Ideas@TheCentre
Employment is a contract, not a right
Australia’s industrial relations system does not treat the employment contract as a simple contract between two equal agents, but as a relationship with unequal constraints and expectations. Toyota’s sacking of 350 workers last week has brought the issue of ‘unfair’ dismissals to the public sphere, but while the debate centres on the manner and basis of these dismissals, the more fundamental issue of consent has been ignored.
A defining principle of contract in common law is its voluntary nature. A contract is an agreement between two parties that is valid only as long as both parties consent to it. One cannot contract with someone who does not consent, and if one party no longer wants to be involved with the other, they can simply terminate the contract. If employees want to leave their employer, they don’t have to explain why they want to leave. All that matters is that they no longer consent to the contract for their labour.
Unfortunately, the law as it stands today is not a two-way street. Employees may quit work for whatever reason they see fit, but the employer cannot fire employees without ensuring that their reasons for terminating the employment contract are ‘fair.’ No longer is it a simple matter of consent but a case of arbitrary value judgments forbidding dismissals deemed ‘harsh, unjust, or unreasonable.’
Because of unfair dismissal provisions, employers often hang on to undesirable staff. Workers who would have already lost their jobs, and received an important market signal, are kept on out of fear of legal action. Employees may be unproductive, skip work often, not adhere to safety protocols, have a poor attitude, or simply have personality clashes. Whatever the reason, if the employer deems an employee no longer fit to work, keeping the worker employed can be detrimental to both productivity and workplace culture.
Firing workers is not a decision made lightly. Employers must be certain that the worker cannot improve. They then must consider redundancy payments and the cost of finding and training a replacement. This is a time-consuming and costly process in itself, but with the addition of unfair dismissal laws, the employer must also consider the costs of conciliation and arbitration arising from an unfair dismissal claim, and the extra ‘go away’ money needed if the claim is successful.
As a result, employers often try to sack undesirable staff under the cover of economic hardship. They may cite falling consumer demand, a financial crisis, a strong currency, high input prices, etc. It doesn’t really matter. They are simply carrying out a process long overdue and getting rid of employees who have long overstayed their welcome.
The charade needs to end. The law must reflect the reality that employment is a voluntary contract, and when one party no longer consents, the contract must be terminated.
Alexander Philipatos is a Policy Analyst with the Economics Program at The Centre for Independent Studies.
