Redundancies under the Fair Work Act – How not to be an SME COVID-19 lesson to others

While the scope of this article focuses broadly on genuine redundancies pursuant to Fair Work Act, it is important that employers and employees take legal advice regarding the issues discussed within this article.

Employers should always consider their legal position in the right context and in their circumstances including their rights and obligations under the Fair Work Act carefully before terminating employees.

This is vital given the potential adverse consequences for employees, as well as the time and cost involved in any prospective litigation, for both employers and employees.

Importantly, if your business has 15 or fewer employees then you may be considered a “small business” within the meaning of the Fair Work Act. In those circumstances, you ought to seek legal advice about your position, as you may be treated differently.

What is a redundancy?

Broadly speaking, a redundancy will happen where the employee’s employment is terminated because the employer no longer requires the employee’s job to be performed by anyone. An employee’s position can also be made redundant if the employer becomes insolvent.

It is important to note that in the case of a “genuine” redundancy scenario, the employee will lose their employment through no fault of their own, or in other words, a redundancy cannot be based on the employee’s performance or any other issue impacting on the employee/employer relationship.

Redundancies typically occur (but are not limited to) circumstances where there is a business downturn as is the case for most Australian businesses presently caused as a result of the Federal Governments necessary response to the COVID-19 Pandemic.

An employee’s position can also be made redundant as a result of business restructures, and/or the implementation of technology, and automation. The latter is more topical given the fact that as businesses adapt (through no fault of their own) to the current social distancing measures, technology and automation together with business restructures, may make many traditional roles redundant.

Having said that, even if those circumstances exist, what will make any redundancy “genuine” for the purposes of the Fair Work Act?

What is a “genuine redundancy”

According to section 389 of the Fair Work Act, a dismissal is a case of genuine redundancy when:

1. the employer no longer requires the person’s job to be performed by anyone because of changes in the operational requirements of the employer’s enterprise; and
2. the employer has complied with any obligation imposed by an applicable modern award or enterprise agreement to consult about the redundancy.

A dismissal will not be a case of genuine redundancy if it would have been reasonable in all of the circumstances to redeploy the person within:

1. the employer’s enterprise, or
2. the enterprise of an associated entity of the employer.

So, what does this mean? It means that an employer must consider an alternative to a redundancy including whether that person can be redeployed elsewhere within the business or an associated business. It is also a requirement under some specific Awards, that the employer consult with the employee about the redundancy process.

There are 3 reasons why this is an important step: firstly, because it is the law; secondly, there is a business case to ensure that employers keep as many of their employees as possible for any rebound or upturn in business so that any new work can be completed; thirdly, it may protect the employer from claims for unfair dismissal.

What are some other alternatives to redundancy?

Redundancies can be a very difficult and a sensitive issue for both employers and employees. For example, a person whose position has become redundant will lose their employment through no fault of their own, and in some cases that person may be a top performer, or even a family member or a friend (as maybe the case for many SME businesses).

Employers ought to consider the other relevant options and ought to take care to ensure they take a holistic approach where possible and within reason. Demonstrating genuine empathy and explaining the reasons to the employee during the consultation process can help to eliminate any perceived unfairness at the selection of that employee for the dismissal and/or redundancy.

That being the case, employers should consider the alternatives to a redundancy that may include (but are not limited to):

1. Work/job sharing;
2. Reducing casual staff;
3. Reductions in pay and hours;
4. Stand downs.[1]

In some cases, a redundancy will be unavoidable, and the employer will have their hand forced. However, employers should still consider a redundancy as the last straw.

What are the pitfalls?

It is vital that directors and employers take legal advice about the redundancy process given the many pitfalls that can occur. Some of the pitfalls are:

1. Selecting/ terminating employee(s) and then rehiring a different employee for the same role;
2. Selecting/terminating an employee(s) for redundancy based on:

• performance issues;
• personality clashes; or
• sex, marital status, religion physical impairment, pregnancy, age, retirement age, trade union political beliefs etc.

3. employers not considering if the business has enough funds to pay out a redundancy and not considering the exception to pay redundancy payments pursuant to the Fair Work Act.

The above are just some of the pitfalls SMEs and other businesses have made when engaging in the redundancy process without proper legal advice.

Conclusion

It is prudent that any director and/or business owner seek legal advice about the redundancy process to ensure that the redundancy is “genuine” within the meaning of the Fair Work Act.

Employers need to ensure that they make objective and clear decisions regarding this issue to ensure that the alternatives are considered, that consultation with the affected employee(s) has taken place where necessary, and that any exceptions are considered.

The costs of a disingenuous redundancy can be severe, not only from a cost perspective, but also from a reputational perspective.

Undertaking this process and taking the appropriate legal advice and approach to this sensitive issue will help you avoid the common pitfalls made during the redundancy process and it may save you or your business an unnecessary trip to the Fair Work Commission.

How Can JHK Legal Help?

If you or your business require advice on redundancy or the alternative options available please contact one of our offices or visit the contact page on our website HERE.

Written by Associate Director, Daniel Johnston

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[1] Employers ought to also consider the recent reforms to the Fair Work Act regarding the JobKeeper scheme and the JobKeeper enabling directions to employees.