Australia: Weighty unfair dismissal questions answered in Jenny Craig appeal

A recent decision by a Full Bench of Fair Work Australia has provided answers to three key questions which determine whether an employee is entitled to make a claim for unfair dismissal. The Full Bench considered:

• whether an employee of Jenny Craig Weight Loss Centres Pty Ltd ("Jenny Craig") described as a "Regional Manager" was within the coverage of the Clerks - Private Sector Award 2010 ("the Clerks Award")
• whether bonuses paid to the employee should be considered for the purpose of determining whether the employee's remuneration exceeded the high income threshold, and
• whether the circumstances of termination of employment satisfied the requirement of "genuine redundancy" so as to bar the employee's claim.

The result of the appeal was that the employee was found to be entitled to bring an unfair dismissal claim. Accordingly, the case provides useful lessons for employers considering termination of employment of highly paid employees in redundancy situations.

The questions in the appeal – the Clerks Award and the employee's remuneration

The first two questions which the Full Bench considered were connected. Where an employee is covered by a modern award or an enterprise agreement, the employee can bring an unfair dismissal claim regardless of their remuneration. Thus, the question of the employee's remuneration (which turned upon the characterisation of the bonuses) only became important in this case if the Clerks Award did not apply.

At first instance, Commissioner Ryan held that the Clerks Award did cover the employee. Commissioner Ryan noted that there was nothing in the employee's contract of employment which assisted in resolving this question, but found that the evidence about the employee's work given by Jenny Craig supported a finding that the Clerks Award applied to that work.

The Full Bench disagreed, finding that although the employee's work involved some clerical functions, the employee was not involved "wholly or principally in clerical tasks". This meant that it was necessary to consider whether the employee's remuneration exceeded the high income threshold, which at the relevant time was $118,100 per year. In the financial year prior to the termination of her employment, the employee had been paid $202,000 – a base salary of $60,000, an annual bonus of $42,000, and a further bonus of $100,000 for five continuous years of service as a regional manager.

The question was which of those amounts constituted "earnings" for the purposes of the Fair Work Act 2009 (Cth) ("the Act"), because only amounts which are "earnings" count towards the high income threshold. The Act specifically excludes from "earnings" any payments "the amount of which cannot be determined in advance".

The Full Bench noted that the documents which set out the employee's entitlement to the $100,000 bonus contained a specific provision which reserved to Jenny Craig the right to vary or discontinue the bonus scheme. The Full Bench found that this meant that the bonus was contingent and thus could not be "determined in advance". The Full Bench also considered that the annual bonus was probably also contingent, but as the total of the base salary and annual bonus was below the high income threshold, it was unnecessary for the Full Bench to express a concluded view on this point.

The consequence of these findings was that even though Jenny Craig succeeded on the Clerks Award question, the employee was found to be able to bring an unfair dismissal claim because the employee succeeded on the remuneration question.

The questions in the appeal – genuine redundancy

The final question was whether the employee's employment had come to an end in circumstances of "genuine redundancy". There was no dispute that the position of regional manager had ceased to exist; the question was whether it would have been reasonable to redeploy the employee. The Act provides that an employee will not be excluded from bringing an unfair dismissal claim if it would have been reasonable for the employee to be redeployed.

The evidence showed that Jenny Craig had centre manager positions available. Jenny Craig did not offer a centre manager's position to the employee because, as regional manager, the employee had previously supervised twelve centre managers, and Jenny Craig's evidence was that it did not wish to "insult" the employee by making such an offer. However, the employee gave evidence that she would have accepted a centre manager's position if one had been offered, because the employee would then have had more time to spend with her family.

In light of the employee's evidence, the Full Bench found that it would have been reasonable to redeploy the employee. The consequence of this was that the employee's redundancy did not prevent her from bringing an unfair dismissal claim.

Lessons for employers

• Where an employee has supervisory or managerial tasks, it is important that these are clearly set out in a job description. Although it is not possible to avoid the operation of an award by simply giving an employee a position title which includes the word "manager" (and although there are some awards which do extend to managerial employees), a detailed job description which sets out the employee's supervisory and managerial responsibilities will be a powerful indicator that the employee is not covered by an award.
• When designing bonus schemes, care is needed in balancing certainty and flexibility. There will be many situations in which an employer will wish to retain the discretion to vary or suspend bonus schemes to prevent unintended windfalls to employees. However, a scheme which provides for discretion is likely to also provide bonuses which aren't sufficiently certain to form part of "earnings" for unfair dismissal purposes.
• Making an employee redundant does not make an employer bulletproof against an unfair dismissal claim. In a redundancy situation, don't make assumptions about whether an employee will accept a position for redeployment – instead, find out, by asking the employee, whether the proposed position is acceptable. The fact that an employee wishes to be redeployed won't necessarily make it reasonable to redeploy that employee, but an employer cannot consider reasonableness from the employer's perspective unless the employee's wishes are known.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.