Unfair dismissal – what's new?

The Fair Work Act is now operative and employers need to be aware of the significant changes made to the unfair dismissal regime. Importantly, those changes mean that more employees will be able to file unfair dismissal applications and employers with less than 100 employees are no longer protected.

Who can file an unfair dismissal application?

Subject to some limitations, employees can now file an unfair dismissal claim if they:

  • have completed at least 6 months service; or
  • have completed at least 12 months service if employed by a "small business employer" (see below); and
  • at the time of their dismissal, they were either: 
    • covered by an award or enterprise agreement, or
    • earning less than $108,300 a year (to be indexed annually).

Remedies available to employees remain largely unchanged and include reinstatement and/or up to 6 months salary.

Who cannot file an unfair dismissal application?

Employees cannot file an unfair dismissal claim if:

  • they have not completed 6 months service;
  • they are employed by a small business employer and have not completed 12 months service;
  • they earn more than $108,300 and are not covered by an award or other agreement;
  • they were terminated because of a "genuine redundancy". A redundancy will only be genuine if:
    • the employee's position is no longer required because of changes to the operational needs of the business; - the employee cannot reasonably be redeployed within the business or its associated entities; and
    • the employer complied with any award or enterprise agreement obligations to consult with employees and interested unions.
    • they are casual employees (unless they are employed on a regular and systematic basis and have a reasonable expectation of continuing employment);
  • they are employed under a contract of employment for a specified period of time, for a specified task or for the duration of a specified season and the employment has terminated at the end of the period, on
  • completion of the task or at the end of the season;
  • they are party to training arrangement, for example, an apprenticeship;
  • they were employed for a specified period of time; or
  • they were demoted and the demotion did not involve a significant reduction in remuneration or duties.

What is a small business employer?

A small business employer is an employer with fewer than 15 employees on a full time equivalent basis. That means employers need to consider the hours worked by part time and regular casual employees to determine the number of full time equivalent employees. This will change from 1 January 2011 when the number of employees will be determined by individual headcount including full time, part time and regular casual employees.

Is my employee covered by an award or enterprise agreement?

Most employers will be aware if their employees are covered by an enterprise agreement, however care should be taken when determining if an award applies. Until 1 January 2010, consideration should be given to state (NAPSAs) and federal awards. However from that date, consideration must be given to Modern Awards which will replace NAPSAs. Modern Awards will apply to a wide range of employees depending on their duties, for example, the Clerks—Private Sector Award 2010 will apply to most employees engaged to perform clerical work in Australia. Similar occupational based awards will apply to other employees.

What is included in the threshold amount of $108,300?

The following will be included:

  • wages;
  • any amounts applied or dealt with on the employee's behalf (for example salary sacrifice amounts); and
  • the agreed monetary value of any non-cash benefit (for example, use of a company car, laptop or mobile phone).  

The following will not be included:

  • payments that cannot be determined in advance (for example commissions, incentive based payments and bonuses and overtime unless the overtime is guaranteed);
  • reimbursements for business expenses; and
  • superannuation guarantee contributions. 

When will a dismissal be unfair?

A termination by a small business employer will be deemed to be fair provided the employer complies with the Small Business Unfair Dismissal Code. The Government describes the Code as containing "basic principles that any reasonable person would regard as fair". It includes guidance about how and when to terminate with and without notice and procedural matters. Compliance with the Code will not protect larger employees from adverse findings but it would be prudent for all employers to comply with the Code when dismissing employees. The Code and a checklist can be found on the FWA website (www.fairwork.gov.au).

The Act also sets out a list of matters that FWA must consider when determining whether a dismissal was harsh, unjust or unreasonable. FWA must consider:

  • whether there was a valid reason for the dismissal;
  • whether the person was notified of that reason;
  • whether the person was given an opportunity to respond to any reason related to the capacity or conduct of the person;
  • any unreasonable refusal by the employer to allow the person to have a support person present to assist at any discussions relating to dismissal;
  • if the dismissal related to unsatisfactory performance by the person, whether the person was warned about the unsatisfactory performance before being dismissed;
  • the degree to which the size of the employer's enterprise would be likely to impact on the procedures followed in effecting the dismissal;
  • the degree to which the absence of dedicated human resource management specialists or expertise in the enterprise would be likely to impact on the procedures followed in effecting the dismissal;
  • and any other matters that FWA considers relevant.

Other changes

Other changes include:

unfair dismissal applications must be filed with 14 days of termination. Previously, employees had 21 days to file a claim;

FWA may hold a conference or a hearing where there are facts in dispute. If no facts are in dispute, FWA has discretion as to whether it holds a conference or a hearing;

except in limited circumstances, FWA may only grant a party leave to appeal a decision if it is in the public interest to do so; and

lawyers and paid agents will not be permitted to appear with their clients except with the leave of the FWA which will only be given to assist a matter be dealt with more efficiently or where it would be unfair not to grant leave. 

The changes are significant and will expose many more employers to litigation. Care should be taken when performance counseling, warning and terminating employees to ensure that potential an unfair dismissal application can be defended.