THE Federal Circuit Court has ordered a worker to compensate his former employer after he failed to meet fiduciary duties assigned under his employment contract. AMMA principal employee relations consultant Bill FitzGerald explains the case and provides some timely advice on how employers can ensure such obligations are being met.

A CHEF was summarily dismissed after his employer, Sydney hotel restaurant Laundy, found significant discrepancies in the supply of food products sourced through the employee’s wife’s company and sold to the restaurant with a mark-up of $1 apiece.

The employee, who was asked by his manager to source a new supplier for chicken schnitzels, organised to receive the products through a supplier at a cost of $2.80 apiece. However, the worker failed to inform his employer that his wife’s business was the supplier and that the true cost of the chicken schnitzels should have been $1 cheaper than he was invoicing for.

Following his dismissal, the employee brought an application to the Fair Work Commission after the restaurant refused to pay out his accrued annual leave, worth $11,305. However, the employer filed a cross-claim, seeking compensation for financial losses suffered as a result of the worker’s actions.

On hearing, Judge Manousaridis of the Federal Circuit Court said the employee had an express duty to act with fidelity, as included in his letter of appointment and the company’s own behaviour standards manual.

In any event, the Judge said the law implied “a term that is generally referred to as a duty to act with fidelity and good faith” into every contract of employment.

“The implied term obliging faithful performance has both a positive and a negative aspect. In its positive aspect, the term requires the employee to perform with fidelity the tasks he or she is required to undertake under the employment contract; that is, the employee must perform such tasks for the benefit, and only for the benefit, of the employer,” Manousaridis J said.

“In its negative aspect, the term prohibits the employee from undertaking certain conduct. This includes entering into transactions in which there is a real conflict between the employee’s interests and the interests of his or her employer, and using the employee’s position to make a gain for the employee or for some third person.”

As a component of his duties, the chef “came under a fiduciary duty not to pursue a gain for himself” when asked to source a new supplier for the schnitzels.

“[The employee] placed himself in a position where his duty to his employer conflicted with his own interest, or … his duty to his wife as the owner of the [supplying] business,” the Judge said.

Manousaridis J ruled that the worker was owed his annual leave accrual pay out, but that the hotel restaurant was also owed compensation for the financial losses suffered as the result of the employee’s action. The worker was ordered to pay the hotel restaurant compensation of $72,838.60.

Click here to read the case in full.

Implications for Employers

This case is an important example of how express terms of contractual duties can serve to protect employers from potentially damaging legal action when such duties are breached.

Even though this contractual duty of fidelity is implied at law, it is a matter of best practice to set the legal requirements, such as a prohibition on private work or acceptance of gifts from third parties, to be included in the contract of employment, or in company policies and codes of conduct.

AMMA members are encouraged to contact our workplace relations experts to get advice, information and guidance on how to address contractual duties with your workforce. Contact your local AMMA office for more information.