Employers Behaving Badly Avoiding Employee Entitlements

In the current economic climate, it is not unusual for employers to be on the look out for ways of reducing costs. It is also not unusual for employers to look first at their employees with a view to downsizing and reducing the number of employees.

A common scenario is as follows:

• An employer seeking to reduce costs considers making an employee redundant;
• The employer realises that an employee is approaching 10 years service (or has over 7 years’ service) and will be entitled to payment of pro rata long service leave in addition to redundancy pay if terminated for reasons other than conduct or performance, such as redundancy;
• In some cases, the employee may have committed some minor transgression which gives the employer an opportunity to commence “disciplinary” action. The employer issues the employee with a letter asking them to show cause why their employment should not be terminated and engages in a sham disciplinary process in which the outcome has already been determined;
• Regardless of the seriousness of the allegations, the employer characterises the alleged conduct as “serious misconduct” and ultimately terminates employment, thereby avoiding the requirement to pay redundancy pay and long service leave.

Doing so may ultimately cost an employer a lot more than the cost of employee entitlements, as employers who do so may be exposed to the risks of an adverse action claim under the General Protections provisions of the Fair Work Act (“the Act”).

Under the Act, an employer is prohibited from taking adverse action against an employee because the employee has a workplace right, or exercises or intends to exercise a workplace right. A workplace right can include, among other things, an entitlement to payment for redundancy and/or long service leave.

Adverse action includes any action which prejudices the employee’s position or alters the employee’s position to their detriment. Thus, termination – or even commencing disciplinary proceedings against an employee – will be adverse action.

Once an employee has established that adverse action has occurred, an employer bears the onus of proving that the reason they took the adverse action was not related to the employee’s having or exercising workplace rights. If there is more than one reason and the reasons include that reason, the employer may be liable for a breach of their obligations.

The courts are alert to flimsy disciplinary proceedings, particularly in circumstances where an employee is suddenly subjected to allegations of serious misconduct after years of satisfactory or even exceptional performance. If the alleged disciplinary proceedings do not stack up, an employer may find themselves facing an uncapped order for compensation, in addition to significant penalties for breaches of the General Protections provisions of the Act.

Maximum penalties for each contravention of the Act are currently $54,000 for a company and $10,800 for any person who was involved in the contravention. Add to that the significant costs of defending a court action and it will be cheaper by far to pay employee entitlements.

For advice in relation to all your employment law queries, please contact Michelle Morton of our office.