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Redundancy & Restructuring: What your organisation needs to know

12 August 2014

Redundancy & Restructuring: What your organisation needs to know

Kathryn Dent, Director and Dimi Baramili, Associate

In recent times issues concerning redundancy and restructuring have been of major concern for organisations as they seek to structure their operations in a more effective and efficient manner. Whilst restructuring employees can have lucrative cost saving benefits employers need to ensure they are aware of and avoid the inherent legal risks presented by this process, which can have a signifcant impact on their organisation.

What is a genuine redundancy?

Redundancies should not be seen as an easy option for the termination of under- performing or problematic employees. Redundancies should only be implemented where the role is no longer required to be performed. This is not only the legal definition of redundancy (which will be reviewed by authorities such as the Australian Taxation Office or the Fair Work Commission) but it also forms the first limb to an employer being able to resist an unfair dismissal application.

“Redundancies should only be implemented where the role is no longer required to be performed.”

If the termination is a “genuine redundancy” as defined in the Fair Work Act 2009 (Cth) (the “FW Act”) then the employee has no recourse to the unfair dismissal jurisdiction. The FW Act provides that a genuine redundancy will arise where the job is no longer required to be performed by anyone due to changes to operational requirements, the organisation has complied with obligations to consult that are contained in any applicable modern award or enterprise agreement and finally that it was not reasonable for either the employer or its “associated entity/ies” to redeploy the employee.

It is also important that an organisation complies with obligations to consult that are contained in any applicable modern award and/or enterprise agreement as penalties may be imposed on both organisations and individuals for any breaches. Generally the consultation provision contained within a modern award, requires that where significant change is introduced all employees (and their representatives) who will be impacted need to be notified, with discussions to commence as early as is practicable after a decision to implement the changes has been made. These discussions will need to cover the likely effect of the changes and any steps to be taken to mitigate the adverse impact on relevant employees, the nature of the changes and their impact must also be provided in writing to relevant employees (and their representatives). Throughout the process the employer must give prompt consideration to any issues or queries raised by employees about the change.

In practical terms consultation needs to be a real opportunity for employees to influence the decision. The length of this process will depend on the number of redundancies and size of the organisation. In our experience because of the unpleasantness of the situation and the desire to complete the process and move forward many employers seek to get this over and done with in one meeting. While this is not necessarily in breach of the Award consultation provision it is certainly more open to challenge (either as an unfair dismissal or as a breach of Award or both) as well as potentially inflammatory and antagonistic and should, where practicable, be avoided.

At the same time as consultation, redeployment should be considered. While consultation is not mandatory unless there is an applicable award, all employees who could otherwise bring an unfair dismissal claim (because they earn under the threshold) must be given redeployment opportunities or, again, it will be considered not to be a “genuine redundancy” thereby exposing an employer to an unfair dismissal claim.

It is also important to note the breadth of the redeployment obligations and how a failure to consider these may render the redeployment “unreasonable”. For reasonable redeployment an employer should:

  • Consider all vacant roles which the employee is qualified to perform regardless of if they are in the same location (and yes even interstate opportunities need to be considered), at the same level (for example more junior) or less well remunerated;
  • Extend the redeployment to “associated entities” (as defined in the Corporations Act 2001 (Cth) and generally a broader range of companies than simply “related bodies corporate”).

Essentially an employer should give an employee as much opportunity to be considered for redeployment and let the employee make the decision as an employer may not be possessed of all the facts that may make what might otherwise look like an unattractive proposition, attractive. After all a job at lesser pay may be better than no job at all and jobs in other locations may justify an employee moving to an area where they may have family support or where there partner has opportunities. If there are no positions within the employing or associated entities then the considerations are far easier but the communications, both verbal and written, should still confirm that the employer considered redeployment.

For an order of reinstatement to be made for failure to redeploy an individual, a recent case decided by the Full Bench of the Fair Work Commission (Technical and Further Education Commission T/A TAFE NSW v Pykett [2014] FWCFB 714) has indicated that a specific suitable job or position must be identified by the employer, before it is able to order reinstatement (that is the Commission can order reinstatement without specifying a particular position).

Commissioner McKenna ordered reinstatement to a suitable position which was identified by the dismissed employee (Pykett v Technical and Further Education Commission T/A TAFE NSW (No.5) [2014] FWC 3177). In this decision Commissioner McKenna reproduced part of the Full Bench’s decision remitting it to her which held that it would have been reasonable to redeploy the employee to a position other than to an “advertised, permanent vacancy”. The issue across the various appeals was that at first instance the Commissioner did not make a decision that there was a job, position or other work into which the employee could have been redeployed. The employer sought a stay of this order but the Federal Court rejected  this (Technical and Further Education Commission v Pykett (No 1) [2014] FCA 727), and PCS understands the reinstatement order is currently on appeal by the employer.

A recent decision of the Fair Work Commission Full Bench (Teterin and Others v Resource Pacific Pty Limited t/a Ravensworth Underground Mine [2014] FWCFB 4125) confirmed the evidentiary burden required to be satisfied by the employer in the context of discharging its redeployment obligations for the purposes of unfair dismissal. It was held that the employer must provide adequate evidence to demonstrate the reasonableness of redeploying the individual(s). In this case an argument was raised that those who had their roles made redundant should instead have been offered roles currently performed by contractors. It was ultimately held that the redundancy was genuine, and the dismissal fair with the Full Bench noting that the employer had provided more than adequate evidence to demonstrate that it was not reasonable to redeploy the individuals. In particular, evidence that the contractors were performing generally short term, as well as highly specialised roles, and it had been explored with the union in the past whether the use of contractors could be reduced to retain permanent employees.

What other considerations are relevant during redundancies?

In addition to the above and at a minimum, employers should:

  • ensure they get termination payments on redundancy correct – they will need to pay or give notice, pay accrued but unused leave but also pay redundancy according to the most generous source ie contract, policy, FW Act, enterprise agreement or modern award; and
  • consider whether the terms of the FW Act allow the employer to apply for an exemption from or reduction of any otherwise payable redundancy payment (for example if the employer is unable to pay or where the employer has provided an employee with “other acceptable employment”). What is “other acceptable employment” will depend on the employer’s and employee’s unique facts and circumstances, with the following factors relevant:
    • whether the work is “of a like nature”;
    • comparable pay levels, hours of work, seniority, fringe benefits, workload and job security; and
    • a level of responsibility and pay similar to the original role held by the employee.

Finally organisations should be aware of the additional consultation and notification obligations under the FW Act where there are 15 or more dismissals occurring due to redundancy.

What types of legal risks can your organisation face?

There are numerous actions that may be brought by or on behalf of an employee whose employment has been terminated due to a redundant position, as follows:

  • Breach of an enterprise agreement or award (and possibly employment contract), which provides for certain processes and procedures to be followed and/or certain amounts to be paid. Generally, consultation requirements place the onus on the organisation to notify and provide certain information to employees who will potentially be affected often within specified deadlines, and allow employees to have a say during the process including the opportunity to raise any queries or concerns.
  • A General protections claim if it is shown that selection for redundancy was for a non-genuine reason, in response to an employee exercising a workplace right such as making an inquiry in respect of their employment.
  • Discrimination claim on the grounds that the redundancy was not genuine and rather, the individual was selected for redundancy on the grounds of a protected attribute such as race, sex, age, disability or sexual preference.

What should your organisation be aware of when restructuring / implementing redundancies?

  • Any applicable procedure or process is appropriately and fairly followed and appropriate documentation is maintained to demonstrate this.
  • Any relevant notice periods are complied with.
  • The employee is provided with the appropriate redundancy payment bearing in mind the relevant source(s) which may include the FW Act, award, enterprise agreement, and/or employer policy or custom and practice.
  • The process remains open and transparent with employees able to raise any queries or concerns throughout the process.
  • All reasonable opportunities for redeployment have been genuinely considered and appropriate evidence of this can be demonstrated.

An earlier and edited version of this article has been reproduced in the Accommodation Association of Australia’s Key News Update and HM Magazine.

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