Dealing With Staff Discipline

We aim to deliver Just, Redemptive Outcomes®

Based on a paper first presented at the CMA 2007 annual conference. Updated 30 June 2008.

Over the past five to ten years, managing the discipline of staff has become increasingly complex and difficult. Perhaps some of you might prefer the days of 1697, when it comes to disciplining staff. Back then things were much simpler for employers. In fact, in one court decision, the Chief Justice of an English Court gave employers a much wider ambit than Courts do now, when he commented as follows:

“If a master gives correction to his servant, it ought to be with a proper instrument, as a cudgel, and then if by accident a blow gives death, this would be but manslaughter. The same law of a school master. But a sword is not a proper instrument for correction, and the cruelty of the cut will make a malice implied.”

Clearly, the discipline of employees was a much easier prospect for managers in 1697. Now, however, things have become much more difficult and complex, and some employers would be forgiven for thinking there is no point in addressing under performance and inappropriate conduct of staff, given the risks associated with this.

In this session, I want to focus on some of the reasons why we need to get discipline of staff right, and the risks that can arise if we get discipline wrong. Following on from that, I’d like to provide some of the lessons that we have learned when dealing with discipline and employment law issues for our clients.

The Dangers of Getting It Wrong

Quite apart from the damage to the life of another, Christian witness and credibility, there are a number of dangers for employers if they discipline staff inappropriately. These failures can result in protracted litigation, with large legal fees to boot, and expensive awards for damages. Additionally, employers may find themselves facing an order to re-employ an employee who was unfairly or unlawfully dismissed.

Risk 1: When Policies Are Incorporated Into Contracts Of Employment And the Implied Duty to Provide a Safe Work Environment

The Contract of Employment

It needs to be remembered that the relationship of employer and employee is a contractual relationship. Generally, the relationship will be governed by a formal Contract of Employment, which may be a letter of offer, or a written contract. At other times, the contract may be purely verbal, with little or no written communications between the employer and the employee prior to the Contract of Employment commencing.

Ultimately, it is irrelevant whether the agreement between the parties is verbal or in writing. The fact remains that the parties are bound by a contractual relationship. The only issue for clarification is determining the terms and conditions of the employment. Clearly, a well written employment contract manages this.

The implication of this is that if a party were to breach the contract of employment, they might find themselves facing a claim for damages arising from the breach of contract.

In the past, the contract of employment has generally been well defined and addressed specific items, such as leave, salary entitlements, working hours, confidentiality, etc. However, recently the Court has been more inclined to extend the contract of employment, and incorporate additional terms and conditions.

One of the main difficulties with contracts of employment is that they will often incorporate various policies prepared by an employer. Many of you may use contracts that expressly incorporate these policies. These policies may refer to performance management processes, discipline or grievance procedures. They may also deal with Workplace Health and Safety, bullying and/or harassment.

Within these policies, an employer will often accept various obligations, as well as imposing obligations on employees. For example, an employer may promise to deal with an employee in a certain manner, or to deal with a complaint made by an employee in a certain way.

Nikolich v Sachs JB Were Services Pty Ltd

A recent case of the Federal Court of Australia shows the danger of incorporating policies into contracts of employment. In that case, Nikolich v Sachs JB Were Services Pty Ltd [2006] FCA784, an employee brought a claim against his employee for breach of contract.

The employee, Mr Nikolich, had been employed by Goldman & Sachs, a Financial Services business. He was employed in a professional financial role. Upon commencing employment, he was provided with an office manual. This office manual contained a wide variety of policies and procedures, including discipline policies and the management of grievances. They included various promises by the employer regarding the type of workplace that it would provide its employees and its commitment to safety within the working environment.

Unfortunately, things did not go well for Mr Nikolich. He was harassed by other employees, including his manager. He made a number of complaints to his employer regarding the harassment he was suffering, however, the manager failed to investigate the complaints. Mr Nikolich went on a period of sick leave, and his employment was eventually terminated.

Mr Nikolich made a claim alleging that his employer had breached his contract of employment, by failing to treat him in accordance with the provisions contained within the office manual. His assertion was that the office manual had been directly incorporated into the contract of employment. It should be noted that in this particular matter the office manual was not expressly incorporated by reference in the contract of employment.

His employer argued that the office manual was simply a lawful and reasonable direction by the employer to the employee, and that the employer did not have to comply with the promises it made within the manual.

The Court concluded that the office manual was incorporated into the contract of employment. In coming to that conclusion, the Court noted that the office manual had been provided to Mr Nikolich at the commencement of his employment, that the employer made a great deal of reference to the office manual as a reflection of their values and culture, and that the managers considered that the office manual was binding.

The implication of this was that, where the employer had failed to comply with the promises it had made within the office manual, it could be held to be in breach of the term of the contract. The judge commented as follows:

“The relevant contractual obligations [the office manual] are intended to provide peace of mind to existing and prospective employees. It must be taken to have been within the contemplation of the parties that, if the obligations were not fulfilled, the particular employee to whom the obligations were owed might become upset, stressed and disturbed. It is notorious that stress and disturbance of mind may lead to a psychological disability.”

The Court concluded that Mr Nikolich was entitled to compensation for the psychological condition he had suffered as a result of his employer’s breach of the employment contract. As compensation, the Court awarded Mr Nikolich a total payment of $515,869.

However, the Judge made the unusual additional step of reducing that sum to $465,800 if the employer did not appeal his decision. He justified this particular reduction on the basis that an appeal would further prolong Mr Nikolich’s psychological condition, and prevent him from an earlier return to work.

Update: Appeal to the Full Federal Court

Following the presentation of this paper, the Nikolich decision was appealed to the Full Federal Court. The Full Court’s decision was delivered on 7 August 2007.

The Court held that policies will generally only be “contractual” in nature if “a reasonable person in the position of a promisee (the employee) would conclude that a promisor (the employer) intended to be contractually bound by a particular statement.” In determining this, a Court will have regard to the text of the policy, the surrounding circumstances known to the parties and the purpose and object of the transaction.

Policies which use words such as “will”, “must” or “shall” when expressing promises suggest a contractual undertaking or promise. Conversely, policies which express statements as “aspirations” or “aims” will generally not meet this test.

The Court concluded that the statement: “JBWere will take every practicable step to provide and maintain a safe and healthy environment for all people”, embodied a contractual obligation and should be interpreted as being a term of the contract of employment.

The Court dismissed the appeal (although it upheld an ancillary appeal with regard to the order for legal costs awarded to Mr Nikolich).

Interestingly though, Chief Justice Black commented that there is a broad equivalence of the content of this statement with an employer’s common law duty of care to an employee, and that employment contracts which are silent regarding this obligation carry an implied term that an employer will take reasonable care to provide a safe place of work and a safe system of work. The Chief Justice commented that, whilst the contractual clause in the JBWere document may put this standard somewhat higher, it is not very much higher.

Accordingly, it seems that the implied obligation on an employer to provide a safe place of work and safe system of work will always supersede any “creative drafting” within contracts or policy documents that attempt to exclude employer liability.


Given the implications of this decision, employers are at significant risk where they fail to provide a safe place or work or a safe system of work. Claims by employees can be extremely costly, not to mention the legal costs associated with responding to a claim for breach of contract.

This decision is is indicative of a willingness of the judicial system to find ways to ensure greater fairness to employees.

Risk 2: Breaching a Workplace Agreement

For those employers who have entered into Workplace Agreements (whether under State legislation or Commonwealth legislation), they may have included performance management policies or discipline policies within the content of the workplace agreement.

A workplace agreement is a creature of statute, and that any breach of the workplace agreement will be prevented by statute. For example, under the Workplace Relations Act 1996, a breach of a workplace agreement is a civil penalty offence. The Court may award damages to an affected party, such as an employee.

A recent decision of the Federal Court, McAleer v The University of Western Australia (2007) FCA 52 addressed such a problem. In that decision, the employee was a professor at the University of Western Australia. The university commenced proceedings against him in relation to serious misconduct regarding sexual harassment. The university intended to review the employee’s conduct, and suspended the employee without pay pending that review.

The solicitors representing the employee wrote to the university, seeking further and better particulars regarding the allegations. The particulars provided to the employee were deficient, and the employee was unable to properly respond to the review panel until the particulars were elaborated upon.

Despite ongoing protestations from the solicitor representing the employee, the employer proceeded with the investigation and review. The employee then instituted proceedings in the Federal Court, claiming that the university had breached its agreement with him. He sought a penalty in relation to that breach.

The Court concluded that the university had breached the workplace agreement by failing to provide appropriate particulars to allow the employee to know the nature of the allegations against him. This was effectively a breach of the employee’s right to natural justice. Without knowing the full allegation that was made against him, he could not be expected to properly respond to that allegation.

The Court concluded that the breach was serious, and that a penalty was warranted in the circumstances. It ordered the university to pay $20,000 to the employee and restrained the university from taking any further action against the employee in the matter.

Again, this is a further warning for the need to ensure that employers get discipline right. In this particular instance, not only did the employer have to pay a substantial amount of damages to the employee, but it also incurred significant legal costs and was restrained from taking further action against an employee who may have committed serious misconduct.

Other Risks

There are other risks involved when employers get discipline of employees wrong, including breaching implied duties of good faith and mutual trust and confidence in responding to actions for unfair or unlawful termination of employment, workers compensation claims for stressed employees (particularly where the employer’s actions have been unreasonable and a gross failure to provide fairness) and allegations of defamation. These risks can also result in protracted litigation, legal costs and awards against the employer. Again, you can find yourself being forced to re-employ an employee who the Court determines has been unfairly terminated.

Because of all of these risks, it is important that the discipline of employees is carefully managed. We make the following recommendations for you when disciplining employees.

Use Caution When Incorporating Policies Into Contracts Of Employment

We generally recommend against directly incorporating policies into contracts of employment. Whilst we understand and appreciate the reasons behind incorporating policies into contracts of employment, and particularly the concern that an employer may not be able to rely upon a breach of policy when disciplining an employee, we consider that this is misconceived.

Policy requirements upon employees will generally only reflect what are common sense requirements. For example, the use of employer information technology equipment to access inappropriate websites is commonly understood to be an inappropriate form of conduct. Having a policy stipulating against this conduct and directly incorporating that policy into a contract of employment is probably unnecessary.

We are not saying that the policies should not exist. They should, and they should be complied with, and properly distributed to staff. However, we caution against directly incorporating the policies into the contract of employment.

Refer to Policies in “aspirational” terms

However, even if a clause expressly including policies is removed from the contract, this will not guarantee that the policies will not be expressly or impliedly incorporated into the contract of employment. The Courts may still find that the conduct of the parties in the lead up to, or at commencement of, the employment relationship, has impliedly or expressly incorporated the policies into the contract of employment.

For this reason, we suggest that you refer to policies as “reasonable lawful directions” and use language that expresses “aspirations” or “aims”, as opposed to “promises”.

However, this may not always be appropriate. For example, in the Nikolich decision, Chief Justice Black commented that, if the statement “JBWere will take every practicable step to provide and maintain a safe and healthy environment for all people” was to be viewed as an “aspiration” or “aim”, it would be “seen as an exercise in hypocrisy”.

Examine your Policies

We also recommend that employers carefully examine their policies, and ensure that any promises you make within the policy is capable of being complied with. In addition, regular audits of policy would be appropriate, to ensure that it is actually being complied with. It is pointless to have a policy if it is not applied as a matter of practice.

Ensure that you provide a safe work environment

Irrespective of any “clever drafting” of policies and contracts of employment, it is imperative that employers ensure that they provide a safe work environment. This includes ensuring that the workplace is free from harassment or bullying, and that grievances or complaints are dealt with fairly and in a timely manner.

Suggested Content Of “Reasonable Lawful Directions” On Discipline

We generally recommend that our clients keep their discipline policies simple and capable of being complied with.

The main thing is to ensure that the discipline policy provides for natural justice. I’m sure that is a term that you’ve heard before and are familiar with. Natural justice effectively requires four key elements:

  1. Providing the employee with full details of the allegation against him or her, including full particulars and any evidence upon which the employer intends to rely upon;
  2. Providing the employee with an opportunity to respond to those allegations;
  3. Taking that response into account when determining whether the allegation is substantiated; and
  4. Providing the employee with an unbiased decision maker.

Many of the discipline policies that we have reviewed have failed to differentiate between the “guilt” phase and the “sentencing” phase. It needs to be remembered that where an employee is alleged to have engaged in some form of misconduct, that employee should be provided with an opportunity to respond to the allegations leveled against him or her. That response relates to the guilt or otherwise of the employee.

However, the response may not address the appropriate penalty that should be imposed upon the employee, particularly where the employee is denying the allegation. For this reason, natural justice should also be provided to an employee during the “sentencing” phase. This will provide the employee with an opportunity to respond separately to the appropriate penalty.

In our experience, it is good practice to seek to separate the two phases by at least a short passage of time.

Finally, you should ensure that your discipline policies are kept as simple as possible. The more simple a discipline policy is, the more likely it is that you will properly apply it when in the middle of a disciplinary procedure. Complicated policies or procedures will only make it easier for a disgruntled employee to show a breach of the policy.

We generally suggest a step-by-step process in the policy, as a decision maker can easily review the policy and quickly determine the appropriate action to be taken.

In addition, you should also ensure that the policy allows for the process to be truncated, particularly where there are allegations of serious misconduct. For this reason, you might want to consider not stipulating time periods for investigations and responses.

Confidentiality of the Process

Often a discipline policy will provide assurances regarding confidentiality. In particular the policy might provide that the employer will maintain the confidentiality of the allegations throughout the discipline process.

However, this is a promise that is not always achievable, or even appropriate in the circumstances. For example, in some instances it may be appropriate that the allegations be disclosed to certain persons, such as other persons within the leadership team, counseling or welfare advisers, or statutory departments where the allegations involve harm against children.

For this reason, we generally recommend that you include an “out” clause in the policy allowing for the appropriate release of information where necessary.

Other Issues


You should be aware that, during the discipline process, defamatory comments can be made. Such defamatory remarks may be contained within investigation reports, or may be verbal comments made between the parties. Often, defamatory material is impossible to avoid, given the nature of the allegations itself.

Throughout Australia, all the states and territories have codified the law of defamation.

What is defamation? Well, words that tend to lower a person in the estimation of right-thinking members of society may be considered defamatory (see, for example, Sim v Stretch [1936] 2 ALL ER 1237). It is irrelevant whether the words are verbal or in writing.

If a report (whether verbal or written) includes defamatory material, the publisher may be liable for an action in defamation.

The Defamation Act 2005 (Qld) has codified the law of defamation, and provides a number of defences to defamation. The defences that may be relevant to a disciplinary investigation include:

  • Justification: where the publication is substantially true;
  • Qualified interest: where the recipient of the information has an interest in receiving the defamatory material, and the defendant’s (investigator’s) conduct is reasonable. What is reasonable depends on the circumstances, including by having regard to the public interest, the seriousness of the defamation, whether it is suspicion or proven fact and whether the defamed person was provided with natural justice; and
  • Honest opinion: where the statement is opinion (as opposed to fact), is in the public interest and based on proper material.

To minimise the risk of defamation, we recommend the following during the discipline process:

  • Ensure that reports or conferences keep any defamatory material to a minimum;
  • Where defamatory material is included, ensure that the defamed person has been provided natural justice (note that potential defamatory material is not just restricted to the employee, but may also include comments about the complainant witnesses or the employer;
  • Ensure that the report or conference is kept as “factually accurate” as possible;
  • Ensure that ‘opinion’ is kept to a minimum and, where included, is based upon proper material: and
  • Seek to remain calm and avoid emotionally charged language, generalisation or overreaction.

We also suggest that your managers and investigators are warned of the risk of defamation, and the suggested action they should take to minimise the risk.

Dealing With an Employee On Sick Leave

Often employers will find themselves having difficulty with employees, who will then go on extended periods of sick leave. For example, an employee may have performance management issues in the way in which they are performing their duties. Employers will attempt to manage these problems. During this process, other issues may arise, the employee may feel that they are being harassed, and the employee ends up going on extended periods of sick leave. Generally, they will claim that they are under extreme stress, depression, or other psychiatric illness.

The difficulty of this is that an employer will have limited options for dealing with the employee whilst they are on sick leave. For example, under the Workplace Relations Act 1996, dismissing an employee for a reason that includes temporary absence from work because of illness or injury will be unlawful dismissal. Often these sick employees won’t be on sick leave, but will be on paid worker’s compensation leave which can extend for large periods of time.

In a recent decision before the Federal Magistrates Court, that Court concluded that, where an employee is on paid worker’s compensation leave, that will be paid sick leave within the meaning of the Workplace Relations Act. Whilst a decision of a Magistrates Court carries little authority in higher courts, it is still a guide to future judicial interpretation, particularly where no appellate court decision has been made. Accordingly, where an employee is on extended leave which is being managed under Worker’s Compensation Law, an employer who decides to terminate that employee’s employment may be liable for a claim for unlawful dismissal, unless the employer can show that the termination was not for a reason including sick leave absences.

Accordingly, if you are considering terminating an employee who is on sick leave, you should approach with caution. You will need to ensure that there is sufficient evidence to support the fact that you are terminating that employee’s performance for a reason that does not include a temporary absence from work for illness. The evidence that you would need for this will include records of poor performance, warnings given in relation to that poor performance, performance improvement processes that have been put in place, etc.

Where you have not properly managed an employee’s performance from the beginning, and have this documented evidence available, it will be extremely difficult for you to terminate an employee on sick leave.

Suspension of Employees

What about if you have an employee that is the subject of a serious criminal proceeding, with the matter still pending in Court? What if the very nature of the offence strikes at the heart of the employment relationship?

This is a very difficult situation for an employer to be in, and you should take immediate legal advice. Some of the problems inherent in this issue include:

  • Whilst the criminal and employment proceedings are separate, the employee, particularly if they are defending the allegations, will not be in position to respond to a disciplinary action.
  • Unless a Workplace Agreement or Contract of Employment specifically provide for suspension without pay, the employer cannot suspend without pay. Even if suspension without pay was provided for, further legal advice should be taken before acting to suspend the employee.
  • If the employer did want to end the employment relationship before the criminal proceedings are finalised, it might face a claim for unfair termination of employment.

It seems to us that, if the employer is able to demonstrate sufficient detriment if it delayed the disciplinary proceedings pending the outcome of the criminal proceeding, this might justify acting quickly to suspend the employee. Minor criminal offences may not be sufficient detriment, however, criminal allegations that strike at the very heart of the employment relationship might be sufficient.

For this reason, it is important that your Contracts of Employment clearly stipulate the importance of lifestyle to ongoing employment. Legal advice should be sought in this regard.

Take Home Tips

  • Schedule a “Review/Chat” with each staff member annually. Keep notes and a file for each employee.
  • Put warnings in writing.
  • Keep policies simple – make step by step guides and make sure you can comply with them.
  • Make sure your work environment is safe.
  • Get advice early.
  • Get someone else in leadership involved with you — a multitude of counselors —