In the midst of economic downturns or poor financial performance, employers are often faced with the difficult decision to restructure their business, or streamline/automate some of their processes to remain competitive. Sometimes employers are left with no other option but to make some of their hard-working employees redundant. However, employers should be wary of their obligations with respect to making an employee genuinely redundant, particularly with respect to consultations. Failing to follow the proper process may open employers to unfair dismissal claims.
The Law of Genuine Redundancy
Under section 389 of the Fair Work Act 2009 (the Act), the crucial elements of a “genuine redundancy” are:
- The employer no longer requires the employee’s job to be done 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 employment to consult about the redundancy; and
- The employer has taken reasonable steps to redeploy the employee within its enterprise or an associated entity.
The first and third elements are usually determined at the time which an employer made the decision to make an employee redundant, otherwise a redundancy is unnecessary. The second element places an onus on the employer to have ongoing and meaningful discussions with their employees about how any internal restructuring may affect them, including the possibility of termination. However, the obligation of consulting with an employee only applies in circumstances where an employee’s employment is subject to a modern award or enterprise agreement, and such an instrument addresses the employee’s rights with respect to consultation and/or dispute resolution.
Does a modern award or enterprise agreement apply?
An easy pitfall for employers arises where an employee’s employment contract does not explicitly state that the contract is subject to any modern award or enterprise agreement and, as such, the employer has no obligations with respect to consulting about redundancies. Employers are reminded that pursuant to sections 47 and 52 of the Act, a modern award or enterprise agreement applies to an employee if it:
- covers the employee;
- is in operation; and
- no other provision of the Act provides, or has the effect, that the modern award or enterprise agreement does not apply to the employee.
For example, a receptionist’s employment contract might not stipulate whether a modern award applies, however they may fall within one of the classifications under the Clerks – Private Sector Award 2010, which contains provisions with respect to consultations and/or dispute resolution.
Importance of consulting
If an employer is obligated to consult under a modern award or enterprise agreement and fails to do so, there cannot be a genuine redundancy (UES (Int’l) Pty Ltd v Harvey  FWAFB 5241).
A consultation must be meaningful and provide an opportunity to the employee to influence the employer’s decision before any irreversible decision to terminate has been made (Steele v Ennesty Energy Pty Ltd T/A Ennesty Energy  FWA 4917).
Irrespective of the burden consultations might bear on employers, they can be valuable in enabling points of view to be put forward by both the employer and employee (Sinfield v London Transport Executive  Ch 558). The right to be consulted is one which should be implemented by providing an opportunity for those who have the right to be heard before the employer’s mind becomes unduly fixed.
The ultimate purpose of consultations is to facilitate change where it is necessary in the most humane way possible, providing an interchange between employer and employee which may benefit both parties.
This is a reminder to employers to consult their employees during a period of internal restructuring before rushing to terminate employees on the basis of redundancy.
If you are an employer who needs to make some tough decisions with respect to redundancies, or you are an employee who believes they have been made redundant unfairly, please do not hesitate to contact me.