This extract from a recent unfair dismissal case deals with the legal principles which are involved in applying the Small Business Fair Dismissal Code to a summary dismissal for alleged serious misconduct.
“Consideration
[54] As foreshadowed in paragraph 9 above, I find that the Respondent was a small business employer within the meaning of s.23 of the Act, and I am now required to address the matter of whether the dismissal was consistent with the Code and, accordingly, whether s.385(c) applies.
[55] The Code is set out below:
‘Summary Dismissal
It is fair for an employer to dismiss an employee without notice or warning when the employer believes on reasonable grounds that the employee’s conduct is sufficiently serious to justify immediate dismissal. Serious misconduct includes theft, fraud, violence and serious breaches of occupational health and safety procedures. For a dismissal to be deemed fair it is sufficient, though not essential, that an allegation of theft, fraud or violence be reported to the police. Of course, the employer must have reasonable grounds for making the report.
Other Dismissal
In other cases, the small business employer must give the employee a reason why he or she is at risk of being dismissed. The reason must be a valid reason based on the employee’s conduct or capacity to do the job.
The employee must be warned verbally or preferably in writing, that he or she risks being dismissed if there is no improvement.
The small business employer must provide the employee with an opportunity to respond to the warning and give the employee a reasonable chance to rectify the problem, having regard to the employee’s response. Rectifying the problem might involve the employer providing additional training and ensuring the employee knows the employer’s job expectations.
Procedural Matters
In discussions with an employee in circumstances where dismissal is possible, the employee can have another person present to assist. However, the other person cannot be a lawyer acting in a professional capacity.
A small business employer will be required to provide evidence of compliance with the Code if the employee makes a claim for unfair dismissal to Fair Work Australia, including evidence that a warning has been given (except in cases of summary dismissal). Evidence may include a completed checklist, copies of written warning(s), a statement of termination or signed witness statements.’
[56] The Act further defines ‘serious misconduct’3 by reference to the definition in the Fair Work Regulations 2009 (the Regulations):
‘1.07 Meaning of serious misconduct
(1) For the purposes of the definition of serious misconduct in section 12 of the Act, serious misconduct has its ordinary meaning.
Examples of serious misconduct—employees
(2) For the purposes of subregulation (1), conduct that is serious misconduct includes the following conduct of an employee:
(a) wilful or deliberate behaviour that is inconsistent with the continuation of the contract of employment;
(b) conduct that causes serious and imminent risk to:
(i) the health or safety of a person; or
(ii) the reputation, viability or profitability of the employer’s business;
(c) engaging in theft, fraud, assault or sexual harassment in the course of the employee’s employment;
(d) being intoxicated at work;
(e) refusing to carry out a lawful and reasonable instruction that is consistent with the employee’s contract of employment.
(3) Paragraphs (2)(c) to (e) do not apply if the employee is able to show that, in the circumstances, the conduct engaged in by the employee was not conduct that made employment in the period of notice unreasonable.’
[57] In this matter, the Code is to be applied as it relates to ‘summary dismissal’, because the undisputed evidence establishes that the dismissal had immediate effect.
[58] The legal principles relevant to the determination of this matter, including the operation of the Code, are well settled.
[59] In Pinawin v Domingo,4 the Full Bench considered summary dismissal and compliance with the Code:
‘[29] … There are two steps in the process of determining whether this aspect of the Small Business Fair Dismissal Code is satisfied. First, there needs to be a consideration whether, at the time of dismissal, the employer held a belief that the employee’s conduct was sufficiently serious to justify immediate dismissal. Secondly it is necessary to consider whether that belief was based on reasonable grounds. The second element incorporates the concept that the employer has carried out a reasonable investigation into the matter. It is not necessary to determine whether the employer was correct in the belief that it held.
[30] Acting reasonably does not require a single course of action. Different employers may approach the matter differently and form different conclusions, perhaps giving more benefit of any doubt, but still be acting reasonably. The legislation requires a consideration of whether the particular employer, in determining its course of action in relation to the employee at the time of dismissal, carried out a reasonable investigation, and reached a reasonable conclusion in all the circumstances. Those circumstances include the experience and resources of the small business employer concerned.’
[60] In Ryman v Thrash Pty Ltd,5 the Full Bench explained how the summary dismissal provisions of the Code operate:
‘[41] In summary, drawing on the conclusions stated above and the ratio in Pinawin, we consider that the “Summary dismissal” section of the Code operates in the following way:
(1) If a small business employer has dismissed an employee without notice – that is, with immediate effect – on the ground that the employee has committed serious misconduct that falls within the definition in reg.1.07, then it is necessary for the Commission to consider whether the dismissal was consistent with the
“Summary dismissal” section of the Code. All other types of dismissals by small business employers are to be considered under the “Other dismissal” section of the Code.
(2) In assessing whether the “Summary dismissal” section of the Code was complied with, it is necessary to determine first whether the employer genuinely held a belief that the employee’s conduct was sufficiently serious to justify immediate dismissal, and second whether the employer’s belief was, objectively speaking, based on reasonable grounds. Whether the employer has carried out a reasonable investigation into the matter will be relevant to the second element.’
[61] The Applicant was dismissed verbally at the 26 April 2024 meeting. Three days later, he received a termination letter confirming he had been dismissed on 26 April 2024 and was provided with further details and background regarding his dismissal. The recording of the meeting during which the Applicant was dismissed was tendered by the Respondent. It is clear from this useful recording that the Applicant was dismissed on the spot without warning. The reasons given for the dismissal at the meeting are detailed above in paragraph 47 and are augmented by the reasons in the termination letter (see paragraph 52).
[62] I first need to consider whether the Respondent held a genuine belief that the employee had committed an act of serious misconduct and whether the belief was, objectively speaking, based on reasonable grounds. In his witness statement,6 Mr Reeves says that when he was effectively accused of theft at the 26 April 2024 meeting:
‘It was at this point in the meeting I formed the opinion that a breach of the relationship of trust and confidence had occurred between Mr Barker and me which warranted immediate dismissal …’
[63] Mr Reeves refers to contextual factors surrounding the dismissal. Mr Reeves was particularly exercised about the fact that neither the Applicant nor Mr Pearce had, in his opinion, complied with the Respondent’s shareholder agreement to provide working capital to the business and had refused to respond to a notice of demand some six days prior to the 26 April 2024 meeting for a contribution of working capital. Mr Reeves was genuinely offended that the Applicant had requested a reconciliation of credit card statements, and that the Applicant had suggested Mr Reeves’s wife would benefit from a life insurance payout.
[64] Mr Reeves appears to have taken offence at the Applicant’s comments that he was not interested in working to make increased profits for the Respondent because they were largely allocated to Mr Reeves, and apparently deemed this not acting in the Respondent’s best interests, although this argument is not explicitly made.
[65] Mr Reeves has also listed other reasons as contributing to serious misconduct, these reasons being the performance-based issues of failing to train staff and a failure to develop the business in Victoria.
[66] At the determinative conference, Mr Reeves repeatedly referred to the Applicant’s lack of contribution to working capital and was visibly affected by any hint that he had misused company funds for his personal benefit. Mr Reeves had bought in and invested approximately half a million dollars into this business over 18 years. He was wanting to exit the business and viewed the actions of the Applicant in questioning his honesty as an affront. On balance, I do find that Mr Reeves believed that the request for directors’ credit card reconciliations was an accusation of theft, and that he believed this combination of actions was sufficiently serious to justify summary dismissal.
[67] For the reasons below, I find that Mr Reeves’s belief was not reasonably held. Whether a belief was reasonable in the circumstances depends on the information an employer had available to it at the time and the steps it took to verify the information.
[68] Mr Reeves did not make any substantial investigation regarding any of the alleged items of misconduct where an investigation could have been conducted.
[69] This alleged offence regarding a reconciliation of directors’ credit card expenses cannot reasonably justify summary dismissal. That Mr Reeves was offended is understandable, but the other directors were relying on the shareholder agreement that provided for reconciliation of accounts.7 In the context of attempts to value the business so as to affect share transfers, these reconciliations are reasonably expected.
[70] For the sake of completeness, as to the other matters referred to in the termination letter that are later referenced by Mr Reeves in his witness statement in similar words as ‘contextual matters’, I find as follows.
[71] The subjective and unparticularised reason for the termination of the Applicant’s employment, that the Applicant had not acted in the best interests of the Respondent, although a genuine belief on Mr Reeves’s behalf, is not serious misconduct. Failure to grow the business in Victoria and to train staff are performance-based issues and, without further information, cannot reasonably be described as serious misconduct. The Applicant was a salaried employee and a failure to regularly complete time sheets is not a failure that can reasonably be characterised as serious misconduct, particularly in the context that this failure was not aimed at obtaining some fraudulent gain. There would also appear to be confusion regarding the Applicant as an employee and the Applicant as a director of the Respondent. Whilst appreciating Mr Reeves’s frustration with what he believed was non-compliance with the shareholder agreement, those matters were more properly dealt with in the context of the shareholder agreement and not the employment context.
[72] In two submissions filed in response to directions in this matter, the Respondent alters his position. In these submissions, he no longer relies on the ground of serious misconduct and instead seeks to satisfy compliance with the Code by complying with the requirements of the Code under the heading ‘Other Dismissal’.
[73] The Respondent submits that because a payment in lieu of notice was made to the Applicant, the Respondent is not required to demonstrate serious misconduct that would be sufficient to justify summary dismissal. Instead, the Respondent submits that to give the Code its proper operation, ‘it is necessary to give appropriate weight to “sufficiently serious” breaches of employment obligations which arise from contact which damages those personal relations.’8 [74] In this context, the Respondent submits that ‘sufficiently serious conduct’ is the Applicant’s insubordination. The Respondent says that because the Applicant did not comply with his shareholder obligations and ‘[g]iven the relative seniority of the Applicant and Mr Reeves, that conduct … amounted to insubordination.’9 The Respondent submits that Commission decisions have found that insubordination is a valid reason for dismissal.
[75] The Respondent submits that additional reasons for dismissal include that the Applicant did not follow reasonable and lawful directions and that such actions strike at the heart of the Applicant’s employment obligations and should be viewed as serious misconduct as prescribed by the Regulations. The Respondent submits that the alleged refusal to follow lawful and reasonable directions has consequences that have a more significant impact on a smaller business, such as the Respondent, than on a larger business. The details of the alleged lawful and reasonable directions are as follows:
- The direction given on 25 February 2024 to complete time sheets as required by the employment agreement, particularly in the context of working remotely in another state. The Respondent says this required trust and that this trust was destroyed; and
- The directions given on four occasions to train staff in the FX Land program.
[76] The Respondent’s submissions appear to be an attempt to cover all possible options for opposing the Applicant’s application. The initial reliance on the serious misconduct part of the Code subsequently shifts to the ‘Other Dismissal’ part of the Code or, alternatively, conflates the Code with addressing the matters in s.387 of the Act.
[77] The Applicant was dismissed summarily, and the Summary Dismissal part of the Code consequently applies. In any case, I do not find that the matters described above are of a nature that strike at the heart of the Applicant’s employment obligations, as asserted by the Respondent, so as to justify summary dismissal.
[78] For the reasons above, I find that the Respondent did not comply with the Code and that the dismissal is not consistent with s.385(c). Accordingly, I am required to examine whether the dismissal was harsh, unjust or unreasonable.
Was there a valid reason for dismissal relating to capacity or conduct?
[79] The valid reason must be sound, defensible or well-founded and must ‘“be applied in a practical, commonsense way to ensure that” the employer and employee are each treated fairly’.10
[80] The Applicant submits that the termination letter does not disclose a valid reason for dismissal.
[81] Mr Reeves submits that when he believed he was being accused of theft, he decided to dismiss the Applicant because the relationship of trust between them had been breached and that this had occurred in the context of other matters, including the Applicant’s failure to follow lawful and reasonable instructions, to generate income for the business in Victoria and to provide working capital as required by the shareholder agreement.
[82] Understandably, small businesses operate with somewhat less flexibility and resources than larger operations. The dismissal also occurred against the background that Mr Reeves was the main shareholder, he had invested approximately half a million dollars into the business and was keen to retire from the business with adequate remuneration for his shares. All of this background did create significant stress for Mr Reeves, and he was visibly agitated about these matters at the determinative conference.
[83] Although it was a highly stressful time for Mr Reeves, and tensions between Mr Reeves and the other two directors were high, I do not find the reason given for dismissal to be a valid one. Mr Reeves says he was accused of theft. This and the contextual reasons were communicated to the Applicant. The Applicant was reasonably entitled to request a reconciliation of directors’ credit card expenditure. The other reasons given in the termination letter are, as per Mr Reeves’s subsequent witness statement, contextual factors.11
[84] The other reasons for dismissal detailed in the termination letter are listed in paragraph 52 above and I will address them for the sake of completeness. The Respondent submits that the Applicant had been on notice for a considerable time to make capital contributions and had an opportunity to respond at the 26 April 2024 meeting. The termination letter advised of the reasons for dismissal in six dot points.
[85] The first two dot points relate to the Applicant’s failure to act in the best interests of the company as a director and an employee. These criticisms lack sufficient detail for a determination of whether they are a valid reason. In various submissions and at the determinative conference, Mr Reeves refers to a lack of respect for his position as the senior director and is offended at a request for an audit of the directors’ credit card use and the suggestion that he may have used such facilities for personal purposes. This and other forms of conduct described above certainly appear to have offended Mr Reeves.
[86] The question of whether the conduct was sufficient to constitute a valid reason is another matter. The offence was real, and Mr Reeves may have felt a sense that the Applicant was ungrateful. In many ways, the parties were communicating at cross purposes. Mr Reeves was keen to recoup the funds he had invested in the Respondent and the Applicant and Mr Pearce appear to have been wanting to understand the Respondent’s financial situation before they made further commitments. Communication between the parties was strained but nothing in the conduct relating to the request for transparency of directors’ expenditure or a reference to Mr Reeves’s insurance is of such a serious nature so as to constitute a valid reason for dismissal.
[87] With regards to the requirement to provide working capital and to respond to a demand for same, these are properly characterised as shareholder matters and go to a disagreement between Mr Reeves and the other two directors.
[88] In spite of Mr Reeves’s submissions, in his own witness statement in his own words, he says that he decided to dismiss the Applicant because he believed he was being accused of theft.
[89] The remaining two dot points relate to performance related matters, those being not sufficiently developing the business in Victoria and failing to train staff.
[90] For the reasons above, I do not find the Applicant was dismissed for a valid reason.
Was the Applicant notified of the reasons and was there an opportunity to respond to any capacity or conduct related reasons?
[91] As I have not found there was a valid reason related to dismissal, this factor is not relevant in the present circumstances.
Was there any unreasonable refusal to allow a support person to be present to assist at any discussions relating to dismissal?
[92] There was no unreasonable refusal of a request for a support person. This is not a relevant consideration in this matter.
Was the Applicant warned about relevant unsatisfactory performance?
[93] The Respondent makes no submissions in this regard because it submits that the dismissal was not related to unsatisfactory performance.
[94] The Respondent listed six dot points as the reasons for dismissal in the termination letter. Two of these matters, concerning the Applicant not training staff and not developing the business in Victoria, can properly be characterised as performance issues.
[95] In the absence of any evidence that a warning was given, I accept the Applicant’s evidence that no warning was given about unsatisfactory performance.12
The degree to which the size of the Respondent’s business and any absence of dedicated human resources management specialists or expertise in the business would be likely to impact on the procedures followed in effecting the dismissal
[96] The Respondent submits that I should have regard to the fact that the Respondent does not have ‘access to a dedicated human resources or industrial relations function’. The Applicant submits that it was reasonable to expect the Respondent to seek professional advice before the termination of his employment and that there was adequate opportunity to obtain that advice.
[97] The small size of the Respondent’s business and the absence of human resources management specialists in all likelihood contributed to the dismissal process, with that process essentially lacking procedural fairness.
Other relevant matters
[98] As to other relevant matters, the Applicant says, firstly, I should consider that the true reason for the dismissal was the request for a credit card reconciliation. Mr Reeves’s evidence pinpoints the request for reconciliation statements as the trigger for the dismissal and this has formed part of the consideration of relevant factors.
[99] As to the other matters the Applicant says are relevant, I agree with the Respondent that the dismissal over Zoom was a necessary requirement due to the different locations of employees. I also accept Mr Reeves’s evidence regarding his use of ‘Hi Ho’ in emails to his wife and that the offending email has not been transmitted further. In any case, it does not appear to me that the Applicant has been affected in any way by this email. Similarly, the email sent to staff regarding job security was a generic one sent to all staff and in the context of the shareholder dispute, I do not consider that this is a significantly relevant matter.
[100] Although the forced acquisition of shares occurred at the same meeting as the dismissal, they are separate matters. The question of the shares being forcibly acquired is properly dealt with and resolved by reference to the corporations law and shareholder agreement of May 2013.
[101] The context of this dismissal is that it was part of a wider dispute between the majority and senior shareholder, Mr Reeves, and the Applicant and Mr Pearce. Mr Reeves naturally wanted to increase the value of the Respondent and seemed frustrated that the Applicant did not share his views, firstly, as to how to achieve this and, secondly, what were appropriate company contributions for the Applicant to make.
[102] In all the circumstances, I find the Applicant’s dismissal was unjust and unreasonable. Whilst having some appreciation of Mr Reeves’s position, the Applicant was ambushed at the 26 April 2024 meeting, was summarily dismissed, and had no opportunity to respond to any of the matters relied upon by Mr Reeves in dismissing the Applicant.
[103] It follows that the Applicant was unfairly dismissed.
Remedy
[104] The relationship between Mr Reeves and the Applicant has become somewhat acrimonious and it would likely be untenable for the Applicant to return to the Respondent as an employee. The Applicant has not applied for reinstatement, and I am satisfied that reinstatement would not be appropriate.
[105] Directions will instead be issued in relation to whether compensation is appropriate in all the circumstances of the case and, if so, the amount of compensation that should be awarded. ”
– Barker v DSB Partners Pty. Ltd. T/A DSB Landscape Architects [2024] FWC 2381 delivered 24 September 2024 per Mirabella C