Workplace Relations Update - June 2009: Termination Of Employment For Poor Performance

Contents

• Termination of employment for poor performance

• AIRC confirms an employer can rely on knowledge acquired after dismissal to defend unfair dismissal claim

• Government moves on executive termination benefits

Termination of employment for poor performance

In the current economic climate, employers are monitoring the performance of their employees more closely to ensure they are contributing to the performance of the company. Two recent decisions of the Australian Industrial Relations Commission highlight the importance of appropriately managing the performance of employees before terminating their employment.

In the first case, the employee, Mr Kinnane, had been employed by GEON Australia Pty Ltd (GEON) for almost 15 years, and had performed the role of Sales Manager since 2006. Over the two full years before the termination of Mr Kinnane's employment, he had achieved 71% and 73% of his budgeted sales, and for the first half of his last year of employment, Mr Kinnane had achieved 40% of his budgeted sales.

In October 2008, GEON met with Mr Kinnane to raise concerns with his performance, and reduced Mr Kinnane's budget for October 2008 to 50% of the original budget, and for November to 72% of the original budget. Mr Kinnane failed to achieve the lower budgets and his employment was terminated in December 2008.

Mr Kinnane made an application to the Commission alleging the termination of his employment was harsh, unjust or unreasonable. Mr Kinnane claimed that his budgets had been unfairly set, especially when compared to other employees, however GEON led evidence that other Account Managers for different areas had exceeded their budgets. The Commission considered whether it was Mr Kinnane's performance or external factors that led to him not achieving his budget (including GEON's pricing policies, the method of setting Mr Kinnane's budgets and the training and assistance available to Mr Kinnane), and found that the termination of his employment was not harsh, unjust or unreasonable.

In the second case, the employee, Mr Wilson, had been employed by IGA Distribution (WA) Pty Ltd (IGA) or its previous owners for nearly seven years in their warehouse as a store person / stock picker. IGA had set specific timeframes for employees to complete tasks, and required 100% compliance with these timeframes. This requirement was also set out in the workplace agreement which applied to Mr Wilson's employment.

Mr Wilson had been counselled and issued with a number of warnings for poor performance, and during the three weeks before the termination of his employment, he was issued with two written warnings. On the day before Mr Wilson's employment was terminated, he only achieved 76.41% of the required performance target. After giving Mr Wilson an opportunity to explain his poor performance, his employment was terminated by IGA in August 2008.

Mr Wilson made an application to the Commission alleging the termination of his employment was harsh, unjust or unreasonable. As was the case for Mr Kinnane, the Commission considered whether the performance requirements which had been set by IGA were reasonable, and after satisfying itself that the performance requirements were reasonable, found that the termination of Mr Wilson's employment was not harsh, unjust or unreasonable.

Tips for employers

When managing the performance of employees, it is crucial to ensure that the performance targets that have been set for the employees are fair and justifiable. Employers should continually monitor the performance of employees, and if the performance standards are not satisfactory, this should be addressed with the employee, rather than ignoring the problem in the hope that it will resolve itself.
By Michael Cooper

AIRC confirms an employer can rely on knowledge acquired after dismissal to defend unfair dismissal claim

A full bench of the Australian Industrial Relations Commission has recently confirmed that an employer can rely on the conduct of an employee discovered after their dismissal to defend an unfair dismissal claim.

The applicant in the unfair dismissal claim, Mr Bradley, was employed by Metricon Homes in its IT department. Mr Bradley had been employed for five years.

It came to the attention of Metricon Homes that Mr Bradley, without authority, had been accessing, reading and copying information from various other employees' personal network drives, including storing private and confidential information and documentation relating to Metricon Homes' managers. When Metricon Homes identified what Mr Bradley had been doing, it put the allegations to him, and after allowing him the opportunity to respond, summarily terminated his employment. Following Mr Bradley's dismissal, Metricon Homes continued to investigate the extent of his conduct, and discovered a significant amount of additional material that had been stored without authority.

At first instance, the Commission held that the termination of Mr Bradley's employment was harsh, on the basis that Mr Bradley had been dismissed without notice while the investigation into his conduct was ongoing. While the Commission acknowledged the material that Metricon Homes discovered after Mr Bradley's dismissal were grounds to justify the termination of his employment, the Commission formed the view that the reasons for the dismissal known at the time of the dismissal were not clear cut, and further investigation was warranted before terminating Mr Bradley's employment. The Commission ordered Metricon Homes to pay Mr Bradley four weeks' pay.

On appeal, a full bench of the Commission held that the decision at first instance was affected by error, and the Commission should have had regard to the results of Metricon Homes' post-termination inquiries. The full bench overturned the decision at first instance, and held that the termination of Mr Bradley's employment was not harsh, unjust or unreasonable.

Tips for employers

While it is important for an employer to appropriately investigate allegations against an employee before terminating their employment, it is reassuring to know that if relevant information comes to light after the employee's dismissal, this can generally be relied on to justify the dismissal.
By Michael Cooper

Government moves on executive termination benefits

In March 2009, reforms aimed at curbing excessive termination benefits paid to company executives were announced. This announcement came on the back of significant community concern about excessive pay practices.

On 5 May 2009 the Government released an exposure draft of the Corporations Amendment (Improving Accountability on Termination Payments) Bill 2009 (Cth) (Bill), which if passed will amend the Corporations Act 2001 (Cth) to strengthen the regulatory framework relating to the payment of termination benefits to company directors and executives.

The Bill is expected to be introduced into parliament during the coming winter sittings.

Current position

Under the current regulatory framework:

• termination benefits can reach up to seven times a director's total annual remuneration package before shareholder approval is required
• only company director's termination benefits are subject to shareholder approval
• the shareholder vote on termination benefits can be held at any point in time before the benefit is paid
• there is no express requirement to repay an unauthorised termination benefit.

Proposed new provisions

The Bill seeks to:

• significantly lower the threshold at which termination payments must be approved by shareholders so that termination benefits for company directors and executives exceeding one year's average base salary will be subject to shareholder approval
• expand the range of personnel whose termination benefits can be subject to shareholder approval so that directors, senior executives and key management personnel (including the five most highly remunerated officers) will be included
• clarify and expand the definition of a termination benefit that is subject to shareholder approval to include the accelerated or automatic vesting of options and payments in lieu of notice (including any kind of pension, the payment of superannuation in excess of the statutory amount, and an amount paid as a voluntary out of court settlement, but not including deferred bonuses and payments from a defined benefits superannuation scheme that was in existence before the regulations commenced)
• require a shareholder vote be held after the director or executive has departed to ensure that shareholders are in a better position to exercise an informed vote
• provide that unauthorised termination payments be repaid immediately.

Increased penalties

The Bill also seeks to increase penalty provisions under the Corporations Act 2001, from:

• $2,750 up to $19,800 for a natural person
• $16,500 up to $99,000 for a body corporate.

In addition, the ability for a court to order a period of up to six months imprisonment will remain.

Company considerations in looking forward

The proposed amendments if passed will dramatically shift power to shareholders to disallow excessive termination benefits, particularly where there is evidence of general poor performance.

Consequently, companies need to be particularly mindful when appointing directors, executives and key management personnel that certain termination benefits will be subject to shareholder approval.

In order to avoid potential liability companies may need to review their contractual arrangements to consider making all termination benefits subject to shareholder approval in instances where such benefits fall within the scope of the proposed Bill. It will also be necessary to take advice in settling employment disputes to avoid non compliance.
By John-Anthony Hodgens

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