DECISION NO: 366/96 C A T C H W O R D S INDUSTRIAL LAW - TERMINATION OF EMPLOYMENT - VALID REASON - failure to discharge the respondent's onus of proving that a "restructuring" occurred by reason of the OPERATIONAL REQUIREMENTS of the company - respondent ceased to trade with director of company recommencing same business from the respondent's premises using respondent's equipment - whether transaction a sham - HARSH, UNJUST OR UNREASONABLE - failure to make bona fide offer to applicant of alternative employment with new corporate entity - failure to take any real steps to ameliorate harshness of alleged restructuring Industrial Relations Act 1988 ss.170DB, 170EE(2), 170EE(3) GLEN PENDERGAST -v- CLAYTON SMITH AUTOMOTIVE PTY LTD (A.C.N. 010 877 022) No. QI 1047 of 1996 Before: Judicial Registrar Millane Place: Melbourne (heard in Brisbane) Date: 13 August 1996 INDUSTRIAL RELATIONS COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY QI 1047 of 1996 B E T W E E N : GLEN PENDERGAST Applicant A N D CLAYTON SMITH AUTOMOTIVE PTY LTD (A.C.N. 010 877 022) Respondent MINUTES OF ORDERS Judicial Registrar Millane 13 August 1996 THE COURT DECLARES THAT: 1. The termination of the applicant's employment by the respondent contravened Division III Part VIA of the Industrial Relations Act 1988. AND THE COURT ORDERS THAT: 2. Within 21 days of the date of these orders the respondent pay compensation to the applicant in the sum of $6,908.00 less any sum required to be deducted therefrom by the respondent pursuant to the Income Tax Assessment Act 1936 and actually paid to the Commissioner of Taxation. 3. Within 14 days of the date of these orders the respondent file with the Industrial Relations Court of Australia at its Queensland District Registry at Level 6, Commonwealth Law Courts, 119 North Quay, Brisbane, a copy of any orders made by any Court between October 1995 and 29 July 1996 in any way prohibiting the distribution of or affecting the operation of the bank accounts, the business and the assets of - (a) Clayton Smith Automotive Pty Ltd (A.C.N. 010 877 022); and (b) Clayton Smith Automotive Service Centre. - 2 - 4. Within 14 days of the date of these orders the respondent file with the Industrial Relations Court of Australia at its Queensland District Registry at Level 6, Commonwealth Law Courts, 119 North Quay, Brisbane, a list of the names and addresses of - (a) his wife (or former wife, as the case may be) as at 1 March 1996; (b) the solicitors acting for his wife (or former wife, as the case may be) referred to in part 4(a) of this order; and (c) any person or persons in whose favour the Court orders referred to in order 3 above are or were made. AND FURTHER THE COURT DIRECTS the District Registrar of the Queensland District Registry of the Industrial Relations Court of Australia to - (a) enter these orders; and (b) serve a copy of these orders and reasons for judgment on each person named in the list filed and referred to in the preceding order. NOTE: Settlement and entry of orders is dealt with by Order 36 of the Industrial Relations Court Rules. INDUSTRIAL RELATIONS COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY QI 1047 of 1996 B E T W E E N : GLEN PENDERGAST Applicant A N D CLAYTON SMITH AUTOMOTIVE PTY LTD (A.C.N. 010 877 022) Respondent Before: Judicial Registrar Millane Place: Melbourne (heard in Brisbane) Date: 13 August 1996 REASONS FOR JUDGMENT By an application made in March 1996 the applicant alleges that the termination of his employment as a motor mechanic by the respondent on 1 March 1996 contravened Division III Part VIA of the Industrial Relations Act 1988 (the Act). The applicant appeared in person and gave evidence on his own behalf. The respondent was represented by Clayton Stephen Smith, (Smith), who described himself as an owner and director of the respondent company. Not surprisingly, it is often difficult to obtain clear and informative evidence from parties where they do not have the advantage of legal representation in Court. This case was no exception. In opening it was indicated that the applicant's employment was terminated because of the financial difficulties of the respondent company. The applicant claimed that there was no valid reason for his termination; there being an advertisement placed in a local newspaper on the day after his termination seeking "permanent/casual" mechanics. Bearing these allegations in mind the respondent was asked to proceed first to meet its onus of proving that there was a valid reason for what it called a restructuring brought about by the respondent's financial circumstances. It was agreed that for nearly two years the applicant was employed by the respondent as a senior mechanic, having had a short break from his employment with the respondent in late 1994, following which time the applicant resumed his full-time permanent employment from 11 January 1995 to the date of termination. It was further agreed that at termination the applicant was paid his accrued annual leave entitlements, wages to 1 March 1996 and unused sick leave of some eight days. Otherwise, he received no severance pay or sum to ameliorate the harsh consequences of a termination. On this lastmentioned matter, it was common ground that the applicant along with the other employees of the company numbering some six people including Smith, were all notified at a meeting called on 2 February 1996 that the company was to cease trading on or about 1 March 1996. The applicant and all the other employees worked from the date of that notification until termination. However, it is clear that there as no option given to them to do otherwise because they were expected to complete their duties until 4.30pm on 1 March 1996. Because of the period of the applicant's employment the notice given does comply with the minimum period required by section 170DB of the Act. I was not referred by either party to any applicable award, although they both agreed that there was an award covering this applicant's employment. Smith gave evidence first. He told the Court that the respondent company traded for some seven years. In late 1995 it was allegedly experiencing problems with cash flow. In November 1995 Smith separated from his wife and he was then, he said, under physical and financial pressure. I understood his evidence on all these matters generally to mean that up until the separation from his wife the respondent company, which traded under the registered business name of Clayton Smith Automotive Service Centre, was a business in which his wife had some interest; although it was not clear from his evidence the precise nature and extent of that interest. Smith told the Court that by February 1996 the financial pressures and the divorce pressures were such that there was some chance the respondent may not be able to pay the employees of the company all their accrued entitlements. On advice from his accountants and solicitors he decided to bring to an end the trading operation of the company. In doing this he alleged that he was preserving the employees' position vis-a-vis the payment of their accrued entitlements which might not have been paid if the company continued to trade beyond the end of February 1996. Accordingly, he alleges he gave notice to all suppliers and employees that the company would stop trading on 1 March 1996 as Clayton Smith Automotive Pty Ltd. Smith alleges that on the advice of his solicitors and accountant he commenced a new company, Clayton Smith Automotive Services Centre Pty Ltd from Monday, 4 March 1996. This company, he informed the Court, has operated since 4 March 1996 from the respondent's former premises performing automotive repairs works, which is precisely the same business performed by the respondent and such business includes doing work for and business with the former clients of the respondent. The new company uses the same equipment as that owned and operated by the respondent before it ceased to trade. Smith alleges that he borrowed money to start the new company and at some time which he was not clear about the bank accounts and the assets of the respondent company were frozen. He referred to a "caveat" being obtained over the respondent's assets by his wife. As was the case with most of his evidence, Smith was unclear about what Court orders, if any, had been made affecting the business of the respondent and its assets. Smith is now the sole director and secretary of the new corporate entity which he agreed uses the respondent's equipment and premises because, on his evidence, these cannot be sold until his solicitors and his wife's solicitors agree on what is to happen. Insofar as the respondent held any stock prior to 1 March 1996, Smith informed the Court that this stock was handed back to its creditors and/or sold during February; his current arrangement with suppliers being one where goods are supplied to the new company on consignment with a small amount of stock and parts being owned and used by the new company in the business it now operates. As already indicated above it was common ground that there was a meeting on or about 2 February 1996 of the respondent's employees. At that meeting the bookkeeper, Colin Champion (Champion), handed each person a letter from the company (Exhibit R1) making the following statement: "I sincerely regret the necessity to write this letter, however prevailing and difficult circumstances in both business and my personal life have made it necessary. Currently, I find it necessary to undergo a financial restructuring of Clayton Smith Automotive Pty. Ltd. for two major reasons; (1) We are not as financially viable as we should be, and the strain of a wages bill totalling nearly $5500.00 per week is rapidly draining our available resources. (2) My recent separation is expected to cause, in the very near future a very serious settlement/maintenance drain on assets. With these circumstances in mind, I have made the decision to terminate your employment, and this will take effect on Friday March 1st 1996. I feel that in doing so, I can safely ensure full payment of your entitlements such as accrued Holiday Pay. Please feel free to talk to myself or Colin regarding your future plans, and we will do everything possible to assist you. Should you wish to enter into business on your own, I will endeavour to offer you work incentives as much as possible. Thank you for your loyal service to myself and Clayton Smith Automotive Pty. Ltd." It was also common ground that Smith addressed the meeting generally reiterating the matters to do with his personal circumstances as well as addressing at least one employee named Lance about some sub-contracting work in the tyre part of the business. Smith's allegation is that at the meeting he told all the assembled employees, including the applicant, that they were welcome to undertake sub-contracting work or casual work with the new company once it commenced business. He also referred the Court to the penultimate paragraph of Exhibit R1 set out above, asking the Court to accept that the offer contained in that paragraph in some way expressed to the employees Smith's willingness to employ them as casuals in the new business after he knew what the outcome of his divorce proceedings would be and what the commitments of the business would be. The applicant disputes any reference to an offer of casual employment or, for that matter, sub-contracting work in the new company at the time of the meeting or on any other occasion subsequent to the meeting and up until 1 March 1996 when he left his employment. On 4 March 1996 when the new company commenced operating from the respondent's premises performing automotive repairs it did so with Smith employed as a casual and two apprentices employed under a trainee scheme. In addition, two other casuals commenced at the same time. One was a mechanic, Peter Kalantiz (Kalantiz), who had previously been a permanent employee and mechanic with the respondent. The other was a new employee employed as an exhaust fitter and mechanic. The abovementioned people allegedly worked in the new company until May when two more casual people were engaged. At the date of hearing there were six employees. Kalantiz, as of July 1996, has achieved a permanent full-time position as a mechanic with the new company. According to Smith until his matrimonial problems are resolved the new company owns no assets. Of course this assertion is inconsistent with his earlier concession that the new company holds at least some stock assets and is presumably developing a list of clients and its goodwill using the respondent's client list, premises and equipment to do so. To support his allegation that casual and sub-contracting work was offered to the employees including the applicant on 2 February 1996, Smith called Kalantiz to give evidence. Kalantiz recalled being told at the meeting that the respondent was to cease trading from 1 March 1996 and his employment would be terminated on that date. According to Kalantiz, the reason given by Smith was that because of his "marriage separation" he had to terminate the employees' employment. Kalantiz further recalled the group being told that they could start their old jobs as casuals with the new company but were obliged to reapply for the jobs when the new company started. I was left to wonder why it was that only one employee out of the entire group, apart from Smith, applied for his old position and resumed work in the week following the cessation of his employment with the respondent. The applicant on his part was adamant that had he had the opportunity to continue working; albeit as a casual, he would have taken that opportunity because he needed work. As it turns out, despite his efforts since termination he has only managed some ten weeks' casual employment with other employers. In response to a question put to him in cross-examination by Smith, the applicant told the Court that he had spoken to the bookkeeper, Champion, before the termination and after the meeting, concerning the offer contained in the letter received on 2 February 1996 (Exhibit R1). In this conversation he was told by Champion that he and two other employees need not apply for any further work with Smith because Smith did not like their attitude. Smith did not pursue this matter any further in his cross-examination of the applicant. The cross-examination of the applicant also revealed that prior to termination there was some dispute about the payment to the applicant of overtime payments he alleged were then owing to him. Although no evidence was given by Smith of any threats made, in cross-examination of the applicant it was put to the applicant that he had threatened Smith physically over the payment of overtime payments. Smith did not deny that overtime payments were payable; there being a claim in relation to this issue in another Court. However, the existence of some real dispute between the two men and the applicant's unchallenged evidence in cross-examination that he was discouraged from seeking any further employment with the new company, support a conclusion that no bona fide offer of alternative work was held out to the applicant at any stage by Smith, even if such an offer was made to Kalantiz and accepted by him. The applicant gave evidence that he was capable of performing the range of duties that the staff now engaged by the new company perform. Smith conceded that if he disposed of the services of two casual employees now employed by the new company their duties could be performed or could have been performed by the applicant with the new company. There was no application for reinstatement because the applicant told the Court he presently holds down three casual positions with different companies. In the circumstances such an application would be unrealistic. In other words it would not be practicable to reinstate the applicant to employment with a corporate entity no longer conducting the business of automotive repairs, or having any operative bank accounts or assets. The other matter which persuades me to the conclusion that Smith was not genuine in his alleged offer of alternative employment was the problem experienced by the applicant in obtaining a written reference. It was not disputed that the applicant asked Smith and Champion for a written reference and after a number of requests he was refused one but through Champion was eventually told that Smith would only agree to give him a verbal reference. Because of this refusal Champion gave the applicant a written personal reference having informed the applicant that he had been instructed by Smith not to give the applicant a written reference from the company. It may be that an employer has a policy of only giving oral references, however, this was not the way this matter was approached by the respondent at hearing. The respondent's behaviour, in all the circumstances, suggests an unwillingness to take steps to help avert the harsh consequences of the termination on this employee. FINDINGS The respondent carries the burden of proving that there was a valid reason for termination. The applicant's conduct and performance are not relied on by the respondent and, therefore, the only basis upon which a termination could be justified is the operational requirements of the respondent. I was troubled by the lack of any detailed evidence given by the respondent to establish the causal nexus between any operational requirements; that is to say, its financial circumstances and a need to restructure and the termination. The thrust of the evidence given is that Smith was and is at the centre of a matrimonial dispute. On the advice of his solicitors and accountant the old company, the respondent, in which company Smith's wife may have an interest, terminated its trading activities. On these facts there may have been some attempt to transmit or assign the respondent's business and assets to the new company. The evidence called by the respondent on these matters was entirely unsatisfactory and unconvincing. Notwithstanding my reservations about the transaction, the evidence suggests that the employees of the respondent had their employment terminated. I am, however, not satisfied that the whole exercise was anything more than a sham transaction directed to avoiding the respondent's and Smith's obligations. This being so, I am not satisfied on the balance of probabilities that the reason or the dominant reason for termination was based on the operational requirements of the undertaking, establishment or service of the respondent. The failure to satisfy me on these matters means that the respondent has failed to discharge its burden of proving the existence of a valid reason contemporaneous with the termination. At hearing the paucity of the evidence given by the respondent left me in some doubt as to whether or not there had indeed been an assignment or transmission of the business and assets of one corporate entity to the other one. Because of this concern, at hearing I took the precaution of ordering that the new corporate entity be joined as a respondent in the event that it was necessary to make any orders against that entity. However, having reviewed the evidence given, I am unable to conclude that there is evidence before the Court to establish any transmission or assignment of the business and its assets. Nor am I able to say that the applicant's employment continued beyond 1 March 1996 with the new corporate entity and, therefore, it is inappropriate for any orders to be made against the new company. My conclusion is that the exercise amounted to a sham principally designed to avoid the respondent's and Smith's obligations, if any, to Smith's estranged wife and because of the matters already outlined above, I am precluded from dealing with this case as one where reinstatement should be ordered. Irrespective of whether or not the respondent's evidence is sufficient to establish a valid reason for termination in the manner contemplated by the Act, I am further satisfied that such termination as occurred was harsh, unjust or unreasonable. As indicated above no award provisions were put before me which would enable me to give consideration to issues such as any redundancy and severance pay provisions. Even without the benefit of such information it is apparent that the respondent took no positive steps to avert or minimise the harsh consequences of this termination on the applicant. For instance, the failure to make any bona fide attempt to offer to the applicant alternative employment with the new entity, once that entity commenced business. Obviously it was within Smith's power to do this. The advertisement placed in the local newspaper on 2 March 1996 (Exhibit A1) seeks "permanent/casual" mechanics as employees. Smith offered no explanation for the existence of this advertisement other than to say that because the other staff had not applied for the positions in the new company he needed staff. Particularly worrying is the advertisement's reference to the offer of "permanent" positions. Again, the existence and wording of this advertisement support an inference that the whole exercise was a sham. REMEDY The applicant has since termination applied for permanent and casual employment. According to his unchallenged evidence, he has only obtained some ten weeks' work earning approximately $4,000 nett in that period. It was agreed that in the period prior to termination the applicant averaged some $628.00 gross per week including overtime, which for a six month period gives a compensatory ceiling under the Act of $16,320.00. In determining the appropriate amount of compensation payable under section 170EE(2) and (3) of the Act, the loss this applicant has suffered includes the loss of full-time secure employment in circumstances where the new company, within months of the respondent terminating the applicant's employment, offered permanent employment to another former mechanic. It also includes the loss of remuneration suffered whilst the applicant endeavoured to find casual work when such work was available with the new company under Smith's control from the Monday of the week following the applicant's termination. Notwithstanding the intangible losses suffered, the applicant only asked the Court for the remuneration for the five months or so since the termination less the amount received from other employment. On his application I have assessed appropriate compensation at 11 weeks' remuneration which allows for a deduction for the period of employment since termination and amounts to $6,908.00. As a consequence of the respondent's reference to orders or what Smith described as a "caveat" freezing the assets and bank accounts of the respondent, I propose to further order that within 14 days of the date of these orders the respondent file with the Court a copy of any orders made by any Court preventing the distribution of or in any way affecting the operation of the respondent's bank accounts, business and assets, together with a list of the names and addresses for service of all persons in whose favour such order or orders have been obtained. The purpose of making these orders is to enable the District Registrar of the Court to serve a copy of my orders and reasons for judgment and to give notification to interested persons of the applicant's interest in the distribution of the assets of the respondent company, some of which assets now appear to be in the hands of the new company and are being applied to the furtherance of the interests of that entity and Smith. MINUTES OF ORDERS THE COURT DECLARES THAT: 1. The termination of the applicant's employment by the respondent contravened Division III Part VIA of the Industrial Relations Act 1988. AND THE COURT ORDERS THAT: 2. Within 21 days of the date of these orders the respondent pay compensation to the applicant in the sum of $6,908.00 less any sum required to be deducted therefrom by the respondent pursuant to the Income Tax Assessment Act 1936 and actually paid to the Commissioner of Taxation. 3. Within 14 days of the date of these orders the respondent file with the Industrial Relations Court of Australia at its Queensland District Registry at Level 6, Commonwealth Law Courts, 119 North Quay, Brisbane, a copy of any orders made by any Court between October 1995 and 29 July 1996 in any way prohibiting the distribution of or affecting the operation of the bank accounts, the business and the assets of - (a) Clayton Smith Automotive Pty Ltd (A.C.N. 010 877 022); and (b) Clayton Smith Automotive Service Centre. 4. Within 14 days of the date of these orders the respondent file with the Industrial Relations Court of Australia at its Queensland District Registry at Level 6, Commonwealth Law Courts, 119 North Quay, Brisbane, a list of the names and addresses of - (a) his wife (or former wife, as the case may be) as at 1 March 1996; (b) the solicitors acting for his wife (or former wife, as the case may be) referred to in part 4(a) of this order; and (c) any person or persons in whose favour the Court orders referred to in Order 3 above are or were made. AND FURTHER THE COURT DIRECTS the District Registrar of the Queensland District Registry of the Industrial Relations Court of Australia to - (a) enter these orders; and (b) serve a copy of these orders and reasons for judgment on each person named in the list filed and referred to in the preceding order. NOTE: Settlement and entry of orders is dealt with by Order 36 of the Industrial Relations Court Rules. I certify that this and the preceding twelve (12) pages are a true copy of the reasons for judgment of Judicial Registrar Millane. Associate: Dated: 13 August 1996 Applicant in person. Respondent in person. Date of hearing: 29 July 1996 Date of judgment: 13 August 1996