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Allens Arthur Robinson

Focus: Workplace Relations – June 2008

In this issue: we look at National Employment Standards; an employer's obligation to re-employ injured workers; the evidence of reasons for dismissal; implied term of mutual trust and confidence; and the six-month rule in a transmission of business.

National Employment Standards

In brief: The Government has released its draft 10 National Employment Standards, the key safety net for employees from January 2010. Lawyer Erin Hawthorne reports.

How does it affect you?

  • From 2010, employees covered by federal law will have minimum entitlements prescribed by the National Employment Standards (NES) that cannot be modified or excluded.
  • Modern awards may include provisions supplementary, ancillary or incidental to the entitlements under the NES. In limited circumstances, the NES may allow a modern award to modify the NES.
  • It is not clear how the NES will operate for award-free employees or will interact with workplace agreements. These are matters that will be dealt with in the Government's substantive amendments to the Workplace Relations Act 1996 (Cth), expected later this year.

It is proposed that the NES will come into effect in January 2010 and will provide 10 minimum entitlements for employees. Many of the entitlements under the NES are similar to those already covered by the current Australian Fair Pay and Conditions Standards (AFPCS). The key changes are:

  1. Maximum weekly hours of work – the maximum weekly hours of work will continue as 38 hours per week, plus reasonable additional hours. Unlike the AFPCS, the NES do not allow an employer and employee to agree on an applicable averaging period (although an averaging period may be specified in an award).
  2. Flexible working arrangements for parents – after 12 months' continuous service, employees caring for children under school age may request flexible working arrangements. Employers may refuse only on reasonable business grounds and must set out those grounds in a written response to the employee.
  3. Parental leave – after 12 months' continuous service, employees will continue to be entitled to 12 months' unpaid parental leave and can request an extension of up to another 12 months' leave. The employer may refuse this request only on reasonable business grounds.
  4. Cashing out leave – the ability to cash out leave is a matter that can be dealt with in modern awards only.
  5. Community service leave – employees engaging in community service activities, including jury service and voluntary emergency management activities, can take reasonable leave for the period of those activities, plus reasonable travel and rest time. An employer's liability to pay employees for jury service will be limited to 10 days, regardless of the total absence.
  6. Notice of termination and redundancy pay – the NES will introduce severance pay (to a maximum of 16 weeks' pay) for employees made redundant. Small businesses (fewer than 15 employees) are exempt. Employees employed for a specified time or task, and probationary, casual, seasonal and trainee employees, are also excluded. The NES notice entitlement for termination is the same as under the Workplace Relations Act 1996 (Cth).
  7. Fair Work Information Statement – employers will be required to give employees a statement (to be published by Fair Work Australia) either before, or as soon as practicable after, commencement of employment.

It is not yet clear what penalties will apply for breaches of the NES, or how complaints/disputes will be resolved.

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A general obligation to re-employ injured workers?

In brief: Under New South Wales legislation, an employer's obligation to re-engage an employee injured during the course of their employment is onerous. Lawyer Claire Palmer reports on a recent decision of the NSW Industrial Relations Commission.

How does it affect you?

  • While NSW employers are not obliged to create a position to accommodate an employee unfit to perform their position pre-workplace injury, they may be obliged to re-employ such an employee in a suitable alternative role if one is available.
  • If the alternative role attracts a salary on a scale higher than the pre-injury position, the employer may remunerate the employee at a lower rate than would normally be payable.
  • NSW employers may need to prefer an employee injured at work for an appropriate re-employment role over another candidate with greater merit.

Background

During the course of his employment as a kitchenhand with Fairfield Hospital in 1999, Mr Diaz injured his right shoulder, requiring surgery. When he returned to work, he was put on light duties for 10 months but was unable to return to his pre-injury position. At that time, the hospital advised Mr Diaz that it had no work suited to the restrictions resulting from his injury and surgery.

Complaint and decision

Mr Diaz lodged an application under section 242 of the Workers Compensation Act 1987 (NSW) (the Act) against Sydney South West Area Health Service (the employer), seeking reinstatement or financial compensation.

The Commission held that NSW employers have a clear obligation to ensure an employee injured in the course of work receives proper rehabilitation and the opportunity to be integrated back into the workforce, performing work consistent with his or her medical condition.1 The Commission found this obligation extends to giving preference to an injured worker with respect to re-employment opportunities, even if there are other more meritorious candidates.

Appointment to 'more advantageous' position

The Act limits an employer's obligation to re-employ individuals to roles that are no more advantageous than the pre-injury position. In this case, Mr Diaz sought re-employment in the role of Level 1 Administrative Officer.

The employer claimed it should not have to appoint Mr Diaz to this position because his length of service would make his remuneration in the new role more advantageous than his pre-injury kitchenhand salary. The salary scale for a Level 1 Administrative Officer covered several salary paypoints, based on experience.

However, the Commission did not regard this as an impediment to re-employment, accepting that the employer could appoint Mr Diaz to a lesser paypoint instead. The Commission observed that, even though the scale meant Mr Diaz might ultimately earn more than he had as a kitchenhand, the alternative position should not be considered 'more advantageous' because Mr Diaz's progression to higher paypoints relied on his completing the work allocated to him.

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Evidence of reasons for dismissal 'pivotal'

In brief: When an employer terminates an employee's employment, there may be a conflation of issues, making the actual reasons for dismissal more difficult for a court to discern. Senior Associate John Naughton reports on a case when an employer's evidence regarding the reasons for termination was preferred.

How does it affect you?

  • When a dismissed employee asserts that the reasons for their termination were unlawful, evidence from the decision-maker of the real reasons for dismissal will be critical.
  • The processes of putting allegations squarely to an employee in writing, giving them an opportunity to respond, and recording the eventual reasons for dismissal with clarity, reduce the risk of an employee conflating other circumstances to assert improper motives.
  • Clarification in employment contracts of:
    • entitlements due on termination; and
    • the intended effect of organisational policies,
    are essential. When contract terms are clear and comprehensive, it is difficult for an employee to convince a court a particular term should be implied.

Background

Mr Bognar was dismissed from his employment as a territory manager with Merck Sharp & Dohme (Australia) Pty Ltd (the employer) in July 2006.

He subsequently disputed several aspects of his dismissal, claiming that:

  • his termination was unlawful under the Workplace Relations Act 1996 (Cth) because it was on the basis of his temporary absence from work due to illness or injury;
  • the amount of notice he was given on termination was inadequate;
  • he did not receive the benefit of the company's policy in respect of sick leave (making the employer's demand for medical information from him unreasonable); and
  • he did not receive a bonus due to him under his employment contract.

The employer asserted that Mr Bognar was dismissed because of poor performance and that he had been paid all entitlements due on termination.

Termination not unlawful

The Federal Magistrates Court noted that, when an employee makes a claim of unlawful termination, evidence from the decision-maker about the actual reasons for termination will usually be pivotal.2 In this case, the court was satisfied that the real reasons for the termination were those given by the employer – namely Mr Bognar's poor performance and his failure to respond to allegations put to him – and not the alternate basis claimed by Mr Bognar (ie his temporary absence because of illness). The court accepted the employer's evidence that Mr Bognar was a difficult employee who had consistently failed to meet and address performance standards.

Other claims

Mr Bognar also asserted that, because his employment contract was silent on the matter, a period of 'reasonable notice' should be implied. The court determined that Mr Bognar was employed under the Commercial Sales (Victoria) Award 1999 and that the notice set out in the award should apply. Because the award prescribed an actual period of notice, the court held it was not necessary to imply a term.

Applying the principles in Riverwood3, Mr Bognar also contended that he was entitled, as terms of his employment contract, to:

  • the benefit of the employer's policy on sick leave, which he said restricted its right to demand certain medical information from him; and
  • a bonus payment based on what he claimed was the employer's commitment to pay in respect of all completed service without regard to performance.

On both matters, the court noted that the employer's policies were expressed to be wholly discretionary and that the employer was entitled not to exercise that discretion in Mr Bognar's favour if it chose. Again, it shows that policies do not need to be contractually binding if that is not what is intended.

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Implied term of mutual trust and confidence

In brief: The Supreme Court of South Australia has indicated when the implied term of mutual trust and confidence will be breached. Lawyer Andrew Stirling reports.

How does it affect you?

  • An employer may breach the relationship of mutual trust and confidence if it:
    • undermines an employee's role and the authority of their position;
    • does not allow an employee to reapply for a position ostensibly the same as the employee's current position in circumstances that are under-handed and provocative;
    • harasses and victimises the employee;
    • fails to deal appropriately with an employee's complaints and grievances;
    • fails to adequately train an employee in circumstances where the employer is aware the employee is insufficiently trained; and
    • fails to properly manage an employee's workload.
  • If an employer breaches the implied term of mutual trust and confidence, it effectively dismisses the employee and exposes the employer to a claim for breach of contract.

Background

Mr McDonald was employed as a teacher in South Australia from 1996 until 2003. From 1997 until 2003, he was employed by Brighton Secondary School (the school). In addition to having a full teaching workload, Mr McDonald was responsible for fixing and upgrading the school's computers and networks.

Decision

The evidence before the court was that, in a sustained course of conduct over the period of Mr McDonald's employment, the school:

  • failed to provide Mr McDonald with training in computer networks or repair, despite knowing he had no such training;
  • allowed Mr McDonald to work after hours, including weekends, without adequate support, performance management or clarifying his role;
  • failed to adequately deal with any of Mr McDonald's complaints about his workload;
  • undermined his role and the authority of his position;
  • did not offer Mr McDonald an interview for a job similar to the one he was currently performing (in a way the court thought was under-handed and provocative); and
  • harassed and victimised Mr McDonald on a number of occasions.

The court decided that the school had breached its duty of care to provide a safe system of work. It also decided that the school, by its conduct, had breached an implied term of mutual trust and confidence.4

The court determined that by breaching the implied term of mutual trust and confidence, the school had constructively dismissed Mr McDonald and he was therefore entitled to damages for breach of contract. It awarded damages to Mr McDonald, including damages for past loss of earning capacity, future loss of earning capacity, and lost superannuation and long service leave entitlements, amounting to approximately $370,000.

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The six-month rule in a transmission of business

In brief: When a business is transferred, transferring employees will need to complete a six-month qualifying period with the new employer before they can make an unfair dismissal claim. Partner Adam Lunn and Articled Clerk Hannah Biggins report.

How does it affect you?

  • When a business has been transferred, the new employer will not need to act fairly when terminating transferring employees, unless the employee has served for six months after transfer.
  • The previous employer must usually ensure that the transferring employee is offered suitable alternative employment with the new employer to avoid redundancy entitlements. If the transferring employee has to re-complete the six-month qualification period before they can claim unfair dismissal, this may not be suitable alternative employment.
  • The new employer and transferring employee may waive the six-month qualification period, but only by express written agreement.

Background

A transfer of business took place between Professional Aged Care Enterprises Pty Ltd and Aged Care Services Australia Group Pty Ltd (Aged Care Services). At the time of transfer, Aged Care Services assured all employees that their prior service and entitlements would carry over to their new employment.

Five transferring employees were subsequently dismissed, with Aged Care Services providing no substantial reasons for their dismissal. The workers made an unfair dismissal claim under section 643(1) of the Workplace Relations Act 1996 (the Act), arguing that the termination was harsh, unjust or unreasonable.

Aged Care Services argued that the employees had no right to claim unfair dismissal, as they had not completed the six-month qualifying period under sections 643(6) and (7) of the Act. They also maintained that there was no separate written agreement between the parties that waived the six-month qualification period.

The decision

On appeal, the Commission found in favour of Aged Care Services and held that, in a transmission of business situation, the transferring employee must re-complete the six-month qualification period with their new employer before they can claim unfair dismissal under the Act.5 Combining time employed by a previous employer and a new employer is not permitted when calculating qualification periods for the unfair dismissal sections of the Act.

The majority held that the new employer and employee can agree to waive the six-month qualifying period. However, this will need to be in the form of an express written agreement that states that the qualifying period is waived. A general statement by the new employer that they will recognise the transferring employees' prior service and entitlements is not sufficient.

Footnotes
  1. Diaz v Sydney South West Area Health Service [2008] NSWIRComm 1034.
  2. Bognar v Merck Sharp & Dohme (Australia) Pty Ltd [2008] FMCA 571.
  3. See Riverwood International Australia Pty Ltd v McCormick (2000) 177 ALR 193.
  4. McDonald v State of South Australia [2008] SASC 134.
  5. Aged Care Services Australia Group Pty Ltd v Ziday & Ors [2008] AIRCFB 367.

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