PROTECTION AGAINST ECONOMIC DISMISSALS: HOW DOES AUSTRALIAN LAW COMPARE WITH ILO STANDARDS AND FIVE OTHER OECD COUNTRIES?

Transcription

1 PROTECTION AGAINST ECONOMIC DISMISSALS: HOW DOES AUSTRALIAN LAW COMPARE WITH ILO STANDARDS AND FIVE OTHER OECD COUNTRIES? SUPPLEMENTARY REPORT FOR THE VICTORIAN OFFICE OF THE WORKPLACE RIGHTS ADVOCATE NOVEMBER 2007 DR ANTHONY FORSYTH DEPARTMENT OF BUSINESS LAW & TAXATION MONASH UNIVERSITY

2 2 PROTECTION AGAINST ECONOMIC DISMISSALS: HOW DOES AUSTRALIAN LAW COMPARE WITH ILO STANDARDS AND FIVE OTHER OECD COUNTRIES? EXECUTIVE SUMMARY Background and Scope 1. This Supplementary Report follows on from the research report: Freedom to Fire: Economic Dismissals under Work Choices ( Freedom to Fire Report ), which was provided to the Victorian Office of the Workplace Rights Advocate in August 2007 and was publicly released on 9 September The Freedom to Fire Report found that the new genuine operational reasons exclusion from unfair dismissal claims, and other aspects of the regulation of economic dismissals under Work Choices, have significantly reduced many long-standing legal protections of job security for Australian workers (the report s other main conclusions are summarised in para [1.3] below). 3. The Supplementary Report locates the earlier study in an international context by examining, first, the position regarding economic dismissals under relevant International Labour Organization ( ILO ) standards, and the extent to which Australian law meets those standards (see Part 3 of this Report). 4. Secondly, the report summarises the legal regulation of economic dismissals in five other OECD countries Germany, Ireland, New Zealand, United Kingdom and United States of America (see Part 4). It then analyses how the regulation of economic dismissals under Australian Federal law compares with the labour law systems of these five other nations (see Part 5, and Appendix One). Does Australian Law Comply with ILO Standards? 5. The regulation of economic dismissals under Work Choices departs from the standards set out in the ILO Termination of Employment Convention, 1982 (No 158), in the following ways: The new operational reasons exclusion from unfair dismissal claims, in section 643(8)-(9) of the WR Act, involves a significant shift away from the Convention No 158 language of operational requirements of the business providing a valid reason for termination of an employee s employment. As outlined in the Freedom to Fire Report, the case law on the operational reasons exclusion demonstrates that its broad interpretation by the AIRC is enabling employers to dismiss employees in some situations that have only a very remote connection to the economic, technological, structural or other operational needs of the employer s business.

3 3 ILO Convention No 158 does not permit a general exclusion from unfair dismissal protection in respect of dismissals based on operational requirements (or operational reasons). Work Choices goes further than Convention No 158 allows in its restriction of the AIRC s power to review the restructuring/redundancy decisions made by employers, for two reasons: first, because it establishes the much broader concept of operational reasons (rather than operational requirements ) as the basis for a total exclusion from unfair dismissal claims; secondly, because it limits the AIRC s inquiry (in a preliminary hearing under section 649 of the WR Act) solely to the question whether the exclusion operates. 6. Work Choices exclusion of all unfair dismissal claims by employees in firms with 100 employees or less is another major area of non-conformity with ILO standards. Convention No 158 permits certain exclusions from unfair dismissal protections, including exclusions based on business size but only where unfair dismissal laws create special problems of a substantial nature for those types of businesses. The nature, or indeed the existence, of these types of problems as a justification for the 100 employees exclusion has not been demonstrated by the Australian Government. How Does Australian Law Line Up Against the Five Other OECD Countries? 7. After closely examining the regulation of economic dismissals in Germany, Ireland, NZ, UK and USA (see Part 4 of the report), Australian law was compared with these five countries on the basis of the levels of protection that they each provide to employees against economic dismissals (see Part 5, and Appendix One). The six nations are positioned along a spectrum of protection ranging from strong protection of employees at one end, to weak protection at the other, as follows: Spectrum of Protection against Economic Dismissals Germany Ireland/UK NZ Australia USA strong protection weak protection 8. It can be seen that Australia s regulation of economic dismissals is decidedly towards the weak protection end of the spectrum. In fact, of the six countries examined in this study, only the US system of employment at will provides weaker protection of employees against economic dismissals than Australia. 9. Germany is at the other end of the spectrum, providing the strongest protection of the countries studied. Given the close similarities in their laws, Ireland and the UK are at the same point along the spectrum, providing employees with considerable protection

4 4 against economic dismissals (but less than Germany). NZ, in turn provides less protection than Ireland and the UK but overall, NZ employees enjoy greater protection against economic dismissals than their Australian counterparts. 10. The above comparison was conducted on the basis of the following criteria: coverage of and main exclusions from unfair dismissal protection; tests for determining whether economic dismissals are fair or unfair (including the various definitions of redundancy/restructuring that enable an employer to fairly dismiss an employee); procedural fairness requirements, particularly those applicable in redundancy/ restructuring dismissals; employee rights to severance/redundancy payments; notice, information and consultation obligations of the employer in redundancy/ restructuring situations; procedural aspects of bringing claims. Coverage of/main Exclusions from Unfair Dismissal Protection 11. Australia has the most far-reaching exclusions from access to its unfair dismissal regime of all of the countries studied (apart from the USA, which does not have a statutory system of unfair dismissal protection). In addition to the 100 employees exclusion and the genuine operational reasons exclusion, the other main exclusion applicable under the WR Act is the six month qualifying period. 12. Germany, Ireland and the UK all have minimum qualifying periods of employment that an employee must serve before being able to bring an unfair dismissal claim (six months in Germany; one year in Ireland and the UK). However, in NZ there is no qualifying period; all employees (including casuals and part-timers) can bring an unjustifiable dismissal grievance. 13. Germany is the only other country in this study that has an exclusion based on the size of the employer s business. However, this exclusion applies only to genuinely small businesses (ie 10 employees or less), and in any event this has been a highly controversial aspect of Germany s employment protection legislation over the last 25 years. 14. Australia s exclusion of employees in businesses with up to 100 employees from unfair dismissal protection has the effect of leaving approximately 62% of the Australian workforce without any avenue of redress for unfair dismissal. The magnitude of this exclusion, combined with the broad operational reasons exclusion, is one of the main factors contributing to the overall conclusion of this report that Australia has the weakest system of protection against economic dismissals of the countries studied, apart from the USA.

5 5 Tests for Determining whether Economic Dismissals are Fair/Unfair 15. The various tests adopted by the six countries for determining, generally, whether dismissals are fair or unfair and their definitions of redundancy or restructuring that enable an employer to fairly dismiss an employee are outlined in paras [ ] below. 16. Overall, when considering the various methods for determining the fairness of economic dismissals, Australia ranks towards the weaker end of the range of protection among the countries studied for two main reasons: first, in all of the other countries (except the USA) the fairness of economic dismissals is considered as part of an overall test as to whether the dismissals were justified, reasonable, proportionate, etc, which enables the broader circumstances of the dismissals to be taken into account however, in Australia, whether the operational reasons exclusion applies is considered in isolation from any over-arching consideration of the fairness or reasonableness of the dismissals in question; secondly, although the kinds of restructuring situations that have been found to give rise to the operational reasons exclusion are similar in many respects to those which may form the basis for legitimate redundancy (or equivalent) dismissals in most of the other countries, the Australian exclusion goes much further in that it dispenses with the element of the necessity or financial imperative for the employer s restructuring measures. Procedural Fairness Requirements Applicable in Redundancy/Restructuring Dismissals 17. As outlined in the Freedom to Fire Report, the AIRC has no scope to consider whether redundancies or other restructuring-related dismissals were handled fairly (or not) by the employer, when it is considering whether the operational reasons exclusion from unfair dismissal claims applies in a given case. 18. In contrast, in all of the other countries studied (except the USA), various forms of procedural fairness obligations are taken into account in determining whether redundancy/restructuring dismissals are unfair, unjustified, etc. These include: requirements that employers try to find alternative employment before making employees redundant (extensive under German law, including employee rights to retraining; less so under NZ and UK law); obligations to formulate and apply fair/objective processes in selecting employees for redundancy (extensive under German law; less so under Irish, NZ and UK law); obligations to provide notice/adequate warning of dismissal to employees (NZ and UK). 19. In relation to procedural fairness requirements, Australian law provides the least protection to employees of the countries studied (apart from the USA).

6 6 Employee Rights to Severance Pay 20. Australian employees entitlements to severance payments in the event of redundancy rank in around the middle of the range of protection compared with the other countries studied. Severance entitlements are available under Australian law where an applicable award or workplace agreement makes provision for them, or they are specified in an employee s contract of employment. Award severance pay standards were increased in the 2004 Redundancy Test Case, which also set a lower scale of redundancy payments for employees in businesses with less than 15 employees. However, the Work Choices Act rendered award provisions for severance pay inoperable in respect of those businesses. It also repealed the statutory right of employees to seek orders for severance pay from the AIRC. 21. Employees in Ireland and the UK have statutory entitlements to fairly generous severance payments from their employer, although a two year qualifying period of employment applies in each case; and the payments are capped (in Ireland, at 600 per week; in the UK, at 310 per week, with an overall cap of 9,300). 22. In Germany, there are no legislative rights to severance payments following redundancy, but these are often included in the social compensation plan that an employer must negotiate with a works council when business alterations and collective redundancies occur. NZ employees generally have no statutory rights to severance pay. Employees in the USA also have no statutory redundancy pay entitlements, but many unionised workers obtain such protection through collective bargaining agreements. 23. Taking into account the quantum of severance benefits where they apply and the fact that they generally kick in after one year s service, Australia s regulation of this aspect of economic dismissals compares favourably against the other countries studied. However the patchwork coverage of redundancy pay entitlements, and the recent trend towards removing access to severance payments, lower the overall level of protection offered to Australian employees in this area. Notice, Information and Consultation Obligations of the Employer in Redundancy/Restructuring Situations 24. Australian employees are entitled to the minimum periods of notice (or pay in lieu) prior to termination of employment specified in section 661 of the WR Act. The notice entitlements of Australian employees rank in around the middle of the range of protection among the countries studied (see further para [5.32]). 25. Under Australian law, employees have no general statutory entitlements to be informed or consulted about impending redundancies. Rather, unions can seek orders from the AIRC in the event of an employer s failure to inform or consult over redundancies affecting 15 or more employees. However, the AIRC s powers under these provisions have been restricted by the Work Choices Act. Further, awards may not contain provisions requiring information and consultation about retrenchments, although workplace agreements made under the WR Act can. However, the incidence of such provisions in Federal agreements is fairly low.

7 7 26. All of the other countries examined in this study impose some form of statutory obligation on employers to inform and consult with employees and/or their representatives in advance of collective redundancies apart from the USA (see further paras [ ]). Therefore, Australian regulation in this area ranks towards the weaker end of the range of protection among the countries studied. Procedural Aspects of Bringing Claims 27. Having regard to the time limits for bringing unfair dismissal claims and the fairness of processes for having claims involving economic grounds for dismissal determined, Australia ranks towards the weaker end of the range of protection among the countries studied. Summary 28. Australia s Work Choices laws provide the second-weakest level of protection against economic dismissals of the six countries examined in this study, due to: the far-reaching 100 employees and genuine operational reasons exclusions, which preclude access to unfair dismissal rights for a large proportion of the workforce; the broad definition of operational reasons, allowing restructures/redundancies that need not be driven by any necessity or financial imperative on the part of the employing business and that must be assessed by the AIRC in isolation from over-arching considerations of fairness or reasonableness; the inability of the AIRC to consider the procedural fairness (or unfairness) of economic dismissals; the patchwork coverage of redundancy pay entitlements, and the removal of access to severance payments in recent years; the minimal levels of notice of termination, and the limited application of employers statutory obligations to inform and consult workers about impending redundancies; the unfairness of the process for having claims involving economic reasons determined.

8 8 PROTECTION AGAINST ECONOMIC DISMISSALS: HOW DOES AUSTRALIAN LAW COMPARE WITH ILO STANDARDS AND FIVE OTHER OECD COUNTRIES? 1. BACKGROUND 1.1 The Victorian Office of the Workplace Rights Advocate ( VWRA ) commissioned a research report on Economic Dismissals under Work Choices in June The report that I completed, Freedom to Fire: Economic Dismissals under Work Choices ( Freedom to Fire Report ), was provided to the VWRA in August 2007 and was publicly released by the Victorian Minister for Industrial Relations on 9 September The Freedom to Fire Report examined the new statutory provisions regulating economic dismissals which were introduced by the Federal Government s Work Choices legislation, with effect from 27 March In particular, the report focused on the new genuine operational reasons exclusion from unfair dismissal claims 3. It contained a summary and analysis of the 42 decisions in which the exclusion was considered by the Australian Industrial Relations Commission ( AIRC ) between 27 March 2006 and 31 July The following were among the main conclusions of the Freedom to Fire Report: The new genuine operational reasons exclusion, and other aspects of the regulation of economic dismissals introduced by the Work Choices legislation, have significantly reduced many long-standing legal protections of job security for Australian workers. These changes, along with others such as the 100 employees exclusion, have left many workers exposed to unfair or arbitrary dismissal. The Work Choices laws have therefore significantly enhanced the freedom of employers to hire and fire staff. Many of the concerns raised about the potential unfairness of the genuine operational reasons exclusion have been realised. The case law between March 2006 and July 2007 demonstrates the many dimensions of the unfairness of the exclusion. The AIRC s broad interpretation of the operational reasons exclusion has left employers largely free to restructure their operations and staffing arrangements, and implement redundancies, without the need to point to a valid reason for 1 The Freedom to Fire Report is available at: 2 Workplace Relations Amendment (Work Choices) Act 2005 (Cth) ( Work Choices Act ), which substantially amended the Workplace Relations Act 1996 (Cth) ( WR Act ). References to provisions of the WR Act in this report are to that legislation, as amended by the Work Choices Act. The WR Act as it existed prior to the Work Choices Act amendments will be referred to as the pre-reform WR Act. 3 See WR Act, sections 643(8)-(9) and 649.

9 9 dismissal or to treat employees fairly and reasonably in the process leading to dismissal. Even more alarmingly, the exclusion has also opened the door for employers to dismiss employees with the express purpose of engaging other workers to do the same jobs for lower wages and conditions. 1.4 In addition to the issues that the VWRA requested me to address in the Freedom to Fire Report, I was asked to locate the study of the new Australian provisions regulating economic dismissals in an international context, by examining how economic dismissals are regulated in other relevant jurisdictions and under international law. However, due to the expanded scope of the study of Australian law that was undertaken, it was not possible to cover the international dimension in the Freedom to Fire Report; it is dealt with, instead, in this Supplementary Report. 2. STRUCTURE OF THE SUPPLEMENTARY REPORT 2.1 Part 3 of the Supplementary Report (pages 10-15) examines the position regarding economic dismissals under relevant International Labour Organization ( ILO ) standards, and the extent to which Australian law meets those standards. 2.2 Part 4 (pages 15-29) summarises the legal regulation of economic dismissals in five other member countries of the Organisation for Economic Co-operation and Development ( OECD ) Germany, Ireland, New Zealand, United Kingdom and United States of America. These five countries were selected in order to illustrate a range of approaches to the treatment of economic dismissals among developed/industrialised nations. Germany typifies the traditionally highly regulated approach of many continental European countries. Ireland, the UK and NZ are countries with some similarities to Australia ie (traditionally) limited protection of employees against unfair dismissal under the common law, with more recent statutory overlays aimed at enhancing that protection. The USA represents an altogether different approach, with the long-standing employment at will doctrine enabling employers to hire and fire as they see fit. 2.3 Part 5 (pages 29-38) contains an analysis of how the regulation of economic dismissals under Australian Federal law compares with the labour law systems of the five other OECD nations covered in the study (see also Appendix One).

10 10 3. ILO STANDARDS RELATING TO ECONOMIC DISMISSALS 3.1 Relevant ILO Instruments 3.2 The main ILO instruments dealing with employment security are the Termination of Employment Convention, 1982 (No 158) and the accompanying Termination of Employment Recommendation, 1982 (No 166) So far as is relevant, Convention No 158 provides that the employment of a worker shall not be terminated unless the termination is for a valid reason connected with the worker s capacity or conduct, or based on the operational requirements of the undertaking. 5 A court, labour tribunal or other impartial body must be able to determine whether a worker s dismissal was in fact due to operational requirements of the business, on application by the worker concerned. 6 However, the extent to which such an impartial body is empowered to decide whether an employer s purported operational requirements are sufficient reasons to justify dismissal, is a matter to be determined by the national laws of ILO member states Under Convention No 158, dismissed workers are also entitled in accordance with national law and practice to severance allowances or other separation benefits (based on length of service and wage levels, and paid for by the employer or from an employers fund); or unemployment/social security benefits; or a combination of these allowances and benefits Further, Convention No 158 provides that employers must inform and consult with workers representatives over proposed terminations of an economic, technological, structural or similar nature (ie economic dismissals); and notify relevant public authorities. 9 The information provided must cover the reasons for the proposed dismissals, the number and categories of workers likely to be affected, and the period over which they are to occur. 10 The consultation process must cover measures to avert or minimise the proposed terminations, or to minimise their adverse effects on the workers (eg finding alternative employment) The 1982 Convention and Recommendation supersede the Termination of Employment Recommendation, 1963 (No 119). 5 ILO, Termination of Employment Convention, 1982 (No 158), Article 4. 6 ILO, Termination of Employment Convention, 1982 (No 158), Article 9(3) read in conjunction with Article 8. 7 ILO, Termination of Employment Convention, 1982 (No 158), Article 9(3) read in conjunction with Article 1. 8 ILO, Termination of Employment Convention, 1982 (No 158), Article 12(1). 9 ILO, Termination of Employment Convention, 1982 (No 158), Articles 13-14; see also ILO, Communications within the Undertaking Recommendation, 1967 (No 129). 10 ILO, Termination of Employment Convention, 1982 (No 158), Article 13(1)(a). 11 ILO, Termination of Employment Convention, 1982 (No 158), Article 13(1)(b). The Termination of Employment Recommendation, 1982 (No 166) takes these obligations further (see Articles 20-26), for example by requiring consultation over proposed economic dismissals to cover alternatives such as hiring restrictions, natural attrition, redeployment, retraining and voluntary early retirement; ensuring that selection criteria for dismissals balance the interests of both the business and the workers concerned; and giving priority to dismissed workers if the employer re-hires workers with comparable qualifications.

11 Does Australian Law Comply with ILO Standards? 3.7 As indicated in the Freedom to Fire Report, the Keating Labor Government s 1993 unfair dismissal laws were based on the ILO Termination of Employment Convention. 12 The Government had ratified Convention No 158 on 26 February 1993, with the effect that (one year later) Australia became bound to ensure that national law and practice conformed with the Convention In relation to economic dismissals, the 1993 legislation reflected the wording of Article 4 of Convention No 158, by providing that an employee s employment must not be terminated unless there was a valid reason based on the operational requirements of the undertaking. Articles of the Convention were implemented by statutory provisions requiring employers to inform and consult with employees/unions over large-scale redundancies, and to notify the CES; and to make severance payments to dismissed employees in certain circumstances. 14 It is generally considered that the 1993 unfair dismissal laws went a considerable way towards implementation by Australia of ILO Convention No 158 (at least under Federal law) However, the Howard Coalition Government s 1996 legislative changes 16 commenced a process of departure from Convention No 158 primarily, by removing the Convention (combined with the external affairs power in the Australian Constitution) as the constitutional underpinning for the Federal unfair dismissal scheme, 17 and by replacing the valid reason concept with the notions of harsh, unjust or unreasonable dismissal and a fair go all round The amendments introduced by the Work Choices Act have taken Australian law even further out of step with ILO standards on the regulation of economic dismissals. The main way in which this has occurred is the shift away from the Convention No 158 language of operational requirements of the business providing a valid reason for termination of an employee s employment. The ILO has indicated that: [R]easons relating to the operational requirements of the undertaking [are] generally defined by reference to redundancy or reduction of the number of posts for economic or technical reasons, or due to force majeure or accident. 12 See Freedom to Fire Report, above note 1, page See Anna Chapman, The Declining Influence of ILO Standards in Shaping Australian Statutory Provisions on Unfair Dismissal (2003) 29 Monash University Law Review 104, at page 114; Breen Creighton and Andrew Stewart, Labour Law, The Federation Press, 2005, page 68. Unlike conventions, ILO recommendations (such as the Termination of Employment Recommendation, 1982 (No 166)) are not open to ratification, and therefore do not create binding obligations on member states; see Creighton and Stewart, pages For further detail on relevant provisions of the Industrial Relations Reform Act 1993 (Cth), see Freedom to Fire Report, above note 1, pages See Chapman, above note 13, page 117; Creighton and Stewart, above note 13, page For details as to how the Workplace Relations and Other Legislation Amendment Act 1996 (Cth) affected the regulation of economic dismissals, see Freedom to Fire Report, above note 1, pages See further Chapman, above note 13, pages , noting however (at 128) that Convention No 158 was retained as a Schedule to the pre-reform WR Act as an aid to statutory interpretation. 18 See further Chapman, above note 13, pages ; although compare Breen Creighton, The Workplace Relations Act in International Perspective (1997) 10 Australian Journal of Labour Law 31, at pages (in Creighton s view, the valid reason requirement could be satisfied by legislation proscribing harsh, unjust or unreasonable dismissal; however, he pointed to other areas in which the 1996 legislation failed to comply with ILO Convention No 158).

12 12 [They] could also be defined in negative terms as those necessitated by economic, technological, structural or similar requirements which are not connected with the capacity or conduct of the worker In contrast, as outlined in the Freedom to Fire Report, the operational requirements test has been replaced by a new test under Work Choices which simply requires an employer to point to genuine operational reasons for dismissal (or reasons that include such operational reasons). The case law on this new provision demonstrates that its broad interpretation by the AIRC is enabling employers to dismiss employees in some situations that have only a very remote connection to the economic, technological, structural or other operational needs of the employer s business It is important to note that ILO Convention No 158 does not permit a general exclusion from unfair dismissal protection in respect of dismissals based on operational requirements (or operational reasons). 21 Rather, it provides that operational requirements may constitute a valid reason for dismissal by the employer. According to the ILO: The need to base termination of employment on a valid reason is the cornerstone of the Convention s provisions As indicated in para [3.3] above, Convention No 158 allows ILO member states some flexibility regarding the question whether the bodies to which dismissals may be appealed should be authorized to review the sufficiency of reasons related to the operational requirements of the undertaking. 23 On this point, the ILO has explained further that: Where workforce reductions are concerned, the employer must therefore clearly have a valid reason within the meaning of Article 4 of the Convention. But it is left to each country to determine the extent to which the impartial bodies should be empowered to review the employer s judgement as to operational requirements The text therefore allows each country to restrict the power of the competent body, when investigating whether termination of employment was justified, to review the employer s judgement in relation to workforce numbers However, in my view, the Work Choices legislation goes further than the Convention allows in its restriction of the AIRC s power to review the restructuring/redundancy decisions made by employers, for two reasons: first, because it establishes the much broader concept of operational reasons (rather than operational requirements ) as the basis for a total exclusion from unfair dismissal claims; secondly, because it limits the AIRC s inquiry (in a preliminary hearing under section 649 of the WR Act) solely to the question whether the exclusion operates International Labour Office, Protection against Unjustified Dismissal, General Survey on the Termination of Employment Convention (No 158) and Recommendation (No 166), Geneva, 1995, page 39 (footnote omitted). 20 For detailed discussion and analysis see Freedom to Fire Report, above note 1, pages and Several of the permissible exclusions are discussed in paras [ ] below. 22 International Labour Office, above note 19, page International Labour Office, above note 19, page 81, describing the effect of ILO Convention No 158, Article 9(3). 24 International Labour Office, above note 19, page See Freedom to Fire Report, above note 1, pages 63-70, 74.

13 Work Choices exclusion of all unfair dismissal claims by employees in firms with 100 employees or less 26 is another major area of non-conformity with ILO standards. Convention No 158 permits specified exclusions from unfair dismissal protections (eg fixed-term employees, short-term casuals, public servants). 27 Further exclusions are permitted under Article 2(5) of the Convention, in relation to: other limited categories of employed persons in respect of which special problems of a substantial nature arise in the light of the particular conditions of employment of the workers concerned or the size or nature of the undertaking that employs them. (emphasis added) 3.16 This provision was intended by the ILO to allow the exclusion from unfair dismissal laws of workers employed in small or family businesses, along with managers, apprentices, domestic and agricultural workers (among others). 28 However, the ILO could not have intended that a small business exclusion would be extended to firms with as many as 100 employees. 29 In any case, such an exclusion must also meet the requirement in Article 2(5) of Convention No 158 that unfair dismissal laws create special problems of a substantial nature for businesses with 100 employees or less. The nature, or indeed the existence, of these types of problems as a justification for the 100 employees exclusion has not been demonstrated by the Australian Government A further condition of the creation of exclusions under Article 2(5) is that consultation take place with relevant employer and trade union bodies before an exclusion is adopted. 31 Given the short time-frame within which the Work Choices legislation was debated in Federal Parliament in late 2005, with little opportunity for proper public or parliamentary scrutiny, 32 the author understands that there was no consultation between the Government and the Australian Council of Trade Unions over the 100 employees exclusion. 26 WR Act, section 643(10)-(12); see Freedom to Fire Report, above note 1, pages 23, ILO, Termination of Employment Convention 1982 (No 158), Article 2(2) and (4); see further International Labour Office, above note 19, pages International Labour Office, above note 19, page See Chapman, above note 13, pages , considering the likelihood of non-compliance with Convention No 158 in respect of earlier attempts by the Coalition Government to introduce exclusions from unfair dismissal claims for businesses with employees. On non-compliance arising from the 100 employees exclusion, see Fair Employment Advocate Western Australia, Unfair Dismissal, Fair Employment Discussion Paper 1, August 2007, pages Note also Anna Chapman, Unfair Dismissal Law and Work Choices: From Safety Net Standard to Legal Privilege (2006) 16 The Economic and Labour Relations Review 237, at page 238: The raft of additional exemptions in Work Choices places Australia further out of compliance with ILO Convention See the discussion on this point in respect of the then-proposed exemption from unfair dismissal laws of businesses with up to 20 employees, in Centre for Employment and Labour Relations Law, University of Melbourne, Submission to Minister for Employment and Workplace Relations, the Honorable Kevin Andrews MP, concerning a Ministerial Review of the Workplace Relations Act 1996 (Cth.), December 2004, pages See also the discussion of debate over the Government s asserted (and contested) justification for unfair dismissal reform generally (ie that unfair dismissal laws act as a barrier to job growth, especially in small-medium businesses) in the Freedom to Fire Report, above note 1, page ILO, Termination of Employment Convention 1982 (No 158), Article 2(5); International Labour Office, above note 19, page For example, unfair dismissal was excluded from the terms of reference for the minimal Senate inquiry that was held in relation to the Work Choices Act; see Parliament of Australia, The Senate, Inquiry into the Workplace Relations Amendment (Work Choices) Bill 2005: Information about the inquiry, available at: (accessed 7/11/2007).

14 In any event, the introduction of new exclusions from Australian unfair dismissal laws also breaches Article 2(6) of ILO Convention No 158, which requires member states to report to the ILO on any exclusions adopted under Article 2(4)-(5) of the Convention. After a country submits its first such report (which Australia did in September 1995), no further exclusions may subsequently be adopted Work Choices has reduced employee protections against economic dismissals in at least two other ways, although Australian law and practice in these areas may (strictly speaking) comply with the requirements of ILO Convention No First, the statutory rights of employees to seek orders from the AIRC for the making of severance payments following redundancy (to give effect to Article 12 of the Convention) have been repealed. 34 Further, award provisions for severance pay no longer apply in businesses with less than 15 employees. 35 Following these changes, does Australian law provide a system of severance allowances, other separation benefits, and/or unemployment/social security benefits in accordance with Article 12? 36 The answer to that question is probably yes taking into account the fact that workplace agreements made under the WR Act may still contain severance pay provisions (covering both small and large employers); 37 the process for redundant employees to recover unpaid severance entitlements (up to a maximum of 16 weeks pay) under the Federal Government s General Employee Entitlements and Redundancy Scheme ( GEERS ); 38 and the availability of unemployment benefits for dismissed/redundant employees Secondly, the AIRC s powers under the statutory provisions requiring information provision and consultation with unions over redundancies affecting 15 or more employees have been limited by the Work Choices Act. 40 This follows on from changes made by the Coalition Government s 1996 legislation, which prohibited award 33 See Creighton, above note 18, pages 41-42; see also International Labour Office, above note 19, page Pre-reform WR Act, sections 170FA-170FE, repealed by the Work Choices Act; see Freedom to Fire Report, above note 1, pages 19-21, See Freedom to Fire Report, above note 1, page 30; see further paras [ ] below. 36 See para [3.4] above. The ILO permits a wide range of measures to be adopted by member states to conform with Article 12, including general legislation providing for severance allowances, or enabling severance payments to be determined through collective bargaining; compulsory or voluntary unemployment insurance schemes; and publicly-funded, means-tested unemployment assistance schemes: see International Labour Office, above note 19, pages See further paras [ ] below. 38 However, to recover severance pay under GEERS, an employee must have had an entitlement to such payments under an award, a workplace agreement, or an employment contract; see Department of Workplace Relations, General Employee Entitlements and Redundancy Scheme: Operational Arrangements, 1 November 2006, available at: (accessed 6/11/2007). 39 Subject to their meeting the strict requirements for accessing such benefits under the Social Security Act 1991 (Cth); for detailed discussion see Anthony O Donnell, Re-Inventing Unemployment: Welfare Reform as Labour Market Regulation in Christopher Arup et al (eds), Labour Law and Labour Market Regulation, The Federation Press, 2007, See WR Act, sections , which enable a union to apply for orders from the AIRC compelling an employer to provide information and to consult with the union over the proposed redundancies; under the Work Choices Act amendments, the AIRC can no longer make orders under these provisions for reinstatement of redundant employees, withdrawal of termination notices, disclosure of an employer s confidential information, or payment of compensation/severance pay.

15 15 provisions requiring consultation prior to workplace restructuring or layoffs. 41 Such provisions may still be included in workplace agreements made under the WR Act. 42 Despite the legislative amendments over the last 11 years, the retention of the statutory redundancy consultation provisions in the WR Act (albeit in a pared-back form) is most likely sufficient to ensure that Australia complies with Article 13 of ILO Convention No REGULATION OF ECONOMIC DISMISSALS IN FIVE OTHER OECD COUNTRIES 4.1 Germany 4.2 The Protection against Dismissal Act 1969 ( German PAD Act ) provides many German employees with unfair dismissal rights. Indeed, given that a minimum level of statutory protection is constitutionally guaranteed: protection against wrongful dismissals is one of the core elements of German labour law The German PAD Act applies to employees working in establishments with more than 10 employees, and who have completed at least six months service with their employer. 45 The legislation establishes the key concept of social justification for lawful dismissals, which can be satisfied by reasons relating to the personality or conduct/ behaviour of the employee; or economic reasons, also described as compelling operational reasons Another element of social justification is the proportionality principle, which requires that dismissals only occur as a last resort (ie the employer must explore, and rule out, other options such as employment in another part of the company). Proportionality also demands that the conflicting interests of the employee and those of the employer are balanced Economic or compelling operational reasons that will provide a basis for socially justified dismissals include circumstances both internal and external to the enterprise. Examples include (internal) capacity reductions due to rationalisation, the introduction of labour-saving technology, or a plant closure; and (external) economic slow-down, reduced turnover or customer demand, changed market structures or the withdrawal of subsidies See Freedom to Fire Report, above note 1, pages See further para [5.34] below. 43 See para [3.5] above. Article 13(2) permits ILO member states to limit the operation of measures implementing Article 13(1) to cases where the number of proposed dismissals is at least a specified number or percentage of the workforce, as is the case under sections of the WR Act (ie they only apply to instances where there are 15 or more redundancies). The required content of information provision and the scope of consultation under those provisions reflect the requirements of Article 13(1). 44 Achim Seifert and Elke Funken-Hotzel, Wrongful Dismissals in the Federal Republic of Germany (2004) 25 Comparative Labor Law and Policy Journal Seifert and Funken-Hotzel, above note 44, page See Seifert and Funken-Hotzel, above note 44, pages 494, ; Stefanie Konnert, Unfair Dismissal by Reason of Redundancy in Germany (2005) 16 International Company and Commercial Law Review 431, at page Seifert and Funken-Hotzel, above note 44, page Seifert and Funken-Hotzel, above note 44, page 498; Konnert, above note 46, page 436.

16 In these types of situations: It lies within the discretion of the employer to adapt to the new circumstances and decide which measures shall be taken. 49 However, this apparently broad managerial freedom is substantially limited by the following requirements that employers must comply with if economic dismissals are to be socially justified under German law: Arising from the proportionality principle (see para [4.4] above), the employer must consider whether the employee(s) can be transferred elsewhere in the establishment or in another establishment of the employer even if it is necessary to retrain an employee who does not have the skills required for the alternative position (subject to the employer only having to meet reasonable retraining costs). 50 In examining whether alternative employment is available, the employer only has to consider positions that are currently or foreseeably vacant within the organisation: The employer is not obliged to reorganise his [sic] workforce. Further, the employer need only consider whether alternative employment comparable to the employee s former job is available although where no comparable position is free, if the employee would accept a vacant position involving inferior work or lower pay, the employer must offer it. 51 If there are no alternative employment options, the employer must engage in a process of fair selection on social grounds of those workers who are to be dismissed. This requires consideration of factors including employees length of service, their age, disabilities, and even their obligations to pay family maintenance. Operational factors, including the need to retain employees with specific skills, are also relevant. Overall: The general idea of this selection procedure is that employees who would be affected the most by a dismissal are protected more than those who can easily find a new job Employees covered by the German PAD Act must bring an unfair dismissal claim before a labor court within three weeks of receiving notice of dismissal. 53 Claims generally commence in the local Labor Courts, with compulsory mediation processes leading to settlement in many cases. Appeals may be brought in the State and Federal Labor Courts. The labor courts are empowered to order reinstatement or, where further profitable cooperation between the parties is unlikely, compensation to the dismissed employee (usually in the order of two weeks-one month s remuneration for each year of service) German employees are also entitled to minimum periods of notice prior to dismissal, based on length of service (ranging from one month s notice for employees with up to two years service, up to seven months notice for those with 20 years or more of 49 Konnert, above note 46, page 436 (footnote omitted). 50 Seifert and Funken-Hotzel, above note 44, pages Konnert, above note 46, pages Seifert and Funken-Hotzel, above note 44, pages ; see also Konnert, above note 46, pages Konnert, above note 46, page See Seifert and Funken-Hotzel, above note 44, pages

17 17 service). These statutory notice periods are often extended under the terms of collective agreements Generally, employees have no legal right to severance pay in the event of redundancies, although severance payments often form part of the social compensation plan negotiated on the employees behalf by the works council in certain business restructuring situations 56 (see para [4.12] below) Works councils are firm-based employee representative bodies, which may be established under the Works Constitution Act 1952 ( German WC Act) in all establishments with five or more permanent employees. 57 Works councils have extensive information, consultation and joint decision-making rights over a wide range of employment and business issues The German WC Act provides that an employer cannot dismiss any of its employees without first consulting the works council (this obligation applies in respect of dismissals for economic reasons, or other reasons). The works council may then pursue certain rights of objection to the dismissal(s), which can strengthen the legal position of an employee who challenges his/her dismissal in the courts In businesses with more than 20 employees, the German WC Act also provides works councils with certain rights in respect of proposed alterations to the enterprise (eg proposals to reduce operations; transfer or close the business or important parts of it; amalgamate or split-up establishments; or introduce new work methods or production processes). Information about these business alterations must be provided at an early planning stage, and must address not only the employer s plans but also any possible alternatives or modifications to those plans. The employer and the works council must then negotiate a reconciliation agreement about the proposed business alteration (going to the extent, timing and nature of the change, or whether it should occur at all); or implement a social compensation plan (to compensate employees for any financial prejudice they might suffer arising from the business alteration). These processes may also lead to extended notice periods for employees being dismissed, reduced levels of redundancies, or alternative measures such as employee transfers and retraining programs Further rights are provided to works councils, under the German PAD Act, in relation to large-scale workforce reductions (ie collective dismissals). An employer must provide written notice in advance to the works council and the relevant public authority, where the employer is contemplating dismissals of the following numbers of employees, within a 30 day period: more than five, in businesses usually employing between employees; more than 25, or more than 10% of the workforce, in businesses with between employees; and more than 30 in those with over 500 employees. In respect of mass redundancies meeting these threshold requirements, the employer must inform the works council about the reasons for the dismissals, the period in which they will occur, the number and categories of employees usually employed and of 55 Seifert and Funken-Hotzel, above note 44, pages 493, Konnert, above note 46, pages The discussion in paras [ ] is based substantially on that in Anthony Forsyth, The Transplantability Debate Re-Visited: Can European Social Partnership Be Exported to Australia? (2006) 27 Comparative Labor Law and Policy Journal 305, at pages ; further reference sources are provided therein.

18 18 those to be made redundant, and the basis for calculating severance payments. The works council can comment in writing on the proposed dismissals, and consultation must take place between employer and works council about ways to avoid dismissals, reduce their number or minimise their consequences Evidence indicates that in recent years, works councils have been performing an increasingly assertive role in strategic organisational and restructuring matters in many German workplaces. Works councils frequently utilise their substantial legal rights to safeguard workers interests by delaying, altering, and in some cases, totally obstructing management restructuring proposals. They have also negotiated agreements with employers to guarantee minimum employment levels and job security for many workers Ireland 4.16 Employees in Ireland have protection from unfair dismissal, and rights in the event of redundancy, under the Unfair Dismissals Acts ( Irish UD Acts ) and the Redundancy Payments Acts ( Irish RP Acts ) The Irish UD Acts specify criteria against which dismissals can be judged to be fair or unfair, and establish an adjudicative process for unjustified dismissal claims. 59 Coverage by this legislation is limited to employees who have served at least one year s continuous employment with their employer; and who have not reached the usual retirement age for the particular employment. 60 Other exclusions from unfair dismissal protection include police and defence personnel, high-level civil servants, and employees on fixed-term and specified-purpose contracts Certain dismissals are regarded, under the Irish UD Acts, as automatically unfair eg those based on an employee s union membership/activity, religious or political opinions, race, colour, sexual orientation, age, etc. 62 Otherwise, an employer must be able to show that there were substantial grounds justifying dismissal. These include the employee s capability, competence or conduct; or redundancy. In addition, fair procedures must have been followed when dismissing the employee (the unfair selection of an employee for redundancy will make a dismissal automatically unfair; see para [4.22] below) Although redundancy is an absolute defence to an unfair dismissal claim: Strict adherence to the definition of redundancy is required from employers if an employee is 58 Collective dismissals may also constitute substantial proposed alterations to the enterprise, forming the basis for the works council s right to negotiate a reconciliation agreement or social compensation plan with the employer; see para [4.12] above. 59 Department of Enterprise, Trade and Employment Ireland, Guide to Labour Law, 2005, available at: (accessed 9/10/2007). 60 Law Society of Ireland, Employment Law, Oxford University Press, 2006, page 258; employees do not have to have completed one year s service to bring an unfair dismissal claim, where the termination was based on a discriminatory ground, eg union membership, pregnancy, maternity leave. 61 Law Society of Ireland, above note 60, pages 259, 261; Department of Enterprise, Trade and Employment Ireland, Unfair Dismissals Acts, 1977 to 2005: Explanatory Booklet ( Irish Unfair Dismissals Booklet ), available at: (accessed 2/11/2007). 62 Law Society of Ireland, above note 60, page Law Society of Ireland, above note 60, pages 258, ; Irish Unfair Dismissals Booklet, above note 61.