Australia has officially entered its first recession for 29 years after the economy went backwards in the March 2020 quarter. The ongoing impact of COVID-19 has continued to have a significant detrimental effect on many businesses across a variety of industries.
In addition, the upcoming changes to JobKeeper later this month will also result in some employers no longer receiving JobKeeper payments to subsidise wages. As a result, many businesses are considering their options to safeguard their business and reduce expenditure over the coming months.
As a result of COVID-19, many businesses have changed the way they are conducting business and/or have changed the services they are providing. As such, we are seeing an increasing number of employers across many industries take anticipatory action, including considering changing their business structure and are considering redundancies in light of the current circumstances. A point in case: we have recently had a large restaurant contact us for advice as they no longer require their Events Manager as they are not holding functions and/or events and are unlikely to do so in the near future.
Consequently, it is imperative that businesses are aware of and adhere to their legal obligations when it comes to redundancy. To this extent, we thought it 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.
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 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.
Notification and Consultation
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 Fair Work Commission recently considered an employer’s obligations relating to redundancy during COVID-19.
In the decision of Freebairn v TJL Business Advisors and Accountants (2020) FWC 3915, Ms Freebairn was an administrative assistant three days a week at TJL Business Advisors and Accountants (“TJL”). TJL had suffered a significant decline in revenue as a consequence of COVID-19. As a result, TJL sought to decrease costs by reducing hours of administrative staff and made Ms Freebairn redundant.
Ms Freebairn argued that her dismissal was unfair because TJL had failed to engage in proper consultation with her before making its decision to make her redundant. Furthermore, she argued that if TJL had engaged in proper consultation, she may have had the option to work reduced hours and participate in the JobKeeper scheme.
In this regard, TJL did meet with Ms Freebairn, however, at the time TJL told her that she would be financially better off if it made her redundant and she applied for JobSeeker (instead of JobKeeper). TJL had asked Ms Freebairn whether she had any questions, comments or suggestions but she did not reply. This was the extent of the consultation that had occurred. Notably, Ms Freebairn was made redundant five days prior to JobKeeper commencing. The employer claimed it would have considered putting the employee on reduced working hours if she had asked about it, and in turn the employee claimed she would have considered it if the employer had mentioned it.
The Fair Work Commission found that merely asking Ms Freebairn whether she had “any questions, comments or suggestions” did not satisfy the award requirement for ‘consultation’, nor did telling her that she was better off under JobSeeker. Accordingly, as the employer had failed to meet its consultation requirements, the Fair Work Commission found Ms Freebairn’s termination was not a genuine redundancy but an unfair dismissal. The Commission also noted that had she been properly consulted, the employee would have stayed employed until JobKeeper commenced and been eligible to register for it while also retaining her job. In calculating the compensation payable to Ms Freebairn, the Commission took into account that an office closure seven weeks later meant that Ms Freebairn’s employment would have terminated at that time. As such, the Fair Work Commission ordered the employer to pay the difference between what she would have received under JobKeeper for that period and what she received as pay during her notice period.
Considering alternative positions
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 constitutes a demotion. This should not be a decision for the employer but rather for the employee concerned, and should be discussed with the employee.
Payments and Entitlements on Redundancy
In circumstances where the employees’ 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.
Employers are able to apply to the Fair Work Commission to reduce redundancy pay on the basis of incapacity to pay. There has been mixed success in relation to employers applying to reduce the redundancy pay as a result of the financial effects of CVOID-19. When deciding this type of application, the Fair Work Commission considers a number of different factors. However, the employer will be required to produce evidence of their incapacity to pay.
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.
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.