Background Note
Unfair dismissal and the small business exemption
Online only 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.
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.
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.
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:
- 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.
- 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.
- 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]
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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]
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]
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]
[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.
[8]. High
Court of Australia, Victoria v Commonwealth
of Australia, 138 ALR 129, 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.
[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.
[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.
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