Strategic Termination Processes in Small and Medium Enterprises

Evidence suggests that the arbitration framework for termination disputes resolution is generally favourable to small and medium businesses (SME) in Australia.. However, SMEs have long remained more exposed to adverse dismissal disputes than larger organisations. To reduce transaction costs, employers face the option to bargain with dismissed employees over the nature and conditions of the termination. Often, these interactions take a strategic dimension as when relabelling a dismissal a retrenchment in order to save dissipative, stigmatic and reputation costs. Estimates from Australian SMEs suggest independent and arbitrated settlements of this type potentially save about one third of expected court arbitration costs. Recent reforms to statutory dismissal law have undercut the role of these bargaining platforms for SMEs. This will reduce the incidence but increase the long-term volatility of termination processes.