T D Preece & Co. Pty Ltd v Murton

T D Preece & Co. Pty Ltd v Murton - [2007] NSWIRComm 130 - NSWIRComm 2007 case summary — Zoe

Appeal - Application for leave to appeal and appeal - Unfair contract - Employment contract - Employee summarily dismissed for poor performance - Contract did not contain express provisions regarding termination of employment - Implied term of reasonable notice - Held at first instance no evidence of poor performance - Held contract unfair because it failed to protect employee from summary termination - Contract varied to provide for two months' pay in lieu of notice - Contended on appeal that contract not unfair because it contained an implied term of reasonable notice and that conduct of appellant in summarily terminating the respondent merely a breach of contract thus precluding the Commission's jurisdiction - Held on appeal that open to Full Bench to form own view about the contract - Held on appeal the contract became unfair because it permitted the appellant to act unfairly, harshly or unconscionably in summarily terminating the employment of the respondent on grounds that were not made out and in failing to apply fair termination procedures - No warning or counselling by appellant of the respondent in relation to alleged poor performance - Orders at first instance varied CATCHWORDS: Unfair contract - Appeal - Application for leave to appeal and appeal - Employment contract - Employee summarily dismissed for poor performance - Contract did not contain express provisions regarding termination of employment - Implied term of reasonable notice - Held at first instance no evidence of poor performance - Held contract unfair because it failed to protect employee from summary termination - Contract varied to provide for two months' pay in lieu of notice - Contended on appeal that contract not unfair because it contained an implied term of reasonable notice and that conduct of appellant in summarily terminating the respondent merely a breach of contract thus precluding the Commission's jurisdiction - Held on appeal that open to Full Bench to form own view about the contract - Held on appeal the contract became unfair because it permitted the appellant to act unfairly, harshly or unconscionably in summarily terminating the employment of the respondent on grounds that were not made out and in failing to apply fair termination procedures - No warning or counselling by appellant of the respondent in relation to alleged poor performance - Orders at first instance varied

[14]

4 As to the legal relationship between the appellant and the respondent, Backman J did not make a specific finding it was an employer/employee relationship. At [43] her Honour stated: 43 Whatever the true extent of the applicant's duties, on either version in my opinion, he, "personally ... carried out the work" which he was engaged to do either directly or through Windjar as a financial controller. Moreover, the letter dated 28 March 2002 suggests on its face that the applicant and not Windjar was directly employed to do the work. It is not however necessary to decide this latter point, since in my view it is open in accordance with the terms of the summons and the available evidence to find that the applicant was party to an arrangement between himself, Windjar and the respondent, and therefore a party to a contract in its extended sense under s 108. This was the basis for the finding that the additional applicant could be joined as a party to the summons in Metrocall at [17]. The present applicant was entitled to commence proceedings under s 106 because he was a party to the arrangement. In the absence of a formal written contract, the available documentation and other evidence adduced during the proceedings confirms the existence of the arrangement. First, the work to be performed, being that of a financial controller, was performed solely by the applicant. Secondly, the applicant was the sole director of Windjar. Thirdly, although Windjar invoiced the respondent for the applicant's services, it is significant that some 7 weeks into the applicant's engagement, the respondent signed the letter dated 28 March 2002 which stated that the applicant "...is employed by (the respondent) as Financial Controller and his salary package including superannuation is $80,000". While the reference to the applicant being "employed" is not conclusive evidence of that fact it does, in my view, indicate the reality of the working relationship between the applicant and the respondent, in the absence of a formal contract and particularly given that as at the date of the letter the applicant had been working for the respondent under the direct supervision of Mr Preece, for 7 weeks during which time a number of invoices had been generated by Windjar for services provided by the applicant. The letter of 28 March suggests that the respondent at least viewed the nature of the working arrangement with the applicant as that of employer and employee. 5 Nevertheless, Backman J appears to have treated the relationship as one of employment and neither party on appeal demurred from that being the proper characterisation of the relationship. 6 At [48] her Honour referred to the appellant's reliance on the Court of Appeal's decision in Sydney Water Corporation Ltd and Another v Industrial Relations Commission of NSW and Another (2004) 61 NSWLR 661; 141 IR 14: 48 The respondent relies on a submission that all of the heads of alleged unfairness set out under paragraph 33 of the summons are outside the ambit of the Court's jurisdiction by reference to Sydney Water Corporation Ltd and Another v Industrial Relations Commission of NSW and Another (2004) 61 NSWLR 661; 141 IR 14. Upon closer analysis, however, the submission as I understand it really relates to the allegation of a failure to provide for adequate notice; the respondents' primary contention in this regard being that a reasonable notice period was implied (in the absence of an express term in the contract). In my opinion, however an implied term of reasonable notice, although not of itself unfair may nevertheless operate unfairly on the contract in circumstances where the termination of an applicant's engagement or employment under the contract constitutes unfairness under the contract by reason of, for example, the failure to make a monetary payment in lieu of notice, or make provision for any notice where there is no finding of misconduct. 7 The matters in paragraph 33 of the summons, said to have rendered the contract unfair, were set out in the summons as follows:

[24]

10 The appellant had claimed that the respondent's services had been terminated for reasons related to poor performance. Backman J dealt with this issue at [56]: 56 The respondent asserts that the applicant's services were terminated because of poor performance. There is little substance to this allegation in my view. First, the allegation is supported by little detail either by way of oral evidence from the respondent or by way of any supporting documentation. Many indications revealed by the evidence are in fact to the contrary. First, the very short period of employment, on 11 weeks, is not necessarily a satisfactory period of time in which to properly and reasonably assess someone's standard of work. Secondly, the respondent apparently without any resistance or complaint consistently paid the fortnightly invoices submitted by Windjar. Thirdly, there was no evidence of any letters or other types of correspondence, an otherwise common device for alerting employees about employer dissatisfaction with work performance, which the respondent could have at any time sent to the applicant in order to give him some notice of its particular concerns. Fourthly, the letter of 28 March 2002 is sent some 7 weeks after the applicant has commenced work. Any concerns about his work performance could have been readily addressed in that letter. Mr Preece in his evidence during the proceedings said he had become dissatisfied with the applicant's work performance after only 4 weeks. Instead the letter of 28 March 2002 simply confirms in writing the applicant's employment and his annual salary. 11 Having held there was little substance to the allegations relating to poor performance, at [57] Backman J found as follows: 57 I find for the reasons outlined above that the applicant's summary termination was not influenced by any considerations pertaining to work performance. I therefore find that the contract operated unfairly against the applicant because it failed to protect him from the circumstances of summary termination. The following reasons have influenced my decision:

[38]

17 Whilst we have some reservations, we have little choice but to accept that the contract between the appellant and the respondent was one of employment. As we earlier observed, it is apparent from the judgment at first instance that whilst Backman J did not make a specific finding in this respect, as her Honour should have, she decided the matter on the basis that Mr Murton was an employee of the appellant. Moreover, the parties on appeal accepted that the relationship was one of employment. 18 Further, we agree with the appellant that Backman J erred in failing to identify the terms of the contract between the appellant and the respondent. In Fish, the majority (Gleeson CJ, Gummow, Hayne, Callinan and Crennan JJ) stated at [19] (references omitted): Because "contract" is given the extended definition that has been noted earlier, it must be understood as extending to any arrangement or related condition or collateral arrangement of the requisite kind, namely, a contract or arrangement whereby a person performs work in any industry. But what must be identified is the set of arrangements (leaving aside, for the moment, whether those arrangements are or may be contractual or otherwise) according to which (that is, "whereby") a person performs the relevant work. What may be declared void or varied is any part of those arrangements: the arrangements in accordance with which a person performs work. 19 Such an error is not necessarily fatal. Provided that it is apparent from the material in the appeal that the trial judge understood what were the terms of the contract or arrangement whereby a person performed work in any industry, which terms caused the contract or arrangement to be unfair and that the contract or arrangement was declared wholly or partly void, or varied, in order to remedy the terms found to be unfair, then there will be no error requiring appellate intervention. 20 The trial judge was clearly alive to the fact that there was no written contract and that its express terms were quite limited. Her Honour also obviously understood the contract did not expressly provide for any terms relating to termination of the contract, including the amount of notice for termination with or without cause or payment in lieu of notice and it did not make provision for procedures to be followed to ensure that any termination of the contract would be undertaken fairly. 21 In the summons for relief it was pleaded that the contract was unfair because it "failed to protect the applicant from summary termination of employment" and, in a separate pleading, that it "failed to provide for adequate notice provisions upon termination of the contract without cause". Further, the orders sought in the summons included an order declaring the contract void or, in the alternative, varying the contract to provide, inter alia, that the respondent was to be treated fairly by the applicant and included a requirement that the respondent be given an opportunity to defend himself against any allegations made in relation to his conduct or performance, a requirement that any such allegations be properly investigated and a requirement that any decision regarding the respondent be taken having regard to the respondent's personal circumstances and his satisfactory performance under the terms of the contract. 22 In his submissions at first instance, the respondent submitted that he was not seeking damages for breach of contract but rather he was seeking to vary the contract "to insert protective provisions to make it fair" and referred in particular to the pleading that the contract failed to protect the respondent from summary termination. The respondent at first instance referred to protective provisions as including provisions relating to "procedural fairness" as well as a period of notice. 23 Her Honour found at [57] that the contract operated unfairly against the respondent because it failed to protect him from the circumstances of summary termination. Mr Dixon of counsel for the appellant, however, submitted that her Honour's reference to the failure to provide for protective provisions was limited to the appellant's failure to provide payment in lieu of notice. In this regard, Mr Dixon referred to the reasons relied upon in [57] by her Honour qualifying the finding that contract operated unfairly against the respondent because it failed to protect him from the circumstances of summary termination. Those reasons were: i) the applicant's services were summarily terminated in the absence of any substantiated allegations of misconduct such as poor work performance and without notice;

[41]

(iv) at the time of his summary termination the applicant had been engaged in a relatively senior position which entailed a significant degree of responsibility and trust. 24 Counsel for the appellant contended that nowhere in the reasons that Backman J said influenced her decision in finding the contract was unfair did her Honour refer to the absence of procedural fairness provisions. Moreover, it was submitted, the orders made by her Honour varying the contract involved a requirement to pay an amount of money that was, in effect, two months' pay in lieu of notice, which counsel contended amounted to damages for breach. Mr Dixon noted that no reference was made in the orders to remedying any unfairness arising from the absence in the contract of procedural fairness provisions. 25 Counsel also contended that, in any event, there was no absence of procedural fairness because the evidence was that the appellant had warned or counselled the respondent on some 20 occasions. 26 It is not apparent from the decision at first instance that in finding the contract between the appellant and respondent was unfair the trial judge did so on the basis that the contract failed to provide for fair procedures on termination, notwithstanding that this was clearly pleaded and argued as part of the respondent's case at first instance. Whilst her Honour at [57] stated that the contract operated unfairly against the respondent because it failed to protect him from the circumstances of summary termination, the reasons her Honour gave as to how she was influenced to come to that conclusion do not include a failure to provide for fair procedures on termination, but they did include that the respondent was not paid any monies in lieu of notice consequent upon his termination. 27 Furthermore, in varying the contract to remedy the unfairness found, her Honour confined it to a variation providing for what was a payment in lieu of notice. Such a variation suggests that the basis upon which her Honour found the contract to be unfair was due essentially to the fact that the respondent was not paid any monies in lieu of notice consequent upon his termination and not because of the absence in the contract of fair termination procedures. 28 It may have been the case that in finding unfairness the trial judge had in contemplation the absence in the contract of fair termination provisions; her Honour was most certainly aware of the absence of such provisions. However, the omission in the orders of a variation remedying the absence of those provisions leads us to the conclusion that her Honour erred as to the basis upon which the contract was unfair and as to the form of variation ordered. 29 Section 192(1)(a) of the Act provides that on an appeal the Full Bench may confirm, quash or vary the decision of the Commission concerned. We consider it is open to us, on the material before the Full Bench on appeal, to form our own view about the contract (see Walker v Industrial Court of New South Wales & Anor (1994) 53 IR 121 at 149 per Sheller JA) and having done so, to vary the decision at first instance consistent with that view. No party on appeal demurred from that proposition. Of course, if an issue of credit had been involved it may not have been open to the Full Bench to form its own view, but that is not the case here.

[42]

30 The trial judge found that the respondent's summary termination was not influenced by any considerations pertaining to work performance. This finding was not challenged on appeal. No other basis was contended at first instance as justifying summary dismissal. The evidence in the proceeding makes clear that the contract between the appellant and the respondent did not provide for fair termination procedures. The absence of such procedures as counselling or warnings relating to the respondent's performance or conduct, or provisions giving the respondent the opportunity to defend allegations of poor performance before dismissal was effected, thereby permitted an unfair, harsh or unconscionable dealing by the appellant with the respondent. What a contract permits, or does not proscribe, may make the contract relevantly unfair under s 106 (see Sydney Water at [32]-[33] per Mason P referring to the observations of Sheller JA in Walker v Industrial Court of New South Wales & Anor (1994) 53 IR 121 at 149; see also Oracle Systems Australia Pty Limited v Michael John Pym [2005] NSWIRComm 15 at [50]). 31 It follows that the contract was or became unfair because it permitted the appellant to act unfairly, harshly or unconscionably in summarily terminating the employment of the respondent on grounds that were not made out and in failing to apply fair termination procedures: see Walker at 149 where Sheller JA (with whom Meagher JA agreed) indicated he preferred the conclusion of Hill J who, in his dissenting judgment in the appeal from Hungerford J in the Industrial Court, held that Hungerford J was correct in finding the contract became unfair because the employer acted unfairly, harshly and unconscionably in terminating the services of the employee on grounds that were not made out and in failing to apply fair termination procedures. See also Kirby P at 135. 32 An alternative way of considering the matter is that the contract was or became unfair in that it permitted summary termination of the respondent's employment on grounds that did not support such a peremptory step being taken by the employer, poor performance (if such a ground had been made out) not being conduct that is a sufficiently serious breach of the contract, or not being conduct that evinces an intention by the respondent that he longer wished to be bound by the contract, and because the contract permitted the appellant to adopt unfair procedures in terminating the services of the respondent. 33 Either way, it may be concluded the contract was unfair, thereby leaving it open to the Full Bench to vary the contract in a manner modelled on the claims in the summons for relief, thus providing the basis for the making of an order under s 106(5) of the Act requiring the appellant to pay the respondent two months' pay.

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Cases Cited (9)