Costly and easy to make, adverse action claims pose a significant risk to employers, but there are practical steps you can take to safeguard your business.
We’ve all heard of unfair dismissal, anti-discrimination and anti-bullying laws. Yet many business owners still don’t seem to know about the “adverse action” rules that have been part of the Fair Work Act since 2009. Adverse action claims can be far costlier for businesses than other types of claims, and much easier for workers to make. They also extend well beyond dismissal situations, potentially limiting how businesses make decisions, implement change, or exercise management discretion affecting their employees and contractors.
Adverse action claims are increasingly being made by people who are unhappy with management decisions or seeking an outlet for their disgruntlement. It’s not uncommon for staff members who have been the subject of performance management or recently been terminated to make these claims. Employees may also use this type of claim to prevent an employer from going ahead with a restructure or change process they don’t like.
Given that a single breach of adverse action rules can carry a penalty of up to $63,000 (on top of any compensation payable and other orders), we encourage members be aware of the risk and start learning what adverse action rules mean for them.
Adverse action is an extremely broad concept. Anything that “injures” a person in their employment or that prejudices their position could fall into the definition.It also extends to independent contractors (e.g. refusing to use a contractor’s services) and to prospective employees (e.g. failing to hire them).
In practical terms, adverse action could potentially include investigating or suspending an employee, issuing them with a warning, reducing their hours, failing to offer them their preferred shift pattern, or limiting their access to training and promotion. It might also include something less obvious, like requiring them to change the way they perform their duties. For contractors, it might include ceasing to use or renew their services, or including unreasonable terms in their contracts. Threatening to do any of those things could also be adverse action and, unlike discrimination laws, there’s no comparator test for adverse action, so it’s not relevant to argue, “I treated them the same way I’d treat anyone else”.
No. Although adverse action includes many things, not all adverse action is unlawful. It is, however, unlawful to take adverse action against a worker because of a workplace right, or another prohibited reason. You can’t take adverse action against an employee:
As well as workplace rights, other protected attributes include all the usual anti-discrimination attributes, including race, colour, gender, sexual orientation, age, physical or mental disability, marital status, family or carer’s responsibilities, pregnancy, religion, political opinion, national extraction or social origin.
When faced with an adverse action allegation, many managers will acknowledge they did take adverse action. However, they’ll deny they took that action for a prohibited reason.
Firstly, to be unlawful, only one of your reasons needs to be prohibited. So, even if you have a list of legitimate reasons why a warning is warranted, if you include even one unlawful point (e.g. the employee’s history of taking sick leave), then the warning will be tainted.
Secondly, there’s a reverse onus of proof. That means there’s a presumption that adverse action was taken for an unlawful reason unless you can prove otherwise. If an employer or manager can’t provide sufficient evidence to convince the court that their reason was not unlawful, the claim will succeed. Think about that for a moment – how would you prove that you didn’t consider the employee’s history of taking sick leave?
Unlike unfair dismissal laws, there’s no protection for employers during an employee’s probation period. Even if an employee has been with an employer for less than six months (or less than 12 months in a business with less than 15 employees), the employee is still eligible to bring an adverse action claim against an employer.
There’s no cap on the compensation that can be awarded in adverse action cases. In unfair dismissal cases, the maximum compensation is six months’ pay at the high-income threshold rate (currently $72,700), but compensation in adverse action cases could be much higher, depending on the circumstances. The court can also make other orders, including injunctions or reinstatement orders.
In addition, adverse action laws are penalty provisions, so there are fines for breaching them that apply on top of compensation or other orders. For a company, the maximum penalty per breach is currently $63,000. For an individual, the maximum penalty is currently $12,600. Even if the maximum penalties aren’t awarded, prosecutions for adverse action usually include a number of different alleged breaches and a number of different respondents, so when you add up a few different penalties each for a few different managers, directors, and the employing entity, the fines can be really expensive.
Adverse action laws aren’t supposed to prevent employers from making reasonable and necessary business decisions. They do, however, hold employers and managers accountable for their decision-making processes. The critical issue is to make sure you can clearly explain your valid reasons, and provide evidence demonstrating that your decision-making processes were robust and appropriate. You must ensure affected workers also understand and accept those legitimate reasons.
Here are some practical tips for minimising the risk of an adverse action claim:
The views and information provided in this article are of a general nature only and do not constitute legal advice. It is not tailored for your particular circumstances. If you would like specific assistance with issues raised in the article, please contact our professional services team on firstname.lastname@example.org. If we are unable to provide specific advice or legal services to you directly (or to do so within your desired timeframes), we would be happy to refer you to appropriate external providers. In that regard, AMA (NSW) has relationships with preferred providers who will generally provide a free initial consultation to our members.