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Workplace Relations Amendment (Unfair Dismissals) Bill 1998



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Bills Digest No. 36  1998-99

 

Workplace Relations Amendment (Unfair Dismissals) Bill 1998

Warning:

This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments. This Digest does not have any off icial legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

Contents

 

 

Passage History

Workplace Relations Amendment (Unfair Dismissals) Bill 1998

Date Introduced:  12 November 1998

House:  House of Representatives

Portfolio:  Employment, Workplace Relations and Small Business

Commencement:  On Royal Assent

Purpose

The Bill seeks to amend the Workplace Relations Act 1996 :

• to exclude new employees (other than apprentices and trainees) of businesses with 15 or fewer employees from federal unfair dismissal laws

• to establish a six month qualifying period of employment for new employees (other than trainees or apprentices) wanting to use the unfair dismissal regime.

The Bill will not affect the scope of State unfair dismissal laws.

The Bill will not affect the federal laws dealing with unlawful dismissal.

The Bill will affect the rights of employees hired after the date tha t the Act comes into effect but does not prejudice the rights of employees engaged before that date.

Background

The proposal to establish a general qualifying or probationary period for access to federal unfair dismissal laws is new. The proposal to exemp t smaller businesses from federal unfair dismissal laws is not.

The small business exemption was last considered by the Parliament as recently as 25 March 1998 when the Senate rejected the Workplace Relations Amendment Bill [No.2] (the recommitted Bill).

There has been no substantive change to the membership of the Senate since the recommitted Bill was defeated. The Government, however, argues that its victory in the 3 October 1998 election has provided it with a fresh mandate to proceed with this legislation as a matter of priority.(1)

Terminology

As noted above, the proposed changes affect federal ‘unfair dismissal’ laws but do not alter federal laws making termination of employment unlawful in certain cases. This is an important distinction and requires s ome clarification.

'Unfair dismissal' refers to those situations where the employer's conduct in bringing the employment relationship to an end can be characterised as 'harsh, unjust or unreasonable'. Actions for unfair dismissal are instituted in the Aust ralian Industrial Relations Commission (‘AIRC’ or ‘the Commission’) which under the present law must give weight to the interests of the employer and the dismissed worker in determining both the merits of the case and any remedy granted.

'Unlawful' (as opposed to 'unfair') dismissal includes dismissal for discriminatory reasons such as sexual preference, age, union membership and family responsibilities. It is also unlawful to dismiss a worker because they engaged in protected (lawful) industrial action in negotiating a new certified agreement or Australian Workplace Agreement. Allegations of unlawful dismissal are initiated in the AIRC. The Commission must seek to resolve a claim by conciliation before determining whether to refer it to the Federal Court of Australia.(2)

History of Exclusions and Exemption Provisions

Proposals to reduce the scope of federal unfair dismissal laws have been canvassed frequently by the Parliament over the past 5 years.

The Keating Government passed the first significant piece of federal legis lation dealing with the termination of employment. That law, the Industrial Relations Reform Act 1993 (the 1993 Reform Act), came into effect on 30 March 1994, amending the principal Act, the Industrial Relations Act 1988 (the IR Act).(3)

Prior to March 1994, workers covered by State awards had enjoyed access to statutory and award based remedies for some years but approximately 40 percent of Australian workers, ie those in the federal system, did not have access to similar remedies. Workers in the federal industrial stream could not gain access to State tribunals and their rights were constrained by constitutional limits on the jurisdiction of federal courts and industrial tribunals. Some avenues of redress, including the AIRC's willingness to exercise a de facto jurisdiction, were available but even these were cumbersome and relatively time consuming.

In a jurisdictional sense, the 1993 Reform Act went from one extreme to another, extending minimum protections to all workers and also effectively establishing federal primacy over the pre-existing State-based systems in relation to termination of employment.

The other major feature of the 1993 Reform Act was that it created a rights based regime, rather than one entirely dependent on discretionary standards and remedies.

Thus, as first enacted, the federal legislative scheme dominated the field, was both rights-based and comprehensive.

Regulations made on 29 March 1994 excluded some fixed term, casual and probationary employees from the federal regime.(4) These exemptions were extended and clarified by further regulations made on 9 November 1994(5) thus denying protection to: (a) persons employed for a fixed term of less than 6 months , (b) employees engaged to perform a specific task , (c) probationary employees whose period of probation was determined prior to hiring and to instances where the probationary period was reasonable in the circumstances , (d) some casual, including daily hire, employees , (e) specified classes of trainees , and (f) persons engaged under the Australian Federal Police Act 1979 .

In the interim, the IR Act 1988 was amended by the Industrial Relations Amendment Act (No.2) 1994 (with effect from June 1994) addressing some employer concerns regarding access to the new federal remedies. Specifically, the June 1994 amendments restricted access to termination provisions and set upper limits on the level of compensation that could be awarded.

From 30 June 1994, the Industrial Relations Court of Australia’s unfair dismissal jurisdiction did not exten d to workers who earned in excess of $60 000 per annum (indexed) who were not covered by a federal or State award.

A second major amendment 'capped' the amount of compensation payable to employees dismissed in contravention of the 1993 Reform Act. (After t he passage of the 1993 reforms, monetary compensation was available where reinstatement was judged impracticable.) Following the 1994 amendments, the Australian Industrial Relations Court could only award up to six months' salary as compensation in the case of employees covered by awards and not more than $30 000 or six months' remuneration (whichever is the lower) for non award employees as compensation for unfair dismissal. This amount was also indexed.

A third modification to the 1993 provisions confined the onus of proof imposed on employers to those matters concerning the giving of valid reasons for dismissal and for proving that none of the legislatively prohibited grounds for dismissal formed the (real) reason for the dismissal. In all other respects, the onus of proof rested with the employee. This evidentiary requirement also operated to discourage some workers from seeking remedial relief under the system.

In the face of continuing employer opposition, the Keating Government further amended the law (with effect from 15 January 1996) providing that:

• the termination of employment provisions of the Act would not apply where there was an alternative available under another law that satisfied the requirements of ILO Convention No.158 relating to termination of employment

• the Industrial Relations Court of Australia must consider all the circumstances of the case in deciding what remedy (if any) should be granted.(6)

The latter change was designed to lessen employer concerns that the legislation placed too much weight on procedural fairness and not enoug h on the substantive merits of individual cases.

The Howard Government was elected in March 1996 with a clear policy commitment to further amend the federal termination laws to ensure that they provided a 'fair go all round'. The Coalition's policy manifesto, Better Pay for Better Work , described the existing law as '…far too detailed, too prescriptive and too legalistic and hence a disincentive to employment.'(7)

The Workplace Relations and Other Legislation Amendment Bill 1996 (WROLA) was introduced on 23 May 1996 and subsequently enacted on 31 December 1996.

The significant changes made to unfair dismissal laws by WROLA included:

• The jurisdiction of the Industrial Relations Court of Australia was removed to the Federal Court.

• The jurisdiction of the f ederal tribunal to hear unfair dismissal claims was reduced. 

• The definition of 'fairness' was changed. Before awarding a remedy (if any) to the employee, account must be taken of the ongoing interests of all the parties. This is encapsulated in the slogan 'a fair go all round'. Allied with this, there was a ‘re-balancing’ of the statutory test to ensure that ‘procedural fairness’ is only one factor in determining whether a dismissal is unfair.

• Separate streams for handling unfair and unlawful dismissals were created.

• The power of the AIRC to award costs against employees was dramatically increased and was coupled to a compulsory conciliation stage.

• A standard $50.00 filing fee was introduced.

Whilst the Workplace Relations Bill was still before the Parliament, the High Court held that the prohibition in the IR Act 1988 on 'harsh, unjust, or unreasonable' (ie 'unfair') dismissals set out in subsection 170DE(2) of the Act was invalid. The provision had sought to rely on the external affairs power. However, the High Court held that there was not a sufficient connection between the relevant provisions of the IR Act and the relevant international instruments.(8)

The WROLA retained the expression 'harsh, unjust and unreasonable' in relation to unfair dismissals but confined the operation of the federal statute to a narrower field. Thus only Commonwealth employees , federal award employees employed by foreign, financial and trading corporations , Territory employees , some employees engaged in interstate and overseas trade , and (latterly) Victorian workers were covered federally. Even a proportion of federal award employees were no longer covered by the federal law. Ultimately, the five remaining State systems were not subject to the overriding operation of the federal law as was previously the case.

As to 'unlawful dismissal', Subdivision C of Division 3 of Part VIA of the Principal Act currently provides grounds for relief where a termination breaches the minimum notice requirement (section 170CM) or is for a prohibited reason such as age, race, union membership or non membership etc (section 170CK). WROLA also extended the IR Act's list of prohibited grounds by making it unlawful to dismiss an employee for refusing to negotiate in connection with, make, sign, extend, vary or terminate an Australian Workplace Agreement [section 170CK(2)]. Proceedings for unlawful dismissal are comparatively rare. (They now taken in the Federal Court of Australia, or in the case of notice requirement, in a court of competent jurisdiction. WROLA left remedies for unlawful dismissal much the same as under those available under the IR Act.)

Regulations were made on 11 December 1996 imposing additional restrictions on the classes of employee protected from unfair dismissal.(9) On 26 March 1997, the Senate debated the disallowance of the 11 December 1996 regulations, questioning the policy of excluding such wide classes of employee from the Act by regulation. Contrasting the effect of the regulations with exclusions made under the previous law critics, including Senator Jacinta Collins, noted that:

• from November 1994, only employees hired for a specified period which did not exceed six months were excluded from the protection offered by the federal unfair dismissal law. (It was asserted that the 11 December 1996 regulations reverted to the pre-Nove mber 1994 position and excluded all employees hired for a 'specified period'),

• the new regulations deny protection to casual employees until they have been engaged as such for a continuous period of 12 months. Under the previous law, casuals with six months service or longer with an employer were protected,

• under the pre-1996 regulations the maximum length of a probationary period of employment was not defined.  However, such a period could not be 'unreasonable'. (The courts have held that in some cases a reasonable period of probation would not extend beyond a week or two depending on the task being performed.) The 11 December 1996 regulations deem any period of probation up to 3 months to be reasonable,

• the restriction on terminating employees defined as 'temporarily absent' from work due to illness or injury is also eroded. Employees are now subject to lawful dismissal where they are absent from work for a continuous period of 3 months (or for more than 3 months in a period of 12 months) except where they are in receipt of paid sick leave , and

• the new regulations introduced the foreshadowed filing fee of $50.00 (a measure contemplated by the 1996 amendments and fully debated by the Parliament and agreed by the Parliament, ie contentious but not a surprise).

The essence of these criticisms was that the regulations reduced the rights of some workers and did not conform to the terms of the relevant international treaty in that they made it easier for employers to structure their employment relations to avoid their legal obligations.(10)

The Opposition failed in its attempt to disallow the 11 December 1996 regulations.(11)

On 24 March 1997, Prime Minister Howard issued a Statement entitled More Time for Business which responded to the report of the Small Business Deregulation Task Force chaired by Mr Charlie Bell, the Managing Director of 'McDonalds'. The Statement promised new regulations to exclude from the reach of federal unfair dismissal laws, employees who have less than a year's continuous service, and who work for a small business with no more than 15 employees.(12)

Regulations were made on 30 April 1997 to give effect to the Prime Minister's undertaking and were to commence on 1 July 1997.(13)

On 26 June 1997, noting the prospect that the Regulati ons may be disallowed, Minister Reith introduced further legislation stating in his Second Reading Speech that:

a regulation has already been made under the Workplace Relations Act 1996 , to give effect to the exemption, with effect from 1 July 1997. But that regulation is subject to motion of disallowance in the Senate - which must be dealt with this week. If that motion is withdrawn or defeated, then this Bill will be withdrawn from the notice paper. But if that motion is carried, then this Bill will proceed.

On 26 June 1997, the Senate disallowed the regulations exempting small business.(14)

The disallowance motion was moved by Australian Democrat Spokesperson, Senator Andrew Murray, who amongst other things, claimed that the regulations breached the Gove rnment's election commitments(15) and were also contrary to the agreement made between the Government and the Australian Democrats which had allowed the passage of WROLA.(16)

The disallowance motion was also supported by the ALP, Senator Harradine and Senator Margetts.

Senator Harradine also indicated his opposition to the ‘foreshadowed’ Bill.(17)

That Bill, the Workplace Relations Bill 1997 was first introduced into the House of Representatives on 26 June 1997 and was passed unamended the following day. The Bill was then introduced into the Senate on 1 September 1997, having been referred to the Senate Economics Legislation Committee on 28 August 1997.

In mid July 1997, it was reported that the Prime Minister would be prepared to seek a double dissolution if the Senate were to fail to pass the present Bill.(18) Not surprisingly, discussion of the Bill was coloured by speculation that it might ultimately be used to trigger a double dissolution election.

The Public Service Bill 1997, introduced in the House of Representatives on 26 June 1997, also dealt with proposed exclusions from unfair dismissal laws. That Bill provided that Departmental Secretaries, Agency Heads and members of the Senior Executive Ser vice could not seek relief under the termination of employment provisions (Division 3 of Part VIA) of the Workplace Relations Act 1996 . This would have excluded senior Commonwealth officials from the protections of unfair and unlawful dismissal provisions of the Workplace Relations Act. This feature of the Public Service Bill also proved contentious as did the Bill itself, which was twice passed by the Senate but with amendments which were unacceptable to the Government.(19)

The Report of the Senate Economics Legislation Committee was tabled on 20 October 1997 with the Government majority on the Committee recommending passage of the Workplace Relations Bill 1997. Dissenting minority Reports were issued by ALP and Australian Democrat members of the Committee.(20)

On 21 October 1997, the Workplace Relations Bill 1997 was defeated at the Second Reading in the Senate.

Legislation identical to the Bill defeated on 21 October 1997, ie proposing an exemption for smaller businesses from federal unfair dismissal laws, was introduced in the House of Representatives on 26 November 1997 and was ultimately defeated in the Senate on 25 March 1998.

Basis of Policy Commitment

As suggested earlier, Minister Reith has stated that the initiatives contained in this Bill were spec ifically outlined by the Coalition parties during the recent federal election campaign. The Coalition Policy document More Jobs, Better Pay is the source for this commitment(21) and clearly indicates that both key elements of this Bill would be pursued.(22)

For its part, the Australian Labor Party has consistently and openly opposed the thrust of the Howard Government’s changes to unfair dismissal laws.(23)

As part of his Second Reading Speech, Minister Reith contended that the Government has a fresh mandate for the changes being pursued.

Claims and counter claims regarding electoral mandates, however, are not canvassed here.

Persons Affected

Access to federal unfair dismissal laws is already limited.

First, the federal law only covers those classes of empl oyee listed in section 170CB of the Workplace Relations Act 1996 . Still further classes of worker are then excluded by regulation, such as high income earners, some temporary employees, some trainees and some contractors etc (see above).

Principally this means that not even all federal award employees have access to these provisions. The main generic groups that do have access are:

• Commonwealth public sector workers

• employees who work in a federal Territory or in Victoria(24)

• persons employed under a federal award and who are employed by a ‘constitutional corporation’, and

• certain defined classes of worker principally engaged in inter-state and overseas trade and commerce.(25)

('Constitutional corporations' are 'foreign corporations' and those domes tically formed companies which are regarded as carrying on financial or trading activities within the meaning of section 51(xx) of the Australian Constitution.)

Specific exceptions contained in this Bill add to the list of statutory exclusions although it is worth noting that the Bill has been drafted to ensure that the existing rights of apprentices and trainees engaged under relevant training agreements are not further diminished.(26)

It is, however, unclear just how many workers are presently covered by federal unfair dismissal laws and indeed how many workers will be affected by the proposed changes.

In answer to Question on Notice (No.2940) from Mr Robert McClelland, Minister Reith in part responded:

(2) It is not possible to specify the number of small businesses which would directly benefit from the Government’s proposed exemption from unfair dismissal laws for small businesses as the operation of the provisions, according to the criteria outlined above, would depend on the details of the interrelationship between federal and State legislation, in each State, at the relevant time.(27)

As ABS figures can provide only a rough guide to the number of persons employed by small businesses that come within the federal unfair dismissal jurisdiction, some form of proxy measure must be used to estimate the number of workers or businesses likely t o be affected by the Bill. This is because the ABS figures for small business include businesses with more than 15 employees and because the federal unfair dismissal law does not cover all small businesses. In any event, other measures are needed to ‘get a handle’ on the legislation’s present and future impact.

The ABS definition of small business is different to that used in the Bill in that the former:

• excludes agricultural enterprises

• covers non-manufacturing industries employing less than 20 employees, and

• applies to manufacturing industries employing less than 100 employees.(28)

Using the ABS measure, there are about 900,000 small businesses in Australia, representing about 97 percent of all businesses and employing about 50 percent of the total non agricultural private sector workforce.(29) ABS data also show that as at May 1998, employers with fewer than 20 employees employed a total of 2 090 300 wage and salary earners. This is out of a total number of employees in Australia at the same time of 6.934 million.(30)

The ABS has also recorded that about 51 percent or about 245 000 of small (employing) businesses are incorporated and that there a further 409 100 small businesses which are non employing (eg sole proprietorships or partnerships with no employees). The latter group is also largely unincorporated.(31)

At face value, these figures suggest that a significant number of workers may be covered by the Act and therefore affected by the Bill. However, when account is taken of various existing statutory and regulatory exclusions, the number of businesses and employees affected shrinks considerably. For instance, all the unincorporated and non employing firms referred to above (except mostly those resident in Victoria or the Territories) will generally not be covered by federal unfair dismissal laws and hence are not affected by the Bill.

Figures supplied by Mr Reith’s Department for the period January to August 1998 show that about 46 percent of a total of 11 074 unfair dismissal claims were lodged in the federal system. Departmental figures also show that only about 35 percent of federal claims lodged between December 1997 and September 1998 related to businesses employing 15 or fewer persons.

Making a best guess estimate from the available survey data, it is likely that less than 25 percent of Australian businesses will be affected by the proposed small business exemption. This is (again) because most businesses with fewer than 16 employees are unincorporated (ie sole traders and partnerships) and therefore not covered by federal unfair dismissal laws.

The figure of 25 percent is ‘rubbery’ and may indeed over-estimate the number of businesses affected by the 15 employee cut-off proposed in the Bill. Using the ABS definitions and figures, 83 percent of small businesses and 80 percent of all businesses have less than 5 employees.(32) This group, ‘micro businesses’, has relatively few employees but account for a high proportion of employment in the small business sector. It is also this same class of very small firms which employ a high proportion of workers employed by small business, ie about 50 percent.(33) It is also the group that employs 0-4 workers which is most unlikely to be incorporated and covered by a federal award and therefore outside the scope of the federal unfair dismissal regime.

For constitutional reasons, however, federal coverage of small and micro business will be higher in Victoria and the Territories and this will tend bolster the coverage.

Another way of looking at the scale of th e problem is to compare the number of unfair dismal claims in a given period with the level of labour market turn-over. Again, these figures should be treated as indicative.

Full year figures for the number of unfair dismissal claims have not been supplied by the Department of Employment, Workplace Relations and Small Business but some readers may find the following rough annual estimates a useful guide to the magnitude of the issue.

For 1998, if present trends continue, there will be about 16 000 unfair dismissal claims lodged nationally of which about 7 500 will come before the federal tribunal. Of the likely 7 500 federal claims, about 2 500 will be made against employers employing fewer than 16 staff.

ABS Labour Mobility statistics show that about 1.1 million Australians change jobs every 12 months and just over 1 million will change employer. The same survey shows that in the 12 months to February 1998, there were 1.275 million job leavers of whom over 185,000 stated that they left their job due to unsatisfactory working conditions.(34)

In terms of the proposed six month exemption, about 1.2 million of the 8.4 million persons in work as at February 1998 had been in their current job for less than 6 months.(35)

Six Month Qualifying Period

This proposed exclusion does not affect persons already employed on the date that the proposed amendments come into effect. However, persons who presently would be able to access federal unfair dismi ssal remedies, but who start work or change employers after the Bill becomes law, may be disadvantaged.

The qualifying period applies to all workers otherwise within federal jurisdiction, not just those employed by small business.

Persons Employed by Smaller Businesses

The small business exclusion may be relied on by employers with 15 or fewer permanent workers.

Put another way, the Bill may affect the existing rights of persons employed by businesses with no more than 15 permanent employees.

The cut-off f igure may include the dismissed employee themselves and certain types of casual worker. For the purposes of establishing the size of the business, only those casual employees who have been engaged ‘on a regular and systematic basis for a sequence of periods of employment of at least 12 months’ by the business are included in any count of persons employed.

Pros and Cons

Supporters of the Bill argue that the proposed small business exemptions:

• are necessary to ensure the continuing growth in employment in s mall business

• are consistent with the Government's stated policy which was fully canvassed prior to the 1996 and 1998 General Elections

• reflect special burdens carried by small business in defending unfair dismissal claims (Larger businesses have greater expertise for establishing recruitment and termination procedures whilst small business can find that just defending unfair claims places intolerable strains on their resources.)

• do not affect the rights of existing employees

• do not diminish the rights of apprentices or approved trainees

• do not extend to cases of alleged unlawful dismissal

• are consistent with exemptions available under the International Labour Organization's Termination of Employment Convention 1982

• mirror the precedents (for the size of business excluded) established by the Wran Government's Employment Protection Act 1982 (NSW) and the decision of the then Australian Conciliation and Arbitration Commission in the 1984 Termination, Change and Redundancy Test Case

• are supported by the findings of the Senate Economics Legislation Committee Report on the 1997 Bill and by surveys of small business, and

• have been recently re-endorsed by the electorate.

In his Second Reading Speech introducing the Workplace Relations Bill 1997 [No. 2], Minister Reith referred to a number of surveys of business groups supporting the Bill. He also endorsed claims that the Bill's passage would spur job creation. For instance, he drew attention to a questionnaire on unfair dismissal in the Yellow Pages Small Business Index Survey conducted from 30 October 1997 to 12 November 1997, and noted:

This is the largest economic survey of small business in Australia , it focuses specifically on small business with 19 or fewer employees. Approximately 1,200 randomly selected proprietors of small business were covered by the survey.

In this survey, 79 percent of proprietors thought that business would be better off if they were exempted from unfair dismissal laws. 33 percent of small business reported that they would have been more likely to recruit new employees if they had been exempted from unfair dismissal laws in 1996 and 1997. And 38 percent of small businesses reported that they would be more likely to recruit new employees if they were exempted from the current unfair dismissal laws. (36)

In his Second Reading Speech for the present Bill, Minister Reith again was able to draw on copious support from business.  He again highlighted survey evidence pointing to strongly held perceptions that the law requires further amendment along the lines b eing pursued here.

Departmental figures for the period 31 December 1996 to 30 October 1998 also tend to suggest that a significant proportion of unfair dismissal claims are made against small business (about 35 percent) and that a not insubstantial portion of total claims were made without a reasonable expectation of success.(37)

Critics of the proposed exemptions argue that the changes are inequitable, unnecessary and at odds with Australia's obligations at international law.

Inequitable?

The principal arg ument going to the fairness of the changes is that they leave a significant section of the workforce without basic protections enjoyed by workers employed by medium to large businesses (including workers in comparable jobs).

Further, it may be argued that proposed changes to unfair dismissal laws will only have a marginal impact on the viability of most small businesses. Insufficient capital, poor management, general inexperience and predatory conduct by competitors are arguably more pressing problems for small business (and indeed for the job prospects of persons employed by small firms).

Critics of the proposals may argue that all employers should take reasonable care in selecting staff and that workers should not be dismissed capriciously. Arguably, these are sound generic business principles which should apply to all firms irrespective of their size.

Similarly, the Bill readily accepts that an action for unfair dismissal may harm the employer, but does not acknowledge the likely effect on the worker of losing his or her job.

Excluding some businesses from the federal law a priori ousts the jurisdiction of third parties who may be able to resolve the matter by conciliation. This is not only likely to produce unfair results but is also bad industrial relations practice.

The Bill assumes that size is a universal proxy for profitability or capacity to pay. This need not be so. The Bill (in effect) says that in every instance where the employer is a small business, the business is less well placed to carry the costs of a breakdown in the employment relationship than the dismissed worker. Only in some instances will this be true.

It has been suggested the Bill may encourage some employers to create artificial business entities to avoid the law by reducing the nominal size of their workforce below the statutory threshold.

With continuing high levels of unemployment, the removal of access to unfair dismissal remedies further enhances the already considerable bargaining power of many employers. This, it may also be argued, undermines the basis for genuine/free collective agreement making.

To the extent that the provision does actually advantage small businesses, it gives them an unfair competitive edge over other businesses (including those which may employ as few as 16 workers).

Unnecessary?

It is arguable that the changes already enacted by the present and the previous government have sufficiently redressed any imbalance in the legislation against employers.

General changes to the termination of employment law since June 1994 have advantaged all employers, and small business has benefited as much as other businesses.

Spurious actions are now less of a problem for all businesses as there has been a marked decline in the number of claims in recent years.

Early figures from the then Department of Workplace Relations and Small Business comparing the period January-August 1997 (under the Reith law) with the January-August 1996 period (under the last version of the Keating law) showed a national decline of about 20 percent in the number of unfair/unlawful dismissal applications lodged. Similarly, the number of applications in the federal jurisdiction fell from 9 864 in January-August 1996 to 4 492 in January-August 1997.(38)

Later figures, comparing the first six months of 1998 with the first six months of 1996, show that the general decline in applications in the federal system had been sustained with a fall of about 46 percent over the comparable period in 1996.(39)

Figures showing the number of unfair dismissal claims arbitrated on the merits between December 1996 and October 1998 show that 75 percent of the 722 matters determined were decided in favour of the employee applicant.(40) Subject to certain qualifiers, th is would suggest that a significant proportion of the claims made under the Act cannot be regarded as spurious or as being made for an improper purpose.

Whilst the reasons for these apparent trends may be argued, what seems clear is that the Howard Government’s laws have had an impact on the number of allegations of unfair treatment being made against employers, particularly employers in the federal arena and that the need for a further paring back of access to the system may be overstated.

Critics of the present proposals might also argue that changes to the general law have not only reduced levels of litigation, but have also lowered the risk to all employers of being subject to an adverse finding. Relevant factors include:

• the 'fair go all round test' f ormalised under WROLA reduces the importance of procedural fairness in determining cases and to some degree lessens the attendant requirements for excessive record keeping (etc) by employers in connection with the dismissal process

• remedies of reinstatement or (capped) compensation are no longer available to a dismissed worker as of right even where the termination is found to be harsh, unjust or unreasonable. The AIRC, in making an order of compensation, must have regard, among other things, to the effect that the order may have on the viability of the employer's business [section 170CH(7)]

• as the present Government has claimed, introducing a filing fee and extending the Commission's capacity to award costs appears to have gone some way to shielding employers - small and large - from unreasonable claims, and

• the extension of the former legislation's exclusions in respect of casual, fixed-term and probationary employees also works to the advantage of some employers (including, of course, small businesses).

Lastly, and on a slightly different tack, it is arguable that the alleged mischief created by the 1993 Reform Act (including that done to small business) was always overstated. It will be recalled that amongst the claims made by employers were that:

•  the legislation encouraged too many claims, many of which were 'try-ons' and simply unjustifiable, representing increased pressure in terms of legal costs and time on employers, and(41)

• the law cost jobs (the Executive Director of the NSW Employers Federation, Garry Brack, was reported as suggesting that the anecdotal evidence indicated that the unfair dismissal laws may have dissuaded Australia's small business from creating an extra 100,000 to 200,000 jobs).(42)

Such claims, by their nature, are easily made but not so readily tested. Similarly, surveys of business attitudes to the law may say more about business perceptions and aspirations than they do about the actual effect of the legislation.

In its 1995-1996 Annual Report , the Industrial Relations Court of Australia provided a detailed critique of many of the employer criticisms of the previous law.  The Report provides the statistical support for the claims of Chief Justice Wilcox during the 1996 Election campaign that the then law was generally 'working well' and that the main problem was the bad conduct and sloppy human resource management practices of some employers. Comments in the Industrial Relations Court's 1995-96 Annual Report include the following:

• the controversy was fuelled by a degree of deliberate misrepresentation ,

• the previous Government did not make a major effort to explain and justify the new laws, hence public perceptions were able to be unfairly swayed ,

• in 1994-95 only 928 (or 12 percent) of the finalised cases were resolved either at or after trial with the corresponding figures for 1995-96 being 1605 and 15.8 percent (ie most cases did not come to trial) ,

• from late 1995 onwards, the total number of unfair dismissal applications represented only about 2 percent of total involuntary terminations ,

• employers had a good success rate under the old law ,

• contrary to some suggestions, people who bring unfair dismissal claims represent a fairly normal cross-section of the workforce ,

• although ABS figures show that 91.7 percent of employers have fewer than 20 employees, a survey of employers involved in unfair dismissals showed that only 33 percent of respondents were small businesses (had fewer than 20 employees), ie small business is under-represented in unfair dismissal actions ,(43) and

• the median amount of compensation awarded was $6 000.00 and the average cost of defending a claim less than $5 000.00.(44)

Subject to the important qualification that legitimate concerns about the threatened or improper use of the remedy as a bargaining tactic, what emerges from the Industrial Relations Court of Australia’s findings is that the 'problems' caused by the 1993 legislation may have been exaggerated. Again, this not to deny the strength of some of the anecdotal evidence cited by employers and employer organisations.

The Court's identification of the apparent under-representation of small businesses in termination matters coming before the tribunals is particularly interesting in the context of the Bill as are its reported findings on the processing of claims under the old and new laws.

In its Annual Report for 1996-97, the Industrial Relations Court of Australia highlighted major outcomes in the federal jurisdiction as follows:

• 74 percent of unfair dismissal claims cases were settled by agreement

• 75 percent of cases were finalised within six months, 99 percent within 12 months

• 62 percent of trials were completed in one day, 84 percent within two days

• 58 percent of contested cases were decided in favour of the employee, 42 percent favouring the employe r

• reinstatement of the employee was ordered in 7.5 percent of contested cases, and

• the median amount of compensation awarded was around $6 000.(45)

These findings should, of course, be read together with later data collected by the Department of Employ ment Workplace Relations and Small Business referred to, in part, earlier.

Lastly, those who argue the changes are largely unnecessary would also suggest that as a fraction of labour market turnover/job separations, the proportion of unfair dismissal claims is quite small (see above).

International Obligations

Australia ratified the ILO Convention on the Termination of Employment, 1982 (Convention No.158) on 26 February 1993.

Having ratified such a Convention, the Commonwealth undertakes to ensure that Aust ralian domestic law and practice remain in conformity with the terms of (what is in effect) the treaty and with the relevant international jurisprudence.

There may need to be some further consideration of whether the proposed exemption for small businesses from the unfair dismissal laws is at odds with Convention No.158.

The relevant substantive provisions of Convention No.158 are articles 2(5) and 2(6).(46)

Article 2(5) provides:

In so far as necessary, measures may be taken by the competent authority or through the appropriate machinery in a country, after consultation with the organizations of employers and workers concerned, where such exist, to exclude from the application of this Convention or certain provisions thereof other limited categories of employed persons in respect of which special problems of a substantial nature arise in the light of the particular conditions of employment of the workers concerned or the size or the nature of the undertaking that employs them . (emphasis added)

It is arguable that the broad exclusions from the Act contemplated by the Bill go beyond '…limited categories of employed persons in respect of which special problems of a substantive nature exist…' referred to in article 2(5) of the Convention. An exclusion exempting businesses in a particular industry engaging a relatively small number of workers would probably conform to the Convention. A more general provision may also conform but the chances of a conflict arising increase with the number of workers who are excluded. Much will turn on the intended effect of article 2(1) and how that clause is interpreted. The structure of article 2 suggests a broad reach for the Convention with limited exceptions only being allowed to the fundamental principle that the Convention 'applies to all branches of economic activity and to all employed persons’.(47)

Current ILO thinking seems to run counter to a restrictive view of article 2(5). The International Labour Conference Report of the 82nd Session (1995) instances only a handful of countries where unfair dismissal laws have limited application to firms with relatively few employees.(48) Of these, two of the four countries mentioned employ very limited exceptions. One applies to firms with 4 workers (Republic of Korea), the other to 6 workers (Germany). Austrian practice is tied to other legislation and Sri Lanka sets the bar at 15 workers.(49)

Lastly, Article 2(6) provides that:

Each Member which ratifies this Convention shall list in the first report on the application of the Convention submitted under article 22 of the Constitution of the International Labour Organization any categories which may have been excluded in pursuance of paragraphs 4 and 5 of this Article, giving the reasons for such exclusion, and shall state in subsequent reports the position of its law and practice regarding the categories excluded, and the extent to which effect has been given or is proposed to be given to the Convention in respect of such categories.

It has been argued that article 2(6) does not allow for subsequent exclusions once the first article 22 report has been made.(50) A leading commentator on industrial law, Breen Creighton, has noted that:

Given that Australia submitted its first report on Convention No.158 in September 1995, this means that it would not now be permissible in terms of the Convention to adopt regulations under section 170CC(1)(d) or (e) to exclude categories of workers (for example those whose employers employed fewer than five employees) - even though it would have been quite in order to do so before the first report was submitted.(51)

For its part, the Government takes the view that its proposed changes conform with the Convention.

Main Provisions

The substance of the Bill is contained in a single schedule and that schedule contains a single item.

The proposed amendment is complex and builds on what is already a very complex set of provisions.

Sources of potential confusion include distinction between ‘unfair’ and ‘unlawful’ dismissal,(52) the scope of existing exclusions, jurisdictional issues and the style in which the Act and the amendment have been drafted.

To assist the reader, a number of basic features of the Bill are restated here even though they have been touched on earlier.

For those relying on the Explanatory Memorandum, it may be noted that the Bill appears to do what the Memorandum (in simpler terms) says that it sets out to do. What the Explanatory Memorandum does not do is list the exclusions that will continue to apply whether or not this Bill is enacted into law. To further assist the reader, the main legislative exclusions already in place are listed above under the subheading ‘Persons Affected’. The scope of the exclusions made by regulation is examined in the section of this Digest dealing with the history of the legislation. A further and more detailed list of exclusions is contained in the CCH Research Manual of Industrial Law (at page 86,003).

Schedule 1 provides for the small business exemption by amending section 170CE of the Principal Act.

The new provision exempts employers from the unfair dismissal provisions of the Workplace Relations Act 1996 in relation to any person engaged after the commencement of this Act where:

• that person was not an apprentice or a trainee , and

• the business employs no more than 15 persons.

The relevant time for calculating the threshold number of employees for jurisdictional purposes is either the time that notice was given by the employer to the dismissed worker or the time that the contract of employment ceases (whichever happens first).

In calculating the number of persons engaged by the employer at the time that notice is given or dismissal is effected, the dismissed worker is included. However, casual workers who are not engaged on 'a regular and systematic basis for a sequence of periods of employment of at least 12 months' are not included in the count.

Schedule 1 also prevents employees newly hired after the Bill is enacted from using the federal unfair dismissal regime until they have been engaged by their employer for a period of at least six months.

In relation to the 6 months qualifying period, the Act will only protect persons who have been engaged by the same employer for a ‘continuous’ period of 6 months. New subsection 170CE(5A) provides that what constitutes ‘continuous service’ will be defined by regulation.

As noted in the Explanatory Memorandum, the Bill seeks to maintain the existing rights of apprentices and certain trainees. The Bill does not, however, expand those rights by restoring access to the federal jurisdiction of those apprentices and trainees excluded by other provisions in the Act or the Regulations.

Endnotes

 

1. Hon Peter Reith, Second Reading Speech, Hansard , 12 November 1998, p 243.

2. It is generally acknowledged that relatively few actions will be brought for 'unlawful dismissal'. Refer Chief Justice Murray Wilcox, 'Dismissal: A Fair Go All Round', Speech to Workplace Relations Act Conference , Brisbane 14 March 1997, p 10.

3.  The 1993 Reform Act amended but did not rename the Industrial Relations Act 1988 (the IR Act 1988 ). The IR Act was later to be heavily amended and renamed by legislation introduced by the Howard Government and is now titled the Workplace Relations Act 1996 (referred to here as either the Workplace Relations Act or the Principal Act).

4.  Statutory Rules 1994 , No. 79.

5.   Statutory Rules 1994 , No. 386.

6.  Industrial Relations and Other Legislation Amendment Act 1995.

7. page 11.

8.  Victoria v Commonwealth (1996) 138 ALR 129.

9.  Statutory Rules 1996 , No.307.

10. Not withstanding sub-regulation 30B(2) which seeks to prevent conduct deliberately aimed at escaping the operation of the Act.

11. Senate, Hansard , 26 March 1997, pp 2573-2580.

12. page 85.

13.  Statutory Rules 1997, No. 101.

14. Senate, Hansard , p 5287.

15. Senator Murray has alleged that Mr Reith had given a commitment during the election campaign ( SMH , 20 February 1996) that there would be no small business exemption from the unfair dismissal law. Senate, Hansard , 26 June 1997, p 5278.

16.  Ibid.

17.   Canberra Times , 25 August 1997.

18.   Sydney Morning Herald , 17 July 1997 and Canberra Times , 21 July 1997.

19. The Public Service Bill 1997 was laid aside by the House of Representatives on 5 December 1997, the House rejecting 52 non Government amendments made by the Senate on 19 November 1997. An identical Bill, the Public Service Bill 1997 [No.2] met a similar fate for similar reasons in the House of Representatives on 6 April 1998.

20.  Australian Senate, Consideration of the Legislation Referred to the Committee: Workplace Relations Amendment Bill 1997 , October 1997.

21.  Hansard , op cit, p 243.

22. Refer pages 4, 14 and 19 at http://liberal.org.au/election98/policy/workplace/workplace.html

23. ALP, Kim Beazley’s Plan for The Nation , ‘A Better Plan for Industrial Relations’, September 1998, pp 145-146.

24. In late 1996 the Victorian and Commonwealth Governments passed complementary laws effectively transferring jurisdiction over a broad range of industrial matters to the Commonwealth . Commonwealth Powers (Industrial Relations) Act 1996 (Vic) and Workplace Relations and Other Legislation Amendment Act (No.2) 1996 (Cwth). Termination of employment was one of those matters referred to the Commonwealth.

25. The termination of employment provisions also rely to varying degrees on the territories power, the external affairs power, the trade and commerce power and the self-government powers of the Australian Constitution.

26.  Hence, unincorporated bodies such as sole traders and partnerships are not presently subject to the federal unfair dismissal regime and will accordingly not need to rely on the proposed exemption. Many corporations not bound by federal awards will also not need to rely on the proposed exemption as they are not presently subject to federal unfair dismissal laws.

27. House of Representatives, Hansard , 15 July 1998, p 6240.

28. ABS, Catalogue No. 1321.0, Small Business in Australia 1997 , 28 May 1998.

29. Ibid, pp 8 and 38.

30. ABS, Catalogue No. 6248, Wage and Salary Earners , 22 October 1998.

31. ABS, Catalogue No. 1321.0, Small Business in Australia 1997 , 28 May 1998, pp 10, 14 and 163

32. ABS, Catalogue No. 1321.0, Small Business in Australia 1997 , 28 May 1998, pp 80-81.

33. Ibid. p 81.

34. ABS, Catalogue N0. 6209, Labour Mobility , 30 July 1998.

35. Ibid, p 8.

36. House of Representatives, Hansard , 26 November 1997, p 11009.

37. Department of Employment, Workplace Relations and Small Business figures 20 November 1998.

38. Answers provided to Senator Andrew Murray by Department of Workplace Relations and Small Business. See Australian Senate, Consideration of the Legislation Referred to the Committee: Workplace Relations Amendment Bill 1997 , October 1997 Appendix 5.

39. Department of Employment, Workplace Relations and Small Business, op cit , 20 November 1998.

40. Ibid.

41. Bryan Noakes, President of the Australian Chamber of Commerce and Industry (ACCI), Sydney Morning Herald , 28 February 1996.

42.  Australian Financial Review , 11 April 1995.

43. These figures appear still to be broadly correct.

44. See Report, especially pp 5-6 and 41.

45. Back cover of Annual Report .

46. Pre-existing exemptions covering casual workers, probationary employees and fixed term employees come within Article 2 paragraph 2.

47. But again, this is an argument, not a concluded view. Other approaches to the interpretation of the Article would also need to be considered.

48. However, it may be noted, although this does not have a direct bearing on the intended effect of the relevant articles, that as at December 1997 only 28 of 174 ILO members had ratified Convention No.158.

49. ILO, Protection Against Unjustified Dismissal , Geneva, 1995, pp 27-29.

50. Ibid, p 30.

51. 'The Workplace Relations Act in International Perspective', Australian Journal of Labour Law , April 1997, pp 31-49, at 42.

  1. The term ‘termination’ is used to encompass both expression.

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26 November 1998

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