The New South Wales Court of Appeal has dismissed an appeal made by an employer against a decision of the Supreme Court of New South Wales, which found that the employer had terminated an employee without cause, and which awarded the employee more than $1.6 million (including a $1.4 million bonus): Bibby Financial Services Australia Pty Limited v Sharma [2014] NSWCA 37.

Facts

Ashley Sharma worked for Bibby Financial Services Australia, a wholly owned subsidiary of a UK-based debt factoring company. As its sales director, Sharma’s contract relevantly provided that his employment could be terminated by Bibby at any time giving him six months’ notice, or pay in lieu of notice; or without notice if he was guilty of serious misconduct. This was subject to Bibby bringing the alleged misconduct to Sharma’s notice and giving him an opportunity to respond to the allegations made before making a final decision to terminate his employment.

The contract also provided Sharma with a bonus if Bibby’s after-tax profits exceeded certain amounts. Entitlement to the bonus was forfeited if Sharma’s employment was terminated for serious misconduct.

In January 2009, a former employee of Bibby alleged that he had left the company due to Sharma sexually harassing him. The head of human resources for Bibby’s UK parent company, Miriam Koller, investigated the former employee’s allegations. She interviewed a number of Bibby’s employees but did not, contrary to Bibby’s grievance procedure, interview Sharma or put the allegations to him.

On 4 February 2009, Koller and the managing director, Greg Charlwood, met Sharma and told him that his contract was being terminated on the basis that his conduct was ‘unbecoming of a director’, citing as an example that some people thought he was ‘aggressive’. Charlwood told Sharma that Bibby would give him six months’ pay in lieu of notice and 75 per cent of his special bonus. Charlwood had considered terminating Sharma’s employment without notice, but decided not to as a means of avoiding ‘unpleasantness’.

There followed some negotiations between Sharma and Bibby (principally in relation to the amount of bonus), during which time Sharma was paid his salary and retained his company vehicle and computer. A draft deed of release was prepared by Bibby, which noted that Sharma’s employment “was terminated by Bibby on 4 February 2009”. Bibby subsequently withdrew the offer contained in the deed of release and gave Sharma notice of allegations of breach of contract and serious misconduct, the serious misconduct constituted by sexually harassing the former employee. On 24 March 2009, while Sharma’s lawyers were still in the process of responding to, and seeking further particulars of, the allegations, Bibby purported to terminate Sharma’s employment for serious misconduct.

At first instance, Chief Justice Patricia Bergin of the Supreme Court of New South Wales held that Sharma’s employment had been terminated by Bibby, without cause, on 4 February 2009. The judge found that the later purported termination of Sharma’s employment for serious misconduct was not valid. She further found that in relation to the allegations of sexual harassment, if the alleged incidents occurred they did not amount to serious misconduct warranting dismissal. Bibby appealed.

Decision 

The Court of Appeal dismissed Bibby’s appeal, finding that Bibby had terminated Sharma’s employment on 4 February 2009 by exercising its contractual right to terminate immediately without cause and pay six months’ pay in lieu of notice. It could not unilaterally withdraw that termination. Also, the fact that Sharma was paid his salary after 4 February 2009 and retained his vehicle and computer was not evidence of continued employment – rather, it was understandable in light of Bibby’s ongoing negotiations with Sharma regarding the amounts payable to him.

Sharma was accordingly entitled under his contract to six months’ pay in lieu of notice and to an amount by way of bonus. The Court further found that as at 4 February 2009, Bibby had no valid right to terminate Sharma’s employment without notice, as it had not complied with its contractual obligations to give him notice of, and an opportunity to respond to, the allegations against him, before exercising that right. Also, the alleged incidents of sexual harassment did not amount to serious misconduct warranting dismissal.

Lesson for employers

The decision provides useful lessons for employers in respect to contract administration and the proper investigation of workplace complaints. Namely, before making a decision to terminate an employee’s employment, give careful consideration to the termination rights, and any conditions precedent or limitations on those rights, in the employee’s contract. When investigating allegations against an employee, particularly those of a serious nature, ensure the employee against whom the allegations are made is given notice of, and an opportunity to respond to, those allegations. Also, follow applicable complaint handling procedures.