Unfair dismissal and demotion Part 2

Unfair dismissal and demotion Part 2

Yesterday, I posted a blog about the surprising numbers of ways in which Australian law has developed so that an unfair dismissal case can be pursued by an employee, even in the absence of evidence that the employee has been dismissed. I included an extract from a Fair Work Commission case which contained an analysis of how the concept of a dismissal of employment has been developed by the courts and industrial tribunals, and by Parliament, and today I am posting another extract from that decision which concludes that an employee was permitted to pursue an unfair dismissal case, even though he is still employed!!

“Consideration

[41] In light of the above analysis and the undisputed fact that Mr Harrison remains employed by FLS, it is only necessary for me consider whether the demotion involved a significant reduction in Mr Harrison’s remuneration or duties in determining the question of whether Mr Harrison’s demotion constitutes a dismissal within the meaning of s 386 of the FW Act. However, in any event, I will address all of FLS’s submissions below.

Did the demotion involve a significant reduction in Mr Harrison’s remuneration or duties?

[42] Mr Harrison was employed in the role of Service Supervisor for about three and a half years prior to his demotion. Mr Harrison’s demotion resulted in a reduction of $4.05 per hour to his base hourly rate of pay; it was reduced from $43.50 to $39.45, a reduction of 9.3%. In addition, the reduction in Mr Harrison’s base hourly rate of pay reduced his hourly overtime rate of pay from $53.50 to $49.45 per hour, which is material in circumstances where Mr Harrison performs about six hours of overtime a week. The reduction in Mr Harrison’s rate of pay has also reduced the superannuation contributions FLS is required to make on Mr Harrison’s behalf. In the circumstances of this case, I am satisfied that Mr Harrison’s demotion, which resulted in a 9.3% reduction in his base hourly rate of pay and other consequential reductions in his entitlements, has involved a significant reduction in Mr Harrison’s remuneration.

[43] In his role of Service Supervisor, Mr Harrison’s duties were of a supervisory and organisational nature. He spent most of his time in the office or on site. His time in the office consisted of telephone calls and emails with clients and other management staff as well as meetings with other FLS management or supervisors. Mr Harrison’s time on site primarily consisted of supervising the FLS technician team and meetings with the client. Mr Harrison was responsible for the supervision of about eight technicians. I accept Mr Harrison’s evidence that, as a result of his demotion, he is no longer responsible for the supervision of other FLS employees, he has no direct contact with clients and he does not have an office but is instead based in the FLS workshop working “on the tools”. I am therefore satisfied that Mr Harrison’s demotion has involved a significant reduction in his duties.

Contract of employment

[44] FLS contends that the changes to Mr Harrison’s remuneration and duties are authorised by his employment contract with FLS (Contract), so the changes cannot, and do not, constitute a dismissal under s 386(1) of the FW Act.

[45] I have already found that whether changes imposed by an employer on an employee are authorised by a contract of employment is not relevant to the question of whether an employee was “dismissed” for the purposes of s 386(2)(c). In any event, I find, for the reasons set out below, that the Contract does not authorise the changes made to Mr Harrison’s remuneration and duties. The relevant express terms of the Contract provide:

“Employment Terms and Conditions

Clause Title Description
Position Service Supervisor
Reports to You will report to Mark Flanagan, Regional Coordinator
Classification PERMANENT FULL TIME
Commencement Date Your new terms and conditions of employment will be effective from 17th November 2014. For the purposes of all leave entitlements, including Long Service Leave, your commencement date is 21 September 1989.
Remuneration Your remuneration as set out in Appendix A will be comprised of:

• Hourly rate

• Additional hours rate

• Site allowance

• Night shift allowance

• Travel time

• Superannuation

Any other remuneration other than those specified above will be at the sole discretion FLSmidth Pty Limited.

Location Your position is based at our premises in Warners Bay – NSW. However, to meet the Company’s business opportunities from time to time, during the course of your employment with the Company, you may be required to:

(a) work in other operating locations, interstate or overseas;

(b) be assigned to work for other business units/divisions of the Company; and/or

(c) be required to perform other duties and assume other responsibilities, and/or

(d) perform a different role.

Any change, [sic] be it on a long or short term basis or on an assignment based arrangement. While any requirement for work related visas is the Company’s responsibility, employees are responsible for ensuring that if required for work purposes, their passport is current. Passport costs incurred by the employee are not reimbursable by the Company.

[46] FLS contends that it was authorised to demote Mr Harrison from the position of Service Supervisor to Service Technician by the “Location” clause in the Contract. In particular, FLS relies on the following parts of that clause [emphasis added by FLS]:

“Your position is based at our premises in Warners Bay – NSW. However, to meet the Company’s business opportunities from time to time, during the course of your employment with the Company, you may be required to:

(c) … perform other duties and assume other responsibilities; and/or

(d) perform a different role.”

[47] The proper approach in construing commercial contracts was set out by the High Court (French CJ, Nettle and Gordon JJ) in Mount Bruce Mining Pty Limited v Wright Prospecting Pty Limited: 32

“[46] The rights and liabilities of parties under a provision of a contract are determined objectively, by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose.

[47] In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean. That enquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract.

[48] Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning.

[49] However, sometimes, recourse to events, circumstances and things external to the contract is necessary. It may be necessary in identifying the commercial purpose or objects of the contract where that task is facilitated by an understanding “of the genesis of the transaction, the background, the context [and] the market in which the parties are operating”. It may be necessary in determining the proper construction where there is a constructional choice. The question whether events, circumstances and things external to the contract may be resorted to, in order to identify the existence of a constructional choice, does not arise in these appeals.

[50] Each of the events, circumstances and things external to the contract to which recourse may be had is objective. What may be referred to are events, circumstances and things external to the contract which are known to the parties or which assist in identifying the purpose or object of the transaction, which may include its history, background and context and the market in which the parties were operating. What is inadmissible is evidence of the parties’ statements and actions reflecting their actual intentions and expectations.

[51] Other principles are relevant in the construction of commercial contracts. Unless a contrary intention is indicated in the contract, a court is entitled to approach the task of giving a commercial contract an interpretation on the assumption “that the parties … intended to produce a commercial result”. Put another way, a commercial contract should be construed so as to avoid it “making commercial nonsense or working commercial inconvenience”.

[52] These observations are not intended to state any departure from the law as set out in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales and Electricity Generation Corporation v Woodside Energy Ltd. We agree with the observations of Kiefel and Keane JJ with respect to Western Export Services Inc v Jireh International Pty Ltd.” (citations omitted)

[48] The provision relied on by FLS to unilaterally demote Mr Harrison forms part of the “Location” clause in the Contract. This is a relevant contextual matter. There is no suggestion in this case that the demotion imposed on Mr Harrison by FLS involved any change to his location of work.

[49] Importantly, the right conferred by the “Location” clause on FLS to “require” Mr Harrison to do various things such as “perform a different role” is not unqualified. The right can only be exercised “to meet the Company’s business opportunities from time to time”. That is, the basis for the change must be a business opportunity which FLS has taken up or is seeking to pursue. Demoting an employee to “perform a different role” as a means of taking disciplinary action against the employee for misconduct is quite different to making a change to meet a business opportunity.

[50] There is no doubt in the present case that FLS demoted Mr Harrison to the role of Service Technician as a means of disciplining him, not to meet a business opportunity. So much is clear from the letter from FLS to Mr Harrison dated 6 June 2018. It provides (in part):

“First and Final Warning

Dear Scott

Thank you for your response to our show cause request which we received on 5 June, sent to us on your behalf from Leah Johnson, of the Rethink Group. We have taken this into consideration during a deliberation of any actions that will be taken to the serious allegations and evidence that was presented to you.

…Incident 22 February 2017

I provided verbal guidance to you at the time regarding the impact of this incident on our reputation with this client. I also provided email guidance (13 March 2017 and 16 May 2017) to the East Coast Site Service leadership team including yourself which clearly outlined the risks of reputational damage should any of our personnel register above the 0.00 BAC threshold at client sites. As a direct response to this incident further Drug and Alcohol training was developed by WHS Manager Ron Groenland and provided to all East Coast Site Service personnel who regularly attend site, to eliminate the risk of employees entering a site with a BAC reading exceeding the clients limit…

We acknowledge that the … matter was dealt with at the time however the intent of the training afterward was to ensure that all employees and Supervisors were fully aware of the importance of monitoring their alcohol consumption and to not put their safety (or others) at risk nor put the reputation of FLSmidth at risk. Supervisors were expected to test the BAC levels of all team members before commencing travel to site to remove any doubt of a breach to health and safety regulations.

… 2018

More detailed information was provided by Camden Valley Inn yesterday … which clearly identifies that 29 drinks were ordered and consumed by yourself and two others in your team during the course of the evening between the hours of 6:30pm and 10:00pm. According to the training you had undertaken this should have been identified by you as a significant risk level of consumption.

The failure by you in your position as Supervisor to carry out BAC testing prior to commencing the journey to site, especially given the amount of alcohol that was consumed is unacceptable and does not meet our expectation of the level of responsibility that a Supervisor is accountable for in relation to health and safety of employees and the reputation of FLSmidth.

Based on the above please note the following;

  1. This letter is a first and final warning for you to adhere to FLSmidth health and safety policies and procedures.
  2. Based on the level of responsibilities of your current position as Service Supervisor and the circumstances surrounding the investigation we would look to demoting you to a Mechanical Service Technician – Experienced position effective immediately.
  3. Based on the level of alcohol consumed by the team over the three day period and the lack of monitoring of their fitness for work using the BAC test kit provided there will be restriction imposed on all East Coast Site Service employees travelling to perform work on sites to no more than 2 alcoholic beverages to be consumed per evening with the evening meal.
  4. I remind you of your obligation to follow all FLSmidth policies and procedures diligently and to act with honesty and a high level of professionalism at all times.
  5. My expectation is for you to actively support any new Supervisor appointed to the NSW Site Service team and to work in a positive and supportive way with all other members of the NSW Site Service team at all times.

Failure to improve your current unsatisfactory performance may lead to further disciplinary action, up to and including termination of your employment.” [emphasis added]

[51] Even though the 6 June 2018 letter says that FLS “would look to demoting you to a Mechanical Service Technician – Experienced position effective immediately”, there is no dispute that the demotion took place on or about 6 June 2018.

[52] Further, the Contract deals expressly with the subject of “Remuneration” and sets out in Appendix A the remuneration to which Mr Harrison was entitled. The Contract was made in November 2014. At that time, Mr Harrison’s hourly rate of pay was $40 per hour. 33 There is no dispute that on 1 July of each year since the Contract was made, Mr Harrison received a pay rise, which resulted in the rates of remuneration in Appendix A to the Contract being varied. By the time of the demotion in June 2018, Mr Harrison’s base hourly rate of pay was $43.50 per hour.

[53] The Contract does not confer on FLS any express right to unilaterally reduce Mr Harrison’s remuneration. Yet that is what FLS did when it demoted Mr Harrison from the role of Service Supervisor to Service Technician; it reduced his base hourly rate of pay from $43.50 to $39.45, a reduction of $4.05 per hour. If the parties had objectively intended for the “Location” term to be able to be used by FLS to impose a unilateral demotion (involving a reduction in pay) on Mr Harrison, it could reasonably be expected that the “Location” term, or some other clause in the Contract, would have conferred on FLS an express right to reduce Mr Harrison’s remuneration to a level commensurate with the role into which he had been demoted.

[54] Having regard to the matters set out above, I am satisfied that a reasonable person would not have understood the “Location” term in the Contract to mean that FLS could unilaterally demote Mr Harrison to a position with a lower remuneration as a means of disciplining him for misconduct. In my view, the “Location” term, on its proper construction, permits FLS to make changes such as “requiring” Mr Harrison to “perform a different role” at the same level of remuneration, in order to “meet the Company’s business opportunities from time to time”. That is not what happened in this case.

FLS’s alternative arguments re terms of the Contract

[55] In its reply submissions, FLS contends that:

  • it was an unwritten, express term of employment, as an FLS Service Supervisor, that the incumbent may be demoted, by unilateral decision of FLS, without a termination at the instigation of FLS; and
  • by implication, it was a term of Mr Harrison’s contract of employment as an FLS Service Supervisor, that FLS could demote Mr Harrison, by unilateral decision of FLS, without a termination of his employment at the instigation of FLS.

[56] In the alternative to its reliance on the “Location” clause of the Contract, FLS submits that the term of Mr Harrison’s Contract that allowed demotion, by unilateral decision by FLS, without a termination at the instigation of FLS, was:

(a) partly written, in the form of the “Location” clause of the Contract, and partly unwritten, in the form of an express unwritten term, established by custom and practice, which qualified or explained the practical operation of the “Location” clause, which allowed FLS to demote a Service Supervisor, and in this case, Mr Harrison, by unilateral decision of FLS, without a termination at the instigation of FLS, in response to conduct or behaviour concerns; or

(b) an entirely unwritten, express term of the Contract, established by custom and practice, which:

(i) arises because:

(A) the “Location” clause of the Contract does not expressly authorise demotion (noting that it is FLS’s primary position that this clause does authorise demotion); and

(B) Mr Harrison was aware of, and accepted by his course of conduct, FLS’s contractual right to demote a Service Supervisor, by unilateral decision of FLS, without a termination at the instigation of FLS, in response to conduct or behaviour concerns; and

(ii) allowed FLS to demote a Service Supervisor, and in this case, Mr Harrison, by unilateral decision of FLS, without a termination at instigation of FLS, as it did in response to Mr Harrison’s suggestion to utilise that express term of his employment contract and demote him, by unilateral decision of FLS.

[57] FLS submits that custom and practice may result in the incorporation of an express term into a contract by a course of dealing, or result in a term being implied into a contract, for example, by reason of a custom or usage in the market, trade or industry. The term relied on by FLS is, so FLS submits, the result of incorporation of an express, notorious and unwritten term into a contract by course of dealing between FLS and Supervisors and Team Leaders including Mr Harrison. FLS says Mr Harrison was aware of, and accepted, FLS’s custom and practice.

[58] In support of its course of dealing argument, 34 FLS says that “demotion is available at FLSmidth on a case by case basis, considering the merits of the case in all the circumstances”.35 Two specific examples were given by FLS of demotions in its workforce: first, a Service Supervisor in June 2016; and secondly, another Supervisor in the “last twelve months”.36 The contracts of employment for those demoted employees included a term similar to the “Location” term in Mr Harrison’s Contract and, as is the case with Mr Harrison’s Contract, did not contain an express term permitting FLS to unilaterally reduce the remuneration paid to those employees. FLS reduced the remuneration of one of those demoted employees at the time of their demotion, but exercised its discretion to maintain the other employee’s rate of pay “until the other technician’s rate caught up to it”.37 FLS also relies on Mr Harrison’s evidence that he is aware that one of the two demoted employees, Mr Andrew Bennett, was demoted from the role of Service Supervisor to a technician role.38 Mr Harrison is, and was at the time of his demotion, aware that Mr Bennett did not have his remuneration decreased at the time of his demotion.39

[59] In James v Royal Bank of Scotland; McKeith v Royal Bank of Scotland, 40 Justice McDougall summarised (at [83] to [97]) a number of relevant principles in relation to incorporation of terms by a course of dealings:

“The classic case of incorporation by a course of dealings occurs where parties have had numerous contractual dealings over a period of time, with each dealing effected by a separate contract. The circumstances may give rise to an inference that the parties intended or accepted that documents given by one to the other, at or shortly after the time each contract was made, were to have contractual effect. In those circumstances, it may be concluded that the terms stated in those documents should be incorporated into the parties’ contracts. That is clear from the leading English case, Henry Kendall and Sons v William Lillico and Sons Ltd [1968] UKHL 3[1969] 2 AC 31.

In that case, the parties had had a long history of contractual dealings. The contracts were made orally in each case. After each oral contract was concluded, one party sent to the other a document containing what it said were the terms governing the contract that had just been made. The failure of the recipient to object to those terms, as terms of the contract, justified the inference that they were incorporated into the individual oral contracts.

Lord Morris of Borth-y-Gest (at 90) stated the consequences with his customary clarity:

Over the course of a long period prior to the three oral contracts which are now in question [the purchaser] knew that when [the vendor] sold they did so on the terms that they had continuously made known to [the purchaser]. In those circumstances it is reasonable to hold that when [the purchaser] placed an order to buy they did so on the basis and with the knowledge that an acceptance of the order by [the vendor] and their agreement to sell would be on the terms and conditions set out on their contract notes to the extent to which they were applicable.

Lord Guest spoke to similar effect at 104.

Thus, in Carter, Peden and Tolhurst, Contract Law in Australia (LexisNexis, Fifth Edition, 2007), the authors say at [10-18] that:

A course of dealing occurs when the contract at issue between the parties is preceded by a series of transactions over time. Such a course of dealing may have the effect of incorporating terms into a contract.

A similar approach was taken in Hays Personnel Services (Australia) Pty Ltd v Motorline Pty Ltd [2008] QCA 375. Holmes JA, with whom Keane JA and McMeekin J agreed, said at [18] that time sheets provided by one party to the other, as part of their course of dealing prior to making the contract on which the plaintiff sued, could be regarded as incorporated into that contract. See also, to similar effect, McLure P in La Rosa v Nudrill Pty Ltd [2013] WASCA 18 at [35], [43], and Buss JA in the same case at [68].

In La Rosa, McLure P said at [43] that incorporation based on prior dealings is not the same as implication in fact or implication based on trade custom or usage. What is involved is, rather, inference based on prior conduct.”

[60] I reject FLS’s contention that a term was incorporated, by a course of dealing, into the Contract which permitted FLS to unilaterally demote him from the position of Service Supervisor. First, there is no suggestion that such a term was included in any of the “several [prior] contracts of employment” made by FLS and Mr Harrison, 41 nor is there evidence of any such representation being made to Mr Harrison. Secondly, although Mr Harrison was aware of the demotion of Mr Bennett without any consequent reduction in remuneration, there is no evidence that he was aware of the terms of any contract of employment made between FLS and any other employee it has demoted. Thirdly, the terms of the contracts made between FLS and the two particular employees it gave evidence of having demoted did not give FLS the unilateral right to demote the employee to a position with a reduced remuneration. Fourthly, FLS has not proved any relevant course of conduct from which it can be inferred that the term for which it contends was incorporated into Mr Harrison’s Contract.

[61] Although FLS’s primary argument concerning custom and practice was focused on an alleged course of dealing, some submissions were made in relation to the implication of a term by custom or usage. I will therefore address that issue.

[62] Terms implied by custom or usage constitute a special class of terms implied in fact. The existence of a custom is a question of fact. 42 Actual knowledge of the custom is not required.43 The custom need not be universally accepted, but there must be evidence that it is so well known and acquiesced in that everyone making a contract in that situation can be reasonably presumed to have imported that term into the contract.44The custom itself must be “uniform, notorious, reasonable and certain”.45 The question is always whether the general notoriety of the custom makes it reasonable to assume that the parties contracted with reference to the custom.46 Put at its highest, the evidence shows that Mr Bennett’s demotion is and was well-known throughout the East Coast Site Services part of FLS’s business.47 This is clearly an insufficient basis on which to find the existence of custom and usage, and from which it may be concluded that a term of unilateral demotion should be implied into the Contract. Mr Bennett’s demotion occurred in June 2016. The Contract was made in November 2014. Accordingly, Mr Bennett’s demotion does not provide a basis to assume that the FLS and Mr Harrison contracted with reference to the alleged custom.

[63] In short, the evidence does not establish the existence of a custom of the type contended for by FLS, nor does it establish that the alleged custom is so well known and acquiesced in that everyone making a contract in that situation can be reasonably presumed to have imported that term into the contract. I reject the claim that a term was implied by custom or usage into the Contract.

Termination at the initiative of FLS

[64] FLS contends that it made the change to Mr Harrison’s remuneration and duties at Mr Harrison’s suggestion or request, as an alternative to terminate his employment and to avoid terminating employment, and so the change was not at FLS’s initiative and does not constitute a dismissal under s 386(1) of the Act.

[65] I have already found that whether the demotion was at the initiative of FLS is not relevant in relation to s 386(2)(c) and is only relevant in relation to whether there has been a termination of the employment relationship at initiative of employer under s386(1). In any event, I do not accept that Mr Harrison’s demotion was at his initiative. For the reasons set out below, action on the part of the FLS was the principal contributing factor which resulted in the demotion. 48

[66] I accept Mr Harrison’s evidence that in the course of his meeting with Mr Riordan on 4 June 2018, after Mr Riordan had provided Mr Harrison with a letter inviting him to show cause as to why his employment should not be terminated, Mr Harrison made a number of suggestions, including asking whether there was any chance he could “step down into a technician role”, offering to undertake further training, and offering to “do anything to convince you that I can continue”. There was no discussion about what, if any, reduction would be made to Mr Harrison’s remuneration if he did “step down into a technician role”.

[67] Following the meeting on 4 June 2018, Mr Harrison provided a written response dated 5 June 2018 (from his lawyers) to the show cause letter in which he expressed a hope that the matter could be “resolved on an amicable basis” and informed FLS that he was “open to engaging in further training and development courses”.

[68] Mr Harrison then attended a meeting with FLS on 6 June 2018, which time he was handed the 6 June 2018 letter (see paragraph [48] above).

[69] Although it is true that Mr Harrison floated a number of ideas at the 4 June 2018 meeting, one of which was demotion, there was no discussion of any reduced pay that might be associated with any such demotion. Mr Harrison did not make any offer of demotion capable of acceptance, because there was no certainty of the terms on which the demotion would occur. It follows that it was not open to FLS to simply accept Mr Harrison’s offer of demotion.

[70] The proper characterisation of events is one in which FLS made a number of allegations against Mr Harrison and asked him to show cause as to why his employment should not be terminated, Mr Harrison responded by floating a number of ideas (including demotion) in an effort to remain in employment with FLS, and FLS then decided to demote Mr Harrison and issue him with a written warning. It is therefore apparent that the action of FLS was the principal contributing factor which led to Mr Harrison’s demotion. The demotion was at FLS’s initiative, not Mr Harrison’s.

Conclusion

[71] Mr Harrison remains employed by FLS following his demotion. There is no doubt that the demotion involved a significant reduction in Mr Harrison’s remuneration and duties. Accordingly, Mr Harrison’s demotion in his employment with FLS constitutes a dismissal within the meaning of s 386 of the FW Act. I therefore reject FLS’s jurisdictional objection. The matter will be listed shortly for directions to deal with the merits of the dismissal.”

Harrison v FL Smidth Pty Ltd (2018) FWC 6695 per Saunders C