Ker-ching! Flawed workplace investigation costs company $1.4 million

Getting dismissals and terminations wrong can be costly and time-consuming. iHR Australia’s Director of Workplace Relations, John Boardman commented, “This case once again highlights the need for consistency and procedural fairness in investigations and terminations”.

A finance company* Sales Director whose employment contract was terminated after he was accused of sexual harassment has been awarded his $1.4 million bonus plus six months’ salary, with the NSW Supreme Court finding his employer didn’t rely on the correct contractual clause when it dismissed him.

Chief Judge of the court’s equity division, Justice Patricia Bergin, also found that the sexual harassment allegations against the Sales Director had either not been made out or didn’t amount to serious misconduct. There were also issues around procedural fairness in relation to the investigation and dismissal.

The finance company terminated the Sales Director’s employment contract in February 2009 over allegations made against him by an employee it recruited from the UK to be its NSW Sales Manager. The UK employee lasted in the job for less than three months, and on his return to England wrote to the head of HR at the parent company in the UK, saying the reason for his departure was the alleged sexual harassment.

The HR head came to Australia in January 2009 and conducted interviews with the Sales Director and a number of employees. She and the Managing Director of the Australian arm then terminated the Sales Director’s employment contract at a meeting at a Sydney hotel in February 2009.

At issue before the court was whether the termination was effected under clause 13.2 of the contract – which required no cause – or for serious misconduct, under clause 13.3.

Under clause 13.2, the Sales Director was entitled to six months’ pay in lieu of notice and any special bonus he was due – which at the time amounted to $1.4 million. He had no such entitlements under clause 13.3. The Sales Director didn’t argue that the dismissal was unlawful, but that the contract was lawfully terminated under clause 13.2.

Justice Bergin agreed. She said the company had decided to terminate the Sales Director’s employment in “full knowledge of the allegations of serious misconduct”. She held that the company’s conduct in investigating the allegations breached the employment contract because of “a lack of good faith in the process that it adopted”.

The contract required the company to take any submissions from the Sales Director into account before making any decision, but the HR Manager had allegedly decided before the Sydney hotel meeting that there was nothing the Sales Director could say that would change her mind. The Managing Director also allegedly decided without speaking to the Sales Director that what the UK-recruited employee was saying must be true.

The company, Justice Bergin continued, didn’t speak to the sole independent witness to the UK-employee’s allegations; while its failure to provide the “true particulars of misconduct” to the Sales Director until 20 March was both “extraordinary and inexplicable”.

Mr. Boardman concluded, “When dealing with allegations of workplace impropriety, a workplace investigation into the matter should be conducted, providing the complainant and the respondent with an opportunity to provide statements and be interviewed. While the determination of which Witnesses are to be interviewed rests with the investigator; care should be taken to ensure that critical evidence is not disregarded. It is good practice for investigators to outline in their report their consideration of the probative value of the various proffered Witnesses they chose not to interview”.

*Sharma v Bibby Financial Services Australia Pty Ltd [2012] NSWSC 1157 (26 September 2012)