Australia: The Xstrata Experience; Restructuring, Redundancies And Potential Reinstatement

Enterprise - April 2010

The recent decision of Henry Jon Howarth and Ors v Ulan Coal Mines Limited (Ulan Case) in Fair Work Australia (FWA) has demonstrated that where an employer restructures its business in order to up-skill its workforce, it may walk a fine line between genuine redundancy and unfair dismissal.


In early 2009, Xstrata Coal Pty Ltd (Xstrata) and its subsidiary, Ulan Coal Mines Limited (Ulan) conducted a review of Ulan's operations, with a specific focus on the number of persons employed by Ulan's Western and Southern operations. This review resulted in the termination of the employment of 14 Ulan employees on a redundancy basis. Consequently, 10 of those 14 employees (Employees) lodged an unfair dismissal application against Ulan.

The restructure

Evidence from Ulan management explained that the restructure emanating from the review included a reduction in the number of Ulan's mineworker employees and a redistribution of labour through a combination of redundancy and redeployment.

Ulan management also framed the restructure in the context of its desire to increase the proportion of mineworkers with trade qualifications in some of Ulan's underground work crews and its plans to outsource certain functions, which represented intermittent work that Ulan forecast would be better performed by contracting companies.

Relevant provisions of the Fair Work Act 2009 (Cth) (FW Act)

Section 385 of the FW Act provides that in order for Fair Work Australia (FWA) to find that a person has been unfairly dismissed, it must be satisfied that the dismissal was not a case of "genuine redundancy".

Under section 389(1) of the FW Act a person's dismissal will be a genuine redundancy if:

  1. the person's employer no longer required 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 in a modern award or enterprise agreement that applied to the employment to consult about the redundancy.

Were the redundancies genuine redundancies?

Will the person's job be performed by anyone?

In determining whether Ulan's retrenchment of the Employees was a case of genuine redundancy, FWA Commissioner Frank Rafaelli took a strict interpretation of section 389 of the FW Act, considering the question of whether the Employees' jobs were no longer required to be performed by anyone because of Ulan's operational requirements.

Specifically, Rafaelli C looked at Ulan's proposal to have the Employees' jobs performed by contractors against the backdrop of a Federal Court precedent, which in effect, held that where the termination of employment occurs on a redundancy basis and the employer subsequently introduces contractors to undertake that work, such termination of employment will fall within the definition of a genuine redundancy.

However, Rafaelli C's approach to this decision changed where he considered the redundancies in light of Ulan's plans to increase the proportion of mineworkers possessing trade qualifications. Rafaelli C reviewed the terms of the Ulan's Collective Agreement, which provided no distinction between qualified and unqualified mineworkers. He also noted the absence of evidence from Ulan as to what role performed by unqualified mineworkers was no longer required to be done.

Accordingly, Rafaelli C found that by making the Employees redundant on the basis of up-skilling its workforce, Ulan still required their jobs to be done by someone, be they new or existing employees.

Did the employer comply with its obligations to consult?

Rafaelli C again turned his attention to the terms of the Ulan Collective Agreement in order to determine Ulan's compliance with the consultation provisions as required by section 385 of the FW Act. Although the Commissioner initially found that Ulan had fulfilled its obligations in respect of discussion and consultation with the union representatives of the Employees, there was no evidence led as to Ulan's discussions with those employees "directly affected" by Ulan's restructure plans.

Importantly, Rafaelli C drew a distinction between Ulan's meetings with its entire contingent of mineworkers and those employees who were "directly affected" by its plans to restructure, including the Employees. Rafaelli C stated:

"...the timeframe between the voluntary redundancy period coming to an end and the resultant surplus employees being terminated was in Ulan's power. It was required to ensure that the obligation to hold discussions with employees directly affected was met. It failed to do so."

The failure to hold discussions with the Employees was compounded in this case by the apparent availability of redeployment opportunities at other Ulan sites, which Rafaelli C ruled should have been offered to the Employees to mitigate the consequences of the restructure and the redundancies.

The decision

Consequently, Rafaelli C found that Ulan's purported termination of the Employees employment on a redundancy basis did not constitute a genuine redundancy in accordance with the FW Act.

Lessons for employers

Genuine redundancy?

In order to justify redundancies on an operational basis, an employer must ensure that the work performed by the employee or employees being made redundant is not to be performed in any circumstances by anyone. This is consistent with the longstanding principles of redundancy, which expressly provide that in a redundancy situation, it is the employee's position and not the employee being made redundant. Therefore, an employer in this situation cannot rely on the operational basis of up-skilling its workforce where it proposes to make employees redundant and replace them with qualified employees.

Conversely, where an employer restructures its workforce on an operational basis, making unqualified employees redundant, and replaces those employees with contractors, common law authorities clearly indicate that this will constitute a genuine redundancy.

This decision has significant implications for employers looking to up-skill their workforce, particularly given the current market forecasts which indicate an impending skills shortage. Where qualified tradespeople are in high demand and an employer is unable to restructure and retrench in an effort to streamline its processes, FWA decisions such as this effectively oblige employers to train unqualified employees to bring them up to speed, or potentially continue to operate inefficiently.

Consultation and discussion

It appears that FWA has now placed a stronger emphasis on employers' adherence to and compliance with the termination and redundancy provisions of an applicable industrial instrument. Specifically, employers must ensure that they strictly comply with consultation and discussion obligations with affected employees in respect of proposed or prospective redundancies.

Key examples of consultation obligations are:

  • meeting with affected employees to discuss proposed redundancies
  • updating affected employees on measures to minimise redundancies, and
  • advising affected employees of opportunities that might mitigate redundancies such as redeployment.

By directing specific attention to obligations such as these, employers may both minimise the impact of redundancies on affected employees and the negative effects on their businesses resulting from unfair dismissal claims.

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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