Fair Work Act

Termination of employment

There are 4 main reasons for an termination of employment:

  1. Misconduct (breaching the terms of the employment such as not following a reasonable and lawful direction or policy)
  2. Performance  (lack of skill, care, diligence etc)
  3. Capacity (not fulfilling the inherent requirements of their role)
  4. Redundancy (the employee genuinely no longer needs the employee’s role to be done by anyone, or the employer becomes insolvent/bankrupt)

The first thing to look at in any employment-related issue is the Employment Contract itself (as well as any relevant Award or industrial agreement) and depending on the issue, any relevant Workplace Policies or directions/notes on the employee’s file.

If the employee:

  • is a casual;
  • has not been employed for more the prescribed period (6-12 months);
  • was employed for an agreed fixed term or to perform a specific task; or
  • is on probation,

then termination of the employee is usually simple however, where these don’t apply, then the employee may potentially bring or threaten an:

  • unlawful dismissal claim; or
  • unfair dismissal claim.

Casuals

Given the nature of an ad hoc arrangement, casual employees usually don’t have to give any (or much) notice, and the same goes for the employer.

Generally, there is nothing a casual employee can do if they are terminated unless they have been employed for at least 6 months (or 12 months for a small business – see below), except if it was for an unlawful reason. Then the “general protections” in the Fair Work Act can come into play.

Fixed term agreement

If the employment was for a defined or fixed term and that time has ended, then they will not have been “dismissed”.

Probation

Often, the Employment Contract will have a probationary period in which the employee or the employer can terminate without providing any reason on short notice.

Probationary periods are usually 3-6 months, but can be extended.

GENERAL PROTECTIONS DISMISSAL (UNLAWFUL TERMINATTION) 

The Fair Work Act sets out several “general protections” to prevent employees being dismissed for things (each known as an “adverse action“) such as:

  • discriminatory reasons such as race, colour, sex, sexual orientation, age, religious beliefs, mental disability, marital status, family or carer’s responsibilities, pregnancy, religion, political opinion, national extraction or social origin etc (unless an inherent requirement of the job)
  • being absent from work because of illness, injury or parental leave
  • performing emergency volunteer work
  • union membership
  • making a complaint or commencing legal action against the employer or exercising a workplace right

Fines can apply for such dismissals in addition to reinstatement and payment of lost wages or salary.

Unlawful dismissal/adverse action claims must be brought within 21 days of the dismissal.

UNFAIR DISMISSAL

Where:

  • an employee has in excess of 6 months of service (or 12 months where the employer is a small business);
  • the employee’s income is below the high income threshold (compensation cap); and
  • the employee’s employment is covered by a modern Award or enterprise agreement, then

unfair dismissal can come into play if the employee’s dismissal was “harsh, unjust or unreasonable” (in the circumstances, considering the reason/s and the process followed) or if the employee felt they had no choice but to resign following such conduct (called “constructive dismissal“).

A termination is not unfair (and it is a complete defence to an unfair dismissal claim) where:

  • a small business follows the Small Business Fair Dismissal Code; or
  • in the case of a genuine redundancy.

Unfair dismissal claims must be brought within 21 days of the dismissal.

Small business exception

Where a business is classified as a “small business” (ie, it has 15 of fewer full time equivalent (including several part time staff but excluding contractors) employees, liability for unfair dismissal is removed where the small business employer has complied with the Small Business Fair Dismissal Code.

The Small Business Fair Dismissal Code Checklist sets out a simple and fair process to follow at termination.

Redundancy

A redundancy is “genuine” where the employer:

  • no longer requires the employee’s job to be performed by anyone because of changes in the operational requirements of the employer’s business;
  • has complied with any obligation in a modern Award or enterprise agreement that requires consultation about the redundancy; an
  • has considered if it would have been reasonable in all the circumstance for the employee to be redeployed within the employer’s business or any associated enterprise.

Additional payment called redundancy pay is payable in addition to notice and unpaid entitlements, such as annual leave etc.

NOTICE

When terminating employment (including for redundancy), the correct period of notice must be given, or payment in lieu if allowed as per the National Employment Standards and the Employment Contract.

An exception to this is “summary dismissal” (on the spot termination, without notice) when the employer believes on reasonable grounds that the employee’s conduct is sufficiently serious to justify immediate dismissal – usually for serious misconduct (theft, fraud, assault, sexual harassment, serious breaches of workplace health and safety rules and procedures or refusing to carry out a lawful and reasonable instruction that is part of the role.

MANAGING TERMINATION RISKS

Where termination is being considered, the employer must have a good reason for the termination and follow procedural fairness in the process.

Where poor performance is the issue, the employee ought to:

  • be informed of the issue, told what is expected and advised of the likely consequence of not improving -eg, termination) and be given a reasonable time to improve; and
  • have a reasonable opportunity to consider and respond to such allegations (and improve).

Where misconduct is involved (other than serious misconduct):

  • the employer ought to be able to point to specific terms of the employment or clear policies as to the conduct required (except where such poor conduct goes without saying); and
  • a proper investigation ought to take place, with the employee having a proper opportunity for the employee to respond to such matters.

Capacity being in issue is often self-evident, such as not being able to do a job – for example a professional licence or vocational qualification lapsing.

Consider how other employees had been dealt in the past with for similar conduct and the position, past conduct and length of service of the employee also.

Keep detailed records of warnings, meetings and counselling (3 warnings are not always required)

The employee should have opportunity to have a support person at interviews and the employer may want a second person (a witness) present.

Maintain a level of professionalism and give notice of termination in writing.

FURTHER INFORMATION

For further information, please contact McKillop Legal on (02) 9521 2455 or email help@mckilloplegal.com.au 

This information is general only and is not a substitute for proper legal advice. Please contact McKillop Legal to discuss your needs.

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Are you hiring an Employee or a Contractor?

Are you hiring an employee or a contractor? This is an important question often overlooked by business owners.

What is the difference between an employee and a contractor?

The difference between an employee and an independent contractor is based on many different factors. No single factor determines whether someone is an employee or a contractor. Instead, the Courts will look at each case and make a decision based on the totality of the relationship between the parties when determining the status of an engagement.

There are some common factors that may contribute to determining whether a person is an ‘employee’ or an ‘independent contractor’ (or ‘contractor’ or ‘sub-contractor‘):

Employees

Employees generally:

  • do not operate independently of the business engaging them
  • are directed in how and when to perform their work
  • cannot delegate their work to someone else or pay someone else to do it
  • are paid per hour, project or a commission
  • are provided with all tools and equipment required to perform their work or gets an allowance to provide these things
  • take no commercial risks – the business is responsible for the work performed or fixing any issues with it
  • have an expectation of continuing work (except casuals)
  • are generally not employed by other businesses at the same time (at least for most full time employees)

Contractors

Contractors on the other hand:

  • do operate independently of the business engaging them
  • have freedom as to how and when to perform work, subject to the terms of the arrangement
  • may delegate or further subcontract out their work, subject to the terms of the agreement (Services Agreement or Contractor Agreement etc)
  • are paid for a result or outcome, even if this is on an hourly rate basis, a commission arrangement or per project
  • supply most of their own tools and equipment
  • are liable for the work performed and are liable to remedy or pay the costs of fixing any defects
  • are responsible for their own employees and sub-contractors
  • are usually engaged for a specific task or purpose
  • may accept or seek work from other businesses

Other differences in their rights and the obligations or the employer or principal include:

  • Independent contractors issue invoices (or tax invoices if registered for GST) whereas employees are paid regularly (weekly, fortnightly or monthly).
  • Employees are entitled to the benefit of the rights under the Fair Work Act 2009 (Cth) (FW Act) and any relevant Award or industrial agreement (including for things such as leave, overtime etc) as well as having the compulsory superannuation contribution paid to their superannuation fund.
  • Employees have tax withheld and paid on their behalf to the Australian Taxation Office where as an independent contractor will pay their own tax to the ATO (and GST if registered for GST).

What if you get it wrong?

If you pay someone as a contractor when they are really an employee, the employee may miss out on important benefits such as leave entitlements and superannuation. Although you may have paid the agreed rates or price and any applicable GST, the employee may be able to pursue the business that engaged them for those unpaid entitlements and the employer may be prosecuted. Also, if the “contractor” doesn’t pay tax, the employer may be liable for the tax that ought to have been withheld.

Many businesses that deliberately arrange in “sham contracting” (where a person ought to be an employee but they are engaged and remunerated as a contractor) are penalized by the Fair Work Ombudsman under the FW Act.

Another unexpected consequence can be that where those engaged as independent contractors are not actually independent at all (for example where they do not provide services to any other businesses) or are really employees can be the issue of payroll tax payable to Revenue NSW under Payroll Tax Act 2007 (NSW). Contractors can be deemed employees for the purpose of payroll tax if they don’t offer their services to the general public, working only for one business.

FURTHER INFORMATION

Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to any employment related issue or any business/commercial law matter, contact Craig Pryor on (02) 9521 2455 or email craig@mckilloplegal.com.au

This information is general only and is not a substitute for proper legal advice. Please contact McKillop Legal to discuss your needs.

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