Welcome to our monthly Workplace Relations Update for Executives On-The-Go.

In this update we cover:

  • Sham Contracting…again (BUT, this time it’s personal)
  • Another bank under fire – lessons in managing the employee life cycle from recruitment to exit
  • Short Content Survey

Sham Contracting – HR Manager Personally Liable for Sham Contracting Arrangements

We have devoted quite a bit of airtime in recent blogs to the issue of Sham Contracting. Without seeking to flog the proverbial dead horse on this issue, the recent decision of the Federal Magistrates Court (Fair Work Ombudsman v Centennial Financial Services Pty Ltd & Ors [2010] FMCA 863) finding an HR manager personally liable for his part in preparing contracts subsequently found to be in breach of the sham contracting provisions of the predecessor to the Fair Work Act (similar civil penalty provisions remain in the FWA), should be our last word on this issue.

The circumstances involved misrepresenting the employment relationship as being an independent contractor relationship, when the employer, through the HR manager, converted the employees from employment contracts to independent contractor agreements.

Despite Federal Magistrate Cameron describing the HR manager as “…little more than a typist…” for the director, the HR manager was found to be personally liable due to the fact that he knew and understood the contents of the contracts – even though he did not know they were in breach of the law.

If managers have not taken this issue seriously in the past then this most recent decision must surely be the tipping point – unless of course you are prepared to put your personal assets at risk each time you go to work.

We covered in previous blogs (in MaySeptember and January) the issues to consider in determining the nature of the relationship with your workers as well as the risks to your business if you misconstrue this relationship. This most recent decision emphasises the risk to you personally if you fail to act.

The key take-home message for executives: If you engage a contractor and there is even the slightest possibility that he or she might be deemed an employee, then you should take immediate steps to assess their status and ensure they are properly engaged. Act now to protect yourself, to protect your workers and to protect your business.

Another Bank Under Fire – JP Morgan Sued by Derivatives Trader

Here’s a set of facts:

  • employee is headhunted into a new job with a major competitor,
  • employee accepts the offer on the back of various promises made during the headhunting process (including the promise of minimum remuneration and a senior role in new company),
  • promises are (allegedly) not kept and his role changes significantly,
  • after 2 years, the employee’s role is made redundant and his employment terminated.

Does this sound familiar? Is this a case of “wrong fit”, a genuine redundancy or a case of poor management?

This is a simplistic summary of the facts behind derivative trader, Colin Keays’, action against his former employer JPMorgan. Whilst a bank being sued by a disgruntled former employee would not normally get a look-in here, this particular case warrants attention – firstly, for the $$ being claimed and, secondly, for the basis on which he is claiming this sum.

Mr Keays is claiming more than $6 million from JPMorgan. To put this in perspective, Mr Keays is claiming more than would be earned in one year by 95 workers on the average wage. Will he get it? Well if the facts that he is presenting are accepted then the law is on his side. Don’t be fooled by the big numbers, the grounds on which he has based his claim are what matters here and the same principles apply irrespective of the amounts involved.

Mr Keays based his claim on two grounds, namely:

  • Misleading and deceptive conduct; and
  • Breach of contract (under which he is also seeking damages for damage to reputation and distress).

These claims have been successful in the past and will continue to be so in the future. Whilst you can never completely remove the risk that your organisation will be subjected to such a claim at some point, there are a number of simple steps that you can take to minimise the risk of this happening.

What Do Employers Need to Do?

It is actually fairly simple and you can start by asking yourself a number of questions, each of them related to different phases in the employee life cycle:

1.       Recruitment – it all starts here.

  • Do you have a robust recruitment process in place in your organisation?
  • Do you undertake position analysis and have detailed job descriptions based on this analysis?
  • Are those conducting interviews and negotiating with prospective employees sufficiently trained and aware of their legal obligations?
  • Are detailed background checks undertaken as part of the process?

2.       Employment Contracts

  • Does the employment contract reflect the representations made to the employee including as to the nature of the role (i.e. the job description) and the remuneration?
  • Are employment contracts kept up-to-date with changes in the employee’s role or seniority and changes in law?

3.       Induction & Probation

  • Do you undertake a comprehensive induction process for each new employee?
  • Do you manage the probation period properly (i.e. conduct regular performance reviews during and prior to the end of the probation period)?

4.       Performance Review, Remuneration and Rewards

  • Are remuneration and benefits linked to key performance criteria in the employee’s contract and job description?
  • Do you conduct regular face to face performance reviews as part of your overall staff performance management system?

5.       Discipline and Dispute Resolution

  • Are your managers properly trained to address poor performance including to undertake counseling and disciplinary action?

6.       Termination and Exit

  • Do you have detailed termination policies and procedures in place?
  • Are your mangers properly trained on how to handle termination situations?
  • Do you conduct exit interviews?

7.       Policies and Procedures

  • Do you have an internal grievance handling program in place as part of your workplace relations / HR policies and procedures?
  • Have you properly implemented this program (i.e. is it readily available for staff, are staff trained on the program, do you have records of training, are you able to measure the effectiveness of the program and do you conduct regular reviews to ensure that it is improved and kept up to date with changes in law)?

If the answer to any of these questions is “no” then you should carefully consider the risks your organisation faces, the damage to your business if you are subjected to such a claim and the ease of addressing these issues to mitigate the risk.

If you have any questions relating to issues raised in this blog, or for more information please visit www.complispace.com.au or contact David Griffiths on +61 (2) 9299 6105 or david.griffiths@complispace.com.au

CompliSpace Content Survey

The Team at CompliSpace is committed to delivering governance, risk and compliance (GRC) solutions to address those issues that concern you the most. To help us understand the key GRC issues facing your business we would greatly appreciate you taking part in our short survey (less than 5 minutes).