Craig Erskine v Steri-Flow Filtration Systems (Aust) Pty Ltd

[2012] FWA 10248

Note: An appeal pursuant to s.604 (C2012/6681) was lodged against this decision - refer to Full Bench decision dated 24 April 2013 [[2013] FWCFB 1943] for result of appeal.

[2012] FWA 10248

FAIR WORK AUSTRALIA

DECISION

Fair Work Act 2009
s.394—Unfair dismissal

Craig Erskine
v
Steri-Flow Filtration Systems (Aust) Pty Ltd
(U2012/7362)

SENIOR DEPUTY PRESIDENT O’CALLAGHAN ADELAIDE, 10 DECEMBER 2012

Termination of employment - small business fair dismissal code - reasonable actions-responsibilities of an employee involved in other corporations - harsh, unjust or unreasonable - remedies.

[1] On 23 April 2012 Mr Erskine lodged an application pursuant to s.394 of the Fair Work Act 2009 (the FW Act), through which he sought relief with respect to the termination of his employment with Steri-Flow Filtration Systems (Aust) Pty Ltd (SFS). Mr Erskine’s application was unable to be settled through the conciliation process and was listed for hearing in November 2012.

[2] At the hearing on 20 and 21 November 2012 Mr Erskine was represented by Mr R Harms of counsel and SFS, by Mr A Manos of counsel.

[3] There is no dispute between the parties that, at the time of the termination of Mr Erskine’s employment, SFS was a small business employer pursuant to s.23 of the FW Act.

[4] Because of the extent of the disagreement between the parties over such a broad range of issues, it is difficult to usefully summarise the background to the matter. In endeavouring to do so, I note my understanding that there are a range of matters in dispute between the parties which involve actual or likely proceedings in other courts.

Background

[5] Before even considering Mr Erskine’s employment I have endeavoured to summarise the relevant corporate relationships.

[6] SFS was initially registered by the applicant’s father, Mr G Erskine. It undertook manufacturing and research activities based in South Australia. Another entity (the Rosen Group) bought a major shareholding in the business some years ago and appointed Mr Fong as a Director of the business. Mr G Erskine remained as Managing Director until August 2011. I understand that Mr G Erskine retains a significant ownership interest in SFS.

[7] In 2007/8 SFS directed its primary attention to the Malaysian palm oil industry. It progressively established its operations in Malaysia.

[8] SFS ceased its research and development work in South Australia in 2008 and South Australian staff undertaking those functions were made redundant. Certain of those staff were then engaged as employees of another company, Steri-flow Technologies Pty Ltd (ST). The applicant is the sole shareholder and Director of ST. Notwithstanding this, there is substantial dispute over his involvement and awareness of that company and its activities.

[9] ST contracted with a supplier to produce filter equipment in 2011. The date this equipment was ordered is not agreed. The manufacturing of this equipment was undertaken by a firm which had previously manufactured the same equipment for SFS. The manufacture process required the use of tooling previously held by SFS. The ownership of this tooling is in dispute.

[10] Mr G Erskine resigned as Managing Director of SFS in August 2011. Mr Fong then took over as Managing Director.

[11] Mr C Erskine (the applicant) was employed by SFS in September 2003. He undertook research and development functions, and, possibly, some other work in South Australia and later, in Malaysia. Mr C Erskine was asked to relocate to Malaysia in 2011. He and Mr Fong were unable to reach agreement on a remuneration arrangement. Mr C Erskine’s alternative proposal for a redundancy payment was also unable to be agreed. The nature and the content of the negotiations around these issues are not agreed. Neither are the arrangements under which Mr C Erskine continued to work from mid-2011.

[12] In February 2012 Mr Fong undertook enquiries which related to the filtration equipment ordered by ST. Mr Fong's awareness of ST and its operations is disputed. Mr Fong sought advice about the location of a mould for the filtration equipment. He alleges that the applicant mislead him with respect to this issue. Mr Fong’s evidence is that he subsequently became aware of the equipment manufactured for ST and that he then conducted a company search and identified, for the first time, the existence of ST with Mr C Erskine as its Director and sole shareholder.

[13] Mr Fong and the applicant met at a cafe on 13 March 2012. Mr Fong bought a note taker to the meeting. The exact content of this discussion is in dispute but the parties did discuss the ST filtration equipment order and the applicant denied knowledge of this order.

[14] Mr Fong e-mailed the notes of this meeting to Mr C Erskine on 14 March 2012. He invited Mr C Erskine to respond to his allegation that Mr C Erskine’s involvement with ST and that company’s actions represented serious and gross misconduct.

[15] Mr C Erskine responded to this advice on 19 March 2012. He disputed the legitimacy of the note-taking at the meeting and asserted that Mr Fong and others knew of the ST business and had previously been involved in discussions about renting its equipment. Mr C Erskine’s response was copied to his father, Mr G Erskine.

[16] On 15 March 2012 Mr Fong also wrote to Mr C Erskine and his mother, Ms L Erskine asserting that they were both Directors of ST and asserting that ST’s use of the tooling (or moulds) was a serious offence and infringed its intellectual property rights. This letter detailed SFS’ demands of ST relative to work actions, property and commercial dealings.

[17] Mr C Erskine replied to this letter on 21 March 2012 as the Director of ST. He confirmed that he was the sole Director of ST and asserted that ST had been given permission and authority to use the tooling from a Director of SFS and that there was no misuse of intellectual property.

[18] Mr G Erskine engaged in an e-mail exchange with Mr Fong between 19 and 20 March 2012. In this exchange, Mr G Erskine disputed the SFS assertions regarding its intellectual property rights. Further, he asserted that:

“I have just read your email to Craig and I am nothing short of disgusted at your tone and actuations towards him and the company.

There are a few facts that I will go through. The first one being, Paul Draper the then manager of Steri-Flow Technologies approached me and asked if they could do some trials using the settling plates on a waste material, to replace a DAF unit. If successful could have opened up a large market for Steri-Flow Filtration.

As the Managing Director and 25% Shareholder of Steri-Flow Filtration, I had the authority and agreed that it was a good opportunity; possibly even mean that Steri-Flow Filtration would remain here in Adelaide. I am sure that Paul would have records of that. As it turned out the trials did not go well.

....”

[19] Mr Fong responded to this e-mail and the exchange appears to conclude that the intellectual property rights issue would need to be taken to court.

[20] Mr Fong summarily terminated Mr C Erskine’s employment by letter dated 13 April 2012. In this letter he detailed his concerns about ST and the extent to which he regarded Mr C Erskine’s behaviour as improper. He concluded:

“Both your conduct as a director and sole owner at the time of Steri-flow Technologies’ use of the Company’s Separator Plate tooling and your subsequent conduct of refusing to admit to your involvement with Steri-flow Technologies at our meeting on 13 March 2012 amounts to serious and wilful misconduct.”

The Evidence

[21] Without being exhaustive, Mr C Erskine’s evidence went to his employment with SFS and his limited involvement with ST. He detailed the work he undertook in Malaysia and his unsuccessful attempts to negotiate an appropriate remuneration arrangement for ongoing work in that country. His evidence went to the limited work he could do for SFS from South Australia from July 2011 and his discussions with Mr Fong prior to the termination of his employment.

[22] Mr C Erskine asserted that he was not involved in the day-to-day operation of ST and had not been dishonest in his dealings with Mr Fong.

[23] Mr G Erskine’s evidence went to his long involvement with SFS, his establishment of ST and his role in placing the order for the filter equipment. Mr G Erskine also detailed the various discussions and correspondence exchanged with SFS personnel prior to the termination of his son’s employment. Mr G Erskine explained his involvement with ST and the extent to which, as Managing Director of SFS, he had authorised the actions of ST and other corporations in which he had an interest.

[24] Mr Draper was employed by SFS until his retrenchment in or about December 2008. He was subsequently engaged as the General Manager of ST. His evidence went to the extent to which the applicant was not involved in the day-to-day running of ST and the ordering of the filtration equipment which was eventually manufactured in October 2011.

[25] Again, without being exhaustive, Mr Fong’s evidence went to the history of SFS and its progressive focus on manufacturing in Malaysia. Mr Fong outlined the employment arrangement applicable to the applicant and the arrangements under which he was required to work in Malaysia from late 2008. He also detailed his perspective of the background to the applicant’s refusal to continue to work in Malaysia. Mr Fong’s evidence went to the employment arrangements and benefits applicable to the applicant as an employee. He also detailed his concerns over the whereabouts of a filtration system mould and the production of that filtration system for ST. He outlined the steps he took to identify ST and its relevant personnel and shareholder. Further, Mr Fong set out the actions he took to identify and then raise concerns with the applicant and his ultimate decision to terminate the applicant’s employment.

Findings

[26] Section 396 requires Fair Work Australia to decide a number of specified initial matters before considering the merits of the application. In this respect, despite an apparent error in the application, there is no dispute that it was made within the prescribed period. Mr Erskine was protected from unfair dismissal. There is no dispute that he was an award covered employee and, in any event received a salary below the high income threshold. There is no dispute between the parties that SFS was, at the time of the termination of Mr Erskine’s employment, a small business such that the Small Business Fair Dismissal Code has application. Before considering the operation of this Code, I note that, while Mr Erskine argues that the termination of his employment occurred so as to avoid redundancy payment obligations, SFS does not assert that this employment termination occurred as a genuine redundancy so as to preclude Mr Erskine from pursuing the application.

[27] Before detailing my findings in this matter it is appropriate that I note the high degree of acrimony between the parties and the difficulty in considering the witness evidence.

[28] I did not find Mr Fong to be a reliable witness. He demonstrated a convenient forgetfulness and I am not satisfied that his evidence was entirely truthful. His evidence with respect to negotiations involving another SFS employee working in Malaysia and his awareness of operating equipment owned by the applicant are examples of my concerns in this respect.

[29] On the other hand, Mr C Erskine’s evidence, to the effect that he had little or no knowledge of the operation of ST of which he was the Director and sole shareholder, raises doubts about either his credibility or his corporate competence.

[30] I have predicated my findings on this serious disintegration of the relationship between Mr Fong and Mr G Erskine and have concluded that, to a significant extent, Mr C Erskine’s employment was simply a matter of collateral damage in this disintegration.

[31] Mr Erskine was summarily dismissed. The letter confirming the termination of his employment 1 sets out the reasons for this dismissal.

[32] The Small Business Fair Dismissal Code (the Code) refers to summary dismissal in the following terms:

“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.”

[33] I have adopted the position set out in Pinawin T/A RoseVi.Hair.Face.Body v Domingo 2 where a Full Bench of FWA considered the concept of fairness in the context of these provisions of the Code. The Full Bench stated:

“[29] We believe that the approach and observations in these two decisions are correct. 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.”

[34] In general terms, where an employee engaged in research and development work, is found to be the Director and sole shareholder of another company which could be shown to be using the employer's property without express authorisation and, in effect, competing with it, is most likely demonstrating serious and wilful misconduct.

[35] However, the facts of this particular case are somewhat unique. There is a complex corporate structure with individuals appearing to operate without regard to the duties they owed to the differing corporate entities. In effect, the boundaries have become blurred and the apparently poor communication between the various parties has not assisted.

[36] I have concluded that it was most likely that Mr Fong was aware, for some time, of the existence of at least one company in which Mr C Erskine had a financial interest and which had research capabilities related to the SFS business. In this respect, I have noted Mr G Erskine’s advices of February 2011 3 relative to the establishment of an independent company. I am satisfied that advice to this effect was sent to an associate of Mr Fong's. I have noted that e-mail exchanges which included Mr Fong, in April 20114 referred to equipment purchased by Mr C Erskine.

[37] Thirdly, Mr G Erskine’s e-mail of 19 March 2012 clearly advises Mr Fong that he had authorised the transactions of concern to Mr Fong whilst he was the SFS Managing Director. If Mr Fong had residual concerns over the authorisation of the use of the moulds these could have been easily clarified by simply confirming if Mr G Erskine had authorised that action during his tenure as Managing Director.

[38] I have noted that the Checklist associated with the Small Business Fair Dismissal Code has not been completed. Despite this, I have noted that Mr Fong gave Mr C Erskine an opportunity to respond to his allegations. Mr C Erskine took up that opportunity but I have concluded that he did so in the context of what he understood were known facts about the operation of ST. It is trite to say that it is a great pity that he did not detail any of these understandings properly.

[39] In the particular circumstances of this case I have concluded that Mr Fong did not carry out a reasonable investigation and that his conclusion could not be regarded as reasonable in all of the circumstances. The acrimonious relationship between Mr Fong and Mr G Erskine and Mr Fong’s dubious evidence about his knowledge of at least one other entity involving Mr C Erskine means that more substantial investigation should reasonably have been undertaken in order to substantiate Mr Fong's allegations.

[40] Hence, I am not satisfied that the termination of Mr C Erskine’s employment was consistent with the Small Business Fair Dismissal Code.

[41] In these circumstances, I am required to consider the criteria set out in s.387 in order to decide if the termination of Mr C Erskine’s employment was harsh, unjust or unreasonable. This section states:

“387 Criteria for considering harshness etc.

In considering whether it is satisfied that a dismissal was harsh, unjust or unreasonable, FWA must take into account:

(a) whether there was a valid reason for the dismissal related to the person’s capacity or conduct (including its effect on the safety and welfare of other employees); and

(b) whether the person was notified of that reason; and

(c) whether the person was given an opportunity to respond to any reason related to the capacity or conduct of the person; and

(d) any unreasonable refusal by the employer to allow the person to have a support person present to assist at any discussions relating to dismissal; and

(e) if the dismissal related to unsatisfactory performance by the person—whether the person had been warned about that unsatisfactory performance before the dismissal; and

(f) the degree to which the size of the employer’s enterprise would be likely to impact on the procedures followed in effecting the dismissal; and

(g) the degree to which the absence of dedicated human resource management specialists or expertise in the enterprise would be likely to impact on the procedures followed in effecting the dismissal; and

(h) any other matters that FWA considers relevant.”

Valid Reason

[42] I consider that Mr C Erskine’s continued directorship and ownership of a company which was, by mid April 2012, clearly in conflict with his employer, represented a valid reason for the termination of his employment. When considered objectively, the relationship was simply unsustainable given the extent of the conflict between Mr Fong and the Erskine family, including Mr C Erskine.

[43] In dispute between the parties were issues of intellectual and other property ownership, competition involving ST, with Mr C Erskine as its ‘owner’, the future of SFS and the inability of Mr C Erskine and Mr Fong to agree on an ongoing employment arrangement in Malaysia. Any one, or combination of these could represent a valid reason for the termination of employment but I am not satisfied that they support summary dismissal.

[44] In effect, Mr C Erskine’s employment termination was the collateral damage emanating from the disintegration of the Erskine-SFS relation. I am satisfied that this disintegration and Mr C Erskine’s ownership of ST represented valid reasons for the termination of Mr C Erskine’s employment but I do not think that Mr C Erskine’s behaviour as an employee could be described as serious and wilful misconduct so as to warrant summary dismissal simply because, while that arrangement was approved in Mr G Erskine’s time as Managing Director, it was not appropriate when Mr Fong became the Managing Directors.

Notification of the reason

[45] The 13 April 2012 termination of employment letter detailed the basis for the termination of Mr C Erskine’s employment. This letter specified a number of allegations which I have concluded ignored the contrary advice which was available to Mr Fong relative to the actions taken by ST. In particular, Mr Fong did not take account of the advice provided to him by Mr G Erskine.

Opportunity to Respond

[46] Mr Fong did give Mr C Erskine an opportunity to respond to the proposition that his employment could be terminated. Mr C Erskine did not properly avail himself of that opportunity. .

[47] This factor mitigates in favour of the termination of employment being fair.

Unreasonable refusal to have a support person present

[48] Mr C Erskine did not actually request a support person. However, the manner in which the 13 March 2012 meeting was convened by Mr Fong, did not give him the opportunity to do so.

[49] To the extent that Mr G Erskine, through his emails of 19 and 20 March 2012 was acting as a support person for his son, Mr G Erskine’s advice appears to have been largely ignored.

Unsatisfactory Performance

[50] There are no work performance issues as such at the heart of this matter.

Size of the employer’s establishment - procedures followed

[51] I have taken into account the small size of SFS and have concluded that there were no established procedures relevant to this matter.

Size of the employer’s establishment - access to human resource management expertise

[52] I have concluded that Mr Fong had no access to human resource management expertise.

Other matters relevant

[53] Mr C Erskine argues that the termination of his employment was unfair because he was not paid the majority of the accrued annual leave due to him and he was not paid his accrued long service leave.

[54] The failure to make those payments may well be unfair and may breach the relevant statutory obligations on the employer. However, I do not consider that these were factors that led to the termination of employment decision or that they inherently make that decision unfair. It is open to the applicant to pursue these payments in the appropriate jurisdiction.

Conclusion - harsh, unjust or unreasonable

[55] I have concluded that whilst there was a valid reason for the termination of Mr C Erskine’s employment, this did not reflect the allegations against him and did not warrant summary dismissal. Accordingly, the termination of Mr C Erskine’s employment was harsh, unjust or unreasonable and was unfair for the purposes of s.390.

Remedy

[56] Neither party supports reinstatement and I agree that reinstatement would be entirely inappropriate in these circumstances.

[57] I consider that an amount of compensation is appropriate. Section 392 sets out the criteria to which I must have regard in determining that amount.

[58] There is nothing that indicates that the amount being contemplated will affect the viability of SFS. Mr C Erskine’s employment since 2003 is a significant period of time.

[59] I have concluded that, had Mr C Erskine not been summarily dismissed on 13 April 2012, his employment would have been terminated with four weeks notice, or, possibly treated as a redundancy situation. Mr C Erskine accepts that, pursuant to the terms of the relevant award, there is no redundancy amount because of the size of the SFS business.

[60] Mr C Erskine has provided limited information to me about his efforts to obtain alternative employment. Since August 2012, however, he has been working for another of his father's companies on a similar salary to that which he had been receiving prior to the termination of his employment. 5

[61] I do not consider any other matters relevant. In this respect, the non-payment of annual leave and long service leave entitlements are not matters which I consider form the basis for compensation as they reflect separate legislative entitlements.

[62] I have applied the approach set out in Sprigg v Pauls Licensed Festival Supermarkets. 6 I have concluded that four weeks pay less tax is appropriate in these circumstances.

[63] An Order [PR532022] reflecting this decision will be issued.

SENIOR DEPUTY PRESIDENT

Appearances:

R Armour counsel for the Applicant.

A Clare counsel for the Respondent.

Hearing details:

2012.

Adelaide:

November 20, 21.

 1   Exhibit SF1, Attachment IF19

 2   [2012] FWAFB 1359

 3   Exhibit E7

 4   ibid

 5   ss.392(2)(e) and (f)

 6   AIRC, Print R0235, (24 December 1998).

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<Price code C, PR532021>