Industrial Relations Commission of New South Wales in Court Session CITATION : Frederick Fliedner v Philips Electronics Australia Ltd [2003] NSWIRComm 23 APPLICANT Frederick Fliedner PARTIES : RESPONDENT Philips Electronics Australia Ltd FILE NUMBER: IRC 3132 of 2001 CORAM: Marks J CATCHWORDS : Unfair contract - Applicant alleged that imposition of cap on retrenchment benefits rendered the contract unfair - Held that in the absence of any evidence or information about any community standard of payment of retrenchment benefits unable to find that the retrenchment cap was unfair - Held that failure to take into account car allowance and bonus in calculation of retrenchment benefits rendered the contract unfair - Orders accordingly. LEGISLATION CITED : Industrial Relations Act 1996 Baker v National Distribution Services Ltd (1993) 50 IR 254 CASES CITED : Westfield v Adams (2001) NSWIRComm 293 Westfield Holdings v Adams (2002) 114 IR 241 Payne v Foxboro (1998) 81 IR 404 HEARING DATES: 12/17/2002 DATE OF JUDGMENT: 02/18/2003 APPLICANT Mr I Latham of counsel SOLICITORS Beston Macken McManis LEGAL REPRESENTATIVES: RESPONDENT Mr B J A Shields of counsel SOLICITORS Deacons JUDGMENT: - 1 - INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES IN COURT SESSION CORAM: MARKS J Tuesday 18 February 2003 Matter No IRC 3132 of 2001 FREDERICK FLIEDNER v PHILIPS ELECTRONICS AUSTRALIA LTD Application under s 106 of the Industrial Relations Act 1996 JUDGMENT 1 The applicant Frederick Fliedner has brought proceedings against the respondent Philips Electronics Australia Ltd under s 106 of the Industrial Relations Act 1996 ("the Act"). The proceedings arise out of the termination of the applicant's employment by the respondent on 31 January 2001 when he was retrenched after many years of service. The applicant had been employed by the respondent since 2 January 1973. On retrenchment he was paid an amount in lieu of notice of approximately four week's pay and redundancy pay pursuant to the respondent's redundancy policy capped at 53 weeks, allowing for an additional week's pay because of the applicant's age. The redundancy pay was calculated on the applicant's base rate of pay exclusive of a car allowance which he received and exclusive of any performance bonus. 2 The applicant's claim was that the respondent's redundancy policy was unfair because firstly it was calculated by reference to base salary, and secondly because the cap of 52 weeks plus one week precluded him from receiving payment to which he would otherwise have been entitled by reference to a formula of three weeks for each year of service amounting to 89.33 weeks. Accordingly, it was said that the applicant was treated unfairly by reason of the respondent's redundancy policy because he received the same amount on being retrenched as an employee of approximately 17 years service. 3 Some additional factual material was led in the proceedings. 4 At the time of the termination of his employment the applicant was employed as a financial accountant on a base salary of $59,200 per annum together with a car allowance of $16,800 per annum. The applicant said that at the time of the termination of his employment he received "a performance bonus of $7,525." This information appears to have been confirmed in an affidavit sworn by Mark Bagster which was filed by the respondent. It states that immediately prior to the termination of his employment the applicant was in receipt of, inter alia, "a performance bonus" which was said to be $7,525 paid in March 2000. 5 No other evidence about the circumstances in which the performance bonus was earned and paid was adduced by either the applicant or the respondent. I was asked to infer that this is a bonus which was habitually paid to the applicant and was part of his remuneration package. Whilst the evidence in this regard is far from satisfactory, on balance I am persuaded that I should consider the sum of $7,525 as part of the applicant's employment package. 6 The respondent's redundancy policy was formulated in 1990 following a substantial reduction in the respondent's workforce and the realisation that different redundancy arrangements had been negotiated at a number of individual work sites. The policy was formulated after consultation with a number of human resource managers, without reference to employees generally and without reference to trade unions. Individual trade unions endeavoured to renegotiate the policy after its formulation but these negotiations did not result in any improvement in the overall benefits payable. Accordingly, the practice which applied to "about 99 percent of all retrenched employees" was that which was applied to the applicant namely four week's notice or the payment of four weeks base salary in lieu of notice and three weeks base salary per year of service to a maximum of 52 weeks inclusive of notice. In some cases, the 52 weeks severance pay was paid in addition to the four weeks pay in lieu of notice and this variation was applied to the applicant. 7 In the course of evidence reference was made to the circumstances of four individual former employees of the respondent, Messrs Langford, Bagster and Billingsley and Ms Napier. I am satisfied on the basis of the evidence that the circumstances of each of these persons are relevantly different from those which applied to the applicant, so that no finding of unfairness can properly be made by reference to the manner in which the respondent treated these former employees. Mr Billingsley was at a very senior level within the respondent's organisation and Mr Bagster was the chief executive officer. Mr Langford retired rather than being retrenched and Ms Napier was paid some additional moneys for the purpose of ensuring that she remained in employment to fulfil a particular task. 8 I reject any suggestion that the circumstances of the termination of employment of any of these persons can assist the applicant in any way in connection with his claim brought in these proceedings. 9 Sections 105 and 106 of the Act are in the following terms: 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. 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. 10 Before dealing with the specific allegations of unfairness I should make some general observations about the processes by which and the principles utilised for the determination of whether the requisite unfairness exists. A convenient starting point is contained within the joint judgment of Fisher CJ and Hungerford J in the Full Court of the Industrial Court of New South Wales in Baker v National Distribution Services Ltd (1993) 50 IR 254. At 271 their Honours said: "The test of unfairness within the meaning of s 88F of the Industrial Arbitration Act, and hence s 275 of the present Act, has received much attention by the Court and by the previous Industrial Commission over very many years, but, in our review of the cases, the approach stated by Sheldon J in Davies v General Transport Development Pty Ltd [1967] AR (NSW) 371 over 26 years ago has endured; his Honour commented (at 374) that unfairness of a contract or arrangement was to be determined according to "the common sense approach characteristic of the ordinary juryman ….It is a plain matter of morals not law." His Honour cautioned, however, (at 374,375) that the section's "massive power makes it imperative that it should be exercised with proper restraint … it should not permit itself to become a refuge for those who are merely disgruntled with a bargain entered into on even terms. … the discretion should be exercised to protect victims of wrong dealing not to prescribe anodynes." Those words by his Honour echoed what had been said earlier by Beattie J in Agius v Arrow Freightways Pty Ltd [1965] AR (NSW) 77 at 89 that it was a matter of deciding "in each particular case by the application of the tribunal's common sense and sense of justice whether a particular transaction is unfair, harsh and unconscionable". The nature of the unfairness attracted by s 88F was considered later by the Industrial Commission in Court Session (Perrignon and Dey JJ, Cahill J dissenting) in A & M Thompson Pty Ltd v Total Australia Limited [1980] 2 NSWLR 1 at 13 as follows: "It has been said that fairness is determined by the commonsense approach of a juryman and that it is a moral and not a legal issue ( Davies' case). Whether this be so or not, it does seem that in distinguishing between what is fair and what is not fair the Judge must apply standards which appear to him to provide a proper balance or division of advantage and disadvantage between the parties who have made the contract or arrangement. In doing so he would always have to bear in mind the conduct of the parties, their capability to appreciate the bargain they had made and their comparative bargaining positions when entering into the contract or arrangement." (at 271-2). 11 In determining whether there is an unfair contract for the purpose of proceedings brought under s 106 and especially taking into account subs (2), the Court is required to exercise a value judgment reflecting contemporary community values derived from the commonsense approach characteristic of the ordinary, reasonable, hypothetical "standard" member of the community. The value judgment must obviously take into account the totality of the circumstances of the relationship between the parties and the totality of the interests of each of the parties. It must be directed to the contract as defined in s 105 of the Act 12 The respondent took no point with respect to any jurisdictional issue. The only matter for determination therefore was the unfairness of the respondent's redundancy scheme and the manner in which it operated as applied to the applicant. 13 The applicant submitted that the conduct of the respondent in connection with the manner in which the redundancy scheme was devised, the fact that its terms were not promulgated widely to the workforce and that the applicant was precluded from negotiating any variation to the redundancy scheme as it applied to him all created relevant unfairness for the purpose of s 106. 14 The fundamental question for determination in these proceedings revolves around the fairness or unfairness of the scheme itself rather than the processes utilised to devise it and whether or not its terms were communicated to the workforce. The same comment applies with respect to the applicant's complaint that he was unable to negotiate any variation. If the redundancy scheme is unfair then its unfairness arises as a result of its terms. 15 The same comment applies with respect to the imposition of a cap. If the capped amount is not unfair, then any higher amount will ipso facto not be unfair even though any higher amount may be fairer than the capped amount. What needs to be determined is, in all the circumstances, whether the moneys paid by reference to the cap created the relevant unfairness. 16 Whether something is fair or unfair cannot be determined in a vacuum. A value judgment is just that, namely a judgment made against the background of a value or values. In determining whether a particular community value has or has not been breached, it is necessary on occasions to have regard to relevant standards which are created and which operate within and concurrently with any value system. 17 It would be facile to conclude that logically the higher the amount payable to the applicant, the fairer the payment would be. I have previously pointed out this is not the question which I understand needs to be determined in the context of these proceedings. That question involves initially a determination as to whether or not the moneys paid to the applicant by the respondent on his retrenchment created any relevant unfairness, taking into account the interests of and the circumstances of both parties. 18 In written submissions Mr Latham of counsel who appeared for the applicant relied on observations of a Full Bench of this Court in Westfield Holdings v Adams (2002) 114 IR 241. After considering decided cases involving redundancy benefits, the Court said: "We consider that the following principles may be derived from these cases: (1) Whether or not a contract or arrangement is unfair within the meaning of ss 105 and 106 is a matter to be decided upon examination of the facts of each particular case; the sections deal largely with private rights inter partes; the focus of attention is the contractual relationship between a particular employer and employee. (2) Subject to the primary focus being the particular circumstances of the individual contract or arrangement concerned, in assessing whether unfairness has occurred general standards or levels, including standards or redundancy pay applying to employees covered by industrial awards or legislation, of what is considered to be fair will be factors to be considered. (3) Despite that a general and relevant industrial prescription governing benefits payable to employees in termination of employment situations may exist unfairness in relation to a particular contract of employment may nevertheless arise in a situation of redundancy or termination of employment for reasons unrelated to or not relevant to the basis of award prescription of an objective and fair benefit. (4) The scale fixed in the Redundancy Awards Case was fixed on a 'safety net' basis. In making money orders under s 106(5) the Court may have regard to the Redundancy Awards Case scale but is not bound to apply it in the context of the case before the Court. In assessing whether unfairness has occurred, and in making money orders under s 106(5), we consider that it would be appropriate to have regard to the foregoing principles relating to the relevance of general industrial standards. This will assist in providing perspective in exercising the broad discretion available to the Court under s 106(5). We stress, however, the primacy of the particular circumstances of the individual contract or arrangement concerned." 19 However, there is nothing within the judgment of the Full Bench in Adams that is indicative of any general standard or level of redundancy pay, whether applying to employees covered by industrial awards or otherwise. I note that at para 151 the Full Bench referred with apparent approval to the decision of Hill J in Payne v Foxboro (1998) 81 IR 404. His Honour in those proceedings had difficulty in determining that a particular regime of redundancy benefits was unfair in the absence of any "evidence of a higher and objective standard applicable to the circumstances of this case, or of some other comparative unfairness …." 20 Accordingly I derive no particular assistance from the decision in that case which would allow a finding of unfairness to be made in favour of the applicant in these proceedings. 21 The applicant did not adduce any evidence or make any submissions about any particular general or otherwise relevant standard which applied to the payment of redundancy benefits either within New South Wales orelsewhere, nor did the applicant direct my attention to any particular decided cases or to any statutory regime. In these circumstances I am unable to determine that the cap imposed by the respondent's redundancy scheme created any relevant unfairness for the purpose of s 106 of the Act. I have previously indicated that any judgment about a matter such as this cannot be made in a vacuum. I am unable to conclude that the imposition of a cap so as to limit payment to 52 weeks remuneration is so intrinsically unfair that a finding can be made for the purpose of s 106 in the absence of any other evidence or relevant material. 22 In my opinion the approach contended for by the applicant unduly emphasises the impact on the applicant of the limitation imposed by the cap and deflects attention away from the substantive matter which needs to be considered namely whether the contract or arrangement between the parties was in all the circumstances unfair. As the respondent submitted, the applicant's claim ignores the element of cost to the respondent and makes no allowance for the quantum of entitlement under the redundancy policy for each year of service. That is, the redundancy policy has to be seen as a package. 23 Having regard to the observations which I have made above, I conclude that this aspect of the applicant's case must fail. 24 The applicant did not attack the length of notice given to him as opposed to the quantum of retrenchment pay. He had had many years service with the respondent and yet was provided with only one month's pay in lieu of notice. Even allowing for the necessity to avoid double dipping when considering payment in lieu of notice concurrently with a situation of redundancy (see Westfield v Adams (2001) NSWIRComm 293, esp. at para 161 (7)), it is arguable that on the application of the standards and principles adopted by this Court that the amount paid in lieu of notice was less than fair. However, because no claim was made in this regard, nor any argument advanced with respect to it the matter is not capable of being dealt with in these proceedings. In making these comments I am conscious of similar comments having been by Hill J in Baker v National Distribution Service Ltd (1993) 50 IR 254 at 284. 25 However, having regard to the purpose for which redundancy payments are made, as described more fully in the joint judgment of Fisher CJ and Hungerford J in Baker v National Distribution Service Ltd, I conclude that in the circumstances of these proceedings the appropriate basis for calculation of the applicant's redundancy payments was his full remuneration package inclusive of car allowance and bonus. 26 Accordingly the applicant is entitled to receive a payment of additional redundancy pay calculated for a period of 53 weeks by reference to an annual car allowance of $16,800 and an annual bonus of $7,525. I calculate that this will result in the payment of a further $24,793. Of course, the respondent will be liable to deduct from such amount whatever taxation is properly payable thereon. 27 Accordingly, I find that the contract of employment between the applicant and the respondent was unfair in that the redundancy payments paid to the applicant failed to take into account his car allowance and bonus, and the contract should be varied accordingly. I hereby vary the contract of employment so as to require the employer to make redundancy payments to the applicant to take into account the value of his car allowance in the sum of $16,800 and an annual bonus of $7,525. The summons sought the payment of interest to which the applicant is prima facie entitled. 28 The respondent asked that costs be reserved and I shall do so. ORDERS 29 I make the following orders consequent upon the finding of unfairness which I have made: 1. The contract of employment between the applicant and the respondent is varied from its commencement to provide that redundancy payments are to be calculated by reference to the applicant's remuneration including annual bonus and car allowance. 2. The respondent is to pay the applicant the sum of $24,793 together with interest thereon calculated under the Supreme Court Rules from 31 January 2001 to this date. 3. Costs are reserved. 4. Liberty to apply with respect to costs. ________________________________ DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.