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.
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.
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  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  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:
‘ 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.
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.