Australia: Rethinking the concept of serious misconduct and unfair dismissal

Key Points:

A recent Fair Work Commission decision has put a spotlight on the relationship between "serious misconduct" and "gross negligence".

A recent decision of Commissioner Cambridge in the Fair Work Commission, John v The Star Pty Limited [2014] FWC 543, suggests that it is unfair to terminate an employee without notice where all that the employee has done amounts to "gross negligence". Commissioner Cambridge ruled that the Small Business Fair Dismissal Code (the Code), which authorises summary termination for "serious misconduct", requires wilful or intentional conduct. Negligent conduct – even if it is grossly negligent – does not suffice.

On the facts, the applicant, Matthew John, had engaged in conduct which was, at worst, negligent, and certainly did not rise to the threshold of gross negligence. There were also a number of procedural defects in his termination. In these circumstances, summary dismissal was held to be unfair.

Although not necessary for the decision itself, Commissioner Cambridge's comments on summary termination under the Code provide ample food for thought and discussion about the evolving relationship between employers and employees.

Background

John was employed by the respondent, Star Pty Limited as a security officer at its casino in Pyrmont.

Security officers operated in either of two distinct teams, each team having its own set of duties and responsibilities.

John was part of the safety team, which was engaged in responding to incidents as and when they arose.¹ Sometimes, John was required to work in the welcome team, which was positioned outside key entrance points and had responsibility for vetting patrons seeking entry by checking they were not too intoxicated and were over the age of 18.² The key entrance points included the casino's harbour side entrance, which was the initial point of entry, and the Marquee Night Club, which was a particular area within the casino.

On the night in question, security officers stationed at the Marquee came upon a minor, Ms L. L was 17 years old and had tried to gain entry to the club by using a friend's Learner Drivers Licence. ³ In order to get to the Marquee, L had somehow passed the main entrance to the casino.

Star conducted an investigation into how this had occurred. CCTV footage showed that John had asked for L's proof of identification but even after inspecting the learner drivers licence had let her through. The footage indicated that John had not looked up to examine L's face when viewing the licence.

John was called to a meeting to explain his conduct. He accepted fault but said that there was a lack of support at the entrance point, too many people were trying to go in, the team leader was absent and that he, John, had asked for further assistance which had not been provided. John accepted that he should not have let L through, but cited these factors as mitigating circumstances.⁴

After a 35-minute breakout, the meeting resumed and John was told that his employment was being summarily terminated for failing to conduct a proper identification check.⁵

At the time, John was 30 years old and had worked for Star for more than five years.

John made an application for unfair dismissal remedy under Part 3-2 of the Fair Work Act 2009 (Cth) (FW Act).

The essential question was whether the dismissal was harsh, unjust or unreasonable. In making a determination, s.387 of the FW Act requires consideration of a number of factors, including whether there was a valid reason for dismissal and whether the employee was notified of that reason.

Consideration

The two key issues, valid reason and notification of reason, were inextricably linked.

Star's letter notifying John of the reasons for termination was given some 22 days after the dismissal itself.⁶ The letter stated that John's conduct amounted to a "serious breach" of his duties.⁷ The validity of this reason, as a basis for the termination, was the key point of contention in this case.

On the one hand, Star referred to its obligations under the Casino Control Act 1992 (NSW) which requires a casino and its employees to prevent entry to minors. Failure to comply carries a maximum penalty of $5,500.

John's conduct, argued Star, amounted to gross negligence. John did not look at L's face when viewing her identification and in total, John spent a mere four seconds conducting the check.⁸ The CCTV footage also showed other occasions where, it was argued, John had conducted only the most cursory of identification checks.⁹

Commissioner Cambridge disagreed.

First, he accepted John's contention that the main entrance was understaffed and staff were under pressure. CCTV footage showed that some of the other security officers at the main entrance also made cursory and brief identification checks. Other security officers were seen making checks of just three seconds in some instances.¹⁰

Second, although John had not looked at L while examining her identification, he had looked at her when she was approaching the main entrance. Typically, the task of vetting individuals at the entrance involves an initial screening, people who appear to be under 25 years are asked to step aside and provide identification confirming their age.¹¹ John had seen L approaching the entrance and indeed, on that basis, had asked her to stop and provide identification.¹²

Third, it was evident that there were systemic deficiencies in the way in which security was organised at the main entrance. Star's investigation into the incident recommended the installation of a bollard system to control the flow of patrons which obviously was not in place at the time that L was let through.¹³

Fourth, the letter of dismissal asserted facts which were shown to be inaccurate. For instance, it could not have been said that John "failed to even look at the patron's face" because he had looked up at L when she was approaching the entrance (although, he had not done so when he was looking over her identification). Aside from this, the time of the incident, John's regular role as a member of the safety team and other particulars were inaccurately described.

Having regard to these considerations, Commissioner Cambridge found that there was no valid reason for terminating John's employment and that the dismissal was, overall, unfair. Star was ordered to reinstate John to his position and to make up his lost pay.¹⁴

Serious misconduct

As explained above, Star had argued that John's conduct amounted to gross negligence and this justified summary termination of his employment. Having found that the relevant conduct only amounted to negligence, it was not necessary for this argument to be pursued. However, Commissioner Cambridge delivered some interesting remarks upon the concept of serious misconduct.

At common law, an act of gross negligence which causes substantial loss or damage to an employer can present a valid basis for terminating without notice.¹⁵ However, in Commissioner Cambridge's view, the statutory position under the FW Act – which asks the question, 'was the dismissal fair?' – is different to the common law.¹⁶

At the centre of Commissioner Cambridge's reasoning were the terms of the Code.

Under the Code "[i]t is fair for an employer to dismiss an employee without notice or warning when the employer believes on reasonable grounds that the employee's conduct is sufficiently serious to justify immediate dismissal. Serious misconduct includes theft, fraud, violence and serious breaches of occupational health and safety procedures".

This provision only applies to "small businesses", being businesses with fewer than 15 employees and Star is not a small business. However, Commissioner Cambridge found that "the Code may be modifying the common law position regarding summary dismissal for negligent rather than intentional action". ¹⁷

Commissioner Cambridge ruled that the term "serious misconduct" as used in the Code, does not embrace conduct which amounts to mere negligence – even if, the negligence is at a level qualifying it to be "gross negligence". There were three primary reasons for this:

• The language used in the Code: The examples listed in the Code – "theft, fraud, violence..." – all entail an element of wilfulness. Negligence, on the other hand, is characterised by lack of care.
• The rationale of the Code: The Code provides relief for small business and not large business. It would not make sense if large businesses were able to terminate summarily on the basis of gross negligence, but small businesses were not.¹⁸
• Developments in case law: Although not citing any specific authorities, Commissioner Cambridge said: "Courts and Tribunals appear to be gradually casting off the proposition that negligence would justify summary dismissal, as it represents an outdated concept which was established upon the principles which applied during the era of the master and servant relationship."¹⁹

This is an interesting view and the interaction between "serious misconduct" and "gross negligence" is complex and nuanced. The relationship between the two concepts is likely to vex lawyers, judges and legal academics for some time. As such, it is worth further exploration.

First, the trend in case law is arguably not clear cut. Some cases do reflect an evolutionary casting-off of gross negligence but others do not.

On the one hand, in Ramsey v AVA Systems Pty Ltd [2010] FWA 1998, the applicant's conduct was alleged to constitute "gross negligence" and therefore, it was argued, justified summary termination in accordance with the Code. However, in Commissioner Robert's view, "gross negligence" fell outside the term "misconduct" as "Mr Ramsay was summarily dismissed for alleged 'gross incompetence'. Mr Ramsay was not accused of misconduct."²⁰

On the other hand, in Pillai v Messiter (No. 2) (1989) 16 NSWLR 197, the NSW Court of Appeal said (albeit, in the arguably distinguishable circumstances of negligence in the context of the performance of professional duties by a medical practitioner) that "gross negligence might amount to relevant misconduct, particularly if accompanied by indifference to, or lack of concern for, the welfare of the patient" (at page 200).

Second, it might be said that section 387 of the FW Act, which applies where the employer is not a small business, should not be constrained by the Code.

The Code was not intended as a comprehensive codification of the substantial body of jurisprudence that has developed in respect of unfair dismissal nor was it intended to have force and effect beyond the narrow confines of small business employers.

Implications

There was no real question that John's conduct was not of such a nature that it evinced an intention to no longer be bound by his employment obligations towards Star. The irony is that probably the most interesting part of the case was also that which was not necessary to the ultimate decision.

Commissioner Cambridge's comments on "gross negligence" invite discussion about the relationship between employers and employees. Certainly, the era of "master and servant" has long passed, and employers are expected to provide training, resources and other assistance to employees if they engage in careless conduct. However, have we come far enough that "gross negligence" is no longer a manifestation of "serious misconduct"? It seems we will have to wait a bit longer for that question to be definitively answered.

Footnotes

¹John v The Star Pty Limited [2014] FWC 543 at [7].

²Ibid.

³Ibid at 11.

⁴At [17].

⁵At [18].

⁶At [19].

⁷Ibid.

⁸At [38] and [56].

⁹At [56].

¹⁰At [57].

¹¹At [25].

¹²At [70].

¹³At [82].

¹⁴At [120]-[121].

¹⁵At [53].

¹⁶At [65].

¹⁷At [65].

¹⁸At [62].

¹⁹At [65].

²⁰Ramsey v AVA Systems Pty Ltd [2010] FWA 1998 at [35].

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.