For employers, the decision to make significant changes to the way a business operates is a difficult one – especially where positions are made redundant. This makes an already challenging time even more difficult emotionally and financially.

A well prepared approach to restructuring is essential to the project’s success. An employer should be prepared to manage the competing interests of the business, its employees and the law.

In this special edition E-Update, we will explore the risks for employers that surround restructuring and redundancies, and the steps that HR professionals and employers should take to comply with their legal obligations to minimise their exposure to the risk of claims under the Fair Work Act 2009 (Cth) (FW Act).

 

Unfair dismissal and the genuine redundancy exemption

One of the main risks when restructuring is that employees who have been made redundant will make unfair dismissal claims against their employer.

The FW Act says that an employee will be taken not to have been “dismissed” for the purposes of “unfair dismissal” if the person’s employment was terminated because of a genuine redundancy. Essentially, a genuine redundancy acts like a shield to defend against an unfair dismissal claim.

An employer’s “genuine redundancy” must meet the strict definition in s389 of the FW Act:

Section 389 Meaning of genuine redundancy

  1. A person’s dismissal was a case of genuine redundancy if:
    • the person’s employer no longer required the person’s job to be performed by anyone because of changes in the operational requirements of the employer’s enterprise; and
    • the employer has complied with any obligation in a modern award or enterprise agreement that applied to the employment to consult about the redundancy.
  2. A person’s dismissal was not a case of genuine redundancy if it would have been reasonable in all the circumstances for the person to be redeployed within:
    • the employer’s enterprise; or
    • the enterprise of an associated entity of the employer.

It is not enough to simply assert to the Fair Work Commission (FWC) that the termination was a genuine redundancy – an employer must be prepared to show that it has made out each and every element of the definition.

Helpfully, the definition can be viewed as a checklist, setting out what employers need to do in order to access the genuine redundancy exemption. HR professionals can use the definition in the FW Act as a way to demonstrate to business decision-makers what is required for effective risk management and by the law.

The elements of the definition of genuine redundancy include some specific principles that require further explanation. We consider these in more detail below.

 

When is a job no longer required because of changes in operational requirements?

Examples of what it means when “a job is no longer required due to changes in operational requirements” were provided in the Explanatory Memorandum to the Fair Work Bill 2008, including when:

  • a machine is now available to do the job performed by an employee;
  • the business is experiencing a downturn and the employer only needs three people to do a particular task or duty instead of five; or
  • the employer is restructuring their business to improve efficiency and the tasks done by a particular employee are distributed between several other employees and therefore the person’s job no longer exists.

In a number of recent decisions, the FWC has considered the phase “operational changes” and what operational changes are sufficient to justify that a job is no longer required.

In Adams v Blamey Community Group [2016] FWCFB 7202, a community centre coordinator’s position was made redundant when government funding to the community centre dried up. The community centre’s committee decided to do away with the employee’s position and hand over her duties to volunteers.

The employee made an application to the FWC claiming that she was unfairly dismissed. She argued that there were no operational changes that resulted in her redundancy, only a lack of funding.

A single FWC member found in favour of the committee noting that the lack of government funding lead to operational changes, those operational changes being that the community centre could not justify employing a co-ordinator. The FWC Full Bench confirmed the single member’s decision. In this case, the lack of funding was the operational change that could be relied upon by the employer to justify the dismissal.

In a separate decision from 2016, Widmer v The Kylie Pearce Family Trust T/A ABC Dentistry [2016] FWC 8097 (ABC Dentistry Decision), the FWC commented that an employer does not have to demonstrate financial hardship to legitimise operational changes, like the redistribution of duties:

[56] … the Commission does not sit in judgement on the management skills or decisions of an employer determining to restructure its business… It is open for Dr Pearce to conclude that she does not require a practice manager and that she can undertake part of that role herself and redistribute other aspects of the role to other employees and to restructure her business accordingly.

In essence, an employer can make the decision to restructure or implement operational changes for financial reasons (like funding) or in an effort to improve efficiency. Operational changes do not have to be made for any prescribed reason, but they cannot disguise the dismissal of one employee simply to replace that person with someone else in the same position.

In Williams v The Building Connection Group Pty Ltd [2017] FWC 30 an employee thought that she was being replaced just three months after being made redundant and claimed that her dismissal was therefore not a redundancy but actually an unfair dismissal. The FWC found that, at the time of the redundancy, the employer was experiencing a temporary downturn in business and it needed to make operational changes. Any later improvement in business did not render the redundancy an unfair dismissal and, in any event, the employee’s former role had not been filled, merely advertised at a much lower salary.

In summary, operational changes can be due to a range of factors including changes in processes or business structure, financial pressures, a temporary downturn in business or simply the need to improve efficiency. What is important is that the position must genuinely not be required at the time that the decision to implement a redundancy is made by the employer.

 

What does consultation require?

As set out above, s389(1)(b) of the FW Act requires an employer to fulfil its consultation obligations in order for a redundancy to be a genuine redundancy as defined.

To understand their specific consultation obligations, employers should review the relevant modern award or enterprise agreement applicable to the employee.

Steps in the consultation process usually include:

  • notifying affected employees of proposed changes to the workplace and the possibility that their position may become redundant if the changes are implemented;
  • holding discussions with affected employees and providing all relevant information; and
  • hearing any suggestions about alternatives to redundancy and genuinely considering those suggestions.

It is essential for employers to meet their consultation obligations under the FW Act. In the ABC Dentistry Decision, the employer successfully argued that the redundant position was not required due to operational changes, but failed on the issue of consultation.

The employer had not met its consultation obligations under the applicable modern award and so termination of the employee’s employment was not a case of genuine redundancy and the dismissal was then found to be unfair.

The genuine redundancy definition specifically points to compliance with consultation obligations in modern awards and enterprise agreements.  However, consulting with employees regardless of their modern award or enterprise agreement coverage is best practice. Periods of restructure cause emotions to run high and clear communication about the changes to come will, at least, ensure that the employer has control of the dialogue – rather than the rumour mill.

 

What does redeployment mean?

Redeployment means transferring the redundant employee into an alternative position within the organisation that uses the employee’s skill and experience and is on substantially similar terms to their previous position (i.e. in terms of remuneration, status, location and career prospects).

Redeployment may also involve a reasonable amount of retraining for an employee to be able to take up an alternative position.

For the purposes of the FW Act, employers must consider redeployment options across all associated entities, not just within the entity that employed the redundant employee.  This is certainly a challenge for conglomerates, with sister companies often operating in a silo style arrangement and where the ultimate parent company does not facilitate a clear communication strategy between group companies.

Redeployment options may also include alternative solutions such as job sharing arrangements or job swaps. In a job swap, an employee whose position is not redundant swaps with the redundant employee so the redundant employee keeps their employment (in a different role) and the employee who has swapped takes the redundancy.

Consideration of these more creative solutions is particularly important when raised by employees during the consultation phase. In Skinner; Pemberton; Ross; Lucas; Hill; Bryant and Preston v Asciano Services Pty Ltd T/A Pacific National Bulk [2017] FWCFB 574 the FWC Full Bench found that the employer’s failure to consider job swaps raised by employees in the circumstances of that case meant that the employer failed to meet the requirements of s389(2) of the FW Act. The redundancies it implemented were therefore not genuine.

 

What happens if a redundant employee makes an unfair dismissal claim?

If an employer has followed the correct redundancy process and met all the elements of the definition, the termination of employment will be a genuine redundancy.

In the jurisdiction of unfair dismissal, genuine redundancy is a “jurisdictional objection” that can be raised when a redundant employee brings an unfair dismissal claim.

When raising the jurisdictional objection, an employer is objecting to the FWC having jurisdiction to hear the employee’s claim on the basis that they were genuinely made redundant and were not “dismissed.”

A successfully argued jurisdictional objection will prevent the matter from progressing any further.

However, in practice, genuine redundancy jurisdictional objections are generally determined at the same time as the rest of an unfair dismissal claim. This means that where an employer fails to satisfy the FWC that they have a valid jurisdictional objection, the FWC will immediately go on to consider the fairness of the dismissal.

This often spells bad news for employers because the process for redundancy and dismissal carry completely different obligations. For example, in William & Ors v Staples Australia Pty Ltd [2017] FWC 607 the employer’s jurisdictional objection and the unfair dismissal claims of multiple redundant employees were heard at the same time. The FWC found that the employer’s redundancy process was flawed and the end result was that the FWC ordered reinstatement of all four employees.

 

Conclusion

Authentic communication and consultation with employees are essential when considering and implementing redundancies, regardless of whether an employer has consultation obligations under a modern award or enterprise agreement.

Employers should consider all redeployment or alternative employment options they can come up with, both within their own entity and in all associated entities, before making a final decision to terminate a person’s employment due to redundancy.

When in doubt about what process to follow or what steps to take when implementing redundancies, employers and HR professionals should use the definition of genuine redundancy in the FW Act as a guide and seek legal advice to map out a strategic and legally compliant plan to facilitate the restructure and the redundancies as smoothly as possible.

 

Need a laugh…

Q:   What do you call security guards working outside Samsung shops?
A:   Guardians of the Galaxy. 

Q:   What do you call a bee that lives in America?
A:   USB. 

 

Should you require any further information or assistance, please contact our Managing Director Athena Koelmeyer on (02) 9256 7500 or via email on [email protected].

Information provided in this update is not legal advice and should not be relied upon as such. Workplace Law does not accept liability for any loss or damage arising from reliance on the content of this update, or from links on this website to any external website. Where applicable, liability is limited by a scheme approved under Professional Standards Legislation.