Lexology GTDT Market Intelligence provides a unique perspective on evolving legal and regulatory landscapes. This interview is taken from the Labour & Employment volume featuring discussion and analysis of legal developments, the enforcement of restrictive covenants and political debates about employment within key jurisdictions worldwide.
1 What are the most important new developments in your jurisdiction over the past year in employment law?
There have been a few developments in the past year that have had an impact on employees’ rights in Australia, both in the legislative and common law contexts. In the legislative context, following an earlier decision by the Fair Work Commission in relation to modern awards, the federal government passed amendments to the Fair Work Act to include the right to take up to five days of unpaid family and domestic violence leave in the National Employment Standards. This means that all employees under the Fair Work Act, including part-time and casuals, are able to access this leave. This amendment provides those employees who are suffering from domestic or family violence with some reprieve to deal with associated issues such as attending urgent court hearings or accessing police services.
In the common law context, a major development in favour of employees has been the recent decision by the Full Federal Court with respect to paid personal or carer’s leave. This case, barring a successful appeal against it, has and will continue to have significant ramifications for employers across Australia. The case concerned the meaning of the entitlement to 10 days of paid personal or carer’s leave under the National Employment Standards. The specific point of contention was whether (as the employer argued) a day is calculated on the ‘industrial meaning’ equivalent to 7.2 hours, or whether (as the respondent employees and union argued) a day means the hours that the employee would have worked if they were not absent due to sickness or carer’s responsibilities. The Full Federal Court decided by majority to side with the employees; that a ‘day’ means the portion of a 24-hour period that would otherwise have been allotted to work. In other words, the employees who worked 12-hour shifts were entitled to 120 hours of personal or carer’s leave instead of 72 hours.
The effect of this decision is that all permanent employees are entitled to 10 days of personal or carer’s leave payments in accordance with the base pay they would have received had they been able to work on that ‘day’, as opposed to a notional number of average hours. The federal government and the employer have sought leave to appeal the decision to the High Court, but if it is not overturned this decision will have wide-ranging cost implications for employers across the country. Most, if not all employers in Australia calculate leave accruals on the basis of hours instead of days. This decision means that employers across every industry will need to review their payroll systems to ensure accruals are compliant, audit and correct employee records with respect to personal leave, and determine and discharge any back-pay obligations that have resulted.
2 What upcoming legislation or regulation do you anticipate will have a significant impact on employment law in your jurisdiction?
From 1 October 2018, casual employees covered by a modern award have been able to make a request for ‘casual conversion’ – that is, they are able to request to be converted to permanent full- or part-time employees. Currently there is a bill before the Commonwealth Parliament that, if passed, will amend the National Employment Standards to extend this right to all casual employees. This right to request casual conversion is a remnant of the old industrial awards that existed under the Industrial Relations Act, which were disallowed under the Work Choices legislation during the mid-2000s. The right to request casual conversion, as the name suggests, only gives the employee the right to request that they be converted to a permanent employee. Only casual employees who have worked a regular pattern of hours equivalent to a full- or part-time employee on an ongoing basis are eligible to make this request. Any request can only be rejected on reasonable grounds and employers are required to consult with the employee before making the decision. These changes will have a significant impact on businesses who rely heavily on casual staff and will require employers to audit and consider their use of casual employees to determine whether they intend to keep those employees with the business in the long term.
Another recent legislative change has been the introduction of the Modern Slavery Act at the federal level, which requires entities with consolidated revenue of more than A$100 million to report on the risks of modern slavery in their supply chains and operations, as well as actions they have taken to reduce those risks. Any entities that do not meet these obligations run the risk of receiving negative public attention, as the relevant minister can request an explanation for their non-compliance and possibly order remedial action to address it. Entities may also be placed on a public register which states that they have failed to comply with the request from the minister. The New South Wales parliament has also passed similar legislation in relation to reporting on modern slavery, which is awaiting a commencement date. This legislation will apply to commercial organisations that have at least A$50 million in annual turnover and provides a much harsher penalty regime for non-compliance. Commercial organisations who do not meet their obligations to provide a modern slavery statement face a maximum penalty of A$1.1 million. The same penalties apply for not making the statement public and if a person provides information that they know or ought reasonably to know is false or misleading. Once this legislation commences, businesses will need to be much more cognisant of their supply chain and labour practices, and in the information that they provide about these matters.
Also coming into effect this year are the new laws to broaden the protections for whistle-blowers for the corporate and financial sectors, and the introduction of these protections with respect to tax breaches. These protections extend to many different people, including current and former employees, officers, directors and contractors. The protections work on different levels, including in relation to maintaining the confidentiality of identities, prohibiting victimisation and, in certain circumstances, providing immunity from prosecution. As part of the changes, entities such as public companies and large proprietary companies are required to have whistleblower policies in place which comply with the legislation.
3 How has the #MeToo movement impacted the investigation or settlement of harassment or discrimination claims in your jurisdiction?
The #MeToo movement has had a wide-ranging and permanent impact upon many facets of life, which has made employers more proactive and determined to address instances of sexual harassment or abuse in the employment context. The Australian Human Rights Commission, in its fourth national survey into workplace sexual harassment found that one in three people had experienced sexual harassment at work in the past five years. The most common type of sexual harassment experienced was offensive and sexually suggestive comments or jokes, for both men and women. The survey found that only 17 per cent of people who had experienced this sexual harassment actually made a formal report or complaint about the harassment.
Of course, prior to the #MeToo movement employers were still obligated under federal and state legislation to prevent and investigate discrimination and harassment on the basis of a person’s gender and sexual orientation. The landmark case in the Australian employment context concerning sexual harassment was Richardson v Oracle Corporation Australia Pty Ltd, where the victim, who was subject to verbal sexual harassment, was successful in claiming damages for economic loss as well as having her compensation increased from A$18,000 to A$100,000 to compensate for the psychological and reputational damage that she suffered, as well as the detriment caused to the sexual relationship with her partner. This case, decided a few years before the #MeToo movement in 2014, was indicative of how employers did not necessarily take a ‘zero-tolerance’ approach to sexual harassment, with the perpetrator in question given a first and final warning despite his ‘repeated pattern’ and ‘systematic course of conduct’ of sexual harassment.
But in the wake of the increased scrutiny that has been placed on behaviour as a result of the #MeToo movement, particularly with respect to males in powerful positions, it is evident that businesses will take much stronger actions and enact stringent policies against such behaviour. Employers are increasingly approaching us to review their codes of conduct and misconduct policies, and to investigate allegations of sexual harassment, all of which indicate that the movement has had the effect of taking these issues more seriously. If a case similar to the facts of Richardson v Oracle Corporation Australia Pty Ltd happened today, it is far more likely that the perpetrator would not simply be given a warning but would face termination of employment and the business would (if it had not already) institute mandatory training on appropriate workplace behaviour and respect.
4 What are the key factors for companies to consider regarding the enforcement of restrictive covenants against departing employees?
As a starting point, companies can enforce restricting covenants against departing employees to the extent that they are reasonable and necessary for the protection of the company’s ‘legitimate business interests’. There are several factors that need to be weighed by the court when determining this from a purely legal standpoint, but from the perspective of a company there are more practical concerns that need to be considered. The primary consideration for a company should be whether the costs and risks associated with the departing employee are worth the costs and risks of seeking to enforce the restrictive covenant, including the risk that the covenant is struck out or read down.
If the person is a low-level employee who did not have access to confidential information, was not involved in organisational strategy or was involved with auxiliary functions rather than the major operations of the company, it would be a waste of time and money for the company to seek strict enforcement of restrictive covenants. Restrictive covenants are more relevant and indeed likely to be enforceable when the employee in question is in a position to access highly confidential information of the company or clients and be involved in major strategic decisions of the company such that it would have a significant impact on the company’s business interests to lose them to a competitor or have them set up their own competing business.
Additionally, if the restrictive covenants are so broad and restrictive that they prevent the employee from ever working in a similar position, for example preventing an employee from working for any competing company in any capacity or for unreasonably long periods (for example more than one year), the company runs the risk that the restrictive covenants will be read down (which is possible in New South Wales) or struck out entirely. Covenants that are specific and do not unreasonably restrict the future prospects of an employee are more likely to be enforceable and therefore the company has more reason to seek enforcement.
After considering these factors, companies should also turn their minds to the circumstances around the employee departing the company. This is relevant to both the potential risk that the departing employee presents to the business and whether a court is likely to hold that the restraint is reasonable. For example, a court is more likely to enforce broader restrictive covenants in the event that the employee in question has resigned abruptly, set up a competing business or has been found to be taking copies of confidential information and data for themselves. If, on the other hand, the company has terminated the employee’s employment for reasons such as redundancy, a court would likely find the enforcement of the restrictive covenants to be excessive because they prevent the employee from earning a living in their chosen field when their employment has been terminated through no fault of their own. However, even in this latter scenario a court may still enforce the restraints if they are particularised to protect the existing interests of the company and not affect the person’s ability to earn a living. For example if they are limited to the non-solicitation of clients or using the company’s confidential information.
5 In which industry sectors has employment law been a hot topic recently? Why?
The recently concluded Royal Commission into the financial services sector shone a huge spotlight on financial service providers, exposing areas of financial misconduct and unethical behaviour among many different entities. The high level of media coverage coupled with the relevance of the industry for practically every Australian meant that every institution that participated was placed under very close scrutiny in every aspect of its operations.
The Royal Commission investigated issues such as charging fees for no service and conflicted remuneration for financial advisers, which indicated that incentive, bonus and commission schemes were measured through sales and profit rather than ‘compliance with the law and proper standards’. The fallout from the negative attention has been tremendous, with public confidence in financial institutions, particularly the big four banks, falling dramatically.
From an employment perspective, aside from high-profile resignations such as the chairman and CEO of the National Australia Bank, there has been a general pressure on the industry to change the conduct and practices of senior executives and financial advisers. The final report of Commissioner Hayne specifically noted that the primary responsibility for misconduct fell with the boards and senior management, and that ‘close attention must be given to their culture, their governance and their remuneration practices’.
One specific area of regulation that will change as a result of the government’s response to the Royal Commission’s recommendations is that the Banking Executive Accountability Regime (BEAR) will be extended to all Australian Securities and Investments Commission-licensed entities. The BEAR ensures that senior executives and directors in banks and other authorised deposit-taking institutions are held to a responsibility and accountability framework, which includes acting with honesty and integrity and taking reasonable steps to prevent matters from arising that would adversely affect the prudential standing or reputation of the entity. The BEAR also requires those entities to withhold minimum amounts of variable remuneration for people within the entity who have senior executive responsibility for various functions such as operations, compliance and human resources.
Another flow-on effect of the Royal Commission are the internal reviews of behaviour and conduct policies that will inevitably need to happen to address and prevent the types of misconduct that have come to light. A major underlying theme of the interim report by Commissioner Hayne was that the conduct of financial services entities needed to be informed by principles such as obeying the law, not misleading or deceiving and acting in the best interests of the party they are acting for. While these are general principles that could apply to any and every organisation that employs people, financial institutions are likely to conduct extensive reviews of their codes of conduct and other policies relating to behaviour and conduct, if they have not already.
6 What are the key political debates about employment currently playing out in your jurisdiction? What effects are they having?
The key political debate occurring at the moment is around notions of freedom of expression and religious freedom in the employment context, which has been enlivened by the Israel Folau case. From the bare facts, the case is a relatively routine termination of an employee’s employment due to their breach of a workplace policy. However, the celebrity status of the applicant, former Australian rugby union star player Israel Folau, and the involvement of other high-profile people and groups has elevated this case beyond that of a simple dispute between an employee and their employer. The applicant, who is a devout Christian, made posts on his Instagram account that were intolerant towards homosexuals, which breached the relevant code of conduct that applied to him. This conduct was also in contravention of a direction from his employer not to engage in such conduct following similar previous conduct. After a highly publicised tribunal process, Mr Folau was found to have committed a high-level breach of his contract and was terminated from his employment. Mr Folau has subsequently challenged his termination on the grounds that he was terminated due to his religious beliefs and that this is in breach of the religious protections in the Fair Work Act.
The case is yet to be decided, but it has generated vigorous debate in Australia around the limits of an employer’s ability to control their employee’s conduct in relation to their religious and political beliefs. Although the conversations in the public and media around the case have been around notions of freedom of speech and religious freedom, ostensibly it is about the extent of an employer’s right to enforce workplace policies. Although the case is still to be heard, there have been a couple of decisions, one by the High Court and another by the Federal Court, which have upheld terminations of employees who have sought to express their political opinions publicly. In Comcare v Banerji, the High Court upheld the dismissal of a public servant who had posted anonymous tweets that were highly critical of her employer, the Department of Immigration and Border Protection. In doing so it reaffirmed that the implied freedom of political communication in the Australian Constitution was not a personal right of free speech. More relevant to the Israel Folau case is that of Rumble v The Partnership trading as HWL Ebsworth Lawyers, where the Federal Court upheld the dismissal of a lawyer who had criticised clients of the law firm HWL Ebsworth Lawyers, to whom he was a consultant. HWL Ebsworth had previously introduced a policy that required its partners and staff not to engage in ‘criticisms of the firm’s clients’ without the permission of the managing partner. The Federal Court found that Mr Rumble’s services were not terminated due to his political opinion, but because he had ‘repeatedly disobeyed a reasonable direction to cease criticising the firm’s clients’.
Adding to the public discourse around the Israel Folau case has been the introduction of a bill to protect ‘religious freedom’. If passed, the legislation seeks to prevent direct and indirect discrimination against employees by employers on the basis of their religious belief or activity. Although this bill will not apply retroactively and therefore would not be directly relevant to the finding in the Israel Folau case, it has certainly turned up the heat in the debate around the relationship between employment and expressions of speech or religious thought. Should the courts find in favour of Mr Folau, it will have wide-ranging implications on employers across all industries, as it will call into question the enforceability of workplace policies, particularly around out-of-hours conduct and social media.
The Inside Track What are the particular skills that clients are looking for in an effective labour and employment lawyer?
Clients want someone who understands their business and the impact that their issue has on that business. Most importantly, they want to know what they can do, not what they cannot do. To meet those needs, an effective labour and employment lawyer must have a strong commercial knowledge and understanding of the reality in which each business operates. This must be coupled with the ability to communicate effectively and directly with the client. Lawyers who can tell you what the law is are a dime a dozen; a lawyer who is invested and knows exactly what the client needs to do to meet its commercial objectives is an effective lawyer.
What are the key considerations for clients and their lawyers when handling employment disputes?
Clients and lawyers need to be focused on the commercial, legal, social and psychological impacts that the dispute and its resolution will have on the business. The legal and commercial implications are self-evident, but the social and psychological elements are often overlooked and more often than not can be the most critical considerations to the most optimal outcome to a dispute for all parties. Clients and the lawyers who advise them must understand how the person or party on the other side thinks or feels as well as considering the bigger impact on the organisation.
What are the most interesting and challenging cases you have dealt with in the past year?
We deal with a multitude of matters that delve into the most interesting aspects of employment law every day at People + Culture Strategies, including post-employment restraint matters and cases that explore the new dynamics in the gig economy.
By far the most compelling matter we are working on is the Israel Folau case. This case has become a magnet for public debate on issues such as free speech and religious expression, but at its core it is about the right of the employer to enforce legitimate workplace policies. As the legal representative for the NSW Waratahs we have been at the forefront of advocating for employers across Australia who have a reasonable and legitimate right to protect their business interests, particularly with respect to stopping discriminatory and intolerant behaviour by an employee.