SUPREME COURT OF NORFOLK ISLAND Menzies v Scott [2006] NFSC 6 EMPLOYMENT LAW – employment contract containing "exclusive services" condition – condition breached by employee – whether breach a matter to which Employment Tribunal entitled or bound to have regard – whether breach capable of being regarded as "any other matter in relation to employment" – whether breach capable of giving rise to finding of "wilful disobedience" of "reasonable direction" of employer Held: The Employment Tribunal erred in failing to have regard to the "exclusive services" condition and the breach thereof. The appeal should be allowed. Employment Act 1988 (NI) ss 19, 65, 73, 76, 77, 79, 82, 85, 86, 92 Employment Regulations 1991 (NI) reg 4 Attwood v Lamont [1920] 3 KB 571 referred to STEPHEN MENZIES and HILARY DOUGHTY v CHRISTOPHER SCOTT SC16 of 2005 WEINBERG CJ 7 JULY 2006 MELBOURNE IN THE SUPREME COURT OF NORFOLK ISLAND SC16 OF 2005 BETWEEN: STEPHEN MENZIES FIRST APPELLANT HILARY DOUGHTY SECOND APPELLANT AND: CHRISTOPHER SCOTT RESPONDENT JUDGE: WEINBERG CJ DATE OF ORDER: 7 JULY 2006 WHERE MADE: MELBOURNE THE COURT ORDERS THAT: 1. The appeal be allowed. 2. The determination of the Employment Tribunal in matter ET 2 of 2005 be set aside. 3. In lieu thereof it be determined that no order be made in that matter. 4. The respondent pay the appellants' costs of the appeal. IN THE SUPREME COURT OF NORFOLK ISLAND SC16 OF 2005 BETWEEN: STEPHEN MENZIES FIRST APPELLANT HILARY DOUGHTY SECOND APPELLANT AND: CHRISTOPHER SCOTT RESPONDENT JUDGE: WEINBERG CJ DATE: 7 JULY 2006 PLACE: MELBOURNE REASONS FOR JUDGMENT INTRODUCTION 1 The appellants, Mr Stephen Menzies and Ms Hilary Doughty, are the proprietors of a retail food business "Pizza on Norfolk Café". The respondent, Mr Christopher Scott, was recruited off the Island to be employed in that business as "chef and hospitality co-ordinator". 2 The parties executed an employment contract on 26 July 2005. That contract was in the form specified by reg 4 of the Employment Regulations 1991 (NI), made pursuant to the Employment Act 1988 (NI) ("the Employment Act"), and was certified by the Employment Liaison Officer on 27 July 2005. It provided for Mr Scott to receive a salary, inclusive of entitlements, of $600.00 per week. It further provided that either party could terminate on written notice of one calendar month. (Under the Employment Act the minimum notice period is 7 days: see s 19(1)(a) [employers] and s 19(2) [employees]). By its terms the contract also provided for forfeiture of one week's pay in lieu of specified period of notice of termination. (The statutory minimum payment/forfeiture in lieu of notice is one week's pay: see s 19(1)(b) [employers] and s 19(2) [employees]). The Employment Act also provides the usual statutory rights of summary dismissal for misconduct. 3 Clause 10 of the employment contract contained a special condition in the following terms: "Restraint. The Employee agrees that he/she will not engage, neither during the period of the employment nor for such further period whilst under notice of termination, carry on or be directly or indirectly engaged or concerned in or with, either as an employee, contractor or otherwise, any business with the same or parallel interests to the business carried on by Pizza on Norfolk Cafe. The Employee agrees that for the period of six (6) months after the termination of his or her employment under this agreement, he/she will not be employed as a Chef or Hospitality Coordinator in any similar or parallel interests to Pizza on Norfolk Cafe in a demographic area of Norfolk Island." 4 On 25 August 2005 Mr Scott advised Mr Menzies and Ms Doughty that he had received medical advice that a pre-existing sports injury had deteriorated during his stay in Norfolk Island. Mr Scott had previously broken his wrist in August 2004, and had surgery on it in March 2005. A New Zealand surgeon had told him that the injury was mending well. However, Mr Scott re-injured his wrist when his bicycle struck a pothole while he was cycling on the Island. An x-ray on 25 August 2005 revealed the extent to which the injury had deteriorated, and Mr Scott immediately determined to return to the United Kingdom to be treated by his preferred surgeon. 5 On the same day, 25 August 2005, Mr Scott approached his employers and told them that he would terminate his employment on 15 October 2005. He advised that he had booked a flight scheduled for 16 October 2005. 6 Prior to these developments Mr Menzies and Mr Scott had been working on introducing a lunch menu to the "Pizza on Norfolk Café". Once Mr Scott's intentions became clear, the commencement of that lunch menu was cancelled. The parties were at odds as to why that decision was taken. According to Mr Scott it was because Mr Menzies was concerned about getting a replacement chef. However, Mr Menzies said that it was because at Mr Scott's physical ability to take on an additional work load. 7 On 6 September 2005 Mr Scott raised with Mr Menzies and Ms Doughty the possibility of varying cl 10 of the employment contract in order that he might work for another business. It appears that Mr Scott had some difficulty covering the cost of his trip back to England. It seems that he was also concerned about his ability to meet his medical costs and domestic bills. Mr Menzies would not agree to Mr Scott's proposed variation. On 11 September 2005 Mr Scott raised the matter again and specifically mentioned that he had been offered employment at "Cafe Pacifica", a competitor of "Pizza on Norfolk Café". Once again, however, Mr Menzies refused. 8 By notice dated 17 September 2005, Mr Scott informed his employers in writing of his intention to terminate his employment on 15 October 2005, thereby satisfying the requirement in the employment contract that one calendar month's written notice be given. On 19 September 2005, Mr Scott and Mr Menzies attempted to resolve their difficulties regarding what final payment should be made in relation to Mr Scott's termination. Mr Scott claimed that he should be paid $600.00, together with his holiday entitlements for ten weeks of services. Agreement could not be reached. 9 Mr Scott then appears to have consulted a solicitor and obtained advice from a member of the Employment Conciliation Board established under s 65 of the Employment Act. That member subsequently endeavoured to resolve Mr Scott's complaint by conciliation, pursuant to s 77 of the Employment Act. The conciliation failed, and a certificate under s 77(2) detailing the result then issued. 10 As a result, Mr Scott applied to the Employment Tribunal ("the Tribunal") on 28 September 2005 claiming $625.00 as overtime, and $2,400.00 as payment in lieu of notice. It appears that Mr Menzies was not provided with a copy of Mr Scott's written application of 28 September 2005 to the Tribunal. The Tribunal conducted a hearing on 4 October 2005, and Mr Menzies appeared, apparently believing that the only issue between the parties was whether Mr Scott was entitled to a payment of one week's wages ($600.00) pursuant to cl 8.1.(b) of the employment contract. 11 The Tribunal (which is in fact the Court of Petty Sessions, exercising specific statutory powers is constituted by s 79 of the Employment Act) determined, at the conclusion of the hearing on 4 October 2005, that Mr Scott was entitled to payment of $2,400.00 to be paid to the Clerk of Court no later than 12 October 2005. 12 On 12 October 2005 the solicitor for Mr Menzies and Mr Doughty wrote to the Deputy Secretary of the Tribunal raising a series of concerns regarding the Tribunal's determination. The Tribunal's Statement of Reasons dated 13 October 2005 was consequently issued in response to that letter. 13 On 25 October 2005 a Notice of Appeal to this Court was filed on behalf of the appellants. By that time, Mr Scott had left the Island. His precise whereabouts were unknown. 14 On 16 February 2006, the appellants' solicitor attempted unsuccessfully to contact Mr Scott via an email address that he had obtained from Mr Scott's former solicitor. At a directions hearing on 14 March 2006, I granted leave to effect service of the Notice of Appeal upon Mr Scott by substituted service. I also stayed the determination of the Tribunal regarding the payment of $2,400.00 by the appellants pending the hearing and determination of the appeal. I directed that the matter be dealt with on the papers unless the respondent came forward and indicated an intention to have the matter heard orally. 15 On 29 April 2006, Mr Scott made contact with the appellants' solicitor. On 1 May 2006, the documents relevant to this proceeding, including the Notice of Appeal and the appellants' outline of submissions were forwarded to Mr Scott. On 13 May 2006, Mr Scott communicated with the Registry, and acknowledged receipt of the Notice of Appeal and other documents. He also added some abusive comments regarding Mr Menzies and Mr Doughty. He did not seek to file any submissions in answer to the appellants' outline that had been sent to him. 16 The Notice of Appeal contends that the Tribunal erred in law in determining that cl 10 of the employment contract lay outside the scope of the Employment Act, and that it also erred in law in determining that a breach of that clause did not provide a sufficient justification for dismissal based upon "wilful disobedience". Alternatively, it contends that the Tribunal erred in law in determining that the appellants should pay the respondent four weeks' wages in lieu of notice, having regard to cl 8.1.(b) of the employment contract which provides for forfeiture of one week's pay only. 17 The appellants' written contentions identify the primary legal issues in the appeal as follows: · were Mr Menzies and Ms Doughty justified in summarily dismissing Mr Scott; and · if not, what amount should be paid to Mr Scott in lieu of notice? 18 The primary submissions advanced on behalf of the appellants were as follows: · the Tribunal erred in law as to its powers and functions in this matter under Pt 5 of the Employment Act; · payment in lieu of notice, if justified in this matter, is limited to one week's pay; and · summary dismissal was justified in this matter by reason of the employee's wilful disobedience to a reasonable direction of the employer. 19 In relation to the first of these submissions, the Tribunal in its Statement of Reasons dated 13 October 2005 observed that: "Clause 10 of the Employment Contract is outside the scope of the Employment Act and no ruling was made in this regard. Mr Menzies' reliance on the restraint clause is insufficient grounds for dismissal due to wilful disobedience." 20 The transcript of the hearing on 4 October 2005 clarifies the Tribunal's approach regarding this issue: "MENZIES: What protection have we got to, against people who go working for somebody else when we pay the cost of advertising? TRIBUNAL: You can appeal to the Supreme Court. This is what I said to you before. You have redress through the civil court. The Employment Act does not cover issues such as someone going off to work for someone else and you don't like it. There is nothing to stop any employee taking on a second job providing he complies with immigration conditions and the Employment Act conditions. There is nothing in the Employment Act that prevents a person having more than one position. MENZIES: But this is a binding contract. We both agree on the contract, both signed it. TRIBUNAL: The provisions that you put in that section are outside the scope of the Employment Act. They are not covered by the Employment Act. Therefore we can't address them. They are separate issues between you and your employee. We are governed by the Employment Act. You will see that on section 10 - Other provisions or special conditions. Now they are conditions not covered by the Employment Act. They have nothing to do with the Employment Act. MENZIES: Well how do you protect your business if you bring a professional person in, whether he be a doctor or anything, and you have a contract between the two people. TRIBUNAL: Well this is where you have recourse to the civil courts to say that that person has not kept his part of the contract. That is a civil court matter, nothing to do with the Employment Act. The other thing is, is that you must keep your contract in line with the Norfolk Island Employment Act. To go outside the Employment Act leaves people exposed to the fact that it's not covered by the Act and it comes to Court." 21 The Tribunal appears to have taken the view it was only able to consider terms in employment contracts which deal with matters referred to specifically in the Employment Act. That view is unduly restrictive and misconceives the nature of the conciliation, adjudication and review processes contained in Pt 5 of that Act. 22 The conciliation procedures under the Employment Act are conducted by the Employment Conciliation Board ("the Board"). Pursuant to s 73(2), one function of the Board is to consider matters "brought before it in relation to employment". 23 Section 76(1)(a) provides that an aggrieved person may lodge a complaint with any member of the Board concerning: "non-compliance with a provision of a written contract entered into in pursuance of section 10". 24 Section 76(1)(d) extends the powers of the Board so that it can also deal with: "any other matter in relation to employment". 25 Section 82 provides that any person who is aggrieved by the result of conciliation before the Board in relation to a complaint may, within seven days after a Certificate under s 77(2) has been given, apply to the Tribunal for an inquiry into the matter. 26 Section 85(2)(c) provides that the Tribunal may make an order requiring a person, inter alia, to comply with a written contract of employment. Section 85(2)(d) provides that the Tribunal may require a person to pay money required to be paid by the Employment Act or a contract referred to in s 85(2)(c). Section 86 provides that any failure to comply with an order of the Tribunal can be punished by prosecution and fine. 27 In my view, the Tribunal's conclusion that it could not have regard to cl 10 of the employment contract because such terms were "outside the scope of the Employment Act", and could not therefore form the basis of a finding of "wilful disobedience", was wrong in law. There is nothing in the Employment Act that suggests that the Tribunal's powers are so constrained. Those powers are expressed in broad terms, and the words in s 73(2) should be given their ordinary and natural meaning. The exclusive services condition contained in cl 10 plainly involved a matter "in relation to employment". It was a matter to which the Tribunal not only ought to have had regard, but was required to have regard. Indeed, in the present case it was the matter most central to the Tribunal's deliberations. 28 That of itself establishes legal error on the part of the Tribunal. However, I should say that I am also satisfied that the Tribunal erred in finding that Mr Scott was entitled to payment of four weeks' wages in lieu of notice rather than one week. 29 Clause 8 of the employment contract states: "8. TERMINATION 8.1 MINIMUM PERIOD OF NOTICE:- 8.1.(a) Either the Employee or the Employer shall give at least One (1) calendar month written notice of the termination of employment. 8.1.(b) Where the employment is terminated without the notice specified in clause 8(a), One (1) weeks[sic] pay shall be forfeited by the defaulting party. 8.2 SUMMARY DISMISSAL:- 8.2.(a) Nothing in this Contract shall prevent the Employer from summarily dismissing an Employee for misconduct as specified in section 19(3) of the Employment Amendment Act 2000." 30 The period of notice specified in cl 8.1.(a) does not determine the amount payable in lieu of such notice. That amount is determined in cl 8.1.(b). If summary dismissal, based upon "wilful disobedience" was not justified in the present case, the maximum amount payable to Mr Scott under the employment contract as payment in lieu of notice was one week's wages, i.e. $600.00. The Tribunal was not entitled to redraft the contract to provide that the amount payable in lieu of notice should be equivalent to the period of notice specified in the contract. 31 Of course if Mr Scott's summary dismissal was justified he is not entitled to payment of any amount in lieu of notice. Section 19(3)(c) of the Employment Act provides that an employer is not required to give an employee any notice of termination in circumstances where there has been "justified termination" of an employee's employment by reason of the employee's "wilful disobedience with, or failure to have regard to, a reasonable direction of the employer". 32 Mr Scott's employment was summarily terminated when Mr Menzies became aware that, notwithstanding cl 10 of the employment contract, and their prior discussions specifically relating to this issue, Mr Scott had taken up employment as lunchtime chef with "Café Pacifica". Mr Scott clearly breached cl 10 since "Café Pacifica" was undoubtedly "a business with the same or parallel interest to the business carried on by "Pizza on Norfolk Café". Clause 10 plainly constituted a "direction of the employer" within the meaning of s 19(3)(c). In any event, Mr Menzies' refusal on 6 September 2005 to vary the terms of the contract itself constituted such a "direction". So too did his further refusal to vary the contract on 11 September 2005. 33 Mr Scott's non-compliance with these directions was plainly "wilful". There was nothing inadvertent about his conduct. He realized that his employment with "Café Pacifica" amounted to a breach of cl 10, and that was why he sought his employers' consent to vary the terms of the contract. 34 There was nothing unreasonable about the exclusive services requirement in cl 10. Although it operated as a covenant in restraint of trade, that did not, of itself, render it void, or unenforceable: Attwood v Lamont [1920] 3 KB 571. It related to the employers' business in a competitive market in which the position of chef was vital to commercial success. It was limited in scope to a specified type of work, and to businesses similar to that of the employers. In the context of the present case, Mr Scott's conduct justified summary dismissal. It was plain, from what he did, that he no longer intended to be bound by the terms of his employment contract, and that he acted in clear breach of the express terms of cl 10. 35 The only reason that the Tribunal did not come to that conclusion was because it regarded the obligations created by cl 10 as falling outside the scope of the Employment Act, and therefore providing no basis for summary dismissal under s 19(3)(c). This was an error of law on the Tribunal's part. Section 92 of the Employment Act confers power upon this Court to hear and determine appeals on questions of fact and law where the amount in question in the appeal exceeds $2,500.00, and questions of law where the amount is less than $2,500.00. The amount here is $2,400.00, but all the matters raised involve questions of law. Accordingly, this Court has power under s 93(1)(c) to set aside the Tribunal's determination, and to make such orders as it thinks fit. 36 In my view, the appeal should be allowed. The determination of the Tribunal given on 4 October 2005 should be set aside. In lieu thereof it should be determined that there should be no order in that matter. The appellants are entitled to their costs of the appeal. I certify that the preceding thirty-six (36) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Chief Justice Weinberg. Associate: Dated: 7 July 2006 Solicitor for the Appellants: Wayne Daniel Richards The respondent did not file any submissions Date of Submissions: 21 March 2006 Date of Judgment: 7 July 2006