Angus Macinnis, Director of Dispute Resolution at Stevens Vuaran Lawyers, discusses how this recent Supreme Court of Queensland decision led to a $1.4M+ windfall for a party other than the employee who was sexually harassed.
This story is about a dentist (so we can’t show you his face on television, if anyone is thinking of buying the television rights to this article). The dentist was alleged to have engaged in sexual harassment, and dismissed from the practice in which he was working. Subsequently, he he was sued, and ordered by the Supreme Court of Queensland to pay $1,446,453.23, plus costs. The surprising thing about this story is that it wasn’t the alleged victim who sued the dentist; it was the company which engaged him (and which dismissed him from the practice).
How does that work? Well, the first thing to understand is that this wasn’t a typical employment situation. The dentist had a practice in Cairns, which he conducted through a company. He sold the practice to a company called Maven Dental Group Pty Ltd (Maven) and following the sale, the dentist entered into a new contract with Maven in which he agreed to work for Maven for a period of six years. This contract contained provisions which allowed for its immediate termination if:
- “in the reasonably held opinion of [Maven], [the dentist] has committed an act which if true would, in the opinion of [Maven], adversely affect the reputation or business of [Maven] conducted from the premises”; or
- “[the dentist] is guilty of any wilful negligent [sic] or misconduct”.
When the allegation of sexual harassment was made against the dentist, Maven purported to rely on both grounds as justifying the immediate termination of the dentist’s engagement. Although there was some debate during the trial about what the first termination clause actually means (for example, whether the clause could apply apply in circumstances where the allegation of sexual harassment was handled confidentially, so that it did not affect Maven’s reputation) ultimately it was unnecessary for the Court to determine this question, because the Court accepted that the dentist had engaged in sexual harassment which amounted to “misconduct”.
As well as the termination provisions, the dentist’s contract contained a specific indemnity, which required the dentist to indemnify Maven against all losses “arising in any way from or in connection with” any early termination of the contract in accordance with either of the contractual provisions above. That was the provision on which Maven sued, alleging that as a result of the early termination of the contract, Maven had lost the chance to derive profits from the dentist’s work.
The dentist argued that Maven could not recover damages where the loss was caused by Maven’s own act of termination, but the Court rejected this argument as “unsustainable”. The breadth of the indemnity meant that it did not matter whether or not Maven’s decision to terminate was “discretionary”; once it was accepted that the termination resulted from the dentist’s misconduct, the indemnity was wide enough to cover losses arising from a termination in those circumstances. In particular, in considering the language of the indemnity provision, the Court said that, “terms like ‘arising in any way’ and ‘in connection with’ cast a very broad causative net”, and “the definition of ‘loss’ in the definition clause of the [contract] is likewise very broad”.
The Court then considered damages, taking into account Maven’s evidence that the dismissed dentist “was one of the highest generators of revenue for dental services [Maven] had encountered”, which was a factor taken into account in the price Maven paid for the practice. As the Court noted, “the exercise of valuing the lost opportunity of course involves consideration of an array of information which can sometimes descend to imprecise estimations”. However, the final figure which was reached was $1.25 million, which after the addition of interest (and the subtraction of a very small offsetting claim) resulted in a verdict in favour of Maven of $1,446,453.23, plus costs.
On one view of things, the lessons in this case are really lessons about about indemnities in business sale agreements as much as they are lessons about sexual harassment. Vendors of businesses, such as the dentist in this case, need to pay very close attention to the terms of indemnities which are given in sale agreements. In particular, vendors need to consider the circumstances in which the indemnity could end up depriving the vendor of a very substantial part of the benefits which the sale of business was intended to provide.
However, the case also indicates that the consequences of sexual harassment can spread far beyond simply the workplace relationship between a harasser and a victim. Although it is not possible to say that this is necessarily Australia’s most expensive sexual harassment case (because expensive sexual harassment cases are usually settled confidentially), the case does appear to be the highest money verdict which has been awarded against a person found to have engaged in sexual harassment. Recent decisions have produced a substantial increase in monetary awards for sexual harassment cases, so if you don’t have effective workplace policies and training in place in your workplace, the example of the dentist’s case might suggest to you that now would be a very good time to, well, brush up.
Read the decision in Maven Dental Group Pty Ltd v S & M England Pty Ltd & Ors  QSC 220 here.
Angus Macinnis has a broad commercial practice with a focus on dispute resolution, and in particular, on employment and work health and safety law, and intellectual property law. He advises employers and employees on all aspects of employment law, from drafting contracts and employment policies, to dealing with employment related disputes, to dealing with employment and safety regulators.
He has a particular interest in the employment law aspects of social media use and has published in this area in publications including the Law Society Journal, The New Lawyer, and the Internet Law Bulletin, as well as providing regular contributions to AHRI’s HRM Online website. He is a regular speaker at conferences for MCLE providers including the Law Society of New South Wales and the University of New South Wales and also provides training to employer clients in areas including anti-discrimination law.
In the intellectual property area, Angus advises in relation to copyright and trade mark disputes, as well as “trade dress” and passing off disputes. Contact Angus at email@example.com. You can also connect with Angus via Twitter