Legal Insights

Settled or not? When is an unfair dismissal claim resolved?

By Ross Jackson

• 21 September 2011 • 5 min read

A recent Federal Court decision has implications for employees wanting to pursue an unfair dismissal application

The Federal Court has recently overturned a decision of Fair Work Australia (FWA) which, among other things, allowed an employee to pursue an unfair dismissal application despite agreeing with his former employer to settle the dispute in an out-of-court settlement: Australian Postal Corporation v Gorman [2011] FCA 975.

Background

Mr Gorman had been employed by Australia Post since 1989. In July 2009, he was dismissed for misconduct.

Mr Gorman subsequently lodged an application for an unfair dismissal remedy in FWA.

The matter came on for arbitration on 6 April 2010. A short adjournment was granted during the hearing, at which both parties were legally represented. Following the adjournment, Mr Gorman’s legal representative advised FWA that the parties had agreed to settle the matter and that he anticipated, after ‘some to-ing and fro-ing’, the agreement would be formalised within 14 days (by a written agreement executed by the parties) at which time Mr Gorman would file a notice of discontinuance with FWA.

FWA adjourned the hearing to allow the written agreement to be prepared and executed.

On 27 April 2010, Australia Post’s legal representatives sent Mr Gorman a draft deed of release (draft deed). Mr Gorman did not sign the draft deed or file a notice of discontinuance with FWA.

Mr Gorman subsequently applied to have the matter re-listed for hearing on the basis that he had made a ‘rushed’ decision on 6 April 2010 and in any event, did not consider that he agreed to all the terms in the draft deed.

At first instance, Senior Deputy President O’Callaghan found, on the evidence, that there had been a binding agreement to settle reached by the parties; the ‘essential components of the agreement’ had been assented to and in that context, Mr Gorman’s pursuit of the application was ‘improper’ and frivolous or vexatious under subsection 587(1) of the Fair Work Act 2009 (FW Act).

Mr Gorman appealed this decision. A full bench of FWA granted Mr Gorman’s application to appeal and upheld his appeal on the basis that:

  • the existence of an ‘accord and satisfaction’ between the parties was not relevant to determining if the application was frivolous or vexatious under subsection 587(1), as this provision required FWA to assess the substance of the application against the criteria listed in that provision; and
  • it was not satisfied that a binding agreement was reached by the parties before formal written execution of a deed.

Australia Post appealed the full bench decision on the basis that it had made jurisdictional errors including in respect of its construction of subsection 587(1) of the FW Act.

Proceedings

Justice Besanko of the Federal Court (court) upheld Australia Post’s appeal and overturned the full bench decision.

Among other things, Justice Besanko found that the full bench had misconstrued subsection 587(1) and that this was a jurisdictional error.

The court determined that pursuing an unfair dismissal application after agreeing to settle it could lead to the matter being characterised as 'frivolous or vexatious or without reasonable prospects of success’ for the purpose of subsection 587(1). Therefore, the full bench had fallen into error which went to its jurisdiction, by deciding that the question of whether an 'accord and satisfaction' existed was not relevant to section 587(1).

As it was required to consider only jurisdictional matters, it was not necessary for the court to determine whether an agreement had actually been reached by the parties.

Justice Besanko observed, however, the fact that the parties had intended their agreement to be committed to writing in a deed should have been the start of FWA’s inquiry, not its conclusion. Further, the fact that the parties envisaged ‘to-ing and fro-ing’ prior to finalising the deed was relevant but not decisive of whether an agreement had been reached.

Justice Besanko further determined that the full bench was in jurisdictional error in not applying the requirements of section 400 of the FW Act (by which it was required, in summary, to determine that the appeal be in the public interest and the decision being appealed involved a significant error of fact).

Accordingly, Justice Besanko ordered that the matter be remitted to FWA to re-hear Mr Gorman’s appeal application and if granted, his appeal.

We will update you on any further developments in these proceedings as they arise.

Lessons

  • Pursuing an unfair dismissal application after agreeing to settle the matter can lead to the matter being characterised as 'frivolous or vexatious or without reasonable prospects of success’ for the purpose of subsection 587(1).
  • Whether an agreement has been reached to settle the matter will depend on the factual circumstances.
  • Employers should ensure that prior to agreeing to a settlement, substantive terms have been finalised between the parties.
  • The absence of a written deed between the parties to an unfair dismissal application can give rise to dispute whether an agreement has been reached by the parties. To avoid future disputation, employers should commit a settlement agreement to writing as soon as possible. If a deed cannot be immediately executed, employers should prepare ‘heads of agreement’ for signing by the parties in anticipation of a formal written agreement.



By Ross Jackson

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