Haojun Ma v Lexxe Pty Ltd T/A Lexxe

[2016] FWC 5591

[2016] FWC 5591

FAIR WORK COMMISSION

DECISION

Fair Work Act 2009
s.394—Unfair dismissal

Haojun Ma
v
Lexxe Pty Ltd T/A Lexxe
(U2016/4322)

DEPUTY PRESIDENT LAWRENCE SYDNEY, 12 AUGUST 2016

Application for relief from unfair dismissal.

Introduction

[1] On 4 February 2016 Mr Haojun Ma (the Applicant) lodged an application pursuant to s.394 of the Fair Work Act 2009 (the Act) for a remedy for unfair dismissal against Lexxe Pty Ltd T/A Lexxe (the Respondent).

[2] The Applicant says that he commenced employment with the Respondent on 15 August 2008.

[3] The Applicant says that he was notified of the dismissal on 18 January 2016 and the dismissal took effect the same day.

[4] The Applicant was employed as a software engineer. The Respondent described itself as a “start-up company” and, at the time of dismissal had only three employees.

[5] The Applicant received a letter from the Respondent on 4 January 2016 making him redundant. On 18 January 2016 he received a further letter accusing him of serious misconduct.

[6] The letter of 4 January, which was signed by Dr Hong Liang Qiao, the Respondent’s Chief Executive, terminated the Applicant, as at the end of January. The reason given was the “difficult situation of funding”. The Applicant was to be paid his salary for January plus superannuation and was expected to work out this notice. He was also given instructions about transferring his work to another employee.

[7] The letter of 18 January, also signed by Dr Qiao, accused the Applicant of failing to back up the Respondent’s source codes and data since 2013. It was also alleged that the Applicant had failed to take other steps which were necessary to ensure the security of its database. Finally the letter set out in some detail the calculation of the Applicant’s entitlements. The payment of these appeared to be one of the main areas of dispute. Overall, the Applicant sought compensation as his remedy.

[8] It is apparent that the Applicant’s alleged misconduct was discovered quite soon after the initial letter but the issuing of the second letter was delayed because of concern the company’s intellectual property would be damaged by the Applicant.

[9] In its F3 response, the Respondent alleges that the Applicant deliberately deleted almost all of the data and source code from his computer during the transfer period in January. The Respondent purported to withhold money from the Applicant’s termination pay because of a previous agreement for the payment of tuition fees by the Respondent, which depended on satisfactory service.

Commission Proceedings

[10] A conciliation conference on 21 March 2016 was not successful.

[11] I conducted a telephone programming conference on 31 May 2016.

[12] The hearing took place on 7 June 2016 and proceeded in the form of a deliberative conference. A Cantonese interpreter provided assistance.

[13] The Applicant relied on his own witness statement as evidence (Exhibit M1).

[14] The Respondent relied on the witness statements and evidence of:

• Dr Hong Liang Qiao, its Chief Executive (Exhibit Q1).



• Mr Roderic Jang (Exhibit Q2).

[15] The Applicant was self-represented. Dr Qiao represented the Respondent.

Protection from Unfair Dismissal

[16] An order for reinstatement or compensation may only be issued where I am satisfied the applicant was protected from unfair dismissal at the time of the dismissal.

[17] Section 382 sets out the circumstances that must exist for the applicant to be protected from unfair dismissal:

“382 When a person is protected from unfair dismissal

A person is protected from unfair dismissal at a time if, at that time:

(a) the person is an employee who has completed a period of employment with his or her employer of at least the minimum employment period; and

(b) one or more of the following apply:

(i) a modern award covers the person;

(ii) an enterprise agreement applies to the person in relation to the employment;
(iii) the sum of the person’s annual rate of earnings, and such other amounts (if any) worked out in relation to the person in accordance with the regulations, is less than the high income threshold.”

[18] It appeared that the Applicant was not paid under an Award. However, it is clear that he was protected from unfair dismissal because his annual salary was $73,500 per annum. Consequently I am satisfied that the Applicant was protected from unfair dismissal.

[19] Section 396 provides that certain matters must be determined by the Commission before proceedings to deal with the merits of a matter. It provides:

“396 Initial matters to be considered before merits

The FWC must decide the following matters relating to an application for an order Under Division 4 before considering the merits of the application:

(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;

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

[20] The Respondent did not rely in its submissions on the Small Business Fair Dismissal Code. However, it did base its decision to summarily dismiss the Applicant on his “serious misconduct”.

Was the dismissal unfair?

[21] A dismissal is unfair if I am satisfied, on the evidence before me, that all of the circumstances set out at s.385 of the Act existed. Section 385 provides the following:

“385 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.”

Was the Applicant dismissed?

[22] A person has been unfairly dismissed if the termination of their employment comes within the definition of “dismissed” for purposes of Part 3-2 of the Act. Section 386 of the Act provides that:

“386 Meaning of dismissed

(1) A person has been dismissed if:

(a) the person’s employment with his or her employer has been terminated on the employer’s initiative; or

(b) the person has resigned from his or her employment, but was forced to do so because of conduct, or a course of conduct, engaged in by his or her employer.

(2) However, a person has not been dismissed if:

(a) the person was employed under a contract of employment for a specified period of time, for a specified task, or for the duration of a specified season, and the employment has terminated at the end of the period, on completion of the task, or at the end of the season; or

(b) the person was an employee:

(i) to whom a training arrangement applied; and
(ii) whose employment was for a specified period of time or was, for any reason, limited to the duration of the training arrangement; and the employment has terminated at the end of the training arrangement; or

(c) the person was demoted in employment but:

(i) the demotion does not involve a significant reduction in his or her remuneration or duties; and
(ii) he or she remains employed with the employer that effected the demotion.

(2) Subsection (2) does not apply to a person employed under a contract of a kind referred to in paragraph (2)(a) if a substantial purpose of the employment of the person under a contract of that kind is, or was at the time of the person’s employment, to avoid the employer’s obligations under this Part.”

[23] There is no dispute that the Applicant was dismissed. He was initially made redundant but while he was working out his notice he was summarily dismissed on 18 January 2016 because of his alleged misconduct. The application of the Small Business Fair Dismissal Code (the Code) does need to be considered in this case. Compliance with the Code is a defence to an unfair dismissal claim.

[24] Section 388 provides for the Minister to declare the Code by legislative instrument. This was done on 24 June 2009.

[25] The Code provides:

“Small Business Fair Dismissal Code

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 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.”

[26] The Respondent submitted that the Applicant was dismissed because of serious misconduct as provided for in Regulation 1.07 of the Fair Work Regulations 2009 which provides:

“1.07 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.

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

(a) the employee, in the course of the employee’s employment, engaging in:

(i) theft; or
(ii) fraud; or
(iii) assault;

(b) the employee being intoxicated at work;
(c) the employee refusing to carry out a lawful and reasonable instruction that is consistent with the employee’s contract of employment.

(4) Subregulation (3) does 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.

(5) For paragraph (3)(b), an employee is taken to be intoxicated if the employee’s faculties are, by reason of the employee being under the influence of intoxicating liquor or a drug (except a drug administered by, or taken in accordance with the directions of, a person lawfully authorised to administer the drug), so impaired that the employee is unfit to be entrusted with the employee’s duties or with any duty that the employee may be called upon to perform.”

[27] It follows that if I determine that the Applicant’s dismissal was consistent with the Code I do not need to consider whether the dismissal was harsh, unjust or unreasonable. If I consider the dismissal was not consistent with the Code it will be necessary to consider the matters contained in s.387 which provides:

“387 Criteria for considering harshness etc.

In considering whether it is satisfied that a dismissal was harsh, unjust or unreasonable, the FWC 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 the FWC considers relevant.”

The Applicant’s Case

[28] The Applicant denies the allegations of misconduct, denies that they amount to “serious misconduct” in any event and says that no notice or warning was given.

[29] The Applicant was given various transitional task lists during the notice period which he says he completed. He handed over the password to his computer on 8 January so that others could access it.

[30] Under cross examination, the Applicant conceded that he had deleted some company material but said that this had only occurred because it was mixed up with his personal material (PN207-208).

[31] The Applicant was particularly concerned about the alleged failure of the Respondent to fully pay entitlements. He had got casual work from 18 February at about the same wage as his employment with the Respondent.

The Respondent’s Case

[32] The Respondent says that it had been prepared to make all payments to the Applicant, but it was discovered, on 6 January, that the source code and data had not been backed up for two years. Only a small proportion of the data was found on the Applicant’s computer.

[33] As a start-up software company the Respondent was particularly concerned about the potential damage to its reputation. The misconduct was very serious because the Applicant was the person responsible for checking in the company source code and data.

[34] On 30 December Mr Jang, on Dr Qiao’s instructions, backed up the Applicant’s computer’s hard drive. They found a lot of personal material, contrary to company policy. On 6 January the Applicant handed over only 250 kilobytes of source code and data on a CD. It is alleged that he deliberately deleted the rest, about 192 gigabytes. The back up performed by Mr Jang on 30 December saved the Respondent from serious loss.

[35] The Respondent’s explanation for not challenging the Applicant on 6 January, when it discovered this, was concern that he would not complete the rest of his transfer work.

[36] 18 January 2016 became the date of dismissal and the Respondent agreed to pay the Applicant for his work up to that date.

[37] Mr Jang confirmed that he had found that the Applicant hadn’t backed up the Respondent’s source code for over two years. It was the Applicant’s responsibility to do the code back ups but he had not done so. He also confirmed that only 250 kilobytes of data and source code was left on the Applicant’s computer when he got the password on 8 January. He further says that the Applicant was uncooperative in dealing with transition issues during January.

Application of the Code

[38] As I have already noted, the Respondent did not specifically rely on the Code. However, I did raise it at the hearing and explained its impact. The Respondent dismissed the Applicant because of what it considered “serious misconduct”. Therefore, given that the Respondent is a small business employer the Code needs to be applied.

[39] A dismissal to which the Code applies does not require notice or warning to an employee in the case of serious misconduct. In John Pinawin T/A RoseVi.Hair.Face.Body
v Mr Edwin Domingo FWAFB 1359 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.

[31] The question we need to consider in this case is whether Mr and Mrs Pinawin believed on reasonable grounds that Mr Domingo’s conduct was sufficiently serious to justify immediate dismissal.”

[40] In Khammanaeechan v Nanakhon Pty Ltd (2010) 204 IR 39 Deputy President Bartel found that the Commission is not required to determine whether there is a valid reason for the dismissal where the Code applies. The test is whether there were reasonable grounds for the employer’s conclusion that dismissal was appropriate. The knowledge of the employer at the time of the dismissal and the reasonableness of the investigation are the relevant factors. The Deputy President stated:

“[61] At the outset it is appropriate to note that unlike a consideration of the dismissal of an employee of a business that is not a small business employer, the function of FWA is not to determine on the evidence whether there was a valid reason for dismissal. That is, the exercise in the present matter does not involve a finding on the evidence as to whether the applicant did or did not steal the money. The application of the Small Business Fair Dismissal Code involves a determination as to whether there were reasonable grounds on which the respondent reached the view that the applicant’s conduct was serious enough to justify immediate dismissal. As such, the determination is to be based on the knowledge available to the employer at the time of the dismissal, and necessarily involves an assessment of the reasonableness of the steps taken by the employer to gather relevant information on which the decision to dismiss was based.

[62] I consider that the investigation conducted by the employer to obtain the details of the amounts stolen and the means by which the money was stolen was sufficient to provide a basis on which to interview the applicant in relation to the theft. Unfortunately the applicant put up nothing in his own defence and, on the contrary, appeared to accept responsibility for the stolen money. While the applicant did not confess to the theft, neither did he provide any basis on which the respondent could reasonably reach any alternative view.

. . .
Procedural issues

[70] I am not persuaded by the submission that the Small Business Fair Dismissal Code requires that an employer must invite an employee to have a representative present. The relevant words in the Small Business Fair Dismissal Code that “… the employee can have another person present to assist” are permissive in nature and confer a right that the employee may choose to exercise. The obligation on the employer is to not frustrate that right if the employee chooses to exercise it. This begs the obvious question as how an employee of a small business is to know that such a right exists, but that is not a matter for consideration here.”

[41] Deputy President McCarthy summarised the approach in Harley v RosecrestAsset P/L t/a Can Do International [2011] FWA 3922 as follows:

“[8] For an employer to believe on reasonable grounds that the employee’s conduct is sufficiently serious to justify immediate dismissal, it is firstly necessary for the employer to establish that the employer did in fact hold the belief that as a matter of fact that (i) the conduct was by the employee; (ii) the conduct was serious; and (iii) that the conduct justified immediate dismissal. This is to be contrasted to the provisions of s.387(a) where FWA, in determining whether there was a valid reason for the dismissal, must find whether the conduct in fact occurred.

[9] Secondly, it is necessary for the employer to establish that there are reasonable grounds for the employer holding the belief. It is thus necessary for the employer to establish a basis for the belief held which is reasonable. In this regard it would usually be necessary for the employer to establish what inquires or investigations were made to support a basis for holding the belief. It would also ordinarily be expected that the belief held be put to the employee, even though the grounds for holding it may not be. Failure to make sufficient inquiries or to put the accusation to the employee in many circumstances might lead to a view that there were no reasonable grounds for the belief to be held.”

[42] In Steri-Flow Filtration Systems (Aust) Pty Ltd v Craig Erskine[2013] FWCFB 1943 a Full Bench overturned the decision at first instance because it found that the employer’s belief that the employee’s conduct was sufficiently serious to justify immediate dismissal was based on grounds directly supported by or reasonably inferential from the investigation it had conducted. It held that the investigation carried out was reasonable and that the termination was consistent with the Code.

[43] A more recent Full Bench in Ryman v Thrash Pty Ltd t/a Wisharts Automotive Services[2015] FWCFB 5264 has re-applied these principles:

“[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. As was explained in Pinawin T/A RoseVi.Hair.Face.Body v Domingo 14:

“[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.”

[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.”

Conclusion

[44] Applying the approach of the Commission in these cases involving the Code, I am satisfied that the Respondent’s dismissal of the Applicant was consistent with the summary dismissal aspect of the Code.

[45] I am satisfied that the Respondent had a genuine belief that the employee’s conduct was sufficiently serious as to justify immediate dismissal. The Applicant was the staff member who had the main responsibility to ensure that the Respondent’s computers were backed up. The Applicant did not properly back up his computer since 2013 and had failed to take steps to ensure that this occurred through the Respondent’s business. The Applicant also deleted data and the source code from his computer during the transfer period so that very little data was preserved. The Applicant did not deny that data was deleted but sought to explain this as incidental to the deletion of his personal material. This conduct is serious, especially for someone in a senior position in a software company. It falls into the definition of serious misconduct in Regulation 1.07.

[46] I am also satisfied that, objectively speaking, the employer’s belief was based on reasonable grounds. The Respondent carried out a reasonable investigation by transferring the data to CD to check what had happened.

[47] I accept the evidence of Mr Jang who explained what had occurred. On the basis of his evidence I accept that the Respondent’s allegations have been established on the balance of probabilities.

[48] Such a conclusion is not necessary in a case to which the Code applies as already noted. Also it is not necessary for the allegations to be put to the Applicant so he can respond. I note however that there was an opportunity for the Applicant to respond to the allegations on 18 January 2016 before the Respondent’s position was finalised but he did not take this up.

[49] For these reasons I determine that the termination of the Applicant’s employment was not unfair, as defined by s.385, because it was consistent with the Small Business Fair Dismissal Code. The Applicant’s application for an unfair dismissal remedy is therefore dismissed.

DEPUTY PRESIDENT

Appearances:

Mr Ma, Applicant

Dr Qiao for the Respondent

Hearing details:

2016.

Sydney:

31 May (telephone mention)

2016.

Sydney:

7 June

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