DECISION NO: 302/96 CATCHWORDS INDUSTRIAL LAW - TERMINATION OF EMPLOYMENT - alleged unlawful termination - sales representative - stock control policy - whether valid reason for termination - whether harsh, unjust or unreasonable - reinstatement Industrial Relations Act 1988 ss 170DE, 170DE(1) Anthony Robert JACKSON -v- ROTHMANS OF PALL MALL AUSTRALIA LIMITED - WI 96/1087 Before: BOON JR Place: PERTH Date: 10 July 1996 IN THE INDUSTRIAL RELATIONS COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY WI 96/1087 B E T W E E N: Anthony Robert JACKSON Applicant A N D: ROTHMANS OF PALL MALL AUSTRALIA LIMITED Respondent MINUTE OF ORDERS 10 July 1996 BOON JR THE COURT ORDERS AND DECLARES THAT: 1. The respondent breached the provisions of Section 170DE of the Industrial Relations Act 1988 in terminating the applicant's employment. 2. The respondent within 14 days of the date of this order reinstate the applicant to the position in which the applicant was employed immediately before the termination. 3. The applicant's employment is for all intents and purposes to be treated as having been continuous from the date of termination to the date of reinstatement. 4. The respondent pay to the applicant the remuneration lost by the applicant because of the unlawful termination 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 WI 96/1087 B E T W E E N: Anthony Robert JACKSON Applicant A N D: ROTHMANS OF PALL MALL AUSTRALIA LIMITED Respondent REASONS FOR DECISION 10 July 1996 BOON JR This is an application under Section 170EA of the Industrial Relations Act 1988, arising out of the termination of the applicant's employment by the respondent. The applicant alleges that the respondent breached the provisions of Section 170DE of the Act. In the first place, the applicant says that there was no valid reason for the termination connected with the applicant's conduct or performance, contrary to subsection (1) of Section 170DE. Further, the applicant says that if this Court decides that there was a valid reason for the termination, the termination was in any event harsh, unjust or unreasonable contrary to the provisions of subsection (2) of Section 170DE. The question of whether or not procedural fairness was afforded to the applicant at the time of termination of his employment is not at issue. BACKGROUND The applicant, Anthony Robert Jackson, is a 52 year old man who has been employed by the respondent under its various guises since 22 February 1978. At the time of the termination of his employment he was employed as a relief sales representative. The respondent, Rothmans of Pall Mall Australia Limited, sells and distributes cigarettes to retail outlets. It is common ground that the applicant was, during the 18 years of his service with the respondent, a highly satisfactory employee. There were no significant complaints about his conduct or performance until September 1995. At that time it was found that Mr Jackson had incurred an unaccounted stock loss of 8,600 cigarettes. Mr Jackson described that incident to the Court. On that occasion, the security of the van in which Mr Jackson carried the cigarettes had been breached. He had parked the van outside a shopping centre and went into the centre to speak to a customer. When Mr Jackson returned to his van he found that the alarm in his vehicle had sounded, although he had been unable to hear the alarm whilst he was in the shopping centre. Mr Jackson found that the side door to the van was unlocked. He was unsure whether he had forgotten to lock the door or whether somebody had broken into the vehicle. A quantity of cigarettes was found to be missing from the vehicle. As a result of this incident, Mr Jackson was sent a letter from Graham Oakley, who was then the state manager of the respondent in Western Australia, in the following terms: "Dear Tony, I refer to our meetings on 25 and 27 September 1995, wherein we discussed serious concerns of the company in relation to your employment. In particular, your stock reconciliation on 15 September 1995 showed a stock shortfall of 8,600 cigarettes. As a Distribution Representative, you are expected to balance your stock, and a stock variance of this nature is clearly unacceptable. In addition, we also discussed breaches of company policy in areas of your performance that you identified as having occurred on 14 September 1995. These include: · leaving you (sic) van unlocked; · not reporting when the alarm on your van sounded; and · not reporting a stock shortage on your reconciliation. Your performance in the areas identified is well below the minimum standards expected by the company. This letter serves notice as a first and final warning that any future unacceptable stock shortage, breach of company policy or performance below the minimum expectations of your role may result in termination of your employment." Mr Jackson signed the bottom of that letter to acknowledge receipt of the warning. Mr Jackson in his evidence acknowledged that he had breached company policy on that occasion in that he failed to report that the alarm on his van had sounded. He said, however, that the car alarms often sounded for reasons such as people walking too close to the van and not all representatives reported each incident of an alarm having sounded. It is common ground between the parties that the company had a policy that its employees were to be held responsible for the stock under their control and the security of their vehicles. Employees were aware that any shortfall in stock under their control without an adequate explanation may lead to termination of their employment. The Court heard evidence that because of the high value of the company's stock, the company had established rigid procedures for controlling the distribution of the stock. These controls included the requirement that each sales person remove the stock from his or her van at the end of each day and lock it into a cage at the company's warehouse; records being kept of each customer transaction; a physical audit of the stock to be carried out by the sales representative at the end of each week; and a physical audit of the stock to be carried out by the sales representative and another person from the company once a month. Mr Jackson gave evidence that on Friday, 2 February 1996, he did his audit account and found that he was 5,000 cigarettes short in his stock. He immediately notified the stock clerk and Mr McArthur, his area manager. Mr Jackson said that he double checked the stock count but he was once again 5,000 cigarettes short. He received a message the following Monday questioning whether there were any stock transfers which he had not yet put through in relation to the previous week's stock. He answered in the negative. On Tuesday, 6 February, Mr Jackson was asked to attend a meeting with Mr McArthur and Mr Dirk Jongeling, the state sales manager for the respondent. Mr Jongeling and Mr Jackson discussed the stock shortfall of the previous week. Mr Jackson was unable to give an explanation as to why there had been a stock shortfall. The only unusual incident that he could recall relating to the previous week was when he left the warehouse early on Friday morning and had a fleeting gut feeling that he may have left some stock behind. He went through his actions of that morning in his mind and was satisfied that that had not been the case. He tried to contact the warehouse by two-way radio but received no reply. Although Mr Jongeling criticised Mr Jackson's actions in this regard, there was no stock discovered on the floor of the warehouse on that day and there is no evidence that Mr Jackson did in fact leave any stock behind in the warehouse on that occasion. Mr Jongeling himself gave evidence that he did not consider that that incident was the explanation for the loss of the 5,000 cigarettes. It was stressed on behalf of the respondent that Mr Jackson was considered to be an honest person and there has never been any allegation that Mr Jackson himself took the 5,000 cigarettes. Mr Jackson's employment was terminated as a result of this incident. Mr Jackson was informed that the company terminated his employment for "negligence". Mr Jongeling gave evidence that he considered that Mr Jackson was negligent because he could not account for the stock. There were a number of procedures in place to check stock and the account should balance at the end of the day. If not, the employee was negligent if the stock account did not balance. Mr Jongeling himself had no idea what happened to the stock or which, if any, procedures Mr Jackson had failed to follow or indeed whether Mr Jackson had made any error. Mr Jongeling's position was that Mr Jackson was accountable, according to the company's policy, for the stock and as some of the stock was missing he was therefore negligent. He made an assumption that Mr Jackson did not follow company procedures. Mr Jongeling's evidence was that the company viewed the question of rigid adherence to company policy and procedures very seriously. It was said that the sales representatives must be disciplined, otherwise there could be serious losses suffered by the company. Mr Jongeling's evidence was that he felt on 6 February 1996 that he had no alternative but to terminate Mr Jackson's employment. This was because he had already received a warning in September 1995 in relation to stock losses and 41/2 months later further stock losses were suffered. Mr Jongeling felt that if he did not then terminate Mr Jackson's employment it would send a clear message to the company's other employees that stock shortfalls would not meet with any serious disciplinary action. After the first incident in September 1995, the company took into account Mr Jackson's long service and decided to give him a first and final warning. When the second incident occurred, the company felt that it had no alternative but to dismiss him. WAS THERE A VALID REASON FOR THE TERMINATION? The respondent's position is that there was a valid reason for Mr Jackson's termination within the meaning of Section 170DE(1) as the employee had lost valuable stock for the second time in 41/2 months. Although nobody has said that Mr Jackson deliberately lost or had stolen the goods, it was the company's position that Mr Jackson had been negligent in the performance of his duties. It was said that the company treats stock losses seriously and it therefore put into place a detailed procedure for accounting. Employees are, under company policy, held to be responsible and accountable for the stock. It was submitted on behalf of the respondent that it is not for this Court to tell an employer how to manage its business. It was further submitted that the Court must determine if the policy is unreasonable in the mind of a reasonable business proprietor and whether the policy had been unfairly applied. It was submitted on behalf of the respondent that it is reasonable for people to be held accountable for stock losses. As Mr Jackson had no reasonable explanation for the loss, the employer had a valid reason for terminating his employment. The employee had repeated a carelessness which lost valuable stock and this amounted to a dereliction of duty. On behalf of the applicant it was submitted that a valid reason under Section 170DE(1) must be a reason which related to the capacity or conduct of the applicant. It was said that it is not good enough for the respondent to say that there was something wrong with the applicant's performance and although nobody knows what it was, the applicant must be held accountable. It was submitted that the respondent had not discharged the burden of proving that there was a valid reason for the termination as nobody knew why the stock went missing, or which part of Mr Jackson's work performance, if any, caused the loss of the stock. It was further submitted that the February incident was different from the September incident in which there was evidence that Mr Jackson had failed to follow company procedures. In the February incident nobody knew what had happened to the cigarettes. Further, it was pointed out that Mr Jongeling said twice in his evidence that he did not consider that Mr Jackson had been careless. It was said that it was not known whether the stock loss was due to carelessness; an honest mistake on the part of Mr Jackson or whether there was another explanation for the loss such as that somebody stole the stock or that the wrong amount of stock had been allocated to Mr Jackson in the first place. I have carefully considered the submissions put to me and have been left in very real doubt as to whether or not there was a valid reason connected with Mr Jackson's conduct or performance for the termination. In this sense the respondent has not discharged its onus of proof. I am not satisfied that the stock loss occurred because of any poor performance on the part of Mr Jackson. The fact remains that nobody knows why the stock loss occurred. The respondent does not allege dishonesty or carelessness on the part of Mr Jackson. There are many possible explanations. Although the company has a policy that its sales representatives are to be held accountable for any stock losses, it still remains for this Court to decide whether or not, on the evidence, there was a valid reason based on the employee's conduct or performance, for the termination. In this instance, I am not satisfied that there was a valid reason. WAS THE TERMINATION HARSH, UNJUST OR UNREASONABLE? If I am wrong in relation to the question of whether or not there was a valid reason for the termination, I consider that on all of the evidence it was in any event harsh, unjust or unreasonable for the respondent to terminate Mr Jackson's employment in these circumstances. Although I appreciate that the company must treat the question of stock losses seriously and send a clear message to its employees that they must be careful, the circumstances surrounding the February incident are far from clear and, taking into account the many years of faithful service given to the company by Mr Jackson, Mr Jackson's age and the fact that he is unlikely to easily secure alternative employment at this stage in his life; and the fact that the September incident was different in substance from the February incident, it was in all the circumstances harsh, unjust or unreasonable to terminate Mr Jackson's employment. In saying this, I reject the submission that this Court would be sending a clear message to the respondent's employees that their employment cannot be terminated for unexplained stock losses. Each case must be looked at on its own merits and in light of its own circumstances. THE APPROPRIATE REMEDY It was submitted on behalf of the respondent that it would not be practicable to reinstate Mr Jackson as on two occasions the employee had failed to demonstrate care. It was said that the respondent's trust in him to do his job without concern had been broken. It was said that to reinstate him would have an effect on the productivity and harmony of the employer's business as, if disciplinary procedures were not allowed to be enforced, it would send a message to the company's employees that they could not be held accountable for stock losses. It was submitted that it would be inappropriate to reinstate Mr Jackson, given the seriousness with which the employer views the employee's duty to take care of the stock. Notwithstanding these submissions, I consider that the provisions of the Act and the authorities interpreting those provisions make it clear that reinstatement is intended to be the primary remedy. There is no evidence before me that to reinstate Mr Jackson would be impracticable within the meaning of those words in Section 170EE of the Act. The Court orders and declares that: 1. The respondent breached the provisions of Section 170DE in terminating the applicant's employment. 2. The respondent, within 14 days of the date of this order, reinstate the applicant to the position in which the applicant was employed immediately before the termination. 3. The applicant's employment is for all intents and purposes to be treated as having been continuous from the date of termination to the date of reinstatement. 4. The respondent pay to the applicant the remuneration lost by the applicant because of the unlawful termination, within 14 days of the date of this order. I certify that this and the preceding nine (9) pages are a true copy of the reasons for decision of Judicial Registrar Boon as recorded in the transcript and revised by the Judicial Registrar Associate: Dated: APPEARANCES Representative for the applicant: Mr W Johnston National Union of Workers (Western Australian Branch) Representative for the respondent: Mr D Jones Chamber of Commerce & Industry of Western Australia Dates of Hearing: 13 June 1996 Date of Judgment: 10 July 1996