AUSTRALIAN INDUSTRIAL RELATIONS COMMISSION
Workplace Relations Act 1996
s.45 appeal against decision and order
PR912480 and PR912482 issued by Commissioner Whelan on 12 December 2001
L.A. Biviano
(C2001/6565)
s.170CE application for relief in respect of termination of employment
L.A. Biviano
and
Suji Kim Collection
(U2001/2444)
VICE PRESIDENT ROSS |
|
SENIOR DEPUTY PRESIDENT O'CALLAGHAN |
|
COMMISSIONER FOGGO |
MELBOURNE, 28 MARCH 2002 |
Alleged unlawful termination - appeal against that part of the order dealing with lost remuneration - s.170CH(4)(b) - appeal upheld matter remitted - principles relating to mitigation discussed.
DECISION
Introduction
[1] This decision deals with an appeal by Ms Louise Biviano (the appellant) under s.45 of the Workplace Relations Act 1996 (the WR Act) against part of the decision and order of Commissioner Whelan made on 12 December 2001. The order subject to appeal is in the following terms:
"Further to the decision [PR912480] dated 12 December 2001 in the above matter, the Commission orders as follows:
1. That the applicant be reinstated in her former position as a manager of the Doncaster store of Suji Kim Collection.
2. For the purpose of the long service leave and other leave accruals her employment is to be regarded as continuous from the date of termination until the date of reinstatement.
3. That the respondent pay to the applicant an amount by way of compensation of $1,724.57.
These orders are to come into effect within seven days of the date of signing."1
[2] It is paragraph 3 of the above order which is the focus of the appeal proceedings. Before we turn to deal with the submissions we propose to briefly set out how the matter came before us.
Background
[3] The appellant was employed from August 1995 until 25 March 2001 as the store manager of the respondent's Doncaster store.
[4] The circumstances leading up to the appellant's termination are set out at paragraphs 6-9 of the decision subject to appeal:
"[6] From late 2000, early 2001 according to Ms Elson the applicant's attention to her duties as manager was effected by matters occurring in the applicant's life and not related to her employment. She cited as examples excessive use of the telephone for personal calls and an occasion where the applicant slept in the store room for two hours. She felt that the appearance of the store had also deteriorated.
[7] Ms Kim stated that she visited the store in early March 2001 and was unhappy with its state. In particular, she observed the applicant talking on the phone while customers were waiting and also observed that the summer stock was still on display when other stores were bringing out their winter stock. She told the applicant that she wanted to speak to her and asked her to arrange a time for the following week.
[8] Between 13 March and 16 March 2001 the applicant was ill and unable to work. She spoke to other staff on 13, 14 and 15 March to say she was unable to attend work and asked them to notify head office. On 15 March 2001 she visited her doctor and obtained a medical certificate which she had faxed to the respondent's warehouse manager, Nam, the following day. Ms Biviano also got her former husband to telephone Nam on 15 March 2001 to explain her position.
[9] On Monday 19 March 2001 the applicant telephoned Nam and was told not to attend for work the following day. On 20 March 2001 the applicant was telephoned by Ms Kim and asked to attend work on 21 March 2001. She attended work that day but visited her doctor again at the end of her shift. She attended work the next day but had to telephone her mother who came and collected her from work after telephoning Ms Kim to say that she was doing so. She was unable to attend work on either 23 or 24 March 2001 and on both days her mother telephoned Ms Kim to tell her that the applicant was unwell."
[5] On 25 March 2001 the appellant was at work when Ms Kim (a director of the respondent) attended the store and handed her a letter dated 15 March 2001.2 The letter states:
"Dear Louise,
You have been, so far, paid as Manager rate ($13.20/hr) on the condition that you are responsible for opening and closing our shop located in Doncaster Shopping Centre.
As we are now arranging someone else to take up the your responsibility of opening and closing the shop, you will no longer entitled to a pay of Manager wage rates.
And even if you would open and close the shop few times a week, you will still be paid as normal Retail Trade Employee Level 6 ( $12.09 per hour ) from 1st of April 2001. (Full and Part-Time)
If you don't have any objection to this condition, I would appreciate it much if you can sign in the below section and forward one copy to me within a week after receipt of this letter."3
[6] In her witness statement Ms Biviano records her reaction to receiving the letter:
"I had been the Manager of the Doncaster store for nearly seven years and I was very upset and shocked. I did not think it was right that I should have to accept a lower position and a lower salary after seven years of employment. I believed that my position had been terminated."4
[7] Ms Biviano's oral evidence was that he was "distressed and upset" by the events of 25 March 2001, and subsequently sought treatment for stress from a psychologist and was prescribed anti depressants by her doctor, Dr Shapiro.5 Under cross-examination Ms Biviano denied that the anti depressants were prescribed as a result of personal problems she was dealing with at the time, rather than anything to do with her employment.6
[8] On 26 March 2001, the day after she received Ms Kim's letter, Ms Biviano sought legal advice. On the same day her solicitors forwarded a letter to Ms Kim, in the following terms:
"I refer to your letter dated 15 March 2001 handed to Ms Biviano on 25 March 2001.
Ms Biviano does not consent to the reduction in the terms and conditions of her employment.
Ms Biviano understands that her employment as Manager is terminated as of 25 March 2001 and that you have offered her employment as Retail Trade Employee Level 6. Ms Biviano does not accept this position as she believes the relationship between employer and employee to have irrevocably broken down.
Therefore, Ms Biviano considers her contract of employment terminated effective 25 March 2001 at the initiative of her employer, and will pursue her rights in relation to the unlawful termination of her employment with the Australian Industrial Relations Commission.
I note that Ms Biviano instructs me to act on her behalf in relation to this matter and any correspondence should be directed to our office.
If you have any queries or wish to discuss this matter I ask that you contact Sonya Lane on (03) 9602 6806."7
[9] Ms Biviano subsequently filed an application for relief pursuant to s.170CE(1) of the WR Act.
[10] Conciliation was unsuccessful and the matter proceeded to arbitration on 9 October 2001 before Commissioner Whelan.
[11] The Commissioner handed down her decision on 12 December 2001. The key findings and conclusions were:
¬ it was Ms Kim's intention to demote Ms Biviano from her position as manager of the Doncaster store and if Ms Biviano refused to accept the demotion then Ms Kim intended to terminate her employment. This amounted to a "termination at the initiative of the employer";8
¬ in the last months of her employment Ms Biviano allowed other things to get in the way of her job - she was often on the telephone and the appearance of the Doncaster store had declined. But these matters did not justify the termination of her employment. There was no "valid reason" for the termination of Ms Biviano's employment;9
¬ the applicant was not given any reason for her termination, save Ms Kim's view that she was very tired all the time and very sick and perhaps her responsibilities should be reduced;10
¬ Ms Biviano was not given an opportunity to respond to the reasons which Ms Kim articulated in the proceedings as motivating her decision;11
¬ Ms Biviano was not warned that a failure to improve her performance could lead to the termination of her employment;12
¬ pursuant to s.170CG(3)(e) the Commissioner had regard to the fact that:
· the employer tried to ameliorate the impact of termination by offering alternative employment, and
· the employer's lack of experience in dealing with such matters.
[12] In terms of remedy the Commissioner decided to reinstate the applicant to her former position as manager of the respondent's Doncaster store. In addition to reinstatement the Commissioner decided to make an order to provide for continuity of employment and to require the respondent to pay Ms Biviano the sum of $1,724.57.
[13] It is the latter part of the Commissioner's order - requiring payment of $1,724.57 in respect of lost remuneration - which is the focus of the appeal. The relevant part of the Commissioner's decision dealing with this matter is at paragraphs 28 and 29:
"[28] I am satisfied that the applicant has made some efforts to mitigate her loss by seeking alternative employment. I am, however, satisfied that I should take into account her failure to accept the work offered by the respondent which would have provided her with an ongoing income. I note also that having found that the termination was at the initiative of the employer the applicant was entitled to four weeks notice under section 170CM of the Workplace Relations Act 1996.
[29] Taking these matters into account I am prepared to order that the applicant be reinstated in her former position as a manager of the Doncaster store of Suji Kim Collection. For the purpose of the long service leave and other leave accruals her employment is to be regarded as continuous from the date of termination until the date of reinstatement. Taking into account my findings in relation to mitigation, I am further prepared to order that the respondent pay to the applicant an amount by way of compensation of $1,724.57 which, on the material before me, represents the difference between what the applicant would have earned if her employment had not been terminated as store manager and what she would have earned had she accepted the respondent's alternative offer."
The Appeal
[14] The appellate jurisdiction conferred on us by s.45 in relation to an appeal concerning an order arising from the arbitration of an application under s.170CE is conditioned by s.170JF(1) which limits the grounds of an appeal. The only ground is that the member of the Commission who conducted the arbitration was in error in deciding to make an order. That can be an error of fact or an error of law.13
[15] The nature of an appeal under s.45 of the Act was the subject of consideration by the High Court of Australia most recently in Coal and Allied Operations Pty Ltd v Australian Industrial Relations Commission14 (Coal & Allied). Gleeson CJ, Gaudron and Hayne JJ, in a joint judgment, said:
"Because a Full Bench of the Commission has power under s.45(6) of the Act to receive further evidence on appeal, an appeal under that section is properly described as an appeal by way of rehearing. And because there is nothing to suggest otherwise, its powers under sub-s (7) are exercisable only if there is error on the part of the primary decision-maker. And that is so regardless of the different decisions that may be the subject of an appeal under s.45."15
[16] The types of error that may constitute grounds for review of a discretionary decision of the kind here under consideration were re-stated in Coal & Allied in the following way:
"Because a decision-maker charged with the making of a discretionary decision has some latitude as to the decision to be made, the correctness of the decision can only be challenged by showing error in the decision-making process [See Norbis v Norbis (1986) 161 CLR 513 at 518-519 per Mason and Deane JJ]. And unless the relevant statute directs otherwise, it is only if there is error in that process that a discretionary decision can be set aside by an appellate tribunal. The errors that might be made in the decision-making process were identified, in relation to judicial discretions, in House v The King in these terms:
`If the judge acts upon a wrong principle, if he allows extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed and the appellate court may exercise its own discretion in substitution for his if it has the materials for doing so. [(1936) 55 CLR 499 at 505 per Dixon, Evatt and McTiernan JJ].' "16
[17] The appellant submits that the Commissioner incorrectly applied the law in assessing the amount to be paid to the applicant in respect of the remuneration lost because of the termination. Mr Dowling, of counsel, advanced the following points in support of this proposition:
¬ in deciding to make an order for a remedy the Commission must have regard to, among other things, the efforts of the employee (if any) to mitigate the loss suffered by the employee as a result of the termination (s.170CH(2)(d));
¬ the relevant test is whether the steps taken by the applicant to mitigate her loss were reasonable in the circumstances;
¬ in certain circumstances it will be reasonable for an applicant to refuse to accept a demoted position in the mitigation of his or her loss. In this context reference was made to a number of authorities including Payzu Ltd v Saunders,17 Westen v Union des Assurances de Paris,18 and Burke v Reander Pty Ltd;19
¬ in this case it was reasonable for the applicant to refuse the demoted position in circumstances where:
· it was found that she had been accused of matters that did not amount to a valid reason for her demotion or termination,
· it was found that had the applicant refused to accept the demotion it was the respondent's intention to terminate the applicant's employment, and
· the demoted position was at a reduced salary and a lower level of seniority and responsibility; and
¬ the Commissioner failed to properly consider that had the applicant accepted the demotion she may not have been entitled to any relief.
[18] In relation to the last point the appellant relied on the following extract from the decision subject to appeal:
"I am satisfied that it was the intention of Ms Kim to demote Ms Biviano from her position as manager of the Doncaster store. Further, I am satisfied from her own evidence that had Ms Biviano refused to accept the demotion that it was her intention to terminate the applicant's employment. The applicant, therefore, had the choice of accepting the demotion or treating the employment as having come to an end." [emphasis added]20
[19] The appellant contends that the above extract makes it clear that the Commissioner considered that Ms Biviano had two choices - accept the demotion or have her employment terminated. It was one or the other. On this basis it is argued that if Ms Biviano had accepted the demotion then there would have been no termination of employment within the meaning of s.170CE(1).
[20] The Commissioner's observations on this issue are said to be inconsistent with her later finding that Ms Biviano accepted unreasonably in failing to mitigate her loss by accepting the demoted position.
[21] In relation to remedy the appellant seeks an order varying paragraph 3 of the order made by Commissioner Whelan by deleting the reference to "$1,724.57" and inserting "$20,823.92" instead. The basis for the figure of $20,823.92 is as follows:
¬ the period between the date of termination (25 March 2001) and the reinstatement order (12 December 2001) is 263 days or 37.57 weeks;
¬ the evidence of the applicant was that she worked on a two-week roster, earning $631.57 gross per week in the first week and $442.20 gross per week in the second week21 making an average gross weekly wage of $554.27; and
¬ 37.57 weeks x $554.27 gross per week = $20,823.92.22
[22] In the alternative it was argued that if the Commission was inclined to remit the matter to Commissioner Whelan then such remittal should only be on the question of remedy.
[23] In reply Mr Marasco, appearing on behalf of the respondent, submitted that the Commissioner did not incorrectly apply the law in assessing the applicant's compensation.
[24] Mr Marasco conceded that in certain circumstances it would be reasonable for an applicant to refuse to accept a demoted position in the mitigation of his or her loss, but argued that this is not such a case. In that regard he advanced the following points:
¬ the decision to demote the applicant was not capricious - the respondent had concerns about her performance and these were, at least in part, accepted by the Commissioner in her decision;
¬ the applicant was offered the position of store assistant in the same store she worked at, with the prospect of some additional hours being worked at the respondent's Southland store;
¬ the store assistant position was not a fundamental change in job description nor a position that carried the uncertainty described in Burke's case; and
¬ the decisions relied on by the appellant were distinguishable as they were decided under the former Act and one of the objects of the current Division 3 of Part VIA of the WR Act is to accord a "fair go all round" to both the employer and employee concerned.
[25] Mr Marasco did not contest Mr Dowling's calculation of the appellant's lost remuneration.23
Relevant Principles
[26] Section 170CH of the WR Act 1996 deals with the remedies available in the event that the Commission determines that a termination of employment was "harsh, unjust or unreasonable". For present purposes subsections 170CH(1), (2), (3) and (4) are particularly relevant, they state:
"(1) Subject to this section, the Commission may, on completion of the arbitration, make an order that provides for a remedy of a kind referred to in subsection (3), (4) or (6) if it has determined that the termination was harsh, unjust or unreasonable.
(2) The Commission must not make an order under subsection (1) unless the Commission is satisfied, having regard to all the circumstances of the case including:
(a) the effect of the order on the viability of the employer's undertaking, establishment or service; and
(b) the length of the employee's service with the employer; and
(c) the remuneration that the employee would have received, or would have been likely to receive, if the employee's employment had not been terminated; and
(d) the efforts of the employee (if any) to mitigate the loss suffered by the employee as a result of the termination; and
(e) any other matter that the Commission considers relevant;
that the remedy ordered is appropriate.
(3) If the Commission considers it appropriate, the Commission may make an order requiring the employer to reinstate the employee by:
(a) reappointing the employee to the position in which the employee was employed immediately before the termination.
(b) appointing the employee to another position on terms and conditions no less favourable than those on which the employee was employed immediately before the termination.
(4) If the Commission makes an order under subsection (3) and considers it appropriate to do so, the Commission may also make:
(a) any order that the Commission thinks appropriate to maintain the continuity of the employee's employment; and
(b) subject to subsection (5)-any order that the Commission thinks appropriate to cause the employer to pay to the employee an amount in respect of the remuneration lost, or likely to have been lost, by the employee because of the termination.
[27] A number of general observations may be made about s.170CH.
[28] First, the decision to make an order that provides for a remedy is discretionary. It is a discretion which "may" be exercised, but only in the circumstances set out in s.170CH(1). Before an order can be made to provide for a remedy the Commission must have determined, on completion of the arbitration, that the termination in question was "harsh, unjust or unreasonable".
[29] Second, the Commission must not make an order that provides for a remedy unless it is satisfied, having regard to all the circumstances of the case including the matters set out at paragraphs 170CH(2)(a) - (e), that the remedy ordered is appropriate. Subsection 170CH(2) is couched in mandatory terms. It should be construed as requiring the Commission to take all circumstances into account and in particular to take into account each of the particular circumstances specified in paragraphs 170CH(2)(a), (b), (c), and (d), as well as any relevant matter within the scope of paragraph 170CH(2)(e). These matters are to be taken into account as fundamental elements in determining whether to make an order providing for a remedy.24
[30] Third, it is apparent from the terms of s.170CH that in determining the question of a remedy the Commission must first consider reinstatement.25 This follows from the terms of s.170CH(6) which provides that the Commission may only consider the remedy of compensation if it "thinks that the reinstatement of the employee is inappropriate". The remedies available are reinstatement and the payment of an amount in lieu of reinstatement.
[31] If the Commission considers it "appropriate" it may make an order requiring the employer to reinstate the employee by:
¬ reappointing the employee to the position in which the employee was employed immediately before the termination (s.170CH(3)(a));
¬ appointing the employee to another position on terms and conditions no less favourable than those on which the employee was employed immediately before the termination (s.170CH(3)(b)).
[32] Section 170CH(4) provides that if a reinstatement order is made then the Commission may also make orders to maintain the continuity of the employee's employment and to require the employer to pay the employee an amount in respect of the remuneration lost, or likely to have been lost by the employee because of the termination.
[33] For present purposes the matter referred to paragraph 170CH(2)(d) is particularly relevant, that is, "the efforts of the employee (if any) to mitigate the loss suffered by the employee as a result of the termination". The issue which arises in this matter concerns the application of that provision to the circumstances of this case.
[34] In Lockwood Security Products Pty Limited v Sulocki26 (Sulocki) a Full Bench of the Commission decided that the "primary question" in applying paragraph 170CH(2)(d) is whether the applicant has "acted reasonably". In that context the Commission cited Westen v Union des Assurances de Paris with approval. In that matter Madgwick J said: "[t]he party claiming damages need only act reasonably". 27
[35] The question of what steps were reasonable in the mitigation of loss is a question of fact to be determined having regard to the particular circumstances.28 The common law principles regarding mitigation may be of some assistance in applying paragraph 170CH(2)(d).
[36] At common law a plaintiff is expected to take reasonable steps to minimise the effect of a breach of contract. As Lord Haldane said in British Westinghouse Electric and Manufacturing Co. v Underground Electric Railways Co. of London:
"The fundamental basis is thus compensation for pecuniary loss flowing from the breach; but this first principle is qualified by a second, which imposes on a plaintiff the duty of taking all reasonable steps to mitigate the loss consequent on the breach, and debars him from claiming any part of the damage which is due to his neglect to take such steps."29
[37] While it is frequently said that there is a "duty" to mitigate it is a little misleading to speak in terms of a duty. If the "duty" is not discharged there is no corresponding right of the respondent that mitigation takes place. In this sense the respondent is not possessed of any true right. Rather, the principle of mitigation operates pro tanto as a conditional bar to the recovery of damages.30 As Donaldson MR said in Sotiros Shipping Inc. v Sameiet Solholt (The Solholt):31
"A plaintiff is under no duty to mitigate his loss, despite the habitual use by lawyers of the phrase `duty to mitigate'. He is completely free to act as he judges to be in his best interests. On the other hand ... a defendant is only liable for such part of the plaintiff's loss as is properly to be regarded as caused by the defendant's breach of duty."
[38] In certain circumstances an innocent party may be required to explore mitigation through a resumption of contractual relations on the initiative of the other party. In the context of contract cases courts are frequently called on to determine the extent to which an injured party is required, on discharge by breach, to enter into a new contract with the contract-breaker.
[39] For example, in Payzu Ltd v Saunders32 (Payzu) the parties had entered into a contract for the sale and purchase of goods on credit but, owing to a misunderstanding, the defendant refused to deliver the goods unless paid for in cash. The Court held that the plaintiff should have mitigated its loss by accepting the defendant's offer to deliver against cash payment.
[40] The general position at common law is that a plaintiff must take steps consistent with the demands of prudent action33 in order to avoid a reduction in damages awarded. But it is important to bear in mind that mitigation does not require a party to do what is unreasonable - plaintiffs are not required to do things that present serious risks to their interests. They are not required to take unreasonable steps to mitigate their loss.34 Examples of steps which a plaintiff need not take include:
[41] In relation to the last point Scrutton LJ said in Elliott Steam Tug v Shipping Controller39 (in dissent, but not on this point):
"at common law the owner of a ship while under a duty to act reasonably to reduce damages is under no obligation to destroy his own property to reduce the damages payable by the wrongdoer."
[42] We respectfully agree. Mitigation does not require a plaintiff to part with property or surrender legal rights. There is, moreover, support in the authorities for the view that a plaintiff is not obliged in mitigation to release his or her cause of action.40
[43] Whatever be the position in respect of commercial transactions41 it is apparent that employment cases may involve different considerations. As Bankes LJ said in Payzu:
"It is plain that the question what is reasonable for a person to do in mitigation of his damages cannot be a question of law but must be one of fact in the circumstances of each particular case. There may be cases where as a matter of fact it would be unreasonable to expect a plaintiff to consider any offer made in view of the treatment he has received from the defendant. If he had been rendering personal services and had been dismissed after being accused in presence of others of being a thief, and if after that his employer had offered to take him back into his service, most persons would think he was justified in refusing the offer, and that it would be unreasonable to ask him in this way to mitigate the damages in an action of wrongful dismissal."42
[44] Further, as Blain J said in Yetton v Eastwoods Froy, Ltd:
"As I see the matter, it is a plain question of fact for the court in any particular case, whether any particular refusal to accept alternative employment which would reduce a plaintiff's loss is a reasonable or an unreasonable refusal, and factually, even if not as a strict matter of law, personal factors clearly are more likely to be of weight or are likely to be of greater weight in cases of personal services than in what I call (for want of a better word) soulless cases of sale of goods contracts where money may often be the only important factor. Certainly personal factors do not have to be ignored in the making up of a dismissed servant's mind when he comes to make a decision reasonable or unreasonable."43
[45] The general position is that a person wrongfully dismissed cannot claim loss which would have been avoided by accepting a reasonable offer of fresh employment.44 There have been circumstances in which it has been held that a dismissed employee acted unreasonably in refusing re-employment. For example, in Brace v Calder45 the plaintiff claimed damages for wrongful dismissal. He had been employed as the manager of a business carried on by four persons in partnership. In the course of his employment two of the partners retired and the business continued to be carried on by the two remaining partners. The new firm proposed that Mr Brace continue in his position upon the same terms and the same rate of remuneration as before. The plaintiff resented his "technical dismissal", which resulted from the dissolution of the partnership, and declined to serve the two remaining partners; he brought an action against the original partnership for wrongful dismissal. There was a difference of opinion in the Court of Appeal as to whether the plaintiff had been wrongfully dismissed but the members of the Court were unanimously of the opinion that the plaintiff should have mitigated his loss by accepting the offer of the two remaining partners and he was therefore entitled to nominal damages only.
[46] Whether a party has acted reasonably or unreasonably must depend on the circumstances of the individual case, and the authorities are of limited guidance. But it is more often the case that while the dismissed employee must seek other employment he or she is not required to accept a position of lower pay or status with the same employer. For example, in Shindler v Northern Raincoat Co Ltd46 the plaintiff, wrongly dismissed by the defendants, refused to accept offers of employment by a company related to the defendants, who therefore contended that the plaintiff had acted unreasonably. Diplock J held that the plaintiff had not acted unreasonably - having regard to the senior position occupied by the plaintiff, the fact that litigation had commenced between the plaintiff and the defendants, and the friction which existed between the plaintiff and executives in the company, it was, "as a matter of common sense",47 not right to say that the plaintiff had acted unreasonably.
[47] Even when re-employment is offered on substantially the same terms it is not necessarily the case that it would be unreasonable for an applicant to refuse such an offer. For example, where the applicant no longer trusts his or her former employer it would not be reasonable to expect the applicant to mitigate his loss by accepting an offer of re-employment. In Bostik (Australia) Pty Ltd v Gorgevski (No. 1) Sheppard and Heery JJ held:
"His Honour has found that the respondent did not trust the company's word. It would be out of the question in those circumstances to hold that he had failed to mitigate his damages because he had not taken advantage of a prospect of the settlement of the matter by returning to his former employment."48
[48] A fortiori refusing an offer of an alternative position without loss of remuneration is not necessarily unreasonable, particularly where the alternative position is of a lower status than that which the plaintiff had previously enjoyed.
[49] In Dunstan v National Mutual Life Association of Australasia49 the plaintiff had been employed as the general manager of Brick Securities Limited (BSL), a company in the National Mutual group. In that position he had primarily been involved in unit trust marketing. BSL's activities were subsequently amalgamated with those of National Mutual Life Assurance of Australasia Ltd (National Mutual) and Dunstan's employment as general manager of BSL was terminated. National Mutual offered Dunstan an alternative position as Manager, Finance Services, Victoria on terms no less favourable than his previous appointment. Dunstan declined the offer. In a letter to the respondent Dunstan set out the reasons why he thought the position offered was unsatisfactory. In particular he said that "this position is of substantially lower status than my current position and acceptance of such a position would cause serious damage to my career prospects within the financial services industry."
[50] Duggan J concluded that in the circumstances Dunstan's rejection of the respondent's offer was not unreasonable. His Honour said:
"... I accept the plaintiff's claim that he regards himself as a person whose preferred career path is in the field of unit trust marketing. Clearly it is a specialised and potentially lucrative field. ...
The defendant's contention is, of course, that in failing to accept the alternative position offered to him, the plaintiff has failed to mitigate the damage that he had suffered by reason of such a breach. The plaintiff concedes that this alternative offer was made and that he declined to accept it ... Before expressing my conclusion on the question of mitigation it is necessary to set out my understanding of the relevant law.
The basic position is that if the plaintiff could have or should have earned income elsewhere during the period for which he claims to hold the defendant liable, then such alternative earnings should be brought into account in assessing his damages. If the earnings offered in respect of the alternative position are taken into account in this case, by reason of them being not less favourable to the plaintiff than those associated with his position at BSL, the damages would be reduced to a nominal sum ...
Bearing in mind that the plaintiff genuinely believed that the matters to which I have referred were substantial reasons why it was not in his interests to accept the alternative position with NM, it necessarily follows that his decision to reject that position was not unreasonable. Accordingly, it cannot be said that he has failed to mitigate any damage that he sustained by reason of the defendant's breach."50
[51] While initially it may not be unreasonable for a dismissed employee to accept a position with less remuneration or status, the passage of time may make it reasonable for his or her sights to be lowered. As Blain J said in Yetton v Eastwoods Froy, Ltd:
"In terms of remuneration he first started as an applicant in the £8,000 to £10,000 a year class, telling the court that he would probably have accepted £7,500 if it had been put forward to him. It was not unreasonable, in my view, in view of his past history, to start at a high level. He said he was not expecting endowment or top hat benefits as well as salary because of his age. In about September, 1965, he came down to £5,000 and a little later to £4,000, and he told me that he never went below that. Finally, he deliberately refrained from following up a possible job - that is all we know about it - at £2,500 a year early in October, 1965. As I have said, I take the view that he was right to try for something like the previous salary in the early stages. Indeed, supposing he had taken an appointment at something very much less, I might have had to try an argument why he had not set his sights higher. His achievements justify this, in my view, even though they were confined to work in one group. That is a circumstance which might be thought by some potential employers to limit his potential versatility, it might be thought by others to be a tribute to his reliability, his integrity, and in view of the high position on the ladder which he had reached, to his sheer ability and value to those who knew his work. I tend to think myself - this is hindsight, and in any case it was his mind (so long as it was a genuine and reasonably exercised mind) that matters - that he might have started to drop his sights a little sooner, but I see no reason to assume that he would have obtained any employment, which he has in fact failed to obtain thus far."51
[52] The following general observations may be made on the basis of the decided cases:
¬ The principle of mitigation operates as a conditional bar to the recovery of damages.52
¬ To avoid a reduction in damages a plaintiff must take reasonable steps to minimise the effect of a termination of contract.53
¬ The issue of what steps are reasonable in the mitigation of loss is a question of facts to be determined having regard to the particular circumstances.54
¬ A party is not required to take unreasonable steps to mitigate their loss.55 For example, they are not required to
¬ In employment cases the question of whether a dismissed employee acted unreasonably in refusing an offer of re-employment depends on the circumstances. Courts have determined that it is not unreasonable to refuse such an offer in circumstances where the level of remuneration58 or status59 of the position offered is less than that previously enjoyed by the dismissed employee. But with the passage of time it may be reasonable for the dismissed employee to lower their sights.60 Even where re-employment is offered on substantially the same terms and status it will not be unreasonable to refuse in circumstances where the employee no longer trusts his or her former employer61 or where there is friction between the two parties.62
[53] In our view these observations are relevant to the application of paragraph 170CH(2)(d) in assessing the extent to which an order in respect of lost remuneration is to be adjusted.
[54] It is apparent from the decided cases that the Commission has had regard to the circumstances of each case in determining whether an applicant has acted reasonably to mitigate their loss. In considering mitigation in the context of s.170CH the Commission has held that:
¬ an applicant may discharge the obligation to take reasonable steps to mitigate loss flowing from termination of employment by establishing a venture on his or her own account. Where this is the case it may be appropriate to make some allowance for deferred income in the calculation of the amount to be ordered pursuant to s.170CH(7), particularly where income is not generated in the early stages of the venture;63
¬ the fact that the applicant is a single parent is a matter which may be taken into account in considering whether the efforts taken to mitigate his or her loss were reasonable;64
¬ it is reasonable for an applicant to undertake a training course to enhance their employment prospects as a means of mitigation;65 and
¬ it is not unreasonable for an applicant to refuse re-employment in circumstances where the employment relationship had broken down.66
[55] In the proceedings at first instance one of the issues for determination was whether the steps taken by Ms Biviano to mitigate the loss suffered as a result of the termination of her employment were reasonable. Ms Biviano's evidence was that she made some eleven attempts to find alternative employment in the fashion retail industry, but was unsuccessful.67 Ms Biviano was not cross-examined on this aspect of her evidence.
[56] As we have already noted the Commissioner took into account Ms Biviano's failure to accept the alternative position offered by the respondent and reduced the order in respect of lost remuneration to $1,724.57. The amount ordered represents Ms Biviano's lost remuneration less what she would have earned if she had accepted the alternative position.
[57] The practical effect of the Commissioner's decision under s.170CH(4)(b) was to impose a substantial penalty on Ms Biviano - in the order of $19,000 on Mr Dowling's calculations - because of her refusal to accept the position offered by the respondent.
[58] It seems to us that there are a number of errors in the Commissioner's reasoning process on this point.
[59] The first matter to which we wish to refer is the inconsistency between the Commissioner's findings under ss.170CE, 170CG and 170CH(4)(b).
[60] In relation to s.170CE(1) the Commissioner concluded that in the circumstances the applicant had the choice of accepting the demotion proposed by the respondent or having her employment terminated. It was one or the other. Accordingly the respondent's proposal amounted to a termination at the initiative of the employer. The language used by the Commissioner suggests that if Ms Biviano had accepted the demoted position there would have been no termination of employment within the meaning of s.170CE(1).
[61] Under s.170CG(3)(a) the Commissioner concluded that there was no "valid reason" for the termination of Ms Biviano's employment. In other words the respondent's offer of the alternative position at a lower wage and status was not "sound, defensible or well founded". In these circumstances it is difficult to understand why the applicant should subsequently be penalised - to the tune of $19,000 - for refusing to accept the demotion.
[62] There are a number of other matters which in our view the Commissioner either failed to take into account, or failed to accord sufficient weight. These are:
¬ the alternative position was at a reduced salary and status;
¬ the respondent's conduct in proposing the demotion left Ms Biviano distressed and upset. She subsequently sought treatment for stress from a psychologist and was prescribed anti-depressants by her doctor; and
¬ if Ms Biviano had accepted the demotion she may have been precluded from bringing an application for relief as there may have been no "termination of employment" within the meaning of that expression in s.170CE(1) of the WR Act.68
[63] In relation to the last point the authorities make it clear that a party is not obliged in mitigation to release his or her cause of action.69 In Shindler v Northern Raincoat Co. Ltd Diplock J held that the plaintiff's refusal to accept an offer of employment on terms that he abandoned such legal rights as he had for damages against the defendant company was not unreasonable.70
[64] In our view the Commissioner's reasoning process in determining the amount to be awarded in respect of lost remuneration was erroneous in that she failed to take into account the material considerations set out above.
Conclusion
[65] We have decided to grant leave to appeal and to uphold the appeal.
[66] In terms of the disposition of the appeal we think the most appropriate course is to remit the determination of the amount to be paid to Ms Biviano by the respondent in respect of remuneration lost to Commissioner Whelan. While we do not think that any deduction is warranted on the basis of a failure to mitigate loss, we have decided to remit the matter because of the observations made in the Commissioner's decision that in the last months of her employment Ms Biviano allowed other things to get in the way of her job - she was often on the telephone and the appearance of the Doncaster store had declined.71
[67] The conduct of an applicant which led to the termination of their employment is relevant to the determination of an amount to be paid in respect of lost remuneration pursuant to s.170CH(4)(b). As a Full Bench of the Commission observed in Kenley v JB Hi Fi:
"[36] In summary we think that the discretion conferred by s.170CH(4) is general in nature and it is to be exercised having regard to the context in which it appears and the scheme of the Workplace Relations Act 1996 as a whole. In deciding whether or not it is appropriate to make an order in respect of lost remuneration we think that the Commission may properly take into account all of the circumstances of the case, including the conduct of the applicant which led to the termination of employment in question. On the construction of s.170CH(4)(b) we have adopted, it was open to the Commissioner to have regard to Mr Kenley's conduct, but whether the result arrived at was plainly unjust, as contended by the appellant, remains to be decided."72
[68] In this case it is more appropriate for the member who heard the evidence at first instance to determine the extent to which (if any) Ms Biviano's conduct warrants a reduction in the sum ordered pursuant to s.170CH(4)(b).
[69] We note that while Ms Biviano's conduct may warrant some reduction in the amount ordered in respect of lost remuneration, it would not be appropriate to reduce that amount to the extent originally ordered.
BY THE COMMISSION:
VICE PRESIDENT
Appearances:
C. Dowling, of counsel, with S. Lane for the appellant.
R. Marasco for the respondent.
Hearing details:
2001.
Melbourne:
March 18.
Printed by authority of the Commonwealth Government Printer
<Price code F>
1 Print PR912482, 12 December 2001 per Whelan C.
2 Set out at Attachment 5 to Ms Biviano's statement Exhibit A1.
5 Transcript of 9 October 2001 at PN 339-349.
6 Transcript of 9 October 2001 at PN 420-423.
13 Edwards v Giudice [1999] FCA 1836 per Moore J.
20 Print PR912480 at paragraph 19.
21 See statement of the applicant, Exhibit A1 at paragraphs 9 and 33 and Attachment 6 to that statement.
22 See Exhibit A2 in the appeal proceedings.
23 See paragraphs 164-169 of Transcript of 18 March 2002.
24 Queensland Medical Laboratories v Blewett (1988) 84 ALR 615 at 623 per Gummow J; R v Hunt; Ex parte Seas Investment Pty Ltd (1979) 25 ALR 497 at 504 per Mason J; Sprigg v Paul's Licensed Festival Supermarket (1998) 88 IR 21.
25 See Australian Meat Holdings Pty Ltd v McLauchlan (1998) 84 IR 1; Neutronics Pty Ltd v Salenga, Print R4305, 29 April 1999; Wark v Melbourne City Toyota, Print R4864, 20 May 1999.
26 PR908053, 23 August 2001 per Giudice J, Lacy SDP and Blair C at paragraph 45.
28 Payzu Ltd v Saunders [1919] 2 KB 581.
30 See Stone, The Province and Function of Law (1950), pp.116-117. Koch Marine Inc. v D'Amica Societá Di Navigazione ARL (The Elena D'Amico) [1980] 1 Lloyd's Rep. 75 at 88 per Robert Goff LJ; The Solholt [1981] 2 Lloyd's Rep. 574, affd.. [1983] 1 Lloyd's Rep. 605.
31 [1983] 1 Lloyd's Rep. 605 at 608.
33 Karas v Rowlett [1944] SCR 1 at 8, per Rand J; Warren v Stoddart 105 US 224 (1881); Jamal v Moolla Dawood Sons & Co. [1916] 1 AC 175 at 179; McGregor on Damages, op, cit, supra, n. 2 §§285, 311-321.
34 Burns v MAN Automotive (Aust.) Pty Ltd (1986) 161 CLR 653 at 659 per Gibbs CJ and at 677 per Brennan J.
35 Jewelowski v Propp [1944] 1 All ER 483 at 484 per Lewis J.
36 Shindler v Northern Raincoat Co Ltd [1960] 2 All ER 239 at 249 per Diplock J.
37 James Finlay & Co. Ltd v NV Kwik Hoo Tong Handel Maatschappij [1929] 1 KB 400.
38 Lesters Leather & Skin Co. Ltd v Home and Overseas Brokers Ltd (1948) 64 TLR 569 (CA).
39 [1922] 1 KB 127 at 140-141.
40 See Payzu [1919] 2 KB 581 at 586 per McCardie J; The Solholt [1981] 2 Lloyd's Rep. 574 at 580 per Staughton J.
41 We note that the extent to which the decided cases require an injured party, or discharge of contract by breach, to enter into a new contract breaker has been the subject of academic criticism: see Bridge MG, "Mitigation of Damages in Contract and the Meaning of Avoidable Loss" (1989) July 105 The Law Quarterly Review 398-423.
42 [1919] 2 KB 581 at 588-589.
43 [1966] 3 All ER 353 at 365.
44 Williamson v Commonwealth (1907) 5 CLR 174 at 185; Automatic Fire Sprinklers Pty Ltd v Watson (1946) 72 CLR 435 at 451. But this does not apply where there is reason for mistrusting the employer: Bostik (Australia) Pty Ltd v Gorgevski (No. 1) (1992) 36 FCR 20.
50 Ibid at pp.81-83. Further, in Yetton v Eastwoods Froy, Ltd [1966] 3 All ER 353 Blain J held that it was reasonable for a dismissed managing director to refuse re-employment at the same salary as assistant managing director. Similarly, in Ross v Pender (1874) 1 r (Ct of Sass) 352 a head gamekeeper was dismissed without justification by his employer and was then offered a subordinate position at the same remuneration and living in a different part of the estate. He refused to take the position and the Court of Session held that his refusal was reasonable and awarded damages. Also see Clayton-Greene v De Courville (1920) 36 TLR 790; Edwards v Society of Graphical and Allied Trades [1970] 1 WLR 379; and Schumann v APIA Club Ltd (1983) 6 IR 157 at 166 per Wooten J.
51 [1966] 3 All ER 353 at 366.
52 Koch Marine Inc. v D'Amica Societá Di Navigazione ARL (The Elena D'Amico) [1980] 1 Lloyd's Rep. 75 at 88 per Robert Goff LJ; The Solholt [1981] 2 Lloyd's Rep. 574, affd. [1983] 1 Lloyd's Rep. 605.
53 Jamal v Moola Dawood Sons & Co. [1916] 1 AC 175 at 179; Payzu Ltd v Saunders [1919] 2 KB 281.
54 Payzu Ltd v Saunders [1919] 2 KB 281.
55 Burns v M.A.N. Automotive (Aust.) Pty Ltd (1986) 161 CLR 563 at 659 per Gibbs CJ and at 677 per Brennan J.
56 Jewelowski v Propp [1944] 1 All ER 483 at 484 per Lewis J.
57 Elliot Steam Tug v Shipping Controller [1922] 1 KB 127 at 140-141; Shindler v Northern Raincoat Co Ltd [1960] 2 All ER 239 at 249.
58 Shindler v Northern Raincoat Co Ltd [1960] 2 All ER 239.
59 Yetton v Eastwoods Froy, Ltd [1966] 3 All ER 353; Ross v Pender (1874) 1 R (Ct of Sess) 352; Dunstan v National Mutual Life Association of Australasia Ltd (1992) 5 VR 73.
60 Yetton v Eastwoods Froy, Ltd [1966] 3 All ER 353 at 366 per Blain J.
61 Bostik (Australia) Pty Ltd v Gorgevski (No. 1) (1992) 36 FCR 20 at 32 per Sheppard and Heery JJ.
62 Shindler v Northern Raincoat Co. Ltd [1960] 2 All ER 239.
63 Stork Electrical Pty Ltd v J. Le Good, Print R6813, 12 July 1999 per Giudice J, Watson SDP and Holmes C at paragraph 42; also see Harris Scarfe Ltd v Logue (1996) 67 IR 373 at 378-379.
64 Lockwood Security Products Pty Limited v Sulocki, Print PR908053, 23 August 2001 per Giudice J, Lacy SDP and Blair C at paragraph 45.
66 Martini v Flairinvest Pty Ltd, Print Q1915, 24 June 1998 per Smith C.
67 Exhibits A1 at paragraph 33 and A7 ; transcript of 9 October 1001 at paragraphs 329-338.
68 See Hermann v Qantas Airways Limited, Print PR903096, 3 April 2001 per Whelan C.
69 Payzu Ltd v Saunders [1919] 2 KB 581 at 586 per McCardie J.
70 [1960] 2 All ER 239 at 249.
71 See paragraph 21 of Print PR912480.
72 Print S7235, 22 June 2000 per Ross VP, Watson SDP and Holmes C.