Industrial Relations Commission of New South Wales in Court Session CITATION: Wood v Dick Smith Electronics Pty Ltd; Rawas v Dick Smith Electronics Pty Ltd [2005] NSWIRComm 408 APPLICANT (IRC 3/987) Shane Wood APPLICANT (IRC 3/989) PARTIES: Ahmad Rawas RESPONDENT Dick Smith Electronics Pty Ltd FILE NUMBER(S): 987 & 989 of 2003 CORAM: Marks J CATCHWORDS: s106 - unfair contract - employee discount scheme varied or removed - whether scheme was contractual entitlement or merely a privilege - application of community values in deciding whether there was unfair conduct - variation not unfair - application declined. LEGISLATION CITED: Industrial Relations Act 1996 A & M Thompson Pty Ltd v Total Australia Limited [1980] 2 NSWLR 1 CASES CITED: Baker v National Distribution Services Ltd (1993) 50 IR 254 Sydney Water Corporation Ltd & Anor v Industrial Relations Commission of NSW & Anor [2004] NSWCA 436 HEARING DATES: 11/02/2005; 11/03/2005 DATE OF JUDGMENT: 11/18/2005 APPLICANTS Mr A Rogers of counsel Solicitor: Mr M Zadow Shop Distributive and Allied Services Union LEGAL REPRESENTATIVES: RESPONDENT Mr J Murphy of counsel Solicitor: Ms M Cooper Henry Davis York JUDGMENT: - 6 - INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES IN COURT SESSION CORAM: Marks J Friday 18 November 2005 Matter No IRC 987 of 2003 SHANE WOOD v DICK SMITH ELECTRONICS PTY LTD Application under s.106 of the Industrial Relations Act 1996 Matter No IRC 989 of 2003 AHMAD RAWAS v DICK SMITH ELECTRONICS PTY LTD Application under s.106 of the Industrial Relations Act 1996 JUDGMENT [2005] NSWIRComm 408 1 This judgment deals with two applications brought against the respondent, Dick Smith Electronics Pty Ltd, seeking certain relief under s 106 of the Industrial Relations Act 1996 ("the Act"). One of the applicants is Shane Wood and the other is Ahmad Rawas. Both applicants are employees of the respondent. Mr Wood commenced employment in about July or August 2001 and continues to be engaged one day a week as a casual employee. Mr Rawas commenced employment in about August 2000 and continues in employment as a full time employee. Both attended a two day induction training course before commencing work in a Dick Smith Electronics store. During the course of the induction training programme, they were told about a staff discount scheme which was described in glowing terms. There was some controversy during the course of the evidence about what documentation may have been given to them regarding the staff discount scheme. It seems from the documents which became evidence in the proceedings that it is more likely than not that a store employees induction handbook, stamped with "last updated: 2/8/2002" is the document that was given to them. That describes two discount schemes which were available to Dick Smith staff who qualified after three months of probationary service (suitably modified in the case of regular casual staff). One of the schemes was described as the Dick Smith Electronics Scheme ("DSE"). Staff could purchase goods at cost price inclusive of GST + 10%. The other scheme, known as the Woolworths scheme, allowed for a discount of 5% on all goods. It was common ground that initially the 5% discount did not apply to "specials" at Dick Smith Electronics stores. The Woolworths scheme was one which applied to all of the employees of businesses operated by the Woolworths organisation. 2 The handbook to which I have referred does not indicate whether and to what extent the ability to participate in either of the staff discount schemes was a term of the contracts of employment of each individual Dick Smith employee, nor does it indicate whether and to what extent the schemes were capable of being varied. This is in contrast to a reference to commission schemes in the handbook which are specifically said to be "discretional and may be modified or withdrawn at any time". 3 Mr Wood ultimately signed a document entitled "Acknowledgement of Policy Summary Document" which said in connection with "staff purchases" that "the company reserves the right to alter the conditions of eligibility and to impose restrictions on the quantity or frequency of staff purchases by an employee, where these are deemed to be excessive either in volume of frequency". It is not clear whether reference to the alteration to the conditions of eligibility is intended to include amendments to the terms and conditions of the staff discount scheme itself. 4 On 20 February 2002 an announcement was made by the respondent company addressed to all company staff which stated that there was in process a review of "our approach in all areas of the business to ensure improved efficiencies and consistency both within our own business and the Woolworths group". There was reference to the Woolworths staff discount schemed, an employee share plan and an MBF membership discount scheme. The memorandum then referred to the integration of Tandy within the Dick Smith Electronics business, in that there had been a recognition of both the Tandy and the Dick Smith Electronics staff discount schemes. It was said that it was "now appropriate" to align those staff discount schemes with the Woolworths Group scheme. The memorandum said in part "adopting one staff discount policy will provide a fair and equitable staff discount scheme to all Woolworths employees ensuring consistency across all divisions. All employees of the Woolworths divisions are entitled to a 5% discount across a wide range of products within the group. This includes Tandy, Dick Smith Electronics, PowerHouse, Big W, Liquor Division, supermarkets as well as other businesses as specified in the store policy and procedure manual". The memorandum also announced that under the new policy the restriction against the application of the 5% reduction on specials in Tandy, Dick Smith Electronics and PowerHouse would be removed. One month's notice was given that the Dick Smith Electronics and Tandy staff discount schemes would cease. 5 One of the applicants was given two weeks actual notice of the proposed change, and took advantage of it to make a significant number of purchases using the then existing Dick Smith Electronics scheme. The evidence for the other applicant was that he was given about one month's notice. 6 In these applications, the applicants both seek a finding that their contracts of employment became unfair by reason of the decision of the respondent to abolish the DSE staff discount scheme and replace it with the amended Woolworths scheme. Variations were sought to their contracts of employment, the effect of which would be to reinstate entitlement to the DSE scheme. 7 It was said by each of them that the DSE scheme was of greater value in circumstances where there was a high mark-up and therefore a low cost base. The example given in evidence related to certain cabling where the cost price was about $2 and which retailed for $20. Use of the DSE scheme would allow a purchase of cabling for a considerable discount. Of course, the position would be different, as was conceded by the applicants, in circumstances where there was a low margin of 5% or less and on the irregular occasions when the respondent sold some items, usually discontinued, at below cost price. Nevertheless, in those circumstances, the applicants could previously have taken advantage of electing to use the Woolworths scheme for those purchases. 8 Neither applicant asserted that his employment initially nor, indeed, his continuing employment was adversely impacted upon by the change in the staff discount scheme. Both asserted that there had been some financial loss, although there were no precise quantifications. 9 It was the respondent's position that the entitlement to the staff discount scheme was not a contractual entitlement, that it was a privilege and that that privilege was at the discretion of the employer from time to time. The applicants did not contend that entitlement to participate in the scheme was a contractual entitlement. 10 There is no evidence that would allow the court to conclude that the entitlement to participate in the scheme was a contractual entitlement and accordingly, the matters discussed by the Court of Appeal in Sydney Water Corporation Ltd & Anor v Industrial Relations Commission of NSW & Anor [2004] NSWCA 436 do not arise for consideration. 11 Accordingly, the sole matter for determination is whether the removal of the DSE staff discount scheme in the context of the application of the modified Woolworths group scheme created relevant unfairness for the purpose of s 106. 12 It is necessary to make some observations about the relevant approach to a determination as to whether a contract is or has become unfair by reason of the conduct of a party. A helpful discussion as to the approach of the predecessor tribunals to this Court to the determination of whether a contract etc is unfair is contained within the joint judgment of Fisher CJ and Hungerford J in the Industrial Court of New South Wales Full Court 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). 13 It is my understanding that in determining whether there is unfair conduct for the purpose of proceedings brought under s 106 and especially under subsection (2), the Court is required to exercise a value judgment reflecting contemporary community values. The contemporary values may be derived from the commonsense approach characteristic of the ordinary, reasonable, hypothetical "standard" member of the community. Such a person will be neither an employer nor an employee, must be careful to weigh up the competing interests of the applicant as an employee and the respondent as an employer, and those interests must be accommodated and viewed objectively and balanced within the context of the factual matrix which applies to them. Such a process will accommodate the reasonable requirements and understanding of an applicant as an employee and the reasonable requirements and understanding of a respondent as an employer in the context of the needs of the employer to undertake its activities in an efficient, effective and competent manner. 14 Of course the identification of contemporary community values is not without its own difficulties. Some insight as to the difficulties involved may be gained from the discussion by Professor John Braithwaite in the article entitled "Symposium on Community Values in Law" published in vol.17 of the Sydney Law Review at 351. Professor Braithwaite draws on a body of literature to make a distinction between community attitudes and community values, the former not necessarily assisting a court in determining a matter, the latter having much greater relevance. An obvious example of an attitudinal matter is the debate concerning abortion. The corollary and underlying value against which such debate is conducted is "respect for human life, health, freedom of choice". 15 It must also be observed that the determinative process by which a judge ascertains whether the relevant unfairness exists can only be undertaken against a factual background. There has to be a contextual framework within which the value judgment can be made, as with any judgment. This includes not only the relationship between the parties as employer and employee, but also the milieu in which the employer operates. The respondent is part of one of the largest retail conglomerates operating in Australia, with a significant retail presence in New South Wales. The only available evidence is that the withdrawal of the DSE staff discount scheme and its replacement with a modified scheme was brought about as a result of the integration of the Tandy and Dick Smith Electronics operations within the Woolworths group, in terms resulting in consistent application of employee benefits, and in particular, staff benefit discounts. Even assuming that the net result of what occurred may in certain cases disadvantage each of the applicants with respect to any particular purchase of any particular item, it is impossible to quantify the extent of any loss. This would depend upon generalised and specific individual spending patterns, and the nature of items being purchased. It would depend upon how often an individual employee might need to acquire items with a very large profit mark-up such as cabling, or items with a much lower profit margin. 16 There can be no doubt that in some specific cases, both applicants have been or will be financially disadvantaged in the future by what has occurred regarding the employee benefits schemes. No doubt they are both disappointed about what has occurred. I accept that both of them genuinely feel that what has occurred to them is unfair. Nevertheless, a feeling of unfairness by one party to a contractual relationship is not determinative that the requisite unfairness exists so as to enable a finding to that effect to be made for the purpose of s 106 of the Act. As I have indicated, a finding of unfairness is to be made objectively by reference to all of the relevant circumstances to which I have referred, and any such finding should reflect contemporary community values. 17 We live in an era where there is a continual change in benefits and privileges motivated by a variety of factors. These changes often impact upon employee benefits. However, this Court should in my opinion only interfere and intervene where it is clear that objectively assessed in the manner to which I have referred any such changes can be found to be unfair. 18 In circumstances where the applicants were entitled to continue to participate in a staff discount purchase scheme, albeit that it did not necessarily provide the same degree of benefits with respect to all purchases, I am unable to find that the change made can be found to be unfair for the purpose of s 106 of the Act. This is particularly so by reference to the reason advanced by the respondent for the introduction of the change and having regard to the overall needs of the Woolworths Group to introduce a consistent approach to all employees throughout the group. There can be no doubt that having regard to the wide range of products to which a 5% discount can apply as sold throughout the Woolworths organisation, the staff discount scheme remains a valuable and attractive benefit. In these circumstances, the Court declines to grant the relief sought. 19 The proceedings were advanced on the basis that neither party was making any claim for costs. Accordingly, the only order that needs to be made is that the summons in each case be dismissed and I so order. 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.