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 recent decision of Alesia Khliustova v Isoton Pty Ltd  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. It will also examine what the Isoton Decision means for employers.
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 minimise 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 minimise 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.
If 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 which was recently handed down 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’.”
Failure to explore reasonable circumstances for redeployment
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:
- Consider whether you are making an employee redundant for the right reasons and whether the role is genuinely redundant;
- 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;
- 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;
- Ensure that you have made all reasonable efforts to identify and offer other alternative employment within the employer, or any related entity;
- Document and maintain comprehensive records of the redundancy process; and
- 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.
We regularly provide our clients with advice on terminations, including the steps that need to be followed to ensure termination decisions are lawful, sound and defensible.
If you wish to discuss any aspect of this client alert or require specialist advice or assistance 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.
This article is for general information purposes only and does not constitute legal or professional advice. It should not be used as a substitute for legal advice relating to your particular circumstances. Please also note that the law may have changed since the date of this article.