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Focus: Employment Law

9 August 2016

In this issue: we look at a recent case that shows why unfair dismissal laws need an overhaul; the appropriate use of unpaid internships; avoiding redundancy obligations by obtaining acceptable employment; and the expanding scope of the Fair Work Act's accessorial liability provisions.

An example of why unfair dismissal laws need an overhaul

In brief: The Fair Work Commission has ordered the reinstatement of an employee dismissed for inappropriate and unsafe workplace behaviour, despite the employer having a valid reason for the dismissal and following a fair procedure. Law Graduate David Hunt and Partner Simon Dewberry report. 

How does it affect you?

Because the Fair Work Commission (the Commission) has a broad discretion in determining the fairness of a dismissal, employers can never be certain of a favourable outcome in these cases, regardless of the circumstances.

Employers should always factor in the risk of an adverse outcome and reinstatement when assessing the risks of defending an unfair dismissal claim. That doesn't mean paying 'go away' money. It's about being mindful of the inherent unpredictability of these cases.

Background

Mr Goodall was employed by Mt Arthur Coal Pty Ltd as a heavy-duty vehicle operator.

Due to the dangers associated with the operation of heavy-duty vehicles at the mine site, operators were required to maintain regular contact with one another regarding their movements. This contact was to be made via channel one of the two-way radio system installed in each vehicle. This was set out in Mt Arthur Coal's Surface Transport Management Plan (the Plan) and emphasised in training.

During an all-night shift in November 2015, Mr Goodall spent an extended period of time tuned to channel six in conversation with other operators, during which he made a number of lewd and Islamophobic comments. Mt Arthur Coal considered that this behaviour was not only inappropriate, but also made it more difficult to contact Mr Goodall if necessary, which created a safety risk.

Following an investigation into the conduct, Mt Arthur Coal determined that Mr Goodall had breached its Code of Business Conduct (the Code) and the Plan and terminated his employment.

Was the dismissal unfair?

The Commission decided that there was a valid reason for Mr Goodall's termination of employment, namely his breach of the Code and the Plan, and the matter was properly investigated. However, the Commission noted that there were a number of other relevant matters that warranted consideration, including that:

  • for the five years that Mr Goodall had been employed by Mt Arthur Coal, he had maintained an exemplary employment record;
  • despite giving rise to a risk to his and others' safety, the Commission considered that Mr Goodall's conduct was at the lower end of the scale of impropriety, particularly given the nature of the workplace and the fact that the comments were made in an effort to be entertaining;
  • the personal and economic consequences of the dismissal for Mr Goodall were severe;
  • the inappropriate comments were made at a time when Mr Goodall's judgment was likely to be impaired by fatigue;
  • there was an accepted practice of using channel six for non-work communications; and
  • Mr Goodall expressed remorse regarding his actions and accepted that they were inappropriate.

Based on these considerations, the Commission found that the dismissal was harsh in its consequences and was disproportionate to the seriousness of Mr Goodall's conduct. This was despite the Commission's acknowledgement that Mr Goodall's conduct was 'inappropriate' and posed a 'real and not trivial' risk to safety.

The Commission ordered that Mr Goodall be reinstated without back-pay. We understand that the decision has been appealed.

Productivity Commission review

It's a shame that the Productivity Commission review of the Workplace Relations Framework did not consider whether a different approach should be taken in these matters, to permit employers to make reasonable decisions about dismissal without fear of having to reinstate the employee.

We submitted to the Productivity Commission that the law should be recast so that instead of the Fair Work Commission determining whether the dismissal was ‘harsh, unjust or unreasonable’, the test is whether the employer’s decision was, in all the circumstances, so unreasonable that no reasonable employer could have made it. In our opinion, that approach would have the advantage of focusing attention on whether the dismissal was warranted in the circumstances of a particular case.

Unpaid internships

In brief: A recent Federal Circuit Court decision has highlighted the importance of only using internships and other unpaid work arrangements in appropriate circumstances. Law Graduate David Hunt and Managing Associate Andrew Stirling report.

How does it affect you?

Given the Fair Work Ombudsman's vigilance in this area, employers must ensure that they correctly identify the circumstances where it is, and is not, appropriate to classify a person as an intern or other unpaid worker.

Background

In 2013, media company AIMG BQ Pty Ltd engaged Nan Shen, a university student, on an 'Events Planner Internship'. During her internship, Ms Shen completed more than 180 hours of productive but unpaid work for AIMG.

Following the completion of the internship, AIMG engaged Ms Shen on a part-time basis, paying her just $6.56 an hour.

The Fair Work Ombudsman conducted an investigation into AIMG's employment practices, which resulted in AIMG rectifying the underpayments and the Ombudsman commencing proceedings in the Federal Circuit Court for the imposition of penalties.

The decision

The court noted that Ms Shen had been wrongly classified as an intern when she was, in fact, a casual employee. As a result, Ms Shen had been underpaid an amount of $8387 in wages and other entitlements.

The court considered that AIMG's failure to pay Ms Shen during her 'internship' was deliberate exploitation of a young student and was therefore of a particularly serious nature. As a result, AIMG was fined $272,850. This substantial penalty was considered appropriate due to the nature of the contraventions, the company's failure to accept wrongdoing and the need to deter other employers from engaging in similar practices.

The court also fined the director of AIMG, Zhao Qing Jiang, $8160, which reflected his involvement in a number of other cases of employee exploitation.

Implications

This case is the latest in a string of prosecutions brought by the Fair Work Ombudsman against employers who have mischaracterised employment relationships as unpaid internships. These cases have seen the courts emphasise to employers that profiting from 'volunteers' is unacceptable.

Since 2013, following a rise in the number of inquiries and complaints relating to internships and unpaid work, this has been an issue of significant interest to the Ombudsman, which, in addition to prosecuting a number of employers, has released a report on the issue, implemented targeted campaigns and undertaken compliance activities in certain industries.

As a result, employers should be cautious when using unpaid workers, particularly where those workers are performing productive work that benefits the employer more than the worker or that is normally performed by employees. In such circumstances, the workers are likely to be employees and a failure to pay them as such could lead to the imposition of substantial penalties.

Failure to obtain acceptable employment thwarts employer's attempt to reduce redundancy pay

In brief: The Fair Work Commission has refused to reduce an employer's redundancy pay obligations because it did not obtain other acceptable employment for the employees. Senior Associate Tarsha Gavin reports.

How does it affect you?
  • Employers who obtain other acceptable employment for their redundant employees may apply to the Fair Work Commission (the Commission) to reduce their redundancy pay obligations.
  • When considering what is acceptable, the Commission will have regard to the individual circumstances of the employees and ensure that the terms of the new employment will not have unfair or unreasonable outcomes for them.
Background

In October 2015, Sodexo was unsuccessful in retaining its contract for cleaning services with two major Sydney hotels. Consequently, Sodexo made arrangements for 57 of its employees to be re-employed by Challenger Hospitality Pty Ltd, the company that had obtained the contract.

Sodexo subsequently applied to the Commission seeking to have the redundancy pay that would have been payable by it to the employees reduced to nil. Sodexo made this application on the basis that it had obtained other acceptable employment for the employees in accordance with section 119 of the Fair Work Act 2009 (Cth).

Nineteen of the affected employees raised objections to Sodexo's application and cited the following issues that they said made their re-employment by Challenger unacceptable:

  • the employees had to restart their six-month 'qualification period' to access unfair dismissal remedies if terminated. Two of the employees had in fact been terminated by Challenger within this period without reason;
  • two employees had been forced to resign from Challenger following changes to their usual shifts and hours of work; and
  • the employees' service with Sodexo was not recognised by Challenger for all purposes, meaning that pregnant employees did not reach the 12-month qualification period for unpaid parental leave and other employees did not meet the qualification period for requesting flexible work arrangements.
The decision

The Commission considered the meaning of 'acceptable' employment and determined that the reimposition of a probationary period and the failure to recognise the employees' past service were factors that had serious implications for the personal circumstances of the employees. Those implications were significant enough that their re-employment by Challenger could not objectively be considered as 'acceptable' employment. 

The concept of acceptability did not require that Sodexo and Challenger's terms of employment be identical. However, when considering the individual circumstances of the affected employees, factors such as the loss of recognition of their past service led to outcomes for the employees that were unfair and unreasonable. 

Consequently, the Commission ordered that:

  • the employees who had been terminated or forced to resign were entitled to receive 100 per cent of their redundancy pay entitlements;
  • pregnant employees who were unable to access parental leave were entitled to 80 per cent of their redundancy pay; and
  • employees unable to request flexible working arrangements were entitled to 40 per cent of their redundancy pay.

Accessorial liability of contractors

In brief: The Federal Court has fined a group of trolley collection contractors more than $90,000 for deliberately underpaying employees and disguising the underpayments through false wage records. Senior Associate Tarsha Gavin and Law Graduate Johanna Deutsch report.

How does it affect you?
  • Under the Fair Work Act 2009 (Cth) (the FW Act), businesses and their officers that engage sub-contractors who breach workplace laws may be liable for those breaches as 'accessories'.
  • Both major political parties have foreshadowed legislative change that may enhance this risk of liability.
  • The Fair Work Ombudsman (the Ombudsman) is increasingly 'looking up the supply chain' to hold businesses accountable for their procurement arrangements, and courts are also willing to impose penalties on accessories to deter future breaches.
The facts

South Jin Pty Ltd was an employer of trolley collectors. Its sole director and shareholder was Ki Bok Jin. South Jin had been contracted by Coastal Trolley Services Pty Ltd (CTS) to provide trolley collection services at four Adelaide shopping centres. CTS was in turn a sub-contractor of Integrated Trolley Management Pty Ltd (ITM) who had been engaged directly by Coles and Woolworths to provide trolley collection services across South Australia.

In an earlier case, the Federal Court ruled that South Jin contravened the FW Act and other industrial laws by underpaying its casual and permanent employees, failing to pay casual loading and overtime and falsifying wage records.

In the current decision, the Federal Court considered the accessorial liability of other contractors involved in the trolley collection arrangement, including Mr Jin personally, as well as CTS and its major shareholder and director, Edward Stroop.

The decision

The court found Mr Jin, CTS and Mr Stroop liable as accessories to South Jin's unlawful conduct and imposed penalties on each.

As Mr Jin was the principal of South Jin and involved personally in the day-to-day management of its trolley collecting operations, the court found Mr Jin to be personally liable for South Jin's contraventions. The financial difficulty faced by the company and by Mr Jin personally was not a valid justification for South Jin's failure to comply with its statutory and award obligations. Mr Jin was ordered to pay a penalty of $44,350.

The court also found CTS and Mr Stroop liable as accessories for knowingly participating in South Jin's underpayment contraventions. Each knew that the sub-contract price it paid South Jin was not sufficient to allow the company to pay minimum lawful entitlements. Despite having the means to pay additional amounts to South Jin, CTS placed their own financial interests above the interests of the trolley collectors. Consequently, CTS and Mr Stroop were ordered to pay $38,000 and $8500 respectively.

The court noted the particular vulnerability of the underpaid workers (who were primarily young men with limited English and limited knowledge of their legal entitlements) and described the trolley collection industry as requiring particular 'vigilance' to ensure compliance by employers with their obligations.

Key implications

In a statement released after the decision, the Ombudsman made clear that it will 'continue to adventurously test the boundaries of accessorial liability provisions to ensure individuals and entities involved in breaches of the Fair Work Act are held to account'.

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