Employer policies and unfair dismissal

The relevance of an employer’s policies to whether a dismissal for a breach of them is on show in the following analysis of the law by a member of the Fair Work Commission.

“Consideration – employer policies

As was made clear in Potter v Workcover Corp, 23

“… breaching an employer’s policy will not of itself automatically give rise to a valid reason for termination of employment. It depends on the character of the policy and the nature of the breach.” 24

At this point it is useful to be reminded of the orthodox approach to a consideration of whether a breach of an employer’s policy should be a basis for termination of employment. In Woolworths Ltd v Brown 25, a Full Bench of the Australian Industrial Relations Commission (as the national workplace relations tribunal was then called) summarised the position as follows,

“[23] It is convenient to first deal with the legal principles related to breach of an employer’s policy as a basis for termination of employment.

[24] In the modern era employers face an often bewildering array of statutory obligations in relation to matters such as health and safety, discrimination, taxation, trade practices and fair trading to mention the most obvious examples. Employers face potential liability arising from their common law duty of care to their employees and to members of the public. Employers may be subject to contractual obligations that require them to conduct their business in a particular way or to meet particular standards or observe particular constraints. For these reasons it is entirely reasonable, and often necessary, for employers to put in place policies, with which employees must comply, to facilitate the employer’s compliance with its obligations and duties.

[25] Any obligation on an employee to observe a policy established by the employer must be founded in the terms of the contract of employment. A requirement to observe a policy may be an express term of the contract. Indeed, a contract of employment may even incorporate a policy by reference. In the absence of an express term, the matter turns on the implied term to obey lawful directions. Such a term is implied into contracts of employment. In Adami v Maison de Luxe Ltd Isaacs ACJ observed:

“It is no doubt a correct principle that, once the relation of employer and employee is established, obedience to lawful orders is, if not expressly, then impliedly, contemplated by the contract creating the relation, and mere disobedience of such orders is a breach of the bargain.”

[26] In R v Darling Island Stevedoring and Lighterage Co. Limited; Ex parte Halliday & Sullivan Dixon J, addressing “the standard or test by which the common law determines the lawfulness of a command or direction given by a master to a servant”, summarized the common law as follows:

“If a command relates to the subject matter of the employment and involves no illegality, the obligation of the servant to obey it depends at common law upon its being reasonable. In other words, the lawful commands of an employer which an employee must obey are those which fall within the scope of the contract of service and are reasonable. … But what is reasonable is not to be determined, so to speak, in vacuo. The nature of the employment, the established usages affecting it, the common practices which exist and the general provisions of the instrument… governing the relationship, supply considerations by which the determination of what is reasonable must be controlled. When an employee objects that an order, if fulfilled, would expose him to risk, he must establish a case of substantial danger outside the contemplation of the contract of service (Bouzourou v. Ottoman Bank [(1930) A.C. 271, at pp. 275-277]; Ottoman Bank v. Chakarian [(1930) A.C. 277, at pp. 282, 283]).”

[27] Dixon J ought not be taken as using the expression “within the scope of a contract of service” to refer merely to the terms of the contract. Rather, the expression encompasses all matters connected with the job performed by an employee pursuant to his or her contact of employment, and any of its incidents. If a policy is rationally related to the business of the employer a direction to observe the policy will typically be within the scope of the contract of employment.

[28] Consistent with these principles, the Full Bench in Potter v Workcover Corporation observed:

“[67] Of course breaching an employer’s policy will not of itself automatically give rise to a valid reason for termination of employment. It depends on the character of the policy and the nature of the breach. The policy in question must be lawful and reasonable.”

[29] At common law, not every failure to obey a lawful direction justifies dismissal. In Adami Isaacs ACJ noted:

“But whether disobedience in a given case is of such a character as to justify a complete dissolution of the contract by one of the parties and, as here, a forfeiture by the other of valuable accruing rights, together with some degradation—altogether a severe penalty—is, in my opinion, quite a different matter. Such a justification requires the disobedience to be as phrased “wilful disobedience of a lawful order.” That is, it must be not merely a breach but a radical breach of the relation, and inconsistent with its continuance… “Wilfully” does not necessarily connote in that connection anything criminal or immoral, but it does connote some deliberate design or purpose to derogate from duty. … Any conduct on the part of either [employer or employee] inconsistent with the maintenance of the relation created amounts to a renunciation, and the other has a right to terminate it. An order that is not so clearly implied or expressed as to be free from doubt has been left so by the act of both parties. A refusal to comply with it, if the employee, regarded as a reasonable man with knowledge of all the circumstances, may reasonably and does honestly contest it, is not, if respectfully communicated, a wilful disobedience of a lawful order, which by reason only of “wilfulness” entitles the employer to penalize the employee. The employee is there, to the knowledge of his employer, only acting in defence of his supposed rights—that is his only intention and purpose. He is not wilfully insubordinate. Other grounds may justify a rescission, as, for instance, the importance of the refusal apart from wilfulness or its effect on the general condition of the employer’s business. … It is incontestable that any conduct of an employee which is not merely inconsistent with some particular obligation involved, and possibly not striking at the root of the matter, but which is inconsistent with the relation established, is a just cause for the employer’s termination of that relation. Habitual neglect or a definite refusal of a general kind to pursue the employer’s lawful policy of business would afford such justification.”

[30] The facts in Adami are instructive. In that case the proprietor of a hall determined that the hall would commence opening for dancing on Saturday afternoons. The manager (who worked as a bookmaker on Saturdays) refused to comply with the employer’s requirement that he work on Saturdays and was dismissed. The High Court held that the dismissal was lawful. Following on immediately from the passage in the preceding paragraph, Isaacs ACJ stated:

“That is what happened here. The direction as to Saturday afternoons was not an isolated order but was part of a business policy. The nature of the business was such that it was clearly within the contemplated scope of the employer’s rights to select Saturday afternoons as a means for popularizing or extending the business. The refusal of the appellant to give his personal services and his determination to substitute another to take his place was an important and a definite and constant refusal to carry out the duties which, on a considered construction of the contract and circumstances, were, in my opinion, personally undertaken by the appellant in clause 4 of the agreement. He there undertook not only the “full control of the staff” but “the general supervision of the business” subject to the board of directors. That “control” and that “general supervision” might reasonably be directed by the company to include his presence at the hall and, inter alia, the checking of receipts. A general and total refusal of these duties after their specification was, whether the appellant was insubordinate or not, and whether “wilful” or not, a refusal which, by reason of the importance of the duties involved and the extent of the refusal, amounted in law to a renunciation entitling the employer to terminate the contract. For this purpose the letter of 6th July 1923 affords no answer. Under the second branch it is no longer, as it was under the first, a matter assumedly unimportant to the employer, or merely a question of the design and purpose of the employee. The effect of the refusal on the employer’s business, and, therefore, its relative importance in the whole contract, are relevant considerations. Therefore, even putting aside “wilfulness” altogether, the legal effect of the refusal is to control the business, and that, in the absence of some provision in the law or the contract, is inconsistent with the general relation of employer and employed.”

[31] In Laws v London Chronicle Ltd Lord Evershed observed:

“It follows that the question must be — if summary dismissal is claimed to be justifiable — whether the conduct complained of is such as to show the servant to have disregarded the essential conditions of the contract of service. It is, no doubt, therefore, generally true that wilful disobedience of an order will justify summary dismissal, since wilful disobedience of a lawful and reasonable order shows a disregard — a complete disregard — of a condition essential to the contract of service namely the condition that the servant must obey the proper orders of the master, and that unless he does so the relationship is, so to speak, struck at fundamentally.”

[32] It is possible to discern in decisions of the Commission involving a breach of an employer’s policy a conceptual tension as to whether mitigating factors ought be treated as going to the existence of a valid reason for termination within the meaning of s.170CG(3)(a) or only as relevant to the overall determination of whether the termination was harsh, unjust or unreasonable in accordance with s.170CG(3). In our opinion, the better view is that where a breach of policy involves a breach of the implied term requiring an employee to obey lawful directions sufficient to justify dismissal at common law then the breach will be a valid reason for termination of employment in the sense of a reason that is “sound, defensible or well-founded.” Mitigating circumstances are then relevant (pursuant to s.170CG(3)(b) to (e)) to a determination of whether the termination of employment is harsh, unjust or unreasonable notwithstanding the existence of that valid reason.

[33] This was the approach adopted by the Full Bench in Atfield v Jupiters Ltd. In that case the Full Bench accepted that the breach of policy (a strict prohibition on employees of a casino gambling on the casino premises on pain of instant dismissal) involved a breach of an important term of the contract of employment and constituted a valid reason for termination “in the sense that the reason was ‘sound, defensible or well-founded,’” but held that the mitigating circumstances (the employee was unaware that the prohibition on gambling extended to a hotel adjoining the main casino premises and sought to withdraw the bet as soon as it was suggested that the bet was placed in breach of policy, an unblemished record and prejudice in gaining further employment in the industry in circumstances where the employee had made a significant investment in self-funded training) meant that it was open to the Commissioner at first instance to conclude that the termination was harsh.

[34] In summary, a breach of an employer’s policy involving or amounting to a failure to obey a lawful and reasonable direction of the employer sufficient to justify dismissal at common law will amount to a valid reason for termination of employment within the meaning of s.170CG(3)(a) in the sense of a reason that is “sound, defensible or well-founded.” A failure to comply with a direction to do or refrain from doing something in compliance with an employer’s policy will not provide a valid reason for termination of employment where:

(a) The policy, or a direction to comply with the policy, is illegal;

(b) The policy does not relate to the subject matter of the employment or matters affecting the work of the employee; or

(c) The policy, or a direction to comply with the policy, is unreasonable.

[35] What is reasonable will depend upon all the circumstances including the nature of the employment, the established usages affecting it, the common practices which exist and the general provisions of the instrument governing the relationship. A policy will be reasonable if a reasonable employer, in the position of actual employer and acting reasonably, could have adopted the policy. That is, a policy will only be unreasonable if no reasonable employer could have adopted it. A policy will not be unreasonable merely because a member of the Commission considers that a better or different policy may have been more appropriate. As the Full Bench observed in the XPT Case, albeit in a somewhat different context, it is not the role of the Commission “…to interfere with the right of an employer to manage his own business unless he is seeking from the employees something which is unjust or unreasonable.”

[36] Even where a breach of policy (or failure to comply with a direction to observe a policy) provides a valid reason for termination of employment, it is well established that the termination may nevertheless be harsh, unjust or unreasonable. For example:

  • the employee may establish ignorance of the policy;
  • termination of employment may be a disproportionate response to the breach having regard to its nature and the employee’s length of service and prior history;
  • the employee may demonstrate prior non-enforcement or inconsistent application of the policy which, in the particular circumstances, render termination for breach of the policy harsh, unjust or unreasonable (although it should be noted that “…merely because in the past, another employee in breach of the policy may have been dealt with in a particular way other than dismissal is not, of itself, a reason why subsequent dismissals in similar circumstances might be said to be harsh.”[32]);
  • the evidence may disclose that the policy is being applied in a discriminatory fashion or is used as a pretence to disguise a real reason that is impermissible (e.g. union membership or non-union membership).

This list is not intended to be exhaustive and each case will turn on its own facts.”

Ramos v Serco Australia Pty Ltd (2017) FWC 5470 delivered 23 October 2017 per  Johns C