Key Risks all Advisors need to know about Termination of Employment

A number of consultants, advisors, accountants, bookkeepers and business coaches have asked us recently about termination of employment.  In particular, what are some of the issues to understand so that Employer’s risk and liability can be mitigated and even dissipated.

1. Unfair Dismissal Risk

For many advisors there is an understanding of unfair dismissal and the fundamental concepts that is, to claim unfair dismissal an employee must prove the dismissal was:

  • Harsh;
  • Unjust; or
  • Unreasonable

The important elements to consider when it comes to defending a claim is that there is:

  • Firstly a valid reason which is usually the easier part to establish, serious misconduct such as theft or failure to follow a reasonable and lawful direction (potentially a policy) are examples; and
  • Secondly, the employer has undertaken procedural fairness and natural justice – when it comes to serious misconduct a show cause process is one way to establish procedural fairness and natural justice

However, an unfair dismissal risk is limited financially – there is a 6 month wage absolute limit on compensation and the primary remedy is reinstatement. In practical terms, the risk although still significant from a reputational perspective is more a liability mitigation exercise which requires commerciality of any settlements to be considered.

Read more here https://www.lawyersforemployers.com.au/3-ways-reinstatement-can-be-ordered-by-the-fair-work-commission-a-cautionary-unfair-dismissal-tale-for-hr-officers-and-hr-managers

2. Breach of Contract

Employers may be exposing themselves to unnecessary risk due to old employment contracts that have not been updated to reflect the current employment situation, changes and obligations.  That is, the intention of the contract has become ambiguous.

A decision in the Brisbane District Court back in 2017 saw former Wallabies coach John Connolly awarded a sum of $150,000 (excluding costs and interest) as a result of his former employer, Queensland Rugby Union, terminating his employment.

The termination occurred under the mistaken belief that an oral contract entered into between the two parties contained a termination clause. Although three separate contracts had been prepared, none of the contracts had been executed by both of the parties and instead an oral contract had been entered into.

Importantly, this oral agreement contained no explicit or implicit reference to a termination clause. As such, Connolly sued Queensland Rugby Union and was successful for the breach of contract and loss of future earnings.

Read more in this article https://www.lawyersforemployers.com.au/cant-afford-take-eye-off-ball-comes-old-contracts

3. Reasonable Notice

The importance of clearly and properly drafted employment contracts and having written contracts in place is moreso important when it comes to reasonable notice. 

Usually we have notice periods that are minimally provided for under the Fair Work Act 2009 (FW Act)and the National Employment Standards (NES).  However, when a notice clause is not found in an employment contract the common law (that is case law) implies reasonable notice.

The case law takes into account a number of factors including:

  • Seniority of the employee
  • Salary of the employee
  • Length of service
  • Age of the employee
  • Ability or inability to find new employment

To put this in perspective reasonable notice awarded can be anywhere between 4 weeks to 24 months pay.  A decision in the New South Wales Supreme court saw an employee awarded in excess of $1 Million in damages (Roderick v Washington H Soul Pattinson Co Ltd (No 2) [2020] NSWSC 1224)

4. General Protections

$664,601.38 payout!

A staggering amount was awarded to an employee for breach of the General Protections – a substantial portion of this was assigned to the difficulty the applicant would have in obtaining employment in the current COVID-19, pandemic effected environment.

The Federal Circuit Court (FCC) awarded an employee compensation to the tune of over $650,000 due to breaches of the general protection provisions of the Fair Work Act 2009 (FW Act) and for failing its obligations under the Macquarie University Staff Enterprise Agreement 2015 (EA). The hearing to determine remedy comes one year after the FCC established the liability of the employer in the decision of Tran v Macquarie University (No.2) [2019] FCCA 2049 (Decision).

In the context of rising employment claims due to the pandemic and the looming cessation of JobKeeper, the Decision is another reminder for employers and advisors of the importance of following procedure and undertaking due diligence when handling sensitive matters such as termination or employee complaints.  The significance of the Decision is exemplified by more than $270K awarded for future economic loss taking into account:

  • The current pandemic – COVID-19
  • The workers age
  • Overall health
  • Time out of the workforce
  • Wages

The FCC considered the allegations made by Ms Tran in the context of the general protections provisions and based on the evidence presented it was satisfied that:

  • Ms Tran had exercised a workplace right within the meaning of s 341(1)(c) of the FW Act by making formal complaints in respect to several matters, including her treatment at the hands of her direct supervisor;
  • Macquarie’s proposed restructure that disestablished Ms Tran’s position amounted to adverse action within the meaning of s 340 and s 342 of the FW Act, and accordingly the adverse action was taken for a prohibited reason, that being, the adverse action was taken in response to the complaints made by Ms Tran.

Read more here in this article https://www.lawyersforemployers.com.au/general-protections-complaint-huge-future-economic-loss-pay-out-due-to-covid-19

There are a couple of General Protections the main one being when an Employer takes adverse action against an employee because they exercise or propose to exercise a workplace right. 

Adverse action is an action that injures employment such as termination of employment or a demotion.

A workplace right is a right under a workplace law but NOT an employment contract.  Some rights may include:

  • A complaint or enquiry about payment or underpayment of wages;
  • Asking for annual leave;
  • Taking sick leave (personal/carers leave);
  • Requesting a permanency from a casual position;
  • Complaints of discrimination;
  • Making a complaint of sexual harassment or workplace bullying.

However the key element is the BECAUSE.  In practical terms, there must be a causal linkage between the adverse action and the workplace right.

Importantly, the onus of proof reverses so the Employer must (after the employee establishes the three elements above) prove that there is either:

  • No adverse action;
  • No workplace right; or
  • There is no causal link between the right and action argued by the employee.

5. Accessorial Liability

Accessorial liability is, in practical terms, a shared responsibility of the wrongdoing or breach of the Fair Work Act. This could be by way of:

  • Aiding or procuring in the contravention;
  • Inducing the contravention;
  • Been in any way, by act or omission, directly or indirectly, knowingly concerned in or party to the contravention; or
  • Conspiracy with others to effect the contravention.

Some basic principles apply in this regard, and the common law provides some guidance:

  • The person has knowledge and essential facts of the contravention;
  • The person is knowingly concerned in or involved in the breach;
  • The person is an intentional participant in the breach – wherein wilful blindness is not an excuse.
  • The penalties for such breaches are quite high and up to $63,000 for each contravention (and $12,600 for each individual).

Some of the more usual breaches include:

  • Sham contracting;
  • Underpayment of wages;
  • Failure to provide payslips;
  • Discrimination;
  • Workplace bullying.

Individuals who have been sued successfully for accessorial liability include:

  • Directors;
  • Shareholders;
  • Executive;
  • CFO;
  • Finance;
  • Managers;
  • Supervisors;
  • Human Resources;
  • Accountants;
  • Bookkeepers;
  • Consultants;
  • Business Coaches;
  • External HR and IR advisors.

For Advisors

For Advisors the important areas you need to know about termination of employment are:

  1. Unfair Dismissal;
  2. Breach of Contract;
  3. Reasonable Notice;
  4. General Protections;
  5. Accessorial Liability.

There are some nuances in all potential actions, there are also limitations.  It can be difficult to know when you are advising whether it starts to tip into the field of legal advice.  However, if unsure talk to the Lawyers for Employers – we are here to help.

Contact NB Lawyers – Lawyers for Employers – we undertake and offer an obligation free consultation.  Reach out via service@nb-lawyers.com.au or +61 (07) 3876 5111 to book an appointment.

If you got value out of this article email service@nb-lawyers.com.au or click on this link to subscribe to our value added newsletter. 

Written By 

Jonathan Mamaril, Director

Jonathan Mamaril 

Director

NB Lawyers – Lawyers for Employers 

jonathanm@nb-lawyers.com.au 

+61 (07) 3876 5111 

Jonathan Mamaril leads a team of handpicked experts in the areas of employment law and commercial law who focus on educating clients to avoid headaches, provide advice on issues before they fester and when action needs to be taken and there is a problem mitigate risk and liability.  With a core value of helping first and providing practical advice, Jonathan is a sought after advisor to a number of Employers and as a speaker for forums and seminars where his expertise is invaluable as a leader in this area as a lawyer for employers. 

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