In Australia, the employment relationship is governed by legislation (federal, state and territory), statutory instruments (such as enterprise agreements and modern awards) and common law.
The federal Fair Work Act 2009 (Cth) (the Fair Work Act) regulates the employment of the majority of private-sector employees throughout Australia. This legislation, among other things, sets minimum terms of employment known as the 10 National Employment Standards (NES), provides for specific employee protections, regulates unions and the collective bargaining process, and outlines the role of the Fair Work Commission (the independent employment tribunal).
State and territory legislation operates in conjunction with the Fair Work Act to regulate issues such as discrimination, long service leave, workers' compensation and work health and safety (WHS).
Enterprise agreements set minimum terms and conditions, and are negotiated between an employer and its employees (or unions on their behalf). Where an enterprise agreement applies, it excludes the operation of any award that would otherwise apply. However, the terms of the agreement must render an employee 'better off overall' than the terms of the award.
Modern awards contain additional minimum terms and conditions of employment, such as minimum rates of pay, overtime payments, penalty rates, dispute resolution procedures and consultation procedures. These awards may be based on industry or occupation, or both. Usually the award classifications extend only to mid-level management employees. Award coverage can be difficult to determine and should be considered case by case, especially given the risk of underpayments if it is not properly determined and applied.
As Australia is a common law jurisdiction, the application and interpretation of the various sources of law is determined by courts and tribunals. The Fair Work Commission arbitrates most statutory employment disputes. Other agencies, including the Fair Work Ombudsman (FWO), operate alongside the Commission to oversee enforcement of the Fair Work Act. Disputes can also be heard by the Fair Work Division of the Federal Court, the Federal Circuit Court of Australia, the Civil and Administrative Tribunal or the Anti-Discrimination Board.
II YEAR IN REVIEW
Some of the most significant developments in Australian employment law over the past 12 months include the following.
i Casual conversion clauses
Since 1 October 2018, all modern awards include a clause giving 'regular casual employees' the right to request that their employment be converted to full-time or part-time permanent employment. A regular casual employee is one who has worked a pattern of hours on an ongoing basis (generally 12 months, although in some awards it is only six months), which they can continue to perform without significant adjustment. While the specific wording varies slightly between awards, most require employers to provide eligible casual employees with a copy of the casual conversion clause by 1 January 2019 (for those who were already working as of 1 October 2018) or within 12 months of commencing employment for new casual employees. An employer is required to consider any request for conversion, consult with the employee and respond within 21 days. A request may be refused on reasonable business grounds, for example if the employee's position will cease to exist or his or her hours will be reduced in the next 12 months. However, an employer cannot vary a casual employee's hours to avoid their obligations under the casual conversion clause.
The current government has also announced that it will include a casual conversion right for all employees in the National Employment Standards.
ii Gig economy workers
In September 2018, the Senate Committee's Future of Work report challenged the position that individuals who perform tasks in the gig economy are independent contractors. In the report, the Committee proposed that if a company makes money directly as a result of a worker's labour, and if that worker is dependent on the company for work and income, then that worker should be an employee. Given the level of dependence of many gig economy workers on their relevant digital platform, it is likely many of them would be considered employees and not independent contractors under this proposed test. Although it is unlikely that the law will be changed to include this test, the Federal Labour Party (which is ahead in the polls leading up to an election in 2019) is committed to revisiting the issue.
In Joshua Klooger v. Foodora Australia Pty Ltd,2 the Fair Work Commission held that a former delivery rider of food delivery company Foodora was an employee despite his independent contractor agreement with the company. Consequently, the employee was entitled to (and successfully did) bring an unfair dismissal claim.
However, Uber has successfully defended two unfair dismissal claims to date on the basis that its drivers were independent contractors.
iii Underpaying vulnerable workers
In 2018 there was an increase in cases brought by the FWO against companies exploiting vulnerable workers. Since gaining greater investigatory power and access to higher penalties following the introduction of the Fair Work Amendment (Protecting Vulnerable Workers) Act in September 2017, the FWO has won more than A$7.2 million in court-ordered penalties. In one recent case, a fruit market owner and his company were fined more than A$660,000 – the largest penalty to come out of FWO litigation – after they were found to have consciously paid a 'vulnerable' worker, who had poor English language skills, significantly less than the prescribed wage. In another recent case, a contract cleaning company was fined over A$510,000 after exploiting three Taiwanese workers on working holiday visas. While in these cases employers were intentionally exploiting workers, there has also been an increasing number of instances where the FWO has prosecuted employers who have unintentionally engaged in exploitation and underpayment of vulnerable workers (e.g., as a result of misunderstanding or not being aware of the terms of an applicable modern award).
III SIGNIFICANT CASES
In Workpac v. Skene,3 the Court found that a long-term casual employee was, in fact, a permanent employee. The Court held that paying the mandated casual loading (which compensates casual employees for not getting benefits available to permanent employees), in itself, was not a sufficient basis for classifying an employee as casual. Indicia of a casual employee include irregular work patterns, and uncertain, intermittent and unpredictable work. The decision to award Mr Skene backdated leave (in addition to the casual loading he had already received) gives rise to the possibility of incorrectly classified casual employees 'double-dipping' entitlements. This perceived unfairness prompted the government to change the Fair Work Regulations to allow employers to set off casual loading paid to an employee against amounts claimed for annual leave and other NES entitlements. However, the loading must be clearly identifiable as an amount to compensate the employee for the relevant NES entitlements.
Fair Work Ombudsman v. Yenida Pty Ltd & Anor4 was the first employee underpayment prosecution relying on race discrimination. In this case, the Court held that a hotel and its manager intentionally treated two workers of Malaysian descent unfairly (including by not paying them for all work performed) on the basis of their race and national extraction. The Court held that the underpayments amounted to adverse action.
In CSL Limited T/A CSL Behring v. Papaioannou,5 one doctor advised the employer that the employee would not be able to return to work in any capacity in the foreseeable future, while a second doctor said the employee would be fit for work in six months. Relying on the first doctor's assessment, the employer dismissed the employee. The Fair Work Commission conducted its own objective assessment of the conflicting medical evidence at the time of dismissal, overturning the existing authority that said this was a decision to be left to the employer.
The Fair Work Commission dealt with a total of 31,554 applications in the 12 months to June 2018, which represents a 5 per cent decrease from the preceding year. The vast majority of these applications were for unfair dismissal.
IV BASICS OF ENTERING AN EMPLOYMENT RELATIONSHIP
i Employment relationship
While there is no statutory requirement to issue a written employment contract to an employee, it is both advisable and common to do so. An employment contract will generally include terms expressly specifying the role, reporting relationships, remuneration, superannuation, notice of termination, protection of intellectual property and confidential information, and post-employment restraints.
A range of terms may also be implied into an employment contract, for example:
- a duty of care owed by the employer to the employee;
- a duty of fidelity and good faith owed by the employee (and possibly also by the employer); and
- a requirement that the employer provide reasonable notice of termination in the absence of an express notice provision.
Regardless of whether a written contract of employment is issued, employers must provide all new employees with a copy of the Fair Work Information Statement, which summarises the key provisions of the Fair Work Act including information about the NES, modern awards, enterprise agreements and employee rights on termination.
Generally speaking, an employer does not have the right to unilaterally change an employee's contractual terms or conditions of employment. An employer can reserve the right in an employment contract to make reasonable changes to certain terms (e.g., place of work, duties or reporting line) but it is unlikely that it could change fundamental terms or make detrimental changes without consent. In most cases, therefore, a material change to a contractual term will require the employee's agreement. Express agreement by way of a signed variation is preferable, but in some cases agreement may be evidenced by the employee's conduct, for example continuing to work without objection where the employee has been advised of the change and its consequences. Consideration for the change (such as an increased salary) will usually be required to create an enforceable agreement. If the employee refuses to agree, a unilateral change may amount to a breach of contract.
ii Probationary periods
Probation periods typically range from three to six months, during which time the employer will assess whether the employee is suitable for the role and business. An employee on probation is entitled to accrue and access their paid leave entitlements, such as annual leave and personal/carer's (sick) leave. If an employer decides to dismiss an employee during or at the end of the probation period, it must provide notice of termination (the statutory minimum is one week) and pay out any unused accumulated annual leave. Employees with less than six months' service do not have access to unfair dismissal protections.
iii Establishing a presence
There is no requirement for foreign employers to set up a local entity to employ workers. Foreign employers may hire employees through a foreign company. However, that company must be registered with the Australian Securities and Investment Commission as a branch of an overseas company. Alternatively, the foreign company may create an Australian subsidiary. There are important tax implications of each option.
Generally, a foreign enterprise is likely to have a permanent establishment in Australia if it has a fixed place of business through which it conducts business. The ATO has indicated that, generally, it would regard a business that operates at or through a fixed place for a continuous period of at least six months to be sufficiently 'permanent' to constitute a permanent establishment. Importantly, an agent, including an employee, may constitute a permanent establishment of an entity if the agent habitually exercises the authority to enter into contracts on behalf of the entity. The scale and type of the activities conducted by a foreign enterprise in Australia, including the activities of the employees, will determine if it has a permanent establishment under Australian law.
Although there are some similarities, there are two different tests applied to determine the following:
- whether an employer carries on a permanent establishment in Australia for income tax purposes (income tax PE test); and
- whether an employer carries on an enterprise in Australia for GST (Goods and Services Tax) purposes (GST enterprise test).
If a company is considered to carry on business through a permanent establishment in Australia, it would be subject to tax in Australia on the business profits that are attributable to that permanent establishment (i.e., those that it might be expected to make if it were a distinct and independent enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the company). An entity is required to register for GST if it makes supplies 'connected with Australia that exceed a AUD $75,000 per annum registration threshold'.
When determining whether an employer has a permanent establishment, the six-month rule – which considers whether employees are in Australia for 183 days or more in a 12-month period – is a key determinative when applying the GST enterprise test, whereas it is only one of the factors (among others) that must be considered when applying the income tax PE test. As such, for GST purposes, if a company's employees will not be in Australia for more than 183 days in a 12-month period, then it does not carry on an enterprise in Australia for GST purposes. However, there are other factors (including regularity of the activities) that must be taken into account, which gives rise to a risk that the Australian Taxation Office would consider that an employer has an income tax permanent establishment in Australia.
V RESTRICTIVE COVENANTS
During employment, employees are subject to a range of implied duties that can be enforced to restrict their activities and protect the employer's business, including fiduciary duties to prevent competitive behaviour and implied obligations to protect confidential information. In addition, express terms can be (and usually are) included in the employment contract. For example, terms requiring exclusive service or protection of confidential information and intellectual property. A breach of an employee's obligations during employment can provide grounds for dismissal or form the basis of a claim seeking an injunction or damages.
An employer may include post-employment restraints in an employment contract. There are two main types of post-employment restraints: non-compete restraints, which prevent a former employee from working in a specified field; and non-solicitation restraints, which prevent a former employee from soliciting customers, employees and suppliers. At common law, a restraint of trade is void on its face. To enforce restraints, an employer must prove that the restraint goes no further than is reasonably necessary to protect the employer's 'legitimate business interests'. Protectable interests include confidential information, customer or client connections, goodwill and maintaining a stable workforce.
In most states and territories, courts can rescue a restrictive covenant that is too broadly drafted only if they can delete the offending words and leave behind an enforceable restriction. For this reason, it is usually advisable to use cascading or ladder restrictions. The position is modified in New South Wales, where courts have the power to rewrite or 'read down' the terms of a restrictive covenant to make it reasonable and enforceable. It is not legally necessary to pay an employee during the restraint period in order for a restraint to be enforced.
i Working time
The NES mandates that the maximum period of time a full-time employee can be required to work is 38 hours per week, plus reasonable additional hours. In practice, employers are generally able to show that additional hours are reasonable. Determining whether overtime is reasonable will depend upon statutory criteria in the NES, including:
- any risk to health and safety from working the extra hours;
- the employee's personal situation, including his or her family responsibilities;
- the workplace's needs;
- if the employee is entitled to receive overtime payments or penalty rates for working the extra hours;
- if the employee is ordinarily paid at a higher rate on the understanding that he or she work some overtime;
- if the employee was given enough notice that he or she may have to work overtime;
- if the employee has already stated he or she cannot work overtime; and
- the usual patterns of work in the industry.
If the request is unreasonable, an employee can refuse to work overtime, although this rarely occurs in practice.
Modern awards and enterprise agreements commonly regulate employees' hours of work. For example, modern awards prescribe minimum rest periods, the ordinary span of hours (outside of which overtime is payable) and penalty rates for working particular shifts or weekends.
Modern awards or enterprise agreements will usually prescribe payments or penalty rates for overtime. Some awards and agreements permit an annualised salary arrangement, provided the overall annual salary is higher than the amount that the employee would have earned if they were paid minimum salary and loadings, penalties and overtime rates under the applicable instrument.
VII FOREIGN WORKERS
Foreign nationals must hold a valid visa permitting them to work in Australia. The most commonly used visa is the subclass 482 temporary skills shortage (TSS) visa, which allows the visa holder to work in Australia for up to four years for his or her sponsoring employer (or, in some cases, an associated entity of the sponsor). There are strict eligibility rules for the TSS visa, including restrictions in relation to permitted occupations, skill and work experience requirements, labour market testing, salary and English language ability.
There are also a range of other temporary visas that allow employees to work in Australia for varying periods, and permanent employer nominated visa options.
The Department of Home Affairs' visa processing times vary considerably between visa types and are subject to change on a regular basis. Visa applications should be lodged complete if possible, to minimise any unnecessary delays in the processing times.
Australia's statutory employment laws apply to foreign nationals working in Australia, regardless of the governing law of their employment contract or the location of their employer. However, the remedies available for breach of contract (including enforcement of post-termination restraints) may be affected if the governing law of the employment contract is not Australian law.
VIII GLOBAL POLICIES
Most Australian employers have written workplace policies or codes in place that function as broad frameworks for ethical conduct. The content of these policies is determined by the employer and often covers a range of issues from WHS to disciplinary procedures and grievance protocols. Generally speaking, an employer will not be legally bound to comply with the terms of its company policy unless its employees' contracts incorporate them (which is not recommended). Employees do not have to agree to policies but it is advisable to require an acknowledgement, or at least evidence of their communication to employees. Policies are commonly made available via a company intranet. There is no requirement for policies to be lodged with or approved by any government agency.
Australian federal and state equal opportunity and anti-discrimination legislation makes it unlawful to discriminate in all aspects of the employment relationship on the basis of various protected attributes. While they vary between state and federal legislation, those attributes generally include gender, marital or relationship status, pregnancy, breastfeeding, age, race, impairment or disability and sexual orientation. Sexual harassment is also unlawful under anti-discrimination legislation.
Australian courts and tribunals have recently awarded increasingly large amounts of compensation, in some cases in the hundreds of thousands of dollars, to complainants in discrimination and sexual harassment cases (in contrast to previously modest awards in the thousands or low tens of thousands of dollars). This development underscores the importance of employers educating staff on relevant policies and providing employees with training to reduce the incidence of unlawful behaviour. Relevantly, simply adopting global discrimination and harassment policies that are not tailored to Australian law is unlikely to be sufficient to successfully defend against relevant claims.
English is the national language and there is no requirement for employment documents to be translated into any other language.
X EMPLOYEE REPRESENTATION
In Australia, all employees are permitted to form and become members of trade unions that represent the collective interests of workers. Unions play a significant role in Australia in the context of consultation, WHS, and negotiation and making of enterprise agreements.
Employees cannot be treated adversely because they have engaged in union activities, been appointed as union representatives or exercised any other workplace right. Under modern awards and enterprise agreements, employers have to consult with employees and their representatives (which can include a union) about major workplace changes such as redundancy. Statutory consultation may also be required with unions with respect to WHS or collective redundancies (where 15 or more redundancies are proposed).
WHS committees can be established at the request of five or more workers and, if requested, the employer has two months to establish a committee. They must meet quarterly to develop measures, rules and procedures to improve the safety of workers, and the employer is required to consult with the committee on WHS matters.
There are no statutory works' counsels in Australia.
XI DATA PROTECTION
Although persons who collect personal data have various statutory obligations relating to its use, collection and storage under the Privacy Act (Cth) 1988 and Australian Privacy Principles (the Privacy Act) and state legislation. Some obligations vary between states but the federal obligations do not apply to employee records of a current or former employee held by an employer (commonly referred to as the employee records exemption). However, the exemption does not apply to data collected or used by employers for prospective employees or contractors.
As a result of the employee records exemption, an employer can transfer personal data to, among others, a related company overseas. However, the company receiving the data may have its own obligations under Australian or other local law.
Employers are permitted to perform background checks (including social media searches) on prospective employees, for example, covering educational qualifications, employment history, health checks, credit checks and criminal record. In most cases, the person's consent is required to carry out these checks and the organisation performing them must comply with the Privacy Act and other applicable legislation. The employer will also need to exercise caution in how it uses the results of any such checks, so as not to fall foul of anti-discrimination legislation, among others.
XII DISCONTINUING EMPLOYMENT
Dismissal usually requires notice unless the reason for dismissal was serious misconduct, in which case the employer can dismiss summarily without notice.
The NES prescribes the minimum statutory notice period (one to five weeks, depending on age and length of service). This notice must be in writing and may be paid in lieu at the time of termination. Contractual notice periods are often longer.
A person is protected from unfair dismissal (and can make an unfair dismissal claim seeking reinstatement and back pay or compensation) if:
- he or she has at least six months' service at the time of the dismissal or on the date that he or she is given notice; and
- either he or she is covered by a modern award or enterprise agreement; or he or she earns less than A$145,4006 per annum (excluding superannuation, bonuses, overtime and commissions).
To avoid a finding that a dismissal is harsh, unjust or unreasonable (and therefore unfair), the employer must be able to establish a valid reason for the dismissal related to the person's capacity or conduct and show that the dismissal was, among other things, procedurally fair. In particular, an employer must establish that the employee was notified of the reason for dismissal, given an opportunity to respond, not unreasonably refused a support person at meetings, and given appropriate warnings and opportunities to improve if appropriate (e.g., in relation to poor performance).
Genuine redundancy is also a defence to an unfair dismissal claim (see subsection ii).
If the dismissal is owing to a discriminatory reason or is in response to an employee having or exercising (or threatening to exercise) a workplace right, it will be unlawful. Workplace rights are broadly defined, and include rights under legislation or industrial instruments and complaints or enquiries about employment.
There is no requirement to notify any government body or union unless the employer decides to dismiss 15 or more employees for reasons of an economic, technological, structural or similar nature. In those circumstances, the employer must give a written notice about the proposed dismissals to Centrelink – a government service that provides support to individuals who face financial hardship – before the dismissals occur. This also triggers the union consultation obligation referred to in Section X.
It is not uncommon for an employer and employee to mutually agree, and document in a deed of release (i.e., a settlement agreement), terms for an employee's dismissal.
A redundancy is where an employer no longer requires the job to be performed by anyone because of changes in the operational requirements of the employer's enterprise.
Unless an exception applies, an employee who is made redundant will be entitled to a statutory redundancy payment of between four and 16 weeks' pay (depending on length of service). Enterprise agreements will often provide for more generous redundancy provisions. In addition, an employee will be entitled to notice of termination (or pay in lieu) plus payment for untaken annual leave and possibly long service leave.
Concessional tax arrangements apply to redundancy payments with a tax free amount (based on length of service) up to a specified cap and reduced rates thereafter.
As noted in Section X, consultation obligations may be triggered in cases of redundancy.
An employer will be able to avoid an unfair dismissal claim on redundancy if it complies with all applicable consultation obligations (e.g., where a modern award or enterprise agreement applies to the employee), and it was not reasonable under all the circumstances for that person to be redeployed within the employer's business or the wider group (which could potentially include international opportunities, although there is no obligation to pay the costs of redeployment).
XIII TRANSFER OF BUSINESS
For employment law purposes, a transfer of business arises where:
- there is an asset sale, outsourcing or in-sourcing;
- the employee's employment with the old employer terminates; and
- within three months of the termination, the employee becomes employed by the new employer (or a related entity) performing the same or substantially the same work.
There is no concept of automatic transfer of employment in Australia. Affected employees will only transfer to the purchaser if they accept an offer of employment. If offers are not made, or are not accepted, the employees remain with the vendor, who must find alternative employment for them or make them redundant.
A purchaser is generally free to determine what terms and conditions to offer (subject to commercial considerations). However, if the transferring employees are covered by an enterprise agreement, that agreement will transfer and continue to apply to any employees who accept the offer until it is replaced or terminated. In limited circumstances, such an agreement could also cover new employees that the purchaser recruits post-transfer.
Commercially, the vendor will usually insist that the purchaser's employment offers are on the same, or substantially the same, terms and conditions (including recognition of continuity of service) because doing so may absolve the vendor of the obligation to pay statutory redundancy pay if the employee refuses to transfer.
There is no specific protection for employees in a transfer of business against dismissal, either before or after the disposal or transfer of the business.
A federal election is likely to occur in May 2019, which may prompt a change in government from the Liberal Party to the Australian Labor Party (ALP). If elected, the ALP has vowed to 'swing the pendulum back in favour of workers'. This could include introducing policies that, among other things, compel larger companies to publicly report their gender pay gap, and CEO and employee pay ratio; provide the Fair Work Commission with greater arbitration powers; and allow industry-wide enterprise bargaining.
It is also likely that Parliament will pass legislation introducing a new statutory whistle-blower regime that will have important implications for employers. For larger employers, there will also be an obligation to publish a whistle-blower policy covering prescribed matters.