| [2021] FWCFB 18 |
| FAIR WORK COMMISSION |
DECISION |
Fair Work Act 2009
s.604—Appeal of decision
Butterfly Systems Pty Ltd
v
Eduard Sergeev
(C2020/7886)
DEPUTY PRESIDENT GOSTENCNIK |
MELBOURNE, 5 JANUARY 2021 |
Appeal against decision [2020] FWC 5217 of Deputy President Sams at Sydney on 1 October 2020 in matter number U2020/3703
[1] Butterfly Systems Pty Ltd (the Company) has applied for permission to appeal and if granted appeals against a decision (the Decision) and an associated order of Deputy President Sams, both made on 1 October 2020. 1 The Deputy President found that Mr Sergeev’s dismissal was harsh, unjust and unreasonable on both substantive and procedural grounds, and ordered a remedy of compensation in the amount of $35,000.00 less taxation. The Company’s appeal was listed for hearing in respect of permission to appeal and the merits of the appeal before this Full Bench on 4 December 2020.
[2] The following matters of background may be discerned from the Deputy President’s Decision:
• Mr Sergeev was employed by the Company on 20 September 2018, until he was dismissed on 24 March 2020. At the time of his dismissal, Mr Sergeev was a Software Developer on a salary of $120,000, plus superannuation.
• The Company was at the relevant time a small business with eight employees. The Company claimed that Mr Sergeev’s dismissal was consistent with the Small Business Fair Dismissal Code (the Code). 2
• At the start of the COVID-19 pandemic, the Company was trialling employees working from home.
• At approximately 9.00am on 24 March 2020, the date of Mr Sergeev’s dismissal, Mr Sergeev was notified by a colleague who was also a Software Developer, Dmitry Rotay, that the Company’s CEO, Ms Amy Luo, had required Mr Rotay to take his annual leave starting from 24 March 2020, until his home office was “properly set up”.
• Mr Sergeev considered that it was unlawful for Ms Luo to force Mr Rotay to take his annual leave at that time because it was not Christmas shut down period and Mr Rotay had very little annual leave accumulated. Mr Sergeev then sent Ms Luo a message stating:
“What is going on with Dmitri? Should I take day off as well?”
• Ms Luo responded to that message stating:
“We have a lot of work to do today, I will not like to approve your day off.”
• At 9:56am on 24 March 2020, Ms Luo and Mr Sergeev had a heated telephone conversation about whether Mr Rotay could be forced to take annual leave, culminating in Mr Sergeev saying that he will also take that day off work before hanging up on Ms Luo.
• Mr Sergeev then used the Company’s internal HR system to submit a request for one day of his annual leave, before disconnecting from the Company’s corporate network.
• At 9:59am on 24 March 2020, Ms Luo tried calling Mr Sergeev but he did not respond as he considered himself to be on annual leave.
• At 11:37am on 24 March 2020, Mr Sergeev received a text message from Ms Luo which stated:
“We have tried to contact you without any success, you (sic) craziness brings a huge business risk in the business operation. I am going to terminate our employment contract immediately today and please return all the company assets to office ASAP! Best regards, Amy”
• Mr Sergeev responded to Ms Luo by a text message at 11:53am which stated:
“OK, I’ll bring in the laptop tomorrow. I am on my annual leave today, stop calling me outside business hours. Good luck with your business :)”
• The Company relied on the Code Checklist, in which Ms Luo relevantly ticked the box that Mr Sergeev was dismissed for serious misconduct being abandonment of employment, which she detailed as follows:
“• Refusal to follow a lawful and reasonable direction
• Refusal to attend work
• Refusal to undertake work
• Abandonment of employment”.
• In an email to the Unfair Dismissals Team of the Fair Work Commission on 30 April 2020, Ms Luo stated:
“Dear Fair Work Commission,
Butterfly Systems ex-employee Mr. Eduard Sergeev is a case of abandonment of employment, it should not be dealt via Fair Work Commission.
On the 24th of March, Eduard Sergeev is absent from Butterfly Systems without reasonable excuse and employer's approval and he has also failed to communicate with the employer to provide an excuse for being absent.
We do not think it is a matter of unfair dismissal under Fair Work Commission.
Please feel free to contact me if you have any further questions.
Best regards,
Amy”
[3] The Deputy President first considered the Company’s jurisdictional objection that the dismissal was not unfair as the Company had complied with the Code. That jurisdictional objection was dismissed on two grounds, being:
(a) That Ms Luo did not hold a belief, on reasonable grounds, that Mr Sergeev’s conduct was sufficiently serious to justify his immediate dismissal. Ms Luo did not conduct a reasonable investigation into the matter, nor could she have in the period of around two hours between the 9:56am telephone call and the 11:37am text message, and her reasons for dismissal had varied over time from abandonment of employment to failure to follow a lawful and reasonable direction; 3 and
(b) Mr Sergeev’s conduct was not a significant non-compliance with a lawful and reasonable direction so as to render it serious misconduct pursuant to the Code. 4
[4] The Deputy President next considered whether Mr Sergeev’s dismissal was harsh, unjust or unreasonable within the meaning of s.387 of the Fair Work Act 2009 (the Act). Based upon his findings about the Company’s compliance with the Code, the Deputy President found that there was not a valid reason for dismissal relating to Mr Sergeev’s capacity or conduct, and noted that the Company’s reason for dismissal changed over time. 5
[5] Other factors that were found to support a finding of unfairness were that Mr Sergeev was dismissed by text message rather than face to face, 6 that Mr Sergeev had no opportunity to respond to the reason for dismissal,7 and that notwithstanding the Company’s small size and absence of dedicated human resources specialists it should not be excused from the unfair procedures it adopted.8
[6] After concluding that reinstatement as a remedy was not appropriate, and was not sought by Mr Sergeev, 9 the Deputy President considered an order for compensation. In that assessment of compensation amount there were two factors that affected the order for compensation made. These were:
(a) First, the assessment of the remuneration Mr Sergeev would have received, or would have been likely to receive, if he had not been dismissed. 10 In that assessment the Deputy President found:
“Obviously, this consideration is highly speculative, but one which must necessarily be made by the Commission. I determine that the unpleasantness and experience of the incident on 24 March 2020, and its consequences for both parties, would likely have not resulted in the applicant continuing in employment for any significant period of time. I estimate this period of time to be 16 weeks.” 11
(b) Secondly, if Mr Sergeev’s misconduct contributed to the Company’s decision to dismiss him, the appropriate amount of reduction on account of that misconduct. 12 In this regard, the Deputy President found:
“Although this was not a case of misconduct, I am prepared to accept that the applicant’s conduct on 24 March 2020 was inappropriate and unacceptable. I intend to reduce the amount I would otherwise order by two weeks.” 13
[7] The Company’s notice of appeal asserts three errors in the Decision.
(a) First it contends the Deputy President erred in concluding at [30] that the applicant was not guilty of significant non-compliance with a lawful and reasonable direction giving rise to the right to terminate summarily under the Code or the right to terminate generally in circumstances where the Deputy President had found that the applicant had been directed to attend work and had refused to do so. The second part of this ground of appeal alleges error in the Deputy President’s conclusion that there was no valid reason for Mr Sergeev’s dismissal related to his capacity or conduct.
(b) Secondly, it says the Deputy President erred in finding that the applicant would have continued in employment for 16 weeks despite finding that the unpleasantness and experience of the incident on 24 March 2020, and its consequences for both parties, would likely have not resulted in the applicant continuing in employment for any significant period of time.
(c) Thirdly it says the Deputy President erred in deducting an amount equivalent to only two weeks wages under s.392(3) of the Act.
[8] In relation to permission to appeal, the Company submits that while each of the erroneous determinations involved an exercise of discretion, the depth and significance of the errors involved favoured the granting of permission to appeal.
[9] An appeal under s.604 of the Act is by way of rehearing, however the Commission’s powers on appeal are only exercisable if there is error on the part of the primary decision-maker. 14 An appeal may only be made with the permission of the Commission. This appeal is one to which s.400 of the Act applies. Section 400 provides:
“(1) Despite subsection 604(2), the FWC must not grant permission to appeal from a decision made by the FWC under this Part unless the FWC considers that it is in the public interest to do so.
(2) Despite subsection 604(1), an appeal from a decision made by the FWC in relation to a matter arising under this Part can only, to the extent that it is an appeal on a question of fact, be made on the ground that the decision involved a significant error of fact.”
[10] In Coal & Allied Mining Services Pty Ltd v Lawler and others, 15 the Full Court of the Federal Court characterised the test under s.400 as ‘stringent’.
[11] The fact that the Member at first instance has made an error is not necessarily a sufficient basis for the grant of permission to appeal in the public interest. 16 The task of assessing whether the public interest test is met is a discretionary one involving a broad value judgment.17 In GlaxoSmithKline Australia Pty Ltd v Makin, a Full Bench identified some of the considerations that may attract the public interest:
“[26] Appeals have lain on the ground that it is in the public interest that leave should be granted in the predecessors to the Act for decades. It has not been considered useful or appropriate to define the concept in other than the most general terms and we do not intend to do so. The expression ‘in the public interest’, when used in a statute, classically imports a discretionary value judgment to be made by reference to undefined factual matters, confined only by the objects of the legislation in question. [Comalco v O’Connor (1995) 131 AR 657 at p.681 per Wilcox CJ & Keely J, citing O’Sullivan v Farrer (1989) 168 CLR 210]
[27] Although the public interest might be attracted where a matter raises issues of importance and general application, or where there is a diversity of decisions at first instance so that guidance from an appellate court is required, or where the decision at first instance manifests an injustice, or the result is counter intuitive, or that the legal principles applied appear disharmonious when compared with other recent decisions dealing with similar matters, it seems to us that none of those elements is present in this case.” 18
[12] In determining whether permission to appeal should be granted, it is unnecessary and inappropriate for the Full Bench to conduct a detailed examination of the grounds of appeal. 19 However, it is necessary to engage with the appeal grounds to consider whether they raise an arguable case of appealable error.
[13] The appeal in this matter raises an issue of importance and general application surrounding the appropriate deduction for misconduct in the calculation of compensation pursuant to s.392(3) of the Act. We are also satisfied that the Deputy President’s assessment that as Mr Sergeev’s employment would not have continued for any significant period of time, that period of time would be 16 weeks, is counterintuitive. The period assessed is also affected by error because, for the reasons explained below, no account is taken of the valid reason for dismissal. Consequently, the Decision manifests an injustice to the Company and so we are satisfied that it is in the public interest for permission to appeal to be granted, and we do so.
[14] We turn now to consider each of the grounds of appeal.
[15] The relevant conduct of Mr Sergeev founding the reason for his dismissal was his disregarding Ms Luo’s direction to perform work on 24 March 2020, and thereafter ensuring he could not receive further direction by disconnecting from the Company’s corporate network. The Deputy President considered whether that conduct constituted serious misconduct as referred to in the Code.
[16] The Deputy President noted Ryman v Thrash Pty Ltd t/a Wisharts Automotive Services (‘Ryman v Thrash’), 20 and particularly the following observation:
“Notwithstanding that the Code, and its accompanying checklist, were apparently designed to be read as “stand alone” documents by small business employers, we prefer the view that the reference to “serious misconduct” is to be read as bearing the meaning in reg.1.07. The types of conduct expressly referred to in the Code as constituting serious misconduct are all encompassed by the reg.1.07 definition, so no direct inconsistency is apparent. The fact that the checklist invites inclusion of “some other form of serious misconduct” suggests that the identified types of conduct were not meant to be exhaustive, and it is otherwise difficult to conclude that they were meant to be exhaustive given that they do not include other types of behaviour which may well constitute misconduct justifying summary dismissal, such as sexual harassment, bullying or significant non-compliance with a lawful and reasonable direction. And, as earlier discussed, the lack of any recognised meaning at law of the expression “serious misconduct” means that the definition in reg.1.07 is necessary to give the expression a clear content.” 21
[17] In finding that the dismissal did not comply with the Code, in that Ms Luo did not hold a belief, on reasonable grounds, that Mr Sergeev’s conduct was sufficiently serious to justify his immediate dismissal, the Deputy President concluded that Mr Sergeev’s conduct was not a significant non-compliance with a lawful and reasonable direction.
[18] In deciding whether an employer has complied with the summary dismissal provisions of the Code it is first necessary to consider whether, at the time of dismissal, the employer held a belief that the employee’s conduct was sufficiently serious to justify immediate dismissal. If the requisite belief is established, it is then necessary to consider whether that belief was based on reasonable grounds. Whether the employer has carried out a reasonable investigation into the matter will be relevant to the second element. However, it is not necessary to decide that the employer was correct in the belief that it held. 22
[19] There can be little doubt that the Company held the requisite belief. In this regard Ms Luo’s evidence was:
“I do not consider I would be able to work with the applicant again as he has displayed a willful (sic) and deliberate attitude towards me and the business where he will, despite direction to the contrary, disobey a reasonable request to undertake work. The risk to the business is too high with deadlines that have to be achieved” 23
[20] The Deputy President’s consideration of the fact of a held belief and whether objectively that belief was held on reasonable grounds seems to have been conflated. This much is evident from the following extract of the decision:
“[28] In my opinion, a decision to terminate the applicant’s employment in the morning of 24 March 2020 all over a time span of about two hours, after an abrupt phone call and one unanswered phone call, cannot, on an objective basis, sustain a claim that Ms Luo believed that the applicant’s conduct was sufficiently serious to justify immediate dismissal, based on reasonable grounds. On the evidence, there was no serious engagement between Ms Luo and the applicant as to his reasons for not continuing work that day; let alone that Ms Luo had warned the applicant of the dire consequences of his refusal to accept her insistence that he work that day.
[29] While I unreservedly accept that misconduct can be as a result of a refusal to comply with a lawful and reasonable direction of the employer; per Reg 1.07, in Ryman v Thrash, the Full Bench qualified such non-compliance, when it said at [37] ‘bullying or significant non-compliance with a lawful and reasonable direction’ (my emphasis).
[30] In my view, the applicant’s conduct was not only not ‘significant non-compliance’, but Ms Luo did not even describe his conduct as a refusal to comply with a lawful and reasonable direction in her terse text message at 11:29 am. Indeed, at this point, and even after the filing of the applicant’s unfair dismissal application, Ms Luo seems to have believed that the applicant had abandoned his employment. In an email to the Unfair Dismissals Team of the Commission on 30 April 2020, Ms Luo said:
“Dear Fair Work Commission,
Butterfly Systems ex-employee Mr. Eduard Sergeev is a case of abandonment of employment, it should not be dealt via Fair Work Commission.
On the 24th of March, Eduard Sergeev is absent from Butterfly Systems without reasonable excuse and employer's approval and he has also failed to communicate with the employer to provide an excuse for being absent.
We do not think it is a matter of unfair dismissal under Fair Work Commission.
Please feel free to contact me if you have any further questions.
Best regards,
Amy’
[31] Given this confusing and conflicting scenario, I can have no confidence that Ms Luo held a belief, on reasonable grounds, that the applicant’s conduct was sufficiently serious to justify his immediate dismissal (as Mr Gillis conceded). That said, I would conclude that the applicant’s conduct was unacceptable and for which a meeting the next day to clearly set out Ms Luo’s expectations and for the applicant to explain his conduct might have resulted, at worst, in a formal warning.
[32] As to the second of the Code element referred to in Pinawin (the concept that the employer has carried out a reasonable investigation into the matter), obviously Ms Luo conducted no investigation, nor could she have, in such a short time span. To my mind, Ms Luo hurriedly and unreasonably rushed to judgment that the applicant’s conduct justified his immediate dismissal, which was inconsistent with the relevant compliance with the Code.”
[21] The Deputy President seems to have formed the view that because several reasons have been articulated by Ms Luo as to the reason for dismissal, he could not be satisfied that the Company held the requisite belief. This is to place form over substance. Whatever label is attached to the conduct, it is clear both from the evidence given by Ms Luo and her text correspondence sent to Mr Sergeev on the day of his dismissal, that Ms Luo believed that his conduct was sufficiently serious to warrant his immediate dismissal. No other conclusion was open on the evidence.
[22] However, as is also clear from the extract above, the Deputy President concluded that the belief was not held on reasonable grounds. This was because:
➣ the “decision to terminate the applicant’s employment in the morning of 24 March 2020 [was made] all over a time span of about two hours, after an abrupt phone call and one unanswered phone call”;
➣ the absence of any “serious engagement between Ms Luo and [Mr Sergeev] as to his reasons for not continuing work that day”;
➣ that “Ms Luo had warned the applicant of the dire consequences of his refusal to accept her insistence that he work that day”; and
➣ Ms Luo conducted no investigation and instead hurriedly and unreasonably rushed to judgment that the applicant’s conduct justified his immediate dismissal.
[23] These were the objectively ascertained factual findings grounding the Deputy President’s conclusion that there were not reasonable grounds for the belief held.
[24] We see no error in this conclusion nor in the Deputy President’s characterisation of the severity of Mr Sergeev’s non-compliance with a lawful and reasonable direction. These were open on the evidence.
[25] We do, however, consider that the Deputy President fell into error when he found, based on his “earlier comments”, 24 that the Company did not have a valid reason for Mr Sergeev’s dismissal.
[26] As to valid reason, the Deputy President referred to the judgment of Northrop J in Selvachandran v Peteron Plastics Pty Ltd (Selvachandran ), 25 and noted the hallmarks of valid reason outlined therein had been applied by members of the Commission and its predecessors for many years. The Deputy President found:
“Given my earlier comments, I do not accept that the respondent had a valid reason for the applicant’s dismissal in the Selvachandran sense that it was not sound, not defensible and not well founded. As I earlier mentioned, Ms Luo’s reason for dismissal seems to have changes well after the text message of 24 March 2020.” 26
[27] The Deputy President’s conclusion about the Company’s compliance with the Code appears to have been translated into a conclusion that the dismissal was not for a valid reason. While the Deputy President noted the changing reasons identified by Ms Luo for the dismissal, it is clear that the Deputy President found that the conduct of Mr Sergeev could be considered as non-compliant with a lawful and reasonable direction, albeit not “significant”. Ms Luo also identified refusal to follow a lawful and reasonable direction, refusal to attend work and refusal to undertake work, when she completed the Code’s Checklist.
[28] A refusal by an employee to comply with a lawful and reasonable direction will almost always provide a valid reason for dismissal in the sense of being well founded, sound and defensible. It is plainly the case on the evidence before the Deputy President that the Company required Mr Sergeev to perform work on 24 March 2020. Mr Sergeev sought to take the day off, it appears in protest, to the wrong he believed was visited upon his colleague by the Company. Ms Luo refused Mr Sergeev’s suggestion that he might also take the day off and said “We have a lot of work to do today, I will not like to approve your day off.” There was no dispute below that Mr Sergeev was otherwise required to perform work on 24 March 2020. He had no right to unilaterally decide to take the day off whether as annual leave or otherwise. Mr Sergeev did so nevertheless. Mr Sergeev was aggrieved about the Company’s treatment of his colleague and his petulance was his attempt at “payback”. His conduct contained in the uncontroverted facts set out in the Decision was misconduct, and plainly founded a valid reason for dismissal relating to Mr Sergeev’s conduct. The Deputy President was in error to conclude otherwise. Whether the existence of valid reason renders the dismissal fair or unfair is to be assessed taking into account all of the various matters in s.387 of the Act which fall to be assessed in deciding whether the dismissal is harsh, unjust or unreasonable. The gravity of the conduct constituting the valid reason is also relevant in that assessment. It follows that the second part of the first ground of appeal is upheld but the first part must fail.
[29] The totality of the Deputy President’s assessment of the remuneration that Mr Sergeev would have received, or would have been likely to receive, if he had not been dismissed was as follows:
“Obviously, this consideration is highly speculative, but one which must necessarily be made by the Commission. I determine that the unpleasantness and experience of the incident on 24 March 2020, and its consequences for both parties, would likely have not resulted in the applicant continuing in employment for any significant period of time. I estimate this period of time to be 16 weeks.” 27
[30] The assessment of the length of continued employment was a discretionary decision. In Coal and Allied Operations Pty Ltd v Australian Industrial Relations Commission, 28 the majority of the High Court stated:
“Because a decision-maker charged with the making of a discretionary decision has some latitude as to the decision to be made, the correctness of the decision can only be challenged by showing error in the decision-making process. And unless the relevant statute directs otherwise, it is only if there is error in that process that a discretionary decision can be set aside by an appellate tribunal. The errors that might be made in the decision-making process were identified, in relation to judicial discretions, in House v The King in these terms:
"If the judge acts upon a wrong principle, if he allows extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed and the appellate court may exercise its own discretion in substitution for his if it has the materials for doing so." (Footnotes omitted)
[31] The Deputy President’s conclusion that the unpleasantness of the incident on 24 March 2020, and its consequences, would likely have not resulted in Mr Sergeev continuing in employment for any significant period of time was unremarkable and reflective of the evidence in the matter. The Deputy President had previously found, in his consideration of other relevant matters pursuant to s.387(h), that for an employee of Mr Sergeev’s period of service and salary, “… the usual expectation would be at least four weeks’ notice of dismissal”. 29
[32] In the circumstance of a finding that further employment would not have been for a significant period of time, it is counterintuitive that the Deputy President would then conclude that such period of time would be 16 weeks. This is all the more so, given the fact that there was a valid reason for Mr Sergeev’s dismissal. Thus, because the Deputy President had erroneously concluded there was no valid reason, he fell into error by failing to take a relevant consideration into account, namely that there was a valid reason for Mr Sergeev’s dismissal. We therefore consider the Deputy President’s assessment of the remuneration that Mr Sergeev would have received, or would have been likely to receive, if he had not been dismissed is affected by appealable error.
[33] The totality of the Deputy President’s assessment of the appropriate reduction for misconduct was as follows:
“Although this was not a case of misconduct, I am prepared to accept that the applicant’s conduct on 24 March 2020 was inappropriate and unacceptable. I intend to reduce the amount I would otherwise order by two weeks.” 30
[34] Section 392(3) of the Act provides:
“(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.” (emphasis added)
[35] Two relevant considerations arise from the terms of the provision. Firstly, the specific use of the term “misconduct”, as opposed to “serious misconduct”, indicates that conduct of less severity than that encompassed in the definition of serious misconduct in Regulation 1.07 of the Fair Work Regulations 2009, is within the purview of the provision. Secondly, the provision requires the Commission to reduce the amount of compensation it would otherwise order by an appropriate amount, on account of misconduct, if satisfied that the misconduct contributed to the employer’s decision to dismiss.
[36] In Macken’s Law of Employment (8th Ed.)(Macken), 31 the learned authors addressed what constituted misconduct as follows:
“Invariably the starting point for discussion of misconduct has been the statement by Lord James of Hereford in Clouston & Co v Corry, that “there is no fixed rule of law defining the degree of misconduct which will justify dismissal”. Nor is there any rule of law defining what constitutes misconduct for this purpose.
In North v Television Corp Ltd, the relevant quality required of the misconduct was said to be “breach of the contract that by standards of fairness and justice the employer should not be bound to continue the employment”. That is, there is a breach of contract by the employee and that breach is sufficiently serious to warrant the employer dismissing the employee or the conduct of the employee demonstrates an intention no longer to be bound by the contract. The issue as to whether the conduct is in breach of contract will necessarily involve the determination of what are the express and implied terms of the contract. The extent and nature of express and implied terms of the contract of employment have been addressed in earlier chapters in this book. In this section illustrations will be given as to how the courts have applied these contractual tests in determining whether the employer is entitled to dismiss the employee without notice.
The general tests for determining whether the conduct is sufficiently serious to justify summary dismissal have been applied in a wide variety of situations. Some of the most common situations will be referred to in the paragraphs following. In determining whether summary dismissal is justified the employer is entitled to rely on evidence of misconduct during the employment that comes to light after dismissal: see [8.130].
Lord Evershed MR in Laws v London Chronicle (Indicator Newspapers) Ltd (in a passage referred to at [8.110]) said the employer is entitled to dismiss the employee summarily if the conduct complained of is such as to show the servant has disregarded an essential condition of the contract of service. It was said that a single act of misconduct would justify dismissal only if it was of such a nature as shows that the employee “is repudiating the contract, or one of its essential conditions”.” 32 (Footnotes omitted)
[37] Insofar as misconduct warranting summary dismissal, in Macken it was further observed:
“Misconduct is the usual (but not exclusive) ground for summary dismissal. Misconduct connotes positive and intentional wrongdoing whereas other grounds for dismissal, such as incompetence and neglect, do not involve intentional misconduct. Wilful refusal to comply with lawful orders has been regarded as establishing an independent ground for dismissal on the basis that misconduct concerns positive actions rather than a refusal to carry out duties. No importance attaches to any distinction between various types of misconduct as in each instance summary dismissal will only be justified if it is a sufficiently serious breach of contract or such as to indicate that the employee no longer intends to be bound by the contract.” 33
[38] Regulation 1.07 of the Fair Work Regulations 2009, at sub-regulation (1), adopts the above meanings when, prior to listing conduct that may be included in the definition of serious misconduct, it provides:
“(1) For the definition of serious misconduct in section 12 of the Act, serious misconduct has its ordinary meaning”.
[39] The Appellant correctly conceded in the hearing of the Appeal that in the absence of a finding of misconduct, the gateway for reduction in compensation pursuant to s.392(3) was not enlivened. Upon the Deputy President finding that it was not a case of misconduct, there was no cause for the Deputy President to consider s.392(3) of the Act.
[40] However, we have previously found that the non-compliance with a lawful and reasonable direction that was established in this matter was misconduct and provided a valid reason for dismissal in the sense of being well founded, sound and defensible. Such conduct was also misconduct, being an isolated, but nonetheless positive and intentional wrongdoing, that contributed to the Company’s decision to dismiss Mr Sergeev. The Deputy President’s conclusion that there was not misconduct was in error. Mr Sergeev’s misconduct plainly contributed to the Company’s decision to dismiss him and so it was necessary for there to be a consideration of the “appropriate amount” by which the compensation must be reduced on account of that misconduct.
[41] While the Deputy President made a two week reduction in compensation, the base from which such reduction was made was itself, we have found, a result of an erroneous assessment that further employment would be for a period of 16 weeks.
[42] On the basis of the errors we have identified, we would grant permission to appeal in the public interest because the Decision manifests an injustice to the Company. We would uphold the appeal for the reasons given and we would quash the Deputy President’s Decision both as to whether the dismissal was harsh, unjust or unreasonable and the remedy decision, and the consequential order. We propose to rehear the matter rather than remitting it to a single member (see s.607(3)(b)).
Harsh, unjust or unreasonable dismissal
[43] As noted above, contrary to the view of the Deputy President, we consider, for the reasons earlier given, that Mr Sergeev engaged in misconduct on 24 March 2020 and the misconduct was a valid reason for dismissal in the sense of being a well-founded, sound and defensible reason.
[44] We otherwise agree with and adopt the findings of the Deputy President on the other matters that must be taken into account in considering whether the dismissal was harsh, unjust or unreasonable pursuant to s.387 of the Act. In particular:
(a) The fact that Mr Sergeev was notified of his dismissal by text message on 24 March 2020, with immediate effect, rather than at a face to face meeting was a factor telling in favour of a finding of unfairness (s.387(b));
(b) That Mr Sergeev had no opportunity to respond to a decision to dismiss him strongly favours a finding of procedural unfairness (s.387(c));
(c) While the Company is a small business with no dedicated human resource management expertise or advice, the particular conduct of Ms Luo and her handling of the events on 24 March 2020, was so far below the ordinary standards expected of sound and sensible employment relations; let alone the CEO/Director of a software company, that it delivered to Mr Sergeev serious unfairness in the procedures followed in effecting his dismissal. The Company could not be excused for such unfair procedures on the basis that it is a small business (s.387(f) and (g)); and
(d) Mr Sergeev had a relatively short period of service of 18 months, and was paid a reasonable salary of $120,000, plus superannuation. An employee of such service and salary would usually expect a notice period of at least four weeks’ notice of dismissal.
[45] We also consider that the misconduct in which Mr Sergeev engaged was not serious misconduct justifying summary dismissal. Dismissal on notice would have been appropriate. For the above reasons, and in weighing all the criteria the Commission is required to take into account under s.387 of the Act, we are satisfied that Mr Sergeev’s dismissal was harsh. We now turn to remedy.
[46] The circumstances as to when the Fair Work Commission may order remedy for an unfair dismissal are set out in s.390 of the Act.
[47] Section 390 is in the following terms:
“390 When the FWC may order remedy for unfair dismissal
(1) Subject to subsection (3), the FWC may order a person’s reinstatement, or the payment of compensation to a person, if:
(a) the FWC is satisfied that the person was protected from unfair dismissal (see Division 2) at the time of being dismissed; and
(b) the person has been unfairly dismissed (see Division 3).
(2) The FWC may make the order only if the person has made an application under section 394.
(3) The FWC must not order the payment of compensation to the person unless:
(a) the FWC is satisfied that reinstatement of the person is inappropriate; and
(b) the FWC considers an order for payment of compensation is appropriate in all the circumstances of the case.
Note: Division 5 deals with procedural matters such as applications for remedies.”
[48] In respect to s.390(1)(a), it is not in dispute that Mr Sergeev was protected from unfair dismissal.
[49] In respect to s.390(1)(b), for the reasons set out above, we are satisfied that Mr Sergeev has been unfairly dismissed.
[50] It is apparent that Mr Sergeev has made an application in satisfying s.390(2).
[51] Having regard to the matters in s.390(3)(a), Mr Sergeev does not seek reinstatement. Further it is apparent that the employment relationship has become untenable. Accordingly, we are satisfied that reinstatement is inappropriate.
[52] Having regard to s.390(3)(b), we consider an order for compensation is appropriate in all the circumstances of the case.
[53] The matters to be taken into account in making an order for compensation are set out in s.392 of the Act as follows:
“392 Remedy—compensation
Compensation
(1) An order for the payment of compensation to a person must be an order that the person’s employer at the time of the dismissal pay compensation to the person in lieu of reinstatement.
Criteria for deciding amounts
(2) 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.
Shock, distress etc. disregarded
(4) The amount ordered by the FWC to be paid to a person under subsection (1) must not include a component by way of compensation for shock, distress or humiliation, or other analogous hurt, caused to the person by the manner of the person’s dismissal.
Compensation cap
(5) The amount ordered by the FWC to be paid to a person under subsection (1) must not exceed the lesser of:
(a) the amount worked out under subsection (6); and
(b) half the amount of the high income threshold immediately before the dismissal.
(6) The amount is the total of the following amounts:
(a) the total amount of remuneration:
(i) received by the person; or
(ii) to which the person was entitled;
(whichever is higher) for any period of employment with the employer during the 26 weeks immediately before the dismissal; and
(b) if the employee was on leave without pay or without full pay while so employed during any part of that period—the amount of remuneration taken to have been received by the employee for the period of leave in accordance with the regulations.”
[54] As noted by the Full Bench in Double N Equipment Hire Pty Ltd t/a A1 Distributions v Humphries 34 the well-established approach to the assessment of compensation under s.392 of the Act is to apply the “Sprigg formula” derived from the Australian Industrial Relations Commission Full Bench decision in Sprigg v Paul’s Licensed Festival Supermarket (Sprigg).35 This approach was articulated in the context of the Act in Bowden v Ottrey Homes Cobram and District Retirement Villages.36
[55] We turn to those matters.
[56] We agree with and adopt the findings of the Deputy President on this point, that there would be no effect of the order on the viability of the employer’s enterprise.
[57] Mr Sergeev’s period of employment was less than two years. Mr Sergeev’s length of service does not weigh in favour of reducing or increasing the amount of compensation ordered.
[58] For the reasons given earlier, we consider that termination was justified given the failure of Mr Sergeev to abide by a lawful and reasonable direction, that is he had engaged in misconduct. However, summary dismissal was disproportionate in the circumstances and there was a failure to afford procedural fairness for the reasons set out.
[59] We therefore estimate that Mr Sergeev’s employment would have continued for a further four weeks, which would allow for sufficient time for the Company to notify Mr Sergeev of the reason for dismissal, provide an opportunity for Mr Sergeev to respond and to give him notice of his dismissal. During this period, Mr Sergeev would have earned $9,230.77
[60] In respect to s.392(d) and (f), we agree with and adopt the Deputy President’s reasoning as set out in paragraph [64] and [65] of the Decision under appeal.
[61] As we have indicated, the summary dismissal of Mr Sergeev was disproportionate in the circumstances. As Mr Sergeev was employed for more than one year but not more than three years, he was entitled to, pursuant to s.117(3) of the Act, notice of two weeks. We have taken this into account in assessing the period of ongoing employment but for the dismissal.
[62] While the Deputy President noted in the Decision that “…the applicant was paid some notice in lieu”, 37 it is clear from the transcript of the Hearing that the Company’s position on notice was clearly stated as being that no notice was paid at all.38
[63] In respect to s.392(3), we are satisfied that Mr Sergeev’s misconduct contributed to the decision of the Company to dismiss him.
[64] We consider that 20% ($1,846.15) is the appropriate amount by which to reduce the amount of compensation to account for the misconduct.
[65] This leaves an amount of compensation of three weeks’ pay, or $7,384.62 gross to be taxed according to law.
[66] This amount does not include a component of the type in s.392(4) and does not exceed the compensation cap in s.392(5).
[67] We consider that reinstatement is not an appropriate remedy in this case and that the award of compensation is appropriate.
[68] We are satisfied that an order for payment of compensation by the Company of
$7,384.62 less taxation as required by law plus 9.5% superannuation, to Mr Sergeev in lieu of reinstatement is appropriate in all the circumstances of the case. It accords a fair go all round to both the Company and Mr Sergeev.
[69] The compensation payment, less any required deduction in taxation, is to be made within 14 days of this decision. An order to that effect is set out below.
Order
We order as follows:
1. Permission to appeal is granted;
2. So much of the appeal as contended error in the conclusion that the dismissal was unfair and error in the calculation of the compensation amount is upheld;
3. The appeal is otherwise dismissed;
4. So much of the Decision ([2020] FWC 5217) as concluded the dismissal was unfair and determined an amount of compensation is quashed;
5. The compensation order (PR723257) is quashed;
6. The dismissal of Mr Sergeev was harsh, and therefore unfair;
7. As compensation in lieu of reinstatement Butterfly Systems Pty Ltd must pay:
a. Mr Sergeev $7,384.62 less taxation according to law within 14 days of the date of this decision;
b. $701.54 (9.5%) into Mr Sergeev’s nominated superannuation account within 14 days of the date of this decision.
DEPUTY PRESIDENT
Appearances:
I Latham of counsel for the Appellant
E Sergeev on his own behalf
Hearing details:
2020
Melbourne and Sydney (via video)
4 December
Written submissions:
Appellant, 25 November 2020
Respondent, 2 December 2020
Printed by authority of the Commonwealth Government Printer
<PR725956>
1 [2020] FWC 5217, PR723176, and PR723257
2 s.385(c) of the Fair Work Act 2009.
3 Decision at [28], [31] and [32].
4 Decision at [30].
5 Decision at [41].
6 Decision at [46] and [48]; s.387(b) of the Act.
7 Decision at [49]; s.387(c) of the Act.
8 Decision at [52] and [53]; s.387(g) of the Act.
9 Decision at [58].
10 s.392(2)(c) of the Act.
11 Decision at [63].
12 s.392(3) of the Act.
13 Decision at [67].
14 See Coal and Allied v AIRC (2000) 203 CLR 194 at [17].
15 [2011] FCAFC 54 at [43], per Buchanan J, Marshall and Cowdroy JJ concurring.
16 Lawrence v Coal & Allied Mining Services Pty Ltd, 202 IR 388 at [28], affirmed on judicial review in Coal & Allied Mining Services Pty Ltd v Lawler [2011] FCAFC 54.
17 O’Sullivan v Farrer [1989], HCA 61, per Mason CJ, Brennan, Dawson and Gaudron JJ; applied in Hogan v Hinch [2011] HCA 4, at [69]; Coal & Allied Mining Services Pty Ltd v Lawler and others [2011] FCAFC 54, at [44]-[46].
18 197 IR 266, at [26] – [27].
19 Trustee for The MTGI Trust v Johnston [2016] FCAFC 140 at [82].
21 Ryman v Thrash at [37].
22 See Pinawin t/a RoseVi.Hair.Face.Body v Domingo [2012] FWAFB 1359 at [29] and Ryman v Thrash Pty Ltd t/a Wisharts Automotive Services [2015] FWCFB 5264 at [41]
23 Decision at [6]
24 Decision at [41].
25 (1995) 62 IR 371
26 Decision at [41].
27 Decision at [63].
28 (2000) 203 CLR 194, at [21].
29 Decision at [54].
30 Decision at [67].
31 Sappideen et al, Law Book Co. 2016.
32 Ibid at 8.250.
33 Ibid at 8.140.
34 [2016] FWCFB 7206, [16].
35 (1998) 88 IR 21.
37 Decision at [54].
38 Transcript of proceedings (15 July 2020) at PN156 and PN157.