Australia: From Hiring to Firing: a basic guide to the Australian employment law life cycle

A BASIC GUIDE TO THE AUSTRALIAN EMPLOYMENT LAW LIFE CYCLE

HIRING

For many employers, the key to having a productive and high-performing workforce is recruiting the right people. It is important for employers to be aware that even before an employee commences work, there is a number of legal issues that arise in the process of seeking, interviewing and selecting candidates for a position.

JOB APPLICANTS

Employers are prohibited from discriminating on the basis of an attribute (including sex, race, pregnancy, age, impairment, political belief or activity) against job applicants in determining who should be offered employment. The protected attributes from state to state depend on the state's legislation. When short listing or selecting candidates, employers should ensure that any decision is based on consistent selection criteria, which are not discriminatory.

Employers also must not discriminate against a person in the terms upon which employment is offered to them or by refusing or deliberately omitting to offer employment to a person.

MAKING AN OFFER OF EMPLOYMENT

An offer of employment may not be in writing. A verbal offer is still an offer for the purposes of forming a binding contract, once accepted by the employee. However, a written offer signed by the employee is recommended. This written offer should include the date of commencement of the employment, the position, information regarding wages and any other important aspects of the employment relationship that differ to or are not set out in Australia's employment legislation, the Fair Work Act 2009 (Cth) (Fair Work Act).

EXISTING RESTRICTIONS

Employers should ensure that the prospective employee does not have any restrictions that may prevent him or her from entering into the employment contract (for example, a post-employment restraint of trade imposed by his/her former employer).

EMPLOYMENT CONTRACT

In formulating the employment contract, an employer should be aware of the minimum statutory terms and conditions set out in the Fair Work Act, applicable long service leave legislation and applicable superannuation legislation.

The basic terms usually include the duration, position, duties, probationary period, remuneration including any bonuses, other benefits such as car allowance, leave (including annual leave, personal or carer's leave, parental leave, long service leave), superannuation, notice of termination, the right to summarily dismiss, protection of confidential information and intellectual property, post-termination restrictions and governing law and jurisdiction.

MANAGING

A wide range of matters arise during the employment relationship that requires careful management in order to ensure that a positive ongoing relationship is maintained, and that there is compliance with relevant legal obligations.

BENEFITS AND ENTITLEMENTS

Modern awards apply to national system employees in a particular industry or occupation. Enterprise awards apply to particular employers. These awards and the National Employment Standards set out the minimum requirements with which an employer must comply in respect of benefits and entitlements for their employees, including the minimum wage. If employees are covered by an enterprise or collective agreement (an agreement negotiated collectively between employees (and/or a union) and the employer), this will set out employees' benefits and entitlements.

THERE ARE TEN NATIONAL EMPLOYMENT STANDARDS SET OUT IN THE FAIR WORK ACT:

Hours of work – the ordinary hours of work for an employee to whom a modern award or enterprise agreement applies will be the ordinary hours specified in the award or agreement. Under the National Employment Standards, an employee's maximum weekly hours of work, for a full-time employee, is 38 hours. An employer may require an employee to work reasonable additional hours.

Request for flexible working arrangements – an employee who is a parent, or has the responsibility for care of a child, may ask their employer for a change in working arrangements to assist with caring for the child. The employee must have completed at least 12 months of continuous service to qualify for the request. An employer may refuse a request for flexible working arrangements on reasonable business grounds.

Annual leave – all employees other than casual employees are entitled to four weeks' paid annual leave for each year of service. Annual leave accrues progressively and must be taken for a period agreed between the employee and employer.

Personal/carer's leave – all employees other than casual employees are entitled to ten days of paid personal/carer's leave (this covers sick leave) for each year of service. An employee may take personal/ carer's leave if he/she is not fit for work because of personal illness or injury, or to provide support to a member of the employee's immediate family (or a member of their household) who requires care or support because of personal illness/injury or an unexpected emergency. All employees are also entitled to two days of unpaid carer's leave for each occasion, if they have exhausted their entitlement to paid leave. The two days unpaid carer's leave also applies to casual employees.

Compassionate leave – all employees other than casual employees are entitled to two days of paid compassionate leave for each occasion when a member of their family or household dies, contracts a personal illness or sustains a personal injury that poses a threat to the member's life.

Community service leave – employees other than casual employees who engage in eligible community service (including jury service and voluntary emergency management activity) may be absent from his/her employment to engage in the activity. The employee is also entitled to reasonable travel time associated with the activity and reasonable rest time after the activity.

Public holidays – an employee is entitled to be absent from work on a day (or part-day) that is a public holiday in the place where the employee is based for work purposes. The National Employment Standards list eight public holidays. Additional days may be prescribed under a law of a state or territory.

An employer may ask an employee to work on a public holiday if that request is reasonable. The Fair Work Act describes factors that must be taken into account when determining whether a request is reasonable, for example, the personal circumstances of the employee, including family responsibilities.

Unpaid parental leave – unpaid parental leave includes birth-related leave and adoption-related leave. The leave must be associated with the birth of a child to the employee or the employee's spouse or de facto partner, or the placement of a child with the employee for adoption. The employee must have responsibility for the care of the child in order to take the leave. The employee must have completed at least 12 months of continuous service with the employer to be entitled to unpaid parental leave. An employee alone can take up to 12 months' leave, or each member of an employee couple may take separate periods of leave of up to 12 months.

A paid parental leave scheme has recently been introduced in Australia, giving those eligible an entitlement to 18 weeks' paid parental leave at the national minimum wage, to be paid by the government via employers. The Paid Parental Leave Act 2010 came into effect on 1 January 2011.

Notice of termination and redundancy pay – an employer must not terminate an employee's employment unless it has given written notice of the day of termination. The length of notice depends on the duration of service of the employee. This is discussed further below. The National Employment Standards also entitle an employee to redundancy pay where employment is terminated for specific reasons. This is also discussed below.

Fair Work Information Statement – employers are obliged to provide a Fair Work Information Statement to all employees who commence employment. The statement contains information about a number of matters, including an explanation of the National Employment Standards, modern awards, collective agreement in the workplace, termination of employment and the right of a trade union to enter the workplace.

WAGES

Employees may be paid weekly, fortnightly or monthly. Employers must issue pay slips (in hard copy or electronically) to each employee within one working day of their pay day, even if they are on leave.

Those employees covered by a modern award (or enterprise award) are entitled to be paid at least the minimum wage set out in that award. The National Employment Standards set out the national minimum wage applicable to employees who are not covered by a modern award. This includes senior employees, for example managers and executives, as well as professional employees such as accountants, marketing and information technology specialists. Employers may express an employee's wage as an overall annual salary, which has entitlements such as overtime and penalties built into it.

Modern awards often have provisions related to the manner and timing of the payment of wages.

The Fair Work Act prohibits employers from deducting money from employees without their written authorisation. The agreement must specify the amount of the deduction. The deduction must also be principally for the employee's benefit.

SUPERANNUATION

Employers are required to pay superannuation for all employees, except casual employees, in accordance with superannuation legislation. The current minimum rate of superannuation required to be paid into a superannuation fund for full-time and part-time employees is 9% of the employee's salary.

LONG SERVICE LEAVE

Long service leave is dealt with by state and territory legislation. Depending on the jurisdiction, employees become eligible to take long service leave after completing between seven and 15 years of continuous employment with the same or a related employer.

TAXATION

All employees who earn income in Australia are required to pay income tax. Employers deduct income tax instalments (PAYG instalments) from employees' wages. Deductions go to the Australian Tax Office (ATO). The amount of the deduction depends on the income of the employee and varies depending on the level of earnings of an employee. The more an employee earns, the greater the income tax they are required to pay. Employees are responsible for lodging their individual tax returns at the end of the financial year with the ATO.

VARYING TERMS AND CONDITIONS

Parties to an employment contract may at any time agree to vary the terms of the contract. Employers must not vary the employment contract unilaterally. Employment contracts often include a term stating that variation to the terms of the contract can only be made in writing and signed by both parties. Unauthorised variations of an employment contract by an employer may be considered a repudiation of the contract by the employer, giving the employee the option of accepting the repudiatory conduct and suing the employer for damages.

OCCUPATIONAL HEALTH AND SAFETY

Each state and territory has separate occupational health and safety legislation. Generally, employers are required to ensure, so far as is reasonably practicable, the health, safety and welfare of their employees while they are at work. Occupational health and safety legislation sets out an employer's duties. Investigations and prosecutions are conducted by the relevant statutory body.

Safe Work Australia is developing national model occupational health and safety laws. By December 2011, each jurisdiction in Australia will be required to enact their own jurisdictional laws that mirror the national model laws.

RECORDS

Employers must keep certain written records in relation to their employees for seven years, including records about time and wages.

FIRING

The termination of employment may be brought about in a number of ways, for example exercising a contractual or statutory right to terminate, by agreement or by operation of law. Employers need to be aware of their contractual and common law obligations as well as the statutory provisions when ending an employment relationship.

NOTICE REQUIREMENTS

Minimum periods of notice at termination are set out in the National Employment Standards. The length of notice required to be given to an employee will depend on the duration of the employee's period of continuous service. At the lowest end, an employee who has been with their employer for less than a year is entitled to one weeks' notice. At the highest point, if an employee has been continuously employed with an employer for more than five years, they are entitled to four weeks' notice. Under the National Employment Standards, an employee who is over 45 years old is entitled to an extra week of notice if they have at least two years of continuous service. Written notice of the day of termination must be given. Payment may be made in lieu of notice and must include superannuation.

A greater period of notice required for termination is typically stipulated in the employment contract of executives working for the employer. The period of notice may be anywhere between one and three months.

Employees are generally required to give the same minimum period of notice to their employer when terminating their employment.

PROCEDURAL REQUIREMENTS

Notice of termination may be given to an employee by delivering it personally, leaving it at the employee's last known address or sending it in pre-paid post to the employee's last known address.

REDUNDANCY

All employees are entitled to redundancy pay when their employment is terminated at the employer's initiative because the employer no longer requires the job done by the employee to be done by anyone, or because the employer is bankrupt or insolvent. The entitlement is based on a sliding scale and calculated by reference to the length of the employee's continuous service on termination. An employee who has worked more than one year but less than two years is entitled to four weeks' pay. An employee has been employed continuously for over nine years but less than ten years is entitled to 16 weeks of redundancy pay.

The length of an employee's service prior to 1 January 2010, when the National Employment Standards came into operation, is only counted if the employee had an entitlement to redundancy pay under some other instrument, such as a modern award (or enterprise award), agreement or employment contract.

SUMMARY TERMINATION

The minimum period of notice does not apply where an employee is summarily dismissed for serious misconduct. Serious misconduct occurs where an employee is in serious breach of the obligations owed to his/her employer.

At common law, examples of serious misconduct include dishonesty, assaulting a colleague or refusing to follow a fair and reasonable direction of the employer.

UNFAIR DISMISSAL

Employees who have completed six months of service with their employer and are covered by a modern award, an enterprise agreement and/or whose sum of annual earnings is less than the high income threshold (as defined in the Fair Work Act and indexed annually) are protected from unfair dismissal.

An employee who is earning the high income threshold and is not covered by an agreement or award is excluded from being able to claim unfair dismissal. The figure representing the high income threshold is indexed each July, and sits at around $110,000.

Small business employers are subject to the Fair Dismissal Code, formulated under the Fair Work Act. A small business employer is an employer who has less than 15 employees at one time. Under this Code, employees of a small business employer may claim unfair dismissal against their employer if they have completed 12 months of service with the employer and have been dismissed.

A person is unfairly dismissed if their dismissal was harsh, unjust or unreasonable. The Fair Work Act states that an employee is dismissed if his/her employment has been terminated on the employer's initiative or if the employee resigned but was forced to do so because of the employer's conduct.

Reinstatement or compensation (capped at six months' salary) are amongst the orders that an employer may receive if unfair dismissal is established by the employee.

TERMINATION PAYMENTS

Upon termination, certain statutory entitlements must be paid to the employee. This includes accrued but untaken annual leave, accrued wages for work performed and payment in lieu of notice (if relevant). An employee may also be entitled to other contractual entitlements on termination.

GENERAL PROTECTIONS

Under the Fair Work Act, employers are prohibited from taking 'adverse action' against an employee because the employee has exercised a 'workplace right'. Workplace rights include benefits under workplace law, making a complaint or inquiry and participating in a process or proceeding under a workplace law or instrument. Adverse action includes dismissing the employee, altering the position of the employee to the employee's prejudice and discriminating between the employee and other employees.

The prohibition of discrimination under the general protections provisions is separate from, and additional to, other discrimination law.

DISCRIMINATION

Direct and indirect discrimination in employment is prohibited in all states and territories of Australia under the relevant equal opportunity or anti-discrimination legislation. Discrimination may be on the basis of sex, race, pregnancy, impairment, industrial activity, race and religious beliefs, amongst other things. Harassment and victimisation are also prohibited. The tests for discrimination differ between states.

Commonwealth equal opportunity legislation is separated into the different categories of discrimination. The Acts relevant to discrimination in employment are:

  • The Age Discrimination Act 2004 (Cth) prohibits discrimination against a person on the grounds of that person's age.
  • The Sex Discrimination Act 1984 (Cth) prohibits discrimination on the basis of sex, marital status, pregnancy or potential pregnancy and family responsibilities (only in relation to dismissal).
  • The Disability Discrimination Act 1992 (Cth) prohibits discrimination on the basis of a disability, either directly or indirectly, in relation to employment.
  • The Racial Discrimination Act 1975 (Cth) prohibits direct and indirect discrimination based on a person's race, colour, descent or national or ethnic origin in a range of areas.
  • The Australian Human Rights Commission Act 1986 (Cth) prohibits discrimination on the basis of age, medical record, impairment, marital status, mental, intellectual or psychiatric disability, nationality, physical disability, sexual preference or trade union activity and, in some circumstances, criminal record.

CONFIDENTIAL INFORMATION/POSTTERMINATION RESTRAINT OF TRADE

Employers should ensure that they have in place sufficient protection in relation to their confidential information, intellectual property rights and clients/customers/employees to prevent a departing employee from causing significant damage to the employer's business. Significant damage may be caused if an employee sets up a rival business, uses confidential information they have received in the course of their employment to the disadvantage of their former employer or encourages clients to move with them. To protect the employer's business, a post-termination restraint of trade should be included in the employee's contract. However such clauses are generally presumed to be void at law. In order for the restraint to be enforceable it must be reasonable and for a defined period of time. There must also be a legitimate reason for imposing the restraint.

REFERENCES

Employers are not obliged to provide a reference for a former employee. When considering whether to do so or not, employers must be aware that when a reference is provided, the reference must not misleading. Potential liability may arise if a reference is misleading and the employee engages in serious misconduct to the detriment of the new employer.

LITIGATION

Fair Work Australia is the national workplace relations tribunal in Australia. It is an independent body with power to carry out a range of functions under the Fair Work Act. It may deal with issues related to the safety net of minimum wages and employment conditions, enterprise bargaining, industrial action, dispute resolution, termination of employment and other workplace matters. Other courts may also have jurisdiction over some matters, depending on the monetary amount claimed or the type of claim being made against the employer.

If an employee claims they have been discriminated against, a complaint may be made to the relevant state's equal opportunity commission or tribunal. If the complaint is made under federal legislation, it may be made to the Australian Human Rights Commission or the Federal Magistrates' Court.

© DLA Piper

This publication is intended as a general overview and discussion of the subjects dealt with. It is not intended to be, and should not used as, a substitute for taking legal advice in any specific situation. DLA Piper Australia will accept no responsibility for any actions taken or not taken on the basis of this publication.


DLA Piper Australia is part of DLA Piper, a global law firm, operating through various separate and distinct legal entities. For further information, please refer to www.dlapiper.com

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