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.

What is adverse action?

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”.

Is all adverse action unlawful?

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:

• because they have a workplace right (e.g. they are entitled to be paid a particular award rate)
• because they exercise a workplace right (e.g. they make an enquiry about their employment conditions, or complain about something at work)
• because they fail to exercise a workplace right (e.g. they don’t elect to take overtime as time in lieu but want it paid at overtime rates instead)
• because they have a disability or temporary illness (e.g. they take time off work because they’re sick)
• because they have some other protected feature (e.g. family responsibilities, pregnancy)
• because of industrial activities or relationships (e.g. because they’re a member of a union or engage in union activities)

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.

But that’s not why I did it!

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?

What about during probation?

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.

What’s the risk?

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.

What can you do?

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:

• Slow down and think about what you’re doing. Emotional decisions usually blur the real reasons for your actions and they’re often based on untested assumptions rather than real facts. They also make it harder for you to say you considered all the relevant circumstances rationally (and disregarded the irrelevant, unlawful issues) before landing on your final resolution.
• Ensure you can explain why you’re doing something before you do it. If you can’t explain your actual reasons from the outset, then how will you be able to convince a court later that you didn’t do it for a different, unlawful reason? Likewise, if you are relying on some form of complex analysis, then you need to be able to distil that into a simple, clear message that you can roll off like an elevator pitch, but back up with further detail if you need to.
• Consider the impact of your choices before you make final decisions. Even if you believe something is good for your business, the employees and workers affected by your actions may have a different perspective. Modern Awards include consultation provisions that require employers to consult with employees about major changes. However, consultation can also be really useful even when it isn’t required. Even if you proceed with the change, staff members usually appreciate you listened to their views.
• Know who’s responsible for particular decisions in your business and set up appropriate delegations where appropriate. For example, if you run a group practice and a worker makes an adverse action claim, they will usually sue the business itself as well as all the directors, owners or key managers they think were involved in the decision. However, if only one person had ultimate decision-making responsibility, then it will be much simpler for that single person to stand up in court and defend their reasons. Isolating the decision-maker can also help protect a business if other stakeholders would find it difficult to disregard illegitimate considerations.
• Document your decision-making processes. There’s no law that says you have to give an employee a reason for dismissing them (particularly in a probation period), but if you don’t, they may jump to conclusions that it had something to do with the sick leave they took last week. Likewise, if you’re making a business decision, such as rolling out a new procedure, then it’s helpful to be able to point to Board minutes or a business case document that shows what you took into account and why.

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 professionalservices@amansw.com.au. 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.