Employment Law Myths

By Danielle McNamee, ProcessWorx

Employment law is a tricky and complex area of law and can become very confusing for many employers to understand. Employers will often get things wrong due to several myths and common misconceptions about various areas of the law.

Here are seven of the top employment law myths.

1. It’s illegal to give a bad reference

Many people believe that it is illegal to give a “bad” reference however there is no general obligation by the law to give an employee (or former employee) any sort of reference – good or bad. However, the law might intervene where an employer provides a deliberately dishonest or misleading reference which causes some harm to the employee. Often, many employers simply provide a statement of service confirming the employee’s length of service and position.

2. Three warnings are required before dismissal

There is nothing in the Fair Work Act (2009) that requires employers giving warnings to employees. However, it provides that when the Fair Work Commission is dealing with a claim of unfair dismissal, one matter it must consider is “if the dismissal related to unsatisfactory performance by the person – whether the person had been warned about that unsatisfactory performance before the dismissal” (s 387(e)). It is also important to check employment contracts, workplace policy or enterprise agreements as these can sometimes prescribe that a certain number of warnings must be given before dismissal.

3. Oral contracts mean nothing

Oral contracts such as verbal agreements about how much an employee will be paid or their duties whilst at work can be legally binding. While there is no general requirement for employees to be given a written contract, it is strongly advisable to have one in place so there is less room to argue about the terms of employment in the future.

4. If they have an ABN, they must be an independent contractor

The use of independent contractors can be a frequent area of confusion for employers. This confusion surrounds whether someone engaged as a contractor would more likely be found to be an employee. Many employers believe that if an individual provides them with an ABN then they are automatically considered to be a contractor. However, courts have frequently found employment relationships to exist even when the individual has their own ABN. The courts often look at the relationship as a whole to determine the employee/contractor issue and having an ABN will only be one factor they take into account. Companies can face significant penalties if they wrongly classify someone as a contractor, so it is important to get this right.

5. Extending probationary periods if the employee is not performing well

Many employers will offer an initial probationary period for a new employee, to assess their suitability for the role, and often extend this period if they are still unsure about giving them permanent employment. Even if the employee is made aware of the probation period being extended, there is still a risk of an unfair dismissal claim being brought about if they are let go before the end of probation. The Fair Work Act (2009) does not recognise probationary period concepts in the unfair dismissal provisions. If an employee has completed six months service (or 12 months with a “small business employer”) then they will be able to bring a claim of unfair dismissal regardless of whether they are still within a probationary period or not. This means that it is usually advised that probation periods are not extended beyond the six (or 12) months minimum employment period.

6. If I pay them a salary, the award doesn’t apply

Industry and occupation-specific modern awards set minimum pay rates depending on the employee’s classification. The awards also cover things such as overtime and weekend rates and various employee allowances. Pay rates can be an extremely difficult area for employers to get their head around, and often they will get it wrong. A common practice is for employers to pay an annual salary which will attempt to take into account all financial entitlements under the applicable award. A common misconception is that when an annual salary is paid, the award no longer applies however this is not the case. Firstly, it must be at least equivalent to what the employee would receive if they were paid in strict accordance with the award. It should also comply with other terms of the award that deal with non-monetary entitlements such as employee breaks. The penalties for breaching the terms of an award can be up to $63,000 for companies.

7. A restraint of trade is pointless because courts don’t enforce them

A restraint of trade is a clause in employment contracts preventing former employees from competing with their previous workplace, soliciting their clients and/or poaching staff. The common misconception is that courts don’t enforce these, however the truth is that they will and frequently do prevent former employees from acting in breach of their contractual restraints. Despite this, often a court will not enforce a restraint if it considers there is no legitimate business interest to protect or it will mean the employee cannot perform any form of meaningful work. Sometimes, the area of restraint is considered too wide or the length is too long, but in many cases a court will still enforce these.

For advice regarding any of these areas of employment law or to discuss any HR related issues please contact Danielle on  (08) 9316 9896  or  Danielle@processworx.com.au