Last month we considered the issue of options available for employers to decrease business expenses to combat falling turnover.

These options include standing down employees, asking or directing employees to take leave either with or without pay and renegotiating wages and hours of work.  As a last resort, terminating the employment of employees on the grounds of redundancy is an option.

This month we consider the redundancy issue.  Some Fair Work Commission decisions handed down last month have considered aspects of the law as it relates to redundancies.

A redundancy occurs when an employer doesn’t need anyone to perform an employee’s role.  A “genuine redundancy” occurs when, in addition to the employer not needing the role performed, the employer followed any consultation requirements in a relevant award or enterprise agreement.

The significance of a redundancy being a “genuine redundancy” is that when an employee’s employment is terminated due to genuine redundancy, the employee is unable to make an unfair dismissal claim.

Therefore, it is important for an employer to satisfy the consultation requirements in any relevant award or enterprise agreement to ensure that a redundancy is a genuine redundancy to resist a suggestion of unfair dismissal.

This was highlighted recently in Australian Municipal, Administrative, Clerical and Services Union v. Auscript.

In that case, Auscript held a meeting with staff and put proposals including redundancy, job share and reduced hours.  They asked for a response from employees in relation to these options (and any alternatives the employees may have) within 5 days.  Prior to this meeting the union for the employees was advised confidentially that offices will close and redundancies would take place.

The purpose behind consultation clauses is to ensure that an employer genuinely considers options so that redundancy is a last resort. Further, such clauses are intended to provide employees with a reasonable and fair process.

The Fair Work Commission concluded that Auscript did not in genuinely consider any options other than redundancy and had already made a decision which was unable to be influenced by its employees and therefore did not appropriately consult.

The Fair Work Commission was therefore prepared to make an order preventing Auscript from making redundancies without first satisfying its obligation to consult.

In Application by Mason Architectural Joinery the Fair Work Commission considered the issue of the amount of the redundancy payment to be made to the employee.  Section 120 of the Fair Work Act allows the Commission to reduce the amount of the redundancy payment to an employee if the employer cannot pay the full amount.

In that case the employer sought to reduce an employee’s redundancy pay from 7 weeks to 1 week.  The Commissioner allowed the employer’s application.

The Commissioner was satisfied that the employer was under significant financial strain and the former employee had already been paid 3 weeks’ notice and was only out of work for 8 days having commenced alternative employment where he was earning $2 per hour more.

This decision can be contrasted with Application by Worthington Industries Pty Ltd where the employer conceded it had the means to pay the full redundancy entitlement and would be eligible for the JobKeeper payment (albeit with cash flow problems in the coming weeks).

The employer’s application to reduce the redundancy payment was rejected.

These cases and the contrasting results show that an application under section 120 of the Act will be determined by the Fair Work Commission on a case by case basis.

We recommend that before an employer terminates any employees on the grounds of redundancy that they seek appropriate legal advice.

For advice or information regarding any employment issues, contact Director of Dispute Resolution, Scott Eustace, at [email protected].