Australia: The High Cost of Inadequate Investigation and Unsatisfactory Corporate Culture: Sharma v Bibby Financial Services Australia Pty Ltd [2012] NSWSC 1157

People + Culture Strategies recently successfully acted for a client to secure over $1.4m in a case before the Supreme Court of New South Wales.

The case concerned the termination of that senior executive's employment following sexual harassment allegations and highlights a number of important issues for employers, namely, the importance of conducting adequate investigations and the ramifications of an unsatisfactory workplace culture.

The Facts

The executive was employed as the Sales Director of Bibby Financial Services Australia ("Bibby") from 2002 – February 2009. In accordance with the Sales Director's contract, the Sales Director was entitled to a oneoff "special bonus" of up to $1.4m. However, shortly before the special bonus was due, Bibby terminated the Sales Director's employment on the basis of serious misconduct relating to allegations of sexual harassment. The allegations included inappropriate touching, inappropriate comments and unwelcome attention.

The allegations of sexual harassment had been made by another employee who was employed by Bibby for three months and claimed that the sexual harassment caused him to leave his employment with Bibby.

In January 2009, Bibby conducted an investigation into the allegations of sexual harassment which involved interviewing a number of employees in the Sales Director's team. None of the employees interviewed supported the claims of sexual harassment. Importantly, at this time, the Sales Director had not been made aware of the allegations, nor was he interviewed as part of the investigation.

Despite this, on 4 February 2009, the Sales Director was called to a meeting where he was told that:

The Sales Director was then sent a Deed of Release containing an offer of notice and a pro rata amount of the special bonus, which he rejected. Bibby then took steps to terminate the Sales Director's employment for serious misconduct and did not pay the Sales Director's notice or the special bonus.

After proceedings were initiated by the Sales Director, Bibby also sought to rely on conduct of the Sales Director that had been discovered post-termination. This conduct related to the taking of ecstasy tablets and failing to disclose a potential conflict of interest.

The Findings

There were two key issues for the Court to decide. Firstly, had the Sales Director's employment been validly terminated on 4 February 2009 and, secondly, if the Sales Director's employment had been validly terminated, had the Sales Director engaged in conduct discovered post-termination which amounted to serious misconduct?

The Court held that Bibby decided to terminate the employment of the Sales Director on 4 February 2009 and the allegations of sexual harassment or other serious misconduct were not upheld. Therefore, the Sales Director was entitled to the special bonus and six months of notice. The Court noted that:

In coming to this view the Court took into consideration:

• that the Sales Director was told the termination of his employment was "not a negotiation";
• comments that were made to the Sales Director about Bibby's loss of trust and confidence;
• that the Sales Director was directed not to return to the office, contact staff or contact clients; and
• that the Sales Director's salary was stopped (although later reinstated).

The Court also considered whether any of the conduct discovered post-termination could be used to justify a termination on the basis of serious misconduct.

In relation to emails evidencing drug taking, the Court found that the conduct of the Sales Director could only be viewed in the context of Bibby's policies, procedures and corporate culture. Bibby's Drug and Alcohol Policy provided that in the event of an incident involving drugs or alcohol, Bibby would intervene and offer assistance. In such circumstances, the Court found that the Sales Director's employment would not have been terminated summarily on the basis of sending emails referencing drug use.

Further, the Court found that at that time the emails were sent, Bibby had a corporate culture which tolerated heavy drinking and condoned and paid for the use of dating and escort services and strip clubs as part of the business. Bibby's workplace culture meant that the Sales Director's conduct was no more damaging to the company's reputation than Bibby's Managing Director attending lap dancing venues and/or strip clubs with clients and/or suppliers. The Court stated that:

The Court also considered whether the Sales Director had failed to disclose a necessary conflict of interest.

The Court held that while there may have been a lapse in judgment, it did not justify dismissal for serious misconduct.

Key Learnings for Employers

The case sends a strong message to employers to ensure that:

• Investigations should be conducted by persons who are experienced and competent, in many circumstances, an external independent investigator should be engaged.
• Obtaining evidence corroborating the allegations is important, in the absence of such evidence, employers should be cautious of making adverse findings.
• Procedural fairness must be followed – any employee being investigated should have all of the allegations put to them and be provided with a reasonable opportunity to respond.
• Policies and procedures can be onerous and, as such, should be carefully drafted and reviewed to ensure the policies and procedures are not unnecessarily onerous.
• The corporate culture of an organisation should be regularly audited; appropriate behaviour and culture training should be provided to all employees and managers regardless of their seniority.

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.