Here at Employment Innovations our advisers provide workplace advice to businesses of all shapes and sizes. We’ve compiled a list of our top ten employment law myths that we find catch out employers again and again. If you’ve fallen foul of any of these employment law misconceptions – don’t worry – you’re in good company.
Employment law myth #1 – “If they have an ABN they’re an independent contractor”
The distinction between when someone is an employee or an independent contractor is something that a lot of businesses struggle with. The consequences of getting wrong can be severe: financial penalties and the risk of back-paying employment-related entitlements.
Whilst many people believe that simply engaging someone through an ABN (Australian Business Number) is sufficient to establish a true contractor arrangement, this is not the case. Courts will look at the relationship as a whole, and the use of an ABN is just one (small) part of the equation. Relevant factors also include: Can the worker delegate work to others? Does the worker have to provide their own equipment and materials? Does the worker represent themselves as part of the “host” organisation (eg through uniform, business card, email address), etc.
If you need help working out the distinction between contractor and employee, check out our free Employee v Contractor Checklist.
#2 – “We don’t need to pay independent contractors superannuation”
A very common employment law misconception. Unfortunately, it’s not quite that simple. Even genuine contractors can be entitled to superannuation in circumstances where:
- they are paid mainly for their personal labour and skills (rather than to provide materials or equipment);
- they are required to perform the work personally (rather than being able to delegate the work to others, such as their own employees or sub-contractors);
- they are paid for hours worked, rather than to achieve a result.
Contractors are also generally entitled to superannuation when they are contracted to perform or provide services in relation to music, plays, films, TV, radio, dancing, entertainment, sport or promotional activities.
#3 – “Casual employees don’t get paid leave”
Whilst it’s true that casual employees are not entitled to most forms of paid leave, the one exception is…. long service leave!
If you are not providing this leave to long-serving casuals, then your business is at risk. The rules around calculating long service leave are complex and vary from state to state. Given that casual employees work variable hours (or at least they should be!) most legislation provides taking an average number of hours over a set period.
#4 – “Overpayments can be deducted from an employee’s pay”
The law around making deductions from an employee’s pay is complex. The basic rules are that: (a) it can’t be done without an employee’s written permission; and (b) the employee’s permission can be withdrawn at any time.
This is true of overpayments to employees and so employers risk breaching the Fair Work Act 2009 if they deduct overpayments without the employee’s express approval. For more information see the Fair Work Ombudsman’s guidance here.
#5 – “Employees must be given 3 warnings before they’re dismissed”
Whilst it’s true that previous warnings about conduct or performance will be a relevant factor in determining whether an employee has been unfairly dismissed, there is no strict requirement regarding the number of warnings an employee must be given before their employment can be terminated .
In certain circumstances it will be warranted to dismiss an employee without any previous warnings, for example where their conduct has been so severe to warrant instant dismissal.
Furthermore, some employees don’t have rights to claim unfair dismissal (either because they have only been employed for a short amount of time or because their earnings are above the “high income threshold”). In those circumstances it is less important to issue a warning prior to dismissal.
#6 – “Modern awards don’t apply to senior managers”
Modern awards are a set of industry / occupation specific rules and regulations that apply to the majority of employees in Australia.
Whilst most awards’ coverage excludes the most senior employees in the business, there are exceptions. Take the Social, Community, Home Care and Disability Services Industry Award 2010 (SCHADS Award). In the case of Ms Veronica Cubillo v North Australian Aboriginal Family Violence Legal Service FWA 6818 Fair Work Australia confirmed that the award applied to the employer’s most senior employee in the business: its CEO!
The take-out for employers is clear: check which award(s) apply to your business and work out exactly how far up the management chain they extend.
#7 – “If we pay above the modern award, the award doesn’t apply”
Probably the most important features of modern awards is that they set minimum wages based on an employee’s position in the business (and their age, experience, qualifications, etc). There are different rates of pay depending on when the work is performed (eg for evening or weekend work) and entitlements to various allowances may also arise (eg for work-related travel, etc).
Many employers choose to pay an annual salary that is high enough to compensate employees for all entitlements that arise under the award, however that doesn’t mean that the award will stop applying. Rules about leave, breaks, consultation, etc will still continue to operate.
Furthermore, many awards provide very strict rules about an employer’s obligation when paying an annual salary, for example this clause of the Restaurant Industry Award 2010 which requires an employee to sign a weekly record of all hours worked and for the annual salary to be at least 25% above the minimum award rate.
There are provisions in the Fair Work Act that allow employers and employees to enter into a “guarantee of annual earnings” whereby the terms of an award will not apply so long as the employee pays the employee above the current “high income threshold”, but this requires a written undertaking to be given by the employer in a prescribed form: it is not as simple as just paying a high annual salary. Read more about award interpretation.
#8 – “Restraints of trade are unenforceable”
Unreasonable restraints of trade are unenforceable. Reasonable ones are not.
In employment law, courts will, and frequently do, restrain employees from stealing clients, poaching employees and working for competitors, so long as the restraint of trade is properly drafted and is no more restrictive than necessary (eg in terms of how long it lasts or the geographical area it covers, etc).
Even long lasting restraints of trade will be enforced in appropriate circumstances: in Hunter v Koulouris  NSWC 887 a restraint of trade provisions that lasted 5 years was enforced by the Supreme Court of NSW.
#9 – “We don’t need to pay employees for staff meetings and training outside of normal hours”
If you require employees to attend work for staff meetings or training outside their normal work hours, it counts as time worked and the employees need to be paid.
This applies to businesses whether large or small. Cotton On famously had to back pay over 3,000 of its employees for failing to pay them for attending training out of working hours after the matter came to the attention of the Fair Work Ombudsman (see FWO press release here).
#10 – “You can’t give a bad reference”
Let’s bust this employment law myth. Businesses should not give inaccurate or untrue references, but there is no law preventing them from giving a scathing reference in appropriate circumstances.
To avoid any potential difficulties some employers follow a policy of only confirming non-controversial details in a reference (eg dates of employment, details of position, etc) but will not comment on the quality of work performed or other matters.
The dangers of giving a misleading reference principally arise in the risk of a defamation claim from an ex-employee.
Early this year a childcare worker was awarded $237,000 in damages after his employer told parents at the childcare centre that his employment had ended due to disciplinary reasons, whereas he had actually resigned because the employer had increased his rostered hours from part-time to full-time, which clashed with his TAFE schedule: Bowden v KSMC Holdings Pty Ltd t/as Hubba Bubba Childcare on Haig & Chapman  NSWDC 98.
About the author
Simon Obee is Head of Professional Services at Employment Innovations. Employment Innovations’ services include workplace advice, payroll solutions, migration services (visas / sponsorship), human resource management and HR software. Employment Innovation’s partner firm EI Legal provides employment law advice and representation.