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[2020] FWC 3035
defendant. The applicant was found to have been unfairly dismissed. Reinstatement was deemed inappropriate. Compensation of two weeks' pay ($3,174.00 gross plus superannuation) was ordered, to be paid within...
The Fair Work Commission found that an employee who resigned after not being paid for eight weeks was unfairly dismissed. The Commission ruled that the employer's failure to pay wages was a repudiation of the contract that amounted to termination on the employer's initiative, or alternatively a forced resignation. However, because the company was genuinely unable to pay due to financial difficulties, the Commission limited compensation to just two weeks' pay, finding that the employment would have ended shortly thereafter in any event.
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1 cited instrument linked from this judgment.
s.394 - Unfair dismissal
Unfair dismissal application - resignation - applicant not paid salary for eight weeks - whether applicant dismissed or forced to resign - measure of compensation - underpayment claims to await court hearing
[1] This decision concerns an application made by Mr Michael White under s 394 of the Fair Work Act 2009 (Cth) (Act) for an unfair dismissal remedy. Mr White says that on 10 January 2020, he resigned from his employment with Superior Facilities Pty Ltd (company), where he had worked since 7 January 2019. He says that he was forced to resign because he had not been paid his full salary for some eight weeks. Mr White contends that he was dismissed for the purposes of s 386 of the Act, and that his dismissal was unfair. He seeks compensation.
[2] The company objected to the application on the basis that Mr White had resigned and had therefore not been dismissed. In the telephone proceedings before me on 3 June 2020, Mr White represented himself and the company was represented by its director, Mr Sanjeev Prabhakar. Each gave evidence on affirmation.
[3] Section 396 of the Act requires that I decide four matters before considering the merits of Mr White's application. There is no dispute, and I am satisfied, of the following matters. First, Mr White's application was made within the 21-day period required by s 394(2). Secondly, Mr White was a person protected from unfair dismissal, as he earned less than the high income threshold and has completed the minimum employment period (s 382). Thirdly, the dismissal was not a case of genuine redundancy. Fourthly, no question of compliance with the Small Business Fair Dismissal Code arises, as the company says that there was no dismissal at all, and in any event neither limb of the Code has application to the facts of this case.
[4] Mr White was employed as a full-time business manager of the company for a little over 12 months. The company's business was to provide casual security guards to clients. Mr White managed the security guards, liaised with clients and prepared relevant rosters. He was paid an annual salary of $82,524.00 ($3,174.00 a fortnight), plus superannuation. Mr White's evidence was that in early October 2019, he was told by the then director of the company, Ms Lois Mortimer, that the business was in severe financial difficulties and that all employees needed to consider other employment options. Ms Mortimer was then succeeded as company director by Mr Prabhakar. Mr White's employment continued. Mr White said that in October and November the payment of his salary became erratic.
[5] From 26 November 2019, Mr White took three weeks' annual leave and went to England for his mother's funeral. When he left, he told Mr Prabhakar that he needed his salary for the preceding fortnight to be paid on time. However, Mr White did not receive his salary for that fortnight, or for any other fortnight up to and including the end of his employment. Mr White said that while he was in England, he regularly messaged the company accounts officer and Mr Prabhakar, asking when his salary would be paid. On returning to Australia, Mr White continued to ask for his salary to be paid. On 17 December 2019, he received a payment of $1,000.00. On 23 December 2019, he received a further payment of $800.00. These were the last payments Mr White received from the company.
[6] On 3 January 2020, Mr White wrote to Mr Prabhakar and stated that he was still owned $2,401.08 (net) for each of the past three fortnights and that he would be owed a further $2,401.08 by the end of the following week (Friday, 10 January 2020), which, taking into account the $1,800.00 that had been paid, would amount to a total of $7,804.32 in unpaid wages. Mr White stated in his message to Mr Prabhakar that although he appreciated that the business was going through a difficult period and was grateful for the two small payments, he needed his salary to be paid. He asked Mr Prabhakar to advise when the salary payments would be made. Mr White received no response.
[7] On 6 January 2020, Mr White sent a message to Mr Prabhakar giving notice of his resignation, effective from 10 January 2020. The message did not cite a reason for resignation and was drafted in friendly and cordial terms. Mr White stated that he was in a 'survival situation' and that he was going to remove his 'salary burden' from the company from the following week. In his message, Mr White also stated that he needed to find new employment in order to ease the enormous financial strain he was under.
[14] A central question in the present matter is whether Mr White was dismissed for the purposes of Part 3-2 of the Act. Mr Prabhakar submitted that there was no dismissal, because Mr White resigned. However, the Act recognises that in some cases, an employee will have no choice but to resign because of the actions of the employer.
[15] In order to bring an unfair dismissal application, a person must first have been dismissed. Section 386 states that a person has been 'dismissed' if the person's employment has been terminated 'on the employer's initiative' (s 386(1)(a)), or the person has resigned from his or her employment but was 'forced to do so because of conduct, or a course of conduct, engaged in by his or her employer' (s 386(1)(b)).
[16] A persistent and unjustified failure by an employer to pay salary is a repudiation of the contract of employment. Such a repudiation can amount to termination 'on the employer's initiative' for the purpose of s 386(1)(a). A termination of employment will be 'on the employer's initiative' if an 'act of the employer results directly or consequentially in the termination' (see Khayam v Navitas English Pty Ltd [2017] FWCFB 4082 at [37]), or the employer's actions are the 'principal contributing factor' which lead to the termination of the employment relationship (see Mohazab v Dick Smith Electronics Pty Ltd (No 2) [1995] IRCA 625; (1995) 62 IR 200 at 205).
[17] In the present case, Mr White did not elect to accept repudiation of the contract until 6 January 2020, although he might well have done so earlier. Mr White chose to persevere with the employment relationship and continued to work until 10 January 2020, when his resignation took effect. Although it was Mr White's decision to elect to accept repudiation, it was nonetheless the employer's conduct in failing to pay him that brought the relationship to an end. In my view Mr White's employment was terminated on the employer's initiative.
[21] In considering whether it is satisfied that a dismissal was harsh, unjust or unreasonable, the Commission must take into account the matters in s 387. In a matter such as this, where the Commission has rejected an employer's jurisdictional objection that an employee was not dismissed, the consideration of many of these matters is relatively straightforward.
[22] The Act directs consideration of whether there was a valid reason for the dismissal related to the person's capacity or conduct (s 387(a)). There was no valid reason for Mr White's dismissal. However, I consider that s 387(a) is concerned with cases where there is a reason for dismissal that is related to capacity or conduct. In such cases, the Commission must consider whether that reason is valid. In this case, the company simply had no reason for dismissal related to capacity or conduct. In my view s 387(a) is a neutral consideration.
[23] There were no reasons for termination related to Mr White's capacity or conduct, of which he could be notified (s 387(b)), or to which he could respond (s 387(c)). There were no discussions relating to the dismissal (s 387(d)), and no unsatisfactory performance in respect of which a warning might have been given (s 387(e)). These are all neutral considerations. Further, there were no 'procedures followed in effecting the dismissal', therefore the considerations in ss 387(f) and (g) are not relevant.
[24] This leaves the Commission to take into account s 387(h): 'any other matters that the FWC considers relevant'. It is plainly a relevant consideration that, aside from the two small payments referred to earlier, Mr White was not paid his salary from late November 2019 to the day his employment ended. Mr White asked Mr Prabhakar when he would be paid and received no answer. These are obvious dimensions of unfairness.
[25] Mr Prabhakar said that the company had been undergoing great difficulties and that there were insufficient funds to pay Mr White. If that were the case, the company ought to have made Mr White redundant and paid him severance pay or sought to renegotiate his salary. Mr Prabhakar said that Mr White had been told by the previous director to look for other employment. But the company did not dismiss Mr White at that time. He continued to work and also took annual leave. Mr Prabhakar said that he himself had suffered from poor mental health, and that it had been a very difficult time for him and the company. I appreciate that it is not easy to be the director of a small and struggling company. However, Mr Prabhakar's personal circumstances do not in my view affect the analysis of whether Mr White's dismissal by the company was fair.
[28] The Act sets out a framework within which the question of remedy must be determined. Section 390 provides that the Commission may order a person's reinstatement or the payment of compensation. However, the Commission must not order the payment of compensation to a person unless it is satisfied that reinstatement is inappropriate and the Commission considers payment of compensation is appropriate in all the circumstance (s 390(3)). In determining an amount of compensation, the Commission must take into account all the circumstances of the case, including the matters referred to in s 392(2)(a)-(g).
[29] Mr White does not seek reinstatement, and I am satisfied that reinstatement would be inappropriate in the circumstances, given the company did not pay his salary for eight weeks. During the proceeding, Mr Prabhakar offered to rehire Mr White, but it was not at all clear to me how the company would be able to pay Mr White's salary on an ongoing basis now, at a time when the company is not trading, when previously the company was unable to pay Mr White's salary at a time when it was servicing clients. No new sources of company revenue were identified. Mr White seeks compensation and I am satisfied, subject to my analysis below, that it would be appropriate to make an order of compensation (s 390(3)).
[30] Compensation is intended to provide a person who has been unfairly dismissed with reparation for losses reasonably attributable to the unfair dismissal. The amount of compensation ordered by the Commission must not include a component for shock, distress or humiliation, or other analogous hurt, caused to the person by the dismissal (see s 394(4)). In determining the amount, all the circumstances are to be taken into account, including those prescribed by s 392(2) of the Act. The 'Sprigg' formula is to be applied to arrive at an appropriate amount (see Bowden v Ottrey Homes Cobram and District Retirement Villages Inc. [2013] FWCFB 431). If this yields a figure that is excessive or inadequate, then the considerations in s 392(2) may be revisited.
Printed by authority of the Commonwealth Government Printer
Michael White
Superior Facilities Pty Ltd [2020] FWC 3035
(1995) 62 IR 200
The applicant was found to have been unfairly dismissed. Reinstatement was deemed inappropriate. Compensation of two weeks' pay ($3,174.00 gross plus superannuation) was ordered, to be paid within 28 days.
[8] Mr White has since filed proceedings in the Federal Circuit Court of Australia in respect of his unpaid wages. His application is listed for hearing on 14 December 2020. He has also contacted the Australian Taxation Office with a complaint about the company's alleged failure to make superannuation contributions as required by law.
[9] Mr Prabhakar did not dispute that Mr White was not paid for the eight week period in question. He said that he had wanted to pay Mr White but there were insufficient funds to do so. In a written submission to the Commission dated 23 March 2020, Mr Prabhakar said that Mr White had resigned because of an ongoing investigation into his alleged misconduct which would have led to his termination. He said that Mr White had damaged some company vehicles and misused the company's intellectual property however Mr Prabhakar did not provide any further details of these alleged incidents. Mr Prabhakar also queried whether Mr White was actually working during the periods in respect of which he claims payment of salary and said that no evidence of any such work had been provided to the company. Mr White's evidence was that he was working as normal, and that in the week before he resigned, he advised the company's clients that he was leaving and that they should now deal with Mr Prabhakar.
[10] Mr Prabhakar said that the company ceased trading when Mr White left the company. However, the company has not been liquidated and is not in administration. It is in effect dormant.
[11] Mr Prabhakar said that he believed that Mr White had been overpaid during his employment with the company, by which he meant that there had been some error in the way his salary had initially been determined. Mr Prabhakar said that there was no written contract of employment and questioned whether Mr White was really entitled to a fortnightly salary of $3,174.00. Mr Prabhakar also submitted that Mr White owed him money, although on what basis is unclear.
[12] I find that Mr White was not paid his salary in respect of the four fortnights preceding the end of his employment. I find that throughout this period, Mr White was working or on annual leave. He was entitled to payment of wages. I accept Mr White's evidence that the reason he resigned was that he had to find new employment, because he needed an income. I find that Mr White's fortnightly salary was $3,174.00. This closely aligns with the group certificate Mr White provided to the Commission which shows he earned $38,076.00 in the year ending 30 June 2019. Considering that Mr White commenced employment on 7 January 2019, these payments reflect 25 weeks' work, which equates to $1,523.04 a week, or $3,046.08 a fortnight. Mr Prabhakar did not establish that there was any error in the setting of Mr White's salary, and I accept Mr White's evidence that Mr Prabhakar had never raised any such error previously. Even if there had been some error on the part of the company in setting the salary, there is no reason to think that a unilateral mistake of this kind would be legally significant.
[13] In my view Mr Prabhakar had a limited understanding of the legal obligations of an employer. He appeared to consider that it was sufficient for the company to do its best to pay Mr White, whereas in fact Mr White had a contractual entitlement to receive his fortnightly salary. The fact that there was no written contract of employment is irrelevant.
[18] If there were any doubt about this, it is quite clear that the termination of Mr White's employment would in any event have been a forced resignation for the purpose of s 386(1)(b). In Bupa Aged Care Australia Pty Ltd v Tavassoli [2017] FWCFB 3941, a Full Bench of the Commission considered the authorities on resignation and their application to s 386 of the Act. At [47], the Full Bench stated that, in considering whether a resignation is 'forced' for the purposes of s 386(1)(b), the test is 'whether the employer engaged in the conduct with the intention of bringing the employment to an end or whether termination of the employment was the probable result of the employer's conduct such that the employee had no effective or real choice but to resign.'
[19] Based on Mr Prabhakar's evidence, I accept that the company did not intend to bring about the end of the employment by not paying Mr White's salary. Clearly the company was in financial difficulty. However, regardless of the company's intention, it must surely be the case that the 'probable result' of a failure to pay an employee's salary for an eight-week period is that the employee will have no choice but to resign. An employee cannot work for nothing. Mr White's resignation message to Mr Prabhakar made clear that he needed urgently to find other employment so as to be able to pay bills and ease the 'enormous financial strain' he was under.
[20] I conclude that Mr White was dismissed for the purposes of s 386(1). He was terminated on the initiative of the employer, or alternatively was forced to resign because of the conduct of the employer.
[26] It appears that Mr Prabhakar and Mr White had been friends for some time. They were involved in business together in a number of different settings, some of which were touched upon during the proceedings. Mr Prabhakar appeared to consider that Mr White should have known that the business was doing poorly and could not cover wages, and that Mr White was effectively running the business whereas he, Mr Prabhakar, was only the director. It seemed also that Mr Prabhakar considered himself to have inherited something of a poisoned chalice from the previous director. But the fact is that becoming a director of a company carries serious obligations. And however close Mr White might have been to the running of the company, he was an employee. So long as he was employed by the company, and absent some other contractual arrangement, he was entitled to be paid his salary.
[27] Taking into account all of the circumstances and the matters in s 387, I consider that the dismissal of Mr White was harsh, unjust and also unreasonable. In light of my other conclusions, it follows that Mr White was unfairly dismissed for the purpose of s 385.
[31] Section 392(2)(c) provides that the Commission must take into account the 'remuneration that the person would have received, or would have been likely to receive, if the person had not been dismissed'. This requires the Commission to consider how long the person is likely to have remained employed, if the dismissal had not occurred. Mr White said that he had enjoyed his job and that prior to the problem with his salary not being paid, he would have expected to continue working with the company. During the proceeding, in answer to my question as to how long he believed his employment would have continued but for his resignation, Mr White stated that he would like to think that the business could have been turned around. However, in my view this was an expression of hope more than rational expectation. Mr White did not dispute that the company had been in financial difficulty and noted in his resignation letter that his salary was a 'burden' on the company. Mr White had not been paid for eight weeks, and, as he noted in his submissions, his colleague Mr Aaron Philip had not been paid either.
[32] Section 392(2)(c) conjures a counterfactual scenario in which the person has not been dismissed. In the setting of the present case, I consider that if Mr White had not been forced to resign when he did, it is unlikely that he would have remained employed by the company for very much longer. Ordinarily, when considering this question, the Commission would assume that the employer's action in dismissing the employee had not occurred. In the context of a constructive dismissal, one would ordinary assume that the relevant conduct of the employer that forced the employee to resign had not occurred; for example, if the employer had given the employee an ultimatum to 'resign or be sacked', thereby forcing the employee to resign, one would consider how long the employee would have remained employed if the ultimatum had not been given. But in the present case, the company was not able to pay Mr White's salary. This is an exogenous factor, existing independent of the will of the employer. It cannot be hypothesised away.
[33] Of course, none of this is to excuse the company's failure to pay Mr White's wages. However, I consider that, had Mr White not resigned when he did, he would have resigned very shortly afterwards, within a further two weeks. As Mr White explained, he needed to pay his bills. He had barely been paid at all in eight weeks. The pressure was mounting. He needed a new, paying job. I therefore consider that there is only a minimal period in respect of which compensation should appropriately be ordered.
[34] An alternative analysis of the counterfactual situation required by s 392(2)(c) is that, because the company was unable to pay Mr White's salary, his position would have been made redundant. The company evidently still valued Mr White's labour, and wanted him to continue working, but a position entails not just the work that is to be performed but also the payments and other benefits afforded to the employees in exchange for that work. If the salary can no longer be paid, the position in question is not required; instead, a different position is required, carrying a lower salary. During the proceeding I asked both Mr Prabhakar and Mr White whether, in the event the resignation had not occurred, it would not have been sensible for the company to have terminated Mr White's employment for reason of redundancy. They each agreed that it would have been sensible for the company to do so.
[35] If Mr White had not resigned, and the company had acted rationally and lawfully, it would in my view have terminated him for redundancy because it was unable to pay his salary. I consider that it would have done so immediately, providing Mr White the minimum two weeks' notice required by s 117 of the Act, given Mr White had (by a matter of days) completed just over one year's service. Accordingly, on either of the analyses above, I consider that the employment of Mr White, had he not been dismissed, would have continued for only another two weeks.
[36] If Mr White had been made redundant, he would have been entitled to a redundancy payment of four weeks' pay under s 119 of the Act. However, this would have been a payment in respect of termination of employment for redundancy, rather than compensable remuneration that Mr White would have received if he had not been terminated for the purpose of s 392(2)(c). I would have in any event reduced the total amount of compensation to two weeks, taking into account all of the circumstances.
[37] I consider that the appropriate measure of compensation in this case is two weeks' pay, which is a gross figure of $3,174.00, plus superannuation.
[38] I note that Mr White earned a total of $2,828.88 from other employment in the period between the end of his employment and the proceedings. Section 392(2)(e) requires me to take this into account. However, if Mr White had not been dismissed, and continued to work for the further two weeks I have estimated above, he might still have earned this amount. I will not make any deduction in this regard.
[39] I have considered the impact of the proposed order on the viability of the enterprise (s 392(2)(a)). I note that the company is not currently trading and has no clients. However, I do not consider the proposed order will affect the company's viability, as the order is for a small amount, and reference was made during the proceedings to certain assets of value that are owned by the company. Although the company is not currently trading, this may change. I also note that Mr White's service with the company was relatively short, a little over one year (s 392(2)(b)). And I accept Mr White's evidence that he applied for jobs in the security sector and elsewhere, with limited success, and that he therefore took steps to mitigate the loss suffered because of the dismissal by seeking alternative employment (s 392(2)(d)). Finally, I have considered the impact of taxation on the gross amount however it is not necessary for me to specify a post-tax amount.
[40] For the reasons earlier given, I am satisfied in the circumstances that a remedy should be ordered, but that reinstatement is inappropriate. I am satisfied that compensation is appropriate in the circumstances of this case. I will order compensation in the above amount with deduction of any taxation required by law, to be paid by the company to Mr White within 28 days of the date of this decision.
[41] Finally, as I explained to Mr White, the Commission is not empowered to determine his claims concerning underpayment of wages. Mr White will need to await his listing in the Federal Circuit Court in December to prosecute those matters. Although I have made findings in relation to the underpayment claims for the purposes of determining Mr White's unfair dismissal application, the Court will need to reach its own conclusions on these matters when it hears the underpayment application. This no doubt seems inefficient to Mr White, and it will be little comfort for him to know that there are constitutional reasons for the current framework. Ideally, there would be a mechanism or mechanisms which, within constitutional constraints, allowed for all relevant employment claims arising from the same facts to be dealt with contemporaneously.
[42] An order giving effect to this decision is issued separately in PR720072.