The costs of dismissal

Key changes to the Small Business Fair Dismissal Code aim to provide clarity and foster confidence for small-business owners when dismissing staff.

Any small-business owner will tell you that taking on a new staff member is a big commitment.

Equally, the decision to end a worker’s employment is never taken lightly.

Unfortunately for small-business operators, the dismissal process continues to be costly and complicated under the current system.

Fair Work Commission figures have revealed Australian businesses are paying millions of dollars every year in settlement payments to former workers who have lodged unfair dismissal claims.

Some of these businesses have paid up to six months in wages at the mediation stage, just to finalise the issue and to avoid further legal costs.

According to data from the commission, in 2017–18 more than 6500 unfair dismissal claims involved a payment to settle the matter, or what’s known as “go away” money. The majority of those payments were between $1000 and $8000. Many of these were not an admission of guilt by the employer, but rather a decision that it was cheaper and faster to pay than to risk a drawn-out, stressful and expensive case at the Fair Work Commission.

“Australian businesses are paying millions of dollars every year in settlement payments to former workers who have lodged unfair dismissal claims.”

It’s a huge cost to a small business and it doesn’t take into account lawyer fees or time taken away from the business to respond to the claim.

In addition to that, we know the majority of unfair dismissal claims that are not resolved at mediation stage, are dismissed or declared legally invalid by the Fair Work Commission; meaning they shouldn’t have gone to the commission in the

first place.

Part of the problem has been the Small Business Fair Dismissal Code – or the interpretation of it.

The code was introduced as part of the Fair Work Act by the Labor Government in 2009, in recognition of the fact that small business owners do not have the time or expertise to navigate the complex unfair dismissal system.

It was supposed to be a straightforward guide that small business employers could follow to ensure they fairly dismissed a worker.

But since the code was brought in, lawyers have picked it apart and made a meal of ambiguous terms like “reasonable grounds” and “reasonable chance”. It means that the code is not doing the job it was originally intended to do, because small businesses can no longer rely on the code as a way of making sure a dismissal will be deemed fair.

That’s why my office has recommended a number of important changes and additional checklists to the code.

The changes are designed to make the code clearer, so that small-business owners can feel confident they can do the right thing and avoid an unfair dismissal claim in the event they have to let a worker go.

Fair Work Commission research has found a major challenge for small-business operators is attracting and retaining staff, and that good employees are highly valued.

By having a code that functions the way that it should, employers can meet their obligations and feel empowered to hire the staff they need to get on with growing their business.

Kate Carnell AO, Australian Small Business and Family Enterprise Ombudsman

This story first appeared in issue 26 of the Inside Small Business quarterly magazine.

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