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Serious Misconduct: when is it safe to terminate without notice?

1 December 2015


Serious Misconduct: when is it safe to terminate without notice?

Kathryn Dent, Director and Beverley Triegaardt, Associate

It’s a situation no employer hopes they’ll have to deal with, but just in case you must, here’s what you need to need to know about instantly or summarily dismissing an employee due to serious misconduct.

WHAT IS SERIOUS MISCONDUCT? 

The definition of serious misconduct under the Fair Work Regulations 2009 (“the Regulations”) expands on the common law definition as including: 

  • wilful or deliberate behaviour by an employee that is inconsistent with the continuation of the contract of employment; or 
  • conduct that causes serious and imminent risk to the health and safety of a person or the reputation, viability or profitability of the employer’s business. 

Depending on the circumstance, examples of serious misconduct include: 

  • theft; 
  • fraud; 
  • assault; 
  • intoxication at work; 
  • refusal to carry out lawful and reasonable instructions

Where an employee engages in serious misconduct, an employer is at common law entitled to summarily dismiss them, which in other words deprives the employee of any notice or payment in lieu. Many written contracts of employment will set out grounds. The employer is permitted to summarily dismiss as long as it can demonstrate that the employee has engaged in serious misconduct, serious enough to warrant instant dismissal.

Commonly, employers question what exactly that constitutes sufficient evidence for establishing the conduct occurred and how serious the conduct must be to avoid to the risks that can follow from terminating employment without notice. In short, an employer’s exposure to the legal and non legal risks will be minimal if:

  • the employer has complied with any relevant contractual obligations, policies and procedures;
  • the employer has observed procedural fairness particularly in circumstances where the employee has access to the Fair Work Act 2009 (Cth) (“the Fair Work Act”) unfair dismissal jurisdiction, which includes an investigation (in circumstances where the conduct/allegations of misconduct may be factually in dispute);
  • the employee has wilfully or deliberately engaged in conduct that is inconsistent with the continuation of their employment;
  • the employer is reasonably satisfied that, on the balance of probabilities, the conduct occurred (we discuss this in further detail in this article);
  • the employer acts without delay (the argument being that if the conduct was so serious to terminate without notice it should be done as proximate to the offence as possible); and
  • no other form of disciplinary action is appropriate.

What are the risks?

Terminating an employee’s employment without providing or paying them their notice can have both legal and non-legal repercussions for the employer.

Legal Risks

Summary dismissal can result in exposure to the following types of claims:

Unfair dismissal claim

An employee who falls within the jurisdictional threshold can claim under the Fair Work Act that the termination of their employment was either substantively or procedurally unfair, or both, if it was harsh, unjust or unreasonable. If the employee is successful, reinstatement, reemployment or up to six months’ compensation may be awarded and in some cases backpay.

General protections claim

Employees may claim under the Fair Work Act that their summary dismissal constituted adverse action because they exercised a protected workplace right or that they were discriminated against. For this reason, it is vital that the employer has evidence to dispel the claim as they bear the onus of proof. Compensation is uncapped in these types of claims and penalties may also be imposed on companies and individuals involved in the breaches.

Unlawful discrimination claim

Similar to general protection claims, unlawful discrimination claims may be pursued if an employee believes (and can prove) the dismissal was causally connected to a protected characteristic including but not limited to their race, gender, marital status or political affiliations. An employer can be liable for up to $100,000 compensation in the jurisdiction of NSW. (Federally damages are uncapped)

Breach of contract claim

If an employee can establish their conduct did not amount to “serious misconduct” then an employer may be liable for breach of contract relating to the termination of employment. Recently, an employer was ordered to pay its ex-senior executive US$2.65 million and AUD$6,425 in lost entitlements and damages when it failed to attend court to defend a breach of contract claim made by the executive after he was summarily dismissed (and thus there was no evidence to support the allegation, as pleaded, that the employee was guilty of the serious misconduct relied upon to terminate).1

Non Legal Risks

The range of non-legal risks include:

Media attention

If an employer’s actions in dismissing an employee reveal questionable or harsh practices, or reveal the inner workings and personalities within an organisation, then resultant litigation can impact adversely on that employer’s short and long term profitability if its reputation amongst its client base, prospective clients and employees and other stakeholders is damaged. In some circumstances it may be best to avoid public litigation and the scrutiny of the press by settling a matter privately. However, depending on the nature of the conduct, it may also be in an employer’s interest to show to both internal and external stakeholders the firm stance they will take in respect of certain conduct to reinforce cultural and behavioural expectations.

Impact on other employees

The serious misconduct of an employee can impact on the productivity of other employees. Workplace gossip and speculation can divert their attention away from important tasks at hand, cultivate mistrust and unease in the workplace and reduce team morale.

Punishment that fits the crime

The impact of summary dismissal on an employee is significant as not only does it mean they are dismissed with no period of notice or payment in lieu of notice but the nature of the termination is such that it can adversely impact upon their reputation, career development and ability to obtain alternative employment. Therefore, it is only fair that the degree of certainty in the misconduct having occurred and the seriousness of the allegations are considered in tandem prior to instant dismissal. This is commonly referred to as applying the Briginshaw standard.

The Briginshaw test does not create a third standard of proof in addition to the criminal (i.e beyond reasonable doubt) and civil standards (i.e balance of probabilities), but rather, requires that the more serious the allegations and/or consequences arising from a finding, the stronger the proof (ie evidence of serious misconduct) should be. The Briginshaw test does not require the standard of proof in a criminal matter – employers do not need to go to that extent to prove serious misconduct occurred – but employers do need to be reasonably satisfied by evidence of sufficient weight and feel an actual persuasion based on the evidence at hand that, on the balance of probabilities, the misconduct occurred.

Accordingly, we recommend that in order to satisfy the Briginshaw standard, a prudent employer intending to summarily dismiss an employee for serious misconduct would ensure that they:

  • diligently investigate the allegations of serious misconduct (deploying an appropriate level of resources having regard to the factual circumstances and legal risks);
  • have regard to the seriousness of the allegations and the consequences of accepting them as truth; and
  • are sufficiently persuaded that the misconduct more than likely occurred, having considered whether the sufficiency of the proof was commensurate with the seriousness of the allegations.

Is it sufficiently serious?

Serious misconduct is not defined by way of examples but can be characterised as conduct that damages the employment relationship to the point of no return. Summary dismissal may be warranted in the following circumstances, although each case must be considered on its own merits.

Employee is convicted of a criminal offence

An employee’s criminal conduct, if sufficiently serious and relevant to the employment, can jeopardise an employer’s trust and confidence in an employee which is an essential foundation of the employment relationship and can therefore be grounds for summary dismissal. Employers should be mindful that until criminal charges are proven (resulting in a conviction) summary dismissal may not be warranted. For this reason, it is recommended that employers specify in their contract and policies that criminal charges (as opposed to a conviction) can be grounds for instant dismissal.

Safety breaches

In the case of Singh v Fenner2, a mill operator was witnessed by his workmates intentionally placing his hand over a machine that was rotating at high speed and placing him at risk of serious injury. The Fair Work Commission (“FWC”) considered the summary dismissal of the employee as a justified (“not inappropriate”) response to his actions considering the potential damage that could have been caused by the employee’s reckless action (both in terms of serious injury and “significant cost resulting from disruption to the production process”). In this case, the employer was successful in defending the unfair dismissal application because it involved a serious safety breach. Not every safety breach will justify termination though and the individual circumstances must be considered.

Conduct that is not unlawful but has the capacity to bring the employer into serious disrepute

Misconduct that involves an employer being publicly associated with the actions or views of an employee may be grounds for instant dismissal. In today’s age, employers may experience this in the form of offensive or careless use of social media by employees. This sort of misconduct must be dealt with carefully and with and in a procedurally fair manner as dismissal may not always be the proportionate response to the misconduct.

Drug / alcohol related conduct

Instant dismissal may be justified if an employee is impaired by alcohol or illicit substances such that they cannot responsibly or safely perform their duties or fulfil their obligations towards their employer. Furthermore, cases such as Toms v Harbour City Ferries Pty Limited [2015] FCAFC 35 have established that where an employer has a “zero tolerance” policy on drugs and alcohol and safety is paramount to the role the employee performs, returning a positive result in a drug test can be grounds for instant dismissal regardless of whether the employee appears intoxicated or impaired.

Dishonest conduct or theft

Dishonestly claiming personal expenses as business expenses may be grounds for summary dismissal. In Mohapatra v Acciona Energy Australia GlobalPty Ltd t/ as Acciona [2015] FWC 5976 the FWC agreed with the employer’s decision to summarily dismiss an employee after he made a number of unauthorised personal purchases on the company credit over a the course of a few months and dismissed the employee’s unfair dismissal application. Amongst the items were a blender, two Australia Day boxer shorts, a pair of gym shoes and shorts, a cooler bag, vitamins, a heater and 14 massages. The FWC observed that “it is such an extreme case, having regard to the level of education, responsibility and seniority of the employee” that the behaviour, “(e)ven if motivated by a lack of judgment and understanding” “has to be regarded as serious misconduct”.

Bankruptcy

In certain professions such as accounting or where an employee holds an executive role or directorship, it is an inherent requirement of the job to be adept at handling finances. An employee’s insolvency may be deemed serious misconduct as it can be indicative of a lack financial proficiency required for a role and also because the negative stigma attached to insolvency can be particularly damaging to an employer’s credibility and reputation. This is even more so where the employee is very senior or recognised as a public figure. In those circumstances, termination on the grounds of serious misconduct where the employee becomes insolvent, especially where such a term forms part of the employee’s contract, may be justified.

What can you do to prevent serious misconduct?

Hope for the best but prepare for the worst. Give your organisation the best chance of success against serious misconduct occurring by taking heed of these preventative measures.

Induction and training

Set your organisation’s expectations for standards of professional conduct by providing new starters with a proper induction and training on policies around work health and safety, workplace behaviour and codes of conduct.

Contracts and policies

Not only do contractual clauses and policies serve as forewarnings to employees (and are therefore advisable) but they can assist to swiftly resolve termination disputes particularly where the categories of serious misconduct are set out.

Assess your workplace culture

A culture of tolerance for wrongdoing can weaken an employer’s position when allegations of serious misconduct arise. Seek to find innovative ways to reward positive behaviours in your workplace and encourage staff at all levels to speak out in the face of questionable conduct.

What if it’s too late?

While the above measures may prevent serious misconduct from becoming an issue for your organisation, it is important to remember that an employer must deal with allegations of misconduct with a sense of seriousness and urgency, otherwise it risks being seen as affirming the employee’s continued employment. While termination may be upheld by a tribunal, it could be that termination with notice is seen, by the employer’s delay, as being the more appropriate outcome.

When faced with allegations of misconduct, follow your organisation’s policy for investigating the conduct and remain cognisant of the need for procedural fairness. This means putting all the allegations and evidence to the employee and providing them with a fair opportunity to respond. In some circumstances, a neutral third party is best engaged to investigate serious misconduct. This can also provide insurance for the employer if there is a risk of being perceived as biased.

Employers are well within their rights to terminate employment without providing notice where serious misconduct occurs. If your organisation would like to prevent serious misconduct occurring or safeguard against a summary dismissal being mishandled, please get in touch with the experienced team at PCS.


1. Coghill v Indochine Resources Pty Ltd (No 2) [2015] FCA 1030
2. Singh v Fenner (Australia) Pty Ltd [2015] FWC 5583 (25 August 2015)

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