30 Sep September Newsletter: Redundancy Obligations and ESS

Adverse Action Decision Highlights Redundancy Obligations

Mr Scott was made redundant in October 2014 as part of his employer’s redundancy process, which was implemented after the employer found it was facing “a high level of operating cost pressure”.  The redundancy decision-making process included assessment of each employee’s worker performance, performance management history, skills/competencies and attitudes.  Employees were then ranked and the results were reviewed to ensure that employees with the appropriate skills and competencies were retained for future needs.

Mr Scott (who was also President of the Lodge of the Construction, Forestry, Mining and Energy Union (“CFMEU”) at the relevant mine) was selected for redundancy.  The CFMEU claimed, inter alia, that the employer had engaged in adverse action in breach of the Fair Work Act 2009 (Cth) (“FW Act”).  The CFMEU claimed that Mr Scott had exercised various workplace rights, was a member of an industrial association, engaged in industrial activity and that these reasons motivated Mr Scott’s redundancy.

The matter came before Reeves J, who said that in determining the relevant decision-maker/s for Mr Scott’s redundancy, the correct approach to adopt was to determine first, “whose reasons had a material effect on the reasoning process” and secondly, whether the reasoning process adopted by those persons breached the FW Act.  Reeves J reviewed the evidence and determined that the relevant decision-makers were two employees who had conducted the assessments (Mr Christensen and Mr Fleming), as well as the General Manager who made the final decision.  Reeves J reviewed reasoning process adopted by Mr Christensen and Mr Fleming, including the information they relied on in making their decisions, such as their own personal knowledge (they had only assessed employees they knew) and discussions they had with other staff.  Both were given a document outlining what they were not permitted to take into account and this included discriminatory grounds, workplace rights, union status and engagement in industrial activities.

Both Mr Christensen and Mr Fleming had identified issues with Mr Scott’s attitude.  Reeves J noted the impressions formed by Mr Scott, concluding that he could understand why Mr Christensen and Mr Fleming had formed the view that he was “at times, sarcastic”, also finding that “it was likely that [Mr Scott] was generally known within Clermont Coal’s management team and by its superintendents and supervisors, as a union activist who was particularly difficult to deal with”.

Reeves J noted the difficulty faced by the employees conducting the assessment when an employee’s attitude is a central part of the assessment and that the employee is also a union activist.  He found that Mr Christensen had concentrated on Mr Scott’s “performance as an employee and his attitude and manner more generally” and that his and the General Manager’s reasoning process complied with the FW Act.  However, on the evidence, Reeves J found that Mr Fleming “was distracted from that course by his difficult relationship with Mr Scott, which stemmed from his terse dealings with him as a Construction, Forestry, Mining and Energy Union executive member”.  In that “state of mind” Reeves J said, Mr Fleming had allowed one or more of the reasons alleged by Mr Scott to affect his reasoning process.  As such, the employer had breached the FW Act.

Lesson to be learnt

Whilst documented assessment processes can be valuable for redundancies, they may not prevent adverse action.  When redundancy decisions are made, care must be taken to ensure that reference is not made to unlawful factors (either overtly or in the mind of a decision maker).  If you require advice about implementing a redundancy process or ensuring your employment decisions are made in compliance with the FW Act, please contact us.

New legislation opens the door for Employee Share Scheme (“ESS”) tax concessions

In July 2015, the Income Tax Assessment Act 1997 (Cth) was amended by the Tax and Superannuation Laws Amendment (Employee Share Schemes) Act 2015 to improve the taxation of employee share schemes (“ESS”).

An ESS offers employee the opportunity to gain part ownership in their employer through the purchase of shares or rights.  Sometimes shares are offered at discounted rates under an ESS.  In the same way that normal income is taxed, benefits (such as discounts) received by an employee under an ESS can also be taxed.

The recent amendments mean that concessions now apply to “start-up” companies who implement an ESS in their workplace.  Companies that are Australian resident taxpayers, not listed, incorporated less than 10 years ago and do not have an aggregate turnover of more than $50million are eligible to receive the concessions.

The ESS must:

1. Comply with other ESS requirements; and
2. Be accessible to at least 75% of the employer’s permanent employees who are Australian residents and have at least three years of service.

Other obligations under taxation and corporation law will still need to be complied with and capital gains tax may be relevant.  Employees must hold their shares (or shares acquired on an exercise of a right) for at least three years.

The concession will be available on the discount received by an employee on the purchase of shares, provided the discount does not exceed 15% of the market value of the share when the share is acquired.  Where rights are offered to employees, concessions will be available where the amount paid to exercise the right is equal to or greater than the market value of a share at the time the right is acquired.

The amendments also establish the ability for the Australian Taxation Office (“ATO”) to implement new “safe harbour” valuation methods, designed to assist companies in placing a value on their unlisted shares.  The ATO states on their website that they will accept a valuation provided it is calculated in accordance with the methods approved by the ATO.

An ESS can be a valuable way to encourage productivity by providing employees with some business ownership through shares and these amendments provide eligible companies with new opportunities to rethink their remuneration policies and procedures.  Please contact us if you are interested in the employment law implications of setting up an ESS in your workplace.

The content of this article is intended to provide a general guide to the subject matter.  Specialist advice should be sought about your specific circumstances.