SHEEHAN - v - EMWEST PRODUCTS PTY LTD [1997] IRCA 213

DECISION NO:213/97 C A T C H W O R D S INDUSTRIAL LAW - TERMINATION OF EMPLOYMENT - VALID REASON - whether bona fide REDUNDANCY - whether failure to consult or forewarn Workplace Relations Act 1996 ss 170CC, 170DE(1) Workplace Relations Regulations 30D Quality Bakers of Australia Limited v Goulding (1995) 60 IR 327 Thomas v Ralph Lynch (unreported, Industrial Relations Court of Australia, Wilcox CJ, 20 December 1996) Morison v Honda Australia Motorcycle & Power Equipment Pty Ltd (unreported, Industrial Relations Court of Australia, Millane JR, 21 February 1997) MICHAEL JOHN SHEEHAN - v - EMWEST PRODUCTS PTY LTD No. VI 1077 of 1997 Before: Judicial Registrar Millane Place: Melbourne Date: 11 June 1997 INDUSTRIAL RELATIONS COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY VI 1077 of 1997 B E T W E E N : MICHAEL JOHN SHEEHAN Applicant A N D EMWEST PRODUCTS PTY LTD Respondent MINUTES OF ORDERS Judicial Registrar Millane 11 June 1997 THE COURT DECLARES THAT: 1. The termination of the applicant's employment by the respondent on 15 November 1996 contravened the Workplace Relations Act 1996. AND THE COURT ORDERS THAT within 21 days of the date of making these orders: 2. The respondent pay to the applicant the sum of $3,076.92less any amount payable to the Commissioner of Taxation pursuant to the Income Tax Assessment Act 1936 and actually paid. NOTE: Settlement and entry of orders is dealt with by Order 36 of the Industrial Relations Court Rules. INDUSTRIAL RELATIONS COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY VI 1077 of 1997 B E T W E E N : MICHAEL JOHN SHEEHAN Applicant A N D EMWEST PRODUCTS PTY LTD Respondent Before: Judicial Registrar Millane Place: Melbourne Date: June 1997 REASONS FOR JUDGMENT In this case the applicant seeks substantial compensation alleging that the termination of his employment as the respondent's industrial product operations supervisor on 15 November 1996 breached section 170DE(1) of the Workplace Relations Act 1996 (the Act). The respondent defends the proceeding asserting that the termination of the applicant's employment was a bona fide redundancy consequent upon its operational requirements and the abolition of the applicant's position. THE WITNESSES The respondent called the following witnesses: - Robert Arthrell (Arthrell), the marketing manager for the respondent's Emailgas division; - Adam George Kotas (Kotas), the respondent's production manager for Emailgas; and - Graham Edwards (Edwards), the respondent's marketing services executive at Emailgas. The applicant gave evidence and called two other witnesses: - Bruce Stuart McGavin (McGavin), the respondent's leading hand in the AMCO room at the relevant time; and - Gloria June Hicks (Hicks), a shop steward, who was working in the machine shop area at the relevant time. THE EVIDENCE Having heard the evidence and having had the opportunity to assess the demeanour of the witnesses and the consistency of their evidence, I am satisfied that the respondent's operational requirements were such that there was from approximately November 1996 no longer a need for somebody to carry out the mix of duties the applicant performed (see generally, Quality Bakers of Australia Limited v Goulding (1995) 60 IR 327). As in many cases of redundancy this is a case where the duties of the applicant when the position ceased to exist included some duties which devolved to other employees; so that work hitherto performed by the applicant such as the supervision of the employees in what was referred to as the AMCO room reverted to McGavin who had, prior to the applicant being appointed, performed this supervision as part of his mix of duties. The applicant was first employed by the respondent from 4 March 1996 as a casual foreman working at its Richmond operation. From 3 June 1996 that position became a permanent one. Unfortunately, shortly thereafter the applicant was given notice that production in that division of the respondent's organisation was to cease and the staff under him were to be retrenched. It was common ground that the respondent has a policy of seeking to transfer and relocate employees to alternative positions within the company. On this occasion by early August 1996 the applicant was informed that there was a position as an industrial product operations supervisor in another division of the company. This position was one created for the respondent's new business of station building. Essentially, what this business proposed to do was to supply stations and meter kits to Gas and Fuel which was then divesting itself of this particular operation. To attract the outsourced business the respondent developed a station room and engaged the applicant and toolmakers to perform the work it anticipated it would receive principally from Gas and Fuel and any other organisations requiring this sort of equipment. The main work target, however, was the Gas and Fuel work. The applicant was interviewed by Arthrell in the presence of Kostas on or about 9 August 1996 following which interview he was engaged from 19 August 1996 in the position of industrial product operations supervisor. This, he said, was a direct transfer as a permanent employee. In contrast, both Arthrell and Kostas assert that the applicant was engaged subject to a three month period of review; although ultimately there was no argument that at the date of termination he was a probationary employee for the purposes of section 170CC of the Act and Regulation 30D of the Workplace Relations Regulations. It was said by the respondent that at the interview, amongst other discussions had, the applicant was informed by Arthrell that the respondent expected and hoped to gain the Gas and Fuel business but there were no guarantees that this would be so. The making of these comments were denied by the applicant. The applicant also denied that there was any reference to a three month review period. He claims that Arthrell told him there would be a salary review after three months and his salary would probably go up but would not go down. Arthrell acknowledged the lastmentioned comment about the salary but claims, along with Kostas, that the review was not limited as suggested by the applicant to salary alone. Insofar as it is alleged by the applicant that the respondent at the interview painted a "rosey picture" of the new business and its prospects, I accept the plausibility of this evidence in all the circumstances. Clearly the respondent was then expecting to have a share of the outsourced contract work from Gas and Fuel and its moves to develop a facility and take on additional staff were all based on its expectation of a share of this business. In this climate it is likely that at interview it did encourage the applicant to expect long-term permanent employment; at no time indicating to him that his position depended upon the station room business flourishing. Notwithstanding the lastmentioned observation, I am satisfied that because the respondent was then developing a new business it is likely that when interviewing the applicant it mentioned a three month period of review. I am fortified in this view by the contents of the applicant's memorandum dated 11 November 1996 to Kostas (Exhibit R6) which says as follows: "As I have not received any documentation regarding my employment with Emailgas following my transfer from Email Meters on the 21/8/96, I request that the following information be provided: - Current employment status. - Proposed date of employment assessment. - If this assessment is to be deferred upon completion of the three month trial period, I also request reasons for doing so be provided. - Completion date of proposed extended trial period." When giving his evidence the applicant denied there was a reference to a three month trial period at the interview or on any subsequent occasion. The two references to a trial period in his memorandum he says were a mistake and should have been references to a salary review only. I am unable to accept that these were mistaken references to a salary review. By the time the memorandum was written the applicant had been employed in the new position for nearly three months and had approached Kostas on a number of occasions to seek confirmation of the terms of his employment. He says he was reassured by Kostas that his employment was permanent but that Kostas wanted the review period to be extended because he had not had an opportunity to assess the applicant's performance in the area of customer services. The memorandum reflects the uncertainty the applicant then felt about his position and is consistent with a concern that the three month period was then coming to an end with no formal confirmation of his continuing employment or his employment status. When the applicant commenced his new position it was contemplated that once the work developed in the station room the applicant would devote most of his time to the supervision of this area. In August 1996, however, his duties included the supervision of the AMCO area as well as some store activities and the station room work which, at that time, was not sufficient to fully occupy him. As time went on it became apparent that the work received from both Gas and Fuel and other sources for the station room was not as substantial as had been hoped for. It was conceded by the respondent's witnesses that by at least October, if not September 1996, it was aware that there was a downturn in that business and that Gas and Fuel had implemented a policy which favoured other service providers with the work the respondent had expected to receive. By 8 November 1996 the applicant was looking for assurances regarding his position and his approaches to Kostas on these matters are consistent with a knowledge that the work was not developing as had been hoped for. Even if Kostas provided the reassurances allegedly given by him to the applicant to the effect that the applicant was a permanent employee and should not worry, if, because of the respondent's operational requirements the station room ceased to operate, it was still left with an excess number of employees for the work to be performed whether or not they were classified as permanent employees. What seems to have occurred in this case is that the applicant's queries concerning his status and the reference to the completion of the review period led Kostas to approach Arthrell about the applicant's position. It was agreed by Arthrell that Kostas saw him and raised the applicant's concerns as well as noting that the applicant had performed his duties well. Notwithstanding this favourable assessment, as his supervisor, Kostas then wanted to extend the review period to enable him to assess the applicant's capabilities in other areas covered by his job description. At that time Arthrell made no mention to Kostas of any proposal for redundancy. I am satisfied that at the relevant time the respondent's expectations for work were not being met in the station room and because of this it decided to cease the station room operation. Some small amount of work has been finished off in that facility since the termination but otherwise the toolmaker originally employed there has been transferred elsewhere and the nominal amount of work remaining is performed on a piecemeal basis by other employees from other areas of its operation. Because of these matters it is reasonable to conclude that the position held by the applicant became redundant and, although he performed other duties in other areas, the principal duties he was engaged to perform were no longer being performed by the respondent as part of its operations. In challenging the bona fides of the alleged redundancy the applicant sought to argue that the reason or reasons for termination were to do with a dispute over a stocktaking process in the days prior to the termination on 15 November 1996; not to mention conflict in his relationship with Kostas because of a number of confrontations between them in the period just prior to termination. In other words, he did not accept that the motivation for the termination was primarily connected with the respondent's operational requirements. The difficulty the applicant encounters with this argument is that whilst there were some problems between he and Kostas in the days leading up to the termination, it is apparent from the evidence of Arthrell and Kostas that Kostas played no active part in the decision to terminate. Indeed, following the receipt of the memorandum dated 11 November 1996 from the applicant, Arthrell confirms that he was approached by Kostas about the matters raised in the memorandum with Kostas recommending that the review period be extended to allow closer assessment of some other duties to be performed by the applicant. Notwithstanding his desire to extend the review period Kostas also praised the applicant's performance of his supervisory duties. Arthrell told the Court that after considering the downturn and the matters raised he determined on or about 14 November 1996 that the only option was to close the station room operations. When Kostas recommended an extension of the time for reviewing the applicant's performance he was told by Arthrell that Arthrell did not believe it was appropriate to extend the review period because the applicant was entitled to be assessed on his merits where he had by then shown himself to be a good supervisor. This conversation occurred during the initial approach by Kostas to Arthrell. At the relevant time Kostas was responsible for training and supervising the applicant and I am satisfied that it is probable that he initially made the recommendation he and Arthrell allege he did make. Some days after his first discussion about the applicant with Arthrell, Kostas was called in to Arthrell's office and informed by Arthrell that due to the downturn in the business the respondent would have to let the applicant go. This evidence indicates that whatever differences of opinion the applicant had with Kostas in the days preceding the termination those differences played no active part in Arthrell's decision to terminate the applicant's position. On 15 November 1996 the applicant was called in to Arthrell's office together with Kostas. Exhibit R7 is a typed record of what Arthrell says transpired during the final interview. It is a record that Kostas says he sighted subsequently and signed confirming its contents. The document contains the following summary of what the respondent's witnesses claim occurred at that interview: "Meeting with Michael Sheehan 3.30pm Friday 15 November 1996 Present: M. Sheehan A. Kotas R. Arthrell Subject: Termination of Employment 1. Explained disappointing performance of station business. Gas and Fuel meter sets not generally forthcoming due to activities of service providers. 2. Based on recent and current levels of station activity can not justify continuation of supervisory role. 3. We would be prepared to canvass other Email units to attempt to place Michael in employment. This would take approximately 1˝ weeks. 4. If unable to place in Email operation termination with one week notice would apply. Response from Michael 1. Believes we are punishing him for his activities and involvement in alleged transgressions by staff at stocktake. This was firmly rejected and he was informed that termination was not performance based. 2. He believes it to be too much of a coincidence to be terminated now. It was pointed out that at his original appointment he was advised of a three month trial period which coincidently is now. 3. He eluded to 'arrogance' of individuals within Emailgas and believed Emailgas to be an unsympathetic employer. 4. He said he was expecting to be terminated, but did not specify why. 5. He agreed to allow us to seek openings with other Email operations. 6. He also acknowledged the lack of work in the station area and had been concerned about this for some time. 7. He asked whether he would be replaced. He was informed that the supervisory role was not viable with current workload and therefore there could be no replacement. Interview complete 3.45 pm. cc A. Kotas R. ARTHRELL." The applicant acknowledged the correctness of the first four items contained in Exhibit R7 but denied the veracity of the second group of items numbered 1, 2, 3, 4, 6 and 7 inclusive. By and large I found the applicant's denial of the second group of items to be inconsistent with the evidence he gave about what occurred at that interview and, further, inconsistent with the matters he says he had already discussed with Kostas on earlier occasions. For instance, it was the applicant's evidence that when he approached Kostas about the position, Kostas said words to the effect that "I suppose you are concerned about the lack of work" and then told the applicant not to worry because he was a permanent. This evidence is consistent with an understanding as supervisor of the station room area that there was a lack of work in that area and this lack of work was by then causing the applicant some concern about his future. When he attended the final interview with Arthrell and Kostas on 15 November 1996, the applicant claims that his response to the news that the respondent would have to let him go because of the downturn in its business and the failure to win the Gas and Fuel contracts was to ask what the events of the previous week had to do with his termination, as well as inform Arthrell and Kostas that he "didn't buy" the explanation given by Arthrell. The applicant says that he was "shell-shocked and angry" and the other things mentioned during the interview did not "register too well with ..." him. The evidence given is consistent with items 1, 2 and, to some extent, 3 of the second group of matters referred to in Exhibit R7 and also amounts to a concession on the part of the applicant that his recollection of the last interview was somewhat impaired by the shock he suffered and the anger he then felt. Lastly, it was agreed by all those present at the final interview that the respondent asked the applicant for permission to send his curriculum vitae to other divisions of the company to ascertain if alternative work could be found for the applicant within the company. The applicant was informed that it would take one and a half to two weeks to get a response from other divisions. If at the end of that time there was no position available the applicant was told he would receive one week's notice. After the interview was completed it was conceded by the applicant that he approached Kostas separately and verbally abused him. This angry behaviour is consistent with a belief that the termination was in some way a pay back for some of the events in the days preceding the termination. It is also consistent with the applicant's claim that he believed he had been reassured about his future by Kostas in the period at least from the beginning of November and was then clearly shocked by the sudden and unexpected turn of events. In my view, the nub of the applicant's claim lies not in the bona fides of the redundancy itself but in the failure of the respondent to ameliorate the effects of the termination by consulting with and forewarning the applicant. Exhibit R8 comprises two copy letters dated 15 November 1996 to other divisions of the respondent's company seeking urgent advice on the prospect of transferring the employee to those divisions. This conduct on the part of the respondent is said to establish not only its bona fides but also indicates an effort to reduce the effects of the consequences of its decision to implement a position redundancy in its organisation. On 15 November 1996 it was known by the respondent that the applicant had applied for and had been granted two weeks annual leave from 25 November 1996. At the expiration of the ten day period the applicant sought to be paid his termination pay. On that date Arthrell was on leave. I am satisfied that the applicant in doing so believed he was entitled to his termination pay before he went on leave and, there is no reason to assume that he could not then have been finalised and paid one week's pay in lieu of notice. At that time Kostas and the company accountant were of the view that in bringing his employment to an end before the expiration of the notice period, the applicant prejudiced his chances of a transfer within the organisation. However, by then one and a half weeks had elapsed and it was agreed that even though Kostas drew these concerns to the applicant's attention, the applicant was paid out before he went on leave with Kostas informing him that if any jobs came up he would let the applicant know about these positions. Kostas' conduct in this regard does suggest that he bore the applicant no ill-will despite the applicant's express belief that Kostas had in some way been responsible for the termination. The decisions of the Industrial Relations Court of Australia point to an acceptance of the proposition that where a re-organisation is contemplated an employer should consult with the employee and enter into a real discussion about the best way to confront the problem facing both of them prior to implementing a redundancy (see Thomas v Ralph Lynch (unreported, Industrial Relations Court of Australia, Wilcox CJ, 20 December 1996)). In the case before me the decision to terminate was made before any proper consultation with the applicant or forewarning, the effect of which would not only soften the blow but may have given the applicant the opportunity to discuss other possibilities, such as the continuation of both his duties in the AMCO room and the responsibilities he had for some of the storeroom activities. The respondent had knowledge of the downturn in its business, specifically in the station room area from possibly September 1996. Armed with this knowledge it took no steps to discuss the employee's position with him before Arthrell decided that termination was the only option unless some internal transfer was available. In my view what is understood by consultation and forewarning is that the decision to terminate is not made before these steps are taken and a real opportunity is given to an otherwise good employee to save his or her job. There would be very few cases where the interests of the employer could be prejudiced by this approach (see my decision in Morison v Honda Australia Motorcycle & Power Equipment Pty Ltd (unreported, Industrial Relations Court of Australia, Millane JR, 21 February 1997)) and many cases where alternative arrangements may be entered into which satisfy the needs of both parties. The applicant was only employed for a relatively short period and because of my findings set out above I am satisfied that there was a period of three months review, however, at termination that period had passed without any negative comments concerning the applicant's performance. Because of his discussions with Kostas, the applicant was entitled to assume that his position was by then a permanent one and he was not at risk. The fact that he may have had knowledge of the downturn in business does not relieve the respondent of the burden of consultation and forewarning, if only because it is in a better position than the employee to know what the strengths and weaknesses of the business are. Every downturn in one part or another of a business should not be construed as notice to an employee that their job is in jeopardy; although in some cases this may be an obvious conclusion to draw. This was not so in the case before me because the respondent operates a large business with many divisions and at the time of termination the applicant was busy performing duties in other parts of its plant even though he was hired principally to supervise the station room activities once those activities built up to a level which required most of his attention. The applicant had, to Arthrell's knowledge, already faced retrenchment in June 1996 after being told he was a permanent employee and, in that sense, he was particularly vulnerable and sensitive to any further dislocation in his employment within the respondent's organisation. Accordingly, insofar as the concept of a valid reason requires that the respondent justify both the need to reduce its workforce by reason of its operational requirements and, further, deal with the effect of the termination of the employment through consultation, forewarning and steps to provide alternative employment, the respondent has failed to establish relevant and meaningful consultation and forewarning. Because I am satisfied the respondent did take proper steps to seek alternative positions in the company it is arguable that the prospect of relocating the applicant within the organisation was minimal when he left on 25 November 1996. In these circumstances, I consider the payment of compensation is appropriate but the probability that the applicant would remain with the respondent beyond a short period after it had exhausted its enquiries and undertaken any discussion concerning other work was low. The applicant received the minimum notice payable pursuant to the Act; namely, one week's pay. I assess appropriate compensation beyond that sum at a further five weeks' pay in the sum of $3076.92. MINUTES OF ORDERS THE COURT DECLARES THAT: 1. The termination of the applicant's employment by the respondent on 15 November 1996 contravened the Workplace Relations Act 1996. AND THE COURT ORDERS THAT within 21 days of the date of making these orders: 2. The respondent pay to the applicant the sum of $3,076.92less any amount payable to the Commissioner of Taxation pursuant to the Income Tax Assessment Act 1936 and actually paid. NOTE: Settlement and entry of orders is dealt with by Order 36 of the Industrial Relations Court Rules. I certify that this and the preceding thirteen (13) pages are a true copy of the reasons for judgment of Judicial Registrar Millane. Associate: Dated: 11 June 1997 Solicitors for the Applicant: Slater & Gordon Counsel for the Applicant: Ms R. Doyle Solicitors for the Respondent: Phillips Fox Counsel for the Respondent: Mr B. Lacy Date of hearing: 1 & 2 May 1997 Date of judgment: 11 June 1997