Qualifying or probation – the long and the short of it
One of the surprise outcomes of the Work Choices reform package was the Government’s decision to extend the qualifying period before which employees could commence unfair dismissal applications.
Section 643(6) and (7) of the Workplace Relations Act 1996 (“the WR Act”) provide that no employee working through a six month “qualifying period” is entitled to bring a claim for unfair dismissal unless there is an express agreement between employer and employee to reduce that qualifying period. This sounds simple enough; however, confusion arises out of the interaction of this qualifying period with traditional probationary periods, during which employees are also precluded from bringing an unfair dismissal claim.
When the amendments dealing with the extension of the qualifying period were introduced to Parliament, no reference was made to this change during the course of the Second Reading Speech. However, the Government’s intention in introducing the six month qualifying period was most likely based upon a desire to remove any doubt or disputation over the operation of a probationary period.
Prior to the introduction of Work Choices in March 2006, there was considerable legal dispute over the existence and operation of probationary periods, whether they had been agreed in advance or whether a probationary period of more than three months was reasonable in particular circumstances. This was an area for much litigation but it certainly led to considerable confusion as to the operation and validity of probationary periods. The extended six months qualifying period effectively makes such arguments redundant, at least where the probationary period is less than six months.
The major issue of concern is now whether probationary periods have any relevance at all. Certainly, the Explanatory Memorandum that accompanied the Work Choices reform package in March 2006 distinguished between the two concepts and this would indicate that probation continues to be relevant.
In essence, the qualifying period is simply a legal threshold for making an unfair dismissal application, regardless of the length of the probationary period. Probation refers to a period set in advance by the employer to assess suitability for employment.
Significantly, employees under a period of probation are excluded not only from making an unfair dismissal claim (this is particularly important where the probationary period is longer than six months), but from the minimum notice provisions in section 661. This means that a probationary employee may be dismissed with anything down to one day’s notice or less, provided this is included in the employment contract.
Probation periods are a creature of contract and their legal effect is dependent on the terms of the employment contract. The qualifying period applies automatically as a matter of law and it is not necessary to include a reference to the qualifying period in an employment contract to give it effect. Nevertheless, in the interest of clarity, it may be worthwhile drafting employment contracts to include both concepts. In this way, employers and employees are in no doubt about the practical and legal effects of probation and the qualifying period.
Until recently, there had been very few reported cases dealing with interpretation of the issue of a qualifying period. In Rogers v Reflections Group Pty Ltd, the AIRC was required to make a decision on whether the six months qualifying period applied to an employee immediately after the sale (transmission) of a business. The AIRC found that the qualifying period did in fact commence after the transmission.
Most recently, in Nelson v Westpac Banking Corporation, the AIRC tackled the qualifying period/probation issue head-on. Nelson had been employed as a branch manager for the bank for five and a half months before being terminated. Nelson’s contract specified that he was subject to a three months probation period. Importantly, the contract did not refer to the qualifying period of six months as specified in the WR Act.
The bank argued that Nelson had no right to bring a claim for unfair dismissal as he had not served the six months. Nelson argued that the three months probation compromised the six months qualifying period. The bank won the case.
In making its decision, the AIRC referred to some past cases that clearly distinguished between probation and qualifying periods. In Nelson’s case, the failure to refer to the qualifying period was not fatal to the bank’s position. The provisions of the WR Act dealing the qualifying period are clear and the bank was entitled to rely upon the qualifying period. The position would have been different if the bank specifically agreed to shorten the qualifying period. But in this case, it did not and the WR Act provisions regarding qualifying continued to apply.
The case is a helpful review of the legal authorities. The major message arising out of the Nelson decision is that it reinforces the need for contracts to properly reflect these issues if the parties propose to reduce qualifying or probationary periods.
Church decision shows the faith – duty of trust and confidence now implied in Australian employment contracts
In England in 1998 the House of Lords in Malik’s Case declared that the duty of trust and confidence was a "sound development" in employment law, had proven to be "workable in practice", and was accepted by commentary and the decided cases alike. Its implication as a term of employment contracts was overwhelmingly endorsed by the court as an established fact.
Since then many Australian cases also have applied the duty, but no higher court has been willing to endorse it strongly or without qualification – until now.
In the recent decision of Russell v Roman Catholic Church, the NSW Supreme Court has firmly accepted the duty of trust and confidence, finding that it is implied as a fundamental term of all employment contracts in Australia.
Crucially, it not only held that the duty of good faith was also an implied term of employment contracts, it found that both duties could play a role in limiting the process by which an employer may seek to dismiss an employee – a critical ruling given the recent, drastic curtailment of employees’ ability to bring unfair dismissal claims since 27 March 2006.
Mr Russell was a talented musician who had been involved in music at St Mary's Cathedral in Sydney since 1954. In 1975, he became Director of Music of the Cathedral.
In 1983 he was asked by the Church to provide share accommodation to a Mr Grady. Later, Grady was convicted of sexually abusing minors in the Church’s care, allegedly while living with Russell. In 1999 Russell was also arrested but, unlike Grady, the charges were dropped before trial in March 2000. Russell then continued to perform his full duties with the Church.
Complications for Russell arose when in August 2002 the State Ombudsman told the Church that it was holding an enquiry into why the Church had not, since the trial, sought to determine whether the allegations were true. The Church then commenced its own investigation into whether the allegations could be sustained, and if so, what its response should be.
After meeting with Russell late in 2002, a Church investigator found that there was enough evidence to support the allegations. In doing so he considered various submissions by Russell and had also interviewed the witnesses of the alleged events. He did not, however, personally interview a witness, X, now living in Perth who had made key allegations against Russell, choosing instead to speak to X by phone.
In January 2003 the Church terminated the employment on 6 months pay in lieu of notice.
The first proceedings
Russell then began a claim for unfair dismissal in the NSW Industrial Relations Commission. In June 2004 after a 14-day hearing and the incursion of $350,000 legal costs, the Commission reinstated him, awarding him compensation for loss of salary since his dismissal.
In February 2005, Russell then commenced proceedings in the NSW Supreme Court for breach of contract, claiming that by conducting its investigation as it did the Church had breached its implied contractual duties to him that it would:
The damages claimed were substantial – $350,000 costs incurred in the unfair dismissal claim, his costs in engaging a public relations consultant to preserve his reputation as a result of the case, and damages for distress and humiliation.
Were the duties implied? – good faith
The first question for the Court was whether the duties were implied into the employment contract, and in both respects the Court found overwhelmingly for Russell.
With respect to the duty of good faith, Rothmann J found that even though a mutual duty of good faith had not been “clearly” endorsed as a mutual duty in employment contracts, it was “impossible to imagine” in this case that it should not be implied. This was especially where the parties intended to have a continuing, indefinite relationship, during which the employer needed to exercise rights that would affect the employee in circumstances that had not been clearly discussed with him.
The Court was therefore willing to state that where a party to an employment contract intended to commit an act that would affect the other, it had to “exercise prudence, caution and diligence” in doing so, taking “due care to avoid or minimise adverse consequences” that may occur to the other party as a result.
Trust and confidence
A similar result applied regarding the duty of trust and confidence, and even though doubts had recently been expressed – in Heptonstall’s Case in 2005 – about whether it should be implied.
In summary, it found that trust and confidence was an essential condition of the employment relationship without which the employment could not survive.
From the employer’s perspective, for example, it was essential for the employer have trust and confidence in the employee to permit him or her to work and to bind the employer. From the employee’s side, it was a defining characteristic of employment that the employee submitted to a system of work (such as the work environment, the co-workers, and the need to follow the employer’s directions) over which the employee had no practical or legal control.
These findings were also supported by decisions of the High Court, which had endorsed the existence of an implied duty of trust and confidence as far back as 1933 in Blyth Chemicals v Bushnell, and again Concut v Worrell in 2000 where it had “uncontroversially” found that the employment relationship was one imported implied duties of loyalty, honesty, and mutual trust.
For the Supreme Court these decisions and principles were consistent with the expression of the duty in Malik’s Case, which had accepted the existence of a duty to preserve the trust and confidence in the employment relationship.
Were the Implied duties breached?
But were, then, the duties breached?
This wasa difficult issue since as a general matter the cases suggested that the implied duties could not affect an employer’s right to terminate the employment without cause. Also a general principle exists that an employer is not bound to provide “natural justice” to employees.
Therefore, and ignoring any disciplinary policies that may have applied in the Church, if it had sought to dismiss Russell without having or seeking to refer to a reason for doing so, it could have.
Here, however, the Church had sought both to determine whether abuse could be proven, and then to refer to that finding as the basis to end the employment. Importantly, the Court found that the implied duties could apply to restrict employer in these respects.
In terms of a general observation on proving misconduct, the Court found that because the Church had a non-delegable duty to the children in its care: it was allowed in this case merely to find that there was a “real suspicion” that the conduct occurred to satisfy the duties. In this case the Court said such evidence existed.
On the other hand, the duty of good faith requires a party to exercise “prudence, caution and diligence” when committing actions that may affect an employee. Here, and although the church had made considerable efforts to investigate the matter, the investigator had chosen to interview a key witness by phone, instead of flying from Sydney to Perth to do so in person.
Given the resources and infrastructure of the Church, the Court said that this was not enough, especially in light of the prejudicial effect that could have arisen for the employee.
As a result, it had breached its duty of good faith to Russell in the way that it had investigated alleged occurrences of misconduct.
But finally, however, the Court refused to find that the breach of contract had led to any actual loss on Russell’s part. Instead, and even if the Church had personally interviewed the witness in Perth, on the balance of probabilities it would not have led to any different result than that enough proof existed to find that the conduct occurred.
As a result, Russell was not successful, and he was ordered to pay the Church’s costs of the trial.
Message for employers
Therefore, the decision was a ‘win’ for the Church, but in a larger sense it presents serious challenges to all employers.
Firstly, they must now be aware that whatever doubts could be said to have existed before, the duty of trust and confidence has now clearly been accepted by a higher Australian court.
Second, it confirms that even if the duties may not affect how an employer actually exercises its right to dismiss an employee, they can affect the procedures used to decide whether to dismiss.
If therefore an employer fails to pursue a sufficiently rigorous investigation before dismissing a worker, or arguably if it tries to terminate the employment for false reasons, it may be exposed to a claim for breach of contract by an employee.
Crucially, this will not be affected by the fact that the Federal government has removed the ability of employees to bring unfair dismissal proceedings in all but the smallest minority of cases.
If you are considering commencing an investigation into an employee’s conduct or you intend to rely on misconduct to terminate an employment, you should contact your DAS adviser to determine whether the procedures or the reasons to be adopted will satisfy the requirements of the implied duties of the employment relationship.
Because of the principles and cases referred to by the Court, the decision of Russell is likely to play an important role in the application of the duties of trust and confidence and good faith in this country.
If you would like more information, please contact a member of our National Workplace Relations Team listed on the right hand side of the screen.
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