Australia: Will You Need To Change Your Dismissal Practices To Comply With The Fair Work Act?

What is an "unfair dismissal"?

The Bill does not change the fundamental principle that a dismissal will be unfair where it is "harsh, unjust or unreasonable". However some employees whose dismissal is just that, may for a variety of reasons, not have recourse to the unfair dismissal laws. Some of the exclusions proposed by the Bill are new whilst others continue exclusions that have existed either pre or post WorkChoices.

Who is covered by the new unfair dismissal laws?

As you may recall, one of the most reviled changes to workplace relations laws was the introduction, by WorkChoices, of a broad range of new exemptions, the most controversial of which was the exemption of employers with up to 100 employees. Approximately 4.6 million employees (56% of the workforce) were affected by this exemption according to the February 2009 report by the Standing Committee on Education, Employment and Workplace Relations (Committee) citing the Bill's Explanatory Memorandum. The changes proposed by the Bill attempt to redress that most controversial change together with some of the other exemptions and are slated to commence on 1 July 2009. Whether the changes in their current form will pass is debateable given the Coalition's and Senator Fielding's public opposition to this particular aspect of the Bill.

Depending on whether further amendments are negotiated and agreed to, as at the date of this Update, the Government is proposing that from 1 July 2009, all employers, regardless of size, and provided they are constitutional corporations (trading, foreign or financial corporations), will be subject to unfair dismissal claims by employees unless the employees fall within one of the exemptions (exempt employees).

When does size matter?

Under the Bill, it is proposed that employers with less than 15 employees (small businesses) have more latitude with respect to the dismissal process and exposure generally. An employee of a small business will not be able to bring an unfair dismissal claim where:

1. they have less than 12 months service (all employers other than small
   businesses have a six month qualifying period)
2. the small business has complied with the Small Business Fair Dismissal Code (Code) which (still in its draft form) is a "simple six-paragraph" list of issues to address for a termination based on unsatisfactory conduct, performance or capacity to do the job. In summary, the Code enshrines for this type of conduct or performance-related termination, the principles of fairness which would be at the basis of any termination process that most employers, seeking to avoid unfair dismissals, would probably currently follow. It also sets out where the Code will not apply (i.e. to those employees not covered by the legislation and in cases of serious misconduct where summary dismissal would be warranted). To view the Code please click here).

Whilst the number of employees of an employer is now lower for the small business exemption, the numbers may be more easily "reached" because in counting the numbers of employees those employees of "associated entities", as defined in the Corporations Act, are included, whereas under WorkChoices it was only employees of "related bodies corporate" that were counted. The impact of this change is that it may be harder for businesses in a group to fall within the definition of a small business as "related bodies corporate" has a narrower scope than "associated entities".

Which employees cannot bring an unfair dismissal claim? Who are the exempt employees?

• specified task, specified period or seasonal employees – the Bill does not alter the current law. These types of employees are considered not to have been dismissed where their employment relationship ends because of an arrangement whereby a specific task is completed, or a period or season ends.

• qualifying period – 6 months or 12 months depending on the size of the employer (currently the period is 6 months). Any transfers (transmissions) of business will require a new employer to specifically notify employees of an employer from whom the business is transferring, that a qualifying period will apply to their employment

• probationary employees - no longer a specific exemption. Probationary periods became academic with the introduction of a qualifying period

• casual employees – not covered if they are "true casuals", which are employees without regular and systematic employment for a 6 month or 12 month period depending on the size of the employer.

• highly remunerated employees - currently if employees earn over the prescribed amount (currently $106,400) and are not covered by "award derived conditions" then they will not be eligible to make an unfair dismissal claim. It is similar under the Bill although the remuneration level is set at $100,000 (the "high income threshold") and "award derived conditions" will mean modern award or enterprise agreement. Remuneration will not include amounts that cannot be determined in advance, amounts reimbursed and superannuation. Regulations will provide more detail on how to calculate remuneration for the purpose of this exemption.

• employees bringing claims outside the time limit – the Bill will shorten the time frame for bringing unfair dismissal claims down from 21 days (currently) to 7 days, although the Committee recommends this be amended to 14 days. This is in stark contrast to the proposed extended time period of 60 days for bringing an unlawful termination claim (it is currently 21 days).

Other significant differences between WorkChoices and the Fair Work Bill

Redundancies

The WorkChoices exemption of "genuine operational requirements" has been limited so that it now applies only to redundancies. Under the Bill, it will not be a "genuine redundancy" and therefore an exemption unless the employer has considered whether redeployment within the employer's organisation or that of an "associated entity" is reasonable. Despite this exemption, all employers, as of 1 January 2010, will be required in the case of redundancies to make redundancy payments in accordance with industrial instruments, contracts or the National Employment Standards, depending on which is the most generous (to view our recent update on this, please click here). Further, in order to avoid other types of legal action, including claims for unlawful termination, redundancies should be based on objective selection criteria and be justified based on the operational needs of the employer.

Process

WorkChoices heralded significant changes in dealing with jurisdictional matters and enabled employers to seek to have applications struck out in a cheaper and faster way if employees were precluded under the legislation from being able to bring an action. This cheaper, faster approach is extended with the Bill, allowing unfair dismissal applications to be dealt with in a conference, as opposed to having to proceed to a formal hearing. A conference may be held after Fair Work Australia has reviewed the application to ensure they have jurisdiction (as opposed to the current regime where jurisdiction is something raised generally by the respondent employer).

Will the provisions be amended in the Senate?

The size of employer for the small business exemption remains hotly contested. The Coalition's position, as at the date of this Update, is that the size of employer covered by this "small business exemption" should increase from 15 to 25 full-time equivalent employees. Senators Fielding and Xenophon also argue the size of employer should increase, but only to 20 full-time equivalent employees. The Greens support the Bill's current definition of small business but are reportedly seeking other amendments such as the ability by Fair Work Australia to block employers being terminated "if CEOs are on unfair and what the Prime Minister calls obscene payment packages". The Greens also flagged in their submissions to the Senate Inquiry that the timeframe for lodging an unfair dismissal claim should remain at 21 days.

In relation to time limits, the Committee recommended the period be increased from the proposed 7 days to 14 days (which is still a shorter period than under the current legislation of 21 days). Senator Xenophon has proposed this change and the Government appears willing to agree.

The other recommendation of the Committee is that the Bill be amended to require the Code to provide for employee warnings in writing. Under the current draft, the Code considered written warnings "desirable" but not "necessary". These recommended amendments have not been taken up by the Government.

Implications for employers

As an employer, the employee whose termination is being considered and your company's size may end up dictating the process you follow.

The biggest impact of the Bill is on the small businesses which, for at least the past 2 years since WorkChoices, have had the option, if they availed themselves of it, of terminating without having to worry about process or unfair dismissal actions. Of course, it remained our advice to these employers during this period that the availability of other forms of legal action on termination still warranted some process and rigour around terminations of employment. It may be that for some employers the only change is the reality of facing legal action again, i.e. their processes remain unchanged, as they still afforded procedural and substantive fairness to employees being considered for termination.

For all employers covered by the Bill, there should be a process conducted, either in accordance with the Code or more detailed than that, prior to and upon termination of employment, to reduce exposure to a successful unfair dismissal action.

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.