Industrial Relations Commission of New South Wales CITATION : Russo v Quality Bakers [2004] NSWIRComm 50 APPLICANT Rosario Russo PARTIES : RESPONDENT Quality Bakers Australia Ltd FILE NUMBER: 2379 of 2003 CORAM: Marks J CATCHWORDS : Unfair contract - Jurisdictional issue at interlocutory stage - Nature and characteristics of unfair contracts claims contrasted with unfair dismissal proceedings - Whether no order could be made which would be within jurisdiction - Whether legislative intent discernable - Summons challenged terms or operation of contract of employment - Balsdon v Murray Irrigation distinguished on the facts - Motion dismissed. LEGISLATION CITED : Industrial Relations Act 1996 Beahan v Bush Boake Allen Australia Ltd (1999) 47 NSWLR 648 CASES CITED : Nagle (t/a WD & JL Nagle & Sons) v Tilburg (1993) 51 IR 8 Balsdon v Murray Irrigation (2003) NSWIRComm 251 HEARING DATES: 02/26/2004 DATE OF JUDGMENT: 03/24/2004 APPLICANT Mr JJ Fernon of Senior Counsel SOLICITORS W G McNally & Co LEGAL REPRESENTATIVES: RESPONDENT Mr G Fredericks, solicitor SOLICITORS Freehills JUDGMENT: - 1 - INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES IN COURT SESSION CORAM: MARKS J Wednesday 24 March 2004 Matter No IRC 2379 of 2003 ROSARIO RUSSO v QUALITY BAKERS AUSTRALIA LTD Application under s 106 of the Industrial Relations Act 1996 INTERLOCUTORY JUDGEMENT ON STRIKE-OUT MOTION [2004] NSWIRComm 50 1 The applicant Rosario Russo has commenced proceedings against the respondent Quality Bakers Australia Limited claiming relief under s 106 of the Industrial Relations Act 1996 ("the Act"). The summons claims a number of orders seeking a declaration that a contract of employment made between the applicant as employee and the respondent as employer be declared void in whole or in part or varied. An order is also sought that the contract of employment was unfair for the purpose of s 106 of the Act. 2 The summons seeks specific orders varying the contract of employment by deleting certain terms "relating to termination" and relating also to "the applicant's performance of work". The former are directed to the giving of notice, the precluding of termination of employment where harsh, unjust or unreasonable and the payment of monies equivalent to notice, and the basis on which the calculation of the payment shall be made. The latter are directed to procedures required of the employer where performance of work is called into question. I should add for completeness that with respect to all of these matters there is also a reference to an "arrangement" between the applicant and the respondent in addition to the contract of employment. Further orders are sought in addition to or in the alternative to the orders previously referred to which go to the variation not only of the contract of employment and an arrangement but also a "collateral arrangement". These are directed in the main to circumstances going to termination of employment on account of redundancy including restructuring and/or reorganisation of the respondent's business and also going to the inclusion of a term seeking payment on termination of the contract of employment of fifty percent of the amount paid by the applicant to purchase a motor vehicle leased by the respondent, pro rata annual leave and long service leave and superannuation contributions for the period which may have accrued during any period of notice referable to termination of the contract of employment. 3 Consequential orders are also sought for the payment of monetary compensation and costs. 4 The matters of fact which are detailed in the summons cover the applicant's employment by predecessors of the respondent and the restructure of the respondent's business. Those factual circumstances also traverse the circumstances in which the applicant's employment with the respondent was terminated. 5 The contract of employment or arrangement under which the respondent employed the applicant was said to be unfair for a number of reasons contained within paragraph 44 of the summons. They are as follows: a) in the circumstances, it failed to provide for the giving of a fair, reasonable and appropriate period of notice of termination or payment in lieu thereof; b) it invested the Respondent with significant discretionary powers which were used to the substantial disadvantage of the Applicant particularly in the circumstances relating to the termination of the contract and/or the failure to continue the Applicant's employment; c) the Applicant was at all material times in a position of unequal and inferior bargaining power in respect of his dealings with the Respondent and was specifically in such a position at the time of termination; d) it allowed the Respondent to deprive the Applicant of significant, long term career employment; e) it failed to provide for any reasonable payment to the Applicant by the Respondent on termination of employment for any reason; f) it failed to provide for the payment of compensation to the Applicant by the Respondent in circumstances where the Respondent wrongfully terminated the contract in such a manner and for such reasons as would cause the Applicant to stress, anxiety and damage to his good name and character; g) it failed to provide for the payment of a fair, reasonable, and appropriate redundancy payment; h) it failed to protect the applicant against harsh, unjust and unreasonable dismissal and failed to contain any protective or security provisions to guard against harsh, unjust and unreasonable termination and in particular it failed to provide for: i) fair, reasonable and appropriate and transparent terms and conditions relating to the manner in which the Applicant would be dealt with in the event that the Respondent considered his conduct or performance were unsatisfactory; ii) an opportunity for the Applicant to rectify any aspect of his conduct or performance which might be considered by the Respondent to be unsatisfactory; iii) any mechanism or procedure that would accord the Applicant both procedural and substantive fairness in the event that the Respondent was considering or proposing to terminate the contract of employment; i) It failed to provide for fair, reasonable, appropriate and transparent terms relating to the manner in which the Applicant would be dealt with in the event of the position that he was occupying was to be made redundant and in particular it failed to provide for: i) fair, reasonable and appropriate procedures so as to ensure that the Respondent notified and consulted with the Applicant in the event that there was any possibility at all that the Applicant's position would be rendered redundant; ii) fair, reasonable and appropriate procedures so as to ensure that the Respondent consulted with the Applicant as to any and all available alternatives such that would avoid the harsh consequences of termination of employment; iii) fair, reasonable and appropriate procedures so as to ensure that the Applicant had security of employment; j) It was unfair on its face in that the terms of the contract, arrangement or collateral arrangement which provided for notice of termination provided for a period of notice, which, having regard to all of the circumstances of the Applicant's employment and in particular the size if his salary and seniority within the Respondent's workforce and the circumstances of the termination of the Applicant's employment, was inadequate and unreasonable; k) It permitted the Respondent to pay to the Applicant an amount in respect of Notice which was, for an employee with almost 33 years' of service in a senior position, on reasonable principles and standards inadequate and unfair; l) It permitted the Respondent to impose without notice, warning, consultation or negotiation a standard of termination payments which were to be paid to the Applicant which standard of itself inadequate and unfair; 6 The respondent has sought to have the summons struck out relying on the provisions of s 109A of the Act. Section 109A is in the following terms: 109A Exclusion of certain contracts in connection with unfair dismissals (1) This Division does not apply to a contract of employment that is alleged to be an unfair contract for any reason for which: (a) an application has been or could have been made by the employee under Part 6 (Unfair dismissals ), or (b) such an application could have been made but for the provisions of section 83 that exclude the employee from making an application under that Part. (2) In this section: contract of employment means any contract or arrangement under which work is done by a person in the capacity of an employee , and includes a related condition or collateral arrangement with respect to such a contract. dismissal has the same meaning that it has in Part 6. 7 In order to deal with these proceedings it is also necessary to set out the provisions of s 105 and s 106 of the Act which deal with unfair contracts and ss 83 and 84 of the Act which are contained within Part 6 dealing with unfair dismissals. 105 Definitions In this Part: contract means any contract or arrangement, or any related condition or collateral arrangement, but does not include an industrial instrument . unfair contract means a contract: (a) that is unfair, harsh or unconscionable, or (b) that is against the public interest, or (c) that provides a total remuneration that is less than a person performing the work would receive as an employee performing the work, or (d) that is designed to, or does, avoid the provisions of an industrial instrument . Note: The jurisdiction of the Commission under this Part is exercisable only by the Commission in Court Session. 106 Power of the Commission to declare contracts void or varied (1) The Commission may make an order declaring wholly or partly void, or varying, any contract whereby a person performs work in any industry if the Commission finds that the contract is an unfair contract. (2) The Commission may find that it was an unfair contract at the time it was entered into or that it subsequently became an unfair contract because of any conduct of the parties, any variation of the contract or any other reason. (3) A contract may be declared wholly or partly void, or varied, either from the commencement of the contract or from some other time. (4) In considering whether a contract is unfair because it is against the public interest, the matters to which the Commission is to have regard must include the effect that the contract, or a series of such contracts, has had, or may have, on any system of apprenticeship and other methods of providing a sufficient and trained labour force. (5) In making an order under this section, the Commission may make such order as to the payment of money in connection with any contract declared wholly or partly void, or varied, as the Commission considers just in the circumstances of the case. (6) In making an order under this section, the Commission must take into account whether or not the applicant (or person on behalf of whom the application is made) took any action to mitigate loss. 83 Application of Part 6 (1) This Part applies to the dismissal of: (a) any public sector employee , or (b) any other employee , except an employee for whom conditions of employment are not set by an industrial instrument and whose annual remuneration is greater than $62,200 (or such greater amount as is prescribed by the regulations). (1A) This Part applies to the dismissal of an employee even if the person was employed in this State under a Federal award . However, this Part does not apply to the dismissal of any such employee if: (a) the person is entitled to make an application to the Australian Industrial Relations Commission with respect to the dismissal on the ground that it was harsh, unjust or unreasonable, or (b) the person would have been entitled to make such an application but for the exclusion of the person from the relevant provisions of the Workplace Relations Act 1996 of the Commonwealth (being an exclusion of a kind referred to in subsection (2)). (2) This Part does not apply to an employee who is exempted from this Part by the regulations. Any such regulation may only exempt specified classes of employees included in any of the following classes: (a) employees engaged under a contract of employment for a specified period of time or a specific task, (b) employees serving a period of probation or qualifying period, (c) employees engaged on a casual basis for a short period, (d) employees whose terms and conditions of employment are governed by special arrangements providing particular protection in respect of termination of employment either generally or in particular circumstances, (e) employees in relation to whom the operation of the provisions of this Part causes or would cause substantial problems because of: (i) their particular conditions of employment, or (ii) the size or nature of the undertakings in which they are employed. (3) This Part does not apply to the dismissal of any such employee who is an apprentice or trainee (other than an existing worker trainee) within the meaning of the Apprenticeship and Traineeship Act 2001 or any such employee who is an executive officer to whom Part 2A of the Public Sector Management Act 1988 or Part 5 of the Police Service Act 1990 applies. (4) This Part applies to the dismissal of an employee even though it occurred in the course of an industrial dispute and the Commission is otherwise authorised under this Act to order the reinstatement of the employee . (5) In this Part: dismissal includes: (a) the threat of dismissal , and (b) in the case of a public sector employee —dispensing with the services of the employee , dismissing the employee as a consequence of disciplinary proceedings against, or the commission of an offence by, the employee or annulling the appointment of the employee . Federal award means an award within the meaning of the Workplace Relations Act 1996 of the Commonwealth. industrial instrument includes a Federal award or other Federal industrial instrument . 84 Application for remedy by dismissed employee (1) If an employer dismisses an employee and the employee claims that the dismissal is harsh, unreasonable or unjust, the employee may apply to the Commission for the claim to be dealt with under this Part. (2) An application may be made on behalf of the employee by an industrial organisation of employees . (3) An industrial organisation may make one application on behalf of a number of employees who were dismissed at the same time or for related reasons. However, this subsection does not prevent the Commission from hearing a number of applications under this Part together or individually. (4) An application may be made under this Part even though the applicant does not specify the nature of the remedy sought or requests compensation only. However, this subsection does not affect the requirement under this Part that compensation is available only if the Commission considers that reinstatement or re-employment would be impracticable. 8 The application of the provisions of s 109A have been considered in detail by a Full Bench of this court in Beahan v Bush Boake Allen Australia Ltd (1999) 47 NSWLR 648. In its reasons for judgment the Full Bench (Wright J, President, Walton J, VP and Hungerford J) dealt first with the approach to be adopted by a court in determining whether s 109A should apply at an interlocutory stage. The court expressed reservations about the desirability of dealing with the matter as a threshold argument on jurisdiction prior to the hearing of the substantive proceedings. In stating this approach, the court adopted the well-known principles embodied in the decision of the Full Bench of the former Industrial Court of New South Wales in Nagle (t/a WD & JL Nagle & Sons) v Tilburg (1993) 51 IR 8 at 10-12. The Court noted the onus which was borne by a party seeking to apply s 109A at an interlocutory stage which it described in part as being one that the respondent "must demonstrate that no order could be made which would be within jurisdiction". I shall refer to this aspect of the matter later in these reasons for judgment. 9 In considering the nature of the s 106 proceedings before it, the Full Bench described the grounds contained in the summons in the following way: "The grounds upon which it was alleged that the contract was relevantly unfair were particularised in some detail in the summons. Shortly put, those grounds were directed to the failure of the contract in permitting the respondent to terminate the applicant's employment without any, or any sufficient, notice or payment in lieu thereof and in permitting the termination without any, or any sufficient, redundancy payment or other appropriate monetary benefits. The grounds alleged also that the respondent discriminated against the applicant in a number of respects related to the terms of the employment contract, including as to economic considerations, redundancy policy, protection of industrial interests, circumstances of the employment, discretionary powers, inequality of bargaining power and employment protection" (at 670). 10 The Full Bench then contrasted the allegations contained in the summons with allegations which might be made with respect to an unfair dismissal. The Court said: "Importantly, there was no allegation contained in the summons that the termination of the applicant's employment by the respondent itself was in any way unfair nor was there any claim for reinstatement, re-employment or compensation relative to an alleged unfair dismissal. One view of the facts reasonably open, it seems to us, was that the applicant accepted the inevitability of the implementation of the restructure, including the abolition of his position as a divisional manager; the offer to appoint him to a functional manager's position in Melbourne was a material change in the employment contract which he was not prepared to accept so as to thereby make him redundant. Far from involving unfair dismissal, an available view of the applicant's real complaint was that his contract of employment was unfair in that it permitted by its terms, or absence thereof, insufficient payments upon the termination of his employment for any reason or for reasons of redundancy and enabled the respondent to avoid allowing him the benefits of the bonus scheme and the exercise of the share options" (at 670-1). 11 The Full Bench then proceeded to contrast the nature and characteristics of unfair contracts claims with unfair dismissal proceedings, including a contrast of the available remedies. 12 Having considered the provisions of s 109A, the Full Bench concluded that the legislative intent of that section was "not readily discernable" (at 685). 13 An important discriminating factor in connection with the proceedings before the Court was the fact that the applicant sought to have the employment contract voided or varied for reasons "regardless of and unrelated to any dismissal." (at 686). The Court said: "As we read the grounds pleaded in support of the relief sought here, they are directed to alleged unfairness as to the terms of the employment contract itself and the dismissal of the applicant was but an occurrence which may reasonably be said to have motivated him to challenge the then existing contractual terms by manifesting their inherent unfairness. But that says nothing, in our view, as to whether the dismissal was harsh, unreasonable or unjust…" (at 686). 14 After discussing extrinsic material in the nature of the second reading speeches the Full Bench concluded: "It is palpably clear, then, that s 109A has the purpose of removing from the unfair contracts jurisdiction those claims which are in truth or essentially involve unfair dismissal. In a very real sense, and having in mind the way in which this jurisdiction developed, such an approach is unexceptional… In short, our view is that s 109A operates to exclude a contract of employment from the operation of s 106 only where the unfair contract claim is an unfair dismissal claim in disguise and where essentially it is of the nature of an unfair dismissal. Where a claim challenges the terms or operation of a contract of employment by genuine, not superficial or coloured, reasons related to the contract itself then, in our view, it is a claim properly within s 106 and s 109A has no operation in relation to it. A review of the allegations made in the present case, we are satisfied, discloses allegations directed to the contract of employment and not to the applicant's dismissal. It is properly within s 106." (at 692). 15 A review of the allegations contained in the summons filed in these proceedings as to the alleged unfairness, which I have previously set out in detail, demonstrates that the applicant's attack is directed to the terms of the contract of employment or arrangement and not necessarily to the dismissal. There is reference to the failure to provide for the giving of fair, reasonable and appropriate notice of termination, the investment in the respondent of "significant discretionary powers" used to the substantial disadvantage of the applicant, the unequal and inferior bargaining power of the applicant, the deprivation of long-term career employment, the failure to make provision for the payment of fair, reasonable and appropriate redundancy payment and the like. On its face, therefore, the summons challenges the terms or operation of the contract of employment. Whether that challenge is "genuine" or whether the reasons are or are not "superficial or coloured" and "related to the contract itself" cannot, in my view, be determined at this stage of the proceedings. It is only where the relevant facts have been determined that it is possible in turn to consider whether s 109A operates to exclude the contract of employment or arrangement or collateral arrangement from the operation of s 106 as contended for by the respondent. 16 The respondent sought to rely on the judgment of Boland J in this court in Balsdon v Murray Irrigation (2003) NSWIRComm 251 in asserting that this was the appropriate time at which to consider this matter. However the factual circumstances in Balsdon are sufficiently different from those applying in the circumstances of these proceedings as to enable the Balsdon decision to be distinguished. Mr Balsdon was dismissed from employment as a result of allegations brought against him by his employer of gross misconduct. The summons in those proceedings contains no allegations as to why the contract of employment was unfair. The unfairness alleged related to a failure by the employer to take into account the applicant's long and unblemished record of loyal service, a failure to properly investigate the allegations and the fact that the applicant was depressed and had little prospect of gaining alternative employment consequent upon the termination of his employment. Boland J concluded that Mr Baldsdon "…was not attacking the terms or operation of his employment contract as being unfair but rather his focus was the unfairness of his employer's conduct in dismissing him from his employment…That is, the decision to dismiss was unfair because of a lack of procedural fairness" (paragraph 30). Accordingly his Honour concluded that the claim had "all the hallmarks of an unfair dismissal claim" and should be treated as such. His Honour applied s 109A accordingly. 17 As I have indicated, the circumstances surrounding those proceedings are sufficiently distinguishable from the circumstances in these proceedings and, as Boland J stated in Balsdon, sufficiently distinguishable from the circumstances being considered by the Full Bench in Beahan. 18 For the above reasons, I reject the submissions brought by the respondent in favour of the notice of motion which should be dismissed. Costs would normally follow the event, but as the question of costs has not been argued, I shall reserve costs, observing that the respondent is entitled to raise this matter again at any appropriate stage of the proceedings. ORDERS I make the following orders: 1. The respondent's strike-out motion is dismissed 2. Costs are reserved. 3. Liberty to apply with respect to costs. 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