Calls for unfair dismissal overhaul to stop small businesses paying workers “go-away money”

As appetite for simplifying Australia’s workplace law grows following the election at the weekend, small business ombudsman Kate Carnell is preparing to hand the relevant incoming minister a case for overhauling unfair dismissal protections for small businesses.

Speaking to SmartCompany on Monday, Carnell said provisions to protect small employers from unfair dismissal in the Fair Work Act aren’t working very well and are due some attention.

“We’re looking at ensuring the initial intent … there was supposed to be a clear way that, fundamentally, unfair dismissal under most circumstances wouldn’t affect small business,” Carnell tells SmartCompany.

“The intent hasn’t been the delivery.”

Under current rules, employers with fewer than 15 workers are subject to the Small Business Unfair Dismissal Code, which is considered by the Fair Work Commission (FWC) before it decides whether a particular employee has been dismissed harshly, unjustly or unreasonably.

The code itself stipulates full-time, part-time or regular casual workers can’t make unfair dismissal claims against small businesses if they’ve been employed for less than 12 months.

It also enables small-business owners to dismiss a worker after just one warning, rather than the three-step feedback process required for larger firms.

Further, it outlines protections for cases of genuine redundancy, for reasons such as business downturn, and what rights employees have.

The Rudd government introduced the code under then workplace minister Julia Gillard back in 2008, arguing small firms needed to be protected from the full brunt of unfair dismissal laws.

But Carnell says the protections aren’t doing their job, resulting in lots of firms getting pulled into unfair dismissal hearings.

“The reality is, an awful lot of small businesses are getting pulled into the unfair dismissal code space,” she says.

Carnell intends to hand the incoming small business minister, expected to be announced this week, a report on the issue as soon as possible.

The “go away money” jurisdiction

Workplace Law managing director Athena Koelmeyer agrees the code is due for an overhaul, arguing it proves “very narrow” assistance for small business.

Koelmeyer says the code was intended to simplify workplace law for small business, providing a dismissal checklist which, if completed, is regarded as evidence of fair play.

But the contents of the checklist aren’t clear cut — and many business owners are getting caught up on the detail.

“Within that checklist is a whole heap of subjective stuff which is the FWC’s bread and butter,” Koelmeyer says.

“Small businesses still get caught in 21-day extension of time jurisdictional arguments, they still get caught up on what a genuine redundancy is.”

The uncertainty has driven small business unfair dismissal to become a “go-away money” jurisdiction where for-profit lawyers are supporting at times spurious complaints in the hope business owners will relent, Koelmeyer argues.

“It’s a no-cost jurisdiction, so employees will google unfair dismissal advice and find 40 no-win-no-fee advocates who pop their heads up,” she says.

A “complete re-write” needed?

Alan McDonald, founder and managing director of McDonald Murholme solicitors, says reforming the code would be an opportunity for the incoming Coalition government to show its support for small business.

“You need a complete re-write [of the code],” McDonald tells SmartCompany.

“There are too many claims against small business, and we don’t think that a lot of the claims against small business are very good claims.”

Commission figures don’t separate small-business claims from others but show there were 3,583 unfair dismissal claims lodged between January 1 and March 31, 2019.

Of those claims, 2068 were settled at conciliation, where parties meet, often over the phone, to determine whether they want to move forward with a case.

A further 415 cases were finalised after conciliation, but before a formal FWC proceeding, while 172 applications were decided by the commission.

A whopping 81% of arbitrated proceedings were dismissed, suggesting that many cases making it to commission hearings are being thrown out for various reasons, including jurisdictional objections and fair dismissal.

McDonald warns though that any changes to unfair dismissal practices should be limited to small businesses and not disrupt the model for medium and large firms, where he believes the system is functioning well.

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