An overhaul of the Small Business Fair Dismissal Code that would redefine and clarify the circumstances where firms can fire workers fairly has been recommended by the Australian Small and Family Enterprise Ombudsman (ASBFEO).
Releasing the results of a review into the controversial code on Tuesday morning, small business ombudsman Kate Carnell said current regulations governing small business dismissals are confusing, outlining 15 recommendations she says will help fix the system.
“The Small Business Fair Dismissal Code in its current form is not working in the way it was originally intended,” Carnell said in a statement circulated Tuesday morning.
“It’s been too easy for lawyers to drive trucks through,” the ombudsman subsequently told SmartCompany.
“Too many small businesses are being pulled into unfair dismissal hearings which are costly and impact productivity.”
Most notably, the ombudsman has advised the establishment of a new framework within the code to assist employers with determining whether a dismissal is fair or not.
The review does not consider changing the basis of workplace law with respect to what does and does not constitute a fair dismissal, but makes a series of recommendations regarding the way the small business fair dismissal code is drafted, and how it is used by businesses.
This would include changing how the code communicates the basis of a fair dismissal in an effort to demystify what’s been criticised as a complex web of case law.
Carnell also wants better awareness efforts to educate business owners about unfair dismissal laws and a dedicated division within the Fair Work Commission (FWC) which would deal with small business cases and employ dedicated case managers.
The ASBFEO review was first flagged in the wake of the federal election in March, coinciding with Prime Minister Scott Morrison’s request for business advocates to send in wishlists for workplace law reform and advocating their case in public.
The report findings and recommendations will now be handed to Minister for Employment, Skills, Small and Family Business Michaelia Cash, with a broader review into industrial relations laws slated for later this year.
If the recommendations are adopted the fair dismissal code, which applies to businesses employing about 40% of Australian workers, would change — a move which could disrupt adjoining industries that have sprung up to service the current regime.
The ombudsman’s first recommendation is to establish new processes for businesses who use the code in determining whether a dismissal they’re considering is fair.
Under the current code, fair dismissals are categorised as either “summary dismissal”, where a worker is fired without notice, usually for serious misconduct, and “other dismissal”, which is designed to encapsulate everything else.
The ombudsman has criticised this approach, saying business owners are unlikely to consult “complex principles” that would allow them to form a view about how their individual case complies with this framework.
For instance, some employers have found themselves on the wrong end of unfair dismissal decisions because they fired workers without notice under summary dismissal but later found out the circumstances of their case did not meet those requirements.
Instead, the ombudsman has recommended splitting the code into “serious misconduct”, “conduct and performance” and “redundancy”.
This would, Carnell says, change the guidelines for what constitutes fair dismissal under the code so it more closely reflects the reasons businesses are firing workers.
The ombudsman also wants to redefine “serious misconduct” to bring the code in line with other fair work regulations governing the FWC.
This would, the ombudsman says, reduce the need for formal hearings to test whether the ‘reasons’ for dismissal are sufficiently serious, which happens often currently because businesses are sometimes unsure what constitutes serious misconduct.
Workplace lawyer Peter Vitale says while it is the responsibility of business owners to understand legislation that applies to them, most firms aren’t getting unfair dismissal right.
“A lot of businesses, particularly small businesses, simply don’t understand what the requirements are,” he tells SmartCompany.
Vitale says the review is sensible and stands to address the core issue with the code, which is that a lack of clarity is driving “time-consuming and costly argument in front of the commission”.
The ombudsman has also recommended compiling separate checklists for small employers which would be elevated to status as “compliance tools” that could be used by the commission in its assessment of whether an employer has complied with the code.
Workplace Law managing director Athena Koelmeyer says separate checklists would address a key area of confusion for business owners, enabling them to have more certainty about dismissal decisions when they’re made.
But Koelmeyer says a “one-size-fits-all” solution will likely remain elusive, even if the current code is reformed.
“Everybody’s circumstances are different, and it’s very difficult to find any one-size-fits-all solution because people are human,” Koelmeyer tells SmartCompany.
“There’s a tension between trying to help small businesses navigate this complex and often convoluted situation with employment law in Australia, versus making sure employees are not exploited by unscrupulous employers.”
‘A return to intent’
The Small Business Fair Dismissal Code was developed under then-workplace minister Julia Gillard in 2008 as a mechanism to protect small firms from the brunt of unfair dismissal laws in the Fair Work Act.
Employers with fewer than 15 workers fall under the code, which the FWC considers before it decides whether a worker has been dismissed harshly, unjustly or unreasonably.
It includes protections not afforded to larger companies, including stipulating that full-time, part-time or regular casuals can’t make unfair dismissal claims if they’ve been employed for less than 12 months.
It also enables business owners to dismiss workers after just one warning, as opposed to the three-step feedback process required for larger businesses.
However, in the intervening 11 years since the code was developed, small business advocates, including Carnell, have criticised its operation, arguing the regulations aren’t operating as intended and are pulling too many businesses into sometimes spurious legal proceedings.
While FWC figures don’t separate small business claims from others, it does show 65% of the 172 unfair dismissal proceedings heard by the commission in the first quarter were dismissed because they lacked merit or were deemed invalid.
They have to be confident to employ someone if it doesn’t work
If we want to move away from that we need to make small businesses more confident that
That hit rate has driven concern among lawyers working in the space that small business unfair dismissal has become a “go-away money” jurisdiction where for-profit, no-win-no-fee lawyers encourage employees to make claims in the hope business owners will give in and pay up.
However, others have highlighted a need to ensure reforms don’t simply make it easier for firms to fire workers, stripping back protections for at-times vulnerable employees who could be dumped by their bosses for equally spurious reasons.
The ombudsman has argued its recommendations will not simply make it easier for firms to fire workers, and will instead seek to return the code to its initial objective, to provide “clear and simple tools” for firms to ensure a given dismissal is fair and a “clear basis” for the FWC to assess compliance with the code before considering the merits of an unfair dismissal case.
“The recommended amendments and checklists are designed to guide a small business employer through a fair dismissal process, not to make the dismissal process easier,” Carnell said.
Amendments to the fair dismissal code and checklist
- Establish new and separate processes to “ensure” a dismissal is fair under specific grounds, including serious misconduct, conduct and performance, and redundancy;
- Align the definition of serious misconduct with Fair Work regulations, and particularly include wilful or deliberate behaviour inconsistent with the continuation of an employment contract, causing serious risk to health, safety or the reputation, viability or profitability of a business, among other factors;
- Remove application of the code in the case of dismissal on the grounds of “capacity” and enable the Department of Jobs and Small Business to support the development of guidance for businesses in this area;
- Create seperate business checklists for each ground of fair dismissal (outlined in recommendation one);
- Remove qualifying language such as references to “reasonable belief” and “reasonable chance” from the code and prescribe clear steps for employers to follow so they can know with certainty whether they have complied with the code;
- More clearly explain the meaning of “small business employer” in the code;
- Clarify that not following the code does not constitute an unfair dismissal finding in itself; and
- Explain how to calculate the minimum employment period.
Improving education and awareness
- Promote the code through the Fair Work Ombudsman (FWO) and industry partnerships to improve awareness and understanding;
- Tell the FWO to host a dedicated small business resource centre in collaboration with the FWC to provide information on the code to firms;
- The FWC should establish a dedicated small businses dismissal code handbook; and
- Tell the FWO to make its services available to businesses outside of its existing operational hours, alongside investigating whether a phone back service would be viable.
Fair Work Commission Processes
- Change “form F2” so that it identifies whether an applicant for unfair dismissal believes their employer had 15 or fewer workers at the time of their dismissal;
- Create a dedicated small business division of the commission to deal with claims made against small business employers, with dedicated case managers that have appropriate experience; and
- Tell the commission to publish data in relation to unfair dismissal claims made against small business employers specifically, including the number of claims and their outcome.
This story was updated at 1:10PM AEST August 6.