Automotive, Food, Metals Engineering, Printing and Kindred Industries Union v Mechanical Engineering Services Pty Ltd (No 2) [2008] FCA 1249 (19 August 2008)

Automotive, Food, Metals Engineering, Printing and Kindred Industries Union v Mechanical Engineering Services Pty Ltd (No 2) [2008] FCA 1249

INDUSTRIAL AND EMPLOYMENT – breach of award – failure to make redundancy payments – meaning of "ordinary time rate of pay" – failure to make payment in lieu of notice – whether payment in lieu of notice a debt or damages – imposition of penalties

Workplace Relations Act 1996 (Cth) ss 507, 719

Automotive, Food, Metals Engineering, Printing and Kindred Industries Union v Mechanical Engineering Services Pty Ltd [2007] FCA 1736
Brain & Robinson v Goodyear Tyre & Rubber Co (Aust) Ltd [1959] AR(NSW) 643
Catlow v Accident Compensation Commission [1989] HCA 43; (1989) 167 CLR 543
Cerberus Software Ltd v Rowley [2001] ICR 376
Delaney v Staples (trading as de Montfort Recruitment) [1992] 1 AC 687
Kelly v Fitzpatrick (2007) 166 IR 14
Scott v Sun Alliance Australia Ltd [1993] HCA 46; (1993) 178 CLR 1

AUTOMOTIVE, FOOD, METALS ENGINEERING, PRINTING AND KINDRED INDUSTRIES UNION & ORS v MECHANICAL ENGINEERING SERVICES PTY LTD

VID 524 of 2007

FINKELSTEIN J
19 AUGUST 2008
MELBOURNE

1 Three issues in this application are still outstanding. I have already decided that the respondent breached the Metal, Engineering and Associated Industries Award 1998 in two respects. First, it failed to make redundancy payments as required. Second, it did not give its employees adequate notice of the termination of their employment. The outstanding issues are, first, what penalty ought be imposed for the breaches; second, how are the unpaid redundancy payments to be calculated; and, third, are the dismissed employees entitled to recover an amount equal to one week’s pay, being the period by which the notice of termination was short.

2 It is convenient to start with the money claims. The award provides that severance pay (redundancy) is to be calculated as a multiple of a "week’s pay". The multiple is determined by the number of years the employee has been in continuous service. The point in dispute is how is a "week’s pay" is to be determined.

3 The award defines "week’s pay" to mean "the ordinary time rate of pay for the employee concerned", with certain rates and allowances excluded. The dispute between the parties is this. The applicants contend that the "ordinary time rate of pay" is the pay which was in fact paid to former employees. That rate was fixed by agreement between the employees and the respondent. The contrary position, which is taken by the respondent, is that the expression refers to the rate fixed by the award, or the rate which has replaced the award rate.

4 In Catlow v Accident Compensation Commission [1989] HCA 43; (1989) 167 CLR 543 at 560, McHugh J noted that most industrial awards and agreements provide for "ordinary time rate of pay" for hours worked. In Scott v Sun Alliance Australia Ltd [1993] HCA 46; (1993) 178 CLR 1 at 5, the High Court observed that the expression is also used in legislation. The Court went on to say that by reason of usage, the phrase has come to mean the standard rate of pay as fixed by the relevant legislative instrument, award or agreement. It is, of course, true that the context may suggest a different meaning, as for example in Brain & Robinson v Goodyear Tyre & Rubber Co (Aust) Ltd [1959] AR(NSW) 643. But in my opinion there is no contrary indication in the award. I did, for a time, toy with the notion that the composite expression "the ordinary time rate of pay for the employee concerned" drew attention to the rate actually paid to the "employee concerned". That type of approach, however, did not find favour with the Court in Scott: see 178 CLR at 6. Nor is it consistent with the award. I have in mind the provisions dealing with payment in lieu of notice which is calculated by reference to the amounts actually payable to employees. In other words, those who drafted the award drew a distinction between standard rates of pay and actual rates of pay. Redundancy falls into the first category.

5 The second money claim concerns payment in lieu. The award provides that in order to terminate an employee’s employment, notice of termination must be given. The length of notice depends upon the years of service. In this case the required notice was two weeks. The award provides that "payment in lieu of ... notice ... must be made if the appropriate notice period is not given." The amount to be paid must, according to the award, "equal or exceed the total of all amounts that, if the employee’s employment had continued until the end of the required period of notice, the employer would have become liable to pay to the employee because of the employment continuing during that period[;] that total must be calculated on the basis of ... the employee’s ordinary hours of work (even if not standard hours) and ... the amounts ordinarily payable to the employee in respect of those hours including (for example) allowances, loading and penalties and ... any other amounts payable under the employee’s contract of employment."

6 When notice of termination was given, the employees were engaged in industrial action. It is likely that had the employees’ employment not come to an end, the industrial action would have continued for at least a further week. In that event, the employees would have received no wages for that week. This is the effect of s 507(2) of the Workplace Relations Act 1996 (Cth), which provides that an employer must not make payments to an employee in relation to periods of industrial action engaged in by the employee. The question is whether s 507(2) applies when determining the amount to which an employee is entitled by way of payment in lieu of notice.

7 The cases say that if an employer is entitled to dismiss an employee summarily but the contract provides that the employee is entitled to payment in lieu of notice, the employee’s claim for payment is not by way of damages for wrongful dismissal but is a debt due under the agreement. The debt is not the equivalent of wages because the employment relationship is at an end: see generally Delaney v Staples (trading as de Montfort Recruitment) [1992] 1 AC 687 at 692-693; Cerberus Software Ltd v Rowley [2001] ICR 376.

8 According to the award, the amount to be paid in lieu of notice is ascertained following an assessment of what pay the employee would have received had the employment continued during the notice period. On one view this amount is nothing because had the employment continued the employees would also have continued their industrial action and received no pay. The other view, which is the view I prefer, is that while the award provides that the amount to be paid is to be determined by reference to what the employee would have received had his employment continued, the amount must be calculated without regard to s 507. The section prohibits payments being made "in respect of" a period of time during which the employee was engaged in industrial action. On the termination of the employee’s employment, the employee is no longer engaged in any relevant sense in industrial action. While a payment of wages to an employee may be caught by the section, the payment of a simple contract debt to a former employee is not.

9 So far as penalty is concerned, the maximum that can be imposed for each contravention is 300 penalty units (ie $33,000): s 719(4). When there are numerous breaches arising out of a single course of conduct they are to be taken to be a single breach: s 719(2). If regard is had to the facts (as to which see my judgment in Automotive, Food, Metals Engineering, Printing and Kindred Industries Union v Mechanical Engineering Services Pty Ltd [2007] FCA 1736), it is impossible to avoid the conclusion that for penalty purposes there have been only two breaches. They are breaches of: (1) cl 4.4.3 of the award (failing to make the redundancy payments); and (2) cl 4.3.1 (failing to make payments in lieu of notice).

10 In Kelly v Fitzpatrick (2007) 166 IR 14, Tracey J referred to the many considerations to be taken into account when determining penalty. They are:

11 The matters which I regard as important in this case are these. The breaches were of provisions in the award that protect employees’ substantive rights and conditions of employment. The breaches have caused former employees unnecessary stress and denied them a significant entitlement that may have made a difference to them and their families. This is particularly so in respect of unpaid redundancy, but even one extra week’s pay in lieu of notice is significant for many families.

12 On the other side, there are the following points. One is the financial position of the respondent. It was once a sizable company and ran a substantial operation. It now finds itself in difficult financial circumstances and is probably insolvent. Its only source of income is rent from a property it owns. It does not have sufficient income to pay unpaid taxes. It also owes a large debt to Westpac.

13 It is also necessary to bear in mind that the breach of the clause dealing with payment in lieu of notice was unintentional. The company attempted to give the required period of notice. No-one noticed that by reason of s 160 of the Evidence Act 1995 (Cth), upon which my earlier decision was based, the notice was short.

14 In these circumstances I propose to impose a penalty of $3,000 for the breach of cl 4.3.1. In relation to the breach of cl 4.4.3 (failing to make the redundancy payments) no excuse was proffered. An appropriate penalty is $10,000. There will be an order that these amounts be paid to the applicants.

15 I am prepared to allow the respondent to make the redundancy payments and payments in lieu in three equal monthly instalments, with the $13,000 in penalties to be added in full to the final instalment.

16 The applicants should bring in short minutes of order to give effect to these reasons.

Counsel for the Applicants:	M McNamara

Solicitor for the Applicants:	Maurice Blackburn

Counsel for the Respondent:	C O’Grady

Solicitor for the Respondent:	Workplace Legal

Date of Applicants’ Written Submission:	10 April 2008

Date of Respondent’s Written Submission:	6 May 2008

Date of Judgment:	19 August 2008

AUTOMOTIVE, FOOD, METALS ENGINEERING, PRINTING AND KINDRED INDUSTRIES UNION	First Applicant
DAVID ALDERSON	Second Applicant
HARDY ALKO	Third Applicant
STEPHEN ATTRILL	Fourth Applicant
WAYNE BASTIN	Fifth Applicant
ALLAN BENNETT	Sixth Applicant
PATRICK BROWN	Seventh Applicant
STEVEN BUHAGIAR	Eighth Applicant
JOHN CROPLEY	Ninth Applicant
JASON CURRY	Tenth Applicant
ALAN DINGWALL	Eleventh Applicant
JOHN GEREMIA	Twelfth Applicant
TERRY GRECH	Thirteenth Applicant
SYDNEY GRIMA	Fourteenth Applicant
PETER HABER	Fifteenth Applicant
RAY JORDAN	Sixteenth Applicant
BRETT KISTEMAKER	Seventeenth Applicant
HUBERT KERKVLIET	Eighteenth Applicant
JOHN KUKLINSKY	Nineteenth Applicant
RALPH MARSHALL	Twentieth Applicant
KEITH McKENDRY	Twenty-First Applicant
GEOFF MORLAND	Twenty-Second Applicant
JOSEPH MICALLEF	Twenty-Third Applicant
DAVID MITCHELL	Twenty-Fourth Applicant
GREGORY NICKLEN	Twenty-Fifth Applicant
GEOFFREY REA	Twenty-Sixth Applicant
CHRISTOPHER ROBERTSON	Twenty-Seventh Applicant
JOHN SCHOLTES	Twenty-Eighth Applicant
KEVIN SIMM	Twenty-Ninth Applicant
IAN STRONG	Thirtieth Applicant
DAVID WARD	Thirty-First Applicant
DAVID WARNER	Thirty-Second Applicant
DAVID WAWRZKOW	Thirty-Third Applicant

BETWEEN:	AUTOMOTIVE, FOOD, METALS, ENGINEERING, PRINTING AND KINDRED INDUSTRIES UNION & ORS (as per attached Schedule) Applicants
AND:	MECHANICAL ENGINEERING SERVICES PTY LTD Respondent

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VID 524 of 2007

JUDGE:	FINKELSTEIN J
DATE:	19 AUGUST 2008
PLACE:	MELBOURNE

Federal Court of Australia

Automotive, Food, Metals Engineering, Printing and Kindred Industries Union v Mechanical Engineering Services Pty Ltd (No 2) [2008] FCA 1249 (19 August 2008)