When does the Small Business Fair Dismissal Code apply?

This extract from a recent Fair Work Commission unfair dismissal case is a very useful analysis of the manner in which the Commission determines whether a small business employer has a jurisdictional defence of having complied with the Small Business Fair Dismissal Code in the context of a dismissal for serious misconduct.

“Was the dismissal consistent with the Small Business Fair Dismissal Code – Summary Dismissal?

[31] The Code applies to small business employers with less than 15 employees. A person is not unfairly dismissed if the dismissal is consistent with the Code and immediately before dismissal or at the time notice of the dismissal is given, whichever is earlier, the employer is a small business employer. I have already found that the Respondent was a small business employer at the relevant time of 16 January 2021.

[32] The Code declared by the Minister pursuant to s 388(1) of the Act relevantly provides as follows:

“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.”

[33] In Pinawin v Domingo 24, the Full Bench considered whether, in the context of a summary dismissal under the Code, the Commission had to be satisfied that the serious misconduct which was the basis for the dismissal actually occurred:

“[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.

[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. The circumstances include the experience and resources of the small business employer concerned.

[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 …”

[34] Another Full Bench of the Commission examined the summary dismissal section of the Code in detail in Ryman v Thrash Pty Ltd 25 and concluded as follows:

“[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 the following way:

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.

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, objectivity speaking, based on reasonable grounds. Whether the employer has carried out a reasonable investigation into the matter will be relevant to the second element.”

[35] The Applicant was dismissed without notice on 16 January 2021 by the Respondent. The Respondent agrees that the second limb of the Code, that dealing with “Other Dismissal”, is not relevant. Consequently, my role in this matter is to determine whether the employer genuinely held a belief that the employee had committed an act of serious misconduct and whether that belief was, objectively speaking, based on reasonable grounds. It is not necessary to determine whether the serious misconduct did in fact occur or that the employer was correct in the belief that it held.

[36] The Respondent submits that the Applicant’s conduct constitutes serious misconduct as defined at Regulation 1.07 of the Fair Work Regulations 2009 (the Regulations) in that it was “wilful or deliberate behaviour” that was “inconsistent with the continuation of the employment contract” and was conduct that would cause “serious and imminent risk to the reputation, viability or profitability of the employer’s business”. Mr Bayley gave evidence that he genuinely held a belief that the conduct of the Applicant was sufficiently serious to justify summary dismissal. Furthermore, that belief was, according to Mr Bayley, formed on reasonable grounds, that being the established fact that the Applicant made the post.

[37] There is no dispute that the Applicant posted a recommendation for a swim school in the Melton area in response to a general request for such a recommendation by a member of the public on a closed Melton community Facebook group. The recommendation made by the Applicant was for Melton Swim School and not the Respondent. I accept that the Facebook recommendation made by the Applicant aggrieved the Respondent for the following particular reasons;

  • The Applicant had worked for the Respondent as an instructor since December 2017, for which role the Respondent provided necessary training at its time and cost;
  • The Applicant commenced working for Melton Swim School in early 2020 but as a consequence of the Covid pandemic restrictions worked no shifts for Melton Swim School between March 2020 and 31 December 2020;
  • As an eligible employee the Respondent arranged for and paid the Applicant JobKeeper benefits totalling $25,400 between April 2020 and her dismissal on 16 January 2021; and
  • The Applicant’s recommendation of a competitor of the Respondent had the potential to damage the Respondent’s business, particularly where members of the public reading the post who knew the Applicant would likely question why she had recommended a different swim school she had barely worked for (Melton Swim School) in preference to the business she had worked for over a 3 year period (the Respondent).

[38] I accept that Mr Bayley held a genuine belief that the Applicant’s conduct was sufficiently serious to justify summary dismissal based on his view that the Applicant had been disloyal and had made Facebook comments likely to damage the Respondent’s business. As set out above in the authorities to which I have referred, Mr Bayley’s genuine belief is not enough in itself to establish that the decisions to summarily dismiss the Applicant was consistent with the Code. It is also necessary for me to be satisfied that the belief was “objectivity speaking, based on reasonable grounds”.

[39] While there is no rule of law that defines the degree of misconduct which would justify dismissal without notice, the identified “touchstone” is that of whether the conduct was of such a grave nature as to be repugnant to the employment relationship 26. The Full Bench in Cole v Roy Hill Station Pty Limited relevantly summarised the principles as follows;

“[95] Serious misconduct as understood in the Code, takes its meaning from Regulation 1.07 and in doing so includes wilful or deliberate behaviour by an employee that is inconsistent with the continuation of the employment contract. The notion of wilful or deliberate behaviour amounting to serious misconduct is conduct which strikes at the heart of the employment relationship. That notion has been considered in several well-known authorities, which were well traversed in the decision of Emma Horan v Tren Trading Pty Ltd t/a Dubbo Early Learning Centre. I do not intend to repeat the authorities at length, but rely simply on the precepts that to justify summary dismissal a single act must be such as to show that the employee was repudiating the contract of service or one of its essential conditions, and such misconduct must at least have the quality that it is ‘wilful’: it connotes a deliberate flouting of the essential contractual conditions.” 27 (citations omitted)

[40] The Respondent while describing the behaviour as “unsatisfactory and disloyal” in the Employment Termination Letter of 16 January 2021 did not identify whether the conduct was
contrary to any express or implied duties or obligations owed to the Respondent by the Applicant. Further, it was not contended that the Applicant’s conduct was contrary to any terms of her contract of employment or policies and/or procedures of the Respondent. I do however discern from the Respondent’s case that it believed the Applicant had breached her implied duties of fidelity and good faith, although it was not expressed by the Respondent in those terms but rather as “disloyalty”.

[41] In Rose v Telstra Corporation Limited 28 (Rose v Telstra) President Ross (Vice President as he then was) considered an employee’s implied duty of fidelity and good faith when he relevantly stated as follows;

“……………..

In certain circumstances an employee’s out of work activities may be in breach of an implied or explicit term of their employment contract. An employee’s implied duty of fidelity and good faith is particularly relevant here.15 One of the most concise and authoritative statements of what is generally encompassed by the duty of fidelity and good faith is to be found in Blyth Chemicals v Bushnells16. In that case their Honours Dixon and McTiernan JJ said:

“Conduct which in respect of important matters is incompatible with the fulfilment of an employee’s duty. Or involves an opposition, or conflict between his interest and his duty to his employer, or impedes the faithful performance of his obligations, or is destructive of the necessary confidence between employer and employee, is a ground of dismissal … But the conduct of the employee must itself involve the incompatibility, conflict, or impediment, or be destructive of confidence. An actual repugnance between his acts and his relationship must be found. It is not enough that ground for uneasiness as to future conduct arises.”

………………….”

[42] The President went on to summarise the concept of the duty of fidelity and good faith in the following terms;

“The concept of a duty of fidelity and good faith is used as a matter of convenience to subsume a range of obligations which are intended to ensure that the employee renders honest and faithful service to the employer. They include:

– an obligation not to damage the employer’s interests by disclosing or using confidential information obtained in the course of employment;

– an obligation to act honestly in handling the employer’s property;

– an obligation not to earn any secret profits; and

– an obligation not to engage in employment outside of the hours devoted to their main job where the spare time work is for a competitor of the main employer and may damage the employer’s business.” 29

[43] Having regard to the authorities outlined above I now turn to the Applicant’s conduct and whether the Respondent’s genuine belief that the conduct justified summary dismissal was objectively, based on reasonable grounds. On one view it is difficult to reconcile the Applicant’s recommendation for a competitor of the Respondent in circumstances where she had been employed by the Respondent for over 3 years and had been kept “on the books” and paid JobKeeper benefits by the Respondent from April 2020 up to the date of her dismissal.

[44] The Applicant’s behaviour was in my view foolish, naive and ill-judged and a regrettable example of an employee using social media without carefully considering the potential consequences for herself or her employer. Moreover, it almost beggars belief that the Applicant, who had benefited so significantly from the loyalty shown towards her by the Respondent during the Covid pandemic, failed to reciprocate when she recommended another employer who she had barely worked for. That said, I am not persuaded that the conduct was wilful or deliberate in the sense that it was done with the intent or knowledge that it might cause harm to the Respondent. Nor am I satisfied that the conduct was so “grave” or “repugnant” as to be destructive of the employment relationship.

[45] My reasons for the above conclusion are as follows. Firstly, the Applicant did not denigrate the Respondent in the Facebook post. Secondly, beyond mere speculation, there was no evidence of harm or damage to the Respondent’s business. Thirdly, there was no evidence of how widely read the posts were. Fourthly, the Applicant’s Facebook settings were private so it would not have been apparent to persons reading her post, other than those directly familiar with her employment history, that she worked for the Respondent. Fifthly, there was no suggestion that the general elements of fidelity and good faith as set out above at [42] had been breached. Finally, the Applicant appears to have naively and wrongly believed that because she was casually employed by both the Respondent and Melton Swim School, providing a recommendation for one of her employers was not inconsistent with her obligations to both.

[46] While the Applicant’s conduct can be rightly criticised and, in my view, justified disciplinary action, I am not satisfied that the Respondent’s genuine belief as to that conduct warranting summary dismissal was objectively, based on reasonable grounds. It follows from this conclusion that the dismissal was not consistent with the Code. Having reached that conclusion, I must now turn to consider whether the dismissal was harsh, unjust or unreasonable.”

Besanko v R.B. Aquatics Pty Ltd T/A Swimmers (2021) FWC 1952 delivered 26 April 2021 per Masson DP