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Representation: |
T Arnold QC, CC Inglis ; DG Dewar |
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Abstract: |
This was an application by the Department of Inland Revenue for leave to appeal against an Employment Court decision which upheld an Employment Relations Authority decision reinstating the respondents to their positions with the Department on the grounds that their dismissal was unjustified. The respondents were long-serving employees of the Department of Inland Revenue (“the Department”). They were well regarded, and had good service records. Their normal duties involved processing tax information for members of the public, and for that purpose, the respondents had access to the appellant Department’s tax information system. As part of its employment policy, the Department prohibited staff from accessing information relating to family, friends, or acquaintances. This prohibition was set out in its Code of Conduct, with which all employees were contractually bound to comply with, in terms of the Inland Revenue Collective Agreement. The prohibition contained in the Code of Conduct was based on statutory secrecy obligations contained in s 81 Tax Administration Act 1994. The Code outlined the employees’ secrecy obligations, and also the obligations relating to conflicts of interest. These obligations were all directed to the prohibition against accessing tax information relating to family, friends, or acquaintances. The Code of Conduct was a new Code, having been introduced in 2001. The secrecy provisions were expressed in terms that were more unequivocal than the equivalent provisions in the previous Code. Due to the changes in the new Code, the Department made substantial efforts to educate staff concerning the obligations imposed on them by the Code, in the form of training sessions and a group discussion. The respondents had attended these sessions. All employees were given copies of the new Code, and had signed a form acknowledging receipt of copies of the Code, and also acknowledging attendance at the training sessions and group discussion. Neither of the respondents had read the Code, although they did receive departmental newsletters which stressed the importance of understanding the matters contained in the Code. In 2003, as a result of a departmental audit of compliance with procedures relating to the issuing and processing of personal tax summaries, it was found that a number of employees had issued personal tax summaries for people with the same surname as themselves. In some cases, the people to whom the personal tax summaries had been issued were family members of departmental employees. The Department then commenced disciplinary proceedings against the employees concerned, including the respondents. The respondents’ manager obtained a report concerning the circumstances of each occasion of access to the computer data base by each of the respondents, relating to cases in which taxpayers had similar surnames to those of the respondents. The report revealed that on a significant number of occasions, the respondents had accessed tax information relating to family members. The respondents were then summoned to a disciplinary meeting, at which the allegations were put to them for comment. The respondents acknowledged that they had used the data base in relation to family members, as alleged. They also acknowledged that they had received the Code of Conduct and had attended the training sessions and group discussion, and that they had received subsequent publications relating to the Code. They acknowledged that what they had done was contrary to the Code, but both respondents said that they did not know their conduct was wrong. They said they had not read the Code, and had paid little attention to the group discussion, which was part of the Department’s training in relation to the Code. After a second meeting with the respondents, both were dismissed.
The Employment Relations Authority found that the process around their dismissal was fair, and that in relation to the issue of serious misconduct, it was open to the respondents’ manager to conclude that the respondents had committed serious misconduct. The Authority said that the respondents had had let themselves down by not having pursued their responsibility to learn the Code’s contents, despite having been given copies of it, as well as training, further communications, and discussions at team meetings. As a result, they had left themselves open to unconsciously committing a serious breach of their responsibilities as employees. In terms of disparity of treatment, the Authority noted that other employees with similar levels of misconduct had only been given a final warning. In view of this disparity, the Authority concluded that the respondents had been unjustifiably dismissed. It ordered that the respondents be reinstated and given a final warning. The Department challenged the Authority’s decision regarding disparity of treatment in the Employment Court. The respondents challenged the decision in respect of serious misconduct. The Employment Court held that as the Department had accepted the respondents’ explanations that they were ignorant of their obligations, this acceptance rendered their repeated actions less culpable, and they were therefore not guilty of serious misconduct. The Authority’s finding on disparity of treatment, and its decision to reinstate the respondents was also upheld.
The Department sought leave to appeal the Employment Court’s decision in regard to the following issues:
(i) did the Employment Court apply the proper test for disparity of treatment?;
(ii) in considering a claim for disparity of treatment, was the Court entitled to have regard to subsequent disciplinary action taken by an employer against other employees?;
(iii) does an employee’s ignorance of specific employment obligations mean that there is a presumption against a breach of these obligations giving rise to a finding of serious misconduct? The Department submitted that the Employment Court had applied an incorrect test for determination of serious misconduct, and that the Court had also applied the wrong legal test in its consideration of the disparity issue. It contended that the Court had defined a two-stage test, and had omitted a crucial third stage which would have substantially affected the outcome in this case.
The Department argued that the Court of Appeal must consider three issues:
(i) was there disparity of treatment?;
(ii) if so, was there an adequate explanation for the disparity?;
(iii) if not, was the dismissal justified, despite the disparity, for which there was no adequate explanation?
It was further contended by the Department that disparity necessarily involved consideration of the present case against previous disciplinary processes, and that it was not open to the Authority or the Employment Court to consider disparity as between the treatment of the respondents and the treatment of other employees of the Department, who were dealt with after the respondents were dismissed. The respondents contended that the Employment Court had not found that the employers were precluded from making a finding of serious misconduct in a situation such as the present case. The Court had differentiated the respondents’ behaviour from those who had knowingly and deliberately breached the Code. The Court’s decision that there was no serious misconduct was based substantially on the fact that the manager had accepted that the respondents had not appreciated the significance of the relevant parts of the Code of Conduct. HELD: (1) As stated in Northern Distribution Union v BP Oil NZ Ltd (cited below) a definition of serious misconduct was not possible, as it was always a matter of fact and degree. Usually what was required was conduct that deeply impaired or was destructive of that basic confidence or trust that was an essential element of the employment relationship. The Court had to be satisfied that the decision to dismiss was one which a reasonable and fair employer could have taken. This was the test described by the Court of Appeal in W&H Newspapers Ltd v Oram (cited below), which slightly modified the test enunciated in Northern Distribution Union v BP Oil NZ Ltd) (paras 31, 32, 35) (2) The Employment Court’s approach was incorrect. The correct approach was to evaluate whether a fair and reasonable employer would have characterised the respondents’ conduct as deeply impairing, or destructive of, the basic confidence or trust essential to the employment relationship, thus justifying dismissal. The Court of Appeal did not agree with the Employment Court that a failure to establish wilfulness created a presumption that the conduct was not serious misconduct. What had to be evaluated was the nature of the obligations imposed on the employee by the employment contract, the nature of the breach that had occurred, and the circumstances of the breach. (para 36) (3) Applying the test in W & H Newspapers Ltd v Oram (cited below) it was open to the respondents’ manager to dismiss the respondents in the circumstances of the case, having regard to the importance to the Department of compliance with its obligations of secrecy and impartiality. The respondents were under an obligation to acquaint themselves with the Code’s requirements, and to comply with them. They had failed to do so. The consequences for the Department, in the light of its statutory obligations, were such that it was open to the Department to conclude that the respondents’ actions had deeply impaired its basic confidence in them as employees. The Employment Court had erred in law on this aspect of the case (paras 38, 39) (4) In considering disparity of treatment, the Court must consider three separate issues: (i) was there disparity of treatment?; (ii) if so, was there an adequate explanation for the disparity?; (iii) if not, was the dismissal justified, despite the disparity for which there was no adequate explanation? The Court of Appeal was satisfied that the Employment Court had omitted the third element of this test. It was also satisfied that the issue as to the test to be applied in disparity cases involved a question of law of sufficient importance to justify the granting of leave to appeal. (paras 48, 49) (5) The general statement of principle enunciated in Pacific Forum Line Ltd v NZ Merchant Service Guild IUOW (cited below) was that the justification for a dismissal must be judged by what was known at the time of the dismissal itself. Information which came to light after the dismissal could affect remedies, but could not provide an ex post facto justification for the dismissal, or a further basis for challenge to its justification. The Court of Appeal agreed with that principle, but it had to yield to common sense in the present case where a large number of cases were being considered as part of a single coordinated disciplinary process. (para 53) (6) The disparity of treatment in this case was not of such a magnitude as to call into question an otherwise justified dismissal of the respondents. It was open to the Department to hold, despite the treatment of the other employees, that the respondents’ conduct was of such gravity as to deeply impair the employment relationship, and to call into question the Department’s trust in them, thus justifying their dismissal. The different outcomes in relation to other employees involved different judgment calls being made by different managers in relation to different circumstances. It did not indicate an unreasonable decision in relation to the respondents. If the Authority and the Employment Court had addressed the third element of the legal test for disparity of treatment, the decision would have been that the dismissal was justified in the present case. (para 70) |
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Result: |
Appeal allowed ; Leave granted to appeal on the points of law relating to the legal test for disparity and disparity with subsequent cases ; Costs in favour of appellant ($6,000) ; Disbursements |
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Statutes: |
Tax Administration Act 1994 s6(1) ; Tax Administration Act 1994 s6(2) ; Tax Administration Act 1994 s81 |
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Noted In: |
(2006) 29 TCL 05/3 ; [2006] ELB 20 |
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Cases Cited: |
Airline Stewards & Hostesses of NZ IUOW v Air NZ Ltd [1985] ACJ 952 ; Etienne v London Underground Ltd [2000] EAT 219 ; Hadjioannou v Coral Casinos Ltd [1981] IRLR 352 ; Hughes v Lyon Bakeries (UK) Ltd [1996] EAT 1162 ; Northern Distribution Union v BP Oil NZ Ltd [1992] 3 ERNZ 483 ; Pacific Forum Line Ltd v NZ Merchant Service Guild IUOW [1991] 3 ERNZ 1035 ; Paul v East Surrey Health Authority [1995] IRLR 305 ; Samu v Air NZ Ltd [1995] 1 ERNZ 636 ; W & H Newspapers Ltd v Oram [2000] 2 ERNZ 448 |
