Avoiding Redundancy Traps

Avoiding Redundancy Traps

Employers can easily fall into dispute with their employees by failing to properly handle redundancies. There is often uncertainty surrounding redundancy, in terms of handling it within the law, as well as cost.

Redundancy commonly occurs when a business is sold and a new owner offers jobs to the vendor’s existing workforce. Some employees decline the offer of employment by the new owner. In this context, an issue can arise as to whether or not redundancy payments need to be made to an employee who rejects an offer of employment by the new owner.

Notice and Severance distinguished

Notice and severance payments should not be confused. The period of notice provides the employee with a chance to seek other employment while a severance payment is intended as compensation for the loss of future entitlements to long service leave and accrued sick leave.

Redundancy

Let’s examine what redundancy means. The best way to define redundancy is that the employer no longer wishes the duties the employee has been performing to be undertaken by anyone. Termination of the employee on this ground has therefore nothing to do with poor performance or misconduct. Essentially the work or role is no longer required to be performed by any employee. Redundancy can also happen when an employer becomes insolvent or bankrupt, or following a re-structure, in order to increase the competitiveness or profitability of a business.

The employer must meet any requirements under a relevant award or enterprise agreement regarding redundancy. This includes discussions with the employee about the prospect of redundancy in view of operational changes or restructuring.

Employers need to be aware that a redundancy which does not meet the above criteria may expose them to an unfair dismissal claim. It should also be appreciated that a redundancy does not remove the need for notice or payment in lieu of notice.

Some employers fall into the trap of going through a ‘redundancy’ and then immediately afterwards advertising the same position. From an employer’s perspective it is prudent to assume the former employee will check your advertised positions.

It is not uncommon for an employer to seek to portray what may in fact be, a wrongful termination of an employee, as a “redundancy”.

The employer needs to ensure that, on examination of the facts, whilst the employee may have no legal claim to a severance payment, there is no basis for a common law claim.

What is a ‘genuine redundancy’?

If an employee has been made redundant and that redundancy is a “genuine redundancy” as defined by the Act, then the employer will be able to defend a claim for unfair dismissal.

Under the Act, it is a “genuine redundancy” if:

  • the person’s employer no longer requires the person’s job to be performed by anyone because of changes in the operational requirements of the employer’s enterprise; and
  • the employer has complied with any obligation in a modern award or enterprise agreement that applied to the employment regarding the redundancy; and
  • it is not reasonable for the employer to redeploy the person in the employer’s enterprise or an associated entity of the employer’s enterprise.

It is important that the employer who is making an employee redundant not only complies with the consultation provisions of any applicable award or enterprise agreement, but also makes enquiries to make sure that there is not a suitable alternative position available within the employer’s business or any other “associated entity” of the employer.

When should a redundancy payment be made?

When an employee is made redundant then usually a redundancy payment will be required by the employer and this is often called severance pay.

However, the employee is not entitled to redundancy pay under the Fair Work Act if the employee:

  • resigns;
  • is terminated other than due to redundancy, e.g. misconduct or performance issues;
  • has been employed for less than 12 months;
  • is employed in a small business with less than 15 employees;
  • was employed for a fixed term and that term has ended;
  • is a casual employee.

The amount of any redundancy payment is calculated by reference to the employee’s years of service. For example if the employee has worked for a period greater than one year but less than two the redundancy period payable would be 4 weeks. If the term was between 9 to 10 years the period would be 16 weeks.

However, an employer may not be required to pay the redundancy for the full length of service if the employee did not have any redundancy entitlements with the employer in question, prior to 1 January 2010. In those circumstances the period from which redundancy payments are calculated is 1 January 2010 rather than the full length of service.

In conclusion – take care

It is easy to fall into one of these employment law traps and employers should be satisfied as to the circumstances that constitute a redundancy, carefully review payments to be made and comply with the Act’s requirements in relation to a “genuine redundancy”.

Regardless if you are an employer or employee, if you feel you need assistance call us on (02) 9963 9800 or connect with us via our contact form.

How effective are your Post Employment Restraints?

How effective are your Post Employment Restraints?

Much damage can be done to a business when an executive or senior manager resigns, taking with them valuable customer and confidential information. Restraint of trade clauses, or post-employment restraints, play a crucial role in protecting the legitimate interests of the employer.

In order to protect business interests employment contracts should contain protections which operate after the employment ends.

The purpose of Restraint of Trade Clauses

Restraints of trade are included in employment contracts to protect an employer’s trade secrets, confidential information, customer connections and staff connections by restricting an employee’s activities after they have left employment.

A restraint clause is void unless it is reasonably necessary to protect the legitimate interests of the employer. The legitimate interests of a business will generally relate to confidential information, trade secrets and customer connections.

Accordingly, a restraint clause in an employment contract will only be enforceable if the restrictions imposed are no more than necessary for the protection of the employer’s legitimate business interests – this will depend on the particular clause and the circumstances of each case.

A restraint clause typically prevents an employee from:

  • contacting the employer’s clients for the purposes of selling goods or services or enticing the clients away from the employer;
  • setting up a business competing with the employer’s business or working in a competitive business; and
  • poaching employees of the business.

Reasonableness

When determining whether restraint clauses are reasonable, courts will consider the following:

  • The negotiation process, and in particular comments made when negotiating restraint clauses.
  • The bargaining position of the parties. Was there an imbalance of power between the employer and the employee at the time of agreeing to the restraint?  Did the employee have the opportunity to obtain legal advice?
  • The nature of the employer’s business and characteristics of the employee. The closer the employee is to the employer’s customers, the more likely the restraint may be considered reasonable.
  • Whether any consideration was given for the restraint.
  • The duration and geographical area of the restraint. The longer the time and wider the area, the less likely it will be reasonable. 

The reasonableness of the restraint must be decided at the date of entering into the employment contract. For this reason, it is important that the parties to the contract each have an opportunity to negotiate the terms of a restraint. In addition, employees should be encouraged to seek legal advice about the length and the effect of the restraint.

The trend of Waterfall or Cascading Clauses

Restraints are often applied for a specified period, in relation to a particular geographic area.

A common device for reducing the risk of invalidity on the ground of unreasonableness is to include ‘waterfall’ or ‘cascading’ clauses. These are alternate provisions contained in an employment agreement that may enable a court to strike out a harsher (unreasonable) restraint whilst retaining a less-restrictive and reasonable clause.

The advantage to these is that each clause is severable by a court without affecting the validity and enforceability of the restraint.

How do courts enforce restraint of trade clauses?

Employment contracts and restraint of trade clauses must be carefully drafted to ensure they can be enforced through a court. In such cases, an employer must persuade the court that the clause is reasonable and therefore valid and enforceable.

When considering enforceability, the court will consider two key issues:

  • whether the employer has a legitimate interest to protect; and
  • whether the restraint is a reasonable protection of that interest

What are the legal remedies?

The common remedy sought by employers faced with an employee’s breach of a restraint clause is to seek an injunction to restrain an employee or former employee from acting in a way, or continuing to act in a way, that breaches a term of the former employment contract. For example, an injunction may prevent a former employee from working for a competitor for a certain period of time or from using or disclosing information confidential to the former employer and its business.

Some Tips for business owners

Some tips for drafting restraint clauses in employment contracts:

  • Make sure the period of restraint is appropriate to the employee’s position and access to confidential information.
  • Make sure the prohibited activities to be prevented are similar to the employee’s current activities.
  • Ensure contracts are reviewed regularly and updated to reflect changes in the employee’s role.

Conclusion

Having an enforceable and valid restraint in employment contracts is crucial if an employer hopes to rely on it to enforce a former employee’s post-employment obligations.

This issue needs to be considered by employers when the employment contract is drafted because a court will consider the reasonableness of the restraint as at the time the contract was entered into. The courts will only find that a restraint clause is valid and enforceable where a business can demonstrate that it has a legitimate interest to protect and that the clause is reasonable.

We are able to review, draft and advise on restraint clauses and their enforceability generally.  If your business needs assistance, please contact us on (02) 9963 9800 or via our contact form here.

Employee Wins $5.2M in a Recent Case – Employee Termination

Employee Wins $5.2M in a Recent Case – Employee Termination

Why Employers Should Seek Professional Legal Advice Before Employee Termination

In a recent Federal Court case, a former senior employee of TechnologyOne has been awarded $5.2 million in damages (plus interest) under the general protections provisions in the Fair Work Act 2009 (Cth) as well as for a breach of contract with respect to incentive payments. The case, Roohizadegan v TechnologyOne Limited (No 2) [2020] FCA 1407, highlights the importance of investigating employee complaints, seeking legal advice before termination and ensuring that caution is taken when terminating employees.

Facts of the Case

Mr Roohizadegan commenced proceedings against TechnologyOne and Mr Di Marco, alleging that he was summarily dismissed on 18 May 2016 due to complaints he had made about workplace bullying.  It was noted that TechnologyOne had both an ‘Open Door Policy’ and ‘Workplace Bullying Policy’ that were included in the contract of employment, meaning that Mr Roohizadegan was able to make these complaints as he was exercising a ‘workplace right’. The Respondents contended that the Applicant’s employment was not terminated due to the complaints but rather due to competing allegations made by other employees. However, the company had failed to complete an internal investigation in relation to the allegations made against Mr Roohizadegan, as suggested by their HR department.

Decision

The court found that the ‘Open Door Policy’ and ‘Workplace Bullying Policy’ were included in the contract of employment and that the Applicant was exercising his workplace right. The Applicant was successful in proving he was terminated as a consequence of him exercising this workplace right. In other words, the Court decided that an adverse action was taken against him for exercising his workplace right in contravention of s 340 of the Fair Work Act 2009 (Cth).

Comments at trial

The Court made several comments in relation to Mr Di Marco’s actions and decisions. Justice Kerr noted that ‘he twice rejected professional HR advice that it would be unfair to dismiss Mr Roohizadegan on the basis of mere allegations’ and that ‘his choice was to stand with the bullies rather than the bullied’. Justice Kerr stated that ‘to achieve effective deterrence, CEOs in like positions need to know that such temptations as he faced are to be resisted and that there will be a not insubstantial price for failing to do so’ in his consideration of the penalties against TechnologyOne.

Implications of the Case

The case highlights the importance of conducting a proper investigation of internal complaints and the significance of ensuring that, when terminating employees, the correct procedure is followed to ensure employers do not contravene the law. Moreover, it serves as a reminder that employers should always seek and follow professional legal advice in relation to employee disputes and termination.

How can we assist?

If you need assistance in dealing with workplace conflicts or you are dealing with workplace bullying, please contact us on (02) 9963 9800 or via our contact page to speak to our employment law solicitor.

Fair Work Commission Anti-Bullying Orders Explained

Fair Work Commission Anti-Bullying Orders Explained

The Fair Work Commission has powers to make anti-bullying orders when a worker has been bullied by an individual or group and there is a risk that the worker will continue to endure workplace bullying by the individual or group.

The Commission does not have the power to order any monetary compensation – the orders are there to get workers back working in a bullying-free environment as quickly as possible, while taking steps to remove future bullying risk.

What is workplace bullying?

Under these powers, workplace bullying occurs when:

  • an individual or group of individuals repeatedly behaves unreasonably towards a worker or a group of workers at work; and
  • the behaviour creates a risk to health and safety.

The following conduct may constitute bullying:

  • aggressive or intimidating behaviour;
  • belittling or humiliating comments;
  • victimisation, isolation and ostracism;
  • spreading rumours or playing practical jokes;
  • unreasonable work expectations;
  • upwards bullying – such as where a group of employees bully a team leader.

It’s important to note that the unreasonable behaviour must be repeated to fit the definition, but it does not have to be exactly the same specific type of unreasonable behaviour. So, if an employee is subject to belittling comments in one instance, and given unreasonable work expectations in another instance, together that could be repeated unreasonable behaviour which is bullying where it causes a risk to health or safety.

The health and safety risk

Some bullying could be physically violent, or otherwise involve subjecting a worker to a physical safety risk at their workplace. However, bullying will often cause psychological and stress-related risks to health and safety. If you are a worker who is suffering stress due to bullying, it’s not necessary to have a GP’s or psychologist’s diagnosis, but that might help show the health and safety risk that could arise from continued bullying.

What’s not bullying?

“Reasonable management action” will not be held to be bullying. What is reasonable will depend on the facts:  management action like performance appraisals, giving warnings or changing a worker’s roster can be reasonable or unreasonable depending on the circumstances, and it will be the Commission’s task to balance people’s views as to what is and what isn’t reasonable.

Who and where?

Under the legislation, bullying by “an individual or group of individuals” towards a worker or group of workers is relevant. So, the bully in question doesn’t have to be employed by the same employer as the bullied worker, the important thing is that the bullying occurred “at work” – that is, at a place at which work activities are done.

Employees of some employers cannot use this process if they are not employed by corporations or certain other entities. For example, if you are employed by a sole trader, you are most likely not covered by the anti-bullying jurisdiction.

What’s the process?

A worker can make an application for an anti-bullying order to the Fair Work Commission. The Commission must start to deal with the application within two weeks.

The Commission sends a copy of the application to the employer, and anyone named as a bully in the application, and they have seven days to respond. The Commission may then deal with the application by having a conference or mediation between the parties, and then potentially a more formal hearing. After that, the Commission can make an order to stop bullying. Of course, the parties might agree on a solution or a way forward before the Commission gets to the point of issuing orders.

What sort of order?

The order will depend on the facts presented to the Commission, and the orders sought by the affected worker or workers.

The point of making orders is to prevent the bullied worker being put at a future health and safety risk arising from future bullying.

If the person who had been causing the bullying is no longer in the workplace, then it might mean that the Commission does not need to make an order to prevent bullying.

However, orders might be made such as changing people’s shifts, changing the person a worker reports to, or changing the work location of the bullied worker or the person accused of bullying.

What if an employee is sacked or resigns?

If an employee is terminated, he or she is no longer able to bring a bullying application. However, there are other applications that can be made in those circumstances, such as unfair or wrongful termination or an application under the general protection provisions.

How can we assist?

If you are an employee, we can answer your questions about the anti-bullying process, such as whether you can apply for an anti-bullying order and whether there are other applications you can make. We can prepare and make an application for you and assist you in the conciliation and hearing stage of your application.

If you are an employer, we can advise on the type of behaviour that may constitute bullying and help you to implement policies and systems to mitigate the risk of bullying in your workplace.

If you need more information, assistance, or advice on how to proceed please call us on (02) 9963 9800 or via our contact form here.

Does your employment contract measure up?

Does your employment contract measure up?

If you are entering into an employment contract, do you know what should be included? If you are an employer and using an old contract, should it be reviewed first? It is clear contracts should be individually structured to meet the needs of those involved and in reality, both employer and employee should seek legal assistance first before offering or accepting an employment contract.

This article is intended to provide a starting point only and attempts to clarify some of the important information all parties should know.

What terms should always be in an Employment Contract?

Naturally there are some preliminary matters. For example, the identity of the parties needs to be set out as well as the duration of the contract (if fixed).

The contract then needs to specify the terms.

Before the terms are considered, the application of any statutory provisions or award or collective agreement must be considered. Generally speaking, employers and employees cannot contract out of awards or collective agreements.

The following are critical to mention and the particular entitlements need to be specified, including:

  • The remuneration;
  • The frequency of remuneration reviews;
  • The period of the contract (if fixed term);
  • The basis of remuneration adjustment and performance management/appraisal;
  • Termination conditions;
  • Any professional indemnity;
  • Any applicable Awards;
  • Specific employment conditions including
    • hours of work;
    • annual leave;
    • annual leave loading;
    • public holidays;
    • long service leave;
    • superannuation;
    • reimbursement of expenses;
    • sick leave or carer’s leave;
    • parental leave; and
    • other leave.

Depending on the nature of the employment and industry it may be important also to include:

  • Intellectual property;
  • Restrictive covenants;
  • Professional development and training;
  • The location of employment; and
  • Post-termination restraints

A statement of duties should be attached to the contract. For this attachment to become part of the terms of the contract, it should be expressly incorporated into the contract by a statement which makes it part of the contract in the body of the contract itself or as an annexure.

Workplace policies

Some workplace policies will be incorporated into the contract because of the nature of their content, some will not, and it is often hard to know what matters a court will find are incorporated. If an employer definitely wants to incorporate a policy into the contract, they can expressly do so by reference in the contract.

Employees and contractors

There is often ambiguity in a worker’s status, as to whether they are a true employee or an independent contractor. Employment law differs from other law, such as tax law, on these questions.

There are also significant legal consequences of incorrectly assuming an employee is a contractor, or vice versa. The true nature of the working relationship should be considered at the time of drafting an employment contract or a contract for services.

Superannuation

The employer is responsible to ensure that appropriate superannuation contributions are paid into the employee’s nominated superannuation fund. Generally a contractor will be responsible for their own superannuation contributions. When offering employment, you should clearly state if that offer includes superannuation.

Implied entitlements

Some entitlements and obligations that exist in the employment relationship are implied. This means that they are not written down or stated, but they still exist.

The implied terms include:

  • An employee must exercise reasonable skill and care in their performance of duties;
  • A general duty exists for an employee to obey all lawful and reasonable directions by their employer;
  • There must be fidelity and confidentiality within the employer/employee relationship; and
  • If there is no provision for termination within the contract then “reasonable notice” for termination must occur unless in circumstances of “serious misconduct”.

Conclusion

When negotiating an employment contract it is essential for both employers and employees that the contractual arrangements should be specific to the individual and the terms say what you want them to mean. Parties entering into these arrangements are wise to seek legal assistance beforehand to ensure they are right.

If you want to know more or if you run a business and would like your draft employment contracts reviewed please call us on (02) 9963 9800 or via our contact form.

What you Need to Know About Restraint of Trade Clauses

What you Need to Know About Restraint of Trade Clauses

Restraint of trade clauses are often found in employment agreements and shareholder agreements. Their purpose is to protect business interests such as client information, intellectual property, employees and trade secrets. However, the extent to which a business can restrict an employee’s or a former director’s activities through such a clause is often contentious and can result in disputes.

What is a Restraint of Trade?

A restraint of trade clause in an employment contract applies when an employee leaves the organisation. Such restraint clauses can be enforced, but only to the extent that is ‘reasonably necessary’ to protect the legitimate interests of the business. Whether a provision is enforceable will therefore depend on the wording of the clause and the context of each case.

Restraint of trade clauses can be characterised as one of the following:

  • Non-competition: to prevent a former employee from competing against the company.
  • Non-solicitation: to prevent them from approaching the employer’s clients.
  • Non recruitment: to prevent the former employee from recruiting other employees from the company.
  • Confidentiality: to protect confidential information and trade secrets.

What is Reasonable Between the Parties?

If a restraint of trade clause is contentious, a court must determine what is reasonable in the context of the facts of your particular case. If the restraint clause goes beyond protecting the business’ legitimate interests to the former employee’s detriment, then a court will not enforce the clause. However, if the clause is reasonable to both parties, it is likely to be enforced.

What will a Court Consider when resolving a dispute?

In NSW, the Restraints of Trade Act 1976 governs the law surrounding restraints of trade. A court will consider a variety of factors in its determination of whether the restraint of trade clause is reasonable. Some of these factors include the:

  • Negotiation and whether parties were able to negotiate any terms.
  • Respective bargaining position of parties and whether parties were able to obtain legal advice.
  • Nature of the business and the characteristics of the role of the employee.
  • Remuneration and compensation for the restraint of trade.
  • Duration and geographical area of the restraint.

If you are an employer, what can you do to protect your business?

To ensure that your business interests are protected in the event that one of your employees leave, it is vital that the restraint of trade clauses are effective and enforceable. Employment contracts should be reviewed regularly to ensure the changing nature of the employee’s current role and the changing nature of the business. The time period of the restraint, as well as the geographical area, must be reasonable to commensurate with the employee’s position. The clauses must be drafted properly and carefully so that, in the event that certain parts of the clause are found to be unenforceable, then the clause could be severed and the employer can rely on the balance of the clause when enforcing the restraint of trade. If you believe that your employment agreement does not adequately cover your legitimate business interests, you should seek legal advice from a competent employment lawyer.

Contact Us

An employer can only enforce a restraint of trade clause to the extent that it is reasonably necessary to protect their business interests. However, whether a clause is reasonably necessary will depend on the particular facts of the case, and in any dispute, it is best to seek professional legal advice. If you would like to discuss your employment law matter with a legal professional please contact us on (02) 9963 9800 or via our contact form.