There’s no doubt about it – senior executives often get the sharp end of the pineapple when it comes to procedural fairness. It is common for senior executives to get their marching orders at 4pm on a Friday afternoon with no warning. Alternatively, you might receive a letter with general allegations for answering within 24 hours, along with suspension and sometimes accompanied by an invitation to resign. Procedural fairness means being given a fair and reasonable opportunity to be heard before a decision is made. The basics of procedural fairness involve:
1. allegations or issues being put to an employee in sufficient detail;
2. the employee being allowed to respond appropriately; and
3. any response being taken into account before a decision is made about termination.
It is not a guarantee against termination but good process usually results in good outcomes. The problem is that procedural fairness is largely a function of an employee’s ability to bring a statutory unfair dismissal claim. Only employees earning a base salary (excluding superannuation and contingent payments) under the high income threshold (currently $162,000 gross per annum – the amount goes up each year on 1 July) can bring an unfair dismissal claim unless they are covered by a modern industrial award or enterprise agreement.
We have previously written that procedural fairness is important for a variety of reasons, including that it makes for better decisions. A lack of procedural fairness can be pointed out to an employer before termination and many international companies have a strong internal ethic of procedural fairness (although it may not often make a difference to the ultimate outcome) which can assist in an employee seeking to negotiate a favourable settlement.
But for anyone earning over the high income threshold rate, the perception in many companies is that it is not necessary to go through a proper performance management process to address performance shortcomings or that they don’t really need a good reason to terminate, eg “you haven’t fitted into the culture of the company” or that old classic “we just don’t think its working out”. A lot of the time, these employers are right. An employer might have a nice looking policy about performance management and graduated disciplinary action but almost all employment agreements these days specify that policies do not form part of the contract, so common law damages are not an option.
The usual alternative to an unfair dismissal claim in the event of termination of employment is a claim of breach of general protections rights. This often involves a claim that employment was terminated because an employee made a complaint or enquiry in relation to employment or exercised a right to take statutory leave (annual leave, personal leave etc) or because of a discriminatory factor (age, race, sex, parental responsibilities, workplace flexibility request etc). In this type of claim, there is a reverse onus on the employer to disprove the unlawful ground of termination and there is no statutory cap on compensation. For an employer, being able to demonstrate that there has been a level of procedural fairness can help in establishing that the unlawful ground was not a reason for termination.
The reality for employees however is that many employers do not treat the first stage of a conference in the Fair Work Commission seriously and employees are confronted with a long, complex and expensive process in the federal courts with an uncertain outcome so this is often not an attractive option either. The reality is also that more and more employees are earning above the high income threshold and this issue is affecting more employees than ever before.
How can these problems be avoided or minimised?
Awareness of the problem is a good start. One possibility is to negotiate a fair notice period under the employment agreement, perhaps of several months and up to 6 months or more depending on the seniority of the position. It is common, even for high earners, to see the minimum statutory notice scale incorporated into the employment agreement providing only a couple of weeks pay for notice. A longer period may assist in deterring an employer from terminating without good cause and give an employee some breathing space. Of course, it does work both ways so that an employee can only resign by giving the same notice. An employer may also be more tempted to terminate for serious misconduct without giving notice, which may lead to a common law claim for notice.
An employee could also ask a prospective employer about their commitment to procedural fairness and try to include a qualification in the employment agreement about an employer being required to provide procedural fairness in disciplinary action as a contractual agreement. It is doubtful whether an employer would agree however. Otherwise, it is a matter of being familiar with the culture of the company and the personalities who make these types of decisions. It is also wise to remember that the human resources department is not there to help you.
Contact us if you would like any further information or help.