Large Penalty for Adverse Action

The Federal Circuit and Family Court of Australia (FCFCA) has recently awarded almost $100,000.00 in damages and penalties to an employee for their employer’s unlawful adverse action. Judge Riley found that the company Asaleo Personal Care Pty Ltd (the Company) placed the sourcing manager (Mr Lees) on a performance review and then dismissed him because he made a complaint about his employment, contravening section 340 of the Fair Work Act (the FW Act).

Background

Mr Lees was employed by the Company from 20 October 2014 until 12 March 2020, when his employment was terminated on the grounds of misconduct.

The issues between the parties began when the Company undertook a restructure in March 2019. Mr Lees made a complaint and sought a ‘formal redundancy’ from the Company as he believed the restructure had made substantial changes to his position. Following this, Mr Lees made a further six complaints in relation to his employment as well as an application for an order to stop bullying in the Fair Work Commission.

Mr Lees was issued with a draft performance improvement plan (PIP) and the Company scheduled a time to meet with him to discuss. However, before the meeting, Mr Lees informed the Company’s management team that he would be refusing to participate in the PIP process. This refusal ultimately formed the basis for his dismissal on the grounds of misconduct effective in March 2020. Mr Lees was paid 2 months’ pay as notice in lieu of service.

Mr Lees subsequently filed an adverse action claim with the FCFCA, as well as a claim for a redundancy payment and claims for breaches of his employment contract on the basis of the Company failing to conduct annual performance reviews or providing him with the opportunity to participate in the bonus scheme.

The Decision

Adverse Action claims feature a reverse onus of proof, the Company was therefore required to demonstrate that the adverse action against Mr Lees was not taken for a prohibited reason. There was no debate over whether Mr Lees had exercised his workplace right to make a complaint, and that his complaints had been made genuinely, in good faith and for a proper purpose.

The Company argued that the implementation of the PIP did not constitute adverse action. However, the FCFCA concluded that in being presented with the PIP Mr Lees’ position, “had been altered to his prejudice”, and accepted that the purpose of the PIP was likely to set up Mr Lees for dismissal. Accordingly, the PIP involved a detrimental alteration of Mr Lees position and therefore constituted adverse action.

The FCFCA also held that the Company took adverse action for a prohibited reason against Mr Lees in terminating his employment. The Court found that Mr Lees conduct did not warrant a PIP, and even if the conduct did warrant a PIP, there were a range of options other than termination that the Company could have taken rather than dismissing Mr Lees from his employment.

Substantial Penalties Awarded

Judge Riley viewed the dismissal and the imposition of the performance management plan as two “discrete and separate” contraventions that should each have a different penalty applied, rather than an involving a single course of conduct. Judge Riley also imposed two pecuniary penalties on the Company, $22,050 for the performance improvement plan and $44,010 for unfairly dismissing the manager.

In the hearing to determine compensation, damages and penalties, the Company and Mr Lees agreed on the sum of $22,552.80 plus interest for economic loss. Judge Riley awarded $7500 for non-economic loss relating to the “severe impact on [Mr Lees’] mental health and wellbeing” including “sleeplessness, irritability and withdrawing from social situations“.

Judge Riley also considered the lack of contrition on behalf of the Company when determining the appropriate penalty and the need for specific deterrence given “the contravening conduct in this case was entirely deliberate and undertaken by senior management“. She continued that “general deterrence is also necessary, because employers generally need to be reminded that adverse action for prohibited reasons will have consequences, even where that action is undertaken in an elaborate scheme.”

Takeaway

This case serves as a cautionary tale for companies, which demonstrates that adverse action disguised as a performance review process will be heavily penalised by the courts, with nearly $100,000 in compensation awarded to the former employee in this instance.

Performance review processes such as the PIP must only be used for genuine reasons and not as an excuse to terminate employees. Companies ought to consider other, more informal, processes prior to implementing a formal performance review process such as a PIP.

Companies must also practice due care particularly where employees have made complaints in relation to their employment. Where adverse action is taken against an employee, it must be taken for genuine reasons. Companies must be able to demonstrate this in court due to the reverse onus of proof that applies in these cases. If you have any question about managing employee complaints, employee performance or dealing with adverse action cases more generally, please do not hesitate to contact Nick Stevens, Daphne Klianis or Josh Hoggett.