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Monthly Update - Australian Labour & Employment

Monthly Update - Australian Labour & Employment

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MESSAGE FROM THE EDITOR

This month, we focus on three important decisions of the Full Federal Court and the New South Wales Court of Appeal. Firstly, the recent decision of the Full Federal Court in Sayed regarding the payment of penalties by employers gives employee litigants confidence that they can expect to recover penalties associated with breaches of the Fair Work Act 2009 (Cth) committed by their employer. We expect this decision to trigger increased employment litigation in Australia. Secondly, two recent decisions of the New South Wales Court of Appeal in Bartlett and McKeith are important as they clarify: (i) whether an employer needs objective evidence to substantiate an employee's summary dismissal (in Bartlett) and (ii) the circumstances in which an employer's statements and policies can be contractually binding, in this case, a promise to apply a redundancy policy (in McKeith).

HOT OFF THE BENCH—DECISIONS OF INTEREST FROM THE AUSTRALIAN COURTS

Penalties Payable to Employee Litigants

Sayed v Construction, Forestry, Mining and Energy Union [2015] FCAFC 4

Facts

Mr Sayed was employed on a fixed-term contract as an organiser for the Construction, Forestry, Mining and Energy Union (the "CFMEU"). The applicant was formerly a member of the "Socialist Alliance", a socialist political organisation.

During Mr Sayed's employment, a complaint was made about him "bagging" AWU officials to AWU members during an assignment at Pilbara, Western Australia. These complaints were made known to the CFMEU, which subsequently had a number of discussions with Mr Sayed. Mr Sayed attended a meeting in Sydney on Thursday 18 July 2013 to discuss the complaints and was questioned on his degree of involvement with the Socialist Alliance. At this meeting Mr Sayed denied being a member of the Socialist Alliance. He was then redeployed to the Queensland branch of the respondent to continue working as an organiser.

The CFMEU was subsequently made aware of material on the internet about Mr Sayed's involvement with the Socialist Alliance and a posting on Thursday 18 July 2013 on Mr Sayed's Facebook page stating that "when you think you know smone find out got buncha rats around you!" [sic]. This raised two concerns for the CFMEU, that Mr Sayed had not been truthful during the meeting on Thursday 18 July 2013 and that the reference to "buncha rats" was a reference to his managers of the CFMEU. As a result, a letter was sent suspending the applicant from his position on full pay with immediate effect and requiring him to show cause as to why his employment should not be terminated. After a meeting with the respondent, the applicant's employment was terminated with all entitlements paid out to the applicant in full under his fixed term contract.

First Instance

Mr Sayed filed a claim in the Federal Court of Australia alleging that the respondent's conduct constituted "adverse action" under s 342 of the Fair Work Act 2009 (Cth) (the "FWA") and accordingly, a breach of s 351 of the FWA. In her judgment, Justice Mortimer found that the CFMEU breached s 351 of the FWA and had taken adverse action against the applicant because of his political opinion. Accordingly, Her Honour ordered that the respondent pay the applicant $3,000 in compensation under s 545(2)(b) of the FWA for distress and humiliation caused by the contraventions and $36,984.16 less tax, as compensation for loss of income caused by the termination of his employment.

Her Honour then considered written submissions from the parties in relation to whether the pecuniary penalties should be imposed on the respondent. On this issue, Her Honour made four orders. The first three orders declared that the respondent pay penalties in specified sums for breach of s 351 of the FWA and the fourth order required the penalties to be paid to the Commonwealth. Her Honour considered that the applicant would receive a windfall if the respondent's penalty was to be paid to the applicant. This was said to be contrary to the intent of the FWA, which requires claimants to prove their losses or damage in order to obtain an entitlement to compensation.

Appeal to the Full Federal Court

On 30 April 2015, the applicant (now unrepresented) filed an appeal against the fourth order of the primary judge, seeking an order that the penalties be paid to him as opposed to the Commonwealth. The Full Court allowed the applicant's appeal, ordering that the penalties imposed on the respondent, which totalled $45,000, be paid to the applicant, not the Commonwealth.

The Full Court reasoned that the primary judge's focus on the question of whether the applicant would be granted a "windfall" led to an error in reasoning. The Full Court said that the primary judge overlooked some important features of Part 4 of the FWA.

The Full Court first examined the legislative history of the FWA. Particular reference was made to s546 of the FWA, which "directly authorised 'a person affected by the contravention'—not just any person—to bring an enforcement proceeding". Accordingly the Full Court reasoned that, in the ordinary course, if a proceeding for contravention of s 351 of the FWA was brought by a public official (for example, the Fair Work Ombudsman), the penalty would be paid to the Commonwealth. If it was brought by a union, the penalty would be paid to the union and if it was brought by an individual, the penalty would be paid to the individual as a "particular person" under the FWA.

The Full Court then considered the concept of the "usual order" under the FWA, which is reflected in the Explanatory Memorandum of the FWA, which allowed payment of the penalty to the individual or organisation applying for the penalty. On this point, the Full Court relied on a number of early cases which articulated the concept of "usual order". In particular, the Full Court relied upon the reasoning of Justice Gray in Plancor Pty Ltd v Liquor, Hospitality and Miscellaneous Union (2008) 171 FCR 357 where Justice Gray concluded that "the notion that the order to pay a penalty to the initiating party could produce a windfall is a false notion. If the true purpose of such an order is taken into account, and the order is not regarded as compensatory in any way, any notion of a windfall disappears".

As a result, Mr Sayed obtained orders for the payment of $45,000 in penalties by the respondent.

Lessons for Employers

This decision will embolden potential employee litigants to pursue proceedings for significant breaches of the FWA in circumstances where there is insufficient loss and damage to warrant awards of substantial damages/compensation. It is particularly important for discrimination-related clams (where loss and damage flowing from a contravention can be difficult to establish). Employers

Employer Breached Contract by Sacking Employee Without Notice Where It Believed He Had Engaged in Serious Misconduct

Bartlett v Australia & New Zealand Banking Group Ltd [2016] NSWCA 30

The Court of Appeal of New South Wales in Bartlett v Australia & New Zealand Banking Group Ltd [2016] NSWCA 30 ("Bartlett") (7 March 2016) considered a clause in Mr Bartlett's employment contract which permitted ANZ to terminate his employment without notice if, in ANZ's opinion, he had engaged in serious misconduct.

Facts

ANZ was convinced that Mr Bartlett had printed and mailed a confidential internal email to a journalist at the Australian Financial Review. The email was sent to Mr Bartlett and a small number of other employees. ANZ satisfied itself that Mr Bartlett was the cause of the leak after it received evidence from a handwriting expert supporting this conclusion. The handwriting expert analysed the writing on the letter sent to the journalist and compared this against other samples or Mr Bartlett's writing produced by ANZ.

The handwriting expert's report contained a number of problematic assumptions, although it was sufficient for ANZ to satisfy itself that Mr Bartlett was the source of the leak. The Court was required to determine whether that was sufficient for ANZ to dismiss Mr Bartlett summarily or whether a greater degree of procedural fairness and satisfaction was required (Mr Bartlett wasn't given an opportunity to review and respond to the handwriting expert's report).  

The Court's Finding

The Court interpreted the termination clause strictly and in favour of Mr Bartlett. The Court preferred a reading of the termination clause that was consistent with another clause in the contract which contemplated termination only where the employee had engaged in a breach of his employment contract. The Court concluded that such a breach could only be established where Mr Bartlett had actually engaged in serious misconduct—and not where ANZ merely believed that he had engaged in such misconduct. The result was that, in order for the bank to summarily dismiss Mr Bartlett, it had to prove objectively that the employee had engaged in serious misconduct (and not just satisfy itself that he had done so).

The Court found a termination clause could sometimes provide for summary dismissal on the basis of the employer's opinion alone, provided that the employer, in holding the opinion, acted reasonably. That said, in interpreting the termination clause in Mr Bartlett's contract, the Court was mindful of the position at common law in Australia that an employer's right to summarily dismiss an employee is a narrow one. Accordingly, the Court adopted an interpretation of the termination clause which was beneficial to the employee.

In quantifying damages, the majority of the Court (MacFarlane and Meagher JJA) held that, had ANZ not breached the employment contract, it would have dismissed Mr Bartlett with notice pursuant to a separate termination clause in his contract. Accordingly, Mr Bartlett was entitled to payment in lieu of the notice period which would have applied (four months' salary).

Mr Bartlett claimed damages on the basis that he would not have been dismissed because he was a high-performing employee. The majority of the Court of Appeal considered that the opinion of the bank was relevant in determining the basis for calculating damages. The Court concluded that, although it may not have been a reasonable opinion, the bank had lost confidence in the employee as a result of its investigation and conclusion that he had leaked information to the media. Accordingly, it would have dismissed him.

Simpson JA, dissenting on this point, expressed some reservations. Her Honour held that there could be an implied duty that an employer is required to act reasonably in exercising its rights under an employment contract and that the law in Australia was not yet decided.

Lessons for Employers

The decision in Bartlett serves as a reminder to employers that a decision to dismiss an employee without notice needs to be very carefully considered. It is prudent to conduct a thorough investigation into misconduct and, in some circumstances, it may be advisable to provide the employee with notice of termination (or payment in lieu thereof). Employers also need to be mindful of contracts and policy documents which entitle employees to procedural fairness. In Bartlett, it was held that whether or not the company adhered to its policies may inform a court's view as to whether the company acted reasonably.

Court of Appeal Clarifies When an Employer's Policies and Promises Made in the Course of Employment Are Contractually Binding

McKeith v Royal Bank of Scotland Group plc; Royal Bank of Scotland Group plc v James [2016] NSWCA 36 

The Court of Appeal of New South Wales in McKeith v Royal Bank of Scotland Group PLC; Royal Bank of Scotland PLC v James [2016] NSWCA 36 ("McKeith") (9 March 2016) found that a promise made by an employer can, in some circumstances, be a contractually binding offer. It held that such an offer is capable of being accepted by an employee's continued employment. In McKeith, the promise was made by RBS to transferring employees of ABN AMRO when it acquired ABN AMRO. RBS promised that employee redundancies post-acquisition would be dealt with according to the ABN AMRO's existing policy on the topic. 

Facts 

In McKeith, Messrs James and McKeith, two former senior employees employed by the Australian operations of ABN AMRO, sued the Royal Bank of Scotland PLC ("RBS") for severance and ex gratia payments. In 2007, RBS acquired the Australian operations of the ABN AMRO Group. In 2008, RBS retrenched the two employees. Mr James was successful in the Supreme Court proceedings in obtaining judgment in his favour for both the severance and ex gratia payments (in the amount of $3 million plus interest). Mr McKeith failed to obtain judgment in his favour. RBS appealed against the judgment in Mr James' proceeding, and Mr McKeith appealed against the judgment in the proceeding he had brought. 

The Court of Appeal's Findings 

The Court of Appeal allowed both appeals, in part. It set the damages to be paid by RBS in the case of both employees to be the severance payment payable under the ABN AMRO redundancy policy, which was approximately $400,000 in both cases, plus interest, which represented a substantial reduction in the amount that RBS was required to pay Mr James. The Court of Appeal overturned the Supreme Court's finding that RBS's breach of ABN AMRO's redundancy policy had caused Mr James' loss of the ex gratia payment. 

Of more general relevance, both the Supreme Court and Court of Appeal held RBS to be bound by ABN AMRO's redundancy policy in a different way. Both employees' contracts contained a clause whereby they agreed to be bound by ABN AMRO's policies, as varied from time to time. The Court of Appeal overturned the Supreme Court's finding that the redundancy policy had been incorporated into the employees' contracts of employment by reference. In coming to this view, Tobias AJA (who delivered the leading judgment) found that the following may be relevant in determining whether a policy, or a part of a policy, is incorporated into a contract by reference:

 

  • The language used in the policy document—whether the language is contractual and imposes mutual guarantees, or it is merely guiding or inspirational;
  • The nature of the promises contained in the policy document—whether they are of a kind usually found in employment contracts (such as work health and safety issues) or reinforcing issues covered by statute law, or deal with issues not usually found in employment contracts;
  • The fact that the policy is provided to the employee or otherwise brought to his or her attention (including by way of an educational session);
  • If an employee is required to sign a policy document on some parts and not others, it may indicate that certain parts are incorporated whilst others are not;
  • It is not necessary for a policy document to be specifically referred to in the contract to be incorporated by reference; and
  • The employer's ability to vary the policy at any time is not, in itself, indicative that it is not incorporated into an employee's contract.

 

In McKeith, ABN AMRO's redundancy policy set out the procedure to be followed by human resources in dealing with all employees' redundancies. It included guidelines on certain severance and ex gratia payments ("exit payments"). Its contents were kept secret, although employees knew that such a policy existed. Messrs James and McKeith eventually came to know of the contents of the policy during the course of their employment as a result of the senior positions they held at ABN AMRO. Despite this, the Court of Appeal disagreed with the Supreme Court and concluded that the policy was not incorporated into the employees' contracts. In applying the principles and reaching this view, Tobias AJA particularly stressed the fact that the policy was secret to the employees at the time they entered into their employment contracts and that gratuitous exit payments are not of a nature generally dealt with in employment contracts. 

Nevertheless, the Court of Appeal found that RBS was bound by the redundancy policy in another way. As part of the takeover process, RBS had made statements that it would avoid laying off employees as much as possible and had guaranteed that ABN AMRO's redundancy policies would continue to apply to ABN AMRO's employees who were made redundant within two years of the acquisition. In determining whether these statements were contractually binding, the Court held that the issues to be considered were: 

 

  • Whether the promise was made by the employer;
  • Whether the promise was intended to have contractual effect;
  • Whether the promise was supported by consideration; and
  • Whether Messrs McKeith and James continued in their employment in reliance upon the promise. 

The first issue involved some difficulty on the facts of the case because it was not immediately clear from which entity, if any, the statements came. It was eventually resolved in favour of the employees. The employees had failed on the second issue in the Supreme Court proceedings but the Court of Appeal reversed the Supreme Court's finding on appeal. The Court agreed with the trial judge's proposition that statements of this kind could be mere statements of intention not capable of being contractual offers.  

However, the Court found that, in this case, they were intended to be contractual in effect. This was because of the strongly promissory language used in the statements ("guarantee" and "commitment") and evidence that RBS stood to gain commercially from the two very senior employees staying on throughout the acquisition process.

In relation to the third and final issues, the Court was satisfied that, by continuing in their employment in circumstances where they were not required to do so, Messrs McKeith and James had validly accepted the offer and provided consideration for RBS's promises. In reaching this view, the Court considered whether the employees had relied upon the offer in performing the action. The Court held that, on the facts, they did. The Court was strongly minded by the principle in Port Jackson Stevedoring Pty Ltd v Salmond & Spraggon (Aust) Pty Ltd (1977) 139 CLR 231 that, especially in a commercial context, "proof of the doing of what an offer seeks by a person who knows of its existence will in general constitute prima facie evidence of acceptance of the offer". 

Lessons for Employers  

Employers need to be aware of the criteria under which policies for employees can contractually impose obligations on the employer. Employers also need to be careful when making promissory statements to employees, where they stand to gain commercially, as they can become binding promises depending on the circumstances in which they are made. 

We thank associate Michael Whitbread and law clerks Joshua Kang and Jay Tseng for their assistance in the preparation of this Update.

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