Businesses of all sizes are now subject to unfair dismissal laws.  Previously, businesses with less that 100 staff were exempt, however this is no longer the case.

There are two streams of unfair dismissal rules and which one covers an employers business will depend on the staffing levels at the business.

Under the Fair Work Act 2009, the following employees cannot make an unfair dismissal claim.

• Employees who have not been employed for the minimum employment period (12 months for small businesses with fewer than 15 employees or 6 months for all other businesses);
• Employees whose earnings are more than the high income threshold and they are not covered by an award or agreement;
• Employees who have been dismissed because of genuine redundancy;
• Employees who are irregular casuals; or
• Employees who are employed under a fixed term contract or training arrangement.

Important Note: A small business is defined as a business with less than 15 full time equivalent employees.  The number of employees is calculated by averaging the number of ordinary hours worked by all employees over the previous 4 weeks and then dividing that number of hours by 38 to establish the number of full time equivalent employees.  By virtue of this definition, businesses in some circumstances may drift between small businesses and larger businesses as staff levels fluctuate due to seasonal and other factors.  In most cases if employees have worked less than an average of 570 per week over the previous 4 weeks then the business will be classified as a small business for the purpose of unfair dismissal laws.

If an employer is a small business as defined above they must comply with the Fair Dismissal Code when terminating the employment of staff for capacity or conduct issues.  The Federal government has given the impressions that small businesses owners will only have to give one warning and give the employee an opportunity to improve before they can safely dismiss an employee.  Unfortunately, we do not believe that it will be that easy and there are a number of hidden traps that employers may get caught in.

If they are not a small business then they must not terminate and employee in a manner that is harsh unjust or unreasonable.  This is a return to the days where employees regularly challenged their dismissal through the Industrial Commission’s processes.

Whilst the methods of resolving these matters has altered, employers should understand that paying monetary compensation to ex-employees is the most common way of resolving these matters.  A maximum of six months wages can be payable and as such employers need to understand that the rules.

These laws have only just commenced and there is no case law to provide guidance on some of the grey areas, however, it is likely that some of the issues that will be looked at over time will include;

Do persons engaged as contractors but may possibly be employees if accurately classified, have to be counted when determining whether or not a business is a small business for the purpose of unfair dismissal laws.

The number of staff must also include any “associated entities”.  This is defined by the Corporations Act 2001 but the legislation itself is not always clear.

What is a genuine redundancy and how closely a business will have to follow award procedures are unclear.  The legislation also requires employers to try and place the retrenched employee in an associated entity, if one exists.  How much of an onus to place the employee will be required so as not to breach the legislation is unknown.

How many warnings will be required to be given to an employee under the Fair Dismissal Code and the general requirements, and what will be given a reasonable opportunity to improve” mean.

Employers should carefully consider their actions before dismissing an employee under the new unfair dismissal laws.  Fair Work Australia has wide powers to deal with these types of matters and the Workplace Ombudsman also has a role where an employee has been subject to adverse action by an employer in relation to any dismissal on certain prescribed grounds.  Just because an employer is exempt from unfair dismissal laws due to the length of service of an employee does not mean that they may not be subject to investigation by the Workplace Ombudsman in relation to other matters.

For those of us that operated in this type of environment a number of years ago, we have some guidance on where this may go, but it is clear that there is going to be a need to ensure that record keeping is at a high level and there is a strong and demonstrated need to terminate staff if that is what is to occur.