The New South Wales (NSW) Court of Appeal recently handed down its decision in Bibby Financial Services Australia Pty Limited v Sharma (2014) NSWCA 37 confirming Mr Sharma’s entitlement to the payment of a “special bonus” following the termination of his employment.

PCS successfully acted for Mr Sharma in both his proceedings before the Supreme Court of New South Wales and the recent appeal proceedings brought by his former employer, Bibby Financial Services Australia (“Bibby”), in the NSW Court of Appeal. Both decisions highlight the critical importance of undertaking workplace investigations and ensuring that any subsequent decisions made with respect to employees are based on a sound and justifiable decision making process.

Sharma v Bibby Financial Services

The Facts

Proceedings commenced in the Supreme Court arose from the termination of Mr Ashley Sharma’s employment on the grounds of serious misconduct. Mr Sharma was employed as a Sales Director of Bibby from 2002 to 2009. Shortly before Bibby terminated Mr Sharma’s employment allegations were made that Mr Sharma had engaged in sexual harassment including inappropriate touching, inappropriate comments and unwelcome attention. As a result of the allegations Bibby commenced an investigation. The NSW Supreme Court found that a number of features of Bibby’s investigation were remarkable and demonstrated that the investigation was seriously and fatally deficient.

Despite Bibby concluding that Mr Sharma had engaged in conduct that was “unbecoming of a director”, none of the witnesses corroborated the allegations, only one witness gave “some small support” to the allegations and most remarkably, Mr Sharma was not interviewed, the allegations were not put to him and at no time prior to the termination of his employment was he given an opportunity to respond. The Court also noted Bibby’s failure to follow it’s own grievance procedure as a further feature of the investigation that demonstrated its inadequacy.

“Critical importance of undertaking workplace investigations”

Despite the lack of evidence supporting the allegations, Mr Sharma was called into a meeting on 4 February 2009 and advised that his employment was to be terminated on notice. Mr Sharma was invited to consider resigning and sent a deed of release with an offer of notice and a pro-rata amount of his “special bonus” valued at $1.4 million, which was due to be paid shortly after the termination of his employment. Following discussions regarding Mr Sharma’s termination, which ultimately broke down, Bibby then purported to terminate Mr Sharma’s employment for serious misconduct and Mr Sharma was not paid notice or his special bonus.

The Court’s view

At first instance, and reaffirmed on appeal, Bibby was held to have elected to terminate Mr Sharma’s employment with immediate effect at the meeting on 4 February 2009 and therefore, could not later elect to terminate Mr Sharma’s employment for serious misconduct. The Court held that Bibby terminated Mr Sharma’s employment in full knowledge of the allegations yet choose not to rely on them, preferring to terminate Mr Sharma’s employment on notice to “save some unpleasantness”. As a result, Mr Sharma was entitled to six months’ notice (his contractual notice period) and payment of the special bonus. The Court of Appeal upheld this finding concluding that the effective date of termination was 4 February 2009 and:

“…what occurred after 4 February 2009 is that Bibby became impatient with Mr Sharma’s failure to accept the offer contained in the draft Deed of Release, which provided for substantial payments to be made by Bibby to Mr Sharma, and then engaged in a purported cl13.5 process in an attempt to disqualify Mr Sharma from any entitlement to the Special Bonus or payment in lieu of notice.”

With respect to Bibby’s argument that regardless of a finding that Mr Sharma was terminated on notice, Bibby was entitled to rely on Mr Sharma’s conduct as constituting serious misconduct justifying termination for cause, this argument was rejected. On appeal the Court held Bibby did not have a valid right of termination. The Court held that Mr Sharma was entitled to procedural fairness before any decision was made by Bibby to terminate his employment for cause, relying upon the allegations of serious misconduct. The Court further held that Bibby was “…obliged to make its final decision in good faith taking into account the factual material before it…”, including Mr Sharma’s response. After considering the specific allegations against Mr Sharma the Court held that two of the allegations had not been proved and the remaining three, even if proved “…did not amount to serious misconduct that would warrant dismissal.”