Employer Cannot Avoid Compensation for Termination Without Notice

The Industrial Relations Commission considered whether it could vary a contract of employment to include compensation for termination without notice, despite special statutory powers granted to the employer under the Energy Services Corporations Act 1995. The Commission found it could impose such compensation, rejecting the argument that it lacked jurisdiction due to the special statutory powers.

Industrial Relations Commission of New South Wales in Court Session

CITATION : [NAME] v [NAME] [2000] NSWIRComm 231 revised - 17/11/2000 APPLICANT: [redacted] PARTIES : RESPONDENT: [redacted] CORAM: Maidment J Notice of motion - Interlocutory Judgment. CATCHWORDS : Special Statutory Power - jurisdictional power - payment of compensation upon removal from office without notice. Notice of motion dismissed. Industrial Relations Act 1996 LEGISLATION CITED : [COMPANY] Act 1995 Industrial Relations Bill 1996 State Owed Corporations Act 1989 CBS Productions Pty Limited v. O'[NAME] [1985] 1 NSWLR 601. Bank Offices Association (South Australia Branch) v. Savings Bank of South Australia [1923] 32 CLR 276. Pesic v. South Sydney Municipal Council [1978] 1 NSWLR 135. Butler v. Attorney General (VIC) [1961] 106 106 CLR268 CASES CITED : [NAME] v. The Queen [1990 - 1991] 172 CLR 1. [NAME] v. [NAME] [No2] [1991] 481R 314. Totalisator Agency Board v. [COMPANY] & Ors [1995] 59 IR 36. Nagle v. Tilburg (1993) 51 IR 8. Production Spray Painting v. Newham (1991) 37 IR 46.

HEARING DATES: 10/26/2000 DATE OF JUDGMENT: 11/17/2000

APPLICANT: [redacted] SOLICITOR: [redacted] LEGAL REPRESENTATIVES: RESPONDENT: [redacted] SOLICITOR: [redacted]

JUDGMENT:

INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES IN COURT SESSION

CORAM: MAIDMENT J DATE: 17 NOVEMBER 2000

Matter No.IRC436 of 2000 [NAME] v [NAME]. Application under s 106 of the Industrial Relations Act 1996 Interlocutory Judgment

1 [NAME] commenced employment with [NAME] of Australia ("[NAME]") or its predecessor as a Cadet Engineer in 1963 and remained in its employ until he was dismissed on 24 November 1999 from his then employment as Chief Executive Officer.

2 By summons filed on 7 February 2000 [NAME] seeks relief under s.106 of the Industrial Relations Act 1996 as follows:

1. An order declaring that the Contract of Employment, arrangements, conditions or collateral arrangements under which the Applicant performed work for the Respondent was unfair, harsh or unconscionable and/or contrary to the public interest.

2. An order declaring void in whole - or in part or varying in whole or in part either from its commencement or from some other time the Contract of Employment arrangements, conditions or collateral arrangements between the Applicant and the Respondent under which the Applicant performed work in an industry.

3. Further and in addition an order varying the Contract of Employment between the Applicant and the Respondent ab initio or at some other time prior to its termination by inserting the following terms: (a) "Before termination of the employment for any reason the Respondent shall give to the Applicant two years notice of the proposed termination or payment in lieu of such notice of termination." (b) For the purpose of (a) above payment in lieu of notice shall be calculated by reference to the total value of all benefits that the Applicant would have received during the notice period. (c) The Respondent will not conduct itself in a manner that is likely to damage or destroy the relationship of confidence and trust between the Respondent and the Applicant. (d) The Respondent shall both during the employment and following the termination of employment by them refrain from conduct which undermines or damages or is likely to have the effect of undermining or damaging the personal or professional reputation of the Applicant.

4. Upon termination of the Applicant's employment with the Respondent the Respondent shall pay to the Applicant any bonus payment that to which the Applicant would have been entitled if the employment had not been terminated.

5. An order varying the Contract of Employment be deleting Clause 10.5 thereof and inserting in lieu thereof the following: "Upon termination of the employment [NAME] shall be paid a maturing/experience allowance in accordance with the relevant terms of the [NAME] (Conditions of Employment) Award as varied from time to time."

6. Further an order varying the Contract of Employment ab initio by deleting therefrom Clause 17 thereof.

7. Further, in addition, an order that the Respondent pay to the Applicant the following: (a) Two years and one month payment in lieu of notice based on the applicant's total remuneration package at the time of termination of employment ($274,240.00 pa) in the amount of $571,333; (b) An amount of $150,000 as compensation for loss of termination of employment entitlements being sick leave, annual leave and long service leave payable pursuant to Clause 10.6 of the Employment Contract based on the total remuneration package of the Applicant at the time of the termination of his employment; (c ) Payment of $363,992 being the maturity allowance pursuant to Clause 10.5 of the Contract of Employment based on the national rate assumed to be the total remuneration package including increase adjustments. (d) Future bonus payments for the years ending 30 June 2000 and 30 June 2001.

8. Further, in addition, an order that the Respondent pay to the Applicant such amount of money in connection with the Contract so avoided or varied as may appear to be just in the circumstances.

9. An order that the Respondent pay to the Applicant interest upon the amount of money ordered to be paid.

10. An order that the Respondent pay to the Applicant his costs of and incidental to these proceedings.

11. Such further or other orders as this Honourable Commission considers appropriate.

3 By notice of motion filed on 14 [NAME] seeks declaratory relief as follows:

1. An order under Rule 89(5) of the Industrial Relations Commission Rules 1996 and Part 31 Rule 2 of the Supreme Court Rules 1970 that this application be decided separately from any other question in these proceedings before any trial in the proceedings.

2. A declaration under section 154 of the Industrial Relations Act 1996 and Rule 82(1)(g) of the Industrial Relations Commission Rules 1996 that, upon the proper construction of sub-section 10(2) and sub-clause 2(2) of Schedule 2 to the [COMPANY] Act 1995 on the one hand, and section 106 of the Industrial Relations Act 1996 on the other hand, the Commission has no jurisdiction to hear and determine any claims that the applicant has made in these proceedings with respect to the time at which the applicant was removed from office, the reasons for which that was done, and the notice that he might be entitled to receive.

3. An order vacating the directions made in these proceedings on 19 June 2000.

4. An order under section 181 of the Industrial Relations Act that the applicant pay the respondent's costs of and incidental to this application.

5. Such further or other orders as the Commission sees fit. 4 The grounds and reasons contained in the Notice of Motion are as follows:

1. Upon their proper construction, sub-section 10(2) and sub-clause 2(2) of Schedule 2 to the Energy Services Corporations Act 1995 exclude the jurisdiction that the Industrial Relations Commission would otherwise have under section 106 of the Industrial Relations Act 1996 to hear and determine claims with respect to the time at which the applicant was removed from office, the reasons for which that was done, and the notice that he might be entitled to receive. 5 At the hearing of the motion [NAME] QC with [NAME] of counsel appeared for [NAME] of counsel for [NAME].

6 An outline of submissions in support of the motion was filed in the proceedings, it is in the following terms:

1. It is appropriate for the Commission to facilitate the early and separate determination of the issue which the declaration sought by [NAME] seeks to resolve. CBS Productions Pty Limited v. O'Neill [1985] 1 NSWLR 601 at 606 C-D; 607 F to 608C. 2. [NAME] is constituted by the [COMPANY] Act 1995 (" [NAME] Act ") (s.4) with a special statutory power to dismiss its chief executive officer "at any time, for any or no reason and without notice," provided only that it first consult with the voting shareholders: s.10; Sch. 2(2)(2). (cf Schedule A).

3. The general power given to the Commission by the later enactment of s.106 Industrial Relations Act does not derogate from the special plenary power invested in [NAME] and, in the circumstances of the present case, exercised by it.

Accordingly, this Commission has no jurisdiction to make an order varying any such contract so as to make provision contrary to or otherwise to derogate from the plenary right of [NAME] to act as empowered by the [NAME] Act. § Affidavit of [NAME] sworn 14 July 2000, and filed herein.

§ Bank Officers Association (South Australia Branch) v. Savings Bank of South Australia [1923] 32 CLR 276 at 281 to 284 per Knox CJ, at 289 to 292 per Isaacs and Rich JJ; § Pesic v. South Sydney Municipal Council [1978] 1 NSWLR 135 at 141 line E to 142 line C; § Butler v. Attorney General (VIC) [1961] 106 CLR 268 at 275 to 276 per Fullagar J, at 290 per Windeyer J; § [NAME] v. The Queen [1990 – 1991] 172 CLR 1 at 17 per Gaudron J; § [NAME] v. [NAME] [No2] [1991] 481R 314 at 324, 326 per Hill J; at 335 and 336.5 per Maidment J.

4. There remains the question whether the Commission should [NAME] the declaration sought. It is submitted that the necessary preconditions spoken of by Kirby P in CBS Productions Pty Limited, and conveniently collected by Young J in "Declaratory Orders" 2nd Ed at pages 9 to 10, are satisfied: (copy attached).

5. Nothing in the reasoning of the members of the [ADDRESS] in Totalisator Agency Board v. [COMPANY] & Ors [1995] 59 IR 36 requires any different conclusion than that contended for by [NAME] in these Submissions. 7 The affidavit of [NAME] referred to therein was to the effect that the Board of [NAME] had consulted with its voting shareholders before removing [NAME] from office. A helpful six page schedule detailing the relevant legislative scheme was included with the outline of submissions.

8 [NAME] responded with an outline of submissions in the following terms:

1. The question raised in the Notice of Motion should not be heard and determined until all the facts have been established in evidence or by agreement so as to establish clearly what the contract or arrangement is. Nagle v Tilburg (1993) 51 IR 8 at 11 and 13 Beahan v Bush Boake Allen Aust. Ltd (1999) 93 IR 1 at 2 to 3 2. S.106 of the Industrial Relations Act continues the existing industrial jurisdiction in respect of unfair contracts, see Industrial Relations Bill 1996 - Explanatory Note . The jurisdiction has existed with the Commission and its predecessors since 1959 appearing as s.88F of the 1940 Act.

3. The provisions found in Sch 2(2)(2) of the [COMPANY] Act 1955 (ESCA) only enables the board to "remove a person from office". They do not purport to deal with employment or the contracts or arrangements associated therewith. 4.. The chief executive officer is a member of the Board Sch 2 (1)(2) ESCA. He has certain functions and responsibilities as a result of that office. In addition and as a separate consideration the holder of the office may be required to enter into performance agreements Sch9(4) of the State Owned Corporations Act 1989 (SOCA). The terms and conditions of the office holder's employment are determined separately to the appointment to the office Sch2(2)(3A) ESCA. It is clear that the determination of employment conditions is not dictated by the statute but rather left to the discretion of the Board.

5. It is clear that a person can be appointed in circumstances of illness or accident to "act in the office of chief executive officer", Sch 2(3)(1) ESCA. Such a person can be removed from that office Sch2(3)(2) ESCA. The removal does not effect the employment of the individual who has occupied the office as a consequence of the temporary vacancy.

6. The distinct nature of the terms and conditions of employment and the holding of the office are reflected in: (i) [NAME]'s letter of appointment; (ii) [NAME]'s contract of employment which does contain a termination provision on notice, see clause 10; (iii) The letter notifying [NAME] that his appointment to the office of Chief Executive Officer had been terminated pursuant to Sch2(2)(2) of the ESCA and that in addition his employment had been terminated pursuant to clause 10 of his contract of employment. The distinction so recognised is consistent with the statutory scheme established by the ESCA.

7. In my submission the provisions sought to be relied upon only relate to a very specific power which is conferred on the Board. There is no proper basis for concluding that the Legislature intended the provisions of the ESCA to affect (limit) the jurisdiction conferred by s.106 of the Industrial Relations Act 1996 . See Saraswati v The Queen (1990-1991) 172 CLR 1.

8. Clearly the contract which regulated [NAME]'s employment was one whereby he performed work in industry and therefore within jurisdiction. Production Spray Painting v Newham (1991) 37 IR 46.

9. In my submission the Commission should: (i) dismiss the Notice of Motion;

(ii) give directions for the further conduct of the substantive matter; (iii) order that the Respondent pay the Applicant's costs.

9 Schedule 2 of the [COMPANY] Act 1995 has effect in the present circumstance by force of s.10 of that Act. Sch.2(2)(2) provides as follows: The board may remove a person from office as chief executive officer, at any time, for any or no reason and without notice, but only after consultation with the voting shareholders.

10 [NAME] accepts that [NAME]'s contract of employment is amenable to a remedy under s.106 of the Industrial Relations Act 1996 should requisite unfairness be demonstrated, however, he contends that the remedy is not at large. 11 The nub of the jurisdictional attack is the proposition that sch.2(2)(2) would conflict with any orders of this Court of the nature of those sought by paragraphs 3(a) & (b), 5 and 7 of the s.106 summons. It is submitted that this Court has no jurisdiction to make an order which would derogate from the power exercised under Schedule 2 of the [COMPANY] Act 1995 to remove [NAME] from office as chief executive officer without notice.

12 An order requiring a payment in lieu of notice, it is said, would be in conflict with that power. Any provision in [NAME]'s contract of employment requiring payment in lieu of notice would, it is argued, be unenforceable as, being inconsistent with the terms of sch.2(2)(2). 13 I do not quarrel with the propositions of law which have been advanced in support of the motion, the issue really turns upon the proper interpretation of the terms of sch.2(2)(2). 14 It seems to me that, in order to succeed on the motion, [NAME] needs to demonstrate that the words "the board may remove a person from office as chief executive officer . . .without notice" in sch.2(2)(2) manifest a parliamentary intention that the board may not only remove the chief executive officer without notice but may also do so without paying compensation irrespective of any contractual term to the contrary. I am not convinced that the parliamentary intent is thus. 15 I accept that this Court has no authority to fetter the right of the board to remove [NAME] from office and to do so without notice. However it seems to me that a provision in [NAME]'s contract of employment which was to the effect that he was to receive compensation if he was removed from office without notice would not necessarily fetter the rights of the board to remove him from office without notice. I do not accept that such a provision would derogate from the power to remove him from office without notice.

Accordingly, subject to the requirements of s106 otherwise being met, it is my view that this Court is empowered to vary [NAME]'s contract of employment by inserting such a provision. 16 As to the claim for the insertion of a contractual provision requiring the giving of two years notice of termination [NAME] argued that [NAME]'s employment was separate from his office and that, although he might be removed from office without notice the same did not necessarily attach to his contract of employment. Prima facie I do not accept this argument, however, on account of the conclusion I reach it is not necessary for me to deal with it. 17 I note that the relief sought by [NAME] includes payment in lieu of notice as opposed to termination pay or compensatory pay and recognise that the use of the term "payment in lieu of notice" raises the spectre of some requirement to give notice, however, the relief available to him is not confined by the terms of the orders sought. Having reached the view that the contract could, with effect, require the payment of compensation upon removal from office without notice it seems to me that the summons is substantially within jurisdiction. 18 For and upon the above reasons I reach the view that the Notice of Motion must be dismissed, I so order. 19 In the absence of agreement the parties will be heard as to costs.

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