FEDERAL COURT OF AUSTRALIA

INDUSTRIAL LAW - termination of employment - breach of contract of employment - implied term - principles to be applied

BP Refinery (Westernport) Pty Limited v Shire of Hastings 180 CLR 266

Finch v Sayers (1976) 2 NSWLR 540

Pavey and Matthews Pty Limited v Paul (1987) 162 CLR 221

Restitution Law in Australia, Mason and Carter, Butterworths, 1995

H & H SECURITY PTY LTD v JAMES TOLIOPOULOS

NI 665 of 1994

Madgwick J

Sydney

18 August 1997

SUPPLEMENTARY REASONS FOR JUDGMENT

(revised from transcript)

HIS HONOUR:  There are some matters left outstanding and not dealt with in my reasons for judgment of 25 July last.  The first of these concerns Mr Toliopoulos's claim that Mr Hornyak agreed that his starting salary would be $40,000 and that this would rise by not later than 20 March 1994, by two increments, each of $10,000 to $60,000 per annum.  This agreement, says Mr Toliopoulos, was Mr Hornyak's response to his request for a commencing salary of $60,000 per annum.

Mr Hornyak agrees that Mr Toliopoulos did indeed ask for $60,000 per annum.  However he says that he made it clear that $40,000 was all that the company would pay unless the business doubled, in which case the company would "look at it again". 

I have considered this matter anxiously because I would not wish, as it were, unjustly to enrich the applicant company. However, the conclusion to which I have come is that Mr Toliopoulos must fail. 

It is true, as Mr Toliopoulos argues, that it would be in keeping with Mr Hornyak’s character for him to make an agreement as Mr Toliopoulos has alleged and then simply later deny it.  However, the truth of the matter might be as neither Mr Toliopoulos nor Mr Hornyak assert.  For example, Mr Hornyak may have encouraged Mr Toliopoulos to hope for increments while studiously stopping short of committing himself to agreement about them.  This too would be well in character for Mr Hornyak.  It is also true that Mr Hornyak's conduct in matters of dishonesty seems to have gone so far that it exceeded that of Mr Toliopoulos.  However, Mr Toliopoulos was no more satisfactory a witness than as Mr Hornyak.

In the end I must have an actual satisfaction of mind, on the balance of probabilities, that matters occurred substantially as Mr Toliopoulos said, and I simply do not have that satisfaction.

Mr Toliopoulos's next claim is that he was entitled to reasonable notice of the termination of his employment, and that this was of some months' duration, having regard to the seniority of his position.  The short answer to this is that in my view he was not entitled to any notice at all (beyond that which he was in fact given), on account of the operation of section 170DB(1)(b) and the view which I have expressed in my earlier reasons that there was a valid reason for the termination of his employment on the ground of his misconduct.

The next claim is for $150 per week for the use of Mr Toliopoulos's own motor vehicle in the applicant company's business from 1 January 1994.  As I understand it, it was common ground that Mr Toliopoulos did in fact use his car considerably.  It seems to me extremely unlikely that he would have agreed to use his vehicle without recompense, and in the absence of any detailed objection to the amounts claimed, which appear not unreasonable, I will allow for claim of $3450.

Mr Toliopoulos's final claim is for payment of wages while unwell after he broke his leg on 12 June, that is for the period 12 June to 30 July 1994.  At first, Mr Toliopoulos would have been too ill to do any work and it seems reasonable to assign about a week to that category of his incapacity, but thereafter his evidence, which finds some support in the evidence of Mr Seymour, is that he regularly did perform some work.  He estimates it at two to three hours per day and I will assume that 2.5 hours per day is a correct estimate.

This claim gave rise to a number of interesting and important issues.  It was asserted without rebuttal that no award covered Mr Toliopoulos's employment in a managerial capacity with the applicant company.  It is common ground that the oral contract entered into between Mr Toliopoulos and Mr Hornyak on behalf of the company contained no express provision as to sick leave or payment, if some work should be done in the circumstances which occurred in the last seven weeks of Mr Toliopoulos's employment.

In classical legal theory, a question might arise as to whether the performance of the initial contract had been frustrated, although I think there is much to be said for the view espoused by Wootten J in Finch v Sayers (1976) 2 NSWLR 540, that in most areas of employment in modern Australia there is relatively little room for the operation of the doctrine of frustration due to illness.  I should mention the analogical influence of the provision in England and at least three of the Australian jurisdictions of legislation for frustrated contracts generally, which aims to adjust the rights and liabilities of the parties on something fairer than an all or nothing basis.  Section 170DF(1) (a) of the Act made it unlawful to terminate an employee’s employment for illness- or injury-caused temporary absence from work.

Mr Toliopoulos was paid on a fortnightly basis.  I refer to that because payment during incapacity might possibly be said to depend upon an inference to be drawn from the frequency of payment as to an intended minimum period of payment or of qualification for such payment.

The modern tendency of the common law is to provide remedies against unjust enrichment, free of more or less arbitrary rules which in times gone by might have made that more difficult.  The classic statement on this subject is the judgment of Deane J in Pavey and Matthews Pty Limited v Paul (1987) 162 CLR 221.

There is also to be taken into account the influence of general practices as between employer and employee in Australia.  For example, it is quite common when an employee's sick leave runs out, for the employer to grant pro rata annual leave which has accrued, if it is sought to be taken.  It is usual in Australia for a somewhat more generous treatment to be accorded managerial employees in relation to sick leave than others.  There is, however, no generous treatment generally of employees before they have contributed a lengthy period of service with one employer.  Five days per annum sick leave is a standard minimum award provision and, even where express provision is made for employees in managerial and more senior areas, it is uncommon to find more than two weeks per annum provided, although this is generally able to be accumulated for later use if untaken in a given year.

There is, of course, a limited form of social security available in the way of sickness benefits. 

It seems to me that I should first consider whether any term dealing with sick leave should be implied into the contract between the parties.  Finch v Sayers, above, is a useful guide to the implication of terms in contracts of employment, and its emphasis on taking a modern and common sense practical approach supports, in my opinion, the approach I am taking.  The older common law is either quite inapplicable for modern conditions or, in any case, it asks:  what, if any term, on the subject should be implied into the contract.  It is not enough that I would consider that it would be reasonable that such a term be implied, although that is a pre-condition.  There are five conditions for the implication of a term to fill a gap the parties have not expressed themselves upon and they are set out in BP Refinery (Westernport) Pty Limited v Shire of Hastings 180 CLR 266:  the supposed term must be reasonable and equitable; it must be necessary to give business efficacy to the contract; it must be so obvious that it goes without saying; it must be capable of clear expression; and it must not contradict an express term of the contract.

Something should be said about business efficacy and obviousness.  In my view it is necessary to give business efficacy to this contract of service by implying a term in relation to sick leave.  This was a contract of employment.  Like most such contracts, the setting known to both parties was that the employee would be dependant upon his wages for the livelihood of himself and any dependants.  In order that a sick employee be able to recuperate and resume the employment without undue concern as to his and possibly his dependants' economic position, it is necessary to imply such a term.  If there is such undue concern, it is unlikely that the contract will be efficacious for its purposes.  Another way of putting it is that such implication is necessary to avoid the frustration of the contract through an employee's short-term incapacity.

As to the obviousness of the term, it seems to me that, having regard to the fact that Mr Toliopoulos was a managerial employee, had the parties turned their mind to the question of sick leave, he would have asked for at least what a non-managerial employee would receive, namely of the order of 5 days per annum, and equally obvious that the employer would have felt hardly able to dispute this modest benefit. 

In my view, a term ought to be implied that, in the event of sickness, Mr Toliopoulos would be paid for one week thereof in the first year of his employment.  It is not necessary to consider what might have been the position thereafter.  I therefore think Mr Toliopoulos is entitled to one week's pay which, according to my calculations, is $769.20 a week gross.

In relation to the claim that 2½ hours work per week was performed for 6 weeks, I believe that it should be dealt with on the basis of preventing the unjust enrichment of the company and/or as providing for proper restitution to Mr Toliopoulos: see Pavey and Matthews Pty Ltd v Paul referred to above. I will quantify this claim as follows: the hourly rate of Mr Toliopoulos's work should, since he was a managerial employee, be based on an assumed 40 hours a week to be served to earn full pay.  That gives an hourly rate of $19.23, and allowing for 2.5 hours per week on average for 6 weeks, results in the sum of $288.

I prefer, as indicated, to approach this matter by reliance on the “restitutionary principle” (as to which see generally Restitution Law in Australia (Mason and Carter, Butterworths, 1995)).  It may be that, on the BP Refinery tests, a term for such payment cannot be implied into the contract, but I need not determine that.

The next matter for consideration is the employer's claim for firstly, damages for Mr Toliopoulos's breaches of an implied term of fidelity to the company, and secondly, relief from having the payments above foreshadowed ordered against it, on account of Mr Toliopoulos's said misbehaviour.  As to the claim for damages, there is simply no loss shown and therefore no occasion for any award of damages to be made, whatever else might have been established.  As to the second matter, that is, to set up Mr Toliopoulos's misconduct as a shield against his claims for payment, the particular matters which I thought had been established and which might have significance as justifying Mr Toliopoulos's termination for misconduct, were mentioned in my earlier judgment.  Neither those matters of misconduct nor any other alleged misconduct of Mr Toliopoulos are to the point, or would contradict Mr Toliopoulos's implied contractual right to one week's sick leave and his restitutionary right to 2.5 hours' pay per day, 5 days a week for each of six weeks.

I therefore propose to award Mr Toliopoulos the following sums:

    $3450   motor car expenses

      $769   sick leave

    $1440   (2.5 hours work per week for 6 weeks)

    $5659   total

In addition to that I propose to allow 8 per cent interest for two years, there being nothing put in argument against that course.

The foregoing is subject to my concern about what I am told is the status of the company and that any administrator of the respondent company may not have had the opportunity to consider and take action in this matter: it may also be that the proceedings are presently the subject of a statutory stay.  I will adjourn the matter to 25 August 1997 at 9:30 am to enable these matters to be clarified and to enable arrangements for any administrator to put any further argument, if so desired.

Associate:

Dated:              18 August 1997