Average unfair dismissal claim costs businesses $13,500: Productivity Commission flags “no-fault dismissal” but quickly backs away

Average unfair dismissal claim costs businesses $13,500: Productivity Commission flags “no-fault dismissal” but quickly backs away


Introducing a “no-fault” dismissal system into the Australian workplace relations system would save employers and the government thousands of dollars a year, according to the Productivity Commission.

A “no-fault” system, which could operate in a similar way to the “no-fault” divorce regime, however the commission says this may give employees a greater incentive to lodge vexatious claims against the businesses they work for.

A “no-fault” dismissal system is one of several proposals flagged in the Productivity Commission’s report, which recommends changes to Sunday penalty rates and enterprise bargaining for small businesses, among other things.

The productivity report said the system would mean employers could provide some form of financial settlement, as well as access to a job transition service, to employees who are dismissed and in return, employees would not be able to apply to the Fair Work Commission to rule if the dismissal was unfair.

The report outlined several advantages to this approach, including a reduction in the Fair Work Commission’s current budget of $80 million and “significant savings” to employers and employees.

According to the Productivity Commission, an average unfair dismissal claim costs an Australian employer approximately $13,500.

The commission said this type of system would still mean employers had to compensate employees that are dismissed and so “depending on the level of the payment, it would still provide some broad incentives for businesses not to unscrupulously dismiss workers”.

But the Productivity Commission said the cons of such a system would likely outweigh the benefits.

Among the “major issues” with a “no-fault” dismissal system is the potential for compensation payout to be “inadequate for genuinely egregious dismissals” or for employees who were dismissed for valid reasons to “seek and obtain compensation”.

It could also “create perverse incentives for some employees to engage in misconduct to receive the no-fault payout, since the employee knows that the employer has no recourse to have a vexatious claim dismissed”.

And the commission said it is likely such a system would mean employees and employers would seek remedies under common law instead.

Peter Strong, executive director of the Council of Small Business of Australia, labelled the proposal as “silly”, telling SmartCompany this morning it would do nothing to resolve the problems with the current unfair dismissal regime.

“It says the system is broken but we’ll just fix it with a Band-Aid,” Strong says.

But Strong does support the Productivity Commission’s recommendation that members of the Fair Work Commission focus more on the substance of unfair dismissal claims, rather than the procedures of dismissing a worker.

“We need to get away from the legalese and into the reality,” he says.




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