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Considering redundancies? Key legal requirements to ensure a genuine redundancy

17 March 2021

#Workplace Relations & Safety

Published by:

Natasha Jones, Olivia Lawrence, Julia Wyatt

Considering redundancies? Key legal requirements to ensure a genuine redundancy

With the JobKeeper extension (JobKeeper 2.0) scheduled to end on 28 March 2021, businesses who have been relying on the JobKeeper wage subsidy to stay afloat are likely to be reviewing their labour costs and considering their ongoing workforce requirements.

Redundancies are an option for employers looking to downsize their workforce and reduce labour costs. However, redundancies are not without legal risks. Employers need to have regard to the legal requirements for a ‘genuine redundancy’ to mitigate the risk of a successful unfair dismissal claim and the costs associated with these claims.

What is a ‘genuine redundancy’?

Section 389 of the Fair Work Act 2009 (Cth) (FW Act) sets out the three requirements for a ‘genuine redundancy’:

Importantly, section 385 of the FW Act provides an absolute defence to an unfair dismissal claim if a dismissal is a case of a ‘genuine redundancy’.

A number of recent decisions of the Fair Work Commission (FWC) have considered each of the above requirements and provide lessons for employers who may be considering redundancies. We examine each of these in detail below. You can also navigate to each section using the links above.

Requirement 1: Job is no longer required to be performed because of changes in operational requirements

Mcnichol v Shape Australia Pty Ltd [2021] FWC 928

This case involved a reorganisation and redistribution of an employee’s duties and considered in detail Requirement 1 of a genuine redundancy – that is, whether the employee’s job was no longer required to be performed by anyone because of changes in the operational requirements of the employer’s enterprise.

The case highlights that an employer is not required to restructure their business in a way to preserve jobs or to create duties for an employee whose role is otherwise redundant.

Background

Ms McNichol brought an unfair dismissal claim against her employer, Shape Australia Pty Ltd (Shape), after she was made redundant, alleging that her dismissal was “harsh, unjust or unreasonable”. 

Shape is a construction company which specialises in refurbishment and fit out. Ms McNichol was one of seven Project Managers based in Shape’s Queensland office. Shape had experienced a downturn in sales revenue and projects won since the onset of the COVID-19 pandemic.

In response, Shape decided to reduce its staff headcount by three in Queensland and 25 throughout the rest of Australia. Ms McNichol’s position as Project Manager was one of three roles selected for redundancy in Queensland.

In addition to the redundancies, Shape put in place a hiring freeze. As such, after Ms McNichol’s position was selected for redundancy, there was no opportunity for redeployment.

Ms McNichol asserted that her Project Manager role was still required as the functions and duties she performed continued to be required in the business. She also submitted that a number of prior business decisions  deprived her of an opportunity to obtain a different role or led to her position becoming redundant, including:

  • another employee was internally promoted to the same role of Project Manager. Ms McNichol asserted that if the internal promotion was not made, the termination of her position would not have occurred
  • three employees were seconded to Queensland from NSW. Ms McNichol asserted that these employees should have been returned to NSW before her role was made redundant
  • the positions of Construction Manager and Graphic Designer were externally hired. Ms McNichol asserted that if these positions were internally hired, there would have been an opportunity for her redeployment.

Decision

The FWC found that Ms McNichol’s dismissal was a case of “genuine redundancy”.

Largely, the decision turned on Requirement 1, that is, whether the employer no longer required the job performed by the employee to be performed by anyone because of changes in the employer’s operational requirements.

Importantly, the FWC rejected Ms McNichol’s assertion that her job still existed because her duties were still being performed, albeit the duties of her role were being performed by other employees. Commissioner Hunt stated that the relevant test to be considered when there has been a reorganisation or distribution of duties is:

“whether the employee has any duties left to discharge. Where there is no longer any function or duty to be performed by the employee, their position is made redundant even where aspects of that employee’s duties are still being performed by other employees.”

In response to Ms McNichol’s further submissions that Shape ought to have taken positive steps to preserve her job, such as delaying promotions or returning seconded employees, Commissioner Hunt made clear that there is no obligation for an employer to “jump through hoops” to find other cost savings or other measures to preserve jobs before considering redundancies. Specifically, Commissioner Hunt stated that an employer is “not obligated to remove valuable employees from their valuable work simply because they are seconded.”

The Commissioner held that following a restructure, an employer is required to assess what jobs have survived the restructure, rather than whether the duties have survived in some form. Commissioner Hunt was satisfied that Ms McNichol’s job as Project Manager did not survive Shape’s restructure, including because no person was employed in Ms McNichol’s role as a Project Manager since Ms McNichol’s redundancy. 

With respect to Requirement 2, being that Shape complied with any consultation obligations under any applicable modern award or enterprise agreement, Commissioner Hunt was satisfied that Ms McNichol was not covered by a modern award or enterprise agreement. Accordingly, there was no consultation obligation for Shape to have satisfied.

Finally, with respect to Requirement 3, that there were no reasonable redeployment options for Ms McNichol within Shape or any associated entity, Commissioner Hunt was satisfied that it would not have been reasonable in all the circumstances for Ms McNichol to have been redeployed within Shape’s business or any of its associated entities.

Commissioner Hunt held that whether redeployment was reasonable was an assessment to be made at the time of the dismissal, and did not require identifying a particular job or position. The FWC would have to be satisfied that, based on the evidence, there was a job or a position or other work to which it would have been reasonable to redeploy Ms Mc Nichol at the time.

Commissioner Hunt also considered the hiring freeze that was in place at the time of the dismissal and Shape’s submissions regarding its business at the time of the dismissal, and concluded that it would not have been reasonable to have redeployed Ms McNichol. 

Lessons for employers

Employers can redistribute the duties of an employee’s role to other roles in their enterprise. The relevant test for whether the role has been made ‘redundant’ is whether any duties remain for the employee to perform.

There is no obligation on an employer to restructure its business or operations in a way to create duties for an employee whose role would otherwise be made redundant. However, where other jobs or duties continue to exist, there is a question as to whether it would be reasonable to redeploy the employee to that role at the time of the dismissal.

Requirement 2: Consultation in accordance with any applicable modern award or enterprise agreement

Rajnesh Sharma v GTS Australia Pty Ltd [2020] FWC 6556

This case considered the consultation requirements for a genuine redundancy. The case highlights the relevant considerations in unfair dismissal matters where an employer has failed to satisfy the requirements for a genuine redundancy.

Background

Mr Sharma, a customs clearance broker, brought an unfair dismissal claim against his employer GTS Australia Pty Ltd (GTS) following the termination of his employment. 

In 2020, GTS was having financial difficulties, which were exacerbated by the COVID-19 pandemic. GTS undertook a review of its operations and identified a number of cost savings, including a reduction in salaries and hours of work and identified two roles that were no longer required by the business. Notably, GTS decided that it no longer required two broker roles and decided to reduce its broker headcount to one. Mr Sharma was the broker selected for redundancy for reasons including that he was responsible for only 19 per cent of GTS’ brokerage and the other broker accounted for the balance (81 per cent).

After GTS made its final decision, Mr Sharma was notified by GTS’ CEO by telephone of its decision to terminate his employment by reason of redundancy.

Mr Sharma lodged an unfair dismissal claim alleging among other things that the decision to dismiss him was not “genuine redundancy”.

In the FWC before Deputy President Lake, GTS objected to Mr Sharma’s unfair dismissal application for reasons including that Mr Sharma’s dismissal was a “genuine redundancy”.

Decision

The FWC found that Mr Sharma’s dismissal was not a case of “genuine redundancy” because GTS failed to consult with Mr Sharma in accordance with the applicable modern award. Relevantly:

  • the FWC found that GTS satisfied Requirement 1 as Mr Sharma was dismissed because GTS no longer required his role to be performed by anyone because of changes in GTS’ operational requirements. In particular, the FWC was satisfied that GTS had suffered a downturn and had identified cost savings, including that another broker could absorb all of the duties performed by Mr Sharma, leaving no duties left for Mr Sharma to perform
  • the FWC also found that GTS had satisfied Requirement 3 as they had considered redeployment opportunities for Mr Sharma but was unable to identify any suitable redeployment option.

However, the FWC found that GTS had not satisfied Requirement 2 because Mr Sharma was covered by the Clerks-Private Sector Award 2020 (Award) and GTS had failed to consult with Mr Sharma in accordance with the terms of the Award. In particular, the Deputy President emphasised that GTS’ key failure was that it did not advise Mr Sharma of the potential decision and provide Mr Sharma with an opportunity to respond.

As GTS failed to satisfy the requirements of a "genuine redundancy", the Deputy President was required to consider whether the dismissal was unfair.

Notwithstanding that GTS failed to consult with Mr Sharma, the Deputy President found that the dismissal was not otherwise “harsh, unjust or unreasonable” for the following reasons:

  • GTS had a valid reason for dismissal (being redundancy because of the downturn in GTS’ business)
  • the failure to consult is not the sole consideration for harshness and a lack of consultation will not automatically deem a dismissal to be unfair
  • while the lack of consultation was a significant flaw in the dismissal process, in this case, consultation would not have changed the outcome for Mr Sharma. The Deputy President was satisfied that given the downturn in business and the cost pressures faced by GTS, even if there had been consultation, the opportunity to identify an alternative opportunity seemed extremely limited.

Lessons for employers

Employers considering redundancies should confirm, and follow, any consultation requirements of the applicable modern award or enterprise agreement in order to rely upon the genuine redundancy defence to an unfair dismissal claim.

As demonstrated by the decision discussed under Requirement 1, where there is no modern award or enterprise agreement that applies to the employee, this requirement will not need to be satisfied.

The decision in this section demonstrated that a failure to consult in accordance with any applicable modern award or enterprise agreement will result in a finding that the dismissal, for the unfair dismissal jurisdiction, is not a case of genuine redundancy. Employers will then be required to satisfy the FWC that the dismissal is not otherwise “harsh, unjust or unreasonable”.

A failure to consult in accordance with the consultation requirements under an applicable modern award will not automatically result in a finding that a dismissal is unfair. A key consideration as to whether a failure to consult will result in a dismissal being found to be unfair is whether the consultation could have impacted the outcome for the employee, including for instance the opportunity to identify an alternative role and mitigate the need for a dismissal.

Nevertheless, a failure to consult in accordance with a modern award or enterprise agreement will contravene section 45 of the FW Act. This is a civil penalty provision and employers may be exposed to a risk of penalties arising from the failure to consult. As such, employers should still consider their obligations under any applicable modern award.

Requirement 3: No reasonable redeployment options within the employer’s enterprise or any associated enterprise

Michael Phillips v Boeing Aerostructures Australia Pty Ltd [2021] FWC 965

Background

Mr Phillips was employed by Boeing Aerostructures Australia Pty Ltd (Boeing) as a material handler. Boeing, an aircraft manufacturer, was significantly impacted by the COVID-19 pandemic. By 20 January 2021, Boeing had announced four rounds of redundancies.

Mr Phillips was notified that the number of material handler positions was going to decrease from 12 to nine. Mr Phillips was sent a voluntary redundancy form, an indicative severance payment figure, and details of the Knowledge, Skill and Attribute (KSA) process which Boeing used to rank employees whose positions were up for redundancy. Of the 12 employees who held positions as material handlers, Mr Phillips obtained the third-lowest KSA. Mr Phillips was advised that his position was going to be made redundant.

Boeing ran a ‘mix and match’ program which gave an employee who had been selected for redundancy the option to seek and to swap places with an employee who had volunteered for retrenchment, subject to a skills assessment and the company’s agreement to the swap. Mr Phillips applied for a different role under the program, but was considered unsuitable for the position. The employee who was selected for the position under the program declined the position and Boeing ultimately determined that position would also be made redundant.

In the background, in 2016, Boeing outsourced ‘pin cleaning’ work to an external company. Mr Phillip requested that the ‘pin cleaning’ work should be insourced and he could be redeployed to that role. Boeing informed Mr Phillip that it was not possible.

Mr Phillips lodged an unfair dismissal application, alleging, among other things, that his dismissal failed to satisfy Requirement 3 of a ‘genuine redundancy’, as he could have been redeployed if:

  • the company insourced pin cleaning; or
  • placed him in the ‘mix and match’ role.

Decision

Deputy President Colman considered both arguments raised by Mr Phillips. However, ultimately rejected Mr Phillips’ submission that it would have been reasonable to deploy him to pin cleaning work or to place him in the mix and match position.

Importantly, DP Coleman found that the ‘pin cleaning’ would not be considered work “within the employer’s enterprise” and held that the work which should be considered for redeployment must be available “at the time” of the redundancy. Therefore, work that has been outsourced and is being done by a contractor cannot be considered as “within the employer’s enterprise” or work available at the time of the dismissal.

Deputy President Colman went on to say, in the alternative, that even if the ‘pin cleaning’ work was insourced, there would not have been enough work for Mr Phillips to be redeployed to on a full-time basis at the time of the dismissal. The Court also found it would not have been reasonable to redeploy Mr Phillips to any of Boeing’s “associated entities”.

Deputy President Colman found no merit in Mr Phillips’ submission that it would have been reasonable to redeploy him to the ‘mix and match’ position. Firstly, on the basis that the ‘mix and match’ position was ultimately made redundant, and secondly, that it was not reasonable to assume that Mr Phillips would have been redeployed to the position over any other employee who was selected for redundancy. DP Coleman found that Boeing satisfied Requirement 3 – that there were no reasonable redeployment opportunities for Mr Phillips at Boeing or any associated enterprise.

On the other requirements for a genuine redundancy, DP Coleman was satisfied that Mr Phillips’ job was no longer required to be performed by anyone because of changes in Boeing’s operational requirements (Requirement 1) and Boeing had satisfied the obligations to consult with Mr Phillips in accordance with an applicable enterprise agreement (Requirement 2). DP Coleman accordingly found that Mr Phillip’s dismissal was a case of “genuine redundancy” and that the dismissal, therefore, was not unfair.

Lessons for employers

When an employer is considering redeployment options within an employer’s enterprise, they only need to consider work that is available ‘at the time’ of the dismissal.

An employer must also remember to consider positions available in the ‘enterprise or associated entities’ of the employer. However, there is no requirement for employers to insource any work outsourced to an independent contractor.

Takeaways

Redundancies are not without legal risks. Employers who are considering redundancies ought to ensure that they satisfy the requirements for a genuine redundancy to mitigate the risk of unfair dismissal claims. This includes:

  • ensuring that employees that are selected for redundancy only if their job is no longer required to be performed by anyone because of changes to the employer’s operational requirements
  • ensuring that employers consider modern award or enterprise agreement coverage, and consult in accordance with the applicable instrument
  • redeploying employees selected for redundancy to any reasonable redeployment opportunities, if any, within their enterprise and any associate enterprise.

Authors: Michael Selinger, Natasha Jones, Olivia Lawrence & Julia Wyatt

Disclaimer
The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.

Published by:

Natasha Jones, Olivia Lawrence, Julia Wyatt

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