Dishonest General Manager was not wrongfully dismissed

It is well known in employment, especially in senior roles, that honesty is an important quality. This is especially so in public sector employment.

This principle was recently made abundantly clear by President Bell of the NSW Supreme Court in Eldridge v Wagga Wagga City Council [2021] NSWSC 312 (31 March 2021).

In this case, President Bell formed the view that the General Manager of Wagga Wagga City Council was lawfully terminated for, amongst other reasons, his failure to disclose pecuniary interests as well as conflicts of interest, constituting serious and persistent breaches of his employment contract. In this article, we examine the lessons from this case.

A local businessman becomes General Manager

In April 2016, Mr Eldridge, a local businessman, was appointed General Manager of the Council for a four-year term. His employment was governed by the Standard Contract of Employment for General Managers of Councils and the Local Government Act 1993 (NSW).

In May 2017, just over one year into his contract, the Council summarily dismissed Mr Eldridge. Mr Eldridge subsequently sued the Council for wrongful dismissal and claimed damages of $1,159,425 (representing the income he would have received during the balance of his term).

What did he do wrong?

The conduct

In defending proceedings, the Council relied on an array of breaches of the Standard Contract, some of which only became known to the Council after Mr Eldridge’s dismissal. Employers are entitled to rely on after-acquired knowledge to justify an earlier dismissal (if unaware of the conduct at the time).

The conduct included:

• failure to lodge a Disclosure of Pecuniary Interest Return declaring his interests and ownership in local businesses

• knowingly misleading Council by approving a report which falsely stated that all Declarations of Pecuniary Interest Returns had been received from designated persons

• engaging in external employment without Council knowledge or approval

• retention of Council lawyers to address personal allegations against him, without express Council approval

• incurring an unauthorised personal expense of $281.10.

Most notably, the Council’s defence heavily relied on Mr Eldridge’s failure to disclose his son’s interest in the Inglewood Road Planning Proposal, a proposal in which Mr Eldridge took an active role in expediting through the Council. Mr Eldridge insistently denied that he had known of the proposal before it was brought to his attention by a journalist. He went as far as publicly denying such knowledge in a Council media release.

Despite this, President Bell found there was a “wealth of evidence” that Mr Eldridge was not only aware of the conflict, but was himself involved in the proposal and had made a deliberate effort to conceal that involvement. “The lies were disgraceful and dishonest and represented a further breach of Mr Eldridge’s duties to the Council and those under his control”, President Bell said.

The decision

The President, in reviewing the regulatory scheme, said:

The statutory provisions of the [Local Government] Act, the Standard Contract of Employment for General Managers of Councils in New South Wales, the Code and the Policy all place important emphasis on good corporate governance and proper and formal disclosure of pecuniary and non-pecuniary interests.

In that regime, the President rejected Mr Eldridge’s downplaying of his failures to disclose as “oversights”. “For a well-qualified, apparently vastly experienced businessman who purported to be across corporate governance obligations, it is not possible to accept … that his failure ever to disclose his … interest[s], … was an oversight on his part,” the President concluded.

The breaches of his duties were not trivial but serious. President Bell was of the view that Council was “both fully entitled to and justified in summarily dismissing” Mr Eldridge, stating:

I consider that the allegations in relation to nondisclosure of the conflict with regard to the Inglewood Road Planning Proposal, … and the misleading of Council in that respect, and his unauthorised work …were each of such seriousness to have individually justified summary dismissal. When they are considered together or in combination, the case for Mr Eldridge’s dismissal was an extremely strong one.

What about the personal expense?

As a reminder of the need to consider all circumstances for summary dismissal, the President concluded:

Viewed in isolation, it is difficult to see how the incurring of a single unauthorised expense, at least in the amount of $281.10, would justify the termination of a four year contract as General Manager of the Council. That is not to condone the expenditure if it was in fact unauthorised; it is simply to have regard to the principles relating to the quality of the seriousness of any breach which may justify summary dismissal.

Though dishonest, this act alone was not grave enough to justify summary dismissal. Curious reasoning, but a reminder that an employer’s right to summary dismissal is narrow, along with the President’s view that “[w]hat is required is the ‘exceptional circumstances’ founded in conduct ‘destructive of the mutual trust between the employer and employee’ ”. This is a stringent test indeed.

What the case means

It is important that senior executives and other officer holders do not put their own interests, particularly their external business interests, above the interests of local government and the local community.

Where senior executives and officer holders are decisionmakers, full and frank disclosure is imperative for good, defensible decision-making, a lack of which can undermine public confidence in the integrity and administration of local government.

This decision sends a strong message that the nondisclosure of interests, whether pecuniary, conflicts of interest or engagements in external work, is extremely serious and unacceptable. There are grave consequences for not being honest.

However, employers need to assess the conduct and its seriousness and not too readily jump to summary dismissal, conscious of the exacting test to be met.

Authors: James Mattson & Hannah Dawson