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Australia’s unfair dismissal system – unplugged

Joydeep Hor, Managing Principal and Founder of specialist workplace law firm People + Culture Strategies explains the two-tiered unfair dismissal regime in Australia.

Australia has had a long history of employment regulation. In fact, labor and employment regulation was one of the first subjects of legislation when Australia first became a nation in its own right in 1901. Since the mid-1980s there has been a more pronounced focus in Australia on individual employment disputation and protections rather than on the collective which had, up to then, dominated the landscape in this country.

While there have been several pieces of legislation dealing with unfair dismissal in that time, the current statute is the Fair Work Act 2009 (the “Act”), Commonwealth legislation introduced by the recently-displaced Labor government.

The Fair Go All Round

The basic premise underpinning Australian unfair dismissal law is that an employer is not allowed to terminate an employee’s employment if that termination is “harsh, unjust or unreasonable”. If the Fair Work Commission (“FWC”) (being the tribunal established under the Act) deems the dismissal to be unfair then it has the power to order that the employer reinstate or even reemploy the dismissed individual (unsurprisingly, rarely a welcome result for the employer). Orders can also be made for backpay and compensation.

A claim can be brought by any permanent employee who has completed a minimum employment period (which is 6 months for employers employing 15 or more employees and 12 months for employers employing less than 15). There is also a remuneration threshold whereby employees earning above the threshold (currently around $A131,300) cannot usually bring a claim. For context, most mid-level managers in organisations in Australia would be paid amounts less than the threshold.

One watchout for employers is that even where someone is earning above the threshold they can bring a claim if their employment is covered by an industrial instrument. It is almost certain that any low income earner would be covered by a “modern Award” if not an “Enterprise Agreement” in Australia but often these instruments are written in such a way as to cover high-income employees within organisations or industry sectors also. Often this is an inadvertent drafting consequence.

By way of background “industrial instruments” is the general term used to describe either Enterprise Agreements (which are like the UK collective agreements) but also include Awards, which are not negotiated but rather determined and reviewed by the FWC.

It is generally prohibited for someone to pursue both an unfair dismissal claim and to raise similar grievances by way of an anti-discrimination claim; whistleblowing infrastructure in Australia is underdeveloped. There are pros and cons as to whether to go for discrimination or unfair dismissal – discrimination cases will ultimately be heard in the formalities of a Court whereas the informality of the FWC for an unfair dismissal makes it appealing for most claimants.

By way of process, unfair dismissal claims must be lodged within 21 days of the termination and typically an informal “conciliation conference” is held by telephone within a few weeks. According to the latest figures, four out of five unfair dismissal claims settle at conciliation. As a result, most cases are resolved through monetary compensation being paid. Given there is a cap on compensation (being 26 weeks’ pay) that can be awarded it is not surprising that the majority of claims resolve for payments in the vicinity of 8-10 weeks’ pay and usually accompanied by a conversion of the termination to a resignation and the employer providing a statement of service to assist the former employee’s search for alternative employment.

In determining whether a dismissal is unfair or not, the FWC typically looks to whether there was a valid reason for termination (being redundancy, misconduct or performance) but also whether an appropriate process was followed commensurate with the putative reason. As employers globally would appreciate, many dismissals do not fall neatly within one of the expected headings: human relationships in the workplace being what they are.

The highly subjective nature of the “test” coupled with the invariably political appointments made of members to the FWC mean that many Australian employers are skeptical about the FWC having any legitimacy as a Court. Whether that skepticism is warranted or not, it is a brave employer that chances its arm in a contest where reinstatement is being sought.

Joydeep is the author of two editions of Managing Termination of Employment (published by CCH Australia). For more information on Australian labor and employment law issues, Joydeep can be contacted at joydeep.hor@peopleculture.com.au. People + Culture Strategies’ website is www.peopleculture.com.au.