Gane v Total Freight Agency Pty Ltd [1996] IRCA 271

DECISION NO: 271/96 C A T C H W O R D S INDUSTRIAL LAW - TERMINATION OF EMPLOYMENT - claim of UNLAWFUL TERMINATION - Whether VALID REASON - Whether HARSH, UNJUST OR UNREASONABLE - What is reasonable notice under contract of employment - contractual DAMAGES for lack of reasonable notice. Industrial Relations Act 1988 Ss 170DE(2), 170EA, Walker v Ken Vidler Surf Boards IRCA No. 655 of 1995, RD Farrell JR, 30 November 1995, unreported Aitken v CMETSWU ( WA Branch) (1996) 63 IR 1 Nash v Esther Investments IRCA No. 175 of 1996, RD Farrell JR, 3 May 1996, unreported John G -v- TOTAL FREIGHT AGENCY PTY LTD VI 1156 of 1996 BEFORE: R. D. FARRELL JR PLACE: MELBOURNE DATE: 31 May 1996

IN THE INDUSTRIAL RELATIONS ) COURT OF AUSTRALIA ) WESTERN AUSTRALIA ) DISTRICT REGISTRY ) No. VI 1156 of 1996 BETWEEN: John GANE - Applicant AND: TOTAL FREIGHT AGENCY PTY LIMITED - Respondent MINUTE OF ORDERS BEFORE: R. D. FARRELL JR PLACE: MELBOURNE DATE: 31 May 1996 THE COURT DECLARES AND ORDERS THAT: 1. The termination of the applicant's employment by the respondent was in contravention of S170DE(2) of the Industrial Relations Act 1988. 2. The respondent pay to the applicant damages for breach of contract in the sum of $7654.00 within 14 days of the date of this order. 3. The respondent pay to the applicant compensation in the sum of $3833.00 within 14 days of the date of this order. NOTE: Settlement and entry of Orders is dealt with by Order 36 of the Industrial Relations Court Rules IN THE INDUSTRIAL RELATIONS COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY VI 1156 of 1996 BETWEEN: John GANE Applicant AND: TOTAL FREIGHT AGENCY PTY LIMITED Respondent REASONS FOR DECISION (Delivered ex tempore - revised from transcript) 31 May 1996 R. D. FARRELL JR 1. This is an application brought pursuant to section 170EA of the Industrial Relations Act 1988 arising from the dismissal of the applicant, Mr John Gane ("Mr Gane"), by the respondent, Total Freight Agency Pty Limited ("the Company"). Claims are also brought in the associated jurisdiction of the court. The applicant seeks reinstatement or, alternatively, compensation, together with damages for breach of a contractual entitlement to reasonable notice on termination. Findings as to the Facts. 2. The Company was in the business of freight forwarding. It commenced business in 1991, was based in South Australia and initially dealt solely with export freight. The directors and shareholdings of the Company were Mr David Kiss, who was primarily responsible for operations and marketing, and Mr Ian Eldridge, who had more to do with the finances and accounts of the business. 3. One of the Company's initial core activities was the freight of freshly caught lobster to the international market. Because the lobster was caught on the south east coast of South Australia, it was sensible to air freight the product from Melbourne rather than from Adelaide because Melbourne was as close to the catch area and had more frequent flight options. 4. To that end, the Company used the services of "CT Freight" to handle the Melbourne end of those transactions. The Operations Manager of CT Freight at that time was Mr Gane. 5. Eventually the volume of work the Company was sending through the Melbourne Airport became such that it was sensible for the Company to establish a Melbourne office. Mr Gane indicated his interest in running that office and on 5 April 1994 Mr Gane was appointed manager for Total Freight, Melbourne. The appointment was confirmed with a letter of appointment signed by Mr Kiss dated 15 April 1994. 6. The letter confirms some of the agreed terms of Mr Gane's employment including his salary package and his responsibilities. His responsibilities were described as "all matters pertaining to sales, operations, accounting and administration for Total Freight in Victoria." I note that it was initially a one person office. 7. It was common ground that there was no agreement as to the period of notice required to bring the employment contract to an end. 8. Mr Kiss estimated that Mr Gane started work for the Company within a week of being told that he definitely had the job. This evidence was not contested by Mr Gane. I conclude therefore that Mr Gane was required to give at most one week's notice of his resignation from CT Freight. There was also uncontested evidence that Mr Gane brought with him to the Company two customers who had formerly been customers of CT Freight. 9. By early December 1995 the Melbourne office of the Company had grown both in volume of business and in personnel. Mr Gane was still the manager and by then he enjoyed a salary package which the parties agree was valued at $46,000 per annum, with a salary component of $40,000 per annum. A sales representative, Les Glanfield, had been engaged in about October 1994 to take on the sales responsibilities which were previously Mr Gane's. His salary was $35,000 per annum. An operations assistant was also engaged in about October 1995 whose salary was $18,000 per annum. The Victorian arm of the business began to show a profit. 10. Meanwhile, in South Australia, Mr Kiss and Mr Eldridge were considering a new business proposition. They had the opportunity to acquire and merge with their export freight business a domestic freight business known as Adelaide Cargo Express Pty Ltd. Adelaide Cargo Express was effectively a one person operation run by Mr Michael Fisher. The basis upon which Mr Fisher was prepared to sell the business to the Company was that he become a senior employee of the Company, with his remuneration to include a profit sharing arrangement. By late December 1995, before Christmas, the Company's directors had decided to go ahead with the acquisition of Adelaide Cargo Express and had concluded that the only suitable position available for Mr Fisher was Mr Gane's position in Melbourne. Given that they were of the view that they could not justify employing two such managers it followed in their view that Mr Gane's employment would have to be terminated. 11. The acquisition of Adelaide Cargo Express took effect on 1 January 1996. 12. Having taken the decision before Christmas to terminate Mr Gane's employment, the decision was not acted upon until 8 January 1996. Mr Eldridge explained that they wanted Mr Gane to have a peaceful Christmas. I note, in passing, Mr Gane's evidence that he only had one day off in the period between 1 December and 8 January, namely, Christmas Day. 13. Mr Kiss and Mr Fisher flew to Melbourne. They arrived at the Company's Melbourne office at 9.15am on 8 January 1996. Mr Glanfield and the operations assistant were instructed to leave the office with Mr Fisher, leaving Mr Kiss alone with Mr Gane. As Mr Kiss handed Mr Gane the letter of termination, he told Mr Gane that it was the hardest thing he had ever had to do. The letter reads as follows: "Dear John, As of 1 January 1996 the acquisition of Adelaide Cargo Express Pty Ltd by Total Freight Agency Pty Ltd has taken effect. As part of the terms and conditions of the merger Total Freight is to provide employment for all Adelaide Cargo Express employees. Due to the resultant restructure it is with deep regret that we will be forced to terminate your employment as of 8 January 1996. Your redundancy package will consist of three weeks pay in lieu of, (sic) payment of all holidays due, payment of two weeks redundancy pay. We sincerely thank you for your efforts in the assistance of the establishment of our Melbourne office, and we wish you every success in the future." 14. The termination interview took 10 to 15 minutes, during or following which Mr Gane packed up his things and left the office for home. 15. I turn now to consider the applicant's claim. In reaching the following findings, I have considered and taken into account all of the evidence and all the circumstances of the case, including various matters raised by the Company in connection with whether the decision to dismiss was reasonable, and not just that part of the evidence that I have set out above. Whether There was a Valid Reason for Termination. 16. It was ultimately not contested by the applicant that, as a result of the Company's commercial agreement with Mr Fisher, it was an operational requirement of the Company that Mr Fisher be given a senior employed position in the Company in Melbourne and that as a result the employment of another employee of the Company would no longer be justified. 17. The applicant did not accept, however, that the operational requirements of the business required that it be Mr Gane who was dismissed. The applicant therefore contested that the Company had a valid reason to select Mr Gane for dismissal. 18. There was no detailed evidence as to the possibility of transferring Mr Gane to duties in Adelaide. I am prepared to accept, however, that this was not a realistic option; it could have been considered constructive dismissal by Mr Gane in any event. I accept Mr Kiss's evidence that Mr Fisher's expertise, which was known to Mr Kiss through their long association, made him more suited to perform Mr Gane's functions than the sales functions performed by Mr Glanfield. 19. I also accept that the directors were justified in concluding that it was in the interests of the Company to retain Mr Glanfield who was, as they said, a proven performer in the sales area rather than risk giving the sales function to Mr Gane who I accept had not demonstrated notable sales results during the period in which he included sales among his many responsibilities. Mr Gane's evidence as to his employment background indicated a relative lack of experience in the sales area when compared to his operational skills. While I should not be taken to have concluded that Mr Gane would not have been a good salesman, I do accept his sales skills had not been proven. 20. In conclusion I am satisfied that the Company had a valid reason for selecting Mr Gane for dismissal. Whether the Termination was Harsh, Unjust or Unreasonable 21. The next matter is whether the dismissal was harsh, unjust or unreasonable. In Walker v Ken Vidler Surf Boards (IRCA No. 655 of 1995, RD Farrell JR, 30 November 1995, unreported) I considered the requirements as to notice and consultation where an employee is terminated for reasons related to the operational requirements of the business. As I observed there, the statements of principle enunciated in cases dealing with large corporations cannot be applied in an unconsidered manner to small workplaces. 22. The striking factor in this case was the perceived need to avoid the potential for poaching of clients by Mr Gane, which was said to be an issue endemic in the industry. While I do not place great weight on the evidence given as to the practice in the industry, there was evidence regarding the applicant as to his own practices, first in bringing with him to the Company clients from CT Freight and then, after the termination of his employment, attempting to poach the Company's clients. 23. I accept in these circumstances that it was appropriate that, if Mr Gane was to be terminated, the Company could insist that he leave almost immediately upon the termination being raised with him. It is reasonable that he receive payment in lieu of notice therefore, rather than any entitlement to work out his notice. However, as I understand the law in relation to section 170DE(2), Mr Gane should have been given more in the way of consultation than he received. 24. The purpose of such consultation is two fold. First it would have given Mr Gane the opportunity to suggest alternatives to the directors which they may not have considered in their discussions. One such alternative, for example, might have been an extended hand over period to Mr Fisher during which Mr Fisher would have gained the benefit of Mr Gane's expertise and Mr Gane would have had better prospects of obtaining employment, as he said, from employment. The Company's concerns to guard its client base may have been addressed by some form of safeguard whereby, for example, it was agreed that Mr Gane would forfeit his accrued entitlements if he could be shown to have improperly approached clients of the Company during this period. The point of this example is to illustrate that a mutually beneficial alternative course may have arisen out of consultation. The second purpose of consultation is to afford some greater recognition of the dignity of the employee concerned and their right to have some participation in the decision making process. I refer here to the type of considerations discussed by Justice Lee in the decision of Aitken v CMETSWU, WA Branch (1996) 63 IR 1. 25. The period of consultation need not have been lengthy. I am prepared to accept that the process could have properly been concluded in the circumstances of this case on the same day on which it was begun. In this case, however, there was no consultation with Mr Gane whatsoever. 26. In conclusion, I am satisfied that the dismissal was effected in a harsh manner and was therefore in breach of section 170DE(2). I am also of the view that reasonable notice was not given which would also constitute a breach of section 170DE(2), but is also in breach of the contract of employment. Reasonable Notice. 27. Reasonable notice in these circumstances would have been three months. The general common law principles on which I have reached that conclusion are considered in my decision in Nash v Esther Investments (IRCA No. 175 of 1996, RD Farrell JR, 3 May 1996, unreported). 28. In assessing reasonable notice in this case, I have placed particular significance on Mr Gane's age, the seniority and level of responsibility of his position, and most importantly, his expectation of continued employment. I am satisfied he was entitled to have that expectation in the circumstances of this case notwithstanding the evidence led by the company as to accounting matters and particular conversations with Mr Kiss. That Mr Kiss reacted as he did indicates to me the strength of the employment relationship and Mr Gane's perceived value overall to the Company at that time. 29. I was initially troubled by the fact that, even leaving aside Mr Kiss's general evidence as to the practice within the industry, it seems Mr Gane himself was able to resign his previous employment with at most a week's notice. 30. I assumed, in Nash v Esther Investments, that the period which constitutes reasonable notice when given by the employer must be the same period as that which is reasonable notice to be given by the employee. If that were correct then, given the apparent concerns of employers regarding poaching of clients, the notice required of Mr Gane as an employee and perhaps of employees in the industry is clearly minimal and therefore the notice required of employers would be correspondingly small. 31. However, Ms Young for the applicant has submitted that they need not be the same period. Merely because employment contracts and industrial awards usually specify a reciprocal period, it does not follow that parties could not agree to nominate different periods and that what is reasonable maybe different depending upon whether it is the employer or the employee who is to be given notice. 32. On reflection, I accept that Ms Young is correct, so that in assessing what is reasonable notice to be given by the employer I have not had regard to would have been reasonable notice if given by the employee. Conclusion 33. With regard to the orders I will make, given my findings as to whether there was a valid reason I am satisfied that reinstatement is impracticable in this case. Instead, I will order that the respondent pay to the applicant the sum of $7654 within 14 days being damages for breach of the contract of employment and specifically the implied term that reasonable notice of termination be given or pay in lieu thereof. That is calculated on the basis of three months pay which is $11,500 less the $3846 described as pay in lieu of notice and redundancy pay already received by the applicant. 34. I accept that this could have been expressed as statutory compensation for breach of section 170DE(2), but I consider it more appropriate to deal first with Mr Gane's contractual entitlements before turning to the statute. 35. I accept that Mr Gane has in fact been unable to find alternative employment despite reasonable efforts to do so. He has, therefore, as at the date of decision, lost about five months' worth of income and faces potential additional loss. I accept that there was a greater prospect of him finding a job from employment than from unemployment and that consultation may have resulted in that possibility. Some additional compensation is therefore appropriate. This compensation cannot, however, extend to the full extent of Mr Gane's potential loss because there is no certainty that consultation would have improved his position. I have limited the additional compensation therefore to the amount that represents a month's salary, and will order that the respondent pay an additional $3833 within 14 days, representing statutory compensation of an additional month for the breach of section 170DE(2) arising from the lack of consultation.