This month we look at a recent matter in the Federal Court which resulted in one of the largest financial penalty, compensation, and costs orders made within the general protections jurisdiction.

Following two key decisions in the matter, which traversed complex legal issues, including constitutional conflicts between federal and state legislation, Justices Rares ordered the Hawkesbury Race Club to pay more than $2.25 million to its former marketing manager.

Justice Rares found that the employee had been subject to bullying from the CEO that “effectively destroyed” her life, and which was calculated to force the employee out of her position by creating an unbearable work situation. This award was in addition to workers’ compensation payments which had already been received by the employee, and which totalled more than $550,000.

As well as providing an instructive lesson on the difference between unreasonable management action and bullying, the effect of the decisions could be significant for employers – as it potentially allows employees to escape (to a degree) the compensation caps found in state-based workers’ compensation laws.

Background

The employee in question was first engaged by the Hawkesbury Race Club (‘Club’) in 1991 and was, at the time of her dismissal in 2017, the Club’s longest-serving employee. After initially being engaged as a contractor, the Club retrospectively converted her engagement to employment in 2013. The employee worked across multiple roles in her time at the Club, including in the position of sponsorship and marketing manager which she commenced in 2005 and remained in until 2017.

The sponsorship and marketing manager position had a remuneration structure that included a $25,000 annual retainer, 10% commission on the value of financial and in-kind sponsorship benefits the Club earned as a result of the employee’s efforts, superannuation and some expenses such as mobile phone and fuel costs. Notwithstanding the relatively complex remuneration structure, the Club never committed the terms of the employee’s employment to writing.

The employee undertook her role successfully under the Club’s former CEO, but issues began to arise when the Club appointed a new CEO in 2016, Mr Rudolph. Mr Rudolph quickly objected to the employee’s remuneration package, worth approximately $180,000 per year at the time. It was alleged that Mr Rudolph then began to micromanage, bully and harass the employee including:

1. interrogating the employee over her duties, responsibilities and the expenses she incurred, which had been an established practice over many years in her senior position;
2. restricting the employee’s autonomy and authority in her role;
3. humiliating and embarrassing the employee in front of colleagues, including by discussing private contractual arrangements in front of others in the workplace;
4. delaying and ultimately denying a bonus owing to the employee because Mr Rudolph was “irritated” by the employee’s “demands”; and
5. setting substantial tasks for the employee, with unrealistic deadlines.

One of the examples of Mr Rudolph’s “dogged interrogation” about “trivial expenses” was a lengthy examination into a $15 parking expense which was incurred so that the employee could attend a client’s premises, which she had regularly attended for years. Justice Rares rejected assertions from Mr Rudolph that he did not make a “big deal” about the expenses and said Mr Rudolph was clearly making a “mountain … out of the molehill”.

After the employee emailed Mr Rudolph and complained about his treatment of her, he responded with an email inviting her to a meeting to discuss her work performance. He also invited her to bring a support person. The employee subsequently provided a medical certificate and commenced a period of personal leave from which she ultimately did not return. On commencing this personal leave, Mr Rudolph wrote to the employee and informed her that her payment during the sick leave would revert to her base salary instead of receiving the commissions she was entitled to.

Following around 6 months of failed demands for the payment of outstanding commissions, the employee wrote to the Club and notified them that she accepted their failure to pay her commissions when they were due as a repudiation of her employment contract and on the basis that it evinced an intention by the Club not to be bound to the employment contract.

The General Protections Claim

The employee filed a claim under the general protections provisions of the Fair Work Act 2009 (‘FW Act’) alleging the Club took adverse action against her because:

1. Mr Rudolph injured or threatened to injure her in her employment, by sending her the email inviting her to a performance review meeting, because she has exercised her workplace right to make the complaint in her earlier email; and
2. Mr Rudolph caused the Club to withhold payment of commissions, firstly, because she exercised a workplace right to take personal leave, and secondly, because she complained about Mr Rudolph.

The first limb of the employee’s claim was defended by the Club on two primary bases. Firstly, that the employee failed to specifically plead the presumption in s 361(1) of the FW Act – that the accused bears the onus of proving that they did not take action against the relevant person for a particular prohibited reason – and that the employee failed to lead convincing evidence that the Club took the action for the reasons alleged. Secondly, the Club argued that the complaints made by the employee in her email to Mr Rudolph were not sufficiently connected to an identifiable entitlement (to constitute the exercise of a workplace right).

In response to the employee’s second claim, the Club argued that Mr Rudolph made the decision to withhold commissions because he believed that the employee had not taken the bookings for the sponsors that she was claiming commissions for.

All of the Club’s arguments were rejected by the Federal Court in the first relevant decision handed down in December 2021. Justice Rares dispelled any suggestion that the presumption created by s 361(1) required specific pleading by the applicant to be enlivened, noting that once a person has made an allegation that action was taken for a reason or with an intent that would constitute a contravention, he or she has no onus to prove it. The Club’s second argument failed on the basis of well-established precedent that there need not be an “instrumental source” of employee entitlement and instead the complaint can be founded on a source of entitlement which can include where the employer has failed to provide for an entitled benefit. Justice Rares also accepted the employee’s submission that an alternate source of entitlement found in the complaint to Mr Rudolph was the failure by the employer to provide safe systems of work.

The Club’s defence of the second claim was rejected by Justice Rares as a result of factual findings, with clear contradictions in the parties’ negotiations for payment of the commissions, in which they acknowledged her entitlement to at least some of the commissions, and concessions made by Mr Rudolph in court, including when he was shown the calculation of the commission which was withheld and acknowledged that the employee had, in fact, taken bookings for those particular sponsors.

The Workers’ Compensation Issue

In the December 2021 decision, Justice Rares accepted evidence from medical experts supporting the employee’s psychological injuries and found that the employee was injured in her employment and entitled to compensation under the Workers Compensation Act 1987 (NSW) (‘WC Act’) and under s 545 of the FW Act.

Importantly, the finding included that the injury arose from the conduct that had been accepted as contravening the FW Act, notwithstanding that it also arose because of the negligence or other tort of the employer, for which damages are regulated by Part 5 of the WC Act.

Justice Rares made significant and damning findings against the Club which are summarised in the following paragraph:

 “In my opinion, the Club’s conduct, through Mr Rudolph, effectively destroyed [the employee’s] life. She cannot work and, as the joint experts agreed, is permanently incapacitated from doing so because of Mr Rudolph’s and the Club’s conduct. That conduct caused a very serious psychiatric illness that may never be cured, or ameliorated to any significant degree. That injury occurred in no small part because [the employee’s] breaking point was Mr Rudolph’s treatment of her on 9 and 10 October 2016. That included his reaction in his 10 October email that he sent to her because she exercised a workplace right. He subsequently acted to drive the nail home later, as I found on the second s 340 claim, by persisting in his bullying conduct throughout the balance of [the employee’s] employment, ignoring the Club’s contractual and statutory obligations to her and taking adverse action against her because she had both taken sick leave and exercised her workplace right to make a complaint about his behaviour.”

(Emphasis added)

In what subsequently gave rise to a constitutional conflict between the federal FW Act and the stated-based WC Act, Justice Rares found that provisions of the WC Act regulated the assessment of the employee’s claim for compensation under s 545 of the FW Act.

This constitutional issue was the subject of a second decision which was handed down in May 2022. The Club argued that if the employee was allowed to recover damages under the FW Act then this would constitute a recovery of damages in respect of an injury that it was liable to pay compensation for under the WC Act. Accordingly, it sought orders that the employee’s claim for damages arising because of the Club’s contraventions of the FW Act be dismissed because she would be doubly compensated.

These arguments were dismissed by his Honour, who ultimately found that the provisions of Part 5 of the WC Act have no operation to assess the compensation for loss suffered by the employee as a result of the Club’s contravention of the general protections provisions in the FW Act.

While this meant that the award of damages was not subject to the restrictive terms of the WC Act which would have capped the compensation that could be awarded to the employee, Justice Rares did apply the common law rule against double compensation and reduced the total award by the amount of workers’ compensation payments already received by the employee.

The total award to the employee, including compensation for past and future economic and non-economic loss, breach of contract, pecuniary penalties for breaches of the FW Act, and legal costs, was $2,255,393.

Key Take-aways

There are three major take-aways from this case:

1. Employers need to be aware that overbearing conduct from a manager or supervisor toward an employee can easily cross the line between reasonable management action and bullying. Actions that might subjectively be argued as either reasonable or unreasonable management action, such as micromanagement, unnecessary scrutiny and reductions in duties and authority, can easily form an unreasonable pattern of conduct (and adverse action for the purposes of the general protections provisions).
2. In general protections claims, the employer usually has the burden of disproving an allegation from an employee that the alleged adverse action was taken for a protected reason or with a particular intent. Accordingly, employers must ensure that where they are making employment related decisions which might adversely affect an employee, they need to ensure that they keep proper and accurate records of the basis of those decisions.  Where an employer fails to keep proper records of decision-making processes, and so cannot disprove an allegation made by an employee, this can have significant implications for the employer.
3. If an employee suffers an injury in the workplace for which they can be compensated under workers’ compensation laws, the compensation that a court can award will be capped by the restrictions contained in each state’s workers’ compensation legislation. However, the effect of this decision is to potentially ‘uncap’ that compensation if the cause of the injury also constitutes a breach of the FW Act.

Employers should not hesitate to contact one of Aitken Legal’s employment lawyers for advice on management of employees.