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T7998

TASMANIAN INDUSTRIAL COMMISSION

Industrial Relations Act 1984
s.70(1) appeal against an order

Andrew Martin Pearson
(T7998 of 1998)

and

Gunns Limited, trading as Gunns Mitre 10

 

FULL BENCH:
PRESIDENT F D WESTWOOD
DEPUTY PRESIDENT B R JOHNSON
COMMISSIONER P LEARY

HOBART, 5 August 1999

Appeal - decision and order by Commissioner Watling on 9 September 1998 in Matter T6983 of 1997 re termination of employment - appeal dismissed - order confirmed

REASONS FOR DECISION

This is an appeal lodged pursuant to section 70(1) of the Industrial Relations Act 1984. It is against an order issued by Commissioner Watling in Matter T6983 of 1997 which was an application for a dispute hearing made by Andrew Martin Pearson under section 29(1A) of the Act. That application alleged that he had been unfairly dismissed by Gunns Limited, trading as Gunns Mitre 10, and he sought reinstatement to his former position. The applicant subsequently submitted that reinstatement was impractical and that compensation should be awarded.

Briefly, Mr Pearson, who was the store manager at Youngtown, was dismissed because management considered he had acted contrary to his managerial responsibilities in preparing a memorandum to the General Manager, Merchandising, to be signed by the staff at his store, complaining about the appointment of a Sales Manager for Gunns from outside, while the company was in a process of shedding jobs to control expenditures.

Commissioner Watling determined that Mr Pearson had been denied procedural fairness and had been unfairly dismissed and, in settlement of the dispute, he ordered the employer to pay Mr Pearson compensation of $4,555.36, which was four weeks' pay calculated on an agreed salary package of $59,220 per annum.

The grounds of appeal were notified as follows:

"1.   Commissioner Watling erred in law and or in fact in that:

(a)  He concluded that the appellant's employment with Gunns Limited would not have continued beyond four weeks from the date of the termination of the appellant's employment when there was no or no sufficient evidence to found that conclusion;

(b)  Having determined that the employer's termination of the appellant's employment did not conform with articles 4 and 7 of the International Labour Conference Convention 158 concerning the termination of employment at the initiative of the employer, he failed to afford any or any adequate remedy to the appellant in the circumstances;

(c)  He failed to consider what would have been the likely outcome had the employer complied with the provisions of the Convention;

(d)  He misunderstood that the effect of the Convention was to give to the appellant an added measure of security of employment;

(e)  He failed to find, consistently with the conclusion of the Full Bench of the Commission in Capital Hill Corporation Pty Ltd -v- O'Connor (T6918 of 1997) that a failure to afford procedural fairness to an employee amounts to substantive unfairness within the meaning of the convention;

(f)  He determined an amount of compensation which was inadequate in the circumstances;

(g)  He failed to make any or any adequate determination as to what was the likelihood that the appellant's employment may have continued if the employer had complied with the requirements of the convention and then to assess damages by reference to that likelihood."

When the appeal came before the Full Bench on 17 December 1998, Mr McElwaine, a legal practitioner, represented the appellant, and Mr Watson, also a legal practitioner, appeared for Gunns Limited.

Mr McElwaine submitted that the Commissioner had "erred in law" in awarding his client four weeks' pay as compensation in settlement of the dispute. He questioned whether the decision meant that the Commissioner had considered either -

(1)  that the length of the investigation period would have been four weeks had it been conducted in accordance with the Act and the Convention; or

(2)  that four weeks' pay was adequate compensation for a breach of the Convention; or

(3)  that the former employee would have done something else wrong in the ensuing four weeks which would have justified his termination in any event.

As the Commissioner had not indicated how he had arrived at four weeks for the purpose of calculating compensation, the result was a "fundamental breach or misdirection of the law", Mr McElwaine said. He submitted there were "well settled principles" to determine compensation in cases such as this and generally speaking the Commission must look at the position of the employee at the time of termination and ask what would have been the likely outcome had the employer complied with the ILO Convention and the Act.

More particularly in this case, Mr McElwaine said the Commissioner should have determined:

(a)  what would have been the likely outcome if the employer had conducted a proper investigation before making the decision to terminate;

(b)  what would have been the outcome if the employer had put allegations concerning Mr Pearson's capacity, conduct or performance to him and given him a reasonable opportunity to respond;

(c)  what would have been the likely outcome if the employer had properly considered the employee's responses before deciding to terminate the employee's employment; and

(d)  if the employer had followed those steps and the Commissioner had determined the termination to be unfair, what would have been the outcome.

Mr McElwaine submitted that the last question should have been dealt with by the Commissioner because the Act provided the "added measure of protection" for employees by virtue of the fact that the relevant provisions were posited on "unfair dismissal".

Mr McElwaine submitted there was no evidence that if appropriate steps had been taken by the employer the employee would not have continued in employment for more than four weeks. In particular we were referred to the observations of Wilcox J in Nicolson v Heaven & Earth Gallery(1), when concluding that in assessing compensation for a breach of section 170DC of the federal Industrial Relations Act 1988 it was appropriate to consider what would have been likely to occur if the breach had not occurred. (It is noted that section 170DC reflects Article 7 of the ILO Convention which this Commission is required to take into account before deciding whether or not to make an order in respect of an industrial dispute relating to termination of employment.)

At that point, he said, Wilcox J concluded:

"It should not be assumed that the employee would have been dismissed anyway. Such an assumption ignores the rationale of procedural fairness and every day experience that decision-makers often change their minds when presented with another side of a case. It devalues section 170DC to a point of redundancy."

Mr McElwaine further submitted that even if the employer was found to have had a valid reason for termination and to have afforded procedural fairness to Mr Pearson, if the termination was found nevertheless to be harsh, unjust or unfair in the circumstances, it was not a lawful termination. He added that a denial of procedural fairness is a substantive denial of a worker's rights under the ILO Convention. In that context we were referred, in particular, to Capital Hill(2) and the finding of the Full Bench at page 23 of its decision that "Capital Hill's denial of Mr O'Connor's right at law (i.e. to defend himself against certain allegations) constituted substantive unfairness".

We were also referred to pages 29 and 33 of the transcript recording the cross-examination of Mr Wainman, who was manager of Mitre 10 Stores. Mr McElwaine submitted that the Commissioner had not taken that evidence into account when determining what would have happened if an investigation had resulted in the management changing its mind about the seriousness of Mr Pearson's behaviour.

He claimed that the Commissioner had not questioned whether Mr Pearson's actions had justified his dismissal and he had accepted that Mr Pearson was the "inciter" rather than the "facilitator" of something the staff wanted to do. In that context we were referred to the evidence of witnesses Philpott and Bradford at pages 61, 65 and 66 of transcript and the evidence of Mr Chilcott, the General Manager, Merchandising, who had said there was nothing wrong with the memorandum itself but the problem was that Mr Pearson was "seen to have participated and organised it". Mr McElwaine conceded however that Mr Pearson had organised the memorandum and that he took it to staff for them to sign.

Mr McElwaine submitted there were alternatives to termination. Even if it was determined there was a valid reason to terminate Mr Pearson's employment, he submitted the incident was the "first transgression" by an otherwise "exemplary" employee in five years. He claimed the Commissioner had not critically examined that aspect of the case.

He submitted the Commissioner having arrived at the conclusion that termination was, or probably was unfair, should have assessed compensation on a completely different basis. He argued that the Commissioner should have considered such factors as the applicant's "rapid rise through the management ranks", that the "applicant was a store manager", this was his "first transgression", and he had "never been given warnings before".

Mr McElwaine submitted in the circumstances that the evidence did not justify the conclusion that Mr Person's employment "would only have continued for four weeks".

He submitted that Mr Pearson had been deprived of long term employment with Gunns Ltd at a substantially higher salary and with substantially greater prospects than he had obtained at Birchalls, his subsequent employer.

Specifically, in relation to the question of appropriate compensation, Mr McElwaine referred the Bench to Davis v Portseal,(3) Nicolson, which referred to Bostik v. Gorgevski,(4) and Royle v Arthur Yates.(5)

Mr McElwaine submitted that compensation must be assessed by reference to an employee's substantive rights to procedural fairness and, using Nicolson for support, submitted that a finding that the employee would have continued for only four weeks had the effect of devaluing those substantive rights to a "point of redundancy".

Mr McElwaine submitted that the Bench had sufficient information upon which to assess an appropriate amount of compensation for the appellant if it were to uphold the appeal. He estimated, however, that the loss of income experienced by his client was of the order of $20,000 per annum.

In response Mr Watson submitted that the appeal bench should have regard to the totality of the decisions of Commissioner Watling and apply the appropriate appeal principles contained in House v The King(6).

Mr Watson submitted that the appellant's major criticism of Commissioner Watling's decision was that he had not applied the tests in Nicolson, in Bostik and in Royle v. Arthur Yates. In that respect we were told it was important to have regard to "everything" the Commissioner had said in both his decisions relating to the background to the dispute, as well as his comments dealing with remedy commencing at page 12 of his second decision. Mr Watson said Commissioner Watling had noted that he had disregarded certain evidence which emerged after the termination decision had been taken and had confined himself to the "inadequacy of the investigation" in particular in relation to "putting to the employee clear and concise allegations".

As to remedy, Mr Watson said the Commissioner had examined the possibility of reinstatement and had concluded "there was uncontraverted evidence that the applicant had lost the trust and confidence of management", and in fact that "there had been a mutual break down in trust and confidence". Accordingly he said it was open to the Commissioner to find that reinstatement was impractical.

Mr Watson submitted that in respect of Commissioner Watling's consideration of compensation, the factors set out in Royle v. Arthur Yates, which, he said, were derived from principles established in Chenery v. Klemzig(7), did not deal exhaustively with the matters which needed to be looked at and that such matters properly ought be weighed according to their relative importance in the circumstances of a particular case. Mr Watson reminded us that one of the factors to be taken into consideration was, notwithstanding the actual term of the contract, what reasonable expectation might the dismissed employee have had for long term job security. He submitted that factor became a very important consideration in the analysis of the Commissioner. He submitted the Commissioner was "validly" applying the Nicolson principles and that he was "validly and properly" applying the criteria mentioned in Chenery.

Mr Watson submitted that the Commissioner was doing precisely what the authorities say is the correct approach. He said the Commissioner dealt with the incident which led to the termination and he dealt with the evidence which he said would have been available to, and would have been before the employer if there had been a full investigation of the incident. He said Commissioner Watling then drew conclusions as to the nature of those circumstances and was highly critical of the applicant's involvement. He said Commissioner Watling referred to the evidence of other employees involved and in his major conclusion said that he was of the view that the applicant's employment would not have continued beyond four weeks.

The Commissioner, Mr Watson said, "was not making a definitive assessment of how long the investigation would have taken". Although the Commissioner had not stated that such a termination after an investigation lasting four weeks would not have been unfair, given the seriousness with which he viewed the applicant's conduct his conclusions would indicate that was his view. Mr Watson suggested that the appellant's criticisms of the decision came down more to "a matter of expression" rather than "a matter of substance".

Mr Watson submitted that the Commissioner had not approached the matter by applying some incorrect principle, by being misdirected, by failing to take into account certain circumstances, or by acting on the wrong principle. Mr Watson felt that it was not possible to conclude "on an objective view of the issues involved and the analysis of the Commissioner that the result was plainly unjust or unreasonable".

Findings:

In considering the appeal grounds and determining these proceedings we apply, where necessary, the principles established by Dixon, Evatt and McTiernan JJ in the High Court case of House v The King.

We intend to deal with this appeal in much the same broad manner as was adopted by the appellant and we will relate our findings to the specific appeal grounds in closing.

The appellant claimed that there was evidence before the Commissioner, at first instance, which was not referred to by him that might have led him to a different conclusion. To begin with, Mr McElwaine suggested that if a full investigation had taken place prior to the termination interview, management might have decided not to go ahead with the termination. Mr McElwaine said that evidence was drawn from the response by Mr Wainman during cross-examination that if management had been wrong in believing that Mr Pearson had incited the offending memorandum and had pressured staff to sign it, management's course of action might have been different. However we are satisfied that the Commissioner considered all the evidence before him including that referred to us by Mr McElwaine. On balance we consider the concession by Mr Wainman was merely an assumption and consequently of no evidentiary weight.

The Commissioner decided that management was right in its assessment of what Mr Pearson had done even though it had not followed the correct procedure, and that was clearly expressed in his decision at pages 13, 14 and 15. At the commencement of that part of his decision, Commissioner Watling said:

"However, on the evidence before me, I am of the view that the applicant's employment would have been unlikely to continue into the future for any substantial period of time.

I make this finding on the basis that, had the employer conducted a full investigation into the incident, the evidence put to me at this hearing would have been available to the employer and, it would have been sufficient to establish the applicant's involvement with the memorandum:

  • went beyond that of just being `scribe', conveying the views of his staff to management;

  • was inappropriate activity for a person occupying a managerial position; and

  • conflicted with his responsibility to carry out a management function and implement management decisions for which he was being paid."

We think that the Commissioner considered all the pertinent evidence relating to Mr Pearson's alleged misconduct and that the finding was reasonably open to him. Notwithstanding he thought that what Mr Pearson had done was wrong, the Commissioner determined, correctly we consider, that the failure of the employer to put the allegations to Mr Pearson prior to his dismissal resulted in his dismissal being unfair. That finding was not a matter of contention.

The Commissioner then moved to consider the question of remedy and determined on the submissions and evidence, that the reinstatement of Mr Pearson was impractical. We are satisfied that, on the material put to the Commissioner, the decision was available to him and that it was appropriate. Neither party disputed that finding.

The Commissioner then considered the amount of compensation to be paid to Mr Pearson in lieu of reinstatement.

It is on this point that the appellant's grounds of appeal appear to focus. As put by Mr McElwaine, the "crux of this appeal" is the fact that the Commissioner awarded only four weeks' pay because he had concluded that Mr Pearson's employment "would only have continued for four weeks" and the reason why the Commissioner decided on four weeks was "not articulated anywhere".

In considering this aspect of the appeal we have had regard to the claim by Mr McElwaine that the Commissioner's decision was not in accordance with legal principle. In that regard we accept his submission that a denial of procedural fairness is a substantive denial of a person's rights under the ILO Convention. However we do not accept that the argument can be extended to the point where a denial of procedural fairness will automatically mean reinstatement regardless of the employee's conduct. On that point the decision of Wilcox J in Nicolson is instructive. After making the observation referred to by Mr McElwaine and reported at page 3 of this decision, His Honour said, having concluded that termination of employment may not necessarily be the most likely result if proper processes were observed, that it would be "unrealistic for a court automatically to assume that if the employer had complied with section 170DC, the employee's employment would have continued indefinitely".

It is interesting to note that Wilcox J further observed that the statement of Sheppard and Heerey JJ in Bostik that "the respondent had substantial security in his employment", was a comment about that case. He concluded that it was "not intended as a proposition of universal application". Respectfully we agree with those sentiments.

To reinforce his argument on this point, Mr McElwaine referred to the case of Davis v Portseal in which Moore J of the Industrial Relations Court of Australia relied on Perrin v Taylor(8) in which he previously had dealt with the effect and purpose of section 170DC of the Federal Act, and he said:

"There can be no suggestion, in my opinion, that before the decision to terminate Davis's employment was made, he was given an opportunity to defend himself against the allegation concerning his conduct which might lead to termination. There have been a number of judgments in which the purpose and effect of s 170DC has been considered. In Perrin v Des Taylor Pty Limited (1995) 58 IR 254 at 256 the following was said:

`(the purpose of s 170DC) is at least twofold. It is to give the employee the opportunity to demonstrate that the allegations have no foundation in fact or they should not be viewed as reflecting on the employee's capacity... A second purpose of s 170DC is that an employee with whom an allegation has been raised may be able to persuade the employer that, while the allegation is of substance, there are factors that should persuade the employer not to terminate the employment. There may be extenuating personal circumstances or they may involve undertakings about future conduct.'"

In the former case Moore J was reviewing a decision of a judicial registrar to order the payment of approximately $30,000 to a senior employee of a new car retailer who it was alleged had been unfairly dismissed. Moore J found that there was a valid reason for the termination, but the employee had not been given the opportunity to respond to allegations that he had lied to his superiors before it was decided he should be dismissed. He then assessed appropriate compensation as being $5,000 (or approximately 4 weeks' pay) because he said it was probable that Davis' employment would have been terminated even if he had been given the opportunity to defend himself. In reaching that position he accepted there was a slight possibility that Davis's employment might not have been terminated. We think that the approach adopted by the Commissioner in this matter is similar to that adopted in Davis v Portseal.

This is particularly so given the findings by Moore J that senior executives in the company had "lost trust" in the former employee and that the former employee's "conduct was unacceptable for someone in a senior position of trust". Both findings were similar to those reached by Commissioner Watling.

In Perrin v Taylor Moore J considered there was a "real possibility" that the applicant, who had been dismissed without having been given the opportunity to respond to complaints which had been made about him, would have been able to satisfy his employer that his performance would improve. In the case before us, however, Commissioner Watling thought that Mr Pearson's long term prospects were limited. As we have mentioned the Commissioner carefully described the reasons why he thought that if the employer had conducted a full investigation into the incident, the evidence he had before him as to the applicant's involvement with the memorandum would have been available to the employer also. Accordingly he concluded that the applicant's employment would have been unlikely to have continued for "any substantial period of time". The Commissioner then, for those reasons, concluded that the applicant's employment would not have continued beyond four weeks.

In the circumstances we do not believe that either Davis v Portseal or Perrin v Taylor are of any assistance to the appellant in this matter.

Whilst we agree with Mr McElwaine that there was no evidence to suggest that Mr Pearson would have remained with Gunns for the rest of his working life or indeed for any shorter period, it is clear that the Commissioner thought that Mr Pearson would not have remained with the company for longer than four weeks. We consider such a finding was open to the Commissioner on all the material before him. That is not to say that each of us would have arrived at the same conclusion. However we think such a finding is consistent with the reasoning adopted in Nicolson in which Wilcox J also considered Bostik and Byrne v Australian Airlines.(9)

The decision in Bostik was also considered by Black J in Byrne. Black J had this to say with which Wilcox J agreed:

"Difficult questions may arise if damages have to be assessed in circumstances in which it is only because of procedural unfairness that a dismissal has been harsh, unjust or unreasonable. Such a question was raised in Bostik ... Gray J referred (at 35) to the situation where, had proper inquiries been made, the employer might have considered that conduct which appeared at first sight to justify dismissal did not do so when all the relevant factors were considered, and it may be that in such cases it will be appropriate to assess damages on the footing that a fair chance of retaining the employment, with its attendant security, has been lost."

Wilcox J went on to observe that if he had reached the question of compensation when dealing with the Nicolson case, he would have assessed it on the basis that the procedural irregularity deprived Mr Nicolson of a chance of retaining his employment. However he would not have awarded him a large sum.

With due respect to those whose authorities are relied on, we consider Commissioner Watling approached his task in similar vein.

Specifically, on the question of assessing compensation, Mr McElwaine said we should follow the decision of the Victorian Industrial Relations Commission in Royle v Arthur Yates. We note that was a matter which dealt with a redundancy situation. It referred to Chenery v. Klemzig in passing as having been endorsed previously by the Industrial Relations Commission of Victoria. Whilst we think the circumstances of this case, Pearson v Gunn, are distinguishable from the circumstances in Royle v Arthur Yates - (this case involves an unfair dismissal because of the lack of procedural fairness, whereas Royle v Arthur Yates involved an unfair dismissal which had resulted because the dismissed employee's position had been made redundant) - we note that in Chenery the South Australian Commission also said:

"Having found that the dismissal was properly categorised as harsh, unjust or unreasonable, we think that it would have been more appropriate to have fixed a global sum by way of compensation which took into account all the relevant matters."

The South Australian Commission then went on to list the relevant matters to be weighed according to their relative importance, having explained that the list was not exhaustive. We think that paragraph (g) of the list, which was highlighted for us by Mr Watson, is relevant to this case. Paragaraph (g) reads:

"(g) Notwithstanding the actual term of the contract, whether weekly, fortnightly, monthly, annual or fixed term etc.), what reasonable expectation might the dismissed employee have had for future job security."

We consider the Commissioner addressed this factor in his decision when he commented on what he described as the applicant's "assumption that the applicant's employment would have continued for the rest of his working life", and the Commissioner came to the conclusion that the "applicant's employment would have been unlikely to continue into the future for any substantial period of time".

In the circumstances we do not consider that anything determined by Commissioner Watling in this matter offends any of the general views established in Chenery.

To complete our comment on this particular issue we consider the assessment of compensation is a matter for the Commissioner at first instance and we should not overturn that assessment unless we were satisfied that it was manifestly wrong. In this case we are not so satisfied.

Having reached that general conclusion we consider that Commissioner Watling had sufficient evidence before him to reach the conclusion that the appellant's employment with Gunns Limited would not have continued beyond four weeks from the date of the termination of his employment. We therefore dismiss appeal ground 1(a).

We consider on the facts and circumstances of the case that the remedy determined by Commissioner Watling in response to the employer's failure to conform with Articles 4 and 7 of the Convention was reasonably open to him and within his discretion. Accordingly we dismiss appeal ground 1(b).

We consider that Commissioner Watling's assessment of what he thought would be the likely outcome if the employer had complied with the ILO Convention was reasonable and open to him, and we therefore dismiss appeal ground 1(c).

We do not accept that the effect of the ILO Convention is to give an employee an added measure of security of employment without regard for any other relevant facts and circumstances. Therefore in the circumstances of this case we consider that the claim that Commissioner Watling misunderstood the effect of the Convention in that regard cannot be substantiated. We therefore dismiss appeal ground 1(d).

We do not consider that Commissioner Watling's decision can be interpreted as being a finding that a failure to afford procedural fairness does not amount to a failure to afford substantive fairness. The Commissioner did not discount the unfairness which occurred because he found it to be procedural rather than substantive. In the circumstances we consider his decisions and order are not inconsistent with the conclusion of the Full Bench in Capital Hill and we therefore dismiss appeal ground 1(e).

Appeal grounds 1(f) and 1(g) are also dismissed as the issues raised therein have been dealt with in considering appeal grounds 1(b) and 1(c) respectively.

Accordingly, pursuant to section 71(13) of the Act, the appeal is dismissed and Commissioner Watling's decisions and order in Matter T6983 of 1997 are confirmed.

 

F D Westwood
PRESIDENT

Appearances:
Mr S B McElwaine for Mr A M Pearson
Mr G Watson for Gunns Limited, trading as Gunns Mitre 10

Date and place of hearing:
1998
December 17
Hobart

1 Nicolson v Heaven and Earth Gallery Pty Limited (1994) 1 IRCR 1994
2 Capital Hill Corporation Pty Ltd v. Terrence James O'Connor T6983 of 1997
3 Davis v Portseal Pty Limited
Industrial Relations Court of Australia
Moore J, Sydney, 26 November 1996
4 Bostik (Australia) Pty Ltd v Gorgevski (No. 1) (1992) 36 FCR 20
5 Royle v Arthur Yates & Co. Pty Ltd
Industrial Relations Commission of Victoria, 24 August 1990
6 House v The King (1936) 55 CLR 499
7 Chenery v. Klemzig Nursing Home (1998) 55 SAIR 544
8 Perrin v Des Taylor Pty Ltd (1995) 58 IR 254
9 Byrne v Australian Airlines Ltd (1994) 129 AILR 274 at 285