Insights

In brief - You should follow consultative procedures when making employees redundant

Even if you have a solid business case for making an employee redundant, you should consult the employee about the redundancy. You should also document that you have considered and excluded the possibility of redeployment elsewhere in the business.

Failure to consult employee about impending redundancy

Terminating an employee for redundancy is just about unchallengeable. As long as an employer can show that it no longer wants the job to be done, the decision to make an employee redundant is almost litigation proof. All the employer has to ensure is that the right severance payments are made and the worker is not replaced.

However, things are not always that straightforward. The Fair Work Act 2009 contains a few small traps for employers. The Act says that a genuine redundancy occurs if an employer no longer requires the person's job to be performed.

However, redundancy will be held not to be genuine if there is an award or enterprise agreement that says the employer has to consult about the redundancy and it would be reasonable for the employee to be redeployed within the employer's business.

Employee challenges decision to make him redundant

Just how a business fell foul if these obligations is illustrated in the decision of Fair Work Australia (FWA) in UES v Harvey. Due to financial pressures, hardware supplier UES made one of its three storepersons redundant and paid him his entitlements.

The storeperson, Mr Harvey, challenged the decision. His lawyer argued that the decision was announced without Mr Harvey's input and the business failed to consult him or show that it considered redeployment as it was obliged to do under the Act and the relevant award.

The business responded by showing overwhelmingly that an operational and business case justified the redundancy.

Redundancy found to be genuine, but unfair

FWA accepted that Mr Harvey's employment was genuinely being made redundant. However, the Commissioner said that legislative and award provisions are there for a reason and cannot simply be ignored.

FWA decided that the redundancy was genuine, but not fair. Mr Harvey should have been given an opportunity to have his say. Who knows - he may have been able to persuade the employer not to make him redundant. He was simply denied that opportunity.

Mr Harvey was awarded a sum of $7,198.28 in lost wages and superannuation, based on an assumption that he would have continued working for a further period, albeit on reduced hours to cut costs.

Appeal confirms that employee dismissed unfairly

The business appealed and argued that a failure to consult did not necessarily or logically mean that the termination was unfair.

The full bench decided that Mr Harvey had been unfairly dismissed, simply because he was not consulted before the termination. The circumstances and the business case justifying his selection for redundancy were considered relevant, but not the only factor.

The full bench unanimously agreed that the issue was not whether it was a genuine redundancy, as there were "sound defensible and well founded reasons" justifying Mr Harvey's dismissal: he was not replaced by anyone and there was no reasonable possibility of redeployment to an alternative role.

Nevertheless, FWA decided that the termination was unfair. On appeal, Mr Harvey was awarded $1,365 plus 9% superannuation on the basis that he may only have remained working there for a further two weeks - the time that the commission thought it would take UES to undertake its consultative obligations.

Employers can take simple steps to avoid litigation following redundancies

Even if there is a watertight business case to make an employee redundant, a consultative procedure needs to be considered. The good news is that this is straightforward and easy. A small number of documented short meetings would meet the legal requirements.

Employers also need to consider and document that there is no possibility of a redeployment, even part time.

As long as the employer has paid all entitlements, the decision to terminate should be beyond the realm of review for unfair dismissal.

This article has been published by Colin Biggers & Paisley for information and education purposes only and is a general summary of the topic(s) presented. This article is not specific legal advice. Please seek your own legal advice for any questions you may have. All information contained in this article is subject to change. Colin Biggers & Paisley cannot be held responsible for any liability whatsoever, or for any loss howsoever arising from any reliance upon the contents of this article.​