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Termination of Employment: Key Learnings for Employers

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18 Aug 2017

The termination of the employment relationship is one of the most challenging and frequently litigated areas in employment law. Unsurprisingly, the first half of 2017 has been no exception. There have been numerous cases go before our judicial system which have raised nuanced, and in some respects untested questions of law to be determined. In this legal briefing, we provide a recap on three exceptionally informative and instructive cases for employers, each dealing in their own way with a unique and distinct issue in relation to termination of employment.

The Enforceability of Post-Employment Obligations

Crowe Horwath (Aust) Pty Ltd v Loone [2017] VSCA 181

In a recent Victorian Supreme Court of Appeal decision, it was found that restraint of trade covenants in an employment contract were unenforceable due to the employer’s repudiatory conduct, which the employee accepted in bringing the employment to an end, before setting up a business in competition with his former employer.

In the decision, the Court rejected financial services provider Crowe Horwath Australia Pty Ltd's (“Crowe Horwath”) appeal, upholding the trial judge’s ruling that the employer breached its employment contract with a senior accountant when it made changes to a bonus payment scheme, and significantly changed his role within the firm. In this particular case, the employee concerned, Mr Loone was employment by Crowe Horwath pursuant to a written employment contract as Managing Principal of Crowe Horwath’s Launceston accounting office. Crowe Horwath was acquired by the Findex Group, who then commenced restructuring the business. As part of this restructure, Crowe Horwath significantly changed Mr Loone’s duties, such that he argued he was no longer the Managing Principal.

Relevantly, Mr Loone had contributed significantly to the successful acquisition of another accounting firm in 2014 and 2015. In addition, Mr Loone believed the associated profits from the acquisition should have been considered as part of calculating his yearly bonus. However, on 1 July 2017, Mr Loone was informed that those profits would be excluded from the calculation of the bonus pool for the Launceston office. In light of these circumstances, and substantial changes to his position, Mr Loone considered that the actions of Crowe Horwath failed to consider his efforts in procuring the sale, and breached the bonus clause in his contract, which required CHA to take into account his personal efforts in determining the bonus payable to him. He considered the breaches as fundamental and constituting a repudiation by Crowe Horwath of his contract of employment and terminated his employment on the basis of repudiatory breach on the part of his employer.

This decision is significant because, among other things, the employment contract contained a restraint of trade clause that prevented Mr Loone from soliciting Crowe Horwath’s clients, and from conducting any business similar to or in competition with Crowe Horwath within a 5km radius of its premises for a period of 12 months following termination. In seeking to enforce the restraint clauses, Crowe Horwath filed proceedings. However, the Court held that despite the fact, for the most part, that the restraint of trade clause was enforceable, and Mr Loone’s employment contract provided his employer absolute discretion to determine the bonus, the contract required Crowe Horwath to consider Mr Loone’s personal performance and the failure to include the acquisition in Mr Loone’s bonus calculation, meant it had failed to consider his performance in beach of a fundamental obligation under the contract. In this regard, the Court said that although the authorities provided different jurisdictional explanations, there was a "consistent trend" showing that when an employer repudiates a contract of employment and it is accepted by the employee, the employer can no longer enforce a restraint of trade clause.

As such, the Court of Appeal agreed with the decision of the trial judge to deny discretionary relief to Crowe Horwath, finding that post-employment restraints are rarely, if ever, enforceable where employment has ended as a result of an employee accepting the employer's repudiation of the employment contract. As a result of the decision, the Court determined that the restraint of trade clause did not survive the termination of Mr Loone’s employment and were of no ongoing application to him.

This decision provides a significant lesson to employers who wish to protect customer and supplier connections, goodwill and prevent competition by an employee after the employment terminates. It demonstrates that employers will be unable to rely on contractual restraint of trade covenants in circumstances where the employer has conducted itself in a manner that repudiates the contract of employment, and the employee accepts the repudiation in bringing the employment to an end. As such, in order to best protect the business’s proprietary interests, it is essential that employers:

  • Understand the requirements imposed by the contract of employment prior to making any changes to an employee’s circumstances; and
  • do not engage in any conduct giving rise to a repudiation of the employment contract.

 

Avoiding “Hollow Consultation” in a Redundancy Context

Belinda Lee v Mission Australia [2017] FWC 3557

In certain circumstances, employers are required to consult with employees before terminating their employment for reasons of redundancy. The obligation to consult arises where employees are covered by a modern award or other industrial instrument requiring consultation in relation to workplace change. Employers are obliged to engage with affected employees to ascertain the impact of the proposed changes on them and undertake genuine efforts to redeployment affected employees. This obligation to consult is often overlooked or given very little weight by employers. However, recent decisions regarding the failure to consult have made it clear that the failure to consult notwithstanding any other factors may render the decision to terminate unfair. Relevantly, in a recent Fair Work Commission decision, Commissioner Johns cautioned employers against hollow attempts at consultation and said that, “it cannot be conducted for mere show.”

In this particular case, which subsequently resolved through private settlement, Commissioner Johns granted an urgent interim injunction to Ms Lee, to prevent the Applicant’s employer, Mission Australia, from retrenching her. Mission Australia had written to the Applicant informing her that she was going to be made redundant following the withdrawal of government funding, which meant her role was no longer viable for the organisation. The employee concerned, who was on maternity leave at the time, wrote to her employer questioning the decision, given the reasons provided and efforts by the business to redeploy her within the organisation seemed “unclear”. In this regard, the Australian Services Union (“ASU”) on behalf of the employee, requested that the termination and redeployment period be deferred given the employee was on maternity leave and would be disadvantaged in securing alternative employment while on leave. When Mission Australia refused to address the employee’s concerns, the ASU sought urgent relief to restrain the employer from effecting the termination. Commissioner Johns granted the injunction and said Mission Australia needed to first address some fundamental process issues, including whether it had engaged in meaningful consultation, had done it all could to mitigate any adverse impacts of the redundancy and had made reasonable redeployment efforts. To this end, Commissioner Johns observed:

"If the consultation does not provide [the program manager] with an opportunity to influence the decision it is of no value and the requirement to consult and the consultation is hollow.”

In this particular case, Commissioner Johns highlighted the importance of making interim orders. He said that in the circumstances failing the injunction, the employee’s proposed dismissal could only be undone after significant litigation and there would be "some complexity attached to unscrambling the egg."

After Commissioner Johns’ decision was handed down, the matter settled privately.

In a decision handed down last week, the FWC has confirmed its approach to this issue. In David Conlon v Sandlewood Aboriginal Projects Limited [2017] FWC 3186 (2 August 2017), the FWC held that despite the fact that there was absolutely no position that could be offered to an employee made redundant, and effectively accepted that consultation would not have changed the outcome, the failure to properly consult rendered the termination unfair.

These decisions serve as an important reminder to employers that consultation about workplace change must occur prior to any termination for reasons of redundancy. In addition, the consultation must be genuine, meaningful and provide the employee with an opportunity to influence the outcome before any final decision is made.

What Does Serious Misconduct Actually Mean?

Steven Biffin v XL Express Pty Ltd T/A XL Express [2017] FWC 3702

The right to terminate an employee’s employment immediately on the basis that the employee has engaged in serious misconduct, is often an attractive option for employers dealing with a difficult employee. However, what exactly is meant by “serious misconduct”? At common law, the Courts have held that serious misconduct must necessarily have traits of “wrongfulness, impropriety or unlawfulness motivated by premeditated or intentional design or obstinate indifference to the consequences of one’s actions”: See for example O’Connor v Palmer and Others (No.1) (1959) 1 FLR 397. Similarly, the Fair Work Act 2009 (Cth) (“FWA”) provides that employees cannot be terminated in circumstances that are harsh, unjust and unreasonable. A dismissal may not be considered harsh unjust and unreasonable if an employee has engaged in misconduct sufficiently serious to justify instant dismissal. The FWA simply notes that serious misconduct should be given its “ordinary meaning”. Some further guidance as to the meaning of serious misconduct can be found in rule 1.07 of the Fair Work Regulations 2009 (Cth) which provides that serious misconduct includes the following:

  • wilful or deliberate behaviour by an employee that is inconsistent with the continuation of the contract of employment;
  • conduct that causes serious or imminent risk to the health and safety of a person or the reputation, viability or profitability of the employer's business;
  • the employee, in the course of employment, engaging in theft, fraud or assault;
  • the employee being intoxicated at work; or
  • the employee refusing to carry out a lawful and reasonable instruction that is consistent with the employee's contract of employment.

Ultimately, however, whether a course of conduct will be regarded as serious misconduct will ultimately turn on the nature of the particular conduct in question and not its consequences.

In a recent decision of the Fair Work Commission, Deputy President Asbury expressed “surprise” at the HR practices of a major courier company, XL Express. The company dismissed a depot manager who was partially responsible for a breach of a worldwide embargo on the new JK Rowling book and who was the subject of unfounded bullying allegations, was found to constitute unfair dismissal resulting in a significant compensatory award to the employee.

In this particular case, XL Express dismissed its long-serving depot manager for alleged serious misconduct in November 2016, during a meeting at which its HR manager told him that by delivering a consignment of embargoed JK Rowling books a day early, resulted in financial damage to the Company and damaged its reputation. In addition, at the meeting the HR manager made bullying allegations against the employee of which he was previously unaware.  The HR manager informed the employee that Workplace Health and Safety Queensland had conducted an investigation and concluded that he was a bully. These statements were inaccurate and found by the FWC to be false.

In concluding that the dismissal was unfair, Deputy President Asbury ordering XL Express to pay the employee $48,400 in lost wages and $6,560 in related superannuation contributions, and described the termination as "surprising" given the HR resources at the company’s disposal.

Interestingly, while the Commission accepted that the depot manager engaged in misconduct because he was responsible for the embargoed delivery, Deputy President Asbury said he was not solely at fault and that alone this did not provide a valid reason for dismissal after a 24-year unblemished work tenure. As such, Deputy President Asbury described the termination meeting a “fait accompli” given that the employee had no opportunity whatsoever to defend himself.

This case is an important reminder to employers that dismissal for serious misconduct can have significant consequences for employees (and employers when used inappropriately), and therefore ought to be relied upon with caution and only where there is sufficient evidence and a proper basis to warrant summary dismissal.

If you wish to discuss any aspect of this article or require specialist advice or assistance in relation to your employment relations framework, please do not hesitate to contact us.

This alert is not intended to constitute, and should not be treated as, legal advice.