Redundancy: 3 Pitfalls For HR To Avoid

An (Almost) $300K Claim – The Story of Pizza, Beer, and Toyota

The District Court of NSW has decided on a case involving a termination of employment mere days before a significant redundancy payment was owed to a long-standing employee (20 years). Ultimately the Court found in favour of the employee awarding almost $300,000.00 in damages.

The case of Sherry v Toyota Motor Corporation Australia Limited (TMCA) [2020] NSWDC 827 (23 December 2020) demonstrates several pitfalls for Human Resources in dealing with misconduct allegations around credit card expenses when mixed in with legitimate workplace entitlements such as redundancy pay.

In this case, the employee had worked for Toyota for almost 20 years and was in his last work trip was found by Toyota to have breached expense policies because he:

• Purchased a pizza and a pint of beer on the employer’s credit card and subsequently provided a slice of pizza to his son
• Booked a larger hotel room than the employer believed was necessary
• Prolonged his stay for another night for personal reasons

The employee in response says that:

• He purchased the pizza and ate the pizza but gave the leftovers to his son
• The larger hotel room was necessary, not because of any grandiose notions for his last work trip but a more practical reason because accommodation was limited due to the Australian Open being hosted in Melbourne at that time
• The extra night stay was only due to the airport curfew cutoff and he believed he would not arrive back in time

The employee says the credit card expense issues were a misunderstanding (not made easy by the ineffectual way he explained his actions to his employer during the initial meeting) but the real reason for the dismissal was to prevent payment of redundancy pay of $379,268.00. Keep in mind he had been an employee for 20 years and was terminated 1 day short of the day he was to be paid.

Unfortunately for Toyota, the District Court of NSW found that the Employer was in breach of contract and utilised the credit card issues as an opportunity to terminate the employment of the employee under the guise of serious misconduct. This was found on several bases but mainly that the threshold of serious misconduct was not reached and the narrative provided by Toyota was to fit into a brief of termination of employment as opposed to using more reasonable endeavours. Here are 3 pitfalls we can look at to learn from this case.

Pitfall 1 – HR Need to Be Careful Not to Craft a Story Prior to Termination of Employment

In this case, the HR manager who was at the centre of the investigation and ultimately the decision was given short thrift by the Judge because:

• They referred to conversations and discussions in evidentiary material which supported their version but provided no or inconsistent contemporaneous notes to back this up
• They were not credible (and even commented as “poor”) as a witness including being inappropriately amused and evasive
• A decision was made – maybe even prejudicial against the employee before him responding to the allegations

The root of the problem which led to the above and really what was a pretty damning reflection on how the matter was handled internally is that the allegations were initially put to the employee verbally and then notes typed up with a prejudged view that the expenses at the heart of the matter were nefarious in nature.

To be clear, Courts (and the Fair Work Commission and any other state-based Commission) dislike prejudged or predetermined outcomes. If you term documents of this nature you run a very high risk such as Toyota of falling victim to a breach of contract claim – and a successful one at that.

Solution – one way to combat this is to provide a show-cause letter initially, directing the employee to provide written responses to the allegations. This provides information for the decision-maker to utilise this information appropriately. If this was done correctly, this employee would likely have shown contrition and potentially even a reasonable and coherent explanation without the rigmarole of litigation and court proceedings to find this out.

Pitfall 2 – Significant Employee Entitlements Should Not Be Messed With Unless There Is a Very Good Reason

The employee was days away from a significant redundancy entitlement of more than $290K (net). In the end, the employee was awarded less but only because of mitigation as opposed to any concerted arguments or effort from the employer – $276,661. Many will say there is no common sense in firing an employee for what was quite minor conduct issues (if any) however these types of decisions are made time and time again. The blind vision by some decision-makers to predetermine an outcome becomes obvious once it is borne out in evidence.

This case showcases the flaws of HR if they mess with significant employee entitlements without very good grounds to do so.

Solution – Be careful. Colouring any investigation into misconduct with predetermined outcomes will lead to problems in litigious proceedings. Weigh up the legal risks before proceeding.

Pitfall 3 – Unfair Dismissal and General Protections Are Not the Only Claims in Play

Several employers have some understanding of the issues surrounding unfair dismissal. Some might even have some understanding of general protections. But many other claims can also be brought which can lead to significant damages, reputational damage, and significant costs in time and money such as:

• Breach of contract
• Human rights commission complaint
• Underpayment of wages application
• Dispute application
• Wrongful termination

Solution – obtaining legal advice (not only attracts privilege) but also provides advice around risks and importantly, options and practical recommendations.

Acknowledgement:  Written by Jonathan Mamaril, Director, and reproduced with the permission of NB Lawyers – Lawyers for Employers