DECISION NO:124/97 CATCHWORDS INDUSTRIAL LAW - TERMINATION OF EMPLOYMENT - UNLAWFUL TERMINATION - VALID REASON - ONUS OF PROOF - OPERATIONAL REQUIREMENTS - OPPORTUNITY TO RESPOND - PROCEDURAL FAIRNESS Workplace Relations Act 1996 (Cwth) ss170DC, 170DE, 170EE, 170EHA Howarth v Babin (unreported, Industrial Relations Court of Australia, Wilcox CJ, 30 September 1996); Kerr v Jaroma Pty Ltd (unreported, Industrial Relations Court of Australia, Marshall J, 7 October 1996); Nettlefold v Kim Smoker Pty Ltd (unreported, Industrial Relations Court of Australia, Lee J, 4 October 1996). Thomas v Ralph Lynch (unreported, Industrial Relations Court of Australia, Wilcox CJ, 20 December 1996); Lloyd v R J Gilbertson (Qld) Pty Ltd (1996) 68 IR 277; Sinclair v Anthony Smith and Associates (unreported, Industrial Relations Court of Australia, von Doussa J, 1 December 1995). BENSON v REG HUNT MOTORS PTY LIMITED VI96/2742 Before: MURPHY JR Place: MELBOURNE Date: 9 APRIL 1997 IN THE INDUSTRIAL RELATIONS COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY VI96/2742 BETWEEN: PAUL IAN BENSON Applicant AND REG HUNT MOTORS PTY LIMITED Respondent BEFORE: MURPHY JR PLACE: MELBOURNE DATE: 9 APRIL 1997 MINUTES OF ORDERS THE COURT ORDERS AND DECLARES THAT: [1] The respondent has breached s170DE(1) of the Act; [2] The respondent pay to the applicant the sum of $8,500 in compensation pursuant to s170EE(2) of the Act. 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 VI96/2742 BETWEEN: PAUL IAN BENSON Applicant AND REG HUNT MOTORS PTY LIMITED Respondent BEFORE: MURPHY JR PLACE: MELBOURNE DATE: 9 APRIL 1997 REASONS FOR DECISION Delivered ex tempore The applicant seeks a remedy under s170EA of the Workplace Relations Act 1996 (Cwth) ("the Act"). He alleges that his employment as a parts interpreter with the respondent was terminated contrary to the provisions of ss170DC and 170DE of the Act. The respondent's defence to the application was that its operational requirements were that the applicant's position was redundant. It further asserted that it had complied with the relevant provisions of the Vehicle Industry Repair Services and Retail Award 1983 ("the Award"). The applicant is aged forty-four and has worked for most of his working life in various aspects of the automotive parts industry, with particular emphasis on parts interpretation. He commenced with the respondent as a parts interpreter in its Volvo Renault division in April 1994. For a period of about three months he was promoted to the position of supervisor of that division. He was relieved of that position sometime in 1995 when Mr Greg Davies was appointed the manager of the Volvo parts division. In February 1996 the Volvo organisation took the decision to terminate the respondent's distributorship agreement. The result of this was that vehicles were no longer being sold by the respondent and the stock of parts was drastically reduced. From February 1996 the respondent continued, on a month to month basis, to provide warranty services for Volvo vehicles. There were about 16 staff of the respondent in the Volvo operation. Except for two managers who were paid a redundancy, those staff were absorbed elsewhere within the respondent. From February 1996 the remaining Volvo parts operation was moved to within the respondent's Holden parts division. The result was that from February the applicant was working side by side with another employee, Mr Rasmussen, who was a Holden parts interpreter. During 1996 there was considerable uncertainty as to the respondent's continuing relationship with Volvo as the latter sought to establish another dealer operation to assume the warranty work that the respondent was undertaking on what was, in effect, a month to month basis. During the period February to August 1996 the applicant, when working beside Mr Rasmussen, would work beside him with the Holden parts and cover for him when he was absent or busy. His duties were to interpret parts requests from the service department, do pricing and quotes, and order parts necessary for the respondent's needs. On 16 August Mr Rasmussen tendered his resignation effective 30 August. The respondent's personnel department then arranged for an advertisement to appear, in the daily papers commencing 24 August, for Mr Rasmussen's position as a "Parts Assistant, Back Counter Sales Holden". On 29 Augustan applicant for that position was advised that he was successful. He was to start later in September as he had to give notice to his then employer. On 22 August the respondent was advised by Volvo that from 2 September, or any other date mutually agreed in that month, the warranty servicing arrangement that the respondent was at that stage undertaking for Volvo was to terminate. On 6 September the applicant was called into the office and in the presence of Mr Pinches, the Finance Director, Mr Davies, the Spare Parts Manager, and Carol Harper, the Personnel Manager, told that he was no longer required. He was required to leave the premises immediately. He was paid two weeks pay in lieu of notice and six weeks severance pay. Mr Pinches gave evidence that the applicant queried whether the Holden parts position was available and was told that it had been filled. Mr Pinches said he believed that the applicant was considered for the vacancy. Mr Greg Davies gave evidence that he was involved in choosing Mr Rasmussen's successor. He gave evidence that he did not consider the applicant suitable for the position. He did concede that the skills of a Holden parts interpreter and a Volvo parts interpreter were analogous. He also gave evidence that based on his experience with the applicant he had some concerns about the way the applicant performed his duties. Mr Davies said "I had major concerns as to his ability to do the job." He said it was a factor in the appointment for the Holden position. He said, however, that he did not see the positions as greatly different. Mr Pinches conceded that the applicant could have been re-trained for the Holden position. He also gave evidence that motor mechanics that had worked on Volvo cars were switched across to the Holden section of the respondent. It was common ground that while it was known that there was uncertainty within the respondent about the future of its Volvo operation from February 1996, there was no discussion with the applicant that he was considered redundant and that he was to be terminated until 6 September 1996. Did the respondent have a valid reason to terminate the applicant's employment? There have been a number of decisions of the Court on the interpretation of the term "valid reason" in s170DE(1) of the Act. In Howarth v Babin (unreported, Industrial Relations Court of Australia, Wilcox CJ, 30 September 1996) a case where the employee had been terminated, without any consultation, because the employer said he could not afford to pay the salary, Wilcox CJ said: "I do not think that it is right to say that a claim from an employer that he could not afford to pay a particular salary is sufficient for the purposes of s170 DE(1) of the Industrial Relations Act. That section requires the Court to form its own opinion on an objective matter, namely whether there was a valid reason for the termination of the employee's employment. I am not satisfied there was a valid reason. The onus rests on the employer to satisfy the Court in this respect. In order that there be no misunderstanding of the position, I should add that, if Mr Babin [the employer] had handled the matter in a different way, [counsel for the employer] might have been able to advance a better argument as to the existence of a valid reason for the termination of Mr Howarth's employment. Subject to any specific constraint imposed by the law, it is the right of all employers, at any time, to restructure their businesses in such manner as they might think desirable in order to increase their competitiveness or profitability. The entitlement is not limited to employers who must do this in order to survive. And the restructure of a business may involve the downgrading of a position. If an employee occupying a position that is to be downgraded is unsuitable for the new position, or unwilling to move to it, there may be a valid reason for the employer to terminate that employee's employment, on proper notice or with payment in lieu of notice. But if this course is taken on the ground of unwillingness, it can only be justified by evidence that an offer concerning the new position was put to the employee, fairly and squarely and with specific mention of the nature of the new position and the conditions, including remuneration, that would attach to it; that the employee did not accept the offer; and that it was possible to find someone else who would perform the duties of the new position at the proposed remuneration. In the present case, it is clear that Mr Babin failed to put the matter to Mr Howarth [the employee] fairly and squarely." Here the issue is whether objectively there was a valid reason to terminate the applicant's employment. I am not satisfied that the respondent has discharged its onus of proof on that point. In decisions such as Kerr v Jaroma Pty Ltd (unreported, Industrial Relations Court of Australia, Marshall J, 7 October 1996) and Nettlefold v Kim Smoker Pty Ltd (unreported, Industrial Relations Court of Australia, Lee J, 4 October 1996) the court has considered the obligations on an employer. In Nettlefold (above) Lee J said: "By giving effect to the [Termination of Employment] 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." In Thomas v Ralph Lynch (unreported, Industrial Relations Court of Australia, Wilcox CJ, 20 December 1996) Wilcox CJ referred to Lee J's comments and went on: "As I understand Lee J's view, it is that the validity of the employer's reason cannot be divorced from its effect on the employee. It is not enough that there is a reason for the termination that is defensible from the employer's point of view. The reason must be one that makes the termination "justified", after taking into account the effect of the termination on the employee." In Lloyd v R J Gilbertson(Qld) Pty Ltd (1996) 68 IR 277, a case involving a redundancy, Madgwick J said at 281: "In so far as there was an element of redundancy in the termination, there was lacking that degree of reasonable and proper consultation, duly respectful of the status of employees as other than industrial serfs, which will ordinarily be required to save a termination on redundancy grounds from being harsh, unjust and unreasonable...." In Sinclair v Anthony Smith and Associates (unreported, Industrial Relations Court of Australia, von Doussa J, 1 December 1995), von Doussa J said: "The requirement of consultation is in the Award not only to permit the possibility of arriving at some rearrangement of the workplace which has lesser consequences than dismissal, but also to allow for time for the employees to deal with the emotional, family and domestic stresses that are likely to descend upon them when their employment is brought to an end. The importance of these non-workplace personal factors cannot be under estimated, and finds expression in the reasons of various tribunals that have had to consider clauses of this type. To put it in colloquial terms, it is desirable, as the Award recognises, that employees whose security is about to be shattered be let down gently. If they are forewarned and counselled they are more likely to be able to accommodate to their new situation, to adjust themselves to the search for other work, and the like. Moreover, it is generally recognised that if an employee is in work and is given time off to go and look for other work, the prospects of finding new employment are somewhat better than if the person concerned is required to seek work as an unemployed person on social security. The failure to consult is a significant matter in this case. In my view it was also significant that no forewarning was given, and significant that no counselling was provided. Those are matters that should have been attended to to render the dismissal in the circumstances of this case, reasonable and fair." Here the employer's actions prior to 16 August were unobjectionable. What happened after that was not defensible as proper management of labour as required in the authorities I have just referred to. The applicant was an experienced parts interpreter. He had worked on Volvo parts but there was no suggestion that the respondent properly considered, when Mr Rasmussen's position became vacant, that the applicant could have been retrained for that position. Further, under the Award the employer had an obligation to have a discussion with the applicant before it terminated him. Clause 49A of the Award refers to the discussions before termination where an employer has made a definite decision that the employer no longer wishes the job the employee has been doing to be done by anyone. Paragraph 49A(ii) provides: "The discussions shall take place as soon as is practicable after the employer has made a definite decision which will invoke the provisions of paragraph 49A (i) hereof and shall cover, inter alia, any reasons for the proposed terminations, measures to avoid or minimise the terminations and measures to mitigate any adverse effects of any terminations on the employees concerned." Here that did not happen. The employer, from 22 August when it received the notification from Volvo that the relationship was to cease completely, could have consulted the applicant, and indeed was so obliged under the Award. Decisions of the court in cases such as Thomas, Kerr, Nettlefold and Howarth (all above) all indicate that failures to engage in a reasoned process leading to termination robs the employer's reasoning of validity. Here, the respondent had a potential surplus of labour from February. It had absorbed most of the other employees. It knew that at some stage the applicant's immediate duties would be gone. When a vacancy arose in a position requiring analogous skills, it filled that vacancy without consulting the applicant, and on the basis of concerns as to the applicant's performance held by Mr Davies that it did not give him the opportunity to respond to. In these circumstances it cannot be said that there is a valid reason for the termination of the applicant's services. The respondent, although it has paid the applicant his Award entitlement, has failed to accord the applicant the appropriate standard of management of labour that is imposed by the Act. The respondent has breached s170DE(1) of the Act. Remedy. The applicant has not sought reinstatement to his position. He now resides in another State. He has sought to mitigate his losses by working as a chauffeur. In the period September 1996 to February 1997, in that capacity he earned approximately $4,500. He remains unemployed despite extensive endeavours to obtain alternative employment. Counsel for the respondent submitted that any compensation under s170EE(2) of the Act should be reduced by the amounts that the applicant has earned, and also by what he has been paid by the respondent by way of notice and severance. Under s170EE(3) the upper limit of compensation in this case is six months wages, which is $13,000 at the applicant's wage rate of $500 per week. The approach of the court has been, subject to any discretionary considerations, to assess compensation on the basis of the damage suffered by an employee as a result of the unlawful act of the employer. The applicant is now unemployed and has had to move to Tasmania for family reasons. Here, had the respondent adopted proper management standards there appears no reason why the applicant would not have remained employed with it. He appeared qualified to have been appointed to Mr Rasmussen's position. If he had been so appointed, then the requirements of procedural fairness would have required that he be given a proper trial or appraisal to see whether there was any substance to the reservations about his conduct that were held by Mr Davies. He was never given that opportunity. His gross losses to date total about $15,166, which is seven months wages, less the $4,500 he has earned. The applicant gave unchallenged evidence as to the difficulties he faces in the labour market given his age and the state of the labour market. He gave evidence that his wife had been head-hunted to Tasmania in February this year. That is a contingency that may have happened in any event and he may have left the company voluntarily or even negotiated a redundancy arrangement. Weighing all these competing considerations, I am satisfied that it is probable that the applicant's loss as a result of the respondent's unlawful action will exceed $13,000. However, I am satisfied that it is proper to reduce from that loss the $4,500 that he has earned. I am not satisfied that any allowance should be made for the severance or notice payment that had been made to the applicant by the respondent. I propose to order that the respondent pay to the applicant $8,500 in compensation. The orders of the Court will be: 1. A declaration that the respondent has breached s170DE(1) of the Act. 2. An order that the respondent pay to the applicant the sum of $8,500 in compensation pursuant to s170EE(3) of the Act. I certify that this and the preceding eight (8) pages are a true copy of the reasons for decision of Murphy JR as recorded on transcript and revised by the Judicial Registrar. Associate: KAREN HALSE Dated: 9 April 1997 APPEARANCES Appearing for the applicant: MR CAMPBELL HORSFALL Solicitors for the applicant: MR CAMPBELL HORSFALL Counsel appearing for the respondent: MR BRUCE SHAW Solicitors for the respondent: MADDOCK LONIE & CHISHOLM Date of Hearing: 9 APRIL 1997 Date of Judgment: 9 APRIL 1997