High court reduces scope of federal termination laws


High court reduces scope of federal termination laws

The High Court’s decision, which was handed down on Wednesday, is likely to have a significant effect on the operation of the present federal termination laws.


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The High Court’s decision, which was handed down on Wednesday, is likely to have a significant effect on the operation of the present federal termination laws.

While Western Australia, South Australia and Victoria were attempting to have the High Court strike out many of the aspects introduced into the Industrial Relations Act 1988 in 1994 by the former Labor Government, the High Court decided that only s170DE(2) and s170EDA(1)(b) were invalid (Victoria & Ors v The Commonwealth, Matter No M46, A14 and P16 of 1994, 4 September 1996).

However, to refer to s170DE(2) as an "only" is very much understating the practical and dramatic effect this subsection has had on many employers. Section 170DE(2) relevantly provided:

"A reason is not valid if, having regard to the employee’s capacity and conduct and those operational requirements, the termination is harsh, unjust or unreasonable. This subsection does not limit the cases where a reason may be taken not to be valid."

This section has been relied upon by the Industrial Relations Court to find that, even in circumstances where a termination has been based on valid reasons and was procedurally fair, the termination was nevertheless harsh, unjust or unreasonable because of the manner in which it was carried out.

For example, Von Doussa J held in Fryar v System Services Pty Ltd (960177)that although the reason for termination was genuine (redundancy), the failure of the employer to pay severance pay made the dismissal unfair.

In a practical sense, the High Court’s decision means that an applicant cannot allege that a dismissal was "harsh, unjust or unreasonable". The basis of most claims from now on will be that the dismissal was not for a valid reason and/or was procedurally unfair.

What will now need to be decided by the Court is what is the full extent of the words "valid reason" (as those words are used in s170DE(1)). It would appear that anything relevant to the reason for the dismissal will be capable of being reviewed by the Court, and this can include matters such as procedural fairness (as per s170DC and s170DE(1), see also Rigby v Technisearch Ltd (960164)).

On the other hand, actions by the employer once the dismissal has been decided upon for valid reasons, will in all likelihood not be amenable to review by the Court. For example, if a termination is for a valid reason and the employee has been accorded procedural fairness but the employer then acts harshly to the employee after the decision to terminate has been made, such action is not likely to be amenable to review.

Caution still required when terminating an employee’s employment

But the bottom line remains that employers must continue to exercise caution when terminating an employee. An employer will still need to have a valid reason and will still need to provide procedural fairness. What obligations the High Court’s decision removes from employers can only be speculated at until the Industrial Relations Court looks at this issue head on.

Furthermore, NSW employer’s must be mindful of the fact that the NSW Industrial Relations Act 1996(which commenced this week) allows all NSW employees (excepting non-State award or enterprise agreement covered employees who earn over $62,200) to allege before the State Commission that their dismissal was "harsh, unjust or unreasonable". Thus, a remedy for dismissal on the ground of "harsh, unjust or unreasonable" dismissal remains available for NSW employees, thereby reducing somewhat the benefit for employers of the High Court’s decision.


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