ACTU Submission to the Senate

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Workplace Relations Amendment (Fair Dismissal) Bill 2002

Introduction

  1. 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”).
  2. 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.
  3. 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

  1. 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.
  2. 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.

  1. 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)

  1. 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.

  1. 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.
  2. 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.
  3. The report sets out a number of factors which have contributed to the growing employment share of small business:

  1. 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."

  1. 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:

  1. 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.
  2. 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

  1. 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.
  2. 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.
  3. 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)
  4. 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).
  5. 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%).
  6. 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)

  1. 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.
  2. 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)
  3. 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.”

  1. 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

  1. 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.
  2. 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:

  1. 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.
  2. The amendments took effect in August 2001. Insufficient time has elapsed to allow for a proper evaluation of their effect, particularly for small business.
  3. 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

  1. The ACTU is totally opposed to the 2002 Bill and urges the Committee that it recommend that it not be supported in the Senate.
  2. Although the 2002 Bill is opposed in its entirety, the ACTU is specifically concerned about the unfairness of the proposed process.
  3. 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.
  4. 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.
  5. 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.
  6. 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.
  7. 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.
  8. 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.


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