WRITTEN BY John Wilson & Kieran Pender
To err is human; to forgive, divine, Alexander Pope famously once wrote. But for employers, too much erring by employees can become problematic. At what point does forgiveness run dry and poor performance become a sufficient reason for dismissal?
Much judicial and arbitral ink has been spilt on the circumstances in which employee misconduct can justify termination of employment. The other primary category of dismissal, not for wrongdoing but for inability, arises before courts and tribunals less frequently. But a recent Fair Work Commission decision, Carmody v Bureau Veritas Minerals Pty Ltd,[1] is instructive.
‘It is well established that the standard of conduct or performance reasonably required of an employee, including a qualified, experienced and professional employee such as Mr Carmody, is one of competence not perfection,’ Deputy President Anderson observed in Carmody. At what point, then, does incompetence provide valid grounds for dismissal?
This Article will begin by outlining the legal framework, and some of the key authorities. It will then consider Carmody. Although a first instance decision, the case offers a helpful consideration of the circumstances in which worker error can justify dismissal, and the important distinction between misconduct and insufficient competence. The Article will conclude with some practical observations.
Our focus here is on the statutory framework for unfair dismissal in the Fair Work Act 2009 (Cth), which covers all employees employed under an award or enterprise agreement, and all employees of national system employers earning less than the high-income threshold (presently $175,000) – subject to meeting the relevant qualifying criteria. Employees also owe their employers contractual duties of care and should use skill; incompetence may provide grounds for termination under the relevant employment contract.[2]
This Article does not consider other potential claims that may be available, for example under general protections or anti-discrimination laws. By way of illustration, an employee dismissed for poor performance who has a disability, in circumstances where the disability contributes to the alleged underperformance, may allege that they were subject to unlawful discrimination. In such cases, employers should tread carefully and ensure robust, well-evidenced decision-making processes are followed.
Part 3-2 of the Fair Work Act protects qualifying employees from unfair dismissal. The termination of an employee’s employment is unfair if it is ‘harsh, unjust or unreasonable’. Section 387 sets out various factors for the Fair Work Commission to consider in assessing whether a particular dismissal satisfies these criteria. The first criterion, which the Commission must consider, is ‘whether there was a valid reason for the dismissal related to the person’s capacity or conduct (including its effect on the safety and welfare of other employees)’. Thus s 387(a) of the Fair Work Act bifurcates the categories of valid reasons, into those relating to an employee’s capacity and those relating to conduct, particularly misconduct. It is the former category with which we are presently concerned.
The Fair Work Commission bench-book explains:
Capacity is the employee’s ability to do the job as required by the employer. Capacity also includes the employee’s ability to do the work they were employed to do. The appropriate test for capacity is not whether the employee was working to their personal best, but whether the work was performed satisfactorily when looked at objectively.[3]
The concept of capacity has several components. First, there are physical and psychological requirements that are inherent requirements of a particular role – an inability to meet these requirements may provide a valid reason for dismissal. The relevant assessment is for the particular role as it is, not how it might be modified to meet the position of the relevant employee (although there may be other reasons, including under anti-discrimination law, why reasonable adjustments may be sensibly adopted). Thus the full bench of Fair Work Australia (as it then was) said in J Boag & Son Brewing Pty Ltd v Button,[4] ‘[w]here an employer relies upon an employee’s incapacity to perform the inherent requirements of his position or role, it is the substantive position or role of the employee that must be considered and not some modified, restricted duties or temporary alternative position that must considered.’
There are a range of indicative cases in this sub-category. In numerous cases, physical requirements of a role were unable to be performed, often as a consequence of a workplace injury. The inability to meet the inherent requirements provided a valid reason for dismissal.[5]
Sometimes, the inherent requirement is imposed as a consequence of third party licencing or accreditation. A public sector agency would likely have a valid reason to dismiss an employee who lost their security clearance, where that clearance was a requirement of the role.[6] Self-evidently, someone engaged as a solicitor – who was then removed from the roll – would no longer meet the requirements of the role, and could be lawfully dismissed pursuant to the capacity limb of the valid reason test.
In DA v Baptist Care SA,[7] a youth support worker was required to undergo psychological or psychometric assessment pursuant to relevant state legislation, which precluded workers being engaged to work in a licensed children’s residential facility unless they had undertaken the testing. A third party assessor determined that the employee was not psychologically suitable; the employee was then dismissed. At first instance, and on appeal, the Fair Work Commission rejected an argument that the dismissal was unfair. The full bench readily accepted that capacity goes beyond notions of skill or ability, and includes situations where employees lack the necessary licence, certification, qualification or approval required for a particular role.
The second primary category of capacity is performance-oriented: is the employee able to meet the performance-related requirements of the role? This brings us to our primary focus – what is the minimum standard of performance?
One of the leading cases is Crozier v Palazzo Corporation Pty Ltd.[8] In Crozier, the applicant had successfully applied for a sales executive role with a storage company. The role’s primary objective was to win new business; as much was clear in the job description and preliminary discussions with the employer. However, during the first six months of his employment, the applicant won only one new deal for his employer (of a relatively measly sum). The employee was subsequently dismissed, after being told: ‘the situation is you have not made any sales, we cannot continue your employment any longer, your position as a salesman is ended immediately’.[9]
At first instance, the applicant argued that his former employer had no valid reason for the dismissal. It was submitted that his limited success in generating new business was caused, in part, by the employer’s failure to provide appropriate support or assistance, including by setting no sales target and providing inadequate training and advice.
These submissions were rejected. While Commissioner Simmonds accepted that the support provided may have been ‘lacking perfection’,[10] this did not support a finding that the dismissal was unfair. In a very frank summary of the circumstances, the Commissioner observed:
The evidence of Mr Crozier, which was not seriously challenged by the company, is that he was well organised and hard working. He brought a professional approach to his job. Within the constraints imposed by his employer regarding pricing structures and available facilities he did his best, and his best could not be faulted. It may be that the product he was to sell and the price at which he was to sell it made his task impossible. In the absence of some ulterior motive (and none was suggested here) it is not unreasonable for the employer to determine the nature of his product and the price at which it is to be sold. I think the situation is best described, again by [counsel for the respondent] as follows:
‘In my respectful submission, sir, this episode was an unhappy one for all concerned. The company thought they were getting a person who could sell and Mr Crozier thought he could do it. Through no fault of his own, he was not able to. It was just a disastrous error of judgment by all.’
The applicant appealed. The full bench held that the Commissioner had mischaracterised the dismissal as being justified by the employer’s operational requirements, rather than the employee’s capacity. The applicant argued for a subjective test: ‘Simply put it was argued that Mr Crozier did the best he could with the constraints imposed on him.’[11]
The full bench rejected the appeal, finding that performance is an ‘incident’ of an employee’s ‘capacity’ within the statutory meaning of that word. ‘A consequence of the adoption of the test posited by the appellant would be that an employer would never have a valid reason to terminate an employee based on his or her capacity if the employee was doing his or her best,’ the full bench held. ‘This would be so despite the fact that the employee may be entirely unsuited for their position or they do not fulfil a key requirement of their position which was reasonable in the circumstances, as was the case in the matter before us.’ That, clearly, would be an untenable position. The full bench found that the appellant’s role was to bring in new business, he had failed to do that, despite being an experienced sales executive, and therefore there was a valid reason for dismissal.
The appellant then sought judicial review before a full bench of the Federal Court. This was again rejected. ‘[C]apacity,’ the court held, ‘means the employee’s ability to do the work he or she is employed to do. A reason will be “related to the capacity” of the employee where the reason is associated or connected with the ability of the employee to do his or her job.’[12] The court went on to reject the contention that an employee trying their best will always satisfy the capacity requirement: ‘Plainly, there can be a valid reason for the termination of an employee’s employment where he or she simply does not have the capacity (or ability) to do the job.’[13]
Crozier was, in some respects, a straight-forward case: the applicant was a sales executive, hired to bring in business, who had singularly failed to do so. Of course, many cases will be more nuanced. That is why the recent decision of Carmody provides useful guidance for employers as to the standard of capacity that may be expected of an employee.
Carmody was employed by Bureau Veritas, which tests rock and soil samples for mining companies, including BHP. Carmody was an experienced employee, engaged as a quality control officer – examining raw data prepared by laboratory technicians to check for errors and anomalies before the testing report is sent to a client. The role was complex and technical. ‘Identifying error or anomaly requires attention to detail,’ the Deputy President observed.[14] Across a typical eight hour shift, Carmody was responsible for quality control and issuance of over 100 reports for clients.
In January 2024, BHP raised concerns about the data quality in a particular report. Carmody’s supervisor concluded that a laboratory technician had not followed the appropriate protocols, and this had not been identified by Carmody, who had instead copied and pasted (inaccurate) data – the supervisor concluding that ‘a corner had again been cut’.[15] BHP engaged in back-and-forth correspondence with Carmody and Bureau Veritas, expressing its dissatisfaction. Carmody was ultimately counselled by his supervisor, albeit informally – with no documentation.
In August 2024, further issues arose with the testing of BHP samples; data had been entered into the wrong cell, leading to plainly incorrect results. The supervisor determined that Carmody had failed to identify the error, and then ‘transposed data’ through his own estimate, rather than by reviewing the raw data (through which he would have realised it was ‘incorrect or anomalous’).[16] Carmody was suspended and issued a show cause notice, alleging that he had ‘knowingly and intentionally manipulated and falsified client data’, which had ‘the potential to impose significant commercial risks to the Company and its reputation,’ contrary to relevant company policies.[17]
At a subsequent meeting, Carmody denied wrongdoing and blamed human error. He said that the approach he had taken – estimating data to address an evident error – was consistent with his training. Carmody was subsequently summarily dismissed for serious misconduct. He then commenced unfair dismissal proceedings.
The decision, of Deputy President Anderson, is noteworthy for several reasons. First, the Deputy President rejected the employer’s contention that Carmody’s conduct was serious misconduct. Error alone is not wrongdoing. ‘Falsification requires an element of deliberate intention to deceive,’ the Deputy President found. ‘There is no evidence that Mr Carmody had any such intent.’[18] Instead, Carmody had improperly responded to an error in the data. ‘The characterisation which more objectively reflects Mr Carmody’s conduct is that it was a serious lapse of professional judgement occasioned by a failure to take due care and resolve anomalies by reference to the available raw data,’ the Deputy President added.[19] This is an important reminder for employers to take care in characterising an employee’s shortcomings.
But that Carmody’s actions were not misconduct did not resolve the inquiry. The Deputy President then canvassed the ‘well established’ test of competence established in Crozier, finding that the conduct was sufficient to justify dismissal on the capacity limb of s 387(a). First, it was held that the error was not ‘singular’ but followed a pattern behaviour over which Carmody had been counselled earlier in the year. Second, ‘each of these errors were avoidable had due care and attention been exercised.’[20] Third, Carmody could have taken reasonable steps to resolve the anomaly, but failed to do so. ‘These were material failures by Mr Carmody in the performance of the primary responsibilities of his quality control function,’ the Deputy President held.[21]
The nature of the role was also a relevant factor. ‘His very job existed as a check and balance to identify errors or anomalies in the testing process or in data entered by the technicians, and to resolve these before certifying results to clients,” the Deputy President added.[22]
Carmody had argued that, even if a valid reason existed, the dismissal was nonetheless harsh for being disproportionate. Carmody argued that there were limited lapses of judgment in the context of reviewing over a hundred reports each shift, and thousands of reports across his tenure. The Deputy President observed: ‘Given that the objectively required standard of performance is competence and not perfection, there is some attraction to the submission that allowance must be made for infrequent error, and that making such allowance in the context of his employment as a whole would render Mr Carmody’s dismissal harsh.’[23]
However, the Deputy President considered other factors overcame this contention, including: (i) the seriousness of the failures in the context of the role; (ii) the multiple, compounding failures; (iii) that the failure was similar to the issue Carmody had been counselled over earlier in the year; (iv) that the failures were avoidable, had Carmody heeded that counselling; and (v) that Carmody was an experienced professional who had held himself out as being a specialist in this field.[24]
Accordingly, the Deputy President concluded the dismissal was not disproportionate. While it was ‘a heavy sanction’ for ‘isolated albeit serious errors’, and other employers may have taken a different view and applied a lesser sanction, dismissal was ultimately a course reasonably available to the employer: ‘It is well established that the Commission does not stand in the shoes of an employer and decide what they could or should have done.’[25]
However, as Carmody had been summarily dismissed (for serious misconduct), but this ground of dismissal was not upheld, the Deputy President held the dismissal was harsh for a lack of notice. Accordingly, Carmody received an award of one month’s wages in lieu of notice.[26]
Carmody is a more difficult case than Crozier. It is notable that the Deputy President observed that another employer might have acted differently. But in its careful assessment of when the capacity ground of s 387(a) may be made out, Carmody provides useful guidance for employers.
Despite the clear ability for employers to dismiss underperforming employees, employers should still tread with care. Another relevant factor, at s 387(e), is whether the employee was warned about their unsatisfactory performance, and there was a period of time between the warning and the ultimate dismissal. One could readily imagine a different outcome in Carmody had the January 2024 incident and subsequent counselling not occurred.
It is advisable for any such warnings to be well-documented and rationally-founded (preferably with a clear, objective basis for the claim of underperformance). While there is no legislatively required period of time following a warning until an employee can be dismissed, an employer’s failure to allow sufficient time to address performance concerns could strengthen an unfair dismissal claim.
To err is human. But err too much, and an employer is justified in dismissing an erring employee.
[1] [2025] FWC 259 (29 January 2025) (‘Carmody’).
[2] See generally Mark Irving, The Contract of Employment (LexisNexis Butterworths, 2nd ed, 2019) 510–16.
[3] Fair Work Commission, ‘Bench-book: Capacity’ (Web page) <https://www.fwc.gov.au/capacity>.
[4] [2010] FWAFB 4022 (Lawler VP, O’Callaghan SDP, Williams C, 26 May 2010) [22] (emphasis added).
[5] See, eg, Birdi v Rail Corporation NSW T/A RailCorp [2011] FWA 7728 (Harrison C, 10 November 2011); Ermilov v Qantas Flight Catering Pty Ltd, PR953449 (AIRC, Cartwright SDP, 18 November 2004); Harte v Forbes Australia Pty Ltd T/A Hunt Boilers [2011] FWA 6948 (Bissett C, 18 October 2011).
[6] See, eg, Applicant v Department of Defence [2014] FWC 4919 (Deegan C, 22 July 2014).
[7] [2020] FWCFB 6046 (Hatcher VP, Simpson C, Hunt C, 20 November 2020).
[8] (2000) 98 IR 137 (‘Crozier’).
[9] Ibid 138.
[10] Quoted at ibid 139.
[11] Ibid 146.
[12] Crozier, in the matter of an application for Writs of Certiorari and Mandamus against the Australian Industrial Relations Commission [2001] FCA 1031 (Gray, Branson and Kenny JJ) [14].
[13] Ibid.
[14] [2025] FWC 259 (29 January 2025) [20].
[15] Ibid [37].
[16] Ibid [54].
[17] Ibid [55].
[18] Ibid [95].
[19] Ibid [100].
[20] Ibid [106].
[21] Ibid [108].
[22] Ibid [109].
[23] Ibid [137].
[24] Ibid [139].
[25] Ibid [141].
[26] Ibid [168].