Lawyer, Emily Haar deciphers the lessons for employers served up in the recent Federal Circuit Court decision of Amponsem v Laundy (Exhibition) Pty Ltd [2014] FCCA 2206.

If you have been to Wollongong, it is possible that you have experienced the Northgong Hotel’s “world famous schnitty”. The Northgong Hotel Bistro may now become infamous due to the schnitzel scam committed within its kitchen by former head chef Kobina Amponsem.

Mr Amponsem was employed as head chef for the Northgong Hotel Bistro in March 2008. He was employed by Laundy (Exhibition) Pty Ltd, which operates a number of pubs.

In 2009, Mr Amponsem told his employer that there was a problem with the schnitzel supplier for the bistro. He was tasked to find a new supplier for the Northgong, and other pubs in the Laundy group. He was told that the price could not be any more than $2.80 per schnitzel.

Mr Amponsem started bulk-buying schnitzels from a business his wife owned for between $1.80 and $1.90 per schnitzel. He then invoiced Laundy between $2.80 and $2.90 per schnitzel, and kept the $1 profit.

In April 2010, Mr Amponsem also started bulk-buying quiches for the hotels in the Laundy group from his wife’s business.

The Northgong Hotel was aware that the quiches were coming from Mr Amponsem’s wife’s business, but was not aware that the schnitzels were sourced from his wife’s business, nor was it aware that Mr Amponsem was taking secret profits.

The secret schnitzel profits continued until early 2011, when the duty manager of the Northgong Hotel was handed an invoice for 10 quiches by Mr Amponsem, but only five arrived. The discrepancy was investigated and it became apparent that of the 122,510 schnitzels purchased by Mr Amponsem, 9,465 were missing. Mr Amponsem had similarly invoiced Laundy for 324 quiches, but only 111 had been sold, and the discrepancy could not be explained by stock on hand or wastage.

On 1 March 2011, Mr Amponsem met with senior management from the Laundy group to discuss the discrepancy. Mr Amponsem was told that the discrepancy showed that he was either incompetent or a thief, and he was advised to either repay the money or to deliver the missing schnitzels. He was placed on suspension.

Mr Amponsem was summarily dismissed on 4 March 2011. As of that date, he had accrued annual leave worth $11,305. This was not paid by Laundy, on the basis that Mr Amponsem dishonestly caused Laundy to suffer financial loss. In other words, Laundy attempted to set off the annual leave payment against the loss it suffered as a result of Mr Amponsem’s conduct.

Mr Amponsem commenced proceedings in the Federal Circuit Court against Laundy in an effort to recover his accrued annual leave. He also sued for a bonus he alleged was owed to him, although the Court held that no bonus was owed. Laundy counter-sued for $139,577, being the loss suffered as a result of Mr Amponsem breaching his contractual duty of fidelity and fiduciary duties owed to Laundy. Laundy claimed that Mr Amponsem breached his contractual and fiduciary duties in three ways, by failing to:

  • disclose the $1 profit he was making on the schnitzels, and that his wife owned the business supplying the schnitzels
  • deliver $20,622 worth of schnitzels as ordered and paid for by Laundy
  • deliver $5,910 worth of quiches as ordered and paid for by Laundy.

Laundy’s claims were based on the common law duty of an employee to be loyal to their employer, being the duty of fidelity, and the equitable duty of fiduciaries to act in the best interests of their principal.

The duty of fidelity requires employees to work under their employment contract for the benefit, and only for the benefit, of their employer. The duty also prohibits employees from undertaking certain conduct, including entering into transactions in which there is a real conflict between the employee’s interests and the interests of their employer, and using their position as an employee to make a gain for themselves or another person, to the employer’s detriment.

It should be noted that although all employees are required to comply with the duty of fidelity to their employer, not all employees are considered fiduciaries. A fiduciary relationship most commonly arises where a person assumes a position that carries with it the capacity to exercise certain powers on behalf of another, who is vulnerable to harm if those powers are misused. Usually only very senior executive-level employees are considered fiduciaries.

 

Judge Manousaridis concluded that Mr Amponsem was a fiduciary, because he had been requested to acquire schnitzels and quiches on behalf of the Laundy group. Both his duty as a fiduciary and his duty of fidelity required him to not pursue a gain for himself while undertaking the task of acquiring schnitzels and quiches.

The Court concluded that by purchasing the schnitzels from his wife’s business for between $1.80 and $1.90 and on-selling them to Laundy for between $2.80 and $2.90, without disclosing that fact to Laundy, Mr Amponsem breached both his contractual duty of fidelity and his equitable fiduciary duties. It did not matter whether Mr Amponsem believed he was acting in good faith.

The Court concluded that the non-delivery of schnitzels claim was made out, but that the non-delivery of quiches claim was not. The total loss assessed was $84,143.60.

The fact that Laundy suffered financial loss at Mr Amponsem’s hands did not absolve it from paying him his accrued annual leave. The obligations to pay annual leave under the Fair Work Act 2009 (Cth) could not be set off against the schnitzel swindle.

As part of the Court proceedings however, Judge Manousaridis determined that in the interests of justice it was better to make one order, requiring Mr Amponsem to pay Laundy $84,143.60 less his annual leave entitlement of $11,305.

This meant that in making an underpayment claim, Mr Amponsem ended up more out of pocket (by $72,838.60) than he would have been if he did not pursue his unpaid annual leave.

These circumstances are very specific, but there is some general guidance which employers can take away from the case:

  • Regardless of the reason for termination, employers must still pay out any accrued but untaken leave entitlements  under  the  Fair  Work Act. Only in certain circumstances can employers set off entitlements against other debts. Whilst the issue did not arise in this instance, civil penalties can result where there is a failure to pay an employee their accrued annual leave entitlements on termination.
  • Employees have a duty of fidelity to their employer, requiring them to act in their employer’s best interests, and, for example, includes choosing suppliers on the basis of how it will benefit the employer, rather than personal connections and interests. Where the duty of fidelity is breached, employers have recovery options.
  • Ensure that employer policies (such as conflict of interest and procurement policies) do not just exist, but are implemented by direct managers in the workplace.
  • Whilst not all employees will be said to be a fiduciary, employees who are given great trust and responsibility may be said to owe greater duties to their employer. This may provide employers with additional avenues of recovery in circumstances of misconduct.