Moving the wrong people on
Tuesday, 27 November 2007
Last Updated: Wednesday, 5 December 2007
In this section:
By Lucinda Schmidt
All the gumph about workplace relations reforms and a more flexible labour market does not help much if employers want a straight answer to a simple question: How do I sack someone without breaking the law?
First off, don’t get hung up on the head count. The new laws mean that companies employing up to 100 people (including part-timers, long-term casuals and staff of related companies) cannot be sued for unfair dismissal.
Employees of companies with more than 100 are also locked out of the unfair dismissal system if they have worked for the company less than six months, or they are on probation, a trainee or contractor, or they earn more than $98,200 and are not under an award or a workplace agreement. What this means – technically – is that small companies do not have to follow the fair dismissal mantra of showing valid reason and fair process.
But – and this is a big but – the experts warn smaller companies not to use the new laws to sack employees at will. Even though you cannot be sued for unfair dismissal, different rules on unlawful termination still apply to every employer (covering discriminatory and equal opportunity issues such as race, gender, pregnancy, union membership and age).
It’s also not a good look for the rest of your workforce. “We’re not saying [small] employers now have carte blanche to dismiss,” says David Gregory, general manager, workplace relations, at the Victorian Employers Chamber of Commerce and Industry. “If you’re simply going to be an employer who sacks without warning, it won’t be a particularly happy workforce. If you want to attract and retain good staff, you have to have fair and reasonable ways to treat people.”
Joydeep Hor, the managing partner of Harmers Workplace Lawyers, advises all his clients – regardless of head count – to take the same approach to terminating an employee. “The new laws have taken away the obvious and easy remedy. But there are still unlawful termination rules, trade practices legislation, breach of contract issues. It shouldn’t change what employers are doing.”
Step one, says Hor, is to be very clear about your reason for wanting to sack the employee. It must fall into one of three categories: performance, misconduct or redundancy.
If you are sacking someone because of poor performance, you need to show that they know what is expected of them (preferably in their job description), they have been given the necessary training to perform their tasks and you have gone through a process of trying to address their performance issues. “There’s no rule about three warnings,” says Hor, dispelling a common misconception. “It’s about showing that steps have been taken.”
Misconduct is fairly straightforward, covering issues such as theft, violence towards other employees and dishonesty. But the misconduct must be serious and wilful and you must conduct a fair investigation into the conduct. “It’s not enough for the employer just to say ‘you stole’,” Hor says.
The third reason to sack, redundancy, requires you to genuinely no longer wish that job to be performed by anyone. “People often ask me ‘how long before we can refill the role?’” Hor says. “That automatically suggests it’s not in good faith.” But things change, and, as a rule of thumb, he says that if you do change your mind, you should wait at least six months before refilling a redundant position.
What happens if the position is not redundant, there is no misconduct and the employee’s performance is not poor enough to warrant dismissal? “Sometimes it’s not a performance issue, but just a poor cultural fit,” Hor says. “Or the employer is not prepared to invest the time in performance management.”
The good news is you can still get rid of the employee . The bad news is it will cost you. Hor calls it “agreed separation”, where the employee is effectively paid to leave, and signs a deed of release agreeing not to sue. But he warns employers not to attempt it without legal advice, because it needs to be carefully negotiated as a mutual decision. “If the employer suggests it, that could be deemed constructive dismissal,” he says.
Sacking: what to do and what not to do
DO:
- Have policies and procedures – and follow them.
- Be very clear about the reason they are being terminated: performance, misconduct or redundancy.
- Document everything.
- Think about having a third party present when you carry out the termination.
- Give employees the legally required notice period (a sliding scale of between one and five weeks, depending on length of service and the employee’s age).
- Check their other entitlements such as long service leave, annual leave and any contractual requirements.
DON’T:
- Assume the WorkChoice laws give small employers carte blanche to sack anyone at will.
- Base any termination on sex, race, age, disability, sexual preference, pregnancy, union status or other areas covered by unlawful termination or anti-discrimination laws.
- Force staff to sign any document, such as a resignation, under duress.
- Assume staff on parental leave or worker’s compensation, or part-timers, are a “no go zone” for termination. They can be lawfully sacked, just like any other employee, as long as the reason for the sacking is related to performance, misconduct or redundancy.
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By Peter Vitale
How does an employer demonstrate genuine operational reasons for a dismissal? The full bench of the Australian Industrial Relations Commission (AIRC) has clarified this exclusion from the unfair dismissal jurisdiction of the Workplace Relations Act.
The Howard Government’s new WorkChoices laws introduced the exclusion that if an employer can show that an employee’s employment was terminated for “genuine operational reasons”, the employee will not be able to make a claim that he or she was unfairly dismissed.
Since the changes a number of AIRC decisions have indicated it is not sufficient for the employer to simply assert the termination was for reasons of redundancy to take advantage of the exemption.
However, some inconsistent decisions by the commission left some questions about exactly how an employer could show that there were genuine operational reasons for the termination. The full bench has at least partly answered these questions.
In Carter v Village Cinemas, the employer claimed that the termination of a cinema manager’s employment due to the closure of the cinema complex was a genuine operational reason. The employee had been employed by Village for nearly 20 years. He disputed that the reason for his termination was genuine. He claimed that because he could easily have been redeployed, the employer did not have a genuine operational reason. The employee claimed:
- He was the only one of 12 employees not redeployed.
- He had previously worked at nine different locations.
- He gave evidence he would have accepted a position of lower status.
- He offered to take long service leave until a vacancy arose.
- The employer conceded there “certainly would be a possibility” that a similar position would soon arise.
The full bench noted that employers need to demonstrate that the operational reasons are genuine and not a “sham”. However, if the employer can show that the genuine operational reason was the reason for the termination, then the employer need not show that there was justification for the termination of a particular individual’s employment, or that efforts had been made to redeploy the worker.
Whether the employer could have done something other than terminating the employee’s employment is also irrelevant.
In this case the employer showed that the cinema complex had closed and that was the reason for the employee’s termination. There was nothing else for the commission to consider and the claim was dismissed.
The lesson for employers:
To rely on “genuine operational reasons” as an exclusion from unfair dismissal claims, employers must be able to prove why the business needs to support a decision to make an employee redundant.
If there is satisfactory evidence of this, employers will not be required to demonstrate they could have taken alternative measures to redundancy.
Peter Vitale is a solicitor, the General Manager of Workplace Relations Services at VECCI and a principal at CCI Victoria Legal.
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By Mike Preston
Sacking staff will never be easy, but after the Howard Government moved a year ago to protect businesses with fewer than 100 employees from unfair dismissal claims, many business owners hoped some of the heat had been taken out of hiring and firing.
Twelve months on business representatives and lawyers agree that the WorkChoices laws have contributed to a substantial decline in the number of unfair dismissal claims. However, sacked workers are finding new ways to get their day in court that can leave employers more out of pocket than ever before, they say.
The industrial landscape has changed, and from an employer’s point of view it is not all for the better.
The debate rages
The debate on unfair dismissal laws will continue during the lead-up to this year’s federal election and with good reason: it is one of the few issues on which there is a substantial policy difference between Labor and the coalition.
Labor has stuck to its promise to rip up WorkChoices, arguing there is little evidence to support the Government’s view that the unfair dismissal changes have contributed to Australia’s low unemployment levels.
Outside the political sphere, however, there is general agreement that WorkChoices has been effective in protecting businesses below the 100 employee threshold from unfair dismissal claims.
Commerce Queensland’s manager of workplace relations services, Stephen Nance, says the 100 or more unfair dismissal claims he would usually deal with on behalf of businesses each year has fallen to fewer than 10 since WorkChoices was introduced.
Nance says the reforms have changed attitudes to hiring more than firing. “The skills shortage means businesses don’t want to sack people if they can manage performance, but businesses are a lot more confident in hiring new people knowing they can terminate somebody without ending up in court.”
And it is not just employer groups claiming unfair dismissal claims have fallen off. Michael Sayers, an associate with union lawyers Slater & Gordon, says he has seen a 50% drop in claims over the past year.
“Many workers just think they’ve got no rights and don’t even bother getting advice about a possible claim,” he says.
Employees are finding new ways to claim
Although the decline in unfair dismissal numbers is good news for business, there is growing evidence that sacked workers are instead seeking payouts under anti-discrimination and breach-of-contract laws that apply to ALL businesses, regardless of size.
Discrimination claims can be made if a person has been dismissed for reasons including race, gender, union membership or pregnancy, and breach of contract claims usually involve allegations of underpayment of accrued entitlements or sums in lieu of notice.
Human Rights and Equal Opportunity Commission figures show that employment-related discrimination claims in the federal system increased by 62% (from 170 to 278) in the first few months after WorkChoices came into effect.
Significantly, the number of unsuccessful claims during this period shot up by a massive 484% (from 26 to 126), suggesting an exodus of claimants from unfair dismissal to the much narrower discrimination jurisdiction.
Harmers Workplace Lawyers managing partner Joydeep Hor says he has seen a doubling in requests for advice from businesses facing possible discrimination and contractual claims in the time since the WorkChoices regime commenced.
“Contracts claims in particular have picked up; people who worked for a (sales) commission or who can claim for underpayment in relation to annual leave are a walk-up start for a denial of contractual benefits claim,” Hor says.
New employer obligations arising out of a recent decision in the New South Wales Supreme Court mean breach-of-contract claims are likely to become more common and more expensive, according to Melbourne workplace lawyer Rob Jackson. (See our Legal update: Are contracts opening the way for unfair dismissal claims?)
First the first time in Australia, the court ruled that employers can be sued if they breach duties of “good faith” and “mutual trust and confidence” they owe to employees, a decision Jackson says could open the floodgates to a new wave of claims.
And to make matters worse, Jackson says, the more formal nature of discrimination and contract claims means they will often result in more time lost, higher legal costs and bigger payouts.
Claim-proof your business
Feeling nervous? Don’t. Jackson says a few simple measures can go a long way to protecting your business’ exposure to discrimination and breach of contract claims.
Minimising the risk of discrimination claims is all about developing good equal opportunity workplace policy, Jackson says. He recommends that businesses:
- Implement a policy that deals with equal opportunity matters, including sexual harassment and racial discrimination.
- Make sure equal opportunity policies form part of each employee’s employment contract.
- Implement a ‘no bullying’ policy.
- Conduct annual EO training for all staff and introductory training for new staff.
- Create a code of conduct for all employees.
- Implement a clear internet and email policy for all employees.
- Ensure each employee signs of on all policies and codes of conduct.
- If there is a union presence at your workplace, be aware of your rights and obligations to provide access to union officials and your obligation not discriminate against union members.
- Ensure your disciplinary procedures are not applied in a way that could contravene anti-discrimination laws.
For breach-of-contract claims, it is possible to just about eliminate the risk of major payouts by ensuring all employees have carefully drafted employment contracts. Jackson recommends business owners:
- Ensure the method for accrual and payment of all forms of leave are clearly explained in the contract and consistent with applicable laws.
- Find out which awards and minimum wage orders apply to their employees and ensure that contracts are consistent with them.
- Ensure pre-employment representations as to pay and conditions are not misleading – in some circumstances, they can form part of the employment contract.
- Include a notice period that complies with minimum standards legislation is included in each contract.
- Understand any employee entitlement to options or shares and ensure it is clearly set out in the contract. It is particularly important that the consequences of cancellation of share options or termination of the employee before exercise of the options is dealt with.
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By Peter Vitale
As happens after a change of government, the navel gazing about exactly what the new lot will do has begun.
Last week I outlined the possible timing of Labor’s proposed “forward with fairness” reforms to workplace relations law. Within days of the election result, we already have some pronouncements that indicate that the Rudd government will push hard to implement the paring back of WorkChoices sooner rather than later.
The Deputy Prime Minister and Industrial Relations Minister elect, Julia Gillard, has indicated that the new government will commence drafting the initial “transitional” phase of its legislative program for presentation to Parliament early in 2008.
More detail is beginning to emerge about how they will approach the task.
Gillard has made clear that the Senate will be asked to vote on laws to prevent employers making new AWAs and in relation to Labor’s version of minimum standards of employment, even though the conservative parties retain control of the upper house until 1 July 2008.
That legislation will also contain provision to enable employers to enter “individual transitional employment agreements” (ITEAs), provided they already have AWAs in place.
ITEAs will not be allowed to run beyond 31 December 2009. They will be subjected to an assessment, akin to the Fairness Test, to ensure that minimum standards are not avoided. It is likely that the new test will be more stringent than the current arrangements.
So far there are no further details on the proposal to implement more flexible individual agreements for employees who earn more than $100,000 a year.
The timing of changes to unfair dismissal laws remains open, but one of its policy planks, the introduction of a “fair dismissal code”, may well prove more difficult to implement than expected.
Labor has indicated that the code will be developed after consultation with small business. In the event that a business with less than 15 employees can demonstrate that it has genuinely complied with the code, the dismissal will be deemed to be “fair”.
Unfair dismissal laws have, at least in recent history, been fairly consistent on a range of matters – requiring that the employers have a valid reason for termination, requiring that the employee has an opportunity to respond to allegations of poor performance or conduct, and to rectify any faults.
The question of whether the application of those laws is considered more or less favourable to employees has tended to rotate around the stringency with which these standards are applied.
What is as yet unknown about the fair dismissal code may give SMEs more heartburn than heart. Take a few examples:
- It’s not clear whether the onus will be entirely on the employer to show compliance with the code, or whether employees will have to demonstrate some sort of arguable case before an employer is required to argue the issue.
- How compliant will an employer have to be to show “genuine” compliance with the code? Does this mean that it will be enough for employers to genuinely believe that they are doing the right thing; will they have to show objective compliance with most of the requirements of the code, or will they be obliged to demonstrate strict compliance to the letter of the code?
- How will the code compare to the rules applying to businesses that aren’t covered by it? Substantial differences may lead to jurisdictional arguments about which rules properly apply to which employers.
- Will decisions about the code by industrial tribunals be published, so that employers can gain a better understanding of how it is intended to operate.
- Will the parties have an opportunity to appeal if they don’t agree with the decision of the tribunal?
At this point you may be forgiven for thinking the fair dismissal code is going to be just another lawyers’ picnic.
And there’s the rub. The Labor policy promises to keep lawyers out of the system to help minimise complexity and keep costs down. It’s a noble objective, but self interest aside, the writer won’t be the only person keen to understand how this will be the first piece of industrial legislation to achieve it.
The lesson for employers?
Keep your eye out. You may have a whole new set of termination rules to learn early in 2008.
Peter Vitale is the principal of CCI Victoria Legal .
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