Employers successfully making cross claims against former employees
In a recent trend, employers are successfully filing cross claims against employees after the employee has commenced claims against the employer. Two recent Federal cases highlight that employers need to issue cross claims in a timely manner, and that employees need to be aware of the significant financial risks that they could be exposed to if their employer pursues a cross claim against them.
FILING A CROSS CLAIM: RECENT CASES
In Rossetti v Aus Gold Mining Group Pty Ltd (No 2)  FCA 1104, Mr Rossetti made a claim against Aus Gold Mining in January 2018 that his fixed-term contract was unlawfully terminated and sought his unpaid entitlements. However, the Federal Court of Australia allowed Aus Gold mining to issue a cross claim against him for breach of contract and negligence.
In November 2018, Aus Gold Mining had filed a claim against Mr Rossetti in the Supreme Court of New South Wales seeking almost $900,000 damages for breach of contract and negligence.
In July 2019, Aus Gold Mining brought an interlocutory application in the Federal Court matter seeking leave to amend their defence, issue a cross claim against Mr Rossetti and vacate the hearing dates. Aus Gold Mining alleged that they had grounds to summarily terminate Mr Rossetti's employment due to his alleged incompetence and grave negligence, which would justify their non-payment of the entitlements Mr Rossetti claims are due to him.
In deciding whether to allow the cross-claim, Her Honour Justice Katzmann considered:
- the considerable delay by the respondents in bringing the application
- the respondents' failure to comply with court orders or attend court-ordered mediation
- the effect of vacating the hearing dates would have on Mr Rossetti who was in significant financial distress
- the Court's role in facilitating just, efficient and inexpensive resolutions of disputes.
Ultimately, the Federal Court determined that Aus Gold Mining should have an opportunity to raise an arguable defence and counter-claim, subject to paying Mr Rossetti's legal costs wasted.
The key takeaways from this case for employers are:
- Ensure compliance with court orders.
- Attend court ordered mediation.
- Seek timely specialist legal advice.
- Make an application to issue a cross claim as soon as possible in the proceedings.
FACING A CROSS CLAIM: RISKS FOR EMPLOYEES
In De Beer v Transitcare Limited & Ors  FCCA 1830, the Federal Circuit Court considered the cross claim made by the employer alleging the employee had:
- engaged in serious misconduct in breach of his employment contract
- breached his fiduciary duties
- failed to return company property to the employer.
Mr De Beer, the former CEO of Transitcare, had made a claim for over $200,000 for:
- compensation for wrongful termination
- breach of his employment contract for failing to pay his annual bonus and home internet payment, notice of termination, long service leave
- the imposition of civil pecuniary penalties against the respondents for contravening the Fair Work Act 2009 (Cth).
In his role as CEO, Mr De Beer owed Transitcare a fiduciary duty to not profit from or place himself in a position of conflict with the employer. Transitcare alleged that Mr De Beer breached his fiduciary duties and employment contract by:
- doing significant work for a competing business during his employment
- causing Transitcare to incur charges for unnecessary pre-sale cosmetic detailing to an HSV Holden leased to Mr De Beer so he could sell it to a third party making a significant personal profit
- receiving a refund for a deposit, made by Transitcare for the purchase of a Mercedes Benz, which he had no entitlement to receive;
- failing to pay additional costs above the agreed annual rate of his lease car
- leaving the premises with two items provided to him by Transitcare: a notebook which recorded his dealings, business plans, strategies and ideas in his role as CEO, and an iPad that he had been expressly directed to return.
Transitcare successfully argued that Mr De Beer had breached his fiduciary duties or employment contract and was awarded damages of $10,000. Mr De Beer was liable for payment of over $14,327.42 for the HSV Holden and $9,745.40 for the Mercedes Benz, and was required to return the company property.
Mr De Beer was only successful in arguing that he was entitled to his 2014 annual bonus and home internet payment for a shortfall of 2.5 months, totaling $2,644.73. Judge Jarrett rejected all other orders that Mr De Beer had sought. In this case, Mr De Beer was liable to pay significantly more to Transitcare than was successfully awarded to him from his claim.
The key takeaways from this case for employees are:
- Be aware that an employer can pursue action against employees concurrently for breaches arising out of the employment.
- There is the risk that the employer may consider filing a cross claim to pursue for breaches of the employment contract/fiduciary duties, or seek to claw back overpayments
- Seek specialist legal advice prior to making a claim.
When considering filing any claim—from either the employer or employee perspective—it is important to have the right advice. This is particularly true if there is the possibility of filing a cross claim.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.