Avoiding a successful Unfair Dismissal claim – Some hints and tips

It is said that the most valuable asset of a business can be its employees.  Whilst that is usually true, from time to time it becomes necessary, for the good of the business or the harmony of the workforce, to terminate the employment of an employee.  This article is intended for SMEs (particularly financial services businesses) and is not directed to large enterprises with a highly unionised workforce.  It is also not intended to cover every aspect of the termination of employees or to recommend that unsatisfactory employees be retained at all cost – but rather to give some insight into the background and processes which may be involved.

“Getting the sack”

Centuries ago, workers carried their tools and belongings to work in a rough bag or sack which they left with their employer for safekeeping.  When a worker was dismissed, he would be summoned to his employer and handed his sack of belongings and tools and then sent on his way.

It is going to happen

Employers will inevitably be faced with having to “let go” an employee for various reasons.  Internal or external factors might dictate the necessity to do so – that is, the employee’s conduct or performance at one end of the scale and economic factors affecting the entire industry at the other.  Whatever the cause, if the termination of employment is an “unfair dismissal”, the employee may be likely to be awarded damages in respect of the unfair dismissal or reinstatement of employment, or both.  Accordingly, care and forethought are prudent prior to giving an employee “the sack”.  Attention to the provisions of the Fair Work Act 2009 (Cth) and the Small Business Fair Dismissal Code as well as ensuring that you comply with procedural fairness[1], will reduce the prospect of any additional liability.

Firstly – is the proposed dismissal caught by the Fair Work Act?

Employees must have been employed for at least 6 months before an application can be made for unfair dismissal.  In the case of a small business where the Small Business Fair Dismissal Code applies, the period is 12 months.

Hasten slowly

When an employee is not performing, is disruptive or otherwise places a business in jeopardy, it is easy to fly off the handle and take ill-considered (and potentially expensive) action amounting to on-the-spot dismissal.  Except where summary dismissal is clearly warranted, immediate dismissal is unwise.  In all situations emotional, heated and knee-jerk reactions must be avoided.

Consider whether there is any viable alternative to termination of employment – is there a part of the business where the employee would be a better fit?

Are there discernable external factors which have precipitated a change in attitude by the employee?  Before a decision to terminate is made, it is essential to enquire (sensitively) about and consider whether there may be medical issues such as depression or personal issues such as divorce.  Might the employee be “rescued” with some counseling or assistance?  If medical issues, stress or personal problems are not taken into account by an employer, there is a risk of allegations of the dismissal being characterised as discrimination or even bullying.  Whilst the business is not a charity and does not need to end up as a “lost dogs home”, a pause and some reflection might prove worthwhile before launching into a termination.

What is unfair dismissal?

Termination of employment will be considered to be unfair dismissal when an employee is terminated in a “harsh, unjust or unreasonable” manner as determined by the Fair Work Commission.  There is a substantial body of law relating to what has been considered harsh, unjust and unreasonable by the Commission and the circumstances constituting it are very wide and may depend on the interpretation of the individual Fair Work Ombudsman considering the matter.  Unsurprisingly, what some employers consider might not constitute harsh unjust or unreasonable termination differs substantially from many decisions of the Fair Work Commission.  That has contributed to a commonly held view that decisions of the Commission are weighted in favour of employees.  Whether that is a correct view or not, employers are advised to avoid the Fair Work Commission as far as possible because of the prospect of an arbitrated outcome becoming substantially more expensive for them than some form of negotiated compromise.

Summary dismissal

Where an employee is unequivocally found to have committed a criminal act such as theft or fraud whilst at work, his or her employment can be terminated on the spot.  No notice period is required to be given or served out.  Statutory entitlements to that date must be paid.  However, beware of summarily dismissing an employee on the basis of accusations only or even upon the bringing of charges by police even if a conviction is considered likely.  So-called “gardening leave”[2] could be a less expensive option until guilt is established or charges proven.

Dismissal under terms in an employment contract such as those which operate if an employee brings “disrepute” to his employer’s business must be very carefully handled and probably not exercised summarily except in indisputable and serious circumstances.

Swearing and obscene language may not be a ground for summary dismissal in some workplaces[3].  Consider carefully whether derogatory comments against the employer or other employees (or even clients) on social media constitute grounds for summary dismissal rather than counseling or other disciplinary measures.  It unfortunately is a matter of degree and there are no hard and fast guidelines.  Although forwarding pornographic emails, impersonating Hitler or wearing a “black-face” might be considered to be distasteful, they too have been held to not necessarily be grounds for summary dismissal in certain circumstances and workplaces.

Sexual harassment and bullying should be carefully and impartially investigated.

Where summary dismissal is warranted, the employee is generally either supervised closely whilst collecting property or immediately escorted off the employer’s premises with any belongings or personal property to be packed up by senior staff and forwarded by courier to the employee’s home.  That will avoid any prospect of sabotage of the employer’s equipment and/or theft of IT.

Performance or Conduct based dismissal – how to go about it

Tread carefully here.  If the employee’s performance or conduct is below expectation or unacceptable, it is essential that there be clear and unequivocal communication of both the failure and of the standard which is required.  Ideally, that should be in person and attended by two people from the employer with the employee invited to bring a “support person” if desired.  The employer is not required to permit a lawyer acting in that capacity to be a support person.

The employer’s representatives must remain calm and reasonable throughout the interview – no matter how the employee responds – and the evidence of inadequate performance or unacceptable conduct clearly set out with an opportunity to respond and explain.

Provided any explanations given do not alter the employer’s view, clear parameters and a review date should be set with the employee left in no doubt that future employment depends upon achieving the required standard by the review date.  Obviously, the required standard of productivity must be reasonably achievable and in line with that of comparable employees.

The employee’s agreement to the arrangement should sought and, if accepted, it should be put into writing, the deficiencies and required standards defined and immediately provided to the employee, characterized as a warning.  A minimum period of 2 – 3 weeks should be allowed to assess if improvement has occurred.  During the review period, care should be taken not to give any impression that the employee is being harassed or micro-managed – which might lead to an allegation of “constructive dismissal”[4].

If the employee disputes the allegations of inadequate performance or unacceptable conduct but does not resign, a warning letter in similar clear terms should be provided to the employee.

At the end of the review period a second interview should take place – preferably attended by the same people and an honest appraisal given.  If there has been improvement to an acceptable level a further, longer review period might be set – possibly at least 4 weeks.  Areas requiring further improvement should be clearly and calmly highlighted and the on-going arrangement committed to writing and provided to the employee without delay.

However, if there has been no improvement or the required level of productivity has not been achieved despite the opportunity having been given, action should be taken.  The failure to achieve the standard must be explained and set out in the letter of termination.  A statement of service should be provided but a reference is certainly not mandatory.

Breach of employment contract

Whilst a number of terms are implied into all employment arrangements[5], some written contracts have specific obligations on employees.  For example, in a financial services business there are likely to be terms requiring an employee representative to comply with the conditions of an AFS or Credit licence, financial services laws, compliance manuals, ASIC Regulatory Guides and a raft of other requirements, including not bringing the business into disrepute.  Unless the contractual provision is specific (and reasonable) in providing for termination upon the occurrence of a particular breach[6], proper investigation and possibly a warning or counselling as set out above should be undertaken.  Even where a Breach Report to ASIC is considered necessary, an employer should ensure that the employee’s position is properly investigated and considered, and the actions taken are reasonable in the circumstances.

Redundancy

Do not try this unless it really is!  A position will not be held to be redundant unless the tasks will not be performed in the future by anyone in the business.  If the basis for termination or redundancy is to meet reduced operational requirements, the business must be prepared for scrutiny of that claim.

Terminating an employee on the basis of redundancy and then either having a more junior employee do that job – or promoting a junior into the role – is likely to invite intervention from the Fair Work Commission which could reinstate the redundant employee or award significant damages for unlawful dismissal.  There could be exceptions to this rule where the proprietor of the business will undertake the role or where two people were performing an identical role and the circumstances of the business have changed such that only one of them is required.

The safe-haven for small business – Small Business Fair Dismissal Code

The Code applies to stand-alone businesses with fewer than 15 employees (including part-time and employed proprietors – but not casuals who are not employed regularly or systematically) on a simple head count.  It does not apply to subsidiaries of larger businesses or small Australian outposts of large international companies.

Small businesses to which the Code applies can benefit from a significant relaxation of the rules relating to unfair dismissal PROVIDED they comply precisely with the requirements of the Code.  A Small Business Checklist is available here.  Many of the matters in the checklist reflect some of the strategies suggested above.  If a small business wishes to avail itself of the provisions of the Code, it should follow the checklist precisely.

Help is at hand!

Our experienced legal team can assist you with any stage of the processes concerning the dismissing of employees; beginning with the preparation suitable employment agreements to the consideration, planning and safe execution of the process.  We are also able to advise in relation to unfair dismissal claims, conduct negotiations, recommend possible compromise positions and, if all else fails – arrange representation at the Fair Work Commission.

Authors: Tim Dixon (Special Counsel)

[1] Procedural fairness is not simply acting fairly but also using fair administrative procedures in considering and reaching a decision.

[2] This is the term for a period of paid leave when the employee is required not to attend the workplace whilst investigations are made.  In some situations, the employee can be required to take annual leave prior to being paid to stay home.

[3] Particularly those where it is common and tolerated

[4] This is where the employee alleges that his employment circumstances have been made so intolerable that he has no alternative but to resign.

[5] Such as statutory entitlements, fidelity, the obligation to undertake the duties and the right to be paid for them

[6] In this regard beware of onerous or unreasonable provisions in template agreements which might contravene the Unfair Contracts provisions of the Australian Consumer Law.