Ipsofactoj.com: International Cases [2000] Part 4 Case 7 [NZCA]


COURT OF APPEAL, NEW ZEALAND

Coram

WAS Ltd

- vs -

Pemberton

GAULT J

DOOGUE J

ROBERTSON J

6 JUNE 2000


Judgment

Doogue J

INTRODUCTION

  1. This is an appeal from a decision of the Employment Court awarding the respondent, Mrs. Pemberton, $23,745.96 by way of redundancy compensation, together with certain interest, and $5,000 general damages. The appeal is against a finding of the Employment Court that the termination of Mrs. Pemberton’s employment on 1 December 1997 by the first appellant, WAS Ltd, was mainly, if not wholly, attributable to the fact that the position filled by her was shortly going to become superfluous to the needs of WAS Ltd. Further it is submitted that the Employment Court was wrong in granting general damages and that in any event the amount ordered was excessive.

    BACKGROUND

  2. Mrs. Pemberton’s employer was not finally determined in the Employment Court and nor was it determined whether the business in which Mrs. Pemberton was engaged was a separate company or a division of the third appellant; but, because of the relationship between the companies, nothing turns on these points and we will refer to the employer as WAS Ltd. Mrs. Pemberton had been employed by WAS Ltd or its predecessors for nearly 20 years down to 1 December 1997 under successive collective and individual employment contracts. Her employment had been terminated on 3 months’ notice by letter dated 28 August 1997. This notice was in accord with the policy of WAS Ltd that employees retire when they were eligible to receive national superannuation, which was Mrs. Pemberton’s position at 28 November 1997. The period of notice was in accord with the terms of the contract of employment. There is no suggestion that at 28 August 1997 Mrs. Pemberton’s position was or was likely to be redundant.

  3. As WAS Ltd did not have a replacement for Mrs. Pemberton at 1 December 1997, she was re-employed the following day under a fixed-term contract until 30 January 1998 at a higher rate of remuneration than she had been receiving when permanently employed, in order to allow the company time to find a replacement.

  4. However, prior to the cessation of Mrs. Pemberton’s original employment on 1 December 1997, a Mr. Chudleigh, the General Manager of the Australian parent company of the three appellants prepared a report on 6 November 1997 recommending the relocation of WAS Ltd from Petone to Auckland. Mr. Chudleigh knew of Mrs. Pemberton’s position. His report was not pursued or discussed in November 1997. The same proposal was contained in a second report by Mr. Chudleigh, dated 1 December 1997, which was discussed with the managing director and chairman of the parent company and approved on 2 December 1997. Mr. Chudleigh then refined the proposal. The manager of WAS Ltd learned of it for the first time on 9 December 1997. The staff of WAS Ltd were advised on 14 January 1998 that the Petone operation would be relocated to the warehouse of Yates in Auckland on 2 February 1998.

  5. All the permanent salaried employees of WAS Ltd had their employment terminated for redundancy and received redundancy compensation in accordance with the terms of a written contract applicable to their employment. Mrs. Pemberton was not paid such compensation as she was not a permanent salaried employee at the end of January 1998. She had lost that status on 1 December 1997. If Mrs. Pemberton had been entitled to redundancy compensation, she would have received approximately 6 months’ pay.

  6. Mrs. Pemberton claimed for redundancy compensation largely because the announcement of a redundancy just after she had been made to retire and had been re-employed on a temporary contract seemed too coincidental to be true. The undisputed evidence established, however, that it was coincidence.

    THE EMPLOYMENT COURT DECISION

  7. In the Employment Court it was argued on behalf of Mrs. Pemberton that WAS Ltd was bound by the redundancy provisions of the contract of employment to pay her redundancy compensation.

  8. Three terms of the contract of employment were found to be relevant, cls 28, 30 and 34. They provide:

    28.0

    TERMINATION OF EMPLOYMENT

    28.1

    Except in the case of casual employees, one week’s notice shall be given by either party of the termination of the employment. (For employees paid on a monthly salaried basis, one months notice shall be required.) Where the employment is terminated by the employer or the employee without the requisite notice, one week’s notice (or one month for salaried employees) shall be paid or forfeited, respectively.

    Nothing in this clause shall prevent the Company from summarily dismissing an employee for serious misconduct, disobedience or serious neglect of duty.

    The period of notice in either case shall be exclusive of the whole or part of the annual holiday and / or statutory holiday required to be given in pursuance of this Contract.

    30.0

    REDUNDANCY

    30.1

    ‘Redundancy’ means a situation where an employee’s employment is terminated by the Company, the termination being attributable, wholly or mainly, to the fact that the position filled by that employee is, or will become, superfluous to the needs of the Company.

    30.2

    No redundancy shall arise by reason of the sale or transfer of the whole or part of the business where the person acquiring the business offers the employee employment in the same capacity, or no less favourable conditions of employment and agrees to treat service as being continuous.

    30.3

    Any employee to be declared redundant will be given four weeks notice of termination of employment by the Company or payment in lieu of notice.

    30.4

    An employee who is declared redundant shall be entitled to the following:

    30.4.1  

    Redundancy compensation paid on the basis of six weeks’ pay for the first year of service, or part thereof, and one week’s pay for each subsequent complete six month period of current continuous service with the Company, up to a maximum of 20 years’ service.

    30.4.2

    Weekly redundancy compensation payments shall be calculated on the basis of the employee’s average weekly taxable earnings for the twelve month period prior to termination, or his / her ordinary pay at the time of termination, whichever is the greater.

    30.4.3

    Payment of redundancy compensation is contingent on the employee remaining at work, or available for work, and performing normally his/her assigned duties until the expiry of the period of notice. An employee who finds an alternative position during the notice period may, with the Company’s prior consent, terminate employment without forfeiting entitlement to redundancy compensation but will not be entitled to be paid the unworked period of notice.

    30.5

    This clause shall not apply to casual employees.

    34.0

    CONSULTATION

    The Company and the employees bound by this Contract acknowledge that their interests are mutually dependent. They have committed themselves to promoting harmony and ensuring that consultation and cooperation are the basis for relationships between them.

    The objectives of consultation may include:

    34.1

    Developing a closer working partnership between the Company and the employees.

    34.2

    Increasing the efficiency, flexibility and competitiveness of the business.

    34.3

    Improving the working environment.

    34.4

    Making the most effective use of new technology.

    34.5

    Developing a more pleasant atmosphere for all people to work in.

  9. In the Employment Court it was accepted that the employment contract must have included in it an implied term that WAS Ltd would not without reasonable and proper cause conduct itself in a manner calculated or likely to destroy or seriously damage the relationship of confidence and trust between employer and employee. The Court rejected the suggestion that there could be an implied term that Mrs. Pemberton could be required to retire and would do so if required upon attaining the age at which she qualified to receive national superannuation. The Court found that that was contrary to the prohibited grounds of discrimination in the Employment Contracts Act 1991 and the general law.

  10. As a result, the Employment Court held that the termination of Mrs. Pemberton’s employment was wrongful if its only basis was that under the employment contract with WAS Ltd she was required to retire on the day she became entitled to national superannuation.

  11. The first issue for the Employment Court was whether WAS Ltd was entitled to terminate Mrs. Pemberton’s employment on notice at will by giving her at least the contractual period of notice of one month. WAS Ltd relied on the judgment of the Court of Appeal in Air NZ Ltd v Raddock [1999] 1 ERNZ 30 (CA).

  12. The Employment Court found that any error of approach by WAS Ltd to its rights under the employment contract was, in accordance with the decision in Raddock, immaterial and the employment was ended in accordance with the contract. There was no challenge to this finding on the appeal.

  13. The Employment Court went on, however, to ask itself whether the failure to pay Mrs. Pemberton compensation was nevertheless a breach of her contract. It said [p 16]:

    The answer depends, in terms of the contract, on whether Mrs. Pemberton was caught up in a redundancy situation. That in turn depends on whether her dismissal "was attributable, wholly or mainly, to the fact that the position filled by that employee is, or will become, superfluous to the needs of the Company.

  14. The Employment Court went on to note that in its view the redundancy clause in the present case was different from that in Raddock. The Court found that [p 16]

    [Mrs. Pemberton’s] position was not superfluous but was about to become so but the termination of her employment was not, on the defendant’s evidence and argument, attributable to that circumstance. That termination was initiated by the notice but was effected only when the notice ran out: GFW Agri-Products Ltd v Gibson [1955] 2 ERNZ 323 (CA). What was the defendant’s state of mind while her notice was still running? I pose this question bearing in mind that, in terms of Raddock, the answer is relevant only if "it constitutes or involves the breach of a term of the contract". Obviously that was not so when the notice was given but was it so by the time the notice ran out? When the redundancy was decided upon or likely, was it the defendant’s duty to withdraw it and so to enable Mrs. Pemberton to share in the benefits?

  15. The Employment Court went on to find that it had been likely for at least 3 weeks before her notice ran out on 1 December 1997 that her position would be affected very shortly. The Court took the view that it was open to it to find that Mr. Chudleigh’s proposal involved from the start the transfer of Mrs. Pemberton’s function to Auckland and never changed in that respect. The Court said this [p 18]:

    I accept Mr. Chudleigh’s evidence that Mrs. Pemberton’s retirement was initially dealt with in advance of any consideration being given to closing the Petone enterprise. It was not revisited, however, after the restructuring became a likelihood, even if its details were undecided, in November 1997. Nor was she considered for redundancy compensation despite the likelihood having become a reality.

    The Court later went on to find [pp 20-21]:

    In the present case, Mrs. Pemberton was not dismissed until her notice ran out. It was open to the defendant to withdraw its notice, subject to her consent, at any time before it actually ran out. Clause 34 required it to turn its mind to the developing situation. That situation required it to consider whether it was proper to enter into a fixed term contract with Mrs. Pemberton as if nothing was happening without disclosing to her that something was .... The defendant’s conduct in continuing to insist on retiring Mrs. Pemberton and silently employing her on a fixed term contract fell short of what an ordinarily prudent person would do in conducting relations with another, particularly when owing that other an express contractual duty of cooperative, harmonious interaction and a closer working relationship. As the majority put it in Raddock, here was a redundancy situation which was shortly to be addressed by the company, in which Mrs. Pemberton was likely to feature; it was therefore a breach of the contract to dismiss her on notice. I find, notwithstanding the defendant’s earlier attempt to dismiss the plaintiff by 3 months’ notice, that the termination of her employment by it as at 1 December 1997 was mainly, if not wholly, attributable to the fact that the position filled by her was shortly going to become superfluous to the needs of the defendant.

  16. Having reached that decision and that Mrs. Pemberton was entitled to redundancy compensation, an award was made in an agreed sum, together with interest.

  17. The Court went on to consider the claim for general damages and awarded the sum under appeal.

    THE ARGUMENT

  18. WAS Ltd submits in support of its appeal that if the Employment Court had applied the decision of Raddock to the circumstances of the present case it could not have led to a finding of breach of contract. In essence, it is submitted that Mrs. Pemberton’s employment was terminated on 1 December 1997 solely as a result of the notice given to her on 28 August 1997, which notice did not relate in any way to issues of redundancy.

  19. The respondent says this is not so and that Raddock was applied by the Employment Court. We agree and do not discuss the point further.

  20. More importantly, it is submitted for WAS Ltd that the Employment Court had no justification for finding that, when the possibility of future redundancy arose towards the end of the period of notice given to Mrs. Pemberton, WAS Ltd had any obligation to withdraw the notice or pay redundancy compensation. The appeal on liability turns on this point. What WAS Ltd says is that as at 1 December 1997 it could not be said that Mrs. Pemberton’s position "will become superfluous" to the needs of WAS Ltd. It is submitted that, at the very most, at 1 December 1997 her position might become superfluous in the future if Mr. Chudleigh’s thoughts were subsequently approved.

  21. It is submitted for Mrs. Pemberton that it was open to the Employment Court to conclude, as it did, that her position at 1 December 1997 was known to be likely to become superfluous. Alternatively Mrs. Pemberton submits it was open to the Court to distinguish Raddock and find she was improperly dismissed. However, this point was taken before the Employment Court and rejected and there is no cross-appeal. It will not be discussed further.

  22. So far as the general damages point of appeal is concerned, it is submitted for WAS Ltd that evidence of emotional harm by Mrs. Pemberton arose from her retirement and loss of position and not the failure to pay redundancy compensation, and that in any event the amount awarded was excessive. The contrary submissions for Mrs. Pemberton are that the Employment Court was entitled to take into account that she had been wrongly forced to retire and view matters generally in making the modest award involved.

    DISCUSSION

  23. Clause 30 of the relevant contract of employment defined redundancy as follows:

    ‘Redundancy’ means a situation where an employee’s employment is terminated by the Company, the termination being attributable, wholly or mainly, to the fact that the position filled by that employee is, or will become, superfluous to the needs of the Company.

  24. The first question for the Employment Court and thus for this Court is whether there is a legal duty upon an employer under cl 34 of the contract to consult with an employee in respect of events outside the period of employment. A second question is whether there was any evidence upon which the Employment Court was entitled to find that the position filled by Mrs. Pemberton when her employment was terminated on 1 December 1997 "will become superfluous to the needs of the Company".

  25. So far as the first question is concerned, the judgment under appeal does not refer, and counsel could not refer us, to any authority for the proposition that an employee is entitled to be consulted about events outside the period of employment. The Employment Court relied on cl 34 of the contract. It properly accepted, in accordance with Raddock, that the implied duty of fair dealing could not apply. We are unaware of any basis in law for requiring an employer to consult with an employee about possible events after the employment is at an end. Here notice unassociated with redundancy had been given in August 1997. It happened to be the employer’s notice. It could have been the employee’s notice. The employment was to terminate on 1 December 1997. No decision on any redundancy of personnel had been taken by then. We leave open what the position would have been if it had. Here the most that had happened at 1 December 1997 was that Mr. Chudleigh had thought of closing the Petone plant in 1998 at a time when Mrs. Pemberton would no longer be an employee of WAS Limited. At 1 December 1997 her position had not been terminated by reason of redundancy, and the Employment Court made no finding that at that date a decision had been made that her position would become superfluous to the needs of WAS Ltd. Where therefore does any duty to consult her about the termination of her employment arise? There is nothing to consult her about. Her employment was to end on 1 December 1997. Any decision by WAS Ltd relating to her position becoming redundant relates to a position which was no longer hers as after that date Mrs. Pemberton is no longer an employee.

  26. The alleged duty identified was to consult Mrs. Pemberton about the termination of her employment and to offer to withdraw the notice to her because of the possibility her position might become redundant. We have been referred to no authority for the proposition that an employer is obligated to offer to withdraw a notice which is otherwise good because of the possibility of future events in respect of a position the employee will no longer hold. We see this not as a question of construction of the employment contract but as a matter of legal principle. The provisions of an employment contract do not extend in application beyond the employment: NZ Fasteners Stainless Ltd v Thwaites (CA10/99, 17 May 2000).

  27. These matters lead on to the second question. The Employment Court held Mrs. Pemberton’s termination of employment was "mainly, if not wholly, attributable to the fact that the position filled by her was shortly going to become superfluous to the needs of [WAS Ltd]". We can find no evidence whatever to support that finding. Mr. Chudleigh was not cross-examined about the reason why he did not pursue his 6 November 1997 proposal before 1 December 1997. Nor was he cross-examined about whether his 6 November 1997 proposal was effectively a decision Mrs. Pemberton’s position would become redundant. Not only is there no evidence that a decision had been made prior to 1 December 1997 that her position would become redundant but there is nothing from which it could be inferred. The undisputed evidence is that Mrs. Pemberton’s employment was terminated for one reason only, the retirement policy of her employer. Her immediate employer was not even aware of Mr. Chudleigh’s thoughts at that date. There is simply no evidentiary basis for the Employment Court to conclude as it did that the termination of Mrs. Pemberton’s employment was attributable in any way to her position becoming superfluous in 1998. When the decision was taken in principle on 2 December 1997 to make the position she previously held redundant in the future, she was no longer an employee. There is no suggestion that decision had any bearing whatsoever on the termination notice given to Mrs. Pemberton in August 1997 which merely ran its course. There is simply no evidence upon which the Employment Court was entitled to find that Mrs. Pemberton’s employment was terminated by reason of any issue relating to redundancy.

    DECISION

  28. The appeal is allowed and all the orders of the Employment Court are quashed. Costs in that Court are to be fixed by that Court in the light of this judgment. The appellant is entitled to solicitor’s costs of $3000 together with any reasonable disbursements including the reasonable travel and accommodation expenses of counsel. In the event of any disagreement disbursements are to be fixed by the Registrar.


Cases

GFW Agri-Products Ltd v Gibson [1955] 2 ERNZ 323 (CA); Air NZ Ltd v Raddock [1999] 1 ERNZ 30 (CA); NZ Fasteners Stainless Ltd v Thwaites (CA10/99, 17 May 2000)

Legislations

Employment Contracts Act 1991

Representations

R M Harrison for appellants (instructed by Kensington Swan, Auckland)
S N Meikle for respondent (instructed by Simon N Meikle, Wellington)


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