Workplace Relations
Amendment (Fair Dismissal) Bill 2002
Introduction
- The Government has introduced this Bill for blatantly political reasons,
knowing the position of the Senate in relation to an exclusion for small
business from the provisions of the Act permitting applications to be made to
the Commission by employees alleging that their termination of employment has
been harsh, unjust or unreasonable (“unfair”).
- This has been done in spite of the lack of evidence that such an exclusion,
removing major rights from 47 per cent of the private sector workforce, would be
of benefit to small business employment growth, a view seemingly shared by the
overwhelming majority of small business operators.
- The ACTU submits that the Committee recommend that the Bill not be passed by
the Senate.
Do Unfair Dismissal Laws
Stop Small Business Jobs Growth
- The claim that excluding small business employees from making unfair
dismissal applications would lead to the creation of more than 50,000 new jobs
has been comprehensively discredited.
- Senator Murray’s minority report in the inquiry into the Workplace
Relations Amendment (Unfair Dismissals) Bill 1998 (“the 1998
Bill”), which proposed an exemption for employers with fewer than 15
employees, persuasively sets out the evidence for the following
conclusions.
- Business opposition to unfair dismissal laws is based on a view that
managerial prerogative should include the right to hire and fire at
will.
- Survey evidence either shows little small business concern with the issue,
or is so loaded as to lack credibility.
- Examples of problems are frequently drawn from cases under state
legislation, which deals with the majority of claims in all states but Victoria,
and which would be unaffected by amendments to the Act.
- Employees of small business are less likely to make unfair dismissal
applications than those of big business.
- The claim that exempting small business would lead to the creation of 50,000
jobs “rests on no empirical research, no case studies, no international
and domestic studies,” and lacks credibility, particularly given that in
1998 there were 304 federal small business unfair dismissal applications in NSW,
79 in WA, 56 in Tasmania and 20 in SA.
- The 50,000 jobs claim was considered by the Full Court of the Federal Court
in the recent case of Hamzy v Tricon International Restaurants trading as
KFC [2001] FCA 1589 (16 November 2001), which concerned the validity of the
Regulation exempting some casual employees from the unfair dismissal laws. In
the course of the proceedings, the Court considered evidence on behalf of the
Commonwealth provided by Mark Wooden from the Melbourne Institute of Applied
Economic and Social Research in support of the proposition that there is a link
between unfair dismissal laws and employment. The Court concluded that no such
link could be shown to exist.
‘During the course of cross-examination, Mr Rogers suggested to
Professor Wooden that, if his assumption about the effect of unfair dismissal
laws on casual employment opportunities was correct, it would also apply to
full-time permanent employment. Professor Wooden agreed. His evidence went
on:
"Do I take it then that you accept that the consequence for employment is
not dependent upon the designation of the employee, that is as between full
time, part-time and casual, correct? --- Yes
It is dependent upon the fact that the given employee or the given class
of employees have access to unfair dismissal laws? --- Correct."
Professor Wooden's attention was drawn to the ABS figures on employment
growth. It was pointed out to him that, in the period of approximately three
years, from March 1994 to December 1996, during which the more comprehensive
unfair dismissal protections of the 1993 Act were in place, employment growth
was stronger than in the following three years, during which less comprehensive
protections applied. Employment growth under the 1993 Act was also stronger than
in the three years immediately before the commencement of that Act, when there
was no comprehensive unfair dismissal protection. (The ABS statistics show
casual employment as being 1,271,800 in August 1990 and 1,435,000 in August 1993
- an increase of 163,200; 1,841,200 in August 1996 - an increase of 406,200 on
the August 1993 figure; and 1,931,700 in August 1999 - only 90,500 more than
three years earlier).
Professor Wooden agreed "the peak in increased employment happens to
coincide with the most protective provisions, from the employees' point of
view". He also agreed that the pattern in relation to permanent employment was
similar. It was suggested this "rather demonstrates that the existence or
non-existence of unlawful dismissal legislation has got very little to do with
the growth of employment and that it is dictated by economic factors". Professor
Wooden agreed "the driving force behind employment is clearly the state of the
economy" and mentioned the recovery from recession after 1993.
It seems unfortunate that nobody has investigated whether there is any
relationship between unfair dismissal legislation and employment growth. There
has been much assertion on this topic during recent years, but apparently no
effort to ascertain the factual situation.
Professor Wooden thought research would be difficult because of the
absence of an appropriate control group. However, unfair dismissal provisions
were introduced gradually during the 1980's, on an industry-by-industry basis,
by awards of industrial commissions. It may have been possible, and may still be
possible, for a researcher to have compared, or to compare, the pattern of
employment in an industry newly affected by such a provision with the pattern,
over the same years, in industries to which no unfair dismissal provisions
applied. The results of any comparison might need to be treated with caution;
however, any empirical material would be an improvement on mere assertion.
Professor Wooden's conclusions about the relationship between unfair
dismissal laws and employment generation were disputed by Dr Richard Hall, a
Senior Research Fellow with the Australian Centre for Industrial Relations
Research and Training at the University of Sydney. Dr Hall noted that Professor
Wooden's claim is not based on "directly relevant evidence, statistical or
otherwise" but on Professor Wooden's "theorisation of the decision making
processes followed by hirers". Dr Hall said:
"Professor Wooden appears to base his view on the assertion that employers
faced with an extension of the unfair dismissal laws to a greater number of
casuals will become more risk averse with respect to hiring because they will
perceive that new substitute hires (for example permanent part-timers) will be
more difficult to dismiss in the short term should they prove to be unsuitable
... That argument would be valid if it were not for the widespread practice of
using probationary employment terms. Probationary employment arrangements are
designed precisely to ensure that employers can exercise the flexibility to
quickly and easily dispense with a new employee should they regard them as
unsuitable.
“If the extension of unfair dismissal laws to include a greater
proportion of casuals occurred there is little logical reason to expect that it
would automatically lead to fewer jobs. First, many casuals are employed by
employers with the intention of retaining them for relatively long periods
anyway. Second, employers who chose not to engage casual employees would be
likely to meet their labour needs through other strategies that facilitate a
high degree of flexibility, for example, though the use of flexible hours,
part-time contracts and/or the use of probationary periods. There is no evidence
that greater reliance on these strategies would lead to any adverse consequences
for job creation at the aggregate level."
Conclusions on the evidence
In the absence of any evidence about the matter, it seems to us the
suggestion of a relationship between unfair dismissal laws and employment
inhibition is unproven. It may be accepted, as a matter of economic theory, that
each burden that is placed on employers, in that capacity, has a tendency to
inhibit, rather than encourage, their recruitment of additional employees.
However, employers are used to bearing many obligations in relation to employees
(wage and superannuation payments, leave entitlements, the provision of
appropriate working places, safe systems of work, even payroll tax). Whether the
possibility of encountering an unlawful dismissal claim makes any practical
difference to employers' decisions about expanding their labour force is
entirely a matter of speculation. We cannot exclude such a possibility; but,
likewise, there is no basis for us to conclude that unfair dismissal laws make
any difference to employers' decisions about recruiting labour.’
(paras 64-70)
- The Government’s Financial Impact Statement in the Explanatory
Memorandum to the Fair Dismissal Bill is:
“The Bill has no financial impact on the Commonwealth
Budget.”
It might have been thought that if substantial job creation was expected from
the Bill, that the effects on tax receipts and social security outlays would
have been considered.
- A 1997 research paper published by the then Industry Commission (Revesz J
& Lattimore R. Small Business Employment, August 1997)
comprehensively examines the role of small business in employment creation and
in the job market generally.
- Revesz and Lattimore argue that although the small business employment
share is growing at the expense of large business, it cannot be inferred that
this is due to job creation by small business.
- The report sets out a number of factors which have contributed to the
growing employment share of small business:
- employment reductions in larger firms, resulting in them employing less than
19 employees;
- a decline in public sector employment;
- a trend to outsourcing services;
- increases in the importance of the service sector, particularly finance and
insurance, property and business services, and health and community services,
which traditionally has a high proportion of small employers;
- structural change affecting large-scale manufacturing.
- The report says that although a large proportion of new jobs occur in
small businesses (61.7 per cent of private non-farm wage and salary earners),
this "does not necessarily imply that they have been autonomously generated by
the small business sector" (p.30). Under the heading "Confusion of medium and
cause", Revesz and Lattimore conclude that the smallness of the firm does not
create the jobs.
"Small businesses appear to be a major source of new jobs in the economy.
But this is open to misinterpretation. While small firms may be where
many of the new jobs have been created, this does not necessarily mean they are
responsible for their creation. In fact, the sectoral data (chapter 4)
imply that the smallness of frms is, to a large degree, incidental to the
process of job creation. Many of the new jobs were created in small business,
not because that size of firm is particularly able to generate new jobs, but
because the products for which demand has increased are mainly supplied by small
business. In a sense, the customers of these firms created the jobs, not the
firms."
- Revesz and Lattimore use this conclusion to argue against the provision of
special incentives and/or concessions to small business as an aid to job
creation. Their reasons, set out at pages 97-100, can be summarised
as:
- Selective support ignores the optimal size distribution of firms,
encouraging a shift to small firms of operations which would be more efficiently
performed by a larger enterprise. As small firms are less likely to survive
than larger businesses, this could create more dislocation.
- It is no more logical to support small firms to "create" a job than to
support a large firm or the public sector so that it does not "destroy" a job.
" .... once there is a mechanistic focus on where jobs are 'created' or
'destroyed', there is nothing which gives the arguments of small business
advocates any more coherence than those of big business or private sector
advocates".
- The effectiveness of subsidies in creating net employment is
unknown.
- Subsidies have to be financed through taxation, while selective measures
applicable to small business "can actually reduce the incentive for the growth
of businesses which are about to exceed the small firm
threshold".
- The report concludes that industry and other policies should be geared to
the needs of all business, while not being indifferent to the small business
sector. While the conclusions are in the context of a discussion about the
employment generating effects of government subsidies to small business, the
same principles apply to an exception from unfair dismissal provisions, which
is, in effect, a subsidy by employees.
- The ACTU submits that the evidence shows that no credibility can be given to
the claim that employment or other economic benefits can be gained by exempting
small business from the unfair dismissal laws.
The “Problem”
Of Unfair Dismissal Laws
- Given a choice, small business (or large business for that matter) would no
doubt choose not to be covered by unfair dismissal laws, just as they would like
to be free of other regulations and laws which limit their ability to operate as
they choose. Such laws generally exist to protect the public in general, or
individuals in specific relationships, such as employees.
- It is not, therefore, remarkable, that many small business people, if asked
whether unfair dismissal laws are a concern, or prevent them employing more
staff, answer in the affirmative. However, when small businesses are asked to
rank barriers to greater employment, unfair dismissal invariably rates a weak
response.
- AWIRS '95 found that only six per cent of small businesses gave "high
employment costs" as a reason for not recruiting any more employees, with
another six per cent citing other reasons. The most common reason was "don't
need any more employees" (68.7 per cent) followed by "insufficient work" (20 per
cent). (Table 13.3)
- When small businesses were asked about significant efficiency changes that
they would have liked to make but were unable to, only six per cent cited
"unfair dismissal laws". (Table 13.11).
- Little seems to have changed since 1995, given the findings of a survey of
600 small businesses and 105 chartered public accountants conducted in February
2002 by CPA Australia. The survey found small business identifying the main
impediments to hiring of new staff as lack of skilled applicants (25%), slowing
economy and lack of work (24%), difficulties finding motivated and reliable
staff (20%), wage costs (17%), training requirements (7%) and unfair dismissal
(5%).
- While the survey found that an insignificant minority of small business
owners saw unfair dismissal laws as a main reason not to hire staff, it also
found that there was a high degree of ignorance and confusion about the
operation of the laws, leading CPA Australia to issue the following
statement:
“Spurred on by anecdotal stories rather than fact, more than half of
small business believe they cannot terminate the services of an employee, even
if found guilty of theft or if the business was failing.
CPA Australia's Business Policy Adviser Judy Hartcher says the perceptions
of small business are as much a barrier to generating long-term employment as
the operation of the law itself.
'While there is much debate over reforms to improve the law and whether
small business should or should not be exempt, little has been done to address
the confusion that has reigned for a decade,' Ms Hartcher says.
'The survey findings clearly show there is an urgent need to simplify the
compliance processes and introduce educational initiatives to support the
understanding of the rights and obligations of small business.
'The procedural requirements of unfair dismissal legislation are complex
and ill defined. Lack of clear guidelines make it difficult for small business
with few in-house resources to access up-to-date, useful
information.
'Any strategies to assist small business in relation to unfair dismissals
should therefore first address misinformation, and improve understanding, of the
complexities of the law.
'We are confident these educational initiatives will lead to better
outcomes for small business, removing a major barrier to the growth of
Australian small business,' she says.” (“Small business still in
the dark on unfair dismissals” Media Statement, 13 March 2002)
- The CPA survey question concerning barriers to employment was open-ended;
that is, respondents were required to volunteer answers, rather than choosing
from a pre-determined list. Interestingly, when a list of alternatives was
provided for answers to a question about the employment of casuals, a much
larger proportion nominated unfair dismissal as a reason.
- It is not surprising, in view of the type of publicity that surrounds the
issue, that employers will, when prompted, give the “politically
correct” response. No doubt this influenced respondents to the ACCI
survey, which found more than half of its small business respondents answered in
the affirmative to the question: “Has unfair dismissal legislation had
any effect on employment decisions in your business during the past 12
months?” (Mark Patterson, CEO ACCI “Unfair dismissal laws are
hurting jobs” Australian Financial Review
7 December 2001
p71)
- The real issue is not whether or not the unfair dismissal laws inhibit
employment growth, but the lack of management expertise of many small business
operators. As Senator Murray put it in his minority report on the 1998
Bill:
“Many of the employee relationship problems small business have
continue to be those related to owner/manager skills, training and experience in
managing people.”
- British research conducted for the UK Department of Trade and Industry found
that the informality of small business management and workplace practices made
unfair dismissal claims more likely, according to Rowena Barrett, who teaches
small business management at Monash University. In many cases, small businesses
adopt a formal termination procedure only after a claim has been made against
them. The British researchers found that the existence of a disciplinary
procedure reduces the likely success of a claim. Barrett
concludes:
“The problem lies in the employer’s recruitment and retention
strategies. That’s where the disease is. Unfair dismissal is just a
symptom.
“It’s not the legislation that inhibits small business
employment; it’s not knowing how to get and keep the right
person.
“Even the Australian Chamber of Commerce and Industry would agree
that small-business people are almost as likely to point to the problem of
finding the ‘right’ person as they are to blame unfair dismissal
laws as a factor stopping them from recruiting.
“Recourse to unfair dismissal provisions is an outcome of the larger
problem of ineffective recruitment, selection and retention strategies in small
and large firms.” Australian Financial Review 11 December 2001,
pp40-41)
Process Issues Addressed
Last Year
- The CPA Australia survey shows that while there is no significant link
between small business employment and unfair dismissal legislation, there is a
perception that the laws are complex and that the process is cumbersome and open
to exploitation by lawyers and other agents.
- While there is no evidence to support these perceptions, a number of
amendments were made to the Act with the passage of the Workplace Relations
Amendment (Termination of Employment) Bill 2000. The key changes effected
by the passage of the Bill are:
- where, at the conciliation stage, it has been indicated by the Commission
that the applicant has no reasonable prospect of success at arbitration, the
application must be dismissed;
- an application can be dismissed if the applicant fails to appear after being
given reasonable notice and an opportunity to be heard;
- costs are able to be awarded against an applicant who commences a proceeding
when it should have been reasonably apparent that it had no reasonable prospect
of success or where proceedings were continued unreasonably;
- a prohibition on advisers encouraging applicants to make or pursue claims
where they were, or should have been, aware that there was no reasonable
prospect of success, with fines for breach of up to $10,000 for a body corporate
and $2000 for an individual;
- lawyers and other representatives must disclose whether or not they have a
costs arrangement or contingency fee agreement (“no win, no pay”)
with the applicant;
- in determining whether a termination was unfair, the Commission must
consider the degree to which the size of the employer’s business would be
likely to impact on the procedures followed;
- a three month qualifying period of employment before an employee is eligible
to make an application for unfair dismissal, with provision for the period to be
amended or removed by written notice or extended, provided the extended period
is reasonable.
- These amendments add up to quite substantial change to the Act, affecting
the eligibility of employees to make applications, the ability of the Commission
to dismiss applications, the practices of legal representatives and, most
significantly, a requirement that the Commission take into account the size of
the employer’s business.
- The amendments took effect in August 2001. Insufficient time has elapsed to
allow for a proper evaluation of their effect, particularly for small business.
- The ACTU submits that it is completely inappropriate to be considering this
Bill before any review of the effect of the 2001 amendments has been carried
out.
Uncertainty And
Bias
- The ACTU is totally opposed to the 2002 Bill and urges the Committee that
it recommend that it not be supported in the Senate.
- Although the 2002 Bill is opposed in its entirety, the ACTU is specifically
concerned about the unfairness of the proposed process.
- Proposed subsection 170CE(5C) provides that, when determining whether or not
an employer employs less than 20 people, casuals are not counted, with the
exception of casuals who had been engaged on a regular and systematic basis for
a sequence of periods of employment of at least 12 months.
- Whether or not casuals meet that definition will sometimes be contentious,
with employers having a real interest in minimising the number of employees to
be counted for the purpose of determining whether the application is valid.
- Large contracting companies, such as function caterers, could be exempt in
relation to dismissal of their permanent core staff, even though they might
employ hundreds of casual staff on an irregular and short-term basis.
- In spite of the significance of the issue, proposed subsection 170CEB(2)
provides for the Commission to have the ability to make an order that the
application is not valid without holding a hearing. In deciding whether or not
to hold a hearing, the only factor which the Commission is required to take into
account is the cost that would be caused to the employer’s business by
requiring him or her to attend a hearing.
- To further demonstrate the degree of the bias against employees, proposed
subsection 170JD(3A) removes the right to apply for amendment or revocation of
an order about termination of employment by an employer in small business
because of a change in circumstances, while proposed subsection 170JF(2) removes
the right of an appeal against such an order to a Full Bench of the
Commission.
- Apart from the issues related to litigation, it might also be expected that
employers would deliberately structure their employment arrangements to ensure
that they had fewer than 20 employees in the categories counted for the purpose
of the unfair dismissal legislation, with the rest deliberately employed on a
casual basis and in a manner which would ensure that they would not be
counted.