The recent amendments to the Workplace Relations Act 1996, commonly known as WorkChoices, provide substantial and complex considerations for employers with respect to termination of employment. While retaining unlawful termination as an avenue of redress for employees, WorkChoices prevents a substantially increased range of employees from accessing unfair dismissal. For instance, there is now no right to claim unfair dismissal for employees dismissed for "genuine operational reasons", and employees of employers who employ less than 101 employees. The extent of these exclusions has been given some clarity by recent decisions of the Australian Industrial Relations Commission (AIRC). This article outlines two recent AIRC decisions concerning the new unfair dismissal regime that have particularly significant implications for franchise systems.
In addition, franchise systems need to be aware that, in the absence of a right to claim unfair dismissal, it is likely that employees will pursue alternative avenues upon termination of their employment - for instance, claims of unlawful termination, discrimination and reasonable notice. Poor management of a termination may absorb substantial time and cost, cause an organisational culture to deteriorate, and even create adverse media attention for a franchise system. Consequently, being aware of the risks and taking appropriate precautions make sense from a financial as well as a legal perspective. Advice may be sought from a
franchise lawyer.
Does WorkChoices apply to me?
Before examining terminations in light of WorkChoices, it is necessary to consider whether WorkChoices applies to your franchise system.
The effect of WorkChoices has been to create a unitary system of industrial relations in Australia, in which a national industrial relations structure overarches the individual state industrial relations systems (except in Victoria and the territories). As Victoria has referred its industrial relations powers to the Commonwealth, WorkChoices will automatically apply to Victorian employers. The overwhelming majority of WorkChoices changes came into effect in March 2006.
Outside of Victoria, the application of WorkChoices will depend on whether employers can be considered 'constitutional corporations'. A non-Victorian employer will be subject to WorkChoices if:
1. it is incorporated; and
2. its trading or financial activities can be considered 'significant' or 'substantial'.
Both criteria exist in the vast majority of franchise systems outside Victoria and, therefore, will be covered by WorkChoices. However, franchise systems operating outside Victoria that feature unincorporated employers will continue to be governed by the applicable state industrial relations system. For these employers, WorkChoices will not apply.
Seek advice promptly if you are uncertain as to whether WorkChoices apply to you or if you are uninformed as to what the changes mean in your own individual context. If it applies to your business, WorkChoices raises - beyond termination of employment - numerous significant considerations for your workplace.
What does WorkChoices mean in terms of termination of employment?
WorkChoices retains both unlawful termination and unfair dismissal as avenues by which terminated employees can seek redress. However, the new unfair dismissal regime represents a substantial shift from what the legislation provided in its pre-WorkChoices form.
Unlawful termination is where termination is alleged to have occurred on a "prohibited ground" - for instance, temporary absence from work because of illness or injury, race, sex, physical or mental disability, and pregnancy. Unfair dismissal is where an employee alleges that the termination was "harsh, unjust or unreasonable".
Broadly speaking, in determining the question of whether a termination was "harsh, unjust or unreasonable", the AIRC will examine whether there was a valid reason for the termination, and whether the process engaged in terminating the employee was "procedurally fair". Future decisions by the AIRC will assist in determining more conclusively whether WorkChoices has changed the substance of what constitutes unfair dismissal. For now, however, in its changes to unfair dismissal, it appears that WorkChoices does not expressly alter these fundamental concepts.
The new regime does, however, substantially enlarge the categories of employees excluded from claiming unfair dismissal. The following categories of employees now cannot claim unfair dismissal:
- Employees within a qualifying period - Employees who have not served a qualifying period of employment defined as six months, or a shorter period if agreed in writing between the employer and the employee, or a longer period if reasonable and agreed in writing between the employer and the employee. Prior to WorkChoices, the qualifying period was three months.
- Employees terminated for "genuine operational reasons", or for "reasons that include genuine operational reasons" - Operational reasons are defined as "reasons of an economic, technological, structural, or similar nature relating to the employer's undertaking, establishment, service or business".
- Employees employed by an employer with less than 101 employees - The calculation in terms of number of employees is to include the terminated employee as well as any full-time and part-time employees, and any casual employees engaged by the employer on a regular and systematic basis for at least 12 months. Moreover, employers are considered to constitute one entity where they are linked with each other in such a way that they fall within the definition of "related bodies corporate" under the Corporations Act 2001. This provision was included in response to concerns that, by exempting from unfair dismissal employers of less than 101 employees, employers may seek to restructure their operations as a precursor to implementing terminations.
- Seasonal employees - Employees engaged to perform work for the duration of a specified period.
How are the new provisions being interpreted? In particular, the interpretation of "genuine operational reasons" and how employees are counted for the purpose of unfair dismissal carry significant implications for franchise systems.
Genuine Operational Reasons At face value, "genuine operational reasons" might appear to justify the scenario where an employer, in difficult financial circumstances and with limited or no alternatives, terminates an employee in an attempt to reduce costs. However, the AIRC, by virtue of the approach it has taken in Perry v Savills (Vic) Pty Ltd and subsequent cases appears, at this stage, to be giving "genuine operational reasons" a somewhat narrower interpretation.
In Perry v Savills (Vic) Pty Ltd, Ms Perry commenced her employment at Savills as Finance and Administration Manager in November 2000. Shortly after commencing employment, Ms Perry was diagnosed with a medical condition, and was absent for three-and-a-half weeks.
Upon returning to work, Ms Perry was questioned by the managing director about her capacity to undertake her duties in light of her condition. In February 2006, consideration was given by the managing director to the restructuring, into one position, of the roles separately being performed by Ms Perry and the office manager. A proposition to this effect was subsequently forwarded by the managing director to the company's CEO.
The managing director raised the possibility of the restructure with Ms Perry in April 2006, advising her that the company could provide an alternative role for her at her level of remuneration should she not apply for the new position, or be unsuccessful in her application. Ms Perry's application for the new position was unsuccessful, and she was terminated effective 21 April 2006.
Savills claimed that Ms Perry declined to consider "an alternative position offered" and, as a consequence, her employment was made redundant. The company claimed that it had genuine operational reasons for the termination, being reasons of an economic or structural nature.
Conversely, Ms Perry argued that the termination was not genuine, referring specifically to the following grounds:
- The new position created by Savills was only marginally different from her previous duties.
- The restructure did not make sense by seeking to combine in one position, various duties representing different levels of responsibility; and
- The failure of Savills to both:
a) advise her of the restructure until shortly before its intended implementation, and
b) develop an alternative position and submit it to her for consideration.
Senior Deputy President Watson was satisfied that the restructuring was genuine and reflected genuine operational reasons. However, he also found that the restructure of the finance and administration position, even if genuine, did not require the termination of Ms Perry's employment. Of itself, SDP Watson held, restructuring does not establish "genuine operational reasons" for termination of an individual's employment.
The operational reason must be linked with the termination in the sense that the termination is a "logical response" to the operational reason. Watson considered that the prospect of alternative employment had only been raised in vague terms with Ms Perry, and therefore, no offer of alternative employment was made to her. As Savills had the operational capacity to retain Ms Perry at the same level of remuneration, termination of Ms Perry's employment was not required by the restructure.
This decision and subsequent applications of "genuine operational reasons" raise the following implications for franchise systems:
- The reasons must be genuine. The termination will not be considered genuine if it is a 'sham' - ie the real, underlying motive is malicious or unscrupulous
- When considering termination of an employee for "genuine operational reasons", look beyond the need to restructure or cut costs and focus on whether a link exists between the operational reason and the need to terminate. In so doing, make every effort to identify and offer suitable alternative employment to staff potentially affected by a proposed restructure; and
- Where restructuring requiring termination necessitates a selection among staff, ensure that you implement an objective selection process that distinguishes between staff on the basis of their level of skill or capability in performing their duties.
Less than 101 employees Corporate group scenarios have featured in the unfair dismissal cases determined since the introduction of WorkChoices. In particular, the case of Fares v Ray White Dhillon Doncaster provides insight into how employees are counted within a franchising context.
In response to Mr Fares' application for unfair dismissal, solicitors for Ray White (Dhillon) Doncaster (the respondent) sought to have the application dismissed on the basis that, as the employer employed less than 101 employees at the time the employer terminated the employee's employment, the AIRC had no jurisdiction to hear the claim.
In support of the application for dismissal, Mr Dhillon gave evidence on behalf of the respondent that at the time Mr Fares was employed by the respondent, it employed only nine employees and, as at 3 August 2006, ten employees. Mr Fares maintained that the respondent operated as a franchise within the 'Ray White Group' which, according to its promotional material, employed in excess of 7,000 staff.
In response to the claim, solicitors for the respondent provided various documents, including the franchise agreement entered into by the respondent and the Ray White (Real Estate) Partnership, the employment agreement made with Mr Fares, and the employment separation certificate issued on termination of employment.
Senior Deputy President Watson found on behalf of the respondent and dismissed the application. In reaching his conclusion, SDP Watson noted that the franchise agreement specifically provided for staff to be employed by the franchisee in its own right and that under no circumstances was the employee to be held out as employed by the franchisor. The employment agreement and employment separation certificate were also conclusive in referring to the employer as Quality Real Estate & Property Services Pty Ltd.
Upon examination by SDP Watson, neither document made any reference to the Ray White Group or to employment being entered into on its behalf. Consequently SDP Watson found that an employment relationship existed between Mr Fares and Quality Real Estate & Property Services Pty Ltd. Furthermore, SDP Watson was satisfied that there were no related bodies corporate linked with Quality Real Estate & Property Services Pty Ltd, and that the franchisor and other franchisees of Ray White (Victoria) Pty Ltd did not constitute related bodies corporate under the Corporations Act 2001.
In terms of this decision, and in light of any potential future claims for unfair dismissal, franchise systems should consider the following:
- Review your franchise and employment agreements to ensure that the franchisee is clearly identified as the employer, and that the franchise system cannot be considered in any way to be a party to, or linked with, the employment relationship; and
- Ensure that, consistent with the franchise and employment agreements, other relevant documentation (such as employee pay slips) reflects the franchisee as employer, without reference to the franchise system.
How does WorkChoices affect how claims on termination might be made? Although WorkChoices has removed the unfair dismissal option for a significant number of employees, numerous alternate avenues remain through which employees may make claims on termination. The prospect is that unfair dismissal claims now excluded by WorkChoices may appear in the guise of, for instance, a claim for unlawful termination, discrimination or reasonable notice.
More time and analysis is needed to determine whether such a trend is emerging. Nevertheless, franchise systems need to be aware of the possibilities, and take all necessary precautions.
An unlawful termination claim, as outlined above, is a claim made under the Workplace Relations Act on a "prohibited ground". Under the previous legislative regime, very few unlawful termination claims were made in comparison to the number of unfair dismissals lodged. Of the proportion of unlawful termination claims made, very few were successful. Nevertheless, in a climate where, for many employees, the right to claim unfair dismissal has been removed, the AIRC may be more sympathetic to applicants in unlawful termination cases. The effect, therefore, may be an increase in the overall success rate of unlawful termination claims.
Similar to an unlawful termination claim, a discrimination complaint can only be made on the basis of a recognised attribute or ground. Under the Equal Opportunity Act 1995 (Vic), for instance, the defined attributes include age, breastfeeding, impairment and industrial activity. For applicants, the process involved in making a discrimination claim - as opposed to an unlawful termination claim - is comparatively less formal and expensive. Applicants also have a range of forums through which they can choose to bring their complaint.
A claim for reasonable notice may be made by an employee where the contract that governs the terms and conditions of their employment is silent as to the amount of notice to be provided by the parties upon termination. In the absence of any reference to notice in the contract, the courts have implied within the contract an obligation on the employer to provide reasonable notice. What constitutes 'reasonable notice' will invariably depend on the circumstances of the case. However, courts have found reasonable notice to constitute as much as 12 months pay.
To minimise the risks of an unlawful termination, discrimination or reasonable notice claim upon termination of an employee, franchise systems should adopt measures that include:
- Comprehensive equal opportunity and workplace harassment policies. Importantly, the policies must be implemented effectively through communication to employees and education on how the policy applies practically;
- Periodic internal reviews to identify and control any potential risks - for instance, evidence of an organisational culture of poor communication,
- A flexible range of mechanisms to ensure that complaints are effectively received, investigated and resolved; and
- Ensuring that employment contracts contain notice provisions and allow for the possibility that the nature of an employee's duties and responsibilities may change over the duration of their employment. It is also vital that employment contracts be revised to reflect WorkChoices, should it apply to your franchise system.
Last word ...
Future decisions by the AIRC will inevitably impact on the substantial changes to termination of employment brought about by WorkChoices. Keep abreast of further developments in this area.
In the meantime, however, take the opportunity to review your human resource practices. If necessary, implement change to minimise the likelihood of any potential risks that future termination might pose.
This article appears courtesy of
Mason Sier Turnbull.
7-Sep-2007