The recent dismissal of ABC’s managing director, Michelle Guthrie, half-way through her 5-year term has increased the attention surrounding the laws of wrongful termination. The news has re-enlivened employers’ worry of legal action being brought where the employer is not eligible to make an unfair dismissal claim, for instance by reason of their high salary.
Wrongful termination (or wrongful dismissal) is a less litigated area of employment law, when compared to unfair dismissal or general protections under the Fair Work Act 2009 (Cth). Wrongful termination is a common law action which arises where an employer dismisses the employee in breach of the terms of a written employment contract. Common instances of wrongful termination occur when the employer:
- Terminates the employee without adhering to the notice periods in the employment contract (except in the case of serious misconduct where immediate termination is available); or
- Terminates the employee prior to the end of the agreed employment period.
Compared to unfair dismissal, the remedies granted in wrongful termination cases are usually more limited, with the court awarding damages and not reinstatement. However, wrongful termination damages are not capped (as they are in unfair dismissal) meaning that in theory the Court has an unlimited jurisdiction to award damages. In reality, the Court will only award damages for losses that can be proved, which often only allows the employee to recoup pay for the notice period or to the end of their contract period which should have been honored by the employer.
As mentioned above, Ms Guthrie issued proceedings in the Federal Court late last year against ABC for wrongful termination. Ms Guthrie alleged that the ABC terminated her employment half-way through the agreed 5-year employment period and didn’t provide the correct notice period. It was also alleged by Ms Guthrie that the ABC did not give a valid reason for terminating the contract early.
The proceeding was settled earlier this month with ABC agreeing to pay Ms Guthrie $730,000. When Ms Guthrie was terminated she also received more than one year’s pay bringing the total payment for her termination to $1.64 million.
This case is important for employers as it brings to the front of their minds that:
- The award of damages can be high and is not capped at 6 months like unfair dismissal is;
- An employee earning above the salary threshold in unfair dismissal can still bring an action for wrongful termination;
- There is no minimum length of service an employee must meet to bring an action for wrongful termination; and
- The strict 21-day time-frame to bring an unfair dismissal action does not apply.
On the other hand, unfair dismissal is where an employee’s dismissal was harsh, unjust or unreasonable and not a case of genuine redundancy.
Unfair dismissal therefore contains an element of procedural unfairness. In making its determination, the Fair Work Commission will take into account:
- Whether the employee was given warnings and an opportunity to respond; and
- Where the dismissal is for unsatisfactory performance, whether the employee was given an opportunity to improve and meet targets.
- Whether the employee was unreasonably refused a request for an employee to have a support person present at any meeting regarding termination;
A common example of unfair dismissal is where an employee is dismissed for poor performance without being given any warnings, informed of the targets they are required to achieve and not being afforded an opportunity to improve. In these circumstances the employee usually believes that there is another reason for the dismissal, such as not getting along with their new manager.
An employee may prefer to bring a case for unfair dismissal rather than wrongful termination, as:
- Proceedings are more cost effective;
- Most proceedings are resolved at conciliation, which can occur via telephone rather than the need to attend in person;
- An employee can ask for their employment to be reinstated;
- There is no need to prove a breach of the employment contract which often turns on the rules of contract interpretation;
- The process of the Fair Work Commission is faster than the Court process.
Although there are differences between wrongful termination and unfair dismissal, the same circumstances surrounding termination can give rise to both. If you are considering terminating an employee or are an employee who has been terminated, we suggest that you seek legal advice from a member of our team on (03) 9481 2000.