Dismissal Law Benefits the Long-term Unemployed

Employment prospects for the long-term unemployed remain bleak, as the Senate is expected to reject the Fair Dismissal Bill yet again as early as this week.

The Bill is intended to exempt small businesses from unfair dismissal laws. Unfair dismissal laws dampen job creation by deterring employers from taking on additional workers. Effects on small business employment are particularly dire because small businesses usually lack financial and other resources that are necessary to cope with unfair dismissal allegations.

Such claims have been questioned by some surveys, which suggest that unfair dismissal laws are a relatively minor concern among employers. But a report prepared last year by the Melbourne Institute of Applied Economic and Social Research demonstrates that unfair dismissal laws, both at federal and state levels, were responsible for at least 77,482 job losses in small and medium-sized businesses. This finding is apparently being disregarded by minor parties in the Senate.

Opponents of small business exemption argue that it will have inequitable consequences for workers. Yet there are a number of reasons why unfair dismissal laws in their current form aren’t equitable for anybody.

The most obvious is that they act as a disincentive for employers to try out workers who may turn out unsatisfactory— because, by letting them go later rather than now, employers may end up embroiled in a unfair dismissal case. The less experienced, the less educated and the less skilled are particularly at a disadvantage. They may never be given a chance, thereby disappearing into long-term unemployment statistics.

There is a lingering assumption underpinning the existing industrial relations system that, without regulation, employers and workers would be incapable of constructive negotiations. This gave rise, nearly a century ago, to the system of conciliation and arbitration.

Since the Industrial Relations Reform Act 1993 was passed, and especially since the Workplace Relations Act 1996 took effect, the scope of regulatory intervention has increasingly been limited—but not enough. The old assumption continues to influence the operation of the industrial relations system.

There appears to be a fear that small business exemption will result in mass arbitrary dismissals in small businesses. This is unlikely, however. Among other things, it makes little sense for any employer to try to sack a hard-working, competent employee.

This is not to suggest that all employment protection be removed. There are abusive bosses, and remedies are required to deter them. But in general, employers and workers need to be encouraged to nurture more mutual trust. That means less regulation.

Workplaces characterised by co-operation, not by confrontation, will be more productive. This in turn will contribute to creating more jobs in the labour market—the best protection for both currently employed and unemployed workers.
Changing the old assumption is, as has been proven, a challenge. It is, however, a challenge that has to be mounted to build a resilient labour market.

Kayoko Tsumori is a Policy Analyst at The Centre for Independent Studies, Sydney.