Australian Industrial Relations Commission|2002-12-12|Before: McIntyre VP

Pacific Coal Pty Ltd re Robert David Smith and others v Pacific Coal Pty Ltd - PR925566 [2002] AIRC 1534; (12 December 2002)

s.45 appeal by Pacific Coal Pty Ltd against orders [PR903256]

s.170CE application for relief in respect of termination of employment

Appeal against orders - termination of employment.

[1] This is an appeal by Pacific Coal Pty Ltd (the appellant), pursuant to s.45 of the Workplace Relations Act 1996 (the Act), against orders of Hodder C of 9 April and 27 September 2001 [PR903256] in matters U Nos. 20854 to 20868 and 20890 of 1998. Each of those matters was an application by various employees of the appellant, made pursuant to s.170CE of the Act, in relation to the termination of their employment.

[2] The employees were Robert David Smith (U No. 20854 of 1998), Robert Edward Cusack (U No. 20855 of 1998), Gary Wayne Mannion (U No. 20856 of 1998), Todd Andrew Rogers (U No. 20857 of 1998), Alan McGuiness (U No. 20858 of 1998), Ron Frank Bettridge (U No. 20859 of 1998), Edward Hugh Appleton (U No. 20860 of 1998), Donald George Halverson (U No. 20861 of 1998), Bruce Charles Mitchelson (U No. 20862 of 1998), Garry William Barnes (U No. 20863 of 1998), Brian Peter Walsh (U No. 20864 of 1998), Morgan Kenneth Ray Lindley (U No. 20865 of 1998), Mitchell Joseph Albert (U No. 20866 of 1998), Athol Earnest Finger (U No. 20867 of 1998), Trevor Murray Kelly (U No. 20868 of 1998) and Gabriel Pani Crichton (U No. 20890 of 1998) (collectively referred to as the respondents hereafter).

[3] Hodder C published his reasons for decision on 9 April 2001 in PR902679

[4] Hodder C found that "the termination of each of the applicants, given the extent to which such denial of a `fair go all round' occurred, and in consideration of section 170CG(3), reveals that each applicant's termination of employment was harsh, unjust and unreasonable".

[5] In respect of remedy, the Commissioner ordered "the reinstatement each of the applicants from 9 April 2001, without loss of continuity of employment and also orders payment for remuneration lost by each applicant since the date of termination up until the date of actual reinstatement of employment or the date upon which lost remuneration payment is made, whichever event first occurs".

[6] On 18 February 2002 in PR914348, a Full Bench of the Commission, constituted by McIntyre VP, Kaufman SDP and Smith C granted leave to appeal against the orders of Hodder C. Submissions were sought as to what should follow the grant of leave and, after hearing the parties, the Bench determined to conduct a rehearing and issued directions for the filing of submissions. On 20 March 2002, the President reconstituted the Full Bench, replacing McIntyre VP with Watson SDP.

[7] The applications were brought pursuant to s.170CE of the Act, which relevantly provided:[1]

"(1) Subject to subsections (5), an employee whose employment has been terminated by the employer may apply to the Commission for relief in respect of the termination of that employment:

(a) on the ground that the termination was harsh, unjust or unreasonable ...."

[8] The determination of the applications both before Hodder C and by rehearing on appeal is subject to Division 3 of the Act - Termination of Employment, s.170CA as it then was. Section 170CG(3) of the Act is particularly relevant, in relation to merit, as is s.170CH in respect of remedy. Those sections of the Act state:

(a) to establish procedures for conciliation in relation to certain matters relating to the termination or proposed termination of an employee's employment in certain circumstances; and

(b) to provide, if the conciliation process is unsuccessful, for recourse to arbitration or to a court depending on the grounds on which the conciliation was sought; and

(c) to provide for remedies appropriate to a case where, on arbitration, a termination is found to be harsh, unjust or unreasonable; and

(d) to provide for sanctions where, on recourse to a court, a termination or proposed termination is found to be unlawful; and

(e) by those procedures, remedies and sanctions, and by orders made in the circumstances set out in Subdivisions D and E, to assist in giving effect to the Termination of Employment Convention."

"(3) In determining, for the purposes of the arbitration, whether a termination was harsh, unjust or unreasonable, the Commission must have regard to:

(a) whether there was a valid reason for the termination related to the capacity or conduct of the employee or to the operational requirements of the employer's undertaking, establishment or service; and

(b) whether the employee was notified of that reason; and

(c) whether the employee was given an opportunity to respond to any reason related to the capacity or conduct of the employee; and

(d) if the termination related to unsatisfactory performance by the employee-whether the employee had been warned about that unsatisfactory performance before the termination; and

(e) any other matters that the Commission considers relevant".

"(1) Subject to this section, the Commission may, on completion of the arbitration, make an order that provides for a remedy of a kind referred to in subsection (3), (4) or (6) if it has determined that the termination was harsh, unjust or unreasonable.

(2) The Commission must not make an order under subsection (1) unless the Commission is satisfied, having regard to all the circumstances of the case including:

(a) the effect of the order on the viability of the employer's undertaking, establishment or service; and

(b) the length of the employee's service with the employer; and

(c) the remuneration that the employee would have received, or would have been likely to receive, if the employee's employment had not been terminated; and

(d) the efforts of the employee (if any) to mitigate the loss suffered by the employee as a result of the termination; and

(e) any other matter that the Commission considers relevant;

(3) If the Commission considers it appropriate, the Commission may make an order requiring the employer to reinstate the employee by:

(a) reappointing the employee to the position in which the employee was employed immediately before the termination.

(b) appointing the employee to another position on terms and conditions no less favourable than those on which the employee was employed immediately before the termination.

(4) If the Commission makes an order under subsection (3) and considers it appropriate to do so, the Commission may also make:

(a) any order that the Commission thinks appropriate to maintain the continuity of the employee's employment; and

(b) subject to subsection (5)-any order that the Commission thinks appropriate to cause the employer to pay to the employee an amount in respect of the remuneration lost, or likely to have been lost, by the employee because of the termination.

(5) If, as a result of an application under section 170CP, a court has awarded an amount of damages for a failure to give notice of a termination as required by section 170CM, any amount ordered to be paid by the Commission under paragraph (4)(b) in respect of the termination is to be reduced accordingly.

(6) If the Commission thinks that the reinstatement of the employee is inappropriate, the Commission may, if the Commission considers it appropriate in all the circumstances of the case, make an order requiring the employer to pay the employee an amount ordered by the Commission in lieu of reinstatement.

(7) Subject to subsection (8), in determining an amount for the purposes of an order under subsection (6), the Commission must have regard to all the circumstances of the case including:

(a) the effect of the order on the viability of the employer's undertaking, establishment or service; and

(b) the length of the employee's service with the employer; and

(c) the remuneration that the employee would have received, or would have been likely to receive, if the employee's employment had not been terminated; and

(d) the efforts of the employee (if any) to mitigate the loss suffered by the employee as a result of the termination; and

(e) any other matter that the Commission considers relevant.

(8) In fixing an amount under subsection (6) for an employee who was employed under award conditions immediately before the termination, the Commission must not fix an amount that exceeds the total of the following amounts:

(whichever is higher) for any period of employment with the employer during the period of 6 months immediately before the termination (other than any period of leave without full pay); and

(b) if the employee was on leave without pay or without full pay while so employed during any part of that period-the amount of remuneration taken to have been received by the employee for the period of leave in accordance with the regulations.

(9) In fixing an amount under subsection (6) for an employee who was not employed under award conditions immediately before the termination, the Commission must not fix an amount that exceeds:

(a) the total of the amounts determined under subsection (8) if the employee were an employee covered by the subsection; or

(b) the amount of $32,000, as indexed from time to time in accordance with a formula prescribed by the regulations;

(10) For the avoidance of doubt, an order by the Commission under paragraph (4)(b) or under subsection (6) may permit the employer concerned to pay the amount required in installments specified in the order."

[9] In our view leave to appeal has been granted and it falls to us to determine the appeal. In this connection we note the reasons given by Kaufman SDP and we respectfully adopt his reasons.

[10] The appellant operates an open-cut coalmine at Blair Athol in central Queensland. Reflecting a concern about increasing production costs and decreasing revenue at the Mine, in October 1995, the appellant conducted a benchmarking study into the Mine's operations, which suggested, inter alia, that the mine was inefficient and over manned by the order of 30%.

[11] In 1997, the appellant announced its intention to re-organise the mine operations and it made it known that the re-organisation would result in a significant reduction in employment levels.

[12] The appellant instituted a Productivity Improvement Plan and commenced a process to assess the performance of its employees - the Performance Effectiveness Review (the PERs). Three such reviews were conducted, notionally in respect of the periods 1 January 1997 to 30 June 1997, 1 July 1997 to 31 December 1997 and 1 January 1998 to 30 June 1998. The PER involved a process of assessment by supervisors/superintendents of employees of four criteria: safety (9 factors), personal effort (10 factors), skills (8 factors) and teamwork (9 factors). Scores were allocated for each criterion - 3 exceeds expectations; 2 meets expectations; and 1 below expectations.

[13] The PERs were undertaken against a background in which, at a meeting in early 1997, supervisors and superintendents at the mine were asked to list on a whiteboard those employees they believed to be the worst 50 employees.

[14] Over the period between the announcements of the Productivity Improvement Program, in early 1997, until the termination of employment of the respondents in July 1998, various lists were prepared from time to time, with different colouring indicating a different standing of employees. There was considerable debate about the lists, both before Hodder C and in the rehearing as to the purpose and implications to be drawn from the existence of the lists. It was common, however, that the ranking list was divided into three groups based on their performance: blue - those employees who were certain to stay; red - those who were in the middle and their position was not clear; and black - those who were not performing at the time and who, if a decision as to redundancy was made at the time, would have been made redundant.

[15] In late 1997, around 90 employees, including most of the respondents, were sent letters inviting expressions of interest for voluntary redundancy. By February 1998, a number of employees, including most of the respondents, were given notice that they would be transferred to the dayshift in the Mine Services department. In March 1998, the new organisational structures were implemented. Over the course of 1998 a number of employees ended their employment, accepting voluntary redundancy packages.

[16] At the end of the voluntary redundancy process, the appellant wished to give effect to further redundancies. On 22 June 1998 (production workers) and 23 June 1998 (maintenance) the appellant conducted meetings of management and supervisors at which the identity of remaining employees to be made redundant was determined. This involved the formulation of a matrix of criteria involving:

[17] The scores were incorporated into a matrix, with a maximum possible score of 20 points maximum for `previous performance' and 20 for `future performance'. `Previous performance' was based on PERs, but translated from an `out of 3' basis to an `out of 5 basis', with some modification of scores by management. The 16 respondents were ranked in the last 17 employees in the matrix. One, R Woods, subsequently accepted a voluntary redundancy package.

[18] The respondents were advised on the appellant's intention to terminate their employment, but afforded an opportunity to appeal to the General Manager - Rod Bates.

[19] Ultimately, in July 1998, the employment of each of the respondents was terminated on the ground that he was surplus to the needs of the operations of the appellant.

[20] The hearing at first instance extended over 32 sitting days, with written submissions following. Transcript extended to over 4,500 pages, with over 200 exhibits recorded over thousands of pages. The appeal hearings also extended over six days, with further evidence and extensive written submissions. It is not our intention to attempt to summarise all of that material for the purpose of our decision. We have had regard to it all and will refer to that evidence necessary to explain our reasoning.

[21] The approach to s.170CG(3)(a) has been considered at Full Bench level in M J Liu and others and Windsor Smith [Print Q3462], Lockwood Security Products Pty Limited v Sulocki [PR915674].

[22] The Full Bench in Windsor Smith stated:

"Section 170CG(3)(a) adopts some of the wording of s.170DE(1) of the IR Act but the context is entirely different. Section 170DE(1) of the IR Act contained a prohibition on termination of employment except for a valid reason or valid reasons. Section 170CG(3) does not. Whether there was a valid reason for the termination is only one of four separately specified matters which the Commission must now have regard to. The Commission must also have regard to any other matter it considers relevant. There is no causal connection between a finding that there was no valid reason for the termination and a conclusion that the termination was harsh, unjust or unreasonable. In summary, the question of whether there was a valid reason for termination of employment is no longer the critical question in determining whether the termination was contrary to the Act. Under the IR Act provisions if no valid reason existed then the applicant was prima facie entitled to reinstatement or compensation. Under the Workplace Relations Act 1996 the principal question is whether the termination was harsh, unjust or unreasonable. In considering that question the Commission is to ensure that a `fair go all round' is accorded to both the employer and the employee concerned.

We take the true position to be that where employment is terminated on redundancy grounds it is a question of fact whether the employees selected for redundancy were selected for a reason related to the operational requirements of the employer's business, for a reason related to the employee's capacity or conduct, or for reasons of both kinds. Where the reason for selection is related solely to the operational requirements of the employer's business, it is not necessarily significant if no opportunity was given to employees to comment on the basis for their selection. Where the reason for selection is related to the capacity or conduct of the employees or includes such a reason and no opportunity is given to the employees to respond to that reason, that is a factor which the Commission must take into account."

[23] In Moore Paragon, the Full Bench summarised the propositions arising out of Windsor Smith and Sulocki as follows:

"[74] In our view Windsor Smith is authority for the following propositions:

1. Where employment is terminated on redundancy grounds it is a question of fact whether the employees selected for redundancy were selected for a reason related to the operational requirements of the employer's business, for a reason related to the employee's capacity or conduct, or for reasons of both kinds.

2. Where the reason for selection is solely related to the operational requirements of the employer's business, it is not necessarily significant if no opportunity was given to employees to comment on the basis for their selection.

3. Where the reason for selection is related, in whole or in part, to the capacity or conduct of the employees and no opportunity is given to the employees to respond to that reason then that is a factor which the Commission must take into account.

4. An objective assessment of skills will only be necessary if selection is based on employee capacity.

5. Length of service is an objective criterion unrelated to capacity or conduct.

[79] In our view Sulocki is authority for the following propositions:

1. While operational requirements may provide a valid reason for reducing the size of an employer's workforce, they do not necessarily provide a valid reason for the retrenchment of particular employees.

_2. The Commission must be satisfied, on the facts as they appear before it, that there was a valid reason for the dismissal of the particular employee in question in that the reason was `_sound, defensible or well founded' _and not `_capricious, fanciful, spiteful or prejudiced' .

3. The fact that employees are not given an opportunity to respond to allegations of unsatisfactory performance may justify a finding that the termination of their employment was harsh, unjust or unreasonable even though there was a genuine need to reduce the size of the workforce."

[24] The appellant submitted that when an employer restructures its operations, necessitating a reduction in the number of employees, the employees made redundant have been retrenched for a reason related to the operational requirements of the employer's undertaking, the requirements of s.170CG(3)(a) have been met and that constitutes a valid reason simpliciter. It contended that the proposition that consideration must be had to whether there exists a valid reason for the selection of a particular employee to be made redundant in the earlier Full Benches cited above is wrong and should not be followed.

[25] As the Full Bench in Moore Paragon noted:

"the Commission has traditionally taken the view that it should only depart from previous Full Bench decisions in limited circumstances. In another context three members of the High Court observed in Nguyen v Nguyen [(1960) [1990] HCA 9; 169 CLR 245]:

`When a court of appeal holds itself free to depart from an earlier decision it should do so cautiously and only when compelled to the conclusion that the earlier decision is wrong. The occasion upon which the departure from previous authority is warranted are infrequent and exceptional and pose no real threat to the doctrine of precedent and the predictability of the law: see Queensland v The Commonwealth [1977] HCA 60; (1977) 139 CLR 585 at 620 et seq, per Aickin J.'"

[26] We are not inclined to depart from the approach of previous Full Benches in favour of the approach advanced by the appellant. We are not compelled to the conclusion that the previous approach is wrong. Indeed, we think that in cases of redundancy, it is necessary to consider, not only whether there is a reason related to the operational requirements of the employer's undertaking for an employer instituting redundancies, but also whether there is such a reason for the selection of the particular employees made redundant. We take the expression "a valid reason for the termination" in s.170CG(3)(a) to refer to a valid reason for the particular termination and, to the extent that it involves the selection of an employee, amongst others, it is necessary to consider whether there exists a valid reason for the selection of the particular employee to be made redundant.

[27] In our view, the employees selected for redundancy were selected for reasons related to the operational requirements of the employer's business and for reasons of their capacity or conduct.

[28] We accept that there was an operational requirement upon the appellant to reduce the size of its workforce, in giving effect to its reorganisation. Its business case, in our view, is made out. The evidence supports the appellant's contention that a reduction in the number of employees in the order of that affected was required. However, it is necessary to consider whether there exists a valid reason for the termination of the employment of the respondents and their selection for redundancy.

[29] The selection of the respondents for involuntary redundancy occurred in the context of a Productivity Improvement Plan, which had its genesis in 1995, and an action program instituted in early 1997. In the context of the Productivity Improvement Plan managers and supervisors were appraised of objectives of their employer to reduce union influence and the effect of the Blair Athol and CFMEU (UMW Division) Clause 20 Agreement June 1995 (the agreement).

[30] This company agenda was made plain in managers and supervisors meetings. Exhibit PC 8, General Attachment 31: Blair Athol Coal; Productivity Improvement Plan, contains a presentation to managers in February 1997. It describes as a barrier to productivity: "Employees aligned with union goals and follow union direction over management direction". Outcomes for Improved Work Practices include "Agreements that support union activity will be removed".

[31] The appellant's Productivity Improvement Plan project for the first 6-8 months of 1997 set a target of reducing union membership by 30% [Exhibits CFMEU 63 and PC 40, McCrea 1250].

[32] Exhibit CFMEU 89, a copy of a presentation in relation to the Kennecott mine in the USA, against which Blair Athol was benchmarked, reports as an `other area of difference", "Kennecott already have a non-union workforce". (emphasis added)

[33] Minutes of General Managers' weekly meetings [Exhibit PC40] and Mr Riordan's notes of those meetings report:

· regularly, generally weekly, the number of employees on AWAs and number or percentages of employees ceasing their membership of the CFMEU;

· "A good measure of supervisors will be how many AWAs we get" [24 March 1997];

· "Every super was asked to list people in order of performance - a case needs to be built up on the worst" (emphasis added) [22 April 1997, see also 6 & 13 May 1997 minutes];

· "Paul (McCrae) distributed list, to Mgrs to mark 50 and bring to next meeting. Managers to group employees into 3 categories". Joe's Book records: "50 worst offenders. Bring back to next week Mgrs Meeting" [8 July 1997].

[34] We accept that the initial `blacklists' - the identification on gut-feeling of the 50 worst performing employees - were rankings based on supervisors' perceptions of relative performance. There is no evidence that the `blacklist' was formed in isolation from the initial assessment of the supervisors. However, the rankings could have been substantially affected by the environment operating within the mine and, once developed, created a context in which subsequent performance assessments were undertaken.

[35] As a consequence of identifying the worst performers, most of the respondents were not placed in the new organisation chart. Instead, they were placed in jobs which did not enable them to compete for their previous position in the enterprise and placed them at a considerable disadvantage in demonstrating their skills and capacities.

[36] More generally, a part of the assessment applied in respect of the respondents was that the employees wanted to quarantine their skills and not work flexibly. Ordinarily this would be a valid criticism. However, there was in existence the agreement which gave them that right. To the extent that the employees sought to exercise that right it should not have been to their detriment, otherwise it did not constitute a right at all. The initial consideration given meant that their selection was to their detriment and this was unjust and unreasonable.

[37] Similarly, the employees submitted that they were entitled to the "last on first off" (LOFO) approach to retrenchments. This entitlement arose either through the contracts of employment or awards or both[2]. Because the employer could not retrench at the time without using LOFO it transferred the employees the subject to the application.

[38] Further, the initial selection of the "worst 50 employees" by supervisors and superintendents at the mine and the PER assessments were undertaken in the context of Pacific Coal's approach to the CFMEU and goal of reducing union membership, reflected in the company documentation set out above. In our view, this unfairly disadvantaged the respondents in the selection of employees to be made redundant. If freedom of association has meaning, a choice of employees to become, or remain, members of the union and their preference for collective representation should not prejudice such employees. Freedom of association has a clear industrial context and should not be pressed into a social context. The evidence in the present case reveals an environment in which there exists a reasonable apprehension that the CFMEU membership of the respondents has been considered unfairly in the decision to choose them for redundancy.

[39] Further, the initial listing and staffing allocation provided a context in which the PER process was undertaken, importing an element of justification by supervisors and managers of the initial rankings, perhaps then colouring the assessments made within the PER process. Only two employees on the blacklist were retained in employment.

[40] The notation in the 22 April 1997 minutes of the General Managers' meeting suggests the initial list had some standing, noting that "a case needs to be built up on the worst". This at least suggests that those at the managers' meeting were of a view that they were required, through supervisors, to develop a case against those ranked in the initial gut-feel list as the worst performers. This perception no doubt formed part of the context in which PERs and the June 1998 matrix were given effect.

[41] In this respect there is some force in the evidence of Ms Knox that:

".. .bias is apparent in that assessors seemed more likely to note down what was wrong with these particular employees rather than respond to descriptors where the employees performance was satisfactory. This may have resulted in an unduly negative view of these employees."

[42] Even if, as the appellant contends, the blacklists were so called because of their physical state - black writing on white paper - the expression was applied to listing of the group of employees within it and the expression brought with it a negative perception amongst supervisors and managers. It was commonly believed that in the absence of sufficient volunteers this group of employees was destined to be made redundant. It may be inferred that Mr Riordan, in over-writing his notebooks to remove reference to blacklists, was conscious of the negative connotation attached to the term, and by inference the employees within the blacklist, and perceived a necessity to remove references to the blacklist. It may be inferred that Mr Riordan perceived `blacklist' as carrying negative implications not associated with the term rating list. It would seem to us that the term `blacklist' is well known amongst those who are engaged in industrial undertakings. At the very least it was an unfortunate term but it could never be perceived to have a benign character.

[43] All but three respondents, Lindlay, Finger and Bettridge, had been on an employer's `blacklist' since November 1997 [Exhibit PC 56].

[44] There is evidence which discloses supervisors, when undertaking the PER process, were of a view that the `blacklisted' employees were those who the company wished to make redundant [Mr Gardner 2521-3, Mr. Campbell XX3070-1]. Ms Hoch certainly held the perception that "Black meant they did not have a job anymore" [para 13 ex CFMEU 90]. This affected their approach to the PER assessments.

[45] Further, there is evidence that supervisors were advised that `blacklisted' employees would be those made redundant and respondents were told that they had no future at Blair Athol in 1997 and early 1998[3].

[46] Further, evidence from supervisors and managers confirmed their approach was reflective of the context in which membership of the CFMEU and support for collective arrangements and adherence to collective instruments was seen as antithetical to the objectives of the company.

[47] Most of the respondents were on the `blacklist' by the end of the first PER, around the end of 1997. Yet the first PER was conducted, without training or guidelines to assessors, in the context of the initial listing of 50, where the respondents had not received information in relation to the PER process and in circumstances where the respondents were told that participation in the PER was voluntary, and chose not to participate. The respondents were not apprised of the matters which caused them to be placed on the `blacklists', which placement led them inevitably to selection for involuntary redundancy.

[48] Mr Riordan's notebooks, before overwriting, record that in the third quarterly review meeting of the employer on 21 October 1997, prior to the second PER being undertaken by supervisors/superintendents:

"In relation to PERs, it was to be communicated to everyone (supers) `Black List are unlikely to achieve 7 or 8 (ie "Meet expectations")'."

[49] The context is which the PERs and selection matrix were undertaken was such that the approach of assessors incorporated a bias against CFMEU members. This was reflected in practice by an element of self-selection of CFMEU members ahead of AWAs for retrenchment [Gardner 2555 and 2554]. It appeared that employees were marked down for expressing views as to their preference for work practices which were not in conformity with their employer's preference. ie collective rather than individual negotiation without evidence of a detrimental effect on the performance of the employee [Murchinson 3193-3194, 3199 and 3201-3].

[50] The evidence further disclosed other problems with the application of the PER system:

· inconsistent application of PER guidelines and `automatic' scores of 1 for certain criteria;

· reliance on vague reporting of past incidents, without exploration of the incidents or providing the relevant employee an opportunity to respond; and

· the inconsistent translation of the PER 3 point scale to 1 point.

[51] The second PER, undertaken in this context, must have coloured the supervisors' view of those employees on the blacklist at that time.

[52] Further, the evidence suggests a disproportionate numbers of AWAs received better ratings than CFMEU members, only CFMEU members were placed on the blacklist and a disproportionately limited number of AWAs were offered voluntary redundancies. In themselves, these numerical incidents are indeterminate. In the context of the other evidence suggesting that the selection was affected by the context of the company agenda known to assessors, they are consistent with and illustrative of the selection process being undertaken in a manner which disadvantaged the respondents.

[53] The selection process (matrix) ultimately involved criteria for "Previous performance" (Safety, Teamwork, Skills and Personal Effort) and for "Future Requirements" (Adapting to Change, Communication Skills, Team Leadership/Membership and Contribution to Improvement). Ratings were given for these criteria with score out of a possible 1 to 5 (5 - Consistently exceeds expectations, 4 - Sometimes exceeds expectations, 3 - Meets expectations, 2 - Sometimes meets expectations and 1 - Does not meet expectations). The collective criteria for previous and future performance carried a total possible score of 20, with the final ranking based on scores out of a possible 40.

[54] The reliance on PERs to assess previous performance was problematic in many respects:

· first, the translation of PER scores out of 3 for each criterion to scores out of 5 used in the selection matrix was inconsistently applied. The evidence is that the inconsistencies worked against several of the respondents;

· any deficiencies in the PER process were imported into the selection matrix in respect of assessments of previous performance and, to some degree, in assessing future requirements [see statement of Mr Yeates, para 175];

· Managers undertook the `massaging' of selection scores with limited exposure to the work of the respondents on shift and some further reliance must have been placed on PER assessments;

· the selection matrix was undertaken prior to the final PER being completed for some employees, so that the proposition that they had an opportunity to improve was not borne out [PER 3 for four of the employees, namely, Messrs Appleton (24 June 1998), Bettridge (25 June), Mitchelson (30 June) and Smith (25 June) were not even completed until after the employer matrix was done on 22 June 1998]. The maintenance matrix was done on 23 June 1998 before PER 2 and 3 were completed for Walsh and McGuinness [XX1804-7, Exhibits PC 9 and CFMEU 84].

[55] However, in the context of this case, we reach no particular conclusion in relation to the PER process per se, preferring instead to adopt what was relied upon by Smith C in Communications, Electronic, Energy, Information, Postal, Plumbing And Allied Services Union of Australia v Telstra Corporation Limited[4], when he referred to a decision of the Court of Appeal[5]. Some of Waite LJ's observations are particularly apposite to this case.

It has been accepted from the outset of the unfair dismissal jurisdiction that the concept of fairness, when applied to the selection process for redundancy, is incapable of being expressed in absolute terms. There are no cut and dried formulae and no short cuts. The recognised objectives include the retention within the reduced work-force, once the redundancies have taken effect, of employees with the best potential to keep the business going and avoid the need for further redundancies in future; as well as the need to ensure that qualities of loyalty and long service are recognised and rewarded. These are objectives which are liable to conflict with each other. When they do it becomes the task of the industrial tribunal to determine whether, in all the circumstances of each particular case, the employers have succeeded in providing a response to the tension between them which comes within the range of reasonableness. The result of applying the terms of s.57(3) of the Employment Protection (Consolidation) Act 1978 to cases where the reason for dismissal was redundancy has been summarised (in a passage frequently approved - with the necessary adjustment of emphasis to take account of the later modification by statute of the burden of proof - in later authority) in Williams and others v Compair Maxam [1982] UKEAT 372_81_2201; [1982] IRLR 83 at paragraph 18 as follows:

.... there are only two relevant principles of law arising from that subsection. First, that it is not the function of the industrial tribunal to decide whether they would have thought it fairer to act in some other way: the question is whether the dismissal lay within the range of conduct which a reasonable employer could have adopted. The second point of law, particularly relevant in the. field of dismissal for redundancy is that the tribunal must be satisfied that it was reasonable to dismiss each of the applicants on the ground of redundancy. It is not enough to show simply that it was reasonable to dismiss an employee; it must be shown that the employer acted reasonably in treating redundancy "as a sufficient reason for dismissing the employee", ie the employee complaining of dismissal. Therefore, if the circumstances of the employer make it inevitable that some employee must be dismissed, it is still necessary to consider the means whereby the applicant was selected to be the employee to be dismissed and the reasonableness of the steps taken by the employer to choose the applicant rather than some other employee, for dismissal.'

The industrial tribunal must, in short, be satisfied that redundancy selection has been achieved by adopting a fair and reasonable system and applying it fairly and reasonably as between one employee and another; and must judge that question objectively by asking whether the system and its application fall within the range of fairness and reason (regardless of whether they would have chosen to adopt such a system or apply it in that way themselves).

(2) The degree of scrutiny required of the industrial tribunal

Employment law recognises, pragmatically, that an over-minute investigation of the selection process by the tribunal members may run the risk of defeating the purpose which the tribunals were called into being to discharge -namely a swift, informal disposal of disputes arising from redundancy in the workplace. So in general the employer who sets up a system of selection which can reasonably be described as fair and applies it without any overt sign of conduct which mars its fairness will have done all that the law requires of him. The Court of Session expressed that in the words of the Lord President (Lord Enmslie) in Buchanan v Tilcon Ltd [19831 IRLR 417 at 418 in this way:

`In the event the appellant, apart from throwing out the suggestion that he might have been victimised because of dislike, merely expressed his concern that others, with even less seniority than he and employed in the same work (labouring) had been kept on. In this situation where no other complaints were made by the appellant all that the respondents had to do was to prove that their method of selection was fair in general terms and that it had been applied reasonably in the case of the appellant by the senior official responsible for taking the decision. As was pointed out by Phillips J in Cox v Wildt Mellor Bromley Ltd [1978] IRLR 157 it is quite sufficient for an employer in a case such as this to call witnesses of reasonable seniority to explain the circumstances in which the dismissal of an employee came about and it was not necessary to dot every "i" and to cross every "t" or to anticipate every possible complaint which might be made.'

Two recent decisions of the Employment Appeal Tribunal, one in its English and the other in its Scottish jurisdiction, have illustrated this principle at work. In Boal v Gullick Dobson Ltd, EAT 7 June 1994 (unreported), 100 redundancies became inevitable. Pools of employees from which the selection would be made were created on an area basis. The employees in each pool were then individually assessed according to a list of criteria which included productivity, skill, quality of work, attendance, punctuality and sickness records. The manager directly responsible for each employee awarded marks in each category which were then checked by two other managers. The degree of importance to be attached to each criterion was decided by the directors of the employers, not by the managers responsible for the marking. The applicant was one of those selected for redundancy under this system and was given an opportunity to discuss his selection with management. At that meeting he asked for details of the assessments of other employees from his pool who had not been selected, but whom he regarded as more obvious candidates than himself for redundancy That disclosure was refused, his dismissal went ahead, and he complained to an industrial tribunal that the refusal had made his dismissal unfair. On his appeal to the Employment Appeal Tribunal from the dismissal of that complaint, it was held, dismissing the appeal, that a practice of allowing employees selected for redundancy to see the assessments of those employees who had not been so selected would involve, especially in cases where the numbers were large, an impossibly protracted exercise; offensive to common sense and practicality and threatening to stultify the intended fairness of the whole selection process.

In Eaton Ltd v King and others [1995] IRLR 75 the applicants were four of 20 employees selected for redundancy by a similar process. One of the complaints was that (although given details of their own marks) they were refused a sight of the marks of others; another was that the supervisors responsible for the markings were insufficiently informed to make fair assessments. These complaints were upheld by the industrial tribunal, which was also critical of the fact that the member of senior management called to justify the assessment results was unable to speak of the detailed merits of the assessments made of the applicants by the supervisors who had marked their forms. The Employment Appeal Tribunal held, allowing the appeal, that there was nothing to suggest that the assessment process was carried out otherwise than honestly and reasonably. Their judgment stated: `In fact it appears to us that what the employers did in this case was to set up a good system of selection, reasonably administered. It may very well have been possible to argue about the individual markings of individual employees, but that is a comment which applies as much to the marking of those who were not selected for redundancy as to that of those who were. If the view taken by the industrial tribunal were carried to its logical conclusion, there could be no alternative but to require the employer, in every such case, to produce all the evidence bearing upon all the assessments out of which the redundancy decision arose. That seems to us to go far further than is proper'

(1) The use of a marking system of the kind that was adopted in this case has become a well-recognised aid to any fair process of redundancy selection. By itself, of course, it does not render any selection automatically fair; every system has to be examined for its own inherent fairness, judging the criteria employed and the methods of marking in conjunction with any factors relevant to its fair application, including the degree of consultation which accompanied it. One thing, however, is clear: if such a system is to function effectively, its workings are not to be scrutinised officiously The whole tenor of the authorities to which I have already referred is to show, in both England and Scotland, the courts and tribunals (with substantial contribution from the lay membership of the latter) moving towards a clear recognition that if a graded assessment system is to achieve its purpose it must not be subjected to an over-minute analysis. That applies both at the stage when the system is being actually applied, and also at any later stage when its operation is being called into question before an industrial tribunal. To allow otherwise would involve a serious risk that the system itself would lose the respect with which it is at present regarded on both sides of industry, and that tribunal hearings would become hopelessly protracted. There were therefore strong reasons of policy against allowing disclosure of the retained assessments at this stage, and no special circumstances justifying a departure from that policy."

[56] Whilst we have identified some areas of concern we do not propose, in a forensic way, to overturn the PER results as we believe that the issues we have identified are not sufficient, in themselves, to justify a conclusion that the employer did not provide reasonable responses in the approach taken as a whole. However, some of the areas of concern we have identified do reinforce the concern we hold. Our conclusion is influenced by the climate in which the original selections were made and then, for most of the respondents, the allocation of work to meet the new structure required by the employer.

[57] It is those events, together with aspects of the PER process which are reflective of the context adverse to the respondents, which lead us to the view that the actions of the employer were harsh, unjust and unreasonable.

[58] The PER process itself, whilst it may be argued had flaws, nonetheless examined the merit selection process of the remaining employees. Absent the manifestation of a context adverse to the consideration of the respondents, the PER process itself would not warrant a conclusion that it was so flawed that it should be overturned.

[59] We find in relation to s. 170CG(3) that:

· having regard to the impact on the decision of the supervisors which ultimately lead to the termination of the employees, that there was not a valid reason relating to their capacity or conduct;

· at the time of the original selection that they were notified of the reason but did not have an opportunity to respond;

· the environment where the employer appeared to be strongly against persons, being unionists, having the benefit of an instrument which is permitted by the Act contributed to the decision to terminate.

[60] It is clear that the Commission must firstly give consideration to reinstatement unless it does not consider it to be appropriate[6]. As we stated earlier, we find that the business case put by the employer is made out. Therefore, for us to reinstate the employees would either create a situation where a redundancy selection process would have to begin again or the employer would be forced to have a level of staffing which was not in the interests of the business.

[61] The question then needs to be asked as to whether or not we should force the employer to re-examine its staffing arrangements and engage in another round of redundancies. We are not prepared to adopt this course. Whilst we have been critical of the PER process to some degree we have not formed the view that it was completely devoid of merit and therefore we could not be confident that the same persons would not again be selected for redundancy. This is not a case where the evidence is so overwhelming that the wrong persons were selected for redundancy so as to give us reason to find that the employer's actions were only designed to reach a result which would have otherwise been impermissible.

[62] It follows that we find that it would be inappropriate for us to order reinstatement.

[63] On 31 October 2002, the CFMEU advised us that Pacific Coal was advertising for new staff in relation to its Hail Creek Project. It was contended that the offer of positions at Hail Creek to Blair Athol employees would make available positions at Blair Athol. By correspondence of 1 November 2002, we announced we had decided not to admit this further evidence. The prospect of recruitment at Hail Creek had been raised already in the appeal. The advertisement, in itself, adds very little to the appropriateness of re-instatement as a remedy. The advertisement, in itself, does not support a proposition that Pacific Coal requires the services of each, or any, of the respondents in its Blair Athol operations. There is insufficient evidence as to the structures of the company to persuade us that power exists to make appointments to positions at Hail Creek.

[64] We now turn to what amount, if any, we should award in lieu of reinstatement.

[65] The employees were terminated on various dates in August/September/October 1998. Hodder C reinstated them from 9 April 2001 without loss of continuity. On 12 October 2001[7] McIntyre VP stayed the obligation to pay wages from the time of termination until 9 April 2001 but did not stay the order in so far as it required the employees to be reinstated. From 9 April 2001 until now the employees have been paid their ordinary pay but have not been required to present for duty.

[66] In calculating an amount in lieu of reinstatement the principles to be considered were dealt with in Sprigg v Paul's Licensed Festival Supermarket[8] and reaffirmed in Ellawalla v Australian Postal Corporation[9] and Henderson v Department of Defence[10].

[67] Given the business case put by the employer together with the PER process we could not be confident that the respondents would have lasted a further twelve months. The approach we have adopted to employer evaluations does not take an overly officious approach and provides a great deal of discretion, subject always to the employer not abusing that discretion in a manner which is harsh, unjust or unreasonable.

[68] It is also appropriate to consider that during the period some of the applicants respondents have earned income.

[69] However, even if we were to calculate the amounts we believe appropriate the applicant respondents have all been paid their ordinary pay for in excess of 12 months. We are constrained by the provisions of s.170CH(8) to a payment to a maximum of six months of their salary.

[70] There has been no amount ordered in lieu of reinstatement. However, we have considered all of the criterion in s.170CH(7) and have reached the conclusion that no amount be awarded. We do so for these reasons. Firstly, the employer has given an undertaking that it will not seek to recover any wages paid to the time of decision, and, secondly, we consider that the payment received since 9 April 2001 is appropriate in all the circumstance. This factor is one we consider relevant pursuant to s.170CH(7)(e).

[71] Having granted leave to appeal, we uphold the appeal and quash the order of Hodder C.

[72] We find for ourselves that the terminations were harsh, unjust and unreasonable but in the circumstances of the payments received we make no further order. We set aside the decision of McIntyre VP in the stay proceedings.

REASONS FOR DECISION OF SENIOR DEPUTY PRESIDENT KAUFMAN

The introduction into evidence of the coloured lists

What was the evidence that it was to be communicated, etc.?

[1] I wrote these reasons in draft before I read the draft reasons of Watson SDP and Smith C. Given that I have reached a different conclusion in relation to whether the termination of employment of each of the respondents was harsh, unjust or unreasonable, I considered significantly reducing the length of this document. However, I have decided not to do so. In my opinion Hodder C erred largely because he drew inferences that were not open on the evidence. To demonstrate why this is so it is necessary to delve into far more detail than would normally be necessary. In fairness to the Commissioner, and so that it can be seen why I have reached a conclusion different to that of the other members of the full bench, I believe that it is necessary to retain the detail.

[2] Although in my view the terminations of employment were not harsh, unjust or unreasonable, had I found to the contrary I would agree with the conclusion of Watson SDP and Smith C as to remedy.

[3] On 18 February 2002[11] a full bench of the Commission constituted by McIntyre VP, Kaufman SDP and Smith C granted leave to Pacific Coal Pty Ltd to appeal against the orders made by Hodder C on 9 April 2001[12] and 27 September 2001[13]. Submissions were sought as to what should follow the grant of leave and, after hearing the parties, the bench determined to conduct a rehearing and issued directions for the filing of submissions. On 20 March 2002 the President reconstituted the bench by replacing McIntyre VP with Watson SDP.

[4] The proceedings at first instance composed 16 applications for relief in respect of the termination of the employment of 16 employees of the appellant. On 9 April 2001, Hodder C found that each applicant (the respondents to this appeal) had had his employment terminated harshly, unjustly and unreasonably, and ordered that each be reinstated and paid from the time of termination. Although some of the findings of the Commissioner's decision were canvassed in the first full bench decision, for reasons of cohesive decision writing, I will treat these reasons as a discrete decision.

[5] The proceedings before Hodder C were brought under s.170CE(1)(a) of the Act, which then relevantly stated:

"(1) Subject to subsection (5), an employee whose employment has been terminated by the employer may apply to the Commission for relief in respect of the termination of that employment:

(a) on the ground that the termination was harsh, unjust or unreasonable; ..."

(a) to establish procedures for conciliation in relation to certain matters relating to the termination or proposed termination of an employee's employment in certain circumstances; and

(b) to provide, if the conciliation process is unsuccessful, for recourse to arbitration or to a court depending on the grounds on which the conciliation was sought; and

(c) to provide for remedies appropriate to a case where, on arbitration, a termination is found to be harsh, unjust or unreasonable; and

(d) to provide for sanctions where, on recourse to a court, a termination or proposed termination is found to be unlawful; and

(e) by those procedures, remedies and sanctions, and by orders made in the circumstances set out in Subdivisions D and E, to assist in giving effect to the Termination of Employment Convention.

(2) The procedures and remedies referred to in paragraphs (1)(a) and (b), and the manner of deciding on and working out such remedies, are intended to ensure that, in the consideration of an application in respect of a termination of employment, a `fair go all round' is accorded to both the employer and employee concerned.

Note: The expression `fair go all round' was used by Sheldon J in re Loty and Holloway v Australian Workers' Union [1971] AR (NSW) 95."

[8] Section 170CG(3), at the time of the proceedings before Hodder C, stated:

"(3) In determining, for the purposes of the arbitration, whether a termination was harsh, unjust or unreasonable, the Commission must have regard to:

(b) whether the employee was notified of that reason; and

(c) whether the employee was given an opportunity to respond to any reason related to the capacity or conduct of the employee; and

(d) if the termination related to unsatisfactory performance by the employee-whether the employee had been warned about that unsatisfactory performance before the termination; and

(e) any other matters that the Commission considers relevant."

[9] The company operates an open-cut coal mine at Blair Athol in central Queensland. In 1997, following a benchmarking study into the mine's operations which indicated that the operation was inefficient and overmanned by some 30%, the company announced that it intended to reorganize its operations so as to render them more efficient. The company made it known that it was likely that the size of its workforce would be significantly reduced in that reorganization. In 1997 the company created what it called a Productivity Improvement Plan and, as part of that, began a process whereby it assessed the performance of its employees. That performance appraisal process was known as a Performance Effectiveness Review, or PER. Between 1997 and the termination of the employment of the respondents in mid 1998 three PERs were undertaken.

[10] At a meeting in early 1997 supervisors and superintendents at the mine were asked to list on a whiteboard the employees they thought were the 50 worst performers. It is likely that this occurred prior to the first PER. This meeting featured prominently in Hodder C's reasoning.

[11] From time to time during 1997 and 1998, employees at the mine were ranked from best to worst performers on the basis of the PERs. Further, for the purposes of determining who was to be retrenched, in mid 1998 the company ranked its employees by conducting a performance appraisal (PA) which had regard to matters additional to those involved in the PERs. These matters included the perceptions of managerial employees (including supervisors and superintendents) as to which employees would best fit the restructured operations at Blair Athol in the future. (The criteria involved in the PER and the PA are described in more detail in the reasons of Watson SDP and Smith C.) It was following the PA that the respondents were confirmed as being those to be made redundant. During the process that had commenced in 1997 the company had identified those employees it wished to retain, those who might be offered voluntary redundancy packages, and those it might or might not wish to retain. The worst performers were to be offered voluntary redundancies. In the event that natural attrition and the acceptance of voluntary redundancies had not sufficiently reduced numbers, those employees who had been identified as the worst performers and who were excess to requirements were to be made compulsorily redundant. It seems that during 1997 and 1998 there was some fluidity as to which employees were placed into which category, although generally, those who had been identified on the whiteboard in 1997 as the worst performers remained on the list as being the employees the company did not wish to retain. Only a few of the employees who had been in the worst performers category were not made redundant. Although the evidence does not disclose whose names appeared on the whiteboard it is fair to infer that those of the respondents were there.

[12] Ultimately, in July 1998, the employment of each of the 16 respondents was terminated on the ground that he was surplus to the operations of the company.

[13] The relevant industrial instruments binding on the company in respect of the respondents at the time of their retrenchments in July 1998 were the Blair Athol and CFMEU (UMW Division) Clause 20 Agreement, June 1995, made in the Coal Industry Tribunal, which by virtue of the enactment of the Workplace Relations Act 1996, became an award of the Commission (the clause 20 Award), and The Coal Mining Industry (Production and Engineering) Consolidated Award 1997 (the Award).

[14] Although Hodder C seems to have accepted that there were genuine operational reasons for the requirement that 16 employees be retrenched, he found that the way in which each of the respondents was selected for retrenchment was flawed to the extent that the termination of the employment of each of them was harsh, unjust and unreasonable. Unless the context requires otherwise, I will generally use the word "unfair" instead of the phrase "harsh, unjust or unreasonable".

[15] The hearing at first instance began on 11 November 1998 and the evidence concluded on 2 December in the following year, after 37 sitting days, with written submissions following. The transcript extended to 4508 pages and there were approximately 212 exhibits, also extending to thousands of pages. The Commissioner's decision and order comprises 93 pages.

[16] The appeals were lodged on 30 April 2001. Prior to the first decision of the full bench on 18 February 2002, there were 4 days of hearing which generated 202 pages of transcript. The written submissions of the parties filled several large ring binders. After the first decision there were many additional ring binders of submissions and supporting materials produced. The reconstituted full bench sat for a further 6 days, with the transcript consuming 485 pages.

[17] I have made the observations in paragraphs 15 and 16 to highlight the magnitude of the task that confronted the Commission both at first instance and on appeal. As can be seen from my overview, the factual material was fairly straightforward, albeit there were 16 applicants. I am of the view that the manner in which the cases were conducted at first instance has largely contributed to the time that it has taken to finally determine this matter.

[18] At the commencement of the hearing Mr Crawshaw submitted that leave to appeal ought be declined because the company had breached the Commissioner's order in that it had not reinstated any of the respondents.

[19] This issue was dealt with in the first full bench decision, but having regard to the judgment of the Federal Court of Australia in Blackadder v. Ramsey Butchering Services Pty Ltd [14] we were asked to revoke the grant of leave. I am not inclined to do so. Even if the company has breached the order of Commissioner Hodder, which I do not necessarily accept, but upon which I find it unnecessary to rule given the circumstances and history of this matter, I would not exercise any discretion that I might have to withhold leave on such a ground. In reality the retrenchment of the respondents was the culmination of an ongoing clash of wills between the company and the CFMEU. When viewed in that context the failure of the company to allow any of the respondents to work, whilst nevertheless paying them their salaries, is not a matter that would persuade me to revoke the leave to appeal already granted.

[20] In the decision of 18 February 2002, the full bench said at [16] to [18] that the appellant's submission, that Hodder C had failed to conduct the arbitration in accordance with law because he had merely chosen between competing submissions without having for himself analyzed the evidence, satisfied the full bench that it was seriously arguable that the Commissioner had erred.

[21] At [33] the full bench concluded: "we are satisfied that it is seriously arguable that Hodder C erred in failing to make sufficient findings of fact and in failing to adequately analyse the evidence and submissions and that appealable error is demonstrated. For this reason we grant leave to appeal..."

[22] Although that paragraph appears to me to be clear as to its meaning, on 8 March 2002 Mr Parry sought to interpret it as the full bench having determined that there was appealable error, rather than the full bench having determined that it was seriously arguable that appealable error was demonstrated.

[23] To put the matter beyond doubt the full bench issued a statement on the same day as follows:

"Having considered the submissions made by the parties today, we state that, in the first sentence of paragraph [33] of our decision of 18 February 2002, the words "seriously arguable" are intended to apply to both (1) "that Hodder C erred in failing to make sufficient findings of fact and in failing to adequately analyse the evidence and submissions" and (2) "that appealable error is demonstrated". Accordingly, leave to appeal was granted..."

[24] On the hearing of the appeal the respondents contended that the full bench had only given leave to appeal because it was satisfied that there was an arguable case that there may have been a failure to give adequate reasons, and that the appeal was confined to that issue. I do not agree. Once leave to appeal against an order is granted, the Commission is bound to conduct the appeal by way of rehearing. Section 170JF(2) makes it clear that in determining the appeal (an appeal against an order made by the Commission under Subdivision B of Division 3) the full bench must determine whether the Commissioner was in error in deciding to make the order. The full bench is not constrained by the fact that leave to appeal was given on only one of many bases that the appellant contends that the Commissioner erred.

[25] We conducted the appeal on the basis that all the grounds that the appellant relied on were to be dealt with and my decision reflects that approach.

[26] There was some debate between the parties as to the proper construction of s.170CG(3). The company submits that the inquiry which is required by s.170CG(3)(a) is whether there was a valid reason for the termination of employment either:

Pacific Coal Pty Ltd re Robert David Smith and others v Pacific Coal Pty Ltd - PR925566 [2002] AIRC 1534;

At a glance

Court

Decision date

Before

Source

Judgment (547 paragraphs)

Pacific Coal Pty Ltd re Robert David Smith and others v Pacific Coal Pty Ltd - PR925566 [2002] AIRC 1534; (12 December 2002)

REASONS FOR DECISION OF SENIOR DEPUTY PRESIDENT KAUFMAN

"I want you to assume that there's some evidence before the Commission in the notebooks from a Mr Riordan. Did you meet Mr Riordan? --- Yes, I think I met Mr Riordan.

Parties

Legislation Cited (3)

Cases Cited (7)