Employees’ implied duties of good faith and fidelity

This is an extract from a recent unfair dismissal case in which the obligations of employees under the common law to act in the best interests of or her employer.

“Consideration

[51] Section 387 of the Act provides that, in consideration whether it is satisfied that a dismissal was harsh, unjust or unreasonable, the Commission must take into account:

(a) whether there was a valid reason for the dismissal related to the person’s capacity or conduct (including its effect on the safety and welfare of other employees); and

(b) whether the person was notified of that reason; and

(c) whether the person was given an opportunity to respond to any reason related to the capacity or conduct of the person; and

(d) any unreasonable refusal by the employer to allow the person to have a support person present to assist at any discussions relating to dismissal; and

(e) if the dismissal related to unsatisfactory performance by the person—whether the person had been warned about that unsatisfactory performance before the dismissal; and

(f) the degree to which the size of the employer’s enterprise would be likely to impact on the procedures followed in effecting the dismissal; and

(g) the degree to which the absence of dedicated human resource management specialists or expertise in the enterprise would be likely to impact on the procedures followed in effecting the dismissal; and

(h) any other matters that the FWC considers relevant.

[52] I am required to consider each of these criteria to the extent they are relevant to the factual circumstances before me. 1

(a) whether there was a valid reason for the dismissal

[53] To be a valid reason, the reason for the dismissal should be “sound, defensible or well founded” 2 and should not be “capricious, fanciful, spiteful or prejudiced.”3 Where a dismissal relates to an employee’s conduct, the Commission must be satisfied that the conduct occurred and justified termination.

[54] The evidence from the Respondent, supported by the show cause and termination letter, was that the Applicant had been involved in the development of a competitor business whilst in the employ of the Respondent. The forensic analysis of the company laptop provided to the Applicant identified documents labelled as proprietary material of the emerging competitor and other material that was consistent with the development of course material as an RTO in direct competition with the Respondent’s business. The Applicant was listed as the CEO of a venture called MEO Training and the evidence that was discovered on the Respondent’s laptop, that the Applicant utilised to deliver courses and undertake her work duties, had material that supported the assertion that the Applicant was involved with her husband in the establishment of a competitor business.

[55] The Respondent weighed up the risk to its business in having an employee with access to all of its training material and intellectual property developed over many years now working with her husband, a former employee, on creating a new business which was in direct competition with his own business. The Respondent concluded following an investigation that these concerns were borne out, and after a show cause process the Applicant was terminated.

Employment Contract

[56] There was a dispute over which version of the employment contract was binding on the parties. The Applicant gave evidence that the only employment contract that she had signed and was in force was the contract she signed in 2014 when she changed from a casual employee to a permanent part time employee. However, she was unable to provide a copy and the Respondent claimed that they no longer held a copy of this document. The Respondent asserted that the employment agreement that was in force was one that was first produced and provided to the Applicant in 2019, which she did not sign and provided instead a series of objections to the updated contract of which the HR team provided her with responses. This document remained unsigned and in 2020 the employment agreement was again provided when she made an application for flexible leave following her return from parental leave and she refused to sign it. The Respondent states that by continuing to attend work that the Applicant was effectively accepting the new agreement.

[57] I do not have to resolve this matter as will become clear from the following paragraphs.

Code of Conduct

[58] The Code of Conduct which the parties agreed the Applicant had signed made it clear that conduct that the Applicant undertook, even if there were only copies of the new venture’s training material and no actual work had been conducted on the Respondent’s asset/laptop, would be a breach of the Code.

[59] Further, there were specific requirement that required any potential / actual or perceived conflict of interest should be immediately disclosed and expressly permitted. Occupying the role of CEO in a competitor business, having training material and other documents to assist in the creation of content, and the establishment of a competitor organisation, all amount to a significant breach of the Code of Conduct.

Common Law

[60] In spite of the lack of an agreed contract of employment the Applicant had common law duties that were implied into any contract and fundamental to the employment relationship. These duties were outlined by a majority of the Full Bench of the Fair Work Commission (Commission) in Adidem Pty Ltd T/A The Body Shop v Suckling: 4

“[44] In Blyth Chemicals Ltd v Bushnell, Dixon and McTiernan JJ said:

“Conduct which in respect of important matters is incompatible with the fulfilment of an employee’s duty, or involves an opposition, or conflict between his interest and his duty to his employer, or impedes the faithful performance of his obligations, or is destructive of the necessary confidence between the employer and employee, is a ground of dismissal (Boston Deep Sea Fishing and Ice Co. v. Ansell; English and Australian Copper Co. v. Johnson; Shepherd v. Felt and Textiles of Australia Ltd.). But the conduct of the employee must itself involve the incompatibility, conflict, or impediment, or be destructive of confidence. An actual repugnance between his acts and his relationship must be found. It is not enough that ground for uneasiness as to its future conduct arises.”

[44] In the same case, Starke and Evatt JJ noted:

“The mere apprehension that an employee will act in a manner incompatible with the due and faithful performance of his duty affords no ground for dismissing him; he must be guilty of some conduct in itself incompatible with his duty and the confidential relation between himself and his employer.”

[45] In Hivac Limited v Park Royal Scientific Instruments Limited, Lord Greene MR said:

“It has been said on many occasions that an employee owes a duty of fidelity to his employer. As a general proposition, that is indisputable. The practical difficulty in any given case is to find exactly how far that rather vague duty of fidelity extends. Prima facie it seems to me on considering the authorities and the arguments that it must be a question on the facts of each particular case. I can very well understand that the obligation of fidelity, which is an implied term of the contract, may extend very much further in the case of one class of employee than it does in others. For instance, when you are dealing, as we are dealing here, with mere manual workers whose job is to work five and a half days for their employer at a specific type of work and stop their work when the hour strikes, the obligation of fidelity may be one the operation of which will have a comparatively limited scope. The law would, I think, be jealous of attempting to impose on a manual worker restrictions, the real effect of which would be to prevent him utilizing his spare time. He is paid for five and a half days in the week, the rest of the week is his own, and to impose upon man, in relation to the rest of the week, some kind of obligation which really would unreasonably tie his hands and prevent him adding to his weekly money during that time would, I think, be very undesirable. On the other hand, if one has employees of a different character, one may very well find that the obligation is of a different nature.”

[46] In Cementaid (NSW) Pty Ltd v Chambers, Spender AJ said:

“The touchstone for determination of cases such as the present one is to be found in the passage I have quoted from the judgment of Dixon J (as he then was) and McTiernan J in Blyth. It may be put in questions: 1. Is the second activity incompatible with the fulfilment of the employee’s duty to his other employer? 2. Does it involve an opposition or conflict between his interest and his duty to his employer? 3. Does it impede the faithful performance of his obligations to his other employer? 4. Is it destructive of the necessary confidence between the employer and employee? In all cases an actual repugnance between the employee’s acts and his relationship with his employer must be found.”

[61] The Respondent conducted a forensic review of the laptop provided by the business and discovered material that led to the only conclusion possible, which was the Applicant was indeed the CEO of a registered RTO which was a direct competitor. It mattered not that the business was an emerging one that had not allegedly had a student through the doors nor had generated any income. The development of a competitor business whilst employed is fundamentally at odds with the employee relationship and common law requirements of trust and fidelity. The Code of Conduct made it clear what the requirements were for any potential conflict of interest required and the Applicant did not undertake the appropriate actions.

[62] The Applicant’s conduct was incompatible and destructive to the employment relationship. Her actions were a breach of the Applicant’s duty of fidelity and loyalty and was clearly destructive of the confidence required in an employment relationship.

[63] The Respondent, after reviewing the evidence whilst the Applicant was stood down/suspended, conducted an appropriate investigation and identified correctly that her conduct warranted termination and summary termination to protect his business. The conduct undertaken by the Applicant breached her duty of trust and fidelity and was of a magnitude that the Respondent could dismiss summarily. There was in my view a valid reason for the termination of the Applicants employment and weighs in favour that the dismissal was not unfair.

(b) and (c) whether the person was notified of that reason and had an opportunity to respond

[64] Based on the evidence provided and the submissions made, I am satisfied that the Applicant was made aware before her termination of the concerns the Respondent had regarding her conduct. She was stood down on pay awaiting the outcome of the investigation. A show cause process was undertaken, and the Applicant responded to the show cause in writing.

(d) any unreasonable refusal by the employer to allow the person to have a support person present to assist at any discussions relating to dismissal

[65] In the Show Cause letter provided to the Applicant on 22 October 2021, it clearly states to the Applicant that a Show Cause meeting was to occur on 25 October 2021, and that she was invited to bring a support person with her to the meeting. I am therefore satisfied that there was no unreasonable refusal by the employer to allow the Applicant to bring a support person to assist at any discussions relating to the dismissal.

(e) if the dismissal related to unsatisfactory performance by the person – whether the person had been warned about that unsatisfactory performance before the dismissal

[66] This is not a factor to be considered in this matter as the termination was over allegations of misconduct and not performance related.

(f) and (g) the degree to which the size of the employer’s enterprise and the absence of dedicated human resource management expertise would be likely to impact on the procedures followed

[67] The Respondent’s business has under 100 employees and has HR advise available; the procedures followed in the process leading to the termination were reasonable.

(h) any other matters that the FWC considers relevant

[68] The Applicant pointed to the fact that the competitor business was not up and running, that it was her husband’s business, that she did work whilst on maternity leave to assist in the development of the MEO Business and that she did not undertake any work for the competitor whilst on the Respondent’s time. None of these arguments outweigh her actions in becoming involved in the competitor business whilst employed by the Respondent.

Conclusion

[69] The actions of the Applicant, in being involved with her husband in a start-up competitor business whilst being employed by the Respondent, is fundamentally incompatible with her duties of fidelity and loyalty as an employee, that her summary dismissal was justified. There was a valid reason for her termination and the other factors I must consider under s.386 are not weighted against a finding of unfairness.

[70] I therefore order that the matter be dismissed.”

Martins Moniz v E I M Training Pty Ltd (2022) FWC 640 delivered 23 March 2022 per Lake DP