With employees fighting for their jobs and unemployment set to rise, employers must ensure that a fair and proper process is followed before terminating employment, writes K&L Gates’ Chloe Mitchell.
With varying levels of uncertainty surrounding employment and the Australian economy over the past few years, it should perhaps come as no surprise that the number of unfair dismissal claims has been steadily on the rise, with some 14,804 unfair dismissal applications lodged with the Fair Work Commission last financial year.
Settling or defending an unfair dismissal claim can be a costly exercise for employers and can divert significant time and resources away from ordinary business in the process. If a claim proceeds to arbitration, the matter is determined by a member of the Fair Work Commission. Last financial year, there were 367 matters finalised at arbitration, of which 192 found the employee to have been unfairly dismissed.
In a 2014 decision, the Fair Work Commission found that retailer urbrands unfairly dismissed its employee, Angela Johnson, after she did not agree to changes being proposed by the company to the terms and conditions of her employment.
In March 2014, due to difficult business conditions and a desire for remuneration alignment with other store managers, urbrands sought to have Ms. Johnson agree to changes to her employment contract that included a $26,000 reduction to her base salary. Ms. Johnson was advised that if she did not accept the changes, urbrands would have no choice but to make her resign. After Ms. Johnson clearly indicated that she did not agree to the changes, urbrands wrote to her confirming the termination of her employment by resignation, despite Ms. Johnson, on a number of occasions, clearly communicating to urbrands that she was not resigning.
Under the Fair Work Act 2009 (Cth), Australia's primary employment legislation, a person may be "unfairly dismissed" if the Fair Work Commission is satisfied that the person has been dismissed and the dismissal was harsh, unjust or unreasonable in the circumstances.
Unless it is a genuine redundancy, whether a dismissal is harsh, unjust or unreasonable, boils down to individual circumstances. The Fair Work Commission will take into consideration certain criteria including whether there was a valid reason for termination, the size of the employer's enterprise and its dedicated human resources personnel and what procedures were followed. The Fair Work Commission also has the discretion to take into account any other matters it considers relevant.
In the urbrands case, Justice Boulton did not accept that Ms. Johnson had resigned from her employment, confirming that the termination was at the initiative of urbrands and therefore she had been dismissed. His Honour also determined that the refusal to accept a reduction in remuneration was not a valid reason for termination of her employment and held that urbrands forcing Ms. Johnson to resign (and deeming the termination as a resignation) was both harsh and unreasonable taking into consideration her 12 years of service with urbrands, as well as her record of good service.
Justice Boulton further noted that urbrands was a "sizeable" employer and would be expected to have procedures for dealing with terminations of employment. He commented that there might have been more appropriate ways of dealing with the issues, particularly as it seemed that urbrands' dedicated human resources employees were not involved in the discussions or negotiations. He expressed the view that adjustments to Ms. Johnson's terms and conditions of employment might have been more appropriately negotiated if different procedures, involving the expertise of human resources personnel, had been followed.
As compensation for her unfair dismissal, urbrands was ordered to pay to Ms. Johnson an amount of compensation equivalent of 14 weeks pay.
The urbrands case is a reminder to employers that even seemingly legitimate business reasons do not trump ensuring that a fair and proper process is followed when terminating employment. It also highlights the view of the Fair Work Commission of the importance of utilising available human resources expertise in employment-related matters, including negotiating terms and conditions and termination of employment.
With the increasing number of employees challenging the validity of the termination of their employment, there is always a risk that an unfair dismissal claim may arise for any termination regardless of whether or not the employer has followed a fair and proper process. For the most part, the Fair Work jurisdiction is one where each party bears its own legal/representative costs so a victory by an employer can still be very costly. Employers should ensure that appropriate procedures are in place to facilitate careful consideration of a fair process to termination and, where necessary, seek out further advice to minimise potential liability.
For more information on this topic, please contact Nick Ruskin, Partner, K&L Gates or Chloe Mitchell, Lawyer, K&L Gates – 03 9205 2000; nick.ruskin@klgates.com, chloe.k.mitchell@klgates.com
