Sharing the costs of unfair dismissal

The response to the Federal Government’s review of the Fair Work Act has been pretty predictable from all sides.

In the red corner, Workplace Relations Minister Bill Shorten trumpeted the fact the review said the Act was working as intended.

In the blue corner, business groups lined up to give the review a spray, claiming it had failed to recommend the changes employers needed.

I’m not sure what employer groups were expecting, but Shorten made it clear this review was designed to examine tweaks to the Fair Work regime, not wholesale change. Businesses might have hoped for substantial change, but it was simply never going to happen.

However, that doesn’t mean the review should be totally dismissed. The “tweaks” suggested could actually be pretty important should the government choose to put the review’s recommendations in place.

Patrick Stafford has taken an in-depth look at the good, bad and ugly of the review but I wanted to take a closer look at an area that is close to the hearts of SMEs – unfair dismissal.

Chapter 10 of the review takes a detailed look at unfair dismissal claims and is well worth reading if you want to get a feel for what’s actually happening in this area

Not surprisingly, unfair dismissal claims have jumped sharply since the introduction of the Fair Work regime, which decreased greatly the number of employees who were exempt from claims from those with under 100 staff under the Howard government’s Work Choices regime to all employers under WorkChoices (although there are some concessions given to employers with less than 15 staff).

The review concedes there has been an increase in the number of cases settled with go-away money. In the first three quarters of 2011-12, 96% of cases were settled before, at, or following conciliation, with only 4% of cases settled by the tribunal, Fair Work Australia.

Of the 6,759 cases settled, 72% were settled with some form of monetary payment. In 28% of cases, this amount was under $4,000. In 24% of cases, it was between $4,000 and $8,000. And in 23% of cases the settlement was between $15,000 and the maximum amount.

The review says go-away payments are “undesirable” but struggles to come up with a solution. IR experts professors Anthony Forsyth and Andrew Stewart had three recommendations that the review looked at: allow the tribunal to award costs against one side or the other; increase compensation payments to make employers more willing to fight cases and less tempted just to pay go-away money; and empower Fair Work to better hunt out vexatious claims.

The review didn’t exactly like any of those ideas, but its recommendations only go part of the way towards solving the go-away money issue. There are two crucial ones:

• Giving FWA the “discretionary power to dismiss applications…in circumstances where the parties have concluded a settlement agreement, or where an applicant fails to attend a proceeding relating to the application, or where the applicant fails to comply with FWA directions or orders relating to the application.”
• Give FWA the power to award costs against a party that has unreasonably failed to discontinue a proceeding or unreasonably failed to accept a settlement that would have ended a proceeding.

The latter could be really important. The potential for vexatious claims to be made against employers could be greatly reduced if applicants face the prospect of having to meet everyone’s legal costs should their claim be found to be unreasonable.

Will it stop go-away money? Probably not, as many employers just want a claim ended as quickly as possible and might not like the idea of punting that FWA will agree the claim is unreasonable.

But in the context of a review that was about tweaks rather than major change, it’s a step in the right direction.

James Thomson is a former editor of BRW’s Rich 200 and the publisher of SmartCompany and LeadingCompany.