Unfair dismissal

No ‘day one’ right under the FWA – requirement to serve minimum employment period

The FWA establishes a regime permitting employees to make unfair dismissal claims if they meet certain conditions. The conditions include a requirement of having served a ‘minimum employment period’ of six months as at the date of dismissal - unless the employer is a ‘small business employer’, in which case the minimum employment period is 12 months as at the date of dismissal. A ‘small business employer’ is an employer with fewer than 15 employees, counted across its enterprise and the enterprise of any associated entities (which can include overseas entities). Only irregular or short term casual employees do not count towards the total.

During the minimum employment period, an employer does not need to have a valid reason for dismissal relating to capacity, conduct or redundancy. Nor must an employer follow any process to dismiss an employee or give an employee an opportunity to improve unsatisfactory work performance. The minimum employment period effectively gives employers a ‘free pass’ from unfair dismissal (although the reason for dismissal must not be unlawful, or it would contravene other provisions of the FWA).

It is important to note that Australian employees can make a ‘general protections’ claim without serving any minimum period. Even prospective employees can make such claims. ‘General protections’ claims are different to unfair dismissal claims because they focus on unlawful adverse action rather than the fairness of a dismissal.

Unfair dismissal protection as a 'day one' right under the ERB

The ERB proposes to make protection from unfair dismissal a "day one" right by repealing the current requirement for an employee to have two years' service to claim ordinary unfair dismissal.

To limit the impact of this proposal on employers, the ERB also introduces the concept of an "initial period of employment" (IPE), during which a lower level of protection will apply, and compensation for unfair dismissal will be subject to a lower cap. The intention is that, during the IPE, employers will be able to follow a lighter touch process to dismiss an employee for conduct, capability, illegality, or some other substantial reason (although not redundancy).

Unlike in Australia, the legal position is the same for both small and large employers – albeit that when assessing fairness (i.e. whether it was reasonable for the employer to dismiss for its stated reason), the employment tribunal does take into account the size and resources of the employer.

Possible lessons to be learned from Australia

Australia saw a significant increase in unfair dismissal claims when the definition of ‘small business employer’ was amended from employers with 99 or fewer employees to 14 or fewer employees. This is because a far greater cohort of employees were protected from unfair dismissal after six months of service.

We anticipate that employers in GB will see a similar increase in claims when unfair dismissal protection becomes a day one right. While compensation for dismissals during the IPE may be subject to a lower cap, the time and cost of defending tribunal claims may be significant.

Dismissal and re-engagement

Fire and re-hire / fire and replace – equivalent provisions under FWA

In Australia, it would be an unfair dismissal to dismiss an employee for refusing to agree to a change to their terms and conditions of employment (fire and rehire), or to dismiss an employee and hire another employee on amended terms to carry out the same or substantially the same work (fire and replace). Neither of these would be a ‘valid reason’ for dismissal within the meaning of the FWA - and without a valid reason, a dismissal will be unfair. ‘Fire and rehire / replace’ scenarios would not typically fall within the meaning of a ‘genuine redundancy’ as defined under the FWA.

Further, under the FWA’s general protections provisions it would in most circumstances be unlawful to dismiss an employee for refusing to agree to a change to their terms and conditions of employment, or to dismiss an employee because of their entitlement to more favourable conditions and hire another employee on reduced terms. Contravention of the general protections provisions exposes an employer to significant pecuniary penalties (civil fines) in addition to uncapped compensation and damages for hurt and distress.

Fire and re-hire / fire and replace automatically unfair under the ERB

The ERB proposes to make it automatically unfair to dismiss an employee for refusing to agree to a change to their terms and conditions of employment (fire and rehire), or to dismiss an employee and hire another employee on amended terms to carry out the same or substantially the same work (fire and replace).

There will be a very narrow exception if the employer can demonstrate that the change in terms was necessary to alleviate serious financial difficulties that were likely to affect the ability to run the business as a going concern, and could not reasonably have been avoided.

Possible lessons to be learned from Australia

Employees in Australia who are dismissed for refusing to agree to a change to their terms and conditions of employment will usually bring a general protections application under the FWA to challenge the lawfulness of their dismissal. This exposes the employer to substantial legal costs, even if the matter is settled, in addition to significant settlement sums. If the matter proceeds to Court and the employer is unsuccessful, the employer would be exposed to Court orders compensating the employee for lost wages and damages for hurt and distress, in addition to pecuniary penalties. The legal costs of defending such proceedings are typically significant.

While the ERB does not provide for pecuniary penalties for employers in a fire and rehire / fire and replace scenario on top of the compensation payable to the employee, we would expect to see an increase in similar claims in GB as a result of these provisions. Indeed, given the extremely narrow nature of the exception under the ERB, the risk involved where an employer seeks to make a change to employees' terms and conditions to which the employees are unwilling to agree will significantly increase.

Collective redundancy consultations

Collective consultation requirements depend on industry / occupation

The FWA does not impose collective redundancy consultation obligations, although it does require an employer to notify Australia’s national social welfare payments agency (Centrelink) if the employer is considering redundancy (retrenchment) of 15 or more staff.

However, all industrial awards (instruments with statutory force made by the Fair Work Commission and automatically covering particular industries or occupations) require employers to consult with affected workers and their industrial representatives where the employer has made a definite decision to introduce major workplace change, which includes redundancy.

Strengthening collective consultation requirements under the ERB

Currently, the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA) requires employers in GB to conduct collective redundancy consultation with appropriate representatives of affected employees where they are proposing to dismiss 20 or more employees for redundancy at one establishment in a 90 day period. The ERB initially proposed to remove the words "at one establishment" from TULRCA, meaning that employers would have had to take into account proposed redundancy dismissals anywhere across their organisation when determining whether collective consultation was required.

Fortunately, the government appears to have taken on board employers' concerns about the difficulty of keeping track of proposed dismissals across multiple sites, and has amended the ERB to retain the current threshold where dismissals are proposed "at one establishment". However, an additional, higher threshold (which is yet to be confirmed) will be set for collective consultation where employees are to be made redundant at more than one establishment (effectively, aggregating dismissals across establishments).

Employers in GB must also inform the Secretary of State of collective redundancy proposals using Form HR1. The amended thresholds under the ERB will also apply to the requirement to file Form HR1.

Possible lessons to be learned from Australia

While Australian and GB law differ in this area, one possible point of commonality is that employers often do not know their rights and obligations when it comes to redundancy consultation. Many fail to comply with their consultation obligations. In Australia, this exposes them to liability for contravention of the industrial award, which in turn constitutes a contravention of the FWA which can result in Court orders for pecuniary penalties. More commonly, it results in costly disputes to the applicable industrial tribunal (the Fair Work Commission) or a federal Court. In GB, an employer that fails to comply with collective consultation requirements is at risk of a protective award – currently up to 90 days' pay per affected employee, this will be doubled to up to 180 days' pay under the ERB. In addition, failure to file Form HR1 as required is a criminal offence, punishable with a potentially unlimited fine. In conjunction with the changes proposed in the ERB, the government has committed to producing guidance to help employers understand their collective consultation obligations and avoid inadvertent breaches.

Other employers in Australia erroneously believe consultation must occur even when redundancies are just being considered – before they have made the ‘definite decision’ which triggers the consultation obligation. This can lead to unnecessary workplace unrest, industrial disputes, anxious employees and operational disruption. In GB, by contrast, collective consultation is triggered by a "proposal" to dismiss. This has been held by the courts to require more than mere "contemplation", but to be more tentative than a definite decision. Consultation must take place when proposals are at a formative stage, and include consideration of how redundancies might be avoided. While employers understandably wish to avoid unnecessary workplace unrest, waiting too long to begin collective consultation can be a risky strategy.

Zero and low hours / casual workers

Greater protections for and restrictions on the use of casual employees in Australia

In Australia, ‘zero hour’ workers are known as ‘casual’ employees. Casual employees do not have minimum or guaranteed hours of work or a firm advance commitment to continuing and indefinite work. They are not entitled to statutory annual or sick leave, notice of termination of employment, redundancy pay and a range of other entitlements afforded to ‘permanent’ employees.

While many industrial awards limit the use of casual employees or prescribe minimum shift engagements (e.g. three hour shifts) where an employer uses a casual employee, the FWA does not prescribe minimum hours for casual employees. While they have some protection from unfair dismissal, casual employment is considered far less secure. However, the FWA provides a mechanism – recently strengthened - for employees to elect to convert from casual employment to either part-time or permanent employees. The FWA was also recently amended to make it harder to engage someone as a casual employee, by narrowing the definition of casual employment.

The FWA also does not prescribe minimum hours of work for ‘low hours’ employees – known in Australia as ‘part-time’ employees. A part-time employee is any employee contracted to work fewer than 38 hours per week. However, most industrial awards prescribe minimum engagements for part-time employees.

Additionally, most industrial awards require an employer to give part-time and casual employees reasonable notice of shifts, and of cancellations or changes to scheduled shifts, and in some cases compensation for cancelling or changing shifts at short notice. These obligations can be modified by enterprise agreements (which are akin to GB's collective agreements).

It is unlawful (and a dismissal would be an unfair dismissal, assuming the employee has unfair dismissal protection) to dismiss an employee or subject them to any detriment in relation to these rights.

Guaranteed hours and reasonable notice of shifts for zero and low hours workers under the ERB

The ERB includes proposals requiring employers to offer contracts for a guaranteed number of hours to zero and low-hours workers, which reflect the number of hours that the worker regularly works during a reference period. Offers will have to be made at the end of every reference period, until the worker no longer qualifies as a zero or low hours worker. Employers will also be required to provide zero and low hours workers with reasonable notice of shifts, and of cancellations or changes to scheduled shifts, as well as compensation for cancelling or changing shifts at short notice. ('Low hours' for these purposes is yet to be defined.)

It will be automatically unfair to dismiss an employee if the sole or principal reason for dismissal concerns various rights relating to guaranteed hours offers, and workers will be protected from being subjected to a detriment relating to such offers, or the rights around notice of shifts and compensation for short notice cancellation/changes.

Employers will, however, be able to exclude the above requirements where this is done via a collective agreement with a trade union, which expressly excludes and replaces them. The relevant term of the collective agreement must also be incorporated into individual workers' contracts.

Possible lessons to be learned from Australia

Use of casual employees is decreasing in Australia due to the additional pressures and restrictions placed on employers in relation to the use of casual labour. Casual employees are more frequently accessing the right to convert from casual to part-time or full-time, depending on their relative hours, and we are starting to see increasing numbers of disputes about casual employment and conversion in the Fair Work Commission. In certain sectors, the cost and risk of using casual employees is starting to outweigh the advantages presented by the flexibility of maintaining a casual workforce. In other sectors, the significant restrictions on use of casuals imposed by industrial awards means very few casual employees work within those sectors.

We expect to see this trend continue, although there will remain sectors such as hospitality where the workforce will be constituted significantly by casual employees, at least for the foreseeable future.

Similar trends may occur in GB given the complexity of the regime proposed in the ERB, the difficulties employers may face when it comes to compliance, and the legal risks of getting it wrong.

Rights for agency workers

Zero and low hour contracts for agency workers

The FWA does not separately govern the use of agency workers (often known in Australia as ‘labour hire’ workers). The provisions discussed above in relation to casual and part-time workers would apply equally to labour hire (agency) workers. Industrial awards oblige employers to treat labour hire workers the same way as they would direct employees for the purposes of award conditions such as reasonable notice of shifts, shift cancellations and changes to shifts.

Extending protections for agency workers in GB

Following consultation, the government has confirmed its intention to extend the above provisions on zero and low hours contracts (guaranteed hours offers and notice of shifts) to agency workers, and the ERB has been amended to provide for this. The ERB divides responsibilities between agency and end hirer based on which of them the government considers best placed to comply with the various requirements.

Possible lessons to be learned from Australia

In Australia, the increase in protections for labour hire workers is likely to have the effect of reducing their use. This is already having an impact in sectors such as energy and resources, which have typically used significant numbers of labour hire workers. With erosion of the commercial advantage and flexibility of using labour hire workers, it is likely such use will decrease. Similarly in GB, the ERB proposals may result in a reduction in employers' use of agency workers, since the flexibility currently offered by such arrangements will no longer be available.

Tribunal limitation periods

A strict timeframe in Australia

Australian employees have 21 days from the day after a dismissal takes effect to file a dismissal dispute claim with the employment tribunal (the Fair Work Commission). This is a strict limitation period and only in exceptional circumstances does the Commission grant an extension of time. Before 2013, the limitation period was 14 days from the day after a dismissal takes effect.

For non-dismissal unlawful action claims, the limitation period is six years.

Federal discrimination claims have a limitation period of two years. They are not brought under the FWA but under the Australian Human Rights Commission Act 1986 (Cth).

Longer limitation periods under the ERB

Currently, the time limit for most employment tribunal claims is three months (e.g. from the effective date of termination in unfair dismissal claims, and from the date of the act complained of in discrimination claims). The employment tribunal has discretion to extend time if it is satisfied that it was not reasonably practicable to bring the claim within time (unfair dismissal), or if it considers it would be just and equitable to do so (discrimination).

The ERB proposes to increase the limitation period for employment tribunal claims from three months to six months. (The tribunal's discretion to extend time further will remain in place.)

Possible lessons to be learned from Australia

The increase in the limitation period from 14 days to 21 days in Australia in 2013 resulted in an increase in numbers of employees filing unfair dismissal claims.

GB is likely to see a similar increase if its limitation periods are similarly extended. The employment tribunal system in GB is already under-resourced, and an increase in the number of claims is likely to lead to greater delays in claims being heard. This may also make claims harder for employers to defend, e.g. if key witnesses can no longer accurately recall events, or if they leave the organisation in the intervening period.