Australia: Managing redundancy in a business restructure

The Working Paper Issue 10
Last Updated: 15 September 2012
Article by Mark Dunphy, Alison Baker and Karl Rozenbergs

Two recent decisions provide some timely guidance to employers involved in restructuring.

1. Consultation obligations

In Communication, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia v QR National Ltd, the Federal Court (Court) ordered QR National to comply with its enterprise agreement consultation obligations before acting on any expressions of interest for voluntary redundancy that it had received from its employees.

What does this mean for employers?

  • Employers need to be aware of and comply with their consultation obligations under applicable awards/enterprise agreements when implementing major changes at the workplace (including in relation to redundancies/restructures).
  • Failure to consult in accordance with such clauses will likely lead to a challenge by a union by way of a dispute brought in Fair Work Australia (FWA) or the Court. Breach of consultation obligations can attract fines of up to $33,000 per breach.
  • In addition, under the Fair Work Act 2009 (Cth) (FW Act), an employer cannot rely on the exemption from unfair dismissal for a 'genuine redundancy' unless it has, among other things, complied with consultation requirements in a modern award or enterprise agreement.

The case in brief

In June this year, QR National announced its plan to shed over 500 positions as part of its restructuring. The ASX announcement stated that QR National was commencing consultation with employees and unions and called for expressions of interest for voluntary redundancy. The AMWU and the ETU initiated disputes under six enterprise agreements regarding QR National's consultation obligations and called on FWA to ensure that QR National complied with these obligations before making any decisions about the expressions of interest.

In addition to the order that QR National comply with its consultation obligations, the Court ordered that QR National:

  • allow any employee who had lodged an expression of interest to withdraw it within five days of the resolution of the disputes;
  • allow an employee who had not lodged an expression of interest an extra five days following the resolution of the disputes to do so; and
  • make no final decision in relation to any expressions of interest until all expressions of interest had been received.

QR National had also been fined $249,600 in 2010 following failure to consult under the enterprise agreements in relation to the privatisation of some of its operations.

Tips for employers

  • Employers should review the consultation clauses under relevant awards and enterprise agreements. The model consultation clause in the FW Act calls for consultation to commence once a definite decision about major change has been made, but the wording of the particular enterprise agreement may be more onerous with regard to timing and provision of information.
  • Employers do not have to obtain consent from unions/employees as to the changes, but must give enough information and allow enough time for the consultation process to be meaningful.
  • Employers should also consider and consult about redeployment opportunities to ensure that they can rely on the genuine redundancy exemption from unfair dismissal.

2. Transfer of employment

Employers involved in a transfer of business (e.g through an asset sale or outsourcing/insourcing arrangements) need to be aware of the decision of FWA in Australian Nursing Federation [2012] FWA 6460.

In this case, an employee who rejected an offer of employment in the context of a transfer of business was entitled to redundancy pay from the old employer because the offer did not recognise the employee's service for the qualifying period for an unfair dismissal claim. FWA found that job security was a fundamental term of the employment which rendered the offer overall less favourable.

What does this mean for employers?

  • Under the NES, there is an exemption from the requirement to pay redundancy pay in a transfer of business scenario where the employee rejects an offer of employment on substantially similar and overall no less favourable terms and which recognises prior service, at least for the purpose of calculating redundancy pay.
  • A similar exemption may exist in relation to redundancy pay under an enterprise agreement or modern award, although such exemption may require recognition of service for all purposes, not just redundancy.
  • Unless there is a transfer between associated entities, the FW Act allows the new employer not to recognise prior service for certain purposes, including the qualifying period for unfair dismissal (six months for an employer with 15 or more employees).
  • However, if the new employer does not recognise service for the purpose of unfair dismissal, the old employer is likely to have to pay redundancy pay in the event that the employee rejects an offer from the new employer, even if the other terms and conditions are the same.

The case in brief

There was a proposed transfer of business from Calvert Manor Pty Ltd (Calvert Manor) to Lasting Changes Pty Ltd (Lasting Changes).

Calvert Manor's enterprise agreement (Agreement) provided that redundancy pay was not owed to an employee in the event that they rejected an offer of employment with a new employer in which the 'terms and conditions are substantially similar and no less favourable' as the terms and conditions of their previous employment with Calvert Manor.

Ms Sodoma, a part time personal care attendant, was offered employment with Lasting Changes on the 'terms and conditions outlined in the Agreement'. However, the terms of engagement with Lasting Changes also stated that Ms Sodoma's prior service with Calvert Manor would not be recognised for the purposes of unfair dismissal and that a new unfair dismissal qualifying period of six months would apply.

Ms Sodoma rejected the offer of employment and argued that the inclusion of the new minimum employment period in the offer of employment from Lasting Changes entitled her to redundancy pay as the offer was not 'substantially similar and no less favourable' than her previous employment.

FWA held that, although the new position with Lasting Changes was essentially the same as her position with Calvert Manor in terms of classification and pay, the loss of job security rendered the position 'fundamentally different', and that she was entitled to redundancy pay.

Tips for employers

Employers involved in a transfer of business who wish to avoid redundancy liability for employees being made offers by the new employer, should:

  • understand the source of redundancy entitlements (the NES/modern award/enterprise agreement/contract);
  • check the terms of any exemptions from the obligation to make severance payments;
  • negotiate with the new employer to make offers of employment on terms which will satisfy those exemptions (including that the new employer recognises service for the purpose of the unfair dismissal qualifying period); and
  • if possible, make it a condition of the sale/outsourcing agreement that they have the right to approve such offers before they are given to the employees.

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.

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