Adam Barker v Dsb Partners Pty. Ltd. T/A Dsb Landscape Architects
[2024] FWC 2381
•24 SEPTEMBER 2024
| [2024] FWC 2381 |
| FAIR WORK COMMISSION |
| DECISION |
Fair Work Act 2009
s.394—Unfair dismissal
Adam Barker
v
DSB Partners Pty. Ltd. T/A DSB Landscape Architects
(U2024/5607)
| COMMISSIONER MIRABELLA | MELBOURNE, 24 SEPTEMBER 2024 |
Application for an unfair dismissal remedy – Small Business Fair Dismissal Code.
This decision concerns an application made on 17 May 2024 by Mr Adam Barker (the Applicant) under s.394 of the Fair Work Act 2009 (the Act) for an unfair dismissal remedy.
The Applicant was employed as a landscape architect with DSB Partners Pty. Ltd. trading as DSB Landscape Architects (the Respondent) from approximately early March 2009 until he was dismissed on 26 April 2024. The Applicant claims his dismissal was unfair, submitting that there was no valid reason for his dismissal, that he was not notified that the status of his employment was going to be considered at the 26 April 2024 directors’ meeting where he was dismissed (the 26 April 2024 meeting), that he had no opportunity to respond to the allegations put to him and that there was no opportunity for him to bring a support person to the meeting. The Applicant seeks compensation as a remedy.
The Respondent objects to the application on the jurisdictional basis that it complied with the Small Business Fair Dismissal Code (the Code). There is no contest that the Applicant was dismissed.
The matter was allocated to me on 3 July 2024. I conducted a mention/conference in the matter on 8 July 2024 where the Respondent claimed to be a small business but had not filed a completed Code checklist. The Respondent was given time to file a completed Code checklist by 19 July 2024. I issued directions for the filing and service of submissions on 15 July 2024. On 28 August 2024, the Respondent filed two Form F52 applications for orders relating to the production of documents (the Form F52 applications). The parties then attended a conciliation before another member of the Commission on 29 August 2024. As the matter did not resolve at the conciliation, I listed a mention on 30 August 2024 to discuss the Form F52 applications. At the mention, I decided to issue an order requiring the Applicant to produce documents relating to the income generated and costs incurred by his landscape architectural business. This was provided to the Commission and the Respondent on 3 September 2024.
The jurisdictional objection and the merits were heard together at a determinative conference on 4 September 2024. As well as the Applicant himself, the following witnesses gave evidence for the Applicant:
· Ms Rosemary Goode, office manager for the Respondent, and
· Mr David Pearce, who is a former director and current employee and shareholder of the Respondent.
The Applicant was represented by Mr Charles Pym of counsel. The Respondent was represented by Mr Michael Reeves, who is currently the sole director of the Respondent. Mr Reeves also gave evidence on the Respondent’s behalf.
Preliminary matters
I am required by s.396 of the Act to decide preliminary matters prior to consideration of the merits of the application.
The application was filed within the statutory timeframe and there is no contest that the Applicant was a person protected from unfair dismissal. The issue of genuine redundancy is not relevant to this matter.
As to the fourth matter, whether the dismissal was consistent with the Code, there is no contest that the Respondent was a small business. At the time of the dismissal, the Respondent employed six employees. I must resolve whether the dismissal was consistent with the Code.[1] In the event I find that the Respondent did comply with the Code, there is no dismissal to examine, as the dismissal would have been consistent with s.385(c). If I find that the Respondent did not comply with the Code, I will be required to examine whether the dismissal was harsh, unjust or unreasonable.[2]
Background
The Respondent provides landscape architecture services, arborist services and horticultural services.
The Applicant commenced employment with the Respondent as a graduate landscape architect in Canberra in early March 2009 and was subsequently promoted to more senior roles within the business.
In May 2013, the Applicant and another employee, Mr Pearce, each bought 1/6th of a share in the Respondent for $32,500 each, entering into a shareholder agreement (the shareholder agreement). Mr Reeves retained the remaining 4/6th of a share. Around this time, the Applicant also entered into a further employment agreement (the employment agreement) which altered the Applicant’s position in the company to director landscape architect. The Applicant and Mr Pearce were also appointed as directors of the Respondent who, alongside Mr Reeves, had been directors of the Respondent since 2013. Mr Pearce resigned as director sometime after the Applicant was dismissed.
In November 2015, the Applicant moved to Melbourne. The parties disagree on whether Mr Reeves allowed the Applicant to move on condition that the Applicant was to expand the business to Melbourne, or whether the expansion of the business to Melbourne would be a goal but that the Applicant’s work would come primarily from Canberra.
The parties discussed proposals for Mr Reeves to retire from the business at a directors’ meeting on 2 February 2024.
On 8 February 2024, Mr Pearce sent an email to Mr Reeves and the Applicant suggesting they even up the shareholding so that each director own one-third of the company.
Around this time, Mr Reeves commissioned a valuation of the company. The valuation provided to Mr Reeves on 20 February 2024 (the 20 February 2024 valuation) shows a notional valuation of the Respondent at $13,000 and a net tangible assets valuation of minus $119,385.
On about 24 February 2024, Mr Reeves sent a document to the Applicant and Mr Pearce which, amongst other things, outlined various proposals to increase the profits of the Respondent and proposed a buy-out of the business, in all likelihood at the full value of the monies he had invested in the business, that being approximately $450,000 to $500,000 (the DSB Opportunity document).
Sometime later in February 2024, the Applicant received the 20 February 2024 valuation.
On 6 March 2024, the Applicant sent an email, on behalf of him and Mr Pearce, to Mr Reeves in which they reasserted their desire for equal shareholding among the three directors, objected to the 20 February 2024 valuation being commissioned without their knowledge, questioned why Mr Reeves did not mention the valuation in the DSB Opportunity document, and called for a reconciliation of director credit cards and company bank accounts to ‘provide clarity on the benefits received during the 2013-2024 period.’ The Applicant accordingly requested that ‘all credit card statements and bank statements’ for that period be provided, proposing they be reviewed by Ms Goode and presented at the next directors’ meeting for discussion.
The Applicant then conducted reconciliations into his and Mr Reeves’s business credit cards and formatted the reconciliations into an excel spreadsheet.
On 20 April 2024, Mr Reeves sent an agenda, which was amended from the agenda previously sent on 11 March 2024, to the Applicant and Mr Pearce for the directors’ meeting on 26 April 2024. The agenda sent was as follows:
‘1 Payment of unpaid working capital by Adam Barker and David Pearce each $30,000 in accordance with Notice of Demands attached.
2 Repayment of working capital to Michael Reeves to the value of $20,000.
3 Repayment of the remaining balance of $15,000 loaned to dsb by Michael Reeves when there were insufficient funds to pay wages.
4 Confirmation of insurance policy adjustment to MR $300,000 AB $75,000 and DP $75,000.
5 dsb entering into a loan agreement with Michael Reeves to redeem the value of the Class F shares within a minimum 5-year time frame.
6 Receipt of evidence from Adam Barker and David Pearce outlining historical Director's entitlements.
7 Review of Adam Barker and David Pearce salaries adjustment given there has been no improvement to dsb financial performance following the recent increase to $130,000.
8 Review of poor outcomes from Victorian worksearch.
9 Review of Adam Barker refusal to undertake staff FX Land training despite Directors Meeting agreement in December 2023, and Michael Reeves direction to undertake and Adam Barker refusal to commence and not proceeding with training in April 2024.
10 Directors’ compliance with ‘best interests of dsb’ test in included in Adam Barker and David Pearce employment agreements. Agreements attached.’
On 24 April 2024, the Applicant circulated the spreadsheet detailing the reconciliation of Mr Reeves’s credit card.
The 26 April 2024 meeting was recorded by Mr Reeves and was tendered as evidence by the Respondent at the determinative conference. The meeting’s discussion is summarised below.
The meeting was attended by all three directors. The meeting began with the Applicant proposing to review Ms Goode’s salary with a view to increasing it and, following some opposition by Mr Reeves, the directors agree to scheduling the pay review for a later date.
The directors then move to discussing the reconciliations of the Applicant’s and Mr Reeves’s credit cards. The Applicant proposes that a reconciliation should occur each year as per the shareholder agreement and further states that he is not qualified to interpret the data and that it should be sent to someone who is qualified to provide advice. Mr Reeves questions the quality of the data provided in the reconciliation spreadsheets.
The Applicant then objects to Ms Goode not assisting with the credit card review. Mr Reeves responds with, amongst other things, that Ms Goode advised him today that she did not want to be a part of this discussion. The Applicant clarifies that he meant that when the reconciliation process started, he and Mr Pearce wanted Ms Goode to conduct the reconciliation, and that Mr Reeves opposed this. Mr Reeves agrees with this and states this was because the reconciliation was going to be a ‘forensic investigation all the way back for the last 11 years’.
The Applicant then states that reconciliation is a condition of the shareholder agreement. Mr Reeves states that because neither the Applicant nor Mr Pearce have contributed any working capital, they do not have a loan account and, consequently, they do not have a financial stake in the business. Mr Reeves states that as part of the shareholder agreement, the Applicant has a contractual obligation to contribute working capital to the business. Mr Reeves then says, amongst other things, that the Applicant does not understand how a private company works, that in over 11 years the Applicant and Mr Pearce have not offered to contribute any working capital and that they have expected Mr Reeves to contribute to the company, which is why the balance in Mr Reeves’s loan account has increased.
The Applicant states that the purpose of the reconciliation is ‘to account all of the benefits’, but the Applicant is then cut off by Mr Reeves. Mr Reeves asks whether his expenditure since 2013 needs to be ‘forensically examined’ to determine what was a personal benefit or business cost. The Applicant agrees that this is the purpose of the reconciliation.
Mr Pearce then states that through the reconciliation process, the Applicant has found some expenditure on his own business credit card that were not company expenses.
The Applicant then states that returning the Respondent to ‘a healthy business’ by driving profits and reducing overheads requires a ‘clean slate’. The Applicant then states there has been ‘no oversight’ for the last 10 to 11 years and there has been no internal review into overheads until Ms Goode commenced employment with the Respondent and that unnecessary expenditures have been identified.
The Applicant then states:
‘There are expenditures and payments that we’ve been making over the last 10 years that had we not been doing that, there would never have had to be … a capital injection at all’.
Mr Reeves then replies that the Applicant and Mr Pearce have a contractual obligation as part of the shareholder agreement to contribute $30,000 each.
The Applicant notes that the reconciliation and capital injection are ‘two separate things’. Mr Reeves then states that if there is no money from a capital injection in an account, there is nothing to reconcile against, and that the Applicant does not have a loan account.
The Applicant then states that Mr Reeves has a loan account, to which Mr Reeves agrees, and that Mr Reeves’s expenditures should be reconciled against that account.
Mr Reeves replies that ‘they have been’ over time and that it is not in his character or ‘morals or ethics’ to be taking money out of the business to which he is not entitled. He advises the expenditures on his business credit card were legitimate business expenses.
The Applicant then replies:
‘This is the point of this review. So I can go along to our company manager, BLG, and they can review it and they can advise because I actually disagree …’
Mr Reeves interjects with:
‘So, you’re working on the assumption that I’ve been taking money out of the business that I’m not entitled to, is that correct?’
The Applicant replies with:
‘Well, it depends on what that is … we need to define what is a business-related cost and what is not. I would say that there would be numerous things in there that are not a business-related cost and that also includes … things that … if we’re putting fuel in our car, why there are three fuel-ups at a …car … at a petrol station on the same day. That’s not a business-related cost. So, it requires somebody, probably Rosemary and Luke and BLG, to go through this and make sense of it. We are landscape architects, we’re not accountants. This is not our area of expertise. My job here, which shouldn’t have been my job, was to get this information into a workbook, all of the information. We review it, highlight any mistakes, sure. We go through that, then we send it off to somebody to review and advise us.’
Mr Reeves then asks:
‘And what is the remedy following that?’
The Applicant responds that because Mr Reeves is wanting Mr Pearce and the Applicant to buy the Respondent and contribute, and they ‘want to balance out shareholding things’, they ‘need to know exactly what that figure is’.
Mr Reeves then responds that their contractual obligation is to provide $30,000 working capital each. The Applicant replies that the valuation prepared on Mr Reeves’s request valued the company at $16,000. Mr Reeves agrees, stating, ‘yeah, he said basically worthless’.
The Applicant states, ‘yeah, so, this is why we need to have this, Michael’, referring to Mr Reeves.
Mr Reeves’s response is:
‘So you’re sort of saying that you’re not going to fulfil your obligations because you think that it’s worthless and you don’t want to contribute anything’.
The Applicant replies he has been advised not to comment on that at this time and that this meeting is ‘just to gather information and to put forward that along to the people who know what they’re doing’ and that it is not his area of expertise.
Mr Reeves responds with:
‘I am not prepared to accept the premise that you need to do a reconciliation to substantiate your contractual obligations to submit working capital into the business and the fact that you choose not to is worrying.’
The Applicant responds:
‘Well, I think that’s open to interpretation’.
Mr Reeves then states:
‘Mate, mate, look. Let me list it out. The Victorian experiment has been a failure. You’ve managed to gain two clients. You’re timid and you’re unprofessional with regards to approaching potential clients for work. You know, the … this reconciliation is an insult in that it assumes that I’ve been dipping when I haven’t. The insurance was an insult when you sort of said, “Miriam’s getting something that I’m paying for and I’m not going to do it”. The comment previously that you’re not interested in working for DSB for profit which goes to me is, you know, goes to your attitude towards DSB. Your participation in the last directors’ meeting where Luke was part was an embarrassment and, you know, if you think that this is the worst investment that you’ve ever made, then, you know, thanks very much. You were naïve to request that there be a one-third, one-third shareholding based on nothing more than a period of service. Your persistent cost-cutting is not the way to actually get DSB onto a solid financial footing. It is part of the thing, but the most important part is increasing income. And, you know, your refusal to train the staff on FX Land and Sketchup Lumion says an awful lot. I asked you to do it in December, I asked you to do it only recently. You fobbed it off and then when it was scheduled, you didn’t do it. Staff were sitting here sort of going “Michael, where’s Adam and where’s the training?”. Mate ...’
Both the Applicant and Mr Pearce attempt to interject but are cut off by Mr Reeves who then states:
‘It’s not acceptable and my response is, Adam, your employment at DSB is terminated now’.
Mr Pearce then asks:
‘Are you serious, Michael?’
Mr Reeves then replies:
‘I’m serious. Your employment at DSB is terminated now and I will send you the documentation with regards to reasons why and how to resolve whatever’s outstanding. In accordance with 5.10 of the shareholders agreement, as you’re no longer an employee of the company, your shares are tabled for purchase by the remaining shareholders. I bid $1 and, as such, given that your shares are tabled, you have no voting rights and no right to attend meetings’.
Mr Reeves then directs the Applicant to return company property and to not use company software and licences. Mr Reeves then says, ‘that’s my position’ and ‘that’s the end of the meeting, goodbye’ and logs off from the meeting.
The termination letter dated 29 April 2024 (the termination letter) lists the reasons for termination as the following:
‘• Not acting in the best interests of DSB Partners Pty Ltd as a Director, and
· Not acting in the best interests of dsb Landscape Architects as an employee, and
· Failure to actively promote and market dsb in the Victorian market, and
· Failure to train dsb staff in design software as requested by Director Michael Reeves, and
· Failure to respond to Shareholders Agreement requirement to provide Working Capital to the business dated 17 May 2013, and
· Refusal to respond to Notice of Demand for Working Capital issued 20 April 2024.’
In the Code checklist, the Respondent indicated at question 5 that the Applicant had been dismissed ‘for some other form of serious misconduct’. The serious misconduct is listed as the following:
· Failure to contribute working capital as per the shareholder agreement,
· Failure to regularly complete time sheets,
· Failure to develop the business in Victoria, and
· Failure to train staff on the use of FX Land software.
Consideration
As foreshadowed in paragraph 9 above, I find that the Respondent was a small business employer within the meaning of s.23 of the Act, and I am now required to address the matter of whether the dismissal was consistent with the Code and, accordingly, whether s.385(c) applies.
The Code is set out below:
‘Summary Dismissal
It is fair for an employer to dismiss an employee without notice or warning when the employer believes on reasonable grounds that the employee’s conduct is sufficiently serious to justify immediate dismissal. Serious misconduct includes theft, fraud, violence and serious breaches of occupational health and safety procedures. For a dismissal to be deemed fair it is sufficient, though not essential, that an allegation of theft, fraud or violence be reported to the police. Of course, the employer must have reasonable grounds for making the report.
Other Dismissal
In other cases, the small business employer must give the employee a reason why he or she is at risk of being dismissed. The reason must be a valid reason based on the employee’s conduct or capacity to do the job.
The employee must be warned verbally or preferably in writing, that he or she risks being dismissed if there is no improvement.
The small business employer must provide the employee with an opportunity to respond to the warning and give the employee a reasonable chance to rectify the problem, having regard to the employee’s response. Rectifying the problem might involve the employer providing additional training and ensuring the employee knows the employer’s job expectations.
Procedural Matters
In discussions with an employee in circumstances where dismissal is possible, the employee can have another person present to assist. However, the other person cannot be a lawyer acting in a professional capacity.
A small business employer will be required to provide evidence of compliance with the Code if the employee makes a claim for unfair dismissal to Fair Work Australia, including evidence that a warning has been given (except in cases of summary dismissal). Evidence may include a completed checklist, copies of written warning(s), a statement of termination or signed witness statements.’
The Act further defines ‘serious misconduct’[3] by reference to the definition in the Fair Work Regulations 2009 (the Regulations):
‘1.07 Meaning of serious misconduct
(1) For the purposes of the definition of serious misconduct in section 12 of the Act, serious misconduct has its ordinary meaning.
Examples of serious misconduct—employees
(2) For the purposes of subregulation (1), conduct that is serious misconduct includes the following conduct of an employee:
(a) wilful or deliberate behaviour 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;
(c) engaging in theft, fraud, assault or sexual harassment in the course of the employee’s employment;
(d) being intoxicated at work;
(e) refusing to carry out a lawful and reasonable instruction that is consistent with the employee’s contract of employment.
(3) Paragraphs (2)(c) to (e) do not apply if the employee is able to show that, in the circumstances, the conduct engaged in by the employee was not conduct that made employment in the period of notice unreasonable.’
In this matter, the Code is to be applied as it relates to ‘summary dismissal’, because the undisputed evidence establishes that the dismissal had immediate effect.
The legal principles relevant to the determination of this matter, including the operation of the Code, are well settled.
In Pinawin v Domingo,[4] the Full Bench considered summary dismissal and compliance with the Code:
‘[29] … There are two steps in the process of determining whether this aspect of the Small Business Fair Dismissal Code is satisfied. First, there needs to be a consideration whether, at the time of dismissal, the employer held a belief that the employee’s conduct was sufficiently serious to justify immediate dismissal. Secondly it is necessary to consider whether that belief was based on reasonable grounds. The second element incorporates the concept that the employer has carried out a reasonable investigation into the matter. It is not necessary to determine whether the employer was correct in the belief that it held.
[30] Acting reasonably does not require a single course of action. Different employers may approach the matter differently and form different conclusions, perhaps giving more benefit of any doubt, but still be acting reasonably. The legislation requires a consideration of whether the particular employer, in determining its course of action in relation to the employee at the time of dismissal, carried out a reasonable investigation, and reached a reasonable conclusion in all the circumstances. Those circumstances include the experience and resources of the small business employer concerned.’
In Ryman v Thrash Pty Ltd,[5] the Full Bench explained how the summary dismissal provisions of the Code operate:
‘[41] In summary, drawing on the conclusions stated above and the ratio in Pinawin, we consider that the “Summary dismissal” section of the Code operates in the following way:
(1) If a small business employer has dismissed an employee without notice - that is, with immediate effect - on the ground that the employee has committed serious misconduct that falls within the definition in reg.1.07, then it is necessary for the Commission to consider whether the dismissal was consistent with the “Summary dismissal” section of the Code. All other types of dismissals by small business employers are to be considered under the “Other dismissal” section of the Code.
(2) In assessing whether the “Summary dismissal” section of the Code was complied with, it is necessary to determine first whether the employer genuinely held a belief that the employee’s conduct was sufficiently serious to justify immediate dismissal, and second whether the employer’s belief was, objectively speaking, based on reasonable grounds. Whether the employer has carried out a reasonable investigation into the matter will be relevant to the second element.’
The Applicant was dismissed verbally at the 26 April 2024 meeting. Three days later, he received a termination letter confirming he had been dismissed on 26 April 2024 and was provided with further details and background regarding his dismissal. The recording of the meeting during which the Applicant was dismissed was tendered by the Respondent. It is clear from this useful recording that the Applicant was dismissed on the spot without warning. The reasons given for the dismissal at the meeting are detailed above in paragraph 47 and are augmented by the reasons in the termination letter (see paragraph 52).
I first need to consider whether the Respondent held a genuine belief that the employee had committed an act of serious misconduct and whether the belief was, objectively speaking, based on reasonable grounds. In his witness statement,[6] Mr Reeves says that when he was effectively accused of theft at the 26 April 2024 meeting:
‘It was at this point in the meeting I formed the opinion that a breach of the relationship of trust and confidence had occurred between Mr Barker and me which warranted immediate dismissal …’
Mr Reeves refers to contextual factors surrounding the dismissal. Mr Reeves was particularly exercised about the fact that neither the Applicant nor Mr Pearce had, in his opinion, complied with the Respondent’s shareholder agreement to provide working capital to the business and had refused to respond to a notice of demand some six days prior to the 26 April 2024 meeting for a contribution of working capital. Mr Reeves was genuinely offended that the Applicant had requested a reconciliation of credit card statements, and that the Applicant had suggested Mr Reeves’s wife would benefit from a life insurance payout.
Mr Reeves appears to have taken offence at the Applicant’s comments that he was not interested in working to make increased profits for the Respondent because they were largely allocated to Mr Reeves, and apparently deemed this not acting in the Respondent’s best interests, although this argument is not explicitly made.
Mr Reeves has also listed other reasons as contributing to serious misconduct, these reasons being the performance-based issues of failing to train staff and a failure to develop the business in Victoria.
At the determinative conference, Mr Reeves repeatedly referred to the Applicant’s lack of contribution to working capital and was visibly affected by any hint that he had misused company funds for his personal benefit. Mr Reeves had bought in and invested approximately half a million dollars into this business over 18 years. He was wanting to exit the business and viewed the actions of the Applicant in questioning his honesty as an affront. On balance, I do find that Mr Reeves believed that the request for directors’ credit card reconciliations was an accusation of theft, and that he believed this combination of actions was sufficiently serious to justify summary dismissal.
For the reasons below, I find that Mr Reeves’s belief was not reasonably held. Whether a belief was reasonable in the circumstances depends on the information an employer had available to it at the time and the steps it took to verify the information.
Mr Reeves did not make any substantial investigation regarding any of the alleged items of misconduct where an investigation could have been conducted.
This alleged offence regarding a reconciliation of directors’ credit card expenses cannot reasonably justify summary dismissal. That Mr Reeves was offended is understandable, but the other directors were relying on the shareholder agreement that provided for reconciliation of accounts.[7] In the context of attempts to value the business so as to affect share transfers, these reconciliations are reasonably expected.
For the sake of completeness, as to the other matters referred to in the termination letter that are later referenced by Mr Reeves in his witness statement in similar words as ‘contextual matters’, I find as follows.
The subjective and unparticularised reason for the termination of the Applicant’s employment, that the Applicant had not acted in the best interests of the Respondent, although a genuine belief on Mr Reeves’s behalf, is not serious misconduct. Failure to grow the business in Victoria and to train staff are performance-based issues and, without further information, cannot reasonably be described as serious misconduct. The Applicant was a salaried employee and a failure to regularly complete time sheets is not a failure that can reasonably be characterised as serious misconduct, particularly in the context that this failure was not aimed at obtaining some fraudulent gain. There would also appear to be confusion regarding the Applicant as an employee and the Applicant as a director of the Respondent. Whilst appreciating Mr Reeves’s frustration with what he believed was non-compliance with the shareholder agreement, those matters were more properly dealt with in the context of the shareholder agreement and not the employment context.
In two submissions filed in response to directions in this matter, the Respondent alters his position. In these submissions, he no longer relies on the ground of serious misconduct and instead seeks to satisfy compliance with the Code by complying with the requirements of the Code under the heading ‘Other Dismissal’.
The Respondent submits that because a payment in lieu of notice was made to the Applicant, the Respondent is not required to demonstrate serious misconduct that would be sufficient to justify summary dismissal. Instead, the Respondent submits that to give the Code its proper operation, ‘it is necessary to give appropriate weight to “sufficiently serious” breaches of employment obligations which arise from contact which damages those personal relations.’[8]
In this context, the Respondent submits that ‘sufficiently serious conduct’ is the Applicant’s insubordination. The Respondent says that because the Applicant did not comply with his shareholder obligations and ‘[g]iven the relative seniority of the Applicant and Mr Reeves, that conduct … amounted to insubordination.’[9] The Respondent submits that Commission decisions have found that insubordination is a valid reason for dismissal.
The Respondent submits that additional reasons for dismissal include that the Applicant did not follow reasonable and lawful directions and that such actions strike at the heart of the Applicant’s employment obligations and should be viewed as serious misconduct as prescribed by the Regulations. The Respondent submits that the alleged refusal to follow lawful and reasonable directions has consequences that have a more significant impact on a smaller business, such as the Respondent, than on a larger business. The details of the alleged lawful and reasonable directions are as follows:
· The direction given on 25 February 2024 to complete time sheets as required by the employment agreement, particularly in the context of working remotely in another state. The Respondent says this required trust and that this trust was destroyed; and
· The directions given on four occasions to train staff in the FX Land program.
The Respondent’s submissions appear to be an attempt to cover all possible options for opposing the Applicant’s application. The initial reliance on the serious misconduct part of the Code subsequently shifts to the ‘Other Dismissal’ part of the Code or, alternatively, conflates the Code with addressing the matters in s.387 of the Act.
The Applicant was dismissed summarily, and the Summary Dismissal part of the Code consequently applies. In any case, I do not find that the matters described above are of a nature that strike at the heart of the Applicant’s employment obligations, as asserted by the Respondent, so as to justify summary dismissal.
For the reasons above, I find that the Respondent did not comply with the Code and that the dismissal is not consistent with s.385(c). Accordingly, I am required to examine whether the dismissal was harsh, unjust or unreasonable.
Was there a valid reason for dismissal relating to capacity or conduct?
The valid reason must be sound, defensible or well-founded and must ‘“be applied in a practical, commonsense way to ensure that” the employer and employee are each treated fairly’.[10]
The Applicant submits that the termination letter does not disclose a valid reason for dismissal.
Mr Reeves submits that when he believed he was being accused of theft, he decided to dismiss the Applicant because the relationship of trust between them had been breached and that this had occurred in the context of other matters, including the Applicant’s failure to follow lawful and reasonable instructions, to generate income for the business in Victoria and to provide working capital as required by the shareholder agreement.
Understandably, small businesses operate with somewhat less flexibility and resources than larger operations. The dismissal also occurred against the background that Mr Reeves was the main shareholder, he had invested approximately half a million dollars into the business and was keen to retire from the business with adequate remuneration for his shares. All of this background did create significant stress for Mr Reeves, and he was visibly agitated about these matters at the determinative conference.
Although it was a highly stressful time for Mr Reeves, and tensions between Mr Reeves and the other two directors were high, I do not find the reason given for dismissal to be a valid one. Mr Reeves says he was accused of theft. This and the contextual reasons were communicated to the Applicant. The Applicant was reasonably entitled to request a reconciliation of directors’ credit card expenditure. The other reasons given in the termination letter are, as per Mr Reeves’s subsequent witness statement, contextual factors.[11]
The other reasons for dismissal detailed in the termination letter are listed in paragraph 52 above and I will address them for the sake of completeness. The Respondent submits that the Applicant had been on notice for a considerable time to make capital contributions and had an opportunity to respond at the 26 April 2024 meeting. The termination letter advised of the reasons for dismissal in six dot points.
The first two dot points relate to the Applicant’s failure to act in the best interests of the company as a director and an employee. These criticisms lack sufficient detail for a determination of whether they are a valid reason. In various submissions and at the determinative conference, Mr Reeves refers to a lack of respect for his position as the senior director and is offended at a request for an audit of the directors’ credit card use and the suggestion that he may have used such facilities for personal purposes. This and other forms of conduct described above certainly appear to have offended Mr Reeves.
The question of whether the conduct was sufficient to constitute a valid reason is another matter. The offence was real, and Mr Reeves may have felt a sense that the Applicant was ungrateful. In many ways, the parties were communicating at cross purposes. Mr Reeves was keen to recoup the funds he had invested in the Respondent and the Applicant and Mr Pearce appear to have been wanting to understand the Respondent’s financial situation before they made further commitments. Communication between the parties was strained but nothing in the conduct relating to the request for transparency of directors’ expenditure or a reference to Mr Reeves’s insurance is of such a serious nature so as to constitute a valid reason for dismissal.
With regards to the requirement to provide working capital and to respond to a demand for same, these are properly characterised as shareholder matters and go to a disagreement between Mr Reeves and the other two directors.
In spite of Mr Reeves’s submissions, in his own witness statement in his own words, he says that he decided to dismiss the Applicant because he believed he was being accused of theft.
The remaining two dot points relate to performance related matters, those being not sufficiently developing the business in Victoria and failing to train staff.
For the reasons above, I do not find the Applicant was dismissed for a valid reason.
Was the Applicant notified of the reasons and was there an opportunity to respond to any capacity or conduct related reasons?
As I have not found there was a valid reason related to dismissal, this factor is not relevant in the present circumstances.
Was there any unreasonable refusal to allow a support person to be present to assist at any discussions relating to dismissal?
There was no unreasonable refusal of a request for a support person. This is not a relevant consideration in this matter.
Was the Applicant warned about relevant unsatisfactory performance?
The Respondent makes no submissions in this regard because it submits that the dismissal was not related to unsatisfactory performance.
The Respondent listed six dot points as the reasons for dismissal in the termination letter. Two of these matters, concerning the Applicant not training staff and not developing the business in Victoria, can properly be characterised as performance issues.
In the absence of any evidence that a warning was given, I accept the Applicant’s evidence that no warning was given about unsatisfactory performance.[12]
The degree to which the size of the Respondent’s business and any absence of dedicated human resources management specialists or expertise in the business would be likely to impact on the procedures followed in effecting the dismissal
The Respondent submits that I should have regard to the fact that the Respondent does not have ‘access to a dedicated human resources or industrial relations function’. The Applicant submits that it was reasonable to expect the Respondent to seek professional advice before the termination of his employment and that there was adequate opportunity to obtain that advice.
The small size of the Respondent’s business and the absence of human resources management specialists in all likelihood contributed to the dismissal process, with that process essentially lacking procedural fairness.
Other relevant matters
As to other relevant matters, the Applicant says, firstly, I should consider that the true reason for the dismissal was the request for a credit card reconciliation. Mr Reeves’s evidence pinpoints the request for reconciliation statements as the trigger for the dismissal and this has formed part of the consideration of relevant factors.
As to the other matters the Applicant says are relevant, I agree with the Respondent that the dismissal over Zoom was a necessary requirement due to the different locations of employees. I also accept Mr Reeves’s evidence regarding his use of ‘Hi Ho’ in emails to his wife and that the offending email has not been transmitted further. In any case, it does not appear to me that the Applicant has been affected in any way by this email. Similarly, the email sent to staff regarding job security was a generic one sent to all staff and in the context of the shareholder dispute, I do not consider that this is a significantly relevant matter.
Although the forced acquisition of shares occurred at the same meeting as the dismissal, they are separate matters. The question of the shares being forcibly acquired is properly dealt with and resolved by reference to the corporations law and shareholder agreement of May 2013.
The context of this dismissal is that it was part of a wider dispute between the majority and senior shareholder, Mr Reeves, and the Applicant and Mr Pearce. Mr Reeves naturally wanted to increase the value of the Respondent and seemed frustrated that the Applicant did not share his views, firstly, as to how to achieve this and, secondly, what were appropriate company contributions for the Applicant to make.
In all the circumstances, I find the Applicant’s dismissal was unjust and unreasonable. Whilst having some appreciation of Mr Reeves’s position, the Applicant was ambushed at the 26 April 2024 meeting, was summarily dismissed, and had no opportunity to respond to any of the matters relied upon by Mr Reeves in dismissing the Applicant.
It follows that the Applicant was unfairly dismissed.
Remedy
The relationship between Mr Reeves and the Applicant has become somewhat acrimonious and it would likely be untenable for the Applicant to return to the Respondent as an employee. The Applicant has not applied for reinstatement, and I am satisfied that reinstatement would not be appropriate.
Directions will instead be issued in relation to whether compensation is appropriate in all the circumstances of the case and, if so, the amount of compensation that should be awarded.
COMMISSIONER
Appearances:
Mr C Pym for the Applicant.
Mr M Reeves for the Respondent.
Hearing details:
4 September
2024
Melbourne
[1] Fair Work Act 2009 s.385(c) (the Act).
[2] The Act s.385(b).
[3] The Act s.12.
[4] John Pinawin T/A RoseVi.Hair.Face.Body v Edwin Domingo [2012] FWAFB 1359.
[5] Jeremy Ryman v Thrash Pty Ltd t/a Wisharts Automotive Services[2015] FWCFB 5264, [41].
[6] Court book at page 351, paragraph 107.
[7] Court book at page 508, clause 13.1(h).
[8] Court book at page 329.
[9] Ibid.
[10] Selvachandran v Peteron Plastics Pty Ltd (1995) 62 IR 371, 373.
[11] Court book at pages 351-352.
[12] Court book at page 46, paragraph 8.
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