Australia: The Great Resignation – What is it and what are the legal issues that arise?
Authors: Amy Zhang and Zeb Holmes
What is the Great Resignation?
The term ‘the Great Resignation’ was coined by Dr Anthony Klotz, an associate professor from Texas A&M University, in late 2020 to describe the increasing number of Americans quitting their job. The US resignation rate has been rising since shortly after the pandemic was declared and is now at 3%, which equates to 4.4 million people quitting their jobs in September 2021.
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;
- levels of burnout, heightened by unreasonable workloads and an inability of some to switch off from work;
- “pandemic epiphanies” leading to lifestyle change; and
- those who simply do not want to return to the office environment.
A recent PwC Australia report, entitled ‘What Workers Want’, surveyed 1800 workers and found that 38% are looking for a new job. Similarly, a September 2021 survey of 1000 people by HR platform Employment Hero, found that 48% 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% 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.
There are differing reports of the extent to which the Great Resignation is a US-specific issue. RBA assistant governor (economic) Luci Ellis cited Australians’ experience during the pandemic as being “very different” to that of Americans, noting that the US has much lower wages at the bottom end and did not have JobKeeper. Relevantly, JobKeeper was a temporary scheme introduced by the Federal Government and operational for each fortnight worked between 30 March 2020 and 28 February 2021 to allow employers to change workplace arrangements and claim “JobKeeper payments” until business conditions improved. Even so, Australian companies must prepare for the worst and existing figures from LinkedIn already show a 26% jump in Australian workers moving from one company to another in October 2021, compared with the same time in 2019 before the pandemic.
Employers do not necessarily have to simply accept the Great Resignation, but can start to proactively consider measures to respond to and prevent the same in the context of their business. In particular, employers should consider the underlying issues driving the Great Resignation and what benefits and entitlements employers can provide to retain good staff. Measures that employers can consider include:
- increasing wages and providing retention bonuses;
- providing greater flexibility, for example a hybrid working model or flexible work hours to accommodate personal commitments and improve work-life balance;
- providing and promoting family friendly policies and initiatives;
- providing cutting edge and above market leave policies and entitlements, including, for example, additional paid parental leave, paid IVF leave and additional paid annual leave;
- providing other additional benefits such as gym memberships, free massages and bring your pet to work days.
Employers should also consider if there are underlying systemic issues within the business that may result in employees leaving, for example, systemic issues like understaffing that may cause burnout and resignation. Addressing these issues early will save employers the significant costs and down time associated with having to hire and train new employees.
If businesses are unable to retain their staff in the wake of the Great Resignation, they should consider the following legal issues that can arise from a resignation.
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, statute 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 the employee has accrued but not yet taken
- Unused annual leave
- Unused long-service leave
- Notice pay, if the employee is not being required to work out their notice
Most modern awards provide that employers need to pay their employee their final payment within 7 days of the employment ending (see, for example, clause 17.5 of the Clerks – Private Sector Award 2020 (“Clerks Award”)). Some legislation specifies when payment is to be made (for example the New South Wales Long Service Leave Act requires payment of untaken long service leave to be made “forthwith”). Otherwise, an employment contract or enterprise agreement may specify when these final payments must be made. If these documents do not apply or provide specify timing, the Fair Work Ombudsman (Australia’s national workplace relations regulator) says that best practice is for an employee to be paid within 7 days of their employment ending, although we note that 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.
If an employee has not provided notice, the employer can only recover wages in specific circumstances (see section 324 of the Fair Work Act 2009 (Cth) generally 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; and
- the deduction isn’t unreasonable (see 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 over-award payments.
There may be corresponding rights to deduct wages for a failure to give notice in any applicable enterprise agreement. If this right is not specified in an award, an enterprise agreement or under some other Commonwealth or State or Territory law, the deduction must be authorised in writing by the employee (which must set out the amount of the deduction) and be principally for the employee’s benefit.
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 damages against the employee, or if the employee is going to another employer, it may be possible to seek damages from the employee’s new employer or even damages, depending on the circumstances.
Restraint of Trade and Confidentiality Obligations
Employers should check whether a departing employee is bound by post-employment obligations. These obligations are contractual, and if an employer wants the protection of such provisions and they are not in current contracts, the consent of the employees to new contractual terms will be required. An employer cannot force a current employee to agree to a restraint, and attempts to do so can result in claims for breach of contract.
Assuming a contractual obligation is in place, while precise wording might differ, these 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 or for a competing business for a period of time; and/or
- use or disclose confidential information after leaving employment.
The terms of the restraint, including 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 is 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 and will therefore have no effect.
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 (there needs to be a contractual right to do so), 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. In this regard, the Court will consider any delay in commencing proceedings in considering whether to grant injunctive relief.
It is noted that if there are no contractual restrictive covenants in place, the ability of employers to seek injunctive relief on the basis of rights and obligations at general law will be significantly limited.
However, as a matter of best practice and to the extent that employers do not already have restrictive covenants in their employment contracts, employers should consider whether to implement them for future employees.
Protections in Tort – Inducing a Breach of Contract
Further, 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, this 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 tort in action can be seen in Employsure Ltd v McMurchy; Employsure Ltd v Kumaran  NSWSC 1179. In this case, the NSW Supreme Court enforced Employsure’s 9-month post-employment restraints after two senior employees left to work for a competitor in the HR software market. The Court also held that competitor ELMO Software was liable as having induced one employee to breach his contract with Employsure (by encouraging him to recruit the second employee). The Court imposed injunctive relief, preventing both former-Employsure employees from joining the competitor business or using any confidential information.
Key Action Points for Human Resources and In-house Counsel
Understanding the above issues may help businesses to navigate the Great Resignation. In particular, employers can start to consider ways to prevent staff departures. To the extent that employees cannot be retained (including through the measures suggested above), employers can start taking into account what needs to be done and considered when the Great Resignation hits. Employers can also start future-proofing their business in anticipation of the Great Resignation, including for example by getting restrictive covenants in place in so far as they are not already a feature of current employment agreements.
- 1. https://www.cnbc.com/2021/11/12/a-record-4point4-million-people-quit-jobs-in-september-great-resignation.html
- 2. https://www.smh.com.au/business/workplace/navigating-the-great-resignation-20211109-p597ba.html
- 3. https://www.smh.com.au/business/workplace/australia-s-version-of-the-great-resignation-revealed-as-staff-swap-jobs-20211111-p5984f.html
- 4. https://www.news.com.au/finance/work/at-work/the-great-resignation-millions-of-aussies-predicted-to-leave-jobs/news-story/36aaf2081cc6a17c095b9dd0105814c3
- 5. https://www.news.com.au/finance/work/reserve-bank-official-says-the-great-resignation-is-a-us-story-and-australia-is-different/news-story/7e0ac14edc9d0323607ce4364908f96f
- 6. https://www.smh.com.au/business/workplace/australia-s-version-of-the-great-resignation-revealed-as-staff-swap-jobs-20211111-p5984f.html
- 7. https://www.fairwork.gov.au/ending-employment/notice-and-final-pay/final-pay