CROSS - v - NEAT N' TRIM UNIFORMS PTY LTD [1997] IRCA 224

DECISION NO:224/97 C A T C H W O R D S INDUSTRIAL LAW - TERMINATION OF EMPLOYMENT - VALID REASON - whether REDUNDANCY connected with the respondent's operational requirements - whether length of the applicant's service provides a valid reason for selecting her for redundancy ahead of other sales assistants - whether consultation required before decision to terminate is notified to the employee Workplace Relations Act 1996 s 170DE(1) Westen v Union Des Assurances De Paris (unreported, Industrial Relations Court of Australia, Madgwick J, 17 December 1996) Lang v Dimmeys Stores Pty Ltd (unreported, Industrial Relations Court of Australia, Millane JR, 17 December 1996) Morison v Honda Australia Motorcycle and Power Equipment Pty Ltd (unreported, Industrial Relations Court of Australia, Millane JR, 21 February 1997) SHARLENE CROSS - v - NEAT N' TRIM UNIFORMS PTY LTD No. VI 2413 of 1996 Before: Judicial Registrar Millane Place: Melbourne Date: 11 July 1997 INDUSTRIAL RELATIONS COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY VI 2413 of 1996 B E T W E E N : SHARLENE CROSS Applicant A N D NEAT N' TRIM UNIFORMS PTY LTD Respondent MINUTES OF ORDERS Judicial Registrar Millane 11 July 1997 THE COURT DECLARES THAT: 1. The termination of the applicant's employment on 2 September 1996 contravened section 170DE(1) of the Workplace Relations Act 1996. AND THE COURT ORDERS THAT: 2. The applicant's application is otherwise dismissed. NOTE: Settlement and entry of orders is dealt with by Order 36 of the Federal Court Rules. INDUSTRIAL RELATIONS COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY VI 2413 of 1996 B E T W E E N : SHARLENE CROSS Applicant A N D NEAT N' TRIM UNIFORMS PTY LTD Respondent Before: Judicial Registrar Millane Place: Melbourne Date: 11 July 1997 REASONS FOR JUDGMENT The applicant seeks compensation from the respondent alleging that on 2 September 1996 her employment as a sales assistant at the respondent's Noble Park retail outlet was terminated in contravention of section 170DE(1) of the Workplace Relations Act 1996 (the Act). The respondent on its part conceded that there was a termination at its initiative on the abovementioned date but alleged that it was a bona fide redundancy that came about as a result of the operational requirements of its Noble Park outlet. THE WITNESSES The applicant gave evidence on her own behalf. The respondent called the following witnesses: - Timothy Harold Blinkhorn (Blinkhorn), the respondent's marketing director; and - Rebecca Nicole Crunden (Crunden), the respondent's showroom manager and supervisor of the applicant at the relevant time. THE EVIDENCE The respondent manufactures and sells work clothing. In order to sell its product it employs both sales representatives, who operate from its warehouse and offices and sales assistants located at its showrooms in every capital city of Australia, including Auckland New Zealand. In Sydney and Melbourne it has numerous showroom outlets in different suburbs. From 3 October 1995 the applicant was employed as a full-time sales assistant at the respondent's Noble Park showroom and shop. She was engaged by another employee, Melissa Smith, who until July 1996 was a sales representative and the manager of the Noble Park shop, where three other employees were also employed as sales assistants. The sales assistant jobs involved selling the first and second quality garments to customers, wrapping the goods sold, using the cash register and generally performing the whole gamut of sales duties at the shop. In contrast, the sales representatives attend on businesses personally to market and sell its products. In March 1996, to support the sales representatives, the respondent engaged Caroline Brown who was located in the sales representatives offices. She organised the sales representatives warehouse stock and from time to time she assisted in sales in the Noble Park shop, but was not, according to Blinkhorn, part of the wage and cost structure of that outlet. Smith, on the other hand, had some connection to the costs and expenses attributable to the running of the Noble Park outlet. When Smith was removed from management of the shop in about July 1996, this was said by Blinkhorn to have been as a result of the comparatively poor performance of that outlet when its previous year's figures were reviewed and its failure to achieve its current budgetary goals. By removing Smith it was intended, amongst other things, to lower the wages to sales ratio in that shop. This was because that ratio was running at something in the order of twenty percent wages to sales, compared with the company average of eight or nine percent wages to sales. The applicant argued throughout that so far as she knew, the Noble Park shop was performing well compared with other outlets when her employment was terminated allegedly because the downturn in the shop's sales caused it to seek to reduce its wage to sales ratio in that store by reducing its staff. She also claims that in July 1996 Smith indicated to her that it was her own decision to give up the management duties she had in the shop and return to full-time sales representative duties. Smith did not give evidence and there was no evidentiary basis established for saying that the applicant should or could have known that Smith's departure from management of the shop was connected to the poor performance of the shop and the respondent's desire to reduce the cost to it of running the shop. The evidence of both Blinkhorn and Crunden was to the effect that prior to the termination of the applicant's employment in September 1996, it was apparent that the shop was not only performing badly compared with the sales in the same period for the previous year, but was not achieving its budgetary goals for the current period. Crunden's evidence was that this downturn and the need to increase sales was the subject of discussion with and between the staff from time to time. It was this concern that prompted the staff, including the applicant, to set up target sales where each staff member accepted a target such as schools, and made it their task to contact the target and try and generate sales from that target. In giving her evidence, whilst she steadfastly refused to accept that there was any outward sign of a downturn in the sales of the business, the applicant did agree that she participated in the target program described by Crunden. She was of the view that this project and the discussions concerning budgets prior to her termination were part of the normal sales programs and were not indicative of any downturn in the business of the shop. She also argued that all budgetary goals were necessarily pitched at high levels and, therefore, so far as she was concerned, the failure to achieve those goals was not a true indication of any poor performance in sales. In my view the applicant's evidence on the abovementioned matters really demonstrates a degree of commercial naivety and a lack of insight into the workings of the shop; rather than actually providing a sound basis for contradicting the evidence of Blinkhorn and Crunden. Notwithstanding her ignorance of the significance of the shop not reaching budget, on the evidence it is probable that with regard to the target sales which were the subject of particular discussions, the applicant did understand that these activities were aimed at generating better sales because the targets were concerned with helping the shop achieve the budgets it was not then achieving. I found both Blinkhorn and Crunden credible and straightforward witnesses who were able to point to comparative figures on the performance of the shop for different periods and who were able to corroborate one another in saying that the sales performance of the shop was poor. I have no reason to conclude that their evidence on these matters is unreliable. Like many businesses when the respondent was confronted with poor sales at the Noble Park shop it determined to reduce its wages to sales ratio and that, in turn, meant reducing staff at the shop. It is not the role of the Court to determine that this was or was not an appropriate measure to adopt, simply because businesses are in a better position than the Court is to determine what commercial strategies are appropriate to reach the level of profitability a business considers gives it commercial viability. The role of the Court is confined to determining whether the termination was lawful in the sense that the respondent must establish on the balance of probabilities that its operational requirements led to a reduction in staff at the shop and there was a valid reason for selecting the applicant as the person to go; rather than any of the other sales assistants performing the same duties as the applicant at that time. On the evidence of the respondent's witnesses I am satisfied that in September 1996 the respondent had a valid reason based on its operational requirements to reduce the permanent staff it employed at its Noble Park shop. In view of the abovementioned finding, the principal issue before the Court in this case was whether the respondent had a valid reason for selecting the applicant for redundancy ahead of the other sales employees and, whether it engaged in proper consultation with the applicant and took steps such as considering alternative suitable positions within the corporate structure, to minimise the effect on its employee of its decision to cut staff. After terminating the applicant's employment the staffing of the shop has not been increased. This is consistent with the respondent's claim that the applicant's position became redundant even though her sales assistant duties were still performed by other incumbent sales staff. However, because the respondent does have a large business with many outlets and with different areas in which it engages labour, it is conceivable that when seeking to improve the commercial viability of one of its outlets by reducing staff, it might also seek to relocate the affected staff to other parts of its organisation. On or about 26 August 1996 Crunden was instructed by Blinkhorn to conduct staff reviews and to ascertain from the Noble Park staff what they each wanted to do in the future. It was common ground that until the termination Crunden and the applicant were workplace friends who also socialised with each other outside working hours. When Crunden conducted the staff review, I accept that she did so on the basis that she was then aware that sales were poor but had no knowledge of any impending redundancy. During the reviews the applicant was the only member of staff to indicate that she sought to move into data entry or payroll duties in the respondent's administrative section in the future. It was agreed that during that interview the applicant did not express any dissatisfaction with her current position, she was simply indicating what role she saw for herself with the respondent in the future and that role was in administration, not sales. Crunden informed Blinkhorn of the outcome of the interviews and there was discussion between them about the need to reduce staff. It was Blinkhorn's decision that the applicant should be the one to go if no suitable alternative position could be found within the company within a month. In the hearing of this case there was a great deal of time devoted to whether when Crunden met with the applicant on 2 September 1996 she intended to and did terminate the applicant's employment. Pursuant to the Act and the Convention (see Schedule 10) termination is defined as being termination at the employer's initiative. On the evidence before the Court, whether I accept the respondent's or the applicant's version of the discussions conducted between 2 September 1996 and 6 September 1996, there was termination at the initiative of the respondent on 2 September 1996. When Blinkhorn instructed Crunden to speak to the applicant on 2 September 1996, it was generally on the basis that she could have one month's notice after which time if she had not found alternative suitable employment within the company, or the circumstances within the shop had not improved, her employment was terminated. There were two reasons advanced for selecting the applicant and these were the subject of discussion between Blinkhorn and Crunden. Neither related to her performance or conduct. The first was because she expressed a desire to eventually move out of sales and the other staff had not done so. The second was because she was the shortest serving staff member. The applicant contested the last mentioned point arguing that Caroline Brown was a later appointee. However, this argument ignores the fact that Brown was appointed to another position in the company's structure, and according to the respondent, her position had no bearing on the sales to wages ratio the respondent sought to influence in reducing the staff in that particular shop. Smith's move back to only sales representative duties and the termination of the applicant as the most recent hiring, was said by the respondent to provide for a direct impact on the achievement of the operational objective it desired. Of course, logically, if sales continued to diminish and the remaining staff were retained, the sales to wages to ratio could match or exceed the level it was running at in September 1996 and nothing may have been achieved towards improving the sales to wages ratio. Had the reason for selecting the applicant for redundancy ahead of the other sales staff been confined to her expression of interest in moving into administrative duties, I would have had some difficulty in accepting that this was a sound or defensible basis for distinguishing between the employees, all of whom had an interest in retaining their sales position, and none of whom were the subject of any complaints concerning their performance. However, the factor the respondent fixed upon as being one which distinguished the applicant's service from that of the other employees was the length of her service compared to that of other permanent employees. For instance, one of the sales assistants has been employed by the respondent for some fifteen years. As a criterion for selection of an employee for redundancy, I accept that length of service may, depending on the circumstances of the case, be considered a sound and just basis for selecting an employee for redundancy ahead of other similar employees. In this case there appears to have been little else to separate one employee from another. The applicant did argue that Caroline Brown should have been terminated and her position, even though it was a different one, should have been offered to the applicant. As I have already noted such a step would have had no direct influence on the sales to wages ratio in the shop. Moreover, the notion of requiring employers to offer suitable alternative employment in preference to terminating an employee whose performance or conduct is not in issue, is premised on the employer offering available alternative employment, not terminating another employee without justification for doing so. Blinkhorn and Crunden agreed that Crunden would approach the applicant and convey the news to her. Having heard their evidence and having had an opportunity to observe them both giving their evidence, I accept that in September 1996 Blinkhorn and Crunden drew a distinction between "sacking" an employee and "terminating" the employee's employment. In effect, whether or not they were correct in this view, they both believed that if they used the word "sack" or purported to "sack" an employee, that amounted to instant dismissal. When Crunden told the Court that it was not her intention to sack the applicant on 2 September 1996, I understood her to mean that she did not at that time view it as a sacking, or, indeed, a termination, because the applicant had a month to find alternative employment in the company, and, conceivably, if sales improved she may have remained in the shop. Blinkhorn's understanding was more clear cut because he acknowledged that he was terminating her employment but did not see it as a sacking or an immediate termination because the applicant had one month to find alternative employment or may have stayed if there had been a favourable change in the circumstances in the shop. According to Crunden, when she met with the applicant on 2 September 1996 they sat down and she said to the applicant "I don't know how I'm going to tell you this.....". Before she could go any further, the applicant said "... what, am I getting the sack?". In response Crunden alleges that she told the applicant "No, but its possible that in a month's time your job may not be available". Crunden told the Court that after this last comment was made, the applicant burst into tears and ran out of the office. She then went into another office and rang her fiance claiming she had been sacked, going home following this call. At the time these events occurred, Crunden described the applicant as hysterical, and because of this, she was unable to discuss the matter with her any further; much less persuade her that she had not been sacked. The applicant's recollection of what was said at their meeting is somewhat different. She claims that she could tell by the look on Crunden's face that ".... something horrible was going to happen". After hearing Crunden's opening statement the applicant alleges that she said "I've got the sack haven't I", to which statement Crunden responded by saying "....we're giving you twenty-eight days to find a new job". The applicant did agree that she burst into tears and left the room, rang her fiance and then left the shop. Crunden was cross-examined on the basis that it was asserted that she agreed with the applicant that she had been sacked and then told her that she had a month to find another job. It was never put to either Blinkhorn or Crunden that the applicant was given twenty-eight days to find a new job. On the day following the meeting on 2 September 1996 the applicant rang in sick and this prompted Crunden to telephone her. During this telephone conversation Crunden claimed that when the applicant said that she never expected to be sacked, Crunden then told her she had not been sacked but that ".... there is a possibility that in a month's time your job may not be available but hopefully something in that time will come up so that you can go in that direction". According to Crunden the applicant then said she would not have run out if she had known this and this prompted Crunden to apologise because she thought she may have misled the applicant in some way during their meeting. Crunden then offered to help the applicant with references and time off to look for other jobs. The applicant denies that she was offered any reassurances by Crunden during their telephone conversation or that she was offered any assistance at all. She did, however, concede that at some stage Crunden offered her an oral reference. It is also apparent that in the days following their meeting and before she left her employment she took time off to attend at least one interview. The applicant alleges that during the abovementioned telephone conversation Crunden informed her she had been instructed by Blinkhorn to speak to the applicant within twenty-four hours failing which Blinkhorn intended to speak to the applicant about her job. The applicant claims that Crunden then repeated her earlier statement that the applicant had twenty-eight days to find a new job. The applicant had the balance of the day off following the telephone call and during that period attempted to obtain legal advice but appears to have only been able to contact an industrial advocate she identified as Gary Bailey. When she returned to work the next day she required time off for an appointment and whilst she was out Crunden fielded a call from a person who identified himself as Gary Bailey and who told Crunden he was representing the applicant. Throughout this period Crunden kept Blinkhorn informed about what was happening, including the call from Bailey and the difficulties Crunden was having in getting the applicant to work because she was making and taking numerous telephone calls and not concentrating on her work. Crunden said this was disrupting the workings of the respondent's shop. On the day following the meeting between the applicant and Crunden it appears that the applicant and Blinkhorn met in his office. By then he had been briefed by Crunden about what had occurred at their meeting and the applicant's reaction to the news. Blinkhorn told the Court that he apologised to the applicant if Crunden had made a mistake in her approach but nevertheless confirmed that the company was trying to find another position for her and she was still on one month's notice. He also claims to have offered to support her in any way possible. Blinkhorn says that the applicant's response was to confirm that she had been told she was sacked, but following his explanation about the company's intentions in giving her notice, she told him she understood this and left. The applicant denies that their conversation at this meeting took the course Blinkhorn alleges it did. She claims that he told her she should not have been told she was sacked but that Crunden was supposed to tell all the staff that if sales did not improve "someone's job would be on the line". Just dealing with the evidence up to the this point and taking into consideration my view that both the respondent's witnesses were credible witnesses, I am satisfied that the applicant's evidence is less consistent and less plausible than that given by Blinkhorn and Crunden on these matters. It is unlikely because of the instructions she received and her understanding of the term "sacked", that Crunden told the applicant at any time that she was sacked and had twenty-eight days to find a new job. Clearly, the respondent had decided to terminate the applicant's employment, treating it as a redundancy, but offering a long period of notice to an employee who had worked less than one year in its shop. The applicant was correct in assuming that her employment was terminated but because of her interpretation of events and her reaction to being terminated, she ignored the steps the employer was trying to take to minimise the effects on her of the abolition of her position. I do not accept as credible her evidence that Blinkhorn had instructed Crunden to tell all the staff their jobs were on the line if sales failed to improve. Her evidence generally struck me as being selective and coloured somewhat by her distressed reaction to the news of her termination. I am satisfied that in the short time between 2 September 1996 and when she left on or about 6 September 1996, the applicant was unable to properly function within the workplace because of her distress and anger at being notified of her termination. The effect of this was to disrupt the smooth operation of the business. As a consequence Blinkhorn, Crunden and the applicant met again on about 4 September 1996 at which time the applicant was offered the option of working for the balance of the period of her notice or taking the money in lieu of notice for the balance of the one month period of notice given on 2 September 1996 and leaving immediately. She opted for immediate payment and left her employment, thereby forgoing any opportunity of seeking alternative employment within the company and awaiting the outcome of the further sales figures for the shop during the month of September. By that date it appears that she had already instructed her industrial advocate to lodge an application. According to Blinkhorn by the time he offered the applicant the option of compensation in lieu of notice, the company and he had received several telephone calls from Gary Bailey on behalf of the applicant, alleging an unlawful termination, and demanding the payment of compensation. CONSULTATION AND ANY STEPS TAKEN TO MINIMISE THE EFFECTS OF A REDUNDANCY ON AN EMPLOYEE Generally speaking, the decisions of the Industrial Relations Court of Australia support the contention that consultation and forewarning are matters relevant to the existence of a valid reason at termination where there is; for instance, a position redundancy (see Justice Madgwick's decision in Westen v Union Des Assurances De Paris (unreported, Industrial Relations Court of Australia, Madgwick J, 17 December 1996) and my decisions in Lang v Dimmeys Stores Pty Ltd (unreported, Industrial Relations Court of Australia, Millane JR, 17 December 1996) and Morison v Honda Australia Motorcycle and Power Equipment Pty Ltd (unreported, Industrial Relations Court of Australia, Millane JR, 21 February 1997)). When Crunden was instructed to approach the applicant and convey the message she tried to convey on 2 September 1996, that was a step on the part of the employer which contemplated offering alternative positions and making the termination subject to a favourable change in the sales of the shop within the month succeeding the discussion on 2 September 1996. The applicant was an employee who, as I have already observed, had less than one year's service with the respondent and was at termination entitled to a minimum period of notice of only one week's pay. It is reasonable to infer from the respondent's conduct in not only offering her one month's notice as well as the opportunity to stay with the company if an alternative position became available within that month or if the sales in the shop improved, that the respondent was then seeking to minimise the harsh consequences flowing from its operational requirements. I am satisfied on the evidence of Blinkhorn and Crunden that the intention of the respondent at the relevant time was to assist the applicant in the manner it foreshadowed. Notwithstanding this finding, however, it should be born in mind that the appropriate approach to take is to consult with and forewarn an employee prior to implementing a termination if the circumstances permit this to happen. The respondent's actions in this case were such that it initiated a termination process and essentially offered to recall that process if circumstances changed or an alternative position became available. Arguably, because of this the termination was not a fair one, depriving the applicant as it did of the opportunity to consider her position as well as the opportunity to make representations on alternatives to termination before the decision was made and the process implemented. Because the respondent failed to consult prior to implementing a decision to terminate, it has, on balance, failed to establish all the elements necessary to provide a valid reason for termination and has thereby contravened s 170DE(1) of the Act. REMEDY The applicant has had full time employment for some months prior to the hearing date and does not seek reinstatement. In these circumstances I am satisfied that reinstatement is impracticable. In considering whether the payment of compensation is appropriate in this case, I have taken into account the payment of one month's notice, which represents three weeks more than the statutory minimum payable, the general attempts by the respondent to minimise the effects of the reduction in staff numbers in the shop on this employee, and the applicant's behaviour once it became apparent to her that she had one month's notice. Had she calmly considered what the respondent was attempting to offer her and taken advantage of the opportunities that may have become available, there was a possibility that she may have avoided termination altogether. In saying this I am mindful of the fact that there was no evidence indicating that a position became available or that the shop sales improved significantly during the month following the giving of notice of termination. In all the circumstances of this case I am of the view that a further payment of compensation beyond the amounts paid to the applicant at termination is not appropriate. Accordingly, apart from making an appropriate declaration in respect to the contravention of the Act, I propose to order that the application be otherwise dismissed. MINUTES OF ORDERS THE COURT DECLARES THAT: 1. The termination of the applicant's employment on 2 September 1996 contravened section 170DE(1) of the Workplace Relations Act 1996. AND THE COURT ORDERS THAT: 2. The applicant's application is otherwise dismissed. NOTE: Settlement and entry of orders is dealt with by Order 36 of the Federal Court Rules. I certify that this and the preceding fourteen (14) pages are a true copy of the reasons for judgment of Judicial Registrar Millane. Associate: Dated: 11 July 1997 Appearances for 4 March 1997: The applicant appeared in person. Solicitors for the Respondent: Phillips Fox Counsel for the Respondent: Mr A. Lindeman Appearances for 28 May 1997: Solicitors for the Applicant: James Karavias & Co Counsel for the Applicant: Mr S. Selimi Solicitors for the Respondent: Phillips Fox Counsel for the Respondent: Mr A. Lindeman Date of hearing: 4 March and 28 May 1997 Date of judgment: 11 July 1997