Fair Work Australia recently delivered its first Full Bench decision on the provision in the small business code allowing summary dismissal for serious misconduct including theft, fraud, violence and serious OHS breaches.
In John Pinawin t/a RoseVi.Hair.Face.Body v Edwin Domingo  FWAFB 1359 the Full Bench accepted that the summary dismissal of a hairdresser whose work performance was adversely affected by his drug use was fair, but warned the same conclusion would not necessarily be reached in all cases of out-of-hours misconduct, an issue on which the Full Bench made some interesting observations that pertain to all employers.
RoseVi is a small hairdressing business and a small business employer within the meaning of section 23 of the Fair Work Act 2009.
Mr Domingo was employed by RoseVi from January 2007 to 23 May 2011. In May 2011, Mr and Mrs Pinawin, the owners of the salon, became concerned about Mr Domingo's ability to perform his role as a hairdresser. They were especially concerned about his unprofessional appearance and behavioural issues. On 9 May 2011, Mrs Pinawin informed Mr Domingo that she was dissatisfied with his attitude and asked him to begin looking for alternative employment.
In the early hours of 19 May 2011, Mr Domingo showed up at Mr and Mrs Pinawin's home, claiming that someone had poisoned him and that his apartment had been set alight. Mr and Mrs Pinawin accompanied him to his home, but found no evidence of a fire. On the same night, Mrs Pinawin overheard a conversation between Mr Domingo's cousin and his ex-partner, in which it was revealed that Mr Domingo had been using drugs over an extended period of time.
On 20 May 2011, Mr Domingo was admitted to Nepean Hospital. The hospital certified that he was unfit for work until 23 May 2011. In a letter dated 23 May 2011, Mr Pinawin informed Mr Domingo that his employment had been terminated with immediate effect. The reason given for the termination was that "the business was not doing so well due to the financial crisis".
On 3 June 2011 Mr Domingo lodged an unfair dismissal application with Fair Work Australia. In the course of proceedings on 29 November 2011, Mrs Pinawin gave evidence that the actual reason for the termination of Mr Domingo's employment was the risk of injury to a customer or employee from Mr Domingo's erratic behaviour and drug use. Senior Deputy President Drake decided that Mr Domingo was unfairly dismissed and awarded him compensation.
In these proceedings, RoseVi appealed her Honour's decision, contending that the reason for the termination was serious misconduct and, in making this submission, RoseVi had regard to the Small Business Fair Dismissal Code Checklist and the examples of conduct warranting summary dismissal in material found on the Fair Work Ombudsman's website.
The Full Bench concluded that the termination of Mr Domingo's employment was not an unfair dismissal because it was consistent with the Small Business Fair Dismissal Code.
The relevant paragraph of the Small Business Code allows summary dismissal for serious misconduct including theft, fraud, violence and serious breaches of OHS procedures. The Full Bench stated that there are two steps in the process of determining whether this section of the Code is satisfied.
First, it is necessary to consider whether, at the time of the dismissal, the employer believed that the employee's conduct was sufficiently serious to justify immediate dismissal.
Second, it is necessary to consider whether that belief was based on reasonable grounds. The second element involves the concept that the employer has conducted reasonable investigation into the matter. It is not necessary to determine whether the employer was correct in the belief that he/she held.
The Full Bench indicated that acting reasonably does not require a single course of action and different employers may approach the matter differently and form different conclusions, perhaps giving more benefit of the doubt, but still acting reasonably. According to the Full Bench, the legislation requires a consideration of whether the particular employer, in determining its course of action in relation to the employee at the time of dismissal, carried out a reasonable investigation and reached a reasonable conclusion in all the circumstances. These circumstance include the experience and resources of the employer concerned.
The question for the bench in this case was whether Mr and Mrs Pinawin believed on reasonable grounds that Mr Domingo's conduct was sufficiently serious to justify immediate dismissal.
The Full Bench felt that the evidence established that the employer did hold the belief that Mr Domingo's conduct justified immediate dismissal. The evidence demonstrated that Mr Domingo had displayed erratic behaviour at work and outside of work, which Mr and Mrs Pinawin had observed, including when he visited their home at 3am on 19 May. That evening, they were informed by his former partner that he'd been taking drugs, and the following day, they were notified that Mr Domingo had been admitted to hospital for reasons related to mental illness and drug use.
Further, prior to the dismissal, Mr and Mrs Pinawin filled in the Small Business Fair dismissal code checklist and ticked the box indicating that the dismissal was for serious misconduct, stating "Intoxication of Illegal Drugs" as the reason. They had also read the FWO's material on serious misconduct and, on that basis, didn't pay Mr Domingo in lieu of notice because they didn't consider themselves obliged to do so.
Having determined that the employer did hold the belief that the employee's conduct justified immediate dismissal, the court then considered whether this belief was based on reasonable grounds. The bench emphasised that generally, employers do not have the right to control or regulate an employee's out-of-hours conduct. However, where the employee's conduct outside the workplace has a "significant and adverse effect" on the workplace, then the consequences become a legitimate concern of the employer.
A range of out-of-hours conduct was held to constitute grounds for termination because its actual or potential consequences were contrary to the employee's duty of fidelity and good faith. In this case, the employers were concerned about the impact of Mr Domingo's drug-use on their business. They had experienced problems with his reliability (he was responsible for opening the salon on time) and they were conscious of the OHS implications of his erratic behaviour.
The Full Bench expressed concern about Mr and Mrs Pinawin's failure to discuss Mr Domingo's conduct with him. Whilst normally, in order to hold a belief on reasonable grounds, it would be necessary to have a discussion with the employee about the perceived misconduct and pay regard to his/her explanations, the bench suggested that this was a "very unusual case".
The anomalies highlighted by the bench included the fact that the employer was very small, the owners knew Mr Domingo well, they directly observed his behaviour, they believed that he had made lifestyle choices that involved drug-taking and this directly related to his capacity to perform his work which involved close contact with clients, and at the time they made their decision, Mr Domingo was hospitalised.
In light of these unusual circumstances, the bench took the view that the employers, when considering Mr Domingo's erratic behaviour, formed the belief that he had engaged in conduct that justified immediate dismissal on reasonable grounds.
The Full Bench allowed the appeal and quashed the decision of the Senior Deputy President.
While the Full Bench stressed that its conclusion should not be seen as one that would necessarily be reached in all cases of out-of-hours misconduct, it is clear, from this decision, that in some cases, employees will be justifiably dismissed for their out-of-hours conduct. Employees should be aware that where their out of work misconduct has an adverse effect on the workplace, this might constitute reasonable grounds for dismissal pursuant to the Small Business Fair Dismissal Code, where that Code is applicable.
Further, employers who wish to invoke the relevant provision of the Code should ensure they carry out reasonable investigation into the employee's misconduct, including having discussions with the employee and paying regard to his/her explanations and views. It reinforces that compliance with the Code is more than a "tick the box" exercise.
This article was first published in the Law Society Journal, May 2012
Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.