The Real Cost of Unfair Dismissal.
By Philip Lye
Wednesday, 18th January 2006
If you don't follow the correct procedures when terminating an employee you're liable to ay the penalty.

People have become more aware of their rights in this ‘knowledge age', and this has resulted in a noticeable increase in cases appearing before the Industrial Relations Commissions (IRC) for unfair dismissal.

Take the following example.

Bill operated a successful and busy accounting practice in the southern suburbs of Brisbane. He had always prided himself on his service to clients. However, from time

to time he had to involve himself in what he termed ‘office tensions' between several of his senior accountants.  Recently he had shown Peter, one of his accountants, the door one Friday afternoon. No explanation was given, just that ‘he had not fitted in'.

Imagine Bill's surprise 10 days later when, trawling through his in-tray, he found a notice from the Queensland Industrial Relations Commission claiming unfair termination of employment. Bill thought this was a storm in a tea cup and that he would simply turn up to the Queensland IRC and that would be that. He'd clearly made the correct decision – hadn't the office tensions subsided in the last two weeks?

Reality Bites

Bill arrived at the IRC meeting to be greeted by his former employee and his employee's industrial advocate. They were ushered into a small conference room. Five minutes later an Industrial Relations Commissioner entered the conference room and began proceedings.

The Commissioner opened the meeting by referring to the Act and informing those present that this was a conciliation meeting regarding a claim for unfair dismissal.

The industrial advocate laid out Peter's claims as to why he believed his termination had been ‘harsh, unjust and unreasonable'. As Bill sat listening he started to become nervous. Perhaps he should have prepared for the meeting or sought out advice – and what was this comment by the Commissioner about internal policies and procedures not being followed?

Bill, who had thought that this was going to be a ‘cake-walk', listened with an increasingly sinking feeling – things were not looking good for him. When the Commissioner asked Bill to outline his position, Bill replied that Peter had just ‘not fitted in' and that the fact that the office tensions had subsided was proof that Peter had been the problem.

Asked about internal procedures and policies, Bill said they did exist but admitted he preferred the personal approach. No, the procedures and policies hadn't been followed and as Peter had been on a yearly contract of $75,000 Bill thought the matter was outside the jurisdiction of the IRC.

Imagine Bill's shock when the Commissioner explained that there were sufficient grounds for an unfair dismissal claim should they proceed to formal arbitration and that it would be a good idea for Bill, Peter and his industrial advocate to meet and come to an arrangement. Bill was stunned. As he hadn't replaced Peter yet, Bill was looking down the barrel of reinstatement and backdated salary or facing a compensation payment of six months' salary. And that was only the start of the real cost to his business.

What does the ‘Act' say about Unfair Dismissal?

Each state has its own Industrial Relations Act for state employees.

The Workplace Relations Act 1996 is the generic act applying to federal employees.

Under Section 73 of the IRA (QLD) 1999:

1.     A dismissal is unfair if it is

  • harsh, unjust or unreasonable; or
  • for an invalid reason.
2.     Each of the following is an ‘invalid reason':

  • temporary absence from work because of illness or injury
  • seeking office as, or acting or having acted in the capacity of, an employees' representative
  • membership of an employee organisation or participation in the organisation's activities outside working hours or, with the employer's consent, during working hours
  • non-membership of an employee organisation
  • filing a complaint, or taking part in proceedings, against an employer involving alleged violation of laws or recourse to competent administrative authorities
  • the making by anyone, or a belief that anyone has made or may make
  • a public interest disclosure under the Whistleblowers Protection Act 1994
  • a complaint under the Health Rights Commission Act 1991
  • refusing to negotiate for, make, sign, extend, amend or terminate a certified agreement or QWA
  • refusing to negotiate for or make a certified agreement, or Australian workplace agreement, under the Commonwealth Act
  • the employee or employee's spouse is pregnant or has applied to adopt a child
  • the employee or employee's spouse has given birth to a child or adopted a child
  • applying for, or being absent on, parental leave
  • discrimination.
There is substantial case law demonstrating what the Commission in each state considers to be ‘harsh, unjust or unreasonable' conduct. While each case is decided on its own merits, a key indicator is if the employee was allowed reasonable time to answer the allegations made against him or her unless it was unreasonable to do so (e.g. a criminal offence such as fraud).

What should Bill have done?

Bill should have conducted an induction process with each of his employees, outlining the practice's policies and procedures. Bill could have ensured that their employment contracts contained the practice's method of performance appraisal and grievance policies, including termination procedures.

Each employee should have signed that they had read and understood the company policies and procedures, and Bill should have ensured that his practice complied with the performance appraisal policy.

When Peter's performance proved to be unsatisfactory, Bill should have taken Peter through the performance process allowing him to respond to each allegation in a reasonable time. Furthermore, Bill should have sought outside professional advice had he believed that sufficient ground/s existed to let Peter go.

And last but not least, once Bill received notice from the Queensland Industrial Relations Commission, he should have sought advice and assistance before appearing at the commission.

The Real Cost

In the meeting that followed, Bill and Peter decided to go their own ways. Bill agreed to pay Peter $40,000 for the withdrawal of his claim for unfair dismissal on condition that Peter sign a ‘deed of mutual release'. The ‘deed of mutual release' provided that the matters arising out of the employment relationship had been settled and that no further action could be taken by either party. In addition, Peter would withdraw his claim for unfair dismissal from the IRC.

At the end of the meeting, Bill slunk back to his office and closed the door. When he checked his telephone messages he found there were several clients requiring urgent attention and he had received a dozen emails requesting his advice. Added to that, he had lost a day's fees amounting to $2500. He now had to reschedule clients to meet at other times. His wife had rung to say that their son had broken his leg and could he call home urgently.

Bill had been given seven days to make payment to Peter. Why hadn't he taken advice, Bill wondered as he picked up the telephone.

His first call was to his bank manager, with a request to increase his overdraft limit. He would need to go to the bank the next day to sign papers. Another morning lost.

He had yet to find a replacement for Peter and some of his clients were getting a little frustrated – they'd always been given first class service and didn't appreciate the delay.

The Hidden Cost

Five days later Bill paid Peter $40,000 after both had signed the deed of release. Bill had now lost two days' fees ($5000), client complaints were increasing and his reputation was being questioned. To manage, Bill had been placing additional pressure on employees to work longer hours. As a consequence employee morale was declining and the rumour mill was working overtime.

Bill had not had a holiday for four years and his ulcer was beginning to flare up again. His wife was unhappy that Bill was working 14-hour days and had put off that promised trip to Vanuatu.

No, this had been a costly ‘stuff up' and as Bill dragged himself home he wondered where had gone wrong.

Philip Lye is Managing Director of Biz Momentum providing professional services in employee relations (HR / IR Matters), training your people to work with you and not against you', ‘coaching you' to be a better executive and review of commercial documentation, leases and agreements.

Phil holds qualifications in Accounting, Leadership, Human Resource Management & Industrial Relations and is a qualified accountant.

Phil started his working career as the ‘postage clerk' in banking and finance rising through various business opportunities to CEO and CFO of two companies before leaving to start his own business in 2002.

For further information: http://www.biz-momentum.com 

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