Michael Gardiner v Next Residential Pty Ltd T/A Next Residential

[2016] FWC 1832

[2016] FWC 1832

FAIR WORK COMMISSION

DECISION

Fair Work Act 2009
s.394—Unfair dismissal

Michael Gardiner
v
Next Residential Pty Ltd T/A Next Residential
(U2015/10461)

DEPUTY PRESIDENT BINET PERTH, 17 MAY 2016

Application for relief from unfair dismissal.

Introduction

[1] Mr Michael Gardiner (Mr Gardiner) has made an application pursuant to section 394 of the Fair Work Act 2009 (FW Act) for a remedy in respect of his dismissal (Application) alleging that his dismissal by Next Residential Pty Ltd t/a Next Residential (Next Residential)was unfair.

[2] Next Residential objected to the Fair Work Commission (Commission) hearing and determining the Application on the grounds the Mr Gardiner was not a person protected from unfair dismissal by the FW Act because Mr Gardiner was a contractor (not an employee) or, if he was an employee, that he earned above the high income threshold.

[3] The Application was the subject of a hearing before Commissioner Bissett on 16 December 2015 to determine Next Residential’s jurisdictional objections.

[4] In her decision of 16 December 2015, Commissioner Bissett determined that Mr Gardiner was an employee. According to her decision, she did so taking into account inter alia (and relevantly to the subsequent merit hearing): “… limitations on Mr Gardiner performing work for others as specified in the SAA”.

[5] Commissioner Bissett also decided that the payments made to Mr Gardiner were in the form of commission payments which could not be determined with any certainty in advance and were therefore excluded from the definition of earnings for the purposes of the high income threshold test.

[6] Consequently, the matter was listed for hearing and determination of the merits of Mr Gardiner’s Application.

Permission to be Represented

[7] Both Mr Gardiner and Next Residential were granted leave to be represented at the jurisdictional hearing and sought leave to be represented on the same grounds at the merit hearing.

[8] Section 596 of the FW Actprovides as follows:

“596 Representation by lawyers and paid agents

(1) Except as provided by subsection (3) or the procedural rules, a person may be represented in a matter before the FWC (including by making an application or submission to the FWC on behalf of the person) by a lawyer or paid agent only with the permission of the FWC.

(2) The FWC may grant permission for a person to be represented by a lawyer or paid agent in a matter before the FWC only if:

(a) it would enable the matter to be dealt with more efficiently, taking into account the complexity of the matter; or

(b) it would be unfair not to allow the person to be represented because the person is unable to represent himself, herself or itself effectively; or

(c) it would be unfair not to allow the person to be represented taking into account fairness between the person and other persons in the same matter.

…”

[9] Having considered the submissions of the parties, leave to be represented at the substantive hearing was granted to both Mr Gardiner and Next Residential to enable the matter to be dealt with more efficiently, taking into account the complexity of the matter.

Background

[10] Next Residential is a small boutique residential home building company specialising in the construction of two storey homes valued at $400,000 - $600,000 in the second and third home buyer market.

[11] Mr Gardiner is a qualified architect and the director of his own design company, PAB Consultants Pty Ltd (PAB).

[12] Mr Gardiner was retained by Next Residential to sell sales contracts for the construction of homes to be built by Next Residential.

[13] Throughout this matter, Next Residential have maintained that the parties intended to create an independent contractor relationship and not an employment relationship. In order to access the unfair dismissal regime Mr Gardiner has had to prove that he was an employee of Next Residential.

[14] Arguably this case, and the potential consequences to the parties of the findings made in it, are the price the parties pay for wanting to have their cake and eat it too. An independent contractor arrangement has attraction for both businesses and for those they engage. For example, businesses do not have to provide paid leave, pay workers compensation insurance premiums or remit payroll tax. Relevantly to this case, independent contractors are not entitled to the protection of unfair dismissal laws, so businesses have greater freedom to terminate the engagement of an independent contractor. Individuals who are engaged as independent contractors typically perform work for a number of clients and often arrange their financial, and particularly their taxation, affairs in a more favourable way than they could if they were an employee.

[15] In this case the parties created a relationship that had the hallmarks of both a contract for service and a contract of service. One key indicia of a contractor is that the contractor can perform work for others. It is the performance of work by Mr Gardiner for others that ultimately led to the demise of his relationship with Next Residential.

[16] Mr Gardiner was originally retained by Next Residential pursuant to a document described as a ‘sales agent agreement’ (Preliminary Agreement). The Preliminary Agreement is indicative of the muddled relationship created by the parties. The parties to the Preliminary Agreement are identified as Next Residential and Mr Gardiner. The Preliminary Agreement was signed by Mr Gardiner on 27 February 2012 in his capacity as a director of PAB Consultants Pty Ltd. The Agreement was signed by Next Residential on 2 March 2012. The Agreement is stated to commence with effect from 27 February 2012.

[17] Clause 1.1 of the Preliminary Agreement appoints the ‘Sales Agent’ as a sales agent of Next Residential. Clause 1.2 provides that ‘the Sales Agent’ is a proprietary limited company. The ‘Sales Agent’ is not identified in the body of the Preliminary Agreement, however in an annexure to the Preliminary Agreement signed by Mr Gardiner and Next Residential on 29 February 2012, the Sales Agent is defined as Michael Gardiner.

[18] Another ‘sales agent agreement’ was subsequently entered into by the parties (Sales Agreement). This Sales Agreement was stated to commence on 7 December 2011. It was signed by Mr Gardiner on 1 March 2013 in his capacity as a director of PAB Consultants Pty Ltd. It was signed by Next Residential on the same date.

[19] As with the Preliminary Agreement, clause 1 of the Sales Agreement appoints ‘the Sales Agent’ as a sales agent of Next Residential. Clause 1.2 provides that the ‘the Sales Agent’ is a proprietary limited company. ‘the Sales Agent’ is not identified in the body of the Sales Agreement. In the Annexure to the Sales Agreement the name of the Sales Agent is blank. This Annexure was signed by the parties on 1 March 2013.

[20] The Sales Agreement provided for the Sales Agent to be remunerated by way of commission only.

[21] Relevant to the matters in dispute, both the Preliminary Agreement and the Sales Agreement contain clauses which state that:

“The Sales Agent must not act for any other builder or marketing body in the residential home building industry.
…
The Sales Agent will sell a minimum of two (2) homes per calendar month.
…
Next Residential may at any time and for any reason terminate or cancel this agreement and the Sales Agent’s sole entitlement to Commission will be for contracts the Sales Agent has caused to be signed up as and when they become payable.”

Break Down in Relationship

[22] Mr Sims gave evidence that, unlike the other sales agents, Mr Gardiner did not keep Mr Sims updated in relation to Mr Gardiner’s sales, in particular whether Mr Gardiner was likely to meet his target of a minimum of two sales per month.

[23] Mr Sims says that, in or around June 2015, he became aware that Mr Gardiner’s number of sales were declining. Mr Sims says he raised his concerns about Mr Gardiner’s performance with Mr Gardiner and asked Mr Gardiner whether there were any external factors impacting on his performance. According to Mr Sims, he asked Mr Gardiner whether he could assist in any way to improve Mr Gardiner’s sales performance and says he was told by Mr Gardiner that he couldn’t. Mr Gardiner admitted that he recalled having a conversation with Mr Sims about his performance at around that time but he disputes that his sales figures were in fact declining.

[24] Mr Sims says that he was not satisfied with Mr Gardiner’s response and decided to instruct his information technology provider to conduct an investigation into Mr Gardiner’s email activity. According to Mr Sims, this investigation revealed that Mr Gardiner had been using his Next Residential email address to send emails to Next Residential suppliers to obtain discounts for his own personal benefit without any authority to do so and that the tone of his email exchanges were unprofessional.

[25] Mr Sims says that the investigation also revealed that Mr Gardiner had engaged other Next Residential employees to perform work for himself and his private clients during normal working hours using Next Residential resources.

[26] In addition, Mr Sims says that the investigation revealed that Mr Gardiner was performing work for private clients contrary to the terms or spirit of the Sales Agreement.

[27] Mr Sims arranged to meet with Mr Gardiner on 24 August 2015 to discuss the findings of the investigation with Mr Gardiner.

[28] Mr Sims says that, when the findings of the investigation were put to him, Mr Gardiner denied contacting Next Residential suppliers or seeking access to Next Residential discounts.

[29] Mr Sims says that he showed Mr Gardiner various sketches and plans located in the course of the investigation and asked Mr Gardiner who had undertaken the drafting work. Mr Sims says that Mr Gardiner admitted that he had engaged a number of people, including Ms Richelle Manalo (Ms Manalo), to perform drafting work for him for 5-6 private clients.

[30] Mr Sims says that Mr Gardiner admitted that Ms Manalo used the Next Residential drafting system to undertake the work. Mr Sims also says that Mr Gardiner told him that he took full responsibility for Ms Manalo’s conduct and urged Mr Sims not to discipline her.

[31] Mr Gardiner says that he told Mr Sims that all the work was done outside of business hours and that he was aware that other sales agents and drafts people undertook work for private clients.

[32] Mr Sims agreed that he acknowledged that he had permitted some Next Residential staff to perform work for private clients however they had checked with him first. Mr Sims says he told Mr Gardiner he was unhappy that Mr Gardiner had failed to seek his prior approval for the private work because he felt this private work was responsible for Mr Sims’ declining sales performance.

[33] According to Mr Sims, he told Mr Gardiner that his conduct was unacceptable and offered him the opportunity to provide an explanation. Mr Sims says that Mr Gardiner did not offer an adequate explanation so he concluded the meeting and asked Mr Gardiner to meet with him the following day. Mr Gardiner says that Mr Sims told him to go home and decide whether he wanted to continue to work for Next Residential or whether he wanted to pursue his own business interests and inform Mr Sims of his decision in the morning.

[34] Mr Sims says that he then interviewed Ms Manalo who confirmed that she had undertaken the work in question and was paid for it. He says Ms Manalo apologised unreservedly for her conduct and undertook to immediately cease performing any work for Mr Gardiner or PAB. Ms Manalo resigned from Next Residential on 7 October 2015 and was not called by either party as a witness.

[35] On 25 August 2015, Mr Sims met with Mr Gardiner again. Mr Sims and Mr Gardiner agree that Mr Sims raised concerns about Mr Gardiner’s sales performance with him. Mr Gardiner says that he informed Mr Sims that while the market was depressed he still believed that he was one of the best performing sales agents.

[36] Mr Sims says that, having given Mr Gardiner the opportunity to respond to the allegations, he concluded that there had been a fundamental breakdown of trust and he informed Mr Gardiner that he had decided to terminate the Sales Agreement in accordance with its terms. Mr Sims handed Mr Gardiner a letter of termination and directed Mr Gardiner to hand over his keys, collect his belongings and leave the office.

Was Mr Gardiner protected from unfair dismissal?

[37] Mr Gardiner submits he was unfairly dismissed and seeks an Order that he be compensated.

[38] An order for reinstatement or compensation may only be issued if Mr Gardiner was protected from unfair dismissal at the time of the dismissal.

[39] Section 382 of the FW Act sets out the circumstances that must exist for Mr Gardiner 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.”

[40] It is uncontested that Mr Gardiner had completed the minimum employment period. Commissioner Bissett held in Gardiner v Next Residential [2015] FWC 8333 that the sum of Mr Gardiner’s annual rate of earnings was less that the high income threshold. Consequently, I am satisfied the Mr Gardiner was protected from unfair dismissal.

Was the dismissal unfair?

[41] Section 385 of the FW Act sets out the circumstances in which a dismissal will be considered unfair:

“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.

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

[42] The parties conceded, and I am satisfied, that the Sales Agreement was terminated at Next Residential’s initiative and that therefore Mr Gardiner was ‘dismissed’ for the purposes of the FW Act.

[43] The parties conceded, and I am satisfied, that the Small Business Fair Dismissal Code did not apply in the circumstances and that the dismissal was not a case of genuine redundancy.

Was Mr Gardiner’s dismissal harsh, unjust or unreasonable?

[44] Having been satisfied of each of subsections 385(a),(c)-(d) of the FW Act, it is necessary to determine whether the dismissal was harsh, unjust or unreasonable. The criteria to be taken into account when determining whether a dismissal was harsh, unjust or unreasonable are set out at section 387 of the FW Act:

“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.”

[45] The ambit of the conduct which may fall within the phrase ‘harsh, unjust or unreasonable’ was explained in Byrne v Australian Airlines Ltd (1995) 185 CLR 410 at 465 by McHugh and Gummow JJ as follows:

“.... 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.”

[46] To determine whether Mr Gardiner’s dismissal was, in the circumstances, harsh, unjust or unreasonable, it is necessary to consider each of the criteria set out in section 387 of the FW Act.

Did Next Residential have a valid reason for dismissing Mr Gardiner?

[47] An employer must have a valid reason for the dismissal of an employee protected from unfair dismissal, although it need not be the reason given to the employee at the time of the dismissal.¹ The reasons should be “sound, defensible and well founded”² and should not be “capricious, fanciful, spiteful or prejudiced.”³

[48] Next Residential rely on the following as constituting a valid reason for Mr Gardiner’s dismissal:

(a) Mr Gardiner had been using his Next Residential email address to send emails to Next Residential suppliers to obtain discounts for his own personal benefit without any authority to do so.

(b) The tone of Mr Gardiner’s email exchanges with Next Residential suppliers was unprofessional, inappropriate and aggressive, potentially harming Next Residential’s reputation.

(c) Mr Gardiner had arranged for Ms Simone Stewart (Ms Stewart), employed by Next Residential as an Administration Co-ordinator, to develop marketing material for PAB (including a new letterhead) during Ms Stewart’s normal working hours using Next Residential resources.

(d) Mr Gardiner had arranged for Ms Manalo, who was then employed by Next Residential as a drafter, to undertake drafting work for Mr Gardiner’s home and for clients of PAB during Ms Manalo’s normal working hours using Next Residential resources.

(e) Some of the work undertaken by Ms Manalo appeared to replicate designs which were the intellectual property of Next Residential.

(f) Mr Gardiner, via PAB, was undertaking work for a boutique residential design and construction company in Perth, in competition with Next Residential contrary to the terms or spirit of the Sales Agreement.

Accessing Builder Rates for Personal Benefit

[49] Next Residential assert that Mr Gardiner had been using his Next Residential email address to send emails to Next Residential suppliers to obtain discounts for his own personal benefit without any authority to do so.

[50] It was uncontested that Next Residential has a number of commercial arrangements with various suppliers. These commercial arrangements are set up by Next Residential signing a credit application with the supplier in return for the supplier offering Next Residential discounted prices (Builders Rates). Mr Sims gave evidence that these Builders Rates can vary from supplier to supplier but are generally around 30%.

[51] Mr Sims asserted that only estimators employed by Next Residential are authorised to deal with suppliers. He says that staff members of Next Residential may be eligible for certain discounts through Next Residential’s suppliers, however these orders must be authorised by him and paid for personally by the staff member at the time of ordering.

[52] Mr Gardiner conceded in the course of the hearing that he had contacted several of Next Residential’s suppliers to obtain quotations for the supply of items for his new home using his Next Residential email address. He also conceded that he did not seek Mr Sims’ approval to do so. Mr Gardiner claimed that he did not seek to obtain any discount and none was offered. According to Mr Gardiner, he did not use Next Residential’s accounts to acquire the products. Instead he says he asked the suppliers to invoice him directly. He also says that all the invoices were paid by him personally.

[53] Mr Gardiner’s representative questioned Mr Gardiner in examination in chief about how Mr Gardiner came to have a Next Residential email address. Mr Gardiner explained that Next Residential’s information technology provider configured Mr Gardiner’s personal laptop so it could send and receive messages from a Next Residential email account. The implication of the line of questioning appeared to be that all emails were sent by default from Mr Gardiner’s Next Residential address and therefore his use of it to contact suppliers was unavoidable. However, other evidence tendered in the course of the hearing revealed that Mr Gardiner did have a personal g-mail email account that he could have used instead of his Next Residential email address to contact suppliers in his own capacity in his own time.

[54] A number of email exchanges between Mr Gardiner and suppliers of Next Residential in which Mr Gardiner obtained quotations for the supply of products for his new home using his Next Residential email address were tendered as exhibits. Mr Gardiner gave evidence that he informed the suppliers that the products he was seeking quotes for were for his private residence, however it is clear from an email request by Mr Gardiner that a supplier reissue an invoice in the name of PAB rather than Next Residential that the supplier believed Mr Gardiner was acting on Next Residential’s behalf. Leaving aside the potential taxation implications of claiming expenses for his home in his company’s name, it appears that Mr Gardiner did not disclose the identity of the true purchaser until after the price for the products had been quoted.

[55] Mr Gardiner claimed that he did not seek or obtain any discount from suppliers, however, as the supplier clearly presumed he was acting on behalf of Next Residential, it was possible that the supplier applied the discount without any specific request for it and that this was Mr Gardiner’s intention. Despite being aware, by virtue of the submissions filed prior to the hearing, that Next Residential were asserting that he benefited from Builders Rates, Mr Gardiner did not lead any evidence at hearing that the price he was charged was not the Builders Rates. Under questioning, Mr Gardiner confirmed that he did not know whether in fact he was given a discount or not.

[56] I am satisfied that Mr Gardiner endeavoured to use his Next Residential email address in a manner which would enable him to obtain a discount for his personal benefit contrary to company practice and procedure.

Tone of Email Exchanges

[57] On behalf of Next Residential, it was asserted that the tone of Mr Gardiner’s email exchanges with Next Residential suppliers was unprofessional, inappropriate and aggressive and therefore potentially harmful to Next Residential’s reputation.

[58] At the hearing, Mr Gardiner conceded that some of his exchanges with Next Residential suppliers were not appropriate:

“Mr Gardiner, do you accept that the tone of your emails was completely inappropriate and not how a representative of Next Residential should conduct themselves? Listen in hindsight, you know, the tone of my emails probably just reflected how I was feeling at the time. I was extremely sort of annoyed and frustrated and Dowell weren’t really helping me out.” 4

[59] Mr Gardiner said that he eventually resolved the issues amicably with Mr Jarvie, the Managing Director of Dowell Windows, who he says texted him an apology, however Mr Gardiner admitted that:

“I probably should have – perhaps could have done things a little better, yes.” 5

[60] I am satisfied that Mr Gardiner’s exchanges were unprofessional. It was asserted on Mr Gardiner’s behalf that this conduct was not sufficiently serious to warrant Mr Gardiner’s dismissal. This behaviour is not the only aspect of Mr Gardiner’s conduct about which Next Residential had concerns. It is merely one of a number of reasons on which it seeks to rely to establish that it did have valid reasons for the termination of Mr Gardiner’s engagement. The fact that, on its own, the behaviour might not justify dismissal does not prevent the conduct forming part of a pattern of conduct which is sufficiently serious to form a valid reason for dismissal.

Engaging Next Residential employees to perform work for Mr Gardiner’s benefit

[61] Next Residential say that the information technology investigation revealed that Mr Gardiner had engaged Ms Manalo to undertake drafting work for Mr Gardiner’s home and for clients of Mr Gardiner’s company during working hours using Next Residential resources.

[62] Mr Gardiner conceded that he did engage Ms Manalo to perform work for him and his clients and that he paid her for this work. However, he said that he believed she did this work in her own time using her own resources and not during working hours using Next Residential resources. He also says that other employees had engaged other Next Residential staff to perform work for their private clients. Mr Gardiner did not produce any evidence to demonstrate what work was performed, when it was performed or by whom.

[63] Mr Sims conceded that other Next Residential staff did engage colleagues to perform work for their private clients, however he said that their situation was distinguishable from Mr Gardiner’s because, unlike Mr Gardiner, they had informed Mr Sims first and the work was performed outside of normal working hours and without using Next Residential’s resources or intellectual property.

[64] Next Residential tendered, in support of their assertion that the work was carried out by Ms Manalo during her normal working hours, an email from Mr Gardiner to Ms Manalo dated Thursday 5 March 2015 at 11.08am in which Mr Gardiner directs Ms Manalo to perform work which Mr Gardiner conceded was for a client of PAB.

“Please see attached drawings showing which plans and elevations we need. Can you just do base drawings for now so I can fill it in?” 6

[65] While the email does not prove Ms Manalo performed the task during her normal working hours, it is proof that Mr Gardiner was, at the least, issuing directions to her during Ms Manalo’s normal working hours to perform work for his personal benefit.

[66] When it was put to Mr Gardiner under cross examination that he couldn’t be certain that she did the work after hours, Mr Gardiner conceded:

“But you don’t know she was doing it after hours? … I don’t know. I can’t know. Yes that’s correct.” 7

[67] Next Residential also tendered drawings by Ms Manalo for PAB that contained symbols peculiar to the software program used by Next Residential. Mr Sims gave evidence that the software program was very expensive, in the range of $7,000 to $8,000 per licence, the implication being that it was unlikely for an individual such as Ms Manalo to have the software on their home computer.

[68] Mr Sims gave evidence at the hearing that Ms Manalo admitted to him when he met with her on 24 August 2015 that she had performed at least some of the work for Mr Gardiner during her normal hours of work.

[69] Ms Manalo was not called as a witness by either side. The Commission was advised that she resigned from Next Residential shortly after Mr Gardiner’s dismissal and is now living and working in the South West of Western Australia. The failure of either side to call what would appear to be a key witness might suggest that neither were confident that her evidence would assist their case. However, given that Mr Gardiner gave evidence under oath that he was not certain that she only performed his work outside of working hours, whereas Mr Sims was certain that she said that she had performed at least some of the work during normal working hours, I give greater weight to Mr Sims’ evidence.

[70] I am satisfied that Ms Manalo performed work for Mr Gardiner and his company during her normal working hours and/or using Next Residential resources.

[71] It was also submitted on behalf of Next Residential that Ms Manalo’s drawings for PAB Consulting replicated designs owned by Next Residential. Drawings of homes designed by Next Residential, tendered as annexures to Mr Sims’ witness statement, contained to the untrained observer, a number of similarities to drawings made by Ms Manalo for PAB Consulting. Based on this evidence I am satisfied that Mr Gardiner was personally benefiting from Next Residential intellectual property and thereby acting in a manner inconsistent with his obligation under the Sales Agreement to act honestly and in a professional manner.

Undertaking work for private clients

[72] It was agreed by the parties that Next Residential permitted sales agents to have secondary employment. Mr Sims gave evidence that:

“All the Sales Agents knew that if they approached me and explained that they had other jobs to work on (other than selling building contracts for Next Residential) this would not be an issue provided that they did not work on these jobs through Next Residential. That is they do not use Next Residential’s resources and technology to carry out their own personal work.” 8

[73] Mr Gardiner conceded that he was aware that secondary employment was only permitted if Mr Sims was made aware of the existence and nature of that work:

“You say that Mr Sims had no issue with this as long as he was aware and informed that people were doing their own work. In fact you say that this appeared to be common knowledge amongst the staff at Next Residential. Is that correct? … Yes.” 9

[74] Mr Gardiner did not dispute that he failed to advise Mr Sims that he was undertaking work for private clients or that he had engaged Next Residential staff to perform the work. He did, however, contest that the nature of the work was in breach of the Sales Agreement.

[75] Mr Gardiner says that, at the 24 August 2015 meeting, Mr Sims presented him with four examples of what he alleged were examples of Mr Gardiner breaching the terms of the Sales Agreement which provided that:

“The Sales Agent must not act for any other builder or marketing body in the residential home building industry.”

[76] Mr Gardiner says that the first two examples related to projects for private clients who were extending their existing homes in Subiaco. Mr Gardiner says that, as Next Residential do not build extensions or new additions, this work was not in breach of the terms of the Sales Agreement.

[77] The third example was an invoice for cabinet and robe layouts. Mr Gardiner says that, as Next Residential do not build cabinets and robes in existing dwellings, this work was not in breach of the terms of the Sales Agreement.

[78] The final example was detailed working drawings for a property in Cottesloe which PAB invoiced a boutique residential building company for. Mr Gardiner says that the work performed by PAB for the boutique residential building company was limited to design work and therefore was not in breach of the Sales Agreement.

[79] Mr Sims conceded that Next Residential do not build extensions, new additions or build cabinets or robes in existing dwellings. He did however assert that the work for the boutique residential building company was in competition with Next Residential contrary to the terms or spirit of the Sales Agreement.

[80] There was no evidence or authority tendered to support an interpretation of the restriction on secondary employment in the Sales Agreement other than in accordance with the natural and ordinary meaning of the words used in the context of the intentions of the parties.

[81] Mr Gardiner has asserted for the purposes of these proceedings that the intention of the parties was that the nature of his engagement by Next Residential was that of employee rather than independent contractor. As an employee engaged on a full time basis, the scope of any secondary employment would typically be expected to be narrower than for a genuine independent contractor who might be expected to perform work for a number of different clients.

[82] The prohibition in the Sales Agreement against competition on its plain terms is not expressly restricted to only the type of building work performed by Next Residential. The restriction is stated to cover any residential building. Nor does the prohibition state that it is limited to the sale of contracts of construction as asserted on behalf of Mr Gardiner.

[83] What the prohibition does do is prevent Mr Gardiner from acting for other builders and marketing bodies. Such a broad prohibition is not inconsistent with restrictions which might be placed on secondary employment by an employer, although it would be less likely in the case of a genuine independent contractor.

[84] Given Mr Sims’ assertion that the intention of the parties was that he be engaged as an employee, and the finding by Commissioner Bissett that this was the actual legal outcome of the arrangements entered into by the parties, the prohibition should be interpreted as if the parties intended that he was an employee. In these circumstances it is open to interpret the prohibition in the Sales Agreement in such a way that the work Mr Gardiner performed on behalf of the boutique residential building company constituted a breach of the Sales Agreement.

Conclusions in relation to valid reasons for dismissal

[85] It is not only the nature of the work performed by Mr Sims for private clients but the manner in which it was performed which was relied on as a basis for Mr Gardiner’s dismissal.

[86] On Mr Gardiner’s behalf it was asserted that the grounds for his dismissal, other than a breach of the restriction on acting for other builders and marketing agents, did not form the basis for his dismissal at the time it occurred. According to Mr Gardiner’s representative, these reasons have been ‘retrofitted’ to the reasons for dismissal to make a dismissal that was without valid reasons one with valid reasons.

[87] I am satisfied on the evidence before me that the engagement of Next Residential staff to perform work for Mr Gardiner using Next Residential resources in working time, Mr Gardiner’s tone in email conversations with suppliers and his access to Builder’s Rates were all matters raised with him before his dismissal. Even if this did not occur, the case law is clear that acts which existed at the time of the dismissal, but were not known to an employer or relied on by an employer in dismissing an employee, can be taken into account. 10

[88] It was suggested on Mr Gardiner’s behalf that the conduct complained of by Next Residential was not sufficiently serious to warrant summary dismissal and therefore Next Residential did not have a valid reason to dismiss Mr Gardiner. The validity of the reason cannot be made to depend on whether or not the termination was on notice. Whether it also amounted to serious misconduct may well be a factor relating to the overall characterisation of the termination but it was not an essential requirement in the determination of whether a valid reason exists. 11

[89] Consequently, I find that, when viewed together, Mr Gardiner’s efforts to access Builder’s Rates for his personal benefit, his tone in communications with suppliers, his engagement of other employees to perform work for his personal benefit during working hours using Next Residential resources and his undertaking of work for private clients in breach of the Sales Agreement, provided a valid reason for his dismissal.

Notification of the valid reason - s.387(b)

[90] Notification of a valid reason for termination must be given to an employee protected from unfair dismissal before the decision is made,¹² in explicit terms¹³ and in plain and clear terms.¹⁴ In Crozier v Palazzo Corporation Pty Ltd¹⁵ a Full Bench of the Australian Industrial Relations Commission, dealing with a similar provision of the Workplace Relations Act 1996 (Cwth), stated that:

“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 170(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. Much like shutting the stable door after the horse has bolted.”16

[91] Next Residential assert that Mr Gardiner was notified of the allegations which formed the grounds for his dismissal when Mr Sims met with Mr Gardiner on 24 August 2015 and informed Mr Gardiner that an investigation had been undertaken which revealed conduct in breach of the Sales Agreement and provided details of the conduct in question.

[92] Next Residential say that Mr Sims also cited the reasons for Mr Gardiner’s proposed dismissal at the 25 August 2015 meeting before informing Mr Gardiner that he was dismissed and handing him a termination letter.

[93] Mr Gardiner did not contest that he was notified of the reasons for his dismissal. 17

[94] I am satisfied that Mr Gardiner was notified of the reasons for the dismissal.

Opportunity to respond - s.387(c)

[95] An employee protected from unfair dismissal must be provided with an opportunity to respond to any reason for dismissal relating to the conduct or capacity of the person. This criterion is to be applied in a common sense way to ensure the employee is treated fairly and should not be burdened with formality.¹⁸

[96] It is asserted on behalf of Next Residential that Mr Gardiner was given an opportunity to respond to the allegations which formed the reasons for his dismissal both at the meeting on 24 August 2015 and the meeting on the following day on 25 August 2015. Mr Sims says that when he met with Mr Gardiner on 24 August 2015 he put the allegations about Mr Gardiner’s conduct to him and provided him with an opportunity to respond. Mr Sims says that Mr Gardiner responded by saying, “I have to eat” and that “I will take full responsibility”.

[97] Mr Sims says he told Mr Gardiner he would interview Ms Manalo and meet with Mr Gardiner again the following day. Mr Sims says that when they met again on 25 August 2015 Mr Gardiner had another opportunity to respond to the allegations but failed to provide an adequate explanation. Mr Sims says that he took Mr Gardiner’s responses into account before advising Mr Gardiner that the Sales Agreement would be terminated and handing him a termination letter.

[98] On behalf of Mr Gardiner it was asserted that he did not have sufficient notice of the allegations made against him and that the meeting held on 24 August 2015 was of insufficient duration for him to have a meaningful opportunity to respond. 19

[99] It is also asserted that Mr Gardiner understood the purpose of the meeting of 25 August 2015 to be for him to advise Mr Sims whether he proposed to remain engaged by Next Residential and the parameters, if any, in which he could continue to operate his private business or whether he wanted to separate from Next Residential to pursue his own business interests. Mr Gardiner claims that Mr Sims did not make clear to him prior to advising him that he was dismissed that Next Residential were considering terminating his engagement.

[100] Mr Sims admitted that, because he believed Mr Gardiner to be an independent contractor, the disciplinary process he undertook was more abbreviated than it might have been had he believed Mr Gardiner to be an employee. I accept his evidence that, nevertheless, the allegations were properly put to Mr Gardiner and that Mr Gardiner was given an opportunity to respond to the allegations at both the 24 August 2015 meeting and at the 25 August 2015 meeting. The explanation given by Mr Gardiner at the hearing is consistent with the parties recollections of the explanation provided at the meetings. I think it is unlikely that a longer more detailed disciplinary process would have resulted in a different outcome.

[101] I find that the Applicant was given an adequate opportunity to respond to the reason for the dismissal.

Unreasonable refusal by the employer to allow a support person - s.387(d)

[102] Where an employee protected from unfair dismissal has requested a support person be present to assist in discussions relating to the dismissal, the employer should not unreasonably refuse that person being present.

[103] Next Residential assert that Mr Gardiner did not request the presence of a support person at either the meeting of 24 August 2015 or the meeting on 25 August 2015. Next Residential submit that Mr Gardiner was therefore not unreasonably denied the opportunity to have a support person present. Mr Gardiner concedes that he was not denied a support person, however he says that he was unaware that the meeting on 24 August 2015 was disciplinary in nature.

[104] There is no positive obligation on an employer to offer an employee the opportunity to have a support person. 20 In any event, Mr Gardiner concedes that he was put on notice by Mr Sims that at the meeting on 25 August 2015 he would be expected to advise Mr Sims whether he proposed to remain engaged by Next Residential and cease performing work for PAB or whether he would separate from Next Residential to pursue his own business interests. These discussions clearly go to his potential separation from Next Residential. Given that Mr Gardiner chose not to request that a support person be present at this meeting it seems unlikely that he would have made such a request in relation to the meeting on 24 August 2015.

[105] I am satisfied that Next Residential did not unreasonably refuse to allow Mr Gardiner to have a support person present at discussions relating to his dismissal.

Warnings regarding unsatisfactory performance - s.387(e)

[106] Where an employee protected from unfair dismissal is dismissed for the reason of unsatisfactory performance, the employer should warn the employer about the unsatisfactory performance before the dismissal. Unsatisfactory performance is more likely to relate to an employee’s capacity than their conduct.²¹

[107] Mr Sims says he raised his concerns about Mr Gardiner’s sales performance with Mr Gardiner in or around June 2015 and that Mr Gardiner failed to provide an adequate explanation. Mr Gardiner disputes that his sales performance was unsatisfactory. Ultimately, however, Mr Gardiner was dismissed because of his alleged misconduct. His unsatisfactory sales performance was merely said to be a symptom or side effect of the alleged misconduct.

[108] I find Next Residential did warn Mr Gardiner that his performance was unsatisfactory before the dismissal but in any event that Mr Gardiner was ultimately dismissed for reasons relating to conduct rather than performance.

Impact of the size of the respondent on procedures followed and absence of dedicated human resources management specialist/expertise on procedures followed - s.387(f) and s.387(g)

[109] Both parties agree that Next Residential is a relatively small business with no dedicated human resource function. It was submitted on behalf of Next Residential that this ought to be taken into consideration when assessing the procedural fairness of Mr Gardiner’s dismissal.

[110] It was submitted on behalf of Mr Gardiner that Next Residential was part of a larger group of related businesses, which included Aveling Homes and Zorzi Homes, and hence a higher standard of human resource expertise ought to have been observed. In the alternative, Mr Gardiner says that Next Residential has in the past engaged outside human resource expertise and should have done so in this case.

[111] Mr Sims gave evidence that the only relationship between Next Residential, Aveling Homes and Zorzi Homes is that they have some directors in common. If in fact Next Residential has in the past engaged outside human resource expertise then this tends to give weight to Next Residential’s assertion that, because of its size, it did not have human resource expertise available internally nor available via any related entity.

[112] Mr Sims says that he afforded Mr Gardiner procedural fairness but acknowledged that he adopted a more truncated disciplinary process than he might have with an employee because he believed Mr Gardiner was an independent contractor.

[113] Appropriate professional advice might have alerted Mr Sims to the possibility that Mr Gardiner might be considered an employee of Next Residential rather than a contractor as Mr Sims believed. I find the size of Next Residential’s business and the lack of human resource expertise impacted on the procedures followed in effecting his dismissal.

Other relevant matters - s.387(h)

[114] Section 387(h) provides the Commission with a broad scope to consider any other matters it considers relevant. Under this heading it is relevant to consider whether the summary termination of Mr Gardiner’s engagement made his dismissal harsh, unjust or unreasonable.

[115] The Sales Agreement provided at clause 4 that:

“4. Termination

Next Residential may at any time and for any reason terminate or cancel this agreement and the Sales Agent’s sole entitlement to Commission will be for contracts the Sales Agent has caused to be signed up as and when they become payable.”

[116] Believing Mr Gardiner to be an independent contractor, Next Residential did not have regard to whether Mr Gardiner might have an entitlement to notice or payment in lieu of notice by virtue of section 117 of the FW Act.

[117] Pursuant to section 123 of the FW Act, notice is not payable under section 117 of the FW Act if an employee is terminated because of serious misconduct. The term ‘serious misconduct’ is defined in the Fair Work Regulations 2009 (Cwth) (FW Regulations) at Regulation 1.07 as follows:

“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.”

[118] Serious misconduct is defined at subregulation 1.07(2) to include wilful or deliberate behaviour by an employee that is inconsistent with the continuation of the contract of employment. Subregulation 1.07(4) provides that behaviour is not serious misconduct 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.

[119] In Rippon Singh v Busways Blacktown Pty Ltd [2015] FWC 6684, Deputy President Bull referred to the entry in Corpus Juris Secundum vol.58 (1948) at 818 cited by the New South Wales Court of Appeal in Pillai v Messiter (No 2) (1989) 16 NSWLR 197:

"Both in law and in ordinary speech the term 'misconduct' usually implies an act done wilfully with a wrong intention, and conveys the idea of intentional wrongdoing. The term implies fault beyond the error of judgment; a wrongful intention, and not a mere error of judgment; but it does not necessarily imply corruption or criminal intention, and, in the legal idea of misconduct, an evil intention is not a necessary ingredient. The word is sufficiently comprehensive to include misfeasance as well as malfeasance, and as applied to professional people it includes unprofessional acts even though such acts are not inherently wrongful. Whether a particular course of conduct will be regarded as misconduct is to be determined from the nature of the conduct and not from its consequences."

[120] I am satisfied that the behaviour of Mr Gardiner was deliberate and that it was not unreasonable for Next Residential to treat the conduct as inconsistent with the continuation of the Sales Agreement. Given the potential value of sales and the lack of direct supervision of Mr Gardiner I am not satisfied that Mr Gardiner has demonstrated that the breakdown of Mr Sims’ trust and confidence in Mr Gardiner did not make his employment during the period of notice unreasonable.

[121] Having considered each of the matters specified in s.387, including whether there are any other relevant matters which make Mr Gardiner’s dismissal harsh, unjust or unreasonable, I am satisfied that the dismissal of Mr Gardiner was not in all the circumstances harsh, unjust or unreasonable. Accordingly, I find Mr Gardiner’s dismissal was not unfair.

[122] An order to this effect will be issued with this decision.

DEPUTY PRESIDENT

Appearances:

Mr P. Mullally of Workclaims Australia for the Applicant

Ms M. Lalli of HWL Ebsworth Lawyers for the Respondent

Hearing details:

2016

Perth:

March, 2

Final written submissions:

Applicant, 9 March 2016

Respondent, 9 March 2016

1 Shepherd v Felt & Textiles of Australia Ltd (1931) 45 CLR 359 at 373, 377-378.

2 Selvachandran v Peterson Plastics Pty Ltd (1995) 62 IR 371, 373.

3 Ibid.

 4   Transcript PN160.

 5   Transcript PN160.

 6   Exhibit R2 Annexure F.

 7   Transcript PN178.

 8   Exhibit R2 paragraph 36.

 9   Transcript PN187.

 10   MM Cables (A Division of Metal Manufacturers Limited) v Zammit, Print S8106.

 11   RMIT v Asher[2010] FWAFB 1200.

12 Chubb Security Australia Pty Ltd v Thomas Print S2679 at [41].

13 Crozier v Palazzo Corporation Pty Ltd (2000) 98 IR 137, 151.

14 Previsic v Australian Quarantine Inspection Services Print Q3730.

15 Crozier v Palazzo Corporation Pty Ltd (2000) 98 IR 137.

16 Ibid at 151.

 17   Exhibit A1 paragraph 14.

18 RMIT v Asher (2010) 194 IR 1, 14-15.

 19   Exhibit A1 paragraph 15.

 20   Explanatory Memorandum, Fair Work Bill 2008 (Cwth), [1542].

21 Annetta v Ansett Australia Ltd (2000) 98 IR 233, 237.

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