September 2004

Workplace law - a year in review: unfair contracts, unfair dismissals and compensation

With most of 2004 behind us, it is an opportune time to review some significant legal developments in workplace law.

Do not speak ill of the departed employee

The NSW Industrial Relations Commission in its unfair contract jurisdiction has awarded $22,000 in compensation to an employee after his former employer made critical comments about him to a prospective employer (Bowker & Anor v Software Engineers Australia (NSW) Pty Limited [2004]).

Mr Bowker looked for employment with other companies to increase his earnings. Upon obtaining new employment and resigning, his old employer, Software Engineers Australia, communicated allegations of criminal conduct and other misconduct to Mr Bowker’s new employer, which affected his standing and prospects. In the eyes of the Commission, that conduct was viscious, and more importantly, unfair and warranted an award of compensation.

Software Engineers Australia argued that the Commission had no jurisdiction to award compensation for what was in effect a claim for defamation. The Commission disagreed, saying it had jurisdiction to award compensation for unfairness arising from the employment relationship.

Damages for "depressive illness" or "stress and suffering"?

A recent decision of the Full Bench of the Commission has confirmed its power to award compensation for stress and suffering (State of NSW v Banas [2004] NSWIRComm 255).

Mr Banas’ position with the Department of Corrective Services was declared redundant in 1996. There followed a three-year period of dispute regarding Mr Banas’ redeployment to another position and then an eventual redundancy payment. The IRC found that the Department had not behaved fairly and that behaviour had contributed to Mr Banas suffering a depressive illness.

At first instance, Haylen J awarded $12,500 compensation to Mr Banas for stress and suffering. The State of NSW appealed the decision arguing the Commission had no jurisdiction to award that money, which was in effect a payment for personal injury. Any workplace personal injury claim was to be determined by the provisions of the Workers Compensation Act with its limitations on damages.

The Full Bench dismissed the appeal saying Mr Banas’ claim was not in the nature of a common law claim for damages but was a complaint of unfairness for which compensation could be awarded.

Importantly, the Full Bench made it clear that claims for stress and suffering must be carefully scrutinised and that the award of $12,500 was at the high end of the scale.

Despite the guidance in Banas we still await a decision that deals directly with an employee seeking compensation from the Commission for what is truly a workplace injury. For the time being employers can expect many employees running unfair contract claims to add a money claim for "stress and suffering" at the hands of the unfair employer. An area to be watched.

Remuneration actually paid is the test

In our bulletin last September, we discussed the case of Kerr v Commander Australia Ltd [2003] where the Commission examined the exclusion of employees who earn over $200,000 a year from bringing unfair contract claims. That case looked at what was earned in the year rather than paid, but an appeal from the Full Bench took a more precise approach.

The Full Bench of the Commission said the test is what the employee was actually "paid" or had "received" in the last twelve months before termination. Accordingly, all payments were to be included even if they were delayed payments from entitlements the year before. In effect it is a cash analysis rather than accruals.

Only the highest standards expected of managers

All employees owe a duty of good faith and fidelity to their employer. Employees must act honestly and not take advantage of their position. That duty is more rigorous and important the more senior an employee.

The Industrial Relations Commission recently emphasised that the community expects a high standard of honesty from senior management (Truelove v Sydney Water Corporation Limited [2004]).*

A chief financial officer was summarily dismissed for using a company vehicle without authorisation, allowing his de facto partner to use the office mobile phone for personal use and having the company pay for his de facto partner to travel with him on a business trip.

While each circumstance in isolation might have warranted a warning or counselling but not dismissal, taken together, the conduct overall justified immediate termination of employment especially because the employee was senior and ought to set an example of good behaviour.

Employees should not assume the rules do not apply to them just because of their seniority. Employees should never exceed their authority. Employers confronted by an employee misusing their position can confidently deal with the situation and take decisive action.

* An appeal has been lodged including a challenge to the jurisdiction of the Commission.

The duty of trust and confidence

Back in 1905 the House of Lords said an employee was not entitled to damages for the manner of dismissal (Addis v Gramaphone Co Ltd [1909] AC 488). During the 1970s and 1980s the implied term of ‘trust and confidence’ emerged and was developed.

So far as employers are concerned that term was taken to mean that an employer will not, without reasonable and proper cause, conduct itself in a manner to seriously damage the relationship of trust and confidence with its employees. But that implied term did not apply to the manner of the dismissal.

This year the House of Lords reviewed that approach (Eastwood v Magnox Electric [2004] UKHL 35) and said that as a matter of theory it made sense that the duty of trust and confidence be developed to include the implied obligation to act fairly when it comes to dismissal.

This was an academic analysis because the House of Lords did not in fact expand the duty to apply to dismissals because the UK had a comprehensive industrial system for dealing with unfair dismissals and there was no utility in doing so.

Whether the same terms and principles apply in Australian contracts of employment is to be determined. But with senior executives excluded from the unfair contracts jurisdiction the duty of trust and confidence will be under pressure as executives look for a remedy for unfairness. This is an area to watch.

New unfair dismissal limits from 1 July 2004

From 1 July 2004 both the NSW and Federal remuneration limit for unfair dismissals for employees not covered by an award is $90,400 including superannuation and benefits.

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