Sawyer v Cutler-Hammer Pty Ltd

APPLICANT Mr J V Murphy of counsel SOLICITORS Ebsworth & Ebsworth

LEGAL REPRESENTATIVES: RESPONDENT Mr J J E Fernon of counsel SOLICITORS PricewaterhouseCoopers Legal

JUDGMENT: - 27 - INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES IN COURT SESSION CORAM: MARKS J Friday 9 November 2001

Matter No IRC 1267 of 2000 GARY SAWYER v CUTLER-HAMMER PTY LTD Application under s 106 of the Industrial Relations Act 1996

1 The applicant Gary Sawyer has commenced proceedings under s 106 of the Industrial Relations Act 1996 ("the Act") against the respondent Cutler-Hammer Pty Ltd who was his employer. The proceedings arise out of the termination of the applicant's employment and alleged unfairness in connection with the termination and with moneys paid to the applicant by the respondent upon termination.

2 The applicant alleges that he was made redundant by the respondent and claims entitlement to payment under the respondent's redundancy scheme.

3 Sections 105 and 106 of the Act are in the following terms: 105 Definitions In this Part: contract means any contract or arrangement, or any related condition or collateral arrangement, but does not include an industrial instrument. unfair contract means a contract: (a) that is unfair, harsh or unconscionable, or (b) that is against the public interest, or (c) that provides a total remuneration that is less than a person performing the work would receive as an employee performing the work, or (d) that is designed to, or does, avoid the provisions of an industrial instrument.

106 Power of the Commission to declare contracts void or varied (1) The Commission may make an order declaring wholly or partly void, or varying, any contract whereby a person performs work in any industry if the Commission finds that the contract is an unfair contract. (2) The Commission may find that it was an unfair contract at the time it was entered into or that it subsequently became an unfair contract because of any conduct of the parties, any variation of the contract or any other reason. (3) A contract may be declared wholly or partly void, or varied, either from the commencement of the contract or from some other time. (4) In considering whether a contract is unfair because it is against the public interest, the matters to which the Commission is to have regard must include the effect that the contract, or a series of such contracts, has had, or may have, on any system of apprenticeship and other methods of providing a sufficient and trained labour force. (5) In making an order under this section, the Commission may make such order as to the payment of money in connection with any contract declared wholly or partly void, or varied, as the Commission considers just in the circumstances of the case.

4 The applicant commenced employment with Email Ltd on 21 September 1970 as an electrical fitter. He was then aged 20. This was his first full time job since completing his apprenticeship. He was promoted to charge hand and later to factory foreman, factory superintendent and in 1989 to Production Manager. In 1994 he was promoted to Manufacturing Manager.

5 In April 1995 the applicant was offered employment by Eton Controls Pty Ltd, which I assume is part of the Cutler-Hammer group. Eton Controls Pty Ltd had acquired the switchgear and control business of Email. The applicant was told that his accrued sick leave entitlement with Email would be transferred to Eton. Thenceforth the applicant was employed by Eton Controls Pty Ltd as a Manufacturing Manager initially on a salary package of $75,764 per annum. A written contract of employment provided for termination of employment on five weeks' notice.

6 The Eton/Cutler-Hammer organisation had a "redundancy pay schedule". This provided for a redundancy payment of three weeks pay per year of service. There was a cap in the event of voluntary redundancy, otherwise the cap was to be removed. The document evidencing the redundancy policy provided for notice to be given consistent with the Engineering, Metal and Associated Industries Award 1998. The business conducted by Eton was the same as that in which the applicant had formerly been engaged whilst employed by Email, namely the manufacture of switchboards, circuit breakers and controlled products.

7 Mr Bruce Trewin is the General Manager of the respondent, and has been so since May 1995. He originally commenced employment with Email in about 1987 as the Manufacturing Manager when the applicant who then held the position of Production Superintendent reported to him.

8 The applicant's employment was terminated by Mr Trewin during the course of a conversation between them which occurred on 24 January 2000. It was the respondent's position that the applicant's employment had been terminated because the applicant did not measure up to its performance requirements by reason of an inability to achieve goals and objectives which had been set for him. It was the applicant's position that this reason was incorrect and that in reality he was retrenched and made redundant as part of a proposed restructure of the respondent's management team which had been under active consideration by Mr Trewin for some years.

9 It was agreed between the parties that at the time of termination the applicant's annual remuneration package was valued at $115,000.

10 In general terms the structure of the respondent's organisation was that seven positions, all designated as managers, and the Financial Controller reported to Mr Trewin as General Manager. These were, in addition to the Financial Controller, a Human Resources Manager, Engineering Manager, National Sales Manager, Materials Manager, Manufacturing Manager, Quality Assurance Manager and MIS Manager.

11 Since about 1995 Mr Trewin had proposed a restructuring of his senior management team. He sought to have four "key positions" report to him namely a Sales and Marketing Manager, Plant Manager, Financial Controller and Human Resources Manager. The Engineering Manager, Manufacturing Manager and Quality Assurance Manager would all report to the Plant Manager position. In evidence Mr Trewin emphasised that under this proposal all of the existing senior management positions would remain but that there would be a different reporting structure.

12 Mr Trewin described the Plant Manager as being responsible for all aspects of the plant including the purchasing and management of all materials, production, shipping, engineering and maintenance. Mr Trewin regarded the Plant Manager's position as different to and more senior to that of the Manufacturing Manager. Indeed, the Plant Manager's position carried a higher salary under the respondent's salary scale.

13 There is no evidence that the respondent through Mr Trewin implemented the restructure of the senior management team which had been signalled in 1995. Documentation produced as evidence in the proceedings indicated that in 1995 the Engineering Manager, Ian Davis, was seen as promotable to the position of plant Manager but the applicant was not viewed as promotable to that position. That situation had changed by 1997 so that neither Mr Davis nor the applicant was seen as being promotable to the position of Plant Manager.

14 Mr Ron Gallagher succeeded to the applicant's position after the termination of his employment. It was the applicant's case that, in effect, Mr Gallagher was the Plant Manager or, alternatively, occupied a substantially different position to that of the applicant. It was necessary for the applicant to make out such a case in order to demonstrate that he fell within the respondent's redundancy policy. Mr Trewin's evidence was to the effect that he always intended that when the applicant was replaced he would engage a person who would be or could become the Plant Manager. However he denied that Mr Gallagher currently occupied that position. He asserted that at all times Mr Gallagher was, in fact, the Manufacturing Manager although there were certain changes to the work which he carried out when compared with that of the applicant.

15 The respondent produced a report for the year 2000 in which it identified as an initiative for that year "focus on developing and building a strong management team in Australia." In order to achieve this the plan proposed to identify an "A Team" and to commence succession planning. The concept of an A Team is well understood in industrial circles.

16 Within the document four persons were described as "A Team" members who would be developed in leadership competencies and who would lead organisational initiatives. A number of "2 A" persons were designated who were targeted for development through succession planning for the future A Team. Mr Ron Gallagher, described as Manufacturing Manager, was part of the A Team.

17 Other documentation produced by the respondent indicates that the Quality and Environmental Manager, Materials Manager, Special Projects Manager and Engineering Manager reported to the Manufacturing Manager.

18 An employee assessment summary of Mr Gallagher produced on 14 December 2000 described him as occupying the position of Manufacturing Manager with a job grade 62. It said that he had been given the additional responsibility of engineering in September that year. Under the heading "Career Planning" the report said: "Ron recognises the need to develop a track record in his current role. This is essential for promotion. This position is seen as the succession position to Country Manager and therefore success in the role is mandatory. Subject to performance in 2001 Ron will be given the responsibility of material/supply chain. Ron's role should expand into Plant Manager."

19 The appointment of Mr Gallagher had been handled for the respondent by Beilby Executive Search. The position which that organisation was retained to fill was one of Manufacturing and Logistics Manager. However when appointed Mr Gallagher was offered the position of Manufacturing Manager at a total salary package of $119,184.54. A staff announcement made by Mr Trewin on 7 April 2000 described Mr Gallagher as Manufacturing Manager and stated that he would assume responsibility "for all manufacturing and maintenance." That announcement also said that the Acting Production Manager - Assembly would report directly to him.

20 The assignment specification issued by Beilby noted that the reason for the vacancy in the Manufacturing and Logistics Manager position (as described) was "replacement". The position was said to be responsible "to effectively manage the company's production, logistics, maintenance, industrial engineering and field services activities in accordance with company standards ….". An organisation reporting structure showed the Industrial Engineering Manager, Production Manager and Inventory Manager reporting to that position.

21 The documentation shows that Mr Gallagher's qualifications included a Master of Business Administration from the University of Technology, Sydney and a Bachelor of Engineering (Mechanical) from the University of New South Wales.

WAS THE APPLICANT MADE REDUNDANT? 22 In these circumstances it is necessary to determine whether the applicant was made redundant either personally or with respect to his position in order to access the redundancy pay provisions established by the respondent, which I have previously described. Whilst the respondent's document does not, per se, describe the circumstances in which redundancy is said to arise, there are a number of well-known decisions to which regard may be had by way of assistance.

23 Many of the authorities in this area are collected by Hungerford J in this Court in O'Brien v Australian Native Landscapes Pty Ltd (2001) NSWIRComm 145. His Honour said at para 78: Mr O'Loughlin denied on the facts that a situation of redundancy arose and relied upon what he described as the "classic definition" of redundancy formulated by Bray CJ in R v Industrial Commission of South Australia; Ex parte Adelaide Milk Supply Co-operative Ltd (1977) 16 SASR 6 at p 8; [1977] 44 SAIR 1202 at p 1205, as follows : ... the concept of redundancy in the context we are discussing seems to be simply this, that a job becomes redundant when the employer no longer desires to have it performed by anyone. A dismissal for redundancy seems to be a dismissal, not on account of any personal act or default of the employee dismissed or any consideration peculiar to him, but because the employer no longer wishes the job the employee has been doing to be done by anyone. That definition has indeed, as I understand it, been generally adopted: see Termination, Change and Redundancy Case [1984] 8 IR 34 at p 56; Re Australian Nursing Federation [1989] 31 IR 375 at p 378; Walker v Hussmann Australia Pty Ltd [1992] 44 IR 404 at pp 449-450; Re Government Cleaning Service (Privatisation) Award (No 3) (1995) 59 IR 348 at pp 360, 366; and Aitken v Construction, Mining, Energy, Timberyards, Sawmills and Woodworkers Union of Australia - Western Australia Branch (1995) 63 IR 1 at pp 4-5. It is significant to note that in Government Cleaning Service (Privatisation) Award (No 3) a Full Bench of the Commission was required to determine whether dismissed employees were redundant when the dismissals arose as a consequence of the privatisation of the Government Cleaning Service - a situation of redundancy was found. In dismissing the appeal against the decision of Schmidt J ((1994) 55 IR 199) in this respect, the Full Bench (59 IR at p 366) approved her Honour's reasoning and the reliance by her Honour on the following extract from Re Clerks (State) Award [1976] AR (NSW) 417 at p 431: It can fairly be said that in industrial circles the term redundancy payment had come to mean compensation for losses of various kinds suffered by employees who have given substantial service to an employer and whose services are terminated because, for one reason or another, the employer no longer needs them. In Australian Nursing Federation (31 IR at p 378), a Full Bench of the former Industrial Relations Commission of Victoria expressed the view that "termination of employment as a result of the sale of a business falls within this commonly accepted definition of redundancy."

24 The notion of redundancy, in general terms, is relatively easy to conceptualise and articulate. However, as with many principles, it may be difficult to apply depending upon the factual matrix which is relevant to any given situation. In general terms, the inquiry as to whether a person has lost employment through redundancy will focus on two areas. These are the structure of the employer's business and the personal circumstances of the employee. In terms of the employer's business one would normally expect that certain work duties are no longer performed by anyone, that the number of persons performing work duties will have been reduced or there has been a significant reallocation of work duties so that there is seen to be a discernible change in the manner in which work is allocated and employees are deployed in carrying out that work. In terms of the personal circumstances of employees, dismissal for redundancy would in general circumstances be expected to be motivated substantially by the fact that the employee is no longer required by the employer to fulfil any duties either because he or she is superfluous or because he or she does not have the capabilities, experience, knowledge etc. to undertake the work under any restructured arrangements.

25 Mr Murphy of counsel who appeared for the applicant made detailed submissions in order to substantiate the applicant's claim that he had been made redundant. The evidence relied upon by Mr Murphy in making these submissions was largely circumstantial. Mr Murphy firstly focused on the fact that the advertisement inserted to attract potential replacements for the applicant contained particular requirements for the job which had not formed part of the applicant's job description and with which the applicant could not comply. Importantly these included "formal qualifications in engineering are essential." The advertisement also emphasised experience in the management of people in multiple functions and "demonstrable ability in business planning and performance management methodology." The advertisement indicated that the career development opportunity extended to the position of General Manager. Mr Gallagher assumed his position on 10 April 2000. In September 2000 it was announced that firstly the Engineering Manager would report to Mr Gallagher and secondly that the contracts groups would report to him with one limited exception. This was said by Mr Murphy to indicate a significant move towards implementing the Plant Manager position originally contemplated by Mr Trewin as far back as 1995. In addition, as at January 2001 Mr Trewin indicated that the Quality Manager would ultimately report to the Manufacturing Manager and that the Special Projects Manager would report to the Manufacturing Manager. Whilst under cross examination Mr Trewin said that the only point of distinction between the role currently performed by Mr Gallagher and that of Plant Manager was that Mr Gallagher did not have at that point of time responsibility for quality assurance. However he intended that if Mr Gallagher demonstrated sufficient capacity he would assume responsibility for quality assurance. Mr Murphy submitted that "for all intents and purposes, the applicant has been replaced by a person who was recruited to and currently performs the role of Plant Manager in accordance with the planned restructure of the management of the organisation which was disclosed in the 1997 document. One point of distinction between the current position and the original plan, namely non-responsibility for quality assurance, does not detract from the essential nature of Gallagher's position which is that of Plant Manager. In any event, it is conceded that it is intended that he will have this responsibility." Mr Murphy submitted in the general sense that the respondent had moved slowly to complete a management restructure which it had first mooted in 1995 and developed in 1997 and that the removal of the applicant and his replacement by Mr Gallagher was part of that restructuring exercise. Accordingly, it was said, the applicant's position was made redundant.

26 The difficulty that I have with Mr Murphy's submission is that firstly the restructure upon which the applicant relies has not yet been completed. The position of Plant Manager as originally contemplated does not yet exist in that the Manufacturing Manager, Mr Gallagher, does not have responsibility for quality assurance. Whether or not this is significant in the overall operation of the respondent's business I do not know however Mr Trewin has denied that Mr Gallagher performs the role of Plant Manager as he conceived it and there is certainly no documentation to the effect that Mr Gallagher is regarded as or described as the Plant Manager of the respondent. What has occurred is more likely explicable in terms of an evolving appreciation by Mr Trewin of Mr Gallagher's capabilities and a gradual reallocation of duties and responsibilities to him. My understanding of the evidence and as to what has occurred over a period which must commence at the latest in 1997 and extends throughout all of 2000 is that the dismissal of the applicant did not occur in the context of a restructure of the respondent's business. It was not, in my opinion, an integral or even small part of the implementation of a management restructure as contemplated by Mr Trewin.

27 The other reason why I must reject the submissions made by the applicant in this regard is that the evidence leads overwhelmingly to the conclusion that the applicant was dismissed by the respondent because of shortcomings in the performance of his overall duties as perceived by Mr Trewin. Whether or not Mr Trewin was correct in his assessment of the applicant and whether or not he was justified in terminating the applicant's employment is not relevant to this particular enquiry, which revolves around the question of whether the applicant was made redundant. The evidence demonstrates, in my opinion, that Mr Trewin had had some concerns about certain aspects of the applicant's capabilities for some time and had made the applicant aware of them. Certainly at the time of termination a letter was given to the applicant by Mr Trewin which asserted a number of deficiencies. It was these matters, which, on the evidence, motivated Mr Trewin to bring about the termination of the applicant's services. I do not ascribe to Mr Trewin, nor do I derive from the available evidence any motive on his part to connive to bring about the termination of the applicant's employment for reasons designed to avoid the application of the respondent's redundancy policy. I shall discuss the circumstances leading up to the termination of the applicant's employment shortly for the purpose of considering whether there was any relevant unfairness or unfair conduct which would require a variation or avoidance of the contract of employment and the awarding of any just compensation. For present purposes I conclude that the reason for termination of the employment of the applicant by the respondent was associated with perceived problems with the applicant's performance and not associated with or by reason of any restructure or other circumstance enabling the applicant to be characterised as having been made redundant.

WAS THERE UNFAIRNESS ASSOCIATED WITH THIS TERMINATION? 28 It is now necessary to review briefly the applicant's employment history with the respondent. The respondent appears, from the documentation, to have conducted an extensive and frequent review process of its employees, and in particular the applicant.

29 An employee assessment summary concerning the applicant completed in 1995 creates, in my opinion, an overall impressive view of the applicant by Mr Trewin who conducted the assessment. Under the heading "Strengths/Weaknesses" the applicant was described as having "highly developed functional knowledge and leadership qualities. He recognises that he needs to learn more about what new technologies and methods are available." He was described favourably as having unique interpersonal skills but with a shortcoming of being perceived as not a team player. His managerial skills were described as being "very successful in achieving the goal, but he recognises a need to bring more vision and direction into his style. He expresses a deep dislike of paper work." In terms of career planning it was noted that the applicant had no ambition for a substantial career enhancement but had a desire to develop within his role. Overall, he was rated as "competent".

30 A career planning profile summary, presumably created by Mr Trewin did not assign any promotional position to the applicant and described him as "to remain in current assignment."

31 "Competent" is one of five performance ratings being; outstanding, commendable, competent, marginal and unsatisfactory. "Competent" is defined as: "achieves result in both quality and timeliness, employs and practices highest/latest standard of methodology, average team spirit and participation."

32 In July 1996 the applicant was assessed by Mr Trewin as having reached his maximum potential. Comments on his 1996 assessment were similar to those which were made in 1995. However, his overall performance rating was classified as "commendable". This word is defined as: "exceed results in quality and timeliness with some achievement beyond these measures, uses highest standard methods and develops some components of methodology to new levels, high levels of team spirit and high levels of involvement and participation."

33 The June 1997 employee assessment of the applicant contains similar comments to those made in 1996. His overall rating was competent. Mr Trewin also completed a comprehensive form which appears to identify "success factors - competencies". Overall the applicant demonstrated either a full or partial level of achievement for all of the competencies, with about two thirds registering a full level of achievement. There were no noted "career stallers and stoppers". The review which Mr Trewin conducted in June 1997 appears to have addressed a number of the applicant's competencies in a comprehensive manner. He was evaluated as having competencies to varying degrees covering "business acumen, organisational agility, dealing with paradox, perspective/range of interests, strategic agility, managing vision and purpose, dealing with ambiguity, command skills, conflict management, timely decision making, developing subordinates, hiring and staffing, innovation management, managerial courage, motivating subordinates, results, sizing up people, standing alone, building team spirit, total quality management, action oriented, customer focus, ethics and values, integrity and trust, intellectual horsepower, learning on the fly, organizing, peer relationships, personal learning and problem solving." It will be seen that an assessment which dealt with each and every one of these matters may be regarded as comprehensive.

34 By 1998 the respondent was using a "personal development profile" form which assessed the applicant overall as "at standard" described as being "consistently meets Eton's high standards in competency. Considered to be fully proficient." He was shown to need development in two areas only namely "vision" and "managing for results". The applicant was described as being "exceeds standards" in "making people calls" and being "at standard" with respect to "knowledgeability, relating, empowerment, personal productivity, personal drive, continuous self improvement, trust, managing personal pressures." His employee assessment summary as at February 1998 showed the applicant as overall being "competent" with similar comments to those made in previous years.

35 An employee assessment summary completed in January 1999 also assessed the applicant as competent. The comments contained for this year are a little different. For example under "performance review", the applicant was noted as having had a year "of mixed results". He was said not to have achieved "customer service, inventory management and product quality improvements". There is then the comment: "Gary is a significant contributor to the senior management team. Therefore, along with his peers he accepts a large degree of responsibility for the poor financial performance of Cutler-Hammer Australia in 1998 despite extenuating circumstances with currency exchange rates and shrinking markets."

36 In 1996 the respondent introduced a Leadership Programme which involved the conducting of a mid year review of performance by reference to key performance indicators directed towards leadership/management skills. I should emphasise that this form of assessment was in addition to the annual employee assessment to which I have already referred and was also in addition to meetings which Mr Trewin conducted monthly with the applicant and presumably other senior managerial employees to review key performance indicators and to discuss management and performance issues generally. As part of the Leadership Programme a personal development profile form was completed each year. The applicant's review of his performance for the Leadership Programme commenced in the middle of 1998 and was completed in early 1999. It rendered him as ranging between marginal, competent and commendable. Marginal was defined as "result lower than objective in quality or timeliness, incomplete or lower standard of methodology, limited team spirit and participation." The ratings were made by Mr Trewin as a subjective assessment without reference to any objective criteria.

37 I have had some difficulty in understanding, on the basis of the evidence, precisely what is intended by the overall measurement of the applicant's performance within the Leadership Programme. Whatever the position, it is clear from the evidence that the applicant was made aware of the assessment which was made of him by Mr Trewin as part of a consultative process and which he accepted would apply to him with respect to his performance to be re-assessed at the beginning of 1999. The ratings ranging between marginal, competent and commendable applied to the assessment made in early 1999. At that stage the applicant was certainly aware that, in the eyes of Mr Trewin, he had some areas of difficulty, associated with his leadership role. However, the applicant said that firstly he disagreed with some of the assessments made by Mr Trewin and secondly that he understood the Leadership Programme to be a new programme which was designed to assist him in identifying problems and rectifying them rather than representing an overall assessment which impacted upon his future employment. Indeed, the assessment made within the Leadership Programme is in stark contrast to the overall competency applied as part of the annual employee assessment review, the results of which I have already referred to. Whilst it is clear from the documentation and the evidence that the applicant was assessed as not meeting Mr Trewin's standard of leadership competencies, his overall assessment as an employee made at the same time was one of competence. However Mr Trewin said that a rating of "competent" was "still an indication that there were aspects of performance that required improvement." In setting targets for employees, Mr Trewin said in cross-examination that it was always his intention that employees would exceed the targets set for them. However he conceded that nothing was ever put to the applicant that would suggest that his future employment might be in jeopardy if he were assessed as being "competent".

38 There are two other aspects of the assessment process which Mr Trewin undertook which created some uncertainty as to their effect. The first is that through its Human Resources Department the respondent linked its Performance Management Process by way of recognition with "pay for performance" by way of reward. Accordingly the Employee Assessment Process, as distinct from the Leadership Development Programme was designed to measure inter alia the tangible rewards applicable to performance. The Employee Assessment Process also contained within it measures to correct or remedy areas where employees were seen to be lacking. There were no such remedial processes written into the documentation concerning the Leadership Programme. The other area concerns the subjective assessment of leadership competencies by Mr Trewin under the Leadership Programme. An analysis of the competencies assigned to all of the senior managerial employees who undertook that programme including the applicant revealed that most of the employees were generally marked in each of the areas as marginal. It is true that some of the senior managerial employees received ratings of competent and, in some cases, commendable. However the ratings generally differ from ratings given to the same senior employees as part of the Employee Assessment Process where in most cases a rating of competent was assigned.

39 Furthermore, Mr Trewin's evidence about some aspects of complaint which he made concerning the applicant's performance and discussions that he had with the applicant was not consistent with the applicant's version and, more importantly, was not consistent with the Employee Assessment Summaries which were produced by the respondent under Mr Trewin's hand. For example in referring to a particular project Mr Trewin said: "I specifically discussed the inadequacies of Mr Sawyer's performance with him on a number of occasions after the project was complete, and in particular during Mr Sawyer's formal performance management review in 1997." The Employee Assessment Summary dated 27 June 1997 says, in relation to that project that the applicant had made "a strong contribution". There is nothing mentioned in the document which could, in my opinion, be construed in any way as critical of the applicant's performance in connection with that project. If Mr Trewin was concerned that the Employee Assessment Process was accurate, and if he was concerned to paint an accurate picture to his Head Office, which received copies of the Employee Assessments, it seem strange that the form as produced by Mr Trewin did not reflect accurately complaints made later by him for the purpose of these proceedings about the applicant's performance. Mr Trewin maintained under cross-examination that there was discussion about these issues but conceded that they had not been documented. He said that he would not have documented all of the matters discussed. I prefer to accept the evidence of the applicant in this regard and, the assessment as declared in the relevant Employee Assessment Summary document which was used not only for the internal purposes of the respondent but also by its Head Office in America.

40 Mr Trewin had consistently noted during the course of his assessments of the applicant that the applicant had reached his maximum potential within the organisation because of his lack of formal educational qualifications. Mr Trewin said that he was comfortable with this and that this did not per se impact upon his assessment of the applicant. However Mr Trewin said that in adopting the Leadership Programme and the evaluation of senior employees in connection with that programme there was a move away from a classical management approach to a concentration on leadership traits with a resultant higher expectation of performance.

41 In March 1999 the applicant was paid an executive incentive commission payment for the previous year in the sum of $4,675.

42 Between November 1999 and January 2000 the applicant became aware that Mr Trewin had removed staff and areas of responsibility from his position. He said that Mr Trewin did not directly consult with him about these matters.

43 On 21 January 2000, a Friday, Mr Trewin handed to the applicant a letter dated 24 January 2000. This letter referred firstly to recent discussions regarding the applicant's employment with the respondent and secondly the applicant's work performance since June 1998 as assessed under the Leadership Programme. It highlighted a number of areas where the applicant was said to have performed poorly in terms of his assessment. It concluded: "It is clear to the Company in January 2000 that these areas identified above of your performance which have been lacking have not improved and, as such, the company has no other alternative than to consider the termination of your employment. In view of the Company's intention to terminate your employment on notice, we would like to provide you with one final opportunity to present any information to the Company that it may need to consider in relation to your performance. Would you please contact the undersigned to arrange a termination meeting." The letter was signed by Mr Trewin.

44 There followed a short discussion, with some differences emerging in the evidence of the applicant and Mr Trewin as to precisely what was said. It is not necessary that I resolve these differences in order to determine these proceedings. On the following Monday, 24 January 2000 the applicant gave Mr Trewin a letter in which he strenuously rejected the accusations of incompetence. The letter indicated that the applicant had undertaken and completed many projects and functions "in a professional and efficient manner" and dealt with a number of specific matters relating to alleged poor performance. The letter concluded: "I have always envisaged that my career would continue with the company until retirement and I am disappointed with your complete change of attitude in the past year."

45 There then followed a discussion between the applicant and Mr Trewin. It appeared to the applicant, correctly in my opinion, that there was no prospect of Mr Trewin withdrawing the clear threat of termination of employment which was contained in his letter given to the applicant on the previous Friday. At the end of the meeting the applicant's employment was terminated by Mr Trewin. The Employment Separation Certificate issued by the respondent stated that termination was "due to an inability to achieve set goals and objectives."

46 The applicant was paid moneys on termination of employment in addition to annual leave and long service leave entitlement of $10,800 which approximated five weeks of his then current annual salary.

47 Evidence was produced during the course of the hearing concerning the action taken by Mr Trewin to terminate the employment of a number of other employees. In each case it seems that all of the employees were counselled concerning their alleged shortcomings and were informed that failure to redress those shortcomings could result in termination of employment. Mr Trewin conceded that no such opportunity had been given to the applicant. He was unable to explain why.

48 There was a great deal of evidence in the proceedings given about particular projects undertaken by the applicant. These included the relocation of a manufacturing facility to the Philippines and the withdrawal of that facility, the relocation of the respondent's factory premises and other similar matters. In my opinion it is unnecessary to deal with any of these matters in terms of the applicant's performance. There were allegations and counter-allegations as to whether he undertook these projects in a proper and appropriate manner. My overall impression from the documentation is that the applicant discharged himself in a competent manner in carrying out these projects and I do not accept that the respondent was entitled to have taken any adverse view about his employment prospects as a result of anything which the applicant did in the course of these projects. In fact, the applicant was praised in employment assessment processes for the manner in which these projects had been accomplished by him. In any event the termination of the employment was said by Mr Trewin to be based only on the matters set out in the termination letter.

49 It is clear from all of the evidence that Mr Trewin did not terminate the applicant's employment on the basis that the respondent was entitled to do so summarily. The respondent did not put any such case in the proceedings. Accordingly, termination of the applicant's employment must have occurred upon giving notice or payment in lieu. The payment made equated with five weeks' notice, the period provided for in the written contract of emloyment.

WAS REASONABLE NOTICE OF TERMINATION GIVEN? 50 Prima facie, a failure to give reasonable notice or make payment in lieu is unfair. The factors which ought to be taken into account in determining what is reasonable notice are well known and have been set out in many decided cases, including, authoritatively, decisions of Full Benches of this Court and its predecessors. I would emphasise that apart from factors which are peculiar to the employee (such as length of service, position held), there should also be taken into account the circumstances surrounding the termination of employment.

51 In terms of the length of service of the applicant Mr Fernon of counsel who appeared for the respondent submitted that whilst the applicant had had long standing employment with Email he had not commenced employment with the respondent until 1995. Although the applicant had been afforded continuity of service for entitlements to long service leave and the like his actual period of employment with the respondent was relatively short. I do not accept this submission as being a proper basis upon which to consider length of service for the purpose of assisting in the assessment of what is reasonable notice of termination of employment. The respondent had acquired that part of the Email business in which the applicant had been employed. Although, at law, the contract of employment is not capable of being assigned because it is a contract of personal service, nevertheless in applying contemporary community values the applicant should be considered as being a long serving employee within "the business". This is particularly so given the considerable amount of restructuring of business operations generally seen within the community over the last decade both by way of merger and acquisition. This approach is consistent also with the philosophical approach embodied in legislation in preserving a number of entitlements in the case of mergers and acquisitions such as long service leave, sick leave, annual holidays and superannuation. The vagaries of business life which produce rationalisation and the acquisition and disposal of businesses should not be permitted to deny an employee of long standing in a business such consideration as is appropriate in terms of his or her service.

52 For these reasons I approach this matter on the basis that the applicant was a long-standing employee of the respondent and its predecessors in business and had been employed for about 30 years in total. In addition, he held a very senior position in the respondent organisation reporting only to the General Manager. The termination of his employment came about in circumstances where he had been given no warning that his continued employment was in jeopardy nor, in my opinion, no reason to suggest that his employment was in jeopardy. True it is, that he was seen to be lacking in a number of leadership skills. It is more likely than not that any perceived shortcomings in this area were innate shortcomings. The applicant had worked his way up the management ladder starting as a raw tradesperson. He possessed no formal educational qualifications other than his apprenticeship. I accept the submissions of Mr Murphy that, based on the documentary evidence, Mr Trewin placed great store on formal qualifications. Formal qualifications were stressed in the advertising material prepared in connection with the securing of a replacement for the applicant. Almost all of the managerial staff had tertiary qualifications, other than the applicant. It may well be that although the applicant was assessed predominantly as competent for his position, Mr Trewin came to regard the applicant as lacking sufficient overall competencies for the position as it evolved. Perhaps, if Mr Trewin had appointed a Plant Manager with the relevant competencies, this may have taken the strain off the applicant in terms of his perceived shortcomings. I make no specific findings in this regard, because it is not necessary that I do so save to take this into account in terms of the circumstances of the termination of the applicant's employment.

53 There is now an extensive body of case law dealing with what is reasonable notice. Of course, each and every case needs to be assessed in the context of the particular facts and circumstances which apply to that case. Accordingly, care needs to be taken in applying decisions concerning other cases. There are a number of decisions of superior courts of other states of Australia and in New Zealand and Canada. It is not necessary that I traverse these decisions because they are conveniently referred to in any well-known text on employment law. However there are a number of decisions of this Court and its predecessors which are useful in establishing some benchmark indicia as to what is reasonable notice, albeit in the particular circumstances of those particular decisions. These decisions were helpfully collected by Mr Murphy in his submissions and I refer to them for completeness. These decisions in turn refer to other decisions of this Court and its predecessors. They include Murphy v Australian Guarantee Corporation (2000) NSWIRComm 162, David Jones Ltd v Cukeric (1997) 78 IR 430, Payne v Foxboro (1998) NSWIRComm 360, Newton v Goodman Fielder (1998) 81 IR 227, Munro v Chubb Security Holdings (2000) NSWIRComm 215, Pullen v R & C Products (1994) 60 IR 183 and Caulfield v Broken Hill City Council (1996) 60 IR 221.

54 In Munro, at para 44 I referred to the approach which I consider should be taken in determining what is a reasonable period of notice. For the purpose of these proceedings I take into account the following matters: 1. The applicant had 30 years service. 2. The applicant held a senior position with the respondent. 3 The applicant was aged 50 at the time of the termination of employment. 4 In general terms the applicant had been favourably assessed by the respondent with respect to his work.

55 Having regard to these matters and having regard to the standard which has been adopted by this Court and its predecessors as reflecting contemporary community values and attitudes, it is my opinion that a reasonable period of notice to be given on termination of the applicant's employment was fifteen months.

WAS THERE ANY RELEVANT UNFAIRNESS? 56 I should at first observe that in determining whether there is any relevant unfairness it is only necessary that there be a finding in the circumstances of these proceedings that there was unfair conduct on the part of the respondent. It is not necessary that this conduct be related in any way to any terms of the underlying contract of employment or to any provisions of any arrangement or related condition or collateral arrangement. So much flows from the decision of the majority of the Full Bench of this Court in Reich v Client Server Professionals of Australia Pty Ltd (2000) NSWIRComm 143. The majority of the Bench (Wright J President, Walton J Vice President and Hungerford J) in a joint judgment held "In other words, it seems to us, in finding a contract (contract or arrangement, or any related condition or collateral arrangement) to be unfair, that may be supported because it became an unfair contract due to the conduct of a party at the time of the termination of the contract which enabled a finding that a contract which could or did so operate was relevantly unfair. It would then be open to declare the contract void or to make an order varying its terms in an appropriate way, with as to either form of relief a consequential order for the payment of money considered to be just in the circumstances. We have to say we find nothing surprising in that reasoning in terms of the operation of s 106 and, indeed, if it were otherwise then the whole jurisprudence developed in relation to the unfair contracts provisions in the industrial legislation over more than three decades would be effectively negated. Indeed, as to the conduct of parties, s 106(2) not only recognises such development in the cases but emphasises it by express statutory provision. (para 24) 57 This reasoning was repeated in the course of the joint judgment. For example at para 27 their Honours said in part: "….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." At para 28 their Honours said: A contract whereby a person performs work in an industry (including as here a contract of employment as a species thereof) has as an inherent feature the behaviour or conduct of the parties for the contract to be able to operate. It is difficult, we think, in conceptual terms to separate the contract itself from the conduct of the parties in performing it. As Priestley JA, with whom Kirby P and Meagher JA agreed, observed in Rothmans Distribution Services Ltd v Full Court of the Industrial Court of New South Wales [1994] 53 IR 157 at 160, "how the terms of the contract operated in practice … necessarily means looking at … conduct … and to conclude that a contract which could so operate was unfair". What a contract of employment does is set the terms and conditions to govern the employment relationship; the contractual relationship is another term which may be readily used to describe it. If a party in the course of operation of the employment relationship were to act in contravention of the contract of employment, particularly by committing a fundamental breach thereof, then that may only mean that the contract otherwise was unfair in so allowing or not preventing such unfair conduct or, indeed, in failing to make appropriate provision in the event occurring. In any of those situations, we think it clear that s 106 could be called in aid by the aggrieved party to obtain relief. We repeat, the section should not be construed to the contrary and as would protect the wrongdoer. (para 28)

58 In my opinion there are a number of features of the conduct of the respondent, and in particular Mr Trewin, which create relevant unfairness for the purpose of these proceedings. They are as follows: 1. The payment of the equivalent of five weeks remuneration in lieu of notice in circumstances where, as I have held, reasonable notice was a period of fifteen months. The payment of remuneration calculated by reference to five weeks notice only is so short of the mark that it is not only unfair, harsh and unconscionable but also insulting. To the extent the written contract of employment provided for five weeks' notice, it was unfair. 2. In the absence of any specific change in the requirements of the position of Manufacturing Manager which can be drawn from the evidence given in these proceedings, there seems to me to be an element of unfairness in the manner in which Mr Trewin treated the applicant since the implementation of the Leadership Programme. Certainly, in cross examination Mr Trewin conceded that a number of other senior managers had been counselled by him concerning their performance and had been given clear notice in writing that their employment was in jeopardy. The only written communication given by Mr Trewin to the applicant was the letter handed to him on 21 January 2000, to which I have previously referred. That letter purported to give the applicant "one final opportunity" to furnish information to the respondent in connection with his performance but such an opportunity was prefaced by the following: "In view of the Company's intention to terminate your employment on notice ….". The letter concluded "would you please contact the undersigned to arrange a termination meeting." I do not accept this letter as furnishing any proper or appropriate opportunity to the applicant to take any action to seek to avoid the termination of his employment. Whilst Mr Trewin may have communicated orally to the applicant during the course of the various review processes to which I have earlier referred some concern or displeasure about the applicant's performance there was no indication given to the applicant that his employment was in jeopardy. As I have said, this is in stark contradistinction to the conduct of Mr Trewin with respect to other senior employees whose employment was perceived to be in jeopardy 3 The respondent failed to provide the applicant with any opportunity to undertake training or counselling directed to the remediation or improvement of those matters about which complaint was made by Mr Trewin. 4. The peremptory and summary manner in which Mr Trewin handled the termination of the applicant's employment. On the basis of the evidence Mr Trewin knew and had worked with the applicant since 1987. Mr Trewin had personally assessed the applicant continually, intensely and frequently over some years. If Mr Trewin had genuinely formed the opinion that the applicant should not continue to perform the role of Manufacturing Manager whether by way of sudden revelation or as an evolving matter of judgment, there were obvious ways of communicating this fact to the applicant in a more humane, civilised and decent manner than that utilised by Mr Trewin. There seems no reason why Mr Trewin could not have utilised the "quiet chat" or "tap on the shoulder" process which seems more appropriate to a relationship between a chief executive officer and a senior employee one step removed from that position in the respondent's employment hierarchy.

59 For the foregoing reasons I find that the contract of employment between the applicant and the respondent was unfair, harsh and unconscionable. I propose varying the contract from its commencement so as to include a term to the effect that upon termination of employment for any reason other than a reason justifying summary dismissal the respondent shall not act unfairly either in the manner in which the termination is effected or in the amount of notice of termination or payment in lieu of such notice which is given.

JUST COMPENSATION 60 It is well established that the power of the Court to order just compensation under s 106(5) is broad. It is not confined to considerations of heads of damage which apply at common law. There are many instances where a range of factors have been taken into account in determining what is just compensation. One such instance is the decision of the Full Bench of this Court in David Jones Ltd v Cukeric, previously referred to. The Court said: "We have already concluded that the arrangement between the parties was unfair in that it failed, inter alia, to require that Mr Cukeric be given fair consideration of his position in the context of the company's reorganisation and it is therefore appropriate for his employment arrangement to be varied to reflect that deficiency. We are not prepared to vary the arrangement in the general way sought in the application, but propose to do so in a more limited way to reflect the unfairness so found. The contract will be varied ab initio to provide that the employment is not to be terminated as a result of any restructuring without fair consideration first being given to Mr Cukeric's future position in any new structure. We also conclude that it would be just in the circumstances to make a monetary order in favour of Mr Cukeric in connection with the arrangement as varied by us. The Company is to pay Mr Cukeric an amount of money (additional to that already paid) to reflect entitlements in respect of a further period of six months notice of termination. We have adopted this approach having regard to the payments already made to Mr Cukeric, the evidence in relation to his instant dismissal and the difficulties which flowed therefrom, matters such as Mr Cukeric's position in the Company, his personal circumstances, his seniority in the Company's structure, his satisfactory performance over a period of 35 years. Further, we have taken into account the evidence as to the Company's approach to restructuring, the demonstrated inadequacy of that approach and the period over which the new structure was devised." (at 462)

61 I refer also to a similar approach adopted by Hungerford J In Day v Lumley Life 90 IR 70 at 93-4.

62 In all the circumstances I propose awarding monetary compensation to the applicant by reference to fifteen months' salary calculated on the agreed annual amount of $115,000 Because of the circumstances surrounding the termination of employment and the manner in which it was effected, interest should run from the date of termination of employment namely 24 January 2000. The applicant should give credit to the respondent for the five weeks' pay which he received on termination of employment amounting to $10,800.

63 In normal circumstances costs would follow the event. However, as I have received no submissions with respect to costs, and as the awarding of costs may be affected by communications between the parties I shall reserve costs.

64 Consequent upon the findings of unfairness which I have made I make the following orders:

1. The contract of employment between the applicant and the respondent is varied to provide that upon termination of employment for any reason other than a reason justifying summary dismissal the respondent shall not act unfairly either in the manner in which the termination is effected or in the amount of notice of termination or payment in lieu of such notice which is given, such variation to apply from the commencement of the contract of employment. 2. The respondent is to pay the applicant $132,950 together with interest thereon calculated in accordance with the Supreme Court Act from 24 January 2000 to date of judgment. 3. Costs are reserved. 4. Liberty to apply with respect to costs. __________________________

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