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Termination
IntroductionIndustrial relations law today places much weight upon protecting the employee from unfair or unlawful termination. The employers’ traditional so-called “Right” to hire and fire is no more. Federal industrial law (the Workplace Relations Act 1996) now requires that there be a valid reason for terminating an employee, and that procedural fairness is followed in enacting the termination. If either of these circumstances is found wanting, then the employer will be at risk of an adverse tribunal finding resulting in the prospect of financial compensation or even reinstatement of the worker. Even the most prudent and even-handed employer can find themselves subject to the expense and distraction of an “unfair dismissal” claim. However, there are steps that you can take to reduce your exposure to a claim Those steps translate to the following simple rules:
Contract of EmploymentWhat does the existence of a written contract of employment have to do with the sound management of termination issues? The answer is that a well written Contract of Employment (or Letter of Appointment) will substantiate the terms of employment, and agreed conditions concerning termination. For instance, the unfair dismissal provisions of industrial law do not apply during a period of probation. So an employee ‘on probation’ can be more readily terminated if they are found to be unsatisfactory than can a person who has gone straight on to ‘permanent’ employment. A contract of employment which specifically says that the person is initially engaged ‘on probation’ ensures the issue is not in doubt, and gives both parties complete flexibility during the initial period of assimilation and assessment. The period of probation should be no more than 3 months, and must be a condition agreed in advance of the employment commencing. A written Contract of Employment/Letter of Appointment spelling out a probationary period confirms all of that, and gives valid evidence of the condition. Also, although industrial awards (including the Insurance Industry Award 1998) generally set out the period of notice to be given on termination, the tribunals have held that these periods are – in the absence of a specific agreement of the parties – only a minimum. Consequently a tribunal may be persuaded to find an employee (say, an employee with long service, or of senior standing) was entitled to greater notice or pay in lieu of notice than that specified in the Award. This uncertainty can be resolved by including in the Contract a termination provision spelling out the actual notice period to apply (this need not be any greater than the award). Furthermore, the Contract can be used to clearly spell out the duties and responsibilities of the job, thereby short-circuiting the possibility of later argument over the issue. There have been many unfair dismissal case where argument has ensued as to precisely what where the duties, authorities and responsibilities of the employee – all issues which can be very relevant to the question of whether or not the termination was justified. A contract of employment that incorporates the employees’ duties and responsibilities will reduce the possibility of such argument. And, of course, the contract of employment is the proper place to document the key employment conditions and benefits covered by the contract, and the conditions or limitations attaching to those benefits. See Annexure A for a model Contract of Employment relevant to this industry. Reasons to TerminateThere must be a valid reason to terminate a persons’ employment. That reason can relate to the employees’ personal capacity or conduct, or can be a result of the operational requirements of the business. Capacity of the EmployeeRelates to the employees’ personal capacity/competence to perform the function.Conduct of the EmployeeRefers to the employees’ personal behaviour at the workplace. Operational Requirements of the Business: Refers to matters such as changed business direction, technological change or structural change, etc which result in the employer no longer requiring the job occupied by the employee to be done, or in the employee being unwilling or unable to conform to the changed work needs of the business. In addition to the above, the employer retains a common law right to summarily dismiss an employee for reasons of serious or willful misconduct, neglect of duty or refusal of duty, etc. Procedural FairnessHaving established a valid reason for terminating a worker (eg. conduct, capacity or operational requirements of the business), it is then necessary to follow a procedure that is itself “fair”. In relation to unsatisfactory performance (ie. matters of the individual workers’ personal conduct or capacity, this means undergoing a consultative process. The employer must indicate to the employee the specific concerns held about the employee, and spell out what the employer expects of the employee to overcome the concerns. The process will include setting a reasonable time frame within which the improvement will occur. Even in cases of misconduct – including serious or wilful misconduct leading to instant dismissal – the employer will still need to provide the employee with an opportunity to hear and respond to the allegations of misconduct, and have that response duly considered on its merits. In the case of termination due to the operational requirements of the business, it is still sound practice to consult with the affected employee/s. Where an employee submits an alternative proposal to termination, it should be reasonably addressed on its merits. “3 Strikes & You’re Out”There is a widely held misconception that an employee is entitled to three recorded ‘warnings’, before being terminated – and that 3 warnings having been given, termination can be affected with impunity. This is not the case, and neither the legislation, nor tribunal decisions, have ever established a set schedule of warnings to be followed. Each case stands alone. And an unfair dismissal action would not be forestalled simply because termination had been preceded by 3 warnings. However, it is clear that, in the case of terminations resulting from an employees’ inadequate personal performance or conduct, a formal warning process is a vital precedent to termination. What is clear is that there should be at least one formal (ie. recorded) warning at which the problem is clearly identified, the potential for termination made clear, and what changes or improvements are expected to resolve the issue. A Termination Procedure consistent with recent case law is set out later in this publication. Termination Prohibited on Certain GroundsYou cannot terminate an employee for any of the following reasons:
Employees Exluded from the Termination LawsThe following classes of employee are excluded from the benefits and protection of the Federal Workplace Relations Act:
1This highlights the attraction of ensuring every new employee is engaged under a written contract of employment that specifies an initial period of probation. NOTE: Although excluded from the cover of the Workplace Relations Act 1996, these employees are not without rights and they could, given sufficient circumstance, seek redress in the civil jurisdiction.This particularly so in the case of the first group (ie. senior non-award employees) and it is recommended that such personnel should be afforded similar process to that set out below. Termination ProcedureA. Performance Deficiency (Where the employee is deficient in their personal conduct or capacity)1. Counseling
2. Written WarningIn the absence of satisfactory improvement, a second interview should be conducted at which the employee is more formally warned of their deficiency, and the requirement to improve.
See Annexure B for a model Letter of Warning. 3. TerminationIn the absence of improvement, termination should be implemented with due notice as per the Award or employment contract. The notice of termination should refer to the earlier counselling and warning sessions. See Annexure C for a model Letter of Termination. B. Operational Requirements of the BusinessOccasionally it will be the priorities of the business that causes the need to terminate staff. This can be the result of growth in, merger, takeover, or change to the focus of, a business, or can be the result of technological change. Again, the need to demonstrate procedural fairness indicates that affected employees be interviewed and informed of the intended changes, as opposed to simply being notified of termination. The employer should also be considerate of any constructive suggestions of an employee which might mitigate the need for terminations. C. Serious MisconductThe Workplace Relations Act 1996 allows an employee to be dismissed without notice, or pay in lieu of notice, for serious misconduct – defined as being “of such a nature that it would be unreasonable to require the employer to continue the employment during the required period of notice”. And further of being: “any conduct that includes willful or deliberate behaviour inconsistent with the continuation of the employment contract and causes imminent and serious risk to the health or safety of a person or the reputation, viability or profitability of the business”. Examples of such misconduct may include (but is not limited to) situations where the employee has engaged in:
If an employer believes an employee has been guilty of serious misconduct then the employer should:
The employee should be allowed the opportunity to be assisted/represented by an agent. The summary (instant) dismissal of an employee is a most serious action and should only be invoked as a last resort Period of NoticeThe period of notice (or pay in lieu of notice) will usually be in accordance with the relevant Award provisions, and/or the Contract of Employment. The Insurance Industry Award 1998 (Clause 13) specifies notice periods (or pay in lieu thereof) for full-time and part-time employees as follows:
In the case of casual employees, one hours’ notice – or pay in lieu thereof – is required. To ensure against an argument that an employee is entitled to more notice than that provided by Award, we recommend that the Contract of Employment/Letter of Appointment include a provision that expresses the actual notice which will apply (see Annexure A). Redundancy PayEffective from August 2004, the Insurance Industry Award 1996 has included a Redundancy provision which comprehensively addresses the rights and obligations of the parties. The Award requirements are reproduced in full: 13.5 Redundancy 13.5.1 Definitions 13.5.1.1 Business includes trade process, business or occupation and includes part of any such business. 13.5.1.2 Redundancy occurs where an employer has made a definite decision that the employer no longer wishes the job the employee has been doing done by anyone and that decision leads to the termination of the employment of the employee, except where this is due to the ordinary and customary turnover of labour. 13.5.1.3 Small employer means an employer who employs fewer than 15 employees. 13.5.1.4 Transmission includes transfer, conveyance, assignment or succession whether by agreement or by operation of law and transmitted has a corresponding meaning. 13.5.1.5 Week’s pay means the ordinary time rate of pay for the employee concerned. Provided that such rate shall exclude:
13.5.2 Transfer to Lower Paid Duties Where an employee is transferred to lower paid duties by reason of redundancy the same period of notice must be given as the employee would have been entitled to if the employment had been terminated ands the employer may at the employer’s option, make payment in lieu thereof of an amount equal to the difference between the former ordinary rate of pay and the new ordinary time rate for the number of weeks notice still owing. 13.5.3 Severance Pay 13.5.3.1 Severance pay – other than employees of a small employer An employee, other than an employee of a small employer as defined in 13.5.3.1, whose employment is terminated by reason of redundancy is entitled to the following amount of severance pay in respect of a period of continuous service:
* Weeks’ pay is defined in 13.5.1.5 13.5.3.2 Severance pay – employees of a small employer An employee of a small employer as defined in 13.5.1.3 whose employment is terminated by reason of redundancy is entitled to the following amount of severance pay in respect of a period of continuous service:
* Weeks’ pay is defined in 13.5.1.5 13.5.3.3 Provide that the severance payments shall not exceed the amount which the employee would have earned if employment with the employer had proceeded to the employee’s normal retirement date. 13.5.3.4 Continuity of service shall be calculated in the manner prescribed by clause 25.4. Provided that service prior to 10 August 2004 shall not be taken into account in calculating an entitlement to severance pay for an employee of a small employer pursuant to 13.5.3.2. 13.5.3.5 Application may be made for variation of the severance pay provided for in this clause in a particular redundancy situation in accordance with the Redundancy Case Decision [PR032004, 26 March 2004] and the Redundancy Case Supplementary Decision [PR062004, 8 June 2004]. 13.5.4 Employee leaving during period of notice An employee given notice of termination in circumstances of redundancy may terminate his/her employment during the period of notice set out in clause 13.1 – Notice of Termination. In this circumstance the employee will be entitled to receive the benefits and payments they would have received under this clause had they remained with the employer until the expiry of the notice, but will not be entitled to payment in lieu of notice. 13.5.5 Alternative employment 13.5.5.1 An employer in a particular redundancy case, may make application to the Commission to have the general severance pay prescription varied if the employer obtains acceptable alternative employment for an employee. 13.5.5.2 This provision does not apply in circumstances involving transmission of business as set out in 1`3.5.7. 13.5.6 Job search entitlement 13.5.6.1 During the period of notice of termination given by the employer in accordance with 13.1, an employee shall be allowed up to one day’s time off without loss of pay during each week of notice for the purpose of seeking other employment. 13.5.6.2 If the employee has been allowed paid leave for more than one day during the notice period for the purpose of seeking other employment, the employee shall, at the request of the employer, be required to produce proof of attendance at an interview or he or she shall not receive payment for the time absent. For this purpose a statutory declaration will be sufficient. 13.5.6.3 The job search entitlements under this subclause apply in lieu of the provisions of 13.3. 13.5.7 Transmission of Business 13.5.7.1 The provisions of this clause are not applicable where a business is before or after the date of this award, transmitted from an employer (in this subclause called the transmittor) to another employer (in this subclause called the transmittee), in any of the following circumstances: 13.5.7.1(a) Where the employee accepts employment with the transmittee which recognises the period of continuous service which the employee had with the transmittor and any prior transmittor to be continuous service of the employee with the transmittee; or 13.5.7.1(b) Where the employee rejects an offer of employment with the transmittee:
13.5.7.2 The Commission may vary 13.5.7.1(b) if it is satisfied that this provision would operate unfairly in a particular case. 13.5.8 Employees Exempted 13.5.8.1 This clause does not apply to:
13.5.9 Incapacity to Pay The Commission may vary the severance pay prescription on the basis of an employer’s incapacity. An application for variation may be made by an employer or a group of employers. ConclusionThe typical ebb and flow of business trends dictates that workers will come and go within a business as a normal pattern of activity. Employees can and do depart a business at their own discretion and at a time of their own choosing – regardless of the needs of the business. That is accepted as their right. However, for the employer, there is not an equivalent unfettered right to terminate the worker. Employment law ensures that the worker receives a “fair go” in matters of termination, and the law provides the worker with avenues of redress where it is alleged he or she did not receive a “fair go”. But the fact that workers have these comprehensive rights, and access to redress, should not deter the proficient business from adjusting its workforce according to the needs of the business. You are not denied the right to terminate workers – you are merely required to ensure that you have a valid reason for doing so, AND that you give the worker a “fair go” in the process. We hope that this Guide will assist you. Want Further Advice?Contact the NIBA Industrial Relations Advisor – Tony Mussert IR Consulting – on Phone 03 5978 0190, Fax 03 5977 9180, Mob 0427 053 540, or Email Mussert@nex.net.au Disclaimer: Whilst all care has been taken in the preparation of this advice, no responsibility or liability will lie in the case of disputes or adverse findings arising from its observance. Annexure AMODEL CONTRACT of EMPLOYMENT/LETTER of APPOINTMENT
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