Unfair dismissal; Fair Work Commission can ignore employer reason

Curiously, in determining an unfair dismissal case, the Fair Work Commission is not limited to determining the fairness of a termination of employment just on the basis of the reason which motivated the employer to dismiss the employee. It can substitute its own view when determining whether there was a valid reason for the dismissal.

“We accept that if the Commission determines that there is a valid reason for dismissal which is not expressly advanced by the employer then it must act judicially and accord the parties procedural fairness – an issue to which we will return shortly; but we reject the Appellant’s waiver submission; namely the proposition that in the context of establishing a valid reason for dismissal an employer cannot rely on conduct of which the employer was aware but waived/condoned by not relying on such conduct to dismiss the employee. Two authorities are cited in support of the submission put: Howard v Pilkington (Australia) Ltd 31(Pilkington) and Cannan v Nyrstar Hobart Pty Ltd32 (Nyrstar).

Pilkington concerned a claim for damages for breach of contract arising from the summary dismissal of a manager. The employer in that case had justified the manager’s dismissal by relying on three instances of disobedience of a lawful instruction or direction. One issue in the proceedings was whether Pilkington had acquiesced or condoned the manager’s conduct. In respect of this issue, Judd J held, relevantly:

‘In Rankin v Marine Power International Pty Ltd Gillard J provided a helpful statement of the legal principles to be applied when an employer is taken to have condoned, waived, acquiesced in or decided not to rely upon an employee’s conduct to terminate the contract of employment such as to disentitle the employer from later relying upon that conduct to justify summary dismissal. His Honour said,

352 An employer who has full knowledge of the misconduct of an employee, and who makes a decision to continue to employ the employee, cannot at a later date, unless of course other facts come to his knowledge, dismiss him summarily on the basis of the employee’s known misconduct. It is said that the employer has waived his right to dismiss the employee summarily, and thereby condones the misconduct…’ 33 (Footnotes omitted)

Pilkington states the law in respect of waiver or condonation in the context of common law summary dismissal for misconduct. It says nothing about the Commission’s statutory task under s.387. In our view, caution needs to be exercised in seeking to import common law notions into what is a statutory, arbitral function. As Gray J observed in Miller v University of NSW:

‘In terms of legal rights, the employment of most employees in Australia is terminable on some form of notice. The right to terminate by notice might arise from the express or implied terms of the contract of employment, or from an award or other collective instrument governing the terms and conditions of the employment. Generally, the notice may be given by either party. Also generally, it might be given for good reason, bad reason or for no reason at all. If the “valid reason” contemplated by s 170CG(3)(a) of the WR Act involved no more than an inquiry into the legal rights of the parties, in most cases it would be a short inquiry. It would be answered by saying that the employer had a right to dismiss the employee on notice and had exercised that right. The provision refers to a “valid reason” in another sense altogether… What is sought is not the existence of a legal entitlement to terminate the employment, but the existence of a reason for the exercise of that right that is related to the factual situation. The validity is not to be judged by reference to legal entitlements, but to the Commission’s assessment of the factual circumstances as to what the employee is capable of doing or has done, or as to what the employer requires in order to continue its activities.’ 34

Nyrstar is a first instance decision in which the Member states:

‘The principle behind the Applicants’ submission of condonation is that an employer, with full knowledge of an employee’s misconduct and continues to employ him [sic], cannot later rely on that misconduct to dismiss the individual. Thus, by knowing the behaviours of Mr Cannan and Mr Fuller and electing to continue the employment of them, Nyrstar ‘condoned’ their conduct and ‘waived’ the right to terminate their employment contracts

The practical manifestation of this principle in the employment context is that a wronged party has the right to elect, in the face of a breach of a condition of an employment contract, either to continue the contract or terminate it for breach. In order for condonation to be present, an employee must provide that:

  • the employer had full knowledge of the conduct;
  • despite this, the employer retains the employee’s services; and
  • with this election, the employer has deliberately given up the right to dismiss the employee summarily.’35(Footnotes omitted)

A subsequent appeal was upheld, 36 but only on the limited ground that the Member had erred in assessing lost remuneration in her determination of the compensation order. As to the Member’s remarks about condonation the Appeal Bench held:

‘The evidence clearly supports the finding of Deputy President Wells that the Appellant’s managers had condoned the conduct of the Respondents in that they were not disciplined for the conduct and they were rated as satisfactory or better than satisfactory employees in their performance reviews over the time in which the relevant conduct had occurred. The evidence relied on by the Appellant to challenge the finding of the Deputy President went largely to evidence as to the view of managers of the relevant conduct and the evidence of that does not militate against the substantial evidence that the Respondents were not disciplined in relation to the relevant conduct. This conclusion also disposes of the Appellant’s ground 5.3.2 in its written Outline of Submissions.’ 37 (Footnotes omitted)

Two other decisions also bear on this issue. In Toll Holdings Limited t/a Toll Transport v Johnpulle 38 (Johnpulle) the Full Bench addressed the submission that toleration or condonation of misconduct was relevant to whether a dismissal was harsh, unjust or unreasonable, as follows:

‘It may be accepted that, under the general law, an employer is disentitled to summarily dismiss an employee for an earlier instance of misconduct on the part of that employee where the employer with full knowledge of the misconduct had decided to retain the employee in employment. It would be difficult to conclude for the purpose of s.387(a) of the FW Act that an employer who had condoned misconduct by an employee in this way and had thus lost the right of summary dismissal at law nonetheless had a valid reason for dismissing that employee.’ 39 (Footnotes omitted)

In Conicella v Phillip W Hill & Associates Pty Ltd t/a Hunter Legal & Conveyancing 40 (Conicella), Saunders C (as he then was) relying on Johnpulle, stated:

‘In my view, the following principles are apparent from these authorities on the question of reliance by an employer on earlier instances of misconduct on the part of an employee when making a later decision to dismiss the employee:

  • where an employer with full knowledge of earlier instances of misconduct on the part of an employee has decided to retain the employee in employment, those earlier instances of misconduct cannot, of themselves, constitute valid reasons for dismissal;
  • however, the earlier instances of misconduct may be relevant to the question of whether there was a valid reason for dismissal because they may increase the gravity of later misconduct, particularly where the earlier misconduct was of the same or a similar character and the employee was warned not to repeat it, thereby contributing to a finding that the reason(s) for dismissal were “sound, defensible and well founded”; and
  • the earlier instances of misconduct and any warnings in relation thereto may also be “relevant matters” (s.387(h)) to an assessment of whether the dismissal was too harsh a penalty in the circumstances.’ 41(Footnotes omitted)

In our view, Nyrstar and Conicella both overstate the position. The proposition that earlier instances of misconduct which have been condoned by the employer ‘cannot, of themselves, constitute valid reasons for dismissal’ is simply wrong. The proposition erroneously conflates the position at common law with the Commission’s statutory task under s.387.

Further, the proposition put is not supported by Johnpulle. The relevant passage from Johnpulle is:

‘It would be difficult to conclude for the purpose of s.387(a) of the FW Act that an employer who had condoned misconduct … and had thus lost the right of summary dismissal at law nonetheless had a valid reason for dismissing that employee.’ 42 (Emphasis added)

Contrary to the summation in Conicella, the Full Bench in Johnpulle was not stating a decision rule that past (condoned) misconduct cannot constitute a valid reason for dismissal. Properly understood, Johnpulle is authority for the proposition that the attitude of the employer to such misconduct – that is, at the time the employer did not think it sufficiently serious to warrant summary dismissal – is a significant consideration, relevant to whether such misconduct constitute a valid reason for dismissal. However, it is not determinative of the question. 43

If condonation was determinative it would be akin to adopting a subjective test to the question of whether there was a valid reason for the dismissal; that is, one would approach the issue solely from the perspective of the employer. Such an approach is contrary to principle. As we have mentioned, the Commission is required to conduct an objective analysis of all relevant facts in determining – on the basis of the evidence in the proceedings before it – whether there was a valid reason to dismiss.

For completeness we note that we also reject the submission that the Deputy President’s statement of principle of [117] and [118] is ‘inconsistent with the principle that the employer bears the onus of establishing the validity of a particular reason for dismissal’.

The authorities relied on by the Appellant, Yew 44 and Allied Express45 are decisions of the Industrial Relations Court and the Federal Court respectively and provide no support for the proposition put; they were decided under an earlier statutory scheme in which s.170DE(1) stated:

‘An employer must not terminate an employee’s employment unless there is a valid reason, or valid reasons, connected with the employee’s capacity or conduct or based on the operational requirements of the undertaking, establishment or service.’

Further, at the time Yew was decided, s.170EDA expressly dealt with onus of proof stating:

‘the termination is taken to have contravened subsection 170DE(1) unless the employer proves that…there was a valid reason, or valid reasons, of a kind referred to in subsection 170DE(1)’

There is no equivalent provision in the Act.

Contrary to the Appellant’s contention, the extent to which the legal concept of onus or burden of proof applies to matters before an administrative tribunal such as the Commission is somewhat vexed. As observed by the Full Bench in Advanced Health Invest Pty Ltd T/A Mastery Dental Clinic v Mei Chan:

‘As to the issue of onus agitated by the Respondent, it must be said that the extent to which the legal concept of onus or burden of proof arises in relation to matters considered by an administrative tribunal such as the Commission is a difficult one. However, in the context of the question whether a dismissal is unfair, to the extent that there is a legal onus or something analogous to it, the onus rests on the applicant in the sense that it is the applicant who bears the risk of failure if the satisfaction required by s.385 including s.385(c) is not reached.  As to evidentiary onus, plainly a party seeking to establish a fact bears onus of adducing evidence necessary to establish that fact. In a practical sense, in most cases the question of where an evidentiary onus resides will be answered by asking: in relation to each matter about which the Commission must be satisfied, which party will fail if no evidence or no further evidence about the matter were given?’ 46

For the reasons given the Deputy President did not err in the manner contended by the Appellant. The Commission is not limited to the reason relied upon by the employer in finding that there was a valid reason for dismissal.”

Passages from Newton v Toll Transport Pty Ltd (2021) FWCFB delivered 16 June 2021 per Ross J, Catanzariti VP and Bissett C