Victoria Supreme Court of Appeal rules employer rights to terminate without procedural fairness in Intico v Walmsley case
The Victorian Supreme Court of Appeal has handed down an unequivocal judgment regarding the rights of an employer to terminate an employee at common law without observing procedural fairness or the rules of natural justice.
The decision in Intico (Vic) Pty Ltd and Ors v Walmsley is an important judgment for two principal reasons. First, in overturning the finding of the trial judge, the Court of Appeal clearly rejected notions that the common law might import principles of fairness and reasonableness which have been created by the relevant statutory unfair dismissal schemes. Second, the Court of Appeal held that an employer is not in breach of any implied contractual terms as to trust and confidence by taking action to summarily dismiss an employee for misconduct. This latter point is important because the implied term of mutual trust and confidence is frequently claimed as a basis for damages in claims by dismissed executives.
Dismissal of employees subject to unfair dismissal laws
It is well known that employees covered by statutory unfair dismissal laws must be afforded certain rights of procedural fairness prior to the termination of their employment. Such rights generally include an obligation on an employer to present allegations of misconduct or poor performance to an employee; providing an opportunity to respond; and allowing an employee the opportunity to comment on proposed disciplinary action. Although most States have separate unfair dismissal regimes, most of them have a remuneration cut-off which limits access to that jurisdiction. For example, the federal remuneration limit from 1 July 2004 is $90,400.
Is there an implied duty to afford procedural fairness at common law?
All three members of the Court of Appeal in the Intico case were sharply critical of the first instance decision of the trial judge who held that because the employee, Mr Peter Walmsley, was denied the opportunity of answering allegations which were relied upon for his summary dismissal, then the termination was unlawful.
The following extracts from the judgments of the appeal justices put this matter beyond doubt:
Appeal Justice Ormiston:
'At common law … the right to determine a contract and thereafter to justify it on grounds not raised or even known at the time has long been recognised … Affording an opportunity to be heard may well be a courtesy extended to employees in certain circumstances, but, in the absence of some specific stipulation requiring it, such a term is not ordinarily to be implied.'
Appeal Justice Buchanan:
'The rules of natural justice must be observed by those making judicial and administrative decisions which affect the rights, interests, livelihood and reasonable expectations of others. A person who holds an office from which he can only be dismissed for cause cannot lawfully be dismissed without first telling him what is alleged against him and hearing his defence or explanation. There is no like obligation which must be observed by an employer who dismisses an employee. The employer is exercising a contractual right in dismissing an employee for misconduct. The employer is not bound to act reasonably, or to give reasons or accord the employee an opportunity to be heard. The question whether the employer is contractually entitled to dismiss his employee depends upon whether the facts emerging at trial demonstrate breach of contract; it does not depend on whether the employer has heard the employee in his own defence.'
Appeal Justice Eames:
'The common law permits an employer to act "unreasonably or capriciously if he so chooses", as stated by Lord Reid in Malloch v Aberdeen Corporation. That reflects the origins of the common law concerning termination of employment … The principles stated by Lord Reid in that case … are now entrenched, and have only been overcome by statutory reform. In this case, however, the income level of the respondent denied to him such processes of procedural fairness as may have been applicable to his situation had the Workplace Relations Act 1996 applied.'
Implications for employers* For employees covered by awards or under the remuneration limit for unfair dismissal claims, the Intico decision has no immediate implications. In other words, employers must comply with the statutory fairness requirements determined by relevant unfair dismissal laws.
- For employees and employers governed by ordinary common law contracts of employment, the decision is a clear affirmation of an employer's right to dismiss an employee without importing any of the requirements of procedural fairness.
- In reaching these conclusions, the appeal justices in Intico rejected the employee's contention that the implied common law term that an employer would not 'without reasonable cause conduct themselves in a manner likely to damage or destroy the relationship of confidence and trust between them' is a fetter upon the employer's rights to terminate employment pursuant to the terms of the contract. This aspect of their decision is noteworthy. In our experience, it is now commonplace for dismissed employees to plead breaches of this implied duty. The Court of Appeal decision is a serious setback to such claims.
- Employers should continue to exercise some caution in terminating executive employment contracts, notwithstanding the clarity of the Intico decision. Although the court affirmed an employer's right to 'act unreasonably or capriciously' if it chooses, heavy-handed conduct might well sway the opinion of a court in an argument about unrelated issues, such as the calculation of reasonable notice. Moreover, employers should be ever mindful of any express contractual or policy obligations regarding the manner in which terminations are to be effected.
A final word of caution. Although the Victorian Court of Appeal is one of the country's most highly regarded courts, there is always the possibility that courts in other States, or the Federal Court, could hand down decisions which reach conflicting conclusions—especially on the vexed issue of the effect of the implied term as to mutual trust and confidence. Employers in New South Wales and Queensland should also be wary of the special rights available to employees under those States' unfair contract laws. Always bear this in mind before frog-marching that errant executive out the front door!
For more information on this case or issues concerning procedural fairness or rules of natural justice in an employment context, please contact one of the Freehills ER partners.
