Submission 167 Australian Council of Trade Unions Workplace Relations Framework Public inquiry

The Small Business Fair Dismissal Code and the employment threshold

The Small Business Fair Dismissal Code is a document developed as a checklist to assist small business operators in terminating an employee in a fair manner. The document is widely available for free over the internet, through employer organisations and other sources.

There is some value in providing guidance to small business operators on how to properly interact with employees in the context of counselling, discipline and dismissal. However, the Code should not be seen as a ready-guide or “tick the box” list of how to terminate an employee.

The ACTU has concerns that the Code is used as an ex post facto justification by certain employers facing unfair dismissal claims. This is clearly not the intent of the document and should not be accepted as a proper function for a document generated by the Commonwealth.

More generally, the ACTU can see no proper or rational basis in the UD framework for employers to be divided into “small’ and other businesses. The principal effect of the differential threshold is to disadvantage one class or group of employees relative to another, with no evidence that the differentiation delivers any particular social benefit, by way of increased employment or lesser regulatory burden on small business. In general, there is little in the way of hard evidence to support the proposition that the operation of UD laws in Australia has had any significant effect on small business – whether in terms of regulatory costs, or propensity to hire. As Stewart and Forsyth have observed:

“…there has been no evidence of any adverse impact on employment levels or economic performance [from FW Act UD laws] – just as none could be found when the Howard Government was endeavouring to justify the removal of unfair dismissal protection for workers at ‘small’ businesses. This is borne out by the few independent studies that have been done on the effect of employment protection laws in Australia. For example a survey of small businesses, undertaken just before the introduction of the 100-employee exemption in 2006, found that unfair dismissal laws ‘had minimal influence on job creation in the respondent businesses’, and that there was ‘no evidence’ to suggest that the new exemption would affect their short term plans for job creation. Other case studies have shown that while there is a strong degree of opposition on the part of small business owners to the idea of employees being protected against unfair dismissal, few of those surveyed had actually experienced any claims – and those that had were generally satisfied with the process and outcome.”⁶⁴²

We also refer to our commentary in chapter 4 (under the heading “The problems of labour demand”) concerning Borland’s work in this regard.

The small business employment threshold should be scrapped because there is no logical or evidentiary basis to support its continuation.

Compensation

The power of the FW Commission to order payment of compensation in lieu of reinstatement comes from s390(3) and s392 of the FW Act.

The FW Act specifies criteria that the FWC must consider prior to issuing a decision ordering the payment of compensation. This includes a range of indicia including; the effect that any order for compensation might have on the viability of the employer's enterprise; the length of service of the employee; the likely remuneration the employee would have received but for the dismissal; and efforts by the employee to mitigate his or her loss.⁶⁴³

According to the FW Commission website,⁶⁴⁴ during the period 2013/14 the number of arbitrated decisions where compensation was ordered were actually very small with less than 1% of applications for an unfair dismissal remedy resulting in an arbitrated outcome where compensation was awarded.

Whilst there is there is a general discretion to award compensation, members of the FW Commission are in fact subject to significant constraints. First, they are constrained by the statutory cap on unfair dismissal compensation awards, which confines the maximum payment to six months wages or 50% of the high income threshold, whichever is the lesser. Second, FW Commission members are constrained by the existing jurisprudence, which takes into account the legislative framework and common law decisions in regard to payment of compensation under the UD system reflected in decisions such as Sprigg v Paul’s Licensed Festival Supermarket^.645

The current cap on compensation payments should be removed. It is an arbitrary and unnecessary restriction on the discretion of the FW Commission. The ACTU believes that the existing criteria under s392(2) are sufficient to ensure that the FW Commission will not order over-generous compensation orders to affected employees.

Also, as we have argued in the Fair Work Act Review in 2012, Australia’s cap on unfair dismissal compensation payments does not compare favourably at an international level:

“Of the 28 OECD countries for which we have information:

• Compensation is unlimited in 15 countries;

• Ten countries impose a minimum compensation payment, with an average amount of 6 months’ wages, with higher minimums imposed in some countries when long-serving employees are dismissed; and

• Of the 14 countries that impose a cap on compensation, the average level of the cap is 15 months’ wages, not including any higher cap which applies to long-serving employees.”⁶⁴⁶

Awards of compensation in the high range in Australia (i.e. 4 to 6 months wages) are usually reserved for unfair dismissal cases where there was no valid reason for the termination, or the termination of employment was excessively harsh in the circumstances. The strict limitation imposed by the statutory cap clearly works against just compensation for workers who have been unfairly and harshly treated, sometimes after many years of loyal service to their employer.

The ACTU is concerned that the current compensation cap operates unfairly in respect to certain employees of long standing, as the case study below demonstrates.

Case Study – Workers unfairly dismissed prior to redundancy

In one example of an unfairly dismissed worker, whose claim of unfairness would almost certainly have been upheld by the FW Commission, reinstatement was strenuously opposed by the employer, meaning that compensation may well have been the only option at the arbitration of the claim.

In this particular case, at a food manufacturer in Victoria, four long-serving employees were terminated for misdemeanours that were relatively minor, and did not warrant as was evident during conciliation. Shortly after the workers were terminated, the maintenance work which these workers had been undertaking before their dismissal was outsourced to the employees of a subcontractor. In the ordinary course, had the four workers stayed in employment, they would either have been transferred to the subcontractor under their current terms and conditions, or they would have been made redundant. One particular worker was a very long standing employee who had accrued 80 weeks of redundancy, amounting to $200,000.

In conciliation, the employer was strenuous in its submission that trust and confidence had broken down, so that reinstatement of the workers would not be an option. The employer’s representative was also quick to offer 24 weeks’ pay by way of settlement of the unfair dismissal application – a most extraordinary offer, particularly at a conciliation stage. However, the offer was not extraordinary when the saving of 56 weeks’ redundancy pay is considered.

Clearly, the employer in this particular case was leveraging the statutory cap on compensation as a means to divest itself of four long-standing employees on as cheap a basis as possible.