In this update, Special Counsel, Fran Keyes, explains the importance of a recent decision of the Federal Court of Australia relating to its general protections (unlawful termination of employment) jurisdiction.
- On 2 October 2020, an Australian software company was ordered to pay $5.2M compensation to one of its consistently top-performing managers whose pre-existing psychiatric condition was aggravated causing a ‘profound mental breakdown’ following the termination of his employment, rendering him unlikely to work again. Its CEO was also penalized under the accessorial liability provisions in the Fair Work Act 2009 (Cth) (FW Act).
- Mr. Roohizadegan (Mr. R) claimed his employment was terminated for reasons prohibited by the FW Act, which included having made bullying complaints against senior executives, and that the company breached his employment contract.
- The Federal Court of Australia (the Court) agreed with Mr. R and found against the company in Roohizadegan v TechnologyOne Limited (No 2)  on the basis the termination was unlawful.
- The Court rejected evidence that performance issues and alleged misconduct by Mr. R towards other staff were the reasons for termination. The Court found that Mr. R’s employment was terminated for the prohibited reason that he exercised a workplace right when he made seven bullying complaints, and that this reason was the substantial and operative reason for the termination.
- The Court also found that Mr. Di Marco, the employer’s founder and board chair, did not follow human resources (HR) advice that it would not be fair to terminate Mr. R based on “mere allegations” against Mr. R recommending instead an investigation into the bullying complaints made against him, and, had been “deceptive and self-serving” in the handling of these complaints and subsequent dismissal.
- The epic 347-page decision highlights the potentially significant consequences for companies and directors who improperly handle the termination of their employees.
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- In July 2006, Mr. R commenced employment with the software company TechnologyOne Limited (the first respondent), as the State Manager for the region of Victoria. Mr. Adrian Di Marco (the Second Respondent) was the Executive Chairman and Chief Executive Officer of TechnologyOne, until he stood down from the latter role in 2017.
- In May 2016, Mr. R was summarily dismissed from TechnologyOne. He brought a general protections claim under section 340 of the FW Act against the respondents for taking adverse action against him for exercising a workplace right. While Mr. R was already suffering from a depressive disorder at the time (and had been since his daughter became ill in 2010), he claimed that his termination resulted in him suffering ‘a profound mental breakdown’ and becoming unfit to obtain other employment.
- Mr. R sought damages for future economic loss. The parties agreed that, but for his dismissal, he would have remained employed by TechnologyOne until 30 September 2020. Thus, he claimed $824,569 for his base salary from May 2016 to 30 September 2020, plus the amount determined by the Court to be owed in forgone share options and incentive payments for that period. He also sought pecuniary penalties against both respondents for contravention of section 340.
- Mr. R also brought a breach of contract claim for TechnologyOne’s non-payment of incentives owing to him since November 2009. His initial employment agreement provided that he would receive 5.75 per cent of the Profit Before Tax (PBT) performance of TechnologyOne in Victoria. In November 2009 the agreement was varied to provide that he would receive a percentage of the PBT performance of ‘Business Unit 03 – Victoria – Service Delivery’. He claims that this variation did not affect his entitlement to the agreed share of the PBT performance of TechnologyOne in all of Victoria. The parties agreed with expert evidence that Mr. R would be entitled to $1,590,000 in damages if he succeeded in this claim.
The workplace rights:
- Mr. R argued he exercised four workplace rights, all of which were reasons for his dismissal, but the Court held that only the first of the four rights alleged, namely the seven workplace complaints he made, were taken into account in the decision to dismiss him. The seven complaints were:
- In February 2016 Mr. R complained to Mr. Di Marco that Mr. Harwood, the Operating Officer and Mr. R’s supervisor was undermining him and had threatened that, if he did not cancel his meeting with Mr. Di Marco, then ‘one of them would have to go’.
- In 20 April 2016 Mr. R made a complaint to Ms. Gibbons, the HR Business Partner. Mr. R told Ms. Gibbons that he was being bullied by Ms. Phillips (the Local Government Industry Manager) and Mr. Sutching (the Products and Local Government General Manager), by being marginalised and prevented from attending client meetings. He also told Ms. Gibbons that he was considering taking legal action for the bullying against Mr. Sutching.
- Mr. R sent an email Mr. R sent to Mr. MacDonald (who took over from Mr. Harwood as Operating Officer in April 2016) on 25 April 2016. He asked why Mr. MacDonald instructed him not to attend a client meeting and also complained that he was being bullied.
- Mr. R sent an email to Mr. Di Marco on 13 May 2016, claiming that decisions were being made behind his back and that Mr. MacDonald had instructed him not to attend a client meeting.
- Mr. R sent two emails Mr. R on 13 May 2016 to Mr. Chung and Mr. Di Marco, complaining that Mr. MacDonald had bullied him.
- Mr. R sent an email to Mr. Di Marco on 15 May 2016, about MacDonald’s behaviour and asking what disciplinary action Mr. Di Marco proposed to take.
The adverse action taken:
- In response to Mr. R’s seventh complaint, on 16 May 2016 Mr. Di Marco informed Mr. R that Ms. Carr (the HR Director) would investigate his complaint and that he should resume his relationship with Mr. MacDonald in the meantime. However, on 18 May 2016, Mr. Di Marco summarily terminated Mr. R’s employment.
- Mr. Di Marco accepted that, if TechnologyOne was found to have breached the FW Act, he would also be liable for his accessorial involvement in terminating Mr. R’s employment.
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The Court found Mr. R’s termination unlawful awarding him $5.2 M as follows:
- The company to pay $756,410 to compensate Mr. R for his loss of share options;
- The company to pay $2,835,000 to compensate Mr. R for future economic loss;
- The company to pay $10,000 to compensate Mr. R for hurt and humiliation;
- The company to pay $40,000, and Mr. Di Marco personally to pay $7,000 to Mr. R as pecuniary penalties for contravention of the general protections provisions of the FW Act; and
- The company to pay $1,589,000 for breach of Mr. R’s employment contract.
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The law, arguments and findings
Fair Work Act general protections claim
The core ‘general protections’ in Part 3-1 of the FW Act prohibit the taking of adverse action (such as terminating employment) by various persons (for example, employers) against other persons (for example, employees), where that action is taken because of the other person’s workplace rights and exercise of those rights, amongst other matters.
Mr. R brought a general protections claim pursuant to section 340 of the FW Act against his employer, as well as the founder and board chair of the employer, for taking adverse action against him (terminating his employment) for exercising a workplace right (making bullying complaints).
Under section 361 of the FW Act, the onus was on the employer to displace the statutory presumption that Mr. R’s employment was terminated for the prohibited reason alleged by him, namely that he exercised a workplace right when he made seven bullying complaints.
The employer accepted that it took adverse action against Mr. R when it terminated his employment. It argued, however, that the adverse action against Mr. R was not taken for a prohibited and unlawful reason, but, was exclusively based on performance and conduct issues (being lawful considerations):
- because the license fees in Victoria were not growing;
- Mr. R had failed to work well with three different managers in a period of two years; and
- concerns raised by his team about his management style.
The Court found that the employer failed to displace the presumption that Mr. R had been dismissed because or substantially because of his complaints. The employer was found to have taken unlawful adverse action against Mr. R for exercising a workplace right.
The case turned on the Court’s assessment of the credibility of Mr. Di Marco. The Court found:
- Mr. Di Marco was the sole decision maker. His state of mind at the time of making the decision was critical.
- Mr. Di Marco’s evidence ‘should not be accepted on controversial matters, including in relation to his proffered reasons for his adverse action.’ In contrast, the Court accepted that Mr. R gave his evidence truthfully and consistently with his witness statements, and that his oral evidence, as well as the contemporaneous written records he kept, should be preferred where it conflicted with evidence from the employers’ witnesses.
- Mr. Di Marco was ‘an unsatisfactory witness’, who failed to make appropriate concessions when he could not recall events and was reluctant to acknowledge inconsistencies in his evidence.
- In relation to the license fees, Mr. Di Marco’s evidence in chief was that the forecast for the 2016 financial year ‘looked like it was going to be a train smash,’ but when it was put to him in cross-examination that there was no problem with the forecast, he said he made the decision merely based on what he had been told by others. The Court also heard evidence that TechnologyOne’s own documents demonstrated that there was no problem with the forecast for the 2016 financial year.
- Mr. Di Marco also testified as to his belief that Mr. R had difficulty working with Mr. Thompson, Mr. Harwood, and Mr. MacDonald. However, Mr. MacDonald had only been employed by TechnologyOne for two weeks at the date Mr. Di Marco claimed to have made his decision to terminate Mr. R’s employment. In that time, Mr. MacDonald had ‘neither visited Melbourne [where Mr. R was based], nor met Mr. R’. Furthermore, the Court heard evidence from Mr. Thompson and Mr. R that, but for a brief adjustment period, they worked extremely well together. Thus, the Court found no plausible evidence that Mr. Di Marco could have formed an honest view that Mr. R was unable to work well with all three managers prior to making the decision to terminate his employment.
- In regards Mr. Di Marco’s claim that he terminated Mr. R’s employment over concerns about his management style, Mr. Di Marco claimed that he made the decision to terminate on 25 April 2016, after Ms. Carr forwarded him an email she had been sent from Ms. Gibbons. Ms. Gibbons’ email outlined complaints from sales staff in Victoria about Mr. R and informed Ms. Carr that Mr. R was considering making a bullying claim against Mr. Sutching. Mr. Di Marco testified that, he 'did not take in’ any of the information relating to the bullying claim, but once he had been made aware of the complaints against Mr. R in the email, he concluded that he had no choice but to let him go.
- However, the Court heard various points of evidence indicating that Mr. Di Marco worked towards retaining Mr. R after 25 April 2016. He had been made aware of Mr. Hardwood’s strained relationship with Mr. R but wished to retain both employees. For example, he told Ms. Carr at two separate meetings of the executive team convened to discuss Mr. R’s employment, that he did not want the allegations against Mr. R to be investigated and proposed at a meeting on 3 May that he could be moved to a different position within the company.
- It was implausible that Mr. Di Marco decided to terminate Mr. R’s employment merely based off one email and without investigating the complaints. The Court also accepted evidence that Mr. Di Marco was aware that Ms. Gibbons’ email ‘was not a reliable basis upon which he and TechnologyOne were entitled to proceed’ and that by the time he made his decision, he no longer had any actual belief in the truth of the allegations against Mr. R. The Court also found it ‘inherently implausible’ that Mr. Di Marco would have overlooked the part of Ms. Gibbons’ email outlining Mr. R’s intention to take legal action against Mr. Sutching.
- It was not until Mr. R’s confrontation with Mr. MacDonald (which led to his fifth and sixth complaints) that Mr. Di Marco determined on 12 May 2016 that Mr. R would have to be dismissed.
- Mr. Di Marco’s evidence about his state of mind and the reasons he decided to terminate Mr. R’s employment could not be accepted. The Court found that Mr. Di Marco was not only aware of Mr. R’s complaints and intention to bring legal action for a bullying complaint at the time he made his decision, but that Mr. R’s exercise of those workplace rights were a substantial and operative factor in Mr. Di Marco’s reasons for that decision. Therefore, the Respondents failed to displace the presumption in section 361 of the FW Act and were found to have taken unlawful adverse action against Mr. R.
The contract claim
The Court found the employer had breached its employment contract with Mr. R in failing to pay certain incentives due to him dating back to November 2009.
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Remedy – compensation not reinstatement
Mr. R did not, as he might have done in the general protections jurisdiction, seek reinstatement. He sought compensation for economic and non-economic loss, and pecuniary penalties.
In determining whether Mr. R was entitled to damages for psychiatric injury as a result of his termination, the Court assessed the joint expert report submitted by three psychiatrists and found:
- the medical experts agreed that Mr. R was suffering from a depressive disorder prior to his dismissal;
- the medical experts disagreed on the extent to which Mr. R’s depressive disorder had improved or resolved prior to his dismissal;
- that it preferred to accept the evidence of the doctor who had been treating Mr. R for the longest, and with whom the second expert agreed. That doctor had found that Mr. R’s pre-existing psychiatric condition had improved between his daughter’s diagnosis and his dismissal, but that it had not entirely resolved;
- the experts agreed that his dismissal significantly aggravated Mr. R’s condition, such that it is unlikely that he would regain the capacity to be employed in a position for which he is qualified; and
- Mr. R was entitled to:
- $2,825,000 for future economic loss, made up of $824,569.15 for loss of his salary and $2,743,989 for incentives, with a general discount of 15% for the ordinary vicissitudes of life;
- based on the expert evidence that Mr. R had not regained the capacity to work, there was no reduction due to his failure to mitigate his loss; and
- $756,410.00 in compensation for his loss of share options due to his dismissal and $1.59 million in damages for his breach of contract claim, following the Court’s acceptance of a joint expert report by forensic accountants.
- found that Mr. R’s evidence of his psychiatric injury primarily related to his claim for future economic loss and not to his loss of enjoyment of life;
- agreed with the Respondents’ submission that a modest award should be made for general damages;
- awarded Mr. R $10,000 for the hurt and humiliation he suffered as a result of the manner in which he was dismissed; and
- dismissed Mr. R’s claim for $50,000 in special damages for incurred and future medical expenses, as Mr. R led no evidence in relation to that claim.
- awarded pecuniary penalties under s 546 of the FW Act, for the Respondents’ contraventions of section 340 of the Act, as follows:
- $40,000 against TechnologyOne; and
- $7,000 against Mr. Di Marco for his accessory liability.
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What might the employer have done differently?
The employer might have avoided liability through considering firstly:
- Advice of HR before terminating Mr. R including conducting an investigation of complaints made against Mr. R – particularly in light of the fact that Mr. R had made complaints of his own (he had exercised workplace rights).
- The individual circumstances of Mr. R before termination – including his longevity, seniority and consistent strong performance – to ensure reasons given would withstand the test of lawfulness.
- What also might be happening in Mr. R’s personal life before terminating his employment – having a conversation with him. The employer may have discovered Mr. R’s private suffering surrounding the diagnosis and medical treatment of his daughter’s serious illness. The Court accepted Mr. R’s evidence that he ‘buried himself in his work, notwithstanding the tragic costs it imposed on his family’ as ‘utterly convincing’. The outcome may have been different if the employer had offered a sympathetic ear and worked with Mr. R.
- Whether Mr. R might litigate in the event of termination, and how he might present in court. Employers should not underestimate the importance of this consideration – even more so when the employee is a senior executive with skin in the game and able to fund litigation. In these circumstances, employers must tread very carefully when terminating such employees.
- The complexities of the issues and planning before steps were taken. A swift final response in the circumstances was not warranted, was ultimately unlawful and, in any event, hopelessly ill-advised.
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What lessons were learned?
The decision highlights the significant financial and reputational consequences for both employers and – through accessorial liability – corporate decision makers when the termination of a senior executive’s employment is handled improperly.
To mitigate the risk of employees bringing adverse action claims following dismissal, employers might consider:
- Regularly updating contracts of employment, and workplace policies. Mr. R was a long-term employee. The contract of employment was outdated, not reflecting the changed circumstances of Mr. R’s employment, which went against the employer. Regular review might have resulted in a different outcome in the contract claim.
- Taking and safely keeping contemporaneous written records of important conversations. Mr. R took contemporaneous written records of important conversations. That may have helped the employer if they had done so too.
- An openness, from date of termination throughout the entire proceedings, to early resolution of the claim, may have avoided the train-wreck impact of the decision against the employer. An appropriately drafted deed of settlement making a reasonable settlement offer – mindful of the litigation risks for both parties – may have ended the dispute early, saving both parties considerable personal financial and reputational damage.
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The author would like to acknowledge the contribution of Smart Law Analyst, Phoebe Kenafake to the drafting of the publication.