Economic Headwinds | Redundant or Not?

In the current economic climate, employers are addressing business downturns by restructuring their business affairs, often resulting in role redundancies. While redundancies can be necessary for a business longevity, mismanaging the process can lead to further complications and significant unwanted cost.

Last year we wrote an article about the process employers must follow if they wish to effect redundancies without resultant litigation and cost. We thought it opportune to republish aspects of that article, supplemented by a recent decision of interest.

Redundancies are an unfortunate but necessary part of the business cycle for a variety of reasons. The redundancy process can be quite complex and the decision in Alesia Khliustova v Isoton Pty Ltd [2023] FWC 658 (“Isoton Decision”) is a particularly precautionary tale for employers looking to make roles redundant.

This client alert will offer readers an overview of redundancy and the associated legal requirements employers must satisfy.

What does redundancy mean?

Redundancy occurs when an employer no longer requires an employee’s job to be performed by anyone. This may be because of operational changes to the business, or because the employer is insolvent or bankrupt. Redundancy is about the role, not the employee and this must not be conflated. Employers should not use redundancy as a way of dealing with concerns about an employee’s performance or conduct. It is important that employers follow a fair procedure for redundancy, including consultation with the relevant employee as to why the role is being made redundant and exploring opportunities to keep the employee within the company.

What is an employer obliged to do?

In order for a redundancy to be considered genuine, an employer is required to comply with section 389 of the Fair Work Act 2009 (Cth) (“Fair Work Act”). Firstly, the redundancy must be the result of operational changes that create valid reasons to render the role redundant. Secondly, the employer must comply with any requirements in any applicable industrial award or agreement to consult with the employee(s) about the redundancy. Finally, the employer must consider all reasonable opportunities for the employee to be redeployed within the business or a related entity. Failure to satisfy these three requirements will render the dismissal disingenuous and the employer may risk being unsuccessful in defending an unfair dismissal claim.

A valid reason due to operational changes

There are many reasons a business may find itself considering redundancy. Such reasons may include restructuring, insolvency, bankruptcy, shutting down or relocating. Roles may be redundant because implementing technological advancements would be more efficient for the business and result in a substantial cost saving.

When considering the reasons for redundancy, an employer must act fairly, objectively and consistently. In particular, when considering roles that may be subject to redundancy, it is important for employers to establish a fair and transparent process for the selection of employees who may be impacted.  The selection process should be objective, non-discriminatory, and consistently and fairly applied. This will minimize the risk of a redundancy decision being successfully challenged.

When is a consultation required?

In order for a redundancy to be regarded as a ‘genuine’ redundancy, an employer must consult with an employee in accordance with any applicable modern award or other industrial agreement. If the employee is not covered by a modern award or registered agreement, there may be no requirement to consult.

The consultation requirements usually include:

• notifying the employees who may be affected by the proposed changes;
• providing employees with relevant information about the changes;
• discussing measures that may avert or minimize any negative effects on the employees; and
• considering employees’ ideas or suggestions about the changes.

Explore reasonable circumstances for redeployment

The employer must also explore redeployment opportunities and whether there are other acceptable alternative roles the impacted employee may be able to perform. It is critical that an employer offer all reasonable redeployment opportunities within the business or related entities that are available to satisfy the redeployment obligations under section 389(2) of the Fair Work Act, and any specific award or industrial agreement requirements.

Whether redeployment of an employee is considered reasonable will depend on the circumstances that exist at the time of the dismissal. In determining whether redeployment was reasonable, several matters may be relevant such as:

• whether there exists a job, position, or other work in relation to which the employee can be redeployed;
• the nature of any available position;
• the employee’s skills, qualifications and experience; and
• the location of the job in relation to the employee’s residence and the remuneration which is offered.

An employer is also required to consider redeployment opportunities in an associated entity.

In the event an employer has other positions available, even at a lower level, that the redundant employee has the skills to perform, the employer should not presume that the employee will decline the position. An employee may well be prepared to consider a role with less responsibility and have no objection to the location of the role being different to the current one and accept less remuneration.

Learnings from the Isoton Decision

The Isoton Decision is significant, and is a useful illustration of when dismissal, because of redundancy, will be considered genuine. In this case, in 2022, the employer, decided to implement an increased technical support presence in India to increase its competitiveness. It expected to employ twelve people in India. However, in late 2022, because of multiple significant financial challenges, including an unexpected deferment of a contract, the employer decided to reduce its costs base in Australia. This included removing several positions in Australia and reducing the number of positions it intended to recruit in India. This resulted in the decision to make the Applicant’s role redundant. As a result, the Applicant brought a claim in the Fair Work Commission (“FWC”) challenging the redundancy.

Whilst the FWC was satisfied that the employer had a valid reason to make the employee’s position redundant, it found they failed to properly consult and redeployment requirements were not offered in circumstances where this ought to have occurred.

In terms of the consultation requirements, it was agreed that the Applicant was covered by a modern award (the Professional Employees Award 2020) and as such, the employer was required to consult with them before making the role redundant. Whilst the employer met with the employee online, they simply informed the employee that her role was redundant. Accordingly, the FWC found that the employer did not satisfy the consultation obligations as it had not undertaken a genuine consultation process and in particular, the Applicant was not provided the opportunity to be heard and express their views, such that they may be taken into account.  The FWC found that this meeting was merely a perfunctory means for the employer to notify the Applicant of the redundancy, not a consultation.

Furthermore, the FWC, explained that a consultation is meant to be a meaningful discussion between the employer and the employee which must be conducted prior to the employer making a final decision to render the role redundant and bring the employment to an end. The employer is expected to provide the employee with an opportunity to be heard, an opportunity to express their views and an opportunity to have their views considered. The consultation must not be conducted by a close-minded employer who does not believe the employee has any valuable information relevant to the possible redundancy. That being said, it is not suggested that employees have a right to veto the employer’s decision by any means, rather employees must be offered the opportunity to present their opinion and persuade the employer’s decision.

Thus, a genuine redundancy requires a genuine consultation which does not equate to a habitual meeting, but rather a meaningful conversation with the employee conducted prior the decision being finalised. Failure to meet this standard will risk the redundancy being found to be disingenuous.

In the decision, the FWC included a useful example of what will constitute a meaningful consultation:

“there is a difference between saying to someone who may be affected by a proposed decision or course of action, even, perhaps, with detailed elaboration, ‘this is what is going to be done’ and saying to that person ‘I’m thinking of doing this; what have you got to say about that?’. Only in the latter case is there ‘consultation’.”

The recent case of Frederick Deon Du Preez v MSWA Limited [2024] FWC 1793 (“MSWA Decision“), underscores the importance of following a proper consultation process with employees. The MSWA Decision, recently heard by the Fair Work Commission, highlights the unlawfulness of simply informing an employee that their role is redundant.

Frederick Deon Du Preez v MSWA Limited [2024] FWC 1793

The applicant, Mr Du Preez, was employed by MSWA Limited (“MSWA”) as a Finance Data Analyst on 20 June 2022. On 8 November 2023, MSWA ended Mr Du Preez’s employment by way of redundancy. Mr Du Preez claimed that his termination was unfair and commenced an unfair dismissal claim.

On 31 May 2023, Mr Du Preez received an email from his direct supervisor, Mr De Coning, notifying him of his intention to change Mr Du Preez’s title to that of a Senior Data Analyst. However, this process was put on hold as the businesses structure was about to be reviewed by an incoming Chief Information Officer. In or around June 2023, Mr Du Preez’s direct supervisor and the Chief Financial Officer discussed reviewing and changing the team’s structure.

In or around July 2023, Mr Jennings started as Chief Information Officer and on 17 October 2023, he sent an email to senior employees which summarised changes to Mr Du Preez’s team, including the deletion of the Data Analyst role. The email also provided for the creation of a new Senior Data Analyst role.

On 23 October 2023, Mr De Coning and Mr Jennings met with Mr Du Preez to inform him of MSWA’s decision to make his role redundant. There were then further meetings on 1 November 2023 and 8 November 2023, where Mr Du Preez unsuccessfully applied for the new position of Senior Data Analyst.

In accordance with Section 389(1)(b) of the FW Act a dismissal is not a genuine redundancy unless the employer has complied with the applicable consultation requirements. In this case MSWA was required to comply with clause 11 and 16 of the MSWA Agreement. Accordingly, MSWA was expected to inform Mr Du Preez of any decision to take action that is likely to have significant effect on him or make his role redundant as soon as reasonably practicable after the decision has been made.

MSWA claimed that they had compiled with their consultation obligations by relying on the 23 October 2023 and the November meetings.

Commissioner Lim found that MSWA’s consultation obligations were triggered in or around June 2023, when the decision to review the team’s structure was made, since this was likely to have a significant impact on Mr De Preez’s employment with the company. Commissioner Lim held that consultation is not merely telling an employee that they have been made redundant, several months after a decision has been made to restructure their team.

Commissioner Lim ruled in favour of Mr Du Preez and awarded him $7,452, being three weeks’ worth of compensation by reason of the company’s failure to comply with its consultation obligations.

Failure to explore reasonable circumstances for redeployment

Not only must the employer consult with the employee concerned in a timely fashion and as soon as a decision has been made that will affect the employee, but the employer must also properly canvass alternative redeployment opportunities. This obligation is highlighted in the Isoton Decision.

In terms of the redeployment issue, it was found that the employer’s Indian operations were conducted by a related entity and during the restructure, they continued to recruit for a reduced number of positions in India. The FWC found the work performed by the Applicant in this instance would have enabled her to perform at least one of the roles in the Indian operation.

The employer gave evidence that it did not offer the role based in Indian to the Applicant because it did not believe she would have accepted it given it was overseas and the remuneration was less. However, the employee argued that if they had been notified about the position, they would have taken the opportunity regardless of location and lower pay. The FWC explained that the employer failed to explore reasonable redeployment opportunities because it failed to consult properly. This left the Applicant with no opportunity to inform the employer that they were interested in working in different cultures, were prepared to travel and, despite the lower wages, would have liked to experience the role for two to three months. The FWC cautioned that it is dangerous for employers with redeployment options to “fetter offers based upon their own prejudices.”

Accordingly, the FWC found that the employer had a role available in an associated entity and that it would have been reasonable in all the circumstances for the Applicant to be redeployed into that role.

Key takeaways for employers

In circumstances where an employer fails to follow the proper redundancy process, the employer will be exposed to possible disputation including unfair dismissal, adverse action or breach of contract and discrimination claims.

In addition to causing a financial risk for employers, claims against the organisation can create significant reputational risk and affect the internal workplace culture.

To ensure the correct steps are complied with, we recommend that employers are mindful of the following steps:

1. Consider whether you are making an employee redundant for the right reasons and whether the role is genuinely redundant;
2. Check whether the employee is covered by an industrial award or agreement and the requirements for redundancy – such as the requirement to consult. If you are required to seek employee feedback, ensure you genuinely consider the viability of their employment before committing to a decision;
3. In selecting between multiple employees, ensure the process if fair and objective. Consider creating a matrix or skills checklist for comparison and ensure that the comparison between employees does not feature any discriminatory features, such as age, sex, religion, disability, sick leave or workers compensation applications;
4. Invite the employee to provide feedback before a final decision is made.
5. Consider and respond to the employee’s suggestions in relation to any redeployment options and/or strategies to mitigate the impact of the possible redundancy.
6. Consider suitable redeployment opportunities for affected employees, offering them the chance to transfer to another position within the business. While redeployment is not mandatory, considering and offering such opportunities, even if less attractive is required to insulate from unfair dismissal claims. This includes overseas redeployment if permissible
7. Ensure that you have made all reasonable efforts to identify and offer other alternative employment within the employer, or any related entity;
8. Document and maintain comprehensive records of the redundancy process; and
9. If redundancy is pursued, ensure this is communicated in writing and discharge any legislative obligations including with respect to payment of all lawful termination entitlements.

 

Reminder of Impeding Changes to the Fair Work Act

On 26 August 2024, a number of the legislative amendments introduced by the Closing Loopholes Act and the Closing Loopholes Act No 2, come into force. They are as follows:

Changes to casual employment

The definition of casual employment has changed, and the rules and process regarding casual conversion to permanent employment now requires the employer to provide a casual information statement to casual employees on commencement of employment and 6 months (12 months for small business employers) thereafter, and then annually. The onus however for requesting casual conversion then rests with the employee.

Changes to independent contractor rules

The amendments have introduced a new definition of employee and independent contractor, to assist employers and businesses properly determine whether the worker is an independent contractor or employee.

The amendments introduce opt-out provisions for high income earners, which may assist limit liability for employment related entitlements.

New minimum standards and protections for “employee like workers” in the transport industry and GIG economy

The amendments introduce a whole new regime intended to protect workers in the transport industry and those working in the GIG economy. These workers will have the ability to commence “unfair dismissal” type proceedings if their engagements are terminated in certain circumstances. It also provided for the creation of minimum standards of engagement.

Right to disconnect

The new right to disconnect laws come into operation on 26 August 2024. These laws provide that eligible employees the right to refuse to respond to contact outside of business hours, unless the refusal is unreasonable in the circumstances.

This right does not apply to small businesses until 26 August 2025.

We have written extensively about these changes in previous alerts. If you want to read more, please see the following links:

• The Closing Loopholes And Other Reforms: The Many Changes To IR Laws That Will Impact Business In 2024 – Keypoint Law
• Fair Work Legislation Amendment (Closing Loopholes No. 2) Bills 2023 | What You Need To Know – Keypoint Law
• What is old is new again – Employee v Independent Contractor – Keypoint Law

If you wish to discuss any aspect of this client alert or require specialist advice in relation to an employment law matter, please do not hesitate to contact us.

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