Recent adverse action cases & strategies to reduce risk


Posted By on 2/03/20 at 4:59 PM

This is the final post in a series on adverse action claims, based on a presentation delivered by Michael Cochrane (Special Counsel) to the Television Education Network (TEN) on 13 November 2019.

In our previous post, we focused on how to reduce the risk of an adverse action claim arising when an employee takes stress leave whilst under performance management.  In this final post, we will review recent case law and provide practical guidance on how to reduce the risk of an adverse action claim arising.

KHQ Lawyers - managing performance - adverse actions

In the recent case of Keenan v Cummins South Pacific Pty Ltd[1], a senior employee terminated three years ago was successful in his adverse action claim resulting in him being reinstated and receiving $1.1 million in back pay. Mr Keenan had worked at Cummins for some 33 years as a senior employee. He was then promoted to regional leader for the South Pacific and South-East Asian regions but was then dismissed within the next 12 months (after being placed on a performance improvement plan (PIP)) with his employer citing unsatisfactory performance.

The Court held that the real reasons for his dismissal was because of workplace complaints he made to company executives in relation to the HR manager subjecting him to a PIP despite him being her superior. Judge Wilson found that an ‘arm’s length, uninvolved reader’ of the PIP would have been struck by the general nature of the terms and how impossible it seemed to be able to assess whether Mr Keenan had actually complied or failed with its items. His Honour found that the HR manager had also refused to obey reasonable instructions made by Mr Keenan as her superior and made false accusations against him. The Court stated that the appropriate course of action by the company executives would have been to discipline the HR manager.

The Court found that rather Mr Keenan was ‘chastised as an errant schoolboy’ or junior employee when the employer placed him on a PIP for raising complaints or grievances with his superiors. Significantly, in this case the employer also failed to call a key witness to its detriment.

In the case of Turley v James Frizelles Automotive Group[2], Mr Turley (a Finance and Insurance Business Manager) claimed that his employer took adverse action because he exercised a workplace right by making various complaints alleging that he was bullied and harassed by his fellow employees and that he was dismissed from his employment because he was temporarily absent from work due to stress.

The key facts related to Mr Turley refusing to implement a new extended warranty program introduced by the business and making a number of complaints including that the program was a “major workplace change” which he was not consulted on and would result in additional duties for him. Importantly, the employer addressed those complaints at the time by explaining that the warranty program was part of his job description and its implementation would result in nothing more than a minor additional administrative task for him and other business managers (as distinct from additional duties for which he/they should receive additional remuneration).

The employee was issued with a warning and placed on a PIP for refusing to roll out the warranty program. This coincided with Mr Turley also making complaints against his fellow workers alleging that he was bullied and harassed and that the PIP deliverables were unachievable.

As a result of Mr Turley’s failure to implement the warranty program and non-compliance with the improvement plan, the employee was issued with a further warning. This coincided with Mr Turley taking a period of personal leave for anxiety and stress. 2 days after he returned from leave, Mr Turley’s employment was terminated.

Judge Harper found that placing the Mr Turley on the PIP and dismissing him constituted adverse action under the FW Act. However, the Court was satisfied that the ‘substantial and operative’ reason for the adverse action was the refusal of Mr Turley to implement the new warranty program, rather than any other unlawful reason/s. As such, the employer was successful in discharging the reverse onus.

The recent case of Pezzimenti v Rotary International[3]illustrates the importance of developing a performance management plan based on substance rather than form and that employers must still manage performance management of senior employees (who may not be unfair dismissal covered) with the same care and precision as they do for all their employees in order to avoid a potential adverse action claim. Mr Pezzimenti was employed by Rotary in a managerial position in January 2007 and reported to Mr Huerta, Director of International Operations.

His employment terminated on 30 June 2017 for failing to meet the standards set down in his PIP and failing to attend a Skype meeting. Mr Huerta instituted the PIP in October 2016 and it contained a statement of four ‘performance objectives’ or ‘deliverables’. Mr Pezzimenti sent Mr Huerta a document identifying the achievements he had made against each of the four deliverables in the PIP. At a meeting the following day, Mr Huerta alleged that Mr Pezzimenti had failed to progress one deliverable and the had otherwise failed to achieve the other three.

Mr Pezzimenti asked if Mr Huerta had received his document the day before outlining the ways in which the PIP had been achieved and Mr Huerta said he had but continued unchanged and proceeded to ask Mr Pezzimenti to leave the meeting. Mr Pezzimenti then made a bullying complaint alleging that Mr Huerta had no objective foundation for the conclusion he had not met the PIP’s objectives. Mr Pezzimenti’s employment was terminated shortly thereafter.

The Court held that Rotary failed to discharge the reverse onus of proof that it did not take adverse action against Mr Pezzimenti by dismissing him because he exercised workplace rights. The Court found that the goalposts of the PIP and the attitude by the Rotary decision-makers changed following Mr Pezzimenti’s bullying complaint against Mr Huerta and the commencement of the Court proceedings in April 2017 “as if Mr Pezzimenti was from that point set up to fail”. Mr Pezzimenti was ultimately awarded 12 months’ wages as damages, being $205,000.

In contrast to Pezzimenti, in the case of The Environmental Group Ltd v Bowd[4], a CEO claimed that he was subjected to an investigation, suspended and ultimately dismissed because he had made a ‘whistle-blower’ complaint in which he had raised concerns in a report to the Board about alleged financial irregularities in the company. He also made complaints to ASIC and the police, prior to the commencement of the third-party audit and without the consent or knowledge of the board.

In successfully discharging the reverse onus, the company was able to provide contemporaneous emails and text messages as evidence of the Board’s genuine concerns about the CEO’s performance and his treatment of staff. in addition, several members of the Board also gave cogent and credible evidence, which was accepted by Judge Steward, that it was the concerns about the CEO’s performance and his treatment of staff that led to the decision to dismiss him.

Relevantly, Judge Steward found the CEO’s complaint to ASIC, while made in connection to his employment, was not exercised bona fide, and for the purpose for which that power was conferred or granted. Rather, it was made in an attempt to prevent the CEO’s dismissal due to the Board’s genuine concerns about his performance. For this reason, it did not amount to a complaint or inquiry within the meaning of the FW Act and the CEO’s application was ultimately dismissed.

Practical steps and strategies to minimise risk

The above cases demonstrate the breadth of possible exposure to adverse action claims during a performance management process. While employers ultimately cannot prevent an employee pursuing an adverse action claim in the FWC, there are some key steps and strategies that employers can (and should) take to assist with safeguarding management decisions (including dismissal decisions) for performance reasons, and to minimise the risk of a successful adverse action claim. These include:

  1. Be clear on the reasons and provide them – If a person is being warned, dismissed or otherwise on the receiving end of a negative management decision or action during performance management, the (presumably legitimate) reasons for doing so should always be made clear and provided to the employee at the time of the decision or action (even if this is not strictly legally required as the employee is not covered by the unfair dismissal laws). This also ensures that the employee cannot rely on the absence of stated reasons to support their case the adverse action was taken because of a prohibited reason.
  2. Comply with established policies and procedures Most employers will have policies and procedures in place for clear decision making and complaints handling. These need to be complied with to avoid the assertion that any proposed adverse action was taken for a prohibited reason. If possible, decision makers should also be removed or isolated from the complaint-resolution process to ensure impartiality.
  3. Be procedurally fair even though the employee might not have jurisdiction to make an unfair dismissal claim, employers should follow due process. Evidence of unsatisfactory performance such as warning letters or feedback or giving employees an opportunity to respond will assist employers in proving that the real reason for the adverse action was performance related and not for some other prohibited reason.
  4. Contemporaneous record-keeping – As stated above, the evidence of the decision maker will be critical to the defence of a claim, so it is important to create a clear contemporaneous ‘paper trail’ of any meetings and conversations leading up to and including the management decision itself. Careless or inconsistent record keeping can detract from the credibility of the decision maker.
  5. Follow the course and don’t cut corners Employers should avoid unduly rushing or changing the process merely because an employer has exercised a workplace right by making a complaint or inquiry in relation to employment or has taken a period of stress leave, as this could raise suspicion (or at least the perception) that management decisions are being made for prohibited reasons.
  6. Decision makers The decision maker should be clear on why they are actually making their decision. If the decision is for a prohibited reason (or for reasons that include a prohibited reason) then the decision should not be made. It is imperative that the decision maker can clearly articulate non-prohibited reasons for their decision (and they must be the real reason/s). They should also be able to give credible evidence that the reasons alleged by the employee were not a factor in the decision to take adverse action.

We hope you have enjoyed our series on adverse action claims.  If you have any questions in relation to employee performance management and/or adverse action claims, please don’t hesitate to contact Michael Cochrane at mcochrane@khq.com.au or on (03) 9491 8437.

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[1] [2018] FCCA 2600.

[2]  [2018] FCCA 2989.

[3] [2019] FCCA 1854.

[4]  [2019] FCA 951.

Michael Cochrane Principal Solicitor

Michael is a principal solicitor in our Workplace Relations & Safety team. He practices all aspects of workplace relations law with a particular focus in the areas of employee relations, corporate... Read More