International corporations can face an unfair dismissal case when terminating executives: Keenan v Cummins South Pacific Pty Ltd

US-based multinational Cummins Group was forced to reinstate a senior executive who was dismissed from the company a year after he was promoted to regional leader. Cummins group cited the reasons for Mr Keenan’s dismissal as being performance issues.

Earlier decision

In a decision made in 2017, Judge Wilson found that, contrary to what Cummins Group had stated, Mr Keenan’s dismissal was a result of complaints made to the company’s senior HR executives in relation to problems he had with a regional HR leader regarding insubordination.

Judge Wilson found that Mr Keegan had been “chastised like an errant schoolboy” by being placed on a performance improvement plan by HR executives when he exercised his workplace rights to make complaints about the HR leader. This action was undertaken despite Mr Keenan being the regional HR leader’s superior. The improvement plan included criticism of Mr Keenan’s colour choices and inconsistent use of font sizes in presentations, which Judge Wilson found to exhibit a “high degree of micromanagement” that was “scarcely appropriate … to a person of Mr Keenan’s seniority”. The plan also urged him to include the HR leader as a “business partner” when making business decisions.

It was also found that the HR leader had failed to obey reasonable instructions made by Keenan as her superior and had made false accusations against him.

Judge Wilson clarified that the correct course of action for company executives to take in this scenario would have been to discipline the regional HR leader by requiring her to comply with Mr Keenan’s legitimate orders. Instead, it was found that the executives had “put their heads in the sand” and “failed to act properly in response to Mr Keenan’s implores for help.” Indeed, the Court found that the executives had embarked on a “charade” investigation which was essentially aimed at gathering evidence to support a pre-existing intention to dismiss him.

Penalty decision

In a penalty decision this month, Judge Wilson rejected a number of arguments put forward by Cummins Group to ultimately hold that Mr Keenan should be reinstated to his original position.

The main arguments were as follows:

  1. Reinstating the regional leader to his former position would be “inappropriate and embarrassing”.
  2. Cummins group had since appointed someone else to Mr Keenan’s position. The company contended that it would be unfair to dismiss that person.
  3. If reinstated, Mr Keenan would be in direct contact with an HR executive with whom he had developed strained relations and disclosed his distrust for.
  4. If reinstated, Mr Keenan would retire in approximately four years, which was likely to cause “disruption”.

Judge Wilson dismissed all four arguments. It was held that Mr Keenan could not be denied reinstatement merely because an employee was installed into the position from which he was unlawfully removed. Neither was it sufficient that a more senior employee, known to be distrusted by Mr Keenan, would be in contact with him. Judge Wilson noted that the executive’s behaviour would have to comply with good corporate governance and workplace conduct according to Australian law and the Fair Work Act, meaning that reinstatement should not necessarily lead to a poor working relationship. It was ordered that the parties had 48 hours to provide minutes reflecting his judgement and the reinstatement of Mr Keenan to his former position.

It was further contended by Cummins Group, in deciding compensation for back pay, that they would likely have dismissed Mr Keenan within 6 months after he was actually dismissed anyway. Evidencing this claim, they cited Mr Keenan’s employment contract, which entitled them to dismiss him “if done in accordance with his employment contract or for no reason”. They also pointed to a self-assessment conducted by Mr Keenan where he rated himself 10/100 in keeping a positive attitude, not dominating discussions and communicating with respect.

Judge Wilson held that were it not for the inappropriate behaviour by the HR executives, it was likely that Mr Keenan’s employment would not have ended within six months, but would have continued until the date of judgement. As such, it was ordered that Cummins Group pay considerable amounts in back pay, long service leave, superannuation, compensation and penalties.

Key takeaways for employers

  • Grievance handling should be kept separate of organisation politics.
  • Businesses should ensure compliance with the Fair Work Act. This includes appropriate behaviour and conduct between employees. Courts are willing to apply significant penalties to ensure general deterrence of businesses from non-compliance.
  • Where employees are terminated as a result of inappropriate behaviour, Courts are willing to reinstate them to their prior position. It will not be an argument that a company’s own operations and organisation of its own staff will be negatively affected by the reinstatement.
  • Senior executives must have a robust mechanism in place for dealing with grievances, especially where they concern employees they have pre-existing relationships with.

If you are part of an international corporation that does not have a local human resources department and you have executives on a salary of more than $135,500, call JFM Law to learn more about your obligations when terminating executives.