Abbott-Etherington v Houghton Motors Pty Limited

Botany Branch Manager. Mr Pepper in turn reported to the State Manager. On 22 January 1996, Mr Pepper hand-delivered a letter to Mr Perkins. The letter read as follows: "Dear Sir, Representations have been made to the management of Grace Removals that you have been engaged in illegal activities whilst working from our Botany depot. Subsequent investigations have conclusively validated these representations. As a result of these investigations, the Company finds no alternative but to terminate your employment immediately, for gross misconduct." The "illegal activities" referred to in the letter were the alleged supply by Mr Perkins, on two occasions, of a cigarette containing marijuana. On one occasion a cigarette was said to have been given to a fellow employee named Harris; on the other occasion to an employee named Abbott. It was not alleged that Mr Perkins sold either cigarette or that either was smoked at work. Mr Perkins denied suppling marijuana cigarettes to anyone. In evidence before the trial judge, Mr Harris withdrew his allegation against Mr Perkins. He said he signed a statutory declaration inculpating Mr Perkins because he was asked to do so by Mr Pepper and another Grace executive and he thought he would lose his job if he did not. Mr Abbott gave evidence maintaining his allegation against Mr Perkins but Moore J was concerned about aspects of his evidence. In the result, his Honour was not satisfied that Mr Perkins had supplied marijuana cigarettes to anyone. Mr Perkins had previously had a reasonable working relationship with Mr Pepper. He said in evidence he holds no grudge against Mr Pepper or any other employee of Grace. Mr Harris and Mr Abbott no longer work at the Botany branch; indeed Mr Harris no longer works for the company at all. Mr Pepper gave evidence that he had "lost all confidence" in Mr Perkins because he believed the allegations of "drug distribution in the workplace" were true. He said there was no other reason for his loss of confidence but, for this reason, he "would have grave difficulty accepting Mr Perkins back into the workplace". THE REASONING OF THE TRIAL JUDGE As mentioned, the trial judge was not satisfied that the conduct alleged against Mr Perkins had occurred. He found the termination of Mr Perkins' employment was not for a valid reason, and therefore constituted a breach of s170DE(1) of the Act. He also found the termination was in contravention of s170DC of the Act, given that no adequate opportunity was afforded to Mr Perkins to defend himself. On the question of remedy, the trial judge said: "Reinstatement is, in my opinion, impracticable. Perkins' position was a comparatively senior one involving considerable responsibility in the management of the workforce of the employer in the business it conducted. He answered to, and if reinstated, would answer to Pepper. Pepper believes the allegations against Perkins are true. While I have made no finding in these proceedings confirming that belief, I nonetheless accept that Pepper has a sound basis for believing they are true and I accept that his belief is reasonably held. Pepper says, and I accept, that he has lost all confidence in Perkins and would have great difficulty in working with him. It would, in my opinion, be impracticable to reinstate Perkins with this consequence. I propose to award compensation. The maximum allowable is $23,670. Perkins is disabled and has not, it appears, worked since his termination. I propose to award the maximum compensation and I so order." THE LEGISLATIVE CONTEXT Section 170EE(1) and (2) of the Act are as follows: "170EE(1)In respect of a contravention of a provision of this Division (other than section 170DB or 170DD) constituted by the termination of employment of an employee, the Court may, if the Court considers it appropriate in all the circumstances of the case, make the following orders: (a) an order requiring the employer to reinstate the employee by: (i) reappointing the employee to the position in which the employee was employed immediately before the termination; or (ii)appointing the employee to another position on terms and conditions no less favourable than those on which the employee was employed immediately before the termination; and (b) if the Court makes an order under paragraph (a): (i) any order that it thinks necessary to maintain the continuity of the employee's employment; and (ii)an order requiring the employer to pay to the employee the remuneration lost by the employee because of the termination. (2) If the Court thinks, in respect of a contravention of a provision of this Division (other than section 170DB or 170DD) constituted by the termination of employment of an employee, that the reinstatement of the employee is impracticable, the Court may, if the Court considers it appropriate in all the circumstances of the case, make an order requiring the employer to pay to the employee compensation of such amount as the Court thinks appropriate." THE ISSUES In determining the appropriate remedy in this case, the trial judge exercised a judicial discretion. Ms Howell conceded that the principles governing the overturning of an exercise of such a discretion are those stated by Dixon, Evatt and McTiernan JJ in House v The King (1936) 55 CLR 499 at 504 - 505: "The manner in which an appeal against an exercise of discretion should be determined is governed by established principles. It is not enough that the judges composing the appellate court consider that, if they had been in the position of the primary judge, they would have taken a different course. It must appear that some error has been made in exercising the discretion. 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. It may not appear how the primary judge has reached the result embodied in his order, but, if upon the facts it is unreasonable or plainly unjust, the appellate court may infer that in some way there has been a failure properly to exercise the discretion which the law reposes in the court of first instance. In such a case, although the nature of the error may not be discoverable, the exercise of the discretion is reviewed on the ground that a substantial wrong has in fact occurred." It follows that, in order to overthrow Moore J's decision about remedy, Ms Howell had first to persuade us that Mr Pepper's claimed lack of confidence in Mr Perkins did not constitute a reason for concluding his reinstatement would be impracticable. Secondly, she had to demonstrate that Moore J's discretionary judgment to that effect was vitiated by an error of the type referred to in House, or that the result was so unreasonable or plainly unjust that we ought to infer that Moore J failed properly to exercise his discretion. If she succeeded in doing that, it then became necessary for us to consider the words "if the Court considers it appropriate in all the circumstances of the case", in s170EE(1) of the Act. Because of his earlier conclusions, Moore J did not need to consider this last question. It will be apparent from our announced decision that the appellant has succeeded on all three issues. We will deal with them separately. WHETHER REINSTATEMENT WAS IMPRACTICABLE (i) The meaning of "impracticable" In Patterson v Newcrest Mining Limited (IRCA, Full Court, 6 June 1996, unreported) Wilcox CJ said: "... The word 'impracticable' has caused difficulty in relation to unlawful termination claims. It appears in subs. (2) and has led Judges of the Court, including myself, to describe the scheme of s. 170EE as one providing a primary remedy of reinstatement and a secondary remedy of compensation where reinstatement is impracticable. These comments must be read in the light of the amendments, where they apply, requiring the Court to reach a determination that it is 'appropriate in all the circumstances of the case' to order reinstatement. Contrary to the submission put by counsel for the appellant, it is my opinion that the matter of appropriateness, where that concept applies, is not restricted to the form of a reinstatement but applies to the initial question whether reinstatement shall be ordered or not." Wilcox CJ said he was "content to adhere" to what he said in Nicolson v Heaven and Earth Gallery Pty Limited (1994) 1 IRCR 199 at 210 regarding the meaning of "impracticable". He added: "The requirement to consider the impracticability of reinstatement necessarily requires the Court to have regard to all the relevant circumstances of the case relating to the employer and the employee; as I said in Nicolson, to evaluate the practicability of a reinstatement order in a common sense way." von Doussa J agreed with the Chief Justice's construction of the word "impracticable" in s170EE of the Act. North J did not find it necessary to deal with that issue. In Nicolson, Wilcox CJ said at 210: "It is important to note that Parliament stopped short of requiring that, for general compensation to be available, reinstatement be impossible. The word 'impracticable' requires and permits the Court to take into account all the circumstances of the case, relating to both the employer and employee, and to evaluate the practicability of a reinstatement order in a commonsense way. If a reinstatement order is likely to impose unacceptable problems or embarrassments, or seriously affect productivity, or harmony within the employer's business, it may be 'impracticable' to order reinstatement, notwithstanding that the job remains available." In Liddell v Lembke (1994) 1 IRCR 466 at 487, Wilcox CJ and Keely J said: "... Plainly, it was Parliament's intention that the primary remedy for unlawful termination should be reinstatement and that compensation should be available only where this was impracticable. The precise meaning of 'impracticable' in this context should be left to another day; the question is one of general importance and it was not fully argued in this case. But, although 'impracticable' does not mean 'impossible', it means more than 'inconvenient' or 'difficult'. The imposition of such a stringent limitation on the Court's power to award compensation, rather than order reinstatement, is inconsistent with the notion that Parliament intended the Court to have an open discretion whether to intervene at all." Gray J said at 495 that the practicality of reinstatement: "... does not depend on notions of loss of confidence in the employee." However, it is important to note that his Honour did not say that loss of confidence could never be relevant to the issue of impracticality. He was contrasting s 170EE of the Act with the judge-made rule against ordering specific performance of contracts of employment because of a reluctance to force parties into a personal relationship involving elements of mutual confidence. Gray J was making the point that the Act did not evince that reluctance. It established a different test: impracticability. In Abbott-Etherington v Houghton Motors Pty Limited (1995) 63 IR 394, Marshall J followed Gray J's approach. He found as a fact that reinstatement of a managerial employee was not impracticable, despite a claim by the principals of the respondent that they had lost confidence in her. He said at 396-397: "It is entirely inappropriate ... for the respondent to rely in part on its very basis for its termination of the applicant's employment to seek to deny the applicant her primary remedy. In almost every conceivable case where the Court has found that an employer has terminated the employment of an employee in contravention of Div 3 of Pt VIA of the Act it is likely that an employer will form the view that harmony at the workplace will be affected by the return to work of the employee it has terminated. Such a happening, I believe, is unexceptionable. In my view it is no more than a view that reinstatement is 'inconvenient' or 'difficult' if an employer says that harmony may be affected by an employee's return to work in such circumstances. ... I agree with Gray J in Liddell at 494, at least in so far as his Honour made the following observations: 1. The Court 'does not possess an unfettered discretion to refuse that remedy [of reinstatement] upon any view as to the relevant merits of the parties'... 2. 'Its [reinstatement's] practicability does not depend on notions of loss of confidence in the employee'..." (ii)Principles Trust and confidence is a necessary ingredient in any employment relationship. That is why the law imports into employment contracts an implied promise by the employer not to damage or destroy the relationship of trust and confidence between the parties, without reasonable cause: see Burazin v Blacktown City Guardian Pty Limited (Wilcox CJ, von Doussa and Marshall JJ, 13 December 1996, not yet reported). The implication is not confined to employers, it extends to employees: see for example Blyth Chemicals Ltd v Bushell (1933) 49 CLR 66 at 81-2 and North v Television Corporation Ltd (1976) 11 ALR 599 at 609. So we accept that the question whether there has been a loss of trust and confidence is a relevant consideration in determining whether reinstatement is impracticable, provided that such loss of trust and confidence is soundly and rationally based. At the same time, it must be recognised that, where an employer, or a senior officer of an employer, accuses an employee of wrongdoing justifying the summary termination of the employee's employment, the accuser will often be reluctant to shift from the view that such wrongdoing has occurred, irrespective of the Court's finding on that question in the resolution of an application under Division 3 of Part VIA of the Act. If the Court were to adopt a general attitude that such a reluctance destroyed the relationship of trust and confidence between employer and employee, and so made reinstatement impracticable, an employee who was terminated after an accusation of wrongdoing but later succeeded in an application under the Division would be denied access to the primary remedy provided by the legislation. Compensation, which is subject to a statutory limit, would be the only available remedy. Consequently, it is important that the Court carefully scrutinise any claim by an employer that reinstatement is impracticable because of a loss of confidence in the employee. Each case must be decided on its own merits. There may be cases where any ripple on the surface of the employment relationship will destroy its viability. For example the life of the employer, or some other person or persons, might depend on the reliability of the terminated employee, and the employer has a reasonable doubt about that reliability. There may be a case where there is a question about the discretion of an employee who is required to handle highly confidential information. But those are relatively uncommon situations. In most cases, the employment relationship is capable of withstanding some friction and doubts. Trust and confidence are concepts of degree. It is rare for any human being to have total trust in another. What is important in the employment relationship is that there be sufficient trust to make the relationship viable and productive. Whether that standard is reached in any particular case must depend upon the circumstances of the particular case. And in assessing that question, it is appropriate to consider the rationality of any attitude taken by a party. It may be difficult or embarrassing for an employer to be required to re-employ a person the employer believed to have been guilty of wrongdoing. The requirement may cause inconvenience to the employer. But if there is such a requirement, it will be because the employee's employment was earlier terminated without a valid reason or without extending procedural fairness to the employee. The problems will be of the employer's own making. If the employer is of even average fair-mindedness, they are likely to prove short-lived. Problems such as this do not necessarily indicate such a loss of confidence as to make the restoration of the employment relationship impracticable. (iii) Was reinstatement impracticable in this case? In assessing the matter of impracticability in this case, it is relevant to note that Mr Pepper gave evidence before the Judicial Registrar to the effect that, if the Court exonerated Mr Perkins of the allegation of supplying marijuana and made a reinstatement order, he (Mr Pepper) "would have no problems with him coming back to work". The Judicial Registrar eventually took that course. After Grace sought review of the decision, Mr Pepper made an affidavit that suggested that his previous evidence was intended only to indicate he would not defy the Court's order. It is difficult to accept that statement, having regard to what he told the Judicial Registrar. We prefer to think Mr Pepper meant what he said in the first place; that he is not so intransigent as to set himself up as the final arbiter of Mr Perkins' conduct, and will be prepared to work with him once again in a co-operative and professional way. The likelihood that Mr Pepper will resume a co-operative and professional relationship with Mr Perkins will be enhanced if Mr Pepper reflects on the fact that, after he gave his evidence about loss of confidence, Mr Harris gave sworn evidence that Mr Perkins had never given him a marijuana cigarette. If that evidence is accepted, it removes much of the foundation for Mr Pepper's alleged loss of confidence. There was no evidence of any difficulties between Mr Pepper, or any other superior officer, and Mr Perkins otherwise than in relation to the allegations that led to Mr Perkins' termination. There is no reason to suspect that, if Mr Perkins were reinstated, he would not perform his duties in a satisfactory manner and in the best interests of Grace. He had served the company for eight and a half years before his termination; but there was no criticism of his work performance. Mr Perkins is unlikely to have any contact with either of the two employees who gave the "information" to Mr Pepper that led to his termination. As mentioned, neither man is now employed at the Botany branch; one is no longer employed by Grace at all. Having regard to the whole of the relevant material, we concluded this was not a case where the reinstatement of Mr Perkins to his former employment, or to an equivalent position, should have been regarded as impracticable. THE EXERCISE OF DISCRETION Notwithstanding the view just expressed, as explained earlier we would not have been justified in setting aside Moore J's order concerning remedy unless we were persuaded that his Honour's discretion miscarried. Ms Howell submitted it did. She said that his Honour overlooked an important primary fact in finding that Mr Pepper "has a sound basis for believing that (the allegations against Mr Perkins) are true" and that Mr Pepper's belief is "reasonably held". We accepted this submission. Moore J's finding related to Mr Pepper's belief about the allegations of both Mr Harris and Mr Abbott. The finding reflected the fact that Mr Pepper, himself, did not draw any distinction between the allegations of Mr Harris and those of Mr Abbott. He made that apparent in an answer he gave during his cross-examination before Moore J: "If it is found that Mr Perkins did not in fact engage in giving marijuana cigarettes to Mr Harris and Mr Abbott would you have any problems with him coming back to work then? - With respect to the court's decision it is my firm belief that those allegations do have foundation and I would have grave difficulty accepting Mr Perkins back into the workplace." However, after Mr Pepper gave this evidence, Mr Harris went into the witness box and gave evidence that the allegation he had made against Mr Perkins was not true. Moore J accepted this evidence. He said in his reasons that "Nothing in his demeanour suggested he was not telling the truth". He said that, having regard to that evidence, he "plainly cannot" find that Mr Perkins supplied a marijuana cigarette to Mr Harris. It follows it could not accurately be said that Mr Pepper's belief that Mr Perkins had given marijuana cigarettes to both Mr Harris and Mr Abbott was "soundly based" or "reasonably held". In so characterising Mr Pepper's belief, Moore J overlooked the significance of Mr Harris' withdrawal. His Honour therefore based his exercise of discretion on a misapprehension of an important primary fact. Accordingly, his exercise of discretion miscarried. It follows that it was necessary for us to consider for ourselves how the discretion ought to have been exercised. As indicated, we had determined this is not a case where reinstatement was impracticable. We were free, indeed bound, to give effect to that view.