Unfair dismissal: The changes explained
June 2009
The WorkChoices reforms of March 2006 removed certain small to medium businesses from the regulatory burden of unfair dismissal claims. These changes exempted all incorporated businesses with 100 employees or less from claims. Further, no employer was subject to a claim where a dismissal was for "genuine operational reasons". Both of these exemptions have been scrapped under the new law which is called the Fair Work Act.
A new "Code" for unfair dismissal
Perhaps the most far-reaching change is the introduction of the Small Business Fair Dismissal Code for businesses which employ fewer than 15 employees. The Code sets out the procedure for dismissing an employee and includes a checklist to be completed by the empoyer at the time of dismissal. A dismissal may be deemed unfair if it is not consistent with the code. The new procedure includes giving a single warning and an opportunity and time for improved performance. The warning need not be in writing. This contrasts with the "rule of thumb" which evolved under the pre-2006 system where three warnings were required in order to justify a dismissal. A dismissal may be deemed unfair if it is not consistent with the Code.
The Code provides certainty for small businesses. If the Code is followed then a dismissal will likely be deemed fair. However, it also creates substantial risks if systems are not brought into line with the Code. If the Code is not followed, then presumably it will be very difficult, if not impossible, to prove that the dismissal was "fair".
Excluded claims
There are some important exemptions. Employees on a high income (expected to be salaries over $106,400) cannot make a claim. Further, employees who are not under either a modern award or an enterprise agreement are excluded. However, employers should take care. Award coverage is extensive under the Federal system and is not limited to employers who have been notified or "roped into" award coverage. One way in which employers can be blindsided is that certain managerial or professional employees earrning less than $106,400 may be covered by awards. Employers will be well advised to check the coverage of Federal awards to identify which workers are and are not covered by awards and who, therefore, may bring unfair dismissal claims.
Other exemptions include that employees who have not been employed for the "minimum employment period" cannot bring claims. This is 12 months of employment for a 'small business' (fewer than 15 employees) or six months for a large employer (15 employees or more). Further, employees employed for a specified task, a specified period of time, on a casual basis or seasonal workers, or employees subject to a training agreement with limited duration cannot bring a claim.
When a claim is made
Under the new system, Fair Work Australia will hear unfair dismissal claims, which must be brought within 14 days. Consistent with the Rudd Government's "job security" agenda, reinstatement is the primary remedy, although Fair Work Australia may order compensation of up to six months' pay if satisfied that reinstatement is inappropriate and compensation is appropriate. Further, the Rudd Government's fact sheet asserts that under the new system "employers will no longer need to pay 'go away' money, since the process will be quick, simple and informal". Whether this occurs remains to be seen. Under the pre-2006 system, which was not radically different to the new system, vast numbers of claims were brought and many employers decided that the best commercial solution was, indeed, to pay "go away" money.
Preparing your business
The new unfair dismissal laws place the onus on small to medium businesses to manage their employees' performance "fairly" while providing a degree of certainty (through the new Code) about how to do this. For employers who have well developed performance management processes the new laws should not provide any difficulties. However, for smaller buinsesses with fewer resources there is a need to "gear up" to avoid a potentially costly claim or claims.
Finally, even though the Small Business Fair Dismissal Code will only apply to small business, it is likely that it will become a benchmark for "fair process" and, therefore, larger businesses may be well advised to consider ensuring that their processes at a minimum conform with the Code, as a measure of insurance against claims.
For further information please contact Mark Hemery, Principal, on mhemery@talbotolivier.com.au or David Paton, Solicitor, at dpaton@talbotolivier.com.au.
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