General Protections Claims on the Rise

The Fair Work Commission’s latest Annual Report for 2016/2017, released last week, shows that general protections claims are on the rise. There has been a 12.3 per cent increase in general protections claims involving dismissals over the last year.

In 2015/2016 there were 3,270 general protections claims involving dismissals. In 2016/2017 this went up to 3,729 such claims.

What are the reasons for this increase, how many matters resolve at conciliation and is settlement always the best option? These aspects of general protection claims are explored below.

Reasons for the Trend

This trend towards employees favouring general protections claims over other types of legal claims is occurring for a number of reasons, including:

  • General protections applications are cheap to file, costing only $70.60;
  • The application form is easy to prepare and legal advice is not necessarily required;
  • There is little commitment required from individuals lodging an application in the early stages, as the matter goes straight to a telephone conciliation (rather than a face to face conference with a commission members as use to be the case);
  • If an employee cannot bring an unfair dismissal claim (because they earn above the high income threshold of $142,000 and are not covered by a modern award or enterprise agreement) this is often seen as the next best claim to lodge to try to put pressure on an employer to pay the employee some monetary compensation;
  • Pinpointing a workplace right that was exercised or was proposed to be exercised by the former employee is not that hard, it is connecting the workplace right to the dismissal that is more difficult and often overlooked;
  • There is a reverse onus of proof place on employers meaning employees do not have to prove the connection between the adverse action and the dismissal, rather the employer has to disprove this;
  • Unlike discrimination claims in the Australian Human Rights Commission conciliation is compulsory and takes place quickly within a month or two; and
  • It is a non-costs jurisdiction so employees have protection from being ordered to pay costs (except in limited circumstances).

Legislative Operation

Under the Fair Work Act 2009 (Cth), an employer must not take adverse action (including dismissal) against an employee because they exercised or proposed to exercise a workplace right (section 340).

Workplace rights are defined by section 341 of the Fair Work Act as:

  1. An entitlement to a benefit of, or role or responsibility under a workplace law or instrument or order made by an industrial body;
  2. An ability to initiate, or participate in, a process or proceedings under a workplace law or workplace instrument; and
  3. An ability to make a complaint or inquiry.

Some of the most commonly raised workplace rights include employees claiming to have been dismissed for complaining about their managers or colleagues or for seeking to exercise their right to a benefit under the Fair Work Act or a Modern Award such as payment of their salary or overtime.

In addition to the above, employers are also prohibited, under section 351 of the Fair Work Act, from dismissing an employee because of any protected attribute identified in state, territory or commonwealth discrimination law. This includes, but is not limited to, an employee’s race, colour, sex, age, disability, carer’s responsibility and martial status.

A reverse onus of proof rests on employers in general protections cases, to show that they did not dismiss the former employee for a prohibited reason. Accordingly, there is a evidentiary burden on employers to show that the real reason for dismissing an employee had nothing to do with the exercise or proposed exercise of a workplace right or a protected attribute, but was instead for another lawful reason.

Due to this reverse onus it is vital that employers ensure that they have lawful reasons for terminating employees. Notably, even if only one of a few reasons that a person’s employment is terminated is unlawful, the dismissal will still be found to fall foul of the legislative provisions. Clearly documenting what the reasons are, including having an internal paper trail setting this out, is essential. Following a fair process, even though the procedural fairness tests involved in an unfair dismissal case are not relevant here, is an important practice to try to ensure that the lawful reasons for dismissal are properly communicated and not lost in amongst the implementation of the decision to fire an employee.

Resolving Claims or Holding Out 

According to the Fair Work Commission’s Annual Report, of the 3,729 general protections claims involving dismissal, 73 per cent were resolved at conciliation, withdrawn or were refused an extension of time. This means that only 27 per cent may have been pursued to the next stage of potentially filing their claim in the Federal Courts.

77 per cent of the general protections matters involving a dismissal which did end up in conciliation resolved with either a monetary payment or both a monetary payment and some other non-monetary terms of settlement.

These settlement rates are high and show that employers are deciding, for the most part, to resolve these matters early on.

Despite the potential costs of defending a general protections claim involving a dismissal and the reverse onus of proof, employers should be cautious when dealing with dubious general protections claims. Paying a settlement amount for such a claim could lead to more problems. It could create a well trodden path for employees dismissed in the future to also expect a payout if they bring a claim (regardless of the merits).

While bringing a Fair Work Commission claim is relatively easy for former employees, the next stage of the process, taking the matter to the Federal Courts, is tougher and there are a number of disincentives to this process. The time involved to get to hearing, which is likely to be 12 to 18 months at a minimum, the legal costs if the former employee is represented, and the public nature of any decision are significant barriers to many former employees.

If a company is confident that its internal decision maker did not dismiss a former employee for a prohibited reason, and the employee is just trying on a claim to see where it gets them, holding firm and not making an offer to resolve it may be the most sensible strategy to deploy.

Federal Court says FWC Penalty Rates Decision stands

The February 2017 decision of a Full Bench of the Fair Work Commission (FWC) to cut penalty rates in certain modern award, as detailed in our blog post here, has been upheld following an appeal by unions in the Federal Court of Australia Full Court (FCAFC).

Background

In February this year, the FWC handed down a decision reducing penalty rates on Sundays and public holidays  in several modern awards. The penalty rate reduction came about largely on the basis that existing penalty rates were no longer within the “modern awards objectives” as detailed in section 134(1) of the Fair Work Act 2009 (Cth) (the FW Act). Awards that felt the hit of this first decision included the:

  • Fast Food Industry Award 2010 (Fast Food Award);
  • General Retail Industry Award 2010 (Retail Award);
  • Hospitality Industry (General) Award 2010 (Hospitality Award);
  • Pharmacy Industry Award 2010 (Pharmacy Award);
  • Registered and Licensed Clubs Award 2010 (Clubs Award); and
  • Restaurant Industry Award 2010 (Restaurant Award).

Whilst not all classifications within these awards were affected, the determination scaled back rates between an average of 25% – 50%. The new rates, as explained in our previous blog, were introduced from 1 July 2017 and the changes to Sunday rates are to continue to be phased in until 2020.

Two more decisions reviewing modern awards were published on 17 March 2017 and 5 June 2017 regarding late night penalties and the transitional arrangements to implement the changes, respectfully. These preceded the FWC’s determinations made on 21 June 2017 reducing penalty rates in the above modern awards (excluding the Clubs Award) on Sundays, public holidays and other entitlements.

The determinations were welcomed by the Federal Government and businesses yet angered unions and workers. As the first of its kind and potentially the beginning of a trend, the decision was appealed by two unions, United Voice and the  Shop, Distributive and Allied Employees Association (the Applicants) and heard in the FCAFC in late September 2017.

The FCAFC decision

The Court comprised of Justices North, Tracey, Flick. Jagot and Bromberg, dismissed the Applicants’ appeal. The subject of the appeal was the FWC’s 21 June 2017 determinations varying the awards, not the decisions published prior to this because the determinations affect the immediate rights and interests of the Applicants.

The Applicants brought the appeal on several grounds. Ground one raised the issue of whether throughout the FWC’s decision-making process it miscarried for not appreciating that the review of awards required under section 156 FW Act requires a material change in circumstances since the last review of the award. The second contention was based on the FWC’s failure to understand the nature of the inquiry to meet the modern awards objective required under section 134 FW Act. The Applicants argued the FWC split the “modern awards objective” under section 134 FW Act so that it failed to “provide a fair and relevant minimum safety net of terms and conditions” when considering the factors laid out in sections 134(1)(a)-(h). In grounds three to six the Applicants’ raised concerns about the way in which the FWC treated the living standards and the needs of the low paid whom these awards affect. The FCAFC noted how and where, over several months the FWC correctly considered the adverse implication of the cuts and how their phased implementation would provide an easing of the changes.

Importantly the FCAFC noted that the task of ensuring modern awards are compliant with section 134(1) FW Act standards and making a call as to what is fair and relevant is not part of its remit. Rather the Court commended the FWC’s decisions, remarking that great weight can be given to the factual assessments made by the Full Bench of the FWC.

The Court rejected all grounds on which the FWC’s determinations were challenged by the Applicants and dismissed the appeal.

What does this mean for employers?

The transitional arrangements decision handed down on 5 June 2017 will continue to be rolled out until 2020. The public holiday rates reduction occurred on 1 July 2017 without any transitional arrangement. The Sunday penalty rate cuts will continue to be phased in at the beginning of the next three financial years under transitional arrangements. Employers need to understand the impact of the transitional arrangements and ensure they remain up-to-date on changes where they are covered by the impacted modern awards.

Read the decision here: [2017] FCAFC 161

The Elephant in the Room has Teeth

Employers across Australia will be facing increased scrutiny, investigation and liability arising from the Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017 (the Bill), which passed the Senate last night. These new laws will place significant pressure on franchisors and holding companies which to date may have turned a blind eye to the practices of their franchisees.

The Bill amends the Fair Work Act 2009 (Cth) (the FW Act) to:

  1. introduce higher penalties for serious breaches of workplace laws;
  2. increase penalties for record keeping failures;
  3. make franchisors and holding companies responsible for underpayments by their franchisees and subsidiaries where they knew, or ought reasonably to have known, of the contraventions and failed to take reasonable steps to prevent them;
  4. expressly prohibit employers from unreasonably requiring their employees to make payments; and
  5. strengthen the powers of the Fair Work Ombudsman to investigate breaches of workplace laws which exploit vulnerable workers.

The Bill has significant implications for franchisors, holding companies and employers in respect of compliance with the FW Act.

The Bill is the result of the government’s recent history of inquiries, trials and reports surrounding workplaces exploiting vulnerable workers. To push out this behaviour, the law has been modified and strengthened to put the onus on those connected to a company’s or an individual’s contraventions of the FW Act.

Implications for Employers

Due Diligence

A key change is the new positive obligation on holding companies and franchisors. They are now required to be aware of, and take reasonable steps to manage the risk of, breaches of the FW Act within their business networks and down their supply chains. The new section 558B of the FW Act makes holding companies and franchisors liable for contraventions including but not limited to breaches of:

(a) the National Employment Standards;
(b) modern awards;
(c) enterprise agreements;
(d) national minimum wage orders;
(e) methods and frequency of payment and payment specified in modern awards; and
(f) enterprise agreements,

made by subsidiaries or franchisees in their networks.

What should you do?

  • Ensure systems are in place which are able to identify non-compliance with workplaces laws including:
    • reporting structures;
    • regular auditing, and
    • independent review of time and wage records.
  • If a breach is discovered, take swift and immediate action to deal with the problem – don’t “turn a blind eye” to the issue. Document the steps you have taken to protect against accessorial liability.
  • Review franchising agreements to ensure they adequately protect the interests of the franchisor’s now more onerous obligations including a right to be provided with information and documentation on request relating to compliance.

Increased penalties

The penalties that a holding company or franchisor can be liable for have been increased for “serious” contraventions of the FW Act, with even higher penalties where the contravention was:

(a) deliberate; and
(b) part of a systematic pattern of conduct.

Serious contraventions involving deliberate conduct of those civil penalties outlined above can result in a 600 penalty unit fine for individuals (or $126,000) and 3,000 penalty unit fine (or five times higher) for bodies corporate (or $630,000). These amounts are ten times a penalty that normally applies.

In determining what constitutes a “systematic pattern of conduct”, a Court can have regard to:

  • the number of contraventions of the FW Act;
  • whether the contraventions have occurred for a long period of time or after complaints were made;
  • whether multiple employees were affected; and
  • whether accurate employee records have not been kept, pay slips not been issues, making underpayments hard to establish.

Only contravening conduct that occurs after commencement is captured by these provisions.

What should you do?

  • Given the significantly higher penalties, there has never been a better time for a “spring clean” of current practices. Employers should take steps to engage internal or external assistance to ensure compliance with workplace laws.