Claims rise under new laws

There has been a marked increase in unfair dismissal claims lodged by employees in the first months of the new Fair Work Act 2009, compared to the same period last year. This increase confirms our report in the Adviser at the start of the year that the laws would substantially alter the unfair dismissal regime by widening eligibility criteria for employees.

Who's eligible to make a claim? The Fair Work Act 2009 (Cth) removed the unfair dismissal exemption created by WorkChoices for small to medium sized business-100 or fewer employees-significantly increasing the exposure of businesses to claims since July this year.

Table 1-comparison between the new and old law

Law	Date	Exemption
WorkChoices	up to 30 June 09	100 employees or fewer
Fair Work	from 1 July 09	none*

*Although a longer qualifying period does apply for small business employees.

Now to make a claim employees need only have completed a minimum employment period and meet one or more of the following conditions:

• they are covered by a modern award

• they are covered by an enterprise agreement • they earn less than $108 300*

What's the minimum employment period?

The qualifying period is determined by the size of the employer. To be eligible an employee in a small business must have worked for the employer for one year and an employee not in a small business must have worked for the employer for six months.

Table 2-minimum period of employment

Employer type	Period
Small	One year
Not small	Six months

What's the meaning of 'small business employer'? A small business employer is defined in the Fair Work Act as a national system employer with fewer than 15 employees.

How is it calculated?

Currently the method for counting employees is based on the number of full time equivalent employees in your business. However this method is temporary and will be replaced at the start of 2011 by a straight headcount method.

The current full time equivalent method is considered a better definition for employers and we argued that it should be the final definition.

Table 3-small business employer calculation method

Start date	Calculation method
now-end 2010	full time equivalent
2011	headcount

How do I calculate my employee numbers under the full time equivalent method? The number of full-time equivalent employees at the notice or dismissal time is worked out using the four-step process below.

Table 4-steps for calculating the number of full-time equivalent employees

Step 1	Work out the number of ordinary hours-including parts of hours*-for each person who was an employee at any time during the four weeks before the dismissal. *ordinary hours have a legal definition and you should work out the hours for each employee by referring to the definition. We can help with this.
Step 2	Work out the number of hours leave for each employee during the four weeks that was at least four weeks long or connected either to the birth or adoption of a child.
Step 3	Add together the ordinary hours worked out under step 1 and subtract the hours of leave worked out under step 2.
Step 4	Divide the number worked out in step 3 by 152** to get the number of full time equivalent employees. **The number 152 is based on the maximum number of hours that a full time employee would work in four weeks (38 hours per week).

These steps are complex so please contact us if you need help. How will I calculate my employee numbers under the headcount method? From 2011 this definition will change to the less forgiving headcount method where each employee is counted, irrespective of the hours they work. It's an approach that disproportionately affects small businesses with part time employees. It also intrudes on employer decision making by 'promoting' full time status over part time and is onerous considering the new right to request flexible working arrangements, which will come into effect for parents from next year. The right to request could include the right to ask for part time work. If your employee numbers are around 15 we suggest you consider your arrangements in time for the start of the new definition in 2011. The shorter eligibility period for employees not in small business can have a direct financial cost for employers.

What about casual employees?

Casual employees are generally not entitled to make a claim for unfair dismissal. The only exception is for people who are employed on a 'regular and systematic basis' and could reasonably expect to continue to be employed on that basis.

What about the code? If you are defined as a small business employer you are subject to the 'Small Business Fair Dismissal Code' (the code). The Federal Government introduced it after promising to create special arrangements for small businesses to recognise the increased impact unfair dismissal claims have on small business.

However, the rules in the code are effectively the same as those required of every employer under the Fair Work Act. In our view, there aren't different criteria for small business and they are subject to the same test of harshness in an unfair dismissal matter as any other employer. The only real difference between small and other businesses is the minimum employment period, which is why it's important to consider the phased in definition of small business, due to be finalised in 2011.

*This is the threshold for the 2009-2010 financial year, but it's updated each year on 1 July. This threshold is worked out using a process described in the Fair Work Act.

This article was first published in November 2009 issue of the Adviser, which is produced by the Australian Federation of Employers & Industries (AFEI). The article is reproduced here with the permission of AFEI.