MESSAGE FROM THE EDITOR
Following the raft of proposed changes set out in the Fair
Work Amendment Bill 2014 (Cth) released earlier this year,
there has been a relative dearth of new labour and employment
legislation proposed by the Federal Government. There have,
however, been other recent developments in Australian Privacy and
Corporations Law which will impact upon Australian employers, most
notably the Australian Securities and Investments Commission
Consultation Paper 218 on Employee Incentive Schemesand
the commencement of the changes to the Privacy Act 1988 (Cth)
introduced by the Privacy Amendment (Enhancing Privacy
Protection) Act 2012 (Cth).
The Consultation Paper proposes various changes that will make it
simpler for companies to obtain relief from the licensing and
disclosure requirements in Chapters 6 and 7 of the Corporations
Act 2001 (Cth) for the issue of certain types of quasi-equity
interests to employees under a new Employee Incentive Class
Order.
This Edition also provides a brief overview of themajor changes to
the Privacy Act that took effect on 12 March 2014. As was the case
under the previous version of the Privacy Act, employers will
continue to have the benefit of the "employee records
exemption"; however, employers should be aware that several
types of personal information collected by employers from employees
will not be considered employee records and that the exemption does
not apply to contractors and consultants, hence the need to be
aware of, and ensure compliance with, the new Australian Privacy
Principles.
Finally, this Edition considers the recent decision in
Dafallah v Fair Work Commission [2014] FCA regarding the
employers' compliance with its own internal disciplinary
policies, the decision in Re Cummings Engineering Holdings Pty
Ltd [2014] NSWSC 250 regarding termination payments to
departing senior managers and executives and the decision in
Murray v Ventyx Pty Ltd [2014] FWCFB 2143 regarding the
Award obligation to notify employees of workplace changes which are
likely to have significant effects for employees and the extent of
the obligation to redeploy.
Adam Salter, Partner
IN THE PIPELINE—HIGHLIGHTING CHANGES OF INTEREST TO EMPLOYERS IN AUSTRALIA
ASIC to Release Updated Employee Incentive Scheme Class Order in Coming Months
In November 2013, the Australian Securities and Investments
Commission ("ASIC") released a Consultation Paper 218 on
Employee Incentive Schemes ("Consultation
Paper"), together with a draft Regulatory Guide 49
Employee Incentives Schemes. ASIC cited various
legislative changes and market developments as having prompted a
revisit of its policy settings and the scope of relief provided
under Class Order [CO 03/184] Employee Share Schemes and
Regulatory Guide 49 Employee Share Schemes.
The Consultation Paper proposes various changes that will make it
simpler for companies to obtain relief from the licensing and
disclosure requirements in Chapters 6 and 7 of the Corporations
Act 2001 (Cth) ("Corporations Act") that apply to
the offer and issue of quasi-equity interests previously not
covered by the Class Order Relief, most notably cash-settled RSUs,
PSUs and SARs. ASIC also intends to remove the complexities faced
by unlisted bodies seeking relief and reduce the ongoing compliance
burden for all who have the benefit of relief.
The key proposed changes under new relief are as follows: (i)
relief for "performance rights" or quasi-equity interests
such as RSUS, PSUs and SARS, including such interests that can be
settled in shares and/ or the cash equivalent thereof; (ii) at
least 25% of all interests issued at each grant must be held for a
minimum of 12 months; (iii) no requirement to lodge the offer
documents and only substantive changes to plans need to be notified
to ASIC; (iv) the class of employees to whom offers can be made
will be extended to cover a broader class of contractors,
prospective employees and non-executive directors; and (v) the
previous requirement for 12 months' trading without suspension
for more than two trading days has changed to three months'
trading without suspension for more than five trading days.
Stop Press
The Consultation Paper timetabled the release of the new Class Order [CO 14/xx] and a finalised version of the Regulatory Guide 49 Employee Incentives Schemes for May 2014. After recently requesting further guidance on transition issues for those companies relying on the current Class Order relief, we were informed by ASIC that it now anticipates a June 2014 release date (although there is still no official word on this as yet).
NEW AND NOTEWORTHY—IDENTIFYING KEY DEVELOPMENTS IN AUSTRALIAN LABOUR AND EMPLOYMENT REGULATION
Significant Changes to the Privacy Act 1988 (Cth), but No Changes to "Employee Records" Exemption
Several major changes to Australia's privacy laws took
effect on 12 March 2014. Amendments to the Privacy Act
1988 (Cth) ("Privacy Act") introduced by the
Privacy Amendment (Enhancing Privacy Protection) Act 2012
(Cth) included: (i) broadening the scope of coverage to foreign
entities with no physical presence that have an "Australian
link" (collecting personal information from individuals who
are physically present in Australia as part of the carrying on of
business in Australia); (ii) enhanced enforcement powers for the
Information Commissioner; (iii) changes to credit reporting laws;
(iv) recognising external dispute resolution schemes; (v) provision
for the Information Commissioner to develop and impose binding
Privacy Codes; and (vi) most importantly, merging the former public
sector Information Privacy Principles and former private sector
National Privacy Principles into 13 new Australian Privacy
Principles ("APPs").
The new APPs introduced significant changes regarding: (i) the use
and disclosure of personal information for the purpose of direct
marketing; (ii) the obligation to develop and implement practices,
procedures and systems to ensure operational compliance with the
new APPs; (iii) obligations regarding the handling of inquiries or
complaints relating to the use or disclosure of personal
information; and (iv) cross-border transfers of personal
information.
As was the case under the previous version of the Privacy Act,
employers will continue to have the benefit of the "employee
records exemption" in section 7B of the Privacy Act which
provides that an act or practice engaged in by an employer is
exempt from the obligation to comply with the APPs if the act or
practice is directly related to a current or former employment
relationship between the employer and the individual and an
"employee record" held by the organisation and relating
to the individual.
"Employee Records" are defined by the Privacy Act to
include "a record of personal information relating to the
employment relationship between the employee and the
employer", including personal information about all or any of
the following: (i) engagement, training, discipline or resignation;
(ii) termination; (iii) terms and conditions of employment; (iv)
personal and emergency contact details; (v) performance or conduct;
(vi) hours of employment; (vii) salary or wages; (viii) membership
in a professional or trade association; (ix) trade union
membership; (x) recreation, long service, sick, personal,
maternity, paternity or other leave; and (xi) taxation, banking or
superannuation affairs.
However, several types of personal information collected by
employers will not be considered employee records, namely an
employee's personal information not directly related to the
employment relationship, such as private work emails and workplace
surveillance material. As such, employers are required to disclose
the collection and use of such personal information in accordance
with the APPs. Further, personal information collected from
independent contractors or consultants will not be covered by the
"employee records" exemption as they are not
employees.
Next Step for Employers
To the extent not done already, both local Australian and foreign entities carrying on business in Australia should conduct a careful review of their privacy policies, direct marketing communications and arrangements with overseas recipients of personal information in order to make any changes to them necessary to ensure compliance with the new APPs.
HOT OFF THE BENCH—DECISIONS OF INTEREST FROM THE AUSTRALIAN COURTS
Critical Conditions: Hospital Should Have Followed Disciplinary Procedure Before Terminating Employee
The appellant in Dafallah v Fair Work Commission [2014]
FCA 328 was employed as a clinical assistant by Melbourne Health.
Her colleagues complained that she had failed to be punctual,
present, awake and responsive to messages and directions throughout
her shifts. Dafallah's employer met with her to discuss the
concerns, and subsequently issued her a letter which purported to
contain both first and second warnings. Further complaints were
received, and Dafallah was issued a further letter containing a
"final warning". Following still more complaints, she was
dismissed from her employment.
The employee brought a claim against Melbourne Health in the Fair
Work jurisdiction. Dafallah claimed that the disciplinary process
breached the relevant Enterprise Agreement (that required the first
performance-related warning to be verbal, and the second and third
warnings to be discrete and in writing), breached her contract of
employment (which included the employer's own disciplinary
policy that also had not been complied with) and was a breach of
the employer's implied contractual and common law duty to
maintain a relationship of trust and confidence with the
employee.
The Fair Work Commission found against Dafallah. On appeal to the
Federal Court, the court agreed that the employer had substantively
breached the disciplinary procedures in the Enterprise Agreement
with the result that Dafallah's termination was accelerated
without due opportunity for her to improve her performance;
consequently, Dafallah was entitled to compensation of $15,500.
However, the court did not find that the alleged breach of the
employer's own policy entitled Dafallah to damages as the
employer's policy did not form part of the employee's
contract and she had never actually read the policy. Finally, the
court found against Dafallah on the breach of the obligation to
maintain a relationship of trust and confidence on the basis that
the claimant simply had not articulated and evidenced a breach of
sufficient seriousness.
Lessons for Employers
Firstly, if employers have disciplinary policies in place (or
are covered by an enterprise agreement containing express policies
and procedures), then it is critical that the employer follow them.
Secondly, if other documents (such as codes of conduct) are
incorporated into employees' contract of employment, then it is
critical that the employees be provided with a copy of those
documents and acknowledge having read them.
Finally, following the decision in Commonwealth Bank of
Australia v Barker [2013] FCAFC 83, a duty of trust and
confidence has been implied into Australian contracts of
employment. However, in this case the court was at pains to point
out that while it was bound by Barker, the issue is not
"settled" under Australian law, and that claims in tort
or arising from an employee's termination would be difficult to
support.
Sealed with a Kick: Payoffs to Managers and Executives Need Close Attention
The Supreme Court of New South Wales recently heard the case of
Re Cummings Engineering Holdings Pty Ltd [2014] NSWSC 250.
The litigation arose from a dispute between four siblings, the
shareholders in a family engineering company. The Managing Director
(who was the founder's son) liquidated the assets of the
unsuccessful business, realising in excess of $1.6 million.
The Managing Director continued to draw his salary for six months
after the assets were sold, at which point he wrote himself a
redundancy notice, and the directors of the company (the Managing
Director and his wife) approved a $250,000 termination payment for
the Managing Director. Unsurprisingly, the other three shareholders
objected to the payment.
The dispute resulted in somewhat complex litigation. The three
shareholders alleged that the payment to the redundant Managing
Director was made in breach of ss.200B and 200G of the Corporations
Act. Those sections (broadly speaking and subject to various
exceptions) require shareholder approval for any termination
payment to certain senior managers and executives unless the amount
paid is less than the recipient's average annual base salary.
The Court found that as a matter of fact, the amount paid to the
Managing Director (excluding various accrued entitlements) did not
exceed the amount provided for in s200G, and so there was no breach
of s200B.
However, the three shareholders also claimed the payment was a
breach of the directors' statutory and common law duties to act
in the interests of the company as a whole when exercising their
powers as directors. Here, the Court agreed and noted that just
because there was no breach of s200B did not mean that any payment
under the s200G threshold was permitted.
The Court found that while the company was obliged to pay out the
Managing Director's entitlements accrued under contract and
statute (e.g., long service leave), the payment in excess of those
amounts was voidable and could be returned to the company and
distributed among shareholders. Moreover, the Managing Director was
not entitled to any pay in lieu of notice in circumstances when he
was aware of his redundancy for six months before he resolved to
terminate himself!
Lesson for Employers
Whenever terminating the employment of senior managers and executives, it is critical to bear in mind the Corporations Act requirements regarding termination payments when making payments to them that are close to or exceed the manager's or officer's average base annual salary. Shareholder approval may be required. Further, when approving termination payments (including those under the threshold), directors should always be careful to ensure that they act in the best interests of the company as a whole.
What Is "As Early As Practicable" When It Comes to Notifying Employees of Workplace Change Under Awards and What Is the Limit of the Redeployment Obligation?
The claimant in Murray v Ventyx Pty Ltd [2014] FWCFB
2143 was employed as a technical project manager by Ventyx Pty Ltd
and was one of nine employees made redundant in Australia. Ventyx
notified Murray of the redundancy on 1 July 2013 and was told that
it was to take place on 2 July 2013. On that date, there was a
meeting at which Murray was told he should supply Ventyx with any
additional information relevant to the decision. Despite expressing
an interest in relocating overseas during that discussion, Murray
was made redundant.
Murray was employed pursuant to the Professional Employees Award
and hence had access to the unfair dismissal remedy where the
termination of his employment was not a genuine redundancy.
Consequently, Ventyx was obliged to consider options for
redeployment and discuss the decision with Murray "as early as
practicable".
Before the Fair Work Commission ("FWC"), he successfully
argued that it was not a genuine redundancy (on the basis that the
discussion was not held as early as practicable and Ventyx had not
given prompt consideration to the relocation request) and received
$64,650 in addition to his redundancy package.
Ventyx successfully appealed to the Full Bench of the FWC, which
overturned the decision of the FWC on the basis that the cost of
relocation ($15,000 to $30,000) was prohibitive and the discussion
was held "as early as practicable" as its timing was
necessary to maintain the confidentiality of client data that
Murray had been working with.
Lessons for Employers
There are two key points for employers. Firstly, the Full Bench
held that "as early as practicable" meant that
"various exigencies", such as security and
confidentiality considerations, were relevant to determining the
timing of discussions. However, the Full Bench did remark that the
closer the discussion is held to the redundancy, the more difficult
it will be to give prompt consideration to matters raised by the
employee in that discussion.
Secondly, in relation to an obligation to consider overseas
relocation, the Full Bench required relocation to be a practical
option. The cost to the employer of relocating was a legitimate
reason to decline that option, but the result could have been
different if the employee were willing to cover such cost himself.
The Full Bench also noted that other factors were just as relevant
to the decision, such as the business case in favour of employing a
worker from overseas and the tax implications.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.