Are contracts opening the way for unfair dismissal claims?

If you’re not careful, that written contract of employment could imply duties for every employer and unfair dismissal rights for every employee. By PETER VITALE of VECCI.

by Peter Vitale

A recent decision of the New South Wales Supreme Court has again raised the question of whether employees, including senior executives, might have implied contractual rights to make “unfair dismissal” claims.

With the limitation of statutory unfair dismissal rights by WorkChoices, the complex legal issues surrounding this question are likely to become the subject of even more litigation.

The facts

A choirmaster at St Mary’s Cathedral in Sydney, David Russell, sued the Catholic Church for damages after his employment was terminated in 2003 following allegations that he had nothing to prevent the sexual abuse of a choirboy in his home 20 years before. Criminal charges brought against Russell had been dismissed by a magistrate. Before terminating his employment the Church had conducted its own investigation into the allegations.

Russell claimed that the Church had ended his employment unlawfully and that it had breached implied duties by not conducting the investigation properly.

The legal position

Following the lead of Britain’s highest Court, the House of Lords, some Australian courts have taken the view that employment contracts might contain implied duties of “mutual trust and confidence” and “good faith” between the employer and the employee.

But determining what obligations those duties impose on the parties is a tricky business, as there is no real consistency among the increasing body of decided cases.

At one extreme there are the arguments, frequently put by employees, that the duty effectively requires the employer not to dismiss the employee unfairly, a sort of common law unfair dismissal jurisdiction.

What seems to be accepted by most courts is that the duty doesn’t affect an employer’s actual right to terminate an employee under the contract of employment, in accordance with the terms of the contract.

Further, most of the decided cases accept that there can be no claim for damages – psychological damage, for example – because of the way in which an employee’s employment is terminated.

There does however remain the question of what happens before an employee’s employment is terminated.

The result

Russell argued successfully that there were flaws in the investigation conducted by the Church which constituted a breach of the implied duty of good faith. The Supreme Court decided that the Church had failed to act with “prudence, caution and diligence, and balancing its rights against the potential disadvantage to its employee…”

In effect, the Court decided that the investigation conducted by the Church was not entirely fair to Russell, and that his contract of employment had been breached. David Russell was reinstated in 2004.

The implications

At one level the decision seems inconsistent with previous Australian and English cases, which clearly state that at common law, an employer is not obliged to afford an employee any kind of hearing before terminating the employment.

Those cases also suggest that there is no obligation on the employer to conduct an investigation, fair or otherwise, before terminating an employee’s employment.

Although some of these decisions were recognised by the court in Russell’s case, the judge still decided that the implied duties gave Russell some kind of right to have any investigation into his behaviour conducted in a fair manner.

It is unclear how these decisions can be reconciled in a way that doesn’t split hairs about what is acceptable and what is not. In the end, the law in this area can only be clarified by a decision of an appeal court, probably the High Court of Australia. Russell has appealed against the failure of the court to award any damages, despite finding a breach of the implied duty.

In the meantime, it remains open to employees to argue that they have some type of right to be treated fairly in any process that leads to termination of employment.

The lesson for employers? It’s important to get advice and to consider carefully how you approach terminating a senior executive, even if the terms of a written contract of employment seem to be clear. If you don’t, you may become the subject of a landmark test case with unpleasant results.

Peter Vitale is a solicitor, the General Manager of Workplace Relations Services at VECCI and a principal at CCI Victoria Legal.