Bullying in the boardroom

Changes to the law mean directors subjected to unreasonable behaviour may now have a means of recourse, write Giri Sivaraman and Patrick Turner.

On 1 January 2014, anti-bullying reforms to the Fair Work Act 2009 introduced by the former Labor government, took effect.

Prompted by the findings of a wide-ranging parliamentary inquiry, the amendments to the Act introduced a means for workers in the private sector to bring bullying to an end, by applying for an order from the Fair Work Commission (FWC).

Under these laws, workers, if they reasonably believe that they are being bullied at work, may make an application to the FWC for an order to stop the bullying. For the purposes of the Act, bullying occurs when an individual or a group repeatedly behaves unreasonably towards an individual or group of workers while at work and this behaviour poses a risk to health and safety.

In an intriguing drafting decision, framers of the amendments used the definition of “worker” found in federal work health & safety (WH&S) legislation. This non-exhaustive definition is so broad that it potentially includes company directors.

This raises the prospect that, for the first time, directors subjected to unreasonable behaviour in the boardroom may now have a means of putting bullies in their place.

Directors as victims of bullying

The definition of “worker” employed by these new laws explicitly includes employees, contractors, sub-contractors, outworkers and others. It does not however, specifically address directors.

In our view, for executive directors who have dual roles as employees and officers of an organisation, this definition is unlikely to prove a hurdle in seeking an order.

For non-executive directors though, the situation is less clear cut.

In Balthazaar v Department of Human Services [2014] FWC 2076 the FWC provided the first substantive guidance on who is a worker and where the decision might fall on whether non-executive directors are covered.

In essence, the tribunal held that the definition of “worker” contains two, straightforward elements: “First, the person must carry out work. Secondly, the work must be carried out for a person conducting a business or undertaking.” 

The definition is designed to be inclusive and to emphasise that the work “can be in any capacity whatsoever,” beyond just that of an employee-employer relationship. However, the FWC emphasised that the provisions are not unlimited in scope.

Though not yet settled, applying a common sense reading of the tribunal’s decision, it is likely that non-executive directors will also be captured by the language of the Act.

Directors as bullies

Regardless of whether an individual or group of individuals are directors in an executive or non-executive capacity, if they engage in activities which meet the definition of bullying behaviour, their actions will be covered by the new laws and allow others to bring an application as a result of their conduct.

This is because the provisions only require that individuals engage in the harassment, at work. This term is undefined and can mean anyone engaging in the behaviour at work. They do not have to be employees of the employer. 

Bullying behaviour includes engaging in aggressive conduct, making humiliating comments, spreading malicious rumours and exclusion from work-related events, among other conduct.

Long-standing directors may recognise some of these “bullying” behaviours from particularly contentious meetings.

Therefore, while it is not settled as to whether directors can bring an application, it is certain that their behaviour can provide grounds for others to bring an application.

Who directs a director?

The legislation provides that an action will not be considered “bullying” behaviour if it is “reasonable management action”.

This is a strong exemption for employers who take action against employees and the FWC’s decision in Ms SB [2014] FWC 2014, indicates that the tribunal is willing to interpret the exclusion very widely. But what does this mean in the context of the boardroom?

For executive directors, again, the position might be more straightforward. It is likely that the reasonable actions of other board members, forced to manage an executive director in their capacity as an employee, will not constitute bullying behaviour for the purposes of these laws.

Where the bullying behaviour is directed towards an individual in their capacity as a director, the situation is much less certain.

Boards may have informal hierarchies but at least ostensibly, all directors are equal. It is difficult to conceive, then, of any inter-director interaction that could be interpreted as management action, except perhaps the interventions of a chair.

In a potential windfall for applicants, it is possible that this exclusion may not apply at all in regards to conduct occurring between directors.

Stop the bullying orders

Under these laws, the FWC can make any order it considers appropriate to ensure that the bullying ends and can require action by the employer or an individual, but it cannot issue fines or penalties or award financial compensation.

Contravention of an order may have serious consequences. If an employer or person subject to an order contravenes its terms, then this is a serious breach of the Act, which can lead to large financial penalties, in addition to a host of other possible court remedies.

In view of the potential for aggrieved directors to seek a “stop the bullying” order against their fellow board members, it is worth examining what such an order might mean for company boards.

The one order the FWC has made, in Applicant v Respondent (AB2014/1052), has revealed that the tribunal is willing to take novel approaches to resolving bullying complaints. 

In this case, the senior deputy president of the organisation in question, ordered another employee to:

• Have no contact with the co-worker (the victim) alone.
• Make no comment about the co-worker’s clothes or appearance.
• Refrain from sending any emails or texts to the co-worker except in emergency circumstances.
• Finish work at the employer’s premises before 8am (with the applicant to begin work from 8:15am).
• Raise no work-related issues with the co-worker without first notifying the employer’s chief operating officer or his subordinate.

While it remains to be seen what form such an order would take, or what its potential impact might be on a board, this case emphasises the need for board members to plan for the potential challenges posed by managing orders placed on their colleagues.

For example, though it is unlikely to prove difficult to remove or relocate an employee found to be a bully, directors in publicly listed companies can generally only be removed on a vote from shareholders. The bully and the victim may well have to continue to face each other at regular intervals across the boardroom.

In this scenario, an order from the FWC that restricts free communication between board members in an effort to prevent the bully from further harassing the victim may seriously impede decision-making and candour.

To prevent this from occurring, boards should consider creating procedures to deal with inter-director bullying that provide clear, responsive and transparent investigative and decision-making processes.

Risks and rewards?

For directors who have been subjected to bullying and harassment, these new laws appear to provide an effective means to halt a bully in his or her tracks.

For others, this article should reinforce the very real prospect that a “stop the bullying” order may successfully be taken out against themselves or their colleagues. This is especially so if the “reasonable management action” exemption does not apply.

In the context of the high-powered boardroom, where frank interchanges regularly accompany difficult decisions, it is important to remember to keep interactions civil.

Directors subjected to bullying or concerned about the potential ramifications of these laws for their board, should seek strong legal representation to help identify their rights and responsibilities.

Key takeaways for company directors

• Company directors may now seek orders from the Fair Work Commission (FWC) to stop fellow board members from engaging in bullying behaviour.
• While you have to be a “worker” to be covered by new laws, a decision of the FWC has interpreted this very broadly. It is sufficient that the person carries out work for a person conducting a business or undertaking in any capacity whatsoever. It is likely that executive directors are covered by this definition, but also possible that non-executive directors are too.
• Bullies, for the purposes of these laws, can be any individual or group as long as the behaviour takes place at work. The bullying behaviour of directors will certainly be captured.
• Bullying behaviour includes a broad swathe of activity, such as making humiliating comments or excluding colleagues from work-related events.  
• While “reasonable management action” will not be bullying behaviour, this exemption may not be open to directors. After all, directors are nominally equal. However, this does raise the question – can a chair’s behaviour constitute “reasonable management action”?
• The FWC can make any order it considers appropriate to prevent bullying from occurring again, including taking action against individuals and employers. In a previous decision, the FWC prevented one individual from having any contact with another alone. This broad discretion, may lead to some nuanced approaches in fraught boardroom disputes. Conversely, it may seriously impede the effective running of a company.
• While the FWC cannot, in making an order, issue fines or penalties or award compensation, if an order is contravened this will be considered a serious breach of the Act. Such a breach will result in a company being open to large financial penalties.
• Unlike employees, troublesome directors are difficult to remove or relocate. Therefore, boards need to ensure that they are prepared for the possibility of an order being imposed on one or more of their members and are aware of the need to observe these.
• In view of the potential difficulties an order may pose for your board, it is vital to keep interactions civil.
• If you are being bullied, or are concerned about the potential consequences of these laws for your company, seek legal representation.