s.170CE application for relief in respect of termination of employment

Termination of employment - appeal - whether there was a valid reason for termination - failure to draw the inference that the respondent had regard to the WorkCover and injury status of the appellants and that it had played an operative part in their selection for redundancy. Relevant principles re: drawing of inferences considered. Reviewable error, appeal upheld - no valid reason - terminations were unjust and unreasonable. Question of remedy remitted pursuant to s.45(7)(c).

[1] This decision deals with an appeal by Messrs A. Smith, T. Perret, L. Rapsey, D. Murphy, B. Kimball, T. Hodge and C. Bakic (the appellants) against a decision made by Commissioner Hingley on 7 November 2001.[1]

[2] Moore Paragon Australia Ltd (the respondent, or the Company) operates a printing and stationery business from its premises in Wodonga, Victoria. The premises occupy two buildings (known as Wodonga 2 and 3) and feature printing and paper coating functions, collating and finishing and warehouse and dispatch functions. We refer to these premises as the Wodonga Complex.

[3] In early 2001 Mr Patrick McGilly, the respondent's Director of Manufacturing, met with the Company's Chief Executive Officer, Mr Jim MacDonald, and the Directors of Finance and Sales/Marketing, Messrs Duncan and Siva, to discuss the Wodonga Complex's output forecast for 2001. The 2001 forecast predicted that output would be reduced by 20 per cent as a result of the introduction of new technology and product lines. At the meeting a decision was taken to implement a number of cost cutting initiatives in order to accommodate the predicted decline in output. The measures adopted included:

¬ conducting conference calls where possible to reduce travel costs;

¬ imposing a mandate on the Company's purchasing department to get a better price from suppliers; and

¬ reducing the amount of overtime worked.[2]

[4] In late January Mr McGilly met with Mr MacDonald and the Chairman of the Company's Board, Mr Harvey Parker. At that meeting it was decided that for the Wodonga Complex to remain viable staff numbers had to be cut by approximately 36 employees. At that time the Company employed about 250 employees at the Wodonga Complex.[3]

[5] On 30 January 2001 Mr McGilly advised the relevant union (the Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union (AMWU)) and site delegates of the Company's need to reduce the size of its workforce. The next day the Company's Human Resources Manager sent a facsimile message to the National Office of the AMWU in the following terms:

In accordance with Clause 33 - Redundancy, of our current EBA 2000 we notify you of the Company's need to reduce its workforce numbers as part of a restructuring process as foreshadowed at a recent informal discussion between Pat McGilly, Manufacturing Director, Moore, Ron Herbert, FOC and Rob Leonard, AMWU organiser.

As per Clause 33.6 of the EBA the Company intends to call for volunteers on 31 January 2001.

Should you wish to discuss this further I will be available at your convenience."[4]

[6] In February 2001 Mr McGilly held two meetings with the employees at the Wodonga Complex. The first was at the change over of morning and afternoon shifts. It was held in the canteen in the building known as Wodonga 3. We refer to this meeting as the morning/afternoon shift meeting.[5] The other meeting was held with the nightshift and is not relevant to these proceedings.

[7] The morning/afternoon shift meeting was attended by all of the employees on morning and afternoon shift including each of the appellant's except Mr Bakic who was on annual leave. All of the managers who were subsequently involved in the redundancy selection process were also in attendance. A copy of the overheads used by Mr McGilly in his presentation to the meeting is attached to Mr Rapsey's witness statement.[6] During the course of this presentation Mr McGilly:

¬ advised of the Company's need to reduce its staff numbers by 36 employees and said that the Company could not give a commitment to providing ongoing employment for its 250 employees but could give a guarantee for about 200;

¬ explained the process that the Company would follow in implementing redundancies, that is call for volunteers and if the Company did not receive the required number of suitable volunteers then it would select the required numbers via an established selection criteria based on skills and abilities;

¬ highlighted the Company's obligations pursuant to Moore Business Systems Enterprise Bargaining Agreement 2000 (the 2000 EBA) in that the Company was obliged to call for volunteers before selecting individuals to be made redundant;

¬ explained that the Company was imposing a deadline of 5.00 p.m. on 5 February 2001 for employees to apply for voluntary redundancy. Further an individual's application for voluntary redundancy may not be accepted if the Company was of the opinion that the employee's loss of skills and experience would be detrimental to the Company's operations; and

¬ described work related injuries as a "major concern" at the Wodonga Complex.[7]

[8] The Company subsequently received 42 applications for voluntary redundancy, having sought 36. Thirteen of these applications were rejected by the Company and it was decided to implement thirteen involuntary redundancies, thus increasing the total redundancies from 36 to 42.[8] The Company did not tell its employees that it had increased the number of redundancies required, or that it had moved to the "involuntary" stage of the redundancy process or otherwise consult with them.[9] It did inform the AMWU about the increase in employees to be made redundant.[10]

[9] After the morning/afternoon shift meeting Mr McGilly met with his Department Managers/Supervisors and told them to undertake a skills audit of all employees in their department. He also approved a memo issued by the site Human Resources Manager to all Department Managers/Supervisors. A skills assessment form was attached to the memo and the managers/supervisors were directed to complete a skills audit of each employee under their direction.[11]

[10] The involuntary redundancy selection process involved two stages:

1. Skills audit - a skills assessment form was completed for all employees by each employee's manager/supervisor.

2. Self assessment interviews - each employee was interviewed by a manager from another work area. According to Mr McGilly this was done "in order to avoid any existing bias".[12]

[11] After the skills audits were completed they were returned to the site Human Resources Manager, they were not shown to the relevant employees.[13] There was no cross-checking to ensure consistency.

[12] The interviews were conducted on 6-8 February 2001. The interviewers were provided with a pro forma questionnaire[14] which involved different criteria from that specified in the skills audit.[15] The interviewers did not regard the interview process as being limited to skills criteria.

[13] Each of the interviewers who gave evidence in the proceedings denied taking the WorkCover injury status of an employee into account in the redundancy selection process.[16] Mr McGilly's evidence was that the redundancy selection process "did not at any stage refer to whether or not the employee had had at any time a WorkCover claim against the Company."[17] The evidence of other witnesses for the respondent was that the management group meeting referred to and discussed the injury status of the employees at the same time as the final nominations for redundancy were determined, but each witness denied that this was taken into account.[18]

[14] Not all employees were interviewed. Those who had applied for voluntary redundancy were not interviewed; nor were two of the appellants - Mr Smith, who was on annual leave, and Mr Murphy, who was off work with a knee injury.

[15] A summary of the evidence regarding the skills audit and self assessment interviews in relation to each of the appellants is set out below.

Mr Brett Oliver Kimball: self assessment interview conducted by Mr Jim Ramage, a Production Manager, on 8 February 2001.[19] Mr Kimball's evidence about the interview is set out at paragraph 21 of his witness statement, Exhibit A2:

"The interview lasted about 5 minutes. The only question during the interview about my skills was in relation to technical skills. I was never told of any performance assessment that had been done and I was not asked to comment on anyone's view of my performance. I was not told I was being considered for an involuntary redundancy. I was not asked to give reasons why I thought I should not be made redundant or why I was more suitable for retention than other employees."[20]

Mr Kimball was not cross-examined on this part of this statement.[21]

Mr Lindsay William Rapsey: self assessment interview conducted by Mr Tom Griffiths, the Customer Service Manager at the Wodonga Complex, on 6 February 2001.[22] Mr Rapsey's evidence about the interview is set out at paragraph 18 of his witness statement, Exhibit A5:

"I was interviewed a couple of days before 8 February 2001 by Tom Griffiths and a man I know as `Tilly'. They did not have first-hand knowledge of my work. They called me over as I went for a coffee and asked if we could have a meeting. We went to the logistics administration office. They asked me a series of questions which were printed on a form they had. I was asked to comment on the questions they posed but there was no performance assessment. I was not told I was being considered for a redundancy. They did ask me whether I had `reconsidered' whether to take a redundancy. I said I hadn't and they said `okay'. They didn't pressure me either way."[23]

Mr Rapsey was cross-examined on this part of his statement. The relevant exchange is set out below:

"Ms Cleary: Mr Rapsey, you did state in your examination-in-chief that you hadn't seen that document previously. However, could you quickly review that document and look at the questions which were raised with you. Is that a summary of the questions that Tilly and Tom raised with you at that interview?

Mr Rapsey: The only thing they asked me from that, and I was not shown that, it was on a clipboard which Tilly wrote on.

Ms Cleary: But, Mr Rapsey, these are the questions that you can recall being asked?

Mr Rapsey: Part of them, yes, and I don't say all of those questions were asked. They just basically asked some simple basic questions and thank you very much and that was the end of it, three minutes.

Ms Cleary: And you state at point 18 of your statement, "They did ask me whether I had reconsidered whether to take a redundancy." Were you surprised by that question?

Mr Rapsey: Dumbfounded. I thought that was very poor, because it already inferred that I'd been made redundant prior"[24]

Mr Arthur William John Smith: commenced annual leave on or about 5 February 2001. Skills assessment conducted by Mr Trevor Welladsen, Production Manager.[25] Was not invited to participate in a "self assessment interview". Mr Wellardsen did not discuss the skills audit with Mr Smith.

Mr Terrence Keith Hodge: self assessment interview conducted by Mr Andrew Furst, Production Manager.[26] Mr Hodge's evidence about the interview is set out at paragraphs 15 and 16 of this statement, Exhibit A11:

"On 8 February 2001 I was called to an interview with Andrew Furst (Wodonga 2 shift manager) and Andrew Kennedy (Wodonga 3 planner). They said they had some questions to ask me. They asked me what I thought of Pat McGilly's speech the previous week, where I thought the Company was going, whether I thought it was heading in the right direction. They didn't know what my job was and they asked me about my skills and asked me to rate myself as an employee. They asked me what computer skills I had. I didn't have any, because my work has never involved using a computer. They asked me whether I was prepared to work at Wodonga 2 if it was necessary. I said I was. They asked whether I wanted to take a redundancy. I said no. They asked whether that was a `big no'. I said it was. Andrew Furst did most of the questioning and took notes. Kennedy did not say much. At the end of the conversation they thanked me and asked me to send in the next person, who they named.

I did not see any skills assessment and I was not asked to comment on any suggestion that I might be made redundant. I was not asked to consider other jobs, other than the mention of Wodonga 2 which I would have done if it had meant avoiding termination."[27]

Mr Hodge was cross-examined on this part of his statement. The relevant exchange is set out below:

"Ms Cleary: What I'd like to do now is refer you, Mr Hodge, to point 15 of your statement . . . where you refer to having a meeting with the two Andrews . . . and you state, "They asked me what I though of Mr McGilly's speech and where I thought the company was going, whether I though it was heading in the right direction". What was your response to that query?

Mr Hodge: I think I said that if what he says is true, the company will be going in the right direction, yes.

[Ms Cleary then took the witness to Exhibit A12]

Ms Cleary: The document's headed "Structured Interview", Mr Hodge, can I get you just to quickly read that document? Just the first page? I'd just like you to focus on the questions in the left hand columns? . . . Prior to - when you went to that interview you were provided with a copy of that interview questionnaire, weren't you?

Ms Cleary: With respect to the questions, the questions which were raised at that interview, they were the questions on that sheet?

Mr Hodge: Yes, I think they are, yes."[28]

Mr Tony Perret: self assessment interview conducted by Mr Tom Griffiths.[29] Mr Perret's evidence about the interview is set out at paragraphs 16 and 17 of his witness statement, Exhibit A16:

"Between 1:00 and 2:00 p.m. on 6 or 7 February 2001 a Company accountant who I know as Tilly, and Tom Griffith from Customer Service, approached me and asked me to come to a meeting in the Wodonga 2 warehouse office. Griffith opened the interview by telling me they wanted to get a `general idea' of my skills. He proceeded to ask me questions about my skills, training, whether I was a `team player' (including `what is your definition of a "team"?'), what were my aims and what community activities I was involved in.

The interview lasted about 20 minutes. They did not tell me I was being considered for a voluntary redundancy and did not ask me to say why I should not be made redundant or was less suitable for retention than other employees. I was never asked to identify whether there were other jobs I could have done."[30]

Mr Perret was cross-examined on this part of his statement. The relevant exchange is set out below:

"Ms Cleary: . . . when you attended that interview, did they outline to you reasons for your attendance?

Mr Perret: They just said that they wanted to get a general idea of my skills . . . just to get an idea of my general skills and what I have done outside of Moore Paragon.

Ms Cleary: Okay then. So looking at the document in front of you headed "Structured Interview", and particularly in relation to the left hand column, were those the questions that were asked of you at that interview?

Mr Perret: I could only assume they were. I can't recollect those exact questions.

Ms Cleary: And was a copy of that structured interview provide to you?

Mr Perret's skills assessment was carried out by Mr Gasperov, the National Warehouse Manager in conjunction with two supervisors.[32]

Mr Darrell John Murphy: Injured his knee in a non-work related accident on 19 October 2000 and was not able to attend work until his employment was terminated in February 2001. Was not invited to participate in a "self assessment interview".[33] Mr Murphy's skills assessment is set out at Exhibit A21.[34]

Mr Corey Marcus Bakic: self assessment interview conducted by Mr Jim Ramage.[35] Mr Bakic's evidence about that interview is set out at paragraph 22 of his witness statement:

"On the morning of Thursday 8 February 2001, I was interviewed by two people, one was a shift manager from Wodonga 2 and the other was a shift manager from Wodonga 3. During the interview they asked my questions about where I wanted to go in the company. I explained I had been away and come back to this situation, so they told me about the changes to the company. I told them how I had put in for apprenticeships but had not heard back. They did not tell me what skills rating I had received from the shift manager. I was not given an opportunity to comment about the assessment."[36]

Mr Bakic was cross-examined on this part of his statement. The relevant extract is set out below:

"Ms Cleary: I would now like to refer you to point 22 of your statement, and you refer the fact that you were interviewed by two people - two managers . . . And you said that they explained - you explained that you had been away and you had come back to the situation so they told me about the changes to the company. What did they tell you?

Mr Bakic: Just about - there had been people - voluntary redundancies and yes - sort of can't remember the whole conversation, but yes, it was just that there was redundancies being made and voluntary, some of them.

Ms Cleary: Did they tell you that the people were being selected for redundancies?

Mr Bakic: They said that they were voluntary - that says it - sums it up just about."[37]

The structured interview notes and skills assessment document relating to Mr Bakic are set out at Exhibits A25 and A26.[38] In his evidence Mr Bakic said that he had not seen either of these documents before.[39]

[16] None of the appellants were told the rating they had been given in the skills audit[40] or in the structured interviews. Nor were they told that the answers they gave in those interviews would influence whether they were selected for involuntary redundancy.[41]

[17] The skills audit and interview scores for each employee were combined and submitted to a meeting of all of the managers who had been involved in the process.[42] The meeting nominated thirteen employees to be made redundant and these were approved by Mr McGilly.[43]

[18] Of the thirteen employees made involuntarily redundant at least nine, including each of the appellants, were either subject to a WorkCover or other injury restriction; or had notified WorkCover claims to the Company.

[19] After the management meeting towards the end of the day shift on 8 February 2001 the employees who had been selected for involuntary redundancy were individually called into meetings and told they had been made redundant. The decision to terminate their employment was presented as a fait accompli, not as a proposal on which their input was sought.[44]

[20] The two employees who had not been at work - Messrs Smith and Murphy - learned of their redundancies via letters in the post.

[21] Each of the appellants received redundancy payments in accordance with the 2000 EBA. By reason of their WorkCover or injury status some of them (Messrs Smith, Rapsey, Hodge, Perret and Kimball) were entitled to weekly payments following their loss of employment but by reason of s.96 of the Accident Compensation Act (Vic) their weekly payments were suspended.

[22] At the relevant time the respondent was bound by the 2000 EBA.

[23] Messrs Smith, Perret, Rapsey, Murphy, Kimball, Hodge and Bakic filed applications for relief in respect of the termination of their employment, pursuant to s.170CE of the Workplace Relations Act 1996 (Cth) (the WR Act). These applications were heard by Commissioner Hingley on 18 and 19 September 2001. On 7 November 2001 the Commissioner handed down his reasons for decision in which he dismissed each of the applications.

[24] The principal findings in the decision at first instance[45] are set out below:

¬ there was a valid reason for the terminations based on the respondent's managerial decision as to its organisational requirements;[46]

¬ the selection process criterion were sound and defensible, and were objectively applied.[47] The supervisors/managers who carried out the process "genuinely endeavoured to apply a fair commonsense approach absent of bias";[48]

¬ all seven applicants were told that redundancies were required to meet the company's operational requirements;[49] and

¬ the terminations were not related to capacity or conduct and therefore s.170CG(3)(c) has no application.[50]

¬ the terminations were not related to unsatisfactory performance and therefore s.170CG(3)(d) has no application.[51]

[25] Pursuant to s.170CG(3)(e) and the need to ensure that a "fair go all round" is accorded to both the employer and the employee, the Commissioner considered the individual circumstances of each of the applicants.[52]

[26] We also note that the Commissioner declined to draw the inference that the WorkCover history or work injury restrictions of the applicants were taken into account in their selection for redundancy.[53]

[27] The appellate jurisdiction conferred on us by s.45 in relation to an appeal concerning an order arising from the arbitration of an application under s.170CE is conditioned by s.170JF(1) which limits the grounds of an appeal. The only ground is that the member of the Commission who conducted the arbitration was in error in deciding to make an order. That can be an error of fact or an error of law.[54]

[28] The nature of an appeal under s.45 of the WR Act was the subject of consideration by the High Court of Australia most recently in Coal and Allied Operations Pty Ltd v Australian Industrial Relations Commission[55] (Coal & Allied). Gleeson CJ, Gaudron and Hayne JJ, in a joint judgment, said:

"Because a Full Bench of the Commission has power under s 45(6) of the Act to receive further evidence on appeal, an appeal under that section is properly described as an appeal by way of rehearing. And because there is nothing to suggest otherwise, its powers under sub-s (7) are exercisable only if there is error on the part of the primary decision-maker. And that is so regardless of the different decisions that may be the subject of an appeal under s 45." [56]

[29] The types of error that may constitute grounds for review of a discretionary decision of the kind here under consideration were re-stated in Coal & Allied in the following way:

"Because a decision-maker charged with the making of a discretionary decision has some latitude as to the decision to be made, the correctness of the decision can only be challenged by showing error in the decision-making process [See Norbis v Norbis [1986] HCA 17; (1986) 161 CLR 513 at 518-519 per Mason and Deane JJ]. And unless the relevant statute directs otherwise, it is only if there is error in that process that a discretionary decision can be set aside by an appellate tribunal. The errors that might be made in the decision-making process were identified, in relation to judicial discretions, in House v The King in these terms:

`If the judge acts upon a wrong principle, if he allows extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed and the appellate court may exercise its own discretion in substitution for his if it has the materials for doing so. [(1936) 55 CLR 499 at 505 per Dixon, Evatt and McTiernan JJ].' "[57]

[30] The grounds set out in the notice of appeal are as follows:

1. The learned Commissioner erred in failing to find that the Respondent breached clause 33.6 of the Moore Business Systems Australia Ltd Enterprise Agreement 2000 (`the Certified Agreement') by including, in its criteria for selection of the Appellants for redundancy, criteria other than the `skill needs' of the Company.

2. Alternatively, the learned Commissioner erred in finding if he did that the Respondent complied with the Certified Agreement in respect of its criteria for selecting the Appellants for redundancy.

3. The learned Commissioner erred in finding if he did that the Respondent had rebutted the evidence of the Appellants as to their skills or capacity either by themselves or relative to other employees of the Respondent.

4. The learned Commissioner erred in finding if he did that the skills of the Appellants were such as to make their selection for redundancy sound, rational or well-founded if assessed by reference to their skills and/or skills relative to other employees.

5. The learned Commissioner erred in having regard to the `skills assessments' conducted in respect of the Appellants in determining whether the skills of the Appellants were such as to make their selection for redundancy sound, rational or well-founded.

6. The learned Commissioner erred in finding if he did that the `skills assessments' of the Appellants conducted by the Respondent provided a valid reason for the selection of the Appellants for redundancy.

7. The Commissioner erred in finding if he did that the `structured interviews' conducted by the Respondent of the Appellants provided a valid reason, alone or combined with the `skills assessments', for the selection of the Appellants for redundancy.

8. The learned Commissioner erred in finding if he did that the Appellants had not established grounds for drawing the inference that the process whereby the Appellants were selected for redundancy included adverse consideration of the WorkCover or injury status of employees.

9. Alternatively, the learned Commissioner erred in finding if he did that the Respondent had rebutted the inference that the process whereby the Appellants were selected for redundancy included adverse consideration of the WorkCover or injury status of employees.

10. The learned Commissioner erred in finding there was a valid reason for the termination of the employment of the Appellants and each of them.

11. The learned Commissioner erred in failing to find that there was no valid reason for the termination of the employment of the Appellants or any of them.

12. The learned Commissioner erred in finding that the selection criteria actually adopted by the Respondent were objectively applied.

13. The learned Commissioner erred in finding that the selection criteria actually adopted by the Respondent were fairly applied.

14. The learned Commissioner erred in holding that section 170CG(3)(c) did not apply in respect of the terminations of the Appellants.

15. The learned Commissioner erred in failing to hold that the Appellants were required to be given a genuine opportunity to respond to the Respondent's assessments of them in connection with their proposed redundancy.

16. The learned Commissioner erred in failing to find that the Respondent failed to give the Appellants and each of them a genuine opportunity to respond to the Respondent's assessments of them in connection with their proposed redundancy.

17. The learned Commissioner erred in having regard to the consideration whether the Appellants or any of them would have avoided redundancy if they had been given a genuine opportunity to respond.

18. The learned Commissioner erred in having regard to the instructions given to the Appellants' supervisors and/or managers, and/or the supervisors' and managers' attitudes to conducting the selection process, in determining whether the Respondent's assessments of the Appellants were conducted objectively or fairly.

19. The learned Commissioner erred in failing to find that the process whereby the Respondent selected the Appellants for redundancy was such as to render the terminations of the Appellants or any of them harsh, unjust or unreasonable.

20. The learned Commissioner erred in failing to find that the Respondent by adversely considering the Appellants' WorkCover or injury status had breached its common law obligation to maintain trust and confidence with the Appellants and thereby effected the terminations harshly, unjustly or unreasonably.

21. The learned Commissioner erred in failing to find that the Respondent by adversely considering the Appellants' WorkCover or injury status had breached its obligation to be a good and considerate employer to the Appellants and thereby effected the terminations harshly, unjustly or unreasonably.

22. Alternatively, the learned Commissioner erred in failing to find that the Respondent's failure to act consistently with its obligation to be a good and considerate employer to the Appellants Smith and/or Murphy rendered their terminations harsh, unjust or unreasonable.

23. The learned Commissioner erred in failing to consider whether the effect of section 96 of the Accident Compensation Act 1985 (Vic) caused the redundancy payments made to the Appellants to be inadequate and thereby made the terminations harsh, unjust or unreasonable.

24. The learned Commissioner erred in failing to find that the terminations of the Appellants or any of them was harsh, unjust or unreasonable."

[31] In view of the conclusion we have reached it is unnecessary for us to deal with each of the grounds of appeal. We only propose to deal with grounds 8, 9 and 11. The appellants contend that, to the extent that the respondent was entitled to rely on the selection processes that it used to determine involuntary retrenchments, it adverted to inappropriate selection criteria in determining that the appellants should be retrenched. The essence of the appellants' submissions in this regard is that the appellants were selected for retrenchment by reason of their WorkCover or injury status or for a reason that included that reason. Consequently, the termination of the employment of each of the appellants was "prejudiced" and not for a valid reason.

[32] The appellants readily concede, as they did before Commissioner Hingley, that there is no direct evidence that would support a finding that the respondent relied on the WorkCover or injury status of the applicants as a criterion for selection for termination of their employment. However, Mr Armstrong, counsel for the appellants, submitted that the circumstantial evidence supported a finding that such factors were considerations in the selection of the appellants for termination of employment and that Commissioner Hingley's finding to the contrary was erroneous.

[33] The respondent denied that the termination of the appellants' employment, or any of them was for the reason, or for a reason that included the reason, of their WorkCover or injury status.

[34] Commissioner Hingley considered this aspect of the appellants' case at paragraphs 44 to 50 of his reasons for decision. The decision reads as follows:

"[44] Prima facie there appears the nagging doubt about what Mr Armstrong referred to as "improper considerations, namely the employees' WorkCover status and if that inference is drawn, then the use of that consideration in the redundancy process would also be a breach of the employees' common law contractual rights." (PN 2333)

[45] All applicants were subject to WorkCover work or injury restrictions (some long term), excluding Mr Bakic who had reported a work related injury with consequential work restrictions and a potential WorkCover claim.

"At its worst, this process was formed by a discriminatory intent and that is getting rid of employees who are on WorkCover. The evidence is that of the 13 employees made involuntarily redundant, at least 9, and my friend and I have had some debate in the course of argument about a 10th, but at least 9 of them were subject to WorkCover restrictions. That evidence is also not contradicted by anything that the respondent has put in." (PN 2268)

[47] Mr Crawford in this witness evidence said,

"To my knowledge there is no one left in the Collating section with an injury or WorkCover claim. The section is mainly made of young fellows." (Exhibit A15 para 13).

[48] Mr McGilly's evidence was that WorkCover injuries were a major concern to him at Wodonga (PN 1129) as he had an issue with even one accident (PN1131) and had raised the matter of work related injuries at the 2 February meeting.

[49] Alternatively Mr McGilly's evidence (and that of interviewers), is adamant that injury or work restrictions were not a factor taken into account. He also gave evidence that the respondent still employs individuals who have or have had WorkCover claims (PN 1052). Mr Rapsey gave evidence of a person on WorkCover who was retained in the Distribution Section (Exhibit 15 para 16 quoted in cross-examination and accepted by Mr McGilly (PN 1241)).

[50] I am not satisfied on the evidence before me that I could reach a safe view or even a reliable inference that WorkCover history or work injury restrictions were taken into account in the selection for redundancy process. On the evidence of the interviewers I accept their version that it was not taken into account."

[35] The question for us is whether the Commissioner was in error in failing or refusing to draw the required inference. The question whether a particular inference can be drawn from the facts found or agreed is a question of law.[58]

[36] We perceive the test on appeal to be whether it was fairly open to Commissioner Hingley on the evidence before him not to draw the required inference and make a finding in favour of the appellants. Whereas a finding of fact depends on the existence of probative evidence to support it, an inference can (as opposed to whether it should) be drawn if it is reasonably open on the proved facts.[59]

[37] In G v H[60] Brennan and McHugh JJ said:

"An inference is a tentative or final assent to the existence of a fact which the drawer of the inference bases on the existence of some other fact or facts. The drawing of an inference is an exercise of the ordinary powers of human reason in the light of human experience; it is not affected directly by any rule of law. Legal principle may confine the basic facts in order to exclude irrelevancies and, where proof beyond reasonable doubt is required, the legal standard of proof precludes the drawing of an inference for the purpose of determining an issue in litigation when the basic facts are consistent with an innocent inference (Martin v Osborne (1936) 55 CLR 367). But the drawing of an inference is part of the process of fact finding: it has to do with the minor premiss of legal principle. ..."[61]

[38] The facts or circumstances that may be taken into account in determining a fact based on circumstantial evidence were discussed in Martin v Osborne.[62] In that case Dixon J said:

"The circumstances which may be taken into account in this process of reasoning include all facts and matters which form constituent parts or ingredients of the transaction itself or explain or make intelligible the course of conduct pursued. The moral tendencies of persons, their proneness to acts or omissions of a particular description, their reputations and their associations are in general not matters which it is lawful to take into account, and evidence disclosing them, if not otherwise relevant, is rigidly excluded. But the class of acts and occurrences that may be considered includes circumstances whose relation to the fact in issue consists in the probability or increased probability, judged rationally upon common experience, that they would not be found unless the fact to be proved also existed. ..."[63]

[39] Inference must be carefully distinguished from conjecture or speculation; there can be no inference unless there are objective facts from which it might be derived.[64] The degree of probability required to provide a basis for the necessary inference will depend on the nature of the proceeding. This was highlighted in Bradshaw v McEwans Pty Ltd[65] the relevant extract of which appears in Luxton v Vines[66] and reads as follows:

"Of course as far as logical consistency goes many hypotheses may be put which the evidence does not exclude positively. But this is a civil and not a criminal case. We are concerned with probabilities not with possibilities. The difference between the criminal standard of proof and its application to circumstantial evidence and the civil is that in the former the facts must be such as to exclude reasonable hypotheses consistent with innocence, while in the latter you need only circumstances raising a more probable inference in favour of what is alleged. In questions of this sort, where direct proof is not available, it is enough if the circumstances appearing in the evidence give rise to a reasonable and definite inference: they must do more than give rise to conflicting inferences of equal degrees of probability so that the choice between them is a mere matter of conjecture ... But if circumstances are proved to which it is reasonable to find a balance of probabilities in favour of the conclusion sought then, though the conclusion may fall short of certainty, it is not to be regarded as a mere conjecture or surmise."

[40] Due regard must be given to issues of importance and gravity in drawing inferences from proved or agreed facts. Where there is an allegation of fraud, an allegation of criminal or moral wrongdoing or an allegation involving serious legal consequences an inference should not be drawn on inexact proofs.[67]

[41] An inference may be more readily drawn however, in cases where a party, although having it within their power to provide or give evidence on some issue, declines to do so. The principle was thus stated in G v H as follows:

"... it is well settled that, in the course of the ordinary processes of legal reasoning, an inference may be drawn contrary to the interests of a party who, although having it within his or her power to provide or give evidence on some issue, declines to do so. Thus, for example, there may sometimes be an inference in civil cases that the evidence, if called, would not assist that party's case Jones v. Dunkel [1959] HCA 8; (1959) 101 CLR 298. And there may sometimes be an inference in criminal cases of "guilty knowledge", in the sense of knowledge that the evidence cannot be explained in a way that is consistent with innocence see, for example, Weissensteiner v. The Queen (1993) 178 CLR at 243-245 and the cases there cited. They are inferences that are to be drawn, if at all, in accordance with strict legal reasoning. In other cases, the failure to give evidence may result in more ready acceptance of the evidence for the other party or the more ready drawing of an inference that is open on that evidence.[68]

[42] The statement of principles set out above may be summarised as follows:

¬ an inference is assent to the existence of a fact which the drawer of the inference bases on the existence of some other fact or facts;

¬ the drawing of an inference is part of the process of fact finding;

¬ an inference can be drawn if it is reasonably open on the basis of agreed or proved facts;

¬ the question whether a particular inference can be drawn from the facts found or agreed is a question of law;

¬ where direct proof is not available, it is enough if the circumstances appearing in the evidence give rise to a reasonable and definite inference;

¬ the circumstances must do more than give rise to conflicting inferences of equal degrees of probability so that the choice between them is a mere matter of conjecture;

¬ matters to be taken into account in drawing an inference include circumstances whose relation to the fact in issue consists in the probability or increased probability, judged rationally upon common experience, that they would not be found unless the fact to be proved also existed;

¬ generally it is not lawful to take into account moral tendencies of persons, their proneness to acts or omissions of a particular description, their reputations and their associations;

¬ the degree of probability required to found the necessary inference will depend on the nature of the proceeding:

_ in a criminal case the facts must be such as to exclude reasonable hypotheses consistent with innocence,

_ in a civil case you need only circumstances raising a more probable inference in favour of what is alleged;

¬ a party's failure to give evidence on some issue in cases where it is within that party's power to provide or give evidence, may result in more ready acceptance of the evidence for the other party or the more ready drawing of an inference that is open on that evidence.

[43] We now turn to consider the appellants' appeal in the context of these principles.

[44] Mr Armstrong submitted that the following circumstances are relevant and are circumstances that Commissioner Hingley failed to take into account in determining whether the respondent selected the appellants for retrenchment because, or partly because, of their WorkCover or injury status:

· Mr McGilly had specifically referred to WorkCover issues when the need for retrenchments was announced at the general meeting of employees on 2 February 2001;

· Mr McGilly discussed it as a major issue, in front of all the managers who later implemented the selection process, and they were aware it was an issue for the respondent;

· nine of the thirteen employees, including the seven appellants, compulsorily retrenched were either on WorkCover benefits or suffering some work related injury;

· regardless of whether the respondent still employed some people on WorkCover, the effect of the present terminations was to reduce the number of employees on WorkCover;[69]

· the respondent failed to lead evidence in response to the allegation that injured workers were disproportionately represented in the redundancy group;

· the skills audits and interviews were flawed and could not be sustained in light of the other evidence concerning the appellants' skill levels;

· the respondent's reasons for selecting the appellants over others, where given, were weak;[70]

· of the two completed skill audits where comparison with other employees is possible (Rapsey and Perret), Rapsey's audit showed he should not have been selected for redundancy;

· Kimball's rehabilitation service provider noted in its report the respondent's advice that, given Kimball's skills, it was unlikely he would be "the first to lose his job in any competitive situation because he is multi-skilled in the three departments operated by the employer";[71]

· the appellants' injury restrictions were discussed during the management meeting which nominated them for redundancy, and the respondent was silent as to the reasons for this;

· the respondent had a record of intolerance toward WorkCover claims and claimants:

_ it had attempted to mislead Kimball by producing selected extracts from rehabilitation reports,[72]

_ it had kept Hodge working on the machine which caused his injury,[73]

_ it had indicated unhappiness toward Murphy when he reported the faulty machine,[74]

_ it had sought to dissuade Bakic from making a WorkCover claim;[75]

[45] Mr McKeown's submissions on this aspect of the case may be summarised by the following points:

¬ it was open to the Commissioner to find that the required inference had not been established on the evidence;

¬ Mr McGilly denied taking into account the injury status of the appellants;

¬ the other management staff involved in the selection process gave evidence and denied injury status was a factor for them in the selection;

¬ the evidence regarding the respondent's treatment of Messrs Hodge, Kimball and Murphy is not relevant;

¬ the skills of the appellants justified their selection for retrenchment;

¬ the allegation gives rise to serious consequences for the respondent and the inference cannot be drawn on inexact proofs;

¬ the respondent had no obligation to lead evidence explaining the discussion about injury restrictions during the management meeting that nominated them for retrenchment;

¬ the discussion about injury restrictions during the management meeting is consistent with an innocent inference; and

¬ it has not been shown that any advantage enjoyed by the Commissioner at first instance as a result of hearing the relevant evidence was not sufficient to justify the findings made.[76]

[46] We agree with Mr McKeown's submission to the effect that respondent's WorkCover history is not a relevant circumstance to be taken into account in determining whether the required inference should be drawn in this case. We consider that circumstance to be capable of existence independently of the fact to be proved. The circumstance has no sufficient nexus with the fact to be proved.

[47] In any event it is a factor that is inappropriate to take into account as it is evidence about the respondent's management and their proneness to acts or omissions of a particular description or their reputations. Accordingly, we disregard that evidence.

[48] We do not agree with Mr McKeown's submission that, by inferring the respondent took into account the WorkCover or injury status of the appellants, there will be serious consequences for the respondent in the context of the matter before the Commission. True it is that termination of employment for a reason that includes physical disability is proscribed under the WR Act[77], but it is not for that reason alone unlawful.[78] A termination of employment in contravention of s.170CK(2) attracts a penalty of up to $10,000 and liability to an order for reinstatement. However, the Commission in the exercise of its powers is not concerned to determine whether the termination of employment was discriminatory in terms of s.170CK(2). And any finding that the Commission makes about the reason for termination of employment is not legally binding for the purposes of s.170CK(2) of the WR Act.

[49] A finding that the reason for the termination of the appellants' employment included their WorkCover or injury status would ground a finding that the termination of their employment was not for a valid reason. The potential consequence for the respondent is liability to orders for reinstatement and lost remuneration as a result of the termination of employment. That does not appear to us to be a serious consequence in the Briginshaw v Briginshaw[79] sense. Accordingly we find that the matter is not one that is subject to the caution and exactness in proof that is demanded in issues of importance and gravity.

[50] We think there is no support to be found for Mr McKeown's submission on the weight to be given to the relative advantage of the Commissioner. In no relevant sense did the Commissioner's findings of fact require him to make any assessment of the disputed credit of any witness or to resolve any significant conflict of evidence. The question was whether the required inference can be drawn on the basis of the proved facts in combination with each other fact and the respondent's bare denial. In our view the Commissioner's task in this respect did not enjoy the benefit of an advantage which was denied to us.

[51] We consider as relevant to the fact in issue:

¬ Mr McGill's advertence to the issue of WorkCover and injury status at the time that he announced the need for redundancies at the management meeting;

¬ the selection for retrenchment of a seemingly disproportionate number of employees who were on WorkCover or suffering an injury;

¬ the absence of the respondent's explanation of the significance of WorkCover and injury as a topic of discussion at the management meeting;

¬ the respondent's communication to Mr Kimball's rehabilitation service provider in October 2000 to the effect that it was unlikely that he would be the first to lose his job in any competitive situation because he is multi-skilled, in contrast to the company's skills assessment in February 2001 which concluded that he had only limited skills;

¬ the respondent's explanations for selecting the appellants for retrenchment;

¬ and the respondent's denial that it took the WorkCover or injury status of the appellants into account in selecting them for retrenchment.

[52] The discussion at the management meeting about the WorkCover and injury status of the appellants is relevant to the determination of the fact in issue. Because the statement was made in the context of the proposed redundancies and was made in the presence of the managers who were to implement the retrenchment selection process. In our view it has, for this reason, the requisite relation to the fact in issue. In any event it is not to be considered as a fact in isolation. Although the respondent suggested in submissions that other innocent inferences are open on the facts, none were suggested

[53] The skills audit is clearly relevant. As is its integrity and the question of whether it alone justified the selection of the applicants for retrenchment.

[54] The respondent did not take issue with the relevance of the selection of a seemingly disproportionate number of employees on WorkCover or suffering injury for retrenchment. Rather it was argued that the respondent had no obligation to explain the circumstance.

[55] The respondent's failure to explain the circumstance is a matter itself to be taken into account in determining whether the fact in issue is to be inferred. The appellants put the respondent on notice before the commencement of the hearing at first instance that they regarded their WorkCover or injury status as a factor in their selection for retrenchment. The respondent's witnesses were asked about the matter in cross-examination, yet no attempt was made at that time or in re-examination, to explain the reason for discussing the matter when selecting employees for retrenchment. In the circumstances the inference might more readily be drawn that it was a factor in the selection of the appellants.[80]

[56] Commissioner Hingley in considering whether the required inference should be drawn took into account the WorkCover or injury status of all the appellants[81]. He also took into account the fact that nine of the thirteen employees compulsorily retrenched were subject to WorkCover restrictions[82] and that there is no one left in the Collating section with an injury or WorkCover claim.[83] He gave weight to the fact that WorkCover injuries at Wodonga were a major concern to Mr McGilly and that he had raised the matter of work related injuries at the 2 February meeting.[84]

[57] The Commissioner weighed these factors against the evidence of Mr McGilly and the interviewers that injury or work restrictions were not a factor taken into account and that the respondent still employs individuals who have or have had WorkCover claims_._[85] He accepted the evidence of the interviewers and concluded that he was not satisfied on the evidence before him that he could reach a safe view or even a reliable inference that WorkCover history or work injury restrictions were taken into account.[86] The Commissioner also found that the selection process criteria were sound and defensible and objectively applied.[87]

[58] In our respectful view the Commissioner erred in his approach to this matter. It appears that he imposed too narrow a test in alluding to the necessity for a "safe view" or a "reliable inference". In circumstantial evidence cases it is not possible to attain entire satisfaction as to the true state of affairs.[88]

[59] If we are wrong about the test then there were other important facts that ought to have been included in the balance and which the Commissioner unfortunately overlooked. We consider the oversight a significant error, because of the importance of determining all of the relevant facts as a prerequisite to the determination of an issue by inference.

[60] While each proved fact in circumstantial evidence cases might not be, when considered in isolation, a sound basis for making the required inference, each such proved fact may gain support from the others. A combination of all proved facts may provide a compelling basis for making the required inference. What is to be considered is the weight which is to be given to the united force of all of the circumstances put together. Gibbs CJ and Mason J, describing the task of the jury in a criminal case involving circumstantial evidence, stated the position thus:

"... the jury should decide whether they accept the evidence of a particular fact, not by considering the evidence directly relating to that fact in isolation, but in the light of the whole evidence, and that they can draw an inference of guilt from a combination of facts, none of which viewed alone would support that inference ... When the evidence is circumstantial, the jury, whether in a civil or criminal case, are required to draw an inference from the circumstances of the case; in a civil case the circumstances must raise a more probable inference in favour of what is alleged; and in a criminal case the circumstances must exclude any reasonable hypothesis consistent with innocence ..."[89]

[61] Although the principle was stated in relation to a criminal proceeding it is equally applicable in civil cases involving circumstantial evidence, as is evident from the terms of the statement of principle itself.

[62] Commissioner Hingley did not, in his consideration of whether the required inference should be drawn, take in account or give weight to the following circumstances:

¬ the extent to which the results of skills audits and the interviews were valid;

¬ the discussion about WorkCover and injury status at the management meeting at which it was decided who would be retrenched;

¬ the selection for retrenchment of a seemingly disproportionate number of employees who were on WorkCover or suffering an injury;

¬ the absence of the respondent's explanation of the significance of WorkCover and injury as a topic of discussion at the management meeting; and

¬ the respondent's communication to Mr Kimball's rehabilitation service provider in October 2000 to the effect that he was multi-skilled in three departments in contrast to his skills assessment in February 2001 which said that he had only limited skills.

[63] The respondent made no endeavour to put before the Commission any probative evidence of the integrity of the skills audits or the interviews. Similarly the respondent made no attempt to explain the purpose or depth of the discussions about WorkCover at the management meeting, the relative number of current employees on WorkCover or the apparent discrepancy between the communication to Mr Kimball's service provider and the final assessment of Mr Kimball's skills. On the basis of the principle in Jones v Dunkel[90] these factors weigh heavily against acceptance of the respondent's bare denial about the relevance of WorkCover or injury status of employees in the selection process. In O'Donnell v Reichard[91] Newton and Norris JJ in a joint judgment explained the principle in the following terms:

"... the law may be stated to be that where a party without explanation fails to call as a witness a person whom he might reasonably be expected to call, if that person's evidence would be favourable to him, then, although the jury may not treat as evidence what they may as a matter of speculation think that person would have said if he had been called as a witness, nevertheless it is open to a jury to infer that that person's evidence would not have helped that party's case; if the jury draw that inference, then they may properly take it into account against the party in question for two purposes, namely:

(a) in deciding whether to accept any particular evidence, which has in fact been given, either for or against that party, and which relates to a matter with respect to which the person not called as a witness could have spoken; and

(b) in deciding whether to draw inferences of fact, which are open to them upon evidence which has been given, again in relation to matters with respect to which the person not called as a witness could have spoken."[92]

[64] In this regard the Commissioner failed to consider a very material matter. The Commissioner effectively discounted the evidence that was available to support the appellants' case.

[65] We have decided that the process of reasoning that the Commissioner adopted was defective and amounted to error. Accordingly, as the only dispute is as to the inference which should be drawn from the proved facts we are in as good a position as the Commissioner to determine the issue.[93] We must unfortunately disagree with the Commissioner.

[66] We are satisfied that, on a fair reading of the evidence in its entirety, it is reasonable to infer that the respondent did have regard to the WorkCover and injury status of the appellants and that it played an operative part in selecting them for retrenchment.

[67] In our view the Commissioner erred in failing to adopt such an inference. This amounts to a reviewable error within the meaning of s.170JF of the WR Act. On that basis we have decided to grant leave to appeal.

[68] The appellant submitted that if we decided to grant leave to appeal we should quash the order subject to appeal and make orders for reinstatement in favour of Messrs Hodge and Bakic and reinstate Messrs Kimball, Rapsey, Smith, Perret and Murphy.

[69] Before deciding to grant a remedy of the type contemplated by s.170CH we must first determine whether the termination of the appellant's employment was "harsh, unjust or unreasonable" (see s.170CH(1)). Such a determination requires the Commission to consider each of the matters in s.170CG(3)(a), (b), (c) and (d), as well as any relevant matter within the scope of s.170CG(3)(e). Not only must these matters be considered but the words "must have regard to" signify that each must be treated as a matter of significance in the decision making process. A consequence of this construction of s.170CG(3) is that the Commission is obliged to make a finding in respect of each of the circumstances specified in paragraphs 170CG(3)(a), (b), (c), (d) and (e), insofar as each of these paragraphs is relevant to the factual circumstances of a particular case.

[70] Section 170CG(3)(a) provides in determining whether a termination was harsh, unjust or unreasonable the Commission must have regard to whether "there was a valid reason for the termination related to the capacity or conduct of the employee or the operational requirements of the employer's undertaking, establishment or service".

[71] The application of s.170CG(3)(a) to redundancy situations is not without difficulty.

[72] Two decisions of Full Benches of the Commission provide some assistance.

[73] In Windsor Smith v Liu and Others[94] (Windsor Smith) the company decided to make around 30 employees redundant as a result of a significant reduction in orders (from 3000 to 1200 per week). The selection of the applicants for redundancy was made by reference to the jobs they performed - they were doing jobs which were least in demand at the relevant time. At first instance the Commission concluded that there was no valid reason for the redundancies and went on to award compensation of varying amounts between $2,600 and $3,000 to M.J. Liu, H.L. Fung, J. Trimble, T. Trimble, L. Kocovska and J. Cordell. On appeal the Full Bench expressed doubts about the appropriateness of the approach taken to the "valid reason" issue in the proceedings below. At pages 9-10 of their decision the Full Bench said:

"Section 170CG(3)(a) adopts some of the wording of s.170DE(1) of the IR Act but the context is entirely different. Section 170DE(1) of the IR Act contained a prohibition on termination of employment except for a valid reason or valid reasons. Section 170CG(3) does not. Whether there was a valid reason for the termination is only one of four separately specified matters which the Commission must now have regard to. The Commission must also have regard to any other matter it considers relevant. There is no causal connection between a finding that there was no valid reason for the termination and a conclusion that the termination was harsh, unjust or unreasonable. In summary, the question of whether there was a valid reason for termination of employment is no longer the critical question in determining whether the termination was contrary to the Act. Under the IR Act provisions if no valid reason existed then the applicant was prima facie entitled to reinstatement or compensation. Under the Workplace Relations Act 1996 the principal question is whether the termination was harsh, unjust or unreasonable. In considering that question the Commission is to ensure that a "fair go all round" is accorded to both the employer and the employee concerned.

We take the true position to be that where employment is terminated on redundancy grounds it is a question of fact whether the employees selected for redundancy were selected for a reason related to the operational requirements of the employer's business, for a reason related to the employee's capacity or conduct, or for reasons of both kinds. Where the reason for selection is related solely to the operational requirements of the employer's business, it is not necessarily significant if no opportunity was given to employees to comment on the basis for their selection. Where the reason for selection is related to the capacity or conduct of the employees or includes such a reason and no opportunity is given to the employees to respond to that reason, that is a factor which the Commission must take into account.

The evidence to which we were directed on the appeal suggests the following:

· two of the respondents were post-trimmers on a "track" which was closed down and no other post-trimming work was available;

· one respondent was selected from track four because she had the shortest service of the employees on that track;

· one respondent worked on a particular product line with one other employee, the demand for the product having dropped she was selected because she was unable to do the cutting work whilst the other employee on the line, in addition to being able to do the cutting, could also do her work; and

· no evidence was given in relation to two of the respondents.

The evidence indicates that two and probably three of the respondents were selected on the basis of the employer's operational requirements. The two post-trimmers appear to be in that category. The respondent who was selected because of lack of cutting skills might on one view of it have been selected because of her capacity or lack thereof. In the absence of any evidence that the appellant's view of her skills was in error, it might equally be said that her selection was based on operational requirements in the sense that the combination of the two positions simply meant she was unable to fill the new position thereby created. Thus, and confining our comments to the post-trimmers, it is not clear to us why his Honour rejected the appellant's evidence of its reasons for selection. Section 170CG(3)(a) distinguishes between valid reasons related to operational requirements and valid reasons related to the capacity or the conduct of the employee. In the case of the employees who were selected on the basis of operational requirements, and not because of their capacity or conduct, it is not apparent why an objective assessment of skills would be necessary. Such an assessment would only be required if selection was based on the capacity or conduct of the employees.

One of the respondents was selected on the basis that she had the shortest service in her workgroup. Whilst Mr Watts sought to argue that her selection was based on experience and therefore on her capacity, the better view is that she was selected by reference to an objective criterion unrelated to her capacity (or conduct). In those circumstances we have difficulty accepting that her selection was not for a valid reason."

[74] In our view Windsor Smith is authority for the following propositions:

1. Where employment is terminated on redundancy grounds it is a question of fact whether the employees selected for redundancy were selected for a reason related to the operational requirements of the employer's business, for a reason related to the employee's capacity or conduct, or for reasons of both kinds.

2. Where the reason for selection is solely related to the operational requirements of the employer's business, it is not necessarily significant if no opportunity was given to employees to comment on the basis for their selection.

3. Where the reason for selection is related, in whole or in part, to the capacity or conduct of the employees and no opportunity is given to the employees to respond to that reason then that is a factor which the Commission must take into account.

4. An objective assessment of skills will only be necessary if selection is based on employee capacity.

5. Length of service is an objective criterion unrelated to capacity or conduct.

[75] The second Full Bench decision to which we wish to refer is Lockwood Security Products Pty Limited v Sulocki[95] (Sulocki). In that matter it was common ground that the terminations of employment arose out of the appellant's decision to effect changes in its operational requirements. The appellant made the decision that seven warehouse employees were to be made redundant and the respondents (the applicants in the proceedings at first instance) were told that they had been selected for redundancy on the basis of the appellant's "skill matrix".

[76] At first instance the Commission made the following findings:

"1. There was no dispute that there were operational reasons for the appellant to determine in May 2000 that the number of employees in the warehouse should be reduced by seven.

2. Contrary to the appellant's submission the Skill Matrix was not the "primary basis for selection" of the employees to be made redundant. On the basis of the Matrix alone, there were clearly employees with fewer or equivalent skill levels than the respondents had who were never considered for redundancy.

3. The Skill Matrix was not an accurate reflection of the skills of employees.

4. The process of selection was neither objective nor transparent.

5. The purpose of the Skill Matrix and its alleged significance both in terms of selection of candidates for redundancy and assessment of employee performance were not made clear to the respondents, nor were the other alleged reasons for their selection.

6. The respondents were not notified of the appellant's specific concerns in relation to quality of their work performance.

7. There was no certainty that the role the dismissed employees had played in the asbestos issue was not a factor in their selection."

[77] On the basis of the above findings the Commissioner concluded that the terminations were "harsh, unjust or unreasonable". On appeal a Full Bench of the Commission determined that no error had been shown in relation to this conclusion.

[78] The Full Bench rejected the appellant's submission that because of the size of the appellant's workforce the mere existence of the operational requirement allowed management some degree of latitude in selecting the employees to be retrenched. Specifically the Full Bench rejected the proposition that it matters not that employees were selected for dismissal on the basis of personal characteristics or attributes because the management knows what is best for the business. At paragraphs 19, 28-29 and 33 the Full Bench said:

_"[19] If our characterisation of the argument is correct, we are satisfied that no error has been shown in this regard. Clearly, Commissioner Whelan did take account of the fact that the appellant's operational requirements had changed. The Commissioner was satisfied of the appellant's need to reduce the number of positions in the warehouse by seven. [_PR901073 at [77] However, the Commissioner, consistent with principle, and correctly, in our view, held that, while operational requirements may provide a valid reason for staff reductions they do not necessarily provide a valid reason for the retrenchment of particular employees. The Commission must be satisfied, on the facts, as they appear before it, that there is a valid reason for the termination of the employment of the particular employees who have been selected for retrenchment. We discern no error in the Commissioner's reasoning in this regard."

"[28] In determining whether there is a valid reason for termination pursuant to s.170CG(3)(a) the Commission must be satisfied that there was a valid reason for the dismissal of the particular employee in question in that the reason was "sound, defensible or well founded" [Selvachandran v Peteron Plastics Pty Ltd (1995) 62 IR 371 at 373] and not "capricious, fanciful, spiteful or prejudiced" [Ibid] in relation to that employee.

[29] We agree with Commissioner Whelan's assessment of the evidence which ultimately led her to conclude that the terminations were harsh, unjust or unreasonable in the context of s.170CG(3) of the Act. The selection of the respondents as candidates for redundancy could not be described as sound, defensible or well founded. We agree with the Commissioner's findings to that effect, which it is not necessary to set out [Print PR901073 paras [60] to [99]."

"[33] The fact that the respondents were not given an opportunity to respond to the appellant's allegations of unsatisfactory performance justified the finding that the termination of the respondents' employment was harsh, unjust or unreasonable. This is so even though there was a genuine need to reduce the number of positions in the warehouse."

[79] In our view Sulocki is authority for the following propositions:

1. While operational requirements may provide a valid reason for reducing the size of an employer's workforce, they do not necessarily provide a valid reason for the retrenchment of particular employees.

2. The Commission must be satisfied, on the facts as they appear before it, that there was a valid reason for the dismissal of the particular employee in question in that the reason was "sound, defensible or well founded" and not "capricious, fanciful, spiteful or prejudiced".

3. The fact that employees are not given an opportunity to respond to allegations of unsatisfactory performance may justify a finding that the termination of their employment was harsh, unjust or unreasonable even though there was a genuine need to reduce the size of the workforce.

[80] In the proceedings before us Mr McKeown contended that to the extent that Sulocki stands for the first two propositions set out above it was wrongly decided. The essence of Mr McKeown's argument is that s.170CG(3)(a) provides for two distinct alternatives.[96] The Commission must have regard to whether there was a valid reason for the termination related to:

¬ the operational requirements of the employer's undertaking, establishment or service.

[81] It is argued that s.170CG(3)(a) provides two distinct, mutually exclusive, options. This construction is said to be supported by the use of the conjunctive "or" between the references to "capacity or conduct" and "operational requirements". In this case it is conceded that the decision to reduce the number of employees at the employer's establishment was genuinely based on the employer's operational requirements. That circumstance is said to be sufficient to establish that there was a valid reason for the terminations related to the employer's operational requirements.

[82] We do not find the respondent's arguments persuasive, for four reasons.

[83] First, the focus of s.170CG(3) is on the termination of employment of the particular employee in question. This is clear from the reference to "the termination" in paragraphs 170CG(3)(a) and (d) and to "the employee" in paragraphs 170CG(3)(b) and (c). In s.170CG(3)(a) the issue is whether there was a "valid reason" for the termination of a particular employee's employment. Whether there was a genuine operational reason to reduce the number of persons employed at a particular enterprise does not provide a complete answer to this question. In practice the termination of an individual's employment due to redundancy usually involves a two stage process:

¬ a decision to reduce the size of the workforce; and

¬ the selection of the particular employees to be made redundant.

[84] The construction of s.170CG(3)(a) posited by the respondent only looks at one aspect of the reason why the particular employee was made redundant. It ignores the fact that but for the selection process the individual employee may not have had his or her employment terminated at all.

[85] Second, the use of the conjunctive "or" in s.170CG(3)(a) is not conclusive. The first part of the paragraph refers to a valid reason related to "the capacity" or "conduct of the employee". If the respondent's argument was taken to its logical conclusion then "capacity" or "conduct" of an employee are two mutually exclusive options. In our view such a construction is too simplistic. Employees are often terminated for reasons which relate to both their capacity and their conduct. For example an employee may be both abusive to fellow employees (a conduct issue) and be unable to satisfactorily perform the duties assigned to them (a capacity issue). In a particular case the combination of both aspects of their behaviour may lead to the termination of their employment.

[86] Third, at the heart of Mr McKeown's submission is the proposition that to establish a valid reason related to the employer's operational requirements it is sufficient that there is a genuine causal relationship between the employer's operational requirements and the applicant's termination of employment. This is partially correct. The termination must be genuinely related to the employer's operational requirements in the sense that the termination is a logical response to those requirements. It must not be a contrivance. But that of itself will not always be sufficient. It is important to bear in mind that the reason for termination must be a "valid" reason. Consistent with the approach taken in a number of cases that means that the reason for dismissal of the particular employee was "sound, defensible or well founded" and not "capricious, fanciful, spiteful or prejudiced". The respondent's construction of s.170CG(3)(a) fails to accord sufficient importance to the word "valid".

[87] If the respondent's argument was accepted then a redundancy selection criteria based on a proscribed reason for termination (as set out in s.170CK), or any other reason for which an employer may not lawfully dismiss an employee, would still provide a valid reason for the termination provided that there was a genuine causal relationship between the employer's operational requirements and the applicant's termination of employment. So provided the employer had a genuine operational requirement to reduce the size of it's workforce that is sufficient to provide a valid reason for the termination of an individual employee. In our view such a construction is too narrow. It fails to accord sufficient weight to the expression valid reason and is inconsistent with authority.[97]

[88] Finally, the Commission has traditionally taken the view that it should only depart from previous Full Bench decisions in limited circumstances. In another context three members of the High Court observed in Nguyen v Nguyen:

"When a court of appeal holds itself free to depart from an earlier decision it should do so cautiously and only when compelled to the conclusion that the earlier decision is wrong. The occasion upon which the departure from previous authority is warranted are infrequent and exceptional and pose no real threat to the doctrine of precedent and the predictability of the law: see Queensland v The Commonwealth (1977) 139 CLR 585 at 620 et seq, per Aickin J."[98]

[89] While the Commission is not a court the public interest considerations underlying these observations have been applied with similar if not equal force to appeal proceedings in the Commission.[99]

[90] We are not satisfied that Sulocki is wrong, to the contrary we think it correctly sets out the relevant principles and we propose to apply it to the matter before us.

[91] In the circumstances of this case - where the appellants were selected to be made redundant on the basis of their WorkCover history or injury status - we are not satisfied that their employment was terminated for a reason that was "sound, defensible or well founded". In our view there was no valid reason for the termination of the appellants' employment within the meaning of s.170CG(3)(a).

[92] As we have already noted, in determining whether or not a termination of employment is harsh, unjust or unreasonable, the Commission must consider each of the matters referred to in paragraphs 170CG(3)(a) to (e). But the Commission is only required to have consideration to such matters in so far as they have application[100] or are relevant to the factual circumstances of the particular case.[101] If there is no valid reason then paragraphs 170CG(3)(b) and (c) have no application. This is because these paragraphs refer to "that reason" and "any reason related to the capacity or conduct of the employee". In the context of s.170CG(3) these references are clearly to the "valid reason" referred to in s.170CG(3)(a).[102] Similarly, unless the termination is related to unsatisfactory performance paragraph 170CG(3)(d) is of no relevance. In this case we have concluded that the terminations were related to the appellants' WorkCover history or injury status, not their performance. Hence s.170CG(3)(d) is not relevant.

[93] If we are wrong about the relevance of paragraphs 170CG(3)(b), (c) and (d) to the matter before us and we assume that the terminations were procedurally fair (a matter about which we have strong reservations but do not need to decide) those circumstances would not affect the result in the context of the matters before us. Indeed we find it difficult to conceive of the circumstances in which it could reasonably be said that despite the absence of a valid reason for termination the employee had been accorded procedural fairness and therefore the termination was not "harsh, unjust or unreasonable". As the Full Bench in Steggles Limited v West observed:

"Pursuit of an otherwise faultless process does not imbue merit into a situation otherwise devoid of such a characteristic."[103]

[94] In relation to other relevant matters (s.170CG(3)(e)) we have had regard to the matters identified by Commissioner Hingley (insofar as they are consistent with our earlier findings) at paragraphs 57, 61, 63, 66-69, 72-73 and 76-77 of the decision subject to appeal. We note that these matters were not challenged on appeal.

[95] We have had regard to matters referred to s.170CG(3) insofar as they are relevant to the factual circumstances of the applications before us. We have concluded that the termination of each of the appellants' employment was unjust and unreasonable. Accordingly we have decided to uphold the appeal and quash the Commissioner's decision.

[96] During the course of the appeal proceedings we foreshadowed that in the event that we upheld the appeal and the issue of remedy became relevant we may require further submissions.[104] Given the passage of time since the proceedings at first instance and the consequent possibility that the factual circumstances relating to the matters to which the Commission is required to have regard (pursuant to s.170CH) may have altered and the fact that some of the new material upon which the appellants wish to rely is contested,[105] we have decided that the appropriate course is to remit the question of remedy to Senior Deputy President Lacy for determination.

[97] In conclusion we have decided to grant leave to appeal and quash the Commissioner's decision. Further we have determined, pursuant to s.170CG(3), that the termination of each of the appellants' employment was unjust and unreasonable. Pursuant to s.45(7)(c) we direct Senior Deputy President Lacy determine the question of remedy in each of the matters before us.

Printed by authority of the Commonwealth Government Printer

2 Exhibit MP2 at paragraphs 3 & 4, Appeal Book 2 at pp.431 - 432.

3 Exhibit MP2 at paragraph 5, Appeal Book 2 at p.432.

4 Attachment PM3 to Exhibit MP2, Appeal Book 2 at p.468.

6 Attachment LR-3 to Exhibit A5, Appeal Book 2 at pp.70-82. See transcript of 18 September 2001 at PN 1039 to 1040, Appeal Book 1 at p.110.

7 Transcript of 18 September 2001 at PN 1129, Appeal Book 1 at p.118; Exhibit MP2 at paragraphs 8-9, Appeal Book 2 at p.432. We note that in his evidence Mr McGilly qualified some of Mr Murphy's evidence as to what was said about work related injuries at this meeting. See Transcript of 18 September 2001 at PN 1079-1080, Appeal Book 1 at p.114.

8 Transcript of 18 September 2001 at PN 1158 and 1168, Appeal Book 1 at p.121.

9 See Mr McGilly's evidence in transcript of 18 September 2001 at PN 1178, 1185 and transcript of 19 September 2001 at PN 1820, Appeal Book 1 at pp.122, 123 and 132.

11 See Exhibit MP2 at paragraph 10, Appeal Book 2 at p.433; transcript of 18 September 2001 at PN 1145 to 1152, Appeal Book 1 at pp.119 - 120.

12 Exhibit MP2 at paragraph 14; Appeal Book 2 at p.433.

13 Mr Hodge's evidence, transcript of 18 September 2001 at PN 425, Appeal Book 1 at p.57; Mr Murphy's evidence, transcript of 18 September 2001 at PN744, Appeal Book 1 at p.84; Mr Bakic's evidence, transcript of 18 September 2001 at PN 889-896, Appeal Book 1 at p.97.

14 Annexure BK-8 to Exhibit A2, Appeal Book 2 at p.47.

15 See Mr McGilly's evidence, transcript at of 18 September 2001 PN 1295-1299, Appeal Book 1 at p.133.

16 Mr Welladsen, transcript of 19 September 2001 at PN 1488-1490 and 1520, Appeal Book 1 at pp.158 and 160; Mr Griffiths, transcript of 19 September 2001 at PN 1659-1669 and 1685-1686, Appeal Book 1 pp.172-174; Mr Furst, transcript of 19 September 2001 at PN 1782, Appeal Book 1 at p.183; Mr Gasperov, transcript of 18 September 2001 at PN1890, Appeal Book 1 at p.193; Mr Kennedy, of 19 September 2001 transcript at PN 2074-2075, Appeal Book 1 at p.210; Mr Ramage, transcript of 19 September 2001 at PN 2199-2202, Appeal Book 1 at p.221.

17 Exhibit MP2 at paragraph 16, Appeal Book 2 at p.433.

19 Exhibit A2 at paragraph 20 and annexure BK-8 of that exhibit, Appeal Book 2 at pp.11, 46-47; Exhibit A3, Appeal Book 2 at p.54; Exhibit MP10 at paragraphs 3-5 and annexure JR1 to that exhibit, Appeal Book 2 at p.491; transcript of 19 September 2001 at PN 2128-2131, Appeal Book 1 at p.215.

21 Mr Kimball's oral evidence is set out in transcript of 18 September 2001 at PN 77-219, Appeal Book 1 at pp.25-38.

22 Exhibit A5 at paragraph 18, Appeal Book 2 at p.60; Exhibit A7, Appeal Book 2 at p.152; Exhibit MP4 at paragraphs 4-8 and annexure TG-1 of that exhibit, Appeal Book 2 at p.473; transcript of 19 September 2001 at PN 1577-1582, Appeal Book 1 at p.165.

24 Transcript of 18 September 2001 at PN 309-311, Appeal Book 1 at p.47.

25 Exhibit MP3 at paragraph 3 and annexure TW1 to that exhibit, Appeal Book 2 at p.469; transcript of 19 September 2001 at PN 1434 and 1466, Appeal Book 1 at pp.153 and 156.

26 Exhibit A11 at paragraphs 15 and 16, Appeal Book 2 at p.212; Exhibit A12, Appeal Book 2 at pp.232-234; Exhibit MP5 at paragraphs 3-5 and annexure AF1 of that exhibit, Appeal Book 2 at p.476; Exhibit MP9 at paragraphs 3-5 and annexure AK1 of that exhibit, Appeal Book 2 at p.488; transcript of 19 September 2001 at PN 1709-1710, Appeal Book 1 at p.177.

28 Transcript of 18 September 2001 at PN 448-460, Appeal Book 1 at pp.60-61.

29 Exhibit A16 at paragraphs 16-17, Appeal Book 2 at pp.252-253; Exhibit A18, Appeal Book 2 at pp.293-294; Exhibit MP4 at paragraphs 4-8 and annexure TG2 of that exhibit, Appeal Book 2 at p.473; transcript of 19 September 2001 at PN 1562-1565, Appeal Book 1 at p.164.

31 Transcript of 18 September 2001 at PN 642-650, Appeal Book 1 at pp.76-77.

32 Exhibit MP6 at paragraph 3 and annexure JG1 of that exhibit, Appeal Book 2 at p.480; Transcript of 19 September 2001 at PN 1937, Appeal Book 2 at p.197.

33 See Exhibit A19 at paragraphs 20-29, Appeal Book 2 at pp.299-301.

35 Exhibit MP10 at paragraphs 6-8 and annexure JR2 to that exhibit, Appeal Book 2 at p.491.

37 Transcript of 18 September 2001 at PN 935-937, Appeal Book 1 at p.100.

39 Transcript of 18 September 2001 at PN 882-893, Appeal Book 1 at pp.96-97.

40 Mr Welladsen, transcript of 18 September 2001 at PN 1466, Appeal Book 1 at p.156; Mr Gasperov, transcript of 19 September 2001 at PN 1853, Appeal Book 1 at p.190; Mr Kennedy, transcript of 19 September 2001 at PN 2038, Appeal Book 1 at p.207.

41 For example, see Mr Kennedy's evidence, transcript of 18 September 2001 at PN 2029-2030, Appeal Book 1 pp. 206-207.

42 Mr McGilly's evidence, transcript of 18 September 2001 at PN1393, Appeal Book 1 at p.142.

43 Transcript of 18 September 2001 at PN 1278 and 1393 and transcript of 19 September 2001 at PN 2103, Appeal Book 1 at pp 131, 142 and 213.

44 See the evidence of Mr Welladsen, transcript of 19 September 2001 at PN 1538-1540, Appeal Book 1 at p.162; Mr Griffiths, transcript of 19 September 2001 at PN 1691-1692, Appeal Book 1 at p.175; Mr Furst, transcript of 19 September 2001 at PN 1766-1769, Appeal Book 1 at p.182; and Mr Kennedy, transcript of 19 September 2001 at PN 2083-2084, Appeal Book 1 at p.211.

52 Ibid. See paragraphs 57-60 (Mr Kimball); 61-65 (Mr Rapsey); 66-71 (Mr Smith); 72-75 (Mr Hodge); 76-79 (Mr Perret); 80-85 (Mr Murphy); 86-92 (Mr Bakic).

53 Ibid at paragraphs 50, 59, 64, 70, 74, 78, 84 and 91.

54 Edwards v Giudice [1999] FCA 1836 per Moore J.

55 [2000] HCA 47.

58 Australian Broadcasting Tribunal v Bond and others [1990] HCA 33; (1990) 170 CLR 321 at 355.

59 See Roads Corporation v Dacakis [1995] VicRp 70; [1995] 2 VR 508.

60 [1994] HCA 48; (1994) 181 CLR 387.

62 [1936] HCA 23; (1936) 55 CLR 367.

64 Seltsam Pty Ltd v McGuinness [2000] NSWCA 29, [85] - [89]; (2000) 49 NSWLR 262.

66 [1952] HCA 19; (1952) 85 CLR 352.

67 G v H, supra at 399; Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336; Macedonian Teachers' Association of Victoria Inc v Human Rights and Equal Opportunity Commission [1998] FCA 1650; (1998) 91 FCR 8; (1998) 160 ALR 489.

68 [1994] HCA 48; (1994) 181 CLR 387 at 402.

69 Mr McGilly's evidence at PN 1242-1244 of Transcript of 18 September 2001, Appeal Book 1 at pp.128-129.

70 For example in relation to Ms Millard see PN 1281-1286, Mr McGilly's evidence, transcript of 18 September 2001, Appeal Book 1 at p.132.

71 Annexure BK-6 to Mr Kimball's witness statement, Exhibit A2, see Appeal Book 2 at p.42.

72 Mr Kimball's witness statement, Exhibit A2 at paragraph 7, Appeal Book 2 at p.7.

73 Mr Hodge's witness statement, Exhibit A11 at paragraph 8, Appeal Book 2 at p.210.

74 Mr Murphy's witness statement, Exhibit A19 at paragraphs 6 and 33, Appeal Book 2 at pp.296 and 302.

75 Mr Bakic's witness statement, Exhibit A24 at paragraphs 13-15, Appeal Book 2 at p.354.

76 Osman v Toyota Motor Corporation Australia Ltd, PR910409, 17 October 2001 per Ross VP, Lacy SDP and O'Connor C at paragraph 56.

77 WR Act, s.170CK(2)(f).

79 [1938] HCA 34; (1938) 60 CLR 336.

88 S_ee Girlock (Sales) Pty Ltd v Hurrell_ [1982] HCA 15; (1982) 149 CLR 155 at 169.

89 Chamberlain v R (No. 2) [1984] HCA 7; (1984) 153 CLR 521 at 535.

90 [1959] HCA 8; (1959) 101 CLR 298.

91 [1975] VicRp 89; [1975] VR 916.

93 S_ee Warren v Coombes_ [1979] HCA 9; (1979) 142 CLR 531 at 551; Saints Gallery Pty Ltd v Plummer [1988] FCA 213; (1988) 80 ALR 525 at 531.

94 Print Q3462, 13 July 1998 per Giudice J, Polites SDP and Gay C.

95 PR908053, 23 August 2001 per Giudice J, Lacy SDP and Blair C.

96 See PN 271-362 of the Transcript of 21 January 2002.

97 See Cosco Holdings Pty Ltd v Thu Thi Van Do (1997) 77 IR 94 at 120 per Lindgren and Lehane JJ.

98 [1990] HCA 9; (1960) 169 CLR 245 at 269.

99 Re Furnishing Industry Association of Australia (Queensland) Limited Union of Employers Section 111AAA application, Print Q9115, 27 November 1998 per Giudice J, Watson SDP, Hall DP, Bacon C and Edwards C.

100 Chubb Security Australia Pty Ltd v Thomas, Print S2679, 2 February 2000 per McIntyre VP, Marsh SDP and Larkin C.

101 King v Freshmore (Vic) Pty Ltd, Print S4213, 17 March 2000 per Ross VP, Williams SDP and Hingley C.

102 Tenix Defence Systems Pty Ltd v Fearnley, Print S6238, 22 May 2000 per Ross VP, Polities SDP and Smith C; Crozier v Palazzo Corporation Pty Limited t/as Noble Park Storage and Transport (2000) 98 IR 137 at paragraph 64.

103 Print S5876, 11 May 2000 per Watson SDP, Williams SDP and Smith C at paragraph 9.