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Compensation for employee dismissed in breach of grievance procedure

The Federal Court has awarded significant compensation to an employee who was made redundant in circumstances where the employer ignored a grievance procedure set out in the employee’s Australian Workplace Agreement (AWA).

Implications for employers

This decision confirms that grievance procedures in employment agreements may grant enforceable rights to employees, and failure to comply with such procedures may result in claims for significant damages awards. Employers must ensure that any disciplinary action or other action impacting the employment relationship is taken in accordance with relevant procedures in any applicable employment instruments, contracts and enforceable policies.

Background

Mr Van Efferen was employed by CMA Corporation Ltd (CMA) under an AWA to work on a project in Port Hedland. Mr Van Efferen had also signed a letter of offer from CMA. The AWA had a nominal term of three years. CMA was working on the Port Hedland project under a commercial contract with John Holland, and the terms of the contract allowed John Holland to request CMA to remove employees from the project site if their performance was unsatisfactory.

Mr Van Efferen raised a number of safety concerns with his supervisor on site (who was also employed by CMA), and voluntarily took a short period of leave. John Holland subsequently requested that CMA remove the supervisor from the site, and CMA asked Mr Van Efferen to return from leave to take over some of the supervisor’s responsibilities. On his return, Mr Van Efferen had further disagreements with his new supervisor (also employed by CMA) in relation to site safety issues. Even though he disagreed on safety grounds with his new supervisor’s directions, Mr Van Efferen ultimately complied with them. However, the supervisor eventually organised for Mr Van Efferen to be relocated to CMA’s Geelong office before completion of the project. There, Mr Van Efferen performed general maintenance work. CMA was unsuccessful in some contract tenders and as a result ran out of work that was suitable for Mr Van Efferen to perform. Two weeks later Mr Van Efferen was made redundant.

Mr Van Efferen initiated proceedings in the Federal Court, claiming that when CMA terminated his employment, it breached the grievance procedure clause in his AWA. Mr Van Efferen also claimed CMA had breached terms implied in his common law contract of employment that:

  • CMA would not conduct itself in a manner calculated or likely to destroy the relationship of trust between CMA and Mr Van Efferen as employer and employee; and

  • the parties have a duty to act in good faith toward each other, which is a duty to exercise prudence, caution and diligence or due care to avoid or minimise adverse consequences to the other party.

CMA denied it had breached the AWA or the contract of employment.

Decision

CMA argued that John Holland had specifically requested it to remove Mr Van Efferen from the site, and CMA had simply complied with this request in accordance with the commercial contract it had with John Holland. However, on the evidence the Court was not satisfied that any such request had been made by John Holland. Rather, the Court found that it was Mr Van Efferen’s new supervisor who had him removed from the project, which removal ultimately led to his redundancy.

Mr Van Efferen argued that CMA had failed to follow the grievance procedure in his AWA before he was relocated and subsequently made redundant. The procedure set out the steps the parties were to follow “to deal with CMA’s concerns about the behaviour of its employees”, and required:

  • as “Step 1”, discussion of the issue between the employee and their manager;

  • as “Step 2”, formal counselling in writing;

  • as “Step 3”, a formal written warning; and

  • termination as “Step 4”.

Earlier steps could be skipped in serious cases and provision was made for summary dismissal where justified.

CMA did not follow the grievance procedure in relation to Mr Van Efferen.

CMA argued that the grievance procedure only applied once CMA had already decided to take disciplinary action. The Court disagreed, holding that although the provisions of the AWA “lacked precision”, the agreement should be interpreted in line with the principle that workplace instruments should be construed in the context of the industrial relations environment rather than in an environment of “legal niceties or jargon”, and should also be construed in line with general contractual principles. Accordingly, the Court held a provision in the AWA was legally binding if “the hypothetical, reasonable, potential employee to whom the document is presented would have concluded that CMA intended to be contractually bound to follow the procedures”.

In this case, the Court held that:

A reasonable employee would rightly conclude that CMA was committing itself to implementing these protective measures if the need arose. That employee would not conclude that the benefit of [the grievance procedure clause] would be dependent on the favourable exercise of CMA’s unfettered discretion.

It was also relevant that an AWA is binding on an employer by force of federal legislation. Further, the term “grievance procedure” suggested that the procedures were intended to be used to address all employee concerns, not merely those with disciplinary implications, and must be read and applied in a “sensible and practical manner”.

The Court concluded that Mr Van Efferen’s claim that CMA had breached the grievance procedure clause in the AWA should succeed.

Calculation of damages for breach of the AWA 

Section 721(1) of the Workplace Relations Act 1996 (Cth) provides that a person suffering loss as a result of a breach of an AWA may recover the loss in court.

Given the Act provides no guidance on the calculation of damages for breach of an AWA, the Court determined that damages should be assessed on the “normal contractual basis”: that is, by - as far as “money will do it” - restoring Mr Van Efferen to the position he would have been in had the breach not occurred.

The Court was satisfied that had the AWA grievance procedure been followed, Mr Van Efferen would not have been removed from the John Holland project before its completion, and therefore that his redundancy was premature. However, the Court also found that Mr Van Efferen would have been made redundant at the end of the Port Hedland project, as CMA had no further work requiring his skills.

The Court calculated what Mr Van Efferen would have received in salary and superannuation had his employment continued until completion of the Port Hedland project, and then deducted the amount of Mr Van Efferen’s earnings since his termination. The Court considered it remote that Mr Van Efferen would have resigned or been validly terminated prior to completion of the project, so only reduced the total loss amount by 10% to account for this contingency. Accordingly, the total damages award was calculated at $274,288.

Implied duties

The Court had already determined that Mr Van Efferen was entitled to damages assessed according to contractual principles, in respect of breach of the grievance procedure. However, the Court still took the opportunity to discuss Mr Van Efferen’s claims that CMA had breached an alleged duty of mutual trust and confidence and duty of good faith implied into the common law contract of employment.

The Court noted that the question whether such terms may be implied into employment contracts is “one of some controversy on which the High Court has yet to make definitive pronouncement”. Ultimately, the Court considered itself bound by existing Federal Court authority that queried whether the alleged term of mutual trust and confidence could be implied in light of the principles for implications of terms into contract. The Court also agreed with an earlier decision that found the alleged term of good faith does not apply to employment contracts. In any case, his Honour found that such implied duties would not, in the circumstances, have imposed any additional obligations on CMA beyond those in the grievance procedure.

Van Efferen v CMA Corporation Limited [2009] FCA 597 (4 June 2009)

Who does this affect?
All Australian employers

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