The Cost of Getting it Wrong Requisite HR February Newsletter 2017
Sometimes we get it wrong. We make a rash decision or speak without thought, thinking it's only a minor issue, so why bother going through due process. However that poorly made action can have a flow on effect with unintended consequences. Company productivity, morale, engagement and reputation can all be causalities. This month we will examine the business cost when we get people management wrong and discuss what we do to avoid these missteps.
The Costs of Mismanagement If an employee has been wrongfully or hastily dismissed or an employee quits suddenly due poor decision making by the Company’s manager(s), there are generally several consequences that the company could experience. Loss of Productivity.
Adverse Action
When an employee is dismissed, their work is transferred
Financially there are costs associated with any adverse
onto other employees until a replacement can be found for
action claim from legal costs to penalties ($10,800 for
the position. Despite spreading the responsibilities amongst
an individual, or $54,000 for a corporation). If you are a
multiple employees, the productivity levels of these
small business owner the costs to obtain legal advice or
employees will likely decrease, especially in small business
representation can be overwhelming. You are also likely
where team member numbers tend to be low. The
to lose time which is wasted on extensive
remaining team members may know the work as well as the
administration work to prepare for the legal claim. This
outgoing person but are at risk of becoming overworked
takes your focus away from your clients and what you
and stressed, which can lead to further problems.
do best.
Loss of Knowledge.
Damage to Company Reputation
Despite being able to hire a replacement employee who has
Any type of mismanagement can leave employees
the skills for the position, this new employee will not have
unhappy. Those unhappy employees spread their
the company and client knowledge that the previous
dissatisfaction throughout the office and then go home
employee had. This tacit knowledge takes time to develop
and tell stories to their family and friends. Very
and is not easily taught.
disgruntled employees may even take to social media to voice their experiences. If adverse action claims are
Loss of Engagement with the Remaining Employees.
brought before the court, the company now is on public
Depending on the relationship of the team to the outgoing
record and can even be exposed to media attention.
employee, remaining employees engagement levels with the business will be affected. If dismissed poorly or
These are all factors that need to be taken into
unlawfully trust levels between management and the team
consideration when you are planning to dismiss an
members will be severely affected. They may also feel as
employee or make a decision that can negatively impact
though their positions are at risk, decreasing their morale
an individual’s employment because the situation goes
and commitment. If the individual resigns with ill feeling
beyond the actual action made. It is important to
towards the company, they will often share those feelings
understand how to manage the reactions of the
which could impact the remaining employee’s perception of
remaining staff members and ensuring that the
the company and subsequently their overall engagement.
company culture is not affected, especially when one employee is a big percentage of a small workforce. This
Replacement Costs.
is where small companies can benefit from seeking
Small companies often do not have the knowledge and
professional support to develop lawful and compliant
capacity to spend time attracting, shortlisting, interviewing
plans before you instigate the action, so that you can
and hiring the right replacement, especially when it takes
reduce the risks and subsequent consequences
you away from duties that make the company income. Not
whilst ensuring your company continues to
only will it cost your company time and energy to
operate with minimal impact.
replace the outgoing employee, it will also cost quite a substantial amount of money. A survey conducted on Australians at work found that on average, it costs 50%-150% of an employee’s annual salary to replace someone depending on the role and level of seniority.
What is adverse action?
If an employee believes that a workplace decision is unjust,
Now that we have the basics covered lets discuss how to
they may make a claim that you have breached their
minimise the risk of an Adverse Action Claim?
workplace rights or that they have been discriminated against by the decision, both of which are protected under The Fair Work Act 2009. This may be a valid claim if your actions have been unlawful. Workplace Rights and Discrimination are two of the main rights protected by the Act from either adverse action, coercion, misrepresentations and undue influence or pressure. Workplace rights cover issues such as receiving a benefit under a workplace law, having the right to take court action or make a complaint regarding their employment. Discrimination covers actions taken due to a person’s race, colour, sex, sexual preference, age, physical or mental disability, marital status, family or carer’s responsibilities, pregnancy, religion, political opinion, national extraction or social origin.
Formulate and take lawful actions - ensure that you only take actions that are authorized by the Fair Work Act 2009 or any other Commonwealth Law Have your employment contract state that as the employer you have the right to stand an employee down in specific and certain circumstances Document and follow your People Management Processes to ensure compliance with Australia’s legislative requirements Document all performance management issues Document the facts and business reasons relating to the changes made, that have impacted an individual’s employment Have an Employee Manual that provides information on rights and responsibilities Provide training and development, especially to
managers Adverse Action is an umbrella term that covers Consult a HR practitioner before take that first step threatened and actual unlawful behaviours towards making an action that may impact a workplace towards employees including dismissal, harming right or maybe discriminatory in nature. their employment, withholding legal entitlements, negatively changing their Remember claims can be made up to 6 years after the position, treating them differently to others, event so document, document and document. refusing to hire them or offering them unfair terms and conditions. If you feel that you may have had adverse action taken If one of your employee’s wants to claim that they have
against you, or you may be subject to an adverse action
been adversely affected by your decision, they can make a
claim please contact one our consultants on our free
claim up to 6 years from the event, unless the adverse
hotline for HR Support; 1300 164 737.
action resulted in termination, in which case it would be 21 days.
An Example of Adverse Action In the case of Tattsbet Limited v Morrow, the Full Court of the Federal Court of Australia found that Tattsbet Limited had not taken adverse action against, Ms Morrow an independent contractor, after she sought legal advice about whether she should take legal action to enforce her entitlement to receive superannuation contributions.
Facts of the Case • Ms Sharyn Morrow was engaged by Tattsbet Limited in 2004 to operate a shop front betting agency. Under the agency agreement, Ms Morrow was deemed to be an independent contractor and was required to work at least 32 hours per week in the agency. She also was paid commission based on the turnover of the agency. • In 2011 Ms Morrow made inquiries as to whether Tattsbet should be making payment to her for superannuation contributions as required under the Superannuation Guarantee (Administration) Act 1992 (Cth). • She held discussions with BT Financial Group who advised her that she should be receiving superannuation contributions from Tattsbet. Ms Morrow considered whether she should seek a ruling from the Australian Taxation Office on this or whether she should make a complaint to Tattsbet. Ms Morrow was reluctant to pursue the claim personally as she did not want to get into trouble with Tattsbet. • Ms Morrow instead met with a former TAB agent who was prepared to take the superannuation contribution issue up with the ATO. That was the last Ms Morrow heard of it before the agent instead went directly to Tattsbet advising them that Ms Morrow was considering legal action. • Following this, Tattsbet terminated Ms Morrow’s engagement. Claims • Ms Morrow claims she was an employee rather than an independent contractor; • Tattsbet had taken adverse action against her contrary to section 340 of the Fair Work 2009 (Cth) because she had exercised or proposed to exercise her workplace right to make complaints and inquiries in relation to the superannuation contributions issue.
Decision • The Federal Court upheld Tattsbet’s appeal, finding that Ms Morrow was not an employee and was an independent contractor after considering a number of factors like 1. The agency agreement specifically stated that Ms Morrow was an independent contractor; 2. Ms Morrow was not paid for her own work alone but was able to employ others to assist her; 3. Ms Morrow was an employer and undertook the obligations required by that role, including executing an enterprise agreement covering her employees and paying for a membership of the employers’ association; 4. Ms Morrow’s personal income was only one third of the gross remuneration which she received for operating the agency; 5. The parties adopted a taxation situation which required Ms Morrow to participate in the GST system and Ms Morrow spent a significant period of time preparing BAS returns. • They also rejected Ms Morrow’s submission for adverse action as there wasn’t sufficient evidence to support the claim. Tattsbets were within their right to terminate the arrangement without notice as she was deemed an independent contractor. Ms Morrow has re-appealed the contention of adverse action and the decision is still ongoing. For further information see the full case; Tattsbet Limited v Morrow [2015] FCAFC 62.
The Lessons from this Case - It is very important to not only understand the difference between an independent contractor and an employee, but ensure that the team member understands it as well. Both parties should not only a clear understanding of their workplace rights and entitlements at the beginning of the employment arrangement, it is best practice to have the arrangement in writing, this will prevent misunderstandings down the track. Also consider This case has been long and drawn out and as such costly for the business and their reputation.