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Focus: Workplace Relations – October 2007

In this issue: We look at considerations in determining whether an employer is a constitutional corporation; a breach of an employee's duty of fidelity justifying dismissal; whether an agreement can be made void by misleading information; and certain employers' obligations under anti-money laundering and counter-terrorism financing legislation.

• Charitable company is not a constitutional corporation
• Breach of employee's duty of fidelity justifies dismissal
• Agreement not void simply because of misrepresentations
• Employee due diligence and training under anti-money laundering legislation

Charitable company is not a constitutional corporation

In brief: Recently, the Industrial Court of New South Wales held that a charitable company limited by guarantee was not a constitutional corporation because of its lack of trading and financial activities. Special Counsel Rowan Kelly reports.

Background

Ms Hardeman commenced proceedings against the Children's Medical Research Institute (a company limited by guarantee) (the company) to restrain it from terminating her employment, as well as declaring her contract of employment unfair, harsh or unconscionable.

The company challenged Ms Hardeman's claim on the basis that the Industrial Court of New South Wales did not have jurisdiction because the company was a constitutional corporation.

The company was a not-for-profit organisation that derived a significant portion of 'its revenue from the sale of investments, interests and dividends, which are derived from the investment of funds received from donations, fundraising, capital gains, sale of merchandise, reinvestments and savings.'

The legislation

The Workplace Relations Act 1996 (Cth) (the WR Act) was amended by WorkChoices to exclude state industrial laws¹ for constitutional corporations and their employees, subject to some limited specified exclusions. Constitutional corporations are foreign corporations, and trading or financial corporations formed in Australia. 

The decision

The Full Bench of the NSW Court found that there were two questions to answer:

• (As a matter of fact) was the company engaged in trading or financial activities?
• (As a matter of law) were those trading or financial activities at the time such that the company could be characterised as a trading or financial corporation, or both?

The court dealt briefly with the issue of whether the company was a trading corporation, answering this question in the negative. The trading activities of the company were found to be insubstantial as a proportion of its total activities; at best, they constituted only 2.5 per cent of the company's revenue. Additionally, the majority of the company's activities concentrated on the central activity of children's medical research, the trading activities being only peripheral to this. 

The court then refined the issue of whether the company was a financial corporation to the following questions:

• Are the financial activities a sufficiently significant proportion of overall activities to constitute the company as a financial corporation?
• If so, do the company's financial activities constitute financial dealings, that is commercial dealings in finance?

The second question went to the issue of whether the financial activities were of the requisite kind to categorise the company as a constitutional corporation.

The court answered the first question in the negative, finding that when the company's financial activities were measured in relative terms against its other activities (rather than in absolute dollar terms), those financial activities were not a sufficiently significant proportion of overall activities.

The court also answered the second question in the negative, finding that the company's:

charitable public welfare attributes may 'colour' the financial activities of that organisation for the purposes of assessing whether it is engaged in commercial dealings in finance.

In this case, the company's passiveness in conducting and managing its investments revealed 'the lack of a commercial aspect' by the company in its financial activities.

The court therefore held that the company was not a constitutional corporation and as a result, the court had the jurisdiction to hear the matter.

Breach of employee's duty of fidelity justifies dismissal

In brief: Is an employer justified in dismissing an employee reporting allegations to a third party without first bringing them to the employer's attention? Partner Jamie Wells and Law Graduate Andrew Stirling report.

Background

Ms Reid was employed as Dr Swanepoel's practice manager. During the four months of Ms Reid's employment, Dr Swanepoel became concerned when she:

• wrote office cheques without first ensuring there were sufficient cleared funds;
• appropriated an examination room as her own office (rather than using the reception area provided); and
• improperly disciplined staff, including the practice's clinical assistant.

Ms Reid was finally dismissed following an incident in which the clinical assistant gave an injection to a patient in the practice's waiting room. Although Ms Reid did not witness the incident, she alleged to the local Division of General Practice that the injection was administered:

• without consulting Dr Swanepoel; and
• without checking the patient's allergies. 

Ms Reid did not verify these claims with Dr Swanepoel or the clinical assistant before reporting them. When Dr Swanepoel discovered she had made the report, he dismissed her.

The decision

The Western Australian Industrial Relations Commission decided that Dr Swanepoel's concerns about Ms Reid taking over the second examination room and improperly disciplining staff were justified.² Further, the Commission considered that by reporting the claims externally without first drawing them to Dr Swanepoel's attention, Ms Reid had breached her duty of fidelity.

The Commission accepted that a wide range of conduct could justify dismissal, including:

... conduct which in respect of important matters is incompatible with the fulfilment of employee's duty or involve 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, ...3

The Commission concluded that, because of Ms Reid's failure to raise her concerns about staffing with Dr Swanepoel and her failure to discuss the injection incident with Dr Swanepoel and the clinical assistant before lodging her report, her dismissal could not be considered harsh, oppressive or unfair.

Agreement not void simply because of misrepresentations

In brief: A court has refused to declare void a five-year, non-union collective agreement, despite finding that the employer misled employees about its contents. Senior Associate John Naughton reports.

Background

Karellas Investments Pty Ltd (Karellas) owned two retail shops with a total of 151 employees.

One of Karellas' permanent part-time employees, Ms Stringer, was a member of the Shop, Distributive and Allied Employees Association (the SDA).

The SDA alleged that Karellas breached the Workplace Relations Act 1996 (Cth) (the Act) by lodging an agreement that had not been properly approved. The SDA did not deny that a majority of those who voted on the agreement had approved it, but said that, in the period prior to voting, employees had been supplied with documents about the agreement by Karellas which were false or misleading.

The SDA submitted that, because these documents were likely to materially influence whether an employee supported the agreement, Karellas had not 'given all the persons employed at the time whose employment will be subject to the agreement a reasonable opportunity to decide whether they want to approve the agreement' as required by the Act.

The decision

The Federal Court agreed with the SDA that the documents distributed by Karellas contained false and misleading information, and that employees therefore had not been afforded a 'reasonable opportunity to decide'.⁴

However, the court rejected the SDA's application to have the agreement declared void, on the grounds that:

• there was no evidence that the employees of Karellas who voted in support of the agreement had read the documents containing the false or misleading statements, let alone paid any regard to them; and
• the Act provides that the court should only exercise its discretion to declare an agreement void where it considers it appropriate to remedy loss or damage resulting from the false and misleading information.

In this case, there was no evidence to suggest that either the SDA or Ms Stringer had suffered any loss or damage. Accordingly, while the court issued a declaration that the agreement had not been approved in accordance with the Act, the court did not declare it void.

Employee due diligence and training under anti-money laundering legislation

In brief: The employee due diligence and training requirements under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) and AML/CTF Rules come into effect on 12 December 2007. Partners Peter Jones and Anna Lenahan and Senior Associate Judy Maguire look at the effect of these requirements.

The AML/CTF program

The Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (the AML/CTF Act) requires reporting entities to adopt and implement an AML/CTF program by 12 December 2007, the elements of which are set out in chapters 8 and 9 of the AML/CTF Rules. These elements include a risk awareness training program and an employee due diligence program. AUSTRAC has indicated⁵ that, for the purposes of these programs, employees include agents and people engaged on a permanent, temporary, casual, contract or volunteer basis.

Risk awareness program

The risk awareness program requires organisations that are reporting entities to train all of their employees so that they understand:

• the obligations of the organisation under the AML/CTF Act, and the consequences of non-compliance;
• the types of money laundering and terrorism financing (ML/TF) risks that the organisation might face; and
• the AML/CTF processes and procedures in the organisation that are relevant to the employee.

The detailed content, method (eg on-line or in person) and frequency of training is up to the organisation. However, the reporting entity must be able to demonstrate to AUSTRAC that the training is both adequate and appropriate. The AML/CTF Rules indicate that it must be conducted at appropriate intervals, having regard to the organisation's ML/TF risk. It is suggested that training should be conducted as part of an induction session for every new employee and annually to all employees. In addition, organisations should consider providing higher level, and more frequent, training to employees who are employed in AML/CTF risk-sensitive positions.

Screening and monitoring

Organisations that are reporting entities must also put in place an employee due diligence program to determine whether and how to screen both prospective employees and existing employees. The program will focus on existing and prospective employees who may be in a position to facilitate the commission of a ML/TF offence. 

As a first step, therefore, organisations should identify those positions within their organisation that carry an ML/TF risk (eg, positions where employees manage high-risk customers, or approve higher risk transactions). 

The AML/CTF Rules do not provide any guidance on how the screening should be carried out but AUSTRAC has indicated⁶ that the Australian Standard of Employment Screening (the Standard) might be of assistance. The Standard sets out a number of ways in which employee screening can be undertaken, including a 100-point identity check and reference and criminal record checks.⁷  

Additionally, organisations must establish and maintain a system to manage employees who fail to comply with their AML/CTF responsibilities. At this stage, no guidance has been provided as to how best to deal with employees who are non-compliant. Reporting entities will need to put in place a clear and transparent set of protocols for dealing with these employees so as to minimise the risk of any claims of unfair dismissal by employees whose employment may be terminated on the basis of non-compliance with their AML/CTF responsibilities.

Board approval

An AML/CTF program, of which the risk awareness training and the employee due diligence programs form part, must be approved and monitored on an ongoing basis by a reporting entity's governing board (or, if there is no board, the chief executive officer of equivalent) and its senior management.

What if a reporting entity cannot meet the 12 December 2007 deadline?

There is an obligation on employers to implement risk awareness training and employee due diligence programs by 12 December 2007. However, under the Policy (Civil Penalty Orders) Principles 2006, a reporting entity that can satisfy AUSTRAC that it has taken 'reasonable steps' to comply may not be liable for prosecution for non-compliance with this requirement in the period before 12 March 2009.

Footnotes

1. Section 16(1) of the WR Act.
2. Jennifer Joy Reid v Hendrik Swanepoel 2007 WAIRC 00966, Commission P. E. Scott, 1 August 2007.
3. per Dixon and McTiernan JJ in Blyth Chemicals v Bushnell (1933) 49 CLR 66 at 80.
4. Shop Distributive and Allied Employees' Association v Karellas Investments Pty Ltd (No.2) [2007] FCA 1425 (12 September 2007), per Justice Graham.
5. In the AUSTRAC Draft AML/CTF Compliance Report.
6. In the AUSTRAC Guidance Note on Risk Management and AML/CTF programs.
7. The Standard recommends that the following steps be taken:
   • a 100-point identity check;
   • an analysis of the curriculum vitae, such as the candidate's employment history for 5 to 10 years (including an investigation of actual dates of employment, with a focus on any gaps);
   • a check of employment and character references (with care taken to check the bone fides of each person);
   • a check of qualifications and professional memberships;  
   • a National Criminal Record Search as well as checks with ASIC and the Federal Court to determine if the person is under any sort of disqualification order or is a bankrupt;
   • verify all of the candidate's academic qualifications;
   • conduct reference checks with human resources departments, and
   • if the candidate fails to meet the employment screening standards of the organisation they should be advised of the grounds for the rejection of their application and any avenues of appeal open to them.
   The Standard also recommends that at all times there must be informed consent by the candidate. The process must be transparent, so that the candidate has the opportunity to rectify any information that may be inaccurate.  This is best done by having the candidate sign any authorities required to complete the relevant checks.

For further information, please contact:

• Jamie WellsPartner, Brisbane
  Ph: +61 7 3334 3268
  Jamie.Wells@aar.com.au
• Tim FrostPartner, Melbourne
  Ph: +61 3 9613 8835
  Tim.Frost@aar.com.au
• Peter ArthurPartner, Sydney
  Ph: +61 2 9230 4728
  Peter.Arthur@aar.com.au
• Gavin MacLarenPartner, Singapore
  Ph: +65 6535 6622
  Gavin.MacLaren@aar.com.au
• Rowan KellySpecial Counsel, Perth
  Ph: +61 8 9488 3804
  Rowan.Kelly@aar.com.au

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