Have you had situations where it has been suggested to you that the best way to deal with “a problem employee” is to make them redundant? Unfortunately, we get asked that question too often. Did you know that there are specific criteria that have to be met for a redundancy to be considered legally genuine? A recent FWC decision illustrates just what this all means.   

The Background

When the Fair Work Act 2009 was developed under then Minister for Employment and Workplace Relations, the Hon Julia Gillard, a key reform that the government wanted to make was to discourage what had become common corporate practice of restructuring to remove unwanted employees rather than affording them the natural justice that they would be entitled to under a performance or behavioural management process.

This resulted in the legal recognition of sham redundancy as a concept and the prescription of specific grounds that had to be satisfied for a redundancy to be genuine, namely:

• That the role in question is not going to be performed by anyone and
• That the organisation genuinely considers redeployment opportunities and
• That the consultation provisions in any applicable industrial instrument (award or enterprise agreement) are complied with.

If all three of those conditions are satisfied, an employee would be excluded from making an unfair dismissal claim.

The case in point

CEVA Logistics initiated a restructure which resulted in an operations supervisor’s position becoming redundant and the occupant of that position was retrenched. The Fair Work Commission found that it was not a genuine redundancy despite accepting that the position was not required for genuine operational reasons. Here is why:

• Redeployment: there were 18 vacancies in the organisation (3 of which were in her home state) yet she wasn’t advised of any of them
• Consultation: this includes an obligation to properly consult the employee about the effects of the redundancy (ie on her employment) and measures to mitigate the adverse effects of the change on her and the Commission found that the employer failed to do this.

It appears that the organisation did not put forward any of the vacancies as redeployment options in the belief that none of them were suitable because, in their view, the surplus employee didn’t have the skills required and/or would have to take a payout and/or would have to relocate interstate. The Commissioner rejected all of those as grounds for not advising the employee of the available vacancies and genuinely consulting her about them. The employee was awarded $7,439 plus superannuation.

What is redundancy?

Firstly, when we talk about redundancy, it is important to recognise that it is the position that becomes redundant, not the employee. A position becomes redundant when an employer:

• doesn’t require a particular job to be done by anyone or
• becomes insolvent or bankrupt

It can happen on transmission of a business to a new owner or due to a business downturn or as a result of the introduction of new technology or for a number of other reasons but the common factor is that the job is gone.

That doesn’t mean that you cannot reassign duties performed by the redundant position to other roles – you can as long as it is for the right reasons, it is fair on the other employee who is picking up the extra duties and that can all be demonstrated if it is challenged.

What is redeployment?

S389(2) of the Fair Work Act states:

“A person’s dismissal was not a case of genuine redundancy if it would have been reasonable in all the circumstances for the person to be redeployed within:

  (a)   the employer’s enterprise; or

  (b)   the enterprise of an associated entity of the employee.”

This means that an employer must actively explore the question of whether any suitable redeployment options might potentially exist for any surplus employees.

They then have to consult the surplus employees about the availability and suitability of any such options. That means not just telling them about the options but ensuring that they properly informed about the roles, the duties, the remuneration, the hours, the location and any other relevant factors.

It also isn’t just a question of what vacancies might exist at the time although, as illustrated in this case, that is an important element. It could also be that opportunities might arise through retraining or through reductions in hours or changes in work locations or insourcing contracted work or in other ways.

Where multiple roles are being made redundant, there might be employees who are happy to take a voluntary redundancy which can make decisions easier.

Where there are substantive changes that would affect an employee’s hours of work and/or remuneration, any redeployment would need to be agreed with the employee.

It is only when it has been determined that no suitable redeployment options exist that a decision should be made that termination should occur.

Of course, there are situations where the end result is apparent from the start but there is still a process to work through.

What is consultation?

As is graphically illustrated in this case, consultation involves a lot more than just telling someone that their role is abolished, that there are no redeployment options and so they will be retrenched.

All awards and enterprise agreements have mandatory consultation clauses in them which require employers to advise employees and their representatives in writing and have discussions with them and their representatives about any major changes in production, program, organisation, structure or technology that are likely to have significant effects on employees including:

• The nature of the changes
• The introduction of the changes
• Their likely effect on employees
• Measures to avoid or reduce the adverse effects of the changes on employees
• Any other matters likely to affect employees.

Significant effects include:

• Termination of employment, or
• Major changes in the composition, operation or size of the employer’s workforce or the skills required, or
• Loss of, or reduction in, job or promotion opportunities, or
• Loss of, or reduction in, job tenure, or
• Alteration of hours of work, or
• The need for employees to be restrained or transferred to other work or locations, or
• Job restructuring.

Effective and legally valid consultation processes are essential elements of any change management program and failures can create vulnerabilities in multiple jurisdictions as has really been demonstrated in a couple of cases where:

• SafeWork NSW intervened in a change management process at University of Technology Sydney on the basis that the process was potentially giving rise to psychosocial risks for workers (poor change management is one of the prescribed psychosocial hazards) and
• ANZ Bank found themselves in a dispute in the Fair Work Commission over alleged failure to comply with required consultation processes oin announced downsizing process.

So organisations really do need to have clear change management processes that expressly deal with their legal obligations across all relevant jurisdictions.

Tips for small businesses

In the CEVA Logistics case, the FWC did comment that the HR team should have been capable of assisting the employer to meet their obligations re the rules on redundancy.

So where does that leave SMBs who don’t have their own dedicated HR team or don’t have internal resources who have the necessary knowledge and experience in compliance requirements and effective change management practices?

You need to have someone to provide that for you whether that be a HR consultancy or an employment lawyer.

You also need to have an open and transparent relationship with our employees because, if people trust you, you will be much better equipped to have the hard conversations that go with difficult change decisions. Ideally, your external advisor should be able to support you with that too.

And if the issue is really about an employee’s performance or behaviour, deal with it on that basis rather than trying to disguise it as a redundancy that isn’t real.

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