With the Sydney housing boom slowing, in combination with a weakened Australia dollar and political instability as a consequence of the Turnbull government being ousted, it is no surprise that big corporates with large footprints in Australia are thinking about, and in the case of Singtel Optus (“Optus”), are in fact implementing significant restructuring and change management initiatives. As many of our readers would have seen in the news, Optus has announced plans to eliminate 400 local jobs in an effort to reduce its labour costs amid a more competitive landscape for telecommunications service providers in Australia. However, we are seeing an increasing number of employers across many industries take anticipatory action and changing their business structure in light of the slowing national economy, and to this extent, thought now would be an opportune time to provide our clients with a refresher on the legal obligations which need to be discharged when carrying out redundancies.
In this regard, we note that change management and, in particular, downsizing has the potential to present a melting pot of legal issues for employers, and there are many practical traps for organisations to consider in planning and executing redundancies especially in an economic downturn.
The Legal Landscape
The legal definition of redundancy in Australia can be readily found in the Fair Work Act 2009 (Cth) (“the Act”). In order to give rise to a genuine redundancy the test to be satisfied is whether the employer no longer requires the job done by the employee to be done by anyone. In most circumstances, if an employee’s role is made redundant and their employment is terminated as a consequence, they will also be entitled to a severance payment, except where this is due to the “ordinary and customary turnover of labour”. This phrase was, however, recently given judicial consideration by Justice Reeves in the decision of United Voice v Berkeley Challenge Pty Limited  FCA 224 (“Berkeley”) in which the Court found that in order for an employer to rely upon the exemption, they need to show that the redundancy occurred in circumstances where: …”the redundancy component of that decision is for that employer, with respect to its labour turnover, both common, or usual, and a matter of long-continued practice".
Whilst many employers try and use redundancy as a mechanism to exit an underperforming employee, redundancy is not an excuse for terminating an employee for poor performance. However, making an employee redundant does not purely involve telling them their role is no longer required. Procedurally, an employer has a number of obligations it must fulfil before it can lawfully end the employment relationship on the basis of redundancy.
The Process to be Followed
As termination for redundancy is recognised as a normal consequence of appropriate management action to deal with restructure or financial circumstances, it is afforded certain protections from legal action as long as an appropriate process is adopted. For employees who are covered by Modern Awards or other industrial instruments, or who have access to the unfair dismissal regime, the failure to follow the appropriate process may leave the employer open to a number of claims, including unfair dismissal and possibly injunction proceedings to stop the restructure from occurring.
As such, the first stage involves careful planning, and employers ought to be aware of employee entitlements such as to notice, accrued statutory leave and other incentive payments which are derived from the National Employment Standards, industrial instruments, workplace agreements, contracts and policies. It is also pertinent to plan for contingencies in redundancy programs such as adverse media, industrial action and other forms of disputes. It is recommended that employers keep well documented records such as minutes of management meetings setting out the reasons for undertaking a restructure, downsizing or financial pressures necessitating redundancies. This will be most useful if the employee commences unfair dismissal proceedings or a general protections claim, challenging the validity of the redundancy of their role.
Depending on the specific requirements contained in any applicable modern award/ enterprise agreement or other industrial instrument, the second stage of the process requires employers to notify impacted employees (and representative organisations contemporaneously) about “major workforce change” (discussed below), including redundancy as soon as a firm decision has been made. It is vital to ensure that communication is clear and all necessary information regarding the process and timing is given to impacted staff. Even if employees are not covered by an industrial instrument it is good practice to notify and consult with affected employees.
Once notification has taken place, consultation obligations should be discharged. For employees covered by a modern award or enterprise agreement, consultation is mandatory. This includes but is not limited to talking with staff about the likely impact of the change and what mitigation strategies can be adopted to reduce adverse consequences of the redundancies to individuals. Consultation should not be a perfunctory advice about what is happening, rather it is an opportunity provided impacted employees an opportunity to influence the “decision-maker” through joint discussion. An employer needs to genuinely take into account any matters raised in consultation by staff. The benefits of proper consultation include a reduction in legal claims post termination, a valid jurisdictional objection to unfair dismissal proceedings, but most importantly it goes a long way to assist those employees who remain with the organisation to be positive and committed and to appreciate that the employer has treated its people fairly.
The recent decision of Australian Rail, Tram and Bus Industry Union v KDR Victoria Pty Ltd t/a Yarra Trams  FWC 4837 (“Yarra Trams”) has highlighted the importance of following consultation requirements regardless of how insignificant an employer may consider the workplace change.
In this decision, Yarra Trams attempted to make changes to its supply chain area which is primarily responsible for procurement on behalf of the business. The changes surrounded the fact Yarra Trams had partnered with a UK-based logistics company, Unipart, to assist its supply chain. As a result of the partnership, Yarra Trams supply chain employees started reporting to a manager employed by Unipart.
Accordingly, Australian Rail, Tram and Bus Industry Union (“RTBU”) argued that the changes implemented by Yarra Trams had not complied with the consultation requirements under the applicable and relevant enterprise agreement. Yarra Trams denied that the changes were a “major change” requiring consultation under the enterprise agreement as it only affected 4 of its more than 2300 employees (being less than 1% of their workforce).
However, Commissioner Gregory found that the changes were likely to have a significant effect on Yarra Trams’ employees within the meaning of the consultation clause and as such, ordered Yarra Trams to hold off on further changes to its supply chain area in order to comply with its consultation obligations under the enterprise agreement.
The Yarra Tram decision demonstrates that even though the introduction of a workplace change may only affect a small portion of employees (and in this case did not include termination of employment), this alone will not be the determinative factor when considering whether an employer is required to follow the notice and consultation requirements which may exists under an industrial instrument.
The final stage in the redundancy process, which is required if the employer wishes to rely on any jurisdictional objection to an unfair dismissal claim and, if done appropriately can shield an employer from post-termination claims for breach of the general protection provisions, is to consider redeployment opportunities, and where appropriate, offer staff positions that may be suitable within the organisation or an associated entity. Many employers determine or otherwise pre-empt whether a role is suitable, and fail to offer the role to affected employees, because the role is a lesser paying position, requires relocation or retraining, or even constituting a demotion. This should not be a decision for the employer but rather for the employee concerned.
Payments and Entitlements on Redundancy
In circumstances where the employee’s position is terminated by reason of redundancy and no suitable alternative position is provided, an employer has a minimum obligation (subject to any enterprise-specific regime providing a more generous severance entitlement) to pay redundancy pay under the Act in accordance with the following scale:
- Less than one year’s continuous service — Nil
- At least one year but less than 2 years continuous service — 4 weeks’ pay
- At least 2 years but less than 3 years continuous service — 6 weeks’ pay
- At least 3 years but less than 4 years continuous service — 7 weeks’ pay
- At least 4 years but less than 5 years continuous service — 8 weeks’ pay
- At least 5 years but less than 6 years continuous service — 10 weeks’ pay
- At least 6 years but less than 7 years continuous service — 11 weeks’ pay
- At least 7 years but less than 8 years continuous service — 13 weeks’ pay
- At least 8 years but less than 9 years continuous service — 14 weeks’ pay
- At least 9 years but less than 10 years continuous service — 16 weeks’ pay
- At least 10 years continuous service — 12 weeks’ pay.
For completeness, redundancy pay is separate and in addition to an employee’s entitlement to notice and any other statutory benefits (such as annual leave or long service leave) which an employer is required to pay upon termination.
Managing Exposure and Risk
Managing legal exposures goes hand-in-hand with any change management program, and employers need to prepare themselves for the possibility of opportunistic unfair dismissal, adverse action or discrimination claims. A few steps we recommend employers should take to reduce these risks are as follows:
- An objective assessment of whether the proposed action is justified based on the circumstances being relied upon to effect the change;
- Ensuring that all legal obligations have been met with regard to the notification, consultation and redeployment process (if applicable);
- Following a robust communication strategy so that employees feel informed and included;
- Document the process thoroughly and maintain good records of decision-making before and during the redundancy process; and
- Ensure the appropriate severance and termination benefits are paid on termination.
If you have an employment law issue or need advice on any change management initiatives for your business, please do not hesitate to contact us for specialist advice or assistance.
This alert is not intended to constitute, and should not be treated as, legal advice.