RECENT UNFAIR DISMISSAL DECISION HIGHLIGHTS THE PERILS OF ATTEMPTING TO USE REDUNDANCY AS A WAY TO DISMISS DIFFICULT EMPLOYEES
A common strategy used by employers in the real estate industry, particularly those who have less than fifteen employees because this means they are not required to pay redundancy pay, is to manufacture a redundancy situation and dismiss difficult or under-performing employees for that reason, rather than properly addressing issues of misconduct or under-performance.
A recent Fair Work Commission decision highlights the dangers of using such a strategy.
The employee was employed by the employer in a position that in Western Australia, would be the equivalent of a Licensee in late 2015.
In March of this year, the employer had a discussion with the employee, where the employee was advised that his position was no longer required to be done by anyone because the employer had decided to take over the duties of licensee itself. However, rather than end the employment relationship, the employer offered the employee a position as a property sales associate or alternatively, the employee could choose to be engaged on a contract for service (contractor) relationship.
Whilst this was not part of the unfair dismissal application decision, please note that neither of the above alternatives are appropriate here in Western Australia and should not be considered by REEFWA members. A property sales associate position would be too junior for an employee who is currently engaged as a licensee and the property sales person position would be more appropriate.
In addition, there are significant risks in engaging a sales person as an independent contractor which include but are not limited to;
- Possible risk of the employer being found to have engaged in a sham contracting arrangement
- Risk of a successful General Protections claim being made against the employer for misleading conduct
- Possible breach of the Real Estate & Business Agent’s Act (WA)
Members who are considering engaging sales persons as an independent contractor are strongly encouraged to obtain legal advice prior to doing so.
The employer provided the employee with a letter outlining its decision not to require the licensee position and its offer of either the property sales associate position or the contracting arrangement. The letter also advised that the effective date of the employee’s position of licensee was one week later. The employee advised the employer that he would consider his options and advise the employer of his decision.
The next day, the employee found out that he was no longer registered with the licensing authority as being the licensee for that real estate agency. As a result, he decided to leave the business premises at around mid-day.
That afternoon, the employer learned about certain suspected misconduct and issues of performance on the part of the employee.
- The file for a property management appeared to show that the employee had not been acting in the employer’s best interests and the client had not been invoiced for work the employee had performed on the property;
- In February, a person unknown to the employer arrived at the office claiming that he had been promised $15,000 by the employee as a ‘referral fee’ for introducing a buyer to the employee for a property he was selling
- A settlement agent attended the office and left an envelope containing cash for the employee
- A communication indicating that the employee had been holding himself out as an owner or part owner of the real estate business to suppliers
The employer sent the employee and e-mail advising of the above concerns and requested a response. At the same time, the employer attempted to call the employee and after these calls were not answered (the employee was in a meeting at the time), texted the employee to advise him of the e-mail and asked the employee to respond as soon as possible.
Over the course of the next hour, the employer and employee engaged in a series of text messages between them that deteriorated in tone that ultimately led to the employer immediately dismissing the employee.
Unfair Dismissal Application and Decision
The employee then filed an application for unfair dismissal. In its defence, the employer relied on the following;
- The employee was dismissed by reason of genuine redundancy or;
- The employee was dismissed for serious misconduct and the employer complied with the Small Business Fair Dismissal Code. (there was no dispute that the employer had less than 15 employees and so was a Small Business Employer) or;
- The dismissal was not harsh, unjust or unreasonable
The Fair Work Commission rejected the employer’s defence arguments for the following reasons:
The Commission found that the employee was not dismissed due to a genuine redundancy. Whilst it was not disputed by the Commission that the employer no longer required the employee’s position to be done by anyone, the evidence demonstrated that until the exchange of text messages, the employer had no intention of ending the employment relationship as it was willing to employ the employee in an alternative position. The Commission found that the reason of redundancy was applied retrospectively, following the exchange of e-mails and was not the real reason for the termination. It therefore found that the actual reasons for the dismissal was the suspected serious misconduct.
Small Business Fair Dismissal Code
The Code states, in relation to summary or immediate dismissal;
“It is fair for an employer to dismiss an employee without notice or warning when the employer believes on reasonable grounds that the employee’s conduct is sufficiently serious to justify immediate dismissal. Serious misconduct includes theft, fraud, violence and serious breaches of occupational health and safety procedures. For a dismissal to be deemed fair it is sufficient, though not essential, that an allegation of theft, fraud or violence be reported to the police. Of course, the employer must have reasonable grounds for making the report.”
The Fair Work Commission then went on to state that when determining whether the employer had complied with the Code, it had to determine whether;
- The employer genuinely held the belief that the employee’s conduct was serious enough to justify instant dismissal and;
- whether that belief was, based on reasonable grounds which requires an assessment of whether a reasonable investigation into the employee’s conduct had been carried out
The Commission also stated that the employer did not have to demonstrate that it was correct in its belief that the employee’s conduct was actually serious enough to justify instant dismissal.
The Commission decided that having regard to the legislative definition of serious misconduct in the regulations, the employer’s suspicions regarding the cash left in an envelope for the employee by the settlement agent and the client not being invoiced for work done by the employee on their property was conduct serious enough to justify instant dismissal.
However, the Commission found that there was no good reason for the employer to demand that the employee immediately respond to his concerns about the suspicions regarding the employee’s conduct. As a result, the Commission found that the employer did not, prior to dismissing the employee, provide the employee with the opportunity to explain those two suspicions and as such, the employer’s belief that the employee’s conduct was serious enough to justify instant dismissal was on reasonable grounds. Therefore, the Small Business Fair Dismissal Code had not been complied with and as a result, the Commission had jurisdiction to determine with the unfair dismissal application.
If, however, the employer had waited till it got a response from the employee before dismissing him, it is likely that the Commission would have found that his belief was based on reasonable grounds and as a result, the Code had been complied with which would mean the Commission would not have jurisdiction to determine the employee’s unfair dismissal application.
Harsh, Unjust or Unreasonable
The Commission then went through the criteria in s.387 of the Fair Work Act 2009. Unlike the Code, for there to be a valid reason for dismissal, the Commission has to find that the misconduct for which the employee was dismissed had actually occurred. It found that it hadn’t and therefore there was no valid reason for dismissal, which resulted in the unfair dismissal application being successful.
The employee was awarded two weeks’ pay plus superannuation.
Lessons for Employers
The main lessons for REEFWA members from this case are;
1. Do not make business decisions, particularly those that will result in employees being terminated whilst angry or in an emotional state. Take the time to calm down then consider the options carefully, including getting advice from the ERAC call centre, if necessary.
2. Give employees a genuine opportunity to respond to suspected misconduct, particularly where the suspected misconduct is of a serious nature and give genuine consideration to that response.
3. If you employee 15 or more employees, make sure that the suspected misconduct actually occurred (based on the balance of probabilities). If you employee less than 15 employees, whilst you do not have to demonstrate that the suspected serious misconduct actually occurred, ensure that any belief that the serious misconduct would justify instant dismissal is reasonable by letting the employee know of your suspicions and allowing them to provide a response.
4. Do not use redundancy as a reason to dismiss employees unless you no longer require the positions they held to be performed by anyone and you comply with the consultation provisions of the Real Estate Industry Award 2010. In addition, if it is reasonable to redeploy the employee, you will need to do so.
5. Do not attempt to dress up dismissals for other reasons as ‘redundancy’ because the Commission will examine the circumstances of the situation to determine the bona fides of that reason.
6. Seek advice from ERAC if you are unsure what to do. Their services and advice is included in the price of REEFWA membership.
Bradley Scott Carlin-Smith v Neirbo Real Estate Pty Ltd T/A Homes Group Estate Agents  FWC 4785
REEFWA Senior Employer