Chapter 3 - The right to dismiss unfairly: the Government's 'fair dismissal' reform
bill 2004
3.1
This chapter outlines the role of unfair dismissal laws,
sets out the provisions of the Workplace Relations Amendment (Fair Dismissal
Reform) Bill 2004 and provides an analysis of the effect the provisions are
likely to have, including those which might be unintended, and the necessity or
otherwise of the amendments.
Unfair or unlawful?
3.2
Commonwealth legislation sets out the provisions in
relation to unfair dismissal in Part VIA, Division 3 of the Workplace Relations Act 1996. The
legislation, at section 170CB, distinguishes between terminations which may
have been harsh, unjust or unreasonable (known as unfair dismissals), and those
alleged to be unlawful. Provisions for unlawful dismissals are contained in
section 170CK(2) of the Act. This section provides that an employee may not be dismissed
for reasons based on such things as trade union membership, race, colour, sex,
age, religion and pregnancy. The committee acknowledges that under the
Government's proposed legislation, all employees will continue to enjoy
existing protections in the WR Act against unlawful termination of employment
by an employer. Employers will also be able to bring an application for unlawful
termination under the WR Act where their employer has failed to provide the
employee with the required period of notice (s.170CM) or has failed to notify
the relevant authorities in the case of a redundancy (s.170CL).[53]
3.3
Employees who believe they have been unlawfully
dismissed may seek remedy through the Federal Court, which is a more costly and
complex jurisdiction than for unfair dismissals, which are heard by the
Australian Industrial Relations Commission (AIRC).
The purpose of unfair dismissal legislation
3.4
The Government's stated rationale for its proposed
amendments is the creation of extra employment by small business uninhibited by
unfair dismissal provisions.[54] In the
second reading speech, the Minister for Employment and Workplace Relations, the
Hon. Kevin Andrews MP, elaborated on the Government's reasoning for the
amendments as follows:
The current unfair dismissal laws place a disproportionate
burden on small businesses. Most small businesses do not have human resource
specialists to deal with unfair dismissal claims. Attending a commission
hearing alone can require a small business owner to close for the day. The time
and cost of defending a claim, even one without merit, can be substantial. In
fact, according to a study by the Melbourne Institute of Applied Economic and
Social Research, the cost to small and medium sized businesses of complying
with unfair dismissal laws is at least $1.3 billion a year. Many small
businesses do not understand unfair dismissal laws. A survey by CPA Australia
in March 2002 found that 27 per cent of small business owners thought that they
were unable to dismiss an employee even if the employee was stealing from them,
and 30 per cent of small business owners thought that employers always lost
unfair dismissal cases.[55]
3.5
Given the well-founded criticism of the spuriousness of
the Melbourne Institute's calculations, the committee gives no credence to the
cost estimate in the Minister's speech.
3.6
The committee notes the introduction to Dr
Jill Murray's
submission, which states in part:
One of the functions of good government in a liberal, democratic
system is to ensure that all citizens are protected from arbitrary or
capricious actions which impinge on their liberty to conduct their lives,
including their occupations, in relative peace and freedom.
3.7
The committee accepts that a role exists for unfair
dismissal legislation, yet the important question is how to balance the rights
and responsibilities of employers and employees. The committee believes
strongly that the Government's proposed amendments tilt the balance in the
employers' favour.
The provisions of the bill[56]
3.8
Item 2 inserts new subsections which stipulate that an
unfair dismissal application may not be made where the employer, at the
relevant time, employed fewer than 20 people. These include the employee who
was dismissed and casual employees employed for more than 12 months, but not
other casuals. Applications can be made by trainees under a registered training
agreement and by apprentices. The Explanatory Memorandum notes that apprentices
and trainees may still be excluded from making an unfair dismissal application
on other grounds. The relevant time is defined as the time when the employer
gave the employee notice of termination of employment, or the time when the
employer terminated the employee’s employment, which ever happened first.
3.9
Item 3 requires the AIRC to make an order that an
application is not valid, if it considers that the applicant was not entitled
to make the application because of the small business exemption provided for under
Item 2. The AIRC also holds the discretion not to have a hearing if making an
order refusing a small business application, but if it does it must take into
account the cost to the employer’s business. The AIRC may also request further
information before making an order, and the Commission is bound to consider any
information received.
3.10
Item 4 specifies that a person covered by an order is
not entitled to apply to have that order varied or stayed, and Item 5 provides
that there will be no right to appeal to a full bench of the Commission against
an order. Item 6 confirms that the amendments made by items 1 to 5 only apply
to an unfair dismissal application relating to employment commenced by the
applicant after the commencement of those items.
Consequences of the bill
3.11
Evidence presented to the committee suggests that a
number of unintended consequences may result from the Government's amendments.
A number of these have been discussed previously in Senate reports conducted as
precursors to the current inquiry.[57] In
addition to the existing delineation between those employed under state and
territory employment arrangements and those employed under federal arrangements,
the bill proposes to create another distinction, between those who work in
businesses or less than 20 people, and those who do not.
3.12
Many witnesses saw this as a negative development, and
a number saw the possibility that businesses would be deliberately restructured
so as to ensure that the number of employees falls and remains below the
threshold of 20. The Shop Distributive and Allied Employees Association (SDA) submitted
that it was not uncommon for businesses to operate through a number of legal
entities, even though each entity is engaged in the same business for the same
employer. Where employees are engaged by individual legal entities, the
situation could arise where, even though a business employs thousands of
employees, none of them enjoy unfair dismissal protection because the business
is composed of a number of 'small businesses'.[58]
The SDA argued that:
It should be necessary [for the act to require that the AIRC]
have regard to the number of employees of all related companies and associated
entities under the Corporations Act, and to have regard to the number of
employees employed by one or more employers who carry on a business project or
undertaking as a joint venture or a common enterprise. If it's good enough to
have groups of employers treated as being a single entity for the purposes of
certification of [workplace] agreements, it should be good enough to apply the
same rule to exempting employers from their requirements to pay redundancy pay.[59]
3.13
There are also problems with the notion of a business
being classified small or otherwise at the 'relevant time'. The Centre for
Employment and Labour Relations Law submission argued that the 'relevant time'
is defined as that which the employer gives notice of termination of
employment, or that which termination of employment occurs, whichever happens
first. However, winners and losers would be created for reasons quite
independent of the conduct or business needs of the enterprise. All workers
would now enjoy protection under the unfair dismissal provisions, but should a
number of employees subsequently resign, unfair dismissal protection would be
withdrawn. The point was made that protection could ebb and flow on an almost
daily basis, which the committee believes is inequitable.[60]
3.14
The committee is concerned that removing access to
unfair dismissal will inevitably result in an increase in the number of
applications before the Federal Court and other common law courts by aggrieved
employees seeking remedy for unlawful dismissal. There is no doubt that both
Federal and common law courts are significantly more time consuming and costly than
other jurisdictions in which applications for unfair dismissal are currently being
fought out. This is likely to have adverse consequences for both employers and
employees.[61]
3.15
Some respondents argued that the Bill
could destabilise business, primarily through the movement of staff into larger
firms in order to enjoy unfair dismissal protection. This could diminish the
pool of labour available to small business and potentially push up the cost of
labour.[62] While the committee queries
whether the volume of movement would be sufficient to induce dramatic change in
labour market dynamics, it acknowledges that a segment of the labour pool would
be aware of the protections offered by larger employers, and would target them
for employment. Should this occur, it would make worse an already
well-documented difficulty for small business: locating and engaging quality
staff.
3.16
Dr Jill
Murray highlighted the negative effects of
the amendments:
Granting employers a blank cheque to dismiss at any time,
without natural justice, for any reason, is likely to have an adverse impact on
the economic stability of small businesses. For example, workers who have ideas
which contribute to the more efficient running of the business, or have
concerns about current safety procedures, are unlikely to speak up. One
unintended consequence of this proposed law may be the stagnation of small and
medium businesses, and the growth of a 'yes person' culture in this part of the
labour market, to the detriment of the Australian economy as a whole.[63]
3.17
Dr Murray
reminded the committee that the effect of removing unfair dismissal protections
is not to restore the right of employers to dismiss, as has always been their
right, but to enable employers to dismiss unfairly:
We are talking about the right to dismiss unfairly. In other
words, small business is not being stopped from dismissing people...they can have
confidence that they can dismiss fairly at any point. That is not the problem
to them. That is not what the act is about. What they are seeking, as I
understand it, through their advocacy groups, is the right to dismiss unfairly.
My reason for coming before the committee is that I do not think that is a law
the Australian Parliament should pass.[64]
Is change needed?
3.18
A number of witnesses questioned the need to reform the
existing unfair dismissal system. The ACTU considered that taxation,
occupational health and safety, and insurance are more or a burden for small
business than employment issues. Citing a recent Sensis Business Survey, the
ACTU claimed that finding quality staff was the highest concern for small
business, followed by a lack of work/sales, competition, cash flows and rising
costs.[65] The ACTU also reported that
only about half of small businesses believed there are any barriers to employment
in the current business context and, of those who did, the leading factor was
lack of work.[66] The ACTU argued that
this finding supports the contention that businesses only take on staff when
work exists to support them, and not when constraints such as unfair dismissal
are relaxed. Similar findings were reported by the ACTU from independent
surveys, and from its own polling.
3.19
A survey conducted by Robbins and Voll in 2003 in the
Albury-Wodonga region found that while 48 per cent of respondents considered
the unfair dismissal provisions unfair, 97 per cent had never experienced an unfair
dismissal claim. Thirty seven per cent of respondents considered that small
business should be exempt from provisions, while 38 per cent did not. Finally,
the most important factor reported in deciding whether to hire more staff was
workload/turnover (49 per cent), followed by the cost/viability of the business
(15 per cent).[67]
3.20
ACCI argued that there are a number of reasons why
businesses might not consistently rank unfair dismissal as a chief concern.
These include the notion that small business owners tend to focus on one
problem at a time and have difficulty in seeing the 'big picture' for the
purposes of completing surveys. ACCI also suggest that, while unfair dismissal
laws continue to be a problem, there is a sense in which small business has
learned to cope and that this is reflected in unfair dismissal's less
consistent appearance in survey data.[68]
This also confirms how negative advocacy from the Government and employer
organisations can directly affect employer sentiment. The committee believes
that a strong negative advocacy campaign by employer groups and the then
Opposition between 1993 and 1996 created an environment in which the operation
of unfair dismissal laws was never going to be judged dispassionately.
3.21
It is in this context that the committee does not
believe that the amendments are really necessary. Small business would benefit
more from reforms in areas they consider a higher priority than from legislation
to provide an exemption to the unfair dismissal process.
The incidence of unfair dismissal
claims
3.22
The Government has argued that unfair dismissal
provisions are too burdensome and that small business operators must devote
inordinate amounts of time and energy complying with their requirements.[69] Evidence presented to this and
previous Senate inquiries does not support this claim.
3.23
Dr Murray
agreed with the evidence, and argued that:
The current arrangements in the Act provide a cheap, informal
and user-friendly process: employers and employees may deal with [a] disputed
dismissal without the need to pay for lawyers, and the vast majority of matters
are settled at the conciliation phase. Only a small minority of cases proceed
to arbitration by the AIRC or determination by the Federal Court.[70]
3.24
While a discussion of the number of unfair dismissal
applications tells only part of the story, it is illustrative. The committee
heard that in 2003-04, the Australian Industrial Relations Commission received
7044 claims, and that the annual number is consistent.[71] Dr
Robbins and Mr
Voll's analysis found that, even if small
business were to make up all these claims, less than 1 per cent of the sector
would have been affected. Their analysis goes on to suggest that:
There is no evidence that the number of formal claims handled by
the AIRC should alarm anyone in an economy the size of Australia's.[72]
3.25
Robbins and Voll conclude:
...the AIRC data on unfair dismissal claims makes it clear [that]
there are not large numbers of claims, conciliation resolves almost 75% of all
claims while the more complex process, arbitration occurs in only 6% of claims.
In addition, the results achieved at arbitration are much more often in favour
of employers than employees.
3.26
ACCI suggested that a drop in the number of matters
being brought before the Commission does not necessarily lessen the concerns of
small business. ACCI argued that the number of claims does not vary the impacts
on individuals and enterprises who are the subject of a claim.[73] The committee believes that a decline
in the number of claims can only be characterised as a positive development,
and questions ACCIs' logic that a drop in claims does not represent a drop in
net costs, financial or otherwise, to business.
3.27
ACCI argued that the number of claims officially lodged
represents only 'the tip of the iceberg'. ACCI pointed out that, before
employees are dismissed, employers often go to extreme lengths to 'salvage' an
employment relationship. ACCI argued that such measures involve costs, such as
those associated with managing underperformance, compliance with procedural
fairness requirements, and cases where employees have been 'paid off' in the
hope that they will not pursue formal claims.[74]
The ACTU pointed out that unfair dismissal legislation aims to promote internal
management of risk through better employee relations, including recruitment,
selection and performance management. The ACTU argued that, if such measures
have been taken, both employer and employee are better for it. The ACTU could
see no evidence to support the argument that businesses are pre-empting
unmeritorious claims through the payment of 'hush money'.[75]
3.28
The committee did not receive sufficient evidence about
the relative difficulty of employers in responding to an unfair dismissal claim
to come to a firm conclusion. However, ACCI reported that its members found unfair
dismissal processes onerous:
Compliance with fair dismissal obligations (and in particular
following the constantly evolving technical and legal niceties of procedural
fairness) is a practical impossibility for such a proportion of small
businesses as to render it an inappropriate and disproportionate burden.[76]
3.29
This view was disputed, but the widespread lack of
knowledge in relation to unfair dismissal by both employers and employees was considered
unhelpful.[77] Research undertaken by
Voll found that:
Regionally located small business employees find it quite
difficult to obtain good advice about dismissal because generally, the only
avenues for this sort of advice are unions (if the employee is a member) or a
solicitor. The latter is usually too expensive...[and] the employees in the case
studies examined by Voll were not union members and this, given the low level
of unionisation in the small regional business sector, is an extremely common
situation.[78]
3.30
As to the difficulty for employees, the evidence was patchy,
and the committee has reached no conclusions. Ms
Gabrielle Marchetti
from Jobwatch observed:
Not only do employers win many cases but it is also important to
bear in mind that during the conciliation process, which is the process at
which the majority of cases are resolved, often employees walk away feeling
that they have got the raw end of the deal, because they have basically decided
it is going to be too difficult, too costly and too time consuming for them to
go on to arbitration. They would rather have some compensation than none, so
they are more likely to settle for a pitiful sum of money.[79]
3.31
The ACCI submission countenanced the possibility that,
in some minds, unfair dismissal is being invoked as a proxy for daily
human-resource related challenges faced by employers in the course of running
their businesses.[80]
The costs of an unfair dismissal
claim
3.32
The committee received some evidence of the direct costs
to small business of defending an unfair dismissal claim. Robbins
and Voll submitted that, from their Albury-Wodonga survey, median compensation
payment to former employees is $2000, and of other costs, the median is $1000.
They concluded that:
There is no evidence from these results that unfair dismissals
are a financial burden on small businesses. Indeed 60% of the respondents to
these answers were happy with the outcomes achieved and costs incurred.[81]
3.33
It is generally agreed that costs associated with termination
would rise in proportion to the strictness of unfair dismissal provisions.[82]
Measures already in place
3.34
In addition to establishing small business' top
priorities, there is another important element in considering whether legislation
is needed. That is, in the absence of the reform, are other options available
which will deliver similar benefits to those promised by the reform? While the
Government claims that unfair dismissal provisions place undue constraints on
small business owners and hamper employment, respondents such as the Centre for
Employment and Labour Relations Law at the University of Melbourne pointed out
that a range of workers are already excluded from the unfair dismissal
provisions, giving employers ample opportunity to employ staff and enjoy the 'benefits'
being offered by the bill. Classes of employee excluded include workers on
fixed-term contracts, those engaged to perform specified tasks, and many casual
employees. Indeed, the express rationale for making these exclusions was at
least in part to provide flexibility for employers in how they engage labour.[83] Nor is it the case that dismissed
employees are encouraged to lodge claims regardless of merit. DEWR made the
point that the AIRC already has the power to impose costs on a vexatious
claimant, a significant power acting to restrict abuse of unfair dismissal
provisions.[84]
Reforms to unfair dismissal
procedures
3.35
The committee believes that if the Government was
serious about trying to improve the unfair dismissal system it would focus on improving
and simplifying the procedures involved for unfair dismissal applications, and
reducing the costs for small businesses. The committee believes the Government
should seriously consider sensible procedural improvements to the unfair
dismissal system, including that:
- the Australian Industrial Relations Commission
(AIRC) conduct conciliation conferences at the convenience of small business;
- telephone conferencing be used whenever possible
to assist small businesses who have difficulty attending hearings in person;
- the AIRC be allowed to order costs against
applicants who pursue speculative or vexatious claims;
- the AIRC be required by legislation to deal with
unfair dismissal applications in a timely fashion; and
- small businesses be provided with better information
to assist them and their workforce to understand their obligations about
termination of employment.
3.36
A number of similar practical measures to improve the
current unfair dismissal system were touched on by several submissions. The
ACTU submission, for example, argued that procedural reform is necessary to
provide assistance to small businesses and to ensure that employees are treated
fairly. It suggested that representation of parties in conciliation proceedings
should occur only where it assists with the just and expeditious resolution of the
matter; agents appearing in unfair dismissal proceedings should be a registered
industrial agents; and applications for financial compensation should only be
accepted in circumstances which prevent reinstatement. The ACTU also suggested
that it would be helpful for unions to make a single application on behalf of a
number of employees who have been dismissed at the same time or for related
reasons.[85]
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