Insights

Monthly Update—Australian Labour & Employment

Monthly Update—Australian Labour & Employment

Read Monthly Monthly Update - Australian Labour & Employment April 2014 newsletter.

MESSAGE FROM THE EDITOR

Following the raft of proposed changes set out in the Fair Work Amendment Bill 2014 (Cth) released earlier this year, there has been a relative dearth of new labour and employment legislation proposed by the Federal Government. There have, however, been other recent developments in Australian Privacy and Corporations Law which will impact upon Australian employers, most notably the Australian Securities and Investments Commission Consultation Paper 218 on Employee Incentive Schemes and the commencement of the changes to the Privacy Act 1988 (Cth) introduced by the Privacy Amendment (Enhancing Privacy Protection) Act 2012 (Cth).

The Consultation Paper proposes various changes that will make it simpler for companies to obtain relief from the licensing and disclosure requirements in Chapters 6 and 7 of the Corporations Act 2001 (Cth) for the issue of certain types of quasi-equity interests to employees under a new Employee Incentive Class Order. 

This Edition also provides a brief overview of the major changes to the Privacy Act that took effect on 12 March 2014. As was the case under the previous version of the Privacy Act, employers will continue to have the benefit of the "employee records exemption"; however, employers should be aware that several types of personal information collected by employers from employees will not be considered employee records and that the exemption does not apply to contractors and consultants, hence the need to be aware of, and ensure compliance with, the new Australian Privacy Principles.

Finally, this Edition considers the recent decision in Dafallah v Fair Work Commission [2014] FCA regarding the employers' compliance with its own internal disciplinary policies, the decision in Re Cummings Engineering Holdings Pty Ltd [2014] NSWSC 250 regarding termination payments to departing senior managers and executives and the decision in Murray v Ventyx Pty Ltd [2014] FWCFB 2143 regarding the Award obligation to notify employees of workplace changes which are likely to have significant effects for employees and the extent of the obligation to redeploy. 

Adam Salter, Partner

IN THE PIPELINE—HIGHLIGHTING CHANGES OF INTEREST TO EMPLOYERS IN AUSTRALIA

ASIC to Release Updated Employee Incentive Scheme Class Order in Coming Months

In November 2013, the Australian Securities and Investments Commission ("ASIC") released a Consultation Paper 218 on Employee Incentive Schemes ("Consultation Paper"), together with a draft Regulatory Guide 49 Employee Incentives Schemes. ASIC cited various legislative changes and market developments as having prompted a revisit of its policy settings and the scope of relief provided under Class Order [CO 03/184] Employee Share Schemes and Regulatory Guide 49 Employee Share Schemes

The Consultation Paper proposes various changes that will make it simpler for companies to obtain relief from the licensing and disclosure requirements in Chapters 6 and 7 of the Corporations Act 2001 (Cth) ("Corporations Act") that apply to the offer and issue of quasi-equity interests previously not covered by the Class Order Relief, most notably cash-settled RSUs, PSUs and SARs. ASIC also intends to remove the complexities faced by unlisted bodies seeking relief and reduce the ongoing compliance burden for all who have the benefit of relief.

The key proposed changes under new relief are as follows: (i) relief for "performance rights" or quasi-equity interests such as RSUS, PSUs and SARS, including such interests that can be settled in shares and/ or the cash equivalent thereof; (ii) at least 25% of all interests issued at each grant must be held for a minimum of 12 months; (iii) no requirement to lodge the offer documents and only substantive changes to plans need to be notified to ASIC; (iv) the class of employees to whom offers can be made will be extended to cover a broader class of contractors, prospective employees and non-executive directors; and (v) the previous requirement for 12 months' trading without suspension for more than two trading days has changed to three months' trading without suspension for more than five trading days.

Stop Press

The Consultation Paper timetabled the release of the new Class Order [CO 14/xx] and a finalised version of the Regulatory Guide 49 Employee Incentives Schemes for May 2014. After recently requesting further guidance on transition issues for those companies relying on the current Class Order relief, we were informed by ASIC that it now anticipates a June 2014 release date (although there is still no official word on this as yet). 

NEW AND NOTEWORTHY—IDENTIFYING KEY DEVELOPMENTS IN AUSTRALIAN LABOUR AND EMPLOYMENT REGULATION

Significant Changes to the Privacy Act 1988 (Cth), but No Changes to "Employee Records" Exemption

Several major changes to Australia's privacy laws took effect on 12 March 2014. Amendments to the Privacy Act 1988 (Cth) ("Privacy Act") introduced by the Privacy Amendment (Enhancing Privacy Protection) Act 2012 (Cth) included: (i) broadening the scope of coverage to foreign entities with no physical presence that have an "Australian link" (collecting personal information from individuals who are physically present in Australia as part of the carrying on of business in Australia); (ii) enhanced enforcement powers for the Information Commissioner; (iii) changes to credit reporting laws; (iv) recognising external dispute resolution schemes; (v) provision for the Information Commissioner to develop and impose binding Privacy Codes; and (vi) most importantly, merging the former public sector Information Privacy Principles and former private sector National Privacy Principles into 13 new Australian Privacy Principles ("APPs"). 

The new APPs introduced significant changes regarding: (i) the use and disclosure of personal information for the purpose of direct marketing; (ii) the obligation to develop and implement practices, procedures and systems to ensure operational compliance with the new APPs; (iii) obligations regarding the handling of inquiries or complaints relating to the use or disclosure of personal information; and (iv) cross-border transfers of personal information.

As was the case under the previous version of the Privacy Act, employers will continue to have the benefit of the "employee records exemption" in section 7B of the Privacy Act which provides that an act or practice engaged in by an employer is exempt from the obligation to comply with the APPs if the act or practice is directly related to a current or former employment relationship between the employer and the individual and an "employee record" held by the organisation and relating to the individual. 

"Employee Records" are defined by the Privacy Act to include "a record of personal information relating to the employment relationship between the employee and the employer", including personal information about all or any of the following: (i) engagement, training, discipline or resignation; (ii) termination; (iii) terms and conditions of employment; (iv) personal and emergency contact details; (v) performance or conduct; (vi) hours of employment; (vii) salary or wages; (viii) membership in a professional or trade association; (ix) trade union membership; (x) recreation, long service, sick, personal, maternity, paternity or other leave; and (xi) taxation, banking or superannuation affairs. 

However, several types of personal information collected by employers will not be considered employee records, namely an employee's personal information not directly related to the employment relationship, such as private work emails and workplace surveillance material. As such, employers are required to disclose the collection and use of such personal information in accordance with the APPs. Further, personal information collected from independent contractors or consultants will not be covered by the "employee records" exemption as they are not employees. 

Next Step for Employers

To the extent not done already, both local Australian and foreign entities carrying on business in Australia should conduct a careful review of their privacy policies, direct marketing communications and arrangements with overseas recipients of personal information in order to make any changes to them necessary to ensure compliance with the new APPs.

HOT OFF THE BENCH—DECISIONS OF INTEREST FROM THE AUSTRALIAN COURTS

Critical Conditions: Hospital Should Have Followed Disciplinary Procedure Before Terminating Employee

The appellant in Dafallah v Fair Work Commission [2014] FCA 328 was employed as a clinical assistant by Melbourne Health. Her colleagues complained that she had failed to be punctual, present, awake and responsive to messages and directions throughout her shifts. Dafallah's employer met with her to discuss the concerns, and subsequently issued her a letter which purported to contain both first and second warnings. Further complaints were received, and Dafallah was issued a further letter containing a "final warning". Following still more complaints, she was dismissed from her employment.

The employee brought a claim against Melbourne Health in the Fair Work jurisdiction. Dafallah claimed that the disciplinary process breached the relevant Enterprise Agreement (that required the first performance-related warning to be verbal, and the second and third warnings to be discrete and in writing), breached her contract of employment (which included the employer's own disciplinary policy that also had not been complied with) and was a breach of the employer's implied contractual and common law duty to maintain a relationship of trust and confidence with the employee.

The Fair Work Commission found against Dafallah. On appeal to the Federal Court, the court agreed that the employer had substantively breached the disciplinary procedures in the Enterprise Agreement with the result that Dafallah's termination was accelerated without due opportunity for her to improve her performance; consequently, Dafallah was entitled to compensation of $15,500. However, the court did not find that the alleged breach of the employer's own policy entitled Dafallah to damages as the employer's policy did not form part of the employee's contract and she had never actually read the policy. Finally, the court found against Dafallah on the breach of the obligation to maintain a relationship of trust and confidence on the basis that the claimant simply had not articulated and evidenced a breach of sufficient seriousness. 

Lessons for Employers 

Firstly, if employers have disciplinary policies in place (or are covered by an enterprise agreement containing express policies and procedures), then it is critical that the employer follow them. Secondly, if other documents (such as codes of conduct) are incorporated into employees' contract of employment, then it is critical that the employees be provided with a copy of those documents and acknowledge having read them. 

Finally, following the decision in Commonwealth Bank of Australia v Barker [2013] FCAFC 83, a duty of trust and confidence has been implied into Australian contracts of employment. However, in this case the court was at pains to point out that while it was bound by Barker, the issue is not "settled" under Australian law, and that claims in tort or arising from an employee's termination would be difficult to support.

Sealed with a Kick: Payoffs to Managers and Executives Need Close Attention

The Supreme Court of New South Wales recently heard the case of Re Cummings Engineering Holdings Pty Ltd [2014] NSWSC 250. The litigation arose from a dispute between four siblings, the shareholders in a family engineering company. The Managing Director (who was the founder's son) liquidated the assets of the unsuccessful business, realising in excess of $1.6 million. The Managing Director continued to draw his salary for six months after the assets were sold, at which point he wrote himself a redundancy notice, and the directors of the company (the Managing Director and his wife) approved a $250,000 termination payment for the Managing Director. Unsurprisingly, the other three shareholders objected to the payment. 

The dispute resulted in somewhat complex litigation. The three shareholders alleged that the payment to the redundant Managing Director was made in breach of ss.200B and 200G of the Corporations Act. Those sections (broadly speaking and subject to various exceptions) require shareholder approval for any termination payment to certain senior managers and executives unless the amount paid is less than the recipient's average annual base salary. The Court found that as a matter of fact, the amount paid to the Managing Director (excluding various accrued entitlements) did not exceed the amount provided for in s200G, and so there was no breach of s200B.

However, the three shareholders also claimed the payment was a breach of the directors' statutory and common law duties to act in the interests of the company as a whole when exercising their powers as directors. Here, the Court agreed and noted that just because there was no breach of s200B did not mean that any payment under the s200G threshold was permitted. 

The Court found that while the company was obliged to pay out the Managing Director's entitlements accrued under contract and statute (e.g., long service leave), the payment in excess of those amounts was voidable and could be returned to the company and distributed among shareholders. Moreover, the Managing Director was not entitled to any pay in lieu of notice in circumstances when he was aware of his redundancy for six months before he resolved to terminate himself!

Lesson for Employers

Whenever terminating the employment of senior managers and executives, it is critical to bear in mind the Corporations Act requirements regarding termination payments when making payments to them that are close to or exceed the manager's or officer's average base annual salary. Shareholder approval may be required. Further, when approving termination payments (including those under the threshold), directors should always be careful to ensure that they act in the best interests of the company as a whole.

What Is "As Early As Practicable" When It Comes to Notifying Employees of Workplace Change Under Awards and What Is the Limit of the Redeployment Obligation?

The claimant in Murray v Ventyx Pty Ltd [2014] FWCFB 2143 was employed as a technical project manager by Ventyx Pty Ltd and was one of nine employees made redundant in Australia. Ventyx notified Murray of the redundancy on 1 July 2013 and was told that it was to take place on 2 July 2013. On that date, there was a meeting at which Murray was told he should supply Ventyx with any additional information relevant to the decision. Despite expressing an interest in relocating overseas during that discussion, Murray was made redundant. 

Murray was employed pursuant to the Professional Employees Award and hence had access to the unfair dismissal remedy where the termination of his employment was not a genuine redundancy. Consequently, Ventyx was obliged to consider options for redeployment and discuss the decision with Murray "as early as practicable". 

Before the Fair Work Commission ("FWC"), he successfully argued that it was not a genuine redundancy (on the basis that the discussion was not held as early as practicable and Ventyx had not given prompt consideration to the relocation request) and received $64,650 in addition to his redundancy package. 

Ventyx successfully appealed to the Full Bench of the FWC, which overturned the decision of the FWC on the basis that the cost of relocation ($15,000 to $30,000) was prohibitive and the discussion was held "as early as practicable" as its timing was necessary to maintain the confidentiality of client data that Murray had been working with. 

Lessons for Employers 

There are two key points for employers. Firstly, the Full Bench held that "as early as practicable" meant that "various exigencies", such as security and confidentiality considerations, were relevant to determining the timing of discussions. However, the Full Bench did remark that the closer the discussion is held to the redundancy, the more difficult it will be to give prompt consideration to matters raised by the employee in that discussion.

Secondly, in relation to an obligation to consider overseas relocation, the Full Bench required relocation to be a practical option. The cost to the employer of relocating was a legitimate reason to decline that option, but the result could have been different if the employee were willing to cover such cost himself. The Full Bench also noted that other factors were just as relevant to the decision, such as the business case in favour of employing a worker from overseas and the tax implications. 

ACKNOWLEDGMENTS

Thanks to Viv Jones (Associate) and Andrew Berriman (Associate) for their assistance in the preparation of this Update.

We use cookies to deliver our online services. Details of the cookies and other tracking technologies we use and instructions on how to disable them are set out in our Cookies Policy. By using this website you consent to our use of cookies.