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Employment Update – May 2017 – Childcare centre slammed by FWC for ‘capricious, fanciful and prejudiced’ dismissal

The Fair Work Commission has ordered near maximum compensation of close to $30,000 to the former director of an early childhood centre.  This followed a finding that the employer had effectively created a reason for the centre director’s termination after terminating her employment.

Disturbing factual background to the dismissal

The employer operated a number of childcare centres, and was a family-run business, with many of the family members employed by the business, and with the family’s non-school-aged children also attending the centre.

The centre director (‘the Applicant’) was the wife of the son of the family patriarch (‘Director’).  The catalyst for the dismissal appears to have been the significant marital issues that plagued the relationship between the Applicant and the Director’s son.  Whilst the Applicant and the son had previously separated and then reunited, upon a second separation, the Director took steps to end the Applicant’s employment.

It was the Applicant’s evidence that on a Sunday afternoon in July 2016, she received a call from the Director, who informed her that he had heard about the issues between her and his son.   He said to her that for her safety she should not return to work.  He then asked her to return some company property that evening.  As the Applicant was looking after her 5 children, she initially indicated that she could not come in on the Sunday but would come in the following day, to which the Director indicated that he did not want her to attend the centre during work hours.  It was later agreed that she would attend that evening.

The Applicant attended the centre and:

  • she met with the Director, her two sisters in law and her brother in law;
  • she covertly recorded the meeting on her phone (although the recording ended some 5 minutes before the end of the meeting due to a flat battery);
  • she alleged that during the meeting, one of her sisters-in-law did the majority of the talking, and made various demands and enquiries of the Applicant with respect to the operation of the business and its record keeping. The Applicant was asked to hand over a number of items, including login details, keys and passwords.  Her sister-in-law indicated that she would be taking over from the Applicant in the running of the centre;
  • she asked about being paid her entitlements and the Director indicated that she would be paid everything to which she was entitled;
  • she also asked for a termination letter which upset the Director.

Of importance is that it was found that at this point in time, the family had taken steps to change the locks at the centre; had removed files and had padlocked the entry gate.  It was also noted in the facts that the Applicant’s husband had indicated to the Director that he thought the Applicant might try to steal property and money from the centre.

The Employer’s evidence was that at no stage did it terminate the Applicant, but rather the Director placed her on leave with pay until the issues with her husband were resolved.

The Employer’s evidence was then that when the Applicant attended the centre the following day (in the company of a parent), it was she that indicated to her sister-in-law that she would not be returning to work.

Upon the filing of the unfair dismissal application the Employer raised a jurisdictional objection, and on the basis that the Employer did not dismiss the Applicant, but rather she left her employment voluntarily.

Jurisdictional Objection Decision

Deputy President Sams rejected the jurisdictional objection raised by the Employer.  His Honour did agree with the Employer that at no stage during that first meeting did the Director use language to the effect that the Applicant was being terminated, nor was a termination letter ever received.  At [123]-[124] of the decision DP Sams determined that these facts were not determinative of the question as to whether the Applicant had been dismissed.  DP Sams stated:

“… Nevertheless, exclusive reliance on these factors is not, in my opinion, decisive as to whether the applicant was dismissed. The gist of the respondent’s case focused entirely on the fact [the Director] did not use direct language to dismiss the applicant and that while she had requested a termination letter, it was not provided because she had not been dismissed, but had resigned of her own accord. The mere absence of a termination letter is not conclusive as to whether an employee has been dismissed. The respondent’s reliance on this fact, does not take its jurisdictional objection very far.

[124] In my opinion, the words used by [the Director], in the context of the the views he held at the time and the actions taken by him and others of his direct family, were entirely inconsistent with the notion of an employee voluntarily leaving their employment; rather, the conduct evinced a clear intention that the respondent no longer wished the applicant to remain in employment at the Centre.”

DP Sams rejected the suggestion that the employment had ended until the marital issues were fixed.  His Honour noted that fixing the marriage seemed ‘unlikely’ given:

  • the uncontested evidence that the Director’s son had physically assaulted the Applicant, resulting in two AVO’s;
  • the Director’s son had withdrawn $107,000 from a joint bank account without permission; and
  • the Director’s son had divorced the Applicant on two occasions and made a number of serious allegations against her.

Ultimately, DP Sams was satisfied that the actions of the employer had brought the employment relationship to an end or had the probable result of bringing the employment to an end, and on that basis the jurisdictional objection was dismissed.

It is interesting to note that the employer also chose to run a second argument alongside the primary argument that the Applicant had not been dismissed, being that in any event, the Applicant was guilty of serious misconduct.  DP Sams rejected that argument, noting that the evidence around such an argument had been concocted.  At [135], His Honour stated:

“[The Director’s] statement even had a heading of ‘Misconduct.’ In my view, this recreation of events and the reliance on the evidence of hostile family members and existing employees (whose loyalties were obvious) was a hopelessly botched, ex post facto, mudslinging exercise, with no serious evidence to support the allegations. It was designed to impugn the applicant and buttress an otherwise weak jurisdictional objection to the application. This is putting aside the credit issues with the evidence of [the Director] and [the sister-in-law’s] repeated avoidance of answering questions with ‘no comment.’”

Substantive Decision – dismissal was ‘capricious, fanciful and prejudiced’

Two months after the jurisdictional decision had been handed down, DP Sams handed down the substantive decision dealing with the merits of the Applicant’s unfair dismissal application.  Not unexpectedly, DP Sams was highly critical of the employer given the evidence that had been adduced during the hearing.  Both parties filed further submissions, but no further hearing of evidence was required.

DP Sams found that the employer did not have a valid reason for the dismissal.  He noted that given the marital issues were clearly an invalid reason for the dismissal, the employer turned to issues of misconduct, and in particular conduct it alleged to have discovered following the termination, to try and justify its decision.

DP Same criticised the argument run by the employer, stating:

“[29] For these reasons, I am not satisfied that there was a valid reason for the applicant’s dismissal, or that its decision to dismiss her was justified by the respondent’s poor attempt to construct a case of misconduct, post her dismissal. Her dismissal was ‘capricious, fanciful and prejudiced’. The absence of a valid reason must weigh strongly in the applicant’s favour.”

DP Sams was then highly critical of the procedural aspects of the termination.  He noted:

  • that given that there was no valid reason, the Applicant could not have been notified of the reason for the dismissal, nor was she provided with an opportunity to respond to the reason.
  • that there were no previous warnings given to the Applicant in relation to any alleged underperformance.
  • that he was critical of the Employer raising an issue that was raised with the Applicant some 3 years prior to the termination and which His Honour described as “too stale to be of any probative value.”

The former industrial relations consultant

An interesting aspect of this case, which was referenced by DP Sams, was that the employer’s former industrial relations consultant was the source of much criticism in the employer’s submissions, as he had provided advice and support to the Applicant in this case.  DP Sam’s comments about this are worth noting:

“… the evidence did disclose that the respondent had engaged an IR Consultant, Mr David Morphett, for advice on pay and conditions and presumably other employment-related issues. Of course, this person has since severed their relationship with the respondent (or perhaps the other way round) after it became apparent Mr Morphett was providing advice and support to the applicant in these proceedings.

[45] From the language and tone of the respondent’s final submissions, Mr Morphett is now regarded as persona non grata as far as the respondent is concerned. He is deeply resented and heavily criticised in its submissions. Be that as it may, the evidence was that he was the respondent’s IR Consultant well before the applicant’s dismissal. It may be assumed he did not know what the [family] had in mind, but as it turned out, he was not consulted and would hardly have condoned the respondent’s conduct. Both matters under ss 387(f) and (g) do not reflect favourably on the respondent.”

Remedy

Having determined that the dismissal was harsh, unjust or unreasonable, DP Sams turned to consider a remedy for the Applicant.  He noted that given the “bitter relationship” between the Applicant and the family, reinstatement was not a viable remedy.

DP Sams determined that had she not been unfairly dismissed, the Applicant would have remained employed for a further 6 months.  He made a small deduction in relation to earnings made by the Applicant since the date of termination, but then also added back in the payment in lieu of notice to which the Applicant was entitled, but did not receive on termination.  The total value of compensation awarded to the Applicant was $29,714.30 plus superannuation.

Fraudulent completion of paperwork?

This case was full of other issues, not least a revelation arising out of one of the meetings that was recorded by the Applicant, which indicated that the employer may have been fraudulently completing paperwork to show that children and staff were attending the centre on days when they were not actually attending at all.  DP Sams noted in the jurisdictional decision that childcare centres and parents receive subsidies from the Government and whilst he was not sure of the process at this childcare centre, the recordings showed some cause for concern.  His Honour indicated this discovery would be referred to the appropriate authorities for investigation.

Lessons for employers

This case provides some direct and straight forward lessons for employers.

  1. Having a valid reason for a dismissal is absolutely essential to your prospects of defending any unfair dismissal claim made by an employee.
  2. Relying on non-work related personal/family matters as a reason to terminate someone will leave with you very poor prospects of defending a claim.
  3. Language and actions can be determined as termination even though the words ‘termination’ or ‘dismissed’ are not used.
  4. Be sure that the business comes to the Commission with ‘clean hands’.
  5. Be aware an employee may be recording what you are saying.
  6. If an employee asks for a termination letter then the employee invariably considers termination has occurred.
  7. Previous warnings can become ‘stale’ and ineffective due to the passing of time.
  8. Plan all aspects of discipline, stand down and terminations and obtain legal advice before proceeding.

The employer virtually did everything wrong in this matter and it is reflected in the near maximum award of compensation.

It is not unusual for personal matters to become intertwined in business matters in family run businesses.  Where such issues arise, and cannot be resolved amicably, legal advice should be sought before proceeding with any sort of adverse action against the parties.  Such matters need to be handled sensitively (and legally) and some clear guidance as to risks and process can result in the matter being resolved with much less pain to all parties.

Lisa Aitken, Managing Partner