T10339 - 20 December 2002
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TASMANIAN INDUSTRIAL COMMISSION Industrial Relations Act 1984 Michael Hughes and Tasman Group Services Pty Ltd
Industrial dispute - severance pay in respect to termination as a result of redundancy - effect of contract of employment on rights pursuant to s.29(1A) of the Act - continuous service - order made REASONS FOR DECISION [1] On 30 July 2002, Michael Hughes (the applicant) applied to the President, pursuant to section 29(1A) of the Industrial Relations Act 1984, for a hearing before a Commissioner in respect of an industrial dispute with Tasman Group Services Pty Ltd trading as Longford Meat Works, re severance pay in respect to termination as a result of redundancy. [2] This matter commenced by way of a teleconference on 11 September 2002. It quickly became apparent that there was no prospect of resolving the dispute through the conciliation process and the matter was set down for hearing on 12 November 2002. [3] Mr S McElwaine appeared for the applicant and Mr A Bain, together with Mr B Castricum, appeared for the employer. [4] Evidence was called from the applicant, Mr Hughes. Background [5] The business which trades as the Longford Meat Works, is an export abattoir located near Longford in northern Tasmania. [6] The applicant commenced employment at the Longford abattoir on 11 December 1972. Indeed Mr Hughes has only ever been employed at this place of employment. [7] Mr Hughes commenced as a trainee livestock buyer. In 1976 he became livestock co-ordinator. In 1982 he was appointed assistant manager for the plant. In 1990 he was appointed manager of the factory, a position he held until he was made redundant on 26 July 2002. [8] At the time of termination Mr Hughes was paid a salary of $88500 pa and superannuation at the rate of 12% of salary. His home and mobile phone costs were paid by the employer. He enjoyed private use of a Berlina motor vehicle for which the employer paid an FBT component of approximately $15000 pa. [9] The abattoir has had three different owners during Mr Hughes' period of employment. [10] When Mr Hughes commenced the business was owned by R J Gilbertson Pty Ltd. On 1 November 1996 the business was sold to SBA Foods Pty Ltd. On or about 1 March 2002 the business was again sold to Tasman Group Services Pty Ltd. [11] The employment of Mr Hughes continued without interruption during these changes in ownership. Events Subsequent to March 2002 [12] Mr Hughes' evidence is that at the time of the sale to Tasman Group Services he was the most senior employee on the site. There was however a major structural change following the sale in that the management function was effectively transferred to the head office in Melbourne. Mr Hughes was divested of both duties and autonomy. He said:1
[13] In early June Mr Hughes applied for one week's leave. This was approved by the employer but on the basis that he had to take two weeks' leave. [14] When Mr Hughes returned from leave on 24 June his entire working environment had been [detrimentally] changed. He said:2
[15] On 26 July Mr Hughes was called to a meeting with Mr Gilbert Cobral, a representative of senior management. Mr Hughes recalled the meeting as follows:3
[16] Mr Hughes said that, whilst he was awaiting clarification of his role, this was the first occasion on which he became aware that he was to be made redundant.4 [17] Mr Hughes' termination pay was made up of the following components:5
[18] The redundancy payment was calculated in accordance with a letter dated 4 April 19946. [For convenience this will be referred to as the contract.] It is this contract that is at the centre of this dispute. [19] Mr McElwaine submitted that the redundancy payment was quite inadequate, both in terms of formula basis and the amount of notice. Fundamental Issues to be Determined [20] There are two fundamental issues that must be determined before anything else. [21] Firstly, what is the standing of the contract insofar as it relates to the applicant's ability to pursue relief in accordance with section 29[1A] of the Act? [22] Secondly, should the service of Mr Hughes at the abattoir be considered to be continuous for the purpose of calculating a redundancy payment, in light of the two ownership changes in the relevant period? The Contract [23] Mr Hughes said that prior to 1994 he did not have a written contract. [24] On 4 April 1994 Mr M Slinger, Deputy General Manager of Gilbertsons, wrote to Mr Hughes outlining quite comprehensively terms and conditions of employment. Relevantly, the letter reads as follows:7
[25] Mr Hughes said that prior to receiving the letter, there had been no discussion on its general terms, and specifically, no discussion on the redundancy element. [26] Mr Hughes duly signed the document. Under cross-examination the following exchange took place:8
[27] It would appear that the redundancy component of this contract was the basis for the calculation of the redundancy payment to Mr Hughes. I do note, however, that the notice of termination provision in the same document was not complied with. Whilst slightly ambiguous, on my reading of the provision, two months notice would have been required, whereas payment in lieu of two weeks' notice was actually made. [28] Mr Bain submitted that the applicant understood what the contract meant, and having agreed with his employer as to what redundancy payments would apply, that brings the matter to an end. [29] Mr McElwaine sought to distinguish between a contract dispute and an industrial dispute. He submitted that the fact that a termination is lawful in accordance with a contract of employment does not prevent a former employee from exercising rights which are clearly available under the Act. [30] The instant matter is clearly about the settlement of a dispute as defined in the Act. It, Mr McElwaine submitted, "has got nothing to do with whether what was done under a contract was or was not lawful". He submitted that the fact that the 1994 contract dealt expressly with the issue of redundancy "does not oust the jurisdiction of this Commission to review the severance payment and the circumstances of severance in this case and to exercise its statutory jurisdiction in respect of an industrial dispute". Finding in Relation to Jurisdiction [31] I accept the submission of Mr McElwaine that the existence of a contract that, inter alia, deals specifically with redundancy, does not oust the jurisdiction of the Commission to review the adequacy of the redundancy provisions. [32] Having said that the Commission, as presently constituted, would be reluctant to interfere with a redundancy provision which had been freely negotiated by informed parties with similar bargaining positions, even if the Commission would have reached a different conclusion, had it dealt with the matter afresh. This would be particularly so if such a contract was negotiated before the employment actually commenced. [33] There are, however, a number of factors that have led me to conclude that Mr Hughes' contract does not sit comfortably in this category. [34] Firstly, the contract did not see the light of day until nearly 22 years after Mr Hughes commenced employment at the abattoir. [35] Secondly, the letter is styled as a confirmation of terms and conditions of employment. The letter concludes with the following:
[36] There was no invitation to raise issues with which Mr Hughes may have had a concern. Indeed the evidence was that the terms of the letter were not discussed with Mr Hughes, either generally, or specifically in relation to the redundancy component. [37] Whilst there was no suggestion that the letter was signed under duress, the situation confronting Mr Hughes at the time does appear to have many of the elements of a fait accompli. [38] There are two further reasons why I consider it appropriate that the redundancy payment be reviewed. [39] Whilst it is clear that the employer (Tasman Group Services) relied on the Redundancy clause in the contract, it did not apply the notice provisions contained in the Termination of Employment clause. To apply terms of the contract on a selective basis, to my mind seriously weakens the relevance of the document to these proceedings. [40] This application was lodged pursuant to section 29(1A) of the Act. Relevantly, this states:
[41] This section was included in the Act by the Industrial Relations Amendment Act 1997 [No.18 of 1997] which received Royal Assent on 27 June 1997, more than three years after the contract came into effect. Prior to this amendment, it was not possible for a former employee to lodge an application in relation to severance pay as a consequence of redundancy, unless the application was lodged by an organization [trade union]. [42] Two points emerge. [43] Firstly, it would seem quite unfair for the applicant to be barred, by reason only of the contract, from pursuing a right under s.29[1A], when that avenue did not exist at the time the contract came into place. [44] Secondly, the contract contains a clause which reads as follows:
[45] If there is any doubt as to the capacity of Mr Hughes to pursue his s.29[1A] application [which in my view there is not], then the existence of this clause puts those doubts to rest. [46] For these reasons I conclude that the existence of the contract is not a barrier to a review of the redundancy payment made to Mr Hughes using the criteria and considerations which this Commission would normally apply to such a review. Was the Applicant's Service Continuous for the Purposes of Calculating a Redundancy Payment? [47] At the conclusion of the hearing Mr Bain foreshadowed that he may wish to make a supplementary submission on the question of "transmission of business". This he did by correspondence dated 20 November 2002. Mr McElwaine responded on 21 November, with subsequent correspondence from Mr Bain dated 22 November, and from Mr McElwaine on 26 November 2002. These submissions form part of the record. [48] In short summary, Mr Bain asserts that the applicant has failed to prove that there has been a transmission of business between SBA Foods and Tasman Group Services, and hence the obligations of the employer to Mr Hughes commenced in March 2002. The fact that the employer made a redundancy payment recognising in excess of 25 years' service is evidence only of the fact that it believed Mr Hughes to be owed that amount. It is not evidence that the employer was legally responsible to pay Mr Hughes that amount, nor is it evidence that the employer had assumed the obligations owing to Mr Hughes by SBA Foods. [49] The substance of Mr McElwaine's response was, that if the Commission was inclined to accept Mr Bain's submissions, then the hearing should be re-opened, with directions as to the production of certain documents. [50] A preliminary decision was issued on 26 November, which said in part:
[51] I now publish my reasons. [52] Other than s.29{1A], there is no statutory or award basis for the assessment of severance payments arising from a redundancy situation, or more particularly, for a determination as to whether or not employment has been continuous. This really begs the question if I am to accept Mr Bain's submission; just what is it that the applicant has to prove? [53] This of course can be contrasted with long service leave and annual leave where clear statutory and/or award-based rules apply. [54] The position is further complicated by the fact that a redundancy severance payment is not in the nature of an accrued entitlement, which can be calculated with precision at any stage of employment duration. A prima facie entitlement only crystallizes in the event that a redundancy occurs. [55] Regrettably, there does not appear to be any guidance by way of authorities. I have therefore decided to look at the totality of the term of employment, and assess whether there are any material factors which would cause a reasonable person to conclude that, but for the change in ownership of the business, the term of employment should be considered other than a continuous, unbroken contract of employment. [56] There is no dispute that Mr Hughes was employed continuously by R J Gilbertson between 11 December 1972 and [by inference] 31 October 1996. [57] Undated correspondence from Mr M R Slinger, Managing Director, SBA Foods Pty Ltd, reads as follows:9
[58] In March 2002, SBA Foods sold the business to Tasman Group Services. [59] The evidence of Mr Hughes in relation to these two transactions is follows:10
[60] I have reached the following conclusions. [61] Mr Hughes was employed at the Longford abattoir without interruption from 11 December 1972 until 26 July 2002. [62] Neither R J Gilbertson nor SBA Foods at any stage terminated the employment contract of Mr Hughes. [63] Both SBA Foods and Tasman Group Services continued the precise salary and conditions of employment that Mr Hughes enjoyed immediately prior to the transactions referred to above. In the case of SBA Foods, this was explicitly in writing. In the case of Tasman Group Services, it is clear from the evidence that this occurred, notwithstanding the absence of confirmation in writing. [64] Previously accrued entitlements in relation to annual leave, sick leave and long service leave have been recognised and honoured by both SBA Foods and Tasman Group Services. [65] There is no evidence that Tasman Group Services advised Mr Hughes that prior service would not be recognised in relation to redundancy. If there were evidence to this effect, it would be incumbent on the employer to bring it to the attention of the Commission. The evidence of Mr Hughes is that apart from an evolving modification in duties, in all other material respects the employment contract remained unchanged. [66] The circumstances applicable to this case would certainly satisfy the requirements for continuous service applicable under the Long Service Leave Act 1976. [67] I find that the evidence points overwhelmingly to a position whereby a reasonable person would conclude that Mr Hughes was employed continuously for the entire period and that there are no material factors which, apart from the change in ownership, could distinguish the period of service from that which would have applied if the owner of the business had remain unchanged throughout the period. [68] Whilst each case needs to be examined individually, it is distinctly possible that the ownership of a business could change hands without employees becoming aware of it. Hence a mere change in ownership should not in itself deny continuing employees from recognition of prior service in the event of subsequent redundancy. [69] It strikes me that if a new owner does not wish to recognise previous service, then that should be made known at the time. At least then individuals could make an informed choice as to whether they wish to continue with the new owner in the full knowledge that prior service will not be recognised, and/or in the alternative, seek redress against the previous owner. Adequacy of the Redundancy Payment and Notice Given [70] Mr Hughes is 47 years old. He is married with two children aged 17 and 18 years, the younger of which is in his second last year of school. His extended family reside in Tasmania and for family reasons; Mr Hughes said it would be very difficult to leave the State. [71] Mr Hughes gave evidence of his extensive efforts in finding alternative employment both within and outside the meat industry in Tasmania. He had also pursued opportunities interstate. To date these efforts had been unsuccessful and Mr Hughes remained unemployed at the time of hearing. [72] Mr McElwaine referred to the TCR decision whereby the Full Bench said:11
[73] Mr McElwaine submitted that:12
[74] Mr McElwaine suggested that the Commission had adopted a general standard of two weeks for each year of service and cited the decisions of Westwood P in Fosseys13 and Imlach C in Dawson v Electrolux Pty Ltd to support this contention. [75] He submitted, however, that in this particular case there were strong grounds to increase the redundancy payment to three weeks per year of service. Mr McElwaine submitted that Mr Hughes had been subjected to "shabby treatment" in that:
[76] Mr McElwaine submitted that in these circumstances, based on the authority of Imlach C in SDAEA v Fosseys Australia Pty Ltd T/A Coles Variety,14 there are grounds to lift the bar to three weeks pay for each year of service. [77] In addition to the hardship encountered by Mr Hughes in finding alternative employment, Mr McElwaine submitted that he would forfeit accrued sick leave entitlements, which under his contract amounted to three months per year, and 75% salary continuance thereafter. [78] Mr McElwaine submitted that two weeks' pay in lieu of notice was quite inadequate, particularly given Mr Hughes' length of service and the fact that no notice at all was given, either general or specific. He submitted that an appropriate payment in lieu of notice is 10 weeks, less the two weeks already paid. Mr McElwaine referred to the decision of Johnson DP in Fellows v Lloyds North15 as support for the notion of extended notice. [79] Finally, Mr McElwaine submitted that the redundancy payment should be calculated on the real value of the remuneration package, not just the cash component. This would include the FBT paid for Mr Hughes' car [$15000] and superannuation at 12% of salary. [80] Mr Bain refuted the suggestion that this Commission had adopted a general standard in relation to redundancy payments. He said that since the TCR case, the Commission had clearly stated that each case will be determined on its own merits. [81] He said that the question that the Commission must ask itself is whether the payment received by Mr Hughes is unfair, unjust or unreasonable. [82] Mr Bain submitted that there is no general standard of two weeks per year of service, and whilst acknowledging that a number of decisions were in close proximity to this level of payment, the facts of this case made it distinguishable from this line of decisions. [83] He referred to The Law of Employment16 in which the authors described the purpose of severance payments as follows:
[84] Mr Bain referred to ILO Convention 158, and in particular Article 12, which states:
[85] Mr Bain submitted that the words "inter alia" are not there by accident and should be read as not limiting matters to be considered to "the level of wages and length of service". [86] Mr Bain said that an amount of $71635 had been paid for accumulated annual and long service leave. This he said should be taken into account when assessing the level of hardship and inconvenience faced by Mr Hughes as a consequence of being made redundant. [87] Mr Bain conceded that, a redundancy payment of $41000 "on its own is not enough to be paid to this person".17 However in assessing whether Mr Hughes had been treated unfairly, the redundancy payment must be considered in the context of the other substantial payments in the nature of accrued leave, made to Mr Hughes at the same time. [88] Mr Bain said:18
Finding [89] There can be no doubt that this is a case of genuine redundancy. It was of course open to the employer to restructure the management function and effectively transfer this role to the head office. There is no suggestion that the termination of Mr Hughes was in any way unlawful. [90] Having reviewed the evidence it is, however, difficult to disagree with Mr McElwaine's observation that the employer subjected Mr Hughes to "shabby treatment". It is a matter of regret that the employer apparently made no effort to consult with Mr Hughes or explore alternatives such as retraining and/or re-deployment. Other than conceding that this did not occur, the employer offered no explanation as to why these basic rules of fair play, enshrined in statute under the Commonwealth Act and widely endorsed by this Commission, were not applied in Mr Hughes' case. [91] Mr Hughes had nearly 30 years of loyal service at the Longford abattoir. There can be no doubt that this forced redundancy will result in a significant loss of non transferable credits [sick leave in particular], together with hardship and inconvenience for Mr Hughes. It is also clear from the evidence that Mr Hughes is likely to experience great difficulty in finding alternative employment, certainly at that level. [92] Mr Bain is correct in that he submits that this Commission has not adopted a hard and fast rule that a formula based on two weeks' pay for each year of service is the standard. There are numerous examples that clearly show that the Commission has, on a case-by-case approach, departed from this formula, both upwards and downwards. [93] Nonetheless, there exists with a long line of decisions, of which Fosseys is probably most instructive, which suggest that unless the Commission can be persuaded to do otherwise, an order based on two weeks' pay for each completed year of service is the most likely outcome. [94] I do not accept Mr Bain's submission that the severance payment should be discounted as a consequence of the significant accrued leave which was payable to Mr Hughes at the time of termination. Such an approach would place employees who had taken leave as it fell due in an advantaged position over an employee who had tended to accrue leave, quite possibly at the request of the employer. Indeed the evidence of Mr Hughes was that he would have preferred to take the leave as it fell due, "instead of serving the interests of the Company"19. [95] There is no basis for the approach suggested by Mr Bain and it is rejected. [96] I am not persuaded that I should adopt Mr McElwaine's submission to award an enhanced severance payment [three weeks' pay for each completed year of service] as a consequence of the shortcomings of the employer as to the manner in which the termination was managed. In my view a better approach is to address this aspect of the remedy through the notice period. This approach was favoured by Johnson DP in Fellows v Lloyds North Pty Ltd. [97] On any objective measure, two weeks' payment in lieu of notice is quite inadequate. The restructure which led to the redundancy was entirely within the control of the employer. There was no evidence of a sudden and unexpected financial crisis, which might in turn justify decisive and immediate action on the part of the employer. In seeking to mitigate the adverse effects of termination, extended notice could and should have been given. [98] Taking into account Mr Hughes' lengthy service, an additional six weeks' pay is the very minimum that I consider appropriate to satisfy the notice requirements. [99] I propose to issue an order requiring that the severance payment be calculated, based on the formula of two weeks' pay for each completed year of service. In addition, an amount equivalent to eight weeks' pay in lieu of notice will be ordered. From this total amount, payment for severance and notice already made will be deducted. [100] Mr McElwaine urged that the severance payment should be calculated not on the cash component of the salary, but the full value of the remuneration package. This includes a fully maintained vehicle for private use, together with superannuation at the rate of 12% of salary. [101] Mr Hughes' evidence was that FBT of $15000 pa was paid by the employer for this vehicle. [102] The Australian Taxation Office describes FBT in the following terms.20
[103] Should the FBT component be included in wages and salary for the purposes of calculating a severance payment? [104] The employer did not express a view on this aspect of the application. [105] Article 12 of ILO Convention 158 states that a severance allowance "... shall be based inter alia on length of service and level of wages ...". [106] Clearly the level of wages is a material consideration. [107] Mr Hughes was entitled to the use of a motor vehicle by virtue of his contract of employment.21 It was not something that could be unilaterally withdrawn by the employer without a repudiation of the contract. [108] I conclude that level of wages is a term, which should not be given a narrow construction so as to only include the cash component. The provision of a car in this instance clearly formed part of Mr Hughes' salary package. If the vehicle was withdrawn, the cash component would need to be increased commensurately so as to maintain the integrity of the contract. [109] In the absence of any submissions to the contrary, I accept that the FBT paid is a reasonable proxy for the value of the vehicle to Mr Hughes. [110] I have decided that the FBT component should be included in the salary for the purposes of calculating the severance payment. Thus the calculation will be based on a salary of $103500 pa, or $1990 per week. [111] The matter of superannuation is covered by Commonwealth legislation. I decline to make an order in respect of superannuation. Calculation [112] My order is based on the following calculation: Severance payment 29 completed years at two weeks' pay for each year of service: equals 58 weeks.
Notice
Total amount payable: $84037 Note: Above figures are gross before tax. ORDER Pursuant to section 31 of the Industrial Relations Act 1984 I hereby order that Tasman Group Services Pty Limited trading as Longford Meat Works, Longford, Tasmania pay to Michael Hughes, of 3 High Street, Evandale, Tasmania an amount of eighty four thousand and thirty seven dollars [$84037], such payment to be made within 21 days of the date of this decision.
Tim Abey Appearances Date and place of hearing: 1 Transcript PN 71 |
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