Ombudsman: Small businesses should be allowed to pay out staff who don’t “fit”

Australia’s Small Business Ombudsman is pushing for a change to industrial relations law to allow smaller operators to pay out staff if they are no longer a “good fit” for the team, to stop these workers from potentially “destroying” companies.

In a position paper released today, Kate Carnell’s office argues there should be a more “dignified” option for parting ways with staff if their approaches no longer “fit” with the business or team.

“If you’ve got someone in a team of five, for example, and they’re just really a bad fit, they may not be getting on with other staff members — well, this can have the effect of ending up destroying the whole workplace,” Carnell tells SmartCompany.

Given the vast majority of small businesses have 20 or fewer employees, Carnell says these companies feel the full effects of any staff member who is misaligned with the company’s goals.

Under current workplace frameworks, the only option for these companies is to “manufacture” a redundancy or dismiss the worker, Carnell says. However, after canvassing the opinions of a range of industries over the past year, she suggests an alternative should be put on the table: offering to pay out a worker under their entitlement for a redundancy, in cases where there may not be an overt performance problem with the staff member but the relationship has broken down.

“You’d be paying more than you would be managing someone out on the basis of performance, so that person is looked after, but you’ve got an option to end things in a reasonable manner — on both sides,” Carnell says. 

What happens if the worker disagrees they are a “bad fit” for the business?

“This doesn’t take away your rights under the Fair Work Act. There’s still general protections and unfair dismissal. People would still have the same rights on that as they do now. There would just be another option,” Carnell tells SmartCompany.

The Ombudsman’s position paper focuses on a range of recommendations aimed at “elevating substantive elements” in unfair dismissal and end-of-employment cases above the procedural matters that regularly trip up smaller operators when they let go of staff, Carnell says.

These recommendations include lowering the cost of conciliation and capping the amount of compensation a business would have to pay if it was found to have unfairly dismissed a worker. The current compensation threshold is six months’ pay but Carnell would like to see that reduced to to three months’ pay.

The suggestions also include giving conciliators in workplace matters more power to determine “the substantive reason” that someone was dismissed, and give this more weight than any procedural breaches the business has made, except where these are “egregious”, Carnell says.

“Fundamentally, we’re trying to get rid of unfounded claims early and also ensure that substantive issues are the most important issue in these cases,” she says.  

Businesses have previously expressed frustration to SmartCompany that despite believing they had done the right thing when dismissing a worker, the Fair Work Commission ended up siding with the employee.

Last year, the managing director of lighting company LED Technologies described as a “disgrace” the ruling that he had to pay out a worker more than $6000 after firing him for an offensive Facebook post. In this case, the Fair Work Commissioner found the business was too hasty in dismissing the worker.

Case statistics from the Fair Work Commission last year show that while close to 15,000 unfair dismissal claims were lodged last year, only 7% of these ever made it before a Fair Work Commissioner.

Instead, in 62% of cases the worker and the employer decided to settle the case informally, but this often included some kind of payout by the business, according to the Commission’s 2016—17 annual report. 

With so many of these cases being resolved before they get to a hearing, Carnell says it’s critical businesses are able to discuss these matters with workers without being tempted to pay “going away money” to settle the case.

“At the moment, they’re getting into the system and for many SMEs, it’s more effective to just have the ‘go away money’ ready, even though the claim is unfounded. You need to get rid of those unfounded claims quickly.”

Read the full position paper here.

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