Small v Tyco Projects

Crescendo Management Pty Ltd v Westpac Banking Corporation (1988) 19 NSWLR 40 David Jones Limited v Cukeric (1997) 78 IR 430 CASES CITED: Green v Brown (2002) 116 IR 21 John Howard McIlraith v Bliss Corporation Limited (unreported IRC 4461 of 1997, 10 November 1998 and 18 June, 1999) Redundancy Awards Case (1994) 53 IR 419 Westfield Holdings v Adams (2001) 114 IR 241

APPLICANT Mr R de Meyrick of counsel Solicitor: Mr P Carr Paris J Carr & Associates LEGAL REPRESENTATIVES: RESPONDENT Mr A Moses of counsel Solicitor: Mr S Price Corrs Chambers Westgarth

Application under s 106 of the Industrial Relations Act 1996

1 Elke Small, the applicant, was approached by Tyco Projects (Australia) Pty Ltd ("the respondent") in early 2002 to leave stable and secure employment with Morgan & Banks, one of Australia's largest recruitment agencies and take up employment with the respondent. 2 On 7 May 2001, Ms Small commenced employment in the role of Human Resources Manager and Marketing Manager in the Safety Products Division of the respondent. 3 On 15 March 2002, Ms Small was advised that she was being made redundant. Ms Small was provided with one month's notice, three months severance payment and one month's car allowance and signed a deed of release. 4 On 10 April 2003, Ms Small filed a summons for relief under s 106 of the Industrial Relations Act 1996 ("the Act") seeking certain orders varying her contract of employment and certain ancillary orders. 5 Ms Small's claim was that her contract should have provided for six months notice of termination; consultation prior to retrenchment; six weeks pay for each year of service severance pay; outplacement services for a period of six months; financial counselling and an employment reference or statement of employment. In addition, Ms Small sought an order declaring that the deed of release executed on 18 April 2002 was an unfair contract within the meaning of s 106 of the Act and an order declaring the deed of release void or partly void to the extent that it constituted an unfair contract. 6 The respondent's case was that the deed of release was not an unfair contract and that the contract of employment, during its operation, or at the point of termination could not be found to be unfair. Evidence 7 The remuneration and benefits provided to Ms Small, as set out in her offer of employment included a remuneration package of $134,800 per annum, comprising a base salary of $110,000, superannuation of $8,800 and a motor vehicle allowance of $16,000. The motor vehicle allowance was provided in lieu of a company car, which was to cover all business and private motor vehicle costs. This allowance was subject to tax unless an authorised variation was received from the Australian Taxation Office. 8 Under the heading "Termination of Employment", the letter of offer of employment relevantly provided: (a) Tyco may terminate your employment without notice for serious misconduct found, dishonesty or for breach of any term of this agreement which Tyco regards as an important term. (b) In all other instances, including redundancy, Tyco may terminate your employment on 1 month written notice or payment in lieu of notice. (c) Unless the decision to terminate your employment is directly the result of a decision taken to retrench you, you will not be entitled to the payment of retrenchment benefits as provided for under the Superannuation Fund. 9 Based on her salary package, Ms Small entered into a novated lease for a 2001 Lexus IS200 motor vehicle. On the suggestion of the Financial Controller of the respondent, the lease payments of $1,300 per month were paid directly by the respondent to BMW Finance with whom the finance was arranged. 10 When Ms Small received her first salary payment on 15 May 2001, she noticed that her car allowance had been paid to her directly. Ms Small's evidence was that she notified the Payroll section of the respondent by telephone immediately and was assured that the error would be rectified. At this time Ms Small became aware that another employee, Mr Achim Drescher, had also been paid his car allowance incorrectly. When this error was repeated in June 2001, Ms Small emailed both the Manager of the Payroll Division, Ms Laura Gibson and the Financial Controller, Mr Michael Cole, notifying them of the overpayment for herself and Mr Drescher. 11 Ms Laura Gibson, who gave evidence in the proceedings, could not recall having any conversation with Ms Small either by telephone or in person regarding her car allowance overpayments, or receiving any emails from Ms Small regarding this matter. The situation regarding Ms Small's motor vehicle running expenses remained unresolved for the duration of her employment with the respondent. Ms Gibson's evidence was that the Fringe Benefit Tax ("FBT") was not payable on a car allowance by the respondent. 12 On 3 September 2001, Mr R Guttentag commenced employment as the General Manager, Tyco Electronic Products Group, Australia and New Zealand, a Division of the respondent. This was a newly created position. Mr Guttentag's evidence was that the position held by Ms Small was Human Resources and Marketing Manager. He was employed to grow the respondent's business and he formed the view that a new "HR role" would be needed. 13 In or around November 2001, Mr Guttentag had a conversation with Mr Mark Kelly, the Group Human Resources Manager for the respondent regarding the human resources role for the Division. At this time, Mr Guttentag had formed the view that the marketing component of Ms Small's duties was substantially eliminated and the business did not require a specific marketing role. 14 In March 2002, a decision was made to amalgamate the Technology and Safety Products Division. A similar amalgamation had occurred in May 2001 when the Mechanical and Electrical Divisions were amalgamated resulting in the position of Human Resources Manager with the Electrical Division being made redundant. This position was held by Ms Frances Hughes at the time of the amalgamation. Shortly after this occurred, Ms Hughes went on maternity leave, returning to work in early March 2002. 15 As a result of the amalgamation of the Technology and Safety Products Divisions, Ms Small's position of Human Resources Manager of the Safety Products Division, was made redundant. Ms Hughes was appointed to the newly created Human Resources Manager's position for the Safety Products and Technologies Division. Ms Small was advised on 15 March 2002 that her position had been made redundant and was given one month's notice prior to going on annual leave. 16 On 15 April 2002, a meeting occurred between Mr Guttentag, Ms Hughes and Ms Small, at which time her retrenchment was confirmed. During the meeting, Mr Guttentag advised Ms Small that the overpayment of her car allowance totalled approximately $12,557. It was common ground that Ms Small had received these moneys and was happy to repay the overpayment. Ms Small was provided with a schedule setting out how the amount had been calculated. Ms Small questioned why she had to pay FBT on the car allowance and was informed by Ms Hughes that anyone with a novated lease is required to pay FBT based on the kilometres they travel. Ms Small was also provided with a summary of her termination payments. Ms Small requested that she be able to repay the car allowance in instalments. It was agreed that this could be done in three instalments, with the first instalment commencing from mid July 2002. Ms Hughes informed Ms Small that it was necessary to have the agreement reached, reflected in a deed of release. Ms Small was provided with a draft deed of release and it was suggested to her that she may wish to obtain legal advice. 17 Ms Small's evidence, during cross-examination, was that she sought advice from a work colleague, Ms S Nightingale, regarding the terms of the Deed. She also contacted a solicitor in Parramatta and went through the deed of release over the phone prior to signing the deed. Her evidence was that it was made clear to her by the solicitor that she needed to sign the deed of release in order to get the second part of her termination pay. It was based on this advice at the time that Ms Small signed the deed, which she did on 18 April 2002. 18 After Ms Small's termination, she had trouble meeting the repayment schedule and the respondent issued a statement of claim in the Local Court for the amount outstanding under the deed of release, plus interests and costs. 19 After seeking further legal advice on the matter, Ms Small formed the view that it was unlikely that she could successfully defend the Local Court claim because the amount owing was agreed to pursuant to the deed of release and the Local Court had no jurisdiction to vary or avoid such arrangements. Ms Small did not defend the Local Court claim and a default judgment was entered against her. 20 In May 2002, Ms Small decided to set up her own business, being a recruitment agency specifically focusing on the Child Care Industry. Ms Small and Ms Nightingale each contributed $30,000 to commence the business. Consideration 21 The issues requiring determination in this matter are firstly whether the deed of release executed on 18 April 2002 was an unfair contract (or arrangement, related condition or collateral arrangement) within the meaning of s 106 of the Act. Secondly, subject to the determination of the first issue, whether the applicant's contract of employment was an unfair contract in that it operated to permit the respondent to provide the applicant with termination pay, severance and or redundancy pay that was inadequate, in light of her age, salary level, status, tenure, and the fact that she was "headhunted" from a secure job to take up employment with the respondent on express inducements of her long term employment prospects. 22 Section 106(2A) of the Act provides:

106 Power of Commission to declare contracts void or varied … (2A) A contract that is a related condition or collateral arrangement may be declared void or varied even though it does not relate to the performance by a person of work in an industry, so long as: (a) the contract to which it is related or collateral is a contract whereby the person performs work in an industry, and (b) the performance of work is a significant purpose of the contractual arrangements made by the person. 23 It is clear, in my view, that the Commission has jurisdiction to make orders in respect of a deed of release. 24 Mr R de Meyrick of counsel, who appeared for the applicant, contended there was little or nothing in the deed to benefit the applicant, submitting it was an exercise in the respondent using its superior bargaining position. I reject this submission. 25 The circumstances surrounding the entering into a deed of release between the parties was that it had been acknowledged by Ms Small that there had been an overpayment of her car allowance. An agreement was reached that enabled Ms Small to repay the overpayment in three instalments. It was necessary for such an agreement to be reflected in a deed of release to protect the rights of the respective parties. In addition, the respondent sought to have reflected in the same deed the agreement it had reached with the applicant in respect of payments proposed to be made to her in the light of the termination of her employment on the grounds of redundancy. 26 The applicant was invited to obtain legal advice, which she did. 27 It was contended on behalf of the respondent that the applicant's signature on the deed of release was not obtained by duress and therefore binds her: Crescendo Management Pty Ltd v Westpac Banking Corporation (1988) 19 NSWLR 40 at 46. Accordingly, it was submitted that she is precluded from taking these proceedings. 28 In David Jones Limited v Cukeric (1997) 78 IR 430, a Full Bench of this Commission considered whether an employer was entitled to rely upon a deed of release. The Full Bench stated at 455: We accept there is a significant public interest in parties being held to settlements which they reach in or in relation to litigation. Releases, which generally provide benefits to each of the parties, are however not immune from legal challenge - either under the general law or in proceedings under s275 (the predecessor to s 106 of the Act). When a challenge to a release is mounted, the conduct of the party mounting the challenge is relevant, as is that of the party seeking to rely on it as a bar… 29 The Full Bench went on to consider the circumstances surrounding the entering into a deed of release, finding at 457: …While we do not condone the action of Mr Cukeric in giving the release, the wrong there involved is submerged by the unconscionable conduct of the Company in misrepresenting Mr Cukeric's superannuation entitlements and demanding the release as a condition of paying him his correct and lawful ones. We are satisfied it would be unjust in the circumstances for Mr Cukeric to be held to the release. 30 Mr de Meyrick submitted that the quantum of the amount the applicant was required to acknowledge as the alleged overpayment of the car allowance was, upon close scrutiny, not a fair or correct balance of the moneys owing to the respondent. It was contended it improperly includes a fringe benefit tax component which should not have been visited upon the applicant. The applicant's attempt to question this aspect at the time led to misleading indications on behalf of the respondent. Mr de Meyrick contended that the obligation to pay fringe benefit tax was an obligation upon the employer. It was also contended that the rigorous repayment schedule was unfair as it was the respondent's fault that any amount was owing for repayment. 31 Ms Hughes was closely cross-examined in respect of the requirement of Ms Small to pay FBT. Although not holding herself out as an expert in the field of taxation, it was Ms Hughes' understanding of the requirements surrounding the payment of FBT that because Ms Small had entered into a novated lease, the responsibility for the payment of FBT fell upon her. Ms Hughes' evidence in respect of this issue is based on her understanding of the payment of FBT and her experience as a human resources manager. 32 Ms Small was employed as a human resources manager and although she questioned the payment of fringe benefits tax in the conference with Mr Guttentag and Ms Hughes on 15 April 2002, she accepted their contention that it was her responsibility. 33 In my view, the overall issue of whether the deed of release is unfair must be resolved by examining the circumstances surrounding the entering into of the deed of release and the conduct of the parties. 34 In Crescendo Management Pty Ltd v Westpac Banking Corporation, McHugh JA said at 46: …The proper approach in my opinion is to ask whether any applied pressure induced the victim to enter into the contract and then ask whether that pressure went beyond what the law is prepared to countenance as legitimate? Pressure will be illegitimate if it consists of unlawful threats or amounts to unconscionable conduct. But the categories are not closed. Even overwhelming pressure, not amounting to unconscionable or unlawful conduct, however, will not necessarily constitute economic duress. 35 There is, in my opinion, little doubt the applicant did feel under pressure to sign the deed of release. However, some of that pressure was the product of her personal circumstances, in particular, that she owed the company money. Furthermore, in my view, and I find that the conduct of the respondent cannot be characterised as unconscionable. The applicant was invited by the respondent to obtain legal advice, which she did. Furthermore, it does not seem to me that the applicant had no practical alternative but to sign the deed. Ms Small could have refused to sign the deed and to thereby maintain her rights to take legal action. However, in order to achieve the better financial result, the applicant chose to sign the deed of release, accepting her obligation to repay moneys to the respondent and receive the proposed severance payments. 36 In my view, and I find that the applicant's signature on the deed of release was not obtained by duress. The deed, therefore, binds Ms Small and she has compromised her rights to take these proceedings. 37 In my view, the evidence does not establish that the respondent misled the applicant in respect of the FBT amount. The unchallenged evidence of Ms Gibson was that the FBT amount was not payable on a car allowance by the respondent. 38 There is a further reason why I do not propose to exercise my discretion and declare void or vary the deed. The respondent brought proceedings in the Local Court based upon a failure to adhere to the agreement to repay the car allowance, relying upon the relevant terms of the deed of release. No defence was filed in the Local Court proceedings, denying that the money was owed, including the FBT component and judgment was entered by the Local Court. As was observed by the Full Bench in Green v Brown (2002) 116 IR 21 at [99]: …It would be extraordinarily rare for the Commission in Court Session to consider making orders that, in effect, reverse an integral part of the judgment of another court, including costs orders. It has at least the potential to amount to an unacceptable interference in proceedings of another court, and thus impact adversely on the integrity of the administration of justice. 39 The rejection of the applicant's contention that the deed of release was an unfair contract disposes of this matter. However, I propose to say something about the second issue being: was the contract unfair as performed and in the manner of its termination? 40 Mr de Meyrick contended that the termination pay, severance pay and/or redundancy pay provided to the applicant was inadequate. After discussing various cases where the Commission had awarded compensatory orders after finding contracts of employment or employment arrangements were unfair, the Full Bench in Westfield Holdings v Adams (2001) 114 IR 241 at [154] - [155] stated: [154] We consider that the following principles may be derived from these cases: 1) Whether or not a contract or arrangement is unfair within the meaning of ss 105 and 106 is a matter to be decided upon examination of the facts of each particular case; the sections deal largely with private rights inter partes ; the focus of attention is the contractual relationship between a particular employer and employee.

2. Subject to the primary focus being the particular circumstances of the individual contract or arrangement concerned, in assessing whether unfairness has occurred general standards or levels, including standards of redundancy pay applying to employees covered by industrial awards or legislation, of what is considered to be fair will be factors to be considered.

3. Despite that a general and relevant industrial prescription governing benefits payable to employees in termination of employment situations may exist, unfairness in relation to a particular contract of employment may nevertheless arise in a situation of redundancy or termination of employment for reasons unrelated to or not relevant to the basis of award prescription of an objective and fair benefit. 4) The scale fixed in the Redundancy Awards Case was fixed on a "safety net" basis. In making money orders under s 106(5) the Court may have regard to the Redundancy Awards Case scale but is not bound to apply it in the context of the case before the Court. [155] In assessing whether unfairness has occurred, and in making money orders under s 106(5), we consider that it would be appropriate to have regard to the foregoing principles relating to the relevance of general industrial standards. This will assist in providing perspective in exercising the broad discretion available to the Court under s 106(5). We stress, however, the primacy of the particular circumstances of the individual contract or arrangement concerned. 41 The applicant's contract provided that she was to receive in respect of termination, including redundancy, one month's written notice or payment in lieu thereof. The applicant received one month's notice together with three months severance payments calculated on her base salary, together with one month's car allowance. 42 If the scale fixed in the Redundancy Awards Case (1994) 53 IR 419 was applied to the applicant, she would not have been entitled to any severance payment. 43 I therefore reject the contention by the applicant that the termination pay, severance and/or redundancy pay was inadequate. Furthermore, it seems to me, that the application of the principle of mitigation in this case also leads to a conclusion that the payments made to the applicant were just in the circumstances of the case. The evidence discloses that the applicant determined to start up her own business within three weeks of being made redundant. Although her evidence was that she attempted to obtain employment through an executive search agency, she did not provide evidence of the frequency of applying for positions at that time or any reason why she could not obtain employment. The evidence in this case demonstrates that the applicant decided to pursue business interests after her employment was terminated. 44 Mr de Meyrick contended that the contract operated unfairly as it did not provide the employee with an opportunity, as early as possible, for consultation on measures to be taken to avert the termination and/or to mitigate the adverse effects of any termination including, but not limited to, outplacement services and financial counselling. 45 The evidence in this regard was that Mr Guttentag advised Ms Small in a meeting with her on 15 March 2002, that he proposed to create a new human resources role to be shared by "two parts of the Tyco business, my business and Tyco Integrated Systems." Mr Guttentag advised Ms Small that the respondent did not believe that she had the skills for this role and asked her for her views. Ms Small made no comments apart from asking who was to obtain the new role. Although some criticism may be made of the procedures adopted by the respondent in filling the new position, I am not persuaded that upon a proper examination of the facts of this case, that the contract or arrangement should be found to be unfair. 46 Finally, Mr de Meyrick submitted that the contract was unfair in its operation because it permitted the respondent to terminate the contract in circumstances where the applicant was not afforded procedural fairness. Mr de Meyrick contended that it appeared that the respondent held the opinion that the applicant wrongly claimed moneys in respect of her motor vehicle expenses and that this affected the decision to terminate the applicant's services. 47 I reject this contention. There is no evidence to support it and Mr A Moses of counsel, who appeared for the respondent, specifically disavowed that the respondent relied upon any purported misconduct in reaching the decision to terminate Ms Small. 48 Accordingly, in my view, I find that the one month notice period was not inherently unfair and that when properly examined, the contract of employment as a whole was not unfair by virtue of the manner of its termination in conjunction with the notice period. 49 In the present case, of course, the contract contains an express provision for notice of termination and the issue is whether it is fair or unfair in the context of the contract as a whole, the circumstances in which it was made and the circumstances of its application and operation. I am unable to find that the contract, as it operated at the time of termination, was unfair. Where a period of notice is provided by a contract, it falls upon the applicant to establish, at least in that respect, that the contract is unfair. In this case, that onus has not been discharged. Even when one looks at the conduct of the respondent leading up to the termination, there is not, in my view, any relevant unfairness. 50 I therefore conclude that the application should be dismissed. 51 In such circumstances, normally a costs order in favour of the successfull party would follow. In respect of this issue, Mr Moses drew my attention to a judgment of Peterson J in John Howard McIlraith v Bliss Corporation Limited (unreported IRC 4461 of 1997, 10 November 1998 and 18 June, 1999) where his Honour held that a clause in the contract of the secretary of a company which provided for the payment of three months salary in lieu of notice was fair. In dismissing the application, his Honour declined to make an order as to costs. Offers of compromise had been filed in that matter and his Honour concluded that the respondent's behaviour in relation to the applicant's rights was cavalier. 52 Although Mr Moses submitted that he was instructed to seek an order for costs against the applicant, he submitted that I may have regard to what his Honour said in McIlraith. Counsel observed that if this application was dismissed, it was open for me to conclude that the applicant may have been motivated to bring this case because she felt aggrieved that she had been made redundant. 53 It may be that Ms Small believed that she had been treated unfairly in that Ms Hughes was preferred to her for the newly created position. However, since Peterson J's judgment in McIlraith, legal practitioners are required to provide a certificate under s 347 of the Legal Profession Act 2004 (formerly s 198L of the Legal Profession Act 1987) certifying that there are reasonable grounds for believing, on the basis of provable facts and a reasonably arguable view of the law, that any claim made has reasonable prospects of success. Such a certificate was filed in these proceedings in circumstances where it is difficult to see how such a conclusion could have been reached. 54 Mr de Meyrick did not seek to put any submission as to the fairness or otherwise of a costs order along the lines of that determined by Peterson J. 55 I do not propose to follow the approach adopted by Peterson J in McIlraith. In my view, there is no basis, taking into account the circumstances surrounding this case, that would influence me to depart from the usual orders being made in respect of costs. The power to award costs is found in s 181 of the Act which provides: 181 Costs

(1) Subject to the rules of the Commission and any other Act or law: (a) the Commission may award costs, and (b) costs are in the discretion of the Commission, and (c) the Commission may determine by whom and to what extent costs are to be paid, and (d) the Commission may order costs to be assessed on the basis set out in Division 6 of Part 11 of the Legal Profession Act 1987 or on any other basis. 56 The usual order for costs in this jurisdiction would favour the successful party and, accordingly, the respondent would, in the absence of features which would justify the exercise of discretion to the contrary, be entitled to expect a costs order in its favour. 57 There has been no conduct on the part of the respondent which, in my view, would disentitle it to an order for costs. ORDERS

2. The applicant shall pay the respondent's costs, as agreed or as assessed.

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