Origin Energy Limited v Smith

JUDGMENT: - 1 - INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES IN COURT SESSION FULL BENCH CORAM: WRIGHT J, President WALTON J, Vice President BOLAND J Friday 14 December, 2001

Matter No IRC 31 of 2001 ORIGIN ENERGY LIMITED v SMITH Application for leave to appeal and appeal against a decision of Justice Glynn given on 14.2.2000 in Matter No. IRC98/2236

1 This is an application for leave to appeal and, if leave is granted, appeal against a judgment of Glynn J given on 14 December 2000: Smith v Boral Limited [2000] NSWIRComm 267.

2 The proceedings below were brought by John Kevin Smith (the respondent in this appeal) against Boral Limited (whose name was changed to Origin Energy Limited on 18 February 2000 and which is the appellant in these proceedings) pursuant to s 106 of the Industrial Relations Act 1996.

3 The appellant and its predecessors had employed Mr Smith since 1978 as a corporate lawyer. Mr Smith had been put on notice on 27 March 1998 that his position would become redundant on 31 May 1999 as a consequence of restructuring. In other words, Mr Smith was given 14 months' notice of the fact that his employment would be terminated. At the time he was 61 years old. Mr Smith filed a summons for relief under s 106 of the Act in May 1998 whilst he was still employed by the appellant. He sought orders against the appellant avoiding or varying his contract of employment and money orders for payment in lieu of notice and redundancy pay, together with interest and costs. Mr Smith subsequently worked out the notice period and his employment terminated on 31 May 1999. He did not receive any redundancy pay or payment in lieu of notice. On 19 April 1999 the appellant filed a cross application pursuant to s 106 seeking a declaration that the contract of employment or arrangement between the appellant and respondent was unfair to the appellant to the extent that the appellant's termination policy was a term of the contract or formed part of an arrangement. An order was also sought varying the contract or arrangement to the effect that the appellant's termination policy did not apply to the respondent or to the termination of the respondent's employment.

4 In her judgment Glynn J, found that the contract of employment between the appellant and the respondent had become unfair within the meaning of ss 105 and 106 of the Act. Her Honour found that it was the appellant's conduct in relation to termination of the respondent's employment as a result of redundancy that brought about the unfairness. Her Honour said: 124 The effect of the respondent's actions was that the restructure of positions went ahead. The outcome of that restructure was that the applicant was made redundant, having in the meantime worked out a fourteen months notice period. What the applicant had had was notice that at the end of fourteen months he would be redundant, without any compensation to be made for that redundancy. 125 In Reich v Client Server Professionals of Australia Pty Limited (Administrator Appointed) [2000] NSWIR Comm 143 [(2000) 99 IR 69 at 83] in the majority judgment of Wright J, President, Walton J, Vice-President and Hungerford J, it was stated: It logically follows, in our view, that Mr Fernon's submission, as earlier quoted, that "unfairness in a contract is demonstrated by unfair conduct that is consistent with the contract" is only partly correct but to which should be added "unfair conduct that is inconsistent with the contract". We accept Mr Murphy's approach to this aspect, namely, as he said, "conduct by an employer which is unfair and which breaches the employment contract, even though not permitted by the terms of that contract … would nevertheless render such contract unfair and amenable to relief. Such approach is entirely consistent with the language of s 106(2)." We would only add the comment that to us it seems an utterly arid exercise in semantics to find conduct as part of the operation of a contract to be unfair but not thereby to find also the contract to be unfair because such unfair conduct was not permitted by the otherwise fair contract - we think it should be stated as plainly as it may be, and as we think the authorities and s 106(2) do, that a contract may be found to be unfair because of any conduct of the parties.

126 In brief, the conduct of the respondent in this case was that the respondent unilaterally imposed on the applicant a period of notice, not only in conflict with its own Termination Policy, but also incorrectly calculated even if it had applied as to redundant Total Cost employees (which it did not), and quite contrary to the wishes of the applicant.

127 The respondent cannot now successfully claim, in those circumstances, that that period of notice worked out by the applicant satisfies the respondent's obligations to him in relation to compensation for all notice/redundancy considerations arising out of the termination of the applicant's employment. 128 For the reasons I have discussed in detail earlier, I find, pursuant to s 106(2), that the conduct of the respondent was such as to make the contract of employment unfair and harsh in terms of s 105(1) of the 1996 Act. 5 Her Honour also dismissed the cross application. Glynn J made orders including an order varying the contract of employment to provide that the appellant in the circumstances of redundancy shall not impose on the respondent a fourteen months' notice period to be worked out by the respondent in satisfaction of both notice and redundancy considerations. Her Honour made a further order that the appellant pay to the respondent an amount based on his 21.12 years of service and his age of 60 plus at the date of termination and calculated in accordance with the relevant formula set out in the appellant's termination policy. This amounted to 18 months' pay, the maximum allowable redundancy payment under the termination policy.

6 The application for leave to appeal and appeal stated that the questions raised by the appeal were: 1. The effect of a policy, dealing with redundancy, which is issued by an employer on general industrial standards in redundancy circumstances. 2. The approach to be taken when an employee is given an extended period of actual notice. 3. The value in an industrial context of actual notice during which an employee remains in employment. 7 The Hon J W Shaw QC appeared with Mr B D Hodgkinson of counsel for the appellant. Mr Shaw put his submissions both as to leave and as to the merits of the appeal. Mr I M Neil of counsel appeared for the respondent. Mr Neil was invited to address the Court on the question of leave and on the issue of whether Glynn J, in finding that the contract of employment was unfair and in exercising her discretion to order 18 months' of redundancy pay, had failed to take into account, or sufficiently take into account, the giving of notice by the appellant.

8 Having heard the parties we have decided not to grant leave. There was no error on her Honour's part either in relation to her findings of unfairness or in the exercise of her discretion to provide relief. However, we do consider it appropriate to give reasons for not granting leave.

9 The circumstances giving rise to her Honour's conclusions regarding unfairness are relatively clear-cut. The appellant had employed Mr Smith for some 20 years. At the time he was given notice of termination he was 61 years old. Mr Scobie, the appellant's Director, Corporate Services and Company Secretary had gained an understanding from a conversation with the respondent that the respondent would retire in the foreseeable future. The respondent denied that he had indicated such an intention. In any event, the appellant decided that it wanted to restructure its operations and needed an employee who would be with the organisation for a longer period than it was expected Mr Smith would remain with the appellant. The respondent was regarded as a valuable employee and there were no grounds to terminate his employment other than the fact that the appellant wanted to carry out some re-organisation and that the respondent was not suitable to fill proposed new positions in the organisation because, for one thing, "he was not going to be around long enough".

10 In March 1998 Mr Smith met with Mr Scobie and Mr Waldon, the appellant's Human Resources Manager. The discussion related mainly to the termination of Mr Smith's employment. On 27 March 1998 Mr Smith was given notice that his employment with the appellant would cease on 31 May 1999. The period of notice had been calculated in accordance with the appellant's termination policy.

11 It was clearly the case, in our opinion, that the appellant had decided that as a consequence of some planned restructuring of its internal operations it could see no future role for Mr Smith. However, rather than make Mr Smith redundant and offer some form of redundancy payment, the appellant gave him 14 months' notice of termination. In doing so, Glynn J considered that the appellant's approach was coloured by what it regarded as an unacceptable course of action by the respondent in that the appellant believed the respondent had changed his mind about retirement so as not to miss out on redundancy payments. On the evidence, we agree with her Honour's observations in this respect.

12 At the centre of her Honour's reasoning relating to unfairness, however, was that in unilaterally deciding to give the respondent notice rather than a redundancy payment under its termination policy, the appellant had departed from its own policy in respect of such matters. Glynn J found that in terms of the appellant's termination policy the respondent had been made redundant. But rather than pay him redundancy pay in accordance with the formula under the policy, the appellant chose to give the respondent notice instead without any basis for doing so other than, it appears, the appellant felt the respondent should not get a windfall gain given its understanding that the respondent was going to retire in the foreseeable future. Her Honour found that the termination policy was either an "arrangement, or any related condition or collateral arrangement" within the meaning of s 105 and that in acting inconsistently with the policy, without any proper basis for doing so, the appellant conducted itself unfairly: Reich v Client Server Professionals of Australia Pty Limited (Administrator Appointed) (2000) 49 NSWLR 551, (2000) 99 IR 69. We consider that these findings were open to her Honour.

13 It was submitted that the termination policy was merely a set of guidelines and did not constitute part of the contract of employment between the appellant and respondent. Consequently, it was submitted, it was open to the appellant to mould the policy to suit particular circumstances. Given the appellant's understanding that the respondent was intending to retire in the foreseeable future, it appears that the appellant took the view that the respondent should not receive a windfall gain in the form of a redundancy payment. Accordingly, the appellant applied the termination policy as though the respondent came within that category of employees who were entitled to notice rather than employees who had been made redundant. Of course, the difficulty with this submission is that it was the appellant who initiated the redundancy of Mr Smith. There was no evidence that Mr Smith somehow became aware that he was to be made redundant and consequently changed his mind about retiring in order to position himself for a redundancy payment. So that the sequence of events was that the appellant believed that the respondent intended to retire in the foreseeable future; the appellant initiated the termination of the respondent on the basis that he would not be suitable to fill any position in the new structure - a classic redundancy under the termination policy; and the appellant unilaterally determined not to apply that part of the termination policy dealing with redundancy to the respondent. Thus, whilst there might be substance in the submission that the appellant was entitled to mould the policy according to its needs, it was not entitled to do so unfairly.

14 Glynn J went on to find that having acted inconsistently with its own termination policy the appellant could not claim that the 14 months' period of notice worked out by the respondent satisfied the appellant's obligations in relation to compensation for notice/redundancy under the policy. Her Honour ordered that the appellant pay to the respondent what he would have received under the termination policy if he had been made redundant, which amounted to 18 months' pay. In the result, the respondent actually received 14 months' notice of termination and 18 months' redundancy pay.

15 The respondent below had submitted, in effect, that Mr Smith should not receive both notice and redundancy pay because under the termination policy the redundancy payment countenanced both payment in lieu of notice and severance. In other words, to allow Mr Smith to retain the benefit of the 14 months' notice he worked out plus redundancy pay would amount to double counting. Ordinarily, we would agree and on appeal some adjustment would have been made to the redundancy payment to avoid double counting.

16 However, it needs to be borne in mind that Mr Smith was not seeking to double dip. His claim was for redundancy pay in accordance with the termination policy and not notice, although we note as a compromise Mr Smith was prepared to accept a period of notice and a redundancy payment but what was offered to him in this respect was unacceptable and understandably so. Mr Smith did not wait around until 31 May 1999 before making his position clear: he wanted redundancy pay from the outset and when it became obvious that the respondent was not prepared to agree, Mr Smith filed his summons for relief on 1 May 1998.

17 The fact that Mr Smith worked out a period of 14 months' notice before a determination was made regarding his claim was an inevitability in the face of the appellant's rejection of the claim and it should not mean, given that his claim was made good, that he should suffer any detriment by having the redundancy payment, due to him under the termination policy, reduced.

18 On appeal it was submitted for the appellant that the impact of the decision of Glynn J in relation to long serving employees would be to discourage the provision of actual notice. We disagree. This case turns on its own facts and there is no issue of principle regarding the giving of notice to be drawn from it.

19 We would add one final observation. It was undoubtedly open to her Honour to deal with the matter in the way she did; that is as a "conduct" case. It may be that she had little alternative to doing so in view of the way in which the respondent framed his case. Nevertheless applicants, in framing their proceedings, and judges in hearing and deciding them, should not overlook the consideration that s 106 is directed to the fairness, etc of contracts and arrangements and with the fairness, etc of their terms, either in themselves as to what they actually provide or fail to provide. There is nothing in the Full Bench judgment in Reich that should lead to any different approach. It would have been preferable for the case before her Honour to have been framed and dealt with in that way.

20 Although conduct of a party which renders a contract or arrangement unfair or otherwise actionable under s 106 of the Industrial Relations Act may well provide jurisdiction for relief under that provision, the primary focus of the exercise of the Court's jurisdiction should be, where relevant and available, the contract or arrangement and its respective terms or omitted terms as to the effect thereon of the impugned conduct. This approach will usually lead to orders (where orders are made) more certainly well-founded jurisdictionally and will be less likely to result in appeals which, whilst superficially thought to be available, upon examination on appeal are soon shown to lack substance.

21 Leave to appeal is refused and the appeal is dismissed.

1. Leave to appeal is refused. 2) The appeal is dismissed. 23 The appellant shall pay the respondent's costs of the appeal as agreed or, failing agreement, as assessed.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.