DECISION NO:481/96 C A T C H W O R D S INDUSTRIAL LAW - TERMINATION OF EMPLOYMENT - VALID REASON - whether termination based on respondent's OPERATIONAL REQUIREMENTS - prohibited reasons - whether prohibited reasons existed at date of termination Industrial Relations Act 1988 ss.170DB, 170DE(1), 170DF(1)(b), 170DF(1)(e), 170EDA(2) CASES: Kenefick v Australian Submarine Corporation Pty Ltd (No2) (1996) 65 IR 366 Selvachandran v Peteron Plastics Pty Ltd (1995-96) 62 IR 371 Nettlefold v Kym Smoker Pty Ltd (unreported, Lee J, No. TI 1334 of 1995, 4 October 1996) Kerr v Jaroma Pty Ltd (unreported, Marshall J, Nos. VI 3306 of 1995 and VI 3307 of 1995, 7 October 1996) GRAEME HAYDN LOTT - v - OPAL DECORATING CENTRES PTY LTD (A.C.N. 007 041 269) No. VI 1681 of 1996 Before: Judicial Registrar Millane Place: Melbourne Date: 9 October 1996 INDUSTRIAL RELATIONS COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY VI 1681 of 1996 B E T W E E N : GRAEME HAYDN LOTT Applicant A N D OPAL DECORATING CENTRES PTY LTD (A.C.N. 007 041 269) Respondent MINUTES OF ORDERS Judicial Registrar Millane 9 October 1996 THE COURT DECLARES THAT: 1. The termination of the applicant's employment by the respondent on 22 April 1996 contravened Division III Part VIA of the Industrial Relations Act 1988. AND THE COURT ORDERS THAT within 21 days of the date of making these Orders: 2. The respondent pay to the applicant the sums of - (a) $6250 compensation; and (b) $429 damages less any amount payable to the Commissioner of Taxation pursuant to the Income Tax Assessment Act 1936 and actually paid. NOTE: Settlement and entry of orders is dealt with by Order 36 of the Industrial Relations Court Rules. INDUSTRIAL RELATIONS COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY VI 1681 of 1996 B E T W E E N : GRAEME HAYDN LOTT Applicant A N D OPAL DECORATING CENTRES PTY LTD (A.C.N. 007 041 269) Respondent Before: Judicial Registrar Millane Place: Melbourne Date: 9 October 1996 REASONS FOR JUDGMENT The applicant seeks compensation alleging that the termination of his employment by the respondent on 22 April 1996 contravened Division III Part VIA of the Industrial Relations Act 1988 (the Act). In particular, he alleges breaches of section 170DE(1) and section 170DF(1)(b) & (e) of the Act. The respondent concedes that there was a termination at its initiative claiming that the termination was based on its operational requirements; that is to say, on its need to reduce its workforce because of a fall in its profits. It denies the existence of any prohibited reasons tainting the termination process. BACKGROUND At hearing, by consent the title of the respondent was amended to read "Opal Decorating Centres Pty Ltd (A.C.N. 007 041 269)". The respondent operates a paint manufacturing business from factory premises in Kensington, Victoria. Its managing director, Peter Pezzimenti (Pezzimenti), gave evidence that in October 1994 he employed the applicant allegedly on the basis that the applicant would work for the company for three months and after that time he would be kept on if there was work for him to perform. The applicant denies any limitations of the kind alleged being placed on his permanent employment as a storeman and factory hand at the factory; indicating that he worked full time from October 1994 until the termination in April 1996. The outcome of this proceeding is not affected by the differences in the evidence of the two men on these matters, however, the fact that Pezzimenti attempted at hearing to limit the conditions of employment to suggest that the employment was other than full time permanent employment, is relevant to my assessment of the credibility of the evidence given by each man. The only evidence called was from Pezzimenti, his book-keeper Maria Szkilnyk (Szkilnyk), and the applicant. It was the respondent's contention that in the 1995/1996 financial year there was a downturn in its sales, which downturn was contributed to by a change prior to Christmas 1995 in the size in the paint containers used to supply customers; that is to say, the larger containers used from that time onwards required less labour. The other matter contributing to the alleged downturn and reduction in the company's receipts, it was said, was caused by a drop off in orders from one of its main customers referred to as "The Paint Spot". In April 1996 the respondent employed four factory hand staff apart from Pezzimenti. They included Pezzimenti's brother Michael, who worked as a general hand and storeman and filled in for Pezzimenti when he was not at the factory; John Dance who performed duties as a storeman and general hand and had been employed longer than the applicant; an employee named Andrew who was a storeman and paint maker; and Jai Hocking (Hocking) who performed the same duties as the applicant and John Dance but could also, it was said, perform retail sales duties in a paint shop the respondent took over from Hocking's father; Hocking having already worked there in retail sales for some four years. The only other person employed apart from the applicant was Szkilnyk, the part time secretary and book-keeper, who works for the respondent for some two to three days per week. It was said by Pezzimenti that the reason for terminating the applicant's employment was that the respondent needed to reduce staff because there was a drop of some $200,000 in sales in the relevant financial year. In support of this contention the respondent tendered in evidence a summary (Exhibit R4) prepared by Szkilnyk. That summary shows the sales recorded between July 1994 and June 1996. The summary indicates that in the two financial years set out in that document there were monthly fluctuations in sales recorded. In the September to November 1994 period, when the applicant was employed by the respondent, the sales recorded were lower than those recorded for the same period in 1995. The sales recorded for the months February and May 1996 were in fact higher than for the same months in 1995, however, March and April 1996 sales were lower than the sales recorded for the same months in 1995. At the date at which the respondent decided to terminate the applicant's employment, the shortfall in sales between the July 1994 and March 1995 period and the same period to March 1996 was $108,338.56. By the end of the financial year in June 1996 the shortfall in sales was $171,911.88, however, this figure would not have been available to the respondent at the date it alleges it decided to terminate the applicant on 19 April 1996. The respondent produced no other record to establish that by reason of any downturn in sales it was placed in a position that as at 22 April 1996 it had a need to reduce its workforce by one person; namely the applicant. During the early part of 1996 the respondent entered into an arrangement to take over the business of another paint manufacturer referred to as "Integrity". This step was concluded by April 1996 and the operations of Integrity were moved to the Kensington factory together with one employee retained from that business. The respondent carries the burden of showing that it had at termination a valid reason based on its operational requirements. The decision of the Full Court of Australia in Kenefick v Australian Submarine Corporation Pty Ltd (No2) (1996) 65 IR 366, makes it clear that there is at least a two step process in discharging the burden of proof carried. The first is to prove on the balance of probabilities that there was a need to reduce the respondent's workforce. The second is to show that there was a valid reason for the selection of the applicant from its pool of employees. Essentially, the applicant challenges both the bona fides of the alleged redundancy and the selection process. What the applicant said happened is that throughout his employment he and other workers regularly complained about the conditions in the factory and, in particular, matters to do with the cleanliness and safety at the factory work site. In February or March 1996 the applicant alleges he injured his back at work lifting a heavy paint container from above head height in circumstances where the container was stored in cramped and inappropriate conditions. Pezzimenti doubted the veracity of the claim, although the Workcover insurer has now taken charge of the matter. Whilst on sick leave the applicant contacted the Health and Safety Organisation of Victoria to complain about the work site conditions in the factory. This complaint led to a number of inspections being undertaken by that organisation between 21 March 1996 and 28 June 1996. It was common ground that the Health and Safety Organisation did not reveal the name of the complainant to the respondent; although the applicant was required to reveal his identity to that organisation when he made his complaint. It was the respondent's case that it was not aware of the identity of any complainant at any time prior to the termination; although it does seem from the evidence that after the first inspection in late March 1996 Pezzimenti asked the applicant, who had returned from sick leave by then, whether he had made a complaint. At that time the applicant denied that he had done so. I was satisfied on the evidence given that the respondent was not directly aware of the identity of the complainant despite the fact that the question was put to the applicant in March 1996 and despite the existence of other steps taken by the applicant prior to termination concerning workplace conditions. All these matters may have raised a suspicion in Pezzimenti's mind that the applicant was responsible for the inspection, however, on the evidence I am not satisfied that this was so. The inspection by the Health and Safety Organisation revealed substandard conditions and non-compliance with numerous safety requirements. It was common ground that employees, save for one employee, did not have forklift licenses but were, nevertheless, required to and did drive a forklift around the site. As a result of the inspections the respondent was required to take steps to upgrade its standards and conditions in the workplace and these steps involved it in the expenditure of time and money. For instance, the respondent was required to build a fire wall and this led to the engagement of the services of a carpenter, who was assisted in this task by the applicant. On the date of termination the applicant was still assisting the carpenter in completing the fire wall when at approximately 4.20pm on the afternoon of 22 April 1996, the applicant was called into Pezzimenti's office and informed that he was being made redundant because of a shortage of work. There is a dispute as to whether Pezzimenti offered to the applicant any part time work in the future if it was available. On balance, I am inclined to the view that no such offer was made because the principal reason for termination was not that given at the date of termination and any downturn in sales or shortage of work was at best a subservient reason. In the week preceding the termination the applicant alleges that because of his concerns with conditions in the workplace he obtained a pamphlet (Exhibit A1) on mediation with a view to negotiating work conditions with Pezzimenti. This pamphlet was left by the applicant for Pezzimenti and was, the applicant claimed, thrown into the rubbish bin by Pezzimenti. The applicant retrieved the document and tendered it in evidence. The document was objected to because it had not formed part of the discovery process in this proceeding. However, it is clearly a relevant and admissible document and ultimately what was left for consideration was the credibility of each of the principal witnesses. Given the problems with safety and the failure to comply with appropriate safety and workplace standards, I am inclined to accept the applicant's version of events leading up to his termination in preference to that offered by Pezzimenti. Had the pamphlet incident been an isolated one it would have been a more difficult task to decide between the competing versions, however, the events on 19 April 1996 combined with the earlier matters I have already alluded to, persuade me to the view that the dominant reason for termination was the applicant's endeavours to promote changes in the workplace and the conditions of employment. On Friday, 19 April 1996 the applicant's uncontested evidence is that following meetings with the other employees, who were also concerned by workplace conditions, he left a letter (Exhibit R3) on Pezzimenti's desk. The letter made the following recommendations: "1 WAGES BROUGHT INTO LINE WITH SISTER COMPANY (INTEGRITY) 2 HOURS BROUGHT IN LINE WITH 35 HR WEEK 3 LUNCHTIME REDUCED BY 30 MINS TO ENABLE 4.00PM FINISH. 4 A LUNCHROOM BUILT 5 TIME PUT ASIDE (FRIDAY AFTERNOON) FOR CLEANING UP SHOP FLOOR. 6 MORE WORKPLACE INVOLVMENT (sic) FOR EMPLOYEES TO PROMOTE ENTHUSIASM. 7 JOB ROTATION. (DRIVING, LABELLING, PAINT MAKING) 8 JOB CONTRACTS (WHICH BY LAW SHOULD BE MANDATORY.) PETER COULD WE ALL SIT DOWN MONDAY MORNING AND DISCUSS THIS. YOURS SINCERELY" It was common ground that Pezzimenti was not present at the factory from the mid-afternoon on Friday. The two men did not communicate at all that day after the letter was left in Pezzimenti's office. Pezzimenti told the Court that he returned to the locked up factory late on Friday evening and found the letter. It was his evidence that on Friday, 19 April 1996 he had decided to terminate the applicant's employment on that day on the grounds of redundancy and, as a result, the letter was not taken into account in reaching the decision implemented on the afternoon of the following Monday. Szkilnyk gave evidence that she was instructed by Pezzimenti at approximately 9.30am on Monday, 22 April 1996 to prepare the letter of termination (Exhibit R4) as well as the applicant's cheque. I found Pezzimenti's evidence concerning the letter and the timing of the decision to terminate lacked plausibility. He did not communicate at all with the applicant until late on Monday afternoon, after the applicant had spent a full day at work without any response to his written request on Friday to discuss the contents of his letter on Monday morning. The applicant's employment was terminated at a time when he was engaged in building a fire wall which was a task still to be completed following his termination. Further, he was terminated at a time when the respondent had just absorbed a new business with one additional staff member coming with that business. PROHIBITED REASONS - section 170DF(1)(b) & (e) The applicant relied on two subparagraphs of the abovementioned provision alleging that one or both of the prohibited reasons referred to in those subparagraphs formed a basis for the termination. Section 170DF(1)(b) & (e) are set out as follows: "170DF(1) An employer must not terminate an employee's employment for any one or more of the following reasons, or for reasons including any one or more of the following reasons: (a) ... (b) union membership or participation in union activities outside working hours or, with the employer's consent, during working hours; (c) ... (d) ... (e) the filing of a complaint, or the participation in proceedings, against an employer involving alleged violation of laws or regulations or recourse to competent administrative authorities;" By reason of the provisions of section 170EDA(2) the onus of proof shifts to the respondent in respect to the matters alleged under section 170DF(1) of the Act. This means that the respondent carries the burden of proving a negative; that is to say, it must prove that neither of those reasons was a reason or the reason for termination. I had some difficulty with the applicant's expression of his allegations pursuant to section 170DF(1) of the Act. For instance, the applicant conceded that he was not at any relevant time a member of a union, nor had he sought membership during the currency of his employment with the respondent. What he relied on was an incident in the latter part of 1994 when a union representative visited the workplace and, according to the applicant, the union representative was physically removed from the site by Pezzimenti. Pezzimenti denied the allegation saying that the union representative was permitted to speak to the workers outside the factory gates; not in the area of work where work activities were then being performed. The applicant alleges that following the union representative's visit he was told by Pezzimenti that if he joined the union his employment would be terminated. Pezzimenti denied any statement to this effect. However, notwithstanding the allegation made it is clear from the evidence that union membership was not and is not an issue in this proceeding regardless of whether or not Pezzimenti made the comment he is alleged to have made. Accordingly, I am satisfied that union membership was not the reason or a reason for termination of the applicant's employment in 1996. Although Pezzimenti may have harboured suspicions as to who it was who "dobbed the company in" to the Health and Safety Organisation, I am satisfied on the evidence that he and the respondent were not directly aware of the applicant's role in initiating the investigation. Accordingly, the making of the complaint was not the reason or a reason for termination. VALID REASON - section 170DE(1) My finding on the evidence is that the dominant reason for termination was not a bona fide reduction in workforce numbers but was primarily because the applicant was attempting to improve conditions in the workplace. Any reason for termination must be one which is sound, defensible or well founded (see Selvachandran v Peteron Plastics Pty Ltd (1995-96) 62 IR 371). In his recent decision in Nettlefold v Kym Smoker Pty Ltd (unreported, Lee J, No. TI 1334 of 1995, 4 October 1996) His Honour Justice Lee when considering an alleged redundancy based on the employer's operational requirements made the following observations: "Neither counsel made any submissions on the question whether the phrase "valid reason" used in subs170DE(1) of the Act imposed a requirement that in all the circumstances a termination of employment at the initiative of an employer not be unjust or unfair. The terms of the Act suggest that such a construction is arguable. Section 170CA of the Act states that the object of Div 3 Pt VIA is to give further effect to the Termination of Employment Convention ("the Convention") the text of which is set out in Schedule 10 of the Act. Art 8 of the Convention requires a contracting party to the Convention to ensure that a worker who has been dismissed is entitled to challenge that dismissal in an appropriate tribunal if the worker considers that his or her "employment has been unjustifiably terminated" and pursuant to Art 9 of the Convention that tribunal is to be empowered "to examine the reasons given for the termination and the other circumstances relating to the case and to render a decision on whether the termination was justified". ... By giving effect to the Convention the Act seeks to establish a balance between the right of an employer to duly manage an enterprise in which labour is employed and the right of an employee, and of the community, not to have the asset represented by the capacity of employees who provide such labour, whether skilled or unskilled, depreciated by incompetent or capricious management of labour by an employer." His Honour Justice Marshall has also had occasion recently to consider the meaning of the phrase "valid reason" in the context of the Act, making the following observations (see Kerr v Jaroma Pty Ltd (unreported, Marshall J, Nos. VI 3306 of 1995 and VI 3307 of 1995, 7 October 1996)): "As is clear from Kenefick, a reason which is based on the operational requirements of an undertaking does not thereby become "valid" because of it being so characterised from the subjective view of the employer. The question remains as to whether the employer has satisfied its onus of proof in showing that a reason it alleges to be based on its operational requirements, in fact, was justified or objectively defensible in the circumstances. The Court will in each case determine, in the particular circumstances prevailing, whether any termination alleged to have been taken due to operational requirements was nonetheless effected for a valid reason, i.e., one which is defensible or justifiable on an objective analysis of the relevant facts. In this case it is alleged that the termination of the applicants was for a valid reason based on the operational requirements of the undertaking. I do not accept that submission. In my view, the termination of each applicant was not defensible or justifiable on any objective analysis of the facts. The applicants had been good employees and had an expectation of continuing employment in an undertaking which was not alleged to be under financial difficulties. Their employer simply decided, with no notice to them, that it no longer required them and that it would engage replacement employees under different arrangements to that which applied to the applicants. It did not inquire if the applicants were interested in taking up work under the new arrangements." Bearing in mind the abovementioned authorities, the evidence in this case supports a finding that the dominant reason for termination was the applicant's efforts in trying to negotiate better workplace conditions and because of this finding the respondent has failed to establish that there was a sound, defensible or well founded reason for termination on 22 April 1996. REMEDY The applicant has found full time employment since the date of termination at a rate of pay which is less than that received from the respondent. His gross weekly earnings at the date of termination were $429. My finding is that reinstatement is impracticable in all the circumstances. The ceiling for the payment of compensation by reference to pre-termination earnings is $11,154 gross. I accept the applicant's evidence, supported by payslips tendered in evidence (Exhibit A2), that from 27 June 1996 he resumed full time paid employment; that is to say, some nine and a half weeks following his termination. At termination the applicant was paid his entitlements to 22 April 1996 together with one week's compensation in lieu of notice. It is accepted by the respondent that the applicant is entitled to one further week's payment by way of damages in the sum of $429 in order to comply with section 170DB of the Act. In assessing compensation I have taken into account, amongst other things, the applicant's period of unemployment and the ongoing shortfall in income received. I have also made allowance for the two weeks' notice payments. My conclusion is that an appropriate payment of compensation is the sum of $3,250 for lost wages to 27 June 1996 and an additional sum of $3,000 for the ongoing loss of income from 27 June 1996 to the date of hearing and continuing. MINUTES OF ORDERS THE COURT DECLARES THAT: 1. The termination of the applicant's employment by the respondent on 22 April 1996 contravened Division III Part VIA of the Industrial Relations Act 1988. AND THE COURT ORDERS THAT within 21 days of the date of making these Orders: 2. The respondent pay to the applicant the sums of - (a) $6250 compensation; and (b) $429 damages less any amount payable to the Commissioner of Taxation pursuant to the Income Tax Assessment Act 1936 and actually paid. 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 eleven (11) pages are a true copy of the reasons for judgment of Judicial Registrar Millane. Associate: Dated: 9 October 1996 Solicitors for the Applicant: McDonald & Charman Appearing for the Applicant: Mr A. McDonald Solicitors for the Respondent: Cohen Woolf & Weinberg Counsel for the Respondent: Mr G. Lucas Date of hearing: 3 October 1996 Date of judgment: 9 October 1996