SIMPSON v SYSTEMS SERVICES PTY LTD [1997] IRCA 196

DECISION NO:196/97 CATCHWORDS INDUSTRIAL LAW - termination of employment - review - whether termination for a valid reason based on the operational requirements of the employer undertaking - maximum compensation awarded - whether jurisdiction to add interest up to judgment in the judgment sum. Matter No. SI 116 of 1994 GRAEME SIMPSON v SYSTEMS SERVICES PTY LTD von Doussa J Adelaide 13 June 1997 IN THE INDUSTRIAL RELATIONS COURT OF AUSTRALIA SOUTH AUSTRALIAN No. SI 116 of 1994 DISTRICT REGISTRY BETWEEN: GRAEME SIMPSON Applicant AND: SYSTEMS SERVICES PTY LTD Respondent MINUTES OF ORDER JUDGE MAKING ORDER : VON DOUSSA J WHERE MADE : ADELAIDE DATE ORDER MADE : 13 JUNE 1997 THE COURT ORDERS THAT: 1. The order of the Judicial Registrar made on 17 October 1995 be set aside. 2. The respondent pay to the applicant the sum of $37,301.10. Note: Settlement and orders are dealt with by Order 36 of the Industrial Relations Court Rules. IN THE INDUSTRIAL RELATIONS COURT OF AUSTRALIA SOUTH AUSTRALIAN No. SI 116 of 1994 DISTRICT REGISTRY BETWEEN: GRAEME SIMPSON Applicant AND: SYSTEMS SERVICES PTY LTD Respondent REASONS FOR JUDGMENT Coram : von Doussa J Place : Adelaide Date : 13 June 1997 This matter is before me again as a review pursuant to s.377 of the Workplace Relations Act 1996 ("the Act"). It has had an unfortunate and protracted history. The applicant, Mr Simpson, commenced proceedings in the Industrial Relations Court of Australia on 18 April 1994 seeking remedies in respect of an alleged unlawful termination pursuant to s.170EA of the Act (then the Industrial Relations Act 1988). The respondent, Systems Services Pty Ltd, argued that the Court should decline to exercise jurisdiction pursuant to s.170EB on the ground that Mr Simpson had an adequate alternative remedy available under the Industrial and Employee Relations Act 1994 (S.A.). I decided that question in favour of the respondent: Simpson v Systems Services Pty Ltd (1994) 125 ALR 592, but a Full Court allowed an appeal from that decision: see Simpson v Systems Services Pty Ltd (1995) 130 ALR 168. The application under s.170EA was then heard by a Judicial Registrar who held that the respondent had a valid reason for terminating the employment of Mr Simpson as it had encountered difficult financial circumstances and a change in the narrow field of business activity in which it was engaged. Nevertheless the Judicial Registrar held that the termination was harsh, unjust or unreasonable within the meaning of s.170DE(2) because the respondent made no severance payment to Mr Simpson, and awarded him $8,547.69 compensation. Mr Simpson by notice of motion applied for a review of that decision pursuant to s.377 of the Act, complaining that the assessment of compensation was inadequate. The respondent also sought a review of the finding that the termination was harsh, unjust or unreasonable. I heard the application for review. Counsel for Mr Simpson did not press the allegation that the respondent did not have a valid reason for the termination, being content to argue that the termination was in any event harsh, unjust or unreasonable, as the Judicial Registrar had held. On 10 May 1996 I held against the respondent's submission that the termination was not harsh, unjust or unreasonable, and found that the amount of compensation should be the maximum provided for in s.170EE, namely $30,000: see Simpson v Systems Services Pty Ltd (1996) 137 ALR 321. The respondent appealed from my decision to a Full Court. Running in parallel with Mr Simpson's claim was a claim by Mr Fryar, another former employee of the respondent who had been given notice of termination at about the same time as Mr Simpson. There was also an appeal from my decision in Mr Fryar's claim. The two appeals were listed for hearing together before a Full Court on 5 September 1996. The day before the hearing the High Court of Australia delivered judgment in State of Victoria v Commonwealth of Australia (1996) 138 ALR 129. By that decision s.170DE(2) was held to be invalid as it went beyond the terms of the Termination of Employment Convention 1982 to a constitutionally impermissible degree. When the appeals were called on, the respondent sought leave to amend its notices of appeal by adding the following additional paragraph: "The Court having found pursuant to s.170DE(1) that there was a valid reason for the termination of the employment of the applicant the within application ought to have been dismissed." The Full Court thereupon allowed the appeal, as the decisions under appeal rested on findings under s.170DE(2). The Full Court went on to say: "However, it is clear from his Honour's reasons and what we have been told by Counsel for the parties to the appeals, that the review before his Honour was conducted in the way in which it was on the common understanding that s.170DE(2) was available as a basis for the relief claimed by the present respondents as applicants. In those circumstances we consider it appropriate to remit the proceedings to a single Judge of the Court to afford the applicants an opportunity, if so advised, to agitate the contention which they had pursued before the Judicial Registrar that there had been no valid reason for the termination of their employment. Counsel for the appellant did not oppose this course." These remarks referred to both matters. The Full Court went on to note that the matters had already been to a Full Court twice, and in remitting them to a single judge made the following direction: "It is directed that before the proceeding be set down for hearing and determination in accordance with paragraph 3 of this order, the parties and their legal advisers attend before a Judge of the Court to demonstrate that they have made and exhausted all reasonable efforts to resolve the matters in issue between them by negotiation, mediation or otherwise without the need for judicial determination." The application by Mr Fryar was then resolved, but the parties were unable to reach agreement on Mr Simpson's claim. So the matter again came on for hearing before me. The matter for determination is the application for review from the decision of the Judicial Registrar. This time Mr Simpson has argued that there was no valid reason for the termination of his employment, an issue found against him by the Judicial Registrar. Save for one extremely brief written supplement to a statement of Mr Simpson tendered before the Judicial Registrar, the parties have argued the review on the papers and transcript of evidence before the Judicial Registrar. It is convenient to again summarise the background facts which appear in earlier judgments. The respondent is an information technology services company which provides a range of services to the users of large and complex computer systems and networks. The respondent was formed in 1985 by a consortium of mainframe computer users in South Australia to provide mainframe technical support. One of the original consortium members was the State Government Insurance Commission ("SGIC"). Mr Simpson had been a systems programmer with SGIC since 1977. On 16 September 1985 he transferred to the respondent. This occurred in the context of SGIC "outsourcing" the computer services department of SGIC for which Mr Simpson had worked. His contract of employment with the respondent provided that the commencement date for the accrual of long service leave would be the date of his commencement with SGIC, and certain other conditions of service with SGIC were carried over into the new employment. Mr Simpson had specialised skills as a systems programmer related to "MVS" operating systems of mainframe computers. In 1993 a number of changes occurred in the ownership and business of the respondent. In brief, the number of mainframe customers serviced by the respondent fell dramatically, and the respondent faced financial collapse. In late 1993 all the employees of the respondent except Mr Simpson, Mr Fryar and one other, agreed to participate in a staff buy-out of the consortium shareholders. The participating staff members contributed a few hundred dollars each to meet the nominal purchase price plus legal and bank fees. They did so to avoid the liquidation of the respondent by the consortium shareholders. The participating staff members then entered into new employment contracts for a fixed term period with the respondent which resulted in a 20 per cent reduction in salaries. The contracts also provided for termination on one month's notice. Mr Simpson and the other two employees declined to enter into the new employment contracts which would have reduced their salaries and conditions in a similar way. Their employment continued on the same terms and conditions as before the staff buy-out. Early in 1994 a Hong Kong company acquired first a 60 per cent, then an 80 per cent, interest in the shareholding of the respondent. On 5 April 1994 Mr Simpson was given a letter by the respondent advising him that his employment would be terminated on 13 January 1995. In effect, the letter purported to give a notice period of 41 weeks. The terms of the letter are set out later in these reasons. Before the Judicial Registrar Mr Simpson, and Mr Fryar who had received a similar letter, contended that their employment had been terminated because they had refused to sign new contracts of employment. This submission was rejected by the Judicial Registrar. Mr Simpson remained in his employment during the notice period. On 22 November 1994 the respondent offered to extend Mr Simpson's employment by a further five weeks. In the result Mr Simpson left his employment with the respondent on Friday, 17 February 1995. He was advised on 8 December 1994 that his position was soon to become redundant. Before turning to the arguments on the facts presented by the parties, it is necessary to define the inquiry that the Court must undertake. First, it is necessary to specify the time at which inquiry must be made as to whether there was a valid reason, or valid reasons, connected with the employee's capacity or conduct or based on the operational requirements of the respondent's undertaking, establishment or service, within the meaning of s.170DE(1). In my opinion the inquiry must be directed to the time when the decision to terminate the employment is notified to the employee, that is when the employee is given notice. I did not understand the respondent to dispute that this is the relevant time. This view is in accordance with the observation of Gray J in the first appeal to the Full Court in this matter, who said at 130 ALR 186: "A dismissal on proper notice is a dismissal when the notice is given, not when it expires. The giving of notice by one party to a contract, in accordance with the terms of the contract, is an irrevocable act. Once such notice is given, it will operate inexorably and the contract will come to an end at its expiration. The party who has given the notice cannot withdraw it. The other party cannot refuse to accept it. Proper notice is not merely a warning that some action will be taken at the end of the notice period, it is itself the act which operates to bring about the end of the contract when the notice expires." Secondly, the inquiry is whether there was a valid reason for the actual termination in question, that is the actual termination of the applicant at the time when the decision to terminate the employment was notified. The inquiry is not whether there was some change in the functioning of the undertaking, which accompanied or immediately preceded or followed the termination under consideration: Kenefick v Australian Submarine Corporation Pty Ltd (1996) 65 IR 366 at 372-373, and Westen v Union des Assurances de Paris (unreported, Industrial Relations Court of Australia, Madgwick J, 17 December 1996) at p.14. Thirdly, the onus is on the employer, in a case like the present one, to prove that at the time of the dismissal the operational requirements of the undertaking provided proper grounds for terminating the employee's employment: see s.170EDA(1)(a) and Nettlefold v Kym Smoker Pty Ltd (1996) 69 IR 370 at 373. In the present case the time at which the inquiry is directed is important as the respondent notified its decision to terminate the employment 41 weeks before the relationship of employer and employee was to come to an end. Mr Simpson was informed on 8 December 1994 that his position was soon to become redundant, and there is some support in the evidence for the view that by the end of 1994 the particular work which Mr Simpson was performing for the respondent in relation to the mainframe computer installation at Santos was about to come to an end. But the evidence is uncertain why that situation arose and whether or not it was the consequence of the decisions in April 1994 by the respondent to terminate the employment of Mr Simpson and Mr Fryar who were the respondent's employees who serviced Santos. Be that as it may, in my view on the evidence the respondent has failed to establish that the decision in April 1994 to terminate Mr Simpson's employment was based on the fact that his position was redundant, or would be redundant in 41 weeks' time. The documentary evidence that came into existence at about the time when the decision was made to terminate Mr Simpson's employment, and the events which preceded that decision, indicate that the real reason why the decision to terminate his employment was made in April 1994 was that he would not enter into a contract of employment on the new terms which had been agreed to by the other employees involved in the buy-out. When the buy-out scheme as an alternative to the liquidation of the respondent was under consideration in October 1993, a discussion paper prepared by those proposing the buy-out was circulated amongst all staff members. The background which led to the financial predicament of the company was canvassed. The future viability of the company in the event of a buy-out was referred to. The paper continued: "The only way to achieve this is to change the way we are all paid so that what we receive is based on the performance of the company and which not only addresses any shortfalls but which rewards over-budget performance so that it is possible for us to do better than what we do now. There are other matters related to the viability of the company such as redundancy payments, staff skills, willingness to relocate and so on. And these are critical matters in achieving the main goal of full employment. WHY A CONTRACT? It is important that certain critical issues be defined, resolved and agreed to by the staff else the goals will not be achieved. We are able to agree amongst ourselves to address these issues and on the mechanism by which we will address them. Some of them such as variation to the method of payment, right to redundancy payments, relocation and maybe others can only be addressed by agreement between the employer and employee. [If no such agreement is reached then the provisions of law must prevail and any such person remains on the salary, method of payment and other such entitlements until such time as that person either resigns, is paid out with a redundancy payment or is given reasonable notice of termination of employment (which they must by law diligently work out, or be terminated for non-performance) and then finishes up at the end of that notice period.] In our case there is a need to make such variations to achieve viability and to enable us to address important markets and so we must have signed contracts. By having them, each of our individual rights may seem to be eroded but by all of us being so contracted our actual collective security is shored up and we are able to introduce an element to enable better incomes in the future." The paper went on to discuss aspects of a proposed new employment contract which was being circulated to staff. It referred to the proposed salary cut. Under the heading "Notice of Termination" it said: "The company cannot operate in the depressed and volatile economies of the world (not just Australia) with the baggage of redundancy payments. For the collective good we have to have the ability to terminate people if that becomes a necessity without threatening the employment of all. This is one matter which seems threatening to the individual but if carefully and positively considered it will be seen to be a measure which will help guard against the worst." The paper concluded with the statement that the point of the proposed contract of employment was to secure "team employment and enable us to all do better in the future". In late 1993 Mr Simpson had discussions with those who would be the executives of the respondent under the buy-out scheme. He proposed conditions under which he would accept a diminution of his employment terms and entitlements, but his proposals were not accepted. On 29 March 1994 both Mr Simpson and Mr Fryar were again asked to sign the new employment contract. Both refused. That they were each asked again to sign the new contracts suggests that their positions were neither redundant nor about to become redundant, and that restructuring did not require their dismissal if they would agree to reduce their wages and entitlements. Shortly afterwards each of them was notified of the respondent's decision to terminate their employment. Significantly the letter to Mr Simpson said: "You will be aware that in the past six months there have been many changes in the customer base, market opportunities and the ownership base of Systems Services. These changes have meant that Systems Services has to employ staff under conditions quite different to the past and which allow flexibility in terms of payment, location and staff levels. Those new conditions have already been put into place for almost all of our current employees. We are unable to maintain any employee not under those new standard conditions and you are in that situation. Accordingly, you will cease to be employed by the company on January 13th, 1995. You may, after that date, choose to apply for contract employment with the Company. We are giving you this lengthy period of notice to give you every opportunity to obtain alternate employment if it is not your intention to apply for a contract position with Systems Services." The terms of the letter do not refer to the present or anticipated redundancy of Mr Simpson's position. On the contrary they indicate that the reason for termination is that Mr Simpson had not agreed to the new standard conditions. The letter concludes by implying that renewed employment with the respondent would be available if Mr Simpson were prepared to apply for a contract position. The day after Mr Simpson and Mr Fryar received notice of termination, the respondent by its chief executive officer sent a circular to all staff which included the following paragraph: "Those employees who have not signed a contract with the Company have been advised of the Company's need to have a more flexible, mobile and rationally paid work-force and have been given notice of termination for a period equivalent to a redundancy period. Those people have been invited to apply for contract employment with the Company after their termination." Whilst it is clear that the respondent was facing difficult times due to a diminution in its traditional customer base, that situation provided the setting, but not the real reason why the decision to terminate Mr Simpson's employment was made and notified to him on 5 April 1994. At that time his position was not redundant, nor was the possibility of redundancy in the future the reason. Had he signed a new employment contract, and forgone substantial entitlements including an entitlement to a severance payment, the decision in April 1994 to terminate his employment would not have been made. The evidence of the chief executive officer which sought to explain away the plain inference of the letter of 5 April, and the circular to staff of 6 April is unconvincing. The contemporaneous documents published by the respondent to Mr Simpson provide by far the best evidence. In my opinion the employer has failed to establish that there was a valid reason within the meaning of s.170DE(1), namely the pending redundancy of Mr Simpson, for the decision to terminate his employment. If the real reason had been that the work Mr Simpson and Mr Fryar were performing in connection with the computer installation at Santos was likely to finish at the end of 1994, the proper course would have been to give an appropriate period of notice before the end of the Santos contract, and to pay Mr Simpson and Mr Fryar their entitlements to lump sum payments when they left the respondent's employment. This was not the course that was followed. Such notice would have been given not in April 1994, but some months later. The decision to terminate Mr Simpson's employment carried with it the further decision to give 41 weeks' notice. This long period was apparently calculated to reflect the number of weeks severance pay and notice which Mr Simpson would have been entitled to receive had his employment been terminated with immediate effect in April 1994. Had it not been challenged, the long notice period followed by a termination of the relationship of employer and employee without any payment for severance at the end of the 41 week period would have had the effect that the respondent would have unloaded "the baggage of redundancy payments" without making a lump sum payment to Mr Simpson on the termination of his existing contract of employment. This aspect of Mr Simpson's claim is discussed in my reasons for judgment dated 10 May 1996, and provides the reason why I assessed compensation at $30,000. As it is now held that there was a termination of Mr Simpson's employment in contravention of s.170DE(1), I consider the same assessment of compensation should be made. The decision made in April 1994 to terminate Mr Simpson's employment had the effect of depriving him of the severance payment which he would otherwise have received under his contract of employment. The compensation awarded under s.170EE should make good that loss. In my opinion Mr Simpson is entitled to recover a judgment which includes, beside the maximum compensation payable under s.170EE, interest pursuant to s.482. Section 170EE fixes the upper limit of compensation, not the upper limit of the jurisdiction of the Court in an application under s.170EA. This is reflected in the language of s.482 which empowers the Court to include interest in the sum for which judgment is entered: cf. Turley v Saffin (1975) 10 SASR 463 and Saunders v Ansett Industries (1975) 10 SASR 579. In my opinion interest should be included from the date when the relationship of employer and employee in fact came to an end, viz 17 February 1995 until the date of judgment. That is for a period of two years and 116 days. In fixing a rate I have had regard to the Practice Note issued in the Supreme Court of New South Wales in respect of s.94 of the Supreme Court Act 1970 (NSW) and to Schedule J of the Supreme Court Rules 1970 (NSW). Whilst a rate of 12% is there prescribed for most of the period in question, I propose to adopt a rate of 10.5% for the whole period. The interest component is therefore $7,301.10. There will be judgment for Mr Simpson for $37,301.10. I certify that this and the preceding pages are a true copy of the Reasons for Judgment of Justice von Doussa Associate: Dated: Counsel for the applicant : Mr J Rau Solicitor for the applicant : Johnston Withers Counsel for the respondent : Mr G Coppola Solicitor for the respondent : Kelly & Co. Date of hearing : 1 May 1997