85 The applicants contend that the arrangement was unfair in that it failed to prevent the respondents from terminating the SAA on the basis of a paper shortfall in sales targets without requiring the respondent to have regard to its own conduct and factors beyond the applicants' control. It is further contended that the arrangement permitted differential treatment of other sales agencies which had not achieved sales targets.
86 The evidence discloses that from October 2001, the second applicant, as the principal of GSI, was well aware of the concern of Mr Pitt regarding the performance of GSI. At that time, GSI had achieved but 67 per cent of budget for September 2001 and 65 per cent of budget for October 2001. The circumstances of each salon within GSI's agency area was addressed at the meeting of 14 November 2001. The second applicant was aware that the targets had to be met. I do not accept the second applicant's view that the targets were "aspirational". Mr Pitt made it abundantly clear in his letter of 7 November 2001 that it was necessary for a meeting to occur between himself and the second applicant so that the second applicant could present a plan to achieve budget to the end of the year. Mr Pitt, in this letter, referred to GSI's contractual obligations and concluded by observing that the failure to meet these obligations would require him to consider the feasibility of the continuation of the contract. By letter dated 23 November 2001, Mr Pitt sought to summarise the discussions which took place between GSI and himself on 14 November 2001. Mr Pitt concluded the letter by observing that, as agreed, the first respondent would monitor the sales of GSI on an ongoing basis. So much was acknowledged by the second applicant in his letter to Mr Pitt of 27 November 2001. In a subsequent letter dated 7 March 2002 to GSI, Mr Pitt stressed that if target achievement was not met for three consecutive months, then the first respondent would exercise its right to terminate the contract under cl 11(a).
87 Although there is a dispute between the second applicant and Mr Pitt regarding whether the second applicant complained about the targets fixed for GSI for 2002, I prefer the evidence of Mr Pitt on this issue. I find that the only complaint that the second applicant made in respect of the targets for 2002 was that they were provided on the second respondent's letterhead after its operations were transferred to the first respondent from 1 January 2002. By email dated 17 February 2002, the second applicant wrote to Ms Keeble acknowledging the revised targets for the New South Wales sales territory for 2002. He made no complaint regarding the targets in this email. In a letter to Mr Pitt dated 25 February 2002, the second applicant acknowledged the targets set for GSI's territory, although he observed that unless he made significant changes, he believed he would fall short of the year end goal. Having observed the evidence given by the second applicant and re-reading the transcript of the evidence, I am not able to accept the reliability of the second applicant's evidence in relation to complaints he made regarding the 2002 targets and what took place at the conference in February 2002.
88 I am of the view that the claim that the targets were too high or unrealistic does not sit with the evidence that GSI achieved 97 per cent of its sales target for November 2001, a target that was 12 per cent above the target for November 2000. This was achieved in circumstances where the second applicant observed that because of a delay in the delivery of certain products and the cancellation of others, November 2001 sales were affected by matters beyond his control. Had this not been the case, GSI would have exceeded the November 2001 sales target.
89 It must be borne in mind that these sales were achieved after meetings between the second applicant and Mr Pitt on 26 October 2001 and 14 November 2001, the latter meeting being in excess of four hours.
90 GSI achieved in excess of the original target fixed for January 2002. When this target was amended due to a change in the monthly weightings of targets, GSI had substantially complied with meeting its January 2002 target. The first respondent accepted that GSI had met its target for January 2002.
91 The second applicant contends that the first respondent terminated the SAA, based in part upon GSI's failure to achieve the revised sales target for January 2002. GSI's sales results for the calendar year 2001 was 81 per cent of target, and for 2000, 87 per cent of target. The targets for 2002 represented only a four per cent increase over the previous year. In his letter to Mr Pitt dated 25 February 2002, the second applicant advised that he was advertising for an additional fulltime sub-agent and planning to further delineate territories as there were countless opportunities out there. The second applicant believed that although with the change in weightings of target, GSI would fall short in the first part of the year any shortfall would be made up and his expectations exceeded. However, it appears that particular proposals discussed at the meeting of 14 November 2001 were not actioned. No evidence was led of advertisements being placed in any newspaper, nor was there any evidence of any person being engaged or to realign the territory of GSI. The overwhelming inference, in my view, is that no changes were made to improve the performance of GSI.
92 I have already observed that I accept Mr Pitt's evidence that discussions took place at the conference in February 2002 regarding strategies to achieve sales targets. The second applicant was a very experienced sales person who had been associated with the second respondent in a sales capacity for over 20 years. I am not prepared to find, on the evidence, that GSI was not provided with adequate support. The second applicant agreed that Mr Pitt had provided him with a document at the conference setting out strategies by which GSI could improve its sales performance. The second applicant treated this document as a "wish list". In November 2001, each salon of GSI was the subject of discussions between Mr Pitt and the second applicant.
93 I am also troubled by the second applicant's rejection of the invitation to meet with Mr Pitt and Mr Woodbury in May 2002 to discuss his failure to meet targets during the preceding three months. It may be that on one particular scenario, the second applicant achieved sales for April 2002. However, in order to reach this conclusion, it is necessary to credit sales from March 2002 to April 2002. In my view, there is insufficient evidence that would enable a positive finding to be made in this regard.
94 Nevertheless, the second respondent appears to have treated the targets for the majority of GSI's agency as essentially an objective or result to be aimed at in circumstances where GSI's consistent failure to achieve those targets had not warranted any comment whatsoever. It was submitted by the applicants, and I agree, that this induced a reasonable belief on the part of the second applicant that the targets were to be regarded as an objective as there was almost throughout the period 2000 to October 2001, sub-target performances by all agents. However, all this changed when Mr Pitt became the General Manager of the second respondent in 2001. He conducted an assessment of the 2001 performance of all agents with a view to setting the new targets for 2002. Although concerns regarding GSI's performance were raised on a number of occasions from 26 October 2001 onwards, including exercising the right to terminate the contract under cl 11(a), the circumstances then existing (the change in monthly weightings), doubts surrounding whether or not GSI reached the April target, inclines me to the conclusion that, as a matter of fairness the invocation of cl 11(a), which affected summary termination, should have included a provision for a period of notice. In my view, the Court needs to be wary of summary termination of contracts or arrangements where the reason a respondent advances to justify such termination is poor performance. The SAA did not contain a provision for notice of termination of the agreement that required the giving or payment in lieu of notice.
95 In reaching this view, I have been influenced by the long period of the contractual relationship between the parties; eight years as an employee; approximately two years agency arrangement; the period during which the relationship had apparently been mutually beneficial and amicable; the failure of the second respondent to censure or criticise GSI for its performance until October 2001; the decision by the second respondent to have the arrangement changed from that of employee to an agency. In my view, an employer should not be permitted to avoid its obligations to give notice of termination of a contract of employment or payment in lieu thereof by changing the relationship to that of an agency relationship. Such an alteration to the relationship may give rise to unfairness which, in my view, it has in respect of this matter.
96 I also take into account against the second applicant's his refusal to discuss GSI's failure to meet targets for the months of February, March, and April 2002 with Mr Pitt and Mr Woodbury in May 2002. The opportunity was offered to the second applicant to explain GSI's performance and explain any initiatives that it had introduced. The second applicant had been on notice of the respondents' concerns regarding its failure to reach targets from 26 October 2001.
97 I am not disposed, however, to hold the contract is unfair because of the absence of provisions requiring the first respondent to provide for adequate consultations or discussions with the second applicant prior to the setting of sales targets; provision for their subsequent revision; a prohibition against termination for failure to achieve monthly sales targets, unless the targets were derived from adequate consultation with the second applicant excepting where such failure is entirely attributable to the second applicant's conduct. No provisions as to these matters, of course, appear in the SAA which was freely entered into. Barwick CJ held in Stevenson v Barham (1977) 136 CLR 190 at 192:
The legislature has apparently left it to the good sense of the Industrial Commission not to use its extensive discretion to interfere with bargains freely made by a person who was under no constraint or inequality, or whose labour was not being oppressively exploited.
98 Furthermore, the evidence is clear that the second applicant was consulted about the targets for 2002. Indeed, the SAA in cl 11(b) specifically provided for negotiations in respect of new sales targets prior to a new target period commencing. It seems to me that a target based agency agreement is not intrinsically unfair.
99 However, taking into account all of the circumstances of this matter, I find that the SAA between the parties is unfair in that it provided neither in respect of cl 11(a), Sales Targets Not Achieved, or cl 11(b) Revised Sales Targets for a notice of termination period.
100 I find the circumstances of the case reveal unfair conduct by the respondents where no such notice provision was included in the SAA, particularly bearing in mind the second applicant's long relationship with the respondents. Such unfair conduct requires a finding that there should be a variation to the contract to insert a notice of termination period. I therefore propose to exercise my discretion to vary the SAA to insert an appropriate notice provision.
101 In my view, and I find, it is just and appropriate to make a compensatory order. In Westfield Limited and Another v Helprin Helprin v Westfield Limited and Another (1997) 82 IR 411, a Full Bench allowed monetary orders in circumstances not totally dissimilar to those before this Court, albeit, dealing with a contract of employment, as opposed to an agency arrangement. Their Honours held at 439:
… the question of whether that discretion should be exercised in relation to the question of notice arises for consideration in the context of all of the circumstances before us, which include the other orders which we have decided to make in relation to the giving of a warning before termination and the option scheme and the orders as to the payment of moneys which flow from those variations. …
102 Mr Chin submitted that in considering what may constitute an appropriate period of notice, it was proper for the court to take into account the second applicant's employment with the second respondent from 1996 to 2000 and his service with the Sebastian parent company in the United States, where the second applicant was employed between 1992 and 1994. Counsel relied upon Ross v GN Comtext (Australia) Pty Limited (2000) 107 IR 1 as authority for such an approach.
103 In the circumstances of this case, and in light of the submissions advanced by counsel for the applicants, I consider it proper to have regard to the entire period of service that the second applicant had with the parent company in the United States commencing in 1992, with the second respondent, or its predecessor from 1994 and as the sole Director and alter ego of GSI from 2000. I do not accept the submission of the respondents that I should look only at the period of the agency agreement between GSI and the first and second respondents. Such an approach plainly ignores the reality of the second applicant's employment situation with the second respondent, including his length of service with it and its parent company in the United States.
104 In Payne v Foxboro L & N Pty Ltd (1998) 81 IR 404, Hill J considered the case of an employee who had been employed by a number of related companies over a period of 27 years, all of which had been under the direction of two United States parent companies. In determining the fairness of notice of termination provided by the employer, Hill J clearly considered the entire period of service. His Honour concluded (at 407 - 408):
So far as notice is concerned, it seems to me that the provision in the contract and/or arrangement for a period of one months notice of termination plus one months pay in lieu (the unilateral general policy of the respondents and their US parent/s) is patently unfair in the case of the applicant having regard to his length of service and the status of his position. He had been the National Sales Manager of the respondent/s since 1993 and prior to that the NSW Sales Manager since 1982, and with overall service in excess of 27 years. During the latter periods of his employment he was the most senior "technical" employee of the company in Australia and reported directly to the US parent; and it was his responsibility to ensure that its policy of "Business as usual" was complied with in order to make the business as attractive as possible so that the US parent could achieve its objective of sale. In my view, a period of 12 months notice (or payment in lieu) would have been fair and reasonable.
105 The evidence establishes that there was a close relationship for at least 10 years but in reality a significantly longer period between the second applicant and the parent company in the United States. The second applicant took a position with the second respondent in Australia at the request of its United States parent company, presumably to best serve the company's interests in Australia. Although the company's head office is in Germany where sales targets were set, they appear on the evidence to have been relayed via the parent company in the United States. To treat the period of the agency in isolation would be artificial and would result in obvious unfairness. In my view, such an approach does not involve the lifting of the corporate veil as the task of the Court is to determine whether the contract or arrangement was unfair, harsh or unconscionable. That determination must be made in the light of the entire circumstances of the case as the Full Bench in Port Macquarie Golf Club Ltd v Stead observed. The relevant circumstances in this case must include the fact that the second applicant had been employed by the second respondent and invited on more than one occasion to establish an agency.
106 In considering whether the contract is unfair the Court will have regard to the legal relations between the parties and of course the question of legal form. However, as the Court of Appeal observed in Mayne Nickless, the Court must consider the reality and not merely legal form.
107 The law is well settled in respect of the kind of factors which may be relevant in assessing whether a period of notice given on termination is fair or unfair in the context of a contract of employment. In Lavings v Barclay Mowlem Construction (New South Wales) Ltd (1994) 99 IR 247 at 253, Hill J stated:
…As to the period of notice the authorities demonstrate that the period of "reasonable" notice to be implied in a contract of employment which is silent on the matter depends upon all relevant circumstances of the particular employment, including (but not limited to) the nature and status of the position, the degree of responsibility and authority involved, the qualifications and experience necessary, the availability of suitable alternative employment, the amount and form of the remuneration and the basis upon which it is expressed, any relevant trade custom or practice and the length of service of the employee. In the present case, of course, the contract contains express provision for notice of termination and the issue is whether it is fair or unfair in the context of the contract as a whole, the circumstances in which it was made and the circumstances of its application and operation…