s.394 - Application for unfair dismissal remedy

Application for an unfair dismissal remedy - whether employee dismissed on employer's initiative - whether valid reason for dismissal - restraint clause - duty of fidelity and good faith - whether dismissal harsh, unjust or unreasonable

• [1] Ms. Cheryl Della Marta has applied for the remedy of financial compensation for her alleged unfair dismissal under Part 3-2 of the Fair Work Act 2009 (Cth) (Act) against her former employer, CBK NSW Pty Ltd (respondent). The respondent objected to the application on the basis that the applicant was not dismissed as that term is defined in s.386 of the Act but voluntarily resigned her employment on 15 May 2025. Alternatively, the respondent said that in the event the applicant was dismissed, there was a valid reason for her dismissal and that the dismissal was not otherwise harsh, unjust or unreasonable[1] and therefore not unfair.

• [2] The respondent's objection was heard together with the substantive application on 25 August 2025. It was not in dispute that the applicant is a person protected from unfair dismissal and I am satisfied on the material that the applicant was so protected.[2] For the reasons that follow, I have concluded that the applicant was dismissed from her employment with the respondent on 15 May 2025. I have also concluded that the dismissal was not unfair and that the application for a remedy for unfair dismissal must therefore be refused.

• [3] The applicant was engaged as an account manager and team leader of a team of bookkeepers that serviced a group of clients of the respondent. The applicant claimed that following the acquisition of another company by the respondent, the number of clients that the team was required to service increased substantially. The applicant complained about the increased volume of work and the capacity of the bookkeepers that were assigned to her team. The respondent raised concerns with the applicant about what they said was the applicant's declining performance. By March 2025 the respondent had commenced formal processes to deal with what they regarded as issues with the applicant's performance. A meeting was held between the applicant and two partners of the respondent and a letter was sent to the applicant setting out key performance indicators that the applicant was expected to meet.

• [4] On 14 May 2025 the applicant was issued with a letter headed 'first formal warning'. The letter said that a review of her performance was to be undertaken and completed by 20 June 2025. The applicant was distressed by the letter. She took sick leave in the afternoon but then subsequently met with one of the respondent's partners, Mr. Takakura. The two spoke for approximately 3 hours on the evening of 14 May 2025. The terms upon which the applicant might leave the business were discussed.

• [5] Prior to the meeting between the applicant and Mr. Takakura on 14 May 2025, the applicant had been in discussions with another business, Deconstruct Solutions Pty Ltd (Deconstruct), about the applicant becoming employed by Deconstruct. Deconstruct was a client of the respondent. The applicant had applied for a position with Deconstruct and been sent a copy of a proposed contract of employment between herself and Deconstruct by Deconstruct on 14 May 2025. The applicant told Mr. Takakura in the meeting on 14 May that Deconstruct was hiring a finance manager and that she was thinking about applying for the position.

• [6] On 15 May 2025 at 12.54pm the applicant sent Mr. Takakura and email accusing the respondent of unfair treatment and unreasonable workplace expectations. The email went on to say:

That said, I am prepared to proceed with a handover under the following conditions:

1. My employment is considered terminated effective today, with 4 weeks' notice paid in lieu. The final payment will be made within 7 days.
2. The restraints clause in my contract is formally waived and removed.

• [7] At 1.54pm on 15 May 2025 the applicant emailed Deconstruct saying:

I'm very excited about this opportunity. I'm currently in discussions with Wellington regarding my termination date, as they are reluctant to see me go. I expect to have a resolution this afternoon and will keep you updated as soon as I have more clarity.

• [8] It was accepted by the respondent that at 2.45pm on 15 May 2025 the applicant's access to the respondent's information technology system was removed by the respondent and at 2.50pm on that day the other employees of the respondent were notified by the respondent that the applicant had resigned her employment.

• [9] At 3.08pm on 15 May 2025, Mr. Takakura responded to the applicant's email by further email disputing the claims of unfair treatment and stating as follows:

In saying that, I am prepared to accept your resignation effective immediately and also agree to paying out your 4 weeks' notice as time in lieu which will be paid within 7 days. Any accrued leave entitlements will also be paid out at the same time. As for your second request, in relation to removing your employment restraints being waived, I have spoken to our Head Office in Perth and they have advised that we are unable to remove any restraints from our employment agreements. These restraints are in place to protect our business and therefore I have been directed to decline this request.

As your resignation is effective immediately we will remove your access from our systems and client files straight away. We will also require you to return any property of Carbon's such as keys, laptops, client files, etc, by close of business today as part of the usual resignation process.

.... Please respond if you are in agreement with the above. I am happy to discuss any points in more detail so please let me know.

• [10] At 4.43pm on the same day, Deconstruct emailed the applicant to say that the offer of employment had been withdrawn. At 5.27pm that day, the applicant emailed Mr. Takakura as follows:

I have never given you my resignation. We are still in negotiation.

Since you have already initiated it. I will take it and seek further legal advice.

• [11] Section 386(1)(a) of the Act provides that a person has been 'dismissed' if the person's employment with his or her employer has been terminated on the employer's initiative. The respondent submitted that when the circumstances were considered in their entirety, the applicant initiated the termination of employment and that a reasonable person would understand from the conduct of the parties and the surrounding circumstances that this was the case. The respondent pointed to the evidence showing that the applicant was actively seeking alternative employment and her 'persistent and proactive' attempts to end her employment despite the respondent's wishes that the applicant remain employed by them but improve her performance. The respondent said that the applicant's acceptance of Mr. Takakura's email on the afternoon of 15 May was the point at which the applicant initiated the termination. They said the applicant initiated the termination rather than seeking to continue to negotiate the terms of her departure.

• [12] The respondent also submitted that the evidence showed that had the respondent not taken the action that it did, the applicant would clearly not have remained employed with the respondent because the applicant had arranged alternative employment and pointed to the evidence showing that the applicant commenced working for another business on 19 May 2025.

• [13] The respondent's submissions on this point must be rejected. It is true that the applicant was seeking to negotiate an exit from the respondent. The discussions about that exit commenced on the evening of 14 May 2025. The applicant put forward the proposed terms of the exit in writing on 15 May. The terms were not agreed to by the respondent. Instead, the respondent rejected the proposed terms and purported to treat the applicant's correspondence as a resignation which it itself then 'accepted'. The correspondence in reply from Mr. Takakura on 15 May 2025 was in my view, action that directly and consequentially resulted in the termination of the applicant's employment.[3] The relationship was not left voluntarily[4] by the applicant at that point, particularly given the terms of the departure were not agreed. It was brought to an end by the respondent.

• [14] It is speculative to suggest that the applicant would not have remained employed by the respondent in any event because she had been negotiating alternative employment. Had the respondent not taken the action that it did but simply rejected the applicant's claim for a release from the restraints clause in the contract, the applicant may have concluded that she was constrained by that clause and was unable to take up an alternative offer. Her employment in that case may well have continued in spite of the issue that had prompted her to seek a position elsewhere.

• [15] It must also be noted that even before Mr. Takakura sent this response, the respondent had taken steps to bring the employment relationship to an end. The respondent had disabled the applicant's access to the respondent's information systems and advised other staff members that the applicant had resigned. The respondent's actions were either intended to bring the applicant's employment to an end or had the probable result of bringing the employment to an end.[5]

• [16] Having regard to the circumstances as a whole, a reasonable person in the position of the applicant would have understood from the respondent's conduct that the employment relationship had been brought to an end by the respondent. The applicant was entitled to treat the respondent's correspondence and other actions as a termination of her employment. I conclude that the applicant was dismissed from her employment on the respondent's initiative for the purposes of s.386(1)(a). In order to determine whether the dismissal was unfair, I next consider whether that termination was harsh, unjust or unreasonable.[6]

Valid reason- s.387(a)

• [17] The respondent did not rely on the applicant's alleged poor performance prior to termination as a reason for the dismissal. However, the respondent contended that there was a valid reason the applicant's dismissal and that the applicant was dismissed for serious misconduct, namely covertly negotiating to work for an existing client of the respondent. The respondent referred to and relied on the restraints clause in the applicant's contract of employment. The respondent also contended that the applicant acted in breach of the implied duty of good faith and fidelity in that she intentionally and secretively acted in direct conflict with her employer's interests in circumstances which would and did cause a significant loss of revenue to the respondent. In this latter respect, the respondent relied on the evidence that showed that on 19 May 2025, shortly after the applicant's departure, Deconstruct cancelled their contract with the respondent, citing the need to have someone directly engaged full-time on site, rather than contracting with the respondent to provide services.

• [18] The respondent submitted that they could rely on matters constituting a valid reason where those matters were not known to it or relied upon when an employee is dismissed.[7] That is the case in circumstances where the facts were in existence at the time the decision to dismiss was made. Whether the decision can ultimately be justified will depend on the circumstances.[8]

• [19] The applicant's contract of employment with the respondent includes a restraints clause. On its face the clause prohibits the applicant from doing certain things such as canvassing, enticing away or dealing with a client of the respondent or to be involved in a business which is the same or similar to the business of the respondent. The clause restrains the applicant from conduct during the 'restraint period', which is defined as being from the date of termination of the agreement until certain specified periods depending on the nature of the conduct. It does not by its terms purport to cover conduct prior to the termination of the contract. In those circumstances and assuming the validity of the clause, I do not consider that the respondent is able to rely on a breach of the express terms of the restraints clause as a valid reason for the termination.

• [20] However, the evidence shows that the applicant was not entirely honest with Mr. Takakura in the discussion that occurred between them on 14 May 2025. In this respect I am satisfied that the applicant told Mr. Takakura that she was 'thinking of applying' for a position with Deconstruct at a time when she had already applied some 9 days before the conversation and had been told that an employment contract would be emailed to her for her acceptance at the time of the conversation. The applicant also took active steps while still employed by the respondent to ensure that the respondent was not aware that she was proposing to move to Deconstruct and that an employment contract had been drafted to give effect to this. I also accept Mr. Takakura's evidence that in early May 2025, Deconstruct had requested additional on-site services from the respondent and that a proposal including costings, had been drafted by Mr. Takakura and sent to the respondent. The applicant was aware that this was the case and in fact expressed interest to Mr. Takakura in being the person from the respondent who provided those additional services, a proposal that Mr. Takakura rejected. Armed with the knowledge, obtained in the course of her employment, that Deconstruct was seeking additional services, that it was in the respondent's commercial interests to supply those services and that the applicant would not be permitted to provide the services as an employee of the respondent, the applicant applied directly for a position with Deconstruct.

• [21] Subject to any valid restraint clause, employees are generally free to engage in work in competition with their former employer after their employment with that employer has ended. The duty of fidelity and good faith applying during an employment relationship is not so strict as to prevent employees from pursuing their own interests or require them to subordinate their interests entirely to those of their employer. In that event it is not unusual that employees might take some preparatory steps in relation to their future employment whilst still engaged by their current employer. Whether those steps cross the line and involve a breach of a duty of good faith and fidelity will involve a close assessment of all the circumstances, including the employee's position and responsibilities, the nature of the employer's business, the steps taken by the employee and the actual or potential impact of the employee's actions on the interests of the employer.[9]

• [22] In Blyth Chemicals Ltd v. Bushnell the High Court described the scope of the implied common law duty of fidelity in the following terms:

Conduct which in respect of important matters is incompatible with the fulfilment of an employee's duty, or involves an opposition, or conflict between his interest and his duty to his employer, or impedes the faithful performance of his obligations, or is destructive of the necessary confidence between employer and employee, is a ground of dismissal...[10]

• [23] The implied duty can proscribe conduct of an employee which undermines their employer's business by, for example, cultivating,[11] soliciting[12] or procuring the employer's customers, or diverting the employer's business relationships.[13] In Digital Pulse Pty Limited v Christopher Harris and Ors[14] Palmer J said:

21 The obligations imposed by the duty are not coterminous with the employee's normal working hours: they govern all the activities of the employee, whenever undertaken, which are within the sphere of the employer's business operations and which could materially affect the employer's business interests. Whether a particular activity could materially affect the employer's business interests is a question of fact and degree.

22 The duty of loyalty requires that an employee not place himself or herself in a position in which the employee's own interest in a transaction within the sphere of the employer's business operations conflicts with the employee's duty to act solely in the employer's interest in relation to that transaction. A fortiori, an employee may not take for himself or herself an opportunity within the sphere of the employee's business operations without the employer's fully informed consent.

• [24] The extent of the duty owed is likely to be greater in the case of more senior employees. In Weldon and Co v Harbinson[15] Bryson J said:

Many skilled workers and manual workers can be regarded as having done all that is required of them if they work according to their ability for stipulated hours; what they do at other times is not their employer's concern. For employees who do professional work or highly skilled work such as the defendant in circumstances where the employer's interests are in the employee's hands and a high degree of loyalty to the employer's interests is necessary, the duty of good faith and fidelity can operate to limit what the employee does out of ordinary working hours, and to prevent or limit competitive behaviour.

.... In the present circumstances where the plaintiff was conducting a small public accountancy and tax agents' practice with only two persons working as accountants in it, and the defendant had responsibility for direct contact with many clients without close supervision, I am of the view that the defendant's duty required that she should not conduct a rival business, however large or small, which would or could divert paying clients who otherwise might bring their business to the plaintiff and obtain the defendant's services in that way. This would be the expectation of reasonable people who applied their minds to the circumstances of a small accountancy practice. The expectation is heightened by the long period of the defendant's employment, her substantial remuneration and the great extent to which the plaintiff's affairs and dealings with clients were entrusted to her.

• [25] It has also been held that an employee contravened the implied term when seeking to be released from a post-employment restraint clause where they failed to disclose a proposal to join a competitor of their employer immediately after termination, albeit in circumstances where such a failure was a contravention of an express obligation to disclose matters known to the employee which would be a detriment to the employer.[16]

• [26] It is not usually[17] the case that there is a breach of duty in simply not reporting a job offer from a client or resigning to take up a position. However, in my view the conduct of the applicant in the present circumstances was inconsistent with her implied obligation of fidelity and good faith. The applicant knew that Deconstruct required additional services from the respondent. The applicant obtained that knowledge because she held a senior position within the respondent company that involved direct engagement with the respondent's clients. She knew she was in a position to supply those services herself and that the respondent was not prepared to allow her to do that as an employee of theirs. The applicant could reasonably have inferred that if she were to become directly engaged by Deconstruct, the services would likely no longer be required of the respondent and that this would result in lost earnings for the respondent. The applicant also misled the respondent as to her status vis a vis Deconstruct, telling them that she might apply for a position when she had already applied over one week earlier. The applicant did not tell the respondent that the reason she was seeking a release from the restraints clause was because she was very likely to accept an offer of employment that had already been made to her by the respondent's client. Had the respondent been aware of those matters it is likely that their approach to the separation proposal would have been different. I conclude that the applicant's conduct amounted to a breach of the implied duty and that the respondent therefore had a valid reason for the termination of the applicant's employment.

Whether the applicant was notified of that reason and opportunity to respond to any reason - 387(b) and (c)

• [27] The applicant was not notified of the reason because the respondent only became aware of the reason after the dismissal took effect. The applicant therefore did not have an opportunity to respond to the reason before the dismissal took effect. These are ordinarily factors that weigh in favour of a finding that the dismissal was harsh, unjust or unreasonable. The lack of knowledge by the respondent of the reason for the dismissal at the time it occurred is attributable for the most part to the conduct of the applicant in this case. The lack of notice or an opportunity to respond followed from those circumstances.

Any unreasonable refusal by the employer to allow the employee to have a support person present to assist at any discussions relating to dismissal - 387(d)

• [28] There was no request by the applicant for a support person and consequently no refusal. This is a neutral consideration.

If the dismissal was related to unsatisfactory performance, whether the employee had been warned about that performance before dismissal.

• [29] The respondent disavowed the proposition that any dismissal of the applicant was performance-related. This is not relevant to the present circumstances.

Degree to which the size of the respondent's enterprise and the absence of dedicated human resource management specialists or expertise would be likely to impact on the procedures followed in effecting the dismissal - s.387(f) and (g)

• [30] The respondent is not a small business and has human resources expertise. It relied on that expertise in taking the steps which it did on 15 May 2025.

Other matters - s.387(h)

• [31] I have taken into account all of the evidence in relation to the surrounding circumstances, including the evidence relating to the situation in the applicant's workplace leading up to and at the time of the termination, and the manner of the applicant's termination. I have noted the applicant's length of service with the respondent and the evidence and absence of evidence in relation to the applicant's performance prior to and after the performance management processes were put in place. I also note that although the applicant was dismissed by the respondent, she was actively seeking to leave her employment with the business, albeit on her own terms and had initiated the discussions about her departure. The respondent was not pressing for the applicant's departure but merely an improvement in her performance.

• [32] On balance, and taking all of these matters into account, I am not satisfied that the dismissal was harsh, unjust or unreasonable. In that event, I conclude that the applicant was not unfairly dismissed[18] and that no remedy is available to the applicant.[19]

• [33] If I am wrong in the conclusion expressed above, I note that the applicant sought compensation as a remedy. Compensation can only be awarded where the Commission is satisfied that reinstatement is inappropriate and if the Commission considers that an order for compensation is appropriate in all the circumstances.[20] Here, reinstatement was not sought and would be plainly inappropriate. Compensation would also not be appropriate given the circumstances. In any event, the applicant commenced an engagement as a contractor through a corporate entity with the respondent's former client on 19 May 2025. She has performed work on that basis since then. The company has been paid for the work performed for the client. The payments exceed the amount that the applicant would have received had she remained employed with the respondent. It is highly unlikely that any award of compensation would follow in those circumstances.[21]

Mr Catchpole, solicitor of Edge Lawyers, with permission, on behalf of the respondent.

[1] Section 385.

[2] Section 382 and see Exhibit R2, Annexure WT1.

[3] Mohazab v Dick Smith Electronics Pty Ltd (No 2) [1995] IRCA 645 (29 November 1995), [(1995) 62 IR 200 at p. 205]. See also Khayam v Navitas English Pty Ltd t/a Navitas English [2017] FWCFB 5162 at [75(2)] and Pawel v Advanced Precast Pty Ltd Print S5904.

[5] Barkla v G4S Custodial Services Pty Ltd [2011] FWAFB 3769 at para. 24, [(2011) 212 IR 248

[6] See ss. 385 and 387.

[7] Stephanie Muir Ridge v Mr Alex Yates [2025] FWCFB 42 at [40].

[8] Lane v Arrowcrest Group Pty Ltd (1990) 27 FCR 427 at 456 (Von Doussa J).

[9] Weldon and Co v Harbinson [2000] NSWSC 272 at [26] and Manildra Laboratories v Campbell [2009] NSWSC 987 at [81].

[10] [1933] HCA 8; (1933) 49 CLR 66 at 81-82 per Dixon and McTiernan JJ.

[11] Charltons CJC Pty Ltd v. Fitzgerald (No. 2) [2013] NSWSC 958 at [12]- [13].

[12] Plus One International Pty Ltd v. Ching (No 3) [2020] NSWSC 1598 at [488]; Cutler v. Derwent Howard Media Pty Ltd [2011] FCA 939 at [107].

[13] Schindler Lifts Australia Pty Ltd v. Debelak [1989] FCA 311; (1989) 89 ALR 275 at 300.

[14] [2002] NSWSC 33

[15] [2000] NSWSC 272 at [26]- [27].

[16] Coope v. LCM Litigation Fund Pty Ltd [2016] NSWCA 37; (2016) 333 ALR 524 at [87]- [92].

[17] Warman International Ltd v Dwyer (1992) 46 IR 250 at 259 and see Coope op cit at [124]-[125].

[18] Section 385.

[19] Section 390.

[20] Section 390(3).

[21] Section 392(2) and (3) and Sprigg v. Paul's Licensed Festival Supermarket [1998] AIRC 989; (1998) 88 IR 21.

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