(3), concluded that an order for compensation ought not be reduced for social security benefits received. In this case I am concerned with an order for lost remuneration in circumstances of reinstatement. The matter is being determined in the context of the operation of S170EE(1) and thus the decision of Northrop J is directly on point and it is appropriate to follow it. Therefore, the amount of social security benefits of $270.00 per fortnight received by the applicant are to be deducted from the net amount of remuneration payable. The orders of the court shall be: 1. That pursuant to s170EE(1)(a) the respondent reinstate the applicant to the position he occupied immediately prior to the termination of employment or to another position on no less favourable terms and conditions. 2. That the applicant's service be regarded as continuous for all purposes. 3. That pursuant to s170EE(1)(b) the respondent pay to the applicant the remuneration lost by the applicant calculated on the basis of a weekly wage rate of $386. 50 for 16 weeks, less deductions for PAYE taxation, such amounts to be paid to the Commissioner for Taxation. From the balance shall be deducted the net amount of notice already paid, together with the amount of earnings received of $400.00 and the amounts received from the Department of Social Security to 18 October 1995. 4. Leave to apply is reserved in relation to the calculations contained in Order 3 herein. I certify that this and the preceeding ten (10) pages are a true copy of the reasons for decision of Judicial Registrar Parkinson. Associate: Dated: 4 December 1995 APPEARANCES Solicitors for the applicant: Slater & Gordon Counsel appearing for the applicant: Ms L Fleming Solicitors for the respondent: Freehill Hollingdale & Page Counsel appearing for the respondent: Mr F Parry Dates of hearing: 30 and 31 October 1995 IN THE INDUSTRIAL RELATIONS COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY VI 3824 of 1995 B E T W E E N: Ruben FUENTES Applicant A N D PACIFIC DUNLOP TYRES PTY LTD and GOODYEAR TYRES PTY LTD (trading as SOUTH PACIFIC TYRES) Respondent MINUTES OF ORDERS 4 December 1995 PARKINSON JR THE COURT ORDERS THAT: 1. Pursuant to s170EE(1)(a) the respondent reinstate the applicant to the position he occupied immediately prior to the termination of employment or to another position on no less favourable terms and conditions. 2. The applicant's service be regarded as continuous for all purposes. 3. Pursuant to s170EE(1)(b) the respondent pay to the applicant the remuneration lost by the applicant calculated on the basis of a weekly wage rate of $386. 50 for 16 weeks, less deductions for PAYE taxation, such amounts to be paid to the Commissioner for Taxation. From the balance shall be deducted the net amount of notice already paid, together with the amount of earnings received of $400.00 and the amounts received from the Department of Social Security to 18 October 1995. 4. Leave to apply is reserved in relation to the calculations contained in Order 3 herein. NOTE: Settlement and entry of Orders is dealt with by Order 36 of the Industrial Relations Court Rules CATCHWORDS INDUSTRIAL LAW - complaint of UNLAWFUL TERMINATION - whether termination for VALID REASON of CONDUCT OR PERFORMANCE - whether termination HARSH UNJUST OR UNREASONABLE - REINSTATEMENT Industrial Relations Act 1988, ss 170EA, 170DE(1), 170DE(2), 170EE Johns v Gunns Ltd Northrop J, TI 148R of 1994, 18 May 1995. Mullany v Active Concrete Wilcox CJ, NI 747R of 1994, 3 May 1995. RUBEN FUENTES v PACIFIC DUNLOP TYRES PTY LTD and GOODYEAR TYRES PTY LTD (trading as SOUTH PACIFIC TYRES) VI 3824 of 1995 Before: PARKINSON JR Place: MELBOURNE Date: 4 DECEMBER 1995