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Workplace relations reform in focus: Unfair dismissal and general protections

AS part of our ongoing advocacy for a modern, flexible workplace relations system that supports employment and investment in Australia’s national resource industry, AREEA is campaigning for ‘5 workplace relations reforms over 5 years’  during the lead-up to the 2016 Federal Election and beyond.

These reform priorities have been identified by AREEA members as key areas for workplace change through the 2016 AREEA Federal Election Survey.

This week, we take a look at the fourth of AREEA’s five key reform priorities: Reform unfair dismissal and ‘general protections’ laws to ensure employers are not forced to pay ‘go away’ money to settle claims without merit.

Unfair dismissal under the Fair Work Act

The Fair Work Act 2009’s unfair dismissal rules have encouraged speculative claims and, in numerous instances, have seen the Fair Work Commission (FWC) encroach on the decisions of experienced managers and business owners.

The unfair dismissal jurisdiction has grown significantly under the Fair Work Act compared with the previous WR system. As the graph below shows, unfair dismissal applications under the Fair Work Act are sitting at around 14,500 a year – double the average of 7,000 a year under previous WR systems.

AREEA members’ top concern with unfair dismissal laws is the increased number of unmeritorious claims they are being encouraged to settle during conciliation, even in the face of minimal evidence provided to support allegations.

AREEA members still report paying ‘go away’ money to settle claims given the time and expense involved in slugging it out in the commission or the courts. As one AREEA member put it:

“In most unfair dismissal applications, there has been an expectation that the employer will pay ‘go away’ money in order to resolve the matter. The legal fees involved in going to arbitration are extremely high so we tend to agree to settle at conciliation in order to avoid arbitration.”[1]

Balanced provisions must be put in place that support genuine claims for unfair dismissal but do not reward speculative claims or those without merit.

General protections under the Fair Work Act

The Fair Work Act’s adverse action or ‘general protections’ provisions are incredibly broad and have created unlimited liabilities for employers for up to six years after a course of workplace conduct.

The current provisions are a vast extension of the employee protections that existed under the Workplace Relations Act. Those were limited to prohibitions on unlawful termination for discriminatory reasons or in breach of freedom of association laws.

The current provisions are in many ways an unnecessary duplication of Australia’s anti-discrimination laws but much more attractive to applicants due to the unlimited compensation and orders that can be made by the courts.

The introduction of such broad-ranging provisions has never been fully justified, especially as employees already have adequate protections from workplace discrimination under state and federal anti-discrimination and equal opportunity laws. The Fair Work Act, separate to the general protections provisions, also contains protections for employees against unlawful conduct and unfair dismissal.

In addition to those pre-existing protections for employees, the Fair Work Act’s adverse action provisions create a growing field of litigation such that every employer action must now be assessed against the potential for a claim to be brought up to six years in the future (for adverse action claims not involving dismissal).

As one AREEA member said of the provisions:

“They are too broad and leave the employer too vulnerable and unable to exercise basic rights to manage staff even if in a fair and equitable manner. They are extremely worrisome.”[2]

Top among AREEA members’ concerns with the general protections provisions is that they are open to abuse by vexatious and litigious employees due to the reverse onus of proof on employers to defend claims. The unlimited cap on compensation once matters hit the courts means employers are encouraged to pay financial settlements at the conciliation stage, even for scantily detailed claims that fail to show a nexus between a workplace right and the alleged conduct.

The Productivity Commission review

The final report of the Productivity Commission’s (PC) review of Australia’s workplace relations system made some sound recommendations in the unfair dismissal and general protections area.

Regarding unfair dismissal, the PC’s recommendations would if adopted:

  • Impose additional fees for unfair dismissal claims that proceed to arbitration;
  • Require the FWC to tell parties that most cases do not result in compensation;
  • Give the FWC clearer powers to deal with some unfair dismissal applications ‘on the papers’;
  • Introduce a ‘two-stage’ test for unfair dismissal;
  • Specify that employees only receive compensation where there is no reasonable evidence of ‘persistent significant underperformance or serious misconduct’;
  • Specify that procedural errors alone should not result in reinstatement or compensation; and
  • Remove the emphasis on reinstatement as the primary remedy for unfair dismissal.

In the general protections area, the PC’s recommendations would if adopted:

  • More clearly define the meaning and application of ‘workplace rights’;
  • Allow costs to be awarded against applicants who unsuccessfully pursue a claim despite the FWC recommending their claim not proceed;
  • Impose greater reporting requirements on the FWC re general protections matters.

While AREEA supports all of the PC’s recommendations in those areas, more needs to be done to protect businesses and create jobs.

AREEA 2016 Federal Election Survey

In AREEA’s 2016 Federal Election Survey report released in April 2016, respondents cited the following concerns with current unfair dismissal laws:

  • 65% had received at least one unfair dismissal claim under the Fair Work Act since 1 July 2009;
  • 90% said employees making speculative claims that lacked merit was a concern;
  • 95% said having to make commercial judgements to settle claims (pay money) where the termination was appropriate and the employees’ claim lacked merit was a concern;
  • 87% said the prospect of an unfair dismissal claim making it harder to terminate employment where warranted on the basis of performance or conduct was a concern; and
  • 87% said the risk of having to reinstate an employee terminated for gross misconduct or serious safety breaches was a concern.

In the general protections area:

  • 92% of respondents said former employees making speculative claims that lacked merit was a concern;
  • 97% said having to make commercial judgements to settle claims even where the action taken was correct and claims lacked merit was a concern;
  • 94% said the legal costs of defending adverse action / general protections claims was a concern.

Where to from here?

Urgent changes are needed to the Fair Work Act to protect employers from unmeritorious claims in those areas. Currently, there are huge protections for employees but little to no commensurate protections for employers.

As a matter of priority, the emphasis on financial settlements as part of FWC conciliation processes must be reviewed, with the merits of each claim being the primary concern in deciding outcomes.

AREEA looks to the next federal government and parliament to put in place provisions that:

  • Ensure primary consideration for assessment of claims is whether there was a valid reason for termination;
  • Ensure genuine redundancies are excluded from unfair dismissal claims;
  • Reduce the ability to claim unfair dismissal in cases where the applicant has been dismissed for breaches of workplace health and safety, physical violence, harassment or gross misconduct;
  • Introduce higher fees for unfair dismissal applications and hearings;
  • Limit the ability to make claims to those earning below a high-income threshold (for both adverse action and unfair dismissal); and
  • For adverse action claims, introduce statutory caps for compensation and a ‘genuine reasons’ defence.

At a minimum, the next federal government must make the changes recommended by the PC in these areas as a matter of urgency following the 2 July 2016 federal election.

For regular updates on AREEA’s workplace relations advocacy during the 2016 Federal Election campaign, visit our ‘Getting Back on Track’ campaign page.

Stay tuned for next week’s AREEA News Update, where we’ll explore the last of AREEA’s ‘5 Reforms over 5 Years’ – Replace the Fair Work Commission with modern, balanced institutions.


[1] AREEA member company responding to AREEA Workplace Relations Research Project Survey 3, April 2011, reported by Dr Steven Kates from RMIT University

[2] AREEA member company responding to AREEA Workplace Relations Research Project Survey 2, October 2010, reported by Dr Steven Kates from RMIT University

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