Murdoch University v Mainsbridge

[1998] IRCA 19

IN THE INDUSTRIAL RELATIONS COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY	WI 2115 of 1995

ON APPEAL FROM THE INDUSTRIAL RELATIONS COURT OF AUSTRALIA CONSTITUTED BY A SINGLE JUDGE

BETWEEN:	MURDOCH UNIVERSITY Appellant
AND:	BRUCE MAINSBRIDGE Respondent

JUDGES:	RYAN, MARSHALL AND NORTH JJ
DATE:	12 JUNE 1998
PLACE:	MELBOURNE

CORRIGENDUM

In the second to last sentence on page 16 of the above Reasons for Judgment, delete the words “employee and the employee” and insert the words “employer and the employee” .

Associate:       

Dated:            30 June 1998

INDUSTRIAL RELATIONS COURT OF AUSTRALIA

INDUSTRIAL LAW ‑ TERMINATION OF EMPLOYMENT ‑ VALID REASON ‑ Whether  VALID REASON for termination connected with employee conduct established where employer had honest belief on reasonable grounds after sufficient enquiry that employee guilty of serious misconduct ‑ Whether VALID REASON for termination connected with employee conduct requires finding by Court that employee actually guilty of serious misconduct ‑ Whether Court required to balance the interests of an employer and employee in determining whether termination for VALID REASON ‑ Whether Court required to consider what is fair and reasonable in all the circumstances in determining whether termination for VALID REASON ‑ Whether any overlap between concepts of “VALID REASON” and “HARSH, UNJUST AND UNREASONABLE”

Industrial Relations Act 1988 (Cth), ss 170CA, 170CB, 170DC, 170DE

Evidence Act 1995 (Cth), s 92(2)

Convention Concerning Termination of Employment at the Initiative of the Employer 1982 (ILO), Arts 8, 9, 10

Selvachandran v Peteron Plastics Pty Ltd (1995) 62 IR 371

Victoria v Commonwealth (1996) 187 CLR 416

Nettlefold v Kym Smoker Pty Ltd (1996) 69 IR 370

Kerr v Jaroma Pty Ltd (trading as Treasury Motor Lodge) (1996) 70 IR 469

Gerard Westen v Union des Assurances de Paris (Madgwick J, 17 December 1996, Industrial Relations Court of Australia, unreported)

Cosco Holdings v Do (1997) 150 ALR 127

Kenefick v Australian Submarine Corporation (No 2) (1996) 65 IR 366

Sangwin v Imogen Pty Ltd (von Doussa J, 8 March 1996, Industrial Relations Court of Australia, unreported)

Hollington v Hewthorn & Co Ltd [1943] 1 KB 587

MURDOCH UNIVERSITY v BRUCE MAINSBRIDGE
WI 2115 of 1995

RYAN, MARSHALL and NORTH JJ
MELBOURNE
12 JUNE 1998

IN THE INDUSTRIAL RELATIONS COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY	WI 2115 of 1995

ON APPEAL FROM THE INDUSTRIAL RELATIONS COURT OF AUSTRALIA CONSTITUTED BY A SINGLE JUDGE

BETWEEN:	MURDOCH UNIVERSITY Appellant
AND:	BRUCE MAINSBRIDGE Respondent
JUDGES:		RYAN, MARSHALL AND NORTH JJ
DATE OF ORDER:		12 JUNE 1998
WHERE MADE:		MELBOURNE

MINUTES OF ORDER

THE COURT ORDERS THAT:

1. The appeal be dismissed.

Note:Settlement and entry of orders are dealt with in Order 36 of the Industrial Relations Court of Australia Rules.

IN THE INDUSTRIAL RELATIONS COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY	WI 2115 of 1995

ON APPEAL FROM THE INDUSTRIAL RELATIONS COURT OF AUSTRALIA CONSTITUTED BY A SINGLE JUDGE

BETWEEN:	MURDOCH UNIVERSITY Appellant
AND:	BRUCE MAINSBRIDGE Respondent

JUDGES:	RYAN, MARSHALL AND NORTH JJ
DATE:	12 JUNE 1998
PLACE:	MELBOURNE

REASONS FOR JUDGMENT

THE COURT:  This is an appeal brought by leave granted by the primary judge from an interlocutory order made on 13 February 1998 dismissing a motion by the appellant, Murdoch University (“Murdoch”).  The notice of motion sought the following orders:

“1.The application be dismissed because:

(a)the Applicant was dismissed for a valid reason or reasons under section 170DE(1) of the Industrial Relations Act 1988, namely the decision of the Committee of Investigation; and

(b)the Applicant was provided with, and availed himself of, the opportunity to defend himself against the allegations made by the Respondent.”

THE FACTUAL BACKGROUND

The respondent to the appeal, Mr Mainsbridge, had been appointed by Murdoch in 1974 as its Foundation Professor of Physics.  By letter dated 20 December 1994 the Vice-Chancellor of Murdoch advised Mr Mainsbridge that he had “undertaken a preliminary investigation into matters which may constitute serious misconduct on your part in terms of your duties and responsibilities as a member of the academic staff of the University.”  The letter then set out some thirteen allegations which the Vice-Chancellor believed required further investigation.  Two further allegations of serious misconduct were raised against Mr Mainsbridge by the Vice-Chancellor by letter dated 23 December 1994.  By 19 January 1995 Mr Mainsbridge provided a written response regarding the allegations raised against him in the Vice-Chancellor’s correspondence of 20 and 23 December 1994.

At all material times Mr Mainsbridge’s employment was regulated by the Australian Universities Academic Staff (Conditions of Employment) Award 1988 (“the award”).  Clause 9 of the award provided a process for dealing with allegations said to constitute serious misconduct by members of academic staff.  Pursuant to cl 9 of the award, a Committee of Investigation (“the Committee”) was established to investigate the allegations against Mr Mainsbridge.  The Committee was constituted by Chief Commissioner Coleman of the Western Australian Industrial Relations Commission and Professors de Garis and Hill of Murdoch.

On 6 September 1995 at a special meeting of the Senate of Murdoch (“the Senate”) it was resolved:

“that Professor Mainsbridge be dismissed from the employment of the University with immediate effect.”

By letter dated 7 September 1995 the Registrar of Murdoch officially advised Mr Mainsbridge of the resolution of the Senate, thereby confirming “verbal advice” given earlier that day to that effect.

BACKGROUND - THE PROCEEDING
On 20 September 1995 Mr Mainsbridge filed in the Western Australia District Registry of the Court an application pursuant to s 170EA of the Industrial Relations Act 1988 (“the Act”) in which he alleged that his employment had been unlawfully terminated. Mr Mainsbridge sought the remedies of reinstatement and compensation.

The application was heard in Perth by the primary judge in late July and early August 1997 and in mid-December 1997.  On 16 December 1997 Mr Mainsbridge closed his case.  On 17 December 1997 submissions were made by counsel regarding Murdoch’s notice of motion.  As the primary judge put it at the commencement of his judgment:

“The respondent ... applied at the end of the applicant’s case to dismiss these proceedings on the basis that the applicant could not succeed.  It was conceived that there was a short point that might bring lengthy proceedings to speedy finality.”

Murdoch, in effect, contended that the primary judge was compelled by the reasoning of a Full Court of the Federal Court of Australia in Cosco Holdings v Van Do (1997) 150 ALR 126 to dismiss Mr Mainsbridge’s application.

It was submitted at first instance on behalf of Murdoch that it needed only to satisfy the Court that it had terminated Mr Mainsbridge’s employment for a valid reason connected with his capacity or conduct by showing that it had acted upon a report of the Committee established to inquire into Mr Mainsbridge’s conduct and that there had been a “substantial connection” between the reason for the termination and the relevant conduct.  It further contended that a “valid” termination is a “lawful” one having a genuine connection with the employee’s conduct.  To hold otherwise, so the argument ran, would impose a more onerous requirement on an employer whose termination of an employee’s services is activated by conduct than when it is “based on the operational requirements of the undertaking, establishment or service”.  The primary judge rejected those submissions.

THE ISSUE IN THE APPEAL

The issue in this appeal concerns the proper construction of s 170DE(1) of the Act, which provides:

“An employer must not terminate an employee’s employment unless there is a valid reason, or valid reasons, connected with the employee’s capacity or conduct or based on the operational requirements of the undertaking, establishment or service.”

In particular, the appeal is concerned with the circumstances in which an employer has “a valid reason connected with the employee’s .... conduct”, which allows the employer to terminate the employment of the employee.

The appellant, Murdoch, contends that a valid reason for termination connected with the employee’s conduct necessarily exists where the employer establishes that the employer had an honest belief, on reasonable grounds, after sufficient enquiry, that the employee had been guilty of serious misconduct. On this interpretation, the termination could not infringe s 170DE(1), even though the employee might be found by the Court not to have been guilty of the serious misconduct. The respondent employee contends that a valid reason for termination connected with the employee’s conduct only exists where the employer can show that the employee was actually guilty of serious misconduct. Where the Court finds that the employee was not guilty of such misconduct, the employer will not have a valid reason for termination, even if the employer had an honest belief, on reasonable grounds, after sufficient enquiry, that the employee had been guilty of serious misconduct.

It is implicit in the appellant’s argument that the existence of a valid reason is to be ascertained from the employer’s viewpoint.  The employer has done all that can reasonably be done to establish the truth and, therefore, must be free to terminate the employment of the employee. On this argument, the existence of a valid reason cannot depend upon a consideration of the termination from the employee’s viewpoint because the employee, who may, in fact, be innocent of misconduct, could be dismissed as a result of an honest, but erroneous, belief held by the employer.

In the same way, it is implicit in the respondent’s argument that the existence of a valid reason must be examined from the objective viewpoint of the Court.  Even though the employer has done all the employer could reasonably do to ascertain the truth, the termination will be unlawful if the Court determines that the employer’s conclusion, although honest and reasonable and reached after sufficient enquiry, was wrong.

THE PROPER CONSTRUCTION OF ‘VALID REASON’ IN S 170DE(1)

In our view, neither of these approaches reflects the proper construction of the expression under consideration. The expression requires that the reason have two characteristics. The reason must be valid, and it must be connected with the conduct of the employee. The dictionary meaning of “valid” as sound, well-founded, or defensible has been accepted by earlier authorities as a useful guide to the meaning of “valid reason” in s 170DE(1): Selvachandran v Peteron Plastics Pty Ltd (1995) 62 IR 371. As the issues arising in unlawful termination cases have become more refined, the utility of that guide has been shown to have limitations. For instance, in a case such as the present, a question arises as to the criteria by which validity or soundness is to be determined. Is the subsection concerned with validity by reference to the interests of the employer, or validity by reference to the employee, or validity by reference to some other touchstone? In our view, the section is concerned with validity by reference to a balance between the interests of both employer and employee in all the circumstances of the termination. Put another way, a valid reason is a reason which is fair and reasonable in the judgment of the Court to both employer and employee considering the totality of the facts. The task of the Court is to examine all of the circumstances of the termination and to make a broad judgment concerning the soundness of the termination against the background of the particular relationship of the particular employer and employee.

Both the text and the context of the subsection support this approach. The text does not limit the consideration of validity to either the interests of the employer or the employee. It does not, for instance, say or suggest that a reason is valid if the employer has an honest and reasonable belief, formed after sufficient enquiry, that the employee has been guilty of serious misconduct. The section operates in the context of relationships between employees and employers. When those relationships come to be terminated, two separate interests may conflict. Unless the legislation expressly prefers the interest of one party over that of the other, it would be natural to conclude that the subsection is concerned with a fair balance between each of the interests involved. A further textual and contextual consideration derives from the fact that s 170DE(1) was enacted to give effect to the Termination of Employment Convention (“the Convention”) (s 170CA). An expression in the section has the same meaning as in the Convention (s 170CB). Article 4 of the Convention provides:

“Article 4

The employment of a worker shall not be terminated unless there is a valid reason for such termination connected with the capacity or conduct of the worker or based on the operational requirements of the undertaking, establishment or service.”

This article is the basis for s 170DE(1): Victoria v Commonwealth (1996) 187 CLR 416 (the Industrial Relations Act Case), at 515. Articles 8(1), 9 and 10 of the Convention provide:

“Article 8

1.A worker who considers that his employment has been unjustifiably terminated shall be entitled to appeal against that termination to an impartial body, such as a court, labour tribunal, arbitration committee or arbitrator.

......

Article 9

1.The bodies referred to in Article 8 of this Convention shall be empowered to examine the reasons given for the termination and the other circumstances relating to the case and to render a decision on whether the termination was justified.

2.In order for the worker not to have to bear alone the burden of proving that the termination was not justified, the methods of implementation referred to in Article 1 of this Convention shall provide for one or the other or both of the following possibilities:

(a)the burden of providing the existence of a valid reason for the termination as defined in Article 4 of this Convention shall rest on the employer;

(b)the bodies referred to in Article 8 of this Convention shall be empowered to reach a conclusion on the reason for the termination having regard to the evidence provided by the parties and according to procedures provided for by national law and practice.

3         ......

Article 10

If the bodies referred to in Article 8 of this Convention find that termination is unjustified and if they are not empowered or do not find it practicable, in accordance with national law and practice, to declare the termination invalid and/or order or propose reinstatement of the worker, they shall be empowered to order payment of adequate compensation or such other relief as may be deemed appropriate.”

Thus, by Article 4 of the Convention, a termination is made for a valid reason if an impartial body concludes that it was justified in all the circumstances of the case.  The Convention does not elevate the interest of either the employer or employee above the other.  The Convention is based on a broad concept of justification for the dismissal in all the circumstances.

This approach has been followed in a number of cases.  The words used to express the concept have varied to some degree but, generally, the underlying approach has been to seek a reconciliation of the interests of employer and employee based on fairness. In Selvachandran, Northrop J said, at 373:

“.... in considering whether a reason is valid, it must be remembered that the requirement applies in the practical sphere of the relationship between an employer and an employee where each has rights and privileges and duties and obligations conferred and imposed on them. The provisions must ‘be applied in a practical, commonsense way to ensure that’ the employer and employee are each treated fairly, see what was said by Wilcox CJ in Gibson v Bosmac Pty Ltd (1995) 60 IR 1, when considering the construction and application of s 170DC.”

In Nettlefold v Kym Smoker Pty Ltd (1996) 69 IR 370, Lee J considered, at 371, that it was arguable that the phrase “valid reason” in s 170DE(1) imposed a requirement that, in all the circumstances, a termination of employment at the initiative of an employer must “not be unjust or unfair”. His Honour’s reference to all the circumstances was predicated on a need to have regard to the interests of both the employer and the employee. For instance, at 372, he said:

“By giving effect to the Convention the Act seeks to establish a balance between the right of an employer to duly manage an enterprise in which labour is employed and the right of an employee, and of the community, not to have the asset represented by the capacity of employees who provide such labour, whether skilled or unskilled, depreciated by incompetent or capricious management of labour by an employer.”

Further, in holding that the termination in question was unlawful, his Honour took into account the impact of the dismissal on Ms Nettlefold. He expressly rejected the proposition that it was sufficient for the employer to show that the employer believed that the operational requirements of the business necessitated the termination. He said, at 373:

“Proof that the employer acted in the belief that termination of an employee’s services was based on the operational requirements of the employer’s business would not satisfy the onus that the employer prove that there is a valid reason for the termination.”

In Kerr v Jaroma Pty Ltd (trading as Treasury Motor Lodge) (1996) 70 IR 469, Marshall J held that a valid reason based on the operational requirements of the business was not established by proof of the employer’s subjective belief as to what were the operational requirements of the business. A valid reason was shown where the termination was objectively justifiable. Objective justification included taking into account the circumstances of the employee as well as the employer. For instance, his Honour said, at 476:

“In this case it is alleged that the termination of the applicants was for a valid reason based on the operational requirements of the undertaking. I do not accept that submission. In my view, the termination of each applicant was not defensible or justifiable on any objective analysis of the facts. The applicants had been good employees and had an expectation of continuing employment in an undertaking which was not alleged to be under any financial difficulties.”

In Gerard Westen v Union des Assurances de Paris (Madgwick J, 17 Dec 1996, Industrial Relations Court of Australia, unreported) his Honour followed Nettlefold and Kerr in holding that the  requirement of a valid reason for termination based on operational requirements obliged the Court to determine whether the termination was justified by reference to a fair balance between the interests of the employer and the employee.

This line of authority was criticised and rejected by the Full Court in Cosco Holdings Pty Ltd v Do  (1997) 150 ALR 127. Before turning to that decision, it is necessary to consider further the decision of the High Court in the Industrial Relations Act Case.

THE INDUSTRIAL RELATIONS ACT CASE

In this case, the High Court held that s 170DE(2) was beyond the external affairs power in the Constitution and, hence, invalid. Section 170DE(2) provided:

“A reason is not valid if, having regard to all of the circumstances of the case, including the employee’s capacity and conduct and those operational requirements, the termination is harsh, unjust or unreasonable. This subsection does not limit the cases where a reason may be taken not to be valid.”

The majority (Brennan CJ, Toohey, Gaudron, McHugh and Gummow JJ) observed that s 170DE(1) had an obvious relationship to Article 4 of the Convention, and they continued at 517-518 as follows:

“It is this shifting onus in s 170EDA(1) which indicates that the inclusion of the ‘harsh, unjust or unreasonable’ test is an additional ground of unlawful termination that goes beyond the requirement for the reason for termination to be valid. The terms ‘harsh, unjust or unreasonable’ are not merely a synonym for ‘valid’. Had the Parliament recognised the terms as being synonyms, or even the harsh, unjust or unreasonable test as being a subset of grounds that were not ‘valid’, then there would be no reason for changing the onus from employer to employee between pars (a) and (b) of s 170EDA(1).

The changing onus in s 170EDA(1) indicates that the harsh, unjust or unreasonable criterion is broader than what otherwise would be the test for validity. This is reinforced by the nature of s 170DE(2) which, in contrast to s 170DE(1) and Art 4 of the Convention, goes not to the reason for termination but to the overall effects of the termination. It recognises that, whilst a reason for termination might be a valid one, the overall effect of the termination in the circumstances might be harsh, unjust or unreasonable. This supports the conclusion that the inclusion of the ‘harsh, unjust or unreasonable’ criterion does not implement the terms of the Convention but goes beyond its requirements and adds an alternative ground for making terminations unlawful. For these reasons, ss 170DE(2) and 170EDA(1) are, at least in part, invalid.

The provisions in ss 170DE and 170EDA creating the ‘harsh, unjust or unreasonable’ criterion go beyond the terms of the Convention to a constitutionally impermissible degree.”

These observations were directed to the question whether the terms of s 170DE(2) fell outside the purview of the Convention. Little can be derived from the judgment concerning the scope of s 170DE(1). The High Court regarded s 170DE(2) as wider in scope than s 170DE(1) and as concerned with the effects of a termination on an employee. The High Court did not decide that s 170DE(1) excluded consideration of the effects of the termination on an employee. Indeed, it seemed to acknowledge some overlap between ss 170DE(1) and (2) because it was held, at 171, that s 170DE(2) was “at least, in part, invalid” (emphasis added). The only matter which weighed with the High Court was that the entire reach of s 170DE(2) went beyond s 170DE(1). In other words, some terminations would be valid under s 170DE(1) but prohibited under s 170DE(2). Once this position had been reached and it had been concluded that the part of s 170DE(2) which went beyond s 170DE(1) was not severable from that which did not, it followed that the whole of s 170DE(2) was invalid. That conclusion left unexplored the area of overlap between the two subsections and the extent to which the concept of a lack of a valid reason had points of contact with the concepts of harshness, injustice and unreasonableness.

COSCO

In Cosco, the trial judge found that a number of terminations contravened s 170DE(1) because the employer had failed to take into account their effect on the particular employees. The termination had been based on the operational requirements of the employer. The Full Court allowed the appeal on the ground that a valid reason for termination, based on the operational requirements of the business, could exist without the employer being required to consider the effect of the termination on the employees. There was, however, a difference in approach between the majority (Lindgren and Lehane JJ) and the minority (Northrop J).

As to the meaning of “valid reason”, the majority said, at 151-152:

“In our view, ‘valid’ in the Convention context is at least primarily to be regarded as providing a compendious way of excluding those reasons which, under Arts 5 and 6, are not valid. In the statutory context with which we are concerned, the primary work of ‘valid’ is to exclude the reasons listed in s 170DF(1). If there are other reasons for which an employer may not lawfully dismiss an employee, then equally, no doubt, such a reason will not be a ‘valid’ reason. Additionally, perhaps, the word ‘valid’ may serve to emphasise that the reason must be genuinely connected with the employee’s capacity or conduct or genuinely based on operational requirements. In our view, both the context and the decision of the High Court in Victoria v Commonwealth require the conclusion that it has no wider operation.”

As explained earlier, we are not persuaded that either the context or the decision of the High Court in the Industrial Relations Act case justifies this narrow approach. The majority continued, at 152, as follows:

“It follows that, with respect, we support the view expressed by Northrop J that, to the extent that cases such as Nettlefold, Kerr and Westen hold that the word ‘valid’ should be given a wider meaning, they should be overruled. We do not think, however, that what we have said is inconsistent with anything decided in Kenefick: it is to be remembered, particularly, that Kenefick was decided before the High Court, in Victoria v Commonwealth, held that s 170DE(2) was invalid. Kenefick is authority for the proposition that where there are two operative reasons for a decision to dismiss an employee, one based on operational requirements and the other connected with the employee’s capacity or conduct, the employer must comply with s 170DC. That, with respect, is in our view correct and follows plainly from the opening words of s 170DC. In Kenefick the Full Court, disagreeing with the decision of Wilcox CJ at first instance, held that there were two operative reasons for the termination of the appellants’ employment. Whether that is so in any given case is, of course, a question of fact. It is not a question which arises here: the findings of the trial judge exclude, as an operative reason for any of the terminations with which these appeals are concerned, one based on the employee’s capacity or conduct.”

Northrop J disagreed with Nettlefold, Kerr and Westen, primarily on the basis that these cases relied upon Kenefick v Australian Submarine Corporation Pty Ltd (No 2) (1996) 65 IR 366, and Kenefick had been wrongly decided. The majority did not share his view of Kenefick. With respect, we prefer to regard Kenefick as correctly decided. But more importantly, Nettlefold, Kerr and Westen relied on arguments developed in each of those cases that an employer seeking to establish a valid reason for the termination is obliged to show that account was taken of the effect of the termination on the employee. For instance, in Nettlefold, Lee J spent over a page (372) developing his view of the meaning of “valid reason”. At the end of that discussion, Lee J addressed the onus of proof. He said, at 372-373:

“Pursuant to s 170EDA of the Act Smoker was required to prove that contention and to justify the termination of Ms Nettlefold’s employment. (See: Kenefick v Australian Submarine Corporation Pty Ltd (No 2) (1996) 65 IR 366 at 372-373.)”

His reliance on Kenefick was for no other purpose than to support the proposition that the employer bears the onus of proof under s 170EDA. It was not in support of his view of the meaning of “valid reason”.

Northrop J took a different view to the operation of s 170DE(1) from that taken in Nettlefold, Kerr and Westen. He regarded s 170DE(1) as concerned with the employer’s perspective and s 170DE(2) with the employee’s perspective. As to s 170DE(1) he said, at 136-137:

“In its context in the Convention and in s 170DE(1) the word ‘based’ is used as a verb. In the Shorter Oxford English Dictionary, the verb ‘base’ is given the meaning: ‘1. To make a foundation for; 2. To place on or upon a foundation or logical basis.’ In the Macquarie Dictionary the verb ‘base’ is given the meaning: ‘19. to make or form a base or foundation for. 20. to establish, as a fact or conclusion (fol. by on or upon).’ The word ‘on’ is a preposition expressing a relationship with some other fact, matter or opinion. Here, the phrase ‘based on’ is used as describing a connection between a subject matter, the reason for termination, and an object, the operational requirements of the employer. The operational requirements of the employer constitute the foundation upon which the termination of employment must be based.

Having regard to the meaning of the word ‘base’ when used as a verb and the grammatical context of s 170DE(1) there is much to be said for the view that, in considering whether a reason for termination is based on the operational requirements of the employer, consideration must be given to those operational requirements. To be a valid reason, the reason must be lawful in the sense of not being prohibited, and genuinely must be based on those operational requirements. The word ‘valid’ is used as an adjective qualifying the word ‘reason’ and is used in the sense of sound, defensible or well-founded with respect to the foundation, namely, the operational requirements of the employer.”

There was no warrant, in his Honour’s view, for taking into account the effect of the termination on the employee in considering the existence of a valid reason. His Honour appeared to regard the decision in the Industrial Relations Act Case as supporting this construction. He also said that the shifting onus supported the construction. The employer had the onus under s 170DE(1) because the subject matter was related to a matter especially within the knowledge of the employer, and the employee had the onus under s 170DE(2) because the subject matter was related to the impact of the termination on the employee.

This approach treats subsections 170DE(1) and (2) as part of a logical and integrated structure in which each subsection is related to matters not covered by the other. At least five responses can be made to this approach. First, the genesis of the concepts of “valid reason” and “harsh, unjust and unreasonable” predated the section. They were not devised for the purpose of enacting this legislation. Nor were they created as complementary concepts designed to work in tandem. The concept of “valid reason” was derived from the Convention, and the “harsh, unjust and unreasonable” concept has had a long history in Australian industrial legislation. An appreciation of this background leads to the conclusion that s 170DE was intended to introduce to Australian law governing termination of employment the new concept of “valid reason” and to ensure that, if there were some terminations which would be lawful under that concept but unlawful under the previously familiar concept, such terminations would remain unlawful. There was every reason to perceive a considerable overlap between the concepts and to infer that the concept of “harsh, unjust and unreasonable” had been retained as a safety net. After all, each of the concepts had originally been developed as an independent and exclusive test of the lawfulness of a termination. Second, as already explained in these reasons, the concept of “valid reason” used in the Convention and, hence, in the section, involves consideration of the impact on the employee in determining whether a termination is justified. Third, in the Industrial Relations Act Case, the High Court was not concerned with the present issue. That decision neither supports nor contradicts either of the competing views argued in this case. As explained earlier in these reasons, if the Industrial Relations Act Case can be called in aid of the resolution of the present issue at all, it favours the view that some consideration of harshness, injustice and unreasonableness is involved in determining whether a reason is valid. This follows from the fact that the majority concluded that s 170DE(2) may be only partly invalid. In other words, so much of the concept of harshness, injustice and unreasonableness as went beyond the concept of “valid reason” was outside the Convention. It was only because this element could not be severed that the whole of s 170DE(2) was held invalid. Fourth, the shifting onus of proof indicated that there were some elements of s 170DE(2) which went beyond s 170DE(1). It did not indicate that all of the elements of s 170DE(2) went beyond s 170DE(1). Finally, the textual analysis of s 170DE(1) adopted in Cosco fails to give proper emphasis to the presence of the word “valid”. On the analysis favoured by Northrop J, the word “valid” performs a function which is so limited as not to justify the inclusion of the adjective at all.

THE APPLICATION OF THE PROPER CONSTRUCTION OF S 170DE(1) TO THE ISSUE IN THIS APPEAL

Because the determination of what is a “valid reason” depends on an exercise of judgment, after considering what is fair and reasonable in all the circumstances pertaining to the employer and employee which are relevant to the termination, the existence of one circumstance - whether it be the honest belief of the employer formed on reasonable grounds after sufficient enquiry, or the actual innocence of the employee, will not be determinative. Thus, it is not possible to conclude that the employer will establish a valid reason solely by reference to the employer’s honest belief on reasonable grounds formed after sufficient enquiry that the employee was guilty of misconduct. The Court must balance that factor in the scales with all the other circumstances of the case. In some cases, the employer’s belief will, when placed in the balance, prove influential in establishing a valid reason. In others, it will not. Of course, minds will differ as to the importance of the relative significance of the enquiry made by the employer as against the innocence of the employee in a particular case. In the light of our construction of s 170DE(1), it would be wrong to lay down a rule to be applied by the Court, in every case, that an honest belief held by an employer based on reasonable grounds after sufficient enquiry will or will not constitute a valid reason for termination. As we have said, the answer to that question is a matter of broad judgment in each case.

Having regard to the plain meaning of the Convention we are unable to conclude that a “valid reason connected with the capacity or conduct” in s 170DE(1) is in all cases comprehended by an erroneous perception although genuinely formed after sufficient enquiry, that the employee has been guilty of serious misconduct. In some cases it is open to doubt whether a mistaken, although genuinely held, belief that an employee has been guilty of misconduct is a reason “connected with” the employee’s conduct at all. For example, where the employer’s belief arises from a mistake as to the identity of the employee who committed a particular act, there is no relevant conduct of the innocent employee to which the employer’s belief is connected.

The interpretation of s 170DE(1) which we prefer, it is true, entails that the employer retains the onus of going forward with evidence tending to establish the existence of a “valid reason”. However, usually, an employer, who has terminated the employment of an employee after the “sufficient enquiry” postulated by the alternative interpretation, will be able to adduce such of the evidence gathered in the course of that enquiry as is considered appropriate to discharge the burden of going forward with evidence under s 170DE(1). Such an employer may also have available admissions made by the employee during the “sufficient enquiry” or while taking advantage of the opportunity to defend himself or herself which is mandated by s 170DC. Moreover, if the misconduct has resulted in the employee’s conviction of an offence, evidence of that conviction would be admissible on an application under s 170EA by virtue of s 92(2) of the Evidence Act 1995 (Cth) which has abrogated the rule in Hollington v Hewthorn & Co Ltd [1943] 1 KB 587. In each case, it will be for the particular employer to make a forensic decision as to how to go about discharging the evidentiary onus to which we have just referred.

SANGWIN

The foundation of the appellant’s argument in this case is to be found in the judgment of von Doussa J of Sangwin v Imogen Pty Ltd (Industrial Relations Court of Australia, 8 March 1996, unreported). His Honour said, at 12:

“In virtually every situation of termination of employment, hardship to a greater or lesser degree is likely to come to the employee. Often the economic and personal hardship to the employee and to his family will be considerable. But in considering the application of Division 3 of part VIA of the Act, it must be recognised that its provisions are intended to operate in the practical arena of commercial activity, and that in the endeavour to achieve industrial fairness it is necessary to balance the interests and well being of an individual employee against the interests of the employer, and also to have regard to matters of wider public interest which may be involved. The construction of the Act is not to be considered only from the viewpoint of the employee.”

This reflects the proper approach to the construction of s 170DE(1), which we have outlined earlier in these reasons. His Honour rightly identified the need to balance the interests of employer and employee to achieve industrial fairness. His Honour then examined a number of factual examples which might elucidate the meaning of the expression. He concluded, at 14:

“In my opinion if the employer honestly believes on reasonable grounds after sufficient inquiry that the employee has been guilty of serious misconduct a valid ground within the meaning of s 170DE(1) exists for terminating the employment of the employee.”

In our view, the conclusion does not follow from the previous analysis. The conclusion involves a construction of the section considered only from the viewpoint of the employer - not a construction requiring a balance between the interests of the employer and the employee.

We now turn to the examples given by his Honour, at 12-14, as follows:

“Examples of factual situations that might arise help to elucidate the meaning of ‘valid reason’ in s 170DE(1). Take a situation where a person is employed as a skilled operator of equipment where human life depends on its proper operation or performance, and the employer receives a report that the operator is suspected of suffering a medical condition that is likely to impair his ability to perform his duties. The employer would be duty bound to ensure human safety. If after sufficient inquiry the suspected diagnosis could not be excluded would not the employer then have a sound and well founded, i.e. ‘valid’, reason connected with the employee’s capacity, or alternatively connected with the operational requirements of the undertaking, establishment or service for terminating the operator’s employment (assuming, of course, that there is not some other position reasonably available to which the employer can transfer the employee)? It would be odd if, after dismissal, it was later held that no valid reason existed at the time of dismissal because later events, e.g. the passing of time or a new diagnostic procedure, proved that the operator had not been suffering the suspected medical condition.

An employer of a health worker or child care provider against whom was made an allegation of serious physical abuse that threatened the health and safety of those in that person’s care would be duty bound to act to protect those under care. If, after sufficient inquiry, the employer honestly believed on reasonable grounds that the allegation was correct the employer would be in dereliction of duty to those in care if the employee were allowed to return to duty. Again, would not the employer have a sound or well founded reason connected with the operational requirements of the undertaking, establishment or service for terminating the operator’s employment even if, after dismissal, a tribunal or court held that it was not satisfied that the misconduct alleged had occurred, or that it did not occur?

These are extreme examples based on human safety issues. Other examples based on the serious risk of property damage or monetary loss which might arise if employees against whom serious allegations of a breach of safe operating practices or dishonesty had been made were allowed to continue performing their normal employment duties would pose similar rhetorical questions. Although the examples may not be representative of the risk of harm that could arise in many workplace situations, they lead me to the view that s 170DE(1) should not be construed so as to exclude from the notion of a ‘valid reason’ an honest belief held on reasonable grounds by the employer, after inquiry of the type envisaged in Bi-Lo Pty Ltd v Hooper, that a state of fact exists which justifies termination of the employment.”

In our view, the examples do not assist in revealing the meaning of “valid reason”. The examples appear to support the conclusion proposed only because the examples do not raise considerations favouring the employee’s interests apart from the fact of the employee’s innocence. The “practical arena of commercial activity” will not produce such examples. Real situations are more complex than the examples. What is a valid reason in the more complex situations of real life is to be determined by asking whether the termination was justified by reference to a fair balance between the interests of the employee and the employee.

It follows from these reasons that the appeal should be dismissed.

I certify that this and the preceding fifteen (15) pages are a true copy of the Reasons for Judgment herein of the Court.

Associate:

Dated:            12 June 1998  

Counsel for the Appellant:	Mr Michael Odes QC, with Ms Marie-Claire Foley
Solicitors for the Appellant:	Freehill, Hollingdale & Page
Counsel for the Respondent:	Ms Carmel McLure QC, with Ms Melanie Lynn
Solicitors for the Respondent:	Ilbery Barblett
Date of Hearing:	23 March 1998
Date of Judgment:	12 June 1998