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Quarterly Round-Up of Legal Developments in Employment Law

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13 Oct 2017

There have been a number of interesting legal matters heard by our judicial system within the employment law area in the last quarter. In this legal briefing, we provide an overview of two informative and instructive cases for employers, each dealing with their own unique and distinct employment law issue. In addition, we provide a timely update as to the outcome of the union movement’s appeal to the Federal Court of Australia of the penalty rates decision that was handed down earlier this year by the Fair Work Commission.

Significant Payout to Senior Executive After Employer Repudiated Employment Contract

Crowe Horwath (Aust) Pty Ltd v Loone (No 3) [2017] VSC 548

We recently wrote an article about the Crowe Horwath decision where it was found that restraint of trade covenants in an employment contract were found to be unenforceable due to the employer’s repudiatory conduct, which the employee accepted in bringing his employment to an end, before then setting up a business in competition with his former employer. The decision was significant as the Victorian Supreme Court ultimately concluded that the employee’s post-employment restraints were of no legal effect given the employer’s repudiatory conduct. Following this initial decision regarding the enforceability of the restraints, the Court has now ruled in relation to the Executive’s claims to recover lost earning, as well as incentive payments which he claimed were improperly and unlawful withheld by his employer.

In assessing the case, Justice McDonald held that the employee was entitled to 12 months remuneration and superannuation, a bonus for 2015/16 which he would have received had his employer not repudiated the contract which was catalytic in bring the employment to an end. In addition, Justice McDonald rejected the employer’s argument that the employment would have ended in the context of an organisational restructure in August 2016. In total, the Court awarded the employee almost $425,000 in damages and is yet to rule on the issue of interest and costs. 

In light of this significant two-part decision, it is advisable that employers carefully review employment contracts and in particular contractual provisions dealing with incentive payments to ensure commercial terms are appropriately drafted to reflect the employer’s actual intent. In addition, before a potential incentive payment becomes due, due consideration to the agreed mechanism for calculating the payment should be properly considered to minimise the risk of breach of contract claims. Most importantly, if an employer breaches the terms of the employment contract it will mean that any restraints of clauses which would otherwise have been enforceable become inoperative, and in addition to the employee being able to compete, the employer may be required to pay the employee for damages.

Company Ordered to Re-employ Employee in Position That No Longer Exists

Muhammad Buttar v PFD Food Services Pty Ltd T/A PFD Food Services [2017] FWC 4409

Generally, employers are required to consult with employees before terminating their employment for reasons of redundancy. Furthermore, employers are also required to consider redeployment options either within the employer’s business or in an associated business entity. Both the obligation to consult and consider redeployment in redundancy circumstances, is often, in our experience, overlooked and given little weight by employers. However, a recent decision has highlighted the importance of undertaking both requirements when terminating an employee by way of redundancy. In the decision of Muhammad Buttar v PFD Food Services Pty Ltd T/A PFD Food [2017] FWC 4409, the Fair Work Commission found that a worker was unfairly dismissed when his role was made redundant and ordered reinstatement of the employee despite his former job no longer existing and his employer’s claim that the employment relationship had been irreversibly damaged.

In this particular case, Mr Buttar had worked for PFD Food Services Pty Ltd T/A PFD Food Services (“PFD Food Services”) for over two years as a Supervisor within the Adelaide Fishroom. The Adelaide Fishroom had been experiencing a serious downturn in business and as a result PDF Food Services decided to restructure and reduce labour costs which included making Mr Buttar’s position redundant. The Company had notified Mr Buttar of his redundancy on the day it took affect without any consultation whatsoever. In this regard, Deputy President Anderson found in determining the unfair dismissal claim commenced by Mr Buttar that the business had failed to meet its statutory obligation to consult and as such the redundancy could not be a genuine redundancy within the meaning of the Fair Work Act 2009 (Cth) (“the FWA”).

The Commission also found that Mr Buttar’s dismissal could not be a case of genuine redundancy as it would have been reasonable in all the circumstances, for him to have been redeployed by PFD Food Services elsewhere in the enterprise or an associated entity. In this regard, Mr Buttar had made it known to PFD Food Services that he would be prepared to work in a variety of roles for the employer. To this end, the Commission noted that the company had completed a ‘Skills Matrix’ in order to assess Mr Buttar’s capability for alternate roles, however, Deputy President Anderson formed the view that the Matrix was a rushed job and the National Manager did not seriously want to redeploy Mr Buttar in any event. Deputy President Anderson went on to further state that the Matrix itself was not an adequate or sufficient mechanism to discharge the statutory obligation to take reasonable steps to explore redeployment. In conclusion, the Commission found that the National Manager had already decided to make Mr Buttar redundant, considered that he had no future in the business, and had unreasonably formed a negative attitude towards him which resulted in the National Manager not seriously considering redeployment options. This was further evidenced by the fact multiple positions were advertised publicly for PFD Food Services in the months after the redundancy, some of which Mr Buttar expressed interest in prior to the termination of his employment. 

Although the Commission found there were genuine operational reasons for the business restructure in the Adelaide Fishroom, it concluded that Mr Buttar’s dismissal was not a genuine redundancy on the ground that the consultation requirement and the redeployment provisions had not been complied with. Despite having regard to multiple factors including the employer’s labour costs, the fact PFD Food Services had been advertising for multiple positions and Mr Buttar’s employee record, the Commission ordered PFD Food Services to reinstate Mr Buttar to another position in its production or distribution areas, as supervisor (or in an equivalent position that was consistent with his skills and capabilities).

Relevantly, this decision highlights the importance for employers to comply with their statutory obligations of consultation and redeployment and to actually engage with these requirements in a meaningful way, otherwise they may face a situation whereby the Commission orders the employee to be reinstated.

Unions Challenge Penalty Rates Decision in Federal Court

Shop, Distributive and Allied Employees Association v The Australian Industry Group [2017] FCAFC 161 (11 October 2017)

Earlier this year, we wrote about the Fair Work Commission’s landmark decision in June 2017 to cut penalty rates in the hospitality and retail awards. As a consequence of this decision, unions representing the interests of workers in the hospitality and retail sectors launched a challenge in the Federal Court of Australia to appeal the penalty rates decision.

The unions appeal applications, which were jointly heard in a three-day hearing last week, examined the extent to which the decision of the Fair Work Commission was affected by material jurisdictional error as the unions’ position was that the Commission “misconceived” its power in varying the modern awards and erred in cutting penalty rates by failing to take into account “contemporary circumstances”.

In a decision handed down this week, The Full Court of the Federal Court of Australia rejected the arguments advanced by the unions and upheld the decision of the Fair Work Commission in finding that no error was made when deciding to cut penalty rates. In reaching its decision, the Court observed that the Commission’s reasons compared the historical importance of penalty rates against new evidence of the contemporary context, and plainly took into account all relevant matters to ensure the modern award objectives were still being met. To this end, the gradual reduction in penalty rates in the hospitality and retail sectors will continue to apply in accordance with the Commission’s transitional arrangements.

If you or your business associates would like to discuss any aspect of this article or need specialist employment law advice or assistance, please do not hesitate to contact us.

This alert is not intended to constitute, and should not be treated as, legal advice.