DECISION NO:87/97 CATCHWORDS INDUSTRIAL LAW - TERMINATION OF EMPLOYMENT - VALID REASON - Salesperson's sales performance consistently below the monthly average of his yearly budget constituted a valid reason for the termination of his employment - OPPORTUNITY TO RESPOND TO ALLEGATIONS concerning his performance not given, because the review which was promised to occur one month after the warning letter never occurred - COMPENSATION ordered. Workplace Relations Act ss: 170 DC, 170DE(1), 170EE, 430 Burazin -v- The Blacktown City Guardian, Industrial Relations Court of Australia, Full Court, 13 December 1996, unreported Hurskin -v- Australian Jewish Press Pty Ltd, Industrial Relations Court of Australia, Millane JR, 13 June 1996, unreported Kenefick -v- Australian Submarine Corporation Pty Ltd, Industrial Relations Court of Australia, Wilcox CJ, 26 July 1996, unreported Kerr -v- Jeroma, Industrial Relations Court of Australia, Marshall J, 7 October 1996, unreported Nicolson -v- Heaven & Earth Galleries Pty Ltd (1994) 1 IRCR 199 Selvachandran -v- Peteron Plastics Pty Ltd (1995) 62 IR 371 Westen -v- Union des Assurances de Paris, Industrial Relations Court of Australia, Madgwick J, 17 December 1996, unreported BROOKS -V- PANALPINA WORLD TRANSPORT P/L NI 3602 of 1995 Before: PATCH JR Place: SYDNEY Date of judgment: 25 MARCH 1997 IN THE INDUSTRIAL RELATIONS COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NI 3602 of 1995 BETWEEN: DENNIS WAYNE BROOKS Applicant AND PANALPINA WORLD TRANSPORT PTY LTD Respondent BEFORE: PATCH JR PLACE: SYDNEY DATE: 25 MARCH 1997 MINUTES OF ORDERS THE COURT ORDERS THAT: 1. The respondent is to pay the applicant, within 21 days of today, as compensation for the unlawful termination of his employment, the sum of $4,850.00 2. Any sum paid by the respondent to the Commissioner of Taxation, within 21 days of today, in respect of the sum in order 1 is to be regarded as having been paid in pro tanto satisfaction of the judgment debt. 3. As damages for breach of contract, the respondent is to pay the applicant the sum of $180.85 within 21 days of today. 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 NEW SOUTH WALES DISTRICT REGISTRY NI 3602 of 1995 BETWEEN: DENNIS WAYNE BROOKS Applicant AND PANALPINA WORLD TRANSPORT PTY LTD Respondent BEFORE: PATCH JR PLACE: SYDNEY DATE: 25 MARCH 1997 REASONS FOR DECISION The applicant claims that the termination of his employment was unlawful. He does not seek reinstatement, but seeks compensation under section 170EE of the Workplace Relations Act, 1996 ("the Act"). The applicant's legal representatives, on his behalf, also filed a document entitled "Particulars of Claim". Some of the claims in that document were not pursued, but there was a claim under section 430 of the Act in the associated jurisdiction of the Court for an "unpaid Telstra telephone account" in the sum of $180.85. The applicant commenced employment with the respondent on 13 January 1995. The respondent is a large multinational corporation, its principal business being as an international freight forwarder. The applicant was employed as a salesman, and it was his job to sell the company's products to importers and exporters. The applicant described his job as follows: "My job was to gain business for the company, the company being an international freight forwarder to people were importing goods or exporting to the USA in particular but at the same time gaining whatever business I could. If the company does exports as well as imports from other parts of the world then I would quote on that as well". Shortly after the applicant commenced employment with the respondent, he was given a letter dated 14 February 1995 (exhibit 2) That letter had the heading "Your 1995 Incentive Package" - but it is more accurately described as setting out the applicant's sales budget for the year. Any bonuses he received would be entirely dependent on whether or not he met his budget. The applicant's employment was terminated on 28 August 1995. WAS THERE A VALID REASON FOR THE TERMINATION OF THE APPLICANT'S EMPLOYMENT? Section 170DE(1) of the Act renders a termination of employment unlawful, unless it is done for a valid reason. The reason for the termination of the applicant's employment was because his sales figures were not meeting his budget. That is to say, when his yearly budget (as set out in exhibit 2) was broken down into monthly periods, his performance, month by month, and year to date, was well below his budget. The respondent submits that that constitutes a valid reason for the termination of the applicant's employment. The applicant responds by saying that there was a large account (F J Mullers) which was gained through his efforts as a salesman, but was lost due to the incompetence of other, more senior, persons in the company responsible for delivering the services to the customer. A great deal of evidence was led about the number of physical calls the applicant made to various potential customers, the number of telephone calls he had made, and the number of quotes that he had submitted. The applicant complained that his performance had been undermined by lack of administrative support, particularly in respect of the time that it took to produce his quotes. He complained that, for a great proportion of the period of his employment, his quotes took up to a week, or sometimes more, to produce. However, the applicant was unable to cite a single example of a customer whose business had not been gained as a result of a late quote, and I do not regard that aspect of the case as very significant at all. In my opinion, the evidence clearly established that the applicant was underperforming. Exhibit 13 establishes that the applicant made only 8 sales in the approximately 30 weeks of his employment. The applicant's performance was, over all of the time that he was employed by the respondent, consistently below the monthly average of his yearly sales budget. True it is that it takes time for a salesperson to get going, as it were, in a new job. This is because the performance of a salesperson depends to a great extent on establishing personal contact with the decision-makers in potential customers. However, even taking that into consideration, the applicant's performance was consistently poor. (see also exhibits 3 & 6). As Millane JR observed in Hurskin -v- Australian Jewish Press Pty Ltd, Industrial Relations Court of Australia, unreported, 13 June 1996, "It is not the role of the Court or, indeed, the object of the legislation, to require employers to keep on underperforming employees." Even if the Court were to accept that the Mullers account had been lost due to the failings of the operational management of the respondent company, that was only one account (albeit a very large one). The fact would remain that the applicant had made only a very small number of sales during his period of employment. The respondent's management was entitled to expect a better performance. It is not for the Court to stand in the shoes of management, and make the decision afresh. True it is that there has to be an objective basis upon which the decision of management to terminate an employee's employment for poor performance can be based, (see Kerr -v- Jeroma, Industrial Relations Court of Australia, Marshall J, 7 October 1996, unreported), and true it is that the decision to terminate an applicant's employment is not for a valid reason unless the reason is "sound, defensible or well founded" (see Selvachandran -v- Peteron Plastics Pty Ltd (1995) 62 IR 371, at 373). Perhaps a better way to express it would be "sound, just or well founded". (see Westen -v- Union des Assurances de Paris, Industrial Relations Court of Australia, Madgwick J, 17 December 1996, unreported). In my opinion, taking into account the above facts and propositions of law, the termination of the applicant's employment for his failure to perform was for a valid reason. WAS THE TERMINATION OF THE APPLICANT'S EMPLOYMENT IN BREACH OF SECTION 170DC OF THE ACT? On or about July 1995 the applicant received a memo (exhibit 3) from Mr Fleming, the general manager of the respondent. That memo contained a printout of the applicant's sales to date, and included the projected sales figures that the applicant had provided in response to an earlier query. Amongst other things, Mr Fleming said, "the figures are a big disappointment. Our business is very much sales driven and the actual profitability on your sales to date is well below job average." "There is also lack of general success with only 8 accounts trading in the first 6 months." On 25 July 1995 Mr Clark, the commercial manager, gave a letter to the applicant which was in the following terms: "Dear Dennis This letter is to confirm our discussion regarding your performance as Route Development Specialist, and that your actual sales since January 1995 to are far below your budgeted figures. As you are aware it is a condition of your employment with Panalpina that sales targets are met each month. This information along with your actual sales gained, is given to you each month on your shipment history/sales secured report, which is supplied to you at the beginning of each new month, As a result of you not meeting your budget Panalpina has the need to formally advise you of the need for improvement. You will be required to demonstrate the necessary degree of skill and knowledge for your position with marked and sustained improvement in your overall work performance, The situation will be reviewed at the end August 1995. If the required lifting of performance is not evidenced at that time, action may be taken to terminate your employment without further warning. If you have any queries as to what is expected and required, you should discuss the matter with me immediately. Yours sincerely, J. Clark Commercial Manager This letter can be properly be described as a "warning letter", and the applicant was, in unequivocal terms, put on notice that, unless his performance improved, his employment might be terminated. However, despite what exhibit 4 said, the "situation" was not "reviewed at the end of August 1995". At best (from the respondent's point of view) there were a couple of informal chats between the applicant and one or two of the managers of the respondent company when the applicant and those persons were out visiting customers. In my opinion, in the circumstances of this case, in order for section 170DC to be satisfied, the applicant was entitled to that review at the end of August. Without such a review, it could not be said that the applicant had been given an opportunity to respond to the allegations concerning his performance, as required by the section. Such an opportunity to respond means two things: (1) an opportunity to refute the allegations (2) an opportunity to argue that the, even if the allegations are, entirely or partly, true, that the employment of the employee should not be terminated. At best, in my opinion, what occurred during those informal chats on visits to customers were "mere exhortations to improve". This is not enough to satisfy section 170DC(a) of the Act. See the decision of Wilcox CJ in Nicolson -v- Heaven & Earth Galleries Propriety Ltd (1994) 1 IRCR 199. It follows that the termination of the applicant's employment was done in breach of section 170DC of the Act, and unlawful. REMEDY Reinstatement In my opinion, it would be impracticable and inappropriate to order the reinstatement of the applicant. The reasons for this are as follows: 1. The applicant has another job and does not seek reinstatement; 2. The termination of his employment was for a valid reason. In the circumstances of this case, it would probably seriously affect harmony within the workplace, and productivity, if he were to be reinstated. What was the applicant's remuneration package? The applicant's remuneration package is set out in exhibit 2, which is a document entitled "Statement of Terms of Employment". His salary was $45,000 per annum. In addition to that, he was entitled to a car allowance, which was expressed in exhibit 2 as follows "You will be paid a car allowance of $10,000 per annum, to cover all maintenance and running costs to your vehicle." In my view that forms part of the applicant's remuneration package. Compensation The applicant claims compensation under section 170EE of the Act for stress, hurt feelings and loss of confidence. Compensation can be awarded for such matters. See the decision of the Full Court of this Court in Burazin -v- The Blacktown City Guardian, Industrial Relations Court of Australia, Full Court, 13 December 1996, unreported. However, as the Full Court said in that case, "there is an element of distress in every termination. To ensure that compensation is confined within reasonable limits, restraint is required." The Court went on to find that in that case there were "unusual exacerbating circumstances that make it appropriate to include in the compensation an allowance for the distress unnecessarily caused to Ms Burazin." In my opinion, there are, in this case, no "unusual exacerbating circumstances", and the distress suffered by the applicant was no more than that which one would expect to occur in respect of most terminations of employment. The claim in question will, therefore, be dismissed. It follows from that that the claim for medical treatment to deal with the stress, hurt feelings and loss of confidence suffered by the applicant (even if there were evidence establishing the quantum of that claim, which there was not) will also be dismissed. As Wilcox CJ said in Nicolson (supra), section 170DC of the Act is not "unimportant or capable of perfunctory satisfaction". However, the Court cannot ignore the fact that the applicant's performance was significantly below that required. It is, of course, possible that, if he had been given an opportunity to speak to his employers about their concerns, he would have persuaded them not to terminate his employment. It is possible (but, in the Court's view, unlikely, given his poor performance up until the time of the termination of the employment) that the applicant's employment would have significantly improved after the end of August. These considerations compete, and need to be balanced one against the other. The applicant was also given one month pay in lieu of notice. I take that into account in assessing the appropriate amount of compensation. Now an assessment needs to be made of the likelihood that the applicant would have remained in the employment of the respondent, if his employment had not been terminated unlawfully in breach of section 170DC of the Act. In my view, given the applicant's poor performance up to and including the time of the termination of his employment, it is unlikely that he would have been able to persuade the managers of the respondent to keep him in employment for any lengthy period of time. But there is no certainty about this. As Wilcox CJ said in Kenefick -v- Australian Submarine Corporation Propriety Limited, Industrial Relations Court of Australia, 26 July 1996, unreported: "But it is possible to say that (the respondent's) failure to follow the section 170DC procedure deprived (the applicant) of the chance, rather than the certainty, of successfully arguing that" (his employment should not be terminated). It is necessary, as Wilcox CJ noted, to assess the value of that chance. As I pointed out, in my opinion, that chance was small. However, it cannot be ignored. In the circumstances, the appropriate amount to order for compensation would be (taking into account the one months pay in lieu of notice already paid to the applicant) a further 4 weeks remuneration. I calculate the quantum as follows: I divide the applicant's total yearly remuneration of $55,000 by 365 to reach the daily rate, and multiply that by 28 to reach the figure for 4 weeks. The resulting figure is $4,219.18. The applicant's remuneration package included an entitlement to "20 working days annual leave on the completion of twelve months service" and to "payment of a loading of 17.5% of full periods of leave taken as accrued." In my opinion, the applicant is entitled to the pro-rata value of the annual leave and loading entitlements which would have accrued during the 8 week period (the month for which he was paid in lieu and the additional 4 weeks) taken into account in determining the quantum of compensation. The value of that entitlement is calculated as follows: The starting point is his salary only. I assume 20 working days to be equivalent to 4 weeks. I divide 45,000 by 52 and multiply the resulting figure by 4 (to find the value for one year). I divide that figure by 52 (to reach the value of accrued annual leave if the applicant had worked for one week only), and multiply the resulting figure by 8 (for the relevant 8 week period). The resulting figure is $532.54. 17.5% of that sum is $93.20. The total of the last 2 figures is $625.74. The total amount to be ordered as compensation for the unlawful termination of the applicant's employment is $4,844.92. I round that off to $4,850.00. The unpaid Telstra telephone account In the associated jurisdiction of the Court, under section 430 of the Act, the applicant claims the sum of $180.85, for a Telstra telephone account which he paid himself, and in respect of which he says the respondent should reimburse him. It seems that both the applicant and respondent have paid that account. However, if Telstra has been overpaid, that is a matter which the respondent should sort out. The applicant is entitled to be reimbursed for what he had paid, in accordance with the terms of his employment as set out in exhibit 2. ORDERS 1. The respondent is to pay the applicant, within 21 days of today, as compensation for the unlawful termination of his employment, the sum of $4,850.00. 2. Any sum paid by the respondent to the Commissioner of Taxation, within 21 days of today, in respect of the sum in order 1 is to be regarded as having been paid in pro tanto satisfaction of the judgment debt. 3. As damages for breach of contract, the respondent is to pay the applicant the sum of $180.85 within 21 days of today. _____________________________ I certify that this and the preceding 12 pages are a true copy of the reasons for decision of Judicial Registrar Patch. Associate: Debra Scott Dated: 25 March 1997 APPEARANCES Solicitor appearing for the applicant: Mr G. Harris Willis & Bowring Solicitor appearing for the respondent: Mr J. Loty John Loty and Associates Pty Ltd