05 Nov 2010

The Fair Work Act - Termination of employment

Employers have expanded responsibilities under the Fair Work Act when terminating the employment of their employees. Joe Catanzariti sets out what's changed, and what you should do in response.
This video was made when Joe was a partner at Clayton Utz and does not necessarily reflect his views as Vice-President of the Fair Work Commission

The Fair Work Act - Termination of employment
Joe Catanzariti, Partner, Workplace Relations

Terminating someone's employment is usually stressful and upsetting for everyone concerned, so it's always important to understand when and how it can be done in a fair and appropriate manner.

There are also legal obligations, and the new Fair Work Act has increased those.

Employers have expanded responsibilities to ensure they correctly terminate employees under the Fair Work Act.

At the same time, more employees are able to make unfair dismissal claims, while employers have narrower exceptions when they're defending claims.

Fundamentally though, the crux of the law remains the same: a dismissal must be harsh, unjust or unreasonable for it to be unlawful, and the primary remedy remains reinstatement. Fair Work Australia can also order compensation of up six months of the employee's salary. Certain classes of employees also remain excluded from unfair dismissal.

But let's turn now to focus on the changes. First, who is covered by the unfair dismissal laws in the Fair Work Act?

An employee is covered if they have worked for 12 months for a small business, which is one with 15 or fewer equivalent full-time positions. If you're a larger business, your employees are covered after six months.

There's an additional hurdle for employees of small business. Even if an employee has worked for it for 12 months, the small business will be immune from unfair dismissal claims if it complies with the Small Business Unfair Dismissal Code.

Under the Fair Work Act, a dismissal will not be unfair if an employer can show that it was a genuine redundancy. This is a narrowing of the genuine operational reasons exception under WorkChoices.

So what makes it a genuine redundancy? It's genuine if the employee's position is no longer required because of the business' operational requirements; and the employer has complied with any consultation obligations that it might have in an enterprise agreement or other industrial instrument.

What is important though, is that a dismissal will not be a genuine redundancy if it would have been reasonable for the employer to redeploy the employee within the employer's business.

What's really striking is that this includes redeployment within an associated entity of the employer's business.
The implications of this are far-reaching, and they are particularly significant for large companies.

Another important change is that the time limit for an employee making an unfair dismissal application has been reduced from 21 to 14 days, so they have to make that decision quickly.

We think that these changes will mean a sharp increase in the number of unfair dismissal claims, but these claims may largely be dealt with in administrative conferences with no formal hearings.

The best way to avoid claims of unfair dismissal is to make sure that your organisation and your people really understand their obligations under the Fair Work Act when terminating someone's employment.

That means reviewing policies. Because redeployment now has a broader meaning, it's really important that your HR managers think about vacancies and suitable positions within related companies when seeking to make an employee redundant.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.