Redun­dan­cy — Defend­ing Claims for Unfair Dismissal

Cir­cum­stances will some­times arise in a busi­ness where an employ­er needs to shed staff. The busi­ness may be sub­ject to a takeover or amal­ga­ma­tion, or its rev­enue may con­tract, for exam­ple where the mar­ket par­a­digm changes or per­haps as a result of los­ing key clients.

It is in cir­cum­stances such as these, that an employ­er needs to direct atten­tion to ensur­ing that employ­ees exit­ing the busi­ness are paid their sev­er­ance pay­ments in accor­dance with con­trac­tu­al, statu­to­ry and any award oblig­a­tions. How­ev­er, equal­ly impor­tant is ensur­ing that the process fol­lowed for exit­ing employ­ees from the busi­ness, com­plies with any applic­a­ble statu­to­ry require­ments. This arti­cle looks at this lat­ter issue in light of recent deci­sions of the Fair Work Com­mis­sion which con­cern claims brought for unfair dismissal. 

What do we mean by redundancy?

Redun­dan­cy has a num­ber of mean­ings depend­ing upon the con­text. Rel­e­vant­ly, in the Fair Work Act, sec­tion 389 defines what the Act sees as a ​“gen­uine redun­dan­cy”. In essence a dis­missal is a case of ​“gen­uine redun­dan­cy” if:

• the per­son­’s employ­er no longer requires the per­son­’s job to be per­formed by any­one because of changes in the oper­a­tional require­ments of the employ­er’s enterprise;

• the employ­er has com­plied with any oblig­a­tion in a Mod­ern Award or Enter­prise Agree­ment that applied to the employ­ment to con­sult about the redun­dan­cy; and

• it would not have been rea­son­able in all the cir­cum­stances for the per­son to be rede­ployed in the employ­er’s enter­prise or that of an asso­ci­at­ed enti­ty of the employer.

If a ter­mi­na­tion falls with­in the def­i­n­i­tion of ​“gen­uine redun­dan­cy” this will con­sti­tute a juris­dic­tion­al bar to an unfair dis­missal claim pro­ceed­ing fur­ther, as the employ­ee will not be con­sid­ered to have been unfair­ly dis­missed in such cir­cum­stances (see sec­tion 385 of the Act). 

If dis­missal because of redun­dan­cy does not meet the def­i­n­i­tion of ​“gen­uine redun­dan­cy”, because for exam­ple there was a fail­ure to con­sult in accor­dance with any Award or Enter­prise Agree­ment, the fair­ness of the dis­missal would then be assessed by ref­er­ence to the var­i­ous fac­tors which the Com­mis­sion is required to take into account in deter­min­ing such mat­ters (under sec­tion 387 of the Act). 

Do you need to fol­low a process when mak­ing an employ­ee redundant?

Gen­er­al­ly speak­ing, employ­ers should fol­low a process. There are many good HR rea­sons which make it high­ly desir­able to con­sult with employ­ees in rela­tion to impend­ing redun­dan­cies. If the employ­ee’s cir­cum­stances pre­clude them from being eli­gi­ble to bring a claim for unfair dis­missal, then observ­ing any con­sul­ta­tion process ref­er­enced in sec­tion 389 of the Act may still be rel­e­vant, if the employ­er is required to con­sult under an applic­a­ble Mod­ern Award or Enter­prise Agree­ment. A fail­ure to com­ply with an Award or Enter­prise Agree­ment can car­ry penal­ties (see ss 45 and 50 respec­tive­ly of the Act).

Employ­ees will not be able to bring a claim for unfair dis­missal unless either their ​“earn­ings” fall below the juris­dic­tion­al cap (cur­rent­ly $138,900 pa) or they are cov­ered by a Mod­ern Award or Enter­prise Agree­ment. Unfair dis­missal claims are also not avail­able unless an employ­ee has served at least one year’s ser­vice with a ​“small busi­ness employ­er” or if the employ­er is larg­er, then at least six months’ service. 

In some instances there may be an oblig­a­tion on the part of the employ­er to fol­low a par­tic­u­lar process or pol­i­cy or a con­trac­tu­al require­ment that deals with con­sul­ta­tion in the event of poten­tial redun­dan­cies. If this is the case then it would be impor­tant to observe those require­ments irre­spec­tive of whether or not the employ­ee in ques­tion might poten­tial­ly have a claim for unfair dismissal.

As not­ed above, in order to defend a claim for unfair dis­missal on the juris­dic­tion­al ground that the ter­mi­na­tion was a ​“gen­uine redun­dan­cy”, the dis­missal must sat­is­fy the ele­ments in sec­tion 389 of the Act.

When con­sid­er­ing rede­ploy­ment for an employ­ee (in accor­dance with sec­tion 389 of the Act), it might be not­ed that an ​“asso­ci­at­ed enti­ty” is ref­er­enced to the def­i­n­i­tion of asso­ci­at­ed enti­ty in the Cor­po­ra­tions Act. This includes its relat­ed bod­ies cor­po­rate. There­fore the require­ment to con­sid­er rede­ploy­ment extends to posi­tions not only with­in the employ­er but also to posi­tions with­in its group companies.

Defend­ing claims for unfair dis­missal which arise out of a redun­dan­cy – recent decisions

A deci­sion of Fair Work Aus­tralia in 2011 has been cit­ed with approval in a num­ber of sub­se­quent deci­sions by the Fair Work Com­mis­sion, as author­i­ty for the propo­si­tion that even if an employ­er fails to observe the con­sul­ta­tion oblig­a­tions under an applic­a­ble Award (and there­fore the ter­mi­na­tion is not a ​“gen­uine redun­dan­cy”), this is not nec­es­sar­i­ly fatal in defend­ing a claim for unfair dis­missal aris­ing from redundancy. 

In Maswan v Esca­da Tex­til­ver­trieb T/A Esca­da [2011] FWA 4239 Wat­son VP found that the ter­mi­na­tion of an employ­ee, whilst it did not meet the test of ​“gen­uine redun­dan­cy” due to a fail­ure to con­sult in accor­dance with (in this instance) the Gen­er­al Retail Award 2010, the ter­mi­na­tion was not harsh, unjust or unrea­son­able in the cir­cum­stances. The fol­low­ing extract from this deci­sion has been cit­ed with approval on sub­se­quent occasions:

“In my view a deci­sion to dis­miss on account of redun­dan­cy will only be harsh, unjust or unrea­son­able if the ratio­nale for the deci­sion is seri­ous­ly under­mined or if there is a seri­ous error in pro­ce­dure such that ren­ders the ter­mi­na­tion unfair in the cir­cum­stances. Here the deci­sion appears open to the employ­er to make. The fail­ure to con­sult is not a triv­ial mat­ter. But as it is clear that con­sul­ta­tion was high­ly unlike­ly to have negat­ed the oper­a­tional rea­sons for the dis­missal or lead to any oth­er sub­stan­tive change, I do not believe that the fail­ure to con­sult pri­or to the date of ter­mi­na­tion ren­dered the dis­missal unfair. Giv­en the evi­dence in rela­tion to the oper­a­tional need to restruc­ture, I am of the view that it is like­ly that Mr Maswan would have been dis­missed in any event, even if time­ly con­sul­ta­tion occurred”.

In Gabriel Supara v Slum­ber­care Pty Lim­it­ed T/A Stu­arts House of Bed­ding [2013] FWC 8704 the appli­cant first heard of his ter­mi­na­tion when he was called into a meet­ing and giv­en a let­ter by the fac­to­ry man­ag­er explain­ing that his employ­ment had been ter­mi­nat­ed due to redun­dan­cy. How­ev­er whilst this fail­ure to con­sult pre­clud­ed the claim from being dealt with on the grounds it was a ​“gen­uine redun­dan­cy”, the Fair Work Com­mis­sion decid­ed that Slum­ber­care’s fail­ure to con­sult did not cause the dis­missal to be harsh, unjust or unrea­son­able, as con­sul­ta­tion would not have changed the outcome.

In Samuel Thomas v GH Qual­i­ty Brick­lay­ing Pty Lim­it­ed (2016) FWC 2852 the con­sul­ta­tion pro­vi­sions in the applic­a­ble Build­ing and Con­struc­tion Gen­er­al On-site Award 2010 were not cor­rect­ly observed as there was a fail­ure to pro­vide writ­ten noti­fi­ca­tion in rela­tion to pro­posed impend­ing changes to the busi­ness and the expect­ed effects of those changes on employ­ees and any oth­er mat­ters like­ly to affect the employ­ees. This case high­lights one of the stan­dard con­sul­ta­tion pro­vi­sions in Awards which is the oblig­a­tion to pro­vide writ­ten advice in rela­tion to cer­tain mat­ters. In any event, Com­mis­sion­er Platt con­sid­ered that the fail­ure to pro­vide a writ­ten doc­u­ment detail­ing var­i­ous infor­ma­tion and options would not have changed the out­come. There­fore he con­clud­ed that whilst the ter­mi­na­tion was not a ​“gen­uine redun­dan­cy” with­in the mean­ing of the Act, the ter­mi­na­tion was not harsh, unjust or unreasonable.

In Lau­ra Wrzoskiewicz and Easy Pay­roll Perth Pty Lim­it­ed [2017] FWC 2469 – 5 May 2017, at issue was whether or not the employ­er had com­plied with its con­sul­ta­tion oblig­a­tions under the applic­a­ble award, in this case being the Clerks — Pri­vate Sec­tor Award 2010. Due to the loss of some sub­stan­tial Perth-based con­tracts the employ­er decid­ed that it would be nec­es­sary to make the posi­tion of the appli­cant (who per­formed the part time role of pay­roll offi­cer in Perth) redun­dant, and for those func­tions to be dis­trib­uted and per­formed by the employ­er’s full time pay­roll offi­cers. Also a posi­tion of HR man­ag­er had been estab­lished in Syd­ney which would absorb some of the oth­er duties. The Employ­er had a pre­lim­i­nary meet­ing with the appli­cant to dis­cuss the sit­u­a­tion which was fol­lowed by an email con­firm­ing the posi­tion which was fol­lowed by two con­sul­ta­tion meetings.

The Com­mis­sion was sat­is­fied that the employ­er had indeed com­plied with its con­sul­ta­tion oblig­a­tions under the Award and had also giv­en prop­er con­sid­er­a­tion to whether or not there were any oth­er posi­tions to which the appli­cant could be rede­ployed (which there were not). In the cir­cum­stances, the appli­ca­tion was dis­missed on the grounds of ​“gen­uine redundancy”. 

Con­clu­sion

A fail­ure by employ­ers to con­sult in rela­tion to a pro­posed redun­dan­cy (eg under an applic­a­ble Award or Enter­prise Agree­ment) will not in and of itself, be a bar to suc­cess­ful­ly defend­ing a claim for unfair dis­missal. How­ev­er a dis­missal due to redun­dan­cy which falls short of being a ​“gen­uine redun­dan­cy” will then fall to be deter­mined in accor­dance with the cri­te­ria set out in the Act for judg­ing whether or not a dis­missal is harsh, unjust or unrea­son­able. In this sce­nario, fac­tors which may play a part in inform­ing the out­come may include such things as:

• whether had con­sul­ta­tion occurred it would have made any dif­fer­ence to the outcome;

• the size of the employ­er and the human resource man­age­ment capability;

• the length of ser­vice of the employee;

• the sound­ness of the deci­sion to terminate;

• if the ratio­nale for the deci­sion is seri­ous­ly undermined;

• whether any error in pro­ce­dure was so seri­ous that it ren­dered the ter­mi­na­tion unfair in the circumstances.

Employ­ers should in any event, care­ful­ly con­sid­er oblig­a­tions in rela­tion to the need to con­sult with employ­ees in accor­dance with applic­a­ble Awards or Enter­prise Agree­ments if, for no oth­er rea­son than to pro­tect against a poten­tial non-com­pli­ance claim being brought under the Act (which car­ries poten­tial civ­il penalties).