Unfair dismissal and valid reason for dismissal

There are many legal issues involved when determining whether the termination of the employment of an employee was relevantly unfair. One of the most important determinants is whether there was a valid reason for the dismissal. This significance of this is on show in the extract from a recent Fair Work Commission case.

“Was there a valid reason for the dismissal related to the Applicant’s capacity or conduct?

[62] To be a valid reason, the reason for the dismissal should be “sound, defensible or well founded” 8 and should not be “capricious, fanciful, spiteful or prejudiced.”9 However, the Commission will not stand in the shoes of the employer and determine what the Commission would do if it was in the position of the employer.10

[63] I doubt that Mr Galloway collected much information at all when he decided to dismiss Ms Molina and Mr Zhai. After the dismissal Mr Galloway moved to secure a copy the information contained on the computer used by Ms Molina. In the course of interlocutory proceedings before me it became apparent that Mr Galloway, or his wife, reviewed this material only spasmodically. As referred to above, Mr Galloway was not clear in his evidence about the information he had considered before dismissing the employees.

[64] There is no barrier for the Commission to receive and consider evidence of facts not known to the employer at the time of the dismissal 11 as long as the facts existed at the time of dismissal.12 The way in which such evidence might be considered will depend on the circumstances of the case. As von Doussa J reasoned in Lane v Arrowcrest Group Ltd (1990) 27 FCR 427 at 45613:

“… In my opinion it is still open to an employer to justify a dismissal by reference to facts not known to the employer at the time of the dismissal, but discovered subsequently, so long as those facts concern circumstances in existence when the decision was made. 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 weigh 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…”

[Emphasis added].

[65] It may be that after-acquired knowledge/evidence improves an employer’s case in relation to establishing a valid reason for dismissal but, as the Full Bench in APS Group (Placements) Pty Ltd v Stephen O’Loughlin (2011) 209 IR 351; [2011] FWAFB 5230 found, such evidence might weaken the employer’s case in relation to procedural fairness:

“[51] Section 387(a) of the FW Act requires FWA to consider “whether there was a valid reason for the dismissal”. This language directs attention to whatever reason or reasons for dismissal emerge from the evidence and are relied upon by the employer. The tribunal is not confined to a consideration only of the reason or reasons given by the employer at the time of the dismissal. An employer is entitled at the hearing of an application for an unfair dismissal remedy to rely upon whatever reason(s) the employer wishes to rely upon at that time, albeit that in relation to any reason not relied upon at the time of dismissal the employer will have to contend with the consequences of not giving the employee an opportunity to respond to such reason (see s.387(b) and (c) of the FW Act).”

[66] Both applicants were summarily dismissed. In Sydney Trains v Gary Hilder [2020] FWCFB 1373 (“Hilder”) the Full Bench summarised the well-established principles for determining such matters at [26] 14:

“The principles applicable to the consideration required under s 387(a) are well established, but they require reiteration here:

(1) A valid reason is one which is sound, defensible and well-founded, and not capricious, fanciful, spiteful or prejudiced.

(2) When the reason for termination is based on the misconduct of the employee the Commission must, if it is in issue in the proceedings, determine whether the conduct occurred and what it involved.

(3) A reason would be valid because the conduct occurred and it justified termination. There would not be a valid reason for termination because the conduct did not occur or it did occur but did not justify termination (because, for example, it involved a trivial misdemeanour).

(4) For the purposes of s 387(a) it is not necessary to demonstrate misconduct sufficiently serious to justify summary dismissal on the part of the employee in order to demonstrate that there was a valid reason for the employee’s dismissal (although established misconduct of this nature would undoubtedly be sufficient to constitute a valid reason).

(5) Whether an employee’s conduct amounted to misconduct serious enough to give rise to the right to summary dismissal under the terms of the employee’s contract of employment is not relevant to the determination of whether there was a valid reason for dismissal pursuant to s 387(a).

(6) The existence of a valid reason to dismiss is not assessed by reference to a legal right to terminate a contract of employment.

(7) The criterion for a valid reason is not whether serious misconduct as defined in reg 1.07 has occurred, since reg 1.07 has no application to s 387(a).

(8) An assessment of the degree of seriousness of misconduct which is found to constitute a valid reason for dismissal for the purposes of s 387(a) will be a relevant matter under s 387(h). In that context the issue is whether dismissal was a proportionate response to the conduct in question.

(9) Matters raised in mitigation of misconduct which has been found to have occurred are not to be brought into account in relation to the specific consideration of valid reason under s 387(a) but rather under s 387(h) as part of the overall consideration of whether the dismissal is harsh, unjust or unreasonable.”

[67] Where a dismissal relates to an employee’s conduct, the Commission must be satisfied that the conduct occurred and justified termination.15 “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.” 16

[68] Mr Galloway relied on the stated reasons in the respective letters given to each applicant upon their dismissal. The first thing to say about the allegations in the termination letters is that almost none of the events referred to occurred in 2020, let alone in close proximity to the dismissal. There is no suggestion, nor could there be a suggestion, that the incidents in 2019 and earlier were concealed from Mr Galloway or otherwise did not come to his attention until March 2020. In my view none of the events in 2019, or even in January 2020, could form a valid reason for summary dismissal in March 2020. Each incident was known by Mr Galloway at the time and was dealt with by Mr Galloway long before the dismissal. On each occasion Mr Galloway chose to allow Ms Molina and/or Mr Zhai to remain in employment.

[69] I accept that in general terms a valid reason for dismissal could include a course of behaviour over time, and seemingly separate events, viewed together, could constitute a valid reason or reasons for dismissal if they are a pattern of behaviour that is incompatible with the continuation of the contract or otherwise unsatisfactory.

[70] The letters Mr Galloway delivered to Ms Molina and Mr Zhai amount to no more than a list of incidents that Mr Galloway found unsatisfactory over a period of almost 12 months. Crucially, Mr Galloway dealt with each issue at the time and did not squarely advise either employee that the continuation of such behaviour could result in dismissal. It is not open for an employer to resurrect old incidents as a basis for dismissal if those incidents already have been dealt with. Employers cannot accumulate reasons for dismissal to deploy at their convenience.

[71] In his closing submissions Mr Galloway relies upon several matters that, he says, separately or taken together constitute a valid reason for dismissal of Ms Molina from her employment, viz:

(a) that Ms Molina agreed with Mr Zhai to pay him commissions, and paid him commissions, without Mr Galloway’s knowledge or consent;

(b) Ms Molina paid herself $25,000 in February 2018 as an alleged commission payment in connection with fees received from a particular client;

(c) Ms Molina paid herself $650 per week, using cash cheques, in addition to her full salary paid by EFT (which was in fact a little above the $75,000 salary that Mr Galloway agreed to);

(d) what is referred to in Ms Molina’s termination letter as ‘insubordination’, being behaviour in 2019 towards Mr Galloway when he chose to represent a homeless person; and

(e) what is referred to in the termination letter as ‘sabotage’, being apparent ‘badmouthing’ of Mr Galloway to clients in 2019.

[72] Mr Galloway relies upon the following reasons for dismissing Mr Zhai:

(a) the fact that Mr Zhai was paid commissions, and that that occurred (if Mr Galloway’s evidence is accepted) without Mr Galloway’s knowledge or consent;

(b) ‘serious insubordination’ as described in his termination letter, being rude and disrespectful behaviour in 2019 towards Mr Galloway in relation to the two particular criminal trials; and

(c) Mr Zhai’s failure in January 2020 to undertake a task that he had been asked to perform for a client, TJ, referred to in the termination letter.

[73] I find that the following of the above matters were not valid reasons to summarily dismiss in March 2020:

(a) the alleged insubordination by Ms Molina in 2019;

(b) the alleged ‘sabotage’ by Ms Molina in 2019;

(c) the ‘serious insubordination’ by Mr Zhai; and

(d) Mr Zhai’s failure in January 2020 to undertake a task for a client.

[74] I readily accept that insubordination and sabotage ordinarily constitute valid reasons for dismissal, and accept that some of the behaviour referred to by Mr Galloway could amount to insubordination or sabotage. However, in the present case and on the evidence before the Commission, the conduct in question does not constitute a valid reason for dismissal in March 2020 because it had been previously dealt with.

[75] The remaining claimed valid reasons for dismissal, being the allegedly unauthorised payment of cash/commissions to Mr Zhai and Ms Molina, and the payment of $25,000 to Ms Molina in 2018, require further consideration. There is no disagreement that payments were made to Ms Molina and Mr Zhai. The allegations stand or fall on whether or not Mr Galloway authorised the payments.

[76] If the payments were not authorised then quite obviously Ms Molina and Mr Zhai misconducted themselves in their employment and there were valid reasons to dismiss each of them. The allegations against Ms Molina and Mr Zhai are very serious and the Briginshaw v Briginshaw 17 standard applies18:

“The standard of proof remains the balance of probabilities but ‘the nature of the issue necessarily affects the process by which reasonable satisfaction is attained’ and such satisfaction ‘should not be produced by inexact proofs, indefinite testimony, or indirect inferences’ or ‘by slender and exiguous proofs or circumstances pointing with a wavering finger to an affirmative conclusion.”

[77] Ms Molina was required to manage the finances for Mr Galloway’s firm which, it seems to me, was a difficult responsibility. By 2019 and 2020 the ATO was closely scrutinising Mr Galloway’s business, and Mr Galloway had been twice found to have engaged in unsatisfactory conduct in relation to cash transactions and other financial matters. Mr Galloway regularly received payments in cash from clients and received payments away from the office at his home. During the proceedings both Ms Molina and Mr Zhai conceded that their tax returns did not include the monies received from Mr Galloway by way of cash or commission.

[78] The best that can be said about Mr Galloway’s accounting system is that it was shambolic. I do not need to decide whether Mr Galloway’s system was intentionally shambolic. The Applicants submitted that the lack of written evidence is consistent with Mr Galloway’s conduct in not keeping accurate employee and business records.

[79] Understandably Ms Molina decided to “protect herself” by keeping detailed records of the transactions she administered. She says she did so because Mr Galloway was “inconsistent, unpredictable and erratic.”

[80] I accept the theoretical possibility that Ms Molina dishonestly capitalised on Mr Galloway’s chronic disorganisation. However, I cannot move past the fact that Ms Molina recorded all the transactions in documents that she says she provided to Mr Galloway from time to time for his benefit and for him to “audit”.

[81] Many of the transactions were done by EFT and Ms Molina knew that Mr Galloway had access to bank statements and banking records – in fact they shared a single ‘token’ to do online transactions because one token had been lost. Mr Galloway’s accounts were also reviewed by Mr Galloway’s accountant: Ms Molina says that she prepared the records of the transactions, including the cash transactions, knowing that Mr Galloway would then discuss them with his accountant.

[82] Indeed, it is significant that in these proceedings Mr Galloway almost exclusively relies on documents prepared by Ms Molina to prove her alleged misconduct.

[83] The documents prepared by Ms Molina quite obviously reveal cash received by or for Mr Galloway, and payments made or allocated by Ms Molina to herself, to Mr Galloway and to Mr Zhai.

[84] The alleged authorised payments to Ms Molina are of a slightly different character to the payments to Mr Zhai. Ms Molina says she received a regular weekly payment of $650 in cash (i.e. by cash cheque) whereas the additional payments to Mr Zhai were calculated by reference to fees received from clients.

[85] Upon reviewing all of the documentary material, and the respective explanations of the parties, I cannot accept that cash/commission payments where not known to and authorised by Mr Galloway. Mr Galloway carries an evidentiary onus to prove that the misconduct occurred, which in this case means to prove that the payments were not authorised. Ms Molina and Mr Zhai provided positive evidence that the payments were authorised, and Mr Galloway has not negatived this evidence.

[86] Mr Galloway regards the regular payment of $650 per week as theft. It is also unlikely that Ms Molina would intentionally steal such a regular amount.

[87] In relation to commission payments Ms Molina says she was told by Mr Galloway to “just pay them when we’ve got cash lying around.” She said that in early 2020 there “wasn’t much money around” and that Mr Zhai was owed quite a lot. When asked whether she had sent any emails to Mr Galloway regarding the monies owed to Mr Zhai, Ms Molina said:

“He never wanted anything from email, he wanted everything in person with printed out reports for him, keep it simple was his – in fact there’d be certain times where he would say, “I’m not checking my email at the moment”, and other times he would say (indistinct).”

[88] One aspect of the Applicants’ evidence that is not consistent with Mr Galloway’s ongoing approval of cash/commission payments to Mr Zhai, is the evidence that Ms Molina spoke to Mr Galloway in September 2019 about commission payments and that Mr Galloway had agreed to pay commission in acknowledgement for what Mr Zhai had done on the file. This evidence is troubling because, on the face of the rest of the evidence, Mr Zhai had received commission payments from August 2018.

[89] One final aspect that speaks against Mr Galloway authorising cash payments is that Mr Zhai was a newly admitted solicitor with a base salary of $75,000. As Mr Galloway says, “he was being paid quite well … for a young lawyer.”

[90] The allegation that Ms Molina paid herself $25,000 in February 2018, in instalments, is similar but different to regular payments made to Ms Molina and the commission payments made to Mr Zhai. There is no mention of these transactions in the termination letter given to Ms Molina. Mr Galloway says that the payments were never authorised. Ms Molina says that the payments relate to fees received from a particular client whom she was integral in bringing into the firm, and that she had to “rally” for Mr Galloway to agree to pay her this money. She says that there were discussions at the time between Ms Molina, Mr Galloway, Mr Galloway’s accountant and her own accountant. Some of the money was paid to Ms Molina’s company and the amounts paid to her company were treated as a tax deduction by Mr Galloway. Ms Molina says that Mr Galloway remarked at the time “great, that means I don’t have to pay super on it.”

[91] The payments were obviously for a large sum of money and appear in Mr Galloway’s bank records. Mr Galloway led almost no evidence to refute Ms Molina’s evidence. I do not think it would have been difficult for Mr Galloway to refute Ms Molina’s account of events if they were not true. Mr Galloway’s BAS records or his tax return, for example, would reveal whether Mr Galloway in fact claimed a tax deduction for payments he says he didn’t know about. Mr Galloway’s accountant could also have shed light on the situation.

[92] The allegations of misconduct have not been made out to the Briginshaw standard. Whether deliberately or by his chronic delinquency, Mr Galloway’s accounting records and systems were poor. Ms Molina recorded the movement of Mr Galloway’s funds and did not conceal any of the payments about which Mr Galloway denies contemporaneous knowledge. The transactions took place over a period of more than two years. Ms Molina and Mr Zhai gave evidence that the transactions were fully disclosed to Mr Galloway and his accountant. In many instances Mr Galloway acted in a way consistent with having relevant knowledge and having given relevant authorisation for the payments. Mr Galloway’s evidence, by contrast, falls comfortably within what the High Court referred to in Briginshaw as “inexact proofs, indefinite testimony, [and] indirect inferences”. 19

[93] I find that there was no valid reason to terminate Ms Molina’s employment on 18 March 2020, nor was there a valid reason to terminate Mr Zhai’s employment.”

Molina and another v Galloway (2022) FWC 776 delivered 6 April 2022 per Easton DP