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Allens Arthur Robinson

Focus: Workplace Relations

3 December 2009

In this issue: we look at an employee's resignation in breach of contract; a company policy regulating activities performed outside work; restraining employees from using confidential customer lists after their employment ends; the introduction of random drug and alcohol testing to meet occupational health and safety obligations; and the NES, which commence on 1 January 2010.

Employee's duties continue despite resignation

In brief: Employers can hold departing employees responsible for complying with their employment duties when resigning in breach of contract. Lawyer Rebecca Campbell reports on a Supreme Court of New South Wales decision.

How does it affect you?

  • Resignation by an employee in breach of contract does not terminate the employment contract if the employer does not accept that resignation.
  • An employer may direct an employee to return to work if it has kept the employment contract on foot.
  • While the direction itself is unlikely to be enforceable, an employee's refusal to return to work may be a fresh breach of contract, triggering other rights that may be enforced.
Background

Tullett Prebon (Australia) Pty Ltd employed Simon Purcell, a broker, on a contract with a minimum fixed term of two years. Less than one year into the contract, Mr Purcell resigned and commenced employment with a competitor. Tullett Prebon refused to accept Mr Purcell's resignation and successfully restrained him from working for the competitor (under restraint provisions in the employment contract). (See our report of September 2008.)

Tullett Prebon then placed Mr Purcell on 'gardening' leave for the six-month restraint period allowed by the court, then directed Mr Purcell to return to work in accordance with his employment contract. Mr Purcell instead recommenced his employment with the competitor. Tullett Prebon argued that this was a fresh breach by Mr Purcell, entitling it to terminate the employment contract and claim liquidated damages under an express term of the employment contract.

Decision

The court found that:

  • having refused to accept the resignation, Tullett Prebon could treat the contract (and its two-year term) as operative and binding;
  • Tullett Prebon was entitled to issue a notice requiring Mr Purcell to return to work;
  • Mr Purcell's failure to comply with the notice was a fresh breach of the employment contract; and
  • because the contract had a liquidated damages clause for breach, Tullett Prebon was entitled to those damages.

Mr Purcell argued that Tullett Prebon had no intention of taking him back and that the notice was not genuine. However, Mr Purcell never tested that proposition, despite 'ample opportunity' to obtain legal advice, and the court assumed that he made a conscious and informed decision not to comply with Tullet Prebon's direction.

The court ordered Mr Purcell to pay $503,100 in liquidated damages (plus interest and costs) to Tullett Prebon, for his repudiation of the employment contract.

While this case involved a fixed-term employment contract, the decision may also offer some assistance to employers faced with employees on open-ended contracts departing without proper notice. Traditionally, employers have found this situation to have no easy remedy, because loss from the employee's breach is hard to prove, and liquidated damages clauses are not often used. However, it may be that if the employee leaves in these circumstances and moves to a competitor, they are in breach of their duty to the employer while the contract subsists. This may provide the employer with some 'teeth' to restrain the employee, particularly if the contract provides for lengthy notice.

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Employees' personal activities are valid grounds for dismissal

In brief: Employees may be dismissed for activities outside their employment if there is a genuine connection with the workplace.1 Special Counsel Rowan Kelly and Law Graduate Michael Cottee report.

How does it affect you?

  • Employers are entitled to have policies that constrain the activities of employees outside working hours if those activities have a sufficient connection to the workplace.
  • Employers should ensure policies are clearly communicated to employees, so that they are aware of the scope and the consequences of a breach.
Background

Mr Kolodjashnij worked for Lion Nathan Pty Ltd as a process worker in its packaging department.

A company policy prohibited 'alcohol related behaviour out of work hours that has the potential to adversely affect Lion Nathan's reputation and credibility as a producer and marketer of alcoholic beverages committed to promoting the responsible use of alcohol'.

Mr Kolodjashnij was charged with driving under the influence of alcohol (his blood alcohol content was 0.154). This occurred outside working hours and was not in the course of his employment. Mr Kolodjashnij notified the company of the charge and, following a series of meetings with management, the company terminated Mr Kolodjashnij's employment on the basis that he had breached its responsible drinking policy.

Mr Kolodjashnij applied for reinstatement, claiming that the decision to terminate his employment was harsh, unjust or unreasonable.

Findings

The Australian Industrial Relations Commission dismissed Mr Kolodjashnij's application. The Commission highlighted the utility of employment policies designed to protect the legitimate interests of employers, but noted that not every breach of a particular policy will provide a valid ground for termination.

The enforceability of such a policy depends on the following factors:

  • the policy must be both lawful and reasonable – regulation of employees' conduct outside work hours will be endorsed only if it supports the employer's legitimate interests;
  • an employer must communicate the terms of the policy to its employees; and
  • a breach of the policy must:
    • have a sufficient connection with the employment; and
    • cause actual, or give rise to the risk of, damage to the employer's legitimate business interests.

The Commissioner was satisfied that the company, as a manufacturer of alcohol, had a legitimate interest in ensuring that its employees did not use its product in a manner which:

  • was contrary to law;
  • might bring the product into disrepute; or
  • could support a case for greater restriction or prohibition on sales.

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Restraining misuse of client lists

In brief: Former employees can be restrained from using customer lists confidential to their former employer, even though the information in those lists is readily available from public sources.2 Senior Associate Meriel Smith and Law Graduate Sarah Hampton report.

How does it affect you?

  • Employees should be made aware that their employer's customer contact databases are confidential, and that they must maintain confidentiality after their employment ends.
  • A suitably-worded Deed of Release signed by an employee on termination of employment can provide additional protection from unauthorised use or disclosure of confidential information.
Background

While employed by Prime Creative Media Pty Ltd, Ms Vranjkovic created a database of contacts for use at work, compiling information from business cards and other sources. Shortly after Ms Vranjkovic resigned, Prime's Managing Director discovered that Ms Vranjkovic had been contacting Prime's clients and soliciting their business, and suspected she had made unauthorised copies of its databases.

Prime demanded that Ms Vranjkovic return any copies made of its databases. Prime then commenced proceedings and sought an injunction to restrain Ms Vranjkovic and her new employer from using Prime's databases to canvass or solicit business from its clients.

Decision

Justice Ryan granted a temporary injunction, pending a full hearing of the dispute. The court accepted that Prime's databases contained confidential information, notwithstanding that the information in those databases could be readily accessed from public sources.

Justice Ryan noted that the courts will not restrain a former employee from using information gained from their employment, if it forms part of the former employee's general stock of knowledge, skill or expertise. However, a compilation of information made by an employee may be confidential. The obligation to maintain the confidentiality of that information may be breached if a former employee subsequently discloses or uses that information in an unauthorised manner.

Justice Ryan found that Prime's databases were confidential due to the convenient arrangement of the contacts in a form not readily accessible outside Prime.

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Random drug and alcohol testing justified

In brief: Caltex is free to proceed with random drug and alcohol testing at its Kurnell Refinery in New South Wales, following an application for Fair Work Australia to deal with a bargaining dispute under section 240 of the Fair Work Act 2009. Lawyer David Batten reports on the recent decision.3

How does it affect you?

  • Employers may be justified in introducing random drug and alcohol testing in the workplace to meet their occupational health and safety obligations.
  • For employers in high-risk industries it may not be necessary to undertake a specific risk assessment before introducing such a policy.
Background

Caltex Refineries (NSW) Pty Ltd and Caltex Lubricating Oil Refinery Pty Ltd (together, Caltex) sought to introduce provisions into a proposed enterprise agreement for random drug and alcohol testing of employees. The employees, represented by the Australian Workers Union and the Australian Marine and Power Engineers (together, the unions) objected to the proposed provisions, and submitted that tests should only be carried out on a 'for cause' basis.

Evidence led by the unions demonstrated that very few incidents involving drugs or alcohol had occurred over the refinery's 37-year history, and that no specific risk assessment had been carried out.

Decision

Senior Deputy President Hamberger held that the introduction of random drug and alcohol testing at the refinery was justifiable. His Honour referred to the 'absolute' duties imposed on Caltex by the Occupational Health and Safety Act 2000 (NSW), requiring Caltex to obviate any risk – not just those that are 'reasonably foreseeable'.

He also emphasised the significant hazards associated with the refinery and the severe consequences that might eventuate if an accident did occur. In light of this, his Honour found that a formal risk assessment was not necessary.

Orders were made that Caltex should implement a drug and alcohol policy that included provisions for random drug and alcohol testing, subject to a number of safeguards, including:

  • the policy should reflect Fair Work Australia's decision, and be prepared in consultation with the unions;
  • Caltex could not unilaterally revise the policy;
  • a positive test must be validated by a Medical Review Officer; and
  • the company's sick leave policy should apply to employees who needed time off for drug or alcohol-related problems.

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National Employment Standards

In brief: The 10 National Employment Standards will commence on 1 January 2010. Senior Associate Meriel Smith provides us with an update and a reminder.

How does it affect you?

  • As we reported in June 2008,4 employees in the federal system will have minimum entitlements prescribed by the 10 National Employment Standards (NES). The NES cannot be modified or excluded5 unless expressly permitted by the NES.
  • The NES will apply to both award-covered and award-free employees.
  • 'Default rules' will apply to employees who are not covered by an award or an enterprise agreement.
  • The NES will introduce some important rights such as extended parental leave, flexible work arrangements, redundancy entitlements and community service leave.
  • If an employer breaches the NES, a claim may be brought in the Federal Court, or eligible state or territory court.6
  • A contravention of the NES is not an offence, but will be subject to a civil penalty.7
  • A court may order the payment of up to 60 penalty units by an individual found to have contravened the NES, and up to 300 penalty units by a body corporate.8
  • Modern awards and enterprise agreements will include provisions regarding the settlement of disputes concerning the NES.9
Comment

Employers should make sure they understand the new obligations and be ready to accommodate the changes they bring.

Footnotes
  1. Nick Kolodjashnij v Lion Nathan T/A J Boag and Son Brewing Pty Ltd [2009] AIRC 893.
  2. Prime Creative Media Pty Ltd v Vranjkovic [2009] FCA (14 September 2009).
  3. Caltex Australia Limited v Australian Institute of Marine and Power Engineers, The Sydney Branch; The Australian Workers Union [2009] FWA 424 (19 October 2009).
  4. See Focus: Workplace Relations June 2008.
  5. Chapter 2, Part 2-2, Division 1 to 12 Fair Work Act 2009 (Cth).
  6. Section 546(1) Fair Work Act 2009 (Cth).
  7. Sections 44(1) and 549 Fair Work Act 2009 (Cth).
  8. Sections 546(2) and 539(2) Fair Work Act 2009 (Cth).
  9. Section 44, Note 2 Fair Work Act 2009 (Cth).

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