FWAFB 1359
FAIR WORK AUSTRALIA
Fair Work Act 2009
s.604 - Appeal of decisions
VICE PRESIDENT WATSON
Appeal against decision [ FWA 8882] of Senior Deputy President Drake at Sydney on 20 December 2011 in matter number U2011/8514- appeal in relation to unfair dismissal application - discretionary decision - permission to appeal under s.400 - public interest test - significant error of fact - compliance with the Small Business Fair Dismissal Code under s.385 - reasonable belief of the employer.
 This decision concerns an application for permission to appeal under s.604 of the Fair Work Act 2009 (the Act) by Mr John Pinawin t/a RoseVi. Hair. Face. Body (RoseVi) against the decision of Senior Deputy President Drake on 20 December 2011. 1 Her Honour decided that Mr Domingo was unfairly dismissed and awarded him compensation of three weeks pay ($3092.00).
 At the hearing of this matter in Sydney on 22 February 2012, Mr Pinawin appeared for RoseVi and Mr Domingo appeared on his own behalf.
 RoseVi is a small hairdressing business in St Marys NSW. At the time of the termination of Mr Domingo’s employment, the business employed Mr Domingo and a small number of other employees including Mr Pinawin’s wife, Mrs Rosa Pinawin. It is not disputed that RoseVi is a small business employer within the meaning of s.23 of the Act.
 Mr Domingo was employed by RoseVi from January 2007 to 23 May 2011. In May 2011, Mr and Mrs Pinawin became concerned about Mr Domingo’s ability to perform his role as a hairdresser. They were particularly troubled by his unprofessional appearance and behavioural issues.
 On 9 May 2011, Mrs Pinawin informed Mr Domingo that she was dissatisfied with his attitude. She asked him to begin looking for another job.
 In the early hours of 19 May 2011, Mr Domingo presented himself at Mr and Mrs Pinawin’s place of residence, alleging that someone had poisoned him and that his apartment had been set alight. Mr and Mrs Pinawin accompanied him to his place of residence, but found no evidence of a fire. On the same night, Mrs Pinawin overheard a conversation between Mr Domingo’s cousin, Victoria Cruz, and Mr Domingo’s ex-partner, Warren Sariano, whereby Mr Soriano revealed that Mr Domingo had been using drugs over an extended period of time.
 On 20 May 2011, Mr Domingo was admitted to Nepean Hospital. The hospital certified that he was unfit to undertake normal occupational duties until 23 May 2011.
 In a letter dated 23 May 2011, Mr Pinawin informed Mr Domingo that his employment had been terminated with immediate effect. The termination letter, written by Mr Pinawin’s mother, stated that the reason for the termination was because “the business is not doing so well due to the financial crisis.”
 On 3 June 2011 Mr Domingo lodged an unfair dismissal application with Fair Work Australia. In proceedings on 29 November 2011, Mrs Rosa Pinawin gave evidence that she and her husband decided to terminate Mr Domingo’s employment and the actual reason for termination was the risk of injury to a customer or employee from Mr Domingo’s behaviour and drug-taking. As Mr Domingo had been a long term friend they authorised Mr Pinawin’s mother to advise Mr Domingo of his dismissal. The material submitted by RoseVi included a declaration dated 19 May 2011 which stated that the dismissal was because of serious misconduct due to “intoxication of illegal drugs.”
 The application was heard on 29 November 2011.The Senior Deputy President’s decision, handed down on 20 December 2011, is short. It is as follows:
“ Mr Domingo made an application pursuant to s.394 of the Fair Work Act 2009 (the Act) against John Pinawin trading as Rosevi. Hair. Face. Body (the respondent). Both parties were self represented.
 Mr Domingo attended the hearing in a T-shirt bearing the logo “expect a drunk”. Mr Domingo's evidence could not have been less useful had he in fact turned up drunk. He was not able to give any coherent evidence on any relevant matter. In this regard he would not be assisted or directed.
 Three witnesses for the respondent gave evidence. That evidence was of variable relevance. In summary the respondent's defence to Mr Domingo's application was that his employment had been terminated because of his deteriorating attitude. The allegation against him was that his lifestyle had affected his performance. I had no difficulty in accepting that that was the case.
 I am satisfied that there was a valid reason for the dismissal with notice of Mr Domingo’s employment which was related to his capacity and conduct.
 I am satisfied that Mr Domingo was notified of the reason for his dismissal.
 I am satisfied that Mr Domingo was given an opportunity to respond to the reason for his dismissal which was related to his capacity to perform his duties.
 There was no evidence Mr Domingo requested a support person or any evidence that there was any unreasonable refusal to provide a support person for discussions related to Mr Domingo’s dismissal.
 Mr Domingo’s dismissal related to unsatisfactory performance. There was no evidence before me that Mr Domingo was warned about his unsatisfactory performance. However I have concluded that a warning in the circumstances of this application was unnecessary.
 The size of the employer's enterprise and the absence of dedicated human resource management specialists or expertise within the respondent enterprise has been taken into account by me.
 Mr Domingo’s employment was terminated summarily. No monies were paid in lieu of notice. In this respect his dismissal was harsh, unjust or unreasonable.
 I am persuaded that the summary dismissal of Mr Domingo from the employment of the respondent was harsh, unjust or unreasonable. Dismissal with notice would not have been harsh, unjust or unreasonable.
 Reinstatement is not appropriate. Compensation is appropriate. I order compensation be paid to Mr Domingo in an amount equal to the monies Mr Domingo would have been entitled to had he been dismissed with notice. A separate order to this effect will be issued today.”
Grounds of Appeal
 RoseVi’s grounds of appeal contend that the reason for the termination was serious misconduct and in reaching its decision, RoseVi had regard to the Small Business Fair Dismissal Code Checklist and the examples of conduct warranting summary dismissal in material found on the Fair Work Ombudsman’s website.
Permission to Appeal
 An appeal under s.604 of the Act in a matter of this nature is determined by reference to the provisions of s.400 of the Act. Section 400 provides:
“400 Appeal rights
(1) Despite subsection 604(2), FWA must not grant permission to appeal from a decision made by FWA under this Part unless FWA considers that it is in the public interest to do so.
(2) Despite subsection 604(1), an appeal from a decision made by FWA 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.”
 A Full Bench in GlaxoSmithKline Australia Pty Ltd v Makin 2 considered the terms of s.400. It said:
“ 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 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]
 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.”
This case has frequently been applied by Full Benches regarding the application of s.400. 3
 In a recent decision of a Full Court of the Federal Court the requirements of s.400 were described as importing a more stringent test than the previous legislation. 4 Justice Buchanan described the public interest test as a discretionary task involving a broad value judgement.5
 The decision subject to appeal in this matter is also properly viewed as a discretionary decision. 6 The appeal is therefore to be considered in accordance with the principles of House v R.7 Those principles are expressed in that decision as follows [at 504-505]:
“It is not enough that the judges composing the appellate court consider that, if they had been in the position of the primary judge, they would have taken a different course. It must appear that some error has been made in exercising the discretion. 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. It may not appear how the primary judge has reached the result embodied in his order, but, if upon the facts it is unreasonable or plainly unjust, the appellate court may infer that in some way there has been a failure properly to exercise the discretion which the law reposes in the court of first instance. In such a case, although the nature of the error may not be discoverable, the exercise of the discretion is reviewed on the ground that a substantial wrong has in fact occurred.”
 Section 400(2) of the Act modifies the House v R principles by limiting any review based on a mistake of fact to a significant error of fact.
 We are concerned that the decision in this matter does not disclose a reasoning process in relation to all of the matters raised by the application. In particular there is no consideration of whether the termination was consistent with the Small Business Fair Dismissal Code. As the appeal raises issues of compliance with the decision-making process required by the Act we have decided to grant permission to appeal.
The requirements for an unfair dismissal
 Section 385 of the Act provides that a person has been unfairly dismissed if Fair Work Australia is satisfied of four matters. The matters are:
a) the person has been dismissed;
b) the dismissal was harsh, unjust or unreasonable;
c) the dismissal was not consistent with the Small Business Fair Dismissal Code; and
d) the dismissal was not a case of genuine redundancy.
 In this matter the stated reason for termination was economic circumstances although the evidence established that this was not the real reason. The employer also asserted that the decision was consistent with the Small Business Fair Dismissal Code. Section 396 of the Act requires this matter to be considered before considering the merits of the application.
 Her Honour’s decision is concise. With an element of humour it reflects disapproval of the behaviour of Mr Domingo and the manner in which the parties conducted their cases. However we do not consider that the decision adequately discharges the obligations on Her Honour to consider, decide and give reasons for conclusions on the issues that were required to be determined.
 It is of course necessary to provide adequate reasons for reaching conclusions on matters that fall for determination. 8 Indeed it appears that Her Honour did not turn her mind to the requirements of the Small Business Fair Dismissal Code at all. The brevity and style of Her Honour’s decision masked a fundamental error. For this reason we consider that Her Honour erred and the decision should be quashed.
 We propose to decide the matter for ourselves on the materials raised by the parties in the proceedings.
Small Business Fair Dismissal Code
 As s.396 requires the determination of this issue before considering the merits of the application more generally we consider this matter first. The Small Business Fair Dismissal Code contains the following reference to Summary Dismissal:
“It is fair for an employer to dismiss an employee without notice or warning when the employer believes on reasonable grounds that the employee’s conduct is sufficiently serious to justify immediate dismissal. Serious misconduct includes theft, fraud, violence and serious breaches of occupational health and safety procedures. .....”
 This test brings the position for small businesses into line with the test for unfairness applied by tribunals in the UK in misconduct cases. In the leading case of British Home Stores Ltd v Burchell 9, the Employment Appeal Tribunal held that:
“What the tribunal have to decide every time is, broadly expressed, whether the employer who discharged the employee on the ground of the misconduct in question (usually, though not necessarily, dishonest conduct) entertained a reasonable suspicion amounting to a belief in the guilt of the employee of that misconduct at that time. That is really stating shortly and compendiously what is in fact more than one element. First of all, there must be established by the employer the fact of that belief; that the employer did believe it. Secondly, that the employer had in his mind reasonable grounds upon which to sustain that belief. And thirdly, we think, that the employer, at the stage at which he formed that belief on those grounds, at any rate at the final stage at which he formed that belief on those grounds, had carried out as much investigation into the matter as was reasonable in all the circumstances of the case. It is the employer who manages to discharge the onus of demonstrating those three matters, we think, who must not be examined further.”
 There have been few decisions discussing the requirements of the relevant paragraph of the Small Business Fair Dismissal Code in Australia and no Full Bench cases. Commissioner Deegan in French v Lufra Investment 10 expressed her conclusion on consistency with this part of the Small Business Fair Dismissal Code as follows:
“ The respondent appeared to argue that the applicant’s conduct was serious misconduct as it was “wilful and deliberate behaviour by an employee that is inconsistent with the contract of employment”. I am not satisfied that the applicant’s conduct in initially refusing to restore the shed to its former state or refusing to discuss the matter with Ms Holland some short time later was, in all the circumstances “wilful or deliberate behaviour” or in fact conduct so serious as to justify summary dismissal. I will expand on my reasons for reaching this conclusion in dealing with the matter of whether the dismissal was harsh, unjust or unreasonable. As summary dismissal was not warranted in this case the dismissal was inconsistent with the Code.”
 In our view this approach is not consistent with the requirements of the Small Business Fair Dismissal Code as it equates the test in the Code with a determination by the tribunal of whether summary dismissal was warranted.
 Deputy President Bartel in Narong Khammaneechan v Nanakhon Pty Ltd ATF Nanakhon Trading Trust T/A Banana Tree Cafe 11 said:
“ At the outset it is appropriate to note that unlike a consideration of the dismissal of an employee of a business that is not a small business employer, the function of FWA is not to determine on the evidence whether there was a valid reason for dismissal. That is, the exercise in the present matter does not involve a finding on the evidence as to whether the applicant did or did not steal the money. The application of the Small Business Fair Dismissal Code involves a determination as to whether there were reasonable grounds on which the respondent reached the view that the applicant’s conduct was serious enough to justify immediate dismissal. As such, the determination is to be based on the knowledge available to the employer at the time of the dismissal, and necessarily involves an assessment of the reasonableness of the steps taken by the employer to gather relevant information on which the decision to dismiss was based.”
 Senior Deputy President O’Callaghan in Harley v Rosecrest Asset Pty Ltd T/A Can Do International 12 said:
“ For an employer to believe on reasonable grounds that the employee’s conduct is sufficiently serious to justify immediate dismissal, it is firstly necessary for the employer to establish that the employer did in fact hold the belief that as a matter of fact that (i) the conduct was by the employee; (ii) the conduct was serious; and (iii) that the conduct justified immediate dismissal. This is to be contrasted to the provisions of s.387(a) where FWA, in determining whether there was a valid reason for the dismissal, must find whether the conduct in fact occurred.
 Secondly, it is necessary for the employer to establish that there are reasonable grounds for the employer holding the belief. It is thus necessary for the employer to establish a basis for the belief held which is reasonable. In this regard it would usually be necessary for the employer to establish what inquires or investigations were made to support a basis for holding the belief. It would also ordinarily be expected that the belief held be put to the employee, even though the grounds for holding it may not be. Failure to make sufficient inquiries or to put the accusation to the employee in many circumstances might lead to a view that there were no reasonable grounds for the belief to be held.”
 We believe that the approach and observations in these two decisions are correct. There are two steps in the process of determining whether this aspect of the Small Business Fair Dismissal Code is satisfied. First, there needs to be a consideration whether, at the time of dismissal, the employer held a belief that the employee’s conduct was sufficiently serious to justify immediate dismissal. Secondly it is necessary to consider whether that belief was based on reasonable grounds. The second element incorporates the concept that the employer has carried out a reasonable investigation into the matter. It is not necessary to determine whether the employer was correct in the belief that it held.
 Acting reasonably does not require a single course of action. Different employers may approach the matter differently and form different conclusions, perhaps giving more benefit of any doubt, but still be acting reasonably. The legislation requires a consideration of whether the particular employer, in determining its course of action in relation to the employee at the time of dismissal, carried out a reasonable investigation, and reached a reasonable conclusion in all the circumstances. Those circumstances include the experience and resources of the small business employer concerned.
 The question we need to consider in this case is whether Mr and Mrs Pinawin believed on reasonable grounds that Mr Domingo’s conduct was sufficiently serious to justify immediate dismissal.
 The evidence establishes that Mr Domingo displayed erratic behaviour both at work and away from work. Mr and Mrs Pinawin observed his behaviour and conduct in work and non-work environments. On 19 May 2011 he was behaving erratically when he visited their home at approximately 3am. That evening they heard Mr Domingo’s former partner state that Mr Domingo had been taking drugs. They had no information that he had been taking drugs on the evening in question although it appeared to them that this was the most likely explanation for the behaviour he was exhibiting. They spent some time with him that evening. They did not ask Mr Domingo about his drug-taking.
 The following day they were informed that Mr Domingo had been admitted to hospital for reasons related to mental illness and drugs. They considered that the erratic behaviour was the result of the drug taking. They also considered that the use of drugs outside of work had implications for the safety of clients and staff, including Mr Domingo, at work.
 Prior to the dismissal, Mr and Mrs Pinawin filled in the Small Business Fair Dismissal Code checklist and ticked the box indicating that the dismissal was for serious misconduct. They stated that the reason was “Intoxication of Illegal Drugs”. They also asserted that they read the examples of serious misconduct in the explanatory material regarding termination published by the Fair Work Ombudsman before implementing the termination. That material indicated that conduct that is serious misconduct includes “conduct that causes a serious and imminent risk to health or safety of a person or the reputation, viability or profitability of the employer’s business.” These passages reflect the definition of serious misconduct in the Fair Work Regulations. They did not pay Mr Domingo an amount in lieu of notice because, on reviewing the material, they did not consider that there was an obligation to do so.
 In our view the evidence establishes that the employer did hold the belief that Mr Domingo’s conduct justified immediate dismissal. The crucial question is whether this belief was based on reasonable grounds.
 Generally employers have no right to control or regulate an employee’s ‘out of hours conduct’. But if an employee’s conduct outside the workplace has a significant and adverse effect on the workplace, then the consequences become a legitimate concern to the employer. 13 A range of ‘out of hours conduct’ has been held to constitute grounds for termination because the potential or actual consequences of the conduct are inconsistent with the employee’s duty of fidelity and good faith. This concept is closely allied to the implied term of ‘trust and confidence’ in employment contracts which relates to modes of behaviour which allow work to proceed in a commercially and legally correct manner.14
 Mr and Mrs Pinawin were concerned about the impact of Mr Domingo’s drug taking on their business. They had experienced problems of reliability as Mr Domingo had responsibility for opening the salon on time. They were also conscious of occupational health and safety implications of his erratic behaviour. They did not however raise these matters with Mr Domingo as part of their consideration of their response.
 Normally in order to hold a belief on reasonable grounds it will be necessary to have a discussion with the employee about the perceived serious misconduct and pay regard to the explanations and views given by the employee. We are concerned in this case that no discussions took place about the implications of Mr Domingo’s conduct for his future employment. However this is a very unusual case. The employer was very small. The owners knew Mr Domingo well. They directly observed his behaviour. They believed that he had made lifestyle choices that involved drug-taking and this directly related to his capacity to perform his work. His work involved close personal dealings with clients. At the time they made their decision, Mr Domingo was hospitalised. They were conscientious in considering the grounds for summary dismissal in regulatory material available on the internet. In these unusual circumstances we are of the view that the employer, when considering Mr Domingo’s recent erratic and unusual behaviour, formed the belief that Mr Domingo had engaged in conduct that justified immediate dismissal on reasonable grounds. Our conclusion should not be seen as one that would necessarily be reached in all cases of out of hours misconduct or drug-taking.
 It follows that the termination of Mr Domingo’s employment was consistent with the Small Business Fair Dismissal Code. The termination was therefore not an unfair dismissal. It is unnecessary to consider other elements of an unfair dismissal.
 For the above reasons we grant permission to appeal, allow the appeal and quash the decision of the Senior Deputy President. We determine that the termination of Mr Domingo’s employment was not unfair as it was consistent with the Small Business Fair Dismissal Code. Mr Domingo’s application for an unfair dismissal remedy is dismissed.
VICE PRESIDENT WATSON
J. Pinawin on behalf of John Pinawin t/a RoseVi. Hair. Face. Body.
E. Domingo on his own behalf.
1  FWA 8882.
2  FWAFB 5343.
3 For instance, Shortland v The Smiths Snackfood Co  FWAFB 2303, Gramotnev v Queensland University of Technology  FWAFB 2306, Paramalat Food Product Pty Ltd v Wililo  FWAFB 1166.
4 Coal and Allied Mining Services Pty Ltd v Lawler  FCAFC 54 per Buchanan J at .
5 Coal and Allied Mining Services Pty Ltd v Lawler  FCAFC 54 per Buchanan J at . See also Hogan v Hinch (2011) 85 ALJR 398 and O’Sullivan v Farrer (1989) 168 CLR 210.
6 Coal and Allied Operations Pty Ltd v Australian Industrial Relations Commission (2000) 203 CLR 194.
7 (1936) 55 CLR 499.
8 Tabro Meat Pty Ltd v Kevin Heffernan  FWAFB 1080.
9  IRLR 379
10  FWA 574.
11  FWA 7891.
12  FWA 3922.
13 Farquarson v Qantas Airways  155 IR 22; Blyth Chemicals v Bushnells 133 49 CLR 66; Rose v Telstra Corporation Ltd Print Q9292.
14 McCarry G. 1998 26(2) Australian Business Law Review 141.
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