Not about Smut
This ruling really has nothing to do with the fact that they were fired for porn. In effect the court said that because they had been allowed to do something for a long period, and were not warned that it would no longer be tolerated, that their firing was unfair. It's part of Australia's HR laws - you can't suddenly fire somebody for something they have been doing for an extended time, even if it's against policy. You need to warn them at least once first and be shown to actively working to stop then re-offending. It sounds strange, but think of if you worked at a company that had allowed you to work from home every Friday for years, despite there being a formal policy saying that work hours are 9-5 monday to friday in the office. You get a new boss, and the first time you work from home friday he fires you. Not really fair is it? That's what happened to these workers in effect.