Your time is limited: maximum term contracts and the unfair dismissal regime

 

Roseanna Smith, Graduate Associate

Many employers choose the flexibility of maximum term contracts when engaging employees for specific tasks or short-term employment, and assume that their time-limited nature means that they cannot give rise to an unfair dismissal claim. A recent decision by the Full Bench of the Fair Work Commission brings this into question.

A maximum term contract is a contract that states the latest point at which the employment contract is to expire, but it may also provide a right for either party to terminate the employment contract prior to the nominated date with notice. This distinguishes it from a “true” fixed term contract, where neither party has the ability to terminate the employment contract prior to the nominated expiry date.

The Fair Work Act 2009 (Cth) (“FW Act”) requires that an unfair dismissal application be based on a termination of employment at the initiative of the employer. This generally does not include where the employment comes to an end merely through the effluxion of time.

Until recently, the leading authority on maximum term contracts and unfair dismissal was a decision involving an employee who had been employed on successive maximum term contracts over a period of seven years, with an on-going expectation of renewal. The Australian Industrial Relations Commission found that an unfair dismissal claim could not be brought on the basis of the non-renewal of her contract, as the termination was simply due to the effluxion of time, and therefore was not at the initiative of the employer.

In December 2017, the Full Bench of the Fair Work Commission departed from this approach. The case involved an employee who had been employed on a succession of back to back maximum term contracts, with an expectation of renewal, spanning over four years. At the expiration of the employee’s last contract, the employer did not offer him another employment contract due to his alleged poor performance.

The Full Bench determined that the correct approach was to look at the entire employment relationship, rather than simply having regard to the termination of the last of a series of employment contracts.

As a consequence of this approach, an employee may be able to bring an unfair dismissal claim if they were employed on a maximum term contract where the nature of the arrangement suggests on on-going relationship. Where the time-limited contact reflects a genuine agreement between the employer and employee that the employment relationship would not continue after a specified date, then in the absence of any vitiating factors, representations or sham agreement, there is unlikely to be a termination at the initiative of the employer.

A “true” fixed term contract continues to be protected from an unfair dismissal claim at the expiration of the fixed term. But if the time-limited contract does not in truth represent an agreement that the employment relationship will end at a particular time, the factual circumstances need to be examined to determine whether any actions of the employer were the principal contributing factor resulting in the termination of the employment, and therefore could be regarded as being at the initiative of the employer.

Key takeaways

  • Employers should be aware that simply allowing an employment contract to expire does not automatically exclude an unfair dismissal application if the nature of employment relationship creates an expectation of an on-going arrangement.
  • Employers should make clear the manner in which a maximum term contract is being used, and discuss this with the employee to avoid creating any unrealistic expectations.
  • Maximum term contracts should not be used to disguise the true intention of the parties regarding the employment relationship, as this can give rise to the risk of the arrangement being seen as a sham.

 

Not the norm: annual leave entitlements for nurses

 

Ellen Davis, Associate

When we think of annual leave we often think of four weeks as the norm, as well as an additional week for certain types of shiftwork. But in some cases, the base entitlement is higher, and it is also necessary to look carefully at which employees qualify under the shiftwork provisions.

For example, employees covered by the Nurses Award 2010 are entitled to five weeks’ annual leave, and those who are engaged in shiftwork are entitled to six weeks’ annual leave.

The Nurses Award

While the Nurses Award, like most other modern awards, adopts the National Employment Standards, it goes on to provide additional annual leave entitlements to employees covered by the Award.

Clause 31.1 of the Award provides:

a) In addition to the entitlements in the NES, an employee is entitled to an additional week of annual leave on the same terms and conditions.

b) For the purpose of the additional weeks annual leave provided by the NES, a shiftworker is defined as an employee who:

i. is regularly rostered over seven days of the week; and

ii. regularly works on weekends.

c) To avoid any doubt, this means that an employee who is not a shiftworker for the purposes of clause 31.1(b) above is entitled to five weeks of paid annual leave for each year of service with their employer, and an employee who is a shiftworker for the purposes of clause 31.1(b) above is entitled to six weeks of paid annual leave for each year of service with their employer.

Hence, an award or agreement may provide a more generous base entitlement than the NES, and define shiftwork for the purposes of that award or agreement in a particular way.

What does “regularly rostered” or “regularly works” mean?

There are authorities spanning through the different industrial tribunals and commissions which provide that an employee “regularly works Sundays and public holidays if they have worked at least 34 Sundays and 6 public holidays in a year”.1 While this decision was in the context of award and agreement free employment and the Full Bench has not yet had the opportunity to confirm that the above principle applies universally to all modern awards, it is expected that the Fair Work Commission would be guided by, and have little reason to depart from, the above principle in determining any dispute about the interpretation of “regularly works” or “regularly rostered”.

In the context of the Nurses Award, it would appear from the use of the words “regularly works weekends” that Saturday shifts would be included in the quota of 34 Sundays.

 

Key takeaways

  • Employers should check the specific wording of the award or agreement regarding annual leave entitlements.
  • In the case of additional leave entitlements for shiftwork, working a minimum of 34 shifts on Sundays per year tends to be the prevailing standard, but this can be varied by an award or agreement.
  • Employers who wish to minimise their additional annual leave costs could consider how they organise their rosters.

Is it all “strictly confidential”?

 

Cassandra Bujaroska, Graduate Associate

Scenario

It is Friday afternoon and one of your most senior employees, the manager of the sales team, comes to your office to officially give notice of their resignation. All appears to go smoothly, until, a few months later, you lose two of your firm’s major clients. Upon investigation, you discover that the senior executive accessed and stored confidential information on a USB before he resigned.

You need a game plan, but you are unsure how to go about it. What steps should you take? What are you legally entitled to do in these types of situations? What obligations do employees owe regarding confidential information post-employment?

What is confidential?

Any information that is not in the public domain, such as customers’ names and software programs, and trade secrets would fall under the definition of confidential information. Additionally, the case law in this area points to a number of factors that are relevant in determining whether or not information is considered to be confidential. Recently, the factors that a court will consider were summarised, and include the following1:

  • The extent to which the information is known outside the business;
  • The skill and effort required to collect the information;
  • The extent to which the business treats the information as confidential;
  • The value of the information to competitors;
  • Whether the information can be easily duplicated by others;
  • Whether the employee was informed that the information was confidential; and
  • Whether the usage and practice in the industry supports the confidentiality.

How does the law protect confidential information?

Employees owe a number of obligations to their employer regarding confidential information obtained in the course of their employment. For example:

  • an employee will have an implied contractual obligation to maintain confidentiality, an obligation which remains post-employment;
  • an employee may be subject to equitable obligations, including fiduciary duties to maintain confidentiality, and to act only in the interests of the employer;
  • if employed by a corporation, an employee will have an obligation under the Corporations Act 2001 (Cth) to not ‘improperly use the information to gain an advantage for themselves or someone else, or to cause detriment to the corporation’.2

The best way for an employer to protect its confidential information is to ensure that the employee has a written contract of employment that includes specific obligations with respect to confidential information.

For example, the contract should:

  • define confidential information;
  • impose express obligations (both during and post-employment) not to misuse confidential information; and
  • impose obligations to prevent misuse of confidential information by other parties, and to report any such misuse to the employer.

What to do if an employee breaches confidentiality

If an employee breaches his or her obligations with regards to confidential information, the employer may pursue a number of legal remedies, including:

  • an injunction to prevent any further breaches of confidentiality;
  • damages for breach of contract; or
  • an account of profits.

However, an employer will need to act quickly to ensure that these remedies remain available.

Key takeaways

  • Make express provision for confidentiality in employment contracts and in relevant workplace policy and procedure;
  • Expressly define what constitutes confidential information;
  • Regularly update what is confidential information as the business develops and where roles change;
  • Undertake training on confidential information, and make clear the consequences of improper use of such information; and
  • Act quickly with respect to any suspicion that any past or current employees have breached their obligations to keep information confidential.

Please contact People + Culture Strategies on (02) 8094 3100 if you would like assistance with reviewing or preparing confidential information policies, procedures or training.


Reed Business Information v Seymour [2010] NSWSC 790.

The Fair Work Commission gives Uber a Christmas gift: Drivers are not employees

 

Rohan Burn, Associate

In December 2017, the Fair Work Commission (“FWC”) dismissed an Uber driver’s unfair dismissal application on the basis that the applicant was not an employee and therefore not able to pursue this statutory remedy. This decision contrasts with a recent UK employment tribunal decision in which Uber drivers were found not to be self-employed, and were consequently found to be entitled to basic workplace rights.

Some caution needs be applied to taking this as a green light for gig-economy work arrangements as being beyond the scope of employment laws, as the applicant had no legal representation and it is a single member decision.

The FWC found the overseas decision to be of “no assistance” to the applicant because of the significantly more expansive definition of a “worker” in the United Kingdom. In the Australian context, there is no statutory definition of employment and a worker’s status is determined by reference to common law principles. This requires a multi-factorial analysis of the formal terms and actual work practices adopted between the parties. Deputy President Gostencnik did suggest the emphasis on a work-wages bargain and the current indicia that distinguish an employee from an independent contractor may be “outmoded” for participants in the digital economy.

The contractual relationship

Those unfamiliar with the specifics of Uber’s service agreements may be surprised that the respondent maintained Uber was in no way affiliated with providing transport services in Australia. Uber is self-defined as a technology company that provides a software application which enables a driver to accept a request from an Uber app user (a “Rider”). This acceptance creates a direct legal relationship between the driver and Rider that is independent of Uber and its affiliates.

The FWC agreed that Uber does not pay the driver for a service but rather charges the driver a service fee that is calculated as a percentage of the fees paid by the Rider. This was not “seriously challenged” by the applicant and this contributed to the absence of any work-wages bargain, as there was no obligation on the driver to perform a service and for Uber to pay for that service.

Indicia of worker status

At common law, a key indicium of an employment relationship is the amount of control over a worker. A major problem for the applicant in arguing that he was an employee of Uber was the “complete control” he had in the provision of his service to Riders. Part of Uber’s appeal to drivers is said to lie in their ability to determine when they work, for how long, and in what locations. Uber drivers also operate and maintain their personal vehicles, must wear their own clothes, and style how they interact with Riders.

The FWC found these factors outweighed the need for drivers to accept and meet Uber service standards aimed at protecting the Uber brand, ensuring customer satisfaction, and maintaining safety requirements. These standards are assessed based on the ratings that Riders give their drivers and Uber maintains the right to deactivate a driver’s account if, as in this case, those ratings are consistently poor.

Possible ramifications for your business

  • There is an increasing tension with the applicability of the traditional common law tests to modern labour markets.
  • The understanding of the parties and the description in the contract is not determinative of how the relationship will be characterised.
  • Developments in common law or legislative intervention may have ramifications that affect your organisation’s rights and obligations if employment relationships are seen to be inadvertently created.
  • Multiple factors must be taken into consideration to determine a worker’s employment status and PCS can assist employers to ensure their arrangements with “independent contractors” are genuine.

Off the Record: significant penalties imposed on company and director for underpayment and failure to keep records

Cassandra Bujaroska, Graduate Associate

Background

The Federal Circuit Court of Australia has recently handed down a decision involving allegations of underpayment and inadequate record keeping in relation to a second-year apprentice employed by a plumbing company.

During the Fair Work Ombudsman’s (“FWO”) investigation of this matter the company admitted to the breaches and remedied the underpayment by providing the employee with $26,882.73 in back pay. However, the FWO still launched proceedings against the employer and a director of the company as joint respondents with respect to these breaches, seeking the imposition of civil penalties.

Employee records

The court was not required to determine whether the employee had been underpaid, as this was admitted by the employer. The judge did, however, make the following comments regarding the use of employee records in underpayment claims:

“Given the statutory requirements upon employers with respect to record-keeping…a Court would accept even the most slight and generalised evidence of an employee as to the hours of employment in circumstances where an employer does not produce appropriate records.”

The judge made reference to recent amendments to the Fair Work Act 2009 (Cth) regarding evidence in underpayment claims. Earlier this year, the FW Act was amended to provide that, in circumstances where an employer fails to keep appropriate employee records, and the employee brings an underpayment claim, the employer bears the onus of disproving any allegations made by the employee about the work performed by the employee or the payments made by the employer.

Key lessons for employers

  1. Underpayments and poor record keeping can result in significant penalties being imposed under the FW Act, both on the employing entity and any individuals who are involved in the contraventions;
  2. The FWO may still prosecute employers even though the employer admits and rectifies an underpayment; and
  3. An employer bears the onus of disproving any allegations of underpayment made by an employee.

If you require any assistance or advice regarding record-keeping requirements under the FW Act, please feel free to contact People + Culture Strategies on (02) 8094 3100.

How do you rate? Dealing with online employee feedback platforms

Daniel McNamara, Graduate Associate

Some employers are grappling with a new phenomenon – the rise of online employee feedback platforms – where individuals can post anonymous ratings and comments about their workplace experiences, along similar lines to rating restaurants, hotels and service providers. Recently, the United Voice union organisation (under the pseudonym “Hospo Voice”), launched a website titled “Rate My Boss”. The website’s stated aim is to “turn the tables” on employment practices in the hospitality industry by enabling individuals to post anonymous ratings and comments on workplaces across Australia.

While it goes without saying that employers should ensure that the terms and conditions on which their employees are engaged comply with legislative standards, and that transparency around employment practices can be beneficial in circumstances involving potential exploitation of vulnerable workers, there are a number of implications that arise from such ratings systems.

A balancing act: implications for employees and employers

One difficulty arising from sites such as “Rate My Boss” is that the accuracy of posts is impossible to determine. Given the anonymity of the published reviews, this content may come from a disgruntled employee, but it could also emanate from a competitor or any other party, with little to no means of verifying their identity. To post an anonymous review about an organisation on “Rate My Boss”, all that is required is an email address or social media profile to create an account. A service such as this may disproportionately harm employers and businesses due to its lack of accountability and fact-checking mechanisms.

It is unlikely that an employer would want to engage publicly through the same median to respond to such comments, for example as a restaurant might do in response to an unfavourable review. However, an employer may want to respond internally to manage how this is perceived within the workplace, and to ensure that its grievance processes are accessible and working effectively so that the risk of externalising complaints is minimised.

An employee who posts unfavourable comments on an online platform such as “Rate My Boss” may be in breach of their employment contract as a duty of loyalty to the employer is implied as a matter of law in all employment contracts. In addition, workplace policies often regulate a range of employee behaviour that can have an impact on the business. Breaching such policies may result in an employee being subject to disciplinary action, and in some circumstances termination of employment may be warranted.

Posts made on “Rate My Boss” may also give rise to defamatory imputations that an employer can seek to pursue. To satisfy the defamation threshold, typically the content must be published, defamatory (i.e. not substantially true), and clearly identifies the employer/any other relevant party. However, corporations are generally excluded from pursuing defamation proceedings. This may prove to be problematic if a statement on “Rate My Boss” targets an organisation and not a “boss”. While alternative avenues may exist for corporations (such as a claim for injurious falsehood), this can be difficult to establish, and giving such claims a further airing through litigation may not be the most appropriate strategy.

Key takeaways

  • With increasing scrutiny of employment practices, employers should ensure that their practices comply with all applicable legislation and industrial instruments.
  • Online employee feedback platforms might serve a useful purpose for exposing exploitation for vulnerable employees, but are not appropriate for more standard working practices.
  • Being cognisant of the culture of a workplace and having clear and accessible grievance procedures can minimise the risk of such postings occurring.

 

Sealing the deal: When is a settlement reached?

Ellen Davis, Associate

A recent decision of the Full Bench of the Fair Work Commission demonstrates that while the parties may be confident a deal has been struck, the communications between the parties will be essential in determining, objectively, whether an intention existed to make a concluded and binding settlement.

Background

The Applicant, a 77-year-old with 34 years of unblemished service with the Respondent was dismissed based on his failure to follow safety policies, procedures and guidelines while working in a safety critical location, causing significant risk of harm to himself, his team and members of the public. The Applicant disputed the dismissal.

Prior to the matter being heard, the Applicant and Respondent’s representatives engaged in settlement negotiations and it was said that an agreement to settle was reached in principle. The hearing was vacated, with leave to apply for it to be restored should the parties not be able to agree upon the deed. The Applicant disputed that a binding settlement had been reached between the parties and submitted that the Respondent had made a counter offer which he did not accept.

Offer to Settle

The Applicant proposed to settle on the following terms:

  1. the Applicant would be re-employed;
  2. upon re-employment, the Applicant would perform administrative tasks only;
  3. unless required by the Respondent, the Applicant would not perform any work which would attract overtime and/or penalty rates; and
  4. the Applicant was not to receive any back pay or benefits for the period between termination of employment and re-employment.

The Respondent accepted the offer, subject to further qualifications provided in a draft deed for the Applicant’s review. The qualifications specified:

  1. re-employment was subject to the passing of a medical assessment (the “First Qualification”);
  2. the Applicant was excluded from working at any safety critical environments (the “Second Qualification”); and
  3. the settlement would be subject to confidentiality (the “Third Qualification”).

The Applicant was of the view that the qualifications did not constitute an acceptance and he sought to relist the matter for a hearing.

The Decision

In resolving whether the matter was settled and the Applicant was precluded from having the matter heard, the Full Bench made the following comments about when an agreement is reached. Acceptance:

  1. corresponds to an offer if it is an unequivocal acceptance of the terms offered;
  2. is not an unequivocal acceptance of the terms offered if it deviates from the offer, even if that deviation is not material or important. However, as a qualification to this principle, if a new term is included in a purported acceptance of an offer and the new term is solely for the benefit of the offeror, then this can constitute a valid acceptance;
  3. will be effective if it does not depart from the terms of the offer, but simply repeats in the offeree’s own words the effect of the offer; and
  4. will be effective if it sets out expressly what would be implied by law in the absence of express agreement. For example, an offer may contemplate that, were it to be accepted, a document would be prepared to record its terms.

Similarly, if a purported acceptance of an offer merely includes the “machinery of working out what was meant by the offer” it does not revoke the offer and may constitute acceptance of the offer.

Ultimately, the question was whether a “reasonable recipient of the acceptance would have regarded it as corresponding to the offer or whether they would have taken the acceptance to be…such that it would amount to a counter offer, or at any rate not an unconditional acceptance of what was originally offered”1 .

The Full Bench considered the Respondent’s three qualifications to the Applicant’s offer. The First Qualification was held as a term capable of being implied. The Second Qualification was held not to be solely for the benefit of the Applicant and deviated from the offer proposed by the Applicant. The Third Qualification deviated from the Applicant’s original offer of settlement.

In addition, the Full Bench held that confidentiality was primarily for the benefit of the Respondent and that there was reason to believe that the Applicant would have wanted to disclose to his colleagues upon his return to work, his dismissal and re-employment. In these circumstances, it could not be said that confidentiality of the settlement was a term that “went without saying”.

As the second and third qualifications proposed new terms that where not for the benefit of the Applicant, the Full Bench held that the Respondent’s purported acceptance of the offer was not effective and there was no binding agreement to settle.

Key takeaways

  • A binding agreement will not be reached unless acceptance is unequivocal, leaving no terms left to be negotiated.
  • A variation to negotiated terms or proposal of an additional term can constitute acceptance provided the variation or additional term is solely for the benefit of the offeror.
  • The communications between the parties are relevant when determining their intention to enter into an in-principle agreement to settle.

Flexibility, compliance and culture: Ideas for 2018

Sam Cahill, Associate

For many employers, the summer break offers an opportunity to recalibrate and plan for the year ahead. In this article, we look ahead to the new year, and suggest some initiatives employers might consider implementing to enhance employee satisfaction, address cultural issues and ensure compliance with workplace laws.

Flexibility

In today’s workforce, the opportunity to work flexibly is coveted by many employees. But when employers think of flexible working arrangements, they usually limit themselves to the right to make a request for flexible working arrangements under the National Employment Standards (“NES”). This right is limited to employees who meet the eligibility requirements (for example, 12 months’ continuous service, returning from parental leave, carer’s responsibilities or over 55 years of age).

In 2018, employers should consider taking a proactive approach to flexible working arrangements, rather than simply waiting for eligible employees to make a request under the NES. A more open approach to flexible working arrangements can be used to attract talented people to the organisation and enhance satisfaction and retention among existing staff.

A proactive approach necessitates a focus on identifying particular functions, positions or duties that can be performed on a flexible basis (for example, at different locations and times). A good starting point for this exercise is to review the flexible working arrangements that have been provided to employees in the past and where the functions, positions or duties that have been the basis for flexible work arrangements can be expanded or modified in light of current operating needs.

Compliance

In recent years, the Fair Work Ombudsman (“FWO”) has pursued employers in relation to a range of compliance issues, particularly the underpayment of wages and entitlements.

In September this year, the Fair Work Act 2009 (Cth) was amended to include a number of new measures aimed at protecting “vulnerable workers”.1 These measures include:

  • stronger powers for the FWO to collect evidence in investigations;
  • new penalties for providing false or misleading information to the FWO, or hindering or obstructing an FWO investigation;
  • increased penalties for “serious contraventions” of workplace laws (ie, deliberate contraventions);
  • increased penalties for breaches of record-keeping and pay slip obligations; and
  • a reverse onus of proof in underpayment claims where an employer has not met record keeping or pay slip obligations and cannot show a reasonable excuse.

This means that it is more important than ever for employers to take a proactive approach to ensuring compliance with workplace laws. An important first step towards ensuring compliance is to conduct a thorough review of the organisation’s employment arrangements, including:

  • the engagement of employees and other workers (including the procurement of any external labour services);
  • the coverage and application of industrial instruments (Modern Awards and Enterprise Agreements);
  • compliance with award/agreement requirements with respect to rostering, minimum rates of pay, loadings, penalties and allowances;
  • the accrual and payment of leave entitlements, including the recognition of prior service where appropriate;
  • compliance with obligations in relation to pay slips and record keeping; and
  • the impact of any changes to Modern Awards made by the Fair Work Commission as part of its Four Yearly Review of Modern Awards (for example, the introduction of new provisions regarding annual leave and casual conversion).

The purpose of such a review is to uncover any existing or potential compliance issues so they can be resolved internally and with minimum disputation and/or external scrutiny. The review may also highlight areas in which the organisation will need to develop systems and processes to ensure compliance going forward.

An employer’s compliance obligations under the various workplace laws are subject to almost constant change. This means that employers are required to continually review and adjust their systems and processes. For example, in July this year, as part of the Four Yearly Review of Modern Awards, the Fair Work Commission decided to incorporate a model “casual conversion” clause into 85 Modern Awards. The model clause provides that:

  • the employer must inform casual employees of their right to request a conversion within the first 12 months of employment;
  • casual employees who have worked a standard pattern of hours over the 12-month period will be eligible to make a request to convert to full-time or part-time employment; and
  • a request to convert can only be refused on reasonable business grounds (for example, where the conversion would require a significant adjustment to the casual employee’s hours of work or where it is known or reasonably foreseeable that the employee’s position will cease).

For some employers, the idea of casual conversion is nothing new, as it has existed in certain industries for some time. However, for others, it will be necessary to develop the appropriate systems and processes for:

  • monitoring the engagement and pattern of work of casual employees;
  • notifying relevant employees of their right to request a conversion to permanent employment; and
  • considering and making decisions in relation to requests for permanent employment.

The performance of these systems and processes will then need to be measured as part of the next review of the organisation’s employment arrangements.

Culture

In recent months, a number of allegations, mainly relating to sexual harassment and other inappropriate behaviour, have surfaced in relation to a growing list of high-profile men, including Hollywood celebrities, politicians and business leaders. In some cases, the alleged conduct was repeated over many years and was even well-known within certain organisations and industries. This has raised the question: why has it taken so long for the allegations to surface?

As discussed in the earlier article, “Power, sex and silence in the workplace”, this delay has been attributed to a number of factors, including a reluctance to report misconduct due to fear of victimisation, leading to a “culture of silence” within particular organisations. Some have argued that this culture of silence amounts to a “culture of complicity” in the action of the perpetrator. This topic will be one of the topics addressed in our series of PCS webinars next year.

Employers can take a number of steps to try and overcome a “culture of silence”. These include:

  • encouraging a culture of appropriate conduct modelled by senior staff within the organisation;
  • ensuring that anyone who reports conduct is treated with respect and their experience is not minimised;
  • ensuring the policies are drafted so that employees are specifically required to report any inappropriate conduct;
  • introducing stronger protections against victimisation for workers who report conduct; and
  • ensuring that workers receive training in relation to bullying, harassment and discrimination and what to do if they experience or witness this type of behaviour in the workplace.

  1. Fair Work Amendment (Protecting Vulnerable Workers) Act 2017.

Going, going, gone: Employment-related issues in divestment and acquisition

Michael Starkey, Associate

Divestment and acquisition are processes that are most often viewed through a regulatory lens. While it is certainly important to assess whether a divestment or acquisition will add value to your organisation, all too often, a key determinant of whether this is likely to be the case is overlooked – that is; the human “aspect”.

An organisation is in essence only as good as its people, and the truth of this is evident in the context of divestments and acquisitions. As well as covering off important employment-related basics, this article provides guidance on how organisations can adopt a strategic focus to managing people issues that arise in divestment and acquisition, with a particular emphasis on how organisations can enhance the retention of their best talent throughout this process and beyond.

Questions to ask during due diligence

While due diligence is often tedious, frustrating and time-consuming, it is essential in determining whether or not it is worthwhile for a business to enter into a transition in the first place, what might need to be negotiated in order to get the best deal, and whether the business is going to be well-positioned to complete its post-acquisition objectives. Investing time and resources into a thorough due diligence process from the outset helps a business avoid unexpected problems and the unnecessary costs that may be incurred to rectify these at the back-end of a transaction.

In considering the type of questions to ask during a due diligence process, it can be helpful to think in terms of certain categories.

Operational

Operational questions include asking what is the overall structure of the business that is being acquired, what roles exist within the business, what terms and conditions of employment are common within the organisation, and which parts of the business are doing well and which are not. It is important for a purchaser to ask these questions so that they know the landscape they are entering, and what things they may need to change in order to achieve the post-acquisition goals.

From an employment perspective, a thorough knowledge of the terms and conditions of employment that are applicable to the business is important for a number of reasons. In the first instance, it helps gauge what are likely to be the expectations of any employees who you may wish to offer future employment to as part of the acquisition. It is also important to know the source of the employees’ terms and conditions of employment, and particularly whether the employees are covered by a modern award or enterprise agreement. There are circumstances where the terms and conditions under an award or enterprise agreement will “follow” the employees upon their transfer.

Compliance

The next category we suggest are questions relevant to compliance issues. The focus of these questions is often about the “nitty gritty” of the employment relationship; for example, ascertaining the state of documentation such as employment contracts, what employment-related liabilities are accrued (for example leave balances), and the details of any current or threatened legal action against the business.

Apart from giving a clear picture of the current employment landscape within the business, these questions are directed to determining whether the business has had any compliance issues in the past, and whether there may be any record-keeping or documentation issues which could give rise to compliance issues in the future.

Ascertaining the current state of existing employment contracts is also vital in an acquisition so that the incoming organisation can determine what is the most appropriate documentation to use when the business is acquired. In most cases, best practice will be to issue new employment contracts. However, there may be circumstances in which more simple documentation that makes reference to previous employment contracts can be utilised.

Strategic

The final category, which is often overlooked in the due diligence process, relates to questions that are more strategic in nature. These are questions which are less likely to be answered by looking at data and employee records, and requires a purchaser to actively engage with relevant personnel in the business that is being acquired.

The first type of question we recommend in this category goes to the skills of relevant personnel. If a purchaser intends to continue to run the business following its acquisition (either as a separate entity or within an overarching corporate structure), it pays to have a thorough knowledge of which personnel are the “brains”, “key players” or “star performers”. By making offers of ongoing employment to these people, an organisation can help establish some continuity in a time of change, and can capitalise on their skills moving forward.

Another consideration for an incoming employer is what the culture of the organisation is like. While it is unlikely that a prospective purchaser will have access to all levels of the business in question, it may be possible to conduct a high-level cultural audit with executives and key personnel of the target business to determine whether they believe there are any major impediments to acquisition – for example, how does the organisation generally deal with change? Does the organisation go through change often, or is it more of a static organisation? While it is almost certain that there will be some obstacles to change, an organisation with knowledge of these obstacles is better positioned to address these issues in a proactive manner.

Finally, a prospective purchaser should consider what its organisation can contribute to the business, not just what they can take from the business. For example, organisations should consider whether they will be able to improve a business by providing better managerial oversight, transferring valuable skills, and sharing capabilities. If the answer to these questions is no, it may be time to reconsider the acquisition.

Talent retention

One of the most difficult issues for organisations to handle, particularly during divestment, is retaining talent up until the point when the business ceases operating in its current form. During an organisation’s “wind down” period, there will usually be a tension between employees seeking to either secure redeployment or “jump ship”, and the business’ need to remain well-managed and profitable up until completion of the sale.

Organisations need to accept that a loss of employees will be inevitable. In some cases, this may not necessarily be a bad thing. An organisation need only be concerned if it is losing employees who add value to the business, or who are a vital part of the transition team. However, there are a number of strategies an organisation can implement to help keep people happy and “the wheels spinning” during this time.

Transparent and well-timed communication

“What’s in it for me?” Within all levels of an organisation employees will ask the same questions regarding their pay, recognition of prior service, retention of benefits, location and job title. Therefore, a strategy around clear communication, onboarding and other transitional processes should be developed with those questions and answers in mind.

Some organisations might think they are assisting their employees by giving them as much notice of a business sale or acquisition as possible. However, on occasions, this can be to the organisation’s detriment, particularly in respect of employees for whom there is no position in the new entity or with the new employer, or for employees whose position may be uncertain. By providing employees with a long period of advanced notice of the event employers run the risk of employees “jumping ship” during the transition period.

Employers who are covered by a modern award are required to comply with the consultation provisions contained in the award. These provisions generally require that employers consult with employees who are likely to be affected by a major workplace change once a “definite decision” to introduce that change is made. When a “definite decision” is made will often be open to interpretation. However, in previous cases, courts have held that there is no requirement to commence consultation where a redundancy only remains a possibility. In a divestment context, this means that in most circumstances it will be unnecessary to begin consultation prior to the business sale being finalised, including any agreements between the outgoing and incoming employer in respect of the possible transfer of staff. It has also been held that in certain circumstances, the period between consultation beginning and a redundancy being implemented can be short. For example, the Fair Work Commission has held that (subject to particular circumstances) it may be reasonable to inform an employee of a redundancy (during consultation) and provide a termination date of the next day1.

However, this flexibility must be balanced against other considerations. For example, employers should consider how their communication process will be perceived by employees, particularly those who are remaining with the business. If there is a perception of unfairness or unreasonableness, this can have an impact on morale and, consequently, performance. In circumstances of change, it is also the case that employees are highly likely to appreciate communication that is transparent and honest. While none of us like to hear bad news, many people can appreciate that it is better to be prepared for change and its possible consequences, than to feel it has been sprung on us. Employees who leave an organisation where they perceive that communications have been handled in an open and honest manner are less likely to be bitter about their circumstances, and may be less likely to pursue some form of claim.

Skill-building opportunities

Another key to talent retention during a transition period is to promote opportunities for employees in facilitating the change. For example, during mergers and acquisitions, it is often the case that an employer will need to establish a transition team to lead the business through the period of change. Where employees are placed into roles in which they feel like they are actively contributing to the transition, rather than waiting out their days in an organisation, they are likely to be more satisfied with their work and more likely to remain with the organisation.

Incentives to stay

In cases where there are the financial resources available, organisations may wish to use monetary incentives, such as retention bonuses, for employees who “stick it out” until the end. Such bonuses need to be carefully considered, bearing in mind exactly what it is the organisation is trying to incentivise. Retention is only really valuable if the staff retained are continuing to add value to the business by performing their duties to a high standard. Therefore one option is to link retention bonuses to performance outcomes during the transition period.

Alternatively, employers may be able to offer employees additional services as a component of a redundancy package on the basis that employees remain with the business until its final day. An example of this is career transition support services, which can be of significant value to employees, particularly where they are not confident about their capacity to secure alternative employment.

In the case of award-free employees, it should also be made clear that in order to receive a redundancy payment, they will need to remain with the business up until the date on which it has been determined that their employment will come to an end as a result of a redundancy. In other words, if an employee resigns prior to this date, their employment has not terminated at the employer’s initiative, and there is no entitlement to redundancy pay.

Key takeaways

  • While it is important to get the “nitty gritty” aspects of due diligence right, due diligence should be used strategically in terms of people management to better position a business for post-acquisition success.
  • Communication about change should be open, well-timed and tailored to the circumstances.
  • Organisations should be willing to invest in their talent during times of change and should promote the opportunities available to those willing to take on the challenge.

When parting is not sweet sorrow: A critical look at the messaging around terminations of employment

Chris Oliver, Director

As our lovers exchange their goodnights in Shakespeare’s Romeo and Juliet, Juliet says to Romeo “Good night, good night! Parting is such sweet sorrow, That I shall say good night till it be morrow”. For Juliet, the sorrow of parting ways is sweetened by the wondrous anticipation that they will soon be reunited.

Perhaps self-evidently, rarely can the same be said of dismissals. In truth, the reverse is possibly more accurate with any joy being tied to the goodbye, and the sorrow being tied to any possibility of a future greeting.

Undeniably, terminations are possibly one of the more emotionally challenging aspects of the employment relationship. While you can certainly apply an Einstein relativity analysis to terminations, it is almost always a relatively unpleasant one. It is the ultimate sanction for an employer to apply, and it is a decision that can have long lasting impacts, not only for the dismissed employee but for every participant in the process and its many spectators.

What are we really saying when we dismiss someone (and also when we decided not to)?

While some employer-initiated terminations are proactively planned, in most instances they’re reactive. Consequently, how often do we genuinely consider the messages that will be created by not only the reasons for the dismissal, but all of the surrounding circumstances? Equally, how often do we consider the messages that are created by our decisions not to dismiss? For example:

  • Performance-based dismissals have a punitive element for the individual involved, but what do they say (and what do our decisions not to dismiss say) for the inevitably large group of internal and external spectators who are not involved, have limited visibility, but are certainly reaching their own conclusions about the messages;
  • Conduct-based terminations tend to also be punitive, but coupled with our decisions not to dismiss can send powerful messages as to the conduct that we will or will not accept;
  • Terminations for operational reasons tend not to be viewed punitively, but carry the potential to create a broad range of messages regarding the health of the business, the operational direction the business is taking, (in)security of employment and the importance the business places on its people and its compliance with its own processes.

As we make our decisions to terminate (or not to terminate as the case may be), it’s important to question and be aware of the messages the organisation is inevitably sending with our decision.

The standard we walk past is the standard we accept

Almost all organisations promote their values and culture across many and varied contexts – in recruitment, at organisational off-sites, during strategy sessions, team building exercises, our inductions, our policies and procedures and in our external marketing material. Those values are also regularly cited when the same organisations make their decisions to undertake investigations, disciplinary processes and dismissals.

But what is the real and practical purpose of values and culture within your operational decisions? As an organisation, can you honestly say they permeate everything your organisation does? Or is the organisation prepared to trade off culture and values against the expediency of short-term decision making?

On 12 June 2013, the Chief of Army, Lieutenant General David Morrison posted a YouTube video in response to various and apparently systemic instances of plainly unacceptable behaviour finding public light. Morrison’s powerful message included the following:

Every one of us is responsible for the culture and reputation of our army and the environment in which we work.

I will be ruthless in ridding the army of people who cannot live up to its values. And I need every one of you to support me in achieving this. The standard you walk past, is the standard you accept. That goes for all of us, but especially those, who by their rank, have a leadership role.

While Morrison’s speech may have taken its place as a seminal moment in the army’s own recent journey, his words should continue to resonate more broadly as a clear articulation of the fundamental role decision-making has in the creation and maintenance of organisational culture.

The reinstatement dilemma

What could be worse than spending time, money, emotion and sleepless nights on a termination of employment and then the employee is reinstated?

Many organisations over-discount the risk of reinstatement. They tell themselves “we will show the relationship has broken down, or we have hired someone else – so we cannot have the employee back”. In practice, it’s unlikely to be that easy. Organisations need to remember that under the Fair Work Act 2009 (Cth) reinstatement is the primary remedy and the Fair Work Commission cannot make an order for the payment of compensation unless it is satisfied that reinstatement is not appropriate.

Statistically, reinstatement is not as uncommon as most employers think. While it’s true that, on average, around 92% of unfair dismissal claims result in a settlement prior to a decision being made, that still leaves around 8% that are determined by a decision. Of those decisions where a finding of ‘unfairness’ is made, around 18% result in a remedy of reinstatement or reemployment.

While an order for reinstatement will create an obvious challenge for any organisation, every organisation should also consider the broader challenges that the resulting message will create. While the organisation is unlikely to be able to effectively or positively message the reinstatement of an employee, it is guaranteed that many questions will be asked and answered around the watercooler. For example,

  • What does the reinstatement say about our employer?
  • Did it try to enforce an inappropriate policy?
  • Did it fail to follow a fair process, and did it breach its own processes?
  • Did it “jump the gun” in its decision making?
  • Was there a “sloppy” investigation?
  • Was the termination just a ‘stitch up’?

Part of the problem is that everyone is watching. The challenges of reinstatement don’t just include the internal messaging and cultural challenges, but it also includes the brand damage. There can be brand damage amongst both customers and potential new employees. Even in a world of short news cycles, these matters do get traction, develop their own notoriety and can become topics of ongoing discussion for the years ahead.

Creating a settlement culture

It’s not uncommon for organisations to approach a dismissal with a mindset of “cutting a deal” on the way out, or at conciliation. While statistically the prospects of settling at some point between dismissal and hearing are good, organisations need to consider carefully the messages they are sending, and the culture they are creating, by routinely adopting this approach.

Where an organisation routinely ‘cuts a deal’ with employees on the way out, or settles all claims filed against it, it’s common for a counter-culture to develop where employees:

  • lose part of the incentive for maintaining performance;
  • delay making their own decision to move on;
  • adopt obstructionist strategies in disciplinary processes;
  • file claims in the expectation that a settlement will follow.

Regrettably, this counter-culture is often easier to create and harder to undo, than the high-performance culture, and the culture of accountability to which most organisations aspire.

Key takeaways

  • Terminations are not just about individual performance or behaviour, but are intrinsically tied to your organisation’s values and culture.
  • If you are prepared to “run it”, either terminate well or be prepared for the possibility of reinstatement and the basket of cultural consequences that follow.
  • How you dismiss and how you “clean up” play an unavoidable role in the creation and maintenance of your organisation’s culture.