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16 May 2017 Redundancy - Defending Claims for Unfair Dismissal

By Richard Ottley, Partner

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). 

Richard Ottley, Partner  |  Phone: +61 2 9233 5544  |  Email: rbo@swaab.com.au

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This article is not legal advice and the views and comments are of a general nature only. This article is not to be relied upon in substitution for detailed legal advice.

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