Industrial Relations Commission Decision 198/1994;

Industrial Relations Act 1988 s.127A application to review contracts

Mayne Nickless Limited (C No. 20040 of 1994)

Owner drivers Private transport industry

JUSTICE MUNRO
SYDNEY, 1 FEBRUARY 1994

Employment type - independent contractor - unfair contract - interim order sought pursuant to s.127B(3) Industrial Relations Act 1988 to preserve continued engagement of owner drivers by company - Commission held reservations about final relief sought - if contract offered four years secure employment, it is the breach of contract which gives rise to unfairness - consultative practice to be tested for unfairness - severance pay - company's proposed severance pay may need to be placed in perspective with the level of

indebtedness of a driver relying on the four year term - arguable case as to whether its provision is sufficient to offset the unfairness alleged to arise in the relevant contracts - arguable case for interim order - matters going to the adequacy of loss mitigation measures are matters for final relief, not for interim relief - only matter which is essential to preserving position of applicants is to extend term of the contract to enable applications to be adequately dealt with - proper to seek to preserve position of applicant party to each contract against possible result of contract being terminated - interim order drafted - redundancy

• consultative arrangements and implementation process for redundancies considered and proposed interim order subject to parties' responses.

This is the edited and revised version of a decision in transcript given on 28 January 1994.

In this matter the Commission is called upon to exercise the powers available to it under section 127A and 127B of the Industrial Relations Act 1988 (the Act). The power conferred is of a different character from that which normally falls to the Commission to perform. The power in section 127A relates to the jurisdiction covering unfair contracts with independent contractors. The Commission's task laid down in the section is to review a contract on a number of grounds which relate to whether the contract is unfair or is harsh or is against the public interest.

Assuming there is an appropriate contract of the kind that the Act covers in existence, if the Commission forms the view that the contract subject to review is unfair in part or in whole, in the normal course the Commission must state that it has formed that opinion. It may then make an order setting aside the contract or varying it. An order to vary a contract may only be made for the purpose of placing the parties to the contract as nearly as practicable on such a footing that the ground on which the opinion of unfairness is based no longer applies. So the end outcome of a review of a contract is that the

Commission may make an order varying the contract to remove the ground of unfairness that the Commission has formed an opinion as to in the contract.

Here I am asked to apply the power in section 127B(3) of the Act while an application is pending. That subsection provides that the Commission may make an interim order if it is thought desirable to do so to preserve the position

of a party to the contract. This matter has been put to me on the basis that I should make an interim order to in effect preserve the continued engagement of a considerable number of applicants engaged as Owner Drivers by the respondent company Mayne Nickless Limited (the company). The normal test I would apply to exercise of that power is that I should be satisfied that a prima facie case for the making of final orders has been made out; in other words, that there is a basis upon which I could be satisfied that, if the applicant's case is proved, there is an unfairness in the contract which would lead me ultimately to make some form of order.

In this matter I have some reservations as to the prima facie case that has been put to me. The reservations are about the final relief sought. The first is that if there is indeed a contract that offered four years secure employment it is not the contract which is unfair. Rather it is the breach of the contract which gives rise to the unfairness. The ordinary course would be that those who are entitled to the benefit of such a contract would sue for its breach. Nothing the Commission could do in relation to such a term of a contract could make it more fair. What is unfair is the failure to observe the term of the contract.

My second reservation is that though the consultative practice followed by the company is also complained of it may in fact not be seen to be unfair because it approximates to the practice required by the Commission's TCR standard. However, on balance I think that ground of complaint may need to be tested, and I therefore accept the case is arguable.

My third reservation concerns the "four by four" severance benefit formula sought as an element of final relief. Albeit that formula was put virtually without any supporting submission, viewed in isolation, it does not amount to a matter as to which there could be an arguable case, having regard to the criteria the Commission normally applies. The four weeks notice plus four weeks payment for each year of service is a standard well above anything that the Commission awards for employees. The latter standard I adopt as a rule of thumb test for what would be the minimum standard below which it may be unfair to fall in certain circumstances. If the significantly higher benefit of the "four by four" claim is to be viewed by itself, it is not one as to which I could be satisfied there was an arguable case in the context of section 127B of the Act.

However a matter which Mr Bell raised leads me to qualify that finding.

It arises from the nature of the alleged four year term for the contract and the alleged degree of indebtedness for particular vehicles. Mr Bell pointed out that an aspect of the final relief that is sought, and indeed of the case going to it, would require the company's proposed severance payment based on three weeks' notice by three weeks for each of service to be placed in perspective

with the level of indebtedness of a driver relying on the four year term. Although I consider the proposed severance benefit, when assessed by general industry standards, is at the generous end of the scale of benefits for employees, I accept that there is an arguable case as to whether its provision is sufficient to offset the unfairness alleged to arise in the relevant contracts.

In the circumstances, there is a sufficiently arguable case for me to consider some form of interim order. However, for reasons that I foreshadowed to Mr Bell, during his submission, I consider that the Commission must limit any interim order as far as practicable to the test in section 127B(3) and that test should be construed relatively strictly. That is any exercise of power should be aimed at preserving the position of a party to the relevant contract. I will not repeat what I put to Mr Bell but in short I do not consider it would be a proper use of the power available to me to seek to deny the company whatever right it has to manage its own affairs by reducing its workforce and restructuring in the manner proposed. In my view matters going to the adequacy of loss mitigation measures are matters for final relief, not for interim relief.

The first matter and, as far as I can see, the only matter in this instance which may be essential to preserving the position of the applicants is to extend the term of the contract in a manner intended to permit the applications to be adequately dealt with. In the absence of such a provision, there are legal doubts as to whether the applications could be validly dealt with at all. It would appear to me that it is therefore proper to seek to

preserve the position of the applicant party to each contract against that possible result of the contract being terminated.

Accordingly, I will make an interim order in terms which broadly correspond to the following. The order will be binding upon Mayne Nickless Limited which I take to be the proper title of the company and upon the applicants. The relevant operative term, and I am outlining it at this stage, is that:

"The contract for services of each of the applicants herein be varied to the extent necessary to make it a term of the contract that, subject to written agreement between the applicants and the company, expressly varying this term, and notwithstanding any action by or on behalf of the company to terminate the contract for reasons other than serious misconduct or breach of agreement covered by clause 9.3, the term of the

contract extends beyond such termination or purported termination, (including a termination based upon acceptance of a voluntary redundancy package), until the completion of the hearing and determination of the application herein, including any related appeal or judicial review proceedings as though the contract remains an executory contract; provided that, without derogating from rights arising under the contract up to the time of its termination or purported termination, and subject to further order of the Commission or of the Industrial Relations Court, this term does not operate otherwise to establish additional rights or duties in respect of any extended term herein provided for.

This order and the order to which it gives effect takes effect from 4.30 p.m. on 28 January 1994."

The terms of that order will be refined. It will be despatched in draft form to the parties on 31 January 1994.

I have given consideration also to that part of the applicant's case that goes to the satisfactoriness of the consultative arrangements and the implementation process for redundancies. I have not formed a concluded view as to the precise terms of the additional order or term of the interim order, if any, that I should make.

I wish to reflect further upon what has been put to me. I indicated in the course of submissions that I had in mind including in the interim order variations to the contract which would specify terms of the kind that were identified at page 162 of the report of the decision in Williams v. Compair Maxam Ltd [(1982) ILR 156 @ 162] as elements of a code of practice relating to redundancies that was endorsed by the appellate level of the Employment Appeals Tribunal of the United Kingdom.

Mr Bell relied upon references to unfair redundancy practices which generally apply a principle of testing a given situation against what a reasonable employer ought reasonably observe [Anderman: "Labour Law: management decisions & workers' rights". Butterworths 1992 @ 150-164; and particularly @ 162-3, and see also Budget Couriers Equity Management v. Beshara (1993) VIR 173 @ 180]. I consider that similar principles may be applied by analogy to cases of the kind with which I am here concerned in testing for unfairness in a contract for services, and in ensuring that it no longer applies.

On what has been put to me thus far, to some extent at least and perhaps to a considerable extent, the process already embarked upon would meet aspects of the code of practice provisions which I have in mind. Nevertheless that does not appear to me to be a reason why the interim order should not include provisions laying down a duty under the contract in a general form. The benefit of such provisions may be that they would extend to those entitled under the contract in relation to the implementation phase of redundancies if those occur.

The wording of the interim order already determined is intended to allow the creation of what may be additional rights applicable to applicants who, by the time that any further order is made, may have been terminated. Any such rights would go to process, perhaps to access to alternative employment opportunities or to the continuing process of, in effect, post-termination treatment by a reasonable employer if I consider there to be a discernible basis for holding such provisions to be a requirement of reasonable fairness in the reference material to which I have alluded.

I have in mind that I would reduce that second and separate element of the interim order I intend to make to writing. I will forward that to the parties on the basis that it is an order proposed. I direct that any response or application or submission in relation to that term of an interim order be supplied to me at my Chambers in Sydney by 10.00 a.m. on 2 February 1994. I will be ready to list this matter for mention or for any submissions in relation to that aspect of the order at 9.00 a.m. on 3 February 1994 in Melbourne. Should there be no requirement for that hearing in that respect then I would ask the parties to let me know through their written submissions.

The process that I have in mind would also extend to applications, if there are any, to speak to the order already determined. The draft will be provided, I would hope, early on 31 January 1994. Should there be any submissions or directions that are sought to be made to that order, they should be communicated as soon as practicable but no later than 10.00 a.m. on 2 February 1994. Appearances:

K. Bell of counsel and R.W. Hinkley for Allan W. Gerrard and 27 others.