Reviewing employee and contractor requirements during a downturn - what business owners need to know



In times of economic uncertainty, businesses will essentially need to manage their needs for full-time, part-time and casual employees and services provided by contractors and sole traders. Each will require different considerations.


The principles outlined in this information sheet are for guidance only and specific responses and advice will vary depending on your particular facts and circumstances.


Workers engaged under contracts of employment


An employee’s rights and entitlements are protected under the Fair Work Act 2009 (Cth.) (the Act), the National Employment Standards (NES), Modern Awards and Employer Enterprise Agreements. These rights and entitlements differ depending on whether an individual is a full-time, part-time or casual employee.


Full-time and part-time employees are those that have ongoing employment (or a fixed-term contract) and are required, and can expect, to work set hours.


A casual employee does not have, from an employer, a forward commitment to be required to work at certain times, or for fixed hours. A casual employee, similarly, need not agree to carry out work offered by an employer at any time.


Variation or reduction in an employee’s working hours


Employers have an obligation under most modern Award or enterprise agreements to consult with their employees (which might include that employee’s union) regarding changes to normal hours of work or rosters. Awards and Enterprise Agreements may also specify other rules about changes.


A permanent employee’s normal working hours in a week may not be reduced without agreement with the employee.


Can an employment contract be suspended and an employee stood down?


An employee may only be stood down if they cannot be usefully employed due to a stop in work for which the employer cannot reasonably be held responsible. The availability of this option to an employer depends on the circumstances. It is not something an employer can do lightly and all matters should be considered before an employer makes such a decision.


It will be up to the employer to show that a stood-down employee could not be usefully employed elsewhere in the employer’s business and that the cause of the stoppage is not something for which the employer could reasonably be held responsible.


Termination of an employment contract may take place by the employer or the employee during any stand-down or suspension period.


Alternatives such as employees taking accrued leave or unpaid leave, or being directed to take paid leave, should be considered by an employer as alternative options.


Termination of employment contracts


Termination of employment contracts should be handled delicately and with proper consideration. There are many things to take into account, including the risk of triggering a claim by the employee for unfair dismissal if they think that they have been unfairly dismissed, or if they feel that their dismissal was not handled fairly.


Entitlements of an employee including pay, notice periods and other benefits on termination, including an entitlement to a redundancy payment, need to be considered.

Different consideration and obligations arise when dealing with casual employees.


Termination of employment – notice periods


An employer may terminate the employment of an employee for many reasons. Generally, on termination, an employer must provide the relevant employee with the required minimum notice period (unless the circumstances justify a summary dismissal).


The minimum notice period that an employee is entitled to receive is established by the National Employment Standards (NES) and depends on how many years of service an employee has provided in their employment.


The minimum notice periods required to be given and their corresponding periods of employment are:

Where an employee’s employment agreement specifies a requirement for a longer period of notice on termination, the longer period of notice specified in the employment agreement applies.


If an employee is over the age of 45 and has worked for at least two years on the day that notice of termination is given, then that employee is entitled to an extra week's notice in addition to the NES minimums. Again, if a contract of employment specifies a longer period then the contract of employment prevails.


Termination of Employment


First and foremost, the employee must generally receive written notice on the day the notice of termination is to take effect – by way of a termination letter.


A termination letter may be handed to the employee personally, left at their last known address or sent by prepaid post to their last known address. It is up to the employer to determine which method of delivering the letter of termination they wish to use. To endeavour to best manage and preserve relationships, many employers choose to provide the termination letter to the employee during a face to face meeting.


Notice of termination may be given to an employee who is on probation. Generally, one week’s notice will be required – longer if specified in the contract of employment.


Notice of termination may also be given to an employee who is on leave – the notice will need to be left at, or posted to, the employee’s last known address. The minimum notice periods still apply and it is important that an employer is able to establish that the notice was properly given.


An employer may require an employee to work out their notice period or choose to pay out the employee their wages and entitlements for the notice period in whole or in part (often called payment in lieu of notice).


Notice to casual employees


A casual employee, generally, does not have access to the same entitlements that are available to part-time or full-time employees, such as paid annual leave, paid personal/carer’s leave, public holidays, notice of termination, etc. Matters need to be assessed on a case by case basis, as the nature of a position may change during the course of employment. The Act does not define the meaning of ‘casual employee’ so this term has its own general meaning as determined by case law. The following factors have been considered as relevant indicators of the existence of a casual employment relationship. This list is not exhaustive, nor is any particular factor given greater weight over any other when seeking to determine whether an employee is ‘casual’:


  • the way in which wages are paid – hourly rates are more consistent with casual employment than are weekly wages

  • the period of time over which the employment extends – the longer the length of service, the less likely the employee is a casual employee

  • the number of hours worked per week – the more numerous the hours worked, the less likely the employee is a casual employee

  • whether the employee had a consistent starting and set finishing time – the more consistent the hours, the less likely the employee is casual.


The Act excludes the need for an employer to give a casual employee notice of termination and entitlement to redundancy pay. Whether a casual employee is entitled to notice of termination may also depend on the provisions of any applicable Modern Award or Employers Enterprise Agreement.

Other workers excluded from minimum termination notice requirements


Casual employees are not the only category of employee excluded from the notice of termination provisions under the Act. The Act also excludes the following categories of employees:


  • an employee engaged under a contract of employment for a specified period of time, a specified task, or a specified season

  • an employee whose employment was terminated because of serious misconduct

  • an employee (other than an apprentice) to whom a training arrangement applies and whose employment is for a specified period of time or is, for any reason, limited to the duration of the training arrangement

  • a daily hire employee working in the building and construction industry,

  • a daily hire employee working in the meat industry in connection with the slaughter of livestock

  • a weekly hire employee working in connection with the meat industry and whose termination is determined solely by seasonal factors.

The minimum period of notice of termination provided by the applicable Modern Award or Enterprise Agreement is still enforceable.


Unfair Dismissal


The dismissal of a full-time or part-time employee may be considered unfair if:


  • an employee’s contract of employment is terminated, that is, the employee is dismissed; and

  • the dismissal was not due to a bona-fide circumstance of redundancy; and

  • if the employee was employed in a small business (less than 15 employees), the employer did not comply with the Small Business Dismissal Code.

Dismissed employees may not bring a claim for Unfair Dismissal if they have worked for the employer for a period of less than 6 months, or, if the employer is regarded as a Small Business under the provision of the Act, a period of 12 months.


A Small Business is a business that has fewer than 15 employees employed on a regular and systematic basis.


Any claim for Unfair Dismissal by an employee must be made with 21 days of the date of receipt of the notice of termination.


Redundancy


If an employee’s dismissal is due to a genuine redundancy situation an employee is not entitled to a claim for Unfair Dismissal.


A genuine redundancy can occur when:


  • an employer decides that it no longer requires an employee’s job to be done by anyone

  • an employer become insolvent and terminates an employee’s employment contract

  • an employer closes down their business

  • any employer’s business slows down due to lower customer demand

  • an employer relocates interstate or overseas

  • an employer reorganises their business needs or structure due to a merger with or take-over by another entity.

If an employee’s position is redundant and they have worked at least 12 months for the employer, the employee is entitled to a redundancy or severance payment – in addition to any required notice period.


Casual employees are not entitled to redundancy payments, neither are employees who were employed for a fixed or stated period of time, or for an identified task or project, or for a particular season.


The amount of redundancy pay entitlement is calculated by reference to the employee’s base rate of pay and their length of service and is determined by the National Employment Standards or the employee’s applicable Award if it provides for a greater amount.


The NES minimum redundancy payment obligations are:



Independent Contractors


Independent Contractors (including sole traders), sometimes referred to as subcontractors, are not employees. They are responsible for running their own business and operations and can work for more than one entity or organisation at a time.


Termination (or suspension of agreements) with independent contractors, including provisions that allow for termination and the length of any termination notice periods, depends on the specific terms and conditions of the applicable contract.


Care and consideration must be given in determining whether a contractor may in fact be deemed to be an employee for the purposes of the Act. Whether a contractor may actually be determined to be an employee (and therefore entitled to employee rights and protections) depends on the nature of the arrangement, even if the arrangement is not called a Contract of Employment or Employment Agreement.


Matters to be considered in determining whether a person is a contractor or an employee are summarised here.


These considerations are not exhaustive, and whether an individual is an employee or contractor may be determined by other factors.


If you need any assistance, please get in touch with us via our website, or give us a call on +61 (2) 9300 3100.


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