In the recent decision of Serpanos v Commonwealth of Australia [2022] FCA 1226, the Federal Court (Court) has usefully analysed conflicting judicial approaches to assess an employer’s motives, and the discharging of proof under section 361 of the Fair Work Act 2009 (Cth) (Act), relevant to adverse action matters.
The decision provides important guidance about which ‘person’ or ‘persons’ actions and decisions are relevant for a dismissal decision.
Background
In the case, the Court had to determine whether Mr Serpanos’s employer, the Australian Taxation Office (ATO), had engaged in adverse action when it dismissed his employment in 2019.
The application was made after the following events, amongst others:
- Mr Serpanos made a complaint against his manager stating that she acted unfavourably towards him (including unfair criticism, failure to respond to a request about a mentoring opportunity and favouritism towards other colleagues).
- When the complaints were investigated, the manager stated that the reason for certain parts of her behaviour were due to being informed by a number of colleagues that Mr Serpanos had made an inappropriate sexual comment about her.
- After investigation, the original allegations made by Mr Serpanos were found to be unsubstantiated. In response to this outcome, Mr Serpanos requested a review and stated that he wanted a copy of the text and he would ‘discuss the contents of the text with his lawyer for legal action against [the colleagues] for defamation’. Mr Serpanos followed this up by providing ‘concern notices’ to each colleague on multiple occasions, which included the invitation of payment of over $1,000,000.
- The ATO then suspended Mr Serpanos on the basis of breaching their code of conduct due to making an inappropriate sexual comment and threatening legal proceedings to bully and harass staff. These allegations were then investigated including further historical complaints of sexual harassment made against Mr Serpanos in 2016.
- The acting Assistant Director of the ATO’s “Working Well—ATO People” determined, through her investigation, that Mr Serpanos had engaged in sexual harassment and harassing behaviour, amounting to a breach of the APS Code of Conduct. However, the disciplinary sanction decision was delegated to the ATO’s Assistant Commissioner, ATO People.
- The Assistant Commissioner determined that termination of Mr Serpanos employment was the appropriate outcome.
The Court ultimately had to consider whether the dismissal of Mr Serpanos was at all due to him making complaints about ‘defamatory’ claims against a number of his colleagues. The ATO contended that the dismissal was on the basis of Mr Serpanos engaging in serious misconduct including sexual harassment, harassment and other breaches of the Code of Conduct on the basis of findings of an internal investigation.
Interpretation of section 361 of the Fair Work Act
Section 361(1) of the Act contains a provision that places the onus of disproving an allegation of a breach of the adverse action upon the entity or person alleged to have breached them.
In light of section 361(1) of the Act, the Court has to assume that Mr Serpanos was dismissed for a prohibited reason, unless the ATO could prove otherwise. The Court stated:
“The ATO must positively establish that [the auditor’s] exercise of a workplace right or workplace rights did not factor in any substantial or operative way as a reason for its decision to effect his dismissal.”
Inconsistent approaches
In examining section 361(1) of the Act, Justice Snaden noted the inconsistencies between previous decisions in interpreting the section and how an employer might rebut the presumption. In doing so, Justice Snaden focused on the issue as to whether the reasons for which ‘adverse action’ is taken might be “unconscious” or discerned otherwise than through interrogation of the mental processes of the person or people by whose conduct it is taken.
His Honour noted the following:
- Board of Bendigo Regional Institute of Technical and Further Education v Barclay approach (Barclay)1: In Barclay, the High Court rejected a Federal Court majority’s reasoning that in adverse action cases, the “real reason” for the behaviour at the centre of proceedings “may be conscious or unconscious, and where unconscious or not appreciated or understood, adverse action will not be excused simply because its perpetrator held a benevolent intent”.
- Elliott v Kodak Australasia Pty Ltd approach (Kodak)2: In Kodak, the Court held that when determining who made the decision to proceed with the redundancy of the employee in question, while the general manager made the decision, “its reasons for effecting the dismissals resided also in the minds of the two supervisors”.
In assessing both approaches, Justice Snaden stated the approach that emerged from Barclay did not reconcile with Kodak (because they differed in respect of the significance of considering what is in the minds of the decision maker(s)) and ‘one of the propositions must be wrong’.
Decision
Justice Snaden found that recent “and presently binding” authorities suggested the approach taken in Kodak was the preferred. This included Wong v National Australia Bank Limited3, which clearly articulated the Kodak approach” (emphasis added):
“…It may be convenient to refer to the person whose conduct directly visited the adverse action on the employee as the “decision-maker” but his or her decision-making process may incorporate the state of mind of other people, including by adopting facts or opinions asserted by them.”
His Honour also stated that searching for the reasons for “animating particular conduct – especially corporate conduct” can be “notoriously difficult”. While section 340 of the Act alludes to the assessment of the state of mind of the person who engages in the conduct, that is ‘not the law as it currently stands’ (emphasis added):
“The case law emerging from this court, even after Barclay, BHP Coal, Endeavour Coal and Hall leaves no room for doubt: in assessing the reasons for which conduct amounting to adverse action was engaged in, the court must interrogate not merely the state or states of mind of the person or people who engaged in it; but also, that of others whose contribution to that conduct rose beyond some threshold level.”
Justice Snaden went on to comment that the ‘threshold level’ for when determining whether a particular “mind” has a ”’significant’, ‘plainly important’, ‘major’, ‘substantial’ or ‘essential’” impact on alleged action engaged in.
Inquiry in ‘two parts’
Justice Snaden explained that a respondent may rebut the statutory presumption under section 361(1) of the Act by producing evidence as to why it engaged in the conduct that an applicant seeks to impugn. It is then for the Court to determine whether the reasons that the respondent presents actuated that conduct.
In assessing the reasons for the conduct, the Court does not have to determine whether they are ‘procedurally or substantially fair’ but rather that they were in fact the reason that animated the conduct.
Justice Snaden stated that to determine this, the inquiry occurs “in two parts”. The questions that the Court must ask are:
- “were the nominated reasons matters of opinion or belief that formed in the mind of the respondent (or, in the case of bodies corporate, those of its relevant human agents); and
- did they positively inspire the respondent then to engage in the relevant conduct?”
If the Court determined that the answer to both questions is yes and there are other reasons for which the conduct was engaged in, it is irrelevant whether the respondent’s reasons might be impugned as unfair or illogical or otherwise liable to criticism. However, Justice Snaden clarified that if the manner in which the respondents acted is substantively or procedurally unfair, that may still be a relevant consideration.
Reason for dismissal: ‘Whose mind or minds?’
In determining whether the ATO had engaged in adverse action, the Court had to determine the reason for dismissal. In doing so, the Court had to identify whose mind or minds that “contributed to the making of that decision in a way or ways that qualify as ‘significant’, ‘plainly important’, ‘major’, ‘substantial’ or ‘essential’” Once determined, those ‘minds’ would need to ‘demonstrate that their conduct also was not actuated by a reason or reasons prohibited by s340(1)(a) of the Act’.
His Honour found that both the Assistant Commissioner and the Acting Assistant Director were the ‘minds’ that led to the decision to terminate Mr Serpanos’ employment.
In justifying her findings, the Acting Assistant Director explained to the Court that she was satisfied that Mr Serpanos had engaged in the instances of sexual misconduct from the evidence presented to her and that his defamation action (and threatened action) against his colleagues was solely ‘vexatious’ and ‘unreasonable’ amounting to harassment. On the basis of these findings, the Assistant Commissioner explained that the termination of Mr Serpanos was the only appropriate outcome given it was a breach of the Code of Conduct.
On the basis of the evidence provided to him, Justice Snaden determined that:
- the conclusions that the Acting Assistant Director had drawn to and expressed in her report were conclusions that she “genuinely believ[ed]” were true;
- these conclusions were not based on the complaints made by Mr Serpanos;
- as the Assistant Commissioner was not aware of most of Mr Serpanos complaints, ‘it could not be said that any of them operated upon her state of mind’ when she decided to terminate him; and
- the Assistant Commissioner dismissed Mr Serpanos as she considered that he had breached the relevant code of conduct.
Justice Snaden determined that neither the Acting Assistant Director or Assistant Commissioner ‘actuated to engage in any conduct relevant to the dismissal because, or for reasons that included that, Mr Serpanos had complained about having been defamed’. Ultimately the ATO was found to not have been in breach of section 340 of the Act.
However, in his decision, Justice Snaden noted that the “failings” of the Acting Assistant Director’s investigation “should be remarked upon”. These failings included the Acting Assistant Director’s failure to put forward Mr Serpanos’ complaints to the relevant employees and canvassing evidence from ‘a wider field of witnesses than she did’.
How we can help
Disciplinary action decisions are often complex, multi-faceted and involve multiple people, particularly in larger organisations. The case shows that a ‘decision’ may be made by more than just the named decision maker. Unlawful motivations that actuate a decision can result in a contravention of the adverse action protections in the Act, even if not held by all those involved in the decision. It is important to seek legal advice for those decision making processes and identify ways in which legal risk can be mitigated.
For assistance with your organisation’s disciplinary processes, please reach out to our Workplace Relations team. Our team is well equipped to provide advice on your obligations and reviews of your internal policies and procedures.
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1 – [2012] HCA 32.2 – [2001] FCA 1804.3 – [2022] FCAFC 155.