Eduard Sergeev v Butterfly Systems Pty Ltd

[2020] FWC 5217

[2020] FWC 5217

FAIR WORK COMMISSION

DECISION

Fair Work Act 2009
s 394—Unfair dismissal

Eduard Sergeev
v
Butterfly Systems Pty Ltd
(U2020/3703)

DEPUTY PRESIDENT SAMS SYDNEY, 1 OCTOBER 2020

Application for an unfair dismissal remedy – Software Developer in a small business – applicant dismissed for serious misconduct by text message - whether Small Business Fair Dismissal Code (the ‘Code’) complied with - principles considered - non-compliance with Code – applicant’s dismissal ‘harsh, unjust and unreasonable’ - reinstatement inappropriate - compensation ordered.

[1] Mr Eduard Sergeev (hereafter ‘the applicant) was employed by Butterfly Systems Pty Ltd on 20 September 2018, until he was dismissed by Ms Amy Luo, Chief Executive Officer (‘CEO’)/Director on 24 March 2020. At the time of his dismissal, the applicant was a Software Developer on a salary of $120,000, plus superannuation.

[2] There is no dispute that Butterfly Systems Pty Ltd (hereafter the ‘respondent’) is a small business with eight employees, meaning that the applicant’s dismissal must be considered under the Small Business Fair Dismissal Code (the ‘Code’); see: s 385(c) of the Act.

[3] Ms Luo initially claimed that the applicant had not been dismissed, because he had abandoned his employment when he was absent from work on 24 March 2020 without explanation, and refused her direction to return to work immediately. After a phone conversation with the applicant that day – the details of which are contested – Ms Luo sent the applicant a text message which reads as follows:

‘We have tried to contact you without success, you (sic) craziness brings a huge business risk in the business operation, I am going to terminate your employment contract immediately today and please return all company SOMETHING to the office ASAP’.

[4] On 27 March 2020, the applicant filed an application for an unfair dismissal remedy, pursuant to s 394 of the Fair Work Act 2009 (the ‘Act’). In accordance with my usual practice, I convened a conciliation conference on 5 June 2020. However, the application was not able to be resolved. Accordingly, I issued directions for a hearing of both the jurisdictional objection and the merits on 15 July 2020. The applicant appeared unrepresented and the respondent was represented by Mr M Gillis, Solicitor, with permission being granted for the respondent to be legally represented, pursuant to s 596 of the Act. I note the applicant did not object to Mr Gillis’ representation.

[5] I raised with Mr Gillis that the respondent had failed to comply with the Commission’s directions in not filing any evidence until the day before the hearing (14 July 2020) when the directions required the filing and service of evidence by 2 July 2020. Despite some reluctance from the applicant, and given Mr Gillis’ very recent involvement in the case, I directed the parties to confer privately to discuss settlement. On resumption, however, the matter had not settled, and the hearing proceeded.

THE EVIDENCE

For the respondent

Ms Amy Luo

[6] As Mr Luo’s statement was brief, I set it out in full below:

‘The employer only employs 8 people including the applicant.

The employer does not employ any HR personnel

At the start of COVID 19, we were trialing (sic) people working from home.

On 24 March 2020, I had a telephone call with the applicant about another employee. In the telephone conversation:

(i) The applicant stated to me that he would not be doing any work for the day.

(ii) I told the applicant he was expected to work today.

(iii) The applicant said he would not be working and would refuse to undertake any work.

The applicant then hung up on me.

I tried to call him back but he did not answer his telephone.

I sent him a text message:

“We have tried to contact you without success, you (sic) craziness brings a huge business risk in the business operation. I am going to terminate our employment contract immediately today and please return all company assets to office ASAP”.

I do not consider I would be able to work with the applicant again as he has displayed a willful (sic) and deliberate attitude towards me and the business where he will, despite direction to the contrary, disobey a reasonable request to undertake work. The risk to the business is too high with deadlines that have to be achieved.’

[7] The respondent also relied on the Code’s Checklist, in which Ms Luo relevantly ticked the box that the applicant was dismissed for serious misconduct being abandonment of employment, which she detailed as follows:

“•  Refusal to follow a lawful and reasonable direction

•  Refusal to attend work

•  Refusal to undertake work

•  Abandonment of employment’.

[8] Ms Luo was not required for cross examination.

For the applicant

[9] Similarly, the applicant’s statement of one page is reproduced below:

“•  On 24/03/2020 in the morning (around 9am) I was notified by my colleague Dmitry Rotay (also Software Developer) that our CEO Amy Luo demanded him to take his annual leave starting from today until his home office is “properly set up” (we all were working from home at that time). My understanding was that it was unlawful of Amy to force him to take his annual leave at that time since it was not Christmas shut down period and Dmitry had very little annual leave accumulated.

•  Seeing it as unjust situation I sent Amy Luo the following message over our corporate chat system:

•  What is going on with Dmitri? Should I take day off as well?

•  In response Amy Luo sent me the following message:

•  We have a lot of work to do today, I will not like to approve your day off

•  Shortly after that (at 9:56am) she called me and we had somewhat heated discussion in which I repeated that in my view she could not force an employee to take annual leave whenever she wants. In response she said that in her view she could do exactly that. At the end of that talk I repeated that such case I would take my day off today as well and hung up.

•  I then used our internal HR system to submit a request for one day of my annual leave and disconnected from our corporate network.

•  At 9:59am Amy Luo tried to call me again but I did not respond to her call since I considered myself being on my annual leave. She did not leave any voice message.

•  At 11:34am someone tried to call me from the number I did not recognise but I did not answer. Now I suspect that it was Daniel Wiggins (our General Manager). He did not leave any voice message either.

•  At 11:37am I received the following mobile txt message with my termination notice:

•  “We have tried to contact you without any success, you craziness brings a huge business risk in the business operation. I am going to terminate our employment contract immediately today and please return all the company assets to office ASAP! Best regards, Amy”

•  After that at 11:51am Amy Luo tried to call me again, but I did not respond.

•  I did however sent her mobile txt message at 11:53am with the following content:

•  “OK, I’ll bring in the laptop tomorrow. I am on my annual leave today, stop calling me outside business hours. Good luck with your business :)”

•  There were a few mobile text messages from Amy Luo on that day after that which I think are irrelevant.

•  The next day after noon I brought corporate laptop to the office as I said I would.’

[10] In cross examination, the applicant agreed he started work normally on 24 March 2020 at approximately 9:00 am, and was intending to work from home that day due to COVID-19. He sent Ms Luo a chat message between 9:00 am and 10:00 am in which he asked her if he should take the day off as a colleague ‘Dimitri’ was told to do so. He denied the comment, ‘[w]hat is going on with Dimitri? Should I take the day off as well?’, was him seeking permission to do so. It was more a comment that he would take the day off, unless Dimitri was allowed to work that day. He acknowledged he was already at work. He understood Ms Luo wanted him to work that day and had directed him to do so. His understanding was that Dimitri could do his work that day, as there were only two developers and they were interchangeable.

[11] The applicant contended that he had no contract of employment with the respondent, but acknowledged he had been working for Ms Luo for some time and had received a pay increase during that period for ‘exceptional performance’.

[12] The applicant agreed he and Ms Luo had a phone conversation in which she restated her position. He just told her that he was going to take his day off and hung up. He denied being directed to work. They had just had a chat. He claimed he had notified Ms Luo previously if he was taking a day off and it was never a problem, as they had a good relationship. He said that he had previously taken time off for less than a day and, on this occasion, he worked between 9:00 am to 10:00 am, without pay. He could not recall what he worked on in this period.

[13] The applicant stated that he had been looking for alternative work since his dismissal, but this was difficult given the COVID-19 pandemic. Whilst he had some hopeful prospects, he had been unsuccessful and was on presently Centrelink payments. He was not seeking reinstatement, but compensation for the unfair way he was dismissed.

SUBMISSIONS

For the respondent

[14] Mr Gillis submitted that what the applicant thought about the treatment of another employee is irrelevant. The facts are that there was an incident on 24 March 2020 in which the applicant had agreed he commenced work that day, and then believed he was entitled to refuse Ms Luo’s direction, particularly in the context of a significant disruption to the business caused by COVID-19.

[15] Mr Gillis put that the fundamental obligation is on the employee to follow lawful and reasonable directions, which goes to the trust and confidence in the employment relationship. This was grounds for dismissal. The employer could have no confidence in the applicant would follow directions in the future; nor could it be expected that the business could properly function if employees conducted themselves as the applicant did.

[16] Mr Gillis said that on any view, the applicant’s conduct was unacceptable, even if it was not misconduct, or the Code had not been complied with. However, any compensation should be at the low end of the range having regard to the applicant’s conduct.

For the applicant

[17] The applicant said it was his understanding that Dimitri could not be forced to take annual leave. He agreed that he decided to take the day off as a sign of protest for Ms Luo’s actions. As both he and Dimitri were peers as Senior Software Developers, either one of them could work as Ms Luo seemingly only wanted one of them to work that day. There was no harm to the business because Dimitri wanted to work that day. He had suggested that he would even go into the office that day.

Ms Luo sent him the termination email 11:27 am, without any warning, either in writing or verbally.

CONSIDERATION

Statutory provisions and principles relevant to the jurisdictional objection

[18] Section 385 of the Act defines an unfair dismissal as follows:

What is an unfair dismissal

A person has been unfairly dismissed if the FWC is satisfied that:

(a) the person has been dismissed; and

(b) the dismissal was harsh, unjust or unreasonable; and

(c) the dismissal was not consistent with the Small Business Fair Dismissal Code; and

(d) the dismissal was not a case of genuine redundancy.

Note: For the definition of consistent with the Small Business Fair Dismissal Code: see section 388.

[19] All four criteria described above must be met for a person to be unfairly dismissed and become entitled to bring an application to the Commission for an unfair dismissal remedy.

[20] Section 388 of the Act deals with the Code as follows:

The Small Business Fair Dismissal Code

(1) The Minister may, by legislative instrument, declare a Small Business Fair Dismissal Code.

(2) A person's dismissal was consistent with the Small Business Fair Dismissal Code if:

(a) immediately before the time of the dismissal or at the time the person was given notice of the dismissal (whichever happened first), the person's employer was a small business employer; and

(b) the employer complied with the Small Business Fair Dismissal Code in relation to the dismissal.

[21] Section 23 of the Act defines a ‘small business employer’ relevantly as a ‘national system employer is a small business at a particular time if the employer has fewer than 15 employees at the time’. The particular time is the time when the employee had been dismissed. There is no dispute that at the time of the applicant’s dismissal, the employer was a small business, to which the Code applied.

[22] The legislative instrument containing the Code declared by the Minister, pursuant to s 388(1) above, is as follows:

Commencement

The Small Business Fair Dismissal Code comes into operation on 1 July 2009.

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 the Fair Work Commission, 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.

[23] Section 12 of the Act defines ‘serious misconduct’ as having ‘the meaning prescribed by the regulations’. Regulation 1.07 of the Fair Work Regulations 2009 reads, inter alia:

Meaning of serious misconduct

(1) For the definition of serious misconduct in section 12 of the Act, serious misconduct has its ordinary meaning.

(2) For subregulation (1), conduct that is serious misconduct includes both of the following:

(a) wilful or deliberate behaviour by an employee 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.

[24] It is common ground the applicant was dismissed (albeit with two weeks’ notice not worked) for serious misconduct. Therefore, the summary dismissal section of the Code applies in this case.

[25] The application of this section of the Code was described in Pinawin t/a RoseVi.Hair.Face.Body v Domingo[2012] FWAFB 1359 (‘Pinawin’), where the Full Bench said at [29]:

‘[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.’

[26] In Ryman v Thrash Pty Ltd t/a Wisharts Automotive Services[2015] FWCFB 5264 (‘Ryman v Thrash’), the Full Bench elaborated further and said at [40]-[41]:

‘[40] Whether the employer had “reasonable grounds” for the relevant belief is of course to be determined objectively.

[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.’

[27] Further in Ryman v Thrash, the Commission made some further observations about the intersection of the Code with Reg 1.07 Fair Work Regulations 2009 and the confusing inelegance of the language used in the Code. At [30]-[32] the Full Bench said:

‘[30] The operative effect of the “summary dismissal” section of the Code is conveyed by the first sentence, which identifies the circumstances in which “[i]t is fair for an employer to dismiss an employee without notice or warning…”. The reference to dismissal “without notice or warning” in the Code is confusing. A dismissal “without notice”, understood literally, means a dismissal in relation to which no period of notice is provided. A dismissal that is accompanied by a payment in lieu of notice, as well as a summary dismissal, is usually regarded as a dismissal without notice. That points to a lack of synonymity between a summary dismissal and a dismissal without notice. An alternative view might be that a dismissal “without notice” was intended to mean a dismissal in relation to which no payment in lieu of notice has been provided as well as no actual notice provided. That would resolve the synonymity problem. However it is not a reading which readily arises from the words actually used.

[31] It is unclear whether a dismissal “without warning” was intended to mean something different from a dismissal “without notice”. Presumably the warning referred to is a warning that dismissal is going to occur sometime in the future, in which case a dismissal without notice and a dismissal without warning are probably the same thing. However if the warning is of the possibility that dismissal might occur, then things get more complicated. Although, absent an express contractual term to the contrary, there is no obligation at law upon an employer to afford an employee a right to be heard in relation to any allegation of misconduct, incompetence or negligence which might lead to summary dismissal, most employers (including small business employers) would in accordance with modern industrial relations practice probably do so. Where a dismissal results, there might be a question in that circumstance as to whether the employer has in some sense warned the employee of the dismissal. Alternatively, the “warning” contemplated might be a warning that if certain conduct is repeated or performance is not improved, dismissal will follow. There is no necessary inconsistency between the issue of such a warning and a subsequent summary dismissal, but arguably such a dismissal may not be characterised as one “without warning”.

[32] An immediate dismissal is one which takes effect immediately. That would include a summary dismissal in the sense earlier discussed, but it would also include a dismissal with a payment in lieu of notice which is intended to have immediate effect.’

and at [37]-[39] the Full Bench said:

‘[37] Notwithstanding that the Code, and its accompanying checklist, were apparently designed to be read as “stand alone” documents by small business employers, we prefer the view that the reference to “serious misconduct” is to be read as bearing the meaning in reg.1.07. The types of conduct expressly referred to in the Code as constituting serious misconduct are all encompassed by the reg.1.07 definition, so no direct inconsistency is apparent. The fact that the checklist invites inclusion of “some other form of serious misconduct” suggests that the identified types of conduct were not meant to be exhaustive, and it is otherwise difficult to conclude that they were meant to be exhaustive given that they do not include other types of behaviour which may well constitute misconduct justifying summary dismissal, such as sexual harassment, bullying or significant non-compliance with a lawful and reasonable direction. And, as earlier discussed, the lack of any recognised meaning at law of the expression “serious misconduct” means that the definition in reg.1.07 is necessary to give the expression a clear content.

[38] We therefore consider that the “Summary dismissal” section of the Code applies to dismissals without notice on the ground of serious misconduct as defined in reg.1.07.

[39] To be clear, nothing stated above is to be taken as suggesting that in relation to such a dismissal it is necessary for the Commission to be satisfied that the serious misconduct which is the basis for the dismissal actually occurred in order for the dismissal not to be unfair…’

[28] In my opinion, a decision to terminate the applicant’s employment in the morning of 24 March 2020 all over a time span of about two hours, after an abrupt phone call and one unanswered phone call, cannot, on an objective basis, sustain a claim that Ms Luo believed that the applicant’s conduct was sufficiently serious to justify immediate dismissal, based on reasonable grounds. On the evidence, there was no serious engagement between Ms Luo and the applicant as to his reasons for not continuing work that day; let alone that Ms Luo had warned the applicant of the dire consequences of his refusal to accept her insistence that he work that day.

[29] While I unreservedly accept that misconduct can be as a result of a refusal to comply with a lawful and reasonable direction of the employer; per Reg 1.07, in Ryman v Thrash, the Full Bench qualified such non-compliance, when it said at [37] ‘bullying or significant non-compliance with a lawful and reasonable direction’ (my emphasis).

[30] In my view, the applicant’s conduct was not only not ‘significant non-compliance’, but Ms Luo did not even describe his conduct as a refusal to comply with a lawful and reasonable direction in her terse text message at 11:29 am. Indeed, at this point, and even after the filing of the applicant’s unfair dismissal application, Ms Luo seems to have believed that the applicant had abandoned his employment. In an email to the Unfair Dismissals Team of the Commission on 30 April 2020, Ms Luo said:

‘Dear Fair Work Commission,

Butterfly Systems ex-employee Mr. Eduard Sergeev is a case of abandonment of employment, it should not be dealt via Fair Work Commission.

On the 24th of March, Eduard Sergeev is absent from Butterfly Systems without reasonable excuse and employer's approval and he has also failed to communicate with the employer to provide an excuse for being absent.

We do not think it is a matter of unfair dismissal under Fair Work Commission.

Please feel free to contact me if you have any further questions.

Best regards,

Amy’

[31] Given this confusing and conflicting scenario, I can have no confidence that Ms Luo held a belief, on reasonable grounds, that the applicant’s conduct was sufficiently serious to justify his immediate dismissal (as Mr Gillis conceded). That said, I would conclude that the applicant’s conduct was unacceptable and for which a meeting the next day to clearly set out Ms Luo’s expectations and for the applicant to explain his conduct might have resulted, at worst, in a formal warning.

[32] As to the second of the Code element referred to in Pinawin (the concept that the employer has carried out a reasonable investigation into the matter), obviously Ms Luo conducted no investigation, nor could she have, in such a short time span. To my mind, Ms Luo hurriedly and unreasonably rushed to judgment that the applicant’s conduct justified his immediate dismissal, which was inconsistent with the relevant compliance with the Code.

[33] Accordingly, the respondent’s jurisdictional objection is dismissed. I turn now to consider whether the applicant’s dismissal was ‘harsh, unjust or unreasonable’, in accordance with s 387 of the Act.

[34] Section 396 of the Act requires the Commission is required to make findings on a number of preliminary matters. These are:

(a) whether the application was made within the period required in subsection 394(2);

(b) whether the person was protected from unfair dismissal;

(c) whether the dismissal was consistent with the Small Business Fair Dismissal Code; and

(d) whether the dismissal was a case of genuine redundancy.

[35] With this in mind, I determine that:

(a) The applicant was dismissed at the initiative of the employer (s 385);

(b) The applicant is a national system employee and the respondent is a national system employer (ss 13, 14, 380);

(c) The applicant’s unfair dismissal application was lodged within the 21-day statutory time limit prescribed by s 394(2)(a) of the Act (s 396(a));

(d) The applicant had completed the minimum employment period of 6 months, having been employed for approximately 18 months (ss 382(a) and 383);

(e) In the absence of a signed contract of employment, the employment of the applicant was governed by a Modern Award (s 382(b)(i)); and

(f) Neither of sub-ss (c) or (d) of s 396 the Act are relevant to this application.

[36] Section 385 of the Act defines an unfair dismissal based on four criteria which must be satisfied if a person, seeking a remedy for unfair dismissal, is to succeed. This section reads:

What is an unfair dismissal

A person has been unfairly dismissed if the FWC is satisfied that:

(a) the person has been dismissed; and

(b) the dismissal was harsh, unjust or unreasonable; and

(c) the dismissal was not consistent with the Small Business Fair Dismissal Code; and

(d) the dismissal was not a case of genuine redundancy.

Note: For the definition of consistent with the Small Business Fair Dismissal Code: see section 388.

[37] It follows that there can be no contest that the applicant was a person protected from unfair dismissal. Consequently, the only question which falls for determination by the Commission is whether the applicant’s dismissal was ‘harsh, unjust or unreasonable’ (s 385(b)) within the meaning of s 387 of the Act and, if so, what remedy, if any, should be awarded by the Commission, pursuant to ss 391 and 392 of the Act. I turn then to s 387 of the Act, which requires the Commission to take into account the following:

(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 the FWC considers relevant.

[38] I shall come back to these matters shortly. However, at this juncture, I would add that the meaning of the expression ‘harsh, unjust or unreasonable’ in the context of an unfair dismissal, was explained in the oft-quoted passage from Byrne and Frew v Australian Airlines Ltd (1995) 185 CLR 410 where McHugh and Gummow JJ said at para 128:

‘128. Clause 11(b) is aimed at the situation where the termination of employment brought about by the dismissal, rather than the steps leading up to the dismissal, or lack of them, is harsh, unjust or unreasonable. A dismissal with notice may be harsh, unjust or unreasonable because it is based on a ground defined as such by cl 11(b). This refers to such matters as termination "on the ground of" race, colour, sex and marital status. It may be that the termination is harsh but not unjust or unreasonable, unjust but not harsh or unreasonable, or unreasonable but not harsh or unjust. In many cases the concepts will overlap. Thus, the one termination of employment may be unjust because the employee was not guilty of the misconduct on which the employer acted, may be unreasonable because it was decided upon inferences which could not reasonably have been drawn from the material before the employer, and may be harsh in its consequences for the personal and economic situation of the employee or because it is disproportionate to the gravity of the misconduct in respect of which the employer acted.’ (my emphasis)

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) – s 387(a)

[39] I turn now to consider whether the applicant’s conduct was a valid reason for his dismissal – a significant matter under s 387 of the Act.

[40] The meaning of ‘valid reason’ in s 387(a) is drawn from the judgement of North J in Selvachandran. This meaning has been considered and applied by members of the Commission and its predecessors for many years. For example, in Rode v Burwood Mitsubishi Print R4471, a Full Bench of the then Australian Industrial Relations Commission (‘AIRC’) discussed the meaning of valid reason in the context of the relevant provisions of the Workplace Relations Act 1996, and by citing Selvachandran. The following is an extract from the Full Bench’s decision at [17]-[19]:

‘[17] In relation to the meaning of “valid reason” the following remarks of Northrop J in Selvachandran v Peteron Plastics Pty Ltd are relevant:

“Section 170DE(1) refers to a ‘valid reason, or valid reasons’, but the Act does not give a meaning to those phrases or the adjective ‘valid’. A reference to dictionaries shows that the word ‘valid’ has a number of different meanings depending on the context in which it is used. In The Shorter Oxford Dictionary, the relevant meaning given is: ‘2. Of an argument, assertion, objection, etc; well founded and applicable, sound, defensible: Effective, having some force, pertinency, or value.’ In The Macquarie Dictionary the relevant meaning is ‘sound, just or wellfounded; a valid reason’.

In its context in s 170DE(1), the adjective ‘valid’ should be given the meaning of sound, defensible or wellfounded. A reason which is capricious, fanciful, spiteful or prejudiced could never be a valid reason for the purposes of s 170DE(1). At the same time the reason must be valid in the context of the employee’s capacity or conduct or based upon the operational requirements of the employer’s business. Further, in considering whether a reason is valid, it must be remembered that the requirement applies in the practical sphere of the relationship between an employer and an employee where each has rights and privileges and duties and obligations conferred and imposed on them. The provisions must `be applied in a practical, commonsense way to ensure that’ the employer and employee are each treated fairly, see what was said by Wilcox CJ in Gibson v Bosmac Pty Ltd, when considering the construction and application of a s 170DC.”

[18] While Selvachandran was decided under the former statutory scheme the above observations remain relevant in the context of s.170CG(3)(a). A valid reason is one which is sound, defensible or well founded. A reason for termination which is capricious, fanciful, spiteful or prejudiced is not a valid reason for the purpose of s.170CG(3)(a).

[19] We agree with the appellant’s submission that in order to constitute a valid reason within the meaning of s.170CG(3)(a) the reason for termination must be defensible or justifiable on an objective analysis of the relevant facts. It is not sufficient for an employer to simply show that he or she acted in the belief that the termination was for a valid reason.’

See also: Nettleford v Kym Smoker Pty Ltd (1996) 69 IR 370.

[41] Given my earlier comments, I do not accept that the respondent had a valid reason for the applicant’s dismissal in the Selvachandran sense that it was not sound, not defensible and not well founded. As I earlier mentioned, Ms Luo’s reason for dismissal seems to have changes well after the text message of 24 March 2020.

[42] The lack of a valid reason falls in favour of a finding of unfairness.

Further matters to be considered under s 387 of the Act

[43] Subsections (b)-(e) of s 387 are generally grouped under the rubric of ‘procedural fairness’ or ‘natural justice’ issues. To highlight the importance of procedural fairness issues, I cite three authorities on the subject in unfair dismissal cases. In Crozier v Palazzo Corporation Pty Limited t/as Noble Park Storage and Transport (2000) 98 IR 137 a Full Bench of the AIRC said at [73]:

‘As a matter of logic procedural fairness would require that an employee be notified of a valid reason for their termination before any decision is taken to terminate their employment in order to provide them with an opportunity to respond to the reason identified. Section 170CG(3)(b) and (c) would have very little (if any) practical effect if it was sufficient to notify employees and give them an opportunity to respond after a decision had been taken to terminate their employment.’

[44] In Wadey v YMCA Canberra [1996] IRCA 568, Moore J made clear that an employer cannot merely pay ‘lip service’ to giving an employee an opportunity to respond to allegations concerning an employee’s conduct. His Honour said:

‘In my opinion the obligation imposed on an employer by that section has, for present purposes, two relevant aspects. The first is that the employee must be made aware of allegations concerning the employee's conduct so as to be able to respond to them. The second is that the employee must be given an opportunity to defend himself or herself. The second aspect, the opportunity to defend, implies an opportunity that might result in the employer deciding not to terminate the employment if the defence is of substance. An employer may simply go through the motions of giving the employee an opportunity to deal with allegations concerning conduct when, in substance, a firm decision to terminate had already been made which would be adhered to irrespective of anything the employee might say in his or her defence. That, in my opinion, does not constitute an opportunity to defend.’

[45] Nevertheless, procedural fairness steps should be applied in a common-sense and practical way. In Gibson v Bosmac Pty Ltd (1995) 60 IR 1, Wilcox CJ said at [7]:

‘Ordinarily, before being dismissed for reasons related to conduct or performance, an employee must be made aware of the particular matters that are putting his or her job at risk and given an adequate opportunity of defence. However, I also pointed out that the section does not require any particular formality. It is intended to be applied in a practical, commonsense way so as to ensure that the affected employee is treated fairly. Where the employee is aware of the precise nature of the employer's concern about his or her conduct or performance and has a full opportunity to respond to this concern, this is enough to satisfy the requirements of the section.’

Whether the person was notified of that reason – s 387(b)

[46] The applicant was notified of his dismissal by text message on 24 March 2020, with immediate effect. For not the first time, have I had cause to criticise an employer for dismissing an employee by text message or email rather than face to face. I would not accept that the COVID-19 pandemic absolves the employer from the lack of basic decency.

[47] I agree with Commissioner Cambridge when he said in Knutson v Chesson Pty Ltd t/a Pay Per Click [2018] FWC 2080 at [47]:

‘[47] The employer provided notification of dismissal by email communication sent at 8.53pm on 6 November 2017. Notification of dismissal should not be made by email communication. Unless there is some genuine apprehension of physical violence or geographical impediment, the message of dismissal should be conveyed face to face. To do otherwise is unnecessary callous. Even in circumstances where email or electronic communications are ordinarily used, the advice of termination of employment is a matter of such significance that basic human dignity requires that dismissal be conveyed personally with arrangements for the presence of a support person and documentary confirmation.’

[48] This factor tells in favour of a finding of unfairness.

Whether the person was given an opportunity to respond to any reason related to the capacity or conduct of the person – s 387(c)

[49] As the applicant had no opportunity to respond to a decision to dismiss him, this factor strongly favours a finding of procedural unfairness.

Any unreasonable refusal by the employer to allow the person to have a support person present to assist at any discussions relating to dismissal – s 387(d)

[50] As there was no meeting between the applicant and Ms Luo, there was no unreasonable refusal to allow the applicant to have a support person present at any discussions relating to his dismissal. This is a neutral factor in this case.

If the dismissal related to unsatisfactory performance by the person—whether the person had been warned about that unsatisfactory performance before the dismissal – s 387(e)

[51] There was no evidence that the applicant had a poor performance record; rather, the contrary is true. In 18 months of employment, the applicant said he received a salary increase for exceptional performance. There was no challenge to this evidence. That said, this criterion is not relevant.

The degree to which the size of the employer’s enterprise would be likely to impact on the procedures followed in effecting the dismissal – s 387(f); and 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 – s 387(g)

[52] The respondent is a small business and has no dedicated human resource management expertise or advice. However, while I have taken this into account, Ms Luo’s dismissive approach to responding to the unfair dismissal application and her handling of the situation on 24 March 2020, does not reflect well on her. It ill behoves any employer, with any sense of the ordinary standards expected of sound and sensible employment relations; let alone the CEO/Director of a software company, to have dealt with the applicant in such an unfair manner.

[53] These matters tell against a finding of excusing the respondent from unfair procedures, simply because it is a small business.

Any other matters that the FWC considers relevant – s 387(h)

[54] I have taken into account that the applicant has had a relatively short service (18 months) and the fact that he was paid a reasonable salary of $120,000, plus superannuation. Although the applicant was paid some notice in lieu, for an employee on this salary, the usual expectation would be at least four weeks’ notice of dismissal. I have taken this into account.

[55] I was not advised of any other matter going to ‘harshness’ considerations, although the applicant said he was on Centrelink benefits and has had difficulty finding alternative employment. This later difficulty is obviously exacerbated by the COVID-19 pandemic.

[56] For the aforementioned reasons and in weighing all the matters the Commission is required to take into account under s 387 of the Act, I am satisfied that the applicant’s dismissal was ‘harsh, unjust and unreasonable’ on both substantive and procedural grounds. I turn now to remedy.

Appropriate remedy

[57] The remedies for an unfair dismissal are set out at s 391 of the Act as follows:

391 Remedy—reinstatement etc.

Reinstatement

(1) An order for a person’s reinstatement must be an order that the person’s employer at the time of the dismissal reinstate the person by:

(a) reappointing the person to the position in which the person was employed immediately before the dismissal; or

(b) appointing the person to another position on terms and conditions no less favourable than those on which the person was employed immediately before the dismissal.

(1A) If:

(a) the position in which the person was employed immediately before the dismissal is no longer a position with the person’s employer at the time of the dismissal; and

(b) that position, or an equivalent position, is a position with an associated entity of the employer;

the order under subsection (1) may be an order to the associated entity to:

(c) appoint the person to the position in which the person was employed immediately before the dismissal; or

(d) appoint the person to another position on terms and conditions no less favourable than those on which the person was employed immediately before the dismissal.

Order to maintain continuity

(2) If the FWC makes an order under subsection (1) and considers it appropriate to do so, the FWC may also make any order that the FWC considers appropriate to maintain the following:

(a) the continuity of the person’s employment;

(b) the period of the person’s continuous service with the employer, or (if subsection (1A) applies) the associated entity.

Order to restore lost pay

(3) If the FWC makes an order under subsection (1) and considers it appropriate to do so, the FWC may also make any order that the FWC considers appropriate to cause the employer to pay to the person an amount for the remuneration lost, or likely to have been lost, by the person because of the dismissal.

(4) In determining an amount for the purposes of an order under subsection (3), the FWC must take into account:

(a) the amount of any remuneration earned by the person from employment or other work during the period between the dismissal and the making of the order for reinstatement; and

(b) the amount of any remuneration reasonably likely to be so earned by the person during the period between the making of the order for reinstatement and the actual reinstatement.”

[58] I am not satisfied that reinstatement of the applicant is appropriate, and he does not seek it. I turn to whether any compensation should be ordered. The methodology for determining the amount of compensation is set out at s 392 as follows:

392 Remedy—compensation

Compensation

(1) An order for the payment of compensation to a person must be an order that the person’s employer at the time of the dismissal pay compensation to the person in lieu of reinstatement.

Criteria for deciding amounts

(2) In determining an amount for the purposes of an order under subsection (1), the FWC must take into account all the circumstances of the case including:

(a) the effect of the order on the viability of the employer’s enterprise; and

(b) the length of the person’s service with the employer; and

(c) the remuneration that the person would have received, or would have been likely to receive, if the person had not been dismissed; and

(d) the efforts of the person (if any) to mitigate the loss suffered by the person because of the dismissal; and

(e) the amount of any remuneration earned by the person from employment or other work during the period between the dismissal and the making of the order for compensation; and

(f) the amount of any income reasonably likely to be so earned by the person during the period between the making of the order for compensation and the actual compensation; and

(g) any other matter that the FWC considers relevant.

Misconduct reduces amount

(3) If the FWC is satisfied that misconduct of a person contributed to the employer’s decision to dismiss the person, the FWC must reduce the amount it would otherwise order under subsection (1) by an appropriate amount on account of the misconduct.

Shock, distress etc. disregarded

(4) The amount ordered by the FWC to be paid to a person under subsection (1) must not include a component by way of compensation for shock, distress or humiliation, or other analogous hurt, caused to the person by the manner of the person’s dismissal.

Compensation cap

(5) The amount ordered by the FWC to be paid to a person under subsection (1) must not exceed the lesser of:

(a) the amount worked out under subsection (6); and

(b) half the amount of the high income threshold immediately before the dismissal.

(6) The amount is the total of the following amounts:

(a) the total amount of remuneration:

(i) received by the person; or

(ii) to which the person was entitled;

(whichever is higher) for any period of employment with the employer during the 26 weeks immediately before the dismissal; and

(b) if the employee was on leave without pay or without full pay while so employed during any part of that period—the amount of remuneration taken to have been received by the employee for the period of leave in accordance with the regulations.”

[59] The above methodology was discussed in Sprigg v Paul’s Licensed Festival Supermarket (1998) 88 IR 21 (‘Sprigg’)and has since been described in shorthand, as the Sprigg Formula. I will make findings as to the components of s 392 as follows.

The effect of the order on the viability of the employer’s enterprise – s 392(a)

[60] No evidence was put by the respondent as to its financial circumstances, with Mr Gillis putting that contrary to his primary submissions, and if the Commission was minded to order any compensation, it should be at the low end of the scale. Nor was there any evidence as to any impact on the business as a result of COVID-19.

[61] I do not consider that there would be any deleterious effect on the viability of the respondent’s enterprise by the order I intend to make.

The length of the person’s service with the employer – s 392(b)

[62] The applicant’s period of service was relatively short and seemingly without blemish, until the incident on 24 March 2020.

The remuneration that the person would have received, or would have been likely to receive, if the person had not been dismissed – s 392(c)

[63] Obviously, this consideration is highly speculative, but one which must necessarily be made by the Commission. I determine that the unpleasantness and experience of the incident on 24 March 2020, and its consequences for both parties, would likely have not resulted in the applicant continuing in employment for any significant period of time. I estimate this period of time to be 16 weeks.

The efforts of the person (if any) to mitigate the loss suffered by the person because of the dismissal – s 392(d)

[64] The applicant has been seeking alternative employment and is quietly confident of his future prospects. Given the industry in which he has worked and has experience, I consider the applicant’s prospects for alternative employment are reasonably good. This is a neutral consideration.

The amount of any remuneration earned by the person from employment or other work during the period between the dismissal and the making of the order for compensation – s 392(e); and the amount of any income reasonably likely to be so earned by the person during the period between the making of the order for compensation and the actual compensation – s 392(f)

[65] The applicant has only received Centrelink payments since his dismissal. There was no challenge to this evidence. In any event, social security payments are not to be taken into account; see: Sprigg at p 29. Subsection (f) is not relevant.

Any other matter that the FWC considers relevant – s 392(g)

[66] As I have taken into account that the applicant was dismissed without warning, there are no other matters under s 392 which I consider relevant.

Section 392(3)

[67] Although this was not a case of misconduct, I am prepared to accept that the applicant’s conduct on 24 March 2020 was inappropriate and unacceptable. I intend to reduce the amount I would otherwise order by two weeks.

Section 392(4)

[68] There is no consideration in the amount I intend to order, by way of shock, distress, humiliation or other analogous hurt.

[69] The compensation cap is plainly not exceeded in this case. Subsections 5 and 6 of s 392 are therefore satisfied.

CONCLUSION

[70] In calculating the amount of compensation in this case, I have had regard to what was said by the Full Bench said in Hanson Construction Materials Pty Ltd v Pericich[2018] FWCFB 5960 that the Sprigg Formula is ‘not to be applied in a rigid determinative manner’.

[71] The amount of compensation is calculated as follows

16 weeks X $2,500 = $40,000

Less 2 weeks X $2,500 = $40,000 - $5,000

TOTAL = $35,000

[72] For the aforementioned reasons, I am satisfied the applicant’s dismissal was ‘harsh, unjust and unreasonable, and an order for the payment of compensation of $35,000 should be made in this case.

[73] Finally, s 381(2) of the Act is a significant overarching object of Part 3-2 – Unfair Dismissal of the Act. It reads:

(2) The procedures and remedies referred to in paragraphs (1)(b) and (c), and the manner of deciding on and working out such remedies, are intended to ensure that a "fair go all round" is accorded to both the employer and employee concerned.

[74] The outcome I have determined in this case is consistent with the object of Part 3-2 of the Act of providing a ‘fair go all round’ to both the applicant and the employer.

[75] This matter is now concluded. An order of compensation in the sum of $35,000, less appropriate taxation according to law, will be published contemporaneously with this decision.

DEPUTY PRESIDENT

Appearances:

The applicant appeared for himself.

Mr M Gillis, Partner, Gillis Delaney Lawyers, appeared for the respondent.

Hearing details:

2020.

Sydney (via Microsoft Teams):

15 July 2020.

Printed by authority of the Commonwealth Government Printer

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