Dismissing executives: It ain’t easy to ever say goodbye

Dismissing any employee is a challenge, but dismissing an executive brings its own legal minefield, as George Spiliotis and Aneeka Munshey explain.

Dismissing executives: It ain’t easy to ever say goodbye

Dismissing any employee is a challenge, but dismissing an executive brings its own legal minefield, as George Spiliotis and Aneeka Munshey explain

Dismissing an executive employee is an uncomfortable thing to face. No matter the circumstances, nobody in a hiring-and-firing position likes having to say, “You’re fired”, particularly to someone who holds a senior position in the organisation. Before you say those words, however, are you certain of where your organisation stands under the law?

Employers who labour under misconceptions about the scope of executive protections under the Fair Work Act (FWA) 2009 and the common law may find themselves failing to adequately minimise the risks associated with executive terminations.

Unfair dismissal concerns dismissals that are, in all circumstances, “harsh, unjust or unreasonable.” If an executive has completed the minimum employment period (12 months for small businesses and six months for businesses with more than 15 employees), the following requirements apply for the executive to be eligible for an unfair dismissal claim:

  • The executive is covered by a modern award (or pre-modern award)
  • The executive is covered by an enterprise agreement
  • The executive earns less than $129,300 p.a. (income threshold)

Eligible executives are able to seek remedies of reinstatement or compensation in lieu of reinstatement (up to 26 weeks’ remuneration). For executives who don’t meet the three eligibility requirements, an unfair dismissal claim under the FWA is not an option.

Recently, a series of high-profile executive terminations have resulted in executives pursuing general protection claims for redress from employers. In July 2013, after being sacked as head coach of the Australian cricket team, Mickey Arthur sued Cricket Australia for $4m on various grounds, including discrimination because he is South African.

General protection applications under the FWA surged 30% in the first quarter of 2013 and have continued to grow rapidly since their introduction in 2010. The general protection provisions provide alternative statutory protections to executives, especially those who are ineligible to pursue unfair dismissal claims. Among other things, the protections provide recourse for executives who have not been dismissed but wish to enforce an entitlement or protect an attribute.

The central objective of a general protections claim is to prevent employers from taking adverse action against an employee for exercising a workplace right as defined under the FWA, or for engaging in industrial activity, and to protect the employee from discrimination.

A “workplace right” comprises entitlements, roles and responsibilities, an ability to initiate processes and proceedings, and the ability to make complaints or enquiries. Ultimately, the courts assess the nexus between the decision to terminate and the employee’s protected entitlement, activity or attribute.

If an executive succeeds in making a general protections claim, under the FWA they may claim reinstatement and compensation for breaches, or an injunction to prevent the employer from dismissing them unlawfully. It’s important to note that the compensation is uncapped and may include compensation for hurt and humiliation suffered as a result of the dismissal. Because these are civil remedy provisions, breaches may result in financial penalties for both individual directors and the corporate employer.

An often overlooked protection afforded to executives is a common law claim on the basis that the employer has breached an implied contractual term. In the landmark decision of Commonwealth Bank of Australia v Barker, the full Federal Court of Australia held that the doctrine of mutual trust and confidence forms part of contemporary Australian employment contract law.

Justices Jacobson and Landers reflected upon UK and Australian authorities in describing the implied term:

“The employer will not, without reasonable cause, conduct itself in a manner likely to destroy or seriously damage the relationship of confidence and trust between the employer and employee.”

Notwithstanding the dissenting judgment of Justice Jessup, it appears that the protection of an implied term of trust and confidence has landed on our shores.

Depending on the nature of the breach, employers may be exposed to significant damages claims for contravention of implied terms.

Most executive employment agreements contain provisions that set out notice requirements for the termination of employment. Ordinarily, such a notice provision would be the end of the matter with respect to the notice to be given to the departing executive. Unfortunately for employers, and fortunately for executives, there have been numerous instances in which the courts have disregarded the notice provisions contained in the executive employment agreement. This is especially so in circumstances where the nature of the executive’s role, position and duties has significantly altered since the initial date of the agreement.

In those circumstances, the courts will look at determining what they consider to be reasonable notice of termination, taking into account a range of factors including the seniority of the position, length of service, age, and circumstances of the executive, to name but a few.

Executives have access to a number of avenues in pursuing their employer, either by utilising the unfair dismissal and general protection provisions of the FWA, or where a statutory claim may be simultaneous to a common law claim. Employers should look to the substance of their executive employment agreement terms to minimise the risk of exposure to substantial damages claims.

More importantly, employers and executive employees should consider meeting to candidly discuss terms, whether express or implied, and prevent the need for a claim to arise in the first place.

George Spiliotis is a principal, and Aneeka Munshey is a lawyer at Rockwell Olivier’s workplace relations team in Melbourne

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