Losing staff to The Great Resignation? Here are your legal obligations


If your organisation has fallen victim to the Great Resignation, you’ll need to be across your legal obligations to departing employees.

Whether it eventuates or not, many Australian businesses are focusing on the potential looming threat of the Great Resignation – a term that was coined by Dr Anthony Klotz, an Associate Professor from Texas A&M University, in late 2020.

Klotz used the phrase to describe the increasing number of Americans quitting their job, or intending to, and it has since become common parlance.

Dr Klotz cited four trends underpinning the Great Resignation:

  • A backlog of resignations from those who stayed in jobs they would have otherwise left during the uncertainty of COVID-19.
  • High levels of burnout, heightened by unreasonable workloads and an inability for some people to switch off from work.
  • “Pandemic epiphanies” leading to lifestyle change (i.e. people go in search of greener pastures).
  • Those who simply do not want to return to the physical office environment.

A recent PwC Australia report, entitled ‘What Workers Want’, surveyed 1800 workers and found that 38 per cent are looking for a new job. Similarly, a September 2021 survey of 1000 people by HR platform Employment Hero, found that 48 per cent of Australian workers planned to look for a new job in the next six months.

Aaron McEwan, Behavioural Scientist from global research and advisory firm Gartner, estimates that up to 60 per cent of Australian workers could soon be considering changing jobs, predicting that the Great Resignation will ramp up in Australia in March 2022 once people receive their Christmas bonuses and recruiting restarts.

How to manage departing employees

Much has been written about what employers can do to try and retain their best talent, but the reality is that people will leave. And knowing your legal obligations and rights around managing a departing employee who is leaving during the Great Resignation is important.

Some legal issues that arise from a resignation include:

Pay on termination

There are several payments that might be owing to a resigning employee. Whether these apply and their precise quantum depends on the circumstances of the employment (part-time, full-time or casual) and the source of their entitlements (modern award, enterprise agreement or contract). In general, you must consider whether the following are owing:

  • Any outstanding wages for hours worked, including penalty rates and allowances.
  • The balance of any time off accrued in lieu of overtime that’s not yet been taken.
  • Unused annual leave.
  • Unused long-service leave.
  • Notice pay, if the employee is not working out their notice.

Most modern awards provide that employers need to pay their employee their final payment within seven days of the employment ending (see, for example, clause 17.5 of the Clerks – Private Sector Award 2020).

Otherwise, an employment contract or enterprise agreement may specify when these final payments must be made. If these documents do not apply or specify timing, the Fair Work Ombudsman says that best practice is for an employee to be paid within seven days of their employment ending, although we note there would be some leeway to allow for final payment to be made in the next scheduled pay run, particularly if this was done fortnightly.

Legal obligations if an employee gives no notice

If an employee has not provided notice, the employer can recover wages in specific circumstances (see section 324 Fair Work Act regarding permitted deductions in pay).

Most modern awards say that an employer can deduct up to one week’s wages from an employee’s pay if:

  • The employee is over 18.
  • The employee hasn’t given the right amount of notice under their award.
  • The deduction isn’t unreasonable (see, for example, clause 41.1(d) of the Clerks Award).

However, employers can only deduct pay from wages owed under the award. They can’t deduct from other entitlements owed to the employee, such as accumulated leave or other overaward payments.

There may be corresponding rights to deduct wages for a failure to give notice in any applicable enterprise agreement or employment contract. If this right is not specified, the deduction must be authorised in writing by the employee and be principally for the employee’s benefit, for example, if an employee wishes to work less notice so they can start working at another job sooner.

If an employee’s non-provision of sufficient notice causes or may cause significant loss and damage to the business, an employer may be able to seek an injunction and/or seek damages against the employee, and/or the employee’s new employer depending on the circumstances.

Restraint of Trade and Confidentiality Obligations

Employers should check whether a departing employee is bound by post-employment obligations.

While precise wording might differ, these legal obligations will generally provide that following resignation, an employee may not:

  • Work for a competitor of the employer’s business for a period of time.
  • Solicit any clients, customers or fellow employees to work with.
  • Use or disclose confidential information after leaving employment.

The time and area of the restraint must be no more than is reasonably necessary to protect the legitimate business interests of the employer. It’s only on this basis that the law allows a former employer to restrict an employee’s freedom to work as they please. An unreasonably broad restraint clause will be unenforceable.

What is reasonable will depend on the specific circumstances at hand, and there is no one-size-fits-all duration or area. However, by way of example, the courts have upheld restraints of three to twelve months, and sometimes greater in certain circumstances. An example of an unreasonably broad restraint period is where an employer seeks to impose a restraint period of twelve months in circumstances where the currency of an employee’s confidential information is limited to two months. Such an employee can be easily replaced and relationships with customers can be secured within less than 12 months.

If an employee is bound by post-employment obligations, an employer should remind the employee of those obligations. An employer should also consider whether to place the employee on gardening leave during the notice period, as well as take the opportunity to review any electronic devices or communications if there is a concern of potential breach of any restrictive covenants. These rights will usually be provided for in the employment contract.

If there is any concern of potential breach of the post-employment obligations, employers should act quickly, including writing to the employee about the potential breach and instituting injunctive proceedings as necessary. The Court will consider any delay in commencing proceedings when considering whether or not to grant injunctive relief.

Protections in tort – inducing a breach of contract

If your employees are being aggressively courted by competitors, you may consider whether you are entitled to the protections afforded by the tort of inducing a breach of contract. The elements of this tort (in an employment context) are that:

  • There is an employment contract
  • Another business is aware that such a contract exists and that certain acts will result in a breach (e.g. providing confidential information or approaching former clients in breach of a restraint clause).
  • Notwithstanding this knowledge, the other business induces the employee to do the act or omission that will breach the employment contract and this results in loss or damage to the original employer.

A notable recent example of this in action occurred between two HR software companies. Two senior employees from company A were poached to a direct competitor, company B.

In this case, the NSW Supreme Court enforced company A’s 9-month post-employment restraints and held that the competitor was liable as having induced one employee to breach his contract, by encouraging him to recruit the second employee.

The Court imposed injunctive relief, preventing both former-company A employees from joining the competitor business or using any confidential information.

Understanding the issues above may help businesses to prepare for and navigate their legal obligations during the Great Resignation.

Employers can start future-proofing their businesses in anticipation for a rise in departures, such as  getting restrictive covenants in place, if they’re not already a feature of current employment agreements.

Amy Zhang is an Executive Counsel & Team Leader, and Zeb Holmes is a Solicitor, at Harmers Workplace Lawyers.


Need to touch up on what your legal obligations are as an employer?
AHRI’s short course, Introduction to HR Law, can help you do that.
Book in or the next course on 1 February.


 

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Silvia Hunziker
Silvia Hunziker
1 month ago

Another consideration is the timing of paying long service leave. In Victoria LSL is payable on the last day, e.g. forthwith and penalties apply.

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Losing staff to The Great Resignation? Here are your legal obligations


If your organisation has fallen victim to the Great Resignation, you’ll need to be across your legal obligations to departing employees.

Whether it eventuates or not, many Australian businesses are focusing on the potential looming threat of the Great Resignation – a term that was coined by Dr Anthony Klotz, an Associate Professor from Texas A&M University, in late 2020.

Klotz used the phrase to describe the increasing number of Americans quitting their job, or intending to, and it has since become common parlance.

Dr Klotz cited four trends underpinning the Great Resignation:

  • A backlog of resignations from those who stayed in jobs they would have otherwise left during the uncertainty of COVID-19.
  • High levels of burnout, heightened by unreasonable workloads and an inability for some people to switch off from work.
  • “Pandemic epiphanies” leading to lifestyle change (i.e. people go in search of greener pastures).
  • Those who simply do not want to return to the physical office environment.

A recent PwC Australia report, entitled ‘What Workers Want’, surveyed 1800 workers and found that 38 per cent are looking for a new job. Similarly, a September 2021 survey of 1000 people by HR platform Employment Hero, found that 48 per cent of Australian workers planned to look for a new job in the next six months.

Aaron McEwan, Behavioural Scientist from global research and advisory firm Gartner, estimates that up to 60 per cent of Australian workers could soon be considering changing jobs, predicting that the Great Resignation will ramp up in Australia in March 2022 once people receive their Christmas bonuses and recruiting restarts.

How to manage departing employees

Much has been written about what employers can do to try and retain their best talent, but the reality is that people will leave. And knowing your legal obligations and rights around managing a departing employee who is leaving during the Great Resignation is important.

Some legal issues that arise from a resignation include:

Pay on termination

There are several payments that might be owing to a resigning employee. Whether these apply and their precise quantum depends on the circumstances of the employment (part-time, full-time or casual) and the source of their entitlements (modern award, enterprise agreement or contract). In general, you must consider whether the following are owing:

  • Any outstanding wages for hours worked, including penalty rates and allowances.
  • The balance of any time off accrued in lieu of overtime that’s not yet been taken.
  • Unused annual leave.
  • Unused long-service leave.
  • Notice pay, if the employee is not working out their notice.

Most modern awards provide that employers need to pay their employee their final payment within seven days of the employment ending (see, for example, clause 17.5 of the Clerks – Private Sector Award 2020).

Otherwise, an employment contract or enterprise agreement may specify when these final payments must be made. If these documents do not apply or specify timing, the Fair Work Ombudsman says that best practice is for an employee to be paid within seven days of their employment ending, although we note there would be some leeway to allow for final payment to be made in the next scheduled pay run, particularly if this was done fortnightly.

Legal obligations if an employee gives no notice

If an employee has not provided notice, the employer can recover wages in specific circumstances (see section 324 Fair Work Act regarding permitted deductions in pay).

Most modern awards say that an employer can deduct up to one week’s wages from an employee’s pay if:

  • The employee is over 18.
  • The employee hasn’t given the right amount of notice under their award.
  • The deduction isn’t unreasonable (see, for example, clause 41.1(d) of the Clerks Award).

However, employers can only deduct pay from wages owed under the award. They can’t deduct from other entitlements owed to the employee, such as accumulated leave or other overaward payments.

There may be corresponding rights to deduct wages for a failure to give notice in any applicable enterprise agreement or employment contract. If this right is not specified, the deduction must be authorised in writing by the employee and be principally for the employee’s benefit, for example, if an employee wishes to work less notice so they can start working at another job sooner.

If an employee’s non-provision of sufficient notice causes or may cause significant loss and damage to the business, an employer may be able to seek an injunction and/or seek damages against the employee, and/or the employee’s new employer depending on the circumstances.

Restraint of Trade and Confidentiality Obligations

Employers should check whether a departing employee is bound by post-employment obligations.

While precise wording might differ, these legal obligations will generally provide that following resignation, an employee may not:

  • Work for a competitor of the employer’s business for a period of time.
  • Solicit any clients, customers or fellow employees to work with.
  • Use or disclose confidential information after leaving employment.

The time and area of the restraint must be no more than is reasonably necessary to protect the legitimate business interests of the employer. It’s only on this basis that the law allows a former employer to restrict an employee’s freedom to work as they please. An unreasonably broad restraint clause will be unenforceable.

What is reasonable will depend on the specific circumstances at hand, and there is no one-size-fits-all duration or area. However, by way of example, the courts have upheld restraints of three to twelve months, and sometimes greater in certain circumstances. An example of an unreasonably broad restraint period is where an employer seeks to impose a restraint period of twelve months in circumstances where the currency of an employee’s confidential information is limited to two months. Such an employee can be easily replaced and relationships with customers can be secured within less than 12 months.

If an employee is bound by post-employment obligations, an employer should remind the employee of those obligations. An employer should also consider whether to place the employee on gardening leave during the notice period, as well as take the opportunity to review any electronic devices or communications if there is a concern of potential breach of any restrictive covenants. These rights will usually be provided for in the employment contract.

If there is any concern of potential breach of the post-employment obligations, employers should act quickly, including writing to the employee about the potential breach and instituting injunctive proceedings as necessary. The Court will consider any delay in commencing proceedings when considering whether or not to grant injunctive relief.

Protections in tort – inducing a breach of contract

If your employees are being aggressively courted by competitors, you may consider whether you are entitled to the protections afforded by the tort of inducing a breach of contract. The elements of this tort (in an employment context) are that:

  • There is an employment contract
  • Another business is aware that such a contract exists and that certain acts will result in a breach (e.g. providing confidential information or approaching former clients in breach of a restraint clause).
  • Notwithstanding this knowledge, the other business induces the employee to do the act or omission that will breach the employment contract and this results in loss or damage to the original employer.

A notable recent example of this in action occurred between two HR software companies. Two senior employees from company A were poached to a direct competitor, company B.

In this case, the NSW Supreme Court enforced company A’s 9-month post-employment restraints and held that the competitor was liable as having induced one employee to breach his contract, by encouraging him to recruit the second employee.

The Court imposed injunctive relief, preventing both former-company A employees from joining the competitor business or using any confidential information.

Understanding the issues above may help businesses to prepare for and navigate their legal obligations during the Great Resignation.

Employers can start future-proofing their businesses in anticipation for a rise in departures, such as  getting restrictive covenants in place, if they’re not already a feature of current employment agreements.

Amy Zhang is an Executive Counsel & Team Leader, and Zeb Holmes is a Solicitor, at Harmers Workplace Lawyers.


Need to touch up on what your legal obligations are as an employer?
AHRI’s short course, Introduction to HR Law, can help you do that.
Book in or the next course on 1 February.


 

guest
1 Comment
Inline Feedbacks
View all comments
Silvia Hunziker
Silvia Hunziker
1 month ago

Another consideration is the timing of paying long service leave. In Victoria LSL is payable on the last day, e.g. forthwith and penalties apply.

Sorry, no posts matched your criteria.
More on HRM