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Not just your personality

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Not just your personality -Structuring your Family Business

It is not just about your personality. By structuring your business in the correct way can save money. It can be costly if you get it wrong and changing it down the track may not be easy. “Family business” is without a definition but the most common business structures are:-
– sole trader;
– partnership;
– company; or
– trusts.

While it’s never too late for a business to change its legal structure, it can have very significant capital gains tax and stamp duty implications. To change can be a difficult and costly procedure. Consider all licenses, contracts and accounts that must be dealt with on a change. Ideally the advice and planning should be sought when the business is being set up. The reality for many family businesses is that they’ve been around for over 10 years and when the next generation takes over they assume all the structures too. The below chart clearly lays out what your business structure means for you and how it lines up next to the other options.
Each structure has its own particular advantages and disadvantages as the tax, accounting and legal considerations of each vary. These can be summarised as follows:

Sole Trader

Tax treatment
– Taxed at sole trader’s marginal tax rate (0-46.5 per cent).
– Business loss can offset other income.
Advantages
– Simple and low cost to set up and run.
– For income below $140,000 average tax rate less than 30 per cent (company rate).
Disadvantages
– No ability to split income with other family members.
– Owner could lose personal assets to creditors as liability is unlimited

Company (preferred)

Tax treatment
– Flat rate of 30 per cent on profits.
Advantages
– Company is a separate legal entity.
– Individual shareholder liability is generally limited to their share capital.
– Business profits can be retained in company or distributed to shareholders as dividends with potential franking credits to offset personal tax
– Excellent for corporate governance and business management
– Directors can be appointed to run the business of the company
– Better income splitting ability through a family trust holding shares
– Easier to lock up management by dividend access shares and prepare for sale.
Disadvantages
– All income and capital gains taxed at 30 per cent.
– Can be more costly to set up and maintain.
– Loans to shareholders from company can be deemed dividends.
– More difficult to access CGT concessions on sale of underlying business or assets

Partnership

Tax treatment
– Each partner’s share is taxed at their marginal rate (0-46.5 per cent).
– Business loss can offset other income.
– Capital gain event on exit from partnership.
Advantages
– Fairly simple structure.
– If each partner’s share of income below $140,000 average tax rate less than 30 per cent (company rate).
Disadvantages
– Profits must be split in partnership profit sharing ratio.
– Less flexible than company or trust.
– More complex tax and legal issues when partner exits or enters partnership.
– Partners could lose personal assets to creditors as jointly and severally liable for all debts of the partnership.
– Good legal advice required re: partnership agreement to avoid future disputes between partners

Trust

Tax treatment
– Profits distributed to beneficiaries taxed at beneficiary marginal tax rate (0-46.5 per cent).
– Profits retained in trust taxed at 46.5 per cent.
– Losses quarantined in the trust.
Advantages
– Considerable flexibility in a discretionary trust in the way profits are distributed to beneficiaries to minimise tax, including ability to stream dividends and capital gains to particular beneficiaries.
– Discount capital gain treatment flows through to individual beneficiaries.
Disadvantages
– Profits not distributed taxed at 46.5 per cent.
– Discretionary trust not suitable where external investors involved, although a fixed trust is possible. (This requires distributions to be made proportionate to unit holding.)

The four key considerations when selecting the right structure, or combination of structures, are:
– How can I best protect my assets?
– Which will best limit my income tax?
– Will one lower my capital gains tax?
– From an administration perspective, which is easiest?

Potential Reasons for a Restructure

– For asset protection, it may be advantageous to operate two business entities: one with few assets that incurs all business risks and a separate entity holding valuable assets that takes no risks

– A family with spouse and several adult student children may be able to reduce taxes through use of a family discretionary trust.

– Where the owner currently has significant non-deductible borrowings (e.g. for family home), a restructure may enable funds to be borrowed to acquire the business in a new entity, creating tax deductible debt and allowing repayment of non-deductible debt. This can be particularly effective where small business capital gains tax concession applies to eliminate any potential capital gains liability.

– Growth, merger or acquisition may require a company or unit trust structure to allow addition of new owners and/or external funding.

– Succession planning may require a different structure to allow other family members/employees to acquire a share of the business.

– Improved efficiency or cost minimisation – particularly for smaller businesses that may find a company structure cumbersome and tax inefficient. The sale or transfer of any business will trigger a potential capital gains tax event. However a capital gains tax liability can potentially be avoided by:

– Obtaining roll-over relief on transfer to a company or from one company to another.
– Taking advantage of the small business CGT concessions that can allow a reduction in the taxable capital gain

Other issues to consider on any restructure include potential stamp duty and GST costs as well as the application of the anti-avoidance provisions of Part IVA.

Asset Protection

1. While a company structure offers better protection from creditors, if there is a risk of trading while insolvent, this will negate the benefits of incorporation for the directors of the company.

2. When operating in business with a partner, consider key man and/or buy/sell insurance to:

– Provide a lump sum to help business in the event of unexpected illness or accident of partner; and
– Enable purchase of partner’s share of business in event of death or permanent disablement through pre-agreed transfer and funding agreement, usually supported by life insurance to finance the settlement.
– Care is required in any restructure and professional advice coordinated with your lawyer, your accountant, your insurance advisor and financial planner is essential.

Just remember that you should always look to the future to consider the best structure to achieve your exit strategy including the most attractive structure for a potential purchaser.

That means you need to consider who is more likely to buy the business. Is it your current management team from within? Is it a larger external third party competitor? Is most of the value in the underlying property assets? Contact me: tony@crillylaw.com.au

Watch out for new GST rule changes for sale of a “going Concern”

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The Assistant Treasurer has recently announced that the Federal Government will be removing the current GST free concession, which can apply in relation to the supply of going concerns, and implementing a new ‘reverse charge’ mechanism. Stamp duty may be assessed on a further 10% of the price even though the parties have agreed it is GST free as a going concern.

Find out more by emailing tony@crillylaw.com.au

Contract Terms – Liquidated damages a headache not a solution!

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In large commercial construction contract Liquidated damages have been used for a very long time to compensate the Principal Contractor for a delay in completion of work beyond a concrete date. Most of the time, this is due to the follow on effect on other contractors and the timeline of a project.

It is worthwhile considering, on projects where key milestones are tight and it is highly likely disputes over extending time will arise, enforcement of liquidated damages under the contract will be arduous, costly and time consuming to both parties. As an alternative perhaps an “incentive provision” for completion on time is a more productive outcome.

ARE LIQUIDATED DAMAGES BEST?

In many Contracts, having a provision that deals specifically with delay liquidated damages (Delay LDs) might suit both parties. Principals can avoid the difficulty (and expense) of proving “actual damages” and contractors have certainty about potential exposure in the event of late completion of a project.

The Court will generally enforce a delay LD, provided the Delay LDs are a genuine pre-estimate of the loss likely to be incurred by the principal due to delayed completion.

Having a clause providing for a Delay LDs is likely to cause certain responses:

  • contractors will factor in the price the risk of a Delay LD;
  • contractors usually dispute open ended liability for liquidated damages; and
  • the contractor’s entitlement to an extension of time (EOT) is most likely to occur, which is an administrative headache, and may relieve the contractor of liability.

ALTERNATIVE THINKING INCENTIVE OPTIONS

As a positive alternative, Principals may use a Bonus or incentive payment to avoid bad behaviour and focus on the contractor achieving early or on time completion. This might avoid the preparation of EOT claims and the management of disputes.

Under an incentive scheme, if completion is achieved on or before a specified date, the contractor will be entitled to an incentive payment.

Consider the following methods to structure an incentive scheme:

  • A ‘hard date’ for completion whereby the contractor is entitled to the incentive payment if completion is achieved on or before a specified date, but if the date is not achieved, the contractor receives no incentive payment at all.
  • A “progressive reduction” in the incentive payable if completion occurs after the specified completion date (either a decrease by a particular amount each day or a stepped reduction upon specific future dates).
  • A “milestone system” whereby the contractor is offered an incentive payment for each portion of the works that is completed on time (useful if the works are to be completed in distinct stages). In this situation, the incentive could be structured so that if one incentive milestone is not achieved on time, the contractor can still “earn” that incentive payment by rolling the payment over into a later incentive payment linked to achievement of a subsequent milestone payment.

ISSUES TO CONSIDER

An issue to consider in structuring an incentive scheme is whether the date for completion and payment of incentive can be extended?

Consider the following options:

  • The contractor might not be entitled to an EOT in any circumstance. The rationale for such an approach is a mutual sharing of risk and desire to avoid time and resources being consumed in preparing and responding to EOT claims. Contractors may be more comfortable with such an arrangement where there is limited scope for the principal to cause delay and/or the majority of delay risks are known and capable of being managed or reduced by the contractor.
  • The contractor is entitled to an EOT for a range of specified events (similar to a traditional contract) including principal caused delays and ‘neutral’ causes of delay ( worksite latent conditions, directions by statutory authorities, weather events).
  • An intermediate position might be that the contractor is only entitled to an EOT for caused solely by the Principal or delays due to force majeure.

YOUR PROJECT DOES AN INCENTIVE FIT?

Whether completion incentives promote on-time completion better than Delay LDs or result in fewer disputes, is a matter yet to be determined. However when projects need to get done on time perhaps this is a better way of achieving the outcome, that is with a carrot not a stick!

Use of incentive schemes should not be seen as the solution for all potential disputes associated with a traditional Delay LDs clause. Consider these points:

  • Any mechanism to extend the completion (incentive) date may still result in the parties becoming distracted by disputes over EOTs to that date.
  • Where the contractor does not achieve completion on time and is not entitled to receive an incentive payment, in the absence of Delay LDs, will there be sufficient incentive for the contractor to complete the works in a timely manner (other than minimising the contractor’s own costs if completion is not achieved on time)?
  • What is appropriate as an incentive scheme will depend on the nature of the particular project. For a project where on-time completion is critical (e.g. a construction or testing contract for a major infrastructure project) the principal may require a hard date for completion, without any right for the contractor to claim an extension to the completion date. The trade off might be that the contractor receives a larger incentive than would otherwise be the case.

We are happy to assist clients drafting General Terms and Conditions for Tenders and Projects where these liquidated damages clauses appear. http://www.crillylaw.com.au

My Family Trust – What is the state of play?

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Most business owners will have heard of changes in respect of family trusts and perhaps the case of Bamford which resulted in the 2011 ‘trust streaming’ amendments to the Income Tax Assessment Acts. So what should you do?

To check if a trust deed should be varied?

The simplest test to check if a family discretionary trust deed should be updated by adding further wording is to look at the definition of ‘income of the trust fund’ or ‘net income’. If your deed states that “income” means ‘section 95 net income’, or there is no definition stated regarding “income” , then your trust deed needs amending.

The ATO’s draft taxation ruling (TR 2012/D1) lists some of the serious problems that can arise if your deed does not define income properly. This will include the limitation to “stream” income to different beneficiaries in financial years and deal with franking credits on shares held by the trust to minimise tax.

Unit trusts?

If your unit trust receives franked dividends (tax has been paid) from distributions made by a trustee, the trust must be a ‘fixed’ trust in order to get the tax benefit.

If a unit holder in the trust is a superannuation fund, there is a real risk that money paid (distributions) from the unit trust to the superannuation fund will be taxed at a higher rate as ‘non-arm’s length income’. This was the situation in the recent case of MH Ghali Superannuation Fund ([2012] AATA 527).

If franked dividends are paid or a superannuation fund holds units the odds are the trust deed should be amended and updated in the wording, as very few unit trusts appear to qualify as “fixed trusts” under the tough provisions set out in the Tax Legislation.

What action to take?

We can read your trust deed and advise whether it is a discretionary trust, a unit trust or “hybrid” trust ( a blend of the two) to confirm if the wording must be updated. If the wording of a deed needs to be amended, we can draft the required Deed of Variation and Resolutions of the Trustee adopting the changes for a set amount.

It is particularly important that the trust deed is reviewed well before the end of the financial year so get cracking and contact us without delay!

First Law News 2014!

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Welcome to 2014 and happy new year!

Just a short note to start the year with some interesting news.

A recent case Mellino v Wnuk [2013] QSC 336 decided that a DVD made just prior to suicide was sufficient to comply with the formal requirements in making a will. This is confirmation that the judicial trend towards approving informally made wills continues and it opens up a new sphere of debate about the need to sign a paper document. Certainly we recommend that you get careful advice in your circumstances and should not rely on this as authority to do your own “death DVD”.

Note that the Personal Property and Securities Act run off period expires on 31 January 2014. If you have trading terms and conditions that deal with stock plant and equipment for sale or hire you must get them reviewed to see how this affects your business. Recent case law suggests a hard line approach will be taken in any contest over ownership where  a bank or creditor has a registered interest no matter who has possession of the goods.

Be aware of the release of top level domain names which are generic restricted by industry and identified by a country code. If you want to apply get in quick as registered trademark owners have until 24 January 2014 to apply. The domains include such names as .bike, .holdings, .plumbing, .ventures and these may be very valuable intellectual property to add to your business value. Let us know if we can help!

LinkedIn and Employers Rights

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Don’t we all love “LinkedIn” as a means of contacting potential and exiting sources of work. However an employee’s social media postings can be incompatible with the duties the employee owes to the employer.

The Fair Work Commission has upheld an architecture company’s decision to dismiss an employee after it was found he had attempted to solicit his employer’s clients through the professional networking social media website “LinkedIn” in an effort to expand his own business.

The recent decision of Commissioner Deegan in Bradford Pedley v IPMS Pty Ltd T/A peckvonhartel [2013] FWC 4282 illustrates the potential pitfalls of an employee pursuing out-of-work activities that are incompatible with the employee’s duties to his or her employer.

This decision does serve as a reminder to employees that, in some circumstances, private use of social media can lead to adverse consequences for their employment

Facts

In 2011, Bradford Pedley, the applicant, commenced employment with national architecture and design company peckvonhartel (PVH) in the role of Senior Interior Designer. Prior to taking up the role, however, Mr Pedley informed PVH that he intended to continue carrying out private design work in his own time. PVH did not seek to prevent Mr Pedley from doing so.

Throughout 2012, in addition to performing his full time duties for PVH, Mr Pedley also undertook some private design work through his own business Reveal ID.

Over the 2012 Christmas leave period, Mr Pedley formed the view that PVH had no interest in his career progression and, upon his return from leave, Mr Pedley decided to “take action by putting my aspiration in writing”.

On 14 January 2013, Mr Pedley sent a group email to a number of his connections on LinkedIn. In that email, Mr Pedley explained that he has “been running a part time design service called Reveal ID for the past 5 years”. After summarising some of the projects Reveal ID had been involved in throughout 2012, Mr Pedley announced “I am now seeking to expand Reveal ID to a full time design practice over 2013”.

The email directed readers to Reveal ID’s website and social media pages and concluded by stating:

“One of the many benefits of working with a new company are that you get the operators prior big business experience at small business rates! I would be happy to discuss any opportunities, no project too big or small, and look forward to the possibility of working with you in the near future.”

That evening, a recipient of the email contacted one of PVH’s directors, Mr Marcelo Solar, telling him of the email and asking whether Mr Pedley was still employed by PVH.

The following morning, Mr Solar telephoned Mr Pedley and informed him that he was summarily dismissed as a result of sending the email. Later that day, PVH sent an email to Mr Pedley confirming his dismissal and stating that he had breached clause 2.8 of his employment contract.

Terms of the employment contract

Clause 2.8 of Mr Pedley’s employment contract provided that he must not “undertake any appointment or position (including directorship) or work or advise or provide services to, or be engaged, or associated with any business or activity that:

  • results in the business or activity competing with Us;
  • adversely affects us or our reputation; or
  • hinders the performance of your duties.”

Mr Pedley’s employment contract also required him to “at all times act honestly and in a manner consistent with your employment”.

Unfair dismissal application

Mr Pedley filed an unfair dismissal claim with the Fair Work Commission alleging that his dismissal was harsh, unjust or unreasonable.

He argued that PVH knew about and had condoned him working on small private jobs outside work and in his own time. He also argued that the work he performed through Reveal ID was not in competition with PVH, as the projects were of such a small scope that PVH would not have any interest in pursuing them.

Mr Pedley stated that in sending the LinkedIn email, his plan was to pick up small jobs and refer any work to PVH that was too big for him.

With respect to the LinkedIn email, Mr Pedley argued that the email:

  • was not sent to any client of PVH;
  • was sent only to industry professionals with whom he had worked prior to his employment with PVH; and
  • worked in the interests of PVH as he was “actively soliciting new business on their behalf” and “only where appropriate, for myself”.

The employer’s arguments

Although PVH accepted that it had not placed any restriction on Mr Pedley performing private work outside his employment, it argued that the LinkedIn email constituted a clear attempt on the part of Mr Pedley to solicit business from clients of PVH during the course of his employment for the benefit of his own business.

PVH pointed out that the LinkedIn email was in fact sent to numerous individuals employed by important clients of PVH, including to clients for whom Mr Pedley had performed work . While Mr Pedley accepted that was the case, he argued that the email was sent to those persons as individuals and not in their capacity as representatives of the companies for whom they worked.

PVH submitted that, by its very terms, the email disclosed Mr Pedley’s clear intention to make Reveal ID a “full time” operation in the “near future” for which no project was “too big or too small”.

PVH submitted that Mr Pedley’s conduct was in clear breach of clauses 2.8 and 2.11 of his employment contract, in that it had destroyed the necessary confidence between the applicant and his employer, impeded the faithful performance of his obligations and was a conflict between the applicant’s interests and his duty to his employer.

Findings in relation to the LinkedIn email

Commissioner Deegan rejected Mr Pedley’s assertions that he did not believe he had sent the email to current clients of PVH, that the email represented solicitation for only small jobs or that by sending the email he was actively seeking work for PVH, concluding that such assertions were not supported by the evidence.

It was held that:

“[The email] clearly stated that he wished to build to a full-time operation and that his interest was not confined to small jobs that his employer would not take on. The applicant was clearly intending to set up a business that could be in opposition to his employer, albeit in a small way. He was soliciting work from current clients of his employer in clear breach of his obligation to put the interests of his employer before his own interests.”1

Decision

By sending an email in those terms, Commissioner Deegan found that the applicant had breached his fundamental employment obligations to his employer by deliberately and actively soliciting clients of the respondent for his own business. Commissioner Deegan concluded that such conduct was inconsistent with the continuation of Mr Pedley’s contract of employment and amounted to serious misconduct.

Commissioner Deegan relied on the definition of “serious misconduct” contained in the Fair Work Regulations, which defines serious misconduct to include “wilful or deliberate behaviour by an employee that is inconsistent with the continuation of the contract of employment” and “conduct that causes serious and imminent risk to the reputation, viability or profitability of the employer’s business”.

It was found that Mr Pedley was a “relatively senior” employee with a reasonable degree of autonomy, and that PVH had trusted him to deal directly with its clients. On that basis, Commissioner Deegan held that Mr Pedley had a duty to promote the PVH’s interests to those clients and not his own.

PVH’s argument that Mr Pedley’s conduct put him in breach of clauses 2.8 and 2.11 of his employment agreement was accepted, with Commissioner Deegan concluding that the termination was not harsh, unjust or unreasonable. The application was therefore dismissed.

In her reasoning, the commissioner rejected an assertion by Mr Pedley that PVH had waived any right to object to him soliciting private work given that they had permitted him to do so during his employment, finding that PVH’s consent was limited to Mr Pedley “performing small private jobs outside his work hours in circumstances which did not conflict with his obligations to the respondent”.2 Commissioner Deegan found that the LinkedIn email “went beyond what the respondent had permitted”, stating:

“It is incorrect to suggest that the respondent, by permitting the employee a limited right to perform private work, had waived its right to object to the applicant, whilst employed by it, soliciting its clients to move their business from the respondent to the applicant’s business.”3

The commissioner found that during employment Mr Pedley “owed an obligation to his employer to faithfully promote his employer’s interests” and, as a result of the employee’s conduct, PVH, “with clear justification”, had lost confidence that the applicant would promote its interests.4 On that basis it was held that there was a valid reason to terminate the employment contract.

Commissioner Deegan concluded by noting that:

“While the applicant’s employment agreement may have more clearly articulated the applicant’s obligations in this regard post his employment, it is my view that this was because the existence of the obligation during employment ‘goes without saying’.”5

Implications

Some employees hold the mistaken belief that no matter what they post on social media, it is always a private matter and not that of his or her employer. That will often be the case but, as this case illustrates, there are circumstances where such postings are incompatible with the duties the employee owes his or her employer.

Whilst LinkedIn as a social media platform has, as a general proposition, more benign, less scandal-prone content than counterparts such as Facebook or Twitter, the often inextricable blending of the personal and professional on LinkedIn might mean it turns out to be the platform that most frequently gives rise to issues of this kind.

Footnotes

1Bradford Pedley v IPMS Pty Ltd T/A peckvonhartel [2013] FWC 4282 at [46]

2Ibid at [47]

3Id4Ibid at [58]5Id

 

Fair Work Act – Is it Unfair?

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Fair Work Act Update – Is it really fair?

Given the economic climate there is little room for failure of performance by employees, especially where it may be damaging to the business. How Employers terminate an employee can be risky and many finding themselves before the Fair Work Commission because they got it wrong. A claim for unfair dismissal is an accessible and cheap process for many employees and can end up costing employers a lot of time and money. Below we review some of the tips, traps, and various risk management measures available to Employers.

Should employers have a Social Media Policy?

The dramatic increase in use of social media platforms poses significant challenges in the workplace. If employers want to restrict potentially damaging comments by employees on social media about their organisation, they need to write and implement a suitable social media policy.

Glen Stutsel v Linfox Australia Pty Ltd [2011] FWA 8444

The employer terminated the employee for serious misconduct following the employee and friends making racially derogatory and sexually discriminatory comments about managers on his Facebook page.

The sexual comments about one manager were not made by the employee and the Commission considered it strange to hold the employee accountable for the comments of others. It was relevant that the employer did not have a social media policy and no other employees who made derogatory comments were the subject of any sanction by the employer. The Commission concluded the employee was not guilty of serious misconduct and there was no valid reason for termination, and therefore he had been unfairly dismissed. The Commission ordered he be reinstated and receive lost wages following termination. The case is currently the subject of appeal.

The Commissioner was critical of the employer for not having a social media policy.

Is the termination a Genuine Redundancy?

Employers who fail to observe the Fair Work Act 2009 (Cth) (the Act) redundancy requirements can find themselves exposed to unfair dismissal claims. A recent decision before the Fair Work Commission highlights these legal requirements which include the need to consider alternative positions and to consult with the affected employee about the redundancy.

Horn v Mastermyne Engineering Pty Ltd [2012] FWA 10846

The employee claimed he was not genuinely redundant because:

  • there was no consultation or any demonstrated effort to identify alternative positions in the employer’s business;
  • after termination, his duties were allocated to other employees not qualified to undertake the work; and
  • the employer subsequently advertised positions the employee was qualified for.

The employer claimed employee’s role was no longer required to be undertaken by anyone due to changed operational requirements, in response to a downturn in the coal industry. Senior Deputy President Richards considered it did not matter whether the employer redistributed the employee’s former duties to other employees, who were not qualified, as that was a matter for the employer.

The employer established it had investigated the availability of alternative positions in the employers group of companies; however, those investigations were unsuccessful. The positions advertised after the employee was terminated, were for fitters undertaking underground work – which the employee did not meet the regulatory requirements for. Richards SDP determined that there was no obligation on the company on this occasion to overcome the difference in skill and experience by retraining the employee.

The employer had held a “pre-start meeting” with employees at which the organisation review was explained, the record of that meeting was publicly available and employees had been invited to proffer suggestions to offset, avert or mitigate the proposed changes. Thus the employer had complied with the consultation provisions of the relevant Award.

Richards SDP concluded that the employee had been made genuinely redundant and the employee’s application was dismissed.

Is a system of employee warnings advisable?

A failure to document performance management procedures such as communicating expectations and issuing warnings properly, may expose an employer to an unfair dismissal claim if the employee is later terminated for poor performance.

Moumtzis v Dolina Fashion Group Pty Ltd [2013] FWC 501

In a business that has a large amount of creativity and experience as part of the role, it is difficult to define the boundaries of employment agreement. The employee in this case was terminated on the basis she was unfit for her position as a designer of women’s clothing. The employer had informed her that she had not achieved the required profit margins for the business and was purchasing expensive fabrics.

The employer did not put forward any evidence concerning performance discussions had prior to the termination and Vice President Watson was left to consider the uncontested evidence of the employee. She did not have any KPI’s, budgets or annual reviews and therefore her employer’s perception she was not performing, did not amount to a valid reason for termination.

The evidence did not establish that the employee had been warned of unsatisfactory performance prior to the termination. The fact there was no valid reason for termination, no chance for the employee to respond and no prior warnings, led to the conclusion the employee was dismissed unfairly. VP Watson ordered the employer pay the employee 22 weeks remuneration as compensation. Ouch!

Termination without an investigation is dangerous

Employers must keep clear records of all investigation processes particularly if they may have disciplinary consequences such as termination. Employers must warn employees that the specific conduct may lead to dismissal. The case of Read shows following proper procedures in the investigative stage and during disciplinary action is vital.

Read v Gordon Square Childcare Centre Inc T/A Gordon Square Early Learning Centre [2012] FWA 7680

Here the employee at a childcare centre had a parental complaint against them. The substance was their child was left unattended when upset by the employee, was not given breakfast, and on another occasion had been allowed to play with electrical outlets. This was investigated by the childcare centre management.

The evidence found that the employee had admitted she left the child unattended and that this was a failure to supervise and was a significant breach of childcare regulations. This was deemed serious misconduct which was not so serious that the employee’s employment should not continue and they were summarily dismissed..

It was significant that the employee was not warned that her conduct could result in termination. The Commissioner concluded the employee did leave the child unattended and unsupervised. This was a breach of the National Law and the Supervision Policy of the Centre. It was accepted, that the employee had previously allowed children to play under her reception desk where there were dangerous wires.

The employee was informed that her failure to supervise of a child was the reason for termination of employment. The childcare centre afforded the employee procedural fairness in the process of investigation because they had presented the allegations, allowed her to respond and then made a finding which in turn was communicated to her. The employee was also allowed a support person at both meetings with the employer. While previous discussions about performance did not constitute warnings, ultimately the Commissioner concluded that summary dismissal was fair.

Attend Fair Work Commission Proceedings

If a former employee brings an unfair dismissal claim before the Fair Work Commission, employers cannot afford to ignore such a claim. Regardless of size, time and resources, employers who ignore a claim run the risk of the Commission making adverse findings against them in their absence.

Bargmann v Stilnovo Pty Ltd T/AMurano and Gullotti [2013] FWC 1080

In this case the employer did not attend the scheduled telephone conference or provide submissions on request from the Commission. On that basis the Commissioner accepted the applicant employee’s evidence unchallenged and found that the employee had been unfairly dismissed.

What does this mean to Employers?

The following points must be noted:

  • Implement a suitable social media policy– without it, you are lacking a valuable system in managing the social media behaviour of your workforce;
  • Redundancy may not mean redundancy under the Fair Work Act unless you stick to the rules;
  • Failure to implement and document a warning process will damage your ability to defend performance based terminations;
  • Appropriate investigation, and compliance with natural justice requirements, can significantly assist in the defence of unfair dismissal proceedings;
  • Do not fail to respond to  the Fair Work Commission as it will find against an employer in absence of submissions

We have identified some common sense points arising from dealing with employees and the Commission but keep in mind the utmost effort is given to support employees if they file a claim. There are no cost consequences generally so you must factor in the time and expense of responding and representation if allowed.

Always keep your records clear and ask for the employee to sign an acknowledgement of the meeting record if possible. Seek assistance and try to mediate any emotional situations by always having a witness present in any discussions.

A Digital Legacy – What Happens With My Life Online?

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It has been a question I have been wondering about for some time now. What happens to all the records I create during my life which exist only in technology?

Well there is no real guidance from the Government by way of legislation In Australia and the courts are not too sure either. As a result, I want to draw this issue to the attention of my clients especially given the password protected environment we live in. What are our “digital assets” and how can we secure them after we die? Because of the lack of clear legal structure, people should take careful, practical steps now to ensure their online access, material and data are appropriately set up and secured to ensure they can be protected after they have passed away.

Digital assets have a multitude of forms and no expiry date.

As technology continues to evolve, so too does our online presence. Profiles on Facebook, LinkedIn, and Twitter, to name just a few, now record our lives (both private and professional) as well as our thoughts, opinions and achievements in real time. While barely heard of just ten years ago, these and other social media and online platforms are now an integral part of the lives of a significant proportion of the population.

As a result, almost all of us will have accumulated digital assets in some form or another. In addition to social media profiles, we have email accounts such as Yahoo! and Gmail, online storage accounts such as iCloud and Drop Box, financial accounts or payment services accessed through online banking, and photo storage accounts like Flickr. This list is far from exhaustive and will continue to expand as further technological advances are made.

Unlike human beings our digital assets do not have an expiry date and in some cases our online life can live on in perpetuity. The challenge then presented is who should have access to, manage, and deal with those digital assets once we are gone?

The question of who should be given post-mortem access to digital assets is of particular importance in the context of estate planning and administration. An executor of a deceased estate may have entirely legitimate reasons for seeking to access digital assets.

Some, such as online banking accounts, can hold vital information such as account and credit card details necessary for the proper administration of the estate. Many digital assets, such as Paypal and Ebay accounts, can contain funds of significant monetary value which the executor must collect for distribution. Others, such as Kodak online photo accounts, might hold sentimental value and will be images and messages which have significant emotional value for family members.

However, dealing with digital assets may not be as simple as leaving log-in details with a third party. This can be both inconvenient and frustrating to the executor or family member charged with the responsibility or desire to take control of the accounts. Pending the development of legislative guidance or clear case authority, it seems the most sensible action for testators to take is also the most practical. An effective digital asset management plan might involve the testator:

• Making a list of the testator’s digital assets and online accounts, including every website on which the testator has an online presence.

• Making a record of the user names and passwords to each account, including answers to any security questions which will allow for the password to be bypassed or changed. This information will be kept separately from the testator’s will, perhaps in a safety deposit box or in a sealed envelope to be stored with the testator’s solicitor and updated from time to time.

• Ensuring the testator’s will contains a specific clause to allow for the testator’s executors to access some or all of the testator’s digital assets (as defined in the will) which refers to where the full list and password information can be found. The testator might also consider appointing a separate “digital executor” who is more comfortable with technology.

• Leaving explicit instructions as to how the testator wants their digital assets to be dealt with. This will involve, for example, consideration of whether the testator really wants family reading their personal emails or accessing other personal information, or whether the testator simply wants all online accounts to be deleted.

Check the rules for Facebook, Yahoo and other providers to see how access is obtained and who owns your information.