Madden v Electromagnetic Spectrum Pty Limited and Others

Second respondent: I want to discuss with you the meaning of morality and some lessons that I have learned from life.

Applicant: I have raised and educated two children and I do not need you to lecture me on morality, nor give me any lessons on life.

Second respondent (shouting) : You're fired. 23 Following the exchange the applicant says he heard nothing further from the second and third respondents, nor has he received any of his accrued entitlements since his termination on 2 February 2004. In addition, the applicant says that to the best of his knowledge, no superannuation contributions have been made on his behalf after 30 June 2001. Contract under which work performed by the applicant

24 The applicant worked for the first respondent as administration manager from 17 July 2000 until his termination of employment on 2 February 2004. He contends that the work performed by him as administration manager was first performed under the contract signed on 17 July 2000 which was for a fixed term of three years. Immediately after that, he contends that he entered into a new contract also for a fixed term of three years. This new contract, on the same terms and conditions as the first contract, would have commenced on 17 July 2003. 25 The basis of this contention, as I apprehend it, is the construction, which the applicant says is clearly available, of the words in clause 1 of the contract dated 17 July 2000, namely:

This Agreement is for a three year term which can be extended for a further term or can be terminated in accordance with its terms.

According to the applicant the words, "... for a further term", import the notion of a further fixed term of three years. The contention is advanced without the benefit of any authorities and without any further arguments put forward as to the construction of the words. 26 If this construction were not accepted by the Court, the applicant has an alternative position which is that the applicant's employment continued after the expiration of the fixed term contract, that is, after 17 July 2003 for a further term that may be agreed between the parties. 27 In my opinion, the applicant's alternative construction is to be preferred. First, unlike many fixed term contracts, the present contract does not provide for a further extension for a specified period. Instead, the contract merely provides for a further term of indeterminate duration: see, for example, Richardson v Queensland Corrective Services Commission (1994) 55 IR 475. Secondly, following the expiration of the fixed term of three years, no agreement to formalise the applicant's terms and conditions of employment was entered into between the parties, although the inference is reasonably available from the evidence that the applicant's terms and conditions of employment following the expiration of the fixed term contract continued unchanged until his termination. It appears, for example, that the applicant's remuneration remained the same. In addition, on 2 February 2004, when the applicant was directed to immediately take three weeks leave by Mr Churchill, the applicant, following his suggestion that he take two weeks leave and then return for two days to maintain the accounts, was asked by Mr Churchill what monetary amount he was entitled to for annual leave. The applicant informed Mr Churchill that he is paid monthly in arrears on the fifteenth of each month and that he is accordingly due an approximate amount of $5,000 for annual leave. Mr Churchill then told the applicant that he would speak to the second and third respondents about the applicant's proposal, but according to the applicant he heard nothing further. The implication which arises from this particular event is that the respondents acquiesced in the amount proposed by the applicant which amount reflected his current salary levels. 28 In these circumstances, the conclusion is available that, insofar as the parties intended, and in the absence of any documentation which might suggest the contrary, the applicant's employment continued after 17 July 2003 on the basis of an open-ended agreement between the parties and on the same terms and conditions (except for the duration of the term of employment) as applied under the contract signed on 17 July 2000. Was the contract unfair?

29 The summons for relief sets out 14 allegations of unfairness in relation to the contract. In oral submissions, the applicant relied on two primary allegations set out in [52] of the summons, and extracted below:

(b) The Contract or Arrangement failed to make any adequate provision in respect of the Applicant's advanced age and pending retirement, or sufficient payment in respect thereof;

(c) The Contract or Arrangement failed to make any provision in respect of redundancy, or payment of severance pay in respect thereof;". 30 I propose to separately examine each of these allegations. Whether failure to make adequate provision for age and retirement unfair

31 Clause 10(a) of the contract provided that, "...if notice of termination is given by the Employer", a lump sum payment of $50,000 will be made to the applicant, as well as an amount, "...agreed between the parties to be payable over and above fair and reasonable notice and any or all entitlements the Employee would otherwise be entitled under the general law or statute". 32 It is this provision which the applicant contends is unfair. The applicant says the unfairness arises because the provision is deficient in that it does not provide for the contingency of summary termination as a basis for making the lump sum payment and any additional payments. The applicant claims that the respondents' conduct was such that they were able to circumvent the condition for notice of termination; that is, the provision was able to be circumvented by the respondents by them simply failing to give the applicant notice. 33 A review of the evidence in my opinion tends to confirm the applicant's claims in this regard. The original intentions of the respondents in respect of clause 10(a) may be gleaned from the terms of the contract itself as well as from the document prepared by the respondents of 6 May 2000. The pre-contractual negotiations between the parties took place over a period of some months. The applicant who already had secure employment and was approaching retirement age was concerned about security of tenure. To this end the document of 6 May 2000 in its terms seeks to reassure the applicant by making a commitment to pay him adequate compensation in the event of termination. It is worth re-visiting parts of the 6 May 2000 document in order to illustrate this commitment. The commentary in the document on the applicant's draft contract begins:

The Vok family views the proposed association not as a normal employment, but as a very special working and personal relationship. There will be benefits and sacrifices on both sides, well above the normal employee/employer relationship. It also must be a long term relationship. No doubt, you yourself think very much the same way about it.

We are aware of the circumstances under which you are leaving your current employment and will need to consider some comfort for you and your family should an extreme circumstance arise and the employment would need to be terminated.

We suggest that six months salary, payable monthly, would be appropriate. 34 Although the applicant did not agree to the proposal for a payment of 6 months salary in the event of termination, the parties at some stage did agree on an amount payable upon termination, which was the lump sum of $50,000 appearing in clause 10 (a) of the contract. 35 The employment relationship which appeared to proceed relatively smoothly for the first couple of years deteriorated according to the applicant in early 2003. This coincides with the applicant's discovery that the respondent had established a new business, Bar Master. Without explanation, the respondents effectively isolated the applicant from the business by ignoring him and largely excluding him from involvement in the operation of the business. During that period the applicant's point of contact appeared to be Mr Churchill, although Mr Churchill's conduct towards the applicant would have done little to alleviate his concerns. It will be recalled that on 14 November 2003 Mr Churchill informed the applicant that his position could no longer be supported on a full-time basis and that his job could easily be done on a part-time basis of 2 days per week. Then on 23 November 2003 both Mr Churchill and the second respondent directed the applicant to take immediate leave until the end of January 2004. On 2 February 2004 Mr Churchill again directed the applicant to take immediate leave. 36 The second respondent also contributed actively to exclude the applicant from the operation of the business. As well as directing the applicant to take immediate leave, the second respondent on 26 February 2004 told the applicant that his future with the first respondent was uncertain although he would try to protect the applicant's entitlements. On 2 February 2004 the applicant was locked out of the building by the second and third respondents. When the second respondent was confronted by the applicant the applicant received the rather implausible explanation that the briefcases of the second and third respondents had been stolen earlier that day, and that the second respondent possessed the single key for the new lock. 37 In addition to the absence of any explanation for the respondents' conduct, the circumstances of the applicant's termination lacked, in my opinion any justification. The evidence suggests that throughout the period of his employment the applicant worked diligently and to the best of his ability in difficult circumstances. He was unable, towards the end of his period of employment to completely discharge his duties as administration manager only because of the actions of the second and third respondents in denying him access to information concerning the business and to the records of the business, particularly in relation to the first respondent's involvement in Bar Master. 38 The conduct of the respondents in summarily terminating the applicant's employment was not, on the evidence, in any way related to the applicant's work performance. Instead it seems reasonably clear that the intent of the respondents was to terminate the applicant's employment, without paying him his entitlements under the contract. 39 This conduct in my opinion which was directly referable to clause 10(a) for the contract for the reasons expressed above rendered that clause unfair. In Tranter v Shaan Holdings Pty Ltd t/as Shaan Eyeworks and another [2006] NSWIRComm 245 I briefly examined the relationship between a contract or term of a contract alleged to be unfair and the conduct of a respondent party referable to the contract or term of the contract: at [29] - [36]. I adopt here my analysis and findings made in that judgment. Conduct found to be referable to a term of an impugned contract of employment therefore may render the contract unfair under s 106 of the Act. Whether failure to make provision for redundancy unfair

40 The contract also made no provision for a redundancy or severance payment. This failure can render the contract unfair under s 106: see Lavings v Barclay Mowlem Construction (NSW) Ltd (1999) 99 IR 247 at 253-254; Henshaw v Sqribe Technologies Pty Ltd [2000] NSWIRComm 279 at [33]. 41 The circumstances revealed by the evidence in the present proceedings strongly suggest in my opinion that the applicant's position as administration manager was made redundant upon his termination. As already adverted to, from sometime in early 2003 the respondents actively sought to isolate the applicant from the operations of the first respondent. By 2 February 2004 when the applicant's employment was terminated the respondents' actions had effectively removed the applicant from all involvement in the business. This conduct indicates that the respondents no longer required the services of the applicant, but that they were unwilling to properly utilise the provisions of the contract, especially clause 10(a) and make appropriate recompense to the applicant. 42 In addition Mr Churchill, presumably on the instructions of the second and third respondents informed the applicant on 14 November 2003 that his position could no longer be supported on a full-time basis. The second respondent on 26 January 2004 told the applicant that his future with the first respondent was uncertain. This comment was made in the context of the Japanese company which was about to embark on a due diligence audit of the first respondent's business affairs. On 30 January 2004 Mr Churchill instructed the applicant to prepare statements of all staff entitlements upon termination as at 31 January 2004. On at least two occasions the applicant was directed by both Mr Churchill and the second respondent to take immediate annual leave. 43 Taking all these matters into account, the inference is reasonably available that the applicant's position was made redundant. In the absence of any provision in the contract to appropriately accommodate the applicant in the event of a redundancy I find that the contract was unfair under s 106. No special circumstances which would normally be associated with a redundancy payment such as the inconvenience and hardship imposed on the applicant by reason of his termination through no fault of his own, were considered by the respondents when the applicant was summarily dismissed by the second respondent: see for discussion of the rationale behind redundancy and severance payments Westfield Holdings v Adams (2001) 114 IR 241 at 273-275; Ross v GN Comtext (Australia) Pty Limited (2000) 107 IR 1 at [39] - [45]. 44 I find therefore for the foregoing reasons that the applicant's contract of employment was unfair within s 106 because it failed to make provision for payment in the event of summary termination under clause 10(a), and because it failed to make provision for adequate redundancy or severance payments to the applicant upon his termination of employment. Orders sought

45 In my opinion the applicant is entitled to orders under s 106(5) in his favour in relation to the following items:

(i) the lump sum payment of $50,000 under clause 10(a);

(ii) a payment over and above that lump sum payment for fair and reasonable notice under clause 10(a);

(iii) all entitlements due to the applicant under clause 10(a). This would include the applicant's outstanding entitlements, namely his annual leave entitlements as well as superannuation contributions, and a redundancy payment;

(iv) interest on the above amounts. 46 The lump sum payment should be payable to the applicant bearing in mind the intentions of the parties which are evident from the pre-contractual negotiations set out in the document of 6 May 2000 as well as in the terms of clause 10(a) of the contract. At least initially the parties intended to take into account as a consideration of the applicant's employment, his age and the fact that he was leaving secure employment to take up the position of administration manager with the first respondent. 47 The applicant was employed by the first respondent from 17 July 2000 until 2 February 2004, a period of approximately 3.5 years. I take into account the applicant's age and his particular concerns arising therefrom, namely that he was approaching retirement age, the fact that he left secure employment at the instigation of the respondents, and his experience. These matters make him eligible in my opinion for a payment in lieu of notice of 3.5 months. This amount should be assessed by reference to his total remuneration package which included his $80,000 yearly base salary as well as the amount suggested by the applicant for the motor vehicle, that is $20,000, and a 9 per cent superannuation calculation for the period 1 July 2003 until 30 June 2004 which is approximately $7,000, being a total remuneration package of $107,000. Based on an annual salary of $107,000 during 2003, an amount of $30,000 for 3.5 months or 15 weeks in lieu of notice becomes payable. 48 The applicant is also entitled to be paid his outstanding annual leave entitlements. According to the calculations made by the applicant the amount of unpaid annual leave is $22,415.38. 49 In addition the applicant should also be paid all unpaid superannuation guarantee contributions. According to the applicant, to the best of his knowledge no superannuation contributions have been made on his behalf since 30 June 2001. The amount calculated by the applicant for unpaid superannuation from that date is $17,800. Under clause 6 of the contract the first respondent agreed to contribute to a superannuation fund of the employee "in accordance with legislation". 50 The circumstances of the applicant's summary termination, as I have found, lacked any explanation or justification on the part of the respondents, and therefore gave rise to unfairness against the applicant under the contract. In addition there is a clear public interest in ensuring that obligations with respect to the payment of employer contributions to superannuation funds are met: Kate McNamara & Anor v Eaternity Pty Ltd & anor [2005] NSWIRComm 460; Cornell v Titley (2002) 119 IR 334 at 356. 51 The applicant should also receive a redundancy payment over and above the payment in lieu of notice to properly reflect the circumstances of his termination of employment. These circumstances have been earlier referred to and include the hardship and inconvenience caused to the applicant by reason of the abruptness without notice, explanation or justification of his termination of employment, as well as the fact that he left secure employment to work for the first respondent in the belief, encouraged in no small measure by the respondents, that he would be engaged in long term employment by the first respondent. His age, which at the time of his employment was approaching retirement age, is also a relevant factor. 52 Taking into account the applicant's period of employment, namely 3.5 years, I consider that an amount reflecting his total remuneration package for a period of 2.5 months or 11 weeks should adequately compensate the applicant. This results in an amount of approximately $22,000. 53 Interest should also be payable on these amounts from the date of the summons, that is, from 7 December 2004 until the date of judgment: Abboud v NSW (Department of School Education) (No. 2) (2000) 99 IR 299. 54 I decline to make an order for relief in relation to the amount claimed in the summons for compensation for emotional distress and psychological injury. First, such orders are not commonly made in this jurisdiction following successful applications under s 106. Secondly the applicant has provided little or no material from which I can properly assess whether such an order may be warranted in all the circumstances. 55 The principle of mitigation which applies to a payment in lieu of notice was not directly addressed to the Court by the applicant in the proceedings. Nevertheless I am aware from other proceedings before me by way of the notice of motion filed on behalf of the respondents on 14 February 2006 that the applicant at least up to that date has been unemployed. 56 The principle although it must be taken into account in some circumstances as required by s 106(6) of the Act need not be strictly applied in all cases. The application of the principle has been qualified for example in a number of cases by considerations as to whether an applicant has behaved unreasonably in seeking alternative employment: see Ross v GN Comtext at [57]. 57 In my view taking into account the fact that the applicant's employment was terminated at a time when he was approaching retirement age which no doubt would cause some difficulties to the applicant in securing other employment in his field of expertise, and, taking into account the circumstances of his termination which I have found, by reference to the contract, were unfair, it is appropriate not to reduce any payment order made on the basis of the principle of mitigation. 58 It remains to consider whether one or all of the respondents against whom the applicant is proceeding may be found liable either jointly or severally, or both, for moneys payable to the applicant consequent upon the findings of unfairness which I have made. 59 The first respondent, as the applicant's employer for the duration of his employment, should be liable for the payment of monetary orders. The second and third respondents in my view were both instrumental in engineering the applicant's summary termination of employment thereby avoiding the making of appropriate termination payments otherwise payable to him. This conduct as I have found occurred without an explanation or justification for the termination, and without any notice to the applicant. The evidence which establishes this conduct has already been canvassed in detail. Accordingly the first, second and third respondents should jointly bear responsibility for the unfairness of the contract: see Brown and Others v Rezitis and Others (1970) 127 CLR 157 at 165, 168; AFMEPKIU New South Wales Branch v Daniel and Ors [2006] NSWIRComm 206. 60 The applicant seeks in the first instance that the contract be voided. Bearing in mind that the contract has come to an end this seems the appropriate course except to the extent of any monies paid to the applicant. 61 The applicant also seeks an order for costs on an indemnity basis against all respondents. The basis upon which this application was made arises from the applicant's contentions that the respondents have displayed a repeated pattern of disobedience to orders of the Court with a view to delaying the proceedings. 62 These matters have been canvassed in my earlier judgment of Madden v Electromagnetic Spectrum, and I do not repeat them here. An application was made by the respondents on 14 February 2006 to vacate the hearing date for the present proceedings. That application was heard on 17 February 2006 and dismissed by me on the same day. The respondents made a second application to vacate the hearing on 20 February 2006. That application was also refused. Apart from those two court appearances, the respondents have had little involvement in the proceedings, although there was an earlier appearance before Kavanagh J on 22 September 2005, during which her Honour made certain directions that both parties comply with a timetable for the further hearing of the matter. 63 The normal order is that costs should follow the event although certain circumstances may justify a departure from the normal order and result in an order for costs on an indemnity basis. In National Cellular & Anor v Efficient Marketing Services & Anor [2001] NSWSC 244 O'Keefe J made the following observation in relation to orders for costs on an indemnity basis (at [73]):

An order for costs on an indemnity basis generally betokens that a claim has been made which is wholly unjustified or that a defence or claim that is deliberately false or time wasting has been filed or embarked upon, or that there have been some circumstances in relation to the conduct of the case which call for a departure from the usual order for costs. 64 In the present circumstances I do not see that an order for costs on an indemnity basis is warranted. The respondents about whose conduct during the course of these proceedings I make no comment in this judgment (having dealt with it in my earlier judgment) have, as I earlier observed, had little or no active involvement in the proceedings. They filed no evidence, and ultimately took no part in the ex parte hearing following their unsuccessful applications that the hearing be vacated. 65 This is not to say that the usual order for costs is not not warranted. I propose to make that order in the applicant's favour.

66 I make the following orders consequent upon the findings of unfairness which I have made:

The contract of employment dated 17 July 2000 is declared unfair.

The contract of employment dated 17 July 2000 is declared wholly void from its inception except to the extent of any monies paid to the applicant.

The first, second and third respondents shall jointly and severally pay to the applicant the following monetary amounts:

(ii) a monetary payment in lieu of notice in an amount of $30,000.

(iii) a redundancy/severance payment in an amount of $22,000.

(iv) annual leave entitlements in an amount of $22,415.38.

(v) employment superannuation contributions in an amount of $17,800.

The first, second and third respondents are to pay interest on the amounts specified in Order 3 above in accordance with Schedule 5 of the Uniform Civil Procedure Rules 2005. The interest shall be payable from the date of the filing of the summons for relief on 7 December 2004 until the date of this judgment.

The first, second and third respondents shall pay the applicant's reasonable costs of the proceedings. ___________________

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