2017 provided some significant decisions, trends and movements which will impact how employers manage their workforces, set the terms and conditions of employment and address workplace conduct and behaviour issues in 2018.
In this January 2018 edition of “Workplace Relations Review – Cases and Legislation” we identify three key areas on which we suggest employers should focus in 2018.
Maximum term contracts have been popular with employers who need to manage a workforce where personnel requirements are uncertain or where the employer itself is locked into funding or client service contracts for certain periods of time. Increasingly, employers have been issuing such outer-limit contracts on a rolling basis, leading to doubts about the true nature of the employment relationship, particularly when the employment comes to an end after a series of maximum term contracts.
In December 2017, two decisions of the Fair Work Commission (FWC) considered access to the unfair dismissal jurisdiction where employees were employed under maximum term contracts or contracts “for a specified period of time.” These decisions examined the position held by many employers that upon expiry of such a term contract, an employee is not technically “dismissed” and therefore cannot access the unfair dismissal jurisdiction.
Khayam v Navitas English Pty Ltd t/a Navitas English [2017] FWCFB 5162
Background
Navitas initially employed Mr Khayam on a casual basis from 2005 to 2012. In 2012, Navitas employed Mr Khayam as a teacher on a maximum term contract. The contract was to end on 30 June 2013 but also stated that either party could terminate the employment on four weeks’ written notice.
Following the end of this contract, Mr Khayam was employed on two further maximum term contracts, the last of which was to expire on 30 June 2016. Upon expiry of this last fixed term contract, Navitas declined to offer Mr Khayam a further maximum term contract because of concerns relating to his performance. Nativas subsequently hired another employee to fill the role Mr Khayam performed.
Mr Khayam filed an unfair dismissal application. Under the Fair Work Act 2009 (Cth) (FW Act), an employee can only have access to the unfair dismissal jurisdiction where they have been dismissed from their employment.
Under section 386 of the FW Act, an employee is dismissed if the employment is “terminated at the initiative of the employer”; or in circumstances of constructive dismissal (see subsection 386(1) of the FW Act).
There is an exception to this under subsection 386(2)(a) of the FW Act that provides that an employee is not dismissed where:
(a) the person was employed under a contract of employment for a specified period of time, for a specified task, or for the duration of a specified season, and the employment has terminated at the end of the period, on completion of the task, or at the end of the season.
Subsection 386(3) of the FW Act further provides that the exception does not apply if the “substantial purpose” of employing a person under this kind of contract (i.e. a contract for a specified period of time) was to avoid obligations under the unfair dismissal jurisdiction.
Mr Khayam relied upon subsection 386(1)(a) of the FW Act and submitted that his long term and ongoing employment was terminated at the initiative of Navitas, in that it came to an end by way of a deliberate and considered decision by Navitas. Under the applicable enterprise agreements, absolute discretion lay with Navitas whether to offer or renew fixed-term contracts but only after an assessment of performance against specified criteria. Mr Khayam submitted that the work he performed had not ended, but rather continued to be performed by another employee.
Navitas raised a jurisdictional objection under section 386 of the FW Act, arguing that upon expiry of Mr Khayam’s last maximum term contract, his employment ended so there was no dismissal at its initiative. Where there was a clear end date and the employment came to an end on that date, in accordance with long held position following the decision in Department of Justice v Lunn [2006] AIRC 756 (Lunn decision) the employment came to an end as the result of the effluxion of time.
Navitas also relied upon the exception under subsection 386(2)(a), submitting that the exclusion applied to Mr Khayam. For these reasons, Navitas argued that the unfair dismissal application should be dismissed.
First Instance Decision
Commissioner Hunt considered the arguments and noted that the Lunn decision had come under increased criticism. She commented that it was undoubtedly “inherently unfair” that a longstanding employee with consecutive employment contracts could have their employment end due to performance without any challenge, but was ultimately bound by the Lunn decision.
Accordingly, Commissioner Hunt found that there had not been a dismissal at the initiative of Navitas and Mr Khayam’s employment came to an end due to the effluxion of time. The application was dismissed.
Full Bench Decision
Mr Khayam appealed to the Full Bench, submitting that the Lunn decision could not be followed under provisions of the FW Act or, in the alternative, was wrongly decided.
Mr Khayam argued that termination of employment at the employer’s initiative required consideration of the whole employment relationship and how this came to an end, not just the employment contract. It was also argued that the Lunn decision meant that the exclusion under subsection 386(2)(a) and the anti-avoidance provision under subsection 386(3) would have no purpose.
Navitas submitted that “initiative” under subsection 386(1)(a) required an “introductory act or step”. Where there was a clear end date and the employment comes to an end on that date and there was no such act or step or decision by the employer, then there was no termination at the initiative at the employer. Navitas also again submitted that the exclusion under subsection 386(2)(a) applied to Mr Khayam and accordingly the appeal should be dismissed.
The Full Bench considered the Lunn decision and case law leading to this decision. It noted that there was a distinction between termination of the employment relationship and termination of the employment contract and that “termination at the initiative of the employer” historically referred to the end of employment relationship.
The Full Bench held that the Lunn decision did not correctly or completely set out the proper approach to “termination of employment at the initiative of the employer” and its application to maximum term contracts. Accordingly, the Full Bench held that it was not bound to follow the Lunn decision in its interpretation of subsection 386(1)(a).
For the Full Bench, “dismissed” was not to be interpreted to exclude terminations that occur at the end of a time-limited employment contract. Consistent with Mohazab v Dick Smith Electronics Pty Ltd [1995] IRCA 625) “termination of employment at the initiative of the employer” requires examination of whether the action of the employer was the principal contributing factor which lead to the termination of the employment relationship.
The Full Bench also stated that, with this interpretation, the exclusion under subsection 386(2)(a) and the provision under subsection 386(3) of the FW Act have purpose and practical effect, which would otherwise have no effect and this interpretation was consistent with the operation of other provisions of the FW Act. The Full Bench was careful to note however, that where there is genuine agreement between the employer and employee that the employment relationship will end on a specified date, there is no termination at the initiative of the employer.
The Full Bench considered that, for maximum term contracts, it may be necessary to look at the factual circumstances and other relevant matters including:
In relation to subsection 386(2)(a) the Full Bench again considered case law and confirmed that maximum term contracts which allow the parties to terminate the employment on notice were not a “contract of employment for a specified period of time” and this subsection did not apply.
The appeal was upheld and the decision was quashed, with Commissioner Hunt to re-determine whether Mr Khayam was “dismissed” by Navitas.
What can your business learn from this decision?
As a result of the Navitas decision, employers can no longer simply rely on the principles from the Lunn decision to successfully raise jurisdictional objections that:
Smith v Goldfields People Hire Pty Ltd ATF Goldfields People Hire Trust T/A GPH Recruitment [2017] FWC 6730 (Goldfields decision)
In this matter, Mr Smith was employed by Goldfields People Hire Pty Ltd (Goldfields), a recruitment company, as a casual MC driver from 1 November 2016. During his employment, Mr Smith was placed with Bis Industries as a truck driver and then with Newmont Mining Corporation as a contractor.
Goldfields terminated Mr Smith’s employment on 7 December 2017 after which, Mr Smith lodged an unfair dismissal application. In response, Goldfields lodged three jurisdictional objections, claiming that Mr Smith:
In relation to ground (1), Goldfields submitted that Mr Smith was a casual employee for a labour hire company and had no reasonable expectation of continuing employment on a regular and systematic basis. Commissioner McKinnon however noted that for the duration of his employment, Mr Smith had a clear pattern of rosters and accordingly was satisfied that Mr Smith was employed on a regular and systematic basis with an expectation that his employment with Goldfields would continue.
With respect to ground (2) Goldfields argued that Mr Smith was employed on two specified tasks: driving a run for Bis Industries and then a run for Newmont Mining, and that each was less than the six-month minimum employment period. Commissioner McKinnon did not agree that Mr Smith was employed for a specified task, but rather was assigned to Bis Industries.
Commissioner McKinnon noted that a contract of employment for a specified task required:
After having regard to the above, Commissioner McKinnon found that Mr Smith was not employed under a contract of employment for a specified task for either his assignment with Bis Industries or his assignment with Newmont Mining.
As Commissioner McKinnon found that Mr Smith was not employed under a contract of employment for a specified task, ground (3) also failed as Mr Smith’s employment could not come to an end once the specified task was completed.
With each jurisdictional objection dismissed, the matter will be set down to determine whether Mr Smith was unfairly dismissed.
What can your business learn from this decision?
Both the Navitas and Goldfields decisions show a new approach the FWC is taking when considering unfair dismissal claims involving maximum term employment relationships. While the outcome of each matter will depend on its unique factual circumstances these two decisions remind all employers to exercise caution and diligence when entering into maximum term employment relationships.
Enterprise Agreements
As we move into 2018, we are interested to watch the new developments in the area of enterprise agreements (EAs) and the relationship of EAs to modern awards.
Throughout 2017, we continued to see the FWC reject EAs due to minor errors in the Notice of Employee Representational Rights (NERR). Through their decisions, several Commissioners acknowledged the frustration that parties must feel in agreeing to the terms of an EA, only have it rejected due to a minor typographical error or similar. In response, legislation has been tabled to provide the FWC with the discretion it requires to approve EAs despite minor NERR irregularities without sending the parties back to the beginning of the EA making process.
The FWC also developed and launched a number of resources to assist employers in the enterprise bargaining process, including:
Both of these resources are available on the FWC website.
We also continued to see the termination of a large number of expired collective agreements and EAs, including more than 12 Dominos agreements. The push to terminate old agreements comes on the back of a significant decision in 2016 which saw a Coles Supermarkets EA terminated due to its failure to pass the better off overall test (the BOOT) for a relatively small group of casual and part time employees. The EA provided overall higher rates of pay than the relevant modern award but the penalty rates were lower. The EA failed to pass the BOOT when applied to employees who work a roster consisting largely of weekends and public holidays.
This type of decision has resulted in a shift in the way employers perceive the value of EAs. We expect this will continue to be an important discussion for employers moving into 2018.
EAs and the modern awards
EAs are industrial instruments containing agreed terms and conditions of employment negotiated between employers and their employees. EAs can entirely displace the application of one or more modern awards, meaning that where a modern award once applied to the employer and their employees, that modern award no longer applies at all, and the EA is the industrial instrument that sets all the terms and conditions of employment.
Before an EA comes into operation, it must be assessed by the FWC and pass the BOOT.
Under the FW Act, an EA passes the BOOT if each employee and prospective employee covered by the EA would be better off overall under the EA than under the modern award. In the past, an EA could be assessed as better off overall even if the penalty rates (for example, the higher rates paid to employees for work on weekends or public holidays) in an EA were less the modern award - so long as the overall net benefit provided to an employee was better that the net benefit afforded to the employee by the modern award.
This assessment of the overall benefit could take into account other monetary and non-monetary benefits provided to employees under the EA such as access to additional forms of leave or other employer provided benefits. However, recent case law has somewhat altered this position in favour of the view that all monetary entitlements provided under an EA must be at least equivalent to the modern award, if not more advantageous.
This has led to general questioning regarding the utility of EAs – for example, if there is no financial benefit to be derived from savings made on excluding or altering some modern award provisions like penalty rates, then what is the point? Will EAs only be useful for formalising pre-existing above-award arrangements?
Of course, the answer to those questions depends largely on the nature of the employer and the workforce in question.
One of the greatest benefits to be derived from EAs in the current climate is the simplification, consolidation and streamlining of administration. For example, a business may have multiple aspects to its operations and may engage its employees under multiple modern awards according to the type of work the employees perform and the section of the business in which they perform that work.
An EA can cover multiple sections of an employer’s workforce (or the entire workforce) and can set standards terms and conditions for all employees (provided of course that it passes the BOOT).
This is particularly relevant when considering the current status of the modern awards and the four-yearly review process being undertaken by the FWC.
4-yearly review of modern awards
Under the FW Act, the FWC is tasked with undertaking a 4-yearly review of the modern awards to assess whether they are performing as originally intended and meeting the modern awards objective contained in the FW Act. The first 4-yearly review began in 2014 and in December 2017, the FWC issued a statement that this review was not yet completed. The FWC announced that it did not intend to commence a second 4-yearly review in 2018 as presently required by the FW Act, until the first review was completed and the parties could assess how the modern awards were operating as a result of the first review.
Since the 2014 4-yearly review began, significant changes have been made to the modern awards. Some changes have been applied consistently to most of the modern awards, such as the new cashing out and excessive annual leave arrangements, while other changes have been award-specific, like the changes to penalty rates in the hospitality and retail industry awards. The FWC is also undertaking a re-drafting exercise with the eventual goal of converting all the modern awards into plain English to assist with interpretation.
The constant changes to the modern awards can be difficult for employers to stay on top of, and more additions to the modern awards are making what were already long and complex instruments even longer.
In the interests of regaining simplicity in employment arrangements, employers may start returning to EAs throughout 2018 – not as direct wage saving costs measures, but as administrative costs saving measures that enable ease of use.
ALDI Foods Pty Ltd v Shop, Distributive & Allied Employees Association & Anor [2017] HCA 53
Background and history of proceedings
ALDI Foods Pty Limited (ALDI) planned to commence trading in a new region, Regency Park in South Australia, and developed a new EA for employees that were to be employed in that region.
ALDI called for expressions of interest from existing employees to work at the new region. 17 employees were successful in their offers to gain work at the new region and ALDI advised those employees, in writing, that their employment would move to the new region when it was ready.
In the meantime, ALDI commenced bargaining with those employees for a new EA intended to cover employees in the new region. At the time of voting in favour of the EA, those employees retained their original employment and were covered by an existing EA for the regions in which they worked.
Once approved by the employees, the EA was lodged with the FWC where it was approved by a single member.
The Shop, Distributive & Allied Employees Association (SDA) and the Transport Workers Union of Australia (together, the unions) appealed the decision to approve the EA to the Full Bench of the FWC. The unions claimed that the EA should have been made with them as a greenfields agreement because there were no employees employed in the new region when the EA was made. The unions argued that the employees who voted on the EA were not capable of genuinely agreeing to the EA because they were not employed in the new enterprise at the time of the vote.
The unions also argued that the EA did not pass the BOOT.
The Full Bench of the FWC disagreed with the unions and dismissed the appeal.
The SDA then appealed the matter to the Full Court of the Federal Court of Australia.
The Full Court overturned the decision of the Full Bench of the FWC and found that the employees were not capable of genuinely agreeing to the EA. It also found that the Full Bench of the FWC had erred in determining that the employees were no worse off when applying the BOOT.
ALDI were subsequently granted special leave to appeal to the High Court of Australia (HCA).
High Court of Australia Appeal
The HCA considered the relevant law and the arguments of the parties.
The HCA found that, on proper interpretation of the relevant provisions of the FW Act, the employees were “covered” by the EA at the time of agreeing to it, in that they were existing employees who would, in the future, work within the relevant new enterprise in the new region. Accordingly, the employees were capable of genuinely agreeing to the EA and it was properly made under the FW Act.
An important distinction was drawn out in the HCA decision regarding the difference between “coverage” under an EA and the “application” of an EA.
The point made was that an employee (or a group of employees) can be covered by more than one EA, but only one EA can apply to them. In this case, the employees were covered by the existing EA, which applied to them, but were also covered by the new EA, which did not apply to them yet because work in the new region had not commenced.
Once work in the region began, the new EA would apply and any existing EAs would cease to apply to the new employees. Accordingly, the employees would initially be covered by two EAs but only one EA would apply to each employee at any given time.
The HCA also made the point that existing employees almost always vote for EAs on behalf of future employees. At the time any given EA is made, future turnover of staff cannot be known and so the employees employed at the time of making the EA are inevitably voting on behalf of unknown future employees who will at some point be hired and fall under the coverage and application of the EA. For this reason, any argument put forward by the unions that an employer must precisely identify the employees to be covered by an EA at the time it is made does not accord with the FW Act or the overriding purpose of EA making.
Ultimately, the HCA confirmed the decision of the Full Bench of the FWC regarding the EA coverage issue. However, it agreed with the Full Court of the Federal Court in relation to the error regarding application of the BOOT by the FWC.
The HCA ordered that the Full Bench of the FWC review the EA and determine if it passes the better off overall test.
What can your business learn from this decision?
This decision provided clarity on a number of points for employers:
Issues relating to equality, discrimination and justice dominated mainstream news not only in Australia but across the world in 2017. The American media and entertainment industry was at the forefront of this discussion, particularly drawing attention to patterns of unacceptable conduct and behaviour that have been occurring in the workplace over many years.
In Australia, Amber Harrison’s pursuit of Channel Seven serves as evidence that these same discussions are well under away here.
Accordingly, in 2018, we predict that there will be a particular focus in workplaces on employee conduct and behaviour. The line between what is acceptable and what is unacceptable workplace conduct will be questioned and challenged from all angles, and as the year goes on, there will be an increasing obligation on employers to set a clear standard as to what is acceptable workplace conduct.
The spectrum of workplace conduct
Generally, employers have a right to regulate how their employees conduct themselves in the course of their employment. This obligation is broadly guided by industrial relations legislation including the FW Act, work health and safety legislation and anti-discrimination legislation.
However, workplace conduct and behaviour is inherently subjective in nature and every individual will have different views on what is acceptable and unacceptable conduct. It will also undoubtedly be affected by society’s views and opinions at any given time.
By way of example, the FWC was criticised in late 2017 for publishing what appeared to be conflicting views on whether foul language was acceptable conduct in the workplace.
In Construction, Forestry, Mining and Energy Union-Construction and General Division, WA Divisional Branch [2017] FWC 5824, Deputy President Binet refused to grant a right of entry permit to a Construction, Forestry, Mining and Energy Union (CFMEU) official, following a consideration of his history of past misdemeanours, including his use of foul language.
It was noted that the CFMEU official had been penalised on three previous occasions – all within the span of five years – for contraventions of the FW Act. Two of those contraventions involved calling non-union workers “f---ing dogs” and “f---ing dog c---s”.
Whilst the CFMEU attempted to argue that these were isolated incidents and that the official was genuinely contrite about his actions, the FWC stated that it was clear that the CFMEU official “has continued to behave in a way which has resulted in penalties and conditions being imposed on him. His most serious contraventions involve him using obscene and offensive language”.
DP Binet was not satisfied that the CFMEU official was a “fit and proper” person to hold a right of entry permit as required by the FW Act.
This decision drew some criticism noting that only a few days before, the FWC handed down a decision in relation to an unfair dismissal application in which a dismissed employee was re-instated to his employment for using similarly foul language.
In Gosek v Illawarra Coal Holdings Pty Limited T/A South 32 [2017] FWC 4574, the evidence before the FWC was that the employee (who was also a lodge president at the CFMEU) had called several co-workers “dog c---s” or “f---ing dog” (or some other variation of the term) and that he had made intimidatory comments to employees to the effect that he would hunt them down and destroy them for “selling out” a colleague.
Following an investigation into the incident, the employee was dismissed on the basis that his conduct and behaviour was intimidating and consistent with harassment, and in breach of the employer’s values, code of conduct and his employment contract.
In finding in favour of the employee, Commissioner Riordan commented that, whilst unfortunate, “[i]n my experience the expression f---ing c---, is commonly used across all walks of life in society”. He had also noted that this language was commonplace in the workplace and the employer could not produce any evidence that any other employee had been disciplined for similar conduct in the last five years.
Commissioner Riordan concluded that it was therefore harsh, unjust or unreasonable to “single out” the employee and accordingly ordered his re-instatement.
Although there may be some degree of uncertainty about whether the use of foul language in the workplace is unacceptable workplace conduct, the FWC has made it clear that there is an onus on employers to ensure that they have clear policies in place that set out what the employer regards as acceptable and unacceptable workplace conduct and that that policy is enforced at all levels within the organisation.
How to set the standard
In a broader sense, employers should have a Code of Conduct that sets out the basic values of the organisation and their expectations of employees. The Code can state for example that:
More specifically, workplace policies should provide employees with clear guidance about appropriate and accepted workplace conduct and behaviour, including anti-bullying and anti-sexual harassment policies.
Importantly, each policy should set out the appropriate procedures to follow in circumstances where an employee feels they have been subjected to inappropriate or unacceptable conduct and behaviour by another person in the workplace.
2018 will see these topics be discussed more openly in the workplace, and employers – particularly HR managers – must ensure that their workplace is an environment where such discussion is encouraged and dealt with in an appropriate and fair manner.
Regular training on the organisation's policies relating to conduct and behaviour will assist (and are undeniable records that the employer has taken active steps to educate its employees) and employers must also ensure that their managers and senior staff are trained on the appropriate processes to follow if and when they are approached by an employee wishing to make a complaint.
A failure to manage workplace conduct and behaviour can lead to a toxic workplace culture where unacceptable conduct and behaviour may be implicitly (or even expressly) endorsed. This can have serious consequences on not only the company in the long run, but also the health and wellbeing of its employees. It can also lead to brand damage with existing and potential clients, customers, and employees.
This topic and our tips for efficient and effective strategies for managing employee behaviour are discussed in more detail in our webinar “Managing Workplace Behaviour”. We will be running a further session of this hugely popular webinar in late February so please keep an eye out for the event invitation.
With all of these changes in workplace relations, 2018 is shaping up to be an interesting year for employers.
Q: Why is tennis such a loud sport?
A: Because the players raise a racquet.
Q: What did one tennis ball say to the other tennis ball?
A: See you round.
Should you require any further information or assistance, please contact our Managing Director Athena Koelmeyer on (02) 9256 7500 or via email on sydney@workplacelaw.com.au.
Information provided in this update is not legal advice and should not be relied upon as such. Workplace Law does not accept liability for any loss or damage arising from reliance on the content of this update, or from links on this website to any external website. Where applicable, liability is limited by a scheme approved under Professional Standards Legislation.
