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employment & industrial relations insight | june 2008

Dismissed for operational requirements: recent case

Introduction
The exemption preventing an employee bringing an unfair dismissal claim where one reason for the termination of the employment was a “genuine operational reason” continues to be the subject of consideration by the Australian Industrial Relations Commission (Commission), including in the recent decision of Patricia Higgs v GoTalk Pty Ltd [2008] AIRC 82.
Facts
GoTalk Pty Limited (GoTalk) operated a telephone and internet sales service. The Applicant, Ms Patricia Higgs, was 1 of 4 “Seniors” in the telesales call centre whose staff contacted and sold the telephone and internet services and other voice related products that made up GoTalk’s business.
GoTalk’s telesales call centre received work from an Indian call centre which made “cold calls” on GoTalk’s behalf. GoTalk terminated that arrangement and entered into an agreement with Bsmart Communications (Bsmart) to carry out cold calls on its behalf. Bsmart was not only successful in making cold calls but it also successfully sold all of GoTalk’s products and there was a significant decline in the workflow to GoTalk’s telesales call centre.
As a result, GoTalk made the positions of about 10 sales staff, including the Applicant, redundant. There was evidence that some GoTalk employees were then offered, and accepted, employment with BSmart.
The Applicant claimed that GoTalk and Bsmart were too closely related for her termination to be considered the result of a “genuine operational reason” and that in reality it was simply a mechanism to remove her from GoTalk.
The Commission reaffirmed the general principle that an employer must demonstrate to the Commission’s satisfaction that the reasons for the termination of employment included a genuine operational reason which was not a counterfeit reason masking some other motivation. The Commission also confirmed that there is no jurisdiction to enquire into the method of selection of any particular employee once it is established that there was a connection between the genuine operational reason and the decision to terminate the employment. Whether the employer could have done something other than terminating the employee’s employment is irrelevant in deciding whether the termination was for genuine operational reasons or reasons that include genuine operational reasons.
The Commission identified a 2 step process for determining whether the termination of the Applicant was for an operational reason.

• the first step is to establish that the factual matrix supported the conclusion that GoTalk was affected by an operational issue or event or occurrence; and
• the second step is to establish that the operational occurrence was causally connected, to some degree, to the decision to terminate the Applicant’s employment.

Character of operational circumstance
The Commission identified that the character of an operational circumstance arises from objective needs or requirements of the business or undertaking and includes among other things concerns such as the business’ market position, brand and its financial circumstances. It could also include its technological means of production, service delivery methods and other measures of a structural or organisational type that are appropriate to the business’ efficient management.
It was not enough for GoTalk to contend that the Applicant’s conduct, capacity or performance itself could give rise to an operational reason other than in exceptional circumstances where that conduct, performance or capacity affected the needs of business in a substantial way.
In this particular case, the Commission was satisfied that the change in contractual outsourcing arrangements impacted on the resources needed to market GoTalk’s services and products within its own call centre. The Commission found that the rationale for the change was bona fide in that it arose out of dissatisfaction with the current arrangements and that this change resulted in a significant decrease in the workload within GoTalk’s own in–house call centre.
Further, the Commission found no merit in the Applicant’s claim that GoTalk and Bsmart were related companies such that the arrangement was a mechanism to remove her from GoTalk.
Causal connection
The Commission then considered whether the operational issue was the reason (or one amongst a number of reasons) for the termination of the Applicant’s employment. The Commission noted that a generalised operational need to reduce employment was not sufficient. The Commission found a credible and reasonable basis for the decision to terminate the Applicant’s employment because of the reduction in other employee numbers and also because there was no finding of an ulterior intent or motive. Further, the restructuring exercise was credible in general because it affected a larger number of relevant employees and not just the Applicant.
The Commission also found that the new employees employed by GoTalk after the restructure were for the purpose of maintaining the operational capabilities of the telesales call centre and not to fill positions from which redundancies had been made in December 2007.
The Commission reiterated that it could not enquire as to the reason the Applicant was selected for redundancy having established that there was a reason for termination of the Applicant’s employment which was a genuine operational reason.
Lessons for employers
Despite the change of Federal Government, the controversial “genuine operational reason” exemption from unfair dismissal claims still operates. In order to meet this test, it is necessary to establish that the business is affected by an operational issue, event or occurrence and that this operational occurrence is connected to some degree to the decision to terminate an employee.
In order to successfully resist an unfair dismissal claim on this basis, it is necessary to provide credible evidence to the Commission that there was an objective need of the business to make a change including concern as to the business’ market position, brand, and financial circumstances. The case also reiterates that the Commission will not “second guess” the employer’s reasoning in coming to this decision, unless it does not think it was “genuine”.
It is important for a business to document clearly the operational reasons for termination of an employee’s employment if it wishes to rely on this exemption. Doing so will provide the best evidence for an employer to rely on when challenging the Commission’s jurisdiction.

Employers to be wary as amounts claimed and awarded for EEO complaints sky rocket

A number of recent, high profile cases highlight the necessity for employers to be increasingly vigilant in ensuring that they have adequate EEO systems in place and to take complaints of sexual harassment and discrimination seriously.
Australia is witnessing some of its largest ever EEO claims, in terms of both the amounts sought and awarded for compensation. For instance, in October 2005, Christina Rich, a former partner of PricewaterhouseCoopers Australia (PwC), instituted proceedings against all of the partners of PwC individually, claiming that they had unlawfully discriminated against her in breach of the Sex Discrimination Act (Cth) (SD Act) and sought somewhere in the vicinity of $12 million for compensation. Ms Rich’s allegations included that notes of a sexual nature had been slid under her hotel door by a colleague while away at a conference, she had been kissed on her cheek repeatedly and, notwithstanding her complaints, she had been subjected to inappropriate comments, including about her physical appearance.
Following a hard fought and highly publicised case, on 28 March 2008 it was announced that Ms Rich had reached an out of Court settlement with PwC for a sum estimated to be somewhere between $3 and $6 million.
Ms Rich’s case is also a reminder to employers about the adverse publicity that these types cases cause. There was considerable media attention on the Rich case during the 30 months that it proceeded until it was settled.
In another example, only days after Ms Rich’s claim settled, Fiona Dunn, a senior funds manager of Perpetual, filed a claim against it for $1.2 million. Ms Dunn alleges that Perpetual breached the SD Act on the basis that she was bullied and discriminated against while pregnant and during a period of maternity leave.
Even more recently, in the case of Xenos and Tan (No 3) (Anti-Discrimination) [2008] VCAT 584 (11 Aril 2008), the Victorian Civil and Administrative Tribunal ordered its largest payment for compensation ever against an individual respondent in a sexual harassment case. In that case, the Tribunal found that Ms Tan was sexually harassed by Mr Xenos, a neurosurgeon who supervised her during her period as a neurosurgical registrar at the Monash Medical Centre (MMC). Amongst other things, the Tribunal found that Mr Xenos had kissed Ms Tan and exposed himself to her, without her consent. In this case, Ms Tan had complained, albeit informally at first, on many occasions to numerous members of staff. The Tribunal was extremely critical of the staff of the MMC, to whom Ms Tan had complained, on the basis that “not one person took her seriously”. Ultimately, the Tribunal ordered that Mr Xenos pay Ms Tan $100,000.00 for general damages.
In light of the trend demonstrated by these cases, it would be prudent for employers to audit their EEO procedures and policies. Amongst other things, employers should be in a position to demonstrate that:

• there is high level management support for EEO. Ideally, this should include, ensuring that the company has issued a statement indicating commitment to a workplace that is free from harassment, discrimination and bullying;
• all workers aware of their rights and obligations. This means that all staff (including temporary and casual employees or workers) should receive training about EEO as part of their induction and at regular intervals thereafter. Specific training should also be provided to contact officers and all supervisors and managers should be made aware of their EEO responsibilities;
• all staff are aware that their behaviour needs to be appropriate at all times, including at after hours events;
• fair recruitment and promotion criteria are used;
• the workplace is free from offensive material;
• there is an up to date EEO policy; and
• there is a detailed complaints procedure and all relevant employees are trained about how to deal with and investigate complaints, including being advised about the necessity to treat complaints seriously.

Ensuring your workplace agreement passes the no-disadvantage test

When you make a statutory workplace agreement and lodge it with the Workplace Authority, the Workplace Authority Director will assess the agreement to ensure that it passes the no-disadvantage test (NDT).

Unlike the Fairness Test, which applies to agreements made before 29 March 2008, the NDT is a global test that assesses the overall outcome for the employee (in the case of an Individual Transitional Employment Agreement) or employees (in the case of a collective agreement).
In order to determine whether a proposed workplace agreement will pass the NDT, you need to consider the following:

• what is the reference instrument?

The reference instrument is the benchmark against which the provisions in the agreement are compared. It may be an award, statutory agreement or industrial legislation. The Workplace Authority’s website www.workplaceauthority.gov.au will help you to identify the applicable reference instrument(s).

• does the workplace agreement result, on balance, in a reduction of an employee’s (or employees’) overall terms and conditions of employment when compared with the reference instrument(s)?

The Workplace Authority Director will assign a value to each of the terms and conditions provided by a reference instrument in order to compare these with the remuneration or other benefits provided in your agreement.
Many conditions, such as wages, weekend penalties and overtime payments, can be given a dollar value. In other cases, valuing the benefit of a provision in your agreement is more difficult.
The following table is an example of how the Workplace Authority Director will assess various provisions in a workplace agreement for the purposes of the NDT:

• What information do I need to give to the Workplace Authority?

You need to give the following information about the employee(s) to be covered by the agreement:

• salaries
• classifications
• whether permanent or casual
• whether junior employees (and if so the age of those employees), trainees or apprentices
• typical working patterns of the employees e.g. roster/shift patterns
• length of time an employee works in a day and across a week or shift, when the employee works (for example, weekends, evenings, and public holidays) and if the employee works shifts.

N.B If no advice on working patterns is received, the Workplace Authority Director will make assessments based on industry default working patterns, where these are available, or patterns of work based on the operating hours of your business.

• Is it possible for the same agreement to pass the NDT for one employee but fail the NDT for another employee?

Yes, because employee working patterns vary.

• Do I have to include rates of pay in a workplace agreement?

No. You could incorporate a letter of offer or employment agreement into a workplace agreement. However, you need to give this letter of offer or agreement to the Workplace Authority to enable assessment of the NDT. If you don’t provide these documents, the Authority will assume that you are only paying the statutory minimum wage, despite the fact that you may be actually paying the employees covered by the agreement more than the minimum rate of pay. This may result in the workplace agreement failing the NDT.

• Will future wage increases be taken into account in assessing NDT?

No. Agreements are assessed against the NDT according to the wages and conditions they provide for at time of lodgement.

Who owns inventions?

The recent decision of the University of Western Australia (UWA) v Grey (No. 20) [2008] FCA 498 has again highlighted why it is important for employers to be very clear as to who owns what inventions their employees may create.

The events involved in this case follow a common theme for this type of dispute. Dr Bruce Grey was appointed as UWA’s Professor of Surgery in about 1985. Between 1985 and 1997, he worked full time and was required to teach and conduct research. At the time of his employment, Dr Grey had been engaged for some years in researching treatments for liver cancer and in accordance with the terms of his employment, he continued to pursue this research while at UWA.

There was a falling out between Dr Grey and UWA and by 2000 Dr Grey had left UWA and had become a Director of Sirtex Medical Limited (Sirtex). Dr Grey purported to transfer his intellectual property rights in various technologies relating to the treatment of liver cancer to Sirtex, including those he was involved in researching at UWA.

After a significant period of delay, on 21 December 2004 UWA commenced proceedings against Dr Grey and others, on the premise that it owned the intellectual property rights to various patented applications, patents and inventions claimed by Sirtex, but which it alleged were derived from and were the subject of the research that Dr Grey conducted while at UWA.

There were no express provisions in Dr Grey’s employment contract requiring the disclosure of any inventions or the assignment of intellectual property to UWA. That meant that UWA had to rely upon an implied term in Dr Grey’s employment contract. It argued that the implied term was to the effect that all inventions made during the course of his employment were owned by UWA.

The Court held that there was no such general implied term. It pointed to the fact that the Patents Act 1990 (Cth) (Act) (together with the earlier Act) did not, as of right, entitle an employer to register a patent in respect of any invention of an employee. Section 15(1)(b) of the Act, in fact, provides that it is the inventor who may be granted a patent.

The Court held that for an implied term of the type relied upon by UWA to be effective, there must first be a contractual duty on the employee to try and produce inventions. In that context, where the invention is arrived at in the course of the duties the employee is engaged to carry out, there will be a term implied into the employment contract to the effect that the ownership of that invention will accrue to the employer. The Court held that a requirement to undertake research was not and did not include an obligation or duty to try and produce inventions. Therefore, the implied term did not arise and Dr Grey was not required to assign any rights in the invention to UWA.

Inventions are treated differently than, for example, copyright (see section 35(6) of the Copyright Act 1968) or designs (see section 13(1)(b) of the Design Act 2003) which both provide that copyright or designs created by an employee during in effect “the course of employment” are owned by the employer.

On the basis of the above, the Court held that the only secure way for UWA to have acquired intellectual property rights from Dr Grey and, more generally, its academic staff, in respect to intellectual property developed by them in the course of research, was by express provisions in their contracts of employment or in documents incorporated into the contracts of employment.

This case provides yet a further reminder that employers need to audit the adequacy of their existing protection of intellectual property. It is not enough to rely on policies or assumptions that the law “must” protect the employer in respect of inventions or other intellectual property created by an employee during the period of the employment. Employers need to ensure they have specific contractual rights to intellectual property. It is therefore important to consider the types and circumstances in which intellectual property will be created and ensure that there are binding obligations on employees in their contracts of employment or other binding documents that regulate when, how and in what circumstances the employer will gain a right to any intellectual property created.

Honesty in the employment relationship - when is a lie dishonest?

Introduction
If asked all employers would probably agree that no employment relationship can exist without trust and confidence. This might be obvious in the case of an employee handling sensitive confidential intellectual property, but what about employees who have no knowledge of business sensitive issues or those who do not handle funds, stocks and shares; or what about employees who push the boundaries of honesty in the face of personal distress? What does it take to shake or shatter the relationship of “trust and confidence”?
Employee dishonesty in disciplinary process
Streeter v. Telstra Corporation Limited [2008] AIRCFB 15
In the recent case of Streeter v. Telstra Corporation Limited the majority of the full bench of the Australian Industrial Relations Commission (AIRC) overturned a previous AIRC decision to reinstate an employee on the basis that the relationship of trust and confidence with her employer had been destroyed. This was the outcome despite the fact that the alleged misconduct under investigation by Telstra was not established.
Facts
Ms Streeter had been the subject of an investigation by Telstra into her conduct in a hotel room following a Telstra staff function. Telstra investigated her conduct on the formal complaint of other staff members present, who claimed that they had been sexually harassed. In doing so, it conducted an investigation and questioned Ms Streeter in relation to the incident. In her replies, Ms Streeter appeared to be evasive, uncooperative and allowed Telstra to be misled as to the exact nature of her conduct. Consequently, Telstra terminated her employment and claimed that she was dishonest during the investigation and, had that not been the case, some form of facilitated discussion may have led to her continued employment. Ms Streeter claimed that she was deeply embarrassed and highly ashamed of her behaviour and that it was reasonable for her not to wish to discuss the details of her conduct, which were intimate and sensitive.
Decision
The majority of the full bench found that the complainants had not been subject to sexual harassment, but that it could not reinstate Ms Streeter as the relationship of trust and confidence necessary for continuing employment had broken down. It declined to characterise the level and type of honesty required of Ms Streeter during the investigation process as being in any way different from the level and nature of honesty required of her in the performance of her duties. No allowance was made for the personal nature of the conduct under investigation or Ms Streeter’s claim that she was ashamed and embarrassed.
This case invokes a “zero tolerance” approach to the issue of employee honesty. There was no argument that absolute honesty was required of Ms Streeter when handling stocks and cash for example, but it was proposed on her behalf that her uncooperative and untruthful responses during the investigation process would not impinge on the trust and confidence between her and Telstra in the performance of her role. The majority preferred the alternative approach, which suggests that trust and confidence between employers and employees is absolute and cannot be adapted to different circumstances.
A Simos and P Sotiriadis v. Coles Group Supply Chain Pty Ltd [2008] AIRC 152
In the case of Simos and Sotiriadis v. Coles, Commissioner Eames faced a similar scenario in relation to 2 storemen whose employment was terminated on the basis of their dishonesty during a formal investigation process.
Facts
In this case, Mr Simos and Mr Sotiriadis claimed that company property had been damaged due to an accidental tripping incident, which they failed to report to a manager, in breach of Coles’ occupational health and safety policy. Coles investigated the incident and despite a number of opportunities to do so, the employees failed to provide an honest account of what had occurred.
Decision
Commissioner Eames took account of previous first and final warnings issued to Mr Simos and Mr Sotiriadis for unacceptable conduct and found that their dishonesty was a valid reason for the termination of employment. He found that they had misled Coles (and ultimately the AIRC) and their dishonesty during the investigation process had resulted in the destruction of the trust and confidence necessary for a continuing employment relationship.
This case supports the view that dishonesty itself during an investigation and disciplinary process can lead to a finding that the termination of employment was lawful and justifiable, even though the conduct, the subject of the investigation, does not amount to misconduct. Like Streeter, the case uses the rhetoric of honesty, trust and confidence in the consideration of whether the termination of employment was harsh, unjust or unreasonable.
Ross George Reid v. No 1 Riverside Quay Pty Limited [2008] AIRC 50
In the further case of Reid v No 1 Riverside Quay Senior Deputy President Cartwright found that the dismissal of a customer service representative at a BP Service Station was lawful on the basis that the employee was vague and evasive and provided “unsatisfactory explanations” during the investigation and disciplinary process.
Facts
Mr Reid, a petrol station attendant, breached the BP staff policy in relation to the purchase of discounted goods by employees. BP launched an investigation into his conduct, which included the analysis of cash register records and surveillance tapes. During at least 3 interviews with Mr Reid, BP presented him with this evidence and asked for an explanation. Mr Reid provided 2 different explanations to his employer, neither of which explained the taped and documentary evidence presented to him.
Decision
Senior Deputy President Cartwright found that the breach of a reasonable policy amounted to a valid reason for the termination of employment and considered Mr Reid’s dishonesty a decisive factor in the consideration of whether the termination was disproportionate to the misconduct, such that it was harsh. Even though it was found that several factors weighed in Mr Reid’s favour (e.g. his good record over a 3 year period and an award for contributions over and above the call of duty), it was concluded that his explanations to BP were unsatisfactory and had resulted in a lack of trust and confidence in him. Consequently, the termination of employment was found to be lawful.
It is noteworthy that Senior Deputy President Cartwright made particular mention of:
the fact that BP maintained a consistent standard in dealing with issues about honesty (such that Mr Reid had not been discriminated against or “a lesser standard of compliance” with BP’s policy applied to him); Mr Reid had already participated in 2 performance counselling meetings; and he had been issued with a formal warning.

Employee dishonesty subsequent to dismissal
Luke Edward Johns v Brisbane City Council [2008] AIRC 230
While the above cases were concerned with the existence or erosion of honesty while employment was on foot, this case concerned dismissal on the grounds of dishonesty which occurred after the termination of employment.
Facts
Mr Edwards allegedly made physical threats while employed by Brisbane City Council. He was stood down as part of an investigation process and the Council instructed him to return its property, which he failed to do. Consequently, his employment was terminated for failure to follow a lawful order. In the letter of termination, the Council made mention of criminal charges against Mr Edwards for theft of property, although it contended that it had not relied on this issue in dismissing him. Some 5 months after his dismissal, Mr Edwards pleaded guilty to (and was convicted on) 6 criminal charges of theft and fraud.
Decision
Senior Deputy President Richards confirmed that the failure to follow a reasonable and lawful order amounted to a valid reason for Mr Edwards’ dismissal, as did his guilty plea and subsequent conviction for theft and fraud, even though these matters came to light some time after the termination of employment. In effect, his dishonesty had fatally compromised his employment contract and destroyed the confidence required to sustain the relationship and the Council was entitled to rely on it. However, Senior Deputy President Richards expressed the view that had the Council relied on the criminal charges and proceedings in isolation from the admission and conviction, this would not have bolstered or amounted to a valid reason for dismissal.
Conclusion
The cases discussed above indicate that there is widespread acceptance of the need for the elements of trust and confidence to remain intact during the employment relationship, including during participation in an investigation or in disciplinary proceedings. However, there is no clear guidance on exactly how far an employee can go before shattering the trust and confidence necessary to maintain the employment relationship. While the AIRC will consider cases on their own merits, the following factors may be relevant in determining whether the relationship of trust and confidence is merely shaken, or severed:

• the disciplinary track record of the employee and whether warnings and/or counselling has been undertaken, particularly if this related to similar transgressions;
• the position of the employee and whether they enjoyed a high level of autonomy, demanding a higher level of honesty;
• whether there is a consistent approach by the employer in relation to all issues concerning dishonesty in the workplace;
• a previous good employment record; and
• whether the dishonesty has resulted in the reasonable employer being unable to trust the employee

Employers would be well advised to consider all of these factors before dismissing an employee for any kind of dishonesty.

Cruickshank v Priceline Pty Ltd [2007] AIRC 1005

In December 2007, the Australian Industrial Relations Commission (Commission) again held that it will not have jurisdiction to hear a complaint of unfair dismissal if one of the reasons for terminating employment is a ‘genuine operational reason’. In the Cruikshank series of decisions, the ‘genuiness’ of the operational reason cited by the employer for a redundancy was challenged, and ultimately, upheld by the AIRC.
Background - first decision by Commissioner Eames
In the May 2007 edition of Holding Redlich’s employment & industrial relations insight, we reported on the first instance decision of Cruikshank v Priceline. In that decision, Mr Cruikshank argued that his redundancy was a ‘sham’ and did not arise from genuine operational reasons because following his termination, his position was readvertised at a lower salary.
In the first instance, Commissioner Eames held that notwithstanding the subsequent advertisement of the same position, there was no evidence to substantiate that the redundancy was a ‘sham’. Rather the evidence indicated that the decision to terminate was based on financial imperatives which qualified as genuine operational reasons, meaning that the Comission had no jurisdiction to hear the complaint of unfair dismissal.
Challenge - Appeal to the Full Bench
Mr Cruickshank appealed the decision of Commissioner Eames to the Full Bench. The Full Bench held that Commissioner Eames had not properly applied the operational reasons test and remitted the matter back to a single commissioner for re-hearing.
Outcome - re-hearing by Commissioner Lewin
On re-hearing the claim, Commissioner Lewin was not persuaded by Priceline’s argument that the position subsequently advertised was different to that performed by Mr Cruickshank, finding that the person who filled that position would “ultimately perform overwhelmingly similar duties to those performed by Mr Cruikshank”.
Notwithstanding this, the Commission held it would not have jurisdiction to hear the complaint of unfair dismissal if Priceline could show, on the balance of probabilities, that the reasons for Mr Cruikshank’s termination genuinely included a reason of an economic or structural nature, ie a genuine operational reason.
There was no doubt that at the time of Mr Cruikshank’s redundancy, Priceline was in the midst of severe and very real financial difficulties and had implemented a widespread restructure. Commissioner Lewin held, that whilst there were other reasons which played into the decision to terminate Mr Cruikshank’s employment (including animosity between Mr Cruikshank and his supervisor), the conclusion was inescapable that one of the reasons for his termination was the genuine desire to achieve cost savings by reducing the remuneration paid to a lesser number of employees in that part of the business.
In those circumstances, the Commission held it had no jurisdiction to hear the complaint and the proceedings were dismissed.
Future
Commissioner Lewin was at pains to highlight that his decision was jurisdictional in nature and that the Work Choices amendments were, in his view, precisely directed to preventing the AIRC from making a decision as to the fairness of the situation. He then expressly referred to the possibility of the Federal Parliament amending the laws in question.
The Federal Labor government has signalled that changes to the unfair dismissal regime will be detailed this year and has criticised the genuine operational jurisdictional limit contained within the current legislation. However, the Government is yet to release sufficient detail on the proposed changes to allow any real analysis of the changes likely to be made to the jurisdictional limits.