What’s the impact: how do you know if your culture is impacting on (mis)conduct?

Therese MacDermott, Consultant and Rocio Paradela, Graduate Associate

The notion of the culture of an organisation can be hard to define, and it is often considered an intangible concept. Broadly speaking, the culture of an organisation is its character. It is the sum of its values, vision and attitudes, as well as its people; what they say and what they do.

We all know that an organisation’s values statement is meaningless without the right behaviours and actions to support and implement those values. The difficulty for many organisations is knowing whether the behaviours and actions within the organisation are having an adverse impact; that is, whether the organisation’s culture is enabling certain types of conduct, including misconduct.

Public scrutiny of banking and financial Institutions

Recent events such as the Royal Commission into Misconduct in the Banking, Superannuation and Financial Service industry (the “Commission”) have contributed to a focus on corporate culture. The processes utilised by the Royal Commission have led to a detailed examination (in public hearings) of the organisational practices of a number of institutions, as well as the behaviours of individuals within those organisations. Senior executives of organisations have been called to give evidence before the Commission, and subject to detailed questioning and robust cross examination about the manner in which they conduct their business. These hearings are a very public form of holding organisation’s accountable for their practices and the behaviour of their staff. The Commission’s processes have also involved detailed research by its staff and requests for public submissions. These processes provide other avenues by which organisational practices have come under review and have been subject to sustained criticism.

This type of scrutiny has caused a number of organisations to review their governance frameworks and their internal culture. Many organisations have had to undertake detailed reviews internally in order to prepare submissions and to present evidence before the Commission. A not infrequent organisational response to such scandals has been that “any misconduct was caused by a few bad apples and that the issue did not raise broader or systemic concerns1. This type of response tends to ignore the root cause of the conduct, which often resides in a failure to audit and improve the culture promoted within an organisation and the systems and structures that work alongside that culture.

In the case of the financial institutions that have been the subject of the Commission’s enquiries, issues such as remuneration arrangements have been identified as playing a significant role in contributing to (mis)conduct. The Commission has criticised certain practices that have led to poor advice being given to customers to secure commissions. Such outcomes are unsurprising where the culture of the organisation has been to prioritise sales over customers interests. Sales volume was rewarded, whereas doing “the right thing” by the customer was not. In addition, problems of misconduct can be exacerbated where there is a culture of pay secrecy clauses, and where discretionary incentives and bonus payments are common but not disclosed. As a consequence of the public scrutiny of such practices, reforms of pay secrecy provisions are now being considered.

Cricket under the spotlight

An example of the auditing of a specific organisation’s culture that has played out in the public arena is the recent review of Cricket Australia.2 Cricket Australia engaged an independent organisation, the Ethics Centre, to audit its culture. Again, this was as a response to a scandal, rather than a proactive effort to audit or improve culture.

The type of audit process undertaken had as its starting point the identification of the principal attributes (purpose, values, principles) that define and underpin Cricket Australia’s “target culture”. Surveys and interviews were then conducted amongst key personnel (Board members, management, staff, former and current players and other key stakeholders). The process included the review of additional documentation, such as the organisation’s Code of Conduct, the Directors’ Code of Ethics, and the anti-harassment code. On the basis of the data collected, the Ethics Centre prepared a report that detailed why gaps may exist in respect of the “actual culture” and the “aspirational culture”, and how these gaps could be bridged.

In essence, the report showed a disconnection between the Board of Cricket Australia (and its senior executives) and those who play the game. The Ethics Centre report suggests that the unsatisfactory behaviour that engulfed the organisation in a scandal was a predictable consequence of the way the Board of Cricket Australia and its executive team had established a “winning without counting the costs” culture.

The outcome of the audit is an implementation plan designed to achieve better alignment between Cricket Australia’s actual and aspirational culture. The report includes recommendations for structural changes to the team, changes to performance reviews and selection functions, and improvements to basic skills and team culture.

Building, auditing and improving a culture

What do these reviews teach us about the things that stand out in relation to a good corporate culture?

  • Communicate – what is acceptable (and unacceptable) conduct and behaviours throughout the organisation;
  • Challenge – the communication of an organisation’s conduct, values and expected behaviours only gets you so far. This needs to be actioned by management and continually reviewed, enforced and validated. Employees should also be encouraged to raise potential practices or behaviours of concern; and
  • (a lack of) Complacency – the active management of culture necessitates robust and ongoing processes that reinforce the desired culture, are responsive to changing needs and encourage improvements.

A fish rots from the head

An organisation’s culture starts at the top. For an organisation to be effective in reinforcing good corporate culture, it is critical that senior management leads by example. A failure in culture happens when there is poor communication, including when leaders are remiss in reinforcing the expected behaviours and where the organisation’s systems and practices do not lead to the sanctioning of poor behaviours. The culture of an organisation can also be compromised when an individual and an organisation’s values do not align, and this misalignment is not actively managed.

Where an organisation makes clear what behaviours are required, and the consequence of non-compliance, there is a greater chance that behaviour across the organisation will be more consistent, and any non-complaint behaviour will be called out by other employees.

Knowing where the problems lie

One of the key takeaways from the events outlined above is that regular and detailed examination of organisational practices and behaviour is a core aspect of good governance. It is far better to know what lies within your organisation and address these internally, than to wait until poor practices come to light in very public forums. Where problems are identified either internally or publicly, implementing organisational change and establishing accountability mechanisms are crucial to restoring confidence in the organisation’s brand.


1. Interim Report of the Financial Services Royal Commission, available at https://financialservices.royalcommission.gov.au/Pages/interim-report.aspx
2. Australia Cricket, A Matter of Balance. The Ethics Centre Organisation Review Report Oct 2018, available at https://www.cricketaustralia.com.au/media/media-releases/cricket-australia-releases-player-and-independent-organisational-reviews/2018-10-29

 

Pulling the trigger: audits as a responsive mechanism

Kathryn Dent, Director and Rohan Burn, Associate

Processes that audit or review organisational systems and practices can provide an organisation with prudent information about compliance, risk and culture. However, organisations may be hesitant or lack the motivation to proactively undertake such processes. Often, they are a response to a particular event or circumstance or are instituted by the need to gather certain information. In this article, we explore three situations which may trigger an audit process, what the audit process may look like, and how an organisation may seek to change as a result of the outcomes of such a process.

What might trigger an audit?

Conduct and/or organisational culture concerns

It is important for an organisation to have an awareness of its cultural health and to be responsive to any situations that jeopardise this. Organisations that ignore their workplace culture may be more exposed to greater risks of poor employee satisfaction, non-compliance with workplace policies, and claims of workplace discrimination, bullying or harassment. If these risks materialise then an organisation may respond by conducting a culture audit and/or an investigation into any alleged misconduct. Depending on the circumstances, an organisation may need to conduct an audit or review process in response to a particular complaint, general concerns expressed by the workforce as a whole, or to satisfy a regulatory agency such as a work health and safety authority. In the case of allegations of inappropriate workplace behaviour, organisations may be subject to additional pressure due to the speed at which information is exchanged in the social media environment, which can expose an organisation to significant reputational risks that may have ramifications in terms of an organisation’s bottom line. Thoroughly investigating and managing an employee’s complaint and the wider cultural issues of a workplace can also be a powerful symbol to both internal and external stakeholders that the organisation takes such matters seriously.

Financial and/or compliance issues

External financial or compliance audits may be instigated by bodies such as the Australian Taxation Office (“ATO”) or the Fair Work Ombudsman (“FWO”). To avoid being “caught out”, organisations may proactively instigate an internal review in preparation, for example, for a FWO or ATO announced compliance campaign targeting their particular industry. A related scenario is where an individual employee notifies their employer of their intention to contact an agency such as the FWO to make a complaint, for example about wages or related entitlements. Subject to operational requirements and an organisation’s perception of risk, an internal review into that specific employee’s payments or the wider payment practices of the organisation may be appropriate, as it can shed light on whether there are any systemic problems of this nature within the organisation.

Due diligence

Audits are not only conducted in response to existing liabilities but may also be performed to assess the future liabilities of an organisation. In particular, when an organisation is considering the acquisition of a new business, an audit is a vital step in assessing the value of that target business. This type of audit forms part of the “due diligence” process that an organisation performs. It can inform the terms on which an acquisition is negotiated and can help to avoid unexpected problems and additional costs associated with the potential liabilities of the target business.

What form do these audits take?

Conduct and/or organisational culture concerns

There is no “one-size fits all” method for responding to allegations of misconduct or poor cultural health within an organisation. The first step for an organisation is often to conduct an investigation to determine whether there is any factual basis for the complaint or concerns and to identify the best way for the organisation to respond. In investigating a particular complaint of misconduct, an organisation needs to be mindful of whether the problem is more widespread and whether a broader cultural audit is required. An organisation’s response will usually be predicated on a close consideration of the legislative obligations, relevant workplace policies and any relevant industrial instruments. In terms of the wider cultural implications, an organisation may need to have regard to how it communicates its behavioural expectations, its approach to training, and what its employee engagement surveys and analysis of employee leave patterns might say about the organisation’s culture.

Financial and/or compliance issues

A basic financial audit of employee entitlements involves the reviewing of wages, pay slips, leave entitlements, incentive schemes, rosters, contracts, and indicators of actual hours worked. An employer should take into account the type of work the employee is performing and the terms of any applicable industrial instrument, including those that provide for minimum rates of pay, overtimes, loadings and other allowances.

Due diligence

Subject to time pressures, budgets, and any agreed parameters for the process, a due diligence audit can involve considering the target business’ governance structures, as well as any applicable industrial instruments and employment contracts to ascertain any risks that may be associated with, for example, confidential information and intellectual property clauses, or the incorrect characterisation of an employment relationship. It is important to know the source of the employees’ terms and conditions of employment, and whether the employees are covered by a modern award or enterprise agreement, particularly because there are circumstances where the terms and conditions under an award or enterprise agreement will follow the employees when there is a transfer of business. The due diligence process may also reveal the extent to which employee benefits, such as accrued leave entitlements and other liabilities may affect the sale price of a business.

What might an organisation change as a result?

Conduct and/or organisational culture concerns

The starting point in achieving acceptable workplace behaviour and fostering the desired workplace culture is ensuring that all levels of an organisation are aligned and also aware of their legal obligations and they monitor and enforce compliance. If an investigation into misconduct substantiates findings of inappropriate or even unlawful behaviours it may be appropriate for an employer to take disciplinary action. Where conduct is revealed, a failure to act can cause problems when the organisation is confronted with similar behaviours in the future that it seeks to address. If cultural problems have been identified, then it is important for an organisation to enhance the capability of its managers to become effective leaders. A healthy workplace culture can reduce an employer’s financial costs, increase employee health, well-being and productivity, increase attraction and retention of employees, and reduce an employer’s risk profile in terms of its exposure to bullying, discrimination and harassment type claims.

Financial and/or compliance issues

The first response to an audit, for example, on employee entitlements may be to rectify any underpayments and to inform any affected parties. In situations where there has been an overpayment to employees, we recommend seeking advice because of prescriptive provisions in the Fair Work Act 2009 (Cth) that prohibit an employer from simply deducting such an overpayment from subsequent wages. In circumstances where underpayments or overpayments have not occurred, the audit may nevertheless reveal potential risks of future non-compliance that necessitate changes to an organisation’s systems and structures, as well as its human resources processes. Organisations may also take the opportunity to address any inconsistencies between employees’ entitlements by overhauling its remuneration structure.

Due diligence

If risks are identified through the due diligence process then, depending on the seriousness of these risks, the potential buyer may seek to renegotiate the price of the transaction, or seek specific warranties or indemnities in relation to those risks. If these risks cannot be resolved, then the potential buyer may seek to withdraw from the transaction altogether. The audit may also identify a target organisation’s need to rectify its practices before a sale and its reliance on key employees that the potential buyer may seek to retain through more generous terms of employment in order to capitalise on their skills and to maintain consistency during the change period.

The takeaways

In all cases, any audit should not be regarded as presenting a complete and objective picture of an organisation. As mentioned, the scope of the audit can be limited and any reliance on the audit should be similarly qualified. Audits themselves are not completely free from risk and the audit process should be monitored to ensure it is free from bias and those being audited are afforded a fair process. Notwithstanding this, audits provide useful insights into an organisation and communicate positive messages to stakeholders about a company’s diligence and concerns around compliance and culture. The process of responding to these “triggers” with an audit is valuable in itself, again in terms of the messages that conducting an audit conveys. Rather than ignoring these trigger events and their wider implications, responding with an audit is an action that is likely to be of substantial benefit to organisations and is strongly recommended.

 

Through the looking glass: a case study on Kalyx’s transformation of the “people process”

Erin Lynch, Director

Hearing PCS Founder and Managing Principal, Joydeep Hor, speak at the HR Summit about the PCS approach to people issues and “what good looks like” resonated with Sue McGregor, People Culture & WH&S Manager at Kalyx Australia Pty Ltd (“Kalyx”). She felt this refreshing perspective was one that her company could benefit from exploring.

Kalyx provides an unparalleled level of independent, quality research to Australian agriculture and horticulture. With regional locations and a national focus, it provides quality and innovative research that is timely, accurate and second to none in Australia.

In respect of its people, Kalyx has 16 offices, 100 permanent staff and between 50 and 60 casual staff members at harvest time. The majority of the office locations are regionally based, and a high percentage of the workforce comes from a rural area and/or have studied agriculture or science.

Kalyx had reached a stage where it needed to develop a strategic plan. The Board was grappling with competing in the “corporate world” at both a national and international level, but also wanted to retain its authenticity and its “small company” feel.

Listening to Joydeep speak made Sue realise that, with the right attitude and approach, Kalyx could achieve that balance. The concept of “what good looks like” may have been simple in concept but made sense and was an easy message to deliver. Getting buy-in on “what good looks like” was necessary for Kalyx to maintain market share and achieve success in the industry.

The Plan

After meeting with Sue, a project plan was developed. This involved:

  • reviewing current systems and structures (including vision statements, organisational charts, position descriptions, relevant policies and template contracts) and also conducting high-level interviews with Sue and the General Manager;
  • based on the review, developing a “gap analysis” and also making necessary recommendations to bring the source documentation in line with best practice; and
  • conducting a half-day session with the Board around making Kalyx a high-performing organisation.

The Message

Deciding on the level of staff involvement in the process was considered at the outset. Sue was initially the one driving the process, however, “buy-in” was also sought from the Board and the senior management team.

In Sue’s opinion, the message was simple and the level of interest in the process was heightened because she believed in the message and the Board also backed the process. Sue says this made it much easier to get the management team to engage in the process.

The Actions

The current position descriptions and performance review documents were updated to reflect easily understandable and measurable key performance indicators.

This included creating a matrix for each position description that addressed things such as technical competency, relationships and adherence to values. For each of these areas, examples were created so that staff could easily recognise how they could satisfy these requirements and to help them understand “what good looks like”. For example, “conducts high quality trials that produce meaningful and significant data”, “has the technical expertise to accurately diagnose problems in the field”, “is flexible, adaptable and open to change”, “breathes integrity – doesn’t compromise values for anyone” and “trusts the team – help others and be helped when required”.

This led to developing clear progression and succession pathways, as well as improved onboarding processes and increased engagement with staff via informal and formal feedback and reviews.

Contracts of employment were reviewed and “paired back” to a more approachable document. To provide Kalyx with the ability to expand upon the contract, a bank of optional clauses was created to be inserted into the contract as required. For example, if Kalyx required an employee to have a particular qualification the “Accreditation and Qualification” clause could be inserted, or if Kalyx wished to have an employee subject to a particular post-termination restraint a “Restrictions After Termination of Employment” clause could be inserted.

Onboarding and exit checklists were also reviewed and amended to ensure they aligned with the updated employment contracts.
An induction timeline document was created, which spanned from the recruitment phase to the first six months of employment. This allowed Kalyx to develop the appropriate timelines, training and internal HR documents. It also provided for a uniform approach to recruitment and induction for new employees.

Finally, the employee handbook was reviewed to ensure that the entire “people process” was consistent.

The Learnings

Sue describes the main learnings as:

  1. Getting the recruitment right.
  2. Spending time on onboarding correctly and spelling out “what good looks like”.
  3. Being clear on the ‘non-negotiables’ to success in the organisation.
  4. Checking in regularly and providing feedback (both positive and constructive).
  5. Providing clear and transparent progression pathways.

The Surprise

The biggest surprise for Sue was confirmation that you need to keep things simple. On reflection, getting tied up with “corporate lingo” does not assist the process, and a simple message is what resonates with the staff.

The Changes

Since undertaking the review Kalyx has:

  1. Introduced value and cultural fit questions into interviews.
  2. Developed a week-long onboarding phase (at one branch) to instil consistent compliance requirements in staff and discuss “what good looks like” for Kalyx and for the staff.
  3. Developed clear progression pathways.
  4. Introduced quarterly informal check-ins rather than formal (stuffy) performance review process.

Twelve months on

Kalyx has seen a number of benefits as a result of engaging in the process.

Management and staff no longer tolerate non-compliance or the “rotten apple” syndrome. Staff are now comfortable to call out, and capable of calling out, poor behaviour by others in the workplace. This means that rather than a “top-down” approach to poor behaviour, behaviour is managed at the ground level.

Sue also believes that these new processes have meant that staff engagement and retention is higher. Of particular note is the increased engagement or willingness of staff to have open discussions with management about the positive and negative aspects of the workplace.

Sue says she would recommend this process to organisations because of the simplicity of the message. The workplace gets so busy and there are so many competing priorities. For Sue it was very refreshing to return to the basics and just “get it right”.

 

More than just the basics: embracing the audit paradigm

Daniel McNamara, Associate

When an organisation braces for “audit time”, the negatives can be perceived to outweigh the positives. This is often the case where organisations engage in mandatory audit processes to confirm compliance with specific statutory obligations. However, “audit time” does not need to be viewed by organisations with apprehension. When executed properly and for a valid purpose, audits can be of great benefit to an organisation in terms of productivity, efficiency and employee satisfaction. Auditing processes, including those that are externally driven and those that are employer-initiated, can be used proactively to mitigate the risks of other issues emerging and reactively, to identify and manage existing problems.

This article considers the proactive use of audits which an organisation may wish to engage in and highlights the benefits of an approach to auditing that stretches an organisation beyond a minimal compliance model.

What does an audit entail?

When you mention “audit”, it is commonly thought of as a process that independently examines documentation, records or processes of an organisation with the aim of ascertaining whether an organisation is compliant in terms of its legal or ethical obligations. Not so common, is using an audit style process to test how an organisation is placed in terms of what it aspires to achieve, including culture and values and what is regarded as best practice in the industry. Audits can generally be defined as either:

  1. employer-initiated audits that are instituted as an objective means of ascertaining current practices or standards with a view to creating a “high-performance” culture; and
  2. external audits, which are generally reactive and performed by staff from statutory agencies and are focused on an organisation’s legal compliance.

Proactive audits

Unlike external auditing processes, employer-initiated audits are typically a proactive step taken by organisations and are considered as going “above and beyond” an organisation’s legal requirements. They are not mandated from an organisational/employer liability perspective. While external auditing fosters compliance and enables an organisation to “survive”, employer-initiated audits allow an organisation to “high-performing/” and thrive, by focusing on areas of the business that can be improved or enhanced. These include:

  • culture audits – introspectively focusing on the practices and behaviours within an organisation, whether these practices and behaviours align with an organisation’s objectives, and any areas of potential improvement;
  • effectiveness audits – considering whether an organisation is optimising its resources and human capital in line with its goals; and
  • people strategy audits – assessing an organisation’s leadership and direction, its alignment with the organisation’s structural framework, and identifying areas for improvement or change which may exist throughout the employee lifecycle.

If an organisation wishes to reap the benefits of an employer-initiated audit fully, auditing should be seen as one element of an overall strategy to creating a “high-performance” culture, including working together to reduce risks to the health of the organisation and build long term organisational resilience. An employer-initiated audit process can critique the governance and practices of an organisation but requires the support of management and appropriate internal governance mechanisms to enable the outcomes of the audit to be fully realised. In essence, this requires all aspects of the organisation’s operations to align with what the audit process seeks to achieve.

Apart from providing an independent and transparent analysis of an organisation’s functions, strengths and weaknesses, employer-initiated audits can also establish key trends and themes. This can have the flow-on effect of creating a better understanding of risks and processes, highlighting organisational issues requiring action, and establishing mechanisms to rectify risks and organisational gaps.1

Staff engagement in employer-initiated audits

To ensure that an audit fulfils its purpose, organisations should be mindful that the audit process engages with, and involves, staff.

Having staff input into the audit process is a necessary step in ensuring that concerns of staff are recognised, affirming an employer’s commitment to organisational justice and fairness. This can assist in creating a culture where staff feel empowered to be involved in processes which benefit the long-term productivity and wellbeing of the organisation, knowing that their voices have been heard.

In addition, distributing the results of the audit process can have the effect of keeping an organisation accountable to remedy any issues outlined in the audit. Communicating audit results provides a level of transparency that can foster staff engagement and increase “buy in” to any organisational initiatives that result from the audit process.

Reactive audits

A later article in this edition “Pulling the trigger: audits as a responsive mechanism” discusses audits as a reactive tool. Typically, these take the form of external audits.

External audits often fall into the category of being “mandatory”, meaning that organisations have little or no legal choice but to comply with the audit. The possibility of an external audit is a very real prospect for many organisations. Generally speaking, the intention of external auditing is to operate as a general deterrence.2 This is based on the idea that the threat of an audit or investigation, accompanied by the risk of subsequent legal action, should outweigh the benefits of the non-compliant behaviour. As a consequence, decision-makers in an organisation may fear the repercussions of engaging in non-compliant behaviours and hence be more likely to comply with legislative standards.

Key Takeaways

Audits are inevitable in the lifecycle of an organisation. This article has outlined some key considerations in conducting audits, and the type of audits that an organisation may experience. It has identified that the benefits of auditing have the potential to far outweigh any administrative burden that the auditing process may impose. Fears and concerns around external audits should not be transposed to the employer-initiated auditing context, as the latter can bring significant benefit to the long-term functioning of an organisation. As we have outlined, employee engagement is a crucial step for employer-initiated audits. Organisations of all sizes should embrace the prospect of positive change that audits can deliver.

If your organisation wants to take a proactive approach to assessment, PCS recommends you consider a culture and effectiveness audit. This will involve an assessment of your organisation’s vision and values, systems and structures, capabilities and credibilities, to identify gaps in your organisation and build a robust people strategy.


  1. PriceWaterhouseCoopers, Maximising the value of Internal Audit: who dares wins p 8.
  2. John Howe and Tess Hardy, ‘Business Responses to Fair Work Ombudsman Compliance Activities’, (Centre for Employment and Labour Relations Law, Melbourne Law School, January 2017) p 3.

A harsh reality: considering “harshness” in unfair dismissal cases

Therese MacDermott, Consultant and Michael Starkey, Associate

The focus of much of the debate on the merits of a dismissal is usually the substantive and procedural fairness of the termination. Often, our litmus test is whether there was a valid reason to terminate, and whether the termination was carried out in a procedurally fair manner. However, the legislative regime governing unfair dismissals has three dimensions – not only whether the termination was unjust or unreasonable, but also whether it was harsh.

In this article we explore the terrain of “harshness”, and we distinguish this criterion from the other dimensions of dismissal to give you a clearer picture of what factors are pertinent to a finding that a termination is unfair in the circumstances. A consideration of these factors can then be incorporated into your organisation’s processes for managing situations requiring a disciplinary response, in a manner that minimises the risk of a successful unfair dismissal claim.

What constitutes harshness?

The range of mitigating circumstances that may be relevant to the question of harshness is much broader than one might expect, and includes not only the circumstances of an employee’s employment (for example, their work history and disciplinary or performance record), but also their personal circumstances (such as their age, mental health or likelihood of successfully finding alternative employment based on their skill set). Harshness is also relevant in that it extends to situations where termination of employment is a disproportionate response to the conduct in question. The Fair Work Commission (“FWC”) is vested with a wide discretion in its consideration of harshness, as the legislation specifies a wide range of criteria that can be considered, including “any other matters that the FWC considers relevant”.1

While factors such as an employee’s personal circumstances are not matters that employers have any direct control over, they are matters about which an employer can make enquiries prior to imposing any disciplinary sanctions. It is prudent for an employer to ask an employee in broad terms to provide any information the employee believes may be relevant to the employer’s deliberations regarding the most appropriate form of disciplinary action to take (for example, as part of a “show cause” process). This allows an employee to draw to the employer’s attention any factors of a personal nature before the disciplinary process is finalised, and ensures that the employer is fully appraised of relevant matters, before opting for termination as the appropriate disciplinary response.

On the other hand, there are matters relevant to the question of harshness that are clearly within the employer’s control. One of the regular points that emerges in disputed terminations is the question of whether there was a culture that tolerated certain conduct, or where there has been inconsistency in enforcing compliance with standards of behaviour.

Case study: Swearing at work

The cases that deal with swearing at work offer a good illustration of the types of mitigating circumstances that should factor into an employer’s deliberations before a decision is made to terminate employment for conduct related reasons. The cases show that the presence of mitigating factors does not always make termination inappropriate. Rather, it is a question of showing that due consideration has been given to such factors. In some situations, the mitigating circumstances will not be sufficient to weigh against termination as the appropriate disciplinary outcome.

The FWC has observed that:

…one can readily hypothesise a case where the breach of a swearing policy would not be seen by any reasonable person as justifying dismissal. In a workplace where swearing occurs without warnings or disciplinary response, selecting a single instance of swearing by a stressed employee with long and unblemished service as a basis for dismissal would be seen by any reasonable person as harsh and unfair”.2

In this context, the failure of the employer to respond to prior occurrences of similar behaviour, the one-off nature of the incident, the long and unblemished record of the employee, and the employee’s “stressed” condition all constituted mitigating factors which, when given appropriate weight, should have led the employer to a disciplinary outcome other than termination. In a similar case, while the use of profanities and threats of violence by a mine worker constituted a valid reason for dismissal, the employer was found to have not given the mitigating circumstances sufficient consideration, which resulted in the termination being harsh in the circumstances.3 Those circumstances included the fact that the incident was a “one-off”, that the worker had an eleven-year record of service with no known prior disciplinary action, and was suffering personal health difficulties. In addition, the Full Bench of the FWC observed that language of this type had been allowed to be used without criticism by the employer for many years.

In another case, the FWC ordered the reinstatement of an employee who had seven years of unblemished service, and whose skills and age (50) meant he had limited prospects of finding alternative work.4 The incident leading to termination arose when certain employees took protected industrial action. The applicant left a message on the mobile phone of another employee, who he believed not to have participated in the protected industrial action, and said “Hi mate, just wondering if you are working. If you are, you’re a f…ing scab”. A complaint was made, the employer investigated the matter, and then summarily dismissed the employee for misconduct. The FWC found that while the employee’s conduct was a valid reason for termination, the dismissal was a disproportionate response to the conduct, which was out of character for the employee, appeared to be inconsistent with disciplinary action taken in other similar matters, and did not have due regard to the employee’s previous good service and work performance.

Key takeaways

  • An employer retains a discretion to decide on the most appropriate disciplinary sanction, but this needs to be viewed not only through the lens of a valid reason and a fair process, but also whether the sanction will be judged to be harsh, taking into account all the relevant circumstances.
  • Where termination is being considered, the process necessitates a thorough consideration of the circumstances of an employee’s employment history, any previous misconduct and the employee’s personal circumstances.
  • It is also necessary to consider past disciplinary responses of the organisation to similar incidents. This does not mean that it is never possible to change the culture where conduct has been tolerated in the past, but it does mean that an employer needs to communicate its attitude to such conduct, before it seeks to “make an example” of a particular individual. Clear policy documentation and tailored training are therefore required.
  • Proactively making enquiries and seeking input from an employee will avoid mitigating factors only coming to light when the parties are before the FWC, and will hopefully prevent what might otherwise be a fair and reasonable termination from being tarnished.

  1. Fair Work Act 2009 (Cth) s 387.
  2. B, C and D v Australian Postal Corporation [2013] FWCFB 6191 at [65].
  3. Illawarra Coal Holdings Pty Ltd T/A South32 v Matthew Gosek [2018] FWCFB 1829.
  4. Treen v Allwater – Adelaide Services Alliance [2016] FWC 2737.

The face of your organisation: managing the social media presence of your employees

Chris Oliver, Director 

A quick review of both traditional and new forms of media provides a clear indication that employers of all sizes continue to struggle with the intersection between the interests of the business, and an employee’s use of social media. So why does this struggle continue? While its form is undoubtedly still expanding, the existence of social media is not new. Indeed, it has been part of the social and work landscape now for over a decade. Employers also have experience in overcoming the challenges presented by the introduction into the workplace of earlier waves of technology advancement, such as photocopiers, facsimile machines, email, the internet and mobile phones.

Perhaps, at least for some, the continued struggle arises as a consequence of the way in which resistance by employees to the imposition of limits on their social media usage is framed – that their posts are “private”, were undertaken outside of work hours, and involve the exercise of their perceived “right” to freedom of speech. By confronting these potential roadblocks, employers are better placed to manage the risks with greater confidence, and give their employees greater clarity as to what is and is not acceptable social media usage. After all, prevention is always better than the cure.

Private” posts

Despite the common reliance on this claim, an employee’s use of social media rarely remains in any sort of “private” domain. It ceases to be private and intersects with the interests of the employer in a range of situations, including:

  • where material is posted that directly ‘tags’ or references one or more co-workers;
  • using a social media account which expressly identifies their employer;
  • posting material which names or otherwise identifies the employer (including posting material in which the employee is wearing the uniform of the employer);
  • posting material which is inconsistent with the ‘values’ or objectives of the employer’s business;
  • posting material of an inappropriate nature to co-workers; and
  • posting that involves the use of devices or other facilities supplied by the employer.

Undertaken outside working hours

The rights of an employer to manage out of hours conduct was addressed by the Full Bench of the then Australian Industrial Relations Commission in Rose v Telstra1, where the Commission confirmed that employers do have the capacity to regulate the out of hours conduct of their employees where the conduct:

  • viewed objectively, is likely to cause serious damage to the relationship between the employer and the employee;
  • damages the employer’s interests; or
  • is incompatible with the employee’s duties as an employee.

Freedom of speech

It may come as a surprise to many, but there is currently no legal “right” to freedom of speech in Australia. The common response that an employee is exercising their freedom of speech in the context of social media was addressed in the unfair dismissal case of Little v Credit Corporate Group Limited2, where the Fair Work Commission stated “…the Applicant is perfectly entitled to have his personal opinions, but he is not entitled to disclose them to the ‘world at large’ where to do so would reflect poorly on the Company and/or damage its reputation and viability”.

While in a disciplinary context these three dimensions will ultimately be determined by the specific circumstances, they also provide a framework in which to proactively manage the use of social media and to make clear to employees what is expected of them.

Proactive Management

An important foundation in the proactive management of the social media activity of employees is the publishing of, training in, and promotion of, an appropriate and comprehensive Social Media Policy. While the design of the policy will often depend on a variety of issues (including the identified values and culture of the organisation, the industry in which the organisation operates and the organisation’s business objectives as they develop over time), all Social Media Policies need to cover off on a number of key elements. These include:

  • the scope and application of the policy (including situations where the employee is using the employer’s computer, internet facilities, network, or time);
  • the expectation that an employee should not assume that content is private, or will be kept private, irrespective of the privacy settings the employee has chosen;
  • clearly stating that the employee will be held responsible for anything they post on social media, including if that content is shared or reposted by others;
  • content should always be considered permanent and searchable – irrespective of the social media platform on which it is placed;
  • convey to employees that they should always assume that they can be identified and their association with the employer will be apparent to anyone who reads the content; and
  • clearly identifying the range of content and activities that is unacceptable, including specific examples wherever possible.

Managing Social Media Fallout

There are at least two key focal points to dealing with social media fallout – managing the employee as the publisher of the material, and managing the impact of the publication on others.

Managing the publisher

The manner in which an employer will deal with a current employee whose use of social media has collided with the interests of the company will generally depend on a range of factors, including the circumstances in which the post or publication occurred (such as the time of day, use of company resources or otherwise, and content), and any terms of the employee’s contract of employment. These factors also include not only the existence of an appropriate Social Media policy, but the extent to which the company can demonstrate that the employee was made aware of the policy and trained in its terms.

Assuming the employer intends to deal with the social media post as a potential disciplinary matter, it is essential that:

  • the employer keeps a cool head, and avoids making any assumptions (including with respect to the employee’s intentions or the imputed messaging behind ambiguous posts);
  • any relevant circumstances are promptly and thoroughly investigated;
  • the employer adopts a process that ensures the employee is given a reasonable opportunity to both understand the concerns, and to respond to them; and
  • all of the circumstances are taken into consideration before deciding what, if any, disciplinary action should follow.

Caution should be exercised to ensure that time pressures and the emotional drain of managing the outward looking aspects of the situation (eg dealing with any third party or external communications), does not inappropriately impact on the manner and process for addressing the conduct of the individual employee in question.

Managing everyone else

In the face of social media fallout, the common and arguably natural reaction of many employers is to respond quickly, and aggressively. While each situation needs to be assessed on its merits, organisations should at least pause and reflect on the following:

  • why am I responding, and what do I hope to achieve by doing so?;
  • who am I responding to, and will my means and messaging reach them?;
  • in a fast-paced news cycle, by the time I get around to responding, will the rest of the world have moved on?;
  • am I comfortable with the flow on effects of my response? Am I helping close things out or am I just giving this oxygen?;
  • am I maintaining or surrendering the moral high ground in both the terms and manner of my proposed response?; and
  • can I turn this into a positive?

Key takeaways

  • It is vital that employers are clear with employees as to an organisation’s values and expectations, and that they remain engaged on an ongoing basis with the proactive management of social media usage by employees.
  • Employers should reflect on the circumstances that may lie behind many of the more objectionable uses of social media, and assess whether the conduct may be a product of disappointed expectations and an individual’s perception of having not been fairly heard.
  • The access that employees have to a wide variety of platforms, which facilitate the widespread dissemination of intemperate comments, should encourage employers to have systems in place to address employee grievances in a prompt, reasonable and constructive manner.

  1. (1998) AIRC 1592.
  2. (2013) FWC 9642.

Under the spotlight: changes to labour hire licensing regimes

Chris Oliver, Director and Daniel McNamara, Graduate Associate

2018 has been a year of change in state-based labour hire licensing regimes. New reforms have imposed greater regulation on labour hire arrangements, with new requirements imposed on labour hire operators and those availing themselves of labour hire services. This article examines why labour hire has been a focus of regulation, overviews the recent legislative reforms in a number of states, as well as the potential for reforms in other jurisdictions and in the federal sphere. It also considers what changes organisations will need to implement to satisfy the requirements of the new licensing regimes.

Why is labour hire under the spotlight?

In recent years, a number of labour hire firms have engaged in non-compliant activities, including:

  • sham contracting (where an employer wrongfully classifies an employment arrangement as a contract for services);
  • phoenixing (the process of winding up a non-compliant company, and starting up a new company so as to avoid liability for past wrongdoings);
  • failing to meet obligations under the National Employment Standards, including breaches of maximum working hours, leave and termination requirements; and
  • breaching obligations under work health and safety and workers’ compensation legislation.

The Fair Work Ombudsman has prosecuted a number of labour hire operators in the Federal Court and Federal Circuit Court. An example of serious non-compliant conduct by a labour hire operator is the case of Fair Work Ombudsman v Greenan1. A Melbourne-based labour-hire operator, Mr Greenan, failed to pay a worker close to three months’ wages for work as a mechanic, amounting to approximately $7,066. The worker was of Pakistani origin, working in Australia on a Bridging Visa C, and was subsequently terminated from his position.

The Fair Work Ombudsman issued Mr Greenan with a Compliance Notice requiring him to back-pay the labour hire worker his outstanding wages. Mr Greenan failed to comply with the Compliance Notice and also failed to comply with basic record keeping obligations under the Fair Work Act 2009 (Cth) (the “FW Act”). As a result, the Court imposed a penalty of $10,800, and referred the matter to the Commonwealth Director of Public Prosecutions in respect of additional allegations that Mr Greenan fraudulently created invoices for the worker’s wages, when in reality, these payments were put to the purchase of Mr Greenan’s new car.

Increased scrutiny of and concerns about labour hire arrangements have contributed to an environment where state governments have taken up the option of greater regulation of the industry, in order to minimise the potential for worker exploitation.

Where are the changes occurring?

The changes have occurred in Queensland and South Australia.

Queensland

Queensland is the most recent state to legislate in relation to labour hire, with the introduction of the Labour Hire Licensing Act 2017 (Qld) (the “Queensland legislation”) which came into operation on 16 April 2018.

The purpose of the Queensland legislation, which is accompanied by a set of regulations, is to establish a licensing scheme for labour hire operators.

Notably, the Queensland legislation:

  • prohibits unlicensed labour hire services from operating in Queensland, with a maximum penalty of over $130,000 or three years’ imprisonment for individuals, and penalties of over $378,000 for corporations;
  • prohibits individuals without a reasonable excuse from using the services of an unlicensed provider, subject to the same penalties as those imposed on unlicensed labour hire operators as above; and
  • requires labour hire organisations, in order to successfully obtain and maintain a license, to show that they are a financially viable business, run by a “fit and proper person” (including that the person has no past convictions for relevant criminal offences and has not been involved in phoenixing), and have a history of compliance with relevant legislation, including work health and safety, tax, superannuation and anti-discrimination laws.

The Queensland legislation excludes high-income earners (using the FW Act indexed threshold), individual executives of corporate providers, in-house employees provided temporarily (such as secondment arrangements), and certain internal labour hire arrangements.

South Australia

South Australia was the first Australian state to have a labour hire licensing scheme, through the Labour Hire Licensing Act 2017 (SA) (the “South Australian Legislation”). This scheme operates similarly to the Queensland regime, including the “fit and proper person” requirement and prohibitions on both conducting and engaging in unlicensed labour hire services. The pecuniary penalties for individuals are slightly higher in this jurisdiction, with a maximum of $140,000 for individuals, and $400,000 for corporations if found to be operating without a license. An additional feature of the South Australian legislation is that it attempts to prohibit the advertising of labour hire services without a license, with a maximum penalty of $30,000. This may have a preventive effect in seeking to protect workers prior to labour hire offences occurring.

Those exempt from the application of the South Australian legislation are group training organisations “registered in South Australia on the Group Training Organisation National Register” who supply “apprentices or trainees to do work for other persons”, and those granted an exemption by the Commissioner for Consumer Affairs. The South Australian legislation and regulations are otherwise silent as to who is exempted.

Will future changes occur?

The next state that is likely to be affected by a revamped labour hire framework is Victoria. At present, labour hire legislation is currently before the Victorian upper house after the passing of the Labour Hire Licensing Bill (Vic) by the Legislative Assembly on 8 February 2018.

If this legislation is successfully passed in its current form, it will establish a Labour Hire Licensing Authority, in addition to an Office of Labour Hire Licensing Commissioner. Although many of the provisions are similar to the Queensland and South Australian legislation (including a “fit and proper person” test, the liability of people/organisations who provide and use labour hire services, and prohibitions on advertising unlicensed labour hire), and any possible exemptions are not as yet clear, given that the proposed regulations have not been published at this stage.

Additionally, numerous commentators have anticipated that Western Australia may introduce labour hire legislation in the future.

Who is affected?

The new regimes apply to both “providers” and those who “enter into arrangements” of labour hire. Generally speaking the new regimes apply to “a person … if, in the course of carrying on a business, the person supplies to another person a worker to do work”. This applies irrespective of:

  • whether or not the worker is an employee of the provider;
  • whether or not a contract is entered into between the worker and the provider, or between the provider and the person to whom the worker is supplied;
  • whether the worker is supplied by the provider to another person directly or indirectly through one or more agents or intermediaries; and
  • whether the work done by the worker is under the control of the provider, the person to whom the worker is supplied or another person”.

The new legislation also applies to entities that “enter into arrangements” with labour hire providers. In the states which have already passed labour hire licensing legislation, engaging in such conduct can result in an identical penalty to that imposed on “providers” who breach their legislative obligation.

The new labour hire licensing schemes may affect businesses that are based outside Queensland or South Australia where the legislation has been introduced. Given the application of the new legislation to both providers and customers of labour hire, an Australian business that is not itself based in the jurisdiction but engages the services of a labour hire provider based in one of these states, may come within the scope of the new schemes.

The Prospect of Federal Regulation?

Some states have called upon the Federal Government to implement a national regulatory response to govern labour hire arrangements. Those states that have introduced legislation have noted their intention for the legislation to act as an impetus for a national scheme. The primary legislative response to date on the part of the Federal Government relating to worker exploitation, has been the introduction of the Fair Work (Protecting Vulnerable Workers) Act 2017 (Cth), which targets certain types of businesses, and increases penalties for non-compliance.

Union organisations (including the Australian Council for Trade Unions) have called for a national labour hire framework, with ACTU Secretary Sally McManus in March 2018 calling for an overhaul of the current labour hire system in Australia. However, the current government has asserted that legislating with respect to labour hire licensing regimes should remain a matter to be dealt with by the states.

Key takeaways

  • Employers who are based in Queensland, South Australia or who engage in labour hire in those states must ensure that they are complying with the new state labour hire licensing legislation.
  • If you are a labour hire provider in a state with labour hire licensing legislation, it is important that you meet the obligations under that legislation. This includes meeting various statutory requirements and obtaining a license within a specified period.
  • Entities that enter into arrangements with labour hire providers in states with labour hire licensing legislation have a responsibility to ensure that the provider is licensed. This may be best achieved by requesting proof of the provider’s license prior to engaging in a labour hire arrangement or imposing a contractual requirement that the provider warrant that it holds the appropriate licences.

  1. [2017] FCCA 2059.

Lights, camera, action: lawful industrial action and how employers can respond

Sam Cahill, Associate and Rohan Burn, Graduate Associate

For an employer, the process of negotiating or re-negotiating an enterprise agreement can give rise to a number of strategic challenges. This is especially true when an employer is required to deal with industrial action, or the threat of industrial action. In this article, we look at the steps that must be taken by employees (or their representatives) before employees can lawfully take industrial action in respect of a proposed enterprise agreement. We also highlight an employer’s legal options, in this context, for preventing or minimising any undue or unlawful disruptions to its business in response to proposed industrial action.

What is “industrial action”?

Industrial action is unlawful, unless it is “protected industrial action”. Under the Fair Work Act 2009 (Cth) (“the FW Act”), the term includes a stoppage of work (ie, a conventional “strike”) as well as a ban, limitation or restriction on the performance of work and/or the performance of work by an employee in a manner different from that in which it is customarily performed.

Industrial action does not include actions that are authorised by the employer or by the terms of the applicable enterprise agreement. For example, in the recent case of ABCC v CFMMEU (The Nine Brisbane Sites Case) (No 3)1, union officials would regularly conduct meetings at the employer’s work-site, which had the effect of delaying the start of work. Sometimes the meetings forced the cancellation of concrete pouring. The Court found that this action did not amount to “industrial action”, as the meetings were authorised by a clause in the relevant enterprise agreement.

When employees can take “employee claim action”?

This article focuses on the category of protected industrial action called “employee claim action”. This is where employees take industrial action in support of claims for a proposed enterprise agreement.

Employees may only take employee claim action in circumstances where:

  • the existing enterprise agreement (if any) has passed its nominal expiry date;
  • the parties have commenced bargaining for a new enterprise agreement; and
  • the employees (or their union) are genuinely trying to reach an agreement with the employer.

If employees attempt to take industrial action in other circumstances, the employer may apply to the Federal Court or Federal Circuit Court for an injunction to stop or remedy the effects of the industrial action.

Protected action ballots

If a union wishes to initiate industrial action, it must first apply to the Fair Work Commission (“FWC”) for a “protected action ballot order”. The application must specify the group of employees who are to be balloted and the question (or questions) to be put to those employees, including the nature of the proposed industrial action.

A recent FWC decision has confirmed that the question put to employees in a protected action ballot can be framed permissively and give scope for a range of “proposed industrial action”. However, if the subsequent written notice of the action provided to the employer is insufficiently specific, this may enable the employer to apply successfully to the FWC for an order to stop the industrial action.

Responding to an application for a protected action ballot order

If a union makes an application to the FWC for a protected action ballot order, it must provide the employer with a copy of the application documents. This gives the employer an opportunity to consider how it wishes to respond to the application.

An employer may oppose an application for a protected action ballot order in circumstances where the application does not meet the requirements under the FW Act. For example, the employer may be able to oppose an application on the basis that:

  • the employees (or union) have not been genuinely trying to reach an agreement regarding the matters in question;
  • a question that is proposed to be put to the employees does not relate to “industrial action”, as defined by the FW Act (for example, where a question relates only to the wearing of union clothing); and
  • the claims being supported by the proposed industrial action are not about “permitted matters” (eg, terms that do not relate to the relationship between the employer and its employees).

If the employer has grounds for opposing the application, it can make submissions when the application is heard before the FWC, or it can contact the union and require that the application be withdrawn or amended.

Conduct of a protected action ballot

If the FWC makes a protected action ballot order, the ballot must be conducted by a “protected action ballot agent”, as specified in the order. This will usually be the Australian Electoral Commission.

The ballot agent is required to work with the employer and employees to compile a “roll of voters”. This gives the employer an opportunity to ensure that it does not contain individuals who are not eligible to vote on the proposed industrial action. An employee will only be eligible to be included on the roll of voters if he or she will be covered by the proposed enterprise agreement and is included in the group of employees specified in the order.

After voting closes, the ballot agent must make a written declaration of the results and advise the parties (and the FWC) accordingly. If the proposed industrial action is approved (ie, if at least 50% of eligible employees cast a vote and more than 50% of those employees voted in favour of industrial action), the employees may (and may only) take the proposed industrial action during the 30-day period starting on the date of the declaration of the results of the ballot, unless this period is extended by the FWC.

Notice of industrial action

A union must provide the employer with three days’ notice in writing of any industrial action, including the nature of the action and the days on which the action will start and finish.

In the recent case of National Patient Transport Pty Ltd T/A National Patient Transport v United Voice; Australian Nursing and Midwifery Federation 2, the union gave notice to the employer stating that employees would be taking industrial action that would involve “stopping work for up to ten minutes duration on each occasion to explain the campaign-related material to patients, their families and the public”.

The FWC found it was not strictly a requirement of the FW Act for a notice to prescribe the commencement and conclusion times of the industrial action, as generally the rationale for industrial action is to cause a degree of inconvenience and expense to the employer. However, there must be enough specificity to avoid legal uncertainty and litigation over whether the action taken subsequent to the notice is protected industrial action.

When assessing the adequacy of a notice, the FWC must consider all the circumstances, and examine the wording of the notice in its industrial context. The person receiving the notice must be able to understand what action is proposed, and when it will occur so that they have an opportunity to consider their position and respond appropriately. The adequacy of the notice may depend on the nature of the employer’s operations, including their size, the number of locations, the time at which the action is to occur, and the number of employees potentially taking the industrial action.

Depending on the type of industrial action, the employer may be prohibited from paying employees while they are taking industrial action.

Options for responding to industrial action

An employer may have a number of options in responding to protected industrial action by employees.

Employer response action

The employer may take its own industrial action against the employees, called “employer response action”. This is usually in the form of a “lockout”. This is where the employer prevents the relevant part of its workforce from attending work. If taking employer response action, the employer must provide written notice to the employee union, and take all reasonable steps to notify employees of the lock out. A recent FWC Full Bench decision held that employees do not need to be paid, and are not entitled to accrue annual or long service leave during a lockout.

Stand down

The employer may exercise its right under the FW Act to stand down employees in circumstances where employees cannot “usefully be employed” due to industrial action. The employees may be stood down without pay.

Reduce pay (if partial work ban)

The FW Act provides that, if an employee is engaged in industrial action that is a “partial work ban” (ie, industrial action that falls short of a total stoppage of work), the employer will have the option of reducing the employee’s rate of pay. This must be done in accordance with the requirements set out in the Act. For all other types of industrial action, the employer will be prohibited from paying the employees during the period of industrial action.

Dispute resolution

The employer may apply to the FWC to deal with the dispute. This application can be made by one union without the agreement of any other unions involved. However, for the FWC to arbitrate the dispute (i.e. make a binding determination on the dispute), the parties must agree on the terms on which the arbitration is to take place.

Seek an order to suspend or terminate industrial action

The employer may apply to the FWC for an order to suspend or terminate the protected industrial action. The FWC can make such an order if it is satisfied that:

  • the industrial action is causing significant harm to the employer;
  • the industrial action is creating a risk to health and safety or damaging the economy; or
  • the suspension of the industrial action will assist in resolving the dispute.

Key takeaways

  • Any industrial action and any responsive action must comply with the legal technicalities of the FW Act.
  •  Employers have a range of options to consider in responding to industrial action (or threatened industrial action), and should utilise these options to minimise unnecessary disruption to their workforce and to support their commercial objectives.
  • The most appropriate action for an employer to take will depend on the employer’s overall strategy, and should take into account range of factors beyond the legal technicalities of the FW Act (such as the impact of any industrial action or responsive action on the reputation of the organisation).

1   [2018] FCA 564.
2   [2018] FWC 2068.

The Journey to High Performance

Sam Cahill, Associate

This article is based on a webinar presented by Joydeep Hor on 14 February 2018

The majority of business leaders aspire to instil a culture of high performance. However, the notion of organisational culture, and especially high-performance culture, can be difficult to define, let alone apply to the running of an organisation. In this article, we look at the key components of high-performance culture and how business leaders can assess and improve the performance culture in their organisation. This is the beginning of the journey to high performance.

High-performance culture

It is tempting to assess an organisation’s culture by reference to incidents or themes that recur within the organisation. For example, an organisation may spend a great deal of time dealing with disciplinary issues or instigating performance management. This approach is problematic, as it can lead to an undue focus on these negative aspects of people management, rather than the creation of a high-performance culture.

Instead, we advocate a more proactive and holistic approach, which involves a structured framework for assessing and improving an organisation’s performance culture. An example is the “V-S-C” framework, where performance culture is measured against three key metrics:

  • “Vision and Values”
  • “Systems and Structures” and
  • “Capability and Credibility”.

What follows is an analysis of each of these metrics of performance culture, in order to give a clearer picture of the practical steps that business leaders can take to develop and maintain a high-performance culture.

Vision and Values

A good starting point for assessing an organisation’s culture is to start with some simple questions:

  • What is the organisation’s vision or over-riding objective? What is it trying to achieve?
  • What are the values of the organisation? What are the things that management “stands for” or “stands against”?
  • How does the organisation articulate its vision and values? Are employees aware of the organisation’s vision and values? Do they share them?

For performance culture to be given the weight that it warrants, it is essential for an organisation to have a clearly-articulated commitment to high performance as part of its mission statement (or vision). It enables an organisation to articulate its aspirations in terms of a commitment to high performance, and to not limit this simply to the meeting of basic targets or revenue benchmarks.

It is essential for an organisation to spend time in articulating its vision in terms of performance. If time is spent on articulating and formalising vision and values, it makes it easier to communicate this to employees and ensure their performance is in sync. It is also important for the values of the organisation to be embraced and reinforced by individual managers, as this will enhance buy-in from employees.

However, organisations must also recognise that, at best, vision and values are only the beginning. Once an organisation’s vision and values have been articulated, they need to be actioned by management and continuously reinforced. The “lived experience” of the vision means that employees are more likely to adhere to it, and also facilitates the achievement of high performance. Finally, an organisation’s vision and values are not set in stone. Constant reflection on an organisation’s vision and values is an important part of a high-performance culture.

Systems and Structures

An organisation’s systems and structures are the building blocks of its approach to human resources and people management. The articulation of the organisation’s vision and values must be carried through in its systems and structures. When assessing an organisation against this metric, it is important to ask:

  • How does the organisation recruit and induct new employees?
  • Does the organisation have written employment contracts, position descriptions and internal policies? What do these documents say about working for the organisation?
  • What is the organisation’s reporting structure? What are the opportunities for career progression?
  • How does the organisation provide employees with feedback on their performance? Does it have a system of performance appraisal?

By way of example, staff inductions provide an opportunity to explain the rights and responsibilities of employees and the organisation, promote an understanding of the organisation and its history, inform employees about points of contact within the organisation and communicate policies and procedures.

One aspect of staff inductions that some organisations may overlook is scheduling a conversation between a valued and successful employee and a new employee or employees. This discussion is an authentic and powerful tool designed to promote not only individual success, but also instil a sense of drive to achieve the organisation’s desired outcome.

Similarly, an organisation’s employment contracts, position descriptions and internal policies provide an opportunity for an organisation to infuse its systems and structures with its vision and values. Employment contracts and position descriptions can be used to set clear expectations regarding performance, while policies can be used to articulate what it means to work for the organisation and what is required of employees. The framing of the vision and values in such documentation ensures that they have been formally recorded and that staff understand what it is the business aspires to achieve.

Credibility and Capability

The best systems and structures will only be as good as the leaders who are responsible for implementing them. This means that, in order to have a high-performance culture, an organisation must have managers and supervisors with the capacity to lead and inspire high performance.

When assessing an organisation against this metric, it is important to ask:

  • Do managers and supervisors espouse and uphold the values of the organisation? Do they talk the talk? Do they walk the talk?
  • Do managers and supervisors conduct themselves in a manner that resonates with the organisation’s high-performance mantra?
  • Do leaders have the necessary “credibility” to execute the organisation’s vision and values?
  • Does the organisation take steps to monitor its leaders to ensure that this is the case?

A good leader will have traits and values that reflect the broader vision and values of the organisation. Moreover, a good leader will be able to build rapport with employees and encourage them to adopt those same traits and values. This enables and promotes a strong alignment between the objectives and values of the organisation and the personal aspirations of employees.

To build rapport and inspire employees, leaders must have credibility. One way of testing against this metric is to gain an understanding of how the organisation’s leaders are perceived by employees, either through dedicated group discussion sessions or using survey tools. If employees see that leaders are walking the talk, this can enhance the performance culture within the organisation.

Culture audits

An effective starting point in the journey to high performance is to conduct a culture audit. This enables an organisation to gain an understanding of its performance culture as its stands. It can help an organisation understand the strengths and weaknesses of its performance culture and the areas in which there is scope for improvement. Using the simple V-S-C framework, an organisation can use the findings of an audit to embark on a journey towards a culture of high performance. At the same time, this approach can highlight where problems exist, and therefore prevent costly and time-consuming people management issues that can impact on the effective and productive functioning of the organisation.

PCS regularly conducts culture audits and works with organisations nationally and globally to implement a high-performance culture in their organisations. Please contact [email protected] or any of the PCS Directors for further information.

 

Not a word: confidentiality provisions in employment contracts, settlement agreements and non-disclosure agreements

Therese MacDermott, Consultant

Roseanna Smith, Graduate Associate

Recent publicity around sexual harassment and other forms of misconduct in the workplace has brought into the spotlight the extent to which confidentiality provisions in employment contracts, settlement agreements and standalone non-disclosure agreements are used to keep such conduct out of the public domain. While a litigated dispute will mean the issues are aired in a public forum, few matters are in fact litigated, and settlement on confidential terms is a widespread practice.

Competing factors come into play surrounding the extent to which such matters become public knowledge. On the one hand, parties to a dispute are at liberty to settle a dispute on terms that they can agree on, including a provision that makes the fact that the conduct occurred confidential and not something to be disclosed by any party to the agreement. On the other hand, serious forms of wrongdoing and/or systemic practices at a workplace may be of genuine concern to the broader community, and hence a valid subject of public interest.

This article considers recent developments in this area, including the proceedings seeking to enforce the obligations under a deed of release signed by a former employee of the Seven Network, and the recent campaign that banks should waive their rights to enforce non-disclosure agreements against former employees who may wish to give evidence to the Royal Commission into Misconduct in the Banking, Superannuation and Finance Services Industry (the “Banking Royal Commission”).

How non-disclosure terms operates in an employment context

Confidentiality clauses

Most employment contracts contain confidentiality provisions that limit the extent to which employees can disclose confidential information during, and after the conclusion of, the employment relationship. In addition to contract law principles, equitable obligations of confidentiality are also applicable. The type of information which is generally defined as being “confidential information” in an employment contract includes intellectual property, business plans, trade secrets, client lists, research and commercially sensitive information. These types of clauses, however, are not general regarded as preventing employees from disclosing sexual harassment and misconduct in the workplace given that they are aimed at governing very specific types of information that are confidential to the employer, and not principally directly to the manner in which a workplace may operate.

Settlement Agreements

Settlement agreements commonly make provision for tailored confidentiality clauses, as well as non-disclosure terms. This will often be a standard practice where an end to an employment relationship is negotiated between the parties. This could include circumstances where the relationship comes to an end on the basis of established misconduct or other inappropriate behaviour.

In terms of confidentiality, settlement agreements can impose specific obligations regarding the confidentiality of information, processes or contacts the employee or executive in question had access to during their employment. Such clauses are likely to be more particularised than a standard clause in an employment contract. In addition, the terms of a settlement agreement may protect the confidentiality of:

  1. the negotiations leading up to a settlement,
  2. the terms of the agreement; and
  3. any conduct that led to the entering into of the settlement agreement.

A well-drafted agreement will not only include a non-disclosure clause, but also contain a release which ensures that the parties cannot pursue any further claims arising out of the subject matter of the settlement agreement.

Non-disclosure agreements

It is less common in the Australian employment context to have a standalone non-disclosure agreement (“NDA”). However, such an agreement may be entered into where the parties agree to keep confidential certain matters either of a sensitive commercial nature or where wrongdoing may have occurred, but no other matters requiring settlement terms are involved. Such an agreement might also be used regarding commercially sensitive information where contractors or consultants are engaged.

Obligations to disclose wrongdoing

In the case of sexual harassment that amounts to, for example, sexual assault, an employer may be subject to a positive obligation to report such conduct if the employer has “knowledge or belief” of the commission of a “serious indictable offence”, defined as an offence which is punishable by a sentence of imprisonment of five years or more. Offences of that nature could include sexual assault.

In New South Wales, section 316(1) of the Crimes Act 1900 (“Crimes Act”) provides that it is a criminal offence for an individual or a corporate entity to fail, without reasonable excuse, to report a “serious indictable offence”. Relevant to establishing the requisite state of knowledge or belief, is an awareness that the offence has, or may have, been committed, or the holding or withholding of information which might be of material assistance in securing the apprehension or conviction of the offender. The application of the Crimes Act’s obligation to legal practitioners has always been a contentious area, given client confidentiality.

Whistleblowers

Misconduct in the workplace may also come to light by way of a whistle-blower disclosing events or past misconduct. The Corporations Act 2001 (Cth) (the “Corporations Act”) provides some protection for whistle-blowers, as it makes it a criminal offence to victimise a whistleblower or terminate their employment based on the disclosure of certain information. The Corporations Act provides protection from any civil or criminal liability for making the disclosure and no contractual remedy or other right may be exercised against a person on the basis of the disclosure.

However, the protection offered by the Corporations Act is narrow, as it only protects current officers, employees, contractors and employees of contractors. Its protections do not extend to individuals who may have had their employment recently terminated. Further, the relevant disclosure can only be made to the Australian Securities & Investments Commission or the company’s auditor, director, secretary or senior manager or a person authorised to receive whistleblower disclosures. Finally, the legislative provisions only apply when the whistleblower has reasonable grounds to suspect that the company, or an officer or employee of the company, has or may have contravened the Corporations Act.

Intervention by the courts

The role of the courts in overseeing agreements that have been reached in respect of non-disclosure, was considered in the case of Seven Network (Operations) Ltd v Harrison.1

Ms Harrison was employed by the Seven Network as an executive assistant. During her employment she formed a consensual relationship with the Chief Executive Officer of the Seven Network. The relationship ended in 2014, and around a similar time as an investigation into Ms Harrison’s expenses on the company credit card. On 1 August 2014, Ms Harrison entered into a deed with the Seven Network (the “First Deed”). The First Deed effected a role transfer of Ms Harrison within the company and an undertaking to repay $14,000.00 worth of expenses back to the company. Ms Harrison was ultimately terminated from her employment in late 2014 by way of a deed of release between Ms Harrison and the Seven Network (the “>strong>Second Deed”). The Second Deed imposed strict obligations on Ms Harrison that included, among other things, non-disclosure of information regarding the relationship with the Chief Executive Officer and that Ms Harrison discharge Seven Network from any claims that she could have against them.

In March 2015, the Seven Network suspended payments to Ms Harrison under the Second Deed on the basis that Ms Harrison had refused to comply with her obligation under the deed to return certain company property when requested to do so by the Seven Network.

Ms Harrison alleged that the suspension of payments amounted to a repudiation of the deed. By way of accepting the repudiation, in May 2015 Ms Harrison lodged a complaint with the Australian Human Rights Commission (“AHRC”) alleging sexual harassment, discrimination and victimisation.

Between November and December 2016, Ms Harrison shared information publicly about her relationship with the Chief Executive Officer and aired various grievances she had in relation to her former employer. In December 2016, a media release that detailed confidential information contained in the Second Deed and the facts that led to the creation of the two deeds was released. In response, the Seven Network applied to the Supreme Court for an interlocutory injunction to restrain conduct it alleged was in breach of the deeds.

The Court found that the Seven Network’s suspension of payments was a response to Ms Harrison’s refusal to return company property and as such did not amount to a breach of the Second Deed. Further the Court noted that even if this was a breach, the obligation of non-disclosure was not conditional on the Seven Network’s performance of their obligations.

In response, Ms Harrison argued that her case was a matter of public interest, arguing that the enforcement of the non-disclosure obligation would stifle freedom of speech and the open reporting of matters of public interest. She also claimed that the dispute was in the public interest as it involved the interests of the Seven Network and its shareholders, both in a financial sense and because the dispute could shed light on the way in which the Network conducted its corporate governance.

While it was accepted by the Court that the case involved an element of public notoriety and by virtue of that, was in the public interest, the Supreme Court held that the Seven Network’s legitimate interests under the agreement outweighed any public interest in the matter. The Court made clear that where private parties enter into agreements freely, courts will be reluctant to interfere. Hence the court granted the Seven Network an interlocutory injunction preventing any disclosures that came within the terms of the agreement, stating that “if parties, for valuable consideration, with their eyes open, contract that a particular thing shall not be done… the thing shall not be done”2. The Court emphasised that it requires “compelling discretionary reasons” to refuse to grant injunctive relief where a breach of a negative covenant has occurred 3.

Is there too much cover-up?

The recent commencement of the Royal Commission has re-ignited discussion around the use of non- disclosure terms in agreements to prevent parties revealing misconduct or other wrongdoing.

The Royal Commission has been set up to, among other things, inquire into misconduct and questionable behaviour within the finance sector. One difficulty the Royal Commission faces is that many victims or witnesses to misconduct are subject to non-disclosure terms. As a consequence, unless the Royal Commission exercises its power to secure information or the corresponding party to the agreements waive their rights, these individuals face the prospect of proceedings alleging a contractual breach should they choose to disclose information to the Royal Commission.

Prior to the start of the Royal Commission, the Australian Council of Trade Unions (“ACTU”) launched a campaign seeking to secure agreement that banks and other financial institutions would waive their rights with respect to disclosure of information relevant to the Royal Commission. The “Big Four” Australian banks have confirmed that customers and former employees who had signed an agreement as part of a settlement are free to give evidence to the Royal Commission, without the threat of legal action.

Limitations, however, have been placed on the waiver. In particular, the Commonwealth Bank has signaled that the waiver is limited to disclosures to the Royal Commission, and has warned that disclosures outside of this forum may still potentially give rise to a breach.

Outside the Big 4, the position of other financial institutions, including regional banks and life insurance companies, is not as clear. In response to this, the Commissioner, the Honourable Kenneth Madison Hayne AC QC, reminded financial institutions of the Commission’s power to secure information:

“First, the commission would be very likely indeed to exercise its compulsory powers to secure the information in question…. Second, the very fact that an institution sought to inhibit or prevent the disclosure of the information would excite the closest attention, not only to the lawfulness of that conduct but also what were the institution’s motives for seeking to prevent the commission from having that information.”4

Take away

While recent developments show that courts may be reluctant to interfere with private agreements that have been made for consideration, caution needs to be exercised. There is still the risk that the information may eventually come to light at some point in time, and the enforcement of strict non-disclosure obligations where wrongdoing is systemic can have considerable reputational consequences.

Factors to consider in framing non-disclosure terms include:

  1. What are the legitimate interests of the parties that should be protected?;
  2. Would a non-disclosure term simply conceal a culture that will do long term damage to the organisation?; and
  3. Does the agreement contemplate limited circumstances where disclosure may be permissible to further the public interest?

PCS strongly recommends that you seek advice when preparing documents containing confidentiality obligations.


1 [2017] NSWSC 129.
2 Otis Elevator Co Pty Ltd v Nolan [2007] at 30 referencing Doherty v Allman (1878) 3 App Cas 709, 720.
3 Otis Elevator Co Pty Ltd v Nolan [2007] at 17.
4 Sue Lannin, ‘What we did (or didn’t) find out about the banking royal commission’, ABC News (online), 12 January 2018