A recent case highlights the increased use of adverse action provisions and the spectre of personal liability and penalties for managers, writes Gordon Williams
The Federal Circuit Court recently decided that a portrait photography business constructively dismissed an employee, Ms Sagona, for reasons including her pregnancy, and that their conduct amounted to adverse action in breach of the Fair Work Act 2009. The Court awarded compensation of around $174,000 and imposed penalties totalling $61,000. These included fines of $8000 each against the husband and wife who owned the business. This is one of the higher monetary awards for discrimination in Australian history, and importantly, the owners of the business are jointly liable for the $174,000.
What were the facts in this case?
The facts of the case are quite complex, involving a broad range of allegations which were disputed by the business owners. Sagona had been employed for 12 years, the last 10 as a photographer. In August 2012, she announced she was pregnant. Four weeks later she resigned, alleging constructive dismissal. After announcing she was pregnant, according to Sagona, she was told she could not do photo shoots or have sales appointments beyond a time because it was not a “good look” for customers to see a pregnant woman in the business. The business owners denied this.
Subsequently, the business also decided that Sagona (and the business owners’ son who also worked in the business) should be subjected to financial targets (in effect reducing their take home pay) and work longer hours. Sagona was also directed to take long service leave before she commenced parental leave, and her request to return part time was refused. Ultimately, she resigned because of the alleged conduct. Sagona alleged that the business took “adverse action” against her in breach of the Fair Work Act 2009 because she had exercised various “workplace rights” (including refusing to work unreasonable hours) and because of her pregnancy.
Despite the business owners’ denials and their explanations for why they acted as they did (including their intention to retire and their financial concerns), the court decided that part of the reason for their decision was Sagona’s pregnancy and exercise of workplace rights. As a result, the court found that Sagona had been subjected to adverse action in breach of the Act.
Why are the findings in this case important?
This case is one of many adverse action claims that have resulted in significant awards of compensation – and this particular award is one of the largest for discriminatory conduct. A large part of the award was compensation for lost income, as Sagona lost her comfortable salary when she resigned and went into her own business. She also received $10,000 for distress and humiliation.
The case is also important because of several other aspects. Cases such as this would previously have been brought as discrimination claims. However, adverse action is fast becoming the claim of choice – in part because of the reverse onus of proof (meaning the employer has to prove it acted only for lawful reasons – which can be difficult) and also because employees can allege multiple breaches (e.g. in relation to different workplace rights).
As this was brought as an adverse action claim, Sagona also sought penalties under the Fair Work Act 2009 (as she was entitled to do). Importantly, the court decided that those penalties should be paid to her personally, rather than consolidated revenue. Those penalties totalled $61,000 – a significant amount in its own right.
The third aspect is the fact the business owners were personal defendants, as persons knowingly involved in the contraventions. Not only did they have penalties imposed against them, but they were jointly ordered to pay the compensation of $174,000, together with the business. It is important to appreciate that managers are increasingly being joined as personal defendants and, if they are found liable, will have penalties imposed on them personally. This is happening more and more often in adverse action matters, but is also true of prosecutions by the Fair Work Ombudsman and other types of contraventions such as for a breach of the National Employment Standards, modern awards or enterprise agreements.
Lastly, arguments from the business owners that their business was small and in financial difficulty, cut no ice with the court when it came to the penalty.
Top 6 takeaways for HR:
- Adverse action claims are on the increase, so decision makers need to understand the risks and the legal framework.
- Decision makers will have to prove they did not take account of any unlawful reasons (eg “workplace rights”) in making their decision, or take adverse action because of any of the discriminatory grounds (eg pregnancy).
- Ideally, you will limit the number of decision makers, as they will all be required to give evidence about the reasons for their decision.
- It is important to educate the decision makers so they understand what they can and cannot rely on.
- Good documentation is important, as it can help demonstrate that a decision was based only on lawful reasons.
- Managers and directors can be personally liable if they are knowingly involved in a breach of the Fair Work Act 2009.
