Cook v CFP Management Pty Ltd [2005] QDC 348

DISTRICT COURT OF QUEENSLAND CITATION: Cook v CFP Management Pty Ltd [2005] QDC 348 PARTIES: David James Cook Plaintiff CFP Management Pty Ltd Defendant FILE NO/S: D1369/03 DIVISION: District Court PROCEEDING: Trial ORIGINATING COURT: District Court at Brisbane DELIVERED ON: 2 November 2005 DELIVERED AT: Brisbane HEARING DATE: 29 August 2005 JUDGE: Dick DCJ ORDER: 1. Defendant to pay to the Plaintiff the sum of $92,168.93 2. Defendant to pay the Plaintiff’s costs of and incidental to the proceeding including reserve costs to be assessed on the appropriate standard District Court scale CATCHWORDS: COUNSEL: G Beacham for the Plaintiff T Bradley for the Defendant SOLICITORS: Hunt and Hunt Solicitors for the Plaintiff Blake Dawson Waldron Lawyers for the Defendant [1] The Plaintiff’s claim is for payment in respect of annual leave and payment in lieu of notice and payment in respect of long service leave. [2] The Plaintiff, a stockbroker, was employed by the Defendant under an employment contract dated 29 March 2002. His contract provided that he was taken to have commenced employment on 14 April 1994. [3] The employment contract contained the following relevant terms: -- 1 of 11 -- 2 1. Positions and Duties You are employed on a full-time basis in the position of [particular position], working in the Brisbane Office. Your State Administration Manager is Bret O’Donovan. Whilst your duties and responsibilities will be discussed in more detail separately, you will at all times be required to comply with the directions given by the senior management of the Challenger Group. … 3. Remuneration 3.1 Total Package Your total package on commencement of employment will be a base salary of [particular figure] per annum plus incentive calculated and paid in accordance with the attached Incentive Calculation Details and Conditions (which is inclusive of superannuation). The Incentive Calculation Details and Conditions form part of your Employment Terms and Conditions. Your remuneration may be taken in cash salary and non-cash benefits, such as additional superannuation contributions and fringe benefits … 3.2 Remuneration Structure The following remuneration structure is effective 01 March 2002. You will be placed on the standard remuneration structure ie. where the incentive ratio on all transactions and fee business to be paid out at 72% (inclusive of the compulsory contribution required by Superannuation Guarantee legislation and after earning gross income of $55,555 assuming a $40,000.00 per annum base salary) after deducting costs as outlined in the Incentive Calculation Details and Conditions. 3.3 Alliance Fee Each adviser is provided with accommodation and services by the Company and in turn will pay the Company a monthly (in advance) Alliance fee…It is intended that the Alliance fee payment be made from pre tax income. Your Alliance fee (Capital City Office) will be $32,000.00 per annum. 3.4 Salary Payment -- 2 of 11 -- 3 Your salary will be paid fortnightly. The cash component (after tax) of your base salary will be deposited to your bank account on a fortnightly basis every second Thursday night. The cash component (after tax) of your incentive will be deposited to your bank account on a monthly basis not later than the 15 th of the following month. … 4.8 Applicable Legislation The terms and conditions of your employment set out in this letter are subject to any contrary mandatory provisions of any award or law which applies to your employment from time to time. 5. Leave Entitlements 5.1 Annual Leave You will be entitled to the annual leave required to be given to you by any applicable award or law…. 5.2 Sick Leave … All sick leave payments are calculated on your base salary only. 5.3 Long Service Leave All employees are entitled to long service leave after completing the number of years of continuous service with Challenger as defined by the relevant State Act listed below: Jurisdiction Period of Leave … QLD (Workplace Relations Act 1979) 13 weeks @ 15 years (13 weeks for each 15 years thereafter) … You are entitled to pro-rata long service leave after 10 years service. The remuneration basis used for calculating long service leave taken whilst employed is your base salary plus incentive and/or bonuses for the past three financial years, or your current base salary, whichever is the greater. -- 3 of 11 -- 4 … 6. Termination on Notice 6.1 Termination on Notice Once your Probationary Period has been completed, either party may terminate the contract by giving one calendar month’s notice in writing. Without limiting Clause 8.2 we may also terminate your employment immediately or by a period of notice shorter than one month by making a payment to you in lieu of notice. … [4] In October 2002, the Plaintiff became aware of suggestion that the Challenger Group was proposing to sell its broking business. Shortly after, Mr Ireland, the Chief Executive Officer of Challenger International addressed staff through a national telephone link up and advised that the broking business was to be sold. [5] In late November or early December, another meeting by link up was held. At this time, Mr Ireland announced that the purchaser was Bell Potter Securities. Constructive Dismissal [6] On 15 January 2003, the Plaintiff received a letter from Bell Potter Securities which read: “Dear David, As you know, and as recently announced, Bell Potter Securities is to acquire from Challenger Group all of the capital of Challenger First Pacific Limited. It is expected that the transaction will be completed by 1st February 2003. Naturally it is our intention to create a single broking business as soon as possible but we will need about three months following completion, to wind down the broking operations of Challenger First Pacific. Initially, your employment with CFP Management Pty Limited will continue on the existing arrangements. However, as soon as we are able, you will be offered employment with Bell Potter on our standard employment arrangements, with a special performance bonus to compensate you should you be disadvantaged by moving from the Challenger remuneration arrangements to the Bell Potter remuneration arrangements. Accordingly, I am pleased to confirm that subject to and following completion, the Company will offer you a position on the following new -- 4 of 11 -- 5 terms and conditions which, if accepted, will apply to your employment from the Commencement Date….” [7] The Plaintiff spoke to the manager of CFP and asked what would happen if he declined the offer of employment with Bell Potter, since he already had a contract with CFP. The manager responded that there would no longer be a CFP. When the Plaintiff asked what was to happen with his CFP contract, he was told he would be offered a contract with Bell Potter. [8] On 30 January 2002, the Plaintiff received a further letter from Bell Potter in the following terms: “Dear David, As a result of the Bell Potter acquisition of Challenger First Pacific Limited, I am pleased to confirm that Bell Potter Securities Limited (the “Company”) will offer you a position on the following new terms and conditions which, if accepted, will apply to your employment from the Commencement Date. As we have previously advised, it is our intention to create a single broking business as soon as possible and it is envisaged that we will need three months following completion, to wind down the broking operations of Challenger First Pacific. Initially, your employment with CFP Management Pty Limited will continue on the existing arrangements until the Commencement Date. You will then be employed by Bell Potter on our standard employment arrangement on the following basis, with a special performance bonus to compensate you should you be disadvantaged by moving from the Challenger remuneration arrangements to the Bell Potter remuneration arrangements. …” [9] After receipt of that letter, the Plaintiff spoke to Mr Provan, the head of Bell Potter. The Plaintiff told Mr Provan that he wanted to continue with his current contract with CFP. Mr Provan replied there was not going to be a CFP. [10] On 5 January 2003, the Plaintiff wrote to CFP in the following terms: “Dear Sirs Re: My employment by CFP Management Pty Ltd as part of the Challenger Group As you know I have been offered terms of a new employment by which I am to provide services to the Bell Group. I have declined that offer. I therefore sought information from CFP Management Pty Ltd regarding my continuing employment and have been informed that CFP Management Pty Ltd, which is now controlled by the Bell Group, proposes that I should continue in your employ to provide services to the Bell Group. Moreover, I have been informed that I am in fact no longer providing services to the -- 5 of 11 -- 6 Challenger Group; but instead am required to provide services to the Bell Group. This change is a substantial and material change to my employment, the terms of which were set out in a letter to me of 29 March 2002. It has been made unilaterally without consultation with me, without my consent and in spite of my having declined the offer to work for the Bell Group. I think you will agree, upon close examination of the letter of 29 March 2002 and the multiple references throughout to the Challenger Group, that the change now brought as a result of the Bell Group’s acquisition of CFP Management Pty Ltd has therefore committed a repudiatory breach of my contract of employment, having terminated the service I was engaged to perform, and as such having effected a constructive dismissal of my employment. Therefore I choose to terminate the contract as a result of CFP Management Pty Ltd’s breach. I understand that the contract is therefore at an end and that I am free from all future obligations thereunder. I further understand that neither CFP Management Pty Ltd nor myself is freed form rights or obligations that accrued before termination and I therefore reserve such rights as may have already accrued prior to termination. I will leave the workplace today and will take with me my personal belongings. I will return to you any of CFP Management’s property that might be in my possession…” [11] The Plaintiff submits that CFP did not provide the Plaintiff with any option other than to enter the new contract with Bell Potter and that it was clear that if he did not take this option he would lose his job as the operations of CFP would be wound up within a couple of months. [12] The terms offered by Bell Potter were less rewarding – the commission rate was 45% compared with 72% and, although some compensation was offered, this was only for the first two years. [13] The Plaintiff submits that the conduct of CFP amounted to a constructive dismissal in that although the Plaintiff resigned, it was in fact the conduct of CFP which brought about the end of the employment relationship. [14] The Plaintiff says that the conduct of CFP was such as to be “…plainly …….. to a continuance of a contract of employment according to its express or implied terms”. See: Blackie v South Australian Superannuation Board (1995) 65 SASR 85 at 102- 6; Easling v Mahony Insurance Brokers Pty Ltd (2001) 78 SASR 489 at 103; Thomson v Orica Australia Pty Ltd [2002] FCA 939 at 141. [15] The Defendant submits that neither the letter from Bell Potter to the Plaintiff states that CFP would cease to employ the Plaintiff if he failed to take up the Bell Potter offer. However, in light of the Plaintiff’s uncontested evidence concerning his conversations with Mr Provan, I accept this was the true position. -- 6 of 11 -- 7 [16] The Defendant’s analysis of the law does not differ greatly from the Plaintiff’s. However the Defendant submits that, in this case, it was the Plaintiff who terminated his employment and not the conduct of the employer. [17] The Defendant also submits that the Plaintiff does not plead constructive dismissal but merely says he is entitled to payment in lieu of notice under the employment agreement. [18] As he would only be entitled to that payment if his position was terminated by the employer, I take I that he is pleading that the termination was by the employer because it was by reason of the employer’s conduct that the relationship terminated. [19] The Defendant does not argue that the Plaintiff was constrained to take up the offer of employment with Bell Potter. He was entitled not to do so. [20] The correspondence and the conversation with the manager of CFP suggest that the conduct with CFP would not continue for very long. [21] It might be argued that, as such, it amounted to a termination on notice but, in my opinion, a termination of any employment contract must be in clear terms if it is to amount to a termination on notice. [22] In my opinion, CFP did conduct itself “in a manner calculated or likely to destroy or seriously damage the relationship of confidence and trust between employer and employee”. See: Woods v W N Car Services (Petersborough) Ltd [1981] 1 CR 666 at 670. [23] The termination of the contract was brought about by the conduct of the employer. It follows that the Plaintiff is entitled to a payment in lieu of notice. Payment in Lieu of Notice [24] The Plaintiff submits that the payment should be based on his total remuneration package. The Defendant submits that the payment should be based on the base salary component of his remuneration. [25] The employment agreement does not provide a mechanism for assessing how the payment in lieu of notice should be calculated. The clause is in contrast to the clause relating to long service leave which states: “The remuneration basis used for calculating long service leave taken whilst employed is your base salary plus incentive and/or bonuses for the past three financial years, or your current base salary, whichever is the greater.” [26] The Plaintiff argues that the Plaintiff’s remuneration package was commission based in that he was required to reach a “threshold” calculated at 1/12 of the base salary, before any additional commission or incentive amount was earned. Any short fall in the “threshold” was added to the next month’s threshold. The Plaintiff argues that the base salary was no more than a minimum target for his commission. Accordingly, the Plaintiff argues that the calculation of the payment in lieu of notice should be calculated on the basis of an averaged rate, based on the total commission earned. -- 7 of 11 -- 8 [27] The Defendant argues that the payment requires is a payment of the base salary for the notice period foregone. In the alternative, the payment required is a reasonable payment having regard to the financial effect of the immediate termination of the Plaintiff. [28] In relation to the alternative calculation, the Defendant argues that the Plaintiff obtained immediate employment with another stock broking company and, presumably, was able to earn a salary and/or commission during the foregone period. In the Defendant’s submission it is conceded that if the Plaintiff had continued in employment during the notice period, he would have earned his base salary and any incentive/bonus or commission generated by his work. [29] In my judgment, the concept of payment in lieu of notice involves the idea that an employer may choose to terminate without notice which involves the employer making a choice to pay the employee in lieu. To do this, the employer must pay the employee the amount of wages he could have expected to earn had he continued to work during the notice period. That the employee has been fortunate enough to gain other employment during the foregone period does not abrogate from the responsibilities of the employer who has made the choice. [30] In the case of this Plaintiff and in the absence of a clear term in the employment contract, the amount he could have expected to receive was his base salary and commission. Quantum [31] The parties are not in agreement as to the manner in which the sum should be calculated on the basis of my finding above. [32] The evidence concerning the Plaintiff’s commission earnings over the three years preceding the termination of their employment shows a wide variation in commission earnings in a particular quarter and the annual commission earnings. In those circumstances, I am of the opinion that the payment in lieu should be calculated on the basis of the Plaintiff’s commission earnings over the last full financial year preceding the termination of the Plaintiff’s employment. [33] Under this head, I award the sum of $11,518.06 together with interest at 9% per annum from the date of termination 1 February 2003 until the present time being a sum of $2,861.09. Payment for Annual Leave on Termination of Employment [34] The employment contract provides” “You will be entitled to annual leave required to be given to you by any applicable award or law ….” It is common ground that s.14(5) of the Industrial Relations Act 1999 applies. It provides that: 14. Payment for annual leave on termination of employment. … -- 8 of 11 -- 9 (5) The employer must pay the employee at least the ordinary rate being paid to the employee immediately before the termination unless an industrial instrument states otherwise.” [35] It is also common ground that the Oxford English Dictionary defines “ordinary” as “Regular, normal, customary, usual.” [36] The Plaintiff agues that the ordinary rate of pay includes commission because the future salary was commission based with the base salary being “nothing more than a minimum target.” Accordingly, annual leave payments ought to be based on the Plaintiff’s average commission payments. [37] The Plaintiff relies on Kezich v Leighton Contractors Pty Ltd (1974) 131 CLR 362, a case which deals with “ordinary hours”. To my mind, the idea of “ordinary hours” is different to “ordinary rates”. I will return to that case later. [38] The Plaintiff argues that the statute must be construed as a whole and points to s.13 which provides: “13. Payment for Annual Leave …. (2) The employer must pay for the leave … (a) at the ordinary rate being paid to the employee immediately before the leave is taken; or (b) if, immediately before taking the leave the employee is being paid at a higher rate … at the higher rate. (3) If an employee is entitled to receive an amount representing commission in the employee’s annual leave payment, the employer must pay the default average commission unless .. (a) a relevant industrial instrument or contract between the employer otherwise provides; or (b) the commission, on application, considers that the default average commission would not represent a fair amount in the circumstances. [39] The Plaintiff argues that this provides a compelling indication that the statute did contemplate that commission could be part of an employee’s “ordinary rate” payable during annual leave. [40] The Defendant argues that commission is transaction related rather than time-related and that Schedule 5 of the Act provides that: “’ordinary rate’ for an employee under an industrial instrument means the rate that the instrument says is payable for ordinary time” -- 9 of 11 -- 10 [41] Kezich’s case was concerned with a claim by a work who was engaged to work on the basis he would normally work sixty hours per week. He was hurt and applied for Workers Compensation. The majority of the Full Court of the Supreme Court of Western Australia held he was not entitled to an award at a higher rate than the pay he would have received if he had worked forty hours per week. He appealed. [42] The Workers’ Compensation Act, 1912-1973 (WA) provided that the amount of compensation payable was “an amount equal to the weekly earnings of the worker computed in accordance with clause 2 of the Schedule” which provided” “For the purposes of this Act, ‘weekly earnings’ means the amount of the ordinary wage or salary (including any over award payment) the worker would have received for the ordinary hours he would have worked, if he were not incapacitated for work as the result of injury.” [43] The High Court found in favour of the Applicant. Gibbs J found that “a man’s ‘ordinary hours’ of work are the hours during which it is usual for him to work. There is nothing in the expression ‘ordinary hours’ that payment at any particular rate and to understand the words as meaning ‘hours during which work is done for which overtime is not paid’ would be to place upon them a meaning which they simply do not bear.” [44] In the judgment of Mason J, he pointed out that the judgment of the Full Court required a construction that the compensation pay was referable to “the ordinary (standard) rate of pay for the ordinary (not overtime) hours of work in the particular occupation ….”. [45] Mason J rejected that construction pointing out that clause 2 referred to the amount of “ordinary wage or salary” and made no reference to ordinary rates of pay which lay at the foundation of the respondent’s argument” (my emphasis). [46] In this matter, the issue concerns the ordinary rate being paid to the employee – not the ordinary wage or the ordinary hours. [47] I accept the Defendant’s argument that in s.14(5) of the Act, ‘ordinary rate’ means the usual rate of pay for a period of working time, before any allowances, loadings or bonus payments. I note that the records of annual leave payments for the 2000, 2001 and 2002 financial years indicate that the Plaintiff’s annual leave was paid at the rate of his base salary. This would suggest that the Plaintiff’s entitlement for payment for annual leave did not fall within s.13(3) in that he did not, nor was entitled to receive an amount representing commission in his annual leave payment and was only entitled to receive a payment at the “ordinary rate”. [48] The Plaintiff was paid annual leave for 15.3543 days on his base salary of $40,000.00 at the time of termination. I make no further award under this head. Long Service Leave [49] Under clause 5.3 of the employment contract, the Plaintiff is entitled to long service leave as defined by statute ie. if his termination is because he was dismissed. [50] I have found that he was dismissed. -- 10 of 11 -- 11 [51] Accordingly, he is entitled to long service leave paid out on termination in the agreed amount of $62,328.82 which is calculated on the average of his base salary plus incentives and/or bonuses for the past three years completed or his base salary whichever was the greater. I order that the Defendant pay to the Plaintiff interest for 1006 days at 9% being a sum of $15,460.96. [52] I order that the Defendant pay to the Plaintiff the sum of $92,168.93. [53] I further order that the Defendant pay the Plaintiff’s costs of and incidental to the proceeding including reserve costs to be assessed on the appropriate standard District Court scale. -- 11 of 11 --