What is serious misconduct justifying summary dismissal?

“To justify summary dismissal for serious misconduct an employee’s conduct must constitute a repudiation of the contract or an “intentional repudiatory breach”.
In Casari v Sydney South West Area Health Service [2009] NSWIRComm 103 at [63], the Full Bench applied Budlong and, in consequence, determined that, in a case such as the present where the lawfulness of a summary dismissal was central, a procedure should be adopted in the determination of unfair dismissal applications (or an appeal from a decision in such a matter) by which the Commission should first consider whether the appellant’s conduct was a breach of the contract of employment and, secondly, whether the breach was of a serious nature involving a repudiation of the essential obligations under the contract or actual conduct that was repugnant to the relationship of employer or employee. (The reversal of Casari in Director General, NSW Department of Health v Industrial Relations Commission of NSW [2010] NSWCA 47; (2010) 77 NSWLR 159 did not affect that part of the decision of the Full Bench.)……

101. In [143] of the Commissioner’s decision he states that findings as to whether the appellant’s conduct constituted a deliberate act or carelessness did “not deter” a finding that the conduct was serious misconduct. It is tolerably clear that the expression ‘does not deter’ is a statement by the Commissioner that he does not consider the questions as to whether the conduct was deliberate or careless were relevant factors to be taken into account in assessing whether there was or was not serious misconduct. This assessment of the Commissioner’s decision is amply confirmed by the central findings as to misconduct he reached earlier in his decision when dealing with the question as to whether the dismissal of the appellant was unreasonable or unjust. Those passages may be found in [117], [127] and [130] of his decision. What is evident from that process of reading was that on no account does the Commissioner have regard to whether or not the conduct of the appellant represented a deliberate flaunting of the instruction given to him by his employer under his contract of employment.
102. This conclusion is also reinforced by the submissions of the respondent on the appeal who sought to defend the Commissioner’s reasoning in this respect by submitting that the state of mind of the appellant was irrelevant to the determination of whether or not summary termination was justified in the circumstances of this matter. We will return to this consideration but, in substance, what the respondent submitted was that there was a clear instruction given to the appellant via a work order and it was immaterial that he acted on the erroneous but genuine belief that the instruction did not apply to the work he was performing on 18 August 2014. In the respondent’s submission it mattered little that he had not received the April 2014 instruction or misunderstood the effect of the May 2013 instruction.
103. What, then, are the relevant principles as to the right of an employer to summarily dismiss an employee?
104. In Casari the Full Bench indicated that Budlong will “apply” but indicated that the Full Bench “expressly accept[ed] what Gillard J said in Rankin v Marine Power International Pty Ltd [2001] VSC 150;(2001) 107 IR 117” (‘Rankin’). The determination of whether summary dismissal was justified was discussed in Budlong in the following passage at [90]:
To satisfy the Commission that it was justified in summarily dismissing the appellant, the respondent must show that the appellant breached a term of his contract of employment and that that breach was such as to indicate a rejection or repudiation of the contract: see North v Television Corp Ltd at 609. In applying the common law principles to the facts of the case in North, Smithers and Evatt JJ cited with approval the following comments of Lord Evershed MR in Laws v London Chronicle (Indicator Newspapers) Ltd [1959] 2 All ER 285 at 287 and 289:
Since a contract of service is but an example of contracts in general, so that the general law of contract will be applicable, it follows that, if summary dismissal is claimed to be justifiable, the question must be whether the conduct complained of is such as to show the servant to have disregarded the essential conditions of the contract of service … I … think … 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 … therefore … 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.
105. In Rankin, Gillard J observed that a breach of the contract of employment by an employee may entitle an employer to terminate the agreement without notice (at [238]). We respectfully agree with her Honour’s assessment and her further observation, in reliance upon Clouston & Co. Ltd. v. Corry [1906] AC 122 (at 129), that there is no rule of law that defines the degree of misconduct which would justify dismissal without notice: Blyth Chemicals Ltd v Bushnell [1933] HCA 8; (1933) 49 CLR 66 at 83. Whether a breach of contract is sufficient to meet the legal conditions for summary termination rests primarily on the construction of the contract: Koompahtoo Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61; (2007) 233 CLR 115 at [55].
106. In a passage of a judgment of Gillard J in Rankin (at [250]), recently cited with approval by the NSW Court of Appeal in Willis Australia Group Services Pty Ltd v Mitchell-Innes [2015] NSWCA 381 at [90] to [92] (per Macfarlan JA), Gillard J concluded that the conduct of an employee may justify summary termination where the employee has conducted himself in such a way as to demonstrate a repudiation of the contract: at [51]. It is useful to extract that passage from the judgment in Willis, as follows:
[250] The authorities do establish that the employee’s breach of contract of employment must be of a serious nature, involving a repudiation of the essential obligations under the contract or actual conduct which is repugnant to the relationship of employer-employee, before an employer may terminate the contract summarily. Isolated conduct usually would not suffice. Each case must be considered in the light of its particular circumstances, but nevertheless, the seriousness of the act of termination and the effect of summary dismissal are factors which place a heavy burden on the employer to justify dismissal without notice. The circumstances do not have to be exceptional, but nevertheless, must establish that the breach was of a serious nature.
107. Her Honour then proceeds to identify a second class of conduct by an employee warranting summary termination, namely, where that conduct is repugnant to the employment relationship (at [255]). Her Honour drew particular attention, in that respect, to the judgment in Laws v London Chronicle (Indicator Newspapers) Ltd [1959] 2 AII ER 285 (‘Laws’).
108. The onus of proof rests upon the respondent to establish that it had the right to terminate the employee.
109. Whether a distinction of the kind drawn by Gillard J is any longer appropriate in the light of Koompahtoo Council is unnecessary for us to decide in the circumstances of this matter. It is plain that the relevant legal principles allow for either form of conduct to justify summary termination, most likely as part of a consideration as to whether there is a repudiation of the contract.
110. Those considerations necessarily lead to a consideration as to ‘disobedience’ in the employment context and the observations of the Full Bench in Budlong at [89] that the test of serious and wilful misconduct “was not a test found in common law authorities dealing with summary termination”. We do not consider that, by this statement, the Full Bench was excluding the deliberateness or wilfulness of disobedience of a lawful and reasonable instruction from the evaluation of whether summary termination is justified as a repudiation of the contract of employment.
111. A consideration of wilfulness or deliberateness of a disobedience of the lawful and reasonable order giving rise to a justification for summary termination should not be understood as establishing some separate test or principle governing the circumstances in which an employee may be dismissed without notice but, rather, involves the consideration of those elements or factors in order to determine whether the conduct was, objectively, repudiatory in nature and, therefore, giving rise to a proper basis for summary termination.
112. We refer, in this respect, to often cited passages from Adami v Maison De Luxe Limited [1924] HCA 45; (1924) 35 CLR 143 at 151 to 153 and Laws at 700 and 701.
113. Acting Chief Justice Isaacs in Adami (at 151 to 153) stated as follows:
… One commanding circumstance is to ascertain the subject matter as a totality of which it is predicated that it must be wilful. Here the subject matter is not “disobedience,” but “disobedience of a lawful order.” It is the whole compound expression that must be “wilful,” and not the one word “disobedience” adding a proviso “if the order be lawful.” It is no doubt a correct principle that, once the relation of employer and employee is established, obedience to lawful orders is, if not expressly, then impliedly, contemplated by the contract creating the relation, and mere disobedience of such orders is a breach of the bargain. But whether disobedience in a given case is of such a character as to justify a complete dissolution of the contract by one of the parties and, as here, a forfeiture by the other of valuable accruing rights, together with some degradation – altogether a severe penalty – is, in my opinion, quite a different matter. Such a justification requires the disobedience to be as phrased “wilful disobedience of a lawful order.” That is, it must be not merely a breach but a radical breach of the relation, and inconsistent with its continuance.
Once the element of “wilfulness” is introduced for the purpose of the summary rescission by one party of the whole contractual relation, with penal results on the other, then, as the “wilfulness” is the attitude of the employee, so far as it is conveyed by words or acts to the employer, the subject must be looked at from a new standpoint. “Wilfully” does not necessarily connote in that connection anything criminal or immoral, but it does connote some deliberate design or purpose to derogate from duty.

Any conduct on the part of either inconsistent with the maintenance of the relation created amounts to a renunciation, and the other has a right to terminate it. An order that is not so clearly implied or expressed as to be free from doubt has been left so by the act of both parties. A refusal to comply with it, if the employee, regarded as a reasonable man with knowledge of all the circumstances, may reasonably and does honestly contest it, is not, if respectfully communicated, a wilful disobedience of a lawful order, which by reason only of “wilfulness” entitles the employer to penalize the employee. The employee is there, to the knowledge of his employer, only acting in defence of his supposed rights – that is his only intention and purpose. He is not wilfully insubordinate. Other grounds may justify a rescission, as, for instance, the importance of the refusal apart from wilfulness or its effect on the general condition of the employer’s business. That, however, concerns the second ground alleged here.

114. In Laws, Lord Evershed MR (with whom Lord Jenkins and Willmer LJ agree) stated (at 700 to 701), as follows:
To my mind, the proper conclusion to be drawn from the passages I have cited and the cases to which we have been referred is that, since a contract of service is but an example of contracts in general, so that the general law of contract will be applicable, it follows that the question must be – if summary dismissal is claimed to be justifiable – whether the conduct complained of is such as to show the servant to have disregarded the essential conditions of the contract of service. It is, no doubt, therefore, generally true that wilful disobedience of an order will justify summary dismissal, since wilful disobedience of a lawful and reasonable order shows a disregard – a complete disregard – of a condition essential to the contract of service, namely, the condition that the servant must obey the proper orders of the master, and that unless he does so the relationship is, so to speak, struck at fundamentally.
In the passages which I have read, it will be remembered there is a statement “…there is no fixed rule of law defining the degree of misconduct which will justify dismissal.” That statement is derived from the judgment of the Privy Council delivered by Lord James of Hereford in the case to which Mr. Stewart referred of Clouston & Co. Ltd. v. Corry. I will read a rather larger passage which provides the context. Lord James said: “Now the sufficiency of the justification depended upon “the extent of misconduct. There is no fixed rule of law defining the degree of misconduct which will justify dismissal. Of course there may be misconduct in a servant which will not justify the determination of the contract of service by one of the parties to it against the will of the other. On the other hand, misconduct inconsistent with the fulfilment of the express or implied conditions of service will justify dismissal.”
In the present case, the judge, in the course of his judgment, said: “It is clear and sound law that to justify dismissal for one act of disobedience or misconduct it has to be of a grave and serious nature”; and, later he concluded, in the plaintiff’s favour, that what she had done, or not done, on June 20 was not sufficiently grave to justify dismissal.
With all respect to the judge, I think that his proposition is not justified in the form in which he stated it. I think it is not right to say that one act of disobedience, to justify dismissal, must be of a grave and serious character. 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 you find in the passages 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.
115. It follows that a question that must be asked in assessing whether an employee was guilty of serious misconduct warranting summary termination for disobedience is not only what actions or omissions constituted that conduct but the mental processes relative to them: Gooley v Westpac Banking Corporation [1995] IRCA 658; (1995) 59 IR 262 at 269. This conclusion is reached for two reasons. First, the state of mind of the appellant may bear upon the degree or seriousness of the misconduct. Secondly, and as defined in Adami (at 152), whilst wilfulness does not necessarily connote anything criminal or immoral, it does imply some deliberate design or purpose to derogate from duty.
116. This is not to dispute that an employee may be guilty of serious misconduct for gross negligence or acts of recklessness having regard to, for example, the codes of conduct of an employer or safety procedures, but this is not a case which turns upon that consideration, as pleaded in this appeal.
117. Some simple illustrations of this proposition by analogy may suffice. In Gooley it was alleged that the appellant had disclosed a confidential document contrary to the code of conduct of the respondent but it was held by Wilcox CJ that the appellant “did not send the information to Mr Davidson knowing or believing that it was confidential; and that, at most, he was guilty of an error of judgment that could not properly be described as ‘serious misconduct’” (at [279]).
118. More directly, in reliance upon Gooley, Gillard J in Rankin, held that, as a general proposition, a finding that disobedience will justify summary termination requires “something more than ill-advised conduct or omission to act, as a result of any error of judgment” (at [264]).
119. In Rankin, it was found that the appellant did breach his contract of employment by failing to carefully and diligently perform his duties with respect to the cost of a project and to comply with the approval rules of his employer (at [278]). It was found that an excuse that he did not turn his mind to the question was to no avail as it was his duty to carry out the cost analysis (at [306] and [307]).
120. However, it was found that the appellant did not know that the cost would substantially exceed the approval and did not seek to deceive or mislead senior management when reporting. It was found “he did not breach the terms of his contract knowingly, wilfully and with any intention to deceive or mislead his supervisors” (at [315]).
121. An application of those principles to the Commissioner’s reasoning process demonstrates two fundamental errors in assessing whether the appellant’s conduct justified summary termination. First, the Commissioner applied the wrong test to the consideration of whether the summary termination was lawful by putting out of account, in answering that question, and the subsidiary question as to repudiation, whether the failure of the appellant to discharge his maintenance tasks vis-à-vis the tightening of wheel nuts (where nut lock clips were fitted) on 18 August 2014 was a deliberate flouting of his contract of employment. Secondly, in consequence of that error the Commissioner failed to have regard to relevant matters of evidence (or factors) demonstrating, objectively, that the behaviour of the appellant was, rather, an error of judgment, ill-advised conduct or carelessness (it was not suggested at any stage that the appellant was engaged in any wanton or abject carelessness).
122. As an assessment of whether summary termination was wrongful has a bearing, in and of itself, upon the question raised by Pt 6 of Ch 2 of the Act, namely, whether the dismissal was harsh, unreasonable or unjust, it follows that the Commissioner’s errors with respect to his assessment of the wrongfulness of summary termination of the appellant materially impacted his findings as to the application of that statutory test.
123. However, there is more to this consideration because, independent of the question as to whether the summary dismissal was lawful, the factors underpinning our consideration of error in that respect are also directly relevant to the three adjectives governing that test. That is so because those considerations go to the nature and quality of any misconduct and the reasonableness or justness of the dismissal (as well as the question of harshness). A misapprehension as to the nature and quality (including severity) of the appellant’s actions giving rise to a decision to dismiss necessarily undermines the veracity of any finding as to whether the dismissal was harsh, unreasonable or unjust and also constitutes error. The factors of which we speak, in this latter respect, will receive greater elaboration in our later discussion of whether the dismissal was harsh, unreasonable or unjust and, thus, it is unnecessary to rehearse the consideration of those factors here, but there is a substantial difference in the gravity of any misconduct based upon a deliberate disobedience of a lawful and reasonable instruction and an error of judgment based upon a genuinely held belief which was not irrational given failures in the employer’s own procedures (see further our discussion at [142] to [145] below).”

Dissanayake v State Transit Authority [2016] NSWIRComm 10