BACKGROUND
1 Mr Steven Squires is the applicant in a claim brought under s 106 of the Industrial Relations Act 1996. The claim arises out of his employment by the first respondent Powerlan Ltd and his purported employment by Powerlan Resources Pty Ltd in circumstances where that employment was terminated for reasons of redundancy but where the employment contract made no provision for severance payments and otherwise was alleged to have made inadequate provision for notice of termination. In the Summons for Relief, Mr Squires also claimed unpaid annual leave, unpaid long service leave and reimbursement in relation to the costs of a mobile telephone.
2 In October 1996, Mr Squires with a colleague James Phillips formed an IT company called Centrelink Systems Pty Ltd ("Centrelink") and shortly after, in March 1997 established Phase Shift Technology Pty Ltd ("Phase Shift") as a wholly owned subsidiary of Centrelink. Mr Squires was then employed by Phase Shift.
3 After a few years of apparently successful trading, Mr Squires and Mr Phillips agreed to sell their business to the first respondent Powerlan Ltd. This sale was completed on 25 February 2000 when the first respondent purchased the Centrelink and Phase Shift businesses being the provision of mainframe computer software consulting services and the development of "shrink-wrapped" software products and tools. The business purchase agreement governing the terms of the acquisition specified that completion of the agreement was conditional upon Mr Squires and Mr Phillips entering into employment agreements with the first respondent. In accordance with these terms, Mr Squires commenced employment with Powerlan Ltd on 25 February 2000 as the manager of the business for a term of three years at an annual remuneration package of $120,000 plus a car allowance of $20,000, superannuation and reimbursement of mobile telephone expenses: the total package was agreed to be worth $158,000. The business purchase agreement spoke of the employees of Centrelink and Phase Shift being terminated and paid out their entitlements and being transferred in employment to the first respondent on conditions not less favourable than existing at the time of purchase.
4 By the first few months of 2001, the IT downturn was beginning to have an effect on the first respondent's business and its ability to make work available to Mr Squires. In April 2001, the first respondent contracted Mr Squires to provide services to a client, Cardlink Services Ltd ("Cardlink") as a temporary Manager, Applications and Support. By late 2001, the downturn in business was such that Mr Phillips took leave without pay from November 2001 and he was made redundant in June 2002 . At the end of December 2001, Mr Squires' employment with the first respondent was apparently terminated and he was either transferred or re-employed by the second respondent, although Mr Squires had no knowledge of this change in the identity of his employer nor did he accept such a termination, and re-employment or transfer.
5 A restructure of the respondents' business led to Mr Squires being transferred to the second respondent's "Business Infrastructure New South Wales Division" but reporting to a Mr Ravi. Shortly after this re-structure, in July 2002, Mr Squires was informed that his services were no longer required at Cardlink as that company wished to employ a permanent replacement in the position that he had been occupying on a temporary basis since April 2001.
6 From 8 July 2002, Mr Squires was aware that Mr Ravi was proposing to terminate his employment and discussions were undertaken as to the basis on which that might occur. During these discussions, Mr Ravi stated that Mr Squires could take up employment with Cardlink or any of the other clients of the respondents if he so desired. A draft deed was presented to Mr Squires on or about 12 July 2002 offering him the payment of some $78,000 including pro rata long service leave, accrued annual leave and four weeks' pay in lieu of notice. While Mr Squires initially conveyed his acceptance of this proposal to Mr Ravi, the respondents took no further action to finalise or execute the deed and Mr Squires ultimately decided not to resign.
7 On 26 July 2002, Mr Squires' work at Cardlink terminated and on 29 July 2002 he returned to work at the respondents' premises although there was little or no work for him to perform. On 2 August 2002, Mr Ravi gave Mr Squires a letter informing him that his position was redundant effective that day, that he would receive three months' salary "in lieu of notice" but paid on a monthly basis and that he should not attend the respondents' premises due to the impending sale of the Business Infrastructure New South Wales division but that he should be available by telephone to perform any tasks as requested.
8 On 7 August 2002, it appears that the second respondent's Business Infrastructure division was sold to Optima ICM Ltd ("Optima"). At around the same time, Mr Squires commenced work with Cardlink, firstly as a consultant and later in a permanent position. By 3 October 2002, this employment on a permanent basis was confirmed at a salary rate of $122,000 inclusive of superannuation, car allowance and leave loading and thus approximately $30,000 per annum less than his salary package with the respondents.
9 While these events were occurring, the respondents raised concerns about Mr Squires' employment with Cardlink. On 16 September 2002, at the request and direction of the second respondent, Mr Squires attended a meeting in which the second respondent alleged that his employment with Cardlink was in breach of his contract of employment. The second respondent then purported to summarily terminate Mr Squires' employment effective from 13 September 2002. The second respondent paid Mr Squires' salary and accrued annual leave up until 13 September 2002, calculated by reference to the date of his commencement of employment with the first respondent.
THE ISSUES
(a) the contract of employment and the identity of the employer.
10 Considerable attention was paid to the terms of the contract of employment between Mr Squires and the respondents and, in particular, his employment with the first respondent. The business purchase agreement concerning the businesses of Centrelink and Phase Shift was a document apparently drawn by solicitors acting for Mr Squires and his colleague Mr Phillips. That agreement was made between Mr Squires, Mr Phillips, their two companies and the first respondent, Powerlan Ltd.
11 Under the business purchase agreement the following provisions were made:
(a) in clause 2.3, the first respondent was to conduct the Centrelink and Phase Shift businesses during the "burnout periods" in a prudent and businesslike manner: the period appeared to be six months from 1 January 2000 to 30 June 2000 and there was to be an account of profits during this period.
(b) clause 4 provided that Mr Squires would be immediately responsible to and carry out such lawful directions as were given from time to time by "any director of the Company". The term "Company" was a reference to the First Respondent, Powerlan Ltd;
(c) under clause 5, completion was to take place at the office of the seller's solicitor on the completion date, namely 25 February 2000 or such other date as the parties agreed;
(d) under clause 5.2, at or before completion, the seller was to give to the buyer assignments or novations of those asset leases and consulting contracts that could be assigned or novated at completion. The seller was to use its best endeavours to procure the assignments and novations of asset leases and consulting contracts that it could not provide at the time of completion as soon as practicable after completion;
(e) under clause 6.1, the seller, before or immediately following completion, was to terminate the employment of "the employees", ensure that all contributions due to be made by the seller to superannuation, redundancy, statutory compensation or other funds in respect of each employee had been duly made and was to ensure that the amount of all employee entitlements as at the effective date were paid to the "transferring employees". The employees were listed as Mr Squires, Mr Phillips and three others who were employed as systems programmers: in a schedule to the agreement their date of commencement was set out together with details of salary, leave entitlements at the end of 1999 together with superannuation contributions per year;
(f) under clause 6.2, the buyer was to offer employment to existing staff of the business at completion on terms as favourable as the terms on which they were employed by the seller. The seller indemnified the buyer from and against all liabilities in respect of employee entitlements of the "transferring employees" as at the effective date or otherwise referrable to any period or event occurring prior to completion. The buyer indemnified the seller from and against all liabilities in respect of the employee entitlements of the "transferring employees" falling due after the effective date or otherwise referrable to any period or event occurring after completion;
(g) under clause 11, the seller and Phase Shift were required to give to the buyer on completion, all documents and notice as necessary to enable a change in the register of the Australian Securities and Investments Commission and were to facilitate the buyer registering the business names "Centrelink" and "Phase Shift" throughout Australia;
(h) clause 15 was a restrictive covenant stating that, in consideration of the buyer entering into this agreement and to reasonably protect the goodwill of the business, the seller undertook that, during a period of 12 months from completion, within Australia on its own behalf and on behalf of any other person or entity, neither it or any related body corporate, secretary or shareholder of it would, without the prior written consent of the buyer, participate, promote carry on, assist or otherwise directly or indirectly be concerned with or involved in, financially or otherwise, as a member, shareholder, unit holder, director, consultant, advisor, contractor, principal, agent, manager, employee, beneficiary, partner, associate, trustee or financier of any business or activity which was the same or substantially similar to the business or a material part of it. There were prohibitions against soliciting, canvassing or inducing other persons who were an employee or agent of the buyer in the conduct of the business to leave the employment or agency of the buyer;
(i) clause 16 was headed "Employment Agreement". It stated that completion of the agreement was conditional on the buyer, Mr Phillips and Mr Squires, entering into employment agreements in the form attached to the sale agreement;
(j) clause 9, "Employees", provided that a nominated schedule comprised a complete list of employees of the seller employed in the business at the date of the agreement and their respective entitlements to wages, salaries, annual leave and leave loading, long service leave, sick leave and any other remuneration, compensation or benefits. Further, each employee was stated to be employed exclusively in the business, had been paid in full by the seller all amounts due to them and could be lawfully terminated as an employee on one month's notice or less without payment of any damages or compensation, including severance or redundancy payments. The schedule disclosed no amounts due for long service leave or redundancy.
12 On 25 February 2000, Mr Squires entered into an employment agreement with Powerlan Ltd, the first respondent. The agreement (as well as the business purchase agreement) made no mention of the second respondent, Powerlan Resources Pty Ltd. That agreement noted that Mr Squires had agreed to be employed by the first respondent as a manager in a business conducted by the company involving the application and development of "shrink-wrapped" products and software tools, formerly known as "Phase Shift" and mainframe services and consulting, formerly known as "Centrelink". Under clause 2, Mr Squires agreed to be employed by the company for a term of three years from the date of commencement, which was in fact 25 February 2000. A list of duties was set out in a schedule and Mr Squires was immediately responsible to and was to carry out such lawful directions as given from time to time by any director of the first respondent.
13 Clause 5 of the employment agreement dealt with hours of duty and stated that Mr Squires "... shall devote substantially the whole of his time and attention during the ordinary business hours of the company to the discharge of his duties and shall conform to such hours of work as may from time to time reasonably be required of him, and in this regard shall not be entitled to receive any remuneration from work performed outside ordinary business hours". Under clause 9, the company was able to terminate the agreement at any time without prior notice if Mr Squires committed any serious or persistent breach of any of the provisions of the agreement, was guilty of any grave misconduct or wilful neglect in the discharge of his duties, became wound up or made any arrangements or composition with creditors; or was convicted of any criminal offence other than an offence that, in the reasonable opinion of the contractor, did not affect the position of Mr Squires. The company could otherwise terminate the agreement on the giving of three months' prior notice in writing: no provision was made for Mr Squires to terminate the agreement on any specified period of notice. The employment agreement also contained clauses dealing with confidentiality and restraint of competition.
(b) Notice of redundancy
14 On 2 August 2002, Mr Squires received a letter from Mr Ravi who described himself as the Manager, Business Infrastructure New South Wales of "Powerlan Resources Pty Ltd", the second respondent. This letter was on a letterhead that simply carried the word "POWERLAN", although at the bottom of the page the contact details were for "Powerlan Ltd", the first respondent.
15 This letter referred to an earlier meeting on the same day and confirmed that Mr Squires' position of Manager with the New South Wales Business Infrastructure Division was made redundant effective that very day "due to operational requirements". The letter stated that attempts had been made to look for alternative employment both within the organisation and outside it but that it was not available. Because of the controversy surrounding the terms of this letter, it is appropriate to set out the remaining paragraphs:
In accordance with your Agreement you will be paid three (3) months' salary in lieu of notice. The salary will be paid on a monthly basis, as being currently paid, over the next three months. At the end of the notice period, any outstanding leave will be paid into your bank account.
We would prefer for you to work your notice period, however due to impending sale of Business Infrastructure New South Wales Business, we would ask for you not to come to office but be available on telephone, should we require you to perform any tasks.
Finally if you wish to be provided with a Certificate of Service or a Employment Separation Certificate please do not hesitate to contact me ...
16 The background to this letter appears to be, firstly, Mr Squires' fulltime work with Cardlink from April 2001 until late July 2002. Mr Squires said that after the sale of the business to the first respondent, he continued to provide services to clients of the Centrelink and Phase Shift businesses although the first respondent allocated a few clients for mainframes, sales and service. He records that, gradually, Centrelink and Phase Shift clients ceased using Powerlan's services for mainframe sales and services and the work for Mr Squires and Mr Phillips declined. Within that context he took up employment in April 2001 with Cardlink but the work of Powerlan declined to such a degree that Mr Phillips took leave without pay from November 2001 and was finally made redundant in June 2002.
17 In the period approximately May to July 2002, Mr Squires had a conversation with Mr Ravi about the Cardlink work winding down because of that company's desire for a permanent employee to do the work that he had been doing on a temporary basis. Mr Ravi had apparently been attempting to negotiate with Cardlink to continue providing Mr Squires' services through Powerlan and there were negotiations as to cost but ultimately Cardlink decided to appoint its own employee.
18 Mr Ravi's position at this point is of some interest. In his affidavit, he stated he was employed by the first and second respondents from October 1998 until the first respondent sold the Business Infrastructure Division on 8 August 2002 to Optima. Mr Ravi was not questioned or cross-examined to clarify in what way he was employed by both the first and second respondents although later in his affidavit he stated that from June 2002 he was appointed the second respondent's Manager, Business Infrastructure New South Wales until his employment was "transferred to Optima". He stated that, as a result of a restructure within the first respondent, Mr Squires was transferred to the Business Infrastructure Division shortly after his own appointment and was required to report to Mr Ravi.
19 In light of the likely loss of the Cardlink business, Mr Squires then commenced negotiations with Mr Ravi about the terms upon which he might leave the service of the respondent. Mr Squires mentioned that he was owed a lot of annual leave and long service leave from his time with Centrelink and Phase Shift and, ultimately, Mr Ravi was able to put a proposition to him that the respondents would terminate his contract on the basis that the period of notice would be reduced from three months to one month but that he would be paid all entitlements. A deed of agreement was drafted and received by Mr Squires on approximately 12 July 2002. The deed proposed the payment of one month's notice, the payment of annual leave of 712 hours which included annual leave accredited at Phase Shift, long service leave and totalled $78,039.56. Mr Squires contacted Mr Ravi and accepted the terms of the deed.
20 Mr Ravi recollected that about 8 July 2002 he had a conversation with Mr Squires after it was determined that the respondents would not reduce their charges to Cardlink and that this business would be lost to the respondents. Mr Squires indicated his preparedness to leave the service of the respondents and asked how much he would be paid, to which Mr Ravi responded, four weeks' notice, all the annual leave and long service leave, so long as an indemnity was also provided that Mr Squires agreed not to set up a company in competition with the Powerlan interests. Mr Ravi then stated: "We have no objection to you being employed by Cardlink or any other Powerlan customers. I will forward you a document to confirm this". A draft deed in those terms was forwarded to Mr Squire on about 12 July 2002.
21 Mr Squires' evidence was that, having accepted this proposal, he made several enquiries as to the whereabouts of the final document but was told by Mr Ravi it was being drafted elsewhere and to contact the people involved. Mr Ravi's evidence was that during this period he had discussions with Mr Theo Baker, a director of the first and second respondents, who had queried whether long service leave was due to Mr Squires and had ultimately received advice that no such payment for long service leave was due to the applicant.
22 On 26 July 2002, Mr Squires' work with Cardlink terminated and on 29 July 2002 he returned to the respondents' office but there was almost no work for him to do. He made numerous requests of Mr Ravi to be allocated work and, although Mr Ravi said he would find something for him to do, no work was in fact provided to Mr Squires. Mr Baker said that on 1 August 2002 he spoke to Mr Ravi to enquire what was happening in relation to Mr Squires because Optima was in the course of undertaking due diligence on the Business Infrastructure Division and "Squires (was) not part of the deal". Mr Ravi told him that he had not yet had a chance to speak to Mr Squires and Mr Baker directed him to finalise arrangements by the following day. Also, on 1 August 2002, Mr Squires had sent an email to Mr Ravi stating that it appeared there was no useful work available to him and that his time in the office was futile and asking if he could refrain from attending the office on a regular basis until there was work for him to do.
23 Mr Ravi's evidence was that on 2 August 2002 he spoke to Mr Squires and told him that he had been made redundant and would be paid on a monthly basis until the end of the three months' notice period. Mr Ravi said that he would prefer that Mr Squires worked out his notice period and, when Mr Squires asked if that meant he had to come to the office, Mr Ravi told him that he did not have to come to the office, "... but you should be available on the telephone should we require you". Mr Ravi then handed Mr Squires a letter "confirming" his redundancy. That is the letter referred to in paragraphs[14 ] and [15] above. According to Mr Squires, during the course of this meeting he raised with Mr Ravi whether the respondents were able to place him "on call" and pay him out in stages because, being redundant, he had to be paid out immediately. Mr Ravi said he had checked it with the company solicitors and was told that it was within the respondent's rights to ask him to fulfil his contractual obligations.
24 On the same day, having received the letter making him redundant, Mr Squires contacted Cardlink and asked if the position he had temporarily filled had a permanent occupant. He was asked to start immediately in the position by Cardlink and did so for a short period by rendering an account like a consultant while Cardlink was getting its books in order. By October 2000, Mr Squires had become permanently employed by Cardlink.
25 In evidence was a running email exchange between Mr Ravi and Mr Baker in early July 2002 concerning Mr Squires' engagement with Cardlink and the options open to the respondents if that engagement came to an end. On 4 July 2002, Mr Ravi raised the possibility that Cardlink would not accept a reduced rate or that the respondent might not be prepared to reduce the rate, and then Cardlink could hire someone else for the role and the respondent would lose the revenue and would "have to pay out Steve his dues". He pointed out to Mr Baker that the respondents were contractually obliged to pay Mr Squires three months' notice plus annual leave which was in excess of 18 weeks, plus long service leave: in the alternative, the respondent could give Mr Squires a month's notice and then force him to go on leave and then still pay three months' notice plus long service leave. On that day, Mr Baker replied asking whether Mr Squires wanted to take up Cardlink's offer of employment and that if he did then Mr Squires would simply resign and the respondent would pay him his entitlements. This was another option about which he sought Mr Ravi's advice. Mr Ravi replied that Mr Squires did not want to resign but rather wanted to come into the respondents' offices "asap". Mr Baker apparently formed the view that Mr Squires was "playing games", but endorsed Mr Ravi's suggestion about making an offer to Mr Squires in terms as suggested by Mr Ravi. On 8 July 2002, Mr Ravi sent an email to the respondents' solicitors with a copy to Mr Baker asking for a document to be drawn up to terminate Mr Squires' contract with Powerlan by providing a notice period reduced to four weeks from the three months stipulated in the contract, paying annual leave, plus long service leave if eligible, and including a restraint of trade clause but noting "... however, in an individual capacity we have no objection to him seeking direct employment with Cardlink or any other customers".
26 As earlier noted, that proposal did not proceed after it was accepted by Mr Squires, firstly, because the respondents had concerns about whether long service leave was actually owing (although it had been paid to Mr Phillips when he was made redundant) and, secondly, because Mr Squires himself rethought the matter and decided that he would not resign. These matters however formed the background to the respondents' notification of 2 August 2002 to Mr Squires informing him of his redundancy.
(c) Termination for breach of contract
27 It apparently came to the knowledge of Mr Baker that Mr Squires had obtained employment with Cardlink and he asked for advice as to whether this was in conflict with Mr Squires' contractual obligations. Mr Baker's evidence was that he did not immediately state that Mr Squires' employment with Cardlink was a breach of contract but he sought advice on the matter and the advice was to that effect. In Mr Baker's view, there was a serious conflict as Powerlan was trying to renegotiate a continuing contract for Mr Squires with Cardlink: when it was drawn to his attention that such a view formed in September 2002 was inconsistent with the respondent's letter of 2 August 2002 making Mr Squires redundant because Cardlink had determined to fill the position permanently rather than on contract, Mr Baker referred to the fact that he regarded Mr Squires as working out his notice and was still employed by the respondents, yet now was working for Cardlink and could not be available to assist the respondents. In addition Mr Baker initially stated that he was unaware that Mr Ravi had told Mr Squires that he could take up employment with Cardlink under arrangements proposed in the draft deed of July 2002. When shown the terms of the emails that led to this draft deed being proposed to Mr Squires, Mr Baker accepted that he was part of the discussion with Mr Ravi that included the possibility of Mr Squires working for Cardlink or any other client of Powerlan, but he did not recall these emails and, in particular, did not recall them when, acting on advice, he made the determination for the respondents to terminate the services of Mr Squires effective from 13 September 2002 for alleged misconduct.
28 The letter of termination of employment was dated 18 September 2002 and was written on "Powerlan" letterhead and signed by Ms Deborah Leon as human resources manager. This letterhead was identical to the letterhead used in August 2002 to make Mr Squires redundant and carried at the bottom of the page a reference to Powerlan Ltd and its contact details.
29 The letter of termination of employment referred to discussions held on 16 September 2002 and two allegations of misconduct, namely:
(a) Mr Squires' alleged breach of duty to act faithfully and honestly whilst an employee of Powerlan Ltd by performing work for a former client of Powerlan without Powerlan's consent; and
(b) Mr Squires' breach of the restraint obligations as set out in clause 12.2 of his employment agreement dated 25 February 2000.
30 The letter continued that Mr Squires' response to these serious allegations was that he did not consider himself to be an employee of Powerlan and was therefore free to work for its client even though his letter of redundancy dated 2 August 2002 and subsequent emails between himself and Powerlan, clearly indicated that he had agreed to work out his three months' notice period. The letter recorded the finding that his explanations were not acceptable and that Powerlan had no alternative but to terminate his employment without notice in accordance with the provisions of clause 9.1(a) and (b) of the employment agreement. He was informed that he would be paid his contractual entitlements up until Friday 13 September 2002. He was reminded of the confidentiality clause in his employment agreement, its continuing operation and that Powerlan reserved its right under the employment agreement to take whatever proceedings were appropriate against him to ensure that he continued to comply with the provisions of the employment agreement. Ultimately, no such steps were taken by the Powerlan interests to enforce either the confidentiality or restraint provisions of the employment agreement.
31 Early in the proceedings, counsel for the respondents made it clear that they would not persist in the allegation that, by taking employment with Cardlink Mr Squires was in breach of the restraint obligations appearing in clause 12.2 of the employment agreement. The respondents took the position that Mr Squires' employment with Cardlink was a breach of his duty to act faithfully and honestly while an employee of Powerlan. It was asserted by the respondents that Mr Squires was not only under a duty to perform work for the Powerlan interests but that he had breached that duty and had chosen not to obey a reasonable direction of his employer, Powerlan. It was also put that, because of Mr Squires' continued employment by Powerlan the respondents treated the fact of his engagement with Cardlink as a breach of contract leading to the contract being terminated on 18 September 2002 (but apparently with operation from 16 September 2002).