Kenneth Ross Milburn v Capral Aluminum Ltd

Applicant: Mr P.C. Coleman of counsel Solicitors: Champion Legal LEGAL REPRESENTATIVES: Respondent: Mr S.B.Benson of counsel Solicitors: Blake Dawson Waldron

JUDGMENT: - 1 - INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES IN COURT SESSION CORAM: KAVANAGH J Date : Tuesday 16 November 2004 IRC 7208 of 2001 KENNETH ROSS MILBURN v CAPRAL ALUMINUM LTD Application under s106 of the Industrial Relations Act 1996 JUDGMENT [2004] NSWIRComm 302

1 The applicant claims under s106 of the Industrial Relations Act 1996 that his contract of employment was unfair, harsh and unconscionable in its terms and operation in that the respondent, in the termination of his employment due to redundancy, provided a more beneficial treatment to other employees; imposed upon the applicant a severance payment policy without consultation; failed to comply with the redundancy provisions of Capral Aluminium (Redundancy) Enterprise Agreement 2000 which could and should have applied to the applicant.

2 The applicant claims, arising out of such unfairness, compensation in an amount calculated in accordance with the said enterprise agreement as follows: 1. The difference between actual redundancy severance payment and what would be due had the enterprise Agreement applied, calculated with respect to remuneration package of $114,026 per annum or $2,192.81 per week: (a) Six weeks x $2,192.81 = $13,157.00 (b) Three weeks per continuous years of service 3 x $2,192.81 x 36.25 = $238,468.08 (c) Two weeks per each 5 years of continuous service 2 x $2,192.81 x 7.25 = $31,798.00 (d) Untaken sick leave 1783 hours x $58.47 = $104,307.00 Total $387,730.00 Less redundancy severance payment made ($195,039.00) Balance claimed $192,691.00 3 Mr P.C. Coleman, of Counsel, appeared for the applicant and Mr S.B. Benson, of Counsel, appeared for the respondent. The applicant gave evidence and was cross examined. The respondent relied upon evidence from Anthony Rae, Frank Fjarda and Kenneth Newman, all of whom were employees or prior employees of the respondent.

4 The company managed its human resources and personnel issues on the basis of whether an industrial instrument regulated the employees conditions of employment. Such employees were referred to as "Award employees". Those employees, whose employment conditions were not regulated by an industrial instrument, were referred to as "Staff employees", of which the applicant, being a managerial employee, was one. The applicant's claim is essentially predicated upon the company's delineation between "Award" and "Staff" employees, and the applicable redundancy policies for each. For consistency and ease of reference these same terms will be used.

5 Significant documentation was tendered as to the company's Award Employees Redundancy Policy and its Staff Employees Redundancy Policy. The following relevant documents (not exhaustive) were tendered and relied upon by both parties. · A document from Alcan Australia Limited dated 30 October 1990 outlining the termination policy. · The applicant submits this policy was not ever shown to him. · A document headed "Retrenchment Package", dated 1 May 1991. · Document headed Alcan Australia Limited "Termination Payments: 35H and Above", dated 11 December 1991. · Document headed "Staff Retrenchment Package Effective 1 January 1992", dated 27 March 1992. · Document headed Alcan Australia Limited dated 25 January 1994, "Payment of Sick Leave on Retrenchment." · Document headed Alcan Australia Limited dated 22 March 1995, "Retrenchment Package." · Document headed Alcan Australia Limited 29 August 1995, "Subject: Service Payment: Retrenchments." · Document headed Capral Aluminium 30 November 1995 "Retrenchment Package: Staff Employees). · Document headed Capral Aluminium 3 September 1999, "Staff Redundancy Payments." (The document seems to have two attachments, one headed "Staff Redundancy Payments" dated 23 August 1999; and the other dated 20 September 1999). · Document headed "Staff Redundancy Payments Not For Publication" dated 1 January 2000. · Document headed Capral Aluminium dated 5 February 2001 "Staff Redundancy Payments. The Facts 6 The facts in this matter are not in contention. 7 The applicant commenced employment on or about 18 January 1965 at age 16 years. He was employed originally by the Australian Aluminium Company. He began work as a Trainee Metallurgist on a starting salary of £12.10.0 per week. Whilst employed as a Trainee Metallurgist, the applicant enrolled in a Bachelor of Science Degree at the University of New South Wales and completed this Degree, with Honours, in November 1969. He then moved to serve as a Development Engineer at the Kurri Kurri plant and over the years worked his way through various positions with the company that became (by way of amalgamations) Capral Aluminium. The applicant expected to serve out his working life in the employ of the respondent.

8 On 17 February 1998, the respondent announced to the Australian Stock Exchange a strategic review of the long term options for its Sheet Mill business was being undertaken. In April 1998, the applicant transferred from the Greenfields Project Team (to which he had been previously assigned) to the position of Technical Manager - Sheet Mill Division at Granville. The applicant's conditions of employment returned to those which applied immediately prior to his transfer to the Greenfields Project, which arrangement the applicant acknowledged at the time.

9 After conducting the review of the Steel Mill operations, at 4pm on 4 May 2000, the respondent convened a meeting of its senior managers (including the applicant) who reported directly to the General Manager of the Sheet Mill. At the meeting the company announced its decision to close the Sheet Mill. On the following day, 5 May 2000, the respondent implemented its pre-planned communication strategy. It first informed all other employees directly affected, and the associated unions, of the company's intention to close the Sheet Mill at Granville by the end of 2000.

10 Kenneth Newman, the Human Resources Manager of Capral Aluminium Limited, was involved in managing the process whereby Capral's Sheet Mill operation in Granville was phased down and ultimately closed in about December 2000. He asserts the applicant was well informed, as were other employees, of the timing of the phased winding down of the Sheet Mill. The applicant agrees he participated in regular management meetings where the timing of the winding down process was discussed after the announcement. Strategies were determined at these managerial level meetings to ensure staffing levels reflected the operational needs of the business and the timing of retrenchments was managed to match those operational needs in the shut down.

11 I accept that at these meetings all divisional managers, including the applicant, were encouraged to identify and report any issues raised by employees as to the winding down of the Sheet Mill and, in particular, issues relating to employees' retrenchments. 135 Award employees were retrenched between May 2000 and December 2000.

12 The applicant, as a managerial Staff member, followed the practice of the company for retrenchments which was: The…manager who was considering the recommendation of a retrenchment to initiate contact with a member of the Human Resources team and requested an estimate of the employee's redundancy entitlement. The Human Resources team would arrange for an estimate to be produced based on salary details and leave balances extracted from the payroll system… The estimate of the redundancy entitlement would then be given to the manager to discuss with the employee concerned.

13 The applicant followed this procedure in retrenching employees in the Sheet Mill Division up until the last step enunciated above. It was his recollection the estimates of employees' payments were given to each employee and, if there was concern, each employee discussed such concern with the Human Resources Division and not with the applicant as their manager.

14 From May 2000, the applicant initiated the documentation for the retrenchment of his subordinate staff, most of whom were made redundant by the end of 2000. The applicant himself had agreed to stay on in employment in 2001 to assist the company in creating a catalogue of the equipment for sale and to assist with the documentation of technical aspects of the Sheet Mill operation which could assist potential buyers.

15 In accordance with the company's strategy, to manage the redundancies all affected employees were handed a document in the form of a Question and Answer Sheet which addressed such matters as the timing of the progressive plant shut down; when employees might be terminated; when each could expect details of their redundancy payments; the extent of assistance the respondent would provide through Outplacement Support; the provision of financial advice; and the prospects as to placement elsewhere in the company. The Questions and Answers document also specified the elements of the relevant redundancy package and explained, if the package had changed, the impact of any change. A comparative analysis in the document demonstrated the extent of any difference if a policy document was varied- each calculation reflected an employee's service and, if relevant, his sick leave balance.

16 No employee retrenched in the period from May 2000 and onwards, for whom the applicant was responsible, raised with him concerns as to the fairness or otherwise of the redundancy policy. The applicant said he did not view it as his role to foster discontent in the minds of such employees.

17 In May 2000, the applicant had also been provided the Questions and Answers document and the relevant Staff Redundancy Policy applicable to his own retrenchment.

18 At the time of the shut down, the applicant had over 35 years continuous service with the respondent. He was 52 years of age. He had spent his working life in the employ of the respondent. He was working as the Technical Manager, Sheet Mill earning $114,026 per annum. In addition, he received a superannuation contribution of $17,104 per annum and a car valued at $18,011 per annum.

19 Later, after completing the shutdown operation, on or about 20 February 2001, the applicant was given six weeks formal notice of termination to take effect on 2 April 2001. The applicant subsequently ceased his employment with the respondent on 2 April 2001. The applicant was provided with the following particulars: The Staff Redundancy Package was reviewed last year as part of the Company's general remuneration review. The Company compared the then existing package against market practice. Based on this review the package was changed to bring it in line with market practice.

1 month's notice 1 month's notice 1 additional month's pay 2.5 weeks per year of service 3 weeks per year of service (pro rata for part year) Payment of untaken sick leave 2 additional weeks for each 5 years' service where employee has completed 10 years' service. or A total of 18 months' salary A total of 18 months' salary whichever is the lesser amount whichever is the lesser amount

20 While the payment of untaken sick leave was discontinued, as this was not a common practice in redundancy packages, this was replaced by increasing various payments in the new redundancy package.

21 The applicant received an assessment of his termination package in a document which read as follows: Name: Milburn KR Number: 115902 Date of Birth: 2-Oct-48 Start Date: 18-Jan-65 Base Pay / Notional Salary: $114,026.00 Redundancy Calculation Date: 31 October 2000

Leave accrued to 30 April 2000 GROSS TAX NET Annual Leave - Hours 382.10 22,343.25 7,038.12 15,305.13 Long Service Leave Hours 1,137.52 66,516.34 20,952.65 45,563.69 Redundancy 1 Month in lieu (5 wks if > 45) 12,502.50 Additional 1 Month 10,835.50 Service Years 35.78 304,222.37 Total 327,560.37 0.00 0.00 Maximum Payment (18 Mths)195,039.00 0.00 0.00 Tax Free Limit 89,873.00 89,873.00 89,873.00 Retrenchment exceeds limit by 105,166.00

Pre 1 July 1983 6738 54,212.26 54,212.26 54,212.26 Post 30 July 1983 6333 50,953.74 50,953.74 16,050.43 34,903.31

Please note that leave figures (annual, long service and sick) have been calculated as at 30 April 2000 and will be recalculated based on the entitlement at the date you would cease work. In the case of long service leave for employees whose service commenced before 1978, tax has been overestimated and will be adjusted when actual calculations are completed.

The above statement is an estimate of redundancy entitlements as at the calculation date. It is intended only to provide a guide to entitlements in the case of redundancy. This statement should not be regarded as confirmation of a redundancy date. You will be advised separately of the actual date on which you would cease work.

22 The company document revealed that the applicant, had he been paid for his 35.78 years of service, without the application of the 18 month cap on termination payments would have received a further $105,166.00. This further amount does not include any payout for his accrued sick leave, which the applicant also claims.

23 On retrenchment, the applicant was paid (not from the estimate given to him in 2000) but to April 2001, his termination date, the following payments: (1) $195,039 (gross) inclusive of notice and severance. (2) $23,853.65 (gross) untaken annual leave entitlements. (3) $68,416.18 (gross) accrued long service leave - in total a net sum of $250,432.33. Under the Capral Superannuation Plan, the applicant was also entitled to $762,593.52 of which $581,464.58 was immediately available and $181,128.94 preserved.

Award Employees - Redundancy Policy 24 Just before the redundancies were announced on 24 March 2000, the Capral Aluminium Limited (Redundancy) Enterprise Agreement 2000 ("the Redundancy Agreement") was certified in the Australian Industrial Relations Commission and applied from March 2000 to March 2001. The agreement covered all Award employees employed under two Federal Awards. The Union members voted in February 2000 to accept and register the Redundancy Policy as an enterprise agreement.

25 Evidence revealed the history of the Redundancy Agreement. There was in 1995/1996 an industrial campaign advanced by the key unions at the respondent's plants who sought enhanced redundancy benefits for their members. The campaign took place over a period of time. The relevant managers including the applicant were kept informed as to the negotiations. The result of this industrial disputation was a formal unregistered Industrial Agreement between the respondent and the relevant unions setting out provisions relating to Award employees' redundancy entitlements. This agreement came into effect on 17 May 1996. The provisions of that agreement were subsequently, on 24 March 2000, incorporated into the Capral Redundancy Agreement and certified by the Australian Industrial Relations Commission. The Redundancy Agreement was registered in circumstances where the unions knew of the company's inquiry into the future of the Sheet Mill Plant. Capral Aluminium Limited, the Australian Workers' Union, the Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union and the Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia made application for the certification of the Redundancy Agreement.

26 Relevantly, the Redundancy Agreement contained the following payments clause: Clause 9 - Payments 9.1 Employees who are terminated as a result of redundancy shall be eligible to receive only the following payments:- 9.1.1 An employee shall receive a payment of six weeks pay, which will be inclusive of any payments made in lieu of notice. 9.1.2 For each continuous year of service, employees will receive 3 weeks ordinary pay. 9.1.3 The scale of the payment in 9.1.2 above shall be applied on a pro rata basis for completed months of service less than a full year. 9.1.4 An employee [who] has at least 10 years continuous service shall receive an additional payment of 2 weeks ordinary pay which will be made for each 5 years of continuing service or part thereof, calculated on the total period of service. 9.1.5 In addition, an employee shall be entitled to receive payment for untaken accumulated sick leave which shall be reduced by any leave taken in circumstances set out in Clause 8. 9.1.6 Long service leave is payable in accordance with the relevant State long service leave legislation. Clause 9 therefore allowed for the following payments to Award employees on redundancy: · Six weeks pay plus three weeks pay per year of service plus pro rata for less than a full year. · Plus for an employee with at least ten years service an additional two weeks pay for each five years of service and · Payment for accumulated sick leave.

27 Award employees would receive a payment of three weeks for every year of service and an employee's accumulated sick leave was to be paid out. There was no cap on the payments a Award employee could receive. The Staff Redundancy Policy 28 The evidence revealed there was a company policy not to reveal to Staff employees the terms of the Redundancy Policy applicable to Staff. The Policy itself changed over the years as follows: 1991 Policy The first policy revealed in evidence was that of 1991: Monthly Staff will be entitled to the following Retrenchment Benefits: 1 month in lieu plus 2.5 weeks per year of service (Calculation to include pro rata for completed months of service) plus Accumulated Approved Leave 1992 Policy Monthly and weekly staff will be entitled to the following retrenchment benefits: 1 Month/4 week salary in lieu ) 2.5 weeks salary per year of service ) Payment of accumulated sick leave ) WHICHEVER ) IS OR ) THE ) LEAST 18 months' salary ) AMOUNT

1999 Policy For staff employees, the following payments will be made in the case of redundancy: 1 month's salary in lieu of notice ) ) 2.5 weeks for each year of service ) WHICHEVER (pro-rata for partly completed year) ) IS Payment of accumulated sick leave ) THE ) LEAST OR ) AMOUNT ) A total of 18 months' salary ) 29 In 1999, the respondent undertook a detailed investigation into the above redundancy benefits payable to its Staff employees. The respondent compared the company's existing Redundancy Package against "market practice" and based upon that review the Package for Staff Redundancy was revised. The new package drafted increased the accrual rate from year to year and removed the payment of untaken sick leave. There was no change to the maximum severance cap of 18 months on payments. The respondent asserts: . . . while the payment of untaken sick leave was discontinued, as this was not a common practice in redundancy packages, this was replaced by increasing various payments in the new redundancy package.

30 Under the revised redundancy package the severance cap did not come into operative effect until an individual member of staff approached 20 years service: 2000 Policy In 2000, there was a further alteration in the note added to the 1999 revised policy Not for Publication For staff employees, the following payments will be made in the case of redundancy: 1 month's salary in lieu of notice (5 weeks if over 45) An additional 1 month's payment. 3 weeks for each year of service (pro-rata for partly completed year) For employees with 10 years service, an additional 2 weeks for each 5 years service or part thereof, calculated on the total service period. OR A total 18 months salary, whichever is the lesser amount

The above termination payment was intended to satisfy all entitlements including notice and severance that the staff employee may have upon retrenchment.

31 2001 Policy The final Policy for Staff Redundancy was settled as follows: Not for Publication STAFF REDUNDANCY PAYMENTS For staff employees, the following payments will be made in the case of redundancy:

2 months' salary plus 3 weeks' salary for each year of service (pro-rata for partly completed year) For employees with 10 years service, and additional 2 weeks' for each 5 years service or part thereof, calculated on the total service period. OR A total 18 months salary, whichever is the lesser amount.

The above termination payment is intended to satisfy all entitlements including notice and severance that the staff employee may have upon retrenchment.

32 Of the 2000/2001 Policy implemented during the relevant redundancies, Mr Newman summarised the changes thus: . . . that staff were no longer entitled to have untaken sick leave entitlements paid out upon retrenchment, the payments under the policy were increased by providing for an additional months payment, plus the payment formula increased from 2.5 weeks to 3 weeks per year of service, and staff with more than 10 years service were entitled to enhanced payments (an additional 2 weeks pay for each 5 years of service).

33 Of concern is that the relevant copy of the Policy document, tendered by the applicant, dated 1 January 2000 and obtained by the applicant from the respondent under Summons for Production has a typed notation upon it in the right hand corner: "Not for Publication" whereas the Policy document tendered by the respondent in evidence dated 1 January 2000 does not have the notation upon it.

34 Further, the Policy document tendered by the applicant, dated 1 February 2001, has the same notation: "Not for Publication"

but the one tendered by the respondent does not have that notation.

35 Mr Lea and Mr Newman, both company officers who gave evidence, agreed the "Not for Publication" notation on the Policy Statements tendered in the applicant's case reflected the company policy which was not to reveal to Staff employees its relevant Staff Redundancy Policy until the staff member was made redundant. No reason was given for this attitude. The policy outlining the conditions for Staff redundancies was provided to each staff member only when they were given notice, however, through the Redundancy Agreement, the Award employees were always well aware of their redundancy benefits.

36 The respondent chose to file in Court documentation which did not reveal the Staff Redundancy Policy was kept from Staff employees. The copies produced to the applicant revealed the "Not for Publication" Policy. When questioned, the company officers confirmed the Policy of the company was not to inform staff members of their rights under a relevant package unless they were to be made redundant. It is of concern that the documentation attached to the respondent's affidavit did not have the "not for publication" notation, which revealed the company's policy stance on the information made available to its staff. The Applicant's Submissions 37 The applicant submits, throughout his employment, he was never consulted regarding any changes made to the Company's severance policy. The applicant further submits each policy change was determined by the respondent, without consultation or agreement with the applicant, nor with the agreement of other Staff employees.

38 The applicant submitted he did not know nor does he admit the policy was capped at 18 months' salary from January 1992.

39 The applicant was not consulted and did not agree to the change to the Company policy where it determined not to allow on redundancy the payment of accumulated sick leave from January 2000.

40 The applicant submits the salary and benefits he was paid reflect his responsibilities and the duties he performed. That salary and his associated benefits he concedes were more favourable than those paid to a Award employee but he submits his salary package reflected his managerial duties and responsibilities. The applicant submits he never agreed to the proposition of the respondent that his remuneration was in lieu of comparable and fair redundancy arrangements.

41 The applicant does not seek to have the Redundancy Agreement applied to him rather he seeks orders under s106 requiring the respondent to treat him no less favourably than it has treated another group of employees who nominally are those covered by the agreement. The applicant relies upon the unfairness as considered by the majority of the Commission in Baker v National Distribution Services (1993) 50 IR 254.

42 As to the alleged unfairness, the applicant asserts it was a relevant unfairness of the respondent when it applied a redundancy policy which discriminated against him. Simply because, as a Staff employee, he had a higher level of remuneration during his employment than that which was earned by an Award employee, this fact cannot be held to be a valid reason to discriminate to his detriment on redundancy.

43 The applicant submits the purpose of redundancy pay is, in part, to compensate him as an employee for the loss of the benefits he expected from long term employment. In the package he received, he asserts he was not fairly compensated.

44 The applicant submits as the respondent had the payment of untaken sick leave in its policy until January 2000 and it agreed to pay unpaid sick leave for the Award employees made redundant at the same time as the applicant, such an order of the court would not offend either the letter or the spirit of s27 of the Industrial Relations Act 1996. 45 The principle of unfairness, the applicant submits, arises from the inequality in payments between one group of employees and another and the discrimination such inequality vested upon the applicant. The Respondent's Submissions 46 The respondent confirms the Award employees' conditions of employment were regulated by the Capral Aluminium Limited Award 1998 ("the Award") and the Redundancy Agreement.

47 The respondent confirms it amended its severance policy for Staff employees after 1999 because of what it "considered to be changes in the industry in which it operates."

48 The respondent submits since 1 January 1992, the severance policy applicable to Staff employees contained a provision capping the maximum payment at 18 months' salary.

49 The respondent in defence of the distinguishing features between the Award Redundancy Policy and the Staff Redundancy Policy asserts that the applicant during his employment had the benefit of wages and conditions significantly more favourable than those of the Award employees.

50 The respondent asserts: · The severance payment made to the Applicant was, on any objective basis, a fair and reasonable payment. · The severance payment made to the applicant exceeded that to which he would have been entitled under the relevant standards in New South Wales (see Re Application for Redundancy Awards (1994) 53 IR 419, and the Employment Protection Act 1982 (NSW) and the Federal Standards (see Federal Termination Change and Redundancy Case (1984) 8 IR 34 and (1984) 9 IR 115) and Redundancy Case (2004) 129 IR 155. · The applicant was given notice and progress reports as to the impending redundancy. · The cap on severance payments under the Respondent's staff severance policy is not of itself unfair (Payne v Foxboro L & N Pty Limited (1998) 91 IR 404). · The cap on severance payments under the Respondent's severance policy did not operate in a harsh or unfair manner in the particular circumstances of the Applicant. · At no time during his employment did the applicant inform the Respondent that he regarded the Respondent's staff severance policy as unfair in any respect, notwithstanding that during the period of actual notice of termination given to the Applicant he was informed about his indicative severance benefit upon termination.

51 The respondent submits that jurisprudence would not ground a finding of unfairness simply because the Australian Industrial Relations Commission has made or approved a collective industrial instrument which applied to employees of the respondent other than the applicant, and which conferred different benefits on those employees.

52 Further, the respondent submits no unfairness flows from the fact that a payment was not made to the applicant in respect of untaken sick leave. The applicant had no contractual or statutory right to receive such a payment. Nor can the payment out of untaken sick leave on termination of employment be regarded as a community standard (Payne v Foxboro L & N Pty Limited (1998) 81 IR 404).

53 No unfairness flows in the applicant's case from the variation of the respondent's Staff severance policy on 1 January 2000 so as to remove the entitlement to payment of untaken sick leave. The respondent submits even if the policy had not been varied, the applicant would not have received a greater payment because the cap of 18 months would have applied in any event.

54 The respondent argues the applicant's retrenchment payment exceeded the highest possible retrenchment payment of an Award employee. The Applicable Principles 55 The Full Bench of the Industrial Relations Commission of New South Wales in Westfield Holdings v Adams (2001) 114 IR 241 (at 282-284) summarised the principles to apply in a consideration of an award for compensation under s106(5) saying, relevant to this circumstance: . . . 9) In assessing whether unfairness has occurred and in making money orders under s 106(5) it would be appropriate to have regard to the following principles regarding the relevance of general industrial standards. In doing so, however, the individual contract or arrangement concerned remains the primary consideration: a) Whether or not a contract or arrangement is unfair within the meaning of ss 105 and 106 is a matter to be decided upon examination of the facts of each particular case; section 106 deals largely with private rights inter partes; the focus of attention is the contractual relationship between a particular employer and employee. b) Subject to the primary focus being the particular circumstances of the individual contract or arrangement concerned, in assessing whether unfairness has occurred general standards or levels of what is considered to be fair, including general standards of redundancy pay applying to employees covered by industrial awards or legislation, will be factors to be considered. c) Despite that a general and relevant industrial prescription governing benefits payable to employees in termination of employment situations may exist, unfairness in relation to a particular contract of employment may nevertheless arise in a situation of redundancy or termination of employment for reasons unrelated to or not relevant to the basis of award prescription of an objective and fair benefits. d) The scale fixed in the Redundancy Awards Case was fixed on a "safety net" basis. In making money orders under s 106(5) the court may have regard to the Redundancy Awards Case scale but is not bound to apply it.

56 As to the claim for payment of sick leave entitlements, the State Redundancy Test Cases have adopted the principles enunciated and repeated by the Australian Industrial Relations Commission in the Termination Change and Redundancy Case 2004 (Print No. PR032004) as follows at [137] and [138]: We turn now to the issue of loss of non-transferable credits. By non-transferable credits we mean primarily accrued untaken personal leave and contingent long service leave accruals . . . . With respect to personal leave, we note the submissions by various parties that the Commission has always refused to award payout of sick leave credits on termination and that consistent with that approach we should not take personal leave into account in assessing the loss of non-transferable credits. . . we think it is permissible to take into account in a general way that a loss of personal leave entitlements on termination for redundancy may lead to subsequent hardship when personal leave is needed but no credit is available…

It is not appropriate . . . to establish severance pay at levels which fully compensate redundant employees for loss of non-transferable credits. We have already mentioned the contingent nature of credits. To that consideration must be added the high cost to employers of such an approach and the fact that we are concerned with the fixation of award provisions which are to operate as a safety net. Nevertheless, the loss of non-transferable credits is a significant factor to be taken into account.

57 In Baker (at 271), an authority relied upon by the applicant as applicable to his circumstances, Fisher CJ and Hungerford J stated the test of unfairness was to be determined according to: . . . the common sense approach characteristic of the ordinary juryman ... It is a plain matter of morals not law. The test was originally formulated by Sheldon J in Davies v General Transport Development Pty Ltd [1967] AR 371 who added a note of caution to this approach stating (at 374-5): . . .[the] massive power makes it imperative that it should be exercised with proper restraint... the discretion should be exercised to protect victims of wrong dealing not to prescribe anodynes.

58 The conduct of the respondent was the expressed concern of the majority in Baker stating (at 273): The litany of conduct by the respondent, in our view, demonstrates in a comprehensive way the quality of unfairness which we find occurred in this matter as to the way in which the appellant's employment contract and arrangements worked out in practice. It is no exaggeration to say that the respondent paid scant regard to the position of the appellant as a monthly employee by comparison with what clearly appears to be the extraordinarily generous treatment allowed to the weekly employees generally. We conclude, from the evidence, that the respondent disregarded the position of the appellant to his disadvantage because it was not minded, forced or required to do otherwise. Those circumstances, on any view of the test under s.275, represented patent unfairness requiring remedy. In Baker (at 274.5) the majority, however, also commented relevant to the issues before me: . . . it may be entirely fair and reasonable for a redundancy payment policy to differ as between monthly (staff) and weekly employees, this is not, in our view, such a case. Each case must necessarily be seen in terms of its own particular circumstances. In the above expression of principle, Fisher CJ and Hungerford J were in agreement with Cahill J at first instance.

59 The principles have been applied by a number of the Commission's judicial officers in consideration of similar applications under s106. In Haining v Linfox Transport (Aust) Pty Ltd [2002] NSWIRComm 279, Peterson J addressed a claim by an applicant with 33 years service. At [75] his Honour considered the facts before him and applied the relevant principles thus: As to the severance payment I am of the view that nothing which has been, or could be, advanced in the applicant's case demonstrates an unfairness in the policy. Four weeks base pay plus three weeks per year of service, while not at the peak of my experience, is certainly not ungenerous. The cap on entitlement of 52 weeks equally does not in my view make the policy unfair. The applicant has submitted that the minimum level of redundancy payment which should be awarded by the Commission to the applicant is one equivalent to that payable under the Linfox policy. However, it was also submitted that other aspects of the policy are unfair. For example, the applicant with 33 years' service is treated in an identical fashion to an employee with 16 years' service, as a result of the cap. It was submitted that the longer service employee has a greater loss of non-transferable credits and entitlements (such as sick leave and long service leave) than the 16 year employee and will suffer greater inconvenience and hardship as a result of the termination (see Termination Change and Redundancy Case (1984) 8 IR 34 and Westfield and Adams [2001] NSWIRComm 298). However, no demonstration has been made that the capped payment is inadequate in itself to achieve the purpose of a redundancy payment. After all, capping has been an intrinsic feature of the major redundancy cases (see for example the Termination Change and Redundancy Case (ibid) and also the Employment Protection Act Case (1983) 7 IR 273).

60 The principles were also applied in Payne v Foxboro where Hill J dealt with issues related to an applicant who had been made redundant following the sale of a business. The applicant had over 27 years service with the respondent and at the time of the termination of his employment was the National Sales Manager. On termination, the applicant was given notice and in addition, was paid a severance of 26 weeks representing one week per year of service. Although the payment was on the "low side", Hill J found no relevant unfairness in the redundancy policy. His Honour observed (at 407): . . . in the absence of evidence of a higher and objective standard applicable to the circumstances of this case, or of some other comparative unfairness, I am unable to conclude… that the redundancy benefit of one week's pay per year of service with a maximum of 26 weeks (i.e. 26 years x 1 week) is unfair; while the benefits are certainly on the low side for corporations of the standing and size of the respondents and their US parent corporation/s and, indeed, for many employers of lesser standing, they are not so low as to be unfair…it is still 6 weeks above that payable under the 1994 Redundancy Case .

61 In Fliedner v Phillips Electronics Australia Ltd [2003] NSWIRComm 23, Marks J held a severance payment policy which provided for three weeks per year of service capped at 52 weeks was not relevantly unfair. The applicant in that case had 28 years service with the respondent. His employment was terminated due to redundancy and under the company policy he was paid one month in lieu of notice and 52 weeks' severance pay. His Honour found that he was unable to conclude that the imposition of a cap, so as to limit payment to 52 weeks remuneration was so intrinsically unfair that a finding should be made for the purpose of s106, in the absence of any other evidence or relevant material. His Honour said at [22]: In my opinion the approach contended for by the applicant unduly emphasises the impact on the applicant of the limitation imposed by the cap and deflects attention away from the substantive matter which needs to be considered namely whether the contract or arrangement between the parties was in all the circumstances unfair. As the respondent submitted, the applicant's claim ignores the element of cost to the respondent and makes no allowance for the quantum of entitlement under the redundancy policy for each year of service. That is, the redundancy policy has to be seen as a package.

62 The above authorities persuade the Court in assessing the fairness of this contract of employment, it must objectively consider particular terms of the employment contract in light of the general standards applicable to redundancy as well as the conduct of the respondent on the termination. Consideration 63 The comparative difference between the company's two Redundancy policies, the one for Award employees, the other for Staff employees, one of which gave extra benefits to the one group of employees, is the alleged unfairness combined with the lack of consultation and agreement with the applicant in the formation of the company Staff redundancy policy applicable to the applicant. 64 The applicant claims the unfairness of his employment contract on termination was reflected in the conduct of the employer who, without consultation, imposed a severance cap on his redundancy payment and the abolition from his benefit of a payout of his accrued sick leave. The applicant asserts, in the calculation of the termination payments, what is fair for one group of employees is "fair for all".

65 The question as to whether a contract of employment is unfair within the meaning of s106 because without consultation an employer imposed a standard of redundancy benefits on an employee that was lower than that provided by it to other employees in the same redundancy circumstances is one which, in the ultimate, still requires an objective assessment of the fairness of the relevant terms of, and conduct of, the employment contract and cannot solely be referenced to internal differential conduct (Baker per Hill J at 282).

66 The applicant asserts there was a litany of conduct by the respondent establishing his claim as to unfairness in the performance of his employment contract on termination by his employer.

67 The "litany of conduct" which was considered in Baker as establishing an unfairness in the contract was enunciated thus by the majority (at 273): the negotiations of the redundancy agreement with the unions; the importance of settling that agreement to enable the timely closure of the confectionery part of the business,…the willingness to concede very favourable redundancy payments to the weekly employees for reasons of commercial expediency due to fears of their apparent industrial strength; the secrecy surrounding the likelihood of retrenchments; the deliberate device in the memorandum of 21 June 1990 to all managers, including the appellant, implying that retrenchments were neither intended nor pending; the failure to provide the appellant as a monthly employee with an opportunity to reasonably discuss a redundancy payment; the unilateral imposition of a pre-existing company policy on redundancy for monthly employees; the deliberate refusal to advise the appellant of his redundancy arrangement until the day before he was summarily retrenched; the requirement for the appellant to continue employment for a period of about three weeks to ensure the orderly closure of the Coffs Harbour Branch, but in the absence of advice of a proposed redundancy payment; the more favourable consideration extended to the weekly employees compared to the monthly employees; and the failure to review the monthly employees, redundancy arrangements in terms of fairness or at all …

68 The "litany of conduct" found to be unfair in Baker therefore occurred in circumstances where the company deliberately kept secret its intention; issued a misleading memorandum to staff; gave differential and more favourable treatment to wages employees for commercial reasons in an industrial environment of fear; failed to review the policy it imposed on the applicant; failed to discuss with the applicant the redundancy policy applicable and required the applicant's continued employment for a period when he was in a redundancy circumstance. The "litany of conduct" found unfair, therefore, was the respondent's behaviour throughout the redundancy process which conduct did not address in any way the applicant's interests. 69 It is necessary to examine the terms of the relevant Award and Staff Redundancy Policies. The respondent company in the circumstances before me considered, prior to the shutting of the Steel Mill, each of its Redundancy Policies. As to Award employees there was an existing agreement as to redundancy for Award employees with the relevant unions. The agreement was struck after industrial action back in 1995/1996. It was registered in the Australian Industrial Relations Commission in March 2000 just before the closure of the Steel Mill was announced. The Agreement may well have been registered so as to ensure the industrial good conduct of those Award employees during the critical closure procedure. However, it was registered with agreement of the unions who knew at the time the future of the Steel Mill was under a cloud. For two years, from 1998 to 2000, it was public knowledge and within the knowledge of the unions, including their workforces, that the company was considering the Steel Mill's future.

70 In this circumstance, I do not accept the pre-existing industrial agreement was registered, prior to the announcement of the retrenchments, because of duress or industrial pressure. There was no evidence of any company "fear" of such possible industrial unrest. It was a sensible approach, reflecting managerial responsibility, I find, for the company to ensure the agreed conditions for the redundancy of a significant number of Award employees were in place and agreed to, in law, before the redundancies of the such employees occurred.

71 As to the Company Policy for the redundancy of Staff employees, the evidence revealed, whilst the respondent as a matter of policy did not publish the redundancy scheme applicable to Staff nor consult with Staff members or seek their agreement when it was revised, the existence of such a policy, if not its detail, was known to Staff including the applicant. The applicant acknowledged he had a "vague idea" that a written redundancy policy was in existence from 1992. I accept the applicant was never given a copy of the relevant policy which was applicable until he was given notice of his impending redundancy. This reflects what was revealed as clear company policy.

72 It is necessary to consider the history of the Staff Redundancy Policy which was varied from time to time by the respondent. In 1992, a Staff Redundancy Policy was adopted by the company, which placed an 18 month severance cap on payments. In 1995 a number of Staff employees were retrenched from the respondent's Sheet Mill Division in which the applicant worked, including staff who reported to the applicant. The applicant, as a manager in this period, filled out a Staff Salary Order and Information Sheet in respect to subordinate staff identified for redundancy. The Human Resources Department then prepared an estimate of the retrenchment payments to which the employees concerned were entitled. The respondent places emphasis on the evidence that a Staff employee who worked under the applicant, a Mr David Richards, was retrenched on 8 May 1995. He had 29 years service at the time. His package was subject to the 1992 severance cap. The applicant however asserts that he was not privy to Mr Richard's pay out details nor the details of any subordinates' payments. The respondent suggests this evidence of the applicant should be rejected. The respondent relies on the above circumstances to infer the applicant knew at least, since 1995, that a cap of 18 months applied to the redundancy package for Staff employees.

73 I do not accept that because another Staff member, a subordinate to the applicant, was made redundant in 1995, I should infer or assume the applicant knew the details, in 2000 or 2001, of the 1992 Staff Redundancy Policy applied in 1995, from which some elements of that package would apply to the applicant's redundancy in 2001. As a matter of fact, since 1995, the company had reviewed the terms of its Staff redundancy policy a number of times. The respondent by its submission that "it stretches credibility", seems to infer the applicant must have known after 1995 that an 18 month cap applied to payments related to Staff redundancies in 2001.

74 I cannot so find. I accept the applicant knew there was a Staff Redundancy Policy but I also accept the applicant did not give "consideration" to what his own entitlements upon redundancy were until the announcement of the closure of the Sheet Mill Plant in May 2000. I accept no thought was given by him as to the existence of a cap on payments, in place in since 1992, and allegedly revealed to him in 1995.

75 However, in preparation for the closure of the Steel Mill, the respondent also conducted a separate review of its Staff Redundancy Policy in 1999/2000 reviewing its terms against "Market Practice". After the review the payment out of accrued sick leave was removed. There was however an incremental consideration given to long term employees such as the applicant. An extra week's salary for each five years of service was inserted in the policy as well as one month's notice became two months' notice and two and a half weeks per year of service became three weeks per year of service. The cap applied under the package was the 1992 policy which allowed a maximum 18 month salary level payment per individual Staff employee.

76 The respondent after not revealing its Redundancy Review of the Staff Policy however prepared a specific procedure to be followed for all staff made redundant upon closure of the Mill. The applicant was provided with an estimate of his benefits in May 2000. While there was no consultation with the applicant as to the level of those redundancy payments and while he had never before been given a copy of the relevant Staff Redundancy Policy, he did have until April 2001, over 11 Months, after he was notified of his package, to discuss with the company any issue of concern. He knew a retrenched employee could approach the Human Resources Section with any concerns. He did not do so.

77 In considering the litany of conduct by the respondent leading up to this termination, I cannot find the respondent paid "scant regard" to the position of the applicant (see Baker at 273).

78 I accept the respondent made a comprehensive written explanation to each employee made redundant as to the elements of their individual redundancy package. I accept any queries could be raised by the employee with the Human Resources Section. I also accept the applicant received details in respect of his own individual package shortly after 5 May 2000. He was given a statement setting out an estimate of the redundancy entitlements payable to himself which statement expressly made reference that the 18 month severance cap was applicable to his payout. While it was foolish corporate behaviour in its documentation to the applicant to reveal the applicant would have received a further $105,000 had the cap not been applicable, I accept the severance cap had been in existence as company policy since 1992 and I cannot find that the implementation of this cap reflects in any unfairness when applied in 2001. As Peterson J stated in Haining at [55] "…capping has been an intrinsic feature of the major redundancy cases".

79 In the conduct of the termination, there was an open discussion held with each employee and held particularly with the applicant in May 2000. He was given long notice, some 11 months, of his impending termination by redundancy. At the time of notice he was given a draft of his accumulated benefits. He was given a copy of the Policy under which those benefits were calculated. He worked until April 2001. He never raised a concern to the employer between May 2000 and April 2001. Even if I accept the applicant's explanation that if he raised a concern he feared he would not then be retrenched but be placed in an alterative and unacceptable position within the company, this provides no answer to the question as to whether it is fair that a group of employees should receive different benefits on retrenchment more beneficial, one from the other. The applicant made no complaint and agreed to continue his employment for an 11 month period after his initial notice. He was then given another six weeks' notice before his final termination date following which he was paid two further months' notice. I find no element of unfairness in the respondent's conduct as to notice. No issue is raised as to the notice given in the package. While there was no agreement with the applicant as to the policy imposed, I nonetheless reject the proposition the court could find there was a litany of unfair conduct by the respondent such as would make the applicant's contract of employment unfair, harsh and unconscionable on termination.

80 The applicant submits it was unfair to differentiate not only in relation to the imposition of a cap on his payments but also in not allowing him a payout of his accumulated sick leave. The applicant had never had need to use much of his discretionary sick leave and had accumulated, at the time of his termination, 1783.94 hours of untaken sick leave. He makes a claim for the monetary value of his leave and relies upon the inequity between the two policies. The staff policy denied him this benefit when under the Redundancy Agreement to Award employees it was paid out.

81 The insertion of a sick leave benefit into Awards led to a recognition it was desirable to allow an accumulation of the benefit for a longer period so that employees might build up a substantial reserve of leave against the possibility of a long illness (Re Draughtsmen & Tracers (State) Award, [1957] AR 394). The intention of allowing an accumulation of such leave through an Award provision was to protect the wages of the individual employee, if he/she became ill. A cap was generally applied to such accumulation of leave under the Award provisions. However, the industrial practice grew, outside awards, through other industrial instruments to allow for the payment out of this accrued benefit.

82 The New South Wales Government in 1996 inserted into the Industrial Relations Act 1996, s27 in the following term: 27 Prohibition on cashing-in of accumulated sick leave (1) An award must not allow or require an employee to cash-in the employee's accumulated sick leave. (2) Accumulated sick leave is cashed-in if the leave is not taken and a payment is made by the employer to or on behalf of the employee of the amount of remuneration for the period of accumulated leave or of any other amount calculated by reference to that period. (3) It is immaterial when the accumulated sick leave is to be cashed-in, including on termination of employment (whether by resignation, retirement, death or otherwise) or during the period of employment. (4) A provision of an award, whether made before or after the commencement of this section, does not have any effect to the extent that the provision contravenes this section. (5) In this section, "award" includes: (a) a former industrial agreement, and (b) a public sector industrial agreement. Note: The above section does not apply to the cashing-in of sick leave under an enterprise agreement. Clause 14 of Schedule 4 preserves the cashing-in under an existing award of accumulated sick leave accrued before 15 February 1993, the date of commencement of section 99A of the Industrial Relations Act 1991 which was the predecessor of the above section.

83 It is relevant to note that the Industrial Relations Act 1991 (NSW), the predecessor to the current Act, prohibited the paying out of sick leave to Award employees, albeit with some exemptions. This prohibition took effect on 15 February 1993. Therefore, as a policy decision, the Government prohibition of paying out this accrued benefit to Award employees under awards, has been in place for over a decade. While the benefit is retained within some enterprise agreements it is not correct to perceive it as a right.

84 The right to the accumulation of the sick leave benefit was provided to protect the unfortunate employee in our community who was struck down with a serious illness. I do not believe it should be perceived as a credit held by an employee with a right to cash it out on redundancy. New South Wales Government Policy to this effect is reflected in the 1996 enactment of Parliament, through the insertion of s27 into the Industrial Relations Act 1996. 85 Further, a sick leave entitlement has been characterised by industrial tribunals as a "non-transferable credit" upon termination. The non-transferable credits are a factor that the Australian and NSW Commissions have taken into account in formulating standard provisions for redundancy pay. Regard has been had to the fact that accrued sick leave is a contingent benefit.

86 In the Redundancy Case, March 2004, the Australian Commission at [138] noted it was not appropriate, even if it were mathematically possible to do so, to establish severance pay at levels which fully compensated redundant employees for loss of non transferable credits, such as sick leave.

87 The respondent submits, the loss of accrued sick leave as a factor was taken into account in the fixing of redundancy payments under the Staff salary scale. I do not see documentary evidence in support of this submission although it is a factor considered by both the Australian and New South Wales Industrial Commissions in the establishment of redundancy standards from time to time. The package paid to the applicant was much more generous than any entitlements under the minimum standard set for redundancy in either the State or Federal jurisdictions.

88 The applicant asserts he possessed from the time of employment a right on retrenchment to a payout of his unpaid sick leave which right was removed by an act of the employer in 1999/2000 without his knowledge or consent. I reject this submission.

89 I accept the applicant's proposition that it is no answer to the allegation of unfairness at the point of redundancy to claim that the applicant was on a better salary package than an Award employee. Clearly, the applicant's salary package reflected his managerial responsibilities (Baker at 273-274).

90 While the deliberate determination to keep Staff uninformed of the applicable Staff Redundancy Policy, until given notice of redundancy was, I find, unacceptable corporate behaviour, as was the formulation of a new package without consultation, I find they are not actions which would make a total notice and redundancy package unfair.

91 In today's industrial climate, employers have generally embraced workplace deregulation, which has given rise to the prominence of individual workplace contracts. While trite, it cannot be doubted that in many workplaces the traditional ideologies of master and servant no longer underpin the modern employment relationship. As such, the conditions of employment of many employees are no longer regulated solely pursuant to an award. While no longer enjoying the defined protections of an award, some legislative protections still operate for these non-award employees. (See for instance, the provisions of the Annual Holidays Act 1944 and Long Service Leave Act 1955).

92 In the long service given by the applicant to the company, it is not surprising his terms and conditions of employment were re-negotiated from time to time, especially given he received promotions. Many such employees do not have a written document related to the terms and conditions of their contractual employment. Such is this applicant. Naturally, given his years of service and his various promotions, the applicant's pay and conditions were varied. There is no suggestion that the terms and conditions of his employment, with the exception of the terms of his termination of the employment, were unfair.

93 This employer varied the terms of the applicant's employment contract and imposed a term upon his employment related to redundancy without the employee's consent. The applicant had no knowledge of the variation. The employer did this wilfully. The company determined to ensure the applicant was not consulted and was not informed when the redundancy policy applicable to him was reviewed. I find this unacceptable corporate behaviour. Any variation to the employment contract should be by agreement.

94 However, while the variation made denied the applicant's payout of his accrued sick leave, it also allowed for further recognition of long term employment. I reject the assertion the non payment of the applicant's accrued sick leave makes the contract unfair.

95 I reject the proposition that because the company agreed to pay to another group of employees this accrued benefit, there is an unfairness demonstrated in this contract of employment on termination.

96 Having considered the litany of conduct of the respondent throughout the termination procedure, the terms and conditions of the package paid to the applicant, which terms gave credit for his long service with the employer and notwithstanding the wilful act of the employer in varying the right of the applicant to take out his unpaid sick leave and given that a cap on payments at 18 months salary has been company policy since 1992, I reject the proposition that on an objective assessment I would find this contract unfair on termination.

97 I do not find that the package paid to the applicant capped at 18 months and without a payment for his accrued sick leave in the package was so low or inadequate as to be unfair. I do not accept the employer's decision not to pay out his accrued sick leave was unfair, especially in the context of allowing other benefits which recognised his years of service.

98 I find the calculation which the respondent used based on the Staff Redundancy Policy, namely nine weeks' notice; severance of three weeks for each year of service and an additional two weeks for each five years of service or part thereof capped at 18 months salary, a fair package given the applicant's long years of service and senior management position.

99 I find, therefore, the redundancy package paid to the applicant, for notice and redundancy in the form of a severance payment was fair in all the circumstances.

100 I reject the proposition that the differential between the two severance policies, that applicable to Staff employees and the other to Award employees, represents any unfairness in the particular circumstances of the applicant's contract of employment on termination, such as to require relief being granted under s106 of the Act. Orders 1. The application under s106 of the Industrial Relations Act 1996 (NSW) is dismissed.

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