1
Fair Work Act 2009
s.394—Unfair dismissal
Scott Harrison
v
FLSmidth Pty Limited T/A FLSmidth Pty Limited
(U2018/6589)
COMMISSIONER SAUNDERS NEWCASTLE, 29 OCTOBER 2018
Application for an unfair dismissal remedy – demotion – ongoing employment relationship –
whether a dismissal within the meaning of s 386 of the Fair Work Act.
[1] On 6 June 2018, Mr Scott Harrison was demoted by his employer, FLSmidth Pty Ltd
(FLS), from the position of Service Supervisor to that of Mechanical Service Technician –
Experienced (Service Technician). He remains employed by FLS in the position of Service
Technician. This decision concerns the question of whether Mr Harrison’s demotion
constitutes a dismissal within the meaning of s 386 of the Fair Work Act 2009 (Cth) (FW
Act).
Meaning of dismissal
[2] The journey to understand the proper construction of s 386 of the FW Act in the
context of a demotion where the employee remains employed begins with Brackenridge v
Toyota Motor Corporation Australia Limited (Brackenridge).1 In that case, Ms Brackenridge
sought the remedies of compensation and reinstatement in respect of what she alleged to be
the unlawful termination of her employment by Toyota. Ms Brackenridge had been employed
by Toyota as a chef supervisor, but was demoted to the position of canteen assistant on 3
February 1995 as the result of an investigation by Toyota into an altercation between Ms
Brackenridge and Ms Law which led to Ms Law receiving a lacerated and swollen lip and
several scratches. This demotion constituted the alleged termination of her employment.
[3] The Full Court of the Industrial Relations Court of Australia (Wilcox CJ, von Doussa
& Marshall JJ) held that the decision by Toyota to demote Ms Brackenridge involved a
termination of her contract of employment as a chef supervisor, but the question was whether
Ms Brackenridge suffered a “termination of employment” within the meaning of s 170EA(1)
of the Industrial Relations Act 1988 (Cth) (IR Act) (omitting references):2
“There is a conceptual difference between the two situations. Ordinarily, the
conceptual difference does not matter: dismissal will ordinarily terminate both the
1 (1996) 142 ALR 99
2 Ibid at 101
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DECISION
E AUSTRALIA FairWork Commission
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particular contract of employment and the employment relationship. In this case,
however, Ms Brackenridge continued to be employed by Toyota after 3 February
1995. The employment relationship continued albeit under a new contract of
employment.”
[4] At the time Brackenridge was decided, the IR Act did not contain any provisions
dealing with a demotion, or provide a definition of termination of employment. However,
central to the Full Court’s interpretation of s 170EA(1) was one of the objects of Division 3 of
Part VIA of the IR Act, which gave effect to the Termination of Employment Convention
(Convention), and s 170CB within Division 3 of Part VIA of the IR Act, which provided that
“an expression has the same meaning in this Division as in the Termination of Employment
Convention”.3 The Full Court held that the phrase “termination of… employment” within s
170EA(1) of the IR Act was restricted by the meaning of that phrase as used in the
Convention, which it interpreted to mean termination of the employment relationship.4
Because Ms Brackenridge’s demotion did not result in the termination of her employment
relationship with Toyota, the Full Court held that there had been no termination of
employment within the meaning of s 170EA(1) of the IR Act.
[5] In 1996, the IR Act was extensively amended and renamed the Workplace Relations
Act 1996 (Cth) (WR Act). Unlike the IR Act, the constitutional validity of the WR Act did not
rely so much on the external affairs power in s 51(xxix) of the Constitution but relied more on
the corporations power in s 51(xx). That change in reliance had an impact on the termination
of employment provisions in the WR Act. In particular, s 170CB of the former IR Act was
repealed and the objects of Division 3 of Part VIA were amended to give effect to the
Convention only by adopting particular procedures and “by orders made in the circumstances
set out in Subdivisions D and E”.5 Further, s 170CD(2) of the WR Act only limited
expressions “used in Subdivision C, D or E of this Division” to the meaning of expressions
used in the Convention. Importantly, the unfair dismissal provisions of the WR Act were in
Subdivision B of Division 3 of Part VIA and the WR Act defined “termination” or
“termination of employment” to mean termination of employment at the initiative of the
employer.6
[6] In 1999, a Full Bench of the Australian Industrial Relations Commission in Bluesuits
Pty Ltd v Graham (Bluesuits)7 held that there was no requirement under the WR Act, as it
stood at that time, to interpret the provisions of Subdivision B by reference to the
Convention.8 Shortly after the decision in Bluesuits, Senior Deputy President Polites
considered a circumstance in which an employee had been demoted but the employment
relationship had continued in Boo Hwa Chan v Christmas Island Administration (Boo Hwa
Chan)9 and observed that the phrase “termination of employment” in the WR Act included
the termination of a contract of employment and the termination of employment relationship
as a result of the 1996 amendments to the IR Act, and therefore, a demotion which resulted in
3 Ibid at 102-3
4 Ibid at 103-4
5 Section 170CA(1)(e) of the WR Act
6 Section 170CD(1) of the WR Act
7 (1999) 101 IR 28
8 Ibid at 32
9 (1999) Print S1443
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the termination of a contract of employment was considered to be a “termination of
employment” within the meaning of the WR Act.10
[7] In 2001, the Workplace Relations Amendment (Termination of Employment) Act 2001
(Cth) (WR Termination Amendment Act) amended the WR Act,11 including by inserting, for
the first time, a provision (s 170CD(1B)) concerning demotions in employment:
“(1B)
For the purposes of this Division, termination or termination of employment
does not include demotion in employment if:
(a)
the demotion does not involve a significant reduction in the remuneration or
duties of the demoted employee; and
(b)
the demoted employee remains employed with the employer who effected the
demotion.”
[8] The Second Reading Speech made by the Honourable Mr Peter Reith, Minister for
Employment, Workplace Relations and Small Business, on 27 June 2000, gives insight into
the object of the demotion provisions in the Workplace Relations Amendment (Termination
of Employment) Bill 2000:
“Establishing certainty in jurisdiction
…
Two other amendments in the bill aimed at ensuring certainty in jurisdiction will make
it clear, firstly, that independent contractors do not have a remedy for termination of
employment, consistent with the original intent of the Workplace Relations Act, and,
secondly, that the demotion of an employee does not constitute termination of
employment where that demotion does not result in a significant reduction in
remuneration and the employee continues to work for that employer.”
[9] The Explanatory Memorandum to the Workplace Relations Amendment (Termination
of Employment) Bill 2000 includes the following relevant material:
“OUTLINE
This Act will amend the Workplace Relations Act 1996 (the WR Act) to:
…
Preclude an employee who has been demoted in his or her employment from
seeking relief in respect of termination of employment where the demotion
does not result in a significant reduction in remuneration and the employee
continues employment with the employer who effected the demotion;
…
Item 9 - After subsection 170CD(1A)
10 Ibid at [13]
11 Visscher v Giudice (2009) 239 CLR 361 (Visscher) at [37]
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13. Item 9 proposes to insert new subsection 170CD(1B), which will provide that,
for the purposes of the termination of employment provisions of the Act (Division 3 of
Part VIA), the expressions ‘termination’, or ‘termination of employment’, do not
include a demotion in employment if the demotion does not involve a significant
reduction in the remuneration of the demoted employee, and the demoted employee
remains employed with the employer who effected the demotion.”
[10] It is not clear whether Boo Hwa Chan prompted the amendment to s 170CD of the WR
Act,12 however, it is plain from the terms of s 170CD(1B) of the WR Act, together with the
Second Reading Speech and the Explanatory Memorandum, that Parliament did not intend to
exclude all demoted employees who remained employed after their demotion from accessing
the unfair dismissal provisions of the statute. Had that been Parliament’s intention, s
170CD(1B) would simply have stated that “termination or termination of employment does
not include demotion in employment if … the demoted employee remains employed with the
employer who effected the demotion”.
[11] In 2003, section 170CD(2), which was part of Subdivision A of Division 3 of the WR
Act, was amended by inserting the words “this Subdivision” as follows:
“(2) An expression used in this Subdivision or Subdivision C, D or E has the same
meaning as in the Termination of Employment Convention.”
[12] In Charlton v Eastern Australia Airlines Pty Ltd (Charlton),13 a Full Bench of the
Australian Industrial Relations Commission considered the impact of the 2003 amendment to
s 170CD(2) of the WR Act to cases involving a demotion. After considering part of the
legislative history, the Full Bench in Charlton summarised (at [12]) the position as follows:
“…If the expressions ‘termination’ and ‘termination of employment’ have the same
meaning as in the Termination of Employment Convention then they do not extend to
a demotion where the employment relationship continues. If the construction of those
expressions is unconstrained by the Convention then they refer to a termination of the
contract of employment or a termination of the employment relationship and therefore
extend to a demotion that involves a termination of a contract of employment even if
the employment relationship continues pursuant to a new contract of employment.”
[13] In Charlton, the Full Bench agreed with the appellant’s submissions that:14
“the form of s.170CD(1B) suggests that, in enacting s.170CD(1B), Parliament
proceeded on the premise that a demotion where employment continues can
amount to a “termination of employment” and then sought to exclude particular
demotions from the scope of that expression;” [emphasis added] and
“if the respondent’s argument is correct then s.170CB(1B) is rendered otiose: it
has no work to do because, by virtue of the decision in Brackenridge, the
expressions “termination” and “termination of employment” will never include
12 Khayam v Navitas English Pty Ltd [2017] FWCFB 5162 (Navitas) at [41]
13 (2006) 154 IR 239
14 Ibid at [19]
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demotion in employment if those terms have the same meaning as in the
Termination of Employment Convention.”
[14] The Full Bench in Charlton then reached the following conclusions in relation to s
170CD(2) of the WR Act and the meaning of the expression “termination of employment” in
the context of a demotion:15
“[31] In this case there are two strongly competing interpretations. On balance we
think that the true intention of Parliament in amending s.170CD(2) was not to give
expressions used in Subdivision B of Part VIA the same meaning as in the
Termination of Employment Convention and that s.170CD(2) should be construed
accordingly, that is, as applying to the balance of Subdivision A and not to s.170CD
itself. If Parliament had intended terms in the definitions in s.170CD(1) to have the
same meaning as in the Termination of Employment Convention then it might be
expected to have removed s.170CD(1B) at the same time it amended s.170CD(2),
particularly in circumstances where s.170CD(1B) itself contains the expression
“termination of employment” and the existing authorities, of which the Parliament is
presumed to be aware, place demotion entirely outside the meaning of the expression
“termination of employment” as used in the Convention. The fact that s.170CD(1B)
remains and the fact that it deals expressly with the issue of when a demotion is not to
be taken as involving a termination of employment (and does this in terms that appear
to assume that, but for the provision, a demotion may involve a termination of
employment) cause us to favour the construction advanced by the appellant: it
produces a fairer and more convenient operation that conforms to legislative intention
and avoids adopting a construction that gives s.170CD(1B) no practical effect. We
perceive the operation for which the respondent contends to be unintended by the
Parliament.
Application of principle in the present case
[32] Consistent with the decision in Boo Hwa Chan, a termination of employment
occurs when a contract of employment is terminated. This necessarily occurs when the
employment relationship comes to an end. However, it can also occur even though the
employment relationship continues. Where a contract of employment has been
terminated, but the employment relationship continues, this will be because a new
contract of employment has come into existence. Therefore, whether the appellant’s
demotion involved his employment being “terminated by the employer” within the
meaning of s.170CE turns on whether his contract of employment was terminated
notwithstanding the continuing employment relationship. This question is answered by
reference to general law principles relating to the termination of contracts of
employment, unconstrained by the Convention.”
[15] After Charlton, section 170CD(1B) of the WR Act was considered by the High Court
in Visscher. The relevant facts of Visscher were summarised as follows by the majority of the
Full Bench in Navitas:16
15 Ibid at [31]-[32]
16 Navitas at [45]
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“Briefly speaking, Visscher concerned a ship’s officer who was initially employed as a
Third Mate, but in September 2001 was offered by his employer and accepted a
permanent promotion to the position of Chief Officer. Shortly afterwards, the
employer purported to rescind the promotion. Mr Visscher informed the employer, in
writing, that he did not accept the rescission. Until January 2004, Mr Visscher
continued to be assigned work, and paid, as a Chief Officer. In January 2004, Mr
Visscher was informed that on his next voyage he would be required to work as a
Second Mate. In February 2004 Mr Visscher wrote to his employer by email stating
that he considered that he had been demoted, that this constituted a constructive
termination of the contract of employment, and accordingly that he considered his
employment as having been terminated by the employer. The employer’s response
was that Mr Visscher had not been demoted because he had been employed as a Third
Mate and that it would treat his email as a resignation. Mr Visscher then applied to the
AIRC for relief in respect of the termination of his employment under s 170CE of the
WR Act on the ground that the termination was harsh, unjust and unreasonable. A
single member of the AIRC dismissed his application on the basis that his
employment had not been terminated at the initiative of the employer, and this was
upheld on appeal by a Full Bench of the AIRC.”
[16] In Visscher, the majority (Heydon, Crennan, Kiefel and Bell JJ) observed that:
“Mr Visscher regarded Teekay’s requirement of him to sail as a Second Mate as a
repudiation of his contract of employment. On his case the termination of the
employment relationship was “at the initiative of the employer”. Alternatively,
Teekay’s requirement could be viewed as a demotion. Section 170CD(1B), by
implication, treated a demotion as a termination of employment where it involved a
significant reduction in the remuneration or duties of the employee. On either
approach it was necessary for the AIRC to consider whether Mr Visscher was
employed as a Chief Officer when the acts which resulted in the cessation of his
employment occurred.” [emphasis added]
[17] The majority found that Mr Visscher’s contract of employment as a Chief Officer
remained on foot in February 2004 and concluded (at [81]) that:
“Teekay’s notice of rescission did not automatically bring the contract appointing Mr
Visscher a Chief Officer to an end. It was necessary that Mr Visscher accept the
repudiation before the contract could be terminated. Nothing said in Automatic Fire
Sprinklers Pty Ltd v Watson suggests any different contractual principle as applying to
a contract of employment. In order to decide whether Teekay had repudiated Mr
Visscher’s contract of employment in January and February 2004 it was necessary for
the AIRC to determine the true contractual position between the parties at that time. It
was necessary then to determine whether what was said by Teekay at that time
amounted to a repudiation such that the termination of the employment relationship
could be said to be at its initiative; or whether it amounted to a demotion within the
meaning of s 170CD(1B). The correct legal starting point was not that Teekay had
rescinded the agreement. Neither the Commissioner nor the Full Bench of the AIRC
asked the correct question, as to the contract under which the parties continued after
September 2001. This was an error going to jurisdiction.” [emphasis added]
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[18] Justice Gummow, who was in the minority and concluded that there was no
termination of the employment of Mr Visscher at the initiative of the employer by reason of
the terms of an industrial instrument that applied to Mr Visscher, effectively came to the same
view as the majority about s 170CD(1B):17
“It may be accepted that ‘termination’ for the purpose of s 170CE(1) may include a
‘demotion in employment’ which involves a significant reduction in the remuneration
or duties of the demoted employee (s 170CD(1B)).”
[19] In 2009, the FW Act came into force. Section 386 of the FW Act governs when a
person has been dismissed. It provides that:
“386 Meaning of dismissed
(1) [When a person has been dismissed]
A person has been dismissed if:
(a) the person’s employment with his or her employer has been terminated on the
employer’s initiative; or
(b) the person has resigned from his or her employment, but was forced to do so
because of conduct, or a course of conduct, engage in by his or her employer.
(2) [When a person has not been dismissed]
However, a person has not been dismissed if:
(a) The person was employed under a contract of employment for a specified
period of time, for a specified task, or for the duration of a specified season,
and the employment has terminated at the end of the period, on completion of
the task, or at the end of the season; or
(b) the person was an employee:
(i) to whom a training arrangement applied; and
(ii) whose employment was for a specified period of time or was, for any
reason, limited to the duration of the training arrangement;
and the employment has terminated at the end of the training arrangement; or
(c) the person was demoted in employment but:
(i) the demotion does not involve a significant reduction in his or her
remuneration or duties; and
17 Visscher at [30]
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(ii) he or she remains employed with the employer that effected the
demotion.
(3) [Exception where purpose is to avoid employer’s obligations]
Subsection (2) does not apply to a person employed under a contract of a kind referred
to in paragraph (2)(a) if a substantial purpose of the employment of the person under a
contract of that kind is, or was at the time of the person’s employment, to avoid the
employer’s obligations under this Part.”
[20] The principal differences between the demotion provisions in the WR Act compared to
those in the FW Act are as follows:
The WR Act uses the expressions “termination” or “termination of
employment”, whereas the FW Act uses the expression “dismissed” and s 386
of the FW Act deals with the “meaning of dismissed”, including by reference
to where “the person’s employment with his or her employer has been
terminated on the employer’s initiative” or “the person resigned from his or her
employment” in particular circumstances; and
Although there is no material difference between the two limbs dealt with in s
170CD(1B)(a) and (b) and s 386(2)(c)(i) and (ii) of the FW Act respectively,
the introductory words to those limbs differ as follows:
o The WR Act provides:
“For the purposes of this Division, termination or termination of
employment does not include demotion in employment if …”
and
o The FW Act provides:
“However, a person has not been dismissed if … the person was
demoted in employment but …”
[21] There is no suggestion in either the Second Reading Speech or the Explanatory
Memoranda to the Fair Work Bill that Parliament intended, by enacting the FW Act, to
change the categories of demoted employees, if any, who are entitled to bring an unfair
dismissal claim.
[22] Following the enactment of the FW Act, s 386(2)(c) was considered by Senior Deputy
President O’Callaghan in the context of a demotion of an employee who still remained
employed, performing new duties.18 The Senior Deputy President interpreted s 386(2)(c) as
requiring that there be both a significant reduction in the applicant’s remuneration or duties
and that the applicant no longer be employed by the relevant employer in order for a demotion
to constitute a dismissal.19
18 Philip Moyle v MSS Security Pty Ltd [2015] FWC 8330
19 Ibid at [17]
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[23] On appeal, the Full Bench of the Commission in Phillip Moyle v MSS Security Pty Ltd
(Moyle)20 overturned the decision of the Senior Deputy President and held as follows:
“[9] Section 386(1) sets out a general definition of what constitutes a dismissal. Section
386(2) then sets out three sets of circumstances which, even if they fall within the
general definition, are deemed not to be dismissals. These are, in effect, exceptions to
s.386(1). The third of these exceptions, in s.386(2)(c), relates to demotions in
employment. In order to fall within this exception - that is, for a demotion that
otherwise constitutes a dismissal under s.386(1) to be deemed not to be a dismissal,
both limbs of the exception must be satisfied, as Mr Moyle submitted. The
construction adopted by the Senior Deputy President was, with respect, in error
because it inverted the exception by making it necessary for an applicant to negative
both limbs of the exception in order for the demotion to be a dismissal. This would
have the perverse result that a demotion in employment could never constitute a
dismissal, even where it is plain that the existing contract of employment has been
terminated and replaced by a new and inferior contract, because the employee will
necessarily have remained in employment with the employer and thus could not
negative s.386(2)(c)(ii).
...
[12]...Whether or not the exception in s. 386(2)(c), properly construed, was applicable,
it remains necessary for Mr Moyle to demonstrate at the outset that he had been
“dismissed” within the meaning of s. 386(1).
[13] An action taken by an employer to change the remuneration and duties of an
employee could not constitute a dismissal under s. 386 (1) where the change was one
authorised by the contract of employment.
…
[23] We do not consider that there was any repudiation of Mr Moyle’s contract of
employment by MSS, and that it continued to operate in accordance with its terms
after Mr Moyle’s transfer took effect. Therefore, there was no termination at the
initiative of the employer under s.386(1)(a) and no dismissal.”
[24] The Full Bench in Moyle did not consider in any detail the distinction between the
termination of a contract of employment and the termination of an employment relationship,
nor did it consider the correctness of the decision in Charlton. After the Full Bench handed
down its decision in Moyle, another Full Bench in Navitas decided that the question of
whether there has been a termination at the initiative of the employer for the purpose of s
386(1)(a) of the FW Act is to be conducted by reference to termination of the employment
relationship, not by reference to the termination of the contract of employment operative
immediately before the cessation of the employment.21 In this regard, the majority in Navitas
relied on the High Court’s judgment in Visscher in reaching a different conclusion to the
earlier Full Bench in Charlton in relation to whether the termination of a contract of
20 [2016] FWCFB 372.
21 Navitas per the majority at [66]-[75] and the minority at [108]-[114] & [123]-[128]
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employment could constitute a “termination of employment”. The majority in Navitas
concluded as follows in relation to this issue:
“[50] Thus it is clear, contrary to the first proposition stated in Lunn to which we have
earlier referred, that a termination of the employment relationship might constitute a
termination at the initiative of the employer under the WR Act notwithstanding that
the contract of employment remains on foot. That is, under the WR Act, termination at
the initiative of the employer did not, on its ordinary meaning, refer to termination of
the contract of employment. The first proposition in Lunn to which we have earlier
referred was therefore not a correct statement of the law under the WR Act, and as a
result the Full Bench’s analysis in Lunn proceeded on the wrong premise that it was
necessary to analyse whether the final employment contract was terminated at the
initiative of the employer, not whether the employment relationship was terminated at
the initiative of the employer. The correct position remained as stated in Mohazab,
namely that a termination of employment at the initiative of the employer occurs
where the action of the employer is the principal contributing factor which leads to the
termination of the employment relationship.”
[25] Having regard to the decision of the Full Bench in Navitas, there are two possible
ways in which the words of s 386 of the FW Act may be construed according to their ordinary
meaning in relation to a demotion. On one view of s 386 of the FW Act, an employee who is
demoted and elects to remain employed by their employer in the demoted role is not
dismissed within the meaning of s 386. The relatively simple argument supporting this
construction can be summarised as follows:
a dismissal within the meaning of s 386(1)(a) of the FW Act concerns the termination
of the employment relationship, as distinct from the termination of a contract of
employment;22
an employee who has been demoted and who remains in employment has an ongoing
employment relationship with their employer, notwithstanding the fact that one
contract of employment may have been terminated and a new contract entered into;
section 386(2) of the FW Act deals with circumstances in which an employee “has not
been dismissed”. It therefore narrows the meaning of “dismissed” in section 386(1).23
Consequently, section 386(2)(c) of the FW Act cannot convert what would otherwise
not be a dismissal under s 386(1) to a dismissal; and
because a dismissal under s 386(1)(a) of the FW Act concerns the termination of the
employment relationship and an employee who elects to remain employed by their
employer after a demotion has an ongoing employment relationship with their
employer, section 386(2)(c) cannot convert such a demotion into a dismissal within
the meaning of s 386(1)(a).
[26] On another view, an employee who is demoted and elects to remain employed by their
employer is “dismissed” within the meaning of s 386 in circumstances where the demotion
involves a significant reduction in their remuneration or duties. For the reasons set out below,
22 Navitas per the majority at [66]-[75] and the minority at [108]-[114] & [123]-[128]
23 Ibid at [67]
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this construction is supported by the legislative purpose of s 386, as well as the context of the
words within the FW Act as a whole. Context also includes the existing state of the law and
the mischief the legislative provision was intended to remedy.24
[27] First, s 386(1) of the FW Act does not purport to define the term “dismissal”
exhaustively. It identifies that a person has been dismissed if s 386(1)(a) or (b) is satisfied, but
does not, in terms, limit the circumstances which may constitute a “dismissal” to only those
identified in s 386(1)(a) or (b). Section 386 of the FW Act must be construed as a whole, not
just by reference to subsection 386(1).
[28] Secondly, the purpose of s 386(2)(c) of the FW Act is to define the circumstances in
which the demotion of an employee who remains employed by their employer will not
constitute a “dismissal” within the meaning of s 386 of the FW Act.25 Such a purpose, by
implication, suggests that there will be circumstances in which the demotion of an employee
who remains employed by their employer may constitute a “dismissal” within the meaning of
s 386 of the FW Act.
[29] Thirdly, if a “dismissal” within the meaning of s 386 of the Act were limited to a
circumstance in which the employment relationship had been terminated, then s 386(2)(c)(i)
would have no work to do. That is, if the existence of an ongoing employment relationship
could, in and of itself, defeat an argument that a demoted employee had been dismissed, it
would never be relevant to inquire whether the person who remained in employment had
suffered a significant reduction in their remuneration or duties.
[30] Fourthly, the fact that paragraphs 386(2)(c)(i) and (ii) are phrased in present tense (i.e.
“the demotion does not involve a significant reduction…” as opposed to “the demotion did
not involve a significant reduction…” and “he or she remains employed..” as opposed to “he
or she remained employed”) suggests that employees who have been demoted and (1) suffer a
significant reduction in their remuneration or duties and (2) remain in employment with their
employer, have access to unfair dismissal protection.
[31] Fifthly, s 386(2)(c) of the FW Act can be contrasted with ss 386(1)(a), (1)(b), (2)(a)
and (2)(b), all of which are directed to circumstances in which the employment relationship
has come to an end. The requirement in s 386(2)(c) that an employee “remains employed”
suggests that it is addressing a quite different circumstance to the other parts of s 386 of the
FW Act.
[32] Sixthly, s 386(2)(c) does not stipulate any period for which an employee must “remain
employed”. A demotion by its very nature does not, of itself, terminate an employment
relationship. The purpose of a demotion is usually to maintain the employment relationship,
rather than to terminate it. When an employee is demoted, they remain employed for at least
some period of time. It may be a very short period. For example, an employee who is told
they have been demoted may respond seconds later by informing their employer that they
resign immediately, thereby terminating the employment relationship. Another employee who
has been demoted may remain employed for a number of days, weeks or months before
24 Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (2009) 239 CLR 27 at [4]; CIC Insurance Ltd v
Bankstown Football Club Ltd (1997) 187 CLR 384 at p. 408; Project Blue Sky (1998) 194 CLR 355 at [78] per McHugh,
Gummow, Kirby and Hayne JJ
25 See paragraph [10] above
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deciding they are not willing to work in the demoted position and resigning from their
employment. Given the absence of any period for which an employee must “remain
employed” in s 386(2)(c) and the fact that every demotion results in an employee remaining
employed for at least some period of time, the only sensible way to construe the expression
“remain employed” in s 386(2)(c) is by interpreting it to mean that the employee “remains
employed with the employer that effected the demotion” at the time they lodge an unfair
dismissal application in the Commission. That is, s 386(2)(c) deals with a particular
circumstance in which the employment relationship is ongoing and has not been terminated.
In circumstances where an employee is demoted and the employment relationship is
subsequently terminated, such an employee may contend they were dismissed, in that they
were forced to resign by their employer’s conduct in demoting them (s 386(1)(b)).26
[33] Notwithstanding the logic and initial attraction of the first construction (set out in
paragraph [26] above), I am of the view that the second construction (set out in paragraph [27]
above) is the correct one. That is, an employee will be “dismissed” within the meaning of s
386 of the FW Act if they are demoted in employment in circumstances where the demotion
involves a significant reduction in their remuneration or duties and they remain employed by
the employer that effected the demotion. Such an interpretation arises, by implication, from
the terms of s 386(2)(c) considered in the context of s 386 as a whole and is supported by the
textual indicators and legislative purpose set out in paragraphs [28] to [33] above.27
[34] In my view, this construction is also consistent with the decision of the majority of the
Full Bench in Navitas, which, in summarising the judgment of the majority in Visscher, stated
(emphasis added):28
“In summary the majority, having carefully drawn the distinction between termination
of the employment relationship and termination of the contract of employment,
identified the issue arising under the WR Act as whether there was a termination of the
employment relationship at the initiative of the employer (or a demotion as defined in s
170CD(1B)).”
[35] Clearly, in coming to their decision, the majority of the Full Bench in Navitas saw the
distinction between a dismissal involving a termination of the employment relationship at the
initiative of the employer under s 386(1)(a) of the FW Act and a dismissal involving a
demotion of the type defined in s 386(2)(c) of the FW Act (the equivalent of s 170CD(1B) of
the WR Act).
[36] What, then, is the relevance, if any, of whether the demotion was or was not
authorised by the employee’s contract of employment? In previous cases, the terms of a
demoted employee’s contract of employment were considered relevant because it was
believed that a termination of employment occurred when a contract of employment was
terminated, regardless of whether the employment relationship continued,29 and if the
employment contract contained a term which authorised the demotion, then the contract
remained on foot after the demotion and there was no termination at the initiative of the
26 Bupa Aged Care Australia Pty Ltd t/a Bupa Aged Care Mosman v Shahin Tavassoli [2017] FWCFB 3941 at [47]
27 Visscher at [37]
28 Navitas at [49]
29 Charlton at [31]-[32]
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employer.30 In light of the decision of the Full Bench in Navitas, the termination of a contract
of employment at the initiative of the employer does not, of itself, constitute a dismissal; s
386(1)(a) requires a termination of the employment relationship. Insofar as the previous
authorities have considered whether the demotion was at the employer’s initiative, the focus
has been on the expression “terminated on the employer’s initiative” in s 386(1)(a). However,
there is no indication in the text of s 386(2)(c) that a demotion must be at the initiative of the
employer in order to constitute a dismissal. It might be argued that reading s 386 as a whole,
and in particular in light of when “a person has been dismissed” in s 386(1)(a), requires the
demotion to be at the initiative of the employer. But it would be odd to construe s 386(2)(c)
by picking up part of s 386(1)(a) (namely, the requirement of termination at the initiative of
the employer) and then to ignore another central element of s 386(1)(a) (namely, the fact that
it addresses termination of the employment relationship, which does not take place in the case
of a demotion of an ongoing employee). The better construction, in my view, is to treat s 386
as dealing with two types of dismissals: first, a dismissal in which the employment
relationship is terminated; and secondly, a demotion as defined in s 386(2)(c). As the majority
of the High Court held in Visscher, s 170CD(1B) of the WR Act (now 386(2)(c) of the FW
Act), by implication, treats a demotion of an ongoing employee as a dismissal where it
involves a significant reduction in the remuneration or duties of the employee.
[37] It follows from the conclusions I have reached that it is not necessary to demonstrate
at the outset that an employee has been “dismissed” within the meaning of s 386(1) before
determining whether or not s 386(2)(c) is applicable, as was the approach taken in cases such
as Moyle.31 Nor is it necessary to find whether changes to remuneration or duties imposed by
an employer on a demoted employee are authorised by a contract of employment, or
alternatively, result in the existing contract being terminated and replaced by a new contract.
[38] In order for a person who has been demoted to have been dismissed within the
meaning of s 386 of the FW Act, the test is whether the demotion involved a significant
reduction in the employee’s remuneration or duties (whether or not the reduction was
authorised by the contract) and they remain employed by the employer that effected the
demotion. If so, the person is taken to have been dismissed.
[39] This type of distinction between contractual rights and obligations, on the one hand,
and rights and obligations imposed or governed by statute, on the other hand, is not unusual in
the field of employment law. For example, a contract of employment may authorise an
employer to terminate an employee’s employment, at any time, on four weeks’ notice for any
or no reason. The exercise of such a right by an employer will be sufficient to bring the
contract of employment to an end, but it will not have any bearing on whether the dismissal
was harsh, unjust or unreasonable. That is a different question.
[40] If a demotion involving a significant reduction in remuneration or duties was
authorised by a contract of employment, submissions could be made as to the fairness of the
dismissal. However, the existence of such a contractual right is irrelevant to the question of
whether an employee who has been demoted and remains employed has been “dismissed”
within the meaning of the FW Act.
30 Moyle at [23]
31 See also Singh v MSS Security Pty Ltd [2016] FWCFB 3546
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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
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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.”
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[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
32 (2015) 256 CLR 104
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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
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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
33 Appendix A to the Contract
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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:
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(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
34 FLS’s reply submissions dated 22 August 2018 at [19], footnote 14.
35 Exhibit R4 at [3]
36 Exhibit R4 at [3]-[13]
37 Exhibit R4 at [11]
38 FLS’s reply submissions dated 22 August 2018 at [19], footnote 14; exhibit A1 at [27]
39 Exhibit A1 at [27]
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[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
40 [2015] NSWSC 243; there was no criticism of these principles by the New South Wales Court of Appeal in the appeal
from Justice McDougall’s judgment (McKeith v Royal Bank of Scotland Group PLC; Royal Bank of Scotland Group PLC
v James [2016] NSWCA 36)
http://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/qld/QCA/2008/375.html
http://www.austlii.edu.au/cgi-bin/LawCite?cit=%5b1969%5d%202%20AC%2031
http://www.bailii.org/uk/cases/UKHL/1968/3.html
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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.44 The 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.
41 Exhibit A1 at [8]
42 Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226 at 236
43 Ibid
44 Ibid
45 AssetInsure Pty Ltd v New Cap Reinsurance Corp Ltd (In liq) (2006) 225 CLR 331 at [60]
46 Byrne v Australian Airlines Ltd (1995) 131 ALR 422 at 442
47 Ex R4 at [10]
http://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/wa/WASCA/2013/18.html#para35
http://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/wa/WASCA/2013/18.html
[2018] FWC 6695
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[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
48 Navitas at [50] and [75(2)]
[2018] FWC 6695
24
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.
COMMISSIONER
Appearances:
Ms B Herring, solicitor, on behalf Mr Harrison
Mr A Cardell-Ree, solicitor, on behalf of FLS
Hearing details:
2018.
Newcastle:
12 September.
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PR701879
OF THE THE SEAL WORK COMMISSION
