Whitehead v Hillier Hewitt Elsley Pty Ltd [2003] NSWIRComm 382

Industrial Relations Commission of New South Wales

CITATION : Whitehead v Hillier Hewitt Elsley Pty Ltd [2003] NSWIRComm 382 APPLICANT PARTIES : Francis James Whitehead RESPONDENT Hillier Hewitt Elsley Pty Ltd FILE NUMBER: IRC 2032 of 2003 CORAM: Harrison DP CATCHWORDS : Application re unfair dismissal - actions to establish business in competition to employer - offer to colleague to join proposed business - breakdown in mutual trust. Held - no lack of procedural fairness - termination of employment not harsh, unreasonable or unjust. LEGISLATION CITED : Industrial Relations Act 1996 Blyth Chemicals Ltd v Bushnell (1933) 49 CLR 66 CASES CITED : Concut Pty Ltd v Worrell and Anor (2000) 103 IR 160 NSW Electricity Commission v Nieass (1995) 81 IR 46 HEARING DATES: 10/13/2003 DATE OF JUDGMENT: 11/19/2003

APPLICANT Solicitor Mr G Tyler Tyler and Associates LEGAL REPRESENTATIVES: RESPONDENT Counsel Mr J Wormington

JUDGMENT: - 10 - INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES

CORAM: HARRISON DP Wednesday, 19 November 2003

MATTER NO IRC 2032 OF 2003

FRANCIS JAMES WHITEHEAD AND HILLIER HEWITT ELSLEY PTY LTD

Application re unfair dismissal pursuant to s84 of the Industrial Relations Act 1996 ("the Act")

DECISION [2003] NSWIRComm 382

1 The application in this matter was filed on 11 April 2003 and subject to proceedings for the purpose of Conciliation and Directions on 14 May 2003. These proceedings established that the matter could not be settled by conciliation. Directions issued to bring the matter to hearing on a date to be fixed consequent upon compliance with directions for filing and serving of evidentiary material. At further directions proceedings on 8 August 2003 hearing was scheduled for 13 October 2003.

2 On hearing Mr G Tyler, Solicitor of Tyler and Associates, appeared on behalf of the applicant, Mr Francis Whitehead.

3 Mr J Wormington of Counsel appeared on behalf of the respondent, Hillier Hewitt Elsley.

4 Mr Tyler brought evidence from the applicant.

5 Mr Wormington brought evidence from Ms Joyce Smith, a senior consultant to the respondent; and Mr S Elsey and Mr E Hillier, Directors of the respondent firm. THE EVIDENCE 6 Mr Whitehead was employed as an Accountant by the respondent for a period of approximately 17 months prior to his dismissal on 24 March 2003. 7 The applicant's employment was terminated subsequent to a report by Ms Smith that he had approached her to join him in his own accountancy practice which he intended to set up in competition to his then employer, the respondent.

8 The applicant did not deny that he had spoken to Ms Smith about setting up his own business, though denied that he had made a definite proposal for her to enter a business partnership with him. It is the applicant's position that he was increasingly dissatisfied with the type of work, level of responsibility, and client contact available in his employment with the respondent and was contemplating commencing his own accounting practice amongst other options.

9 The applicant's evidence is that he had applied unsuccessfully for an accounting position within the steel industry and had undertaken a course of study to obtain his Public Practice Certificate, all aspects of which were completed by 9 March 2003.

10 The applicant's evidence is that he had a casual discussion with Ms Smith at an office function to farewell a departing employee on 24 January 2003 concerning her retirement prospects and future. The applicant deposed that as a result of this conversation he met with Ms Smith at her home office on 13 March 2003.

11 The applicant deposed that a discussion ensued concerning the use and application of MYOB accounting software and a demonstration of certain aspects of the program by Ms Smith, during which she said: "I often get calls as an MYOB accredited trainer, I have had two calls this week from clients. I wont be telling Ed (Hillier) about them, why should I do the work and only receive 40% of the bills I render."

12 The applicant's evidence at para 17 of his affidavit of evidence (exhibit 1) is: We had a further discussion relating to her contractual arrangements with Hillier Hewitt and Elsley and I said to her "Look I'm thinking about going into my own business, how would you feel working for me, and we could come to an arrangement as to the sharing of fees. If I am going to start a new business, obviously the best time would be 1st July, although I suppose if I go ahead with it, it could be started any time. I am just thinking about it, I really haven't made up my mind one way or another". She replied, "Leave it with me". The meeting lasted for no longer than half an hour.

13 The applicant's evidence is that he took no steps to establish his own practice until 1 April 2003 subsequent to the termination of his employment. Mr Wormington challenged this assertion in cross examination, putting that the applicant's practice had advertised in the Yellow Pages, which the respondent contended closed on 28 March 2003. Mr Wormington further noted that a statutory declaration was sworn by the applicant on 1 April 2003, the day on which the applicant contends that he registered his business name, established an internet site, obtained a tax file number and Australian Business Number (ABN) and opened a Post Office box as a mailing address prior to lodging his Yellow Pages advertisement on 2 April 2002. The statutory declaration forms part of the applicant's application for relief from unfair dismissal filed on 11 April 2003.

14 The evidence is that Ms Smith occupies a strategic role in her relationship with the respondent in that she offers MYOB computer training to a range of businesses, and through this activity is able to introduce clients to the respondent for further and additional accounting services. The allegation is that the applicant sought to make an arrangement with Ms Smith to direct clients to his practice rather than that of his then employer.

15 The evidence of Ms Smith is that the applicant put a definite proposition to her to join in a partnership with him in an accounting practice he intended to commence on 1 July 2003. Ms Smith deposed that the applicant informed her that he had applied for his Public Practice Certificate and would provide her with 100 percent of the revenue from billings for her MYOB training and a company motor vehicle in return for her directing clients to his practice.

16 Ms Smith acknowledged that she was present at the social function of 24 January 2003 though has no recall of any conversation with the applicant concerning her attitude to future work. Ms Smith refutes the suggestion that the meeting of 13 March 2003 arose from this event. The relevant evidence of Ms Smith is found at paras 4 to 8 of her affidavit (exhibit 3) in the following terms: 4. On or about the 8th of March 2003 I telephoned Francis Whitehead at Hillier Hewitt E1sley Pty LTD's office and asked if he would email me a backup file of any client General Ledger in Solution 6 format so that I could test the import function into MYOB Accountant's Office program on my computer system at my home office.

5. My reason for this was because Scott E1sley had indicated he wanted to implement the MYOB Accountant's Office program for the practice, and had asked if the Solution 6 files could be brought into that package, to save setting up new files.

6. Francis did email a backup, and I was successful in importing the file and indeed produced a set of financial reports, I emailed a thank you to Francis on 10th March 2003.

7. Francis then rang me and asked " can I come and see you one evening after work". I said, "Yes" and an arrangement was made for Thursday 13th March 2003.

8. I spoke with Scott E1sley on the evening of Wednesday 12th March and said, "I was successful in importing the files, and Francis is coming to my home office tomorrow evening so that I can show him some of the latest MYOB developments.

17 Ms Smith further deposed that at the meeting of 13 March 2003 following a discussion concerning the relative merits and costs of accounting software the applicant asked whether she was happy with the income she received from the respondent, to which she replied, "Not entirely", due to billing arrangements for expenses and inability to recover non-productive time. Ms Smith deposed that the applicant said: "I am starting up on my own in public practice on the 1st of July 2003. I have applied for the public practice certificate. I will obviously need an office, and you could get the clients initially from your MYOB sources, because I would not have any clients to start with."

18 Ms Smith deposed: I honestly cannot remember my exact response, as I was surprised at the proposition. I did say "O.K. we will be in touch".

19 Ms Smith further deposed that she was concerned in respect to receipt by email of client information for the purpose of testing the compatibility of the "Solution 6" computer program with MYOB forwarded to her from the applicant via his personal "Hotmail" account rather than through the respondent's email system, giving rise to a concern that the applicant was obtaining confidential client information from the respondent for his own benefit.

20 The applicant did not deny that he had sent information to Ms Smith via his personal Hotmail account, deposing that there had been difficulties with the respondent's email system and that it was more convenient to email it from his Hotmail account to Ms Smith.

21 Mr Elsley's evidence is that the applicant had been a trusted and respected employee up until the respondent was made aware of his offer to Ms Smith.

22 Mr Elsley deposed that he had not been made aware of any difficulties with the respondent's email system which would require the applicant to transfer data from the respondent's system to his personal account for transmission.

23 Mr Elsley deposed that had the applicant resigned, established his own practice and then made an offer to Ms Smith, that would be regarded as normal commercial dealings and Ms Smith would be free to accept or reject that offer. However, the making of a positive offer whilst in gainful employment with the respondent was a significant breach of trust so as to warrant instant dismissal.

24 Mr Elsley deposed that on being informed by Ms Smith of the offer and intentions of the applicant he conferred with Mr Hillier, resulting in a meeting with the applicant on 24 March 2003 which included an invitation to the applicant to offer an explanation. The outcome of these discussions was a conclusion by the respondent that the applicant had committed a serious breach of his responsibility to his employer in seeking to use company resources and consultants to establish his own business whilst in their employ.

25 At page 28 of transcript the applicant concedes that in a meeting with Mr Elsley and Mr Hillier he accepted that the relationship of trust had broken down between himself and the respondent.

26 It is the evidence of Mr Hillier that during the course of this meeting Mr Elsley informed the applicant of the termination of his employment in the following terms: "Francis you've put us in a very compromising position. Had you not approached a staff member and met with us and informed us of your dissatisfaction with your employment, matters would have been different and we would have looked at ways of meeting your needs. The information received means that we can no longer trust you in your office and accordingly it has become necessary for us to terminate your employment immediately. This is a shame. We're happy with your work performance. However, the information that we know we have no choice but to terminate your employment immediately."

27 The applicant's employment was summarily terminated. 28 The evidence of Mr Hillier is consistent with that of Mr Elsley.

SUBMISSIONS 29 Mr Tyler submitted that Ms Smith had misunderstood the approach from the applicant, putting it higher than the simple enquiry it was intended to be. Mr Tyler supported this submission by reference to the proposition that Ms Smith receive all the billings and a car, which he contended would be of no advantage to the applicant and accordingly not an offer that should be accepted as having been made.

30 Mr Tyler further submitted that the applicant was denied procedural fairness in that he was not given a proper opportunity to meet the allegations and explain the circumstances as required by s88b of the Industrial Relations Act 1996 ("the Act").

31 It was Mr Tyler's submission that a decision to terminate the applicant's employment had been made by Messrs Hillier and Elsley prior to the commencement of the meeting in which it was contended the applicant was not given an opportunity to explain. Mr Tyler contended that it was harsh, unreasonable and unjust to summarily terminate the applicant's employment in the circumstances of this matter.

32 Mr Tyler analysed the present circumstances against the provisions of s88 of the Act, submitting that there is no basis in fact for the termination of employment, that no warning had been given and no opportunity provided to the applicant to make out a defence.

33 Mr Wormington submitted that the applicant had breached his duty of fidelity and trust, submitting that at common law the implied duty in all contracts of employment prohibits either party to the contract from engaging in conduct which is calculated and likely to destroy or damage the relationship of trust and confidence between them.

34 Mr Wormington referred me to the judgment of the High Court of Australia in Blyth Chemicals Ltd v Bushnell (1933) 49 CLR 66 at 81-82 which was adopted in Concut Pty Ltd v Worrell and Anor (2000) 103 IR 160. At p172-174 of Concut the judgment of McHugh J deals with the ordinary relationship of employer and employee at common law in the following terms: 3. The ordinary relationship of employer and employee at common law is one importing implied duties of loyalty, honesty, confidentiality and mutual trust. At common law: "[c]onduct which in respect of important matters is incompatible with the fulfilment of an employee's duty, or involves an opposition, or conflict between his interest and his duty to his employer, or impedes the faithful performance of his obligations, or is destructive of the necessary confidence between employer and employee, is a ground of dismissal. ... [T]he conduct of the employee must itself involve the incompatibility, conflict, or impediment, or be destructive of confidence. An actual repugnance between his acts and his relationship must be found. It is not enough that ground for uneasiness as to its future conduct arises." In the present case, the findings at trial went beyond mere uneasiness as to the future. They necessitated, or at least warranted, a conclusion that the "confidence" essential to the relationship of employer and employee had been destroyed. Instead of pursuing the interests of the company and its shareholders, the employee had pursued his own private interests. Not only was the employee in breach of his duty of fidelity and trust owed to the employer, he had remained in breach of that duty to the date of the trial. Until that time he had not accounted for the benefits wrongly appropriated by him. Indeed, he had denied any wrongful appropriation. The issue so tendered at the trial was determined against the employee. He was then subject to the employer's counter-claim for an order to make a refund. Such order was duly made at trial. It was not contested on appeal. Given his senior status in the company's service and the nature and extent of the misconduct disclosed in the evidence and accepted by the primary judge, it was open to him to find that the employee had undermined the confidence essential to the ongoing relationship of employment. Prima facie, this had afforded a legal justification for the employee's summary dismissal. 4. It is, however, only in exceptional circumstances that an ordinary employer is entitled at common law to dismiss an employee summarily. Whatever the position may be in relation to isolated acts of negligence, incompetence or unsuitability, it cannot be disputed (statute or express contractual provision aside) that acts of dishonesty or similar conduct destructive of the mutual trust between the employer and employee, once discovered, ordinarily fall within the class of conduct which, without more, authorises summary dismissal. Exceptions to this general position may exist for trivial breaches of the express or implied terms of the contract of employment. Other exceptions may arise where the breaches are ancient in time and where they may have been waived in the past, although known to the employer. Some breaches may be judged irrelevant to the duties of the particular employee and an ongoing relationship with the employer. But these exceptional cases apart, the establishment of important, relevant instances of misconduct, such as dishonesty on the part of an employee like Mr Wells, will normally afford legal justification for summary dismissal. Such a case will be classified as amounting to a relevant repudiation or renunciation by the employee of the employment contract, thus warranting summary dismissal.

35 Mr Wormington submitted that the evidence established that the applicant had a clear and definite intention to start his own practice in competition to his employer and that he actively sought to recruit Ms Smith whilst in the respondent's employ. Mr Wormington submitted that this is a clear breach of the contract of employment by the applicant giving rise to justifiable termination of employment. Mr Wormington submitted that there had been no lack of procedural fairness as contended by Mr Tyler.

CONSIDERATION

36 I find on the evidence before me in these proceedings that the applicant did make a definite offer to Ms Smith to join him in a business venture in competition with his then employer, amounting to a breach of his duty pursuant to his contract of employment.

37 There is no basis for a finding that the applicant was denied procedural fairness. Any such assertion is not supported by the facts. The applicant was given an opportunity to make out a defence in the meeting of 24 March 2003 and failed to do so. The applicant admitted during the course of the meeting of 24 March 2003 that the relationship of trust between himself and the employer had broken down.

38 In an examination of matters such as this it is insufficient to look only at the terms and circumstances of the termination of employment. It is necessary, in my view, to also consider whether it is fair and reasonable to require the employer to continue the employment relationship; the inescapable answer to that consideration in this matter is no.

39 Section 88(c) of the Act requires a consideration of whether a warning had been given. In this matter the conclusions of a Full Bench of the Commission in Electricity Commission of NSW t/a Pacific Power v Nieass and ors (1995) 81 IR 46 at 68 are applicable. The Bench said: "The Commissioner formed the view that the employees should have been told that if the behaviour continued dismissal might result. We do not wish to say that absence of warnings in appropriate circumstances, might be taken into consideration in contemplating notions of harsh, unjust and unreasonable. In industrial circumstances as in other avenues of life an employee or an employer must be taken to be aware of the natural and probable consequences of their actions. However, we reject as industrially inappropriate any notion that adult, responsible, and senior employees are entitled to a warning that they might be dismissed if they continue to misconduct themselves within employment, dishonestly. No employee of ordinary understanding and certainly not employees of mature age, substantial classification and seniority, need to be told that if they deal dishonestly with their employer they may be dismissed, any more than they need to be told that they should be careful in crossing the street".

40 The level of dishonesty here is at the lower end of the scale. The applicant acted in a manner knowingly contrary to the interests of his employer which on analysis against the principles enunciated in Blyth Chemicals must be categorised as dishonest.

41 I do not find that the termination of the applicant's employment was harsh, unreasonable or unjust within the meaning of that term contained in s84 of the Act and accordingly the application for relief is dismissed.

42 Matter No IRC 2032 of 2003 is so concluded. oo0oo

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