Mr Peter Schneider v Eliana Construction and Developing Group Pty Ltd

[2016] FWC 5748

[2016] FWC 5748

FAIR WORK COMMISSION

DECISION

Fair Work Act 2009
s.394 - Application for unfair dismissal remedy

Mr Peter Schneider
v
Eliana Construction and Developing Group Pty Ltd
(U2016/1765)

COMMISSIONER ROE MELBOURNE, 23 AUGUST 2016

Application for relief from unfair dismissal.

[1] Mr Schneider was employed by Eliana Construction as a finance manager from 3 August 2015 until 5 April 2016. Mr Schneider was dismissed without notice at the initiative of the employer. The termination letter said that it was on the basis that his conduct was unsatisfactory. However, in Mr Tawadros’ statement the company argues that the dismissal was due to failure to perform adequately and deliver the expected outputs from his work and display adequate teamwork.

[2] Mr Schneider has the minimum employment period, Eliana is not a small business and the dismissal was not for reasons of redundancy.

Was Mr Schneider a contractor or an employee?

[3] Eliana argued that Mr Schneider was a contractor rather than an employee. The indicators which tend to indicate a contractor relationship are that:

● Mr Schneider used an ABN and was responsible for his own taxation and insurance.
● Mr Schneider did not receive paid sick leave or annual leave.
● Mr Schneider signed a contract service agreement.

The indicators which tend to indicate an employee relationship are:

● Mr Schneider was contractually prohibited from working for anyone else or sub-contracting work to anyone else. He did not advertise his own services to the world at large. He did not work for anyone else. The outcome of his work was solely the property of Eliana and contributed to its goodwill and profitability.
● He was called the finance manager of Eliana and he was referred to as an employee. He was portrayed to clients and other employees of the company as an employee of the company.
● He had a company email address and signature and he signed correspondence as the finance manager of Eliana.
● He worked and was paid for at least 40 hours each week. He was paid the same each fortnight. He was not paid for the completion of particular tasks.
● He was paid for public holidays.
● His work was controlled by Eliana.
● Facilities such as a desk and computer were provided to him by Eliana. He did not have a separate place of work. He did not have any significant business expenses. He did not provide or maintain any significant business assets of his own.
● Other employees reported to him and he worked under regular instruction of other senior managers.
● Mr Schneider answered an advertisement for the job of finance manager.
● He was required to clock in and clock out like all the other employees. He worked from the office like other employees. He was expected to attend work every day like other employees.

The following is a neutral factor:

● As an accountant he was a professional but he was not engaged for a specific time or for specific professional tasks.

[4] Mr Schneider was initially provided with an employment contract which was signed by the employer. Mr Schneider was not happy with that contract as he did not consider the pay rate to be high enough. Agreement was reached to increase the pay rate from $100,000 per annum to $121,000 per annum. He was then offered a contractor service agreement to sign which he did. Mr Schneider says that he did not fully understand the implications and he thought that it was just a formality which did not change the substance that he was an employee. However, given that the change of contract was negotiated I am satisfied that Mr Schneider knew that he was signing a contract of service not a contract of employment. The duties he was required to perform were not significantly altered between the employment contract and the service agreement. The person who did major aspects of the finance manager job prior to Mr Schneider was engaged as an employee and Mr Schneider’s job was advertised after that employee left the business. The termination letter in three separate places refers to Mr Schneider as an employee and that he is being dismissed from his employment. Eliana presented in evidence a spread-sheet that was used for payroll purposes. That spread-sheet includes both those who are employed on contracts of employment and those who are engaged on contracts of service, including Mr Schneider. The list does not distinguish between the two categories and they are intermingled on the list.

[5] Taking into account all of the relevant factors and considering the overall character and purpose of the relationship, I am satisfied that the essential character of the relationship was that of an employee. I am satisfied that Mr Schneider was dismissed from his employment at the initiative of the employer.

[6] In deciding whether or not the dismissal was unfair I am required to consider the following:

“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.”

Evidence of Mr Sowiha

[7] Both parties provided submissions and witness statements in response to directions prior to the hearing. However, at the start of the hearing Eliana sought to introduce further evidence from a new witness, Mr Sowiha a director of the company. Mr Sowiha sought to give evidence about a reason justifying dismissal which had not been raised in any of the earlier material. I allowed Mr Sowiha to provide verbal evidence provided it was restricted to that matter. Mr Sowiha referred to “the applicant’s failure to follow specific directions from myself to not make lodgements with the ATO until they were reviewed by the Director (Mr Sowiha) and approved were ignored and significant negative detriment was brought upon the company”. Mr Sowiha alleged that as a result of the lodgements made by Mr Schneider the company was liable for significant ATO debt. He says that the company has had to negotiate a payment plan with the ATO and also seek to lodge amended returns which lessen the liability. Mr Sowiha gave evidence that the problem emerged two or three weeks prior to the termination of employment and Mr Schneider was asked to provide further data to assist the company in addressing the issue of the level of tax liability.

[8] The company has had many months to provide evidence concerning the reasons for dismissal. I find it extraordinary that this reason was not referred to in any of the material provided prior to the hearing. This is not information which has come to light significantly after the dismissal, rather it is an allegation about matters which occurred prior to the dismissal and which have resulted in actions shortly after the dismissal. The information was certainly known and available at the time when the company submitted its submission and witness statement.

[9] The evidence concerning the harm to the company did not with sufficient specificity explain how the actions of Mr Schneider caused that harm. I accept that the company believes that the amount of tax owing is greater than necessary at least in part because of information which was not known to Mr Schneider. However, there was insufficient evidence to establish that this was the sole cause of the issues. The evidence does not establish that all of the additional costs in seeking to adjust taxation liabilities are attributable to this issue. I am not satisfied that all of the issues are explained by this factor. Documentary evidence was clearly available for the company to be able to establish its case on this point. The fact that the evidence was not produced leads me to not be satisfied that the actions of Mr Schneider in submitting BASS statements to the ATO without Mr Sowiha’s approval caused significant harm to the company. Mr Schneider gave uncontested evidence that he consulted the firm’s external accountants about these matters prior to submitting the returns.

[10] It is accepted that on two or three occasions Mr Schneider did submit BASS statements to the ATO without prior approval of Mr Sowiha. It is also accepted that this occurred after Mr Sowiha had earlier told Mr Schneider not to submit ATO BASS returns without his prior approval. Mr Schneider gave evidence that he was concerned about the legal obligation to submit these documents to the ATO within a specified time frame. Mr Sowiha accepted that documents were not lodged at the ATO within the specified time frame. Mr Sowiha says that he raised the matter with Mr Schneider on two occasions and then on the third occasion he told Mr Schneider that “if you do it again that will be the end of it.”

[11] This allegation that Mr Sowiha had warned Mr Schneider concerning the ATO issue was not put to Mr Schneider in cross examination. Mr Schneider denied that he ever received a warning that his employment was at risk. Even if I was to accept Mr Sowiha’s evidence I am not satisfied that the warning was a clear warning that Mr Schneider would be dismissed if this action was repeated. In the circumstances I prefer Mr Schneider’s evidence and am not satisfied that Mr Schneider was warned that his employment was at risk over the ATO lodgement issue.

[12] I am satisfied, however, that Mr Schneider failed to follow Mr Sowiha’s instruction not to lodge the BASS return without his approval. Although I accept that Mr Schneider was concerned about the legality of delaying the lodgement of the return, and although I accept that seeking the approval of Mr Sowiha would have caused some delay, I consider that the instruction was a reasonable instruction. However, the circumstances surrounding late lodgement including the issue of legal liability makes the failure to follow the instruction a less serious transgression.

The reason for the dismissal; was there a valid reason related to capacity or conduct?

[13] The letter of termination says that the reason is “we consider that your conduct is unsatisfactory and have decided to terminate your employment for that reasons”.

[14] In their written submission of 30 June 2016, Eliana agreed with the background facts as stated in Mr Schneider’s submission including that “the Applicant never received any verbal or written warnings in relation to his performance or conduct.” Eliana is a large company which employs in house legal counsel and a human resources manager. The only time there was any suggestion that warnings were given verbally was in the evidence of Mr Tawadros and Mr Sowiha during the proceedings.

[15] I prefer to adopt the concession made in the written submissions and witness statements of Eliana. I am satisfied that there were no written or verbal warnings where Mr Schneider was put on notice that his employment was at risk concerning either conduct or performance.

[16] I am satisfied that Mr Schneider was on notice that the ATO matter was an issue which Mr Sowiha wanted addressed.
[17] Mr Tawadros says that he raised the issue of the need to take more action to establish a SAP system with Mr Schneider. He accepts that this was not raised as a reason for termination at the termination meeting. Mr Schneider says that there were inadequate resources to be able to establish a SAP system and that this was communicated to Eliana. Mr Tawadros says that Eliana accepted Mr Schneider’s recommendation that a full time employee would be necessary to manage the introduction of SAP but that Mr Tawadros still wanted Mr Schneider to do preparation work on SAP. Having considered the evidence of both Mr Tawadros and Mr Schneider I am not satisfied that expectations were clearly expressed to Mr Schneider and that any perceived failings were clearly and sufficiently followed up by Mr Tawadros.

[18] Mr Tawadros says that the alleged failures of Mr Schneider to effectively work with his team was a matter which had previously been raised by employees with Mr Tawadros and was raised at the termination meeting. Mr Tawadros says that team members complained that Mr Schneider failed to follow up on issues. Eliana did not produce any evidence to support this allegation despite having the opportunity to do so.

[19] Mr Tawadros says that Mr Schneider failed to produce reports when requested. The documentary evidence produced which he says demonstrates this does not establish the truth of his allegation. The email chains show that Mr Schneider responded promptly to requests and did produce information in response to requests and reasonable explanation as to why remaining information was delayed. There is no evidence of any expression of dissatisfaction by Mr Tawadros in the correspondence on these issues or any evidence of further follow up by Mr Tawadros on these issues. Mr Tawadros alleges that on one occasion Mr Schneider failed to provide an updated spread sheet of employees and their pay and that Mr Tawadros had to end up doing the work himself. I am not satisfied that there is clear evidence of significant delay by Mr Schneider in producing the updated spread sheet. Mr Tawadros did not provide evidence concerning exactly when a specific request for an update was made and the period of delay following that request when action did not occur. He did not provide any evidence of a reminder to Mr Schneider. Mr Tawadros says that this issue was raised at the termination meeting.

[20] Mr Schneider gave evidence that none of these matters were raised at the termination meeting. Mr Schneider gave consistent evidence that there were only two issues raised with him at the termination meeting and they were failure to pay employees during the last pay run and inaccurate creditor accounts payable lists. These matters were raised after he was told that he was dismissed.

[21] In respect to the issue of employees not getting paid, Mr Schneider with the approval of the relevant managers instituted a system whereby in order for employees to be paid, a contract, a timesheet and a logsheet needed to submitted. Mr Schneider accepted that some employees did not get paid because this information was not provided. Mr Tawadros was critical of Mr Schneider not taking adequate steps or ensuring that others in his team took adequate steps to follow up when the material was not provided on time. Mr Tawadros said that he had to deal with the complaints of employees when they did not get paid. Having heard the evidence of both Mr Tawadros and Mr Schneider I am satisfied that there should have been further discussion about an appropriate management system to deal with this very real problem. I am not satisfied that Mr Schneider was responsible for all aspects of the problem. It is possible that Mr Schneider did not do enough proactively to deal with this problem but I am not satisfied that Mr Tawadros took adequate steps either. If after attempting to find a solution to the problem Mr Tawadros was of the belief that Mr Schneider continued to be negligent then a warning should have been issued.

[22] Exactly the same situation applies to the complaint about inaccurate accounts payable lists. Mr Schneider says that there were minor inaccuracies due to available records not being up to date and that this issue was beyond his control. Again Mr Tawadros believes that Mr Schneider should have been more proactive in getting others in his team to address this issue. This is a matter which should have been the subject of discussion and then if that failed to resolve the issue an appropriate warning. I am not satisfied that Mr Schneider was adequately made aware of the concerns.

[23] I prefer the evidence of Mr Schneider on these matters. I do not understand why Eliana would not have included these matters in their witness statement and submissions and why they would not have raised them in the termination letter. These are matters where Eliana could have produced detailed documentary evidence but did not. I am not satisfied that these matters form a sound or defensible reason for termination. They are all matters which if they were of concern should have been raised with Mr Schneider and if after consideration of his response Eliana felt that there was still a problem a warning should have been issued. None of this occurred.

[24] Apart from the ATO return issue none of the allegations raised in the proceedings, taken separately or together, come close to forming a sound and defensible reason for dismissal. Mr Schneider did fail to respect a clear instruction concerning not making ATO BASS returns without approval. However, for the reasons discussed earlier I do not consider this sufficiently serious in all the circumstances to constitute a valid reason for dismissal. If I am wrong about that matter then the dismissal would still be unfair because of the total failure of procedural fairness in this case.

Procedural issues

[25] Mr Tawadros accepted that:

● There were no warnings written or verbal where Mr Schneider was put on notice that his employment was in jeopardy.
● The dismissal meeting was called at short notice and Mr Schneider was not told what the meeting was about.
● Mr Sowiha had decided to dismiss Mr Schneider prior to the meeting and had signed the dismissal letter for Mr Tawadros to take to the meeting.
● The dismissal meeting was attended by Mr Tawadros, the human resources manager and Mr Schneider.
● At the opening of the meeting Mr Schneider was informed that he was being dismissed.
● Following this there was some discussion of the reasons for dismissal.
● The dismissal letter was handed to Mr Schneider. That letter gives no reason for the dismissal other than “we consider that your conduct is unsatisfactory and have decided to terminate our employment for that reasons”.
● Mr Schneider was not refused a support person.

[26] Mr Schneider was not notified of the reasons for dismissal prior to the decision to dismiss him. He was not notified of the valid reason because there was no valid reason. If the ATO issue was a valid reason then he was certainly not notified of that reason.

[27] Mr Schneider was not given the opportunity to respond to the reasons for his dismissal prior to the dismissal decision.

[28] There was no unreasonable refusal of a support person.

[29] To the extent that the dismissal related to unsatisfactory performance there was no warning or opportunity to improve.

[30] The company is not small and it has human resources specialist employees. These matters cannot explain the failings in procedural fairness.

Other matters

[31] In respect to other matters I consider that the concerns relating to both conduct and performance were of a nature that there should have been clarity about expectations, an opportunity for discussion and clear written warnings before any consideration of termination. In the absence of this the termination was particularly harsh and unreasonable.

Conclusion in respect to was the dismissal unfair?

[32] The lack of a valid reason combined with the absence of procedural fairness means that I am satisfied that the dismissal was unfair. Even if I am wrong about the issue of valid reason I am satisfied that the absence of procedural fairness in the circumstances of this case makes the dismissal unfair.

Remedy

[33] Mr Schneider does not seek reinstatement. Eliana opposes reinstatement. In the circumstances of this case there is a significant break down in trust which would be difficult to repair. I accept that reinstatement is inappropriate.

[34] I consider it appropriate to make an order for compensation.

[35] I am required to consider the following matters in determining compensation (Section 392(2)):

“Criteria for deciding amounts

(1) 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.”

[36] Eliana submitted that it’s viability may be impacted by a substantial award of compensation. The evidence of Mr Sowiha was that there were cash flow problems. However, there was insufficient evidence presented to satisfy me that any order I may make is likely to affect the viability of the company.

[37] The period of employment of seven months is short. This stands against a finding that the employment would have continued for a long period had the dismissal not occurred.

[38] Mr Schneider submitted that the employment would have continued for at least twelve months. I am satisfied that relationships between key management of the company and Mr Schneider were not good and I doubt that they would have improved. In these circumstances, and having regard to the short period of employment, I consider that employment would have continued for three months.

[39] Mr Schneider was unemployed and earned no income from employment during the period from 5 April 2016 to 8 June 2016. Mr Schneider applied for a number of jobs and worked with a number of contacts looking for work during that period. He succeeded in getting engagement as a contractor on a rate of pay almost the same as his rate with Eliana as from 9 June 2016. His engagement will be reviewed after six months. I am satisfied that Mr Schneider made adequate efforts to mitigate his loss.

[40] During the 13 week period I anticipate employment would have continued Mr Schneider would have earned $30,250. He earned nothing from employment in the first nine weeks. Then in the remaining four weeks he earned $9230. Mr Schneider’s economic loss is $21,020. It is now more than 13 weeks since the termination. Mr Schneider will continue to earn approximately $2308 per week during the period of one month between the end of the 13 weeks and the order for compensation and then in the period of two weeks between the order for compensation and the actual payment of the compensation. As Mr Schneider’s loss is known and the only uncertainty is my estimate of the period of further employment I do not consider that any deduction for contingencies is appropriate.

[41] Mr Schneider submitted that there should be no discount for misconduct and if I considered the ATO issue did constitute misconduct that considering the mitigating circumstances of the legal obligation to lodge on time the discount should be no more than 5-10%. Although I agree that in the all the circumstances the misconduct was not very serious, it was nonetheless a refusal of a reasonable instruction. I consider that a deduction of 20% should be made in recognition of the misconduct of Mr Schneider in not following the direction of Mr Sowiha not to put in the ATO returns.

[42] The resulting compensation is therefore $21,020 less 20% leaving an amount of compensation of $16,816. I will order that this amount be paid with appropriate taxation deducted within 21 days.

COMMISSIONER

Appearances:

Mr T Hancock appeared for the Applicant.

Mr S Hall appeared for the Respondent.

Hearing details:

2016

Melbourne

August 5

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