Flawed investigations and findings of fact fatal to defending litigation

Sharma v Bibby Financial Services Australia Pty Ltd [2012] NSWSC 1157
The NSW Supreme Court has highlighted how critical it is for employers to ensure they conduct a proper investigation into allegations of unlawful conduct, that evidence is reliable, all relevant matters are considered and decisions are not predetermined. The decision also demonstrates that if terminating a contract of employment in accordance with its terms, care must be taken to correctly identify which provision the termination is being effected under. An important lesson to be learned from this decision is that prior to making a decision to dismiss an employee, consideration should be given to the legal risks, including whether the basis of the termination and the manner in which it was carried out is legally defensible in the event of legal proceedings being commenced.

In this case, the Sales Director of a Financial Services business was dismissed on the ground of misconduct following a complaint made by a former employee that the reason they had resigned was because the Sales Director had sexually harassed him. Following receipt of the complaint, the Head of HR travelled to Sydney to investigate the allegations, which included interviewing various witnesses. At the conclusion of the investigation, the Head of HR made a decision, in conjunction with the Managing Director, to terminate the Sales Director’s employment. The Sales Director’s employment contract permitted dismissal without notice in the case of serious misconduct or otherwise by provision of 6 months’ notice or payment in lieu. The Head of HR and the MD made the decision the conduct amounted to serious misconduct and terminated the Sales Director without notice.

However, the Supreme Court found the investigation was inadequate and the company had failed to take into account any response of the Sales Director before making its decision with the Head of HR having made up her mind before meeting with the Sales Director. The Supreme Court was satisfied the Head of HR had a predetermined view that the allegations were true. The Court also found the failure of the company to provide the Sales Director with particulars of the alleged misconduct until after the termination was “extraordinary and inexplicable”. The Court found that the evidence did not support the conclusion that the Sales Director had engaged in sexual harassment entitling the former employee to 6 months’ notice or payment in lieu in the event of dismissal along with a bonus payment of $1.4 million.

Reproduced and written by FCB Workplace Law

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