Best practice for workplace misconduct process

Two recent decisions have highlighted the balancing of interests that an employer must aim for when handling workplace misconduct processes.

Both cases involved employees claiming workers compensation for psychological injury arising during the initial phases of a workplace investigation into their conduct, prior to knowing the details of the allegations against them.

The cases illustrate lessons of general relevance as to how to respond to serious allegations made against an employee and conduct workplace investigations that withstand legal scrutiny. While the cases concern “reasonableness” within the workers compensation jurisdiction, similar issues could, for example, readily arise in unfair dismissal proceedings challenging the fairness of a workplace investigation.

Workers compensation

The relevant statutory provision (s. 11A(1), Workers Compensation Act 1987 (NSW)) provides: “(1) No compensation is payable under this Act in respect of an injury that is a psychological injury if the injury was wholly or predominantly caused by reasonable action taken or proposed to be taken by or on behalf of the employer with respect to transfer, demotion, promotion, performance appraisal, discipline, retrenchment or dismissal of workers or provision of employment benefits to workers.

This exclusion exists in similar terms across Australian jurisdictions, including in s. 32(5) of the Workers’ Compensation and Rehabilitation Act 2003 (Qld) and in s. 5A of the Safety, Rehabilitation and Compensation Act 1988 (Cth).

Two recent appeal decisions from the NSW Personal Injury Commission (Commission) turned on whether the investigative actions of each employer met this “reasonableness” standard and therefore disentitled the injured employee from compensation.

In State of New South Wales (NSW Police Force) v. Plant [2024] NSWPICPD 11, the Commission determined an appeal in favour of the injured employee. The facts involved a police officer subject to a complaint of sexual harassment made by a colleague. Upon being notified of the complaint, the officer was transferred to a different station and subject to strict directions as to his day-to-day work. Two months later, details of the allegations were provided to the officer. The action taken against the officer was found not to be reasonable, on the evidence available.

In BHK v. Secretary, Department of Education [2024] NSWPICPD 10, the result went the other way, with the employer’s conduct being determined to be reasonable. The claim in that case was made by a teacher subject to allegations of inappropriate conduct with students, who was removed from duties while the matters were investigated and waited more than nine months before knowing the details of the allegations.

Web of legal risks and obligations

Employers carry out workplace misconduct processes within a web of overlapping legal standards and expectations. An investigation involves an increased level of stress and conflict for all involved, with a risk of psychological injury. The potential for workers compensation claims exists for all involved workers (including the employees subject to allegations, the complainant, witnesses and co-workers drawn into the situation).

In assessing the merit of disputing a workers compensation claim, employers should be mindful of the broader impact an accepted claim may have in the workplace. While the direct liability may be an insured risk, there may be a broader impact in terms of workplace culture and compliance if the compensation claim is seen to vindicate one “side” of a grievance or contradict disciplinary outcomes following from the investigation. In our experience, employers are often concerned about the internal reputation and cultural impact a claim might have on staff who are involved in the circumstances said to give rise to the injury.

One additional challenge for employers navigating these overlapping obligations is the potential for different standards of conduct to be expected in different jurisdictions.

Explaining investigation timeframes

In both recent cases, there was a period of time between the employee being notified in general terms of the complaint against them, and later receiving details of the allegations. The decisions reinforce that what constitutes a “reasonable” investigation timeline is not rigid but must be able to be justified and the employee subject to the allegations must be supported. Accordingly, the transparency of the investigation process is a critical factor an insurer will take into account when considering whether the management of an investigation has been reasonable.

In BHK, a period of more than nine months to gather information and provide the teacher with particulars of the alleged misconduct was considered reasonable, whereas in Plant a two-month delay was unexplained on the evidence and weighed against the employer meeting the reasonable standard.

 The longer time frame in BHK was explained by the need to engage children and families appropriately and practical factors such as the impact of Covid-19 and regional floods in the relevant area. There was evidence this was explained to the worker in general terms, and he was informed during the process that no firm time frame could be guaranteed.

Interim arrangements supported by risk assessment

There will frequently be a need for an employer to determine interim arrangements while an investigation is pending. For example, this might involve suspending or relocating the employee subject to allegations, imposing protocols about contact between those involved, or temporarily changing work assignments and responsibilities.

Interim actions taken in response to a workplace grievance or complaint, especially suspension or a significant change in duties, should be supported by a sound risk assessment and with appropriate support provided to that worker (e.g. offering the use of any employee assistance program) and ensuring they have a dedicated person (or persons) they can contact at the organisation about the investigation. The nature of those interim actions needs to be practically understood and justified, and undertaken within a broader framework of Work, Health and Safety compliance.

These kinds of interim measures were a key aspect of the employee’s case in Plant, where the officer was directed “Not to have one on one conversations with female staff (sworn and unsworn) who are lower than Sergeant rank, unless you are in the company of and being supervised by another person.” He was also relocated to a station that was 65 per cent female. In assessing the reasonableness of the direction, the Commission made particular note of the difficulties this stringent instruction caused in simple matters such as the officer eating in a shared meal room.

Reasonableness is not ‘set and forget’

Reasonableness is an ongoing and multi-faceted enquiry. Just because the step of initiating an investigation is reasonable does not mean that the actions taken to implement that process necessarily are. This was the finding in Plant, where the Commission was satisfied it was not unreasonable to commence an investigation upon receipt of the complaint describing sexual harassment, but was not, based on the evidence available, satisfied that the subsequent transfer and interim directions met the relevant standard.

The outcome in Plant offers a final lesson relevant to evidentiary decision-making in disputed claims. A key issue in the appeal was how the Member at first instance had dealt with the perceived gaps in the evidence put forward by the Police. For example, this evidence did not include information about earlier complaints about the officer, the investigation report or a statement from the complainant themselves. It may be that this approach reflected forensic decisions about privilege or other matters.

However, if information is to be withheld from proceedings based on concern as to privilege, this needs to be pleaded and addressed in the jurisdiction. In Plant, both the first instance Commission member and Appeal tribunal noted the absence of any such submission about privilege, and the finding in favour of the employee was reliant on the Commission feeling there was insufficient information for it to be satisfied that actions of the Police were reasonable in the circumstances.

Proactive response to workers’ compensation claims

“Reasonable action” (or equivalent depending on the jurisdiction) is not a catch-all for the defence to psychological injury claims. Whether a claim for psychological injury involves “reasonable” action will often turn on close assessment of disputed or complex circumstances. These matters therefore often involve multiple witnesses and contentious factual issues, as was demonstrated in the recent cases before the Commission.

Accordingly, if a claim is to be contested by an employer, we recommend it be done from the earliest part of the claims process (i.e. before a decision has been made by the insurer) rather than relying upon seeking to challenge an accepted claim via an appeal to the Commission (or similar, depending on the jurisdiction).

Kate Peterson is a partner and workplace relations lawyer at McCullough Robertson in Sydney. James Lynagh is a special counsel specialising in insurance issues at McCullough Robertson in Brisbane.