Last year we reported on a decision of the Supreme Court of New South Wales which upheld the summary dismissal of an employee for serious misconduct, even though the employer had not established, as a matter of fact, that the misconduct had occurred.

The case marked a departure from a number of earlier authorities which had referred to the need for misconduct to be clearly established, in light of the grave social and economic consequences of summary dismissal for employees.

The New South Wales Court of Appeal has now overturned the decision.

Facts

Clause 14 of the employment contract 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.

Trial

The employee brought proceedings for damages for breach of contract.

The trial judge 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.

The trial judge was not prepared to imply into the contract any requirement that the opinion be reasonable or formed in good faith.

Appeal

The Court of Appeal held that, when construed within its context, the employer’s power to summarily terminate depended upon the objective occurrence of “misconduct” by the employee, not simply the opinion of the employer that misconduct had occurred..

The reasoning behind this conclusion was as follows:

  • Clause 13 (the provision located just before the “opinion” termination power) permitted the employer to take disciplinary action, including suspension of employment and, “in certain circumstances, termination” where the employee had breached the employment contract or performance requirements.
  • Accordingly, Clause 13 only permitted termination where there had been a breach that could be established objectively and, even then, the right of termination was said to be available only “in certain circumstances”.
  • To construe Clause 14 as permitting termination where there had in fact been no misconduct or other breach, but only the opinion of the employer that that had occurred, would be to render the two provisions in conflict.
  • Such conflict could be avoided by treating the “opinion of” the employer referred to in Clause 14 as applicable to the seriousness of the misconduct or other breach, not to its existence.

The Court of Appeal also reviewed the authorities relating to the implication of a requirement that the employer act reasonably.  This review led the Court of Appeal to conclude that Clause 14 required “a reasonable as well as honest state of satisfaction” on the part of the employer.  This did not extend to a duty to act reasonably in carrying out the termination – which had consequences for the assessment of damages.

On the issue of damages, the employer contended that if it had not purported to terminate the employment summarily, it would have exercised its right under the contract to terminate by giving four months’ pay in lieu of notice.  The employee submitted that, but for that termination, the employment would have continued until at least 15 August 2022, because he was a valued employee.

The Court of Appeal found in favour of the employer on this issue, and awarded the employee 4 months’ remuneration.  The reasons were as follows:

  • For a variety of reasons, but principally the doctored email issue, the employer wanted to terminate the employment.
  • The Court should not assume that the employer did not believe that the employee was guilty of serious misconduct.
  • The fact that the employer has subsequently failed to prove that the employee was guilty of serious misconduct does not change the fact that the employer believed he was.
  • In these circumstances, the employee’s history with the employer is not of significance as it can be assumed to have been known to the employer, yet it did not cause the employer to stay its hand on the summary dismissal.

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