Serious misconduct, Fair Work Act, reg 1.07

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Sec 12 of the the Fair Work Act 2009 provides that “serious misconduct’ has the meaning prescribed by the regulations.

Regulation1.07 sets out the definition as follows:

“1.07 Meaning of serious misconduct

(1) For the definition of serious misconduct in section 12 of the Act, serious misconduct has its ordinary meaning.

(2) For subregulation (1), conduct that is serious misconduct includes both of the following:

(a) wilful or deliberate behaviour by an employee that is inconsistent with the continuation of the contract of employment;

(b) conduct that causes serious and imminent risk to:

(i) the health or safety of a person; or

(ii) the reputation, viability or profitability of the employer’s business.’

(3)  For subregulation (1), conduct that is serious misconduct includes each of the following:

(a) the employee, in the course of the employee’s employment, engaging in:

(i)  theft; or

(ii)  fraud; or

(iii)  assault;

(b) the employee being intoxicated at work;

(c) the employee refusing to carry out a lawful and reasonable instruction that is consistent with the employee’s contract of employment.’

Ryman v Thrash Pty Ltd [2015] FWCFB 5264 (18 December 2015)

[35] The apparent purpose of the second sentence is to define the expression “serious misconduct”. Two interrelated difficulties arise in this respect. First, the use of the word “includes” makes it difficult to discern whether the definition is meant to be exhaustive or simply to make it clear that the identified matters may constitute serious misconduct. Second, it is not clear whether the effect of the sentence is to displace the definition of “serious misconduct” in s.12 of the FW Act and reg.1.07 of the Regulations. Section 13(1)(b) of the Legislative Instruments Act 2003 (Cth) provides that expressions in a legislative instrument (such as the Code) have the same meaning as in the enabling legislation as in force from time to time (here, the FW Act) “unless the contrary intention appears”. The question arises whether the second sentence, in attempting to define “serious misconduct”, exhibits an intention that the definition in s.12 and reg.1.07 not apply.

[36] It is frankly not possible to arrive at an interpretation of the “Summary dismissal” section of the Code which neatly resolves all these difficulties and inconsistencies. It is likely that the drafter(s) of the Code did not have a complete understanding of the terminology which they used to give expression to their intention. Accordingly the best we can do is to give effect to that intention so far as it may broadly be discerned from the Code as a whole. In that connection we consider that two things are apparent:

(1) The “Summary dismissal” section of the Code is concerned with dismissals which have immediate effect, not dismissals on notice. That is the consistent element of the various expressions used to describe the relevant class of dismissals.

(2) The section is likewise concerned with dismissals made on the basis of serious misconduct. The focus on “serious misconduct” must be taken as identifying the subject matter, notwithstanding that there is no explicit connection between the class of dismissal described and the matter of serious misconduct.

[38] We therefore consider that the “Summary dismissal” section of the Code applies to dismissals without notice on the ground of serious misconduct as defined in reg.1.07.

http://www7.austlii.edu.au/cgi-bin/viewdoc/au/cases/cth/FWCFB/2015/5264.html?context=1;query=Ryman%20v%20Thrash;mask_path=au/cases/cth/FWCFB

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So far so good. But it is a source of some irony that the Act only refers to the concept of “serious misconduct” in  three sections, as explained in the following extract from a case.

In Sharp v BCS Infrastructure Support Pty Limited [2015] FWCFB 1033, the Full Bench of the Commission said at para [33]-[34]:

The relevance of the definition of “serious misconduct” in reg.1.07 to the matter is also, with respect, obscure. Section 12 of the Act contains a definition of “serious misconduct” for the purposes of the Act which simply cross-refers to reg.1.07. Apart from s.12 itself, the expression “serious misconduct” is used in only three places in the Act. In s.123(1)(b), a dismissal for serious misconduct is a circumstance in which the notice and redundancy entitlement provisions of Pt 2-2 Div 11 are not applicable; in s.534(1)(b) a dismissal for serious misconduct is one to which the requirements for notification and consultation in Pt 3-6 Div 2 do not apply; and in s.789(1)(b) a dismissal for serious misconduct is one in relation to which the requirements established by Pt 6-4 Div 3 for notification and consultation do not apply. The expression “serious misconduct” is not used anywhere in Pt 3-2, Unfair Dismissal, of the Act. Section 392(3) requires the Commission, in relation to the award of compensation for an unfair dismissal, to reduce the amount that it would otherwise order by an appropriate amount where it is “satisfied that the misconduct of a person contributed to the employer’s decision to dismiss the person”. However, it is clear that conduct may constitute “misconduct” for the purpose of s.392(3) without necessarily being “serious misconduct”. The expression is used in the Small Business Fair Dismissal Code, but that had no application in this case (and it is at least highly doubtful in any event whether the reg.1.07 definition applies to the Small Business Fair Dismissal Code). Reg.1.07 therefore had no work to do in the application of the provisions of Pt 3-2 to the circumstances of this case.

t may be accepted that an assessment of the degree of seriousness of misconduct which has been found to constitute a valid reason for dismissal for the purposes of s.387(a) is a relevant matter to be taken into account under s.387(h). In that context, a conclusion that the misconduct was of such a nature as to have justified summary dismissal may also be relevant. Even so, it is unclear that this requires a consideration of whether an employee’s conduct met a postulated standard of “serious misconduct”. In Rankin v Marine Power International Pty Ltd  Gillard J stated that “There is no rule of law that defines the degree of misconduct which would justify dismissal without notice” and identified the touchstone as being whether the conduct was of such a grave nature as to be repugnant to the employment relationship. “Serious misconduct” is sometimes used as a rubric for conduct of this nature, but to adopt it as a fixed standard for the consideration of misconduct for the purpose of s.387(h) may be confusing or misleading because the expression, and other expressions of a similar nature, have been considered and applied in a variety of contexts in ways which are influenced by those contexts. In McDonald v Parnell Laboratories (Aust) Pty Ltd Buchanan J said:

“[48] The terms ‘misconduct’, ‘serious misconduct’ and ‘serious and wilful misconduct’ are often the subject of judicial and administrative attention as applied to the facts of particular cases but there is relatively little judicial discussion about their content and meaning. Naturally enough, when the term ‘serious misconduct’ is under consideration an evaluation of what conduct represents ‘serious’ misconduct is influenced by the (usually statutory) setting in which the phrase must be given meaning and applied. Frequently, for example, the question at issue is whether an employee is disentitled by reason of his or her conduct to a statutory entitlement (eg. in New South Wales, where Ms McDonald was employed, see Long Service Leave Act 1955 (NSW) s 4(2)(a)(iii); Workers Compensation Act 1987 (NSW) s 14(2).” (footnotes omitted)”

So what is the relevance of the defined term?

Here is the answer from a senior member of the Fair Work Commission.

“The notion of wilful or deliberate behaviour which strikes at the heart of the employment relationship has been considered in a number of well known authorities. In North v Television Corporation Ltd, FrankiJ said at p 616:

‘It is clear that a single act of disobedience may be sufficient to justify dismissal on the ground of misconduct but it was held in Laws v London Chronicle (Indicator Newspapers) Ltd [1959] 2 All ER 285, that to justify summary dismissal a single act must be such as to show that the employee was repudiating the contract of service or one of its essential conditions.’

Laws v London Chronicle (Indicator Newspapers) Ltd [1959] 2 All ER 285 (referred to in the quote above) makes it plain that an act of disobedience or misconduct (justifying dismissal) requires also that the disobedience must be ‘wilful’:

‘… I do, however, think (following the passages which I have already cited) that one act of disobedience or misconduct can justify dismissal only if it is of a nature which goes to show (in effect) that the servant is repudiating the contract, or one of its essential conditions; and for that reason, therefore, I think that one finds in the passages which I have read that the disobedience must at least have the quality that it is “wilful”: it does (in other words) connote a deliberate flouting of the essential contractual conditions (P288).’

In Concut v Worrell, His Honour, Kirby J, dealt with the ordinary relationship of the employer and employee at common law and said at para [51]:

‘The ordinary relationship of employer and employee at common law is one importing implied duties of loyalty, honesty, confidentiality and mutual trust. At common law:

“[c]conduct which in respect of important matters is incompatible with the fulfilment of an employee’s duty, or involves an opposition, or conflict between his interest and his duty to his employer, or impedes the faithful performance of his obligations, or is destructive of the necessary confidence between employer and employee, is a ground of dismissal. …[T]he conduct of the employee must itself involve the incompatibility, conflict, or impediment, or be destructive of confidence. An actual repugnance between his acts and his relationship must be found. It is not enough that ground for uneasiness as to its future conduct arises.”

In the present case, the findings at trial went beyond mere uneasiness as to the future. They necessitated, or at least warranted, a conclusion that the “confidence” essential to the relationship of employer and employee had been destroyed. Instead of pursuing the interests of the company and its shareholders, the employee had pursued his own private interests. Not only was the employee in breach of his duty of fidelity and trust owed to the employer, he had remained in breach of that duty to the date of the trial. Until that time he had not accounted for the benefits wrongly appropriated by him. Indeed, he had denied any wrongful appropriation. The issue so tendered at the trial was determined against the employee. He was then subject to the employer’s counter-claim for an order to make a refund. Such order was duly made at trial. It was not contested on appeal. Given his senior status in the company’s service and the nature and extent of the misconduct disclosed in the evidence and accepted by the primary judge, it was open to him to find that the employee had undermined the confidence essential to the ongoing relationship of employment. Prima facie, this had afforded a legal justification for the employee’s summary dismissal.

It is, however, only the exceptional circumstances that an ordinary employer is entitled at common law to dismiss an employee summarily. Whatever the position may be in relation to ‘isolated’ acts of negligence, incompetence or unsuitability, it cannot be disputed (statute or express contractual provision aside) that acts of dishonesty or similar conduct destructive of the mutual trust between the employer and employee, once discovered, ordinarily fall within the class of conduct which, without more, authorises summary dismissal. Exceptions to this general position may exist for trivial breaches of the express or implied terms of the contract of employment. Other exceptions may arise where the breaches are ancient in time and where they may have been waived in the past, although known to the employer. Some breaches may be judged irrelevant to the duties of the particular employee and an ongoing relationship with the employer. But these exceptional cases apart, the establishment of important, relevant instances of misconduct, such as dishonesty on the part of an employee like Mr Wells, will normally afford legal justification for summary dismissal. Such a case will be classified as amounting to a relevant repudiation or renunciation by the employee of the employment contract, thus warranting summary dismissal.’

Given there is evidentiary conflict concerning what was said in the conversations concerning the applicant’s day off, and the professional and personal implications of a very serious allegation that she was guilty of fraud, the onus rests on the respondent to prove, to the Commission’s satisfaction, that the misconduct, had in fact, occurred. While this evidentiary onus must be discharged on the civil onus of proof (on the balance of probabilities); Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336 (‘Briginshaw’), the more serious the allegation, the higher the burden on the employer to prove the allegation. In Neat Holdings, the High Court said:

‘The ordinary standard of proof required of a party who bears the onus in civil litigation in this country is proof on the balance of probabilities. That remains so even where the matter to be proved involves criminal conduct or fraud. On the other hand, the strength of the evidence necessary to establish a fact or facts on the balance of probabilities may vary according to the nature of what it is sought to prove. Thus, authoritative statements have often been made to the effect that clear proof is necessary “where so serious a matter as fraud is to be found”. Statements to that effect should not, however, be understood as directed to the standard of proof. Rather, they should be understood as merely reflecting a conventional perception that members of our society do not ordinarily engage in fraudulent or criminal conduct and a judicial approach that a court should not lightly make a finding that, on the balance of probabilities, a party to civil litigation has been guilty of such conduct.’ (footnotes omitted)

There is little doubt that an allegation of fraud can have serious personal, professional and economic consequences for any employee; a fortiori for a nurse who has achieved the pinnacle nursing role of being appointed as a DON. As Asbury DP said in Mourilayan v James Hardie Australia Pty Ltd [2010] FWA 9672 at para [88]:

‘[88] Whether the dictionary definition of fraud or that found in criminal law is applied, the fact remains that the dismissal of an employee on a ground such as fraud, can have a potentially far reaching and catastrophic effect on the employee’s future employment prospects, given the connotations of criminal activity associated with such an epithet. An allegation of fraud should not be lightly levelled and conduct of an employee should not be labelled as fraud without clear and cogent proof.’

In Franklins Ltd v Webb (1997) 72 IR 257 a Full Bench of the Industrial Commission of New South Wales said at 121:

‘We consider that the significance of decisions by employers to dismiss employees in circumstances such as occurred here cannot be over-emphasised. Mr Webb is a man of advancing years with long service and an unblemished employment record. The consequences for him of the employer’s decision to dismiss are considerable – not only pecuniary considerations arise but also issues such as loss of self-esteem and confidence, difficulty in obtaining future employment and loss of social standing; tremendous upset upon the individual concerned and his family, with serious consequences quite unanticipated at the time of dismissal, must also be taken into account. It is considerations such as those which seem to us to have motivated the Commission in Court Session to remind employers of the need to be fully satisfied after proper investigation that the employee has committed the conduct to support dismissal.’

To the weight of these authorities, I add the following. In Commonwealth Bank v Jalah & Ors [2007] NSWSC 903, Einsten J highlighted the seriousness of the allegation of ‘fraud’. At para [18], His Honour said:

There is a plethora of authority in support of the proposition that the Court is bound to see that a case of fraud is clearly proved. An allegation of fraudulent intent is one of the most serious allegations capable of being made. Actual dishonesty is said to be “the hallmark of fraud”. The gravity of the allegation has been said to be such that whereas s140(1) of the Evidence Act 1995 (NSW) stipulates a single standard of proof for all civil cases, namely the balance of probabilities, s140(2) preserves the doctrine in Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336 at 361–362; Pedler v Richardson (Unreported, Supreme Court of New South Wales, Young J, 16 October 1997) at 10-11. See also McLelland CJ in Eq in Watson v Foxman (1995) 49 NSWLR 315 at 319.

After then setting out the extract above from Neat Holdings, His Honour continued:

  1. The High Court has pointed out in Pascoe v Federal Commissioner of Taxation(Cth)(1956) 30 ALJR 402 at 403 [citing Cussen J in Cox v Smail [1912] VicLawRp 50; (1912) VLR 274 at 283] that the evidence given by a man of his intention and state of mind, must:

“be tested most closely, and received with the greatest caution.”

21. Courts have emphasised that the best evidence of a man’s purpose is to look at what was actually done: ASX Operations Pty Ltd v Pont Data Australia Pty Ltd (No 1) (1990) 27 FCR 460 at 482–483.

That the Commission, for itself, must be satisfied that the misconduct occurred, is well established by the authorities of the Commissions and predecessors. In King v Freshmore, a Full Bench of the AIRC said at paras [24], [26], [28] and [29]:

‘[24] The question of whether the alleged conduct took place and what it involved is to be determined by the Commission on the basis of the evidence in the proceedings before it. The test is not whether the employer believed, on reasonable grounds after sufficient enquiry, that the employee was guilty of the conduct which resulted in termination.

[26] As we have noted above, s.170CG(3)(a) obliges the Commission to make a finding as to whether there was a valid reason for the termination of employment. In circumstances where a reason for termination is based on the conduct of the employee the Commission must also determine whether the alleged conduct took place and what it involved.

[28] It is apparent from the above extract that his Honour answered the question of whether the alleged misconduct took place on the basis of whether it was reasonably open to the employer to conclude that the employee was guilty of the misconduct which resulted in termination. This is not the correct approach. The Commission’s obligation is to determine, for itself and on the basis of the evidence in the proceedings before it, whether the alleged misconduct took place and what it involved.

[29] In our view the Senior Deputy President failed to determine for himself whether Mr King was guilty of misconduct in the way alleged by Freshmore and he should have done so as part of determining whether the termination had been harsh, unjust or unreasonable. When the reason for a termination is based on the misconduct of the employee the Commission must, if it is an issue in the proceedings challenging the termination, determine whether the conduct occurred. The absence of such a finding leads us to conclude that the member below failed to properly determine whether there was a valid reason for the termination of Mr King’s employment.’ (my emphasis)

Even accepting that a finding of serious misconduct was open to the respondent, it must not be confused with the statutory language. The statute still requires the Commission to find that there was, or was not, a valid reason for dismissal (s 387(a)). In Royal Melbourne Institute of Technology v Asher [2010] FWAFB 1200, a Full Bench of Fair Work Australia (FWA, as the Commission then was) held at para [16]:

‘[16] In the circumstances of this matter the University purported to terminate Dr Asher’s employment for serious misconduct within the meaning of that term in the University’s enterprise agreement. If it successfully established that Dr Asher had engaged in serious misconduct it would necessarily follow that there was a valid reason for the dismissal. However, the converse is not true. As established by Annetta, the question that needed to be considered was whether there was a “valid reason” in the Selvachandran sense – whether the reason was sound, defensible or well founded. Whether it also amounted to serious misconduct may well be a factor relating to the overall characterisation of the termination but it was not an essential requirement in the determination of whether a valid reason exists.’

The meaning of ‘valid reason’ in s 387(a) is drawn from the judgment of Northrop J in Selvachandran v Peteron Plastics Pty Ltd (1996) 62 IR 371 (‘Selvachandran’). This meaning has been applied by members of the Commission and its predecessors for many years:

‘In its context in s 170DE(1), the adjective “valid” should be given the meaning of sound, defensible or well founded. A reason which is capricious, fanciful, spiteful or prejudiced could never be a valid reason for the purposes of s.170DE(1). At the same time the reasons must be valid in the context of the employee’s capacity or conduct or based upon the operational requirements of the employer’s business. Further, in considering whether a reason is valid, it must be remembered that the requirement applies in the practical sphere of the relationship between an employer and an employee where each has rights and privileges and duties and obligations conferred and imposed on them. The provisions must “be applied in a practical, commonsense way to ensure that the employer and employee are treated fairly.’

See also: Culpeper v Intercontinental Ship Management Pty Ltd [2004] AIRC 261 and Yew v ACI Glass Packaging Pty Ltd (1996) 71 IR 201.

Meaning of ‘fraud’

The Concise Macquarie Dictionary defines ‘fraud’ as ‘deceit, trickery, sharp practice or breach of confidence by which it is sought to gain some unfair or dishonest advantage’.

Section 192E of the Crimes Act (NSW) defines ‘fraud’ as:

(1) A person who, by any deception, dishonestly:

(a) obtains property belonging to another, or

(b) obtains any financial advantage or causes any financial disadvantage,

is guilty of the offence of fraud.

Maximum penalty: Imprisonment for 10 years.

(2) A person’s obtaining of property belonging to another may be dishonest even if the person is willing to pay for the property.

(3) A person may be convicted of the offence of fraud involving all or any part of a general deficiency in money or other property even though the deficiency is made up of any number of particular sums of money or items of other property that were obtained over a period of time.

(4) A conviction for the offence of fraud is an alternative verdict to a charge for the offence of larceny, or any offence that includes larceny, and a conviction for the offence of larceny, or any offence that includes larceny, is an alternative verdict to a charge for the offence of fraud.

In Macleod v R [2003] HCA 24, the High Court, Gleeson CJ, Gummow, Hayne JJ, said at paras [35]-[38]:

‘35. In Peters v The Queen, which concerned charges of conspiracy to defraud the Commonwealth under ss 86(1)(e) and 86A of the Crimes Act 1914 (Cth), Toohey and Gaudron JJ said that, ordinarily, fraud involves:

“the intentional creation of a situation in which one person deprives another of money or property or puts the money or property of that other person at risk or prejudicially affects that person in relation to ‘some lawful right, interest, opportunity or advantage’, knowing that he or she has no right to deprive that person of that money or property or to prejudice his or her interests”. (emphasis added)

  1. Their Honours explained that the term “dishonestly” in a statutory offence may be employed in its ordinary meaning or in some special sense. The line of authorities concerning the statutory offence of dishonestly obtaining property by deception provides an illustration of the latter.
  2. In a passage that has significance for the present appeal, Toohey and Gaudron JJ stated:

“In a case in which it is necessary for a jury to decide whether an act is dishonest, the proper course is for the trial judge to identify the knowledge, belief or intent which is said to render that act dishonest and to instruct the jury to decide whether the accused had that knowledge, belief or intent and, if so, to determine whether, on that account, the act was dishonest. … If the question is whether the act was dishonest according to ordinary notions, it is sufficient that the jury be instructed that that is to be decided by the standards of ordinary, decent people.”

Their Honours rejected any further requirement, derived from R v Ghosh, that the accused must have realised that the act was dishonest by those standards.

  1. A question presented by s 173 of the Crimes Act is whether the taking or application was “fraudulent” or “dishonest” according to ordinary notions. The passage cited above from the joint judgment in Petersindicates the preferred approach to the meaning of the term “fraudulently” in s 173.’ (footnotes omitted)

In my opinion, the objective bystander would consider ‘fraud’ as being wrongful or criminal deception intended to result in financial or personal gain. In my assessment, the objective facts surrounding the circumstances of the applicant’s day off on 9 November 2017 cannot possibly support an allegation that the applicant acted in a fraudulent manner, consistent with serious misconduct. In my view, by making such a serious finding about what in fact occurred, was not only (perhaps deliberately) designed to elevate the incident to a level of seriousness which was grossly exaggerated, but the notion of fraud or fraudulent conduct was simply wrong and prejudicial to the applicant. Let me set out some of the matters which corroborate my finding in this respect.

(a) It was accepted by Ms Jennings that Ms Smith, Ms Hill, Ms Mackenzie and Ms Gladwin were all aware that the applicant was intending to take Wednesday 9 November 2016 off to go to Sydney. It was not disputed this was for a dental appointment.

(b) Ms Jennings accepted, and Ms Hill’s evidence confirmed, that the applicant was intending to take TOIL and come in on the following Sunday.

(c) The applicant worked on the following Sunday and did not claim, or expect any extra payment for doing so.

(d) There was no evidence from any of the applicant’s closest subordinates, who she had told about working on Sunday, that they had raised the respondent’s policy (not recognising TOIL) with her.

(e) If the applicant had directed Ms Hill on 10 November 2016 to mark her as on sick leave, it does not make sense why she would then work the Sunday, if the day off was already accounted for.

(f) There was no evidence to contradict the applicant’s evidence that it was not uncommon for her to approve staff time off for days or parts of days for personal or family reasons. This was taken into account because of the work demands of the facility and to provide staff with some work flexibility.

(g) Ms Mackenzie claimed the applicant looked pale and concerned because she was unaware of the visit of Mr Mafoa on the day she was off and this was why she instructed Ms Hill to mark her off as sick. I reject this evidence. The applicant knew Mr Mafoa was to visit the facility to set up the Christmas decorations. She had made it known to staff through the Head of Departments’ meeting on Monday 7 November 2016. She had received an email from Kate Mafoa on Friday 4 November expressly stating Mr Mafoa would be at Abbey House on 9 November (Exhibit 5).

(h) In Ms Hill’s first email to Ms Jennings on 2 February 2017, she makes no mention of being directed by the applicant to mark her as sick. She only said the applicant had taken leave to go to Sydney. However, when Ms Jennings later questioned why she had recorded sick leave in the system, Ms Hill claimed the applicant directed her to do so. In my view, there is some attraction to the proposition that having realised she may have inadvertently, or conveniently marked the applicant as sick and now Ms Jennings had queried her, Ms Hill sought to cover herself by changing her story. I do not accept that the applicant directed Ms Hill to alter her day off to sick leave, nor do I accept Ms Hill’s implausible suggestion that she always did as she was told, without question.

Given this conclusion the allegation that the applicant had acted in a fraudulent manner must evaporate……………………..As these allegations have either not been made out, are rejected or the applicant accepted she had made some errors of judgement and was apologetic, I do not consider that any, or all of them in combination, constitute a valid reason for dismissal.”

Adamopoulos v Thompson Healthcare Pty Ltd t/a Thompson Health Care (2017) FWC 3505 delivered 28 July 2017 per Sams DP