The Supreme Court of New South Wales has ruled that an employer did not breach the contract of employment when it summarily dismissed an employee after having formed the opinion that he was guilty of serious misconduct.

The case is significant because it marks a departure from a line of earlier authority which required that serious misconduct be established as a matter of fact, due to the grave social and economic consequences of summary dismissal for employees.

Facts

The employee was engaged under a written contract which provided that the employment could be terminated at any time without notice if, in the opinion of the employer, the employee engaged in serious misconduct.

The employer dismissed the employee without notice in relation to the alleged doctoring of an email that had been issued by the employer and the forwarding of that email to a journalist. The doctored email painted an inaccurate and prejudicial picture of a part of the employer’s business.

The employer’s conclusion that the employee was involved in these actions was based on forensic IT examinations, handwriting analysis and other circumstantial matters.

The Litigation

The employee brought proceedings for damages for breach of contract alleging that he was not guilty of serious misconduct and, accordingly, the employer was not entitled to dismiss him summarily.

The Court held that it was not necessary to consider whether the employee was actually guilty of misconduct. The presence of the words “in the opinion of” in the contract meant that the underlying fact was not the determining matter. Rather, the relevant fact was whether, in the opinion of the employer, the plaintiff was guilty of serious misconduct. What might reasonably support such an opinion may well be entirely inadequate to conclude that the employee was guilty of serious misconduct.

The Court was not prepared to imply into the contract any requirement that the opinion be reasonable or formed in good faith because, in the Court’s view, these factors were irrelevant to the question of whether or not d the established test for implication was met.

Lessons

Earlier cases (for example Rankin v Marine Power International Pty Ltd [2001] VSC 150) have said that before an employer may terminate the contract summarily, there needs to have been repudiation by the employee of the essential obligations under the contract, or actual conduct which was repugnant to the relationship of employer-employee . The seriousness of the act of termination and the effect of summary dismissal on the employee are factors which those earlier cases described as placing a heavy burden on the employer to justify dismissal without notice.

This latest decision suggests that the burden can be greatly eased by drafting the contract so that the employer’s opinion is established as the relevant determining factor.

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