We are often asked if the conduct of an employee gives rise to sufficiently serious grounds so as to amount to serious misconduct for which the employer can instantly dismiss the employee without notice. The honest answer is that the law does not prescribe a precise definition of the meaning of serious misconduct, although several regimes including the common law, the contract of employment and the Fair Work legislation may assist in determining whether an employee’s conduct justifies instant dismissal. Whether serious misconduct exists is therefore entirely dependent upon the circumstances of the particular case, although as the Courts have reaffirmed, will need to involve something more than mere negligence, error of judgment or an innocent mistake.
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. 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 order for an employer to summarily dismiss an employee, it must be able to show that the employee has breached either an express or implied term of their employment contract, or demonstrated by their actions an intention not to be bound by those terms and secondly that the breach is so serious that is demonstrates the incompatibility or fundamental impediment to the continuation of the relationship. It is however very difficult to be precise as to the degree of seriousness of the misconduct that would then justify summary termination.
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) (“FWR”) 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.
In the context of the FWA provisions concerning unfair dismissal, an employee who positively engages in any of the above behaviours may put themselves at risk of immediate dismissal by their employer. It is important to note, however, that the FWR provides that the meaning of serious misconduct “includes” the items listed above, however, they are not exhaustive and other circumstances may give rise to a proper basis to summarily terminate an employee.
It is notable that at common law and under the FWA, the level of misconduct required to justify summary termination is very high and must in some manner demonstrate objectively, an intention of the employee no longer to be bound by the employment contract. However, as with any contractual provisions, the contract of employment may specifically spell out additional circumstances where an employer has the right to instantly dismiss an employee. These matters may not necessarily meet the requirements of the common law test. Additional matters may include, for example, conduct that in the opinion of the employer is inappropriate or contrary to its values; the failure to comply with a lawful direction; conduct that in the reasonable opinion of the employer damages its reputation.
This particular issue was recently considered by the New South Wales Supreme Court of Appeal in Bartlett v Australia & New Zealand Banking Group Ltd [2016] NSWCA 30 (“Bartlett”) which upheld an appeal by an employee for damages for breach of contract, finding that he was wrongfully dismissed.
By way of background, Mr Bartlett was employed in the position of NSW Director of the Institutional Property Group at ANZ. On 20 June 2012, Mr Bartlett was one of ten ANZ employees to receive an email in the following terms: “No more lending. We are closed for business. Do not tell the market or our clients.”On 3 July 2012 a journalist based in Brisbane who wrote for the Australian Financial Review received a copy of the email in the post. The journalist advised ANZ. At the conclusion of an investigation by ANZ which included a forensic examination of the handwriting on the envelope in which the email was sent, ANZ was of the opinion that Mr Bartlett had leaked the email.
In terminating Mr Bartlett’s employment, ANZ relied upon a contractual provision in his employment contract which purported to provide ANZ with the power to summarily dismiss him based on ANZ’s opinion that the employee committed serious misconduct. The relevant clause contained in the contract stated as follows:
“ANZ may terminate your employment at any time, without notice, if, in the opinion of ANZ, you engage in serious misconduct.”
Based on the opinion formed by ANZ that Mr Bartlett had sent the letter, ANZ summarily terminated his employment.
Mr Bartlett sued ANZ for breach of contract alleging that he was not guilty of serious misconduct. He claimed damages in respect of lost remuneration and bonuses, calculated on the basis that he would have worked for ANZ for a further ten years. He claimed that ANZ could only terminate the contract if it could prove that he was actually guilty of serious misconduct, or alternatively, if ANZ could terminate on the basis of its opinion that he was guilty of serious misconduct, such opinion had to be reasonable, correct, formed in good faith and in compliance with various ANZ policies. The Court, at first instance, rejected Mr Bartlett’s claim and found the words “in the opinion” were “not gratuitous”. The only relevant factor was whether ANZ was of the opinion that he was guilty of serious misconduct.
The Court of Appeal, having reconsidered the issue, found that the summary dismissal clause was required to be read in the context of the employment contract as a whole. Therefore, it followed that ANZ was required to establish that the employee had in fact engaged in serious misconduct before it could dismiss. In Bartlett, the Court of Appeal further observed that even if the employment contract had been perfectly drafted in a way that allowed ANZ to dismiss instantly based on its opinion, this was nevertheless subject to ANZ acting reasonably in forming its opinion. The court of Appeal concluded that the basis upon which the ANZ formed its opinion was not sufficient as they had insufficient evidence that Mr Bartlett had in fact engaged in the conduct in question.
As is abundantly clear, the meaning of serious misconduct in an employment context is not black and white, and the common law and FWA regime which are helpful starting points, do not provide determinative assistance on the issue. In this respect, carefully drafted employment contracts, including consideration of appropriate termination clauses in the context of the overall contract is key. Even where an employment contract purports to go further than the common law or FWA regime as to what will constitute serious misconduct, employers should take steps to ensure that any decision to terminate based on serious misconduct is reached in a reasonable manner. The failure to do so may mean that the employee in question could commence proceedings for, amongst other things, unfair dismissal and breach of contract for wrongful termination.
If you wish to discuss any aspect of this article or require specialist advice or assistance in relation to an employment law issue, please do not hesitate to contact us.
This alert is not intended to constitute, and should not be treated as, legal advice.