Unfair dismissal; misconduct and small business employers

In an unfair dismissal case, the issue of dismissal for serious misconduct by a small business employer is approached quite substantially differently than by a non small business employer, as the following extract from a recent decision of the Fair Work Commission makes very clear.

“CONSIDERATION

[63] Section 385 of the Act sets out four jurisdictional prerequisites which must be satisfied in order for the Commission to find that a person was unfairly dismissed. By the use of the conjunction ‘and’ joining subsections (a), (b), (c) and (d) it is clear that each of the four requirements must be satisfied for a person to be unfairly dismissed. The section is set out as follows:

‘385 What is an unfair dismissal

A person has been unfairly dismissed if the FWC is satisfied that:

(a) the person has been dismissed; and

(b) the dismissal was harsh, unjust or unreasonable; and

(c) the dismissal was not consistent with the Small Business Fair Dismissal Code; and

(d) the dismissal was not a case of genuine redundancy.’

[64] For present purposes, I am satisfied that the applicant was dismissed (subsection (a)) and his dismissal was not a case of genuine redundancy (subsection (d)). The question of whether the applicant’s dismissal was ‘harsh, unjust or unreasonable’ would need to be considered subsequent to a conclusion as to the remaining preliminary matter, that his dismissal was not consistent with the Code (subsection (c)). This question is the essential foundation of this case, although, given the respondent was unrepresented, it is understandable that this question was not sufficiently understood, such as to be properly articulated and argued by Ms Cole. Accordingly, I shall explain the significance of the Code’s application in this case.

[65] I begin with setting out the terms of the Code below:

‘Commencement

The Small Business Fair Dismissal Code comes into operation on 1 July 2009.

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.’

[66] It is apparent that the Code applies to a dismissal by an employer with fewer than 15 employees (at the time of the dismissal) in two circumstances – summary dismissal (usually for serious misconduct) and dismissal for poor performance (capacity to do the job) or behaviour, which is not serious misconduct. A significant difference between the two circumstances is that summary dismissal does not require notice or warning to the employee and the latter requires warnings to the employee and opportunities for the person to respond to, and improve on any shortcomings in behaviour or conduct.

[67] There is no doubt that the applicant’s dismissal was based primarily on Ms Cole’s belief that he was guilty of serious misconduct (conducting a business in direct opposition to Ms Cole’s business) and other matters; see: [52] above. Viewed in this way, the applicant’s dismissal falls under the summary dismissal limb of the Code, notwithstanding he was paid in lieu of notice. Should the dismissal be found to be inconsistent with the Code, but the serious allegations are ultimately found to have been proven, it would seem highly likely that a positive finding of a valid reason for dismissal would follow. However, that is not the test for the purposes of establishing whether there has been compliance with the Code. I shall come back to this crucial consideration shortly.

[68] Before leaving the statutory provisions, s 12 of the Act defines ‘serious misconduct’ as having ‘the meaning prescribed by the Regulations’. That is referable to Reg 1.07 of the Fair Work Regulations 2009, which is expressed 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)

Ms Cole’s belief that the applicant was operating a competitive business to her own, presumably falls within the rubric of ‘conduct that causes a serious and imminent risk to the viability or profitability of the employer’s business’.

[69] The seminal case – indeed the first Full Bench Decision which considered the Code – was John Pinawin T/A RoseVi.Hair.Face.Body v Domingo [2012] FWAFB 1359 (‘Pinawin’). After setting out a number of passages from two earlier single-Member decisions concerning the application of the Code, the Full Bench of Fair Work Australia (‘FWA’, as the Commission was then styled), said at [29]-[31]:

‘[29] We believe that the approach and observations in these two decisions are correct. 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.

[31] The question we need to consider in this case is whether Mr and Mrs Pinawin believed on reasonable grounds that Mr Domingo’s conduct was sufficiently serious to justify immediate dismissal.’ (my emphasis)

[70] Continuing, the Full Bench said at [38]:

‘[38] Normally in order to hold a belief on reasonable grounds it will be necessary to have a discussion with the employee about the perceived serious misconduct and pay regard to the explanations and views given by the employee. We are concerned in this case that no discussions took place about the implications of Mr Domingo’s conduct for his future employment. However this is a very unusual case. The employer was very small. The owners knew Mr Domingo well. They directly observed his behaviour. They believed that he had made lifestyle choices that involved drug-taking and this directly related to his capacity to perform his work. His work involved close personal dealings with clients. At the time they made their decision, Mr Domingo was hospitalised. They were conscientious in considering the grounds for summary dismissal in regulatory material available on the internet. In these unusual circumstances we are of the view that the employer, when considering Mr Domingo’s recent erratic and unusual behaviour, formed the belief that Mr Domingo had engaged in conduct that justified immediate dismissal on reasonable grounds. Our conclusion should not be seen as one that would necessarily be reached in all cases of out of hours misconduct or drug-taking.’ (my emphasis)

[71] Pinawin continues to be cited with approval in decisions of the Commission involving the Code. Pinawin is authority for the proposition that when the Code applies, the Commission is not required to find that serious misconduct occurred, or that the allegations of serious misconduct against the dismissed employee, had been proven. Under the Code, the tests are only that:

  • the employer held a reasonable belief that the employee’s conduct was sufficiently serious to justify immediate dismissal; and
  • that belief was based on reasonable grounds, after a reasonable investigation.

Self-evidently, both of these tests do not require findings of unfairness, in a statutory sense, within the meaning of s 387 of the Act, unless the Code has not been complied with.

[72] That said, the Full Bench of the Commission had further occasion to consider the Code and the conclusions in Pinawin. In Ryman v Thrash Pty Ltd t/a Wisharts Automotive Services [2015] FWCFB 5264 (‘Ryman’), the Full Bench, after expressing a view that the summary dismissal section of the Code is ‘very poorly drafted’ (with which I respectfully agree), because it uses discordant expressions such as ‘without notice or warning’, ‘immediate dismissal’ and ‘summary dismissal’ synonymously, went on to say at [37]-[41]:

‘[37] Notwithstanding that the Code, and its accompanying checklist, were apparently designed to be read as “stand alone” documents by small business employers, we prefer the view that the reference to “serious misconduct” is to be read as bearing the meaning in reg.1.07. The types of conduct expressly referred to in the Code as constituting serious misconduct are all encompassed by the reg.1.07 definition, so no direct inconsistency is apparent. The fact that the checklist invites inclusion of “some other form of serious misconduct” suggests that the identified types of conduct were not meant to be exhaustive, and it is otherwise difficult to conclude that they were meant to be exhaustive given that they do not include other types of behaviour which may well constitute misconduct justifying summary dismissal, such as sexual harassment, bullying or significant non-compliance with a lawful and reasonable direction. And, as earlier discussed, the lack of any recognised meaning at law of the expression “serious misconduct” means that the definition in reg.1.07 is necessary to give the expression a clear content.

[38] We therefore consider that the “Summary dismissal” section of the Code applies to dismissals without notice on the ground of serious misconduct as defined in reg.1.07.

[39] To be clear, nothing stated above is to be taken as suggesting that in relation to such a dismissal it is necessary for the Commission to be satisfied that the serious misconduct which is the basis for the dismissal actually occurred in order for the dismissal not to be unfair. As was explained in Pinawin T/A RoseVi.Hair.Face.Body v Domingo:

“[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.”

[40] Whether the employer had “reasonable grounds” for the relevant belief is of course to be determined objectively.

[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.’ (my emphasis, endnotes omitted)

See also: Hart v Forex 1 Pty Ltd ATF Trading Rental Trust [2018] FWC 942.

[73] In Grandbridge Limited v Wiburd [2017] FWCFB 6732, the Full Bench put it this way at [14]:

‘We consider that an arguable case of error has been established and the public interest is enlivened by the appeal. Specifically, we are persuaded that Grandbridge has made out an arguable case of appellable error in relation to grounds 2, 13 and 15 of its Notice of Appeal in so far as they concern the dishonest conduct reason for Ms Wiburd’s dismissal. It is arguable that the Deputy President fell into error by asking herself the wrong question in focussing on whether Ms Wiburd’s conduct “was serious enough” to sustain summary dismissal. The proper inquiry raised by the Code is relevantly, whether at the time of the dismissal the employer genuinely believes on reasonable grounds that the employee’s conduct is sufficiently serious to justify immediate dismissal. The Code focusses attention on the employer’s belief which must be based on reasonable grounds, not on whether the employee’s conduct as a matter of fact and law justified immediate dismissal. It is therefore arguable that the Deputy President failed to properly apply the Code as Grandbridge contends by ground 13 of its Notice of Appeal.’ (my emphasis) (endnote omitted)

[74] I turn then to whether Ms Cole had ‘reasonable grounds’ to believe the applicant’s conduct was sufficiently serious to justify his dismissal. This leads me to discuss the meaning of ‘reasonable’ as it is generally understood. The Macquarie Dictionary defines ‘reasonable’ as:

‘1. endowed with reason. 2. Agreeable to reason or sound judgement: a reasonable choice. 3. not exceeding the limit prescribed by reason; not excessive: reasonable terms.’

[75] The Shorter Oxford Dictionary defines ‘reasonable’ as:

‘1. Endowed with reason. … 2. Having sound judgement; sensible, sane. Also not asking too much … b. Requiring the use of reason. … 3. Agreeable to reason; not irrational, absurd or ridiculous … 4. Not going beyond the limit assigned by reason; not extravagant or excessive; moderate … b. Moderate in price; inexpensive … 5. Of such an amount, size number, etc., as is judged to be appropriate or suitable in the circumstances or purpose … b. Of a fair, average or considerable amount, size, etc.’

[76] In my opinion, the meaning of ‘reasonable grounds’ in the Code is that the grounds are ‘reasonable’ when viewed from the standpoint of what a reasonable person would conclude as grounds which are credible, sensible, logical or plausible; see also: Construction, Forestry, Mining and Energy Union v HWE Mining Pty Limited [2011] FWA 8288 (‘HWE Mining’).

The notion of ‘reasonable belief’

[77] In a decision of Hatcher VP in Mac v Bank of Queensland Limited and Ors [2015] FWC 774, albeit a decision in the Commission’s anti-bullying jurisdiction, his Honour said at [79]:

‘[79] An applicant under s.789FC must not only be a worker but must be one who “reasonably believes that he or she has been bullied at work”. The expression “reasonable belief” and similar expressions are utilised in a wide variety of contexts by the statutory and common law. It is clear from cases decided in those differing contexts that not only must the requisite belief be actually and genuinely be held by the relevant person, but in addition the belief must be reasonable in the sense that, objectively speaking, there must be something to support it or some other rational basis for the holding of the belief and it is not irrational or absurd. For example, in the context of the Federal Court rules concerning applications for preliminary discovery, which require the holding by the applicant of a reasonable belief that that there may be a right to obtain relief against another person not presently a party to a proceeding in the Court, it has been held that “there must be some tangible support that takes the existence of the alleged right beyond mere ‘belief’ or ‘assertion’ by the applicant” or that “there must be some evidence that inclines the mind towards the matter of fact in question”. In relation to a NSW statutory provision prohibiting legal practitioners from providing legal services on a claim or defence of a claim for damages unless the practitioner reasonably believed that the claim or defence had reasonable prospects of success, it has been held that the practitioner’s belief that there was material which justified proceeding will not be reasonable if it “unquestionably fell outside the range of views which could reasonably be entertained”. In relation to the concept of a “reasonable hypothesis”, it has been held that in order to be a reasonable one a hypothesis must be rationally based and possess some degree of acceptability or credibility, and must not be irrational, absurd or ridiculous. These examples all illuminate the way in which the Commission should approach the task of considering whether the applicant worker has the necessary reasonable belief such as to confer standing to make an application under s.789FC.’ (endnotes omitted)

[78] Applying the above principles, I turn then to the evidence in this case.

[79] Neither the applicant nor Ms Cole were particularly impressive witnesses. Ms Cole’s evidence was tainted by post event reconstruction and exaggeration, handled somewhat clumsily and implausibly. It was particularly silly and unnecessary to demonstrate Ms Cole’s belief that the applicant was performing work ‘off the books’ by tendering a photo said to recreate the front desk and computer, with numerous and randomly scattered post-it notes. Under sustained questioning, Ms Cole firstly said that this was how the applicant had left the desk when he was dismissed, but later she reluctantly acknowledged she had recreated the scene three months later and had taken the photo herself.

[80] I also do not accept that the applicant’s so-called ‘PIP’ was what Ms Cole claims it to be. In my view, the document, although headed ‘Performance Improvement Plan’, is no more than a list of the applicant’s duties and tasks. A typical PIP, as generally understood, identifies a series of specific concerns or targets which are required to be addressed over a period of time. A PIP invariably includes a number of time signposts for measuring improvement, with regular ‘one on one’ meetings for discussion and feedback. This document is not such a plan. Again, I consider, this document demonstrates Ms Cole’s naivety and inexperience in dealing with workplace issues.

[81] Further, I also have some difficulty accepting that the notes of the toolbox meetings reflected what Ms Cole claimed had been discussed with employees. Although it was accepted that meetings did occur, nowhere do the notes refer to a prohibition on working down the side of the premises and none of the notes were signed off by anyone, despite there being named spaces for the employees to do so, including by Ms Cole. Ms Cole’s explanation that they were unsigned because the business (and the employees) were too busy to do so and that the notes were merely agenda items, were not convincing.

[82] I am also troubled by the obvious disconnect between the warning letter of 11 June 2019 and the reasons later advanced as the grounds for the applicant’s dismissal. Had this been a case not involving a small business, it would be axiomatic that not putting serious and different allegations to an employee and not giving consideration to any explanation, would constitute a finding of procedural unfairness, and a likely conclusion that the dismissal was ‘unjust and unreasonable’; see: my earlier comments about the Code.

[83] Ms Cole conceded that after the warning for the use of his mobile phone and not phoning in when sick, the applicant had not reoffended, as to these specific complaints during the seven weeks before his dismissal. At best, it seems to me that Ms Cole’s reasons for the warning letter were a substitute for her more serious concerns that the applicant was performing work ‘off the books’ or, at least, was continuing to ignore her instructions to ensure all work was appropriately covered by quotes, invoices and payments.

[84] As to the applicant not phoning in sick and texting, I accept that Ms Cole was entitled to expect consistent employee compliance with what was a reasonable direction to phone in, whenever he would not be attending for work. His text message concerning the 6 and 7 June 2019 absences, was not sufficient in explaining his absences. I would also add at this point that I do not accept that the letter from the applicant’s doctor of 5 December 2017, indicating that he would be requiring multiple appointments over the coming months, without any follow up medical certificates, is an appropriate notification of the reasons for his absences. Further, Mr Robertson’s report of 17 May 2018 makes no mention of the number of sessions or duration over an 18-month period. It would be a small, but necessary inconvenience to ensure that each of his absences from work were appropriately certified by the medical practitioner. I note that the applicant did not dispute Ms Cole’s claim that these sessions became longer and more frequent. For my own part, I do not see how a counselling session, with travel to and from work, should take three hours. While Ms Cole did not expressly say so, I think she had a belief that the applicant may have been less than forthcoming about these absences, particularly when he refused his permission for her contacting the medical practitioner to confirm his appointments.

[85] It is now plainly apparent that Ms Cole was of the firm belief that the applicant had been performing work ‘off the books’ when she viewed the CCTV footage of 28 May 2019, after the applicant’s dismissal. Her explanation that, until that time, she had no concrete proof he was doing so, fits the narrative Ms Cole explained and which she backed up by the notes in her incident notebook (subsequently produced). I have some doubts that the tendered document was actually contemporaneous notes. Nonetheless, it would seem unlikely, particularly as the applicant had vague or minimalist explanations for a number of earlier (and later suspicious) incidents, that Ms Cole had deliberately and falsely created evidence to fit her narrative. Given her inexperience in employment matters and in dealing with an employee who had worked in the business for over 35 years, I accept she was naturally guarded and unsure, but then handled her suspicions very clumsily.

[86] Mr Luke, unsurprisingly, argued the allegations relating to the CCTV footage were never put to the applicant and he had no opportunity to respond. This, of course, is correct, but it is not determinative in a case such as this. It is also necessary to observe that conduct which is discovered by the employer, post an employee’s dismissal and which was not reasonably known at the time, can justify a finding that the dismissal of the employee was not unfair; see: Shepherd v Felt & Textiles [1931] HCA 21; Australia Meat Holdings Pty Ltd v McLauchlan Print Q1625 and Lane v Arrowcrest Group Pty Ltd [1990] 27 FCR 427.

[87] In any event, the applicant has now had the opportunity to view the CCTV footage and provide an explanation. Regrettably, his claim of not recalling the incident in question does not assist his case. Secondly, the applicant produced no corroborative evidence from any other employee (or local customer, of which he said he knew many) that work was often performed by employees down the side of the premises, when the front bays were occupied. Of course, Ms Cole denied any knowledge of any such work being performed down the side of the premises and she had expressly told employees, for safety reasons, it was not permitted. In my view, it would have been a simple matter, particularly given the applicant was legally represented, to seek corroborative evidence or file a Form F51 application for an order requiring a person to attend the Commission (to give evidence).

[88] Thirdly, and perhaps most significantly, Ms Cole said that there was no quote, invoice, customer name or payment recorded for the work on the vehicle. Of course, the applicant could not dispute Ms Cole’s claim, as he could not recall the incident. Tellingly, he did not seek access to the business records through a Form F52 application for an order to produce documents, which might have disproved Ms Cole’s suspicion that the work was performed by the applicant ‘off the books’ and, in fact, had been correctly invoiced and paid for.

[89] Given the foregoing, I am satisfied that Ms Cole had a reasonable belief, based on reasonable grounds, (particularly the CCTV footage) that the applicant was engaged in conduct which warranted summary dismissal. I stress that I make no finding that the conduct has been proven to the requisite standard, and I repeat that it is not the test required by the Code. Accordingly, the Code has been complied with and the applicant was not a person protected from unfair dismissal (s 388 of the Act) and therefore could not have been unfairly dismissed (s 385 of the Act).

[90] That said, the respondent should not take this outcome as vindication of some of its own conduct leading up to, and after the applicant’s dismissal. Ms Cole would have been well advised to seek the appropriate support and advice in the future when handling workplace issues about which she might have concerns.

[91] As to the application for costs, there was no appearance by a lawyer for the respondent and although it does appear from the later material filed by Ms Cole, that a lawyer’s ‘hand’ may have been involved, no details or specifics were provided by Ms Cole. Accordingly, I have a preliminary view that this case is not one for which the hurdles for a successful costs application in unfair dismissal matters can be overcome. In any event, the respondent would need to comply with the requirements of the Act and the Regulations, if it seeks to pursue such an application.

[92] For the above reasons, Mr Williams’ application (U2019/8215) for an unfair dismissal remedy must be dismissed, as the Commission has no jurisdiction to determine the merits of the application.”

Williams v P & J Cole Investments Pty Ltd t/a Savins Radiator Services (2020) FWC 2174 delivered 27 April 2020 per Sams DP