DECISION NO:99/97 CATCHWORDS INDUSTRIAL LAW - TERMINATION OF EMPLOYMENT - VALID REASON - REDUNDANCY - OPERATIONAL REQUIREMENTS - BREACH OF AWARD Workplace Relations Act 1996 (C'th) (formerly Industrial Relations Act 1988 (C'th)) Ss) 170CD, 170DE(1), 170EA Skywest Airlines Pty Ltd v The Australian Federation of Air Pilots, unreported, VI95/5816, Full Court, 27 September 1996 COLIN THOMAS MARKS and AUSTRALIAN FEDERATION OF AIR PILOTS v SKYWEST AVIATION VI 2046 of 1996 PHILIP ANDREW TAYLOR and AUSTRALIAN FEDERATION OF AIR PILOTS v SKYWEST AVIATION VI 2047 of 1996 Before: BOON JR Place: PERTH Date: 21 MARCH 1997 IN THE INDUSTRIAL RELATIONS COURT ) OF AUSTRALIA ) WESTERN AUSTRALIA DISTRICT REGISTRY ) VI 2046 of 1996 B E T W E E N: COLIN THOMAS MARKS and AUSTRALIAN FEDERATION OF AIR PILOTS Applicants A N D: SKYWEST AVIATION PTY LTD Respondent VI 2047 of 1996 B E T W E E N: PHILIP ANDREW TAYLOR and AUSTRALIAN FEDERATION OF AIR PILOTS Applicants A N D: SKYWEST AVIATION PTY LTD Respondent MINUTE OF ORDERS 21 MARCH 1997 PERTH BOON JR THE COURT ORDERS THAT : 1. The applications be dismissed. NOTE: Settlement and entry of orders is dealt with by Order 36 of the Industrial Relations Court Rules IN THE INDUSTRIAL RELATIONS COURT ) OF AUSTRALIA ) WESTERN AUSTRALIA DISTRICT REGISTRY ) VI 2046 of 1996 B E T W E E N: COLIN THOMAS MARKS and AUSTRALIAN FEDERATION OF AIR PILOTS Applicants A N D: SKYWEST AVIATION PTY LTD Respondent VI 2047 of 1996 B E T W E E N: PHILIP ANDREW TAYLOR and AUSTRALIAN FEDERATION OF AIR PILOTS Applicants A N D: SKYWEST AVIATION PTY LTD Respondent REASONS FOR DECISION 21 MARCH 1997 BOON JR INTRODUCTION Captain Colin Marks and Captain Philip Taylor were formerly pilots employed by Skywest Aviation Pty Ltd, the respondent. Captain Marks and Captain Taylor, together with their union, the Australian Federation of Air Pilots ("AFAP"), have applied under section 170EA of the Workplace Relations Act 1996 (formerly the Industrial Relations Act 1988) for relief arising out of the alleged unlawful termination of their employment by Skywest Aviation Pty Ltd ("Aviation"). Captain Marks' employment was terminated with effect from 5 July 1996. Captain Taylor's employment was terminated with effect from 1 July 1996. Captain Marks, Captain Taylor and AFAP argue that there was no valid reason for the termination of their employment as required by the provisions of section 170DE(1) of the Act. Aviation argues a jurisdictional point in relation to Captain Taylor and alleges that he was an excluded employee pursuant to section 170CD of the Act. Further, if it is found that this Court does have jurisdiction, it is argued by Aviation that it had a valid reason for terminating the men's employment based on the operational requirements of the business. It is said that the men were made redundant. On behalf of Captain Marks and Captain Taylor it was argued that they had been refused continuing employment in accordance with their entitlement under the joint seniority list which should have been maintained by both Aviation and Skywest Airlines Pty Ltd pursuant to the Skywest Airlines Pty Ltd Pilots Award 1986 (the "Award"). BACKGROUND Very few of the facts in this case were in dispute. Until 28 June 1996 when Aviation was sold to Perle Aviation, it was part of the Skywest group of companies. Aviation was set up as a separate legal entity from Skywest Airlines Pty Ltd ("Airlines"), although at all material times the two companies shared a common registered office and had the same four directors. The shareholdings were however different and the companies were run by different management teams. When Aviation was formed in 1987 many of Airlines' former employees moved to Aviation. Evidence was given by Mr Alan Rose, the Manager of Special Projects with what is now Perle Aviation, that Airlines as a separate entity went about its own business which was primarily in regional passenger transport. Aviation on the other hand dealt in contract charter and was awarded the Coastwatch contract in 1989. The Coastwatch contract represented a large part of Aviation's business. The industry became highly competitive in the late 1980s and early 1990s. In September 1994, the Coastwatch contract was awarded to a competitor of Aviation. As a result of the downturn in its business, Aviation had to restructure and started to consider making some of its employees redundant. Mr Rose, who was then the General Manager of Aviation, wrote a memo dated 11 October 1994 which was sent to all staff. In it, Mr Rose stated: "As you no doubt understand, the Coastwatch contract has been the cornerstone on which the business has been developed and expanded. The loss of the Coastwatch contract, on our initial assessments, determines that the ongoing viability of Skywest Aviation will, at best, be marginal, to the extent that the shareholders' ongoing commitment to the business will be reviewed. Over the next six months, it is essential that we demonstrate the ability to gain new contracts, fundamentally restructure the business, and determine on-going conditions of employment which allow us to effectively tender for new business and operate our existing services in the increasingly competitive environment." Mr Rose went on to state that the support of its staff through the restructuring process was essential. A further memo was sent by Alan Rose to all staff on 16 November 1994. In that memo Mr Rose provided a progress report on the company restructuring and made reference to amendment to the Award and the drafting of an enterprise agreement. Mr Rose's evidence was that if Aviation had not changed the way it structured its business,it would have had to close and 250 people would have lost their jobs. One change the company wished to make was to avoid seniority bump-backs occurring as a result of the loss of the Coastwatch contract. The Award, which was an agreement by consent between AFAP and Airlines in 1987, provided for the maintenance of a seniority list. Under the terms of the Award, a seniority list would be maintained which included the names of pilots from Aviation as well as Airlines. Under the seniority list system, pilots could put in bids for positions which might become vacant. The successful bidder would be the pilot whose name was highest on the seniority list, whether that pilot was an employee of Aviation or of Airlines. The bump-back system was part of the Award until it was changed by consent in 1994. Under the bump-back system, more senior pilots could apply for vacancies and if they were successful in their bids, would involve the company in a lot of relocation costs. If one pilot moved, that would lead to a vacancy in that position and increase location costs for another who applied for that vacant position, and so on down the line. Even though the bump-back system was changed, the Award still required the maintenance of a seniority list. Airlines maintained an integrated seniority list of pilots it employed together with those employed by Aviation until 8 September 1994. The list provided a system of allocating a seniority ranking to pilots and governed such matters as transfers, promotions and demotions. Airlines unilaterally decided to no longer be bound by that system. That decision was challenged by the AFAP in this Court in proceedings under section 178 of the Act for a breach of the Award. In October 1995 Marshall J handed down a decision to the effect that Airlines was bound by the agreement and was in breach of the agreement in failing to maintain an integrated seniority list. Airlines appealed to the Full Court of this Court but did not seek a stay of that decision. Airlines, however, continued to refuse to recognise that it had an obligation to employ Aviation's pilots under the integrated seniority list system until the decision of the Full Court was handed down in September 1996. The Full Court affirmed the decision of Marshall J. In that case, Skywest Airlines Pty Ltd v The Australian Federation of Air Pilots, unreported, VI95/5816, Full Court, 27 September 1996, their Honours, (Lee, Moore and Madgwick JJ) noted at page 12 of the decision that amendments to the relevant clause were made against "a background of an acknowledged separateness of legal identity between Airlines and Aviation and, notwithstanding that fact, the maintenance of a "common" seniority list. We infer that the maintenance of that list and the making of the variation was not influenced by who might, in law, be the employer of a particular pilot." CAPTAIN TAYLOR Captain Taylor first came to Skywest Aviation in about February 1990 as a Seascape pilot. In around April or May 1993 Captain Taylor was promoted to the position of Fleet Manager, General Aviation Fleet, with Aviation. Prior to the termination of his employment Captain Taylor submitted a bid sheet in which he made a bid for a position of flying an F50. At that time there were vacancies in Airlines but not in Aviation for F50 pilots. Captain Taylor did not receive any advice of the outcome of his bid from Airlines. Captain Taylor would be number 35 on the integrated seniority list. At a meeting on 22 March 1996 Captain Taylor was advised that due to a revision of company management structure, the position of fleet manager would no longer exist. By a memo dated 25 March 1996 to Mr Theo den Haan Captain Taylor advised that he required an opportunity to consider all options available and not just the alternative positions he had been offered at the meeting the previous Friday. By a memo dated 29 March 1996 to Mr den Haan, Captain Taylor asked for advice in writing on the decision to terminate the position of Fleet Manager; the terms and conditions of the position of 2IC to the Manager of Aircrew Standards which he had been offered; and the rating conditions under which his accrued annual leave and long service leave would be paid out on remaining with the company or on taking a redundancy package. By a memo of the same date to Mr den Haan, Captain Taylor advised that he made a bid under the Skywest Pilots Agreement 1986 for the positions of F50 captain and F50 F/O. By a letter dated 1 April 1996 Mr den Haan confirmed that the company was abolishing the position of Fleet Manager but offered Captain Taylor continued employment in another position. In that alternative position Captain Taylor would be paid at his original salary for a period of eight weeks until 31 May 1996. If during the eight-week period a line position became available it would be held open for Captain Taylor to assume on 1 June 1996 or earlier, and should a line position not be available by 1 June 1996, it was intended that Captain Taylor would proceed on paid leave until such time as a vacancy arose. Mr den Haan advised that in the unlikely event that a position did not arise at the expiry of all his leave, Captain Taylor would be eligible for redundancy. By memo dated 3 April 1996 to Mr den Haan, Captain Taylor stated that before he could respond to his letter dated 1 April 1996 he wished to be advise of the outcome of his bid notice. By letter dated 4 April 1996 to Captain Taylor, Mr den Haan stated that: "As you are aware, the issue of joint seniority between Skywest Aviation and Skywest Airlines is currently the subject of legal action with an appeal to be heard on 15 May 1996. As there is a stay order in place, I am unable to advise you of any outcome in relation to your bid notice." By a letter dated 16 April 1996 to Captain Taylor, Mr den Haan asked Captain Taylor to advise him by Tuesday 23 April 1996 for a response to alternative employment under changed conditions. By a memo dated 17 April 1996 to the Chief Pilot, Captain Taylor said that he wished to formally notify of his intention to pursue his entitlements under clause 30 of the Skywest Pilots Agreement 1986 and requested that he investigate the matter as required under clause 16 of the Agreement. By a letter dated 19 April 1996 Mr den Haan said that the position of Fleet Manager - General Aviation was a non-Award position and that the Award did not apply. Mr den Haan requested that Captain Taylor provide a response to the letter offering him alternative employment. By a memo dated 30 April 1996 to the General Operations Manager, Captain Taylor stated that in accordance with clause 16 he wished to formally notify him of his intention to pursue his entitlements under clause 30 of the Skywest Pilots Agreement and referred to the fact that on 17 April 1996 he had written to the Chief Pilot requesting that the matter be investigated and that he had not received a reply. By a memo dated 1 May 1996 Mr den Haan noted that Captain Taylor had apparently not received his previous memo of 19 April 1996 and sent him a copy. He said that he was not in a position to progress with the matters raised in his letter dated 30 April until they had received a response to the issues raised in their letter of 19 April 1996. By memo dated 3 May 1996 to Mr den Haan, Captain Taylor referred to his seniority status under the terms of the Award and stated that it was totally unreasonable to suggest that he had no right to bid for an alternative position. Captain Taylor rejected the allegation that the Award did not apply. Captain Taylor said that as there was no stay order in relation to Justice Marshall's decision, he believed it appropriate to request that his F50 bids be acknowledged and processed in accordance with the Award. By a letter dated 13 May 1996 Mr den Haan said that the issue of a joint seniority list was the subject of court action and "although an earlier Court found in favour of the joint seniority list no orders were issued and therefore the status quo remained". Mr den Haan said that Arlines continued to assert that the Award was not binding and that Aviation was not in a position to process the bid apart from acknowledging that they had received it. Mr den Haan said that the company had offered Captain Taylor alternative work and that the only options available were that Captain Taylor accept the offer or that he be retrenched. Mr den Haan requested a response by close of business on Friday 17 May 1996. He warned that if no response was received by that time he would take the necessary steps to terminate Captain Taylor's employment on the basis of redundancy. By memo dated 16 May 1996 to Mr den Haan, Captain Taylor acknowledged that Aviation in all probability had no direct influence over how Airlines wished to conduct its business but said that he believed Aviation should take a supportive stance in protecting the entitlements of their pilots. He said that whilst his bid for the F50 was subject to the "status quo" pending the outcome of the appeal, he should maintain his present status and in doing so, Captain Taylor said that he was prepared to undertake flying for the company provided his current entitlements were not undermined. By a letter dated 27 May 1996 Mr den Haan advised that the company did not see this as a practical solution and reiterated the threat of termination. Mr den Haan's evidence was that the company at all times wished to retain Captain Taylor's skills and experience. In late May the AFAP became involved and filed a dispute notification with the Australian Industrial Relations Commission concerning the threatened redundancy of the pilots. On 29 May 1996 Mr den Haan wrote to Captain Taylor stating that Aviation had no option but to make his position redundant effective 31 May 1996 and terminating his employment. On 30 May 1996 there was a telephone conference between the parties before Commissioner Palmer of the Australian Industrial Relations Commission. Arising out of this teleconference Aviation offered to Captain Taylor an alternative position which was different from the earlier alternatives already offered to him. This offer was rejected by Captain Taylor. Captain Taylor applied for and was granted extended annual leave to 1 July 1996. The matter came for hearing before Commissioner Palmer on 27 June 1996. Commissioner Palmer did not consider it appropriate to address the application of the seniority provisions but directed that both Airlines and Aviation comply with the Award. Airlines however did not offer any employment to Captain Taylor. Aviation has always taken the stand that it is not in a position to ensure that Captain Taylor be employed by Airlines. On 1 July 1996 Captain Taylor's employment with Aviation was terminated. Despite this, Aviation offered Captain Taylor a further alternative position on 19 July 1996 but this offer was rejected by him. It appeared clear from the evidence that Captain Taylor was determined not to accept any offer of alternative employment made by Aviation either until his F50 bid had been dealt with by Airlines or until Aviation offered him suitable alternative employment at the salary and on the conditions to which he was entitled prior to Aviation's restructure. Aviation's stance was that this was a redundancy situation as it had offered Captain Taylor several alternative positions and it was not in a position to force Airlines to take Captain Taylor. CAPTAIN MARKS Captain Marks was employed by Aviation since 1991. Prior to that he had been employed by Airlines for some time. Captain Marks would be number four on the joint seniority list. On 17 March 1996 Captain Marks submitted a bid sheet which contained bids firstly for an extension of his previous contract; a "Navaids" contract; and an F28/F50 Perth return to Airlines. Captain Marks said that he received no advice in relation to his F28/F50 bid from Airlines. Captain Marks was sent a letter dated 17 May 1996 via Mr den Haan in which Mr den Haan referred to the loss of the Coastwatch contract and that the position of WW1124 captain which was held by Captain Marks would no longer exist. In the letter Mr den Haan said that Captain Marks' services would not be required beyond that date and that he would be paid up to and including 5 July 1996. By letter dated 10 June 1996 Mr den Haan offered to Captain Marks a position as technical clerk located within the Operations Department in Perth. On 27 May 1996 Captain Marks submitted a different bid with the first preference being captain F50 with Airlines and the second preference being WW1124 with Aviation. On the next day as has already been referred above, the AFAP notified the Australian Industrial Relations Commission of the existence of a dispute. On 27 June the matter was heard by Commissioner Palmer. By letter dated 3 July 1996 Mr den Haan wrote to Captain Marks confirming that Aviation was unable to offer Captain Marks ongoing employment and confirming the termination of his services with effect from 5 July 1996. By letter dated 5 July 1996 Captain Marks wrote to the manager of Aviation and said that he did not accept the validity of the termination and that he proposed to treat his contract of employment as continuing and would apply the moneys received by way of redundancy payment as salary under the Award. By letter dated 18 July 1996 Mr den Haan confirmed that Captain Marks had been offered alternative employment on 15 July which was rejected by Captain Marks on 18 July 1996. In these circumstances Aviation considered it had met its obligation under the Award and had no further obligation to offer Captain Marks employment. IS CAPTAIN TAYLOR EXCLUDED BY PROVISIONS OF SECTION 170CD? Aviation argues that Captain Taylor was excluded by the provisions of section 170CD of the Act. Section 170CD(1) states in part as follows: "The following Subdivisions do not apply to a termination of employment of an employee who is not employed under award conditions if . . ." the employee's relevant wages exceed the applicable amount. It is common ground that Captain Taylor, who was paid a base salary of $72,000 per annum, had wages exceeding the applicable amount. The only question for this Court to determine is whether Captain Taylor was employed under award conditions. By letter dated 16 April 1993 Aviation wrote to Captain Taylor offering him the position of Fleet Manager - General Aviation. The letter stated that Captain Taylor would retain his current seniority status, that in recognition of on-line flying requirements and the travel associated with the position, his annual leave entitlement would be six weeks. The letter went on to say: "As this is a non-award management position, it would be inappropriate to retain any official status with any industrial organisations, as a conflict of interest may well arise. The conditions of the Skywest Airlines Pty Ltd Pilots Agreement will not apply to your appointment. Your general conditions will be as outlined in the Skywest Aviation Policies and Procedures Manual." The letter requested that Captain Taylor sign an acknowledgment of the conditions contained at the end of the letter. Captain Taylor did not sign that acknowledgment but instead wrote a memorandum to Mr den Haan dated 28 April 1993. That memo states in part: "Although I find the basic content of the letter with regards to terms and conditions acceptable, I do have some reservations with regards to line flying. As a prescribed condition of my employment is to continue line flying, I feel that it is important that some formalised agreement exists linking me to the award, as to do otherwise has the potential to lead to disputation between myself and pilots currently employed under the award. I do not wish to be the "meat in the sandwich". Any line flying I am engaged in must be in accordance with the provisions of the Skywest Pilot Agreement. I acknowledge that the for the purpose of salary and allowances, the position is essentially management, and those conditions set out in the letter of appointment would prevail. Furthermore, I acknowledge the requirement to hold no official status within any industrial organisation due to a possible conflict of interest." In response to that letter, Mr den Haan wrote to Captain Taylor on 17 May 1993. His letter states in part: "With reference to the issue of line flying I confirm that whilst carrying out your duties in this area, your activities will be as prescribed by the Skywest Airlines Pty Ltd Pilots' Agreement 1986 as varied from time to time. Conditions of employment and expenses incurred will be as per the Skywest Aviation Policies and Procedures Manual. This should avoid any potential conflict which may arise in respect of line flying." On 19 May 1993 Captain Taylor wrote to Mr den Haan stating as follows: "I hereby accept the position of Fleet Manager - General Aviation with Skywest Aviation Pty Ltd located in Darwin under the conditions outlined in your letters dated 16/4/93 and 17/5/93." The evidence was that prior to the redundancy of Captain Taylor, the organisation's structure relating to his position was that Fleet Manager was the position directly underneath the Manager of Air Crew Standards and above the positions of Check Captains, Training Captains and Line Pilots. Aviation's Check and Training Manual lists a number of duties of Fleet Manager. Most of those duties are managerial or administrative in nature, for example, crew training and checking and setting of operational policy. Out of the eight items listed as the duties, only those numbered five and six involve flying and appear to relate mainly to the maintenance of currency and competency as a pilot. The only relevant award is the Skywest Pilots Award already referred to. Clause 4A(1) of the Award states that it is binding "as to all employees in the company engaged in the occupations specified herein". Clause 47 sets out salary categories and it is clear that Captain Taylor earned well in excess of any salaries contained in the Award. In Clause 39 there is provision for percentage additions to salaries set out in Clause 47. The highest salary level appears to be that of a check and training pilot who was below the level of Fleet Manager. On behalf of Captain Taylor it was argued that he could fall within the definition of supervisory pilot contained in Clause 3-32 of the Award. That definition states: "SUPERVISORY PILOT means a pilot holding appointment as Training Captain or higher status." It is clear however that the position of Fleet Manager was created in 1993 and was not contemplated by the Award. It is my view that the submission made on behalf of Aviation that Captain Taylor was not employed under Award conditions is correct. The Award clearly states that it covers employees engaged in "occupations" specified therein. The Award contains no occupation of Fleet Manager. Further, it was made clear in the correspondence between Captain Taylor and Aviation when the position was offered to him that his employment conditions were not covered by the Award. The only exception was during the relatively small percentage of the time when he was engaged in line flying when his "activities" would be as prescribed by the Award. The actual conditions of his employment and expenses however were as per the company manual. In my view it was never contemplated between the parties that this was an Award position and Captain Taylor is therefore excluded from the unlawful termination of employment provisions contained in the Act. Even if I am wrong about this, however, I consider that the result in this case would have been the same for the same reasons as will be outlined in these Reasons for Judgment relating to Captain Marks. WAS THERE A VALID REASON FOR THE TERMINATION? On behalf of Captain Taylor and Captain Marks it was argued that there was no valid reason for the termination of their employment. It was said that they could have legitimate claims to assign to Airlines once they had placed their bids for the Airlines positions. It was said that Aviation refused to consider the F50 bids by Captain Marks and Captain Taylor but demanded instead that they accept alternative positions with Aviation. The union on behalf of Captain Marks and Captain Taylor argued that Aviation was their employer and could have provided relief instead of terminating their employment. It was said that both Captain Taylor and Captain Marks indicated that their rights were being affected and Aviation refused to acknowledge their rights under the integrated seniority list until the appeal from Justice Marshall's decision was decided. It was suggested that Aviation could have continued Captain Marks and Captain Taylor on leave or allocated to them duties without affecting their salary and existing rights. It was argued that if Aviation was genuine it would not have taken steps to terminate the employment of the two men until the integrated seniority lists issue was resolved. There are several difficulties which I can see with this point of view. In the first place, it was clear from both the evidence of Captain Taylor and of Captain Marks that their primary interest was in obtaining alternative positions with Airlines. They were offered alternative positions by Aviation but were not prepared to consider them until they had heard from Airlines in relation to the bids they had submitted. It appears to me that what Captain Taylor and Captain Marks were primarily interested in was enforcing their rights under the relevant Award. The rights of the men were being affected by the inaction of a third party. It appears from the evidence in this case that there is little doubt that Airlines was in breach of the Award in refusing to process the bids of the two men. However, the application before me is not in relation to the enforcement of an award and neither could it be. The only question this Court as presently constituted may consider is whether there was an unlawful termination of employment by the employer of the two men. It is my view that this is not the appropriate forum for what effectively amounts to a declaration seeking that there has been a breach of an award by a third party. The evidence was that although Airlines and Aviation shared common directors until just before the termination of Captain Marks and Captain Taylor took effect, the two companies were run as separate entities and had different day-to-day management structures. Further, they had responsibilities to different shareholders. This is not a case in which it can be said that although there were ostensibly two separate companies, they were in fact one and the same entity. All of the evidence points to there being a genuine downturn in the business of Aviation. I am satisfied on the evidence that there was a genuine need for Aviation to restructure its organisation and that because of the loss of the Coastwatch contract there was no need for the services of Captain Marks. It was argued by the union that the company did not do all that it could have done in consulting with or protecting the interests of the two men. However, as I have already indicated, it appears to me that short of allowing the men to be on extended leave or keeping them on in different positions at the same level of pay it is difficult to see what the company could have done. Because of its parlous financial state Aviation was in no position to do this. The only successful resolution from the point of view of Captain Taylor and Captain Marks was if Airlines changed its stance and once again recognised the integrated seniority list. This was outside Aviation's power and from the company's point of view there was too much uncertainty to keep on the two pilots at such high salary levels for an indefinite period. For these reasons I consider that there was a valid reason for the termination of both Captain Marks and Captain Taylor. I sympathise with the two men, because all the evidence points to them having been highly skilled and dedicated employees who were a credit to the company. The cause of their predicament however is primarily the action or inaction of Airlines and not that there was no valid reason for the termination of their employment by Aviation. In these circumstances, the appropriate order is that the applications be dismissed. I certify that this and the preceding sixteen (16) pages are a true copy of the reasons for decision of Judicial Registrar Boon. Associate: Date: 21 March 1997 APPEARANCES Representative for all Applicants Mr L.A. Cox of the Australian Federation of Air Pilots Counsel for the Respondent Mr G. Smith Solicitors for the Respondent Freehill Hollingdale & Page Dates of hearing: 21 and 22 November 1996 Date of judgment: 21 March 1997