KINNA v GIBBS [1997] IRCA 61

DECISION NO:61/97 CATCHWORDS

INDUSTRIAL LAW - UNLAWFUL TERMINATION - EMPLOYMENT RELATIONSHIP - EMPLOYMENT CONTRACT - whether employee or contractor - SERVICES CONTRACT - VALID REASON - failure to pay WAGES met with refusal to render services - REMEDY - COMPENSATION.

Workplace Relations Act 1996 ss170DE, 170EE

KINNA v BILL GIBBS & ORS. VI96/2333

Before: MURPHY JR Place: WARRNAMBOOL Dates of Hearing: 19 & 20 FEBRUARY 1997 Date of Judgment: 21 FEBRUARY 1997

IN THE INDUSTRIAL RELATIONS COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY

VI96/2333

BETWEEN:

JOHN JAMES KINNA Applicant

AND

BILL GIBBS, LAWRENCE McALLION, MAREE McALLION, and McALLION LLOYD PTY LTD Respondents

BEFORE: MURPHY JR PLACE: WARRNAMBOOL DATE: 21 FEBRUARY 1997 MINUTES OF ORDERS

THE COURT ORDERS THAT: 1. That the Fourthnamed Respondent pay to the applicant the sum of $4,000.00 within 21 days.

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 VICTORIA DISTRICT REGISTRY

VI96/2333

BETWEEN:

JOHN JAMES KINNA Applicant

AND

BILL GIBBS, LAWRENCE McALLION, MAREE McALLION, and McALLION LLOYD PTY LTD Respondents

BEFORE: MURPHY JR PLACE: WARRNAMBOOL DATE: 21 FEBRUARY 1997 REASONS FOR DECISION Delivered ex tempore - revised from the transcript Two matters emerge from these proceedings: the unfortunate but not infrequent occurrence of the falling-out of individuals who hitherto had amicable business relations when involved in property development proposals; second, the need for the Court to legally characterise arrangements that the parties, in their enthusiasm to progress potentially lucrative proposals, failed at the time to address their minds to, let alone reduce to documentary form. The applicant seeks a remedy under s170EA of the Workplace Relations Act 1996 ("the Act"). He alleges that his employment with the respondents was unlawfully terminated in August 1996. The respondents deny that the applicant was their employee. Rather, they assert that he was retained on a consultancy basis as a Project Manager on a project known as the "Maritime Village Development" ("the project"). The evidence on the engagement. In early 1996 the applicant was aged about 65 and a semi-retired builder. He was retained from time to time on a consultancy basis for various building projects, and in particular for clients of a local building designer, Mr Chris McArdle. Mr McArdle used the applicant's services on jobs that required detailed specification work and liaison with builders. In about April/May 1996 the applicant was engaged on one of Mr McArdle's projects, a unit for the first respondent, Mr Gibbs. Mr Gibbs and the applicant thus had occasion to meet. Around this time Mr McArdle was also doing work on the project for Mr Gibbs. The project involved construction on the Maritime Museum site of thirty-two motel units, a refurbishment of an existing restaurant, and the construction of salt water spa facilities. Mr Gibbs was to be involved in this development with the second and third respondents, Mr and Mrs McAllion, who are the operators of the restaurant and a nearby motel. The three individual respondents were to be equal shareholders in a corporate vehicle for the venture, the fourth respondent ("the company"). The project was to be significant in size and Mr Gibbs discussed with Mr McArdle his need to have someone to assist him with the project, and also to assist the company he was to form with the other partners, the McAllions. Mr Gibbs suggested to Mr McArdle that the applicant would be suitable and a meeting was held in a coffee lounge underneath Mr McArdle's office. What happened at that meeting and on that day is critical to the determination of the threshold issue in the proceedings. The applicant maintained that at this meeting Mr Gibbs offered him a position on the project at a wage rate of $1,000 per week. Mr McArdle said there was a discussion about the project and the need for someone to look after Mr Gibbs' interests and also the company's interest. There was also a discussion about the length of the project. It was expected to be completed in twelve months but it could be eighteen months, depending on the timing of approvals. Rough costing of the project was discussed. The project was to cost about $3 million and of that, ten per cent was a rough budget for consultants. There was an amount in that budget for the applicant's services as a Project Manager. Mr McArdle gave evidence that Mr Gibbs proposed that the applicant be paid $1,000 per week. The applicant had replied that there would be expenses and Mr Gibbs had replied "plus expenses". Notes of the meeting record "$1,000 pw". They also record that the applicant is a described as "PM", which was a reference to Project Manager. The applicant, in unchallenged evidence, said that a description of his position was that he would be between the developer and the builder. Mr Gibbs' version of the initial conversation was that the first thing he said to the applicant was that he had a way for the applicant to earn $50,000 to $70,000 out of the project. He then discussed the project and the financing arrangements. In particular, he discussed that it was only when the construction commenced that funds would become available for the applicant to be paid as a Project Manager. Mr Gibbs, who is an experienced property developer, explained to the applicant that the project would be a "turn-key development" where the builder obtained a bank guarantee to cover construction costs and the developer only pays the contract sum upon completion of the building work. His evidence was that he understood that people who worked on the project prior to the construction commencing are outside consultants and would be paid upon invoice. His evidence was that his understanding was that: "we would discuss the duties required. He would complete parts and invoice us from time to time". Events after engagement. At the time the applicant commenced the project was still in its formative stages. No permit application had been lodged with Council and an agreement with a builder had not been secured. The applicant's duties included assisting in the preparation of documents for the Council process, and to obtain an agreement with the proposed builder, John Holland Constructions. He also prepared some financial projections for Mr Gibbs as at 30 May 1996. He was also involved in various errands for Mr Gibbs and produced a number of what were, in effect, documents of a legal nature that were in evidence. He attended a meeting in Melbourne with Mr Gibbs at the John Holland office. Mr McAllion claimed that he was also present, although the applicant denied this. At that meeting the project, I am satisfied, was discussed in general terms only. I am also satisfied that the applicant was told that any amount that he would be paid for project management would be paid at the commencement of the construction phase. The applicant was told this by Mr Gibbs in the car on the way home. I do not accept that this conversation is relevant to the nature of the relationship between the applicant and the respondents. A particular issue in the proceeding was whether the applicant was to work exclusively for Mr Gibbs. The applicant said that on his first day of work he was told by Mr Gibbs that he would have to work exclusively for him and to cease his other work. It was the applicant's evidence that Mr Gibbs said that he was to complete the other work he was doing and not take on any more clients. Mr Gibbs said there was no discussion to the effect that the applicant had to work exclusively for the project. A significant piece of evidence from Mr McArdle was, however, that he raised with Mr Gibbs the fact that the requirements of Mr Gibbs for the applicants time would disrupt the work that the applicant was doing for his business. Mr McArdle said that an arrangement was reached with Mr Gibbs that Mr McArdle's work would cause minimal disruption to the work that the applicant was performing for Mr Gibbs. Mr McArdle's evidence was that the applicant was to work normal office hours. The applicant gave evidence that he worked full time for Mr Gibbs and did the work on the ongoing projects of Mr McArdle after hours. Thus for some period in May and June the applicant was performing work on his own account and also working as directed by Mr Gibbs. The applicant's evidence was that he would return to the office at night two or three hours per day, two or three days per week, to complete work for Mr McArdle. An employee of Mr McArdle, Mr Richie Schultz, corroborated this evidence. Prior to May, the applicant, although he would visit Mr McArdle's office, worked from home. For the first few days after his discussion with Mr Gibbs, he worked with him in the same office. Mr Gibbs arranged to sublet another office, install telephones, and the applicant then moved in there. The applicant also brought in his computer from home. He used this for work for the project and also for the other work he was doing for Mr McArdle. According to the applicant and Mr McArdle, Mr Gibbs was responsible for the telephones used by him and the applicant. In evidence not put to the applicant Mr Gibbs said he refused to pay the telephone account for the applicant. The applicant's duties. A crucial point of difference in the proceeding were the duties that were to be, and were actually, performed by the applicant. It was the applicant's evidence that he was to perform whatever duties were required by Mr Gibbs for the advancement of the project. Mr Gibbs, on the other hand, said his duties were to work with him on specifications, a schedule of finishes, and a final design schedule so that a building contract could be executed. By Mr Gibbs' account the applicant was to prepare documentation. He said that he believed that the applicant had only worked on the project for a couple of hours a day. As events unfolded it is clear from the evidence that the applicant had a wide range of duties that were at the direction of Mr Gibbs. They included drafting what purported to be legal documents (Exhibits A3 and A4), a financial requirements document (Exhibit A2), a contract of sale for two units (Exhibit A11), having an input into the planning application document (Exhibit A7), and research as to various aspects of the project. In addition, there was uncontested evidence that the applicant did various errands for Mr Gibbs, including cashing cheques. He was able to purchase stationery on an account opened by Mr Gibbs. One task that the parties were in strong disagreement on was whether the applicant could produce specifications. It was the applicant's account that he had only been requested to produced specifications late in the piece. He was unable to do so until the individual respondents had settled on the design details of the project and Mr McArdle had finalised his plans. Mr McArdle supported the applicants account that he had not been tardy in producing specifications because of matters outside his control. Ultimately the applicant said he produced the specifications but refused to hand them over to Mr Gibbs and Mr McAllion because he had not been paid. Mr Gibbs and Mr McAllion, on the other hand, said that they repeatedly pressed the applicant for the completed specifications but without a satisfactory response. Payments to the applicant. It was the applicant's account that it was agreed between him and Mr Gibbs that he would be paid $1,000 per week from the time he started. His account was supported by Mr McArdle, who said that this was his understanding from the coffee lounge meeting in mid-May. It was put to the applicant in cross-examination that the $1,000 per week was not, in fact, to commence until construction commenced and the bank guarantee was in place. The applicant denied this and maintained he was to be paid immediately he started rendering services. He said he at no stage intended to be a risk-taker in relation to the ultimate success of the project. It was also put to the applicant that he was retained on a consultancy basis as a Project Manager. Mr Gibbs, in his evidence, shifted somewhat from the tenor of what had been put to the applicant in cross-examination when he accepted that the applicant was to be paid, before the commencement of the construction phase, on invoice for the work he had performed. What was lacking in Mr Gibbs' account was any discussion, at the time of engagement, of the amount of work the applicant was required to do, what he actually did, how much he was to be paid, and when he was to be paid. The applicant said that he commenced asking for his wages in the second week that he was engaged. He said that he was presented with various excuses by Mr Gibbs. In late May the applicant prepared a financial requirements document (Exhibit A2) for Mr Gibbs that records that he is to be paid $5,000 for June. Mr Gibbs, in evidence, said he thought he would pay the applicant $400 per week and that was all he was worth. The applicant was not paid in early June and on 21 June rendered an invoice to the company for $6,000, for "Consultive (sic) and advisary (sic) services & general administration" - "16 May 1996 to 30 June 1996" (Exhibit R1). Mr Gibbs had said that this invoice was prepared at his request. The applicant said that he asked for money and Mr Gibbs said prepare an invoice and "I will put it to Mr McAllion". The applicant was only paid $4,000 on the invoice. The $2,000 deducted was for some legal expenses that the company had incurred, allegedly as a result of an incorrect and illegal sale agreement prepared by the applicant. It was never asserted by either Mr Gibbs and Mr McAllion that they had told the applicant this. The applicant gave evidence that Mr Gibbs gave, as his excuse for the payment of $4,000 out of the $6,000, that the $4,000 related to June as the company had only commenced operation at the beginning of June. Further, in evidence unchallenged at the time, Mr Gibbs told the applicant that he would pay the balance out of his own pocket. It was Mr Gibbs' evidence that the reason he paid the $4,000 to the applicant was both that he had performed some work, and also the applicant needed the money to complete the purchase of a car from Mr Richie Schultz, an employee of Mr McArdle. It was Mr Gibbs' evidence that he did not wish to upset Mr Richie Schultz, and wanted the transaction to go through. The applicant, on his account, did not render any further invoices, nor was he paid anything else. Mr Gibbs, in evidence not put to the applicant, said that he paid amounts in cash to the applicant, in sums of up to $300 at a time, up to a total of about $2,000 over the course of the retainer. The applicant, when re-called to the witness box, emphatically denied this. Mr McArdle corroborated the applicant's repeated requests for money from Mr Gibbs. In particular, Mr McArdle corroborated the conversation where the applicant disputed with Mr Gibbs about only being paid for four weeks, when he had worked for six weeks, and Mr Gibbs offering to pay the balance out of his own pocket. Mr McArdle admitted that he was a friend of the applicant and that he was in dispute with the respondents as to fees owing to him. The relationship ends. In late July Mr Gibbs and the applicant had a heated conversation in relation to preparation of the specifications for the project. There was an impasse because the applicant demanded to be paid, while Mr Gibbs said that unless the work was done he would get someone else to do it. Further, there was disagreement as to why the work had not been completed by that stage. The applicant, in his evidence, said that he was unable to complete the specifications in the time requested because the details of the design had not been settled by Mr Gibbs and the McAllions. A meeting was arranged to sort these matters out. The applicant prepared the specifications but did not deliver them to the respondents because no arrangement had been put in place for him to be paid. The relationship between the parties ended in an impasse in mid-August with this mutual refusal. At that stage Mr Gibbs had moved his office from Mr McArdle's premises. Findings. There were major conflicts in the accounts given by the parties and in the legal conclusions to be drawn from the evidence. Where there is a conflict in the evidence, I prefer the evidence of the applicant. In very significant respects his evidence was corroborated by Mr McArdle. While both the applicant and Mr McArdle had a motive to support each other against Mr Gibbs and the company, their respective accounts did not appear constructed. The respondents' version appeared to shift during the trial. Parts of Mr Gibbs' evidence were not put to the applicant and Mr McArdle, while parts of the latter's evidence remained unchallenged. I am satisfied that Mr Gibbs, on behalf of the company that he was about to form as the corporate vehicle for the three partners in the project, engaged the applicant to perform work as required on the project. I am satisfied that the duties envisaged by Mr Gibbs were wider than the services that the applicant had been rendering as a consultant to Mr McArdle. I am satisfied that it was envisaged at the time of the meeting in the coffee lounge that the duties would involve a range of duties associated with getting the project up and running. This involved achieving planning approval and a "turn-key" building contract. I am satisfied that it was envisaged at that stage that when the building work actually commenced, the applicant would have a role as Project Manager. I find that Mr Gibbs agreed that the applicant would be paid $1,000 per week for his services, and that he would work full time. He was required by Mr Gibbs to wind down the other jobs he was involved with. I am satisfied that Mr Gibbs refused to pay the applicant when requested. The applicant, at Mr Gibbs' request, rendered an invoice for $6,000 and was paid $4,000. I find that Mr Gibbs promised to pay the balance. I accept the applicant's account, corroborated by Mr McArdle, in relation to events in late July and early August regarding the specifications. I do not accept that the applicant was derelict in failing to produce the specifications. I accept Mr McArdle's account that the applicant was not in a position to complete them in the time required because the plans and instructions necessary had not been completed. Was the applicant an employee or a contractor? The label that the parties attach to their relationship is not necessarily determinative. Here it was not clear what title was given to the applicant. He did not appear on the books of the company as an employee, and Mr Gibbs, as did the McAllions, denied that they employed the applicant. I am satisfied that prior to 15 May the applicant operated as a consultant. He did so without an office and from his own home. A significant amount of his work was for Mr McArdle's business. It was the respondents' case that the applicant's arrangement with them was a continuation of the applicant's previous consulting business and thus he should not be regarded as an employee. The respondents asserted that the applicant was not exclusively retained by them. Rather he was doing other work over the period. The applicant admitted that he did other work, but said that this was winding down. Further, he generally did it out of business hours. I accept that the applicant was doing other work over the period May to August, but I find that Mr Gibbs asked him to make himself fully available to the project. The impact of this demand on the applicant's time was corroborated by Mr McArdle, who cleared with Mr Gibbs that the applicant could complete his projects. Next, the project provided an office for the applicant. This was a significant change from the applicant's previous arrangement with Mr McArdle. It is consistent with the applicant being the project employee. The applicant used his own computer, which is against him being an employee, but he explained this by the fact that he was using it for the other projects he was involved in. The respondents submitted that employees do not render invoices. The applicant replied that his invoice was rendered at the request of Mr Gibbs after the earlier refusals to pay. It is relevant here that the applicant did not, as he had done with Mr McArdle, pre-quote an hourly rate or a lump sum fee to Mr Gibbs, nor did he keep a record of his hours. If he was a consultant, then he may have been expected to do this. The invoice is not a decisive consideration either way here. The final indicia to be considered is that of control. Here the nature of the duties that the applicant was to perform is central. The applicant was essentially to do whatever Mr Gibbs required of him. Within this he had to perform duties similar to those he had performed as a consultant for Mr McArdle's clients. However, the wide nature of the duties, and the difficulty of characterising them as being to achieve a result, point to the conclusion that Mr Gibbs retained the ability to control the applicant. It was submitted that Mr Gibbs did not direct the applicant and that he worked unsupervised. While the latter is to some extent true, Mr Gibbs would, from day to day, determine what the applicant was to do. Such an arrangement is inconsistent with characterising the applicant's retainer as to achieve a result as a consultant. The authorities require the totality of the relationship to be considered in order to determine whether the relationship is one of employment. It has been said that the legal characterisation of a relationship as either a contract of service, or a contract for services, is often one of impression. Here the contrast between the applicant's mode of operation before his engagement with the project, the detail of his duties, the facilities provided, and the control exercised by Mr Gibbs, are decisive considerations in characterising the applicant as an employee. Mr Gibbs needed someone for a wide range of tasks, including being a "go for". He told Mr McArdle that he did. He retained the applicant, provided him with a phone and office, and offered to pay him $1,000 per week. The applicant thenceforth was not in business on his own account, as he had previously been. He was employed by the project. Who was the employer? The applicant submitted that the three individual respondents and the company were jointly and severally his employer. I am satisfied that it was made clear by Mr Gibbs that the project was to be conducted by a company that he and the McAllions were about to form. That company was incorporated on 14 June, and the individual respondents became directors on 17 June. The applicant was aware of the incorporation of the company as the vehicle for the project. I am satisfied that upon its incorporation the company assumed the role of employer of the applicant. In legal terminology there was a novation of the agreement between the applicant and the individual respondents to an agreement between the applicant and the company. The company was substituted as the employer. Application of the Act. The applicant asserts that the company has, without valid reason, terminated his employment contrary to s170DE(1) of the Act. The company asserts that if it is found to have employed the applicant, then it had a valid reason to terminate his employment because of his failure, despite repeated requests, to provide the specifications, an essential part of the documentation for the project. I have earlier found that I accept the applicant's version of events in relation to the production of the specifications. It was corroborated by Mr McArdle. I find that he was doing the best he could in the circumstances. It is now necessary to see how the relationship between the parties terminated. In late July the applicant gave evidence that Mr Gibbs, when he left the offices to move to another office said, "We owe you $6,000." This was contrary to Mr Gibbs' evidence. The applicant's evidence on this point is consistent with the evidence that was common ground, namely that after a heated discussion wherein Mr Gibbs purported to sack the applicant, the parties apologised and made up. Given the earlier payment of $4,000 for June, it would not be surprising, in those circumstances, for Mr Gibbs to admit to the applicant that the company owed him $6,000. I am satisfied that he did so. Mr Gibbs, however, made no arrangement to pay that money. Rather on 14 August he requested an invoice for the work done to date, as well as the completed specifications. The applicant refused to supply the documents that he had prepared, and there the relationship ended. I am satisfied that the letter of 14 August (Exhibit A8) effectively ended the relationship between the parties. The company was the initiator of the ending of the relationship. Counsel for the company did not really contend otherwise. I am unable to accept that the company had a valid reason to terminate the applicant's services at that point. The actions of the company in failing to pay the applicant the monies due put him in an impossible position. Like everyone else involved, he wanted to advance the project to the construction phase. Had it done so, he would have had a significant role for the duration of the project. At the same time the company chose not to honour the agreement that Mr Gibbs made on its behalf with the applicant in May. The agreement required that the company pay the applicant $1,000 per week. It was the company's failure to pay that amount that was the reason why the applicant refused to supply the specifications he had been working on. The company did not have a valid reason to refuse to pay the applicant. I accept that in relation to the specifications, matters were outside the applicant's control. The applicant was not in breach of his duties in late July and early August. It was the company that repudiated the contract and terminated the employment. S170DE of the Act requires employers to have a valid reason based on the operational requirements or conduct of the employee to terminate employment. The company did not have a valid reason here. S170DE(1) has been breached. Remedy. No order for reinstatement was sought. Counsel for the applicant submitted that the applicant has sustained losses as a result of the company's action and that an order for compensation should be made under s170EE(2). The applicant gave evidence that after the impasse with the company, he resumed doing consulting work for Mr McArdle from home. The amount that he earned in that work was somewhat vague. The applicant said it was between $4,000 and $6,000, while Mr McArdle said it may have been up to $10,000. It was submitted that as the project continues the applicant would have remained employed, but for the unlawful termination. Mr Gibbs said that had there not been a breakdown in the relationship there was every prospect the applicant would have been retained on the project. It is necessary to consider what would have happened had the unlawful termination not occurred. This is where it is necessary to go back to events in May. At that stage it was envisaged that the project would be completed within twelve months, possibly eighteen months. It is reasonable to infer that the parties did not address themselves to the possibility that planning approval would be significantly delayed by the relevant authorities. While that delay was occurring, it is difficult to see what duties it was envisaged that the applicant would perform, as it was common ground that his involvement in project manager duties would only commence when construction commenced. This was to be after planning approval was obtained. Further, significant changes were occurring in the way the project was progressing, or not progressing, in July and August. Mr Gibbs was seeking to bring a new builder onto the scene, Mr Graham Schultz. Mr Gibbs had moved from Mr McArdle's office in late July and Mr McArdle, because he was still owed some money for some of the services that he had rendered, was concerned about his future involvement in the project. It has been said on a number of occasions in the court that one of the reasons for the implementation into domestic law of the Termination of Employment Convention is to ensure that in the management of labour, proper standards are maintained. Here I am satisfied that Mr Gibbs did not treat the applicant in a way that reflected standards that should apply, even in what was a very small workplace. In my view, in this case an order for compensation is appropriate. I propose to order that the respondent pay to the applicant four weeks' wages at the rate of $1,000 per week, a sum of $4,000. I am satisfied that this represents the value of the chance that the applicant should have had to negotiate his future with the project in August had the company been acting in good faith. The company, as at the middle of August, owed the applicant $6,000 as admitted by Mr Gibbs to the applicant, and a further $2,000 for work in the first two weeks of August. These sums are not, for reasons that did not emerge, claimed in these proceedings. They should have been. Had the respondent approached the applicant in mid-August, addressed the outstanding moneys due and discussed the applicant's future in a sensible manner, the applicant had a reasonable prospect of continuous involvement with the project, even though at that stage it had not received planning approval. He lost that opportunity and the measure of his loss is as I have indicated. The fourth respondent will be ordered to pay the applicant the sum of $4,000. I will grant a stay of twenty-one days I certify that this and the preceding fifteen (15) pages are a true copy of the reasons for decision of Judicial Registrar Murphy as recorded in the transcript and revised by the Judicial Registrar.