Monday, 18 July 2016

Changing the reason for termination

What is Serious Misconduct?

Serious misconduct is conduct that is wilful or deliberate and inconsistent with the continuation of the employment contract. Some examples of serious misconduct include theft, fraud and assault. Serious misconduct is a fundamental breach of an employee’s employment contract and if discovered during employment may be relied upon to justify summary dismissal (termination without notice) of an employee.

Unfair Dismissal Jurisdiction

In the Unfair Dismissal jurisdiction, when defending a claim brought by an aggrieved employee, evidence of serious misconduct that is acquired by the employer after dismissal (and not known by the employer at the time of the dismissal) can be used to justify a dismissal that may otherwise be considered “unfair”. The Fair Work Commission must consider whether evidence existed at the time of termination that justified the dismissal. This evidence may be different to the reason given at the time of the dismissal.

Wrongful Dismissal

A wrongful dismissal claim is different to an unfair dismissal and may arise from an allegation that an employer unlawfully terminated the employment contract, for example, without providing the notice required in the contract (which may be implied “reasonable notice”).

In the context of a common law claim for damages for wrongful dismissal, an employer will be able to rely on evidence of serious misconduct by the employee that was not known to the employer at the time of dismissal. If serious misconduct was discovered after termination, a Court would be likely to take this into account in either determining there was not a “wrongful dismissal” or adjusting any award of damages accordingly.

What if the dismissal has not yet taken effect?

Sometimes the serious misconduct is discovered prior to the termination taking effect. This can particularly be a risk where a disgruntled employee is working out their notice period or is on gardening leave, and deliberately breaches their obligations to their employer (for example, by intentionally deleting the employer’s confidential information).

In such circumstances, an employer will be able to terminate the employment due to serious misconduct, with immediate effect.

In the case of Melbourne Stadiums Ltd v Sautner [2015] FCAFC 20 (26 February 2015) the Full Court of the Federal Court found the employer had not yet formally terminated the employee’s employment contract with notice or pay in lieu of notice as required by the contract. This meant that the contract remained on foot and the employer was able to rely upon the summary termination clause in the contract when it discovered the employee’s serious misconduct.

The Court noted, however, that where an employer has lawfully terminated an employment contract in accordance with its contractual terms, such as with written notice, payment in lieu of notice, or redundancy and the termination has been effective, the employer cannot rely upon subsequently discovered serious misconduct to summarily terminate the employee and avoid its obligation to pay the contractual debt to the employee.

Lessons for Employers

While fortunately this situation only arises infrequently, to bolster the likelihood that it will be possible to rely on the serious misconduct, employers may consider inserting a clause into the employment contract entitling the Employer to recover any money paid to the employee in lieu of notice (or redundancy) where serious misconduct is discovered after termination.

Further, any letters giving notice of termination (or Settlement Deeds entered into in contemplation of termination) should contain clauses that give the employer the right to withhold payment or recover monies paid where the employee fails to comply with their ongoing obligations to the employer.

Employers who discover misconduct after purporting to terminate the employment contract should seek legal advice to determine whether the contract has been lawfully terminated or whether the employer is able to summarily terminate for serious misconduct and the process to follow in order to so.

HR Legal can assist with advice on these matters, including reviewing your employment contracts and termination documents to ensure they provide maximum protection to your business.


This article was produced by HR Legal. It is intended to provide general information only in summary format on legal issues. It does not constitute legal advice, and should not be relied on as such.