Employment and Safety Client Update - June 2012

Stephanie Nicol, Partner, Sydney
Mark Sant, Partner, Sydney
Nicholas Linke, Partner, Adelaide
 

In sickness and in health: absence on workers’ compensation counts towards qualifying period for unfair dismissal - Restraints: Yes, they are worth the paper they are written on - Principal exposed for underpayment of subcontractors


In sickness and in health: absence on workers’ compensation counts towards qualifying period for unfair dismissal
By Juvena Hannan, Solicitor of Gadens Lawyers Sydney 

A full bench of Fair Work Australia (FWA) has clarified that the absence of an employee on workers’ compensation will count towards the qualifying period for protection from unfair dismissal.
Background
The employee was a casual employee engaged on a regular and systematic basis by a national labour hire business.  On 1 June 2010, approximately two and a half months after the employee had started his most recent casual engagement with a client of the employer, he was injured at work.
The employee’s injury caused him to be absent from work on workers’ compensation for approximately 15 months.  On 23 September 2011, he was certified fit for work and he told his employer that he had been certified fit for work from that day.
On 17 October 2011, the employee received an Employment Separation Certificate from his employer, which indicated that his employment had ended on 24 September 2011.  The employee subsequently made an application to FWA for an unfair dismissal remedy.
At first instance, FWA determined that the employee was a person protected from unfair dismissal by the Fair Work Act 2009 (Cth) (Fair Work Act).  The labour hire employer appealed.
Decision of the Full Bench
The central issue considered by the Full Bench was whether the employee was an employee protected from unfair dismissal.  In order to be an employee protected from unfair dismissal, the employee had to satisfy FWA that, as a casual employee, he had been engaged on a regular and systematic basis for more than six months.  This question turned on whether the employee’s absence from work on workers’ compensation was an ‘excluded period’ for the purpose of the Fair Work Act when calculating the length of his service with the employer.
The Full Bench held that the absence from work on workers’ compensation was not an ‘excluded period’ for the purpose of calculating the employee’s length of service because his absence was neither ‘unpaid leave’ nor an ‘unpaid authorised absence’.  Rather, the absence was to be characterised as paid leave by virtue of the fact that the employee was in receipt of workers’ compensation payments made pursuant to a legal obligation on the employer.
Accordingly, the casual employee did have protection from unfair dismissal as he had completed more than six months’ regular and systematic employment with the employer.
Key lessons for employers
The Full Bench has clarified that the absence of an employee on workers’ compensation will count towards the qualifying period for protection from unfair dismissal. 

Restraints: Yes, they are worth the paper they are written on
John-Anthony Hodgens, Partner and Tegan Tvede, Solicitor of Gadens Lawyers Brisbane.
An unqualified accountant has been ordered to pay his former employer $188,495.65 plus interest after he provided services to clients of his former employer, in breach of the restraint clause in his contract.  The decision of the Victorian Court of Appeal dispels the myth that only “executives”, “managers” and “professional staff” can be subject to a valid restraint of trade after the termination of their employment.
Background
The employee was employed by the employer accounting firm as a trainee accountant.  The employee did not have any formal accounting qualifications but, nonetheless, was promoted during his employment to the position of supervising accountant.
As a supervising accountant, the employee’s work was only subject to review and ‘signing off’ by the principal accountant in his section.  Critically, the employee had regular, direct contact with clients, one of which, in particular, he developed a close working relationship of special trust and influence.
After 6 years of employment, the employee resigned.  He then took up part-time employment with a competitor accounting firm.
A few months later, the key client with whom the employee had a strong relationship asked both the old employer accounting firm and the new competing firm for a quote for accounting services.  The competitor’s quote was lower than the old employer firm’s quote and the client subsequently terminated its retainer with the old employer firm to engage the competing firm.
The employee became a qualified accountant and began providing accounting services to the key client and other former clients of the old employer firm he had performed work for while he was employed by the old employer accounting firm.
The Restraint
At the time of his employment with the old employer firm, the employee entered into a written employment contract.  The contract contained a restraint of trade clause by which, among other things:
  (1)  The employee agreed not to provide ‘Services’ to any person who was a client of the firm during the 3 years prior to the cessation of his employment, who was still a client of the firm at the cessation of his employment; and
  (2)  The employee agreed not to provide ‘Services’ to any client of the firm to whom the employee provided “Services” at any time during the 4 years prior to the cessation of his employment and who was a client of the firm within the 12 months prior to the cessation of his employment.
“Services” were defined as the practice of chartered accountants, taxation agents, business advisor and activities of a related nature.
The contract also provided that if the employee breached the restraint of trade clause, he was liable to pay to the old employer a sum equal to 75% of the fees incurred by the client with the firm in the last full financial year in which the client remained a client of the firm.
The Proceedings
The old employer commenced proceedings against the employee for damages for breach of the restraint clause.  Among other things, the court had to consider whether the employee’s conduct was in breach of the restraint.  This turned on the meaning of the term “Services” in the employment contract.
The employee argued that his conduct did not breach the restraint because the term “Services” was a reference to the services of professional practitioners and not those provided by undergraduates, trainees, clerks or other unqualified persons.  As such, because the employee was not a qualified accountant and provided, in his words, only “book-keeping services”, he had not provided “Services” to the client.
On the other hand, the old employer argued that the employee was a “para-professional”, who performed recurring work for clients and who had regular and direct contact with them.  As such, it argued that the employee had provided ‘Services’ to the client.
The Court found in favour of the old employer.  In doing so, it stated that:
     “…the services provided by the employee of the firm must be likely to   engender in the employee a reasonable level of knowledge of the affairs and accounting requirements of the client and a corresponding level of confidence by the client in the employee.  Thus the services provided must go further than ad hoc or isolated services, and must involve the employee providing those services on a continuing or recurring basis such as to create with the client an element of professional goodwill”.
The employee was ordered to pay the old employer $188,495.65, being 75% of the fees incurred by the client and other clients, plus interest.  The employee was also ordered to pay the costs of the proceedings and the appeal.
Key lessons for employers
Post-employment restraints of trade are only enforceable if the restrictions imposed are reasonable, having regard to the interests of the parties to be protected, and the public interest.
A common misconception is that only executives, managers and professional staff can be validly restrained.  This decision is an important reminder that it is the ‘customer connection’ or relationship of special trust and influence that is the key to the validity of a restraint, and not simply the status of the employee.
If you have an employee who works closely with your customers and clients, knows your trade secrets or valuable IP and commercial terms you can restrain him or her from taking your customers and clients when he or she leaves your business.
The devil is in the detail and you must ensure that the restraint does not go beyond what is reasonable, having regard to your legitimate business interests.

Principal exposed for underpayment of subcontractors
Susan Babidge, Senior Associate and Thyme Burdon, Law Clerk of Gadens Lawyers Adelaide.
Turning a ‘blind eye’ to outsourced work performed by another enterprise using contractors on below-award rates of pay may expose enterprises up the procurement chain to liability.
Background
The Fair Work Ombudsman (FWO) has recently launched proceedings in the Federal Court against a major supermarket chain (and others) over underpayments to six subcontracted trolley collectors at four Adelaide supermarkets.
The alleged underpayment of wages and entitlements between January 2010 and July 2011 amount to a total of almost $150,000.
It is alleged that the six trolley collectors, Indian men with limited English skills, were each underpaid amounts ranging from $1052 to $70,194 and cumulatively a total of $149,530.
It is alleged that the six trolley collectors, some working up to 70 hours per week, were paid only $8 per hour when they were entitled to more than $15 per hour for working normal hours and up to $34 per hour for work on weekends and public holidays. They were also underpaid entitlements including superannuation and annual leave.
The trolley collectors were employed by a labour hire company contracted by the supermarket chain to supply trolley collectors in the Adelaide area.  The labour hire company has recently gone into liquidation.
Extension of liability to the supermarket
The FWO argues that the supermarket had constructive knowledge of the underpayments, as the contracting prices it paid the labour hire company could not realistically provide the workers required without undermining minimum wage rates and entitlements.
The FWO is pursuing penalties against the supermarket chain and the individuals behind the labour hire company for breaches of underpayment provisions in the Fair Work Act 2009 (Cth) (Fair Work Act).  Under these provisions, individuals face maximum penalties of $6,600 per breach and corporations face maximum penalties of $33,000 per breach.
This is the second prosecution of the labour hire company and supermarket chain for the alleged underpayment of workers.  A similar case involving underpayments to four trolley collectors at another supermarket in Adelaide amounting to over $143,000 is currently before the Federal Court.
Key lessons for employers
The FWO, Nicholas Wilson, has warned that ‘turning a corporately-sanctioned “blind eye” to outsourced work that is performed by another enterprise using contractors on below-award rates of pay may expose enterprises up the procurement chain to liability.’
The prosecutions currently on foot demonstrate the scope of liability for breaches of the Fair Work Act. Particularly, they indicate that the FWO will prosecute a business that has outsourced the provision of labour to a third party if they have knowledge of underpayment-related breaches by the third party.
Employers should be mindful of the difference between the cost of contracting a labour hire company to meet labour needs and the cost of hiring employees directly.  An unrealistic discount between the two might be attributable to underpayment of wages and entitlements rather than mere business efficiency.
Employers should be especially vigilant when the subcontractors they engage are vulnerable workers, such as the young or those with limited English skills.  These workers are less likely to be aware of their workplace rights and entitlements. The vulnerability of the workers, together with the large amounts allegedly involved, was a decisive factor in the FWO’s decision to prosecute the supermarket chain in the present case.