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Allens Arthur Robinson

Focus: Workplace Relations – January 2007

In this issue: We look at 'operational requirements' and unfair dismissal claims, directors' obligations for safety breaches, whether workers' compensation is regarded as paid sick leave in claims for unlawful termination, and the legitimacy of terminating a certified agreement as a bargaining strategy.

Employer discretion justifies termination

In brief: Termination of employment may be justified even if the operational requirements of the business would allow for other less drastic options. Senior Associate Rowan Kelly and Lawyer Fiona McPhee report on an appeal to the Full Bench of the Australian Industrial Relations Commission.  

How does it affect you?

  • Employers carry the onus of proving their claim of genuine operational reasons. It is generally not relevant in assessing the genuineness of the operational reasons that the employer did not consider or offer any alternatives other than terminating the employee's employment, or that the decision may not have been valid, sound or well-founded.
  • Employers cannot seek to avoid a claim of unfair dismissal by merely claiming genuine operational reasons. An employer must provide evidence to substantiate this claim. A lack of evidence can undermine the defence and careful preparation is still recommended. The benefit here is that a lack of fairness when responding to the operational need can no longer be reviewed.
  • Additionally, in most cases, concerns about conduct or performance will not be sufficient to qualify as a genuine operational reason and allow the employer to avoid its obligation to treat the employee fairly and take proper steps to manage what are merely conduct or performance issues. 

Background

Mr Carter had been employed by Village Cinemas Australia Pty Ltd (Village) for almost 20 years, holding various positions at nine different locations. After receiving a notice to vacate its Doncaster premises, Village decided to close that site from 1 August 2006. 

Mr Carter suggested to Village that he could take six months' long service leave to allow for redeployment options to emerge. Village declined his offer and terminated his employment. 

Claim

Mr Carter claimed that the termination of employment was unfair. Village applied to have the claim dismissed on the basis that it was for genuine operational reasons, Mr Carter's position having been made redundant.

Section 643(8) of the Workplace Relations Act 1996 (Cth) (the Act) prevents an employee claiming unfair termination if their employment was terminated for genuine operational reasons or for reasons that include genuine operational reasons.

Decision

The Commission found that the failure of Village to grant Mr Carter long service leave and to offer him a lower status position undermined the credibility of any 'operational reason' defence. In effect, Village had options other than termination at the time and this meant there were no operational reasons in play. 

On appeal, however, the Full Bench found that the operational reasons relied on by an employer need only be a ground or cause for the termination of the employment of an employee.1 They need not be something that leaves the employer no choice but to terminate the employment. Therefore, generally, it is irrelevant to the operational reasons that an employer could have done something other than terminate an employee's employment.

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Directors' obligations not just for hands-on players

In brief: Directors cannot hide behind having no hands-on involvement to avoid liability for company safety breaches. Lawyer Stacey Van der Meulen and Senior Associate Simon Dewberry report.

How does it affect you?

  • Directors should be aware that they cannot absolve themselves of responsibility for safety by staying remote from day-to-day operations, or by taking no active role in the formulation, application and enforcement of safety policies at a site. 
  • There is a positive obligation to take an interest in safety issues and directors risk prosecution for company breaches.
Background

In January 2003, Mr Howie, an employee of Owens Containers Services Australia Pty Ltd (the Company), was using a highly volatile and flammable substance to clean a tank. An explosion occurred during the cleaning process and Mr Howie suffered severe injuries and died shortly afterwards.

The Company, its CEO (Mr Ritchie) and the Divisional General Manager were prosecuted for breaches of the Occupational Health and Safety Act 2000 (NSW) (the Act). The Company and the General Manager pleaded guilty. Mr Ritchie defended the complaint on the bases that:

  • he was not in a position to influence the conduct of the corporation; and
  • he had used all due diligence to prevent the contravention.
No preliminary test of hands-on involvement

Mr Ritchie was based in New Zealand, where he was responsible for all the businesses in the group. Mr Ritchie gave evidence that he spent less than one day a month on the relevant division of the Company, and that he relied on Company managers. He argued he was far too remote from the day-to-day operations of the Company to be in a position to influence the conduct of the corporation and its employees.

The Industrial Commission of NSW found there was no preliminary test of hands-on involvement and participation in safety matters.2 Further, the evidence indicated that Mr Ritchie had been active in the development of the Company's safety policies, and it was within his control to have safety systems in place that would have addressed the Company's failure. Therefore, the defence of not being in a position to influence matters, failed.

In relation to Mr Ritchie's alternative defence, there was no evidence that Mr Ritchie used all due diligence to prevent the contravention by the Company. The Commission commented on the difficulty for defendants in relying on both the defences as alternatives as the more evidence a defendant calls to make out the due diligence defence, the more likely it is that such evidence will diminish the case about the director's capacity to influence.

Mr Ritchie was subsequently found guilty of a breach of the Act and ordered to pay a penalty of $22,500.3

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Temporary illness and workers' compensation leave

In brief: Workers' compensation absences count as paid sick leave and will not assist an employer when terminating for extended absences. Lawyer Maree Norton reports.

How does it affect you?

  • Employers should treat employees who are absent from work on workers' compensation as being on paid sick leave.
  • Employers must not terminate employees who are temporarily absent from work because of illness or injury unless the absence extends for more than three months and the employee is not on workers' compensation or other paid sick leave for the duration of the absence. 
  • For example, an employee injured in the course of their work duties and absent from work on workers' compensation for four months cannot be dismissed because of their absence and, if they were, would be entitled to bring an unlawful termination action under the Act.

The Workplace Relations Act 1996 (Cth) (the Act) prohibits termination of employment on certain grounds, including temporary absence from work because of illness or injury. Under the Workplace Relations Regulations 2006 (Cth) (the Regulations), temporary absence includes an absence (of any duration) on paid sick leave. In effect, absences on paid sick leave cannot justify termination. 

It has never been clear whether workers' compensation leave absences can be regarded as paid sick leave. Although the employee is unfit for work and could be described as being sick, the obligation to pay passes from the employer to the relevant workers' compensation insurer. Also, accrued sick leave does not get used. 

In Lee v Hills Before and After School Care Pty Ltd,4 Federal Magistrate Raphael held that a workers' compensation absence does qualify as paid sick leave under the Regulations. As a result, the applicant was permitted to proceed with her claim that the termination of her employment was unlawful. 

In reaching this decision, Federal Magistrate Raphael observed that in the pre-WorkChoices era, a claim of this nature would most likely have been brought as an unfair dismissal claim on the basis that termination in the circumstances was harsh, unjust or unreasonable. The decision in this case to bring an unlawful termination claim instead, signifies a trend away from unfair dismissal actions following the narrowing of that jurisdiction under WorkChoices. 

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Terminating EBA: a legitimate bargaining strategy

In brief: The Australian Industrial Relations Commission should not refuse to terminate an expired enterprise bargaining agreement merely because it affects the bargaining position or entitlements of one of the parties. Senior Associate John Naughton reports on the current Tristar dispute.

How does it affect you?

  • An employer has the right to structure an ailing business in the way it thinks gives it its best prospects for success.
  • The legitimacy of an employer relying on the termination of a certified agreement as a negotiating tool is consistent with the design of the legislation.
Background

Employees of Tristar Steering and Suspension Australia Limited (Tristar) are engaged under a certified agreement containing generous redundancy provisions. Following a business downturn, Tristar granted redundancies to selected personnel, reducing the size of its workforce considerably. Tristar, however, did not offer redundancies to a number of experienced personnel on the basis that they were required for continuing operations.

The four unions bound by Tristar's certified agreement lodged a dispute with the Commission when Tristar directed that:

  • the retained employees perform alternate work, ie reconditioning steering racks; and
  • a number of employees transfer from afternoon to day shift.

The unions alleged that Tristar's attempts to remain in business were not genuine, and that the purpose of the directions was simply to delay these further employees being granted redundancies on the generous basis provided for under the certified agreement. The unions alleged that Tristar intended to terminate the agreement, so the retained employees would receive a maximum of 12 weeks' pay rather than the four weeks' per year of service provided for by the agreement.

Decision

The Commission accepted that Tristar was entitled to direct the retained employees to conduct the alternate work (reconditioning steering racks) because it was not outside their skills, competence and training. Further, the Commission accepted that as Tristar had closed the afternoon shift, the two remaining employees who were directed to transfer from afternoon to day shift should do so pending further consideration of the matter by the Commission.5

Lessons for employers

Importantly, the Commission accepted that even if Tristar's decision to retain certain employees and not make them redundant (whether voluntarily or forced) was ill-advised, Tristar was entitled to make that business decision. The Commission would not intervene to direct Tristar to grant redundancies simply because the employees' generous entitlements available under the existing certified agreement might not be preserved if the agreement was terminated. This was despite the fact that recent amendments to the legislation now protect severance entitlements for a period following termination of an agreement.6

Footnotes
  1. Carter v Village Cinemas Australia Pty Ltd, Full Bench of Australian Industrial Relations Commission, 15 January 2007 (PR975821).
  2. Ken Kumar v David Aylmer Ritchie [2006] NSWIRComm 323.
  3. Ken Kumar v David Aylmer Ritchie [2006] NSWIRComm 384.
  4. [2007] FMCA 4.
  5. Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union & Ors v Tristar Steering and Suspension Australia Ltd, Senior Deputy President Cartwright, Sydney, 9 January 2007, PR975783.
  6. See Workplace Relations Legislation Amendment (Independent Contractors) Act 2006 (Cth).

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