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08 August 2019

Review of Small Business Fair Dismissal Code

Frank the plumber has a big day ahead of him with lots of jobs on the books. His labourer, Kyle, turns up for work late again and clearly feeling the effects of another boozey night out. There’s no way Kyle’s going to be able to do his job in this state – he’s a danger to himself and others. Frank knows his day is going to be even harder as a result. It’s not the first time. This has been going on for months now. Frank’s fed up with Kyle’s unreliability. He’s given Kyle lots of chances – he’s spoken to him, told him in writing and even had a chat to his dad - but Kyle has no intention of changing his ways. So Frank lets him go.

Any right-minded person would think Frank’s actions were justified and this was a ‘fair’ dismissal. Right? Well not necessarily.

You see, under the current Small Business Fair Dismissal Code, there needs to be a “reasonable investigation” to establish “reasonable belief.”

So all of a sudden, Frank needs a lawyer. Kyle has lodged an unfair dismissal claim with the Fair Work Commission and Frank is on the back-foot.

Frank just wants to get on with running his small business, so he ends up agreeing to pay Kyle a couple of thousand dollars, to be done with the situation.

Yes, this is a fictional example for the purpose of this article, but this is the kind of scenario Australian small businesses are finding themselves in every day.

It’s hitting them in the hip pocket. It’s hampering their productivity. It’s unnecessary.

Worst of all, it’s stopping many small business operators from employing at all.

That why my office is recommending a number of important changes to the Small Business Fair Dismissal Code.

The Code was added to the Fair Work Act by the Labor Government in 2009, in recognition that small business owners do not have the time or expertise to navigate the complex unfair dismissal system.

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

Unfortunately, ambiguous terms like “reasonable grounds” and “reasonable chance” led to lawyers driving a truck through the Code. That meant small businesses were no longer able to rely on the Code as a way of making sure a dismissal was going to be deemed fair.

We know that small businesses can’t afford costly and stressful legal action. They don’t have the support of a highly-skilled HR department when faced with the difficult decision to end a worker’s employment.

Figures released by the Fair Work Commission shows what the current state-of-play is doing to small businesses. During the first three months of this year it received 3,583 unfair dismissal applications. Most were settled during mediation, often with small businesses making a one-off payment (known as ‘go away money’) to finalise the issue. 172 of those cases made it to the Commission and 65% of those were dismissed without merit or deemed legally invalid, meaning they shouldn’t have gone to the Commission in the first place.

Think about it. That’s thousands of small businesses who have been forced to take time out of their day-to-day work and to dip into their savings to engage a lawyer to defend themselves against a claim that was either resolved through mediation or thrown out. And that’s just in a few months!  

Of course there will always be critics, but some of the claims made in the media by union officials over the past few days have been plain wrong.

Here’s what the proposed changes to the code don’t do. They don’t make it easier for small business owners to sack staff. Of course, employees have rights and these proposed changes do not impact on these rights at all. Instead, it helps employers meet their obligations and ensure any dismissal is conducted fairly.

In fact, under a clearer Code and checklist, small business owners will feel confident they can do the right thing and are much more likely to hire staff.

Any small business owner will tell you that taking on new staff is a big commitment and ending a worker’s employment is not a decision taken lightly. Fair work Commission research has found one of the major challenges for small business operators was attracting and retaining staff and that good employees were highly valued.

It’s time to take the common sense approach – the Code in its current form is broken. Let’s fix it.