Bills Digest No. 112 2004–05
Workplace Relations Amendment (Fair Dismissal Reform)
This Digest was prepared for debate. It reflects the legislation as
introduced and does not canvass subsequent amendments. This Digest
does not have any official legal status. Other sources should be
consulted to determine the subsequent official status of the
Contact Officer & Copyright Details
Relations Amendment (Fair Dismissal Reform) Bill
House: House of Representatives
Portfolio: Employment and Workplace
substantive provisions commence on Proclamation, or 6 months after
Royal Assent, which ever is the earlier.
The Bill will add to the classes of federal award employees
without standing to seek a remedy for an unfair dismissal in the
Australian Industrial Relations Commission (AIRC) under the
Relations Act 1996 (at Part V1A, Division 3). Currently,
short term casual employees, high paid, non-award executives, fixed
term employees and other employees such as certain building workers
are excluded from seeking such a remedy (section
To these groups, the Bill will add the class of new permanent or
on-going employees of businesses employing less than 20 employees
[see proposed subsection 170CE(5C) below], thus providing an
initial means toward achieving the oft quoted aim to exempt small
business from legal actions from their employees over dismissal
(the small business exemption). However the exemption is partial,
as this Bill does not attempt to override State dismissal laws.
The background to this Bill has been reported previously, but in
light of the longevity of the dismissal issue to the Parliament,
some comment on the history of the proposal is warranted. The
Parliamentary Library s Bills
Digest No. 36 1998 on the Workplace Relations Amendment (Unfair
Dismissal) Bill 1998 provides a detailed background to the initial
proposed small business exemption.(1)
The Digest notes that the Government's commitment to an unfair
dismissal exemption for small business
was announced on 24 March 1997, as part of the Government's small
business statement.(2) These statements responded to
Time for Business, the 1996 report of the Small Business
Deregulation Task Force. The proposed changes to dismissal law were
outlined by the Hon Geoffrey Prosser MP in these terms:
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," he said.
"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.
"These reforms are another step in the process
started by my colleague the Minister for Industrial Relations in
focusing the industrial relations system on the needs of small business.(3)
The Government initially intended to make this small business
exemption by way of amendment to the Workplace Relations Act
1996 (WR Act) Regulations, and such a regulation was designed
to come into force from 1 July 1997 (a second small business
exclusion attempt by way of regulation was made in
The first exclusion by regulation was limited to employees of a
small business who were employed after the commencement of the
regulation, and would have operated only in relation to the 12
months of a new employee's employment with that employer. That is,
after 12 months employment the small business employee would have
regained the rights then available to federal employees in larger
businesses. That regulation was disallowed by the Senate on 26 June
1997, and on the same day the Government introduced the Workplace
Relations Amendment Bill 1997 which was to incorporate the small
business exemption into the main body of the WR Act s termination
of employment provisions.(5)
The opposition parties in the Senate rejected the small business
exemption at that time and on a number of occasions thereafter on
the grounds of fairness and that the exemption was not announced in
the 1996 election.(6) However this anomaly was corrected
in 1998 in the subsequent Coalition election policy More Jobs
for Better Pay(7) and in Coalition workplace
relations policies thereafter. Most recently, for the 2004 federal
election, the commitment was put:
A re-elected Coalition will continue to pursue
changes to take the unfair dismissal laws burden off the back of
small business and protect small business from redundancy payments.
Between 1997 and 2002, seven bills had been presented to the
Parliament seeking the small business exemption from unfair
dismissal (in addition to the two attempts to introduce the small
business exemption by regulation). In October 2002 the Hon Tony
This (the small business exemption) has become one
of those bits of watershed legislation. It has become something of
a political icon. This government has now proposed, in one or other
house of this Parliament, to improve the unfair dismissal laws 21 times, and we have been opposed by
the ALP 21 times.(9)
While it has been reported that Parliament has considered the
exemption more than 40 times(10) this is an
exaggeration. Merely because a bill proposes to amend the WR Act s
termination of employment provisions does not mean that it proposes
to exclude small business; in fact there have been eight bills
seeking the small business exemption since 1997. These being:
The Workplace Relations Amendment Bill 1997
The Workplace Relations Amendment Bill 1997 [No.2]
The Workplace Relations Amendment (Unfair Dismissals) Bill
The Workplace Relations Amendment (Unfair Dismissals) Bill 1998
The Workplace Relations and Other Legislation Amendment (Small
Business and Other Measures) Bill 2001
The Workplace Relations Amendment (Fair Dismissal) Bill
The Workplace Relations Amendment (Fair Dismissal) Bill 2002 [No
The Workplace Relations Amendment (Fair Dismissal) Bill
It might be noted that the Workplace Relations Amendment
(Termination of Employment) Bill 2002 and the
Workplace Relations Amendment (Termination of Employment) Bill 2002
[No 2] which while rejected by the Senate, did not
propose to exempt small business from unfair dismissal. The intent
behind the two bills was to expand the coverage of the federal
termination system (at the expense of the states see
Senate Report(11)) and provide a secondary stream
for the consideration and dispensation of termination applications
involving small businesses (as well as making other procedural
changes, for example, attempting to curb forum-shopping , limiting
claims where dismissal was for operational reasons etc).
On the other hand, both the
Workplace Relations Amendment (Termination of Employment) Bill
2000, and the
Workplace Relations Amendment (Fair Termination) Bill 2002 were
passed by the Parliament. They dealt respectively (inter alia) with
minimising vexatious claims and excluding short-term casual
employees from making dismissal claims, but neither bill proposed a
small business exemption.
Another development in the course of the small business
exemption debates has been a change in the employment size of the
proposed exemption. The former Minister for Industrial Relations,
the Hon. Peter Reith reported to Parliament that the initial
employment size for the proposed small business exemption was
agreed to apply to businesses with less than 10 employees:
The opportunity was also 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 but not 170CK, which lists proscribed
However when the first small business exemption bill came before
the Parliament (the
Workplace Relations Amendment Bill 1997), small businesses were
defined as businesses employing 15
or fewer employees. As Mr Reith
explained, this size of small business was chosen because of the
precedent provided by the Employment Protection Act 1982
(NSW), which was introduced by the Wran Government.
It should be noted that the NSW 1982 Act was not intended to
facilitate a small business exemption from award redundancy
obligations. The then NSW minister, the Hon Pat Hills reported that
redundancy clauses could only be found in 22 per cent of NSW awards
and the 1982 Act was designed to remedy the effects of this
situation, by requiring employers to notify the State industrial
registrar of an intention to retrench so that redundancy and
related orders could be made by the NSW Commission, if
required.(13) Small businesses were exempt from this
requirement to notify, but could still be bound by awards
containing redundancy provisions.
The size of business employment (less than 15 employees) was
adopted by the then Australian Conciliation and Arbitration
Commission in the 1984 Termination, Change and Redundancy Test
Case.(14) Later, the
Workplace Relations and Other Legislation Amendment (Small Business
and Other Measures) Bill 2001 proposed that the exemption would
apply to business of fewer than 20 employees.
Differences in the size of the exemption
continued to be raised in the recent parliamentary inquiries into
termination of employment/dismissal. The Australian Industry Group
for example argued in its submission
on the Workplace Relations Amendment (Termination of Employment)
Bill 2002 that the definition of small business should not be
confined to businesses employing fewer than 20 persons. Instead, it
suggested the Corporations Act definition of small
business be considered which, inter alia, allows a business to be
defined as small even if it employs up to 50
persons.(15) On the other hand, Professor Ron McCallum
has recently argued that if the small business exemption is to be
mandated, then a business size limit of 5 employees would be more
Excluding agricultural small businesses, 1 122 000 or 96 per
cent of total non-agricultural private sector businesses were
classified as small in 2000 01 by the Australian Bureau of
Statistics.(17) Of these there were 582 100
non-employing businesses operating in Australia. Just under 70 per
cent of persons employed in small business were employees while the
remaining 30 per cent were persons working in their own business,
either as employers or own account workers. So, in 2000 01, 539 900
small employing non-agricultural businesses were operating in
Australia, employing 2.26 million employees (apart from the
An estimate for the federal small business exemption has been
provided previously. The
Explanatory Memorandum to the
Workplace Relations and Other Legislation Amendment (Small Business
and Other Measures) Bill 2001 noted that, broadly estimated,
the federal small business exemption could potentially affect
around 685 000 employees a year, that is, the number of employees
in small business estimated to have the legal standing to be able
to seek a remedy for unfair dismissal in the federal jurisdiction.
It would be reasonable to assume that this measure of the 2001 Bill
s effect also applies to the current Bill (or perhaps a somewhat
higher figure due to labour force growth since 2001).
Not that this many employees are likely to lodge dismissal
claims. For 2003-2004, the AIRC finalised 7125 termination of
employment matters. Of these 75 per cent were resolved at the
(required) conciliation phase. A further 1139 were finalised prior
to arbitrated orders Of the 429 matters which were determined under
a decision, less than 25 per cent (106) went in favour of the
employee. From previous information on small business dismissal
applications, we can assume that about one third involve small
An often used refrain in the dismissal laws debate has been the
extent to which their repeal might launch employment. This is
possibly due to the legacy of 11 per cent plus unemployment in
1992-93, coinciding with the national termination of employment
provisions coming into effect in the following year. As is shown
below, the labour market has changed considerably since then.
The Government made recourse to comments attributed to the
Council of Small Business of Australia that repeal of the laws
(later implied to include those of the states) would create 50 000
jobs. The Hon Peter Reith reflected this observation in the House
of Representatives in 1997:
Mr Rob Bastian of the Council of Small Business
Organisations of Australia was asked to comment on this matter. He
said that small business would create 50,000 jobs if this matter
could go through the Senate. Those are 50,000 jobs we will not have
as a result of the actions of the Labor Party and the Democrats in
the Senate .(19)
Later, the Federal Court s decision in
Hamzy(20) reviewed evidence on jobs growth and
the advent of more comprehensive unfair dismissal (UFD) laws and
concluded that solid jobs growth had occurred under a period when
comprehensive national unfair dismissal laws came into force. That
decision noted that in the period of approximately three years,
from March 1994 to December 1996, employment growth was stronger
than in the following three years, during which less comprehensive
protections applied. Employment growth under the Industrial
Relations Reform Act 1993 was also stronger than in the three
years immediately before the commencement of that Act, when there
was no comprehensive unfair dismissal protection.
The Court referred to ABS statistics which showed casual
employment at 1 271 800 in August 1990 and 1 435 000 in August 1993
an increase of 163 200; 1 841 200 in August 1996 an increase of 406
200 on the August 1993 figure; and 1 931 700 in August 1999 only 90
500 more than three years earlier. The Court also noted:
employers are used to bearing many obligations in
relation to employees (wage and superannuation payments, leave
entitlements, the provision of appropriate working places, safe
systems of work, even payroll tax). Whether the possibility of
encountering an unlawful dismissal claim makes any practical
difference to employers' decisions about expanding their labour
force is entirely a matter of speculation. We cannot exclude such a
possibility; but, likewise, there is no basis for us to conclude
that unfair dismissal laws make any difference to employers'
decisions about recruiting labour.(21)
The Federal Court s Hamzy decision also suggested that
further research on the effect of UFD laws and employment might be
warranted. The Commonwealth Department of Employment and Workplace
Relations responded to the general call for further research on
dismissal costs to business by commissioning the Melbourne
Institute of Applied Economic and Social Research to research
business employment decisions and dismissal laws. The Melbourne
Institute surveyed some 1802 small and medium businesses with fewer
than 200 employees.
Its report (in 2002) purported to show that dismissal laws
contributed to the loss of about 77 452 jobs from businesses which
used to employ staff but no longer employ anyone (about 60 000 of
these were small businesses with fewer than 20
employees).(22) There were 34 812 job losses in which
dismissal laws played a major role, 17 100 job losses where
dismissal laws played a moderate role and 25 572 job losses where
the laws played a minor role.
Criticisms of this survey were put to the Senate Employment
Committee inquiring into the Workplace Relations Amendment
(Termination of Employment) Bill 2002 concerning the survey s
methodology of using leading questions see
Senate Report(23). One submission observed that the
77 000 job loss figure to be an estimate based on a series of
estimates and a curious exercise providing a weak foundation for
Government pronouncements on the benefits of the
Some two years later, there remains a view that the Melbourne
Institute study relied on a survey of business opinion of dismissal
costs rather than evidence and was not taken terribly seriously in
academic circles, according to Dr Paul Oslington. His research into
quantifying the hiring and firing costs in Australia will use
economic modelling to assess their impact on employment. In a
report on the progress of this work, it was suggested that
termination costs were not a major driver of
employment.(25) These issues are likely to be canvassed
in the Senate Employment Workplace Relations and Education
Committee s inquiry into UFD policy, which will, inter alia,
investigate evidence cited by the Government that exempting small
business from federal unfair dismissal laws will create 77 000 jobs
in Australia. The Committee is due to report by 14 June 2005.
Certainly the unfair dismissal debate in Australia lends weight to
the assertion of the International Labour Office that:
A vast amount of political energy and related
empirical research has been expended in recent years on the
supposed links between employment security and
Meanwhile, a key academic Professor Mark Wooden, whose evidence
was relied on by employers in the Hamzy case, has argued
that the current Bill should be extended to override State
I expect to see the reintroduction of a bill which
will extend the coverage of the federal unfair dismissals
jurisdiction to all corporations, not just those covered by federal
awards or agreements.(27)
Putting the counter view, Dr Breen Creighton is reported as
saying it was precisely in the small business sector that workers
needed protection against unfair dismissal. In small business,
collectivisation was most conspicuously absent as a countervailing
force to the power imbalance between employers and employees, and
as the law s job was to prevent such an imbalance then to deny
small business employees access to unfair dismissal remedies
appeared to be verging on the obscene .(28) The ILO puts
the position that,
For wage and salary workers, employment security
exists where there is a strong protection against unfair and
arbitrary dismissal from employment.(29)
On the other hand, the ILO is also aware of the incremental
weakening to employment security:
Since the 1980s, pressed by international agencies
such as the IMF, OECD and the World Bank, governments have
introduced many changes in the laws and regulations to erode
employment protection in the name of reducing labour market
Finally, on the general health of the Australian labour market
over 2003-04, academics Burgess, Lee and O Brien observed that the
unemployment rate has remained below six per cent and by the end of
the year it had declined to 5.1 per cent (seasonally adjusted for
December 2004, 4.9 per cent in original terms for
November).(31) It marked the 11th successive year in
which the average unemployment rate has declined. A breakthrough to
below the 5 per cent unemployment rate appears possible (into 2005,
ahead of what appears then to be an economic
In any case, nearly two million new jobs have been added to the
labour market since 1992-93.(33) Burgess, Lee and O
Brien also observed that over this time, not only had the
unemployment rate declined, but also the number of the long-term
unemployed had diminished, as had the share of the long-term
unemployed in total unemployment, with the majority of additional
jobs being full-time jobs.
Item 2 inserts new subsections 170CE(5C), 5(D) and 5(E).
Proposed subsection 170CE(5C) stipulates that an unfair
dismissal application may not be made under subsection 170CE(1)
where the employer, at the relevant time, employed less than 20
people. These include the employee who was terminated and casual
employees employed for more than 12 months, but not other casuals.
Proposed subsection 170CE5(D) allows applications
to be made bWorkplace Relations Amendment (Fair Dismissal
Reform) Bill 2004y trainees under a registered training
agreement and apprentices. (The Explanatory Memorandum notes that
apprentices and trainees may still be excluded from making an
unfair dismissal applications under other grounds).
Proposed subsection 170CE(5E) defines the
relevant time to mean the time when the employer gave the
employee notice of termination, or the time when the employer
terminated the employee s employment, whichever happened first.
Item 3 inserts proposed section
170CEB. Proposed subsection 170CEB(1)
requires the AIRC to make an order that an application is not
valid, if it perceives that the applicant was not entitled to make
the application because of the small business exemption provided
for under subsection 170CE(5C). Proposed subsection
170CEB(2) allows the AIRC the discretion not to hold a
hearing if making an order refusing a small business application,
but if it does it must take into account the cost to the employer s
business. Proposed subsection 170CEB(3) authorises
the AIRC to request further information before making an order
under this section. Proposed subsection 170CEB(4)
obliges the AIRC to consider any information so received.
Item 4 inserts proposed subsection
170JD(3A) which specifies that a person covered by an
order made under section 170CEB is not entitled to apply to have
that order varied or stayed.
inserts proposed subsection 170JF(2A) providing
that there will be no right to appeal to a full bench of the
Commission against an order made under section 170CEB.
Item 6 confirms that the amendments made by
items 1 to 5 only apply to an unfair dismissal application relating
to employment commenced by the applicant after the commencement of
The Bill follows the provisions of the small business exemption
contained in the Workplace Relations Amendment (Fair Dismissal)
Bill 2002 and its successor, the Workplace Relations Amendment
(Fair Dismissal) Bill 2004. It represents the seventh bill to
provide for a small business exemption, and reflects long-standing
commitments by the governing coalition parties to the business
constituency. It is likely to apply to businesses with more than 20
staff as the ABS would define. Given the Government s expected
majority in the Senate from 1 July 2005, the question of passage of
this Bill by the Parliament appears to be only a matter of
Bob Bennett, Workplace Relations Amendment (Unfair Dismissals)
Bill 1998, Bills
Digest No. 36 1998, Department of the Parliamentary Library,
G. Prosser MP, Flexible industrial relations and better training
for small business , Media Release, 26 March 1997.
See Marilyn Pittard, Unfair dismissal laws: the problem of
application to small business , Australian Journal of Labour
Law, v.15(2), Sept. 2002, p. 156.
The Hon Peter Reith, Second Reading
Speech to the Workplace Relations Amendment Bill 1997,
House of Representatives Hansard, 26 June 1997, p.
Refer to Bills
Digest No. 36 1998, under: History of exclusion and exemption
The Coalition s 1998 workplace relations policy was located at
For the Coalition s 2004 policy see: http://www.liberal.org.au/documents/ACF748F.pdf.
The Hon Tony Abbot, Workplace Relations Amendment (Fair
Termination) Bill 2002 No.2, House of Representatives,
Hansard, 22 October 2002, p. 8268.
See for example, D. Peters, Unfair dismissal bill back again ,
The Canberra Times, 3 December 2004.
Senate Employment, Workplace Relations and Education Legislation
Committee, Provisions of the Workplace Relations Amendment
(Termination of Employment) Bill 2002, March 2003.
The Hon Peter Reith referring to the Agreement between the
Government and the Australian Democrats on the Workplace Relations
Bill (October 1996) which does not make reference to a small
business exemption; see: Question without Notice: Unfair Dismissal
Laws, House of Representatives Hansard, 20 October 1997,
The Hon Pat Hills, Minister for Industrial Relations NSW House
of Assembly, Second Reading Speech to the Employment Protection
Bill, Hansard, 8 December 1982, p.3690.
Refer endnote 5, p. 6470.
Australian Industry Group submission to the Senate Employment,
Workplace Relations and Education Legislation Committee s review of
the Workplace Relations Amendment (Termination of Employment) Bill
2002, at par. 3.2.
Reported in WorkplaceExpress at http://www.workplaceexpress.com.au
on 25 October 2004.
ABS, Small Business in Australia,
(Cat. No. 1321), 23 October 2002.
For detail of federal and state small business dismissal
applications, see reply to Question on Notice by the Hon Tony
Abbott, Employment: unfair dismissal applications , House of
Representatives Hansard, 19 March 2002, p. 1612.
The Hon Peter Reith, response to a Question on Notice, House of
Representatives, Hansard, 23 October 1997, p. 9696.
Hamzy v Tricon International Restaurants trading as KFC
 FCA 1589 (16 November 2001) par. 65.
ibid., at par.70.
Don Harding, The Effect of Unfair Dismissal Laws on Small
and Medium Sized Businesses, Melbourne Institute of Applied
Economic and Social Research , University of Melbourne,
Refer to endnote 11.
Professor Andrew Stewart s submission quoted in The Senate
Employment, Workplace Relations and Education Legislation Committee
Report on the Provisions of the Workplace Relations Amendment
(Termination of Employment) Bill 2002, p.18.
M. Skulley, Challenge to dismissal claims , The Australian
Financial Review, 13 November 2004. A published report on this
research is due in 2005.
International Labour Office, Economic Security for a Better
World, ILO, Geneva, 2004, p. 137.
M. Wooden, It s time for workplace reform , The Australian
Financial Review, 13 January 2005, p. 47.
A summary of Dr Creighton s address to the WA Industrial
Relations Society in October 2004 has been reported in
Workplace Express, (www.workplaceepress.com.au)
under Obscene to deny dismissal protection to small business
workers, says Creighton , 22 December 2004.
International Labour Office, Economic Security for a Better
World, ILO, Geneva, 2004, p.137.
ibid , p.138.
Australian Bureau of Statistics, Labour Force, (Cat.
No.6202, 6203) November 2004.
J.Gordon, Jobless rate heading for a new low , The Age,
7 December 2004.
J. Burgess, J. Lee and M. O Brien, The Australian labour market
in 2003 , Journal of Industrial Relations, June 2004.
11 February 2005
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