Unfair dismissal and serious misconduct

It is generally accepted by Australian workplace relations’ practitioners that serious misconduct will provide an employer with justification to summarily dismissal an employee, provided of course that the employer has followed a process with is fair and reasonable in reaching its finding. However the issue if what constitutes serious misconduct is not entirely satisfactory given the Fair Work Regulations, the following extract from a recent unfair dismissal decision of the Fair Work Commission makes clear.

“Allegation of serious misconduct

Mr Steel was summarily dismissed for serious misconduct. ‘Serious misconduct’ is defined in the Act’s Regulations. Regulation 1.07 sets out a non-exhaustive definition as follows:

1.07 Meaning of serious misconduct

(1) For the definition of serious misconduct in section 12 of the Act, serious misconduct has its ordinary meaning.

(2) For subregulation (1), conduct that is serious misconduct includes both of the following:

(a) wilful or deliberate behaviour by an employee 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.

(3) For subregulation (1), conduct that is serious misconduct includes each of the following:

(a) the employee, in the course of the employee’s employment, engaging in:

(i) theft; or

(ii) fraud; or

(iii) assault;

(b) the employee being intoxicated at work;

(c) the employee refusing to carry out a lawful and reasonable instruction that is consistent with the employee’s contract of employment. [my emphasis]

Given Mr Murphy’s submissions, it may be safely assumed that the respondent relies on ss (2)(a) and (2)(b)(ii) of the Regulation. However, that in itself, is not necessarily determinative. In Sharp v BCS Infrastructure Support Pty Limited [2015] FWCFB 1033, the Full Bench of the Commission said at para [33]-[34]:

‘[33] The relevance of the definition of “serious misconduct” in reg.1.07 to the matter is also, with respect, obscure. Section 12 of the Act contains a definition of “serious misconduct” for the purposes of the Act which simply cross-refers to reg.1.07. Apart from s.12 itself, the expression “serious misconduct” is used in only three places in the Act. In s.123(1)(b), a dismissal for serious misconduct is a circumstance in which the notice and redundancy entitlement provisions of Pt 2-2 Div 11 are not applicable; in s.534(1)(b) a dismissal for serious misconduct is one to which the requirements for notification and consultation in Pt 3-6 Div 2 do not apply; and in s.789(1)(b) a dismissal for serious misconduct is one in relation to which the requirements established by Pt 6-4 Div 3 for notification and consultation do not apply. The expression “serious misconduct” is not used anywhere in Pt 3-2, Unfair Dismissal, of the Act. Section 392(3) requires the Commission, in relation to the award of compensation for an unfair dismissal, to reduce the amount that it would otherwise order by an appropriate amount where it is “satisfied that the misconduct of a person contributed to the employer’s decision to dismiss the person”. However, it is clear that conduct may constitute “misconduct” for the purpose of s.392(3) without necessarily being “serious misconduct”. The expression is used in the Small Business Fair Dismissal Code, but that had no application in this case (and it is at least highly doubtful in any event whether the reg.1.07 definition applies to the Small Business Fair Dismissal Code). Reg.1.07 therefore had no work to do in the application of the provisions of Pt 3-2 to the circumstances of this case.

[34] It may be accepted that an assessment of the degree of seriousness of misconduct which has been found to constitute a valid reason for dismissal for the purposes of s.387(a) is a relevant matter to be taken into account under s.387(h). In that context, a conclusion that the misconduct was of such a nature as to have justified summary dismissal may also be relevant. Even so, it is unclear that this requires a consideration of whether an employee’s conduct met a postulated standard of “serious misconduct”. In Rankin v Marine Power International Pty Ltd  Gillard J stated that “There is no rule of law that defines the degree of misconduct which would justify dismissal without notice” and identified the touchstone as being whether the conduct was of such a grave nature as to be repugnant to the employment relationship. ”Serious misconduct” is sometimes used as a rubric for conduct of this nature, but to adopt it as a fixed standard for the consideration of misconduct for the purpose of s.387(h) may be confusing or misleading because the expression, and other expressions of a similar nature, have been considered and applied in a variety of contexts in ways which are influenced by those contexts. In McDonald v Parnell Laboratories (Aust) Pty Ltd Buchanan J said:

“[48] The terms ‘misconduct’, ‘serious misconduct’ and ‘serious and wilful misconduct’ are often the subject of judicial and administrative attention as applied to the facts of particular cases but there is relatively little judicial discussion about their content and meaning. Naturally enough, when the term ‘serious misconduct’ is under consideration an evaluation of what conduct represents ‘serious’ misconduct is influenced by the (usually statutory) setting in which the phrase must be given meaning and applied. Frequently, for example, the question at issue is whether an employee is disentitled by reason of his or her conduct to a statutory entitlement (eg. in New South Wales, where Ms McDonald was employed, see Long Service Leave Act 1955 (NSW) s 4(2)(a)(iii); Workers Compensation Act 1987 (NSW) s 14(2).”‘ (footnotes omitted)

The notion of wilful or deliberate behaviour which strikes at the heart of the employment relationship, has been considered in a number of well known authorities. In North v Television Corporation Ltd (1976) 11 ALR 599, Franki J said at p 616:

‘It is clear that a single act of disobedience may be sufficient to justify dismissal on the ground of misconduct but it was held in Laws v London Chronicle (Indicator Newspapers) Ltd [1959] 2 All ER 285, that to justify summary dismissal a single act must be such as to show that the employee was repudiating the contract of service or one of its essential conditions.’

Laws v London Chronicle (Indicator Newspapers) Ltd [1959] 2 All ER 285 (referred to in the quote above) makes it plain that an act of disobedience or misconduct (justifying dismissal) requires also that the disobedience must be ‘wilful’:

‘… I do, however, think (following the passages which I have already cited) that one act of disobedience or misconduct can justify dismissal only if it is of a nature which goes to show (in effect) that the servant is repudiating the contract, or one of its essential conditions; and for that reason, therefore, I think that one finds in the passages which I have read that the disobedience must at least have the quality that it is “wilful”: it does (in other words) connote a deliberate flouting of the essential contractual conditions (P288).’

In Concut Pty Ltd v Worrell (2000) 103 IR 160, His Honour, Kirby J, dealt with the ordinary relationship of the employer and employee at common law and said at para [51]:

‘The ordinary relationship of employer and employee at common law is one importing implied duties of loyalty, honesty, confidentiality and mutual trust. At common law:

“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 employer and employee, is a ground of dismissal. …[T]he 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.”

In the present case, the findings at trial went beyond mere uneasiness as to the future. They necessitated, or at least warranted, a conclusion that the “confidence” essential to the relationship of employer and employee had been destroyed. Instead of pursuing the interests of the company and its shareholders, the employee had pursued his own private interests. Not only was the employee in breach of his duty of fidelity and trust owed to the employer, he had remained in breach of that duty to the date of the trial. Until that time he had not accounted for the benefits wrongly appropriated by him. Indeed, he had denied any wrongful appropriation. The issue so tendered at the trial was determined against the employee. He was then subject to the employer’s counter-claim for an order to make a refund. Such order was duly made at trial. It was not contested on appeal. Given his senior status in the company’s service and the nature and extent of the misconduct disclosed in the evidence and accepted by the primary judge, it was open to him to find that the employee had undermined the confidence essential to the ongoing relationship of employment. Prima facie, this had afforded a legal justification for the employee’s summary dismissal.

It is, however, only the exceptional circumstances that an ordinary employer is entitled at common law to dismiss an employee summarily. Whatever the position may be in relation to ‘isolated’ acts of negligence, incompetence or unsuitability, it cannot be disputed (statute or express contractual provision aside) that acts of dishonesty or similar conduct destructive of the mutual trust between the employer and employee, once discovered, ordinarily fall within the class of conduct which, without more, authorises summary dismissal. Exceptions to this general position may exist for trivial breaches of the express or implied terms of the contract of employment. Other exceptions may arise where the breaches are ancient in time and where they may have been waived in the past, although known to the employer. Some breaches may be judged irrelevant to the duties of the particular employee and an ongoing relationship with the employer. But these exceptional cases apart, the establishment of important, relevant instances of misconduct, such as dishonesty on the part of an employee like Mr Wells, will normally afford legal justification for summary dismissal. Such a case will be classified as amounting to a relevant repudiation or renunciation by the employee of the employment contract, thus warranting summary dismissal.’

In cases of summary dismissal, the onus rests on the employer to prove, to the Commission’s satisfaction, that the misconduct, had in fact, occurred. While this evidentiary onus must be discharged on the civil onus of proof (on the balance of probabilities); see: Briginshaw v Briginshaw (1938) 60 CLR 336 (‘Briginshaw’), the more serious the allegation, the higher the burden on the employer to prove the allegation. In Briginshaw, at page 362, Dixon J said:

‘The seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question whether the issue has been proved to the reasonable satisfaction of the tribunal. In such matters “reasonable satisfaction” should not be produced by inexact proofs, indefinite testimony, or indirect inferences.’

In Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449, the High Court said:

‘The ordinary standard of proof required of a party who bears the onus in civil litigation in this country is proof on the balance of probabilities. That remains so even where the matter to be proved involves criminal conduct or fraud. On the other hand, the strength of the evidence necessary to establish a fact or facts on the balance of probabilities may vary according to the nature of what it is sought to prove. Thus, authoritative statements have often been made to the effect that clear proof is necessary “where so serious a matter as fraud is to be found”. Statements to that effect should not, however, be understood as directed to the standard of proof. Rather, they should be understood as merely reflecting a conventional perception that members of our society do not ordinarily engage in fraudulent or criminal conduct and a judicial approach that a court should not lightly make a finding that, on the balance of probabilities, a party to civil litigation has been guilty of such conduct.’ (footnotes omitted)

[157] That the Commission, for itself, must be satisfied that the misconduct occurred, is well established by the authorities of this Commission and its predecessors. In King v Freshmore (Vic) Pty Ltd [2000] AIRC 1019, a Full Bench of the Australian Industrial Relations Commission (‘AIRC’, as the Commission was then styled) said at paras [24], [26], [28] and [29]:

‘[24] 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.

[26] 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.

[28] 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.

[29] 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)

Even accepting that a finding of serious misconduct was open to Hitachi, such a finding must not be confused with the statutory language. The statute still requires the Commission to find that there was a valid reason for dismissal (s 387(a)). In Royal Melbourne Institute of Technology v Asher [2010] FWAFB 1200, a Full Bench of Fair Work Australia (FWA, as the Commission then was) held at [16]:

‘[16] 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.’

In addition to the reasons for the applicant’s summary dismissal set out in the applicant’s termination letter of 27 July 2018, Hitachi relied on the discovery of 30 or more work emails sent to the applicant’s personal email address on 2 July 2018 and then subsequently sought to be deleted by him. Hitachi believed that this activity was in breach of the applicant’s contract of employment and the Company’s policies. It followed that this conduct justified Hitachi’s earlier decision to dismiss him. That an employer can rely on facts or information, not known at the time of dismissal, and obtained after an employee’s dismissal to justify its original decision, is a well recognised principle in the Commission’s unfair dismissal jurisdiction. Put another way, although there must have been a valid reason for dismissal, the reason need not be the reason given to the employee at the time of dismissal. This principle arises from the following citation from Shepherd v Felt and Textiles Co of Australia Ltd [1931] HCA 21; (1931) 45 CLR 359 at p 377:

‘When the respondent terminated his agency it was not aware of the contents of the telegrams and the letter which he had sent to its customer’s buyer, and it acted upon other grounds. It is well established, however, that a servant’s dismissal may be justified upon grounds on which his master did not act and of which he was unaware when he discharged him.’

In Australia Meat Holdings Pty Ltd v McLauchlan (Print Q1625, per Ross VP, Polites SDP and Hoffman C, 5 June 1998), the Full Bench of the AIRC said:

‘In Byrne the High Court expressly approved of part of the judgment of von Doussa J in Lane v Arrowcrest Group Pty Ltd (1990) 27 FCR 427 at 456.

In Lane v Arrowcrest, von Doussa J considered the example of the dismissal of an accountant who held a position of trust where it was discovered after the dismissal that the accountant had been systematically embezzling money from the employer. His Honour said that it would be astonishing if the employer could not resist an allegation that the dismissal was harsh, unjust or unreasonable by pointing to those facts discovered after the dismissal, so long as they concerned circumstances in existence when the decision was made. His Honour concluded at 456:

“Whether the decision can be so justified will depend on all the circumstances. A circumstance, likely to favour the decision to dismiss, would be that fraud or dishonesty of the employee had caused or contributed to the employer’s state of ignorance. A circumstance likely to weight against the decision would be that the employer had failed to make reasonable inquiries which would have brought existing facts to its knowledge before the dismissal occurred.”

The above conclusion was approved by the High Court in Byrne v Australian Airlines Limited. At 430 their Honours Brennan CJ, Dawson and Toohey JJ said:

“. . . it is clear that the use of an unfair procedure may result in a dismissal being harsh, unjust or unreasonable. For example, the failure to afford an employee the opportunity to explain apparent misconduct where there is an innocent explanation available would result in the dismissal of the employee being in breach of cl 11(a). On the other hand, if an employer were to observe the actual misconduct of an employee in circumstances which allowed no innocent explanation, a summary dismissal might not be in breach of cl 11(a). And facts which existed at the time of a dismissal, but which come to light only subsequently, might justify the dismissal when otherwise it would be harsh, unjust or unreasonable: see Lane v Arrowcrest Group Pty Ltd (1990) 27 FCR 427 at 456.”

The joint judgment of their Honours McHugh and Gummow JJ also cite Lane v Arrowcrest with approval [(1995)185 CLR 410 at 468].

Both of the judgments in Byrne cite Lane v Arrowcrest with approval and both support the proposition that facts in existence at the time of the dismissal but which are only revealed later might justify a dismissal which would otherwise be harsh, unjust or unreasonable.’ [my emphasis]

Putting aside the above authorities for the moment, it seems to me that the Commission can also rely on ‘subsection (h) of s 387 (‘any other matters the Commission considers relevant’) by relying on facts not known at the time of dismissal, when determining whether a dismissal is unfair. On any view, it is unarguable that post discovered facts, not known at the time of the dismissal, and which would otherwise justify the dismissal as fair, must be a ‘relevant matter’ in that context.”

Steel v Hitachi Power Tools Australia Pty Ltd T/A Hitachi Power Tools (2019) FWC 1195 delivered 22 February 2019 per Sams DP