Why no signed employee agreement cost a small business thousands

Here’s why a small business had to pay a redundancy based on full time hours and not part time hours which resulted in a difference of tens of thousands of dollars.

The impacts of the pandemic can be felt across many industries far and wide. One of the biggest industries that has really been hit hard is the events industry. Due to heavy Government restrictions of gatherings, all events where no longer able to go ahead which forced many small event businesses to temporary close or completely close with no longer being able to sustain the extended restrictions of Melbourne’s lockdown.

A small event-based business, who had been decimated by the pandemic and no longer in operation had to make redundancies. As a result of one employee not having an Employment Agreement and the process not being followed the business had to pay a redundancy based on full time hours and not part time hours which resulted in a significant difference of more than tens of thousands of dollars for the pay-out.

The lesson for other businesses is to make sure all your employees have written documentation, that it’s up to date with their current position and employment and signed by the employee.

Background

The employee was originally employed by the event-based business on a full-time basis and also received a significant salary increase over the past twelve months. During this time, the employee went on maternity leave and returned on a part-time basis.

Throughout their employment there was no signed Employment Agreement in place for either their full time or part time employment and no regular hours were discussed and confirmed in writing. The only form of documentation was a letter provided to the employee regarding their increase in salary.

With the unfortunate closure of the business, the business had to make redundancies which the relevant consultation requirements set out by the Fair Work Ombudsman were also not followed correctly.

The result

As there was no signed Employment Agreement in place, the administrative processes not correctly followed internally and the relevant consultation requirements set out by the Fair Work Ombudsman not followed, the business were required to pay the employee’s redundancy based on full time hours and not part time hours. This resulted in a significant pay-out to the employee at a substantial difference of more than tens of thousands of dollars.

Tips to prevent this happening to your business

  • No matter how big or small the business, it’s critical to have a good and solid administrative procedure that makes sure Employment Agreements are followed up on and signed. A signed Employment Agreement needs to be in place regardless of your relationship or if they are a ‘nice person.’
  • Any updates to the Employment Agreement should be made in writing and confirmed by employee by counter-signing the Employee Agreement.
  • The signed Employee Agreement must also be for your employee’s current employment and position.
  • It’s important to follow the Fair Work Ombudsman employment processes, procedures, policies and the law.
  • Seek professional advice if you are unsure about the redundancy process or need help to set up administrative processes and procedures for managing Employee Agreements.

 

These minor administrative tasks of signed Employment Agreements can seem insignificant and can be put to the side and sometimes forgotten about. As this case shows not following up and updating Employment Agreements when current employment and positions have changed can have significant consequences down the track. This case also emphasised the importance of understanding your obligations to consult with your employees when there have been substantial business changes.

 

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