Employment Law Essentials for Business Owners (Part 1): Managing Dismissals the Right Way

0:00
You're listening to Explain That by Velocity Legal, the podcast that keeps business owners and professional advisers ahead of the curve in an ever-changing legal landscape.

They say that prevention is better than the cure. As an employer, there's going to be times where you're managing an employee and decide that that person's no longer right for your organisation.

0:24
How do you manage risk on dismissal?

The Fair Work Commission is flooded with applications for dismissals and all sorts of other claims. What do you need to do as an employer to avoid being one of those cases?

Today I'm joined by Jess Hill and Katherine Stewart to have a discussion about how to manage dismissals correctly to avoid ending up in a claim situation.

0:49
Welcome to the show.

Thanks, Andrew.

Great to be here.

All right, well, let's get into it. Let's just say I'm a misperforming employee and I have the pleasure of working for you. What are you thinking in your head about steps to take to manage the process correctly?

1:08
Where does it start? Let's say you decide, look, I don't think Andrew's working out. What do you do?

Well, it probably depends why you're not working out is the first question.

So is it just performance based, you're not up to the job or the technical skills aren't there?

1:25
Or is it looking at, you know, a broader issue of culture? Or are they doing something that's inappropriate? Are they saying something inappropriate?

So it really depends what the issue is with the employee.

If it's a matter of you're just performance based, performance is not where it needs to be, then that's one sort of process versus, you know, if you've got some other issues around inappropriate conduct, for example, then that's a different set of issues.

1:57
So in terms of performance based, there's a number of different ways to handle it. There isn't one answer.

And that's the thing with dismissals, that there's never one answer.

There's the ideal process that works through, you know, a performance management plan that will take a number of months, or there's other processes that can be put in place that are shorter, depending on the complexity of the situation, through to immediate termination and then working through the risk around that.

2:32
And it will depend on a number of factors.

Would you say that sort of, could you categorise it as slow burn and quick burn? As in, it sounds like perhaps these performance based ones, Katherine, are maybe your slow burns, but then you've got these immediate situations that you need to deal with and that you regularly deal with.

2:52
Exactly right. And generally, with performance issues, what you want to do is give someone an opportunity to improve.

And that's why we say, oh, we're giving you a warning. Unfortunately, you're not meeting our expectations or you're not performing at the standard that we need from you, but we want to work with you and help you improve.

3:08
And that can be done formally. That can be done in writing.

So performance, yes, as you say, is absolutely a slow burn.

But at the same time, there's been times where we're like, we need this person out today because this person is creating such a risk for the organisation.

3:25
Sometimes in lawyer land, there's the proper process to go about things, but sometimes the risk of having someone in the business is so high that we need to act immediately.

And I've had a few serious ones in my career. I can think of a really serious sexual harassment one.

And we just wrote the letter and we're like, today you leave.

3:43
This is too serious. We cannot tolerate this. We cannot have you around other people. Goodbye.

And then there's the whole spectrum in between.

And obviously, we want to try to do things with dignity and respect people. And dismissal is never pleasant, whether you're the employer writing the letters and having those meetings or the lawyer advising.

4:03
And of course, it's really stressful for the employee.

But yeah, as Jess says, it's really about weighing up what are the risks of this situation? What are the legal risks?

Some dismissals are much more high risk than others.

And as you say, is this one where I can work with the employee and try to get through this, and maybe we end up at a dismissal process before the end of their probation period? Or is this one that's really high risk and we need to act now?

4:29
Yeah. Would you say that, as employers, should you know the things they can do beforehand to prepare in terms of a process?

I imagine it's not sort of like a process manual for when you have a concern about an employee, but what proactive steps can be taken by an employer?

4:49
I think it's a bit of a misconception that you need to give an employee three warnings before you can take any dismissal action.

That's a common question that people come to us and they're like, oh, I haven't given them three warnings, can I dismiss?

It's like, no, that's not actually anywhere.

Having said that, there are certainly things you can do.

5:07
So if you've got performance management issues, even if you don't have a formal performance management plan in place or a performance improvement process, which is often called a PIP, you don't need to have those things to have a process.

So when you're meeting with the employee about their performance, taking notes of that.

5:26
So even if it's early on, even if they don't have performance issues, just generally when you're meeting the employees about their performance, just keeping some notes of it.

So what are the issues? When were they discussed? Really having that record of it well before it becomes an issue.

5:43
And then as it progresses, it may get to a point where you say, okay, I'm 50/50 whether this can be turned around.

I've been giving them the feedback. It's not working. It's not turning around.

Having the conversation that actually says, if your performance doesn't improve, your employment is at risk.

6:04
And that's one thing that people are so reluctant to do that can save them or not save them, but certainly help defend any kind of unfair dismissal claim.

Because what they think they're telling the employee and what the employee is hearing are two different things.

6:20
And saying the words that your employment is at risk often crystallises that for the employee.

The amount of times we've had an employee run an unfair dismissal case and they say, you know, the employer's telling us we've got all this evidence and we were telling them time and time again.

6:37
And the employee has heard, oh, I had some things to work on, but I never thought my employment was at risk. I never thought I might lose my job. I didn't think it was that serious.

And there's that disconnect between what's being said and what's being heard.

So as uncomfortable as it is having that conversation to say your employment is at risk if your performance doesn't improve.

6:59
It might not prevent an unfair dismissal claim, but it will certainly help defend one.

And often it means that one doesn't eventuate because the employee does understand the seriousness of it and they're less likely to bring a claim because they understand this is on their performance, not some other arbitrary item.

7:18
It also prevents, you know, risk around what was the decision made for? Was it made for a protected reason?

Yeah, so Jess just flagged unfair dismissal, and I think most people would have heard of that before.

It's a pretty well-known type of claim that you can bring to the Fair Work Commission if you're dismissed.

7:35
And it's all about, you know, treating people fairly, having a fair process if they're eligible to bring a claim.

Probably what keeps Jess and I up at night a tad more and keeps us certainly busy is something called a general protections claim.

7:51
And the nuts and bolts of that is you can't, as an employer, take adverse action against someone, which could include dismissal, for a protected reason at law.

So when we have a dismissal come to us, or we're thinking about the process or how we're going to help this employer through this process, Jess and I are always going, what are the general protections risks?

8:11
What are the risk factors here that could make this dismissal a bit more high risk than your average, maybe garden variety, well, this person's not working out on probation?

And the types of things we'll be looking for are maybe, has a person disclosed a medical condition recently?

8:27
Have they taken a period of sick leave?

Now, you might have some really genuine performance concerns, but if they've just taken a few weeks sick leave or disclosed to you that they're having some mental health challenges and they've given some evidence from their doctor of that, well, they might go, oh, I think you're actually looking to sack me because I said I had a mental health condition, and how dare you.

8:48
I'm really upset about this.

And other types of protected reasons include things like complaints or enquiries about your employment.

So maybe they've raised a complaint of bullying recently against another colleague and they go, well, I've spoken up and now I'm getting treated really unfairly.

9:06
So we're looking to all these different risk factors, and there's lots of protected attributes at law that people will be familiar with, things like pregnancy, sex, age, disability, but also remembering that a person has workplace rights to take leave, to make inquiries about their contract, or maybe ask how their bonus works.

9:28
And if you've got these risk factors that are happening really close to the time that you're thinking of moving someone on for really genuine performance or misconduct concerns, then all of a sudden that garden variety dismissal could become a much more high risk situation.

9:45
And that's where Jess and I try to go, well, how can we help you have a strategy through this dismissal process and be really clear on what the reasons for dismissal are, and keep everything else separate so that we can keep your risk as low as possible?

So when I'm in, let's say I'm an employer, you know, I'm assessing that legal risk.

10:03
Is it unfair? What are these protected attributes? Could there be a claim there?

I guess the question I want to ask is, and I'll phrase it this way, I remember, you'd be more aware of this than I am, but in the news recently, Qantas was fined a sum of money.

10:21
I think it was 80 million or something of that nature.

Ninety million.

$90,000,000 fine.

As I understand it, it was because during COVID they sacked a bunch of people and it was determined that that was done unlawfully.

And when I was watching this news program, they got an expert on to say, well, you know, Qantas saved a lot of money as a result of that because they offshored things and restructured things.

10:46
The point I'm getting at is, how do employers balance that legal risk?

You know, in Qantas, I won't ask you to comment on the Qantas one, but that legal risk of something happening versus the wider concerns and drivers of the business.

11:02
I think the Qantas one is interesting because I think there was a statistic that they saved about 500 million and they had a fine of 90 million.

So it's not bad maths from Qantas.

Look, I think there's always the tension between managing the legal risk and managing the commercial reality of running a business.

11:21
And depending on what the issues are, sometimes going through that slow, methodical performance management process isn't realistic or isn't viable for the business, particularly for a smaller business.

They just need to get someone in new who can do the job without having to go through that performance management process.

11:43
And so you don't need to do that process. There is always a possibility of going about it a different way, depending on what the issues are.

There's also the possibility that the person has other risk factors. So have they been engaging in bullying conduct?

11:59
Have they been engaging in sexual harassment?

And that's a really different process altogether.

So in those circumstances, we would be more often than not moving almost immediately to a dismissal process rather than a performance management issue that can be managed over time.

But even with performance management, sometimes it's just a matter of saying, I don't think it's going to work.

12:19
I don't think the person is going to be able to turn it around. I've given them that feedback, but maybe I haven't gone through the most robust process.

Can I still dismiss them, or do I need to wait another month, another two months, another three months?

And the answer is yes.

12:35
It just means that your risk profile goes up a bit, but it can still be done.

And one of the ways to manage that might be through what we call a show cause letter, or one of them might be by having the conversation about offering the employee a transition package and just bringing it to a head at that point in time.

12:56
Now, transition packages, you know, you can't force someone to sign away their rights. You can't force someone to sign.

We typically do it by way of deed of settlement, but often if there are issues, you don't have the time to work through the performance management process. The writing's on the wall.

13:16
You might be able to have the conversation with the employee to say, look, your employment is going to be terminated, but we appreciate that you need to find a new job.

We'd like to offer you X amount to help transition you to a new job. Your employment ends effective immediately.

13:34
We'll pay your notice, and you can just move on. You can go find another job and we'll give you something extra to help with that.

And that often is a way to bring it to a head from a commercial reality.

And often it's more cost effective than running through a performance management process that might take months to run.

13:53
Instead of costing you two or three weeks in salary.

You've spent someone, you know, someone's been on a performance management process for six months.

Six months of salary.

Yeah, six months of salary and you're still getting to the same end point.

So having the consideration of whether you'd sort of be a bit more generous than, you know, what's contractually obliged to get to an outcome.

14:10
So the question I wanted to ask was, let's say you did the performance improvement plan, the PIP, you say to someone that their employment's genuinely at risk.

And then you get, you know, they say, look, yeah, I'm really struggling mentally.

Maybe that then turns into a bit of a bullying complaint. They feel like they're being bullied. What do you do?

Are you, as an employer, kind of boxed into a corner a little bit there?

14:43
Employers often feel boxed into a corner, particularly when, and often you just touched on it perfectly, that you'll start this performance management process and the employee says you're being unreasonable.

I'm a great employee and I feel like you've set these unreasonable targets for me.

15:00
I feel like you're always on my back. I just can't, you know, do my job. I think this is bullying behaviour.

And they'll return with a complaint of their own.

And what we do as lawyers is unravelling these legal issues.

15:15
And often what we'll do is we'll try to separate them.

And we can say, no, this is a performance process to deal with genuine concerns that we have as a business.

And it's our right as business owners to help you work through those concerns that we have and improve your standard.

15:31
We acknowledge your concerns and, providing they're not completely vexatious and unreasonable, we may hand those concerns over to someone else to consider if they have any merit.

And so maybe you do have to, you know, you can't as an employer ignore serious concerns of bullying and other behaviour, providing it has some substance and the employee's raising them genuinely.

15:53
But what we do is separate the process and go, all right, these bullying concerns will be dealt with over here and we'll look into them and see whether they have some merit or whether they warrant a genuine investigation.

And sometimes they do, sometimes there is some genuine bullying.

But separately over here, we're continuing this performance improvement process and maybe that will now be overseen by someone else in the business.

16:14
So trying to separate the two and maybe putting a bit of externality or other persons involved in the process.

One question I wanted to ask was, is there any different considerations between senior employees and more junior employees?

Does that, is it a risk question? Is there a different way you'd handle it?

How do you go about those?

16:32
There's certainly differences between them.

So there is in unfair dismissal for a lot of employees a high income threshold. And if you're over that high income threshold, you can't bring an unfair dismissal claim.

16:50
And often the more senior employees will be in that category.

It's not a hard and fast rule because there are some employees that are award covered that the high income threshold doesn't apply.

But it may be that you don't have that unfair dismissal risk, but it doesn't really move the needle in terms of a general protections risk.

17:13
It just means that when you're managing that dismissal, it really goes down to the complexity.

But maybe, you know that, okay, if this is going to turn unpleasant, they're probably going to raise general protections claims because they don't have access to unfair dismissal.

17:30
So often we will see employees who are sort of panicking and they will raise a whole set of general protections issues that maybe don't have much merit, but they know they don't have any other pathway through to unfair dismissal.

17:46
And that's the complexity around more senior employees, whereas more junior employees know that unfair dismissal is kind of an easier route and they've got access to it.

And so that's mostly their preferred outcome.

18:04
I’d just add as well, Jess, is often we do see a lot more contractual claims when we're dealing with executive senior-level employees.

So often senior employees will have, you know, long-term incentive plans, share arrangements, some bonus and equity schemes, and in a dismissal process, you know, there can be real considerations of making sure those entitlements are being paid out.

18:26
That might be higher.

Exactly, exactly.

And also sometimes, and I hope this is none of our listeners, but sometimes we'll have senior employees without an employment contract, which raises a claim called reasonable notice.

And it's something we're always on the lookout for when we're dealing with dismissals, particularly for senior staff, because if you don't have an employment contract for a senior employee, then the law says, oh, we'll imply a reasonable period of notice into that contract.

18:54
And the cases are very clear that depending on the seniority and age of that employee, that period of notice could be up to 12 months.

So you may have a contractual entitlement to a 12-month notice period if you're trying to sack someone at a very senior level.

So these are real big differences.

19:10
Yeah, yeah. I wanted to just turn the conversation towards policies and training.

I can imagine with these quick burn situations where something's happened, you know, some serious behaviour's happened, let's say.

I can imagine for an employer, they're going to be on much better ground if they've had, you know, policies and training about the reason why whatever they've done is unacceptable.

19:35
Does that hold water, or does it just not really matter that much what policies say if someone's done something that's clearly unacceptable?

It definitely helps.

What I would say, though, is that an employer shouldn't fail to take action because they don't have policies or procedures in place.

19:53
So the actions are most often, they're not covered by some form of legislation. For example, sexual harassment is sexual harassment whether you have a policy or not, and you have an obligation as the employer to do something about it whether you have a policy or not.

20:10
Now, you should have a policy because that will help with things like vicarious liability and other things.

And that's a whole different podcast.

But having that policy will mean that you can lean on it.

Yes, typically, if you've got issues like that around sexual harassment or severe bullying, we would do what is called a show cause.

20:33
So you may well suspend the employee, you'll issue them a show cause letter that effectively says we reasonably believe that you've done these things, show cause as to why your employment shouldn't be terminated.

A lot of the time there isn't a sensible explanation or there isn't an explanation that the employee can give that justifies the behaviour.

20:56
And so the employment is terminated.

It's giving that right of reply.

Yeah. So it's always good to be able to give the right of reply. Sometimes it just needs to happen today.

Yeah, we can't do that process at all. But if you can do that process, it's always preferred.

21:12
But then it's saying in that show cause process, if you can refer to a bunch of policies and say, well, this policy required you to do this, this policy required you to do this, you've breached those policies.

That helps. Like you shouldn't be afraid of taking action if you don't have policies in place.

21:31
I imagine things like, you know, sexual harassment, violence, theft, any sort of dishonesty.

Are those the general things you'd see that these are the immediate action items?

Yeah, absolutely. And in those circumstances, we would almost always encourage the employer to suspend their employment immediately so they don't have access to systems.

21:52
They're not dealing with other employees. There's no more sort of damage that can be done, particularly things around dishonesty or fraud or theft.

You immediately want that person out of the business, even if you're going to give them the right to reply. You want them out of the vicinity of the business, not dealing with other people.

22:11
And often that's the time where they can cause the most amount of chaos, right? Because they know the writing's on the wall and it's sort of like, well, I'm going to go down with a bang.

And so immediately suspending, turning off access to systems, computers, removing them from the premises and then dealing with the process, the show cause process after that.

22:32
I think that's a really important point, Jess.

And you'd be surprised how many times, you know, we start this dismissal process and we'll tell the employer, this is the appropriate time you need to cut off all systems access and ensure that your confidential information or your business IP is secure.

22:50
The amount of times we see the employee suddenly start emailing themselves documents, you know, they're starting their own business and they've got found out, and you don't want those important things walking out the door.

Yeah, so often. And, you know, while it may seem a bit firm and hard, you don't want to give someone forewarning.

23:08
If you're about to have that serious meeting, you need to be mindful of protecting your own business assets.

And maybe it's just calling someone in and going, look, we've got these serious concerns and we will be suspending your employment and we'd ask you to leave.

And that won't be every situation, but some dismissals will warrant that process.

23:27
And when you're assisting employers with this situation, is it, I mean, is the typical process the employer will contact you?

Look, you know, here's the situation, here's what I want to do.

And then you'd strategise with them around, okay, look, here's your legal risk and here's a few different ways to do it. Is that a rough overview?

23:44
Absolutely, yeah.

So what we'll ask for is we'll look at the documents, we'll always look at the employment contracts, some information of what's gone on and what the problems are.

We'll have a think of the legal risks at our end because we're always trying to think of how do we prevent this claim? How do we stop that?

Or there's no written contract here. That could be a bit of an issue.

24:00
But then we come up with a strategy and help the client execute it.

And usually it's just don't do anything until we get the strategy right. Because, you know, you've got one shot at this.

You're heading down a pathway and it could potentially end up, you know, the Fair Work Commission or some other type of legal claim.

24:19
Let's get the steps in place and then we'll go ahead.

Having said that, we will often execute those strategies within a number of days, if not the same day, the day after.

Because you can't sit on them. You know, if you've got a serious sexual harassment claim, you can't just say, oh, okay, I've got to wait for my lawyer to come back to me and I'll just leave the person there for three to four days while we figure it out.

24:45
And often we'll get a client who calls and, you know, they're often in a bit of a panic to say, what do I do?

We'll come up with that strategy. We'll have a look at the documents.

But that will happen often in a number of hours, if not days, to bring it to a head quickly because you don't want to be sitting on those sorts of issues.

25:03
And even just the proximity issue becomes, if you sit on dismissals, clients will come to us and say, I've got this issue and I've got this issue, and they were involved in some bullying here.

And we look at it and it's over a 12-month period.

25:19
And the most recent one is months ago, and they've only had one small incident recently, and it makes the whole dismissal process harder.

Yeah.

Because then you've got to look at, okay, well, what are all those risk factors that occurred in the full 12-month period?

25:35
You know, did they also make a complaint? Did they also take leave? Did they also bring issues around their contract or a bonus, things like that?

So not sitting on serious issues for a period of time and acting swiftly, even if the risk profile goes up, it's often better than sitting on them for too long.

25:59
And yes, you've gone through a process, and yes, you've managed your risk to a degree, but it's a bit of a false economy often, and often it can cause problems.

If someone sees the writing on the wall, they may decide to take a period of sick leave and then you're dismissing someone who's on sick leave, and that adds a whole other layer of challenges.

26:21
So not sitting on issues is always better, or at least having the conversation to get the advice, to get the strategy and not just ignoring problems until they blow up.

If I can summarise, I think what I've learnt is, as an employer, if I've got an issue regarding the conduct of someone, I'm thinking about dismissing them.

26:45
Don't do anything without a strategy. Speak to a lawyer to work on that strategy.

That strategy should cover legal risk, but also consider practicalities and things outside that.

Don't dawdle, implement quickly.

I want to thank you both for being part of this episode, and I encourage anyone who has any questions regarding this process to reach out either to Jess or Katherine.