An employee has successfully argued on appeal that his employer had an obligation to act reasonably in relying upon a right to summarily terminate his employment. The NSW Court of Appeal upheld the bank executive's wrongful termination claim although, the executive received only a small fraction of the $9m plus damages claimed. The NSWCA found that, despite the wrongful termination, the employer bank would likely have terminated for convenience, with notice, in any event and that damages should be assessed on that basis.

In 2012, the executive was one of a handful of recipients of an internal email about changes to his bank's policies. A couple of weeks later, a journalist contacted the bank to say that he had been posted (in a handwritten envelope) a copy of the email, which turned out to have been doctored.

The bank investigated the leak and engaged a handwriting expert who concluded that it was "highly probable" that the writing on the envelope belonged to the executive. The executive denied that the writing was his or that he had sent the doctored email. He asked for a full copy of the expert's report and an opportunity to provide his own report in response. The bank declined and terminated his employment without notice for serious misconduct.

The executive brought proceedings seeking over $9m in damages. At first instance, the Supreme Court rejected the claim, finding that the executive was responsible for posting the email to the journalist, and that summary dismissal was permitted on the basis that, in the bank's opinion, serious misconduct had occurred.

On appeal, the NSWCA reached different conclusions both about the extent to which the decision to dismiss could be reviewed, and about the merits of that decision. The NSWCA found that:

  • Even though the executive's employment contract allowed summary termination if "in the opinion of [the bank]" he engaged in "serious misconduct", the contract required that misconduct had objectively taken place, and that the bank act reasonably in reaching its opinion.
  • The bank had been unreasonable in limiting its investigation to the recipients of the email and refusing to provide the expert's report or allowing the executive to get advice on it;
  • The bank's handwriting expert had "misapplied principles of fundamental importance" in reaching her conclusions; and
  • Accordingly, the bank was not entitled to summarily terminate the executive's employment.

However, the NSWCA's wrongful termination finding did not lead to the damages claimed by the employee. It was accepted that, whilst the bank had no grounds to dismiss for serious misconduct, it was entitled to terminate on notice "for any reason" and would likely have done so in any event. Accordingly, the executive's damages were limited to the value of his notice period, plus interest, being approximately $110,000 (as opposed to the over $9m sought).

Obligation to act reasonably in arriving at an opinion about misconduct

Whilst an employer may have a right to terminate summarily, this decision suggests that an employer must read into that right an obligation to act reasonably. Acting reasonably in arriving at a view about whether misconduct has occurred may include, for example, following internal investigation procedures (even where those procedures are not contractual). Acting reasonably will also extend to a reasonable assessment of available evidence, including where relevant expert evidence.