Nightmare on Employment Street

Tim Dixon and Naomi Fink warn businesses on what not to do when terminating a disruptive employee to avoid dealings with the Fair Work Commission.

It is often remarked that the best asset a business can have is its staff — and this is undoubtedly true.

However, sometimes the loyal and apparently valuable employee can turn out to be a wolf in a sheep's clothing.

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No matter how hard you try to do your best for the business and for your staff, occasionally events take an unexpected twist and your well-meaning efforts to do the right thing backfire.

As a result, you learn a painful lesson, and resolve that next time you will just need to do it "by the book".

Consider yourself in the following situation which (with almost no embellishment) was recently before the Fair Work Commission:

You are the sole director of a small but successful financial services business which has grown from modest beginnings and now employs 11 people in a suburban office.

About 14 months ago, you decided that you needed to engage another staff member in order to spread some of the workload — someone reasonably senior and mature.

You've learned over the years that it is best to do things by the book and so you had your lawyer draft an employment contract.

After a few interviews, you offered the job to Arnold Palmer. Arnold belonged to your golf club, and you did not want to spend too much time on the process.

Besides, he seemed to know his stuff. Arnold was about 38 and, although he seemed a little bitter over his recent divorce, you decided that he'd be ok — so you signed him up with the employment contract. You provided him with a laptop for his employment duties.

During the probationary period, Arnold's work was OK and it took some of the load off you, so, although there had been some unhappiness amongst the rest of the staff at his unpleasant demeanour, Arnold's employment contract became permanent.

Over the past 12 months, your other staff members had let you know that they did not like Arnold, and the accounts girl you'd had since you started, left because of "personality difficulties" with him.

Recently, Arnold tripped and fell on the golf course breaking his ankle. It was a very busy time and you had to work late to cover the additional workload whilst Arnold was in hospital. You had to open his work laptop and, to your surprise and horror, you stumbled upon some pretty unsavoury pornography. That was it — he had to go.

You did not want to make anything of the pornography on his work laptop. Rather, you pulled out his employment contract and saw that it contained these provisions (which are very common):

  • Either party may terminate this agreement upon 14 days' notice to the other; and
  • The employer may, at its option, pay the employee in lieu of notice.

"Good!" you thought, "I'll sack him tomorrow and pay him 14 days' pay and his entitlements and that will solve my problems. No unpleasantness in the office or the golf club."

And that is what you did.

You didn't give Arnold any reasons for his termination because you did not think that you needed to — all you needed to do was to give him 14 days' pay in lieu of notice together with his statutory entitlements.

All very tidy — no nasty allegations, no unpleasant confrontations, no dent in your reputation at the golf club (or his), no police, the rest of the staff are pleased, so move on and find a replacement.

A week later you got a letter from ‘1800 Terminated — Employment Lawyers' (who advertise extensively on the local FM station) asserting that Arnold had been unfairly dismissed.

Confident that the letter was no more than a try on, you wrote back and told them that their client's termination was done in accordance with his employment contract and that there was no basis for any claim.

You thought that, in any event, Arnold would not push the claim because he would be too ashamed for the basis of his dismissal to be revealed.

Two weeks later, a Fair Work Commission application appeared on your desk alleging unfair dismissal. You ran off to your lawyer and asked for advice. Here is what he told you:

Arnold's employment contract had a clause which would probably have enabled you to dismiss him summarily on the basis of the illegal conduct in downloading pornography onto his work laptop.

However, in order to avoid the unpleasantness both in the office and at the golf club for both you and Arnold, you thought you'd do it as an ordinary termination. Admirable reasons — but a bad move.

Your business is a small business within the meaning of the Small Business Fair Termination Code (code) because it has less than 15 employees (including you). The code, when it applies, relieves a small business of many of the more onerous obligations upon employers under the Fair Work Act 2009.

However, the code must be followed precisely. Accordingly, notwithstanding the apparently simple contractual position between the employer and the employee (which on its face provides that either party can give notice), for a termination of employment to be lawful, the following must occur:

1) The employer must give the employee written reasons for the termination of employment;

2) The employee must be afforded the opportunity to be accompanied by a support person; and

3) The employee must be given the opportunity to respond to the reasons given for the termination.

Unfortunately, you did not do any of these things, and when the matter was heard by the Fair Work Commission, in addition to his ordinary entitlements and the 14-day notice period, you were ordered to pay Arnold a further $10,000. Ouch — and all you were trying to do was the right thing by everyone.

It is a good thing Arnold was not aged over 45 years, or the figure might have been quite a bit higher.

Unfortunately, almost everyone who runs a business will come across employees who, whilst they appeared to be ideal for the position at the beginning of their employment and during the probation period, later turn out to be the exact opposite.

Many employees go through difficult times and require some support from their employer and their work colleagues. However, a business must be wary of the employee who commits criminal acts or who disrupts the entire business with unacceptable behaviour or a divisive attitude.

It is prudent to have a clear and well drafted employment contract. Your business should also have an up-to-date job description for each position setting out the duties required.

Clear policies should be in place relating to internet usage, electronic equipment usage, bullying and privacy. These must be brought to the attention of staff and be readily accessible. It is useful to have an induction process for new employees in order to avoid these things being overlooked.

There are some avoidable pitfalls for you as a business owner, but, with a little forethought before action and by "sticking to the rules", many can be avoided. If you find yourself in the position where you need to terminate a difficult of divisive employee, you should consider consulting your lawyers first.

Tim Dixon is a special counsel and Naomi Fink is a senior lawyer at Holley Nethercote.

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Hi Tim and Naomi,

I was in a similar position to the Arnold Palmer character except I was a pseudo contractor where the company in question handled all of my payroll.
The company in question gave me notice verbally and said to keep the reason why confidential which was they were replacing me with an employee.
Do I have any recourse against the company? I had to call multiple times to get the company to confirm termination of my contract which was not handled according to the provisions in their own contract which was they had to provide notice in writing.


With all due respect John why not cop it on the chin? Why go for further legal action? They wanted a employee, deal with that and move on. This is the problem these days people want recourse for something that just happens in life, you get sacked and replaced it happens move on get another job or start up your own business end of story, keep positive and moving forward then you keep winning and growing. Unless its sexual harrassment or bullying or something very unfair that's a different story.

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