Serious Misconduct – Does it necessarily mean the end of your employment?

Faced with an allegation of  “serious misconduct” by your employer and looking at being summarily dismissed by your employer is a deeply troubling time for any employee. Your entitlements that would normally be paid to you on cessation of employment could be at risk and maybe foregone. However, that may  not necessarily the case.

What is serious misconduct?

 Employment agreements  normally define “serious misconduct”. Where your employment agreement fails to do so, the Fair Work Regulations 2009 (Cth) define “serious misconduct” as conduct that is wilful or deliberate and that is inconsistent with the continuation of the employment contract. It is also conduct that causes serious and imminent risk to the health and safety of a person or to the reputation, viability or profitability of the employer’s business. Generally speaking , serious misconduct includes theft, fraud, assault, intoxication at work and the refusal to carry out lawful and reasonable instructions consistent with your  employment contract.

Burden  with Employer  

An employer who accuses an employee  of “serious misconduct” to support  summary dismissal carries a “heavy burden” and it is  obliged in forming that opinion to act reasonably so far as its process (including any investigation process). The strength of the evidence needed to establish any decision to summariy dismiss any employee for “serious misconduct” may vary according to the nature of what it is sought to be proven. The general rule is that the more serious any allegations are made, then the employer is required to provide stronger evidence.

Summary dismissal

Summary dismissal is dismissal without notice. In other words, it does not require advance notice to an  employee and wages are only paid to the time of dismissal.

At common law, there are two limbs of the test  for dismissing an employee summarily , namely:

  1. a breach by the employee of the terms of the contract or a demonstrated intention not to be bound by those terms; and
  2. the conduct must be sufficiently serious

Repudiation of your employment contract is not a condition for summary dismissal at common law. It is not unusual that most employment contracts only require the second limb.

Time is of essence

For employers, time is of essence in the exercise of any summary dismissal. The following questions must be asked:

  1. When did the employee’s serious misconduct occur?
  2. When did the employer become aware of the misconduct?
  3. When did the employer exercise the right of summary dismissal?

On the one hand, a summary dismissal on inadequate grounds may also be justified by subsequent discovery of adequate grounds. The misconduct, which occurs prior to the dismissal and only comes to the knowledge of employer after the dismissal, can be utilized to support  the dismissal.

 Examples based on the sequence of the events (from earliest to latest)
1Serious MisconductKnowledgeSummary Dismissal
2Serious MisconductSummary DismissalKnowledge
3Summary DismissalSerious MisconductKnowledge

In any of the above events, the summary dismissal is likely to be justifiable.

Delay = Waiver

On the other hand, delay after becoming aware of the misconduct will result in the right of summary dismissal being  waived. The employer is deemed to be aware of the serious misconduct when its directing mind, such as a managing director, becomes aware.

Summary Dismissal does not mean you will be deprived of all the entitlements

What entitlements of the employee will be foregone depends on the construction of terms of the employment agreement in the context of the common law and in accordance with honest commercial common sense.

In Downer EDI Ltd v Gillies [2012] NSWCA 333, where Mr Gillies, the chief executive officer, was found to engage in serious misconduct which resulted in summary dismissal. Mr Gillies managed to make payments for himself from the listed company which were characterized as “loans” and mirrored his accrued bonus under the employment agreement. The loans were repaid shortly, and it did not cause overall net loss to the company. However, the Court held it as serious misconduct for exposing the company to risk of regulatory or taxation irregularities, and thus the conduct constituted serious misconduct.

Nonetheless, Mr Gillies was successful  in arguing for many of his entitlements (including  his leave entitlements,   Phantom Option Scheme bonus, and Company Motor Vehicle entitlements. His major defeat was for an  additional benefit upon termination under Clause 4, which was debarred by the following clause:

4.3 The termination payments referred to in this Clause 4 will not be payable in any case where the termination is effected under Clause 4.1(c) due to your misconduct or fraudulent activity.

Should you be faced with an allegation of serious misconduct at work and need urgent advice then SLF Lawyers can assist you. Contact Partner – Mark Smith on 07 3839 8011.

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