Family-business drama leads to poor HR practices, office tensions

The Fair Work Commission (FWC) recently dealt with a case involving unfair dismissal in a family-owned steel fabrication business. The matter highlighted the complexities of workplace relationships, particularly when family dynamics and shareholder disputes intersect with employment issues.

The worker, a long-term employee and significant shareholder in the family business, argued that his dismissal was unfair. He contended that the incident leading to his termination did not constitute a valid reason for dismissal, and that proper procedures were not followed.

The worker also pointed to his 27-year tenure with the company and claimed that he had an otherwise unblemished employment history. Furthermore, he asserted that despite ongoing family conflicts and legal proceedings, he could continue to work effectively within the organisation.

Workplace tensions and family dynamics

The case centred on a worker who had been employed for more than two decades in his family's steel fabrication business. He was not only an employee but also a significant shareholder, holding 32% of the company's shares. The business, founded by the worker's grandfather, uncle, and aunt in the 1990s, had been experiencing significant tensions between family members.

These tensions had escalated to the point where the worker, along with his brother and aunt, had commenced shareholder oppression proceedings against his uncle (the majority shareholder) and the company in the Supreme Court of Victoria. The remedy sought was either for the uncle to purchase their shares or for the company to be wound up.

The workplace atmosphere was described as “dysfunctional.” The interim chair, who later became CEO, gave evidence that the dysfunction and conflict within the board and workplace was unlike anything he had previously encountered. This conflict had led to the majority shareholder predominantly working from home and rarely attending the office.

Attempts to address workplace culture

In October 2023, the board appointed an interim chair with over 45 years of business experience. He was later appointed as CEO on a 12-month contract. The new CEO quickly identified serious compliance and governance issues, particularly regarding human resource management and workplace safety. He arranged for audits to be conducted and attempted to implement new procedures and policies.

However, the worker was reported to have resisted these changes. The CEO's evidence, which was accepted by the FWC, indicated that the worker ignored rules and procedures, such as not wearing required gear, and pushed back against health and safety audits. The FWC also accepted that the worker failed to distinguish his position as an employee from that of a shareholder.

The CEO conducted workshops and a confidential survey of employees in December 2023 to obtain feedback. Unlike most employees, the worker neither attended the workshops nor completed the questionnaire. Employees described the culture in negative terms including 'not great' and 'negative family behaviour.'

The worker’s dismissal and its consequences

The events leading to the worker's dismissal began with a written warning issued in December 2023. This warning was in relation to a single allegation that was found to be substantiated: "that when the affected employees attempt to speak with all of you that you disregard them and deliberately ignore them".

This was followed by an incident on 5 March 2024, where the worker was alleged to have raised his voice at a colleague and interrupted her while she was speaking about work-related matters. The FWC found:

"[The worker] repeatedly interrupted her and raised his voice at her, but do not find that he 'stormed' into the office."

The worker was issued with a show cause letter on 7 March 2024. The FWC found that during this meeting:

"[The worker] was constantly interrupting and shouting during [the CEO's] attempts to read out the show cause letter and said words to the effect that he would not be CEO for much longer."

The worker was suspended on pay and given until 15 March 2024 to respond. He did so through his solicitor, denying the allegations. No investigation was conducted, and other persons present were not interviewed prior to the show-cause letter being issued.

The FWC ultimately found that while the worker's conduct on 5 March 2024 was unacceptable and warranted some disciplinary action, it fell short of constituting a valid reason for dismissal:

"[The worker's] conduct on 5 March 2024 was unacceptable, and may have warranted some disciplinary action, it fell well short of constituting a valid reason for dismissal."

Determining the appropriate remedy

Despite finding the dismissal unfair, the FWC determined that reinstatement was not an appropriate remedy. The Commission considered that the employment relationship had become unworkable, largely due to the ongoing Supreme Court proceedings and the breakdown in relationships between family members. The FWC noted:

"In my view, the evidence establishes that the employment relationship is unworkable and that reinstatement is untenable. Firstly, the Supreme Court proceedings in which [the worker] is a plaintiff, seeks the winding up of [the employer], and does so on the basis that there is an irretrievable breakdown of the relationship of the shareholders."

The FWC also considered the potential impact of reinstatement on other employees and the efforts to address longstanding cultural issues within the company. Some employees had indicated they might resign if the worker was reinstated.

Compensation awarded

Having ruled out reinstatement, the FWC ordered compensation for the unfair dismissal. After considering various factors, including the worker's likely future employment prospects with the company given the ongoing conflicts, the FWC awarded the maximum compensation allowed under the legislative cap.

The FWC concluded:

"I consider that an order for compensation in the sum of $49,400 (less taxation as required by law) in favour of [the worker] is appropriate in this case. An order will be made to that effect."

This case serves as a reminder of the importance of maintaining proper workplace procedures and culture, even in the face of personal conflicts. It also highlights the need for clear separation between shareholder disputes and employment relationships, a distinction that can often become blurred in family businesses.