One of the most vexing issues for those of us who represent employers and employees in unfair dismissal cases in the Fair Work Commission, and who also self-evidently advise parties about their rights and obligations before it comes to that, is the issue of whether or not an employee’s conduct can constitute “serious misconduct” for the purposes of the unfair dismissal regime in Australia. This is a more profound exercise than would at first appear because it involves not just an assessment of whether there is a sufficient evidentiary or forensic basis for the allegation or allegations but also whether the conduct alleged can be categorized as sufficiently serious and whether it can or cannot be proved.
So how does the Fair Work Commission approach these delicate tests?
“The onus is on the respondent to prove, to the Commission’s satisfaction and on the balance of probabilities (Briginshaw v Briginshaw (1938) 60 CLR 336), that the misconduct had taken place; see: Culpeper v Intercontinental Ship Management Pty Ltd  AIRC 261 and Yew v ACI Glass Packaging Pty Ltd (1996) 71 IR 201.
While decided in a different statutory context, the comments of Moore J in Edwards v Giudice  FCA 1836 at paras  and  are apposite:
‘4 In the present case the Full Bench concluded that Commissioner Tolley had failed to determine whether Ms Edwards was guilty of misconduct in the way alleged by Telstra Corporation Ltd and that the Commissioner should have done so as part of ascertaining whether her termination had been harsh, unjust or unreasonable. The approach of the Full Bench was, in my opinion, unexceptionable. When the reason for a termination is based on the misconduct of the employee, the Commission must, if it is an issue in proceedings challenging the termination, determine whether the conduct occurred. The obligation to make such a determination flows from s 170CG(3)(a). That is, the Commission must determine whether the alleged conduct took place and what it involved. Section 170CG(3) provides:
“In determining, for the purposes of the arbitration, whether a termination was harsh, unjust or unreasonable, the Commission must have regard to:
(a) whether there was a valid reason for the termination related to the capacity or conduct of the employee or to the operational requirements of the employer’s undertaking, establishment or service; and
(b) whether the employee was notified of that reason; and
(c) whether the employee was given an opportunity to respond to any reason related to the capacity or conduct of the employee; and
(d) if the termination related to unsatisfactory performance by the employee – whether the employee had been warned about that unsatisfactory performance before the termination; and
(e) any other matters that the Commission considers relevant.”
7 The reason would be valid because the conduct occurred and justified termination. The reason might not be valid because the conduct did not occur or it did occur but did not justify termination. An employee may concede in an arbitration that the conduct took place because, for example, it involved a trivial misdemeanour. In those circumstances the employee might elect to contest the termination in the arbitration on the basis that the conduct took place but the conduct did not provide a valid reason and perhaps also by relying on the other grounds in paras (b) to (e). However an employee may not concede or admit, for the purposes of the arbitration, that the conduct occurred or may not be prepared to accept that the Commission could assume the conduct occurred. In either situation the employee would be putting in issue whether the conduct occurred. In my opinion the Commission must, in these circumstances, determine whether the conduct occurred as a step in resolving whether there was a valid reason. I do not see how the Commission can move straight to a consideration of whether termination was justified by assuming the conduct did occur. First the Commission would have failed to resolve an issue raised by and relied on by the employee, namely whether the conduct occurred at all. Second the Commission would have failed to make findings by reference to which a Full Bench might have to determine an appeal where the Commission had concluded the termination was harsh unjust or unreasonable on assumed facts and not facts found [my emphasis].’
In King v Freshmore (Vic) Pty Ltd, 17 March 2000, Print S4213 a Full Bench of the Australian Industrial Relations Commission (AIRC) said at paras , ,  and
‘ The question of whether the alleged conduct took place and what it involved is to be determined by the Commission on the basis of the evidence in the proceedings before it. The test is not whether the employer believed, on reasonable grounds after sufficient enquiry, that the employee was guilty of the conduct which resulted in termination.
 As we have noted above, s.170CG(3)(a) obliges the Commission to make a finding as to whether there was a valid reason for the termination of employment. In circumstances where a reason for termination is based on the conduct of the employee the Commission must also determine whether the alleged conduct took place and what it involved.
 It is apparent from the above extract that his Honour answered the question of whether the alleged misconduct took place on the basis of whether it was reasonably open to the employer to conclude that the employee was guilty of the misconduct which resulted in termination. This is not the correct approach. The Commission’s obligation is to determine, for itself and on the basis of the evidence in the proceedings before it, whether the alleged misconduct took place and what it involved.
 In our view the Senior Deputy President failed to determine for himself whether Mr King was guilty of misconduct in the way alleged by Freshmore and he should have done so as part of determining whether the termination had been harsh, unjust or unreasonable. When the reason for a termination is based on the misconduct of the employee the Commission must, if it is an issue in the proceedings challenging the termination, determine whether the conduct occurred. The absence of such a finding leads us to conclude that the member below failed to properly determine whether there was a valid reason for the termination of Mr King’s employment [my emphasis].’
The meaning of ‘valid reason’ in s 387(a) is drawn from the judgment of Northrop J in Selvachandran v Peterson Plastics Pty Ltd (1995) 62 IR 371 (‘Selvachandran’). This meaning has been applied by members of the Commission and its predecessors for many years:
‘In its context in s 170DE(1), the adjective “valid” should be given the meaning of sound, defensible or well founded. A reason which is capricious, fanciful, spiteful or prejudiced could never be a valid reason for the purposes of s.170DE(1). At the same time the reasons must be valid in the context of the employee’s capacity or conduct or based upon the operational requirements of the employer’s business. Further, in considering whether a reason is valid, it must be remembered that the requirement applies in the practical sphere of the relationship between an employer and an employee where each has rights and privileges and duties and obligations conferred and imposed on them. The provisions must “be applied in a practical, commonsense way to ensure that the employer and employee are treated fairly.’
An appeal Bench of FWA in Parmalat Australia v Wililo  FWAFB 1166 (‘Parmalat’), found at para  and :
‘ We do not consider that the decision discloses a clear line of reasoning leading to the decision reached. The existence of a valid reason is a very important consideration in any unfair dismissal case. The absence of a valid reason will almost invariably render the termination unfair. The finding of a valid reason is a very important consideration in establishing the fairness of a termination. Having found a valid reason for termination amounting to serious misconduct and compliance with the statutory requirements for procedural fairness it would only be if significant mitigating factors are present that a conclusion of harshness is open. We do not believe that any of the circumstances involved in this matter amount to such factors.
 Mr Wililo’s conduct was found to be serious misconduct. It involved deliberate acts. We consider that characterising the actions as carelessness does not derogate from the seriousness of his action or the possible consequences. Further we do not believe that there was a sufficient basis to find that the employer could not apply its safety standards because of alleged actions in relation to other safety breaches. If it was entitled to take the action in this case the need to enforce its safety rules suggests that the resultant termination is not harsh [my emphasis].’
A finding of serious misconduct must not be confused with the statutory language. This still requires the Commission to determine whether there was a valid reason for dismissal (s 387(a)). In Royal Melbourne Institute of Technology v Asher  FWAFB 1200, a Full Bench of Fair Work Australia (FWA, as the Commission then was) held at para :
‘ In the circumstances of this matter the University purported to terminate Dr Asher’s employment for serious misconduct within the meaning of that term in the University’s enterprise agreement. If it successfully established that Dr Asher had engaged in serious misconduct it would necessarily follow that there was a valid reason for the dismissal. However, the converse is not true. As established by Annetta, the question that needed to be considered was whether there was a “valid reason” in the Selvachandran sense – whether the reason was sound, defensible or well founded. Whether it also amounted to serious misconduct may well be a factor relating to the overall characterisation of the termination but it was not an essential requirement in the determination of whether a valid reason exists.’
Ji v Ferngrove Pharmaceuticals Pty Ltd (2017) FWC 299 delivered 8 June 2017 per Sams DP