05 October 2005
A recent case has opened the door for employees to assert that, in some instances at least, there is an implied contractual right to procedural fairness.
No common law right to afford procedural fairness
It has always been understood by employment lawyers that, at common law, procedural fairness need not be provided to employees when terminating their employment. As was held in Ridgev Baldwin, "the law regarding master and servant is not in doubt … the master can terminate the contract with his servant at any time and for any reason or for none." It is the statutory unfair dismissal regimes which require procedural fairness to be provided before terminating, not the common law.
Opening the doors of change? Dare v Hurley
The recent decision of Darev Hurley, while restating that principle, has nevertheless opened the door for employees to assert that, in some instances at least, there is an implied contractual right to procedural fairness. This development is of particular interest in light of the common understanding that, unless there is an express duty imposed by contract, an employee has no right to a hearing prior to dismissal and no right at common law to be given reasons for the dismissal.
In Darev Hurley, MsDare's contract of employment provided that her employment could be terminated during the first year of her employment on two weeks' notice or by payment of two weeks' salary in lieu of notice. Her employment could be terminated without notice if she was "guilty" of serious misconduct. While Federal Magistrate Rolf Driver held that, on the facts, MsDare was not guilty of serious misconduct, he went on to state that:
"Even if I am wrong in that conclusion, under the contract, MsDare could not be dismissed summarily unless her "guilt" was established. I accept that the common law does not require procedural fairness before an employee can be dismissed from his conduct. But under this contract there needed to be some process for determining guilt."
The Federal Magistrate considered whether a process for determining guilt could be implied into the contract and held that in order to give business efficacy to the summary dismissal term, "it is necessary to imply a process for determining whether [the employee] was 'guilty' or not".
The Court considered the general principles governing implied terms of a contract and held that:
While the Federal Magistrate held that the employee manual which contained a disciplinary process was also incorporated into her contract of employment, it is the recognition of this implied term which is of potentially wider importance. This is because many contracts of employment would have terms expressed in such a way which simply enable an employer to terminate an employee's employment when the employee is "guilty of misconduct". While the Federal Magistrate considered this particular contract, there was nothing unusual about it. The decision may now mean that an employer must conduct an investigation into an employee's (mis)conduct before terminating.
Even in the statutory unfair dismissal regimes, the industrial tribunals have held that in some circumstances when considering whether a termination of employment was harsh, unjust or unreasonable the issue of procedural fairness must be taken account of, but should not be given undue weight. Surely, there will be some occasions where a process is simply not necessary. Furthermore, the decision appears to not address the issues raised in the decision of Johnson (AP) v Unisys Limited, in which the House of Lords (by majority) concluded that the implied term as to trust in confidence, for example, had no role to play in the manner of dismissal because it conflicted with the express term of the contract concerning notice.
The decision in the present case also produces the anomalous result that an employee whose employment is terminated with notice does not have a common law right to be heard prior to dismissal. This right is only available to employees who are alleged to have been "guilty" of serious misconduct.
Is there a lesson for employers?
There appear to be two approaches which could be adopted by employers in the circumstances to address this decision.
The first, and by far the safest, appears to be for a thorough investigation to be undertaken prior to terminating any employee's employment summarily. In New South Wales, this would appear in any event to be good practice in light of the New South Wales unfair contracts jurisdiction where employees may seek redress when their employment is terminated on the grounds of gross misconduct (asserting that their contract of employment is unfair because it did not contain a term requiring procedural fairness). Employees who can access the unfair dismissal jurisdictions in any event will also argue that the legislation requires procedural fairness.
Another approach will be to give closer consideration to the summary dismissal clauses found in contracts of employment. Should an express term now be included in contracts of employment recording the employee's and employer's express agreement that investigations and the like as to whether an employee's conduct justifies summary dismissal is not required? Should words like "guilty" be avoided in contracts of employment? Do contracts of employment which simply provide that an employee's employment can be terminated if an employee commits an act of gross misconduct avoid the problem now identified in Darev Hurley? Do clauses like "Your employment may be terminated if you commit an act or omit to do an act which at the employer's discretion justifies summary dismissal" avoid the problem or simply enliven another issue (for example, the possible unreasonable use of an employer's discretion)? These are issues which have now been enlivened in light of Darev Hurley.
  AC40; Sandersv Snell  HCA64.
  FMCA844 (12August 2005)
 Macken, O'Grady et al, Law of Employment, 5th edn, Lawbook Co., 2002, pp. 195-196
 at 118
 at 119
 For example, Lisa Withington v Once Pty Limited (U2004/5558, PR955782) which quoted Lacy SDP, in Kong and Anor v Clariant (Australia) Pty Limited [PR912677] citing the following statement in the Explanatory Memorandum to the Workplace Relations and Other Legislation Amendment Bill 1996 (Cth): "as procedural fairness is to be only one fact or to be considered along with other relevant factors, the intention is that undue weight will not be given to procedural defects in a termination."
  2 WLR 1076.
 Although, it is acknowledged that in this decision, Dare v Hurley, it may be argued that the summary dismissal clause did not conflict with the two week notice provision.
 However, see section109A of the Industrial Relations Act 1996 (NSW).
 For example, section88 of the Industrial Relations Act 1996 (NSW); section170 CG(3) of the Workplace Relations Act 1996 (Cth).
 Rankin v Marine Power International Pty Limited,  VSC 75; Clarke v Nomura International plc  IRLR 766.
This article was written when Joe was a partner at Clayton Utz and does not necessarily reflect his views as Vice-President of the Fair Work Commission.