Gen­uine redun­dan­cy or unfair dis­missal? The dif­fer­ence could be in the consultation

When it comes to ter­mi­nat­ing employ­ees due to changes in oper­a­tional require­ments, com­pli­ance is key, includ­ing com­pli­ance with rel­e­vant pro­vi­sions in the Fair Work Act 2009 (Cth) (FW Act) and any applic­a­ble mod­ern award or enter­prise agreement. 

As a grow­ing body of case law demon­strates, fail­ure to gen­uine­ly engage with the pro­ce­dures and sub­stan­tive require­ments of the law can have seri­ous impli­ca­tions for employ­ers. This arti­cle exam­ines the impor­tance of employ­er com­pli­ance with con­sul­ta­tion require­ments in the con­text of redun­dan­cy and unfair dismissal.

Back­ground

In cer­tain cir­cum­stances, an employ­ee (who is eli­gi­ble to bring an unfair dis­missal claim) and who is made redun­dant, may lodge an unfair dis­missal claim against their employ­er, with the Fair Work Commission (FWC).

How­ev­er, where an employ­er can suc­cess­ful­ly demon­strate that the ter­mi­na­tion was a ​‘gen­uine redun­dan­cy’ with­in the mean­ing of the FW Act, then that is the end of the mat­ter with the FWC hav­ing have no juris­dic­tion to fur­ther con­sid­er the claim. In effect, suc­cess­ful­ly claim­ing that a ter­mi­na­tion is a gen­uine redun­dan­cy acts as a shield from unfair dis­missal appli­ca­tions which then do not progress to a con­sid­er­a­tion of whether the ter­mi­na­tion was harsh, unjust or unrea­son­able.

In order to suc­cess­ful­ly claim that a ter­mi­na­tion was a gen­uine redun­dan­cy, sec­tion 389 of the FW Act requires three things:

• that 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;
• that the employ­er com­plied with any oblig­a­tion in a mod­ern award or enter­prise agree­ment that applied to the employ­ment to con­sult about the redun­dan­cy; and 
• that it would not 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. 

The require­ment at point (2) to con­sult with employ­ees, is often over­looked by employ­ers despite being a cru­cial step in the redun­dan­cy process. Ulti­mate­ly, even where the require­ments at points (1) and (3) above are met, a fail­ure to mean­ing­ful­ly engage in the con­sul­ta­tion process could result in a ter­mi­na­tion not being con­sid­ered a gen­uine redun­dan­cy. It would then be open to the FWC to con­sid­er whether there has been an unfair dismissal. 

Case law

In 2017, we pub­lished an arti­cle which exam­ined the case of Mr Muham­mad But­tar v PFD Food Ser­vices Pty Ltd T/A PFD Food Ser­vices [2017] FWC 4409 (PFD).

By way of sum­ma­ry, in PFD the employ­ee filed an unfair dis­missal appli­ca­tion, to which the employ­er respond­ed that the dis­missal was one of gen­uine redun­dan­cy. Although the FWC agreed that the employ­ee’s job was no longer required to be per­formed, it was held there was no mean­ing­ful con­sul­ta­tion through­out the redun­dan­cy process. Accord­ing­ly, the employ­ee was held not to have been made gen­uine­ly redun­dant, and the FWC was there­fore able to assess whether the ter­mi­na­tion was harsh, unjust or unrea­son­able. Ulti­mate­ly, it was held that the employ­ee had been unfair­ly dis­missed, and the employ­er was required to find the appli­cant an alter­na­tive posi­tion on no less favourable terms than his pre­vi­ous role. 

A more recent deci­sion in David Arnold v Real Estate Mt Hawthorn Pty Ltd T/A Oxford Prop­er­ty Group [2019] FWC 5446 (Arnold) upholds the gen­er­al posi­tion that a fail­ure to mean­ing­ful­ly engage in the con­sul­ta­tion require­ments may result in a find­ing that a ter­mi­na­tion was not a gen­uine redun­dan­cy.

How­ev­er, Arnold fur­ther illus­trates that even though an employ­ee is not held to have been made gen­uine­ly redun­dant, it does not auto­mat­i­cal­ly fol­low that they were unfair­ly dismissed. 

In Arnold, Mr Arnold was employed by Oxford Prop­er­ty Group (Oxford) as a real estate sales rep­re­sen­ta­tive in 2017. Over the fol­low­ing two years, a down­turn in the real estate mar­ket and changes to the remu­ner­a­tion pro­vi­sions of the Real Estate Indus­try Award 2010 (Award) led Mr Rados, a direc­tor of Oxford, to restruc­ture the business. 

A num­ber of mea­sures were imple­ment­ed includ­ing mov­ing the busi­ness to a small­er premis­es, buy­ing out anoth­er direc­tor and retrench­ing a recep­tion­ist. In addi­tion, Mr Rados decid­ed to reduce the num­ber of sales rep­re­sen­ta­tives and turn the busi­ness’ pri­ma­ry focus to prop­er­ty management. 

On 10 April 2019, a meet­ing was con­vened between Mr Rados and Mr Arnold where these changes were dis­cussed. Mr Rados informed Mr Arnold that his posi­tion at Oxford was no longer ten­able, par­tic­u­lar­ly in light of the recent changes to the Award and Mr Arnold’s low num­ber of sales. The par­ties agreed that Mr Arnold’s posi­tion would end on 12 April 2019. 

After the meet­ing, Mr Rados pro­vid­ed Mr Arnold with a detailed let­ter con­firm­ing Mr Arnold’s ter­mi­na­tion and acknowl­edg­ing that many of the fac­tors impact­ing Mr Arnold’s per­for­mance were beyond Mr Arnold’s con­trol. Mr Arnold sub­se­quent­ly filed an unfair dis­missal claim with the FWC. 

In response to the unfair dis­missal appli­ca­tion, Mr Rados argued that Mr Arnold’s dis­missal was a case of gen­uine redun­dan­cy. On this point, the FWC found that Oxford no longer required Mr Arnold’s job to be per­formed and that rede­ploy­ment was not rea­son­able in the cir­cum­stances. How­ev­er, the FWC deter­mined that Oxford had not ful­ly com­plied with the require­ment to con­sult with Mr Arnold about the redun­dan­cy pri­or to dis­miss­ing him. 

Although the meet­ing had been con­vened as soon as prac­ti­ca­ble after Mr Rados made a def­i­nite deci­sion to reduce the num­ber of sales rep­re­sen­ta­tives, dur­ing the meet­ing nei­ther Mr Rados or Mr Arnold posed any mea­sures which might avert or mit­i­gate the dismissal. 

Addi­tion­al­ly, even though Mr Rados had pro­vid­ed Mr Arnold with a let­ter after the meet­ing, Mr Rados had not com­plied with the Award require­ment to pro­vide pri­or writ­ten infor­ma­tion about the pro­posed nature and expect­ed effect of the changes to the workplace. 

Due to the lack of com­pli­ance with the con­sul­ta­tion require­ments, the FWC con­sid­ered that Mr Arnold’s dis­missal was not one of gen­uine redun­dan­cy. It was then open to the FWC to con­sid­er whether the dis­missal was harsh, unjust or unrea­son­able for the pur­pos­es of unfair dis­missal.

In con­sid­er­ing whether dis­missal was unfair, the FWC then assessed the fac­tors under sec­tion 387 of the FW Act which it was required to take into account. Ulti­mate­ly, the FWC held that there was a ​‘sound, defen­si­ble and well-found­ed rea­son for the ter­mi­na­tion’ which ​‘tells against a con­clu­sion that the dis­missal was harsh, unjust or unrea­son­able’. Notably, how­ev­er, the FWC took the fail­ure to con­sult into con­sid­er­a­tion when deter­min­ing the mer­its of the unfair dis­missal claim. It had this to say:

‘[86] The sig­nif­i­cant mat­ter that pos­si­bly tells in favour of a con­clu­sion that the dis­missal was harsh, unjust or unrea­son­able is Oxford’s fail­ure to ful­ly com­ply with the con­sul­ta­tion pro­vi­sions con­tained in the Award. The usu­al rule is that con­sul­ta­tion must not be per­func­to­ry advice about what is about to hap­pen (and this is what occurred in the present mat­ter). The excep­tion to the usu­al rule aris­es in cir­cum­stances where con­sul­ta­tion is high­ly unlike­ly to negate the oper­a­tional rea­sons for the dis­missal or lead to any oth­er sub­stan­tive change. In those cir­cum­stances the fail­ure to con­sult may not be so strong­ly con­sid­ered by the Com­mis­sion in deter­min­ing whether it was an unfair dismissal.’

On this point, the FWC con­clud­ed that Mr Rados’ fail­ure to com­ply with the con­sul­ta­tion pro­vi­sions was large­ly a con­se­quence of the busi­ness’ lack of human resources exper­tise. There was also ​“no evi­dence that com­pli­ance with the con­sul­ta­tion pro­vi­sions would have led to any dif­fer­ent out­come”. There­fore, despite the fail­ure to ade­quate­ly abide by the require­ment to con­sult, Mr Arnold’s ter­mi­na­tion was held not to be an unfair dismissal. 

Sum­ma­ry

Although in Arnold there was no find­ing of unfair dis­missal, it remains of crit­i­cal impor­tance that employ­ers mean­ing­ful­ly engage in the con­sul­ta­tion process required in the con­text of redundancy. 

Mere­ly pay­ing lip-ser­vice to the con­sul­ta­tion require­ments or pro­vid­ing per­func­to­ry advice will not be viewed favourably by the FWC and is like­ly to remove the defen­sive shield of gen­uine redun­dan­cy.

Where a redun­dan­cy mat­ter pro­ceeds to a full hear­ing, Arnold demon­strates that a fail­ure to con­sult is a fac­tor which the FWC will con­sid­er in assess­ing whether the dis­missal was unfair. How­ev­er, it may not be deter­mi­na­tive where ade­quate con­sul­ta­tion would not have pro­duced a dif­fer­ent out­come.

For more infor­ma­tion about the update con­tact Part­ner, Richard Ott­ley on +61 2 9777 8380.