Don’t overlook these three points when managing redundancy process

In the current highly competitive market, employers are facing the need to restructure their business on a much more frequent basis.  Employers today therefore need to be more familiar with and astute in managing the redundancy process.

In this article, we examine three key considerations that are often overlooked by employers when managing the redundancy process.  Turning your mind to these considerations will minimise the risk exposure and potential costs for your business.

  1.  Reducing redundancy pay 

It is well worth remembering that employers may apply to the Fair Work Commission under section 120 of the Fair Work Act 2009 (Cth) to reduce the amount of redundancy pay (including to nil) provided that:

  • the employer “obtained”alternative employment for the redundant employee
  • the employment is “acceptable”.

This may be particularly relevant in the context of a transfer of business where the role obtained with a new employer is not quite the same and may in some respects be less favourable than the employee’s current role or where the new purchaser does not take on the employee but they obtain another role in a different organisation.

Employers should note that:

  • in “obtaining” employment, employers must have “cause[d]acceptable alternative employment to become available to the redundant employee”[1] The Full Federal Court [2] recently confirmed this requires an employer to have procured an offer of employment, whether or not it is accepted by the employee.  The Full Federal Court also rejected the previously accepted understanding that an employer’s actions must have been a “strong, moving force towards the creation of the available opportunity”
  • as for “acceptable” employment, the Fair Work Commission will consider matters such as pay, hours of work, seniority and location of work.  However, the Fair Work Commission recently made clear that it “does not mean identical employment”and has warned employees against unreasonably refusing offers in order to be paid redundancy entitlements. [3]
  1.  Affecting the enforceability of post-employment restraint

Before making the position of an employee redundant, employers need to consider whether they wish to enforce any post-employment restraints. In some circumstances, making an employee’s position redundant may impede an employer’s ability to seek injunctive relief for any existing restraint clause in the employee’s contract.

In Ecolab Pty Limited v Stephen Garland [2011] NSW SC 1095, the Supreme Court of New South Wales noted that generally, a restraint of trade will not be enforceable in the case of a redundancy and that restraints would need to be reviewed on a case by case basis for senior management positions. [4]  In this case, the Court refused to grant an injunction to enforce a non-compete clause against an employee who had been made redundant and started working for a competitor. Brereton J considered it highly significant that the employee was made involuntarily redundant despite being reassured that his position was secure. Importantly, the redundancy of his position also meant that the enforceability of the non-compete restraint on the basis of protecting customer connections was put into question.  This is because the customers the employee dealt with were also eliminated from the business structure.

  1.  Redeployment – what is reasonably required of employers?

If you are considering the redundancy of an employee who will be eligible to make an unfair dismissal claim, it is important to keep in mind that a “genuine redundancy” is an absolute defence to the claim.

One of the components of the statutory definition of a “genuine redundancy” is that it was not reasonable in the circumstances for the employee to have been redeployed within the business.  While this extends to a consideration of roles in associated entities of the business, employers should take comfort in knowing that the Fair Work Commission takes a practical view as to whether this is reasonably possible or not.

For example, Vice President Catanzariti recently found in Mr Troy Brown and Ors v Clermont Coal Operations Pty Ltd T/A Clermont Open Cut [2015] FWC 3862 that it was not reasonable for an employer to redeploy its redundant employees as the only way it could do this would have been to terminate existing labour hire contractors.  He considered that the contractors were engaged to respond to the fluctuating labour requirements and that shortage of labour could bring production to a standstill.  In this case, the labour hire contractors were found to be necessary to sustain the operational requirements of the employer and terminating them would cause major operational difficulties.

The Vice President held that “the Commission is not charged with the task of criticising the legitimate business models of companies in exercising its discretion pursuant to s. 389(2)”.

This is an especially welcome clarification for the many businesses that utilise labour hire contractors or outsource parts of their operations to meet operational demands and/or reduce costs.

[1] Australian Chamber of Manufacturers and Derole Nominees Pty Ltd – Clothing Trades Award 1982 (1),(1990) 140 IR 123 per Peterson J, Marsh DP and Oldmeadow C. [2] FBIS International Protective Services (Aust) Pty Ltd v MUA and Fair Work Commission [2015] FCAFC 90. [3] P&R Electrical Wholesalers Pty Ltd [2016] FWC 1730 at [26]-[27]. [4] Ecolab Pty Limited v Stephen Garland [2011] NSW SC 1095 at [27].


About Rebecca Byun:

Rebecca is an experienced workplace relations lawyer in the Sydney office of Holding Redlich, and specialises in both contentious and non-contentious employment and industrial matters.  Rebecca has recently been involved in significant matters for her clients, including listed companies. In particular, she has advised on acquisitions and transfers of business, represented clients in responding to adverse action claims, in applications to vary enterprise awards and make enterprise agreements as well as advised on contractor management systems and compliance with the Fair Work Act.