Unfair dismissal; conflict of interest from second job

This is an extract from a recent unfair dismissal case decided by the Fair Work Commission and contains observations by the Deputy President who decided the case about the potential for a conflict of interest to arise from an employee holding more than one job and also the relevance of the issue as to whether there was a valid reason for a dismissal.

“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) – s 387(a)

[116] The meaning of ‘valid reason’ in s 387(a) is drawn from the judgement of North J in Selvachandran v Peterson Plastics Pty Ltd (1995) 62 IR 371 (‘Selvachandran’). This meaning has been considered and applied by members of the Commission and its predecessors for many years. For example, in Rode v Burwood Mitsubishi Print R4471, a Full Bench of the then Australian Industrial Relations Commission (‘AIRC’) discussed the meaning of valid reason in the context of the relevant provisions of the Workplace Relations Act 1996, and by citing Selvachandran, said the following at [17]-[19]:

‘[17] In relation to the meaning of “valid reason” the following remarks of Northrop J in Selvachandran v Peteron Plastics Pty Ltd are relevant:

“Section 170DE(1) refers to a ‘valid reason, or valid reasons’, but the Act does not give a meaning to those phrases or the adjective ‘valid’. A reference to dictionaries shows that the word ‘valid’ has a number of different meanings depending on the context in which it is used. In The Shorter Oxford Dictionary, the relevant meaning given is: ‘2. Of an argument, assertion, objection, etc; well founded and applicable, sound, defensible: Effective, having some force, pertinency, or value.’ In The Macquarie Dictionary the relevant meaning is ‘sound, just or well founded; a valid reason’.

In its context in s 170DE(1), the adjective ‘valid’ should be given the meaning of sound, defensible or wellfounded. A reason which is capricious, fanciful, spiteful or prejudiced could never be a valid reason for the purposes of s 170DE(1). At the same time the reason must be valid in the context of the employee’s capacity or conduct or based upon the operational requirements of the employer’s business. Further, in considering whether a reason is valid, it must be remembered that the requirement applies in the practical sphere of the relationship between an employer and an employee where each has rights and privileges and duties and obligations conferred and imposed on them. The provisions must `be applied in a practical, commonsense way to ensure that’ the employer and employee are each treated fairly, see what was said by Wilcox CJ in Gibson v Bosmac Pty Ltd, when considering the construction and application of a s 170DC.”

[18] While Selvachandran was decided under the former statutory scheme the above observations remain relevant in the context of s.170CG(3)(a). A valid reason is one which is sound, defensible or well founded. A reason for termination which is capricious, fanciful, spiteful or prejudiced is not a valid reason for the purpose of s.170CG(3)(a).

[19] We agree with the appellant’s submission that in order to constitute a valid reason within the meaning of s.170CG(3)(a) the reason for termination must be defensible or justifiable on an objective analysis of the relevant facts. It is not sufficient for an employer to simply show that he or she acted in the belief that the termination was for a valid reason.

See also: Nettleford v Kym Smoker Pty Ltd (1996) 69 IR 370.’

[117] That where an employee is principally employed by a business (in this case, Elevate), and the employee sets up, and is directly involved in another business, which is similar to and/or likely to be in competition with his/her principal employer, may constitute serious misconduct and ground a finding of a valid reason for dismissal, is a well-established principle in employment law. It strikes at the heart of the employment relationship. In this respect, I refer to the decision of Commissioner Deegan in Pedley v IPMS Pty Ltd T/A peckvonhartel [2013] FWC 4282, where the Commissioner observed at [45]-[46]:

‘[45] The sole reason relied upon by the respondent for the termination of the applicant’s employment was the applicant’s conduct in sending an email to numerous recipients, including persons who were clients of the respondent, indicating that he was looking to expand his interior design company into a full-time operation and was seeking their support in doing so. Further, he advised that he would take on jobs of any size, at a lesser cost than a large organisation, and was hoping to work with them in the near future.

[46] I find that by sending an email in those terms the applicant breached his fundamental employment obligations to his employer. The email did not suggest that the applicant was seeking to perform small jobs outside his working hours. It clearly stated that he wished to build to a full-time operation and that his interest was not confined to small jobs that his employer would not take on. The applicant was clearly intending to set up a business that could be in opposition to his employer, albeit in a small way. He was soliciting work from current clients of his employer in clear breach of his obligation to put the interests of his employer before his own interests.’

[118] For my own part, I had a not dissimilar set of circumstances before me in Alverson v Artcraft Pty Ltd [2017] FWC 5501. At [203]-[207] I said:

‘[203] The coincidental observation by Mr Chataway of the applicant’s VMS unit in his driveway and what the applicant told him about his private business, was, in my opinion, a sufficient basis to justify Artcraft’s decision to dismiss him that day. How different the outcome might have been had Mr Chataway not helpfully driven the applicant home after he was dismissed. It is to this matter which I now turn.

Facts discovered after dismissal

[204] Earlier I referred to the applicant’s differing explanations as to his business of renting out a VMS unit/s in a conversation with Mr Reed in early 2016. In my opinion, Artcraft was entitled, as it were, to ‘connect the dots’ of the applicant sending confidential information to his personal email, his failure to sign a statutory declaration confirming he had destroyed or returned all of the Company’s documents, and the renting of a VMS unit for personal gain, to draw a firm conclusion that the applicant had placed himself in a conflict of interest with his duty and obligation to Artcraft’s interests. The applicant’s consistent trope in the proceeding was that he had not breached cl 11.1 of his contract of employment, or the general duty of fidelity owed to his employer, because his private business was not in competition with Artcraft. He rented his VMS unit and Artcraft only sold VMS units. Putting aside the conceded breach of cl 2.2 of the contract (in that he had not sought written approval to be engaged in any other business or occupation), his claimed distinction between his activities and Artcraft’s business, is illusory. It is a ‘distinction without a difference’.

[205] In my opinion, he was in the same business as Artcraft – providing VMS units to customers. It is of no consequence that his business rented VMS units and Artcraft sold them. It does not take a great leap of imagination to conclude that if a potential customer actually wished to rent or was encouraged, enticed or misled to rent a VMS unit/s, it was a loss of business for Artcraft. It cannot possibly be characterised in any other way. Whether Mr Alverson actually diverted a customer from purchase to rent (about which there is no conclusive evidence) is not the point at all. It had all the characteristics and appearance of a direct conflict of interest or, at the very least, a potential conflict of interest. Mr Alverson’s defence fails any objective test of reason or logic. It cannot seriously be sustained.

[206] Mr Alverson’s further plea was that he only had one VMS for ‘a bit of extra pocket money’ and, in any event, it was in need of repair. These claims were little more than a poor attempt to downplay and minimise the seriousness of the conduct he was actually engaged in. In my view, his VMS rental to Lakeside Kiosk was a real loss of business that might otherwise been secured by Artcraft, given its standing as the leading supplier of such products in the country. In my judgement, Mr Alverson’s evidence was built on a ‘platform of shifting sands’; as set out in my earlier comments (para [172] above) concerning his implausible belief that ‘rent’ is the same as ‘lease’, but offering them as two distinct options to a potential customer. His further ‘shifting sand’ evidence as to the nature and extent of his private business is the surest indicator that he knew Artcraft would view his business as a matter of serious concern, which represented a direct threat to its current and future business operations.

[207] As I earlier observed, it is apparent that Mr Reed had a somewhat different understanding of what Mr Alverson claimed he told him some months before – that the VMS unit had something to do with helping his son. Even if this was true (which is doubtful) it too would have the potential for a conflict of interest with Mr Alverson’s employment, as any assistance he provided to his son to build a VMS rental business, would be a conflict of interest with his employment by Artcraft.’

[119] In my opinion, a number of general observations may be made about cases of this kind. It is irrelevant that:

(1) the other business has little or no income;

(2) the employee is a non-active partner in its activities; or

(3) there is no evidence of actual poaching of clients/customers.

[120] Further, the motive for setting up the business and whether it is successful or not, are also irrelevant considerations. After all, why would you go to the trouble of setting up a partnership, registering a business and creating a website, if you did not intend it to be successful? Indeed, earning income was the applicant’s express motivation for doing so.

[121] In some cases, the employee concerned will deliberately not disclose the setting up of the business or take steps to hide or mask its activities; although I accept the latter was not a feature of this case, as I will refer to shortly. I readily accept that there may be circumstances where the similarities between businesses are not easily defined, unclear or fall into ‘grey’ areas. In my view, that is not the case here.

[122] As I set out earlier, the seriousness of the misconduct will be exacerbated where firstly, there is an express reference in an employee’s contract of employment to a non-competition clause applicable to the very set of circumstances evident in this case and the Company’s expectations set out in Cl 4; see: [3] above, and secondly, having given absolute assurances of disassociation from the business, the employee is found to have retained involvement; albeit him not having earnt any income, or gained any material benefit.

[123] In my assessment, there are a number of matters which tell against a finding of valid reason and a number of others which tell in favour of a valid reason. Those against include:

(a) The applicant did not attempt to hide or deceive the respondent about his involvement in MJW. One would hardly send a Facebook invite to ‘like’ the MJW Facebook page to Ms Pincus, the GM and Mr McChesney and 29 of the respondent’s employees, if you were trying to hide or mask your involvement in MJW’s activities.

(b) The applicant was acknowledged to have been a good employee and had been promoted and recognised for his contributions. I accept his evidence of his passion and dedication to his role at Elevate. There were no issues of performance or conduct, other than the question of his involvement with MJW.

(c) In my view, it was necessary and entirely appropriate that MJW seek and receive, an absolute assurance from the applicant that he had completely disassociated himself from any involvement in the advertising, participation in and management of MJW. I will say something more about this shortly. It was also appropriate that the applicant apologise for his conduct and provide an undertaking that he would comply with the terms of his contract of employment in the future. In one sense, the first of these expectations was complied with in the apology given to Ms Pincus. It seems to me it was not a ‘big deal’ to take the next step about his future compliance with his contract of employment. Had that been done (assuming the severance of his involvement with MJW), then, to my mind, that should have been the end of the matter. That said, I do not understand why the applicant was reluctant to put forward his own wording of an apology when this was what the Company had proposed. After all, he was not the offending party. Regrettably, the applicant did not take up this offer. Accordingly, I have a reasonable basis to conclude that an apology, in some form, might have ultimately resolved the impasse and the applicant might still have been employed.

(d) On the other hand, it is not immediately apparent to me what purpose was served by insisting the applicant apologise to his fellow employees. On one view, it might be presumed the other employees would have had little interest in the applicant’s dispute with, and discussions with the employer. Elevate claimed it had been approached by some employees, who thought the ‘liking’ of the MJW Facebook page was inappropriate, perhaps inferring it threatened their employment. I do not accept the respondent’s evidence in this respect.

  • Firstly, it is unlikely a person would ‘like’ a Facebook page if they believed it to be inappropriate.
  • Secondly, there was no documentary evidence of any such concern being conveyed to management; let alone any identification of the names of the complainants, nor were any called to give evidence.

I do not accept the respondent’s submission that unless the applicant apologised for inappropriate behaviour and unprofessionalism, it would lead to others breaching their contracts of employment. This was improbable speculation and a ‘long bow’ to draw. The applicant’s apology should have acknowledged his own breach of contract and the Company should have issued a general directive reminding employees of their contractual obligations, in this regard. This was a sensible, logical and reasonable basis for moving forward.

[124] The factors telling in favour of a finding of valid reason include:

(a) The applicant’s contract of employment makes clear that, at the very least, he should have sought the consent of the respondent, if he intended to be indirectly, or directly involved in an activity which was similar to the respondent’s activities.

(b) I do not accept that the applicant was unaware of his contract of employment, and therefore, presumably he had not known his conduct was in breach. In any event, while he may have not kept a copy, for a person of the applicant’s experience and education to claim he was unaware that setting up a business, which might be perceived as being in competition with Elevate, is implausible and highly unlikely. His claims of innocent naivety did not sit well with his later, albeit limited acknowledgement, that he should have at least informed Ms Pincus of his plans.

(c) It is nonsense to submit that MJW’s activities were not similar to, or might likely compete with the respondent’s activities as the comparison extracts from the MJW and Elevate’s websites content discloses at Annexure ‘A’.

(d) The applicant strenuously denied telling Ms Pincus ‘obviously it is similar’ and could not recall saying ‘I definitely understand where you’re coming from as I’ve advertised similar things on this website’. I do not accept his evidence in this respect. It was entirely likely that the applicant understood the similarities. Moreover, the applicant’s contention of no similarities between MJW and Elevate sits rather uncomfortably with this exchange in the evidence:

‘It’s a business that has similarities to theirs and I think that it isn’t inappropriate to send it, so therefore it must be appropriate. I don’t think there’s any issues with it.’ (my emphasis)

(e) It seems curious that the applicant said he sent a note, dated 18 April 2020, to his fellow partners, Mr Mathai and Mr Jones that he would no longer be taking part in the business of MJW. He did not expressly indicate he was removing himself as a Director from the business registration. Significantly, he did not provide a copy of this note to anyone in Elevate’s management. It is of some concern that Mr Mathai; see: [37] above, had no recollection of receiving this note, and there was no evidence Mr Jones received or knew of it. Most troubling of all, the applicant’s evidence about this note is inconsistent. In his statement, he said he sent the note to Mr Mathai and Mr Jones, but in oral evidence, he said he handed it to him in a coffee shop. Nothing was said how it was conveyed to Mr Jones. I find this evidence about the 18 April 2020 note, leads to an inference that there was no note and it was a post facto creation for these proceedings to bolster the applicant’s case.

(f) While I appreciate and understand the applicant’s father’s defence and advocacy of his son’s position, in my judgement, I do not consider his contributions to the meetings on 20 April and 29 April 2020, were particularly helpful. The applicant’s father was to be a support person for his son. He plainly overstepped that role, by strongly advocating his son’s position in arguing with Ms Flood and Ms Pincus and putting claims which were plainly wrong, and perhaps provocative. I note further that in my observation the applicant was well able to defend his position and advocate his own cause.

[125] Mr Weatherall’s claim that the applicant’s conduct could not possibly be misconduct is plainly wrong and contrary to the Commission’s authorities on the subject, let alone it being a matter of just common sense, in which a reasonable person would perceive a conflict of interest with the applicant’s involvement in MJW and his employment with Elevate. Further, to submit he had a second legal opinion confirming his view, seems to me highly unlikely for any lawyer practicing in employment law to give such an opinion. It may well be the other lawyer was not given the complete picture.”

Weatherall v Elevate Education Pty Ltd (2020) FWC 6143 delivered 27 November 2020 per Sams DP