Unfair dismissal and the small business exemption

11 March 2008

Steve O'Neill
Economics Section

Introduction

The term unfair dismissal is taken to mean the dismissal of the employee due to stated unsatisfactory employment performance but which is later found to be unfair . Callus and Sutcliffe defined unfair dismissal as:

A situation in which an employee, who has been dismissed summarily from a job, is subsequently found by a court or tribunal to have not been, according to the terms of their employment contract, rightfully subject to dismissal.[1]

This Background Note discusses the attempts to exclude small business from the federal termination of employment provisions and specifically those provisions allowing employees who perceive their dismissal to have been harsh, unjust or unreasonable (unfair) to contest the dismissal via application to the Australian Industrial Relations Commission (AIRC). It primarily covers the period from 1996 during small business policy formulation, through the unsuccessful attempts to implement the policy via a number of regulations and Bills up to the exclusion based on numbers employed by the employer as it currently appears in the Workplace Relations Act 1996 (WR Act), effective from 27 March 2006.[2] The Rudd Labor Government s proposal for unfair dismissals and small business is also discussed by way of comparison to the earlier attempts.

Background

The Keating Government and termination of employment

The Keating Government introduced federal termination of employment laws in the Industrial Relations Reform Act 1993.[3] State industrial jurisdictions also provided similar forms of relief. Federal awards had provided dismissal remedies since 1985, but these were viewed as having an inadequate constitutional base for the purposes of remedying an unfair dismissal. [4] As the Bills Digest reviewing the first small business exclusion bill observed:

Some avenues of redress, including the AIRC's willingness to exercise a de facto jurisdiction, were available but even these were frequently cumbersome and relatively costly.[5]

The 1993 termination of employment provisions were designed to provide a national entitlement to dismissal remedies. They gave effect to the International Labour Organisation s Termination of Employment Convention (no. 158) using the Australian Constitution s external affairs power.[6] Initially, the provisions required applicants to seek a dismissal remedy through the (now defunct) Industrial Relations Court of Australia. Although not introduced with the intention, the new provisions were found to displace State termination provisions which did not provide similar remedies.[7] In short, the new federal termination provisions came to be seen as the jurisdiction of choice for dismissed employees (and their counsel) seeking remedies.

The Howard Government and termination laws

The Howard Government redrafted the termination of employment provisions in the Workplace Relations and Other Legislation Act 1996 (WROLA, which created the WR Act) introducing a fair go all round policy. Ostensibly, the redrafting was needed to correct certain termination provisions which the High Court had struck down.[8] The 1996 termination of employment provisions were no longer based exclusively on the external affairs power.

The new unfair dismissal provisions (relating to the employee s conduct) confined the reach of the jurisdiction to federal award employees employed by corporations (and by other federal employers, such as employers engaged in interstate or international trade and commerce).

The 1996 termination provisions also distinguished unfair dismissals from those dismissals which were prohibited for discriminatory reasons and those which were prohibited unless the employer observed protocols, for example the giving of notice prior to termination or observed AIRC orders re redundancies. This stream of dismissals was termed unlawful dismissals and included prohibitions on dismissal due to the employee s pregnancy or religious beliefs (and for other reasons). The unlawful dismissal provisions continued to be based, in the main, on the Constitution s external affairs power.

Under both the Keating and the Howard Governments termination provisions, certain employees were excluded from making unfair dismissal applications, for example short term casual employees, and other classes of employees.[9] These exclusions were allowed for under the termination provisions, but prescribed via regulations in both versions. However the focus in this Background Note is only with what came to be known as the small business exemption, to be brought about by adding a new class of excluded employees (based on the employment size of the employer s business) to the existing classes of employees excluded from making a dismissal application.

Development of the small business exemption policy

The request for what has since been referred to as a small business exemption from the termination of employment provisions apparently arose during the course of the 1996 federal election campaign.[10] COSBOA (Council of Small Business of Australia) put the proposition to Peter Reith (then Shadow Minister for Industrial Relations), as was reported at that time:

The Coalition has flatly ruled out any exemption for small business in its redrafted unfair dismissal laws despite a plea The call for special treatment from the Council of Small Business Associations of Australia (COSBOA) follows a decision by the Coalition to rewrite completely the unfair dismissal laws if it is successful on March 2. There is no detail on the Coalition's alternate system in its industrial relations policy released on Sunday. The document simply describes the existing Federal provisions as being "far too detailed, too prescriptive and too legalistic and hence a disincentive to employment" The chief executive of the COSBOA, Mr Rob Bastian, said small employers wanted certainty in any revised system and an acknowledgment of their own particular problems. He said a good case could be made out for totally exempting companies with a workforce of less than 10 or 15 The author of the policy, the Opposition's industrial relations spokesman, Mr Peter Reith, said the redrafted system would not contain any exemptions.[11]

The small business exemption proposal was apparently raised next in discussions between the Howard Government and the Australian Democrats to pass the WROLA Bill 1996.[12] These negotiations were later reported to Parliament. The then Minister for Industrial Relations, the Hon. Peter Reith advised that the initial employment size for the proposed small business exemption was to apply to businesses with less than 10 employees following the negotiations to pass the WROLA Bill (in or after October 1996):

The opportunity was taken to discuss the substance of the regulations for unfair dismissal. It was agreed that the Democrats would support the $50 filing fee and a provision which exempted small business with less than 10 employees from the 170CG harsh, unjust or unreasonable section...[13]

However Senator Murray had earlier refuted the claim that there were any substantial negotiations to include a small business exclusion in the agreement between the Commonwealth and the Democrats concerning unfair dismissals:

(The) negotiations culminated in an agreement which was publicly released Most importantly, it (the small business exemption) was not listed within the agreement as one of the matters reserved by the parties as not agreed. We specifically produced a list of items where we said what we did agree with and what we did not agree with. It was not listed It was not even seriously pursued by the minister in the negotiations with me and Senator Kernot, other than in a half-hearted way, very late at night, at one of our last meetings.[14]

The report of the small business deregulation task force Time for business (the Bell report) was received by the Government on 1 November 1996. The next small business exemption attempt was a formal proposal incorporated in a Ministerial Statement by Prime Minister Howard on 24 March 1997 in response to the Bell report:

The Bell report recommended a review of the new unfair dismissal laws after 12 months. We support that recommendation but we have decided to go further in recognition of the particular difficulty small business has in dealing with complex industrial relations requirements and our concern to stimulate employment, particularly youth employment.

I announce today that businesses with 15 or fewer employees will be exempt from the federal unfair dismissal provisions for new employees until they have been continuously employed for a period of 12 months.[15]

Accordingly, amendments to the Workplace Relations Regulations were announced also on 24 March 1997, by the Minister for Small Business and Consumer Affairs, the Hon Geoff Prosser:

the Government will reduce the compliance burden on small business by excluding from Federal unfair dismissal laws new employees of small businesses with fifteen or fewer employees until they have one year's continuous service.

This extended exemption will be introduced in consultation with interested parties, particularly the small business community. Employees will still be protected against unlawful discriminatory dismissals and will be subject to the statutory minimum notice requirements.

These concessions will help small businesses to hire new staff with more confidence and grow more jobs, while fully protecting the interests of existing employees and new employees once they have been employed for a year or more.

The Government will also require the Australian Industrial Relations Commission to minimise any disruption to small business caused by unfair dismissal actions by, for example, holding hearings at convenient times and places.[16]

The Senate disallowed these regulations on 26 June 1997 (details provided below).

Further attempts to secure the small business exemption were made both by substantive legislative amendment and when these failed, via amendment to regulations, then via further bills until the Work Choices legislation was finally successful in 2005. These attempts are detailed next.

Attempted small business exclusions to the unfair dismissal provisions of the Workplace Relations Act

In the following regulations and bills prior to 2001, the exclusion referred to new employees of businesses of 15 or less. From 2001, the exclusion was broadened to employees of businesses of less than 20. From 27 March 2006 it became an actual exclusion for employees in firms of 100 or less.[17] The instruments attempting to effect the exclusion of employees appeared as:

  1. Statutory Rules (SR) No. 101 of 1997: These amendments to the Workplace Relations Regulations (Reg. 30B) as proposed by Prime Minister John Howard and the Hon. Geoff Prosser (discussed above) excluded new employees in businesses of 15 or less from making an unfair dismissal application until the employee accumulated 12 months service. These changes to regulations were given effect by the Governor General on 30th April 1997. They were disallowed by the Senate on 26 June 1997.
  2. Workplace Relations Amendment Bill 1997: The Bill proposed a permanent exclusion for new employees in businesses of 15 or less from making an unfair dismissal application by amending section 170CE of the WR Act; introduced on 26 June 1997 into the House of Representatives, the Bill was negatived on 21 October 1997 in the Senate.
  3. Workplace Relations Amendment Bill 1997 [No. 2] (as above): The Bill was introduced in the House of Representatives on 26 November 1997 and into the Senate on 5 March 1998 but failed to pass the Senate on 25 March 1998. The Bill thus became a trigger for a double dissolution of both houses of Parliament.[18]
  4. Workplace Relations Amendment (Unfair Dismissals) Bill 1998: The Bill sought to insert a 6 month qualifying period of employment before on-going employees could access the unfair dismissal remedy; and to exclude new employees of small businesses (15 or less employees) from the unfair dismissal remedy. The Bill was introduced into the House of Representatives on 12 November 1998 and introduced into the Senate on 3 December 1998. The Bill was negatived on 14 August 2000.
  5. SR No. 338 and 353 of 1998: These amendments to Workplace Relations Regulations were announced on 17 December 1998 (coming into effect that day) by Minister Reith to exclude new employees of small businesses with 15 employees or less, from the existing federal unfair dismissal provisions; these also required six months continuous service before any new employee could access the federal unfair dismissal provisions; and increased the filing fee for a federal unfair dismissal application from $50 to $100, with effect from January 1, 1999. Disallowed by the Senate on 16 February 1999.
  6. Workplace Relations Amendment (Unfair Dismissals) Bill 1998 [No. 2]: As with its predecessor, this Bill sought to insert a 6-month qualifying period of employment before new employees (other than apprentices and trainees) could access the unfair dismissal remedy and to exclude new employees of small businesses (15 or less employees) from the unfair dismissal remedy. This Bill was introduced to the House of Representatives on 29 November 2000 and into the Senate on 7 March 2001 where it was negatived on 26 March 2001. This Bill became a double dissolution trigger.
  7. Workplace Relations and Other Legislation Amendment (Small Business and Other Measures) Bill 2001: This Bill sought, inter alia, to exclude employees in businesses of less than 20 employees from making an unfair dismissal claim.[19] It was introduced into the House of Representatives on 30 August 2001. The Bill lapsed at the end of the 39th Parliament.
  8. Workplace Relations Amendment (Fair Dismissal) Bill 2002: This Bill sought to exclude employees in businesses of less than 20 employees from making an unfair dismissal claim. It was introduced to the House of Representatives on 13 February 2002, and into the Senate on 11 March 2002. The House of Representatives disagreed to amendments proposed by the Senate on 28 June 2002, and the Bill was set aside.
  9. Workplace Relations Amendment (Fair Dismissal) Bill 2002 [No. 2]: (As above) This Bill was introduced into the House of Representatives on 18 September 2002 and into the Senate on 23 October 2002. The House disagreed with Senate amendments on 5 March 2003. The Senate again insisted on its amendments. The House set the Bill aside 25 March 20 03. The Bill became a double dissolution trigger.
  10. Workplace Relations Amendment (Fair Dismissal) Bill 2004: The Bill sought to exempt small businesses from the unfair dismissal provisions and require the Commission to order that an unfair dismissal application was invalid if it related to a small business employer (which had less then 20 employees). The Bill was introduced to the House of Representatives on 3 June 2004, and into the Senate on 30 August 2004, where it was adjourned. The Bill lapsed at the end of the 40th Parliament.
  11. Workplace Relations Amendment (Fair Dismissal Reform) Bill 2004: (As above) Reintroduced following 2004 federal election and debated until the Senate composition changed from 1 July 2005 and the Work Choices Bill was put to the Parliament in effect superseding this Bill. This Bill was removed from the Senate Notice Paper on 28 February 2006.
  12. The Workplace Relations Amendment (Work Choices) Bill 2005: This Bill was introduced to the House of Representatives on 2 November 2005. It passed the Senate on 2 December 2005, becoming effective on 27 March 2006 amending the WR Act. Inter alia, the WR Act excludes employees of firms with 100 employees[20] or less from making unfair dismissal claims, as stipulated at subsection 643(10).[21]

Other workplace relations bills introduced until 2005 with apparently related titles sought to amend the termination of employment provisions but did not seek an exemption for small business.[22] In addition, measures to reduce unmeritorious claims, introduce a three month employment, introduce a qualifying period of employment service and curb no win no fee legal offers to clients were successfully passed but again, these provisions did not include a small business exemption.[23] Later, the filing fee proposal was successfully introduced. The overall impact of the measures was to curb dismissal applications in the federal jurisdiction for which Senator Murray has provided data in inquiries and reports.[24]

Rudd Government proposal

The Rudd Government is proposing to introduce an unfair dismissal system along the following lines:

  • an extended period of 12 months before small business employees (less than 15 employees) can make an unfair dismissal claim, to give small business employers time to determine whether an employee is suitable for their business (six months for employees in businesses with 15 or more employees[25])
  • the provision of advice and assistance to small business through Fair Work Australia,[26]
  • the development of a Fair Dismissal Code in consultation with small business
  • a faster, simpler and less costly process for resolving unfair dismissal claims, and
  • a guarantee that reinstatement will not be ordered where it is not in the interests of the employee or the employer s business. [27]

This new scheme is not scheduled to be fully functioning until January 2010 and its legislation is yet to be introduced to Parliament. However, a ten member small business working group has been convened under the chair the Minister for Small Business, Independent Contractors and the Service Economy, the Hon Dr Craig Emerson to draft the proposed fair dismissal code for businesses with fewer than 15 employees.[28]

Conclusion

The small business exemption was attempted several times by the previous administration. These attempts to make amendments included two via regulations, both of which were unsuccessful and ten Bills, nine of which were unsuccessful while the tenth Bill was successful.

It can be seen that Labor s small business unfair dismissal proposal intends to return to an exclusion/exemption based on earlier attempts which were vetoed by the then Opposition and minor parties. These earlier attempts were based on a small business size of less than 15 employees. Thus the proposal shares some of the features of Mr Prosser s original small business dismissal exemption of 1997. This is in relation to the requirement for a new employee employed in a small business to accumulate 12 months service prior to making to make an unfair dismissal claim. There is also the expressed concern in both the 1997 and 2007 proposals for convenience in respect of hearing places and times, which may be taken further by the offices of Fair Work Australia (for example by visiting workplaces and by operating in decentralised locations). The proposed six month qualifying period for employees in businesses larger than small, is adapted from the current WR Act requirement which applies to employees in businesses with 100 or more employees,[29] and is longer than the three month qualifying period prior to Work Choices.[30]



[1]. Paul Sutcliffe and Ron Callus, Glossary of Australian Industrial Relations Terms, ACIRRT/ACSM, 1994, p.194.

[2]. The federal termination of employment provisions cover various aspects of separation such as: notice of resignation, redundancy procedures (not pay) where more than 15 employees and dismissal of employees at the initiative of the employer.

[3]. This Act amended the Industrial Relations Act 1988 placing the termination provisions under Part V1A Division 3.

[4]. Termination provisions had been introduced into federal awards following the Australian Conciliation and Arbitration Commission s Termination, Change and Redundancy case, Print F6230, 1984 and Supplementary Decision, 14 December Print F7262, 1984.

[5]. Bob Bennett, Workplace Relations Amendment Bill 1997 Bills Digest, no. 17, Parliamentary Library, Canberra, 1997.

[6]. Commonwealth of Australia Constitution Act at section 51(xxix).

[7]. Industrial Relations Court of Australia, Liddell v Lembke, 127 ALR 342, 1994.

[8]. High Court of Australia, Victoria v Commonwealth of Australia, 138 ALR 129, 1996.

[9]. For example employees employed on specific tasks or for fixed terms.

[10]. The small business exclusion means that the business would not have to respond to a claim for reinstatement/compensation for unfairly dismissing an employee; in effect it is the dismissed employee who is excluded from making a claim for reinstatement/compensation.

[11] Brad Norrington and Michael Millett, Small business fails with plea on sacking law , Sydney Morning Herald, 20 February 1996.

[12]. These negotiations manifested in an agreement to pass the WROLA Bill which set out agreed matters and amendments: Agreement between the Commonwealth Government and the Australian Democrats on the Workplace Relations Bill, (Canberra, mimeo, October 1996).

[13]. The Hon Peter Reith referring to negotiations following the Agreement between the Commonwealth Government and the Australian Democrats on the Workplace Relations and Other Legislation Bill (October 1996): Question without Notice: Unfair Dismissal Laws , House of Representatives Debates, 20 October 1997, p. 9209.

[14]. Senator Andrew Murray, Workplace Relations Regulations, Senate, Debates, 26 June 1997, p. 5279.

[15]. The Hon John Howard, Prime Minister, Ministerial Statements: Small Business Deregulation Task Force Report: Government Response, House of Representatives, Debates, 24 March 1997, p. 2691.

[16]. The Hon. Geoffrey Prosser, the (then) Minister for Small Business and Consumer Affairs, Flexible industrial relations and better training for small business Media Release, 24 March 1997.

[17]. It was later revealed that the 15 or less cut off was selected due that being the cut off number of employees used by the AIRC to exempt small business from its 1984 redundancy pay test case decision (Termination, Change and Redundancy Case 1984). The 2001 cut off of less than 20 employees was chosen because it correlated with the Australian Bureau of Statistics definition of small business, see: ABS, Small Business in Australia 2001 (Cat. No.1321.0).

[18]. See: George Williams, The Road to a Double Dissolution , Research Note. no. 29, Parliamentary Library, 1997-98.

[19]. As discussed above it was claimed that the 2001 cut off less than 20 employees was chosen because it correlated with the Australian Bureau of Statistics definition of small business. The ABS small business definition had included manufacturing businesses which employed up to 100 employees. It has discontinued this aspect of its small business definition, see ABS, Small Business in Australia 2001 (Cat. No.1321.0). The ABS defined a medium sized business as one employing more than 20 employees but less than 200.

[20]. The ABS small business definition had included manufacturing businesses which employed up to 100 employees. It discontinued this aspect of its small business definition in Small Business in Australia 2001 (Cat. No.1321.0). There, a medium sized business was defined as one employing more than 20 employees but less than 200 employees. There was no exception allowed in the definition for manufacturing establishments.

[21]. The Senate Employment, Workplace Relations and Education Committee noted that about 4 million employees would be denied dismissal remedies as a result of this exclusion, Unfair dismissal and small business employment, June 2005, p. 5.

[22]. For example, the Workplace Relations Amendment (Fair Termination) Act 2003 which prevented casual employees with less than 12 months service from accessing dismissal remedies.

[23]. The Workplace Relations Amendment (Termination of Employment) Act 2001.

[24]. Refer to data on federal and State dismissal applications provided by Senator Murray debating the Workplace Relations Amendment (Fair Termination) Bill 2002, Senate, Debates, 15 September 2003, from p. 15081.

[25]. K. Rudd and J. Gillard, Forward with Fairness, April, 2007, p. 19.

[26]. ibid., p. 17. Fair Work Australia is to be a one stop shop , to provide practical information, advice and assistance, to settle grievances and ensure compliance with workplace laws. It will operate in decentralised locations and may be able to have its officers visit workplaces.

[27]. K. Rudd and J. Gillard Forward with Fairness: Policy Implementation Plan, August 2007, p. 18.

[28]. The Hon Dr Craig Emerson, Business Advisory Group and Small Business Working Group Announced , Media Release, 20 February 2008.

[29]. Workplace Relations Act 1996, subsection 643(6&10).

[30]. See subsection 170CE(5A) of the pre Work Choices WR Act .

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