Michael Slifka v J. W. Sanders Pty Limited [1995] IRCA 701

IN THE INDUSTRIAL RELATIONS COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY VI 94/2741R B E T W E E N : MICHAEL SLIFKA Applicant

AND J. W. SANDERS PTY LIMITED Respondent JUDGE: North J PLACE: Melbourne DATE: 19 December 1995 REASONS FOR JUDGMENT THE PROCEEDINGS On 20 December 1994, the applicant applied under s.170EA of the Industrial Relations Act 1988 ("the Act") for a remedy in respect of the alleged termination of his employment. The proceedings came before me by way of a review, under s.377(1) of the Act, of the decision of the Judicial Registrar. THE BACKGROUND The respondent conducted a business in South Oakleigh as a wholesale supplier to the electrical trade. It was a small but successful company employing between 4 and 8 people. It had been in operation for 32 years. Mr James Sanders was a director and ran the business of the respondent. The applicant commenced employment with the respondent on 20 February 1978. He was employed as a salesman for most of his time with the respondent. On 14 October 1994 he worked for the respondent for the last time. The events which gave rise to him not returning to his job are the concern of this proceeding. THE ISSUES A remedy may only be given under s.170EA(1) in respect of a termination of employment. Section 170EA(1) forms part of Division 3 of Part IVA of the Act. By operation of s.170CB of the Act, the expression "termination of employment" bears the same meaning in s.170EA(1) as in the Termination of Employment Convention. Article 3 of the Termination of Employment Convention provides that the expression means "termination of employment at the initiative of the employer". The parties have conducted the review on the basis that there has been a termination of employment and the primary issue is whether it was at the initiative of the employer. The applicant bears the onus of proof on this issue. Further, the case was conducted on the basis that, if the Court found that the termination was at the initiative of the employer, and that a remedy should be granted, the remedy of compensation rather than reinstatement should be granted. The applicant contended that such compensation should be greater than the amount ordered by the Judicial Registrar. The respondent contended that the amount should be less than the amount ordered by the Judicial Registrar. It was accepted by the parties that, if the termination was at the initiative of the employer, the termination was in contravention of Division 3 within the meaning of s.170EE(2) of the Act. THE COURSE OF EVIDENCE Both the applicant and Mr Sanders gave oral evidence before me. In the course of the evidence in chief of Mr Sanders, evidence was led of a conversation on 4 November 1994 between Mr Sanders and a Mr Sturgess, who was the solicitor for the applicant at the time. The questions sought to elicit an admission that the applicant was confused in the instructions that he gave to his solicitor about the terms of the agreement reached. No such allegations had been put to the applicant in cross-examination. Without objection from the respondent, I permitted the applicant to reopen his case and call Mr Sturgess. As will become apparent, the resolution of this case largely depends on the impression I gained of Mr Sanders in the witness box. The evidence of Mr Sturgess was helpful in confirming the impressions I formed. He did not give evidence before the Judicial Registrar. Often the parties to a review agree to use the evidence before the Judicial Registrar as evidence on the review, and often this is done without further evidence being adduced on the review. In some circumstances such a course is economical and appropriate. Where there is directly conflicting evidence and the demeanour of each of the central witnesses is very important, as in the present review, reliance on the transcript before the Judicial Registrar is inappropriate. I now turn to the main issue. WAS THE TERMINATION OF THE EMPLOYMENT OF THE APPLICANT AT THE INITIATIVE OF THE RESPONDENT? Introduction In most cases the words "at the initiative of the employer" need no elaboration or explanation. They have a readily understandable ordinary meaning. When an employer gives an express notice of termination there is usually no debate. It is clear that the termination was at the initiative of the employer. Where the employee gives an express notice of termination there is similarly usually no debate. The termination was at the initiative of the employee. In the present case neither party gave an express notice. In view of all the actions of Mr Sanders in October and November 1994, the applicant concluded that the respondent would not have him back to work after 28 November 1994. Consequently, he did not return to work. Did he jump or was he pushed? He must establish his case, and he must do so on the balance of probabilities. Mr Sanders says that the applicant jumped because, both before and after 28 November 1994, Mr Sanders gave written assurances to the applicant that he could return to work on 20 February 1995, and Mr Sanders says that his other actions were no more than understandable responses to provocative behaviour by the applicant. These other actions did not evince an intention to terminate the employment. Mr Sanders' responses were directed solely to a dispute over long service leave, and, as such, the applicant could not reasonably take them as terminating the employment. The applicant himself determined not to return to work after 28 November 1994. The fact that his act finally brought an end to the employment does not make the termination of employment at his initiative if his final act was the result of a chain of events and the chain of events was initiated by the respondent. Moore J gave the converse example of a dismissal by an employer which was not at the employer's initiative because it was preceded by misconduct of the employee: see Grout v Gunnedah Shire Council 1 IRCR 143 at 160-161. His Honour determined whether the termination was at the initiative of the employer by asking whether the steps taken by the employer "effectively terminated" the employment. The passage at 160-161 in Grout was adopted recently by the Full Court in Mohebatullah Mohazab v Dick Smith Electronics Pty Ltd (Full Court of the Industrial Relations Court, 28 November 1995, unreported). In Mohazab the Full Court said, at 10‑11: "It accords with the purpose of the Convention to treat the expression 'termination at the initiative of the employer' as a reference to a termination that is brought about by an employer and which is not agreed to by the employee. Consistent with the ordinary meaning of the expression in the Convention, a termination of employment at the initiative of the employer may be treated as a termination in which the action of the employer is the principal contributing factor which leads to the termination of the employment relationship." An alternative test - the law The respondent submitted that the proper approach to determining whether the termination was at the initiative of the employer is to apply the test used to ascertain whether there has been a termination of a contract of employment at common law. In Western Excavating (E.C.C.) Ltd v Sharp [1978] ICR 221 at 226, Lord Denning MR stated the test which he described as the "contract" test as follows: "If the employer is guilty of conduct which is a significant breach going to the root of the contract of employment, or which shows that the employer no longer intends to be bound by one or more of the essential terms of the contract, then the employee is entitled to treat himself as discharged from any further performance. If he does so, then he terminates the contract by reason of the employer's conduct. He is constructively dismissed." The Court of Appeal applied the test in the interpretation of the statutory definition of "unfair dismissal" in paragraph 5(2)(c) of Schedule 1 of the Trade Union and Labour Relations Act 1977, which included the circumstance where: "the employee terminates that contract, with or without notice, in circumstances such that he is entitled to terminate it without notice by reason of the employer's conduct." It preferred the "contract" test to the "unreasonableness" test. The latter test required the employer to act reasonably in the treatment of employees. If the treatment was so unreasonable that the employee could not be expected to put up with it any longer, the employee was justified in leaving. The employee could leave without notice and could claim compensation for unfair dismissal. The preference expressed by the Court of Appeal depended primarily on the form of expression used in paragraph 5(2)(c), the context of the provision and its history. The Court of Appeal was also of the view that the "unreasonableness" test had proved to be too indefinite and productive of conflicting decisions and decisions based on whimsical grounds. Given the primary reasons which the Court of Appeal expressed for preferring the "contract" test, the case is not of much assistance in determining the proper approach to the interpretation of the expression "at the initiative of the employer" in s.170EA. The form of expression, the context and the history of s.170EA are quite different from the form of expression, context and history of paragraph 5(2)(c). In particular, s.170EA may well apply where the contract of employment was terminated by the employee as a result of conduct of the employer which fell short of evincing an intention not to be bound by the contract of employment. I shall return to the application of the "contract" test after considering the facts. The long service leave agreement It was long service leave which generated the controversy. The applicant became entitled to 13 weeks long service leave under the Employee Relations Act 1992 (Vic) in February 1993, after 15 years service with the respondent. According to the applicant, his long service leave was first mentioned in the course of renegotiation of his wage package in April 1994. Mr Sanders asked him what he was going to do about his long service leave and the conversation went no further. Mr Sanders said that long service leave had been discussed often in both 1993 and 1994, before September. On this issue I prefer Mr Sanders' evidence to the evidence of the applicant. It is more probable that there had been recurring discussions. It is likely that one of the parties would have raised the issue before April 1994 given that it had become due more than a year earlier. It is common ground that the matter was discussed in mid September. The applicant says he asked Mr Sanders for six weeks leave to commence on 17 October 1994 and Mr Sanders agreed. There was no discussion about the payment and the applicant expected six weeks pay at his ordinary rate. Mr Sanders says that the applicant initially asked for all 13 weeks long service leave. He agreed, and prepared a summary of the applicant's entitlements, including annual leave, which indicated a total break from 17 October 1994 to 20 February 1995 (Exhibit A1). The document had a place for the insertion of the amounts of payment for the various periods of leave but these places were left blank. Mr Sanders gave the document to the applicant, who returned it after a couple of days and did not indicate any disagreement. The applicant accepted that he received the document and accepted that he did not disagree with its contents at the time. His evidence was that he regarded it as merely a proposal. I do not accept this. The document and its return without disagreement is consistent with an arrangement for the applicant to take a break for the full period, and is inconsistent with a mere proposal. However, there was further discussion early in October. It is common ground that by 14 October, which was the last working day before the commencement of the long service leave break, there was an agreement that the applicant could take six weeks long service leave. The applicant's version was that the agreement was unchanged from mid September. I do not accept that. The evidence indicates an initial agreement to take the full period, then the acceptance of the change. Mr Sanders' evidence is that by 14 October 1994 the agreement was that the applicant could take six weeks long service leave if he chose that option, but that Mr Sanders would pay him for the full time even if he only took six weeks. In my judgment, by 14 October 1994, the agreement was that the applicant would take six weeks leave and be paid for six weeks. Here it is necessary to understand Mr Sanders' view of the matter. He had agreed to the applicant taking six weeks only. His agreement had been reluctant. He said that he thought that to take only part of the long service leave was ridiculous. In my view his concerns were for the business. It did not suit him for the applicant to be away for six weeks, then return for three weeks and then go off for Christmas. Business was slack and it suited him for the respondent to be rid of its long service leave obligation in one go. Given the number of occasions on which long service leave had been discussed, I infer that by October 1994 Mr Sanders wanted the obligation discharged. To understand the following events it is also necessary to appreciate something of the characteristics Mr Sanders displayed in the witness box. Through his evidence I formed the view that, in his dealing with the applicant, Mr Sanders was determined to get his own way, was used to getting his own way, and was liable to act adversely and strongly against any challenge to him getting his own way. He demonstrated a limited capacity to accommodate the views of the applicant. The events of 14 October 1994 On 14 October 1994, the applicant received a cheque for his long service leave pay. It was for the full entitlement and not simply for six weeks. It was calculated at the weekly rate of $628 gross and not $750 gross. The applicant approached Mr Sanders twice that afternoon for an explanation. On both occasions Mr Sanders replied "that is the way it has to be done", and he would not talk to the applicant further about it. The applicant then went for a week's holiday to Echuca as he had previously planned. In the circumstances, I infer that Mr Sanders paid the full long service leave entitlement as a means of persuading the applicant to stay on long service leave for the full period. It is probable that he expected the applicant to be tempted to stay on long service leave if full payment had been made. This was one method used by Mr Sanders to get his way. The events of about 26 October 1994 Within a day or two of his return from Echuca, on about 26 October 1994, the applicant went to see Mr Sanders at work for an explanation. He described what occurred on that day as follows: "Did you actually speak to him? --- Yes, I did. About that subject? --- Well I tried. Well you tell his Honour what happened when you raised the subject of the annual leave and the payment you had received? --- He just said that is how wage have to be done and he is too tired and it is all finished, everything is done. He just walked away from me - run away from me." (Transcript 24) In cross-examination Mr Sanders conceded that he did not find out what the applicant was talking about. Mr Sanders refused to engage in any discussion on this occasion. He said he was tired. But the applicant was on long service leave. He had specially come to work to discuss the matter. He was fobbed off. Even if Mr Sanders was so tired that he was not prepared to find out what the problem was, he could have phoned the applicant on the following working day. His refusal to discuss the matter was consistent with his efforts to have the applicant do as Mr Sanders wished. The turning point - Mr Sturgess' letter of 31 October 1994 The applicant was in a dilemma. He had an agreement for six weeks leave and six weeks pay at $750 per week. He had been given a cheque for the full 13 weeks long service leave calculated at $628 per week and had been given firm indications that although he had the option of returning after six weeks, Mr Sanders was not at all in favour of that course. And Mr Sanders would not talk to him about the problem. To break the impasse he went to see a solicitor, Mr Sturgess of MacPherson & Kelly. Mr Sturgess wrote to Mr Sanders on 31 October 1994. The letter said that it had been agreed between the applicant and Mr Sanders that the applicant would take six weeks leave. The letter then advised that it would be unlawful if the applicant returned to work and was in receipt of long service leave pay beyond the period of leave taken. It also asserted that the long service leave paid was wrongly calculated on an ordinary rate of pay of $628 per week instead of $750 per week. The letter informed Mr Sanders that the applicant had been advised to bank the cheque for the full long service leave, retain six weeks pay calculated at the weekly rate of $750 and return the balance. Mr Sanders was invited to discuss these matters by phoning Mr Sturgess if he so desired. The receipt of this letter was a turning point in Mr Sanders' attitude to the applicant. In the following four weeks Mr Sanders exhibited an increasing hostility to the applicant. The phone conversation of 4 November 1994 Mr Sanders took up the invitation in the letter by contacting Mr Sturgess by phone on 4 November 1994. Mr Sturgess gave evidence about this conversation. I found him an impressive witness. He related that, on a number of occasions during the conversation, Mr Sanders affirmed the agreement that the applicant could return to work after six weeks. Mr Sanders expressed concern about Mr Sturgess' advice as to the illegality of paying the applicant beyond six weeks if he did return after six weeks. Mr Sturgess explained to Mr Sanders that there was no legal problem if Mr Sanders simply paid the six weeks pay. This was made very clear to Mr Sanders. Mr Sanders conceded as much in his evidence. Mr Sturgess then confirmed that the applicant would return at the end of six weeks. To that Mr Sanders said that he may choose not to honour the agreement because the applicant had involved lawyers in the matter. There is an important passage in Mr Sturgess' evidence about this conversation, as follows: "The conversation very much took the bent of now that, you know, lawyers are involved, I'm not going to honour the previous agreement and the whole feel of, you know, I don't want [t]his bloke here under those circumstances. If he goes to lawyers, I don't want him as an employee. Very very much the flavour of the discussion I had with Mr Sanders." (Transcript 98)