Webinar Summary: The Cost Squeeze: What Employers Need To Know About Restructuring And Redundancies (Video)

Joel: Welcome everyone to LegalVision’s webinar, The Cost Squeeze: What Employers Need to Know About Restructuring and Redundancies.

My name is Joel Hayden, and I am the Practice Group Leader in LegalVision’s employment team. I am joined today by my co-host, Jess, who is also a lawyer in the employment team.

Before we get into the main topic, we will run through a few housekeeping items. You will receive the recording of this presentation, along with the slides, after the webinar concludes, so there is no need to take notes furiously.

You can submit questions in the Q&A box during the webinar, and we will answer as many as we can at the end. We will also share a feedback survey at the conclusion of the webinar, and we would really appreciate you completing it so we can keep our presentations as relevant as possible.

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By viewing this webinar, you are also eligible to receive a complimentary consultation with LegalVision to discuss how we can help your business. To claim the consultation, leave your contact details in the survey that appears when the webinar ends, or reach out to us through our website.

Agenda

Joel: Today, we will work through:

• what a genuine redundancy is;
• when employers should not be using a redundancy process;
• recent cases on consultation and redeployment;
• the implications of those decisions for employers;
• the cost considerations of a redundancy; and
• key takeaways before moving into Q&A.

To get us started, I will ask Jess to share some thoughts on genuine redundancies, what they are and when they are appropriate.

What Is a Genuine Redundancy?

Jessica: Thanks, Joel. First, we will look at what makes a redundancy legitimate and lawful in Australia, and the general steps an employer should follow during this process.

A redundancy pathway is often used as a measure to reduce costs within a business. It can also form part of a broader restructure within a business or enterprise. It is not a process that should be taken lightly, and it is generally best understood as a last resort.

When a business decides that potential redundancies may need to take place, it should ensure its risk exposure is as low as possible. To do this, the business needs to ensure it is conducting a genuine redundancy. If a redundancy is not genuine, it can lead to costly claims, including unfair dismissal claims in the Fair Work Commission.

For a redundancy to be a genuine redundancy under the Fair Work Act, three criteria need to be met.

First, the business must no longer require the job to be performed by anyone because of changes in the operational requirements of the employer’s enterprise. The key point is that it must be the role itself that is no longer required by the business.

This could happen for a number of reasons. For example, the job may become automated, new technology may be introduced to perform the role, or a broader restructure may be required to reduce costs. Importantly, this is not about saying, “We no longer want this employee working for us, so we will make them redundant.” That will generally create issues.

Second, the business must comply with any obligation in an applicable modern award or enterprise agreement to consult affected employees about the redundancy.

While there is no prescribed timeline under the Fair Work Act, consultation usually involves a few key steps. The employer should notify affected employees about the proposed restructure, often in a meeting, and invite employees to raise any suggestions that may affect the decision to make their role redundant, including suitable redeployment opportunities. The business must then genuinely consider that feedback before communicating an outcome.

Modern awards generally contain a model consultation clause. These clauses are relatively similar across most awards and require employers to follow specific requirements when consulting employees about major workplace changes. For example, the Clerks Award contains such a consultation clause.

If employees are covered by a modern award, it is important to review the relevant consultation clause and follow those obligations. Otherwise, the redundancy may not be a genuine redundancy under the Fair Work Act, which can lead to successful unfair dismissal claims.

Third, the employee must not be able to be reasonably redeployed within the business or an associated entity of the employer.

For this element, employers typically have the onus of proving that there was no identifiable job or other work available for the employee. They should make every effort to identify suitable opportunities. Of course, where redundancy is being considered as a cost-cutting measure, redeployment may not be feasible or sensible if there are no suitable roles. Businesses are not necessarily required to create entirely new roles. However, if there are ways to avoid the redundancy, they must be genuinely explored.

When a Redundancy Pathway Is Not Appropriate

Jessica: There are several situations where a redundancy pathway will not be appropriate.

The first is where a business uses redundancy to dismiss an underperforming employee. One critical point to remember is that an employer may want to remove someone through redundancy instead of performance managing them. That is not appropriate. Redundancy is not simply a pathway to dismiss employees who are not performing well, and using it in that way will generally create risk for the business.

That said, performance can be a relevant factor where a number of employees hold the same position and the business needs to apply a selection matrix to reduce headcount in those roles.

The second situation is where a business dismisses an employee because of discriminatory or other protected grounds. For example, if an employee is selected for redundancy because of their age, gender or because they have exercised a workplace right, this can expose the business to general protections claims.

The third situation is where the business simply wants another employee to perform the role instead. A genuine redundancy arises where the role itself is no longer required. It is not appropriate where the role continues and the business simply wants someone else to do it.

Recent Cases on Consultation and Redeployment

Joel: Two of the most important concepts Jess has referred to are consultation and redeployment. They are two pillars of establishing a genuine redundancy. Recent decisions have provided important guidance on how courts and tribunals are viewing these concepts.

This is a useful time to check how these obligations are being understood, because that is what employers should be thinking about when carrying out a redundancy process. The key question is whether the process would properly protect the business if it were reviewed by a court or tribunal.

This is particularly important because redundancy disputes are not hypothetical. They happen frequently. Given the current state of the global economy, many employers are also going through restructuring processes and should be careful to carry them out consistently with the most recent guidance.

One significant decision is Helensburgh Coal Pty Ltd v Bartley. This case made it to the High Court after about five years of litigation, appeals and earlier decisions. It surprised many employers because of the breadth of the redeployment considerations discussed by the High Court.

Without getting too deep into the factual detail, the case involved a group of employees who were dismissed by way of redundancy. They argued that the redundancies were not genuine because their employer should have considered ending contractor arrangements as an alternative, which may have allowed those employees to remain in their roles.

Those contractors were performing similar, if not the same, work as the employees. The employer’s position was that the redeployment obligation was not broad enough to allow the Fair Work Commission to inquire into whether it could make changes to the way it operated its workforce.

The question for the High Court was whether the Fair Work Commission could consider whether an employer could have made changes to its workforce to avoid redundancies, including by ending contractor arrangements. The High Court answered that question in the affirmative.

The Court found that the Commission did not exceed its jurisdiction by considering whether the employer could have made changes to the structure of its workforce. That was within the powers given to the Commission under the Fair Work Act and, specifically, the genuine redundancy provisions.

The key principle from the decision is that the Commission has a broad power to inquire into how an employer is operating its enterprise. There are no real limitations on that power under section 389 of the Fair Work Act when the provision is interpreted according to its words.

This represents a real broadening of what many employers would previously have thought they needed to consider when looking at redeployment as part of a redundancy process. Because this was a High Court decision, it is the approach employers should now take when considering redeployment.

The other case is Caycee Horsnell v CEVA Logistics (Australia) Pty Ltd. This case is a helpful example of the consequences of getting consultation wrong.

The facts were fairly typical of redundancy-related unfair dismissal proceedings. The employer undertook cost-cutting measures to make part of the business more profitable. That involved restructuring levels of management, which resulted in some employees being made redundant.

The employer appeared to be moving through a typical consultation process, similar to processes carried out by many organisations across Australia. However, the issue was that the employer approached consultation in a cursory, checkbox-style way. While it was clear the employer was aware of the need to establish a genuine redundancy, treating the process as a purely administrative task did not work well.

The Fair Work Commission found that CEVA had failed to meet its consultation obligations by engaging in very limited consultation. The consultation period was effectively open for only one business day, which the Commission viewed poorly.

The employer also failed to properly raise redeployment options. There were 18 internal roles available on an internal job board, but those roles were not properly put to the employee. Instead, the employer relied on the fact that the employee knew how to access internal job opportunities and could review them herself.

The Commission was critical of the employer placing too much emphasis on the employee to lead part of the consultation and redeployment process. The employer was not proactive in putting available roles in front of the employee. This resulted in a finding that the consultation obligations were not met and that the employee had been unfairly dismissed.

Although the employer was only ordered to pay a relatively modest amount of around $7,000, the time and cost of reaching and attending a hearing, and engaging lawyers to do so, would likely have been significantly higher. In most Fair Work Act proceedings, including unfair dismissal matters, the general position is that parties do not recover their legal costs even if they are successful.

It is also important to note that this was a single employee’s claim. Where restructures and redundancies affect multiple employees, a flawed consultation process can become a systemic issue. If the same approach is applied to a cohort of employees, the business may face multiple claims rather than one.

Lessons for Employers From the Recent Cases

Joel: These cases provide several key lessons for employers.

First, employers need to adapt to the High Court’s position on redundancy, particularly redeployment. Redeployment opportunities must be considered broadly. This is not limited to asking whether contractors should be terminated before employees are made redundant. Instead, employers need to look at their operations as a whole and determine whether there are other options that should be considered before proceeding with redundancies.

The key distinction is between consideration and implementation. Just because an option needs to be considered does not mean it must be implemented. However, there should be a reasonable basis for why the business did not proceed with an option, and that reasoning should be documented.

Documentation is vital in any dismissal process, particularly redundancies. Employers should document all relevant matters they have considered, whether or not those matters are ultimately implemented. In Helensburgh Coal, part of the issue was that the employer did not really consider the option of contractor arrangements, and that was relevant to the redeployment analysis.

Second, employers should not treat consultation as a box-ticking exercise. The process needs to be genuine and led by the employer. Employees should be given a chance to be heard, but too much responsibility should not be placed on them to prompt the employer’s consideration, including in relation to redeployment opportunities.

Even where an employer has an internal job board that employees know about, specific available roles should be actively raised with the affected employee. The CEVA decision made that point clear.

Finally, while it may be operationally attractive to condense consultation into a short period, consultation should not be treated as a closed or overly defined process. There is no fixed threshold, but one day will almost always be too short. Once consultation has started, employers should also be willing to extend it if further consideration is required.

Although redundancies are often connected with cost savings, employers need to follow a proper process so they do not end up spending time and money defending claims when they were trying to save money in the first place.

Cost Considerations in a Redundancy

Jessica: Turning now to cost considerations, the first question is how much a business actually needs to pay an employee who is being made redundant.

Entitlements will usually include redundancy pay, where applicable. Whether redundancy pay applies can depend on several factors. For example, most small businesses are generally exempt from paying redundancy pay.

Employees will also generally be entitled to notice, or a payment in lieu of notice, in addition to any redundancy pay. Employers also need to consider other entitlements payable on termination, such as annual leave or long service leave, if applicable.

Redundancy pay will not always apply. It will generally not apply where an employee has not completed 12 months of continuous service, is a casual employee, or is employed for a specific time, project or season.

However, some employers, including small businesses, may still be covered by industry-specific redundancy regimes. These regimes can include specific clauses about what an employee must be paid and the rules that apply. It is always important to check whether one applies.

Section 119(2) of the Fair Work Act outlines how redundancy pay is calculated under the National Employment Standards. The amount is based on the employee’s length of service.

Employers should also check whether there are any additional provisions that apply, such as terms in an employment contract, workplace policy, enterprise agreement or modern award that provide additional redundancy pay entitlements.

Claims and Other Costs for Employers

Jessica: The next question is how much it may cost the business if an employee brings a claim.

The primary risk is that a terminated employee may file an unfair dismissal claim. This is why being able to establish and evidence a genuine redundancy is so important. A genuine redundancy can operate as a complete defence, or jurisdictional bar, to an unfair dismissal claim.

For an employee to bring an unfair dismissal claim, they must satisfy minimum eligibility requirements. For example, they usually need to have completed the minimum employment period, which is generally six months, or 12 months if they are employed by a small business.

Failing to meet even one of the three genuine redundancy criteria can expose the business to a successful unfair dismissal claim. Compensation in an unfair dismissal claim can be up to six months’ pay.

Another type of claim an employee may bring is a general protections claim. It is important that a business selects employees for redundancy in a fair and objective way, and not for any unlawful or discriminatory reason.

If an employee is selected for redundancy because of their age, gender or because they have exercised a workplace right, for example, the business can be exposed to a general protections claim. To reduce the risk of any perception of an unlawful selection process, employers should use objective selection criteria when identifying employees who may be affected by redundancies.

Compensation in general protections claims is uncapped, meaning employers may face significant cost exposure if an employee successfully brings this type of claim.

There are also non-financial costs. These can include the time and effort key personnel spend defending a claim in the Commission or courts. Claims can be time-consuming and may take weeks or months, which can divert time and attention away from the business.

Redundancies can also affect productivity and team morale among remaining staff. As we have mentioned, redundancies should be treated as a last resort, and they can have impacts across the broader business.

There may also be legal fees if the business seeks representation in the Fair Work Commission or court. For these reasons, it is crucial to have clearly documented processes from the start, so the business is in the best possible position to defend a claim if one arises.

Key Takeaways

Joel: Restructures and related redundancies can be a legitimate way for employers to address costs in a business. However, there needs to be a properly considered and compliance-focused process to ensure the desired outcome is achieved without resulting in claims from affected employees.

More than ever, especially given the changing law in this area, we strongly encourage employers to seek specific advice on redundancies as they are undertaken. Courts and tribunals are focusing closely on these obligations and interpreting them in a more employee-centric way than in previous times.

Employers should plan not only for the payment costs associated with redundancy, as Jess has outlined, but also for the time it will take to properly consult and consider redeployment opportunities. There should be a structured plan for how those steps will be handled.

Consultation must be addressed in a genuine and meaningful way, rather than as a statutory checkbox. Otherwise, there is a significant risk that an affected employee, or group of employees, will make a claim.

Redeployment considerations also need to be broader than ever. Prior approaches that placed responsibility on employees to lead redeployment discussions, or only considered currently advertised roles, should be updated. Employers should instead consider the enterprise and workforce as a whole.

Proper documentation should be kept of all relevant considerations and discussions. These broadened obligations may lead to more litigation from employees and unions, so employers need to be prepared.

That said, redundancies will unfortunately still be needed in some businesses, especially during difficult economic times. They simply need to be approached in the legally correct way, so the process does not become self-defeating.

Further Resources and LegalVision Membership

Joel: That concludes the main part of our presentation today. We will move to Q&A shortly, but first there are a few quick points.

We have a guide to employment disputes available for download. You can use the QR code on the screen if you would like to read it.

We also have an upcoming webinar on wage theft on Wednesday, 8 July, at 11am.

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Q&A

Jessica: The first question relates to casual employees. Is it possible for casual employees to be made redundant? Would it make a difference if they were casual employees with permanent shifts that have been in place for about two years?

Joel: With casuals, there is a distinction between true casuals who are used sporadically and casuals who have become regular and systematic, as appears to be the case in this example.

For a true sporadic casual, there would not be a strict need to go down a redundancy route, because their employment effectively ends at the conclusion of each shift. It is really regular and systematic casuals that we would be talking about in the context of a redundancy process.

There is no exception in the redundancy provisions that says employers do not need to consult with casual employees in the same way as permanent employees. However, casuals only access unfair dismissal protections once they are regular and systematic. At that point, we would want to treat them like permanent employees for consultation and redeployment purposes.

The main difference is that casual employees will generally not be entitled to redundancy pay, because their casual loading accounts for entitlements such as redundancy pay and annual leave.

Jessica: The next question is about timeframes and redeploying people into similar roles. What would be considered a reasonable timeframe for re-employing someone in a similar role? For example, contracts may not be renewed for six months, and the employee may need to be re-employed later for a new contract.

Joel: There is no fixed threshold period where it becomes safe to re-employ someone. Some people refer to the 21-day period for an employee to file an unfair dismissal claim and assume that it is safe to hire again immediately after that period. However, the Commission can extend the time for filing an unfair dismissal application.

For example, if the Commission became aware that an employer had improperly made someone redundant, waited for the 21 days to pass and then immediately put someone else into the role, that could still create problems.

The more relevant consideration is not the timing of re-employment, but whether the original redundancy was genuine. If circumstances later change and the role is genuinely needed again, that is not tied to a specific threshold from the original dismissal.

For example, if a new contract arises six months later, it may make perfect sense to re-employ for that role. The key issue is whether the original decision was legitimate at the time.

Jessica: We have a couple of questions about award coverage. What should employers do for award-free employees? Does this change the process and the three criteria we discussed?

Joel: Award-free employees can still have access to unfair dismissal protections where they are below the high-income threshold. What changes is that if no modern award or enterprise agreement applies, the employer does not strictly have the same consultation obligation for the purpose of establishing a genuine redundancy.

The employer still needs to confirm that the role is no longer required and should still consider redeployment. Strictly speaking, consultation is not required to establish a genuine redundancy for award-free employees where no enterprise agreement applies.

However, it is still good practice to consider some form of consultation from a broader legal and people management perspective. If management action is carried out unreasonably, there may be workers’ compensation implications. Consultation also helps reduce the risk of claims by keeping employees more informed and reducing the likelihood that they feel blindsided.

Claims are often made not because an employee has a strong legal case, but because they are unhappy with how their employment ended. Consultation can help manage that risk from both a human and claims-prevention perspective.

Jessica: If an employer is confident that it is following a compliant process, is legal advice still recommended? Should employers always consider seeking legal advice even if they are confident in their process?

Joel: Given the changes we have discussed, now is a good time to get advice. The approach taken by courts and tribunals has changed, and there is clearly a more employee-centric approach being applied to the legislation.

This is similar to recent amendments to the Fair Work Act. That employee-centric approach is also flowing into how courts and tribunals interpret the legislation.

If you have used a process previously and it worked well, that is a good starting point. However, now is a good time to update or at least review that process to make sure it addresses the issues identified in the cases we discussed today.

Jessica: How can an employer demonstrate that it is genuinely considering employee feedback, rather than merely complying with a procedural requirement?

Joel: Employers should lead the process. Employees may raise issues for consideration, but the employer still needs to take initiative in running the consultation process.

As much as possible, avoid holding a very brief meeting where the employee is simply told to come back if they have anything to raise. Instead, have a meeting to explain the likely outcome and clearly tell the employee that a consultation process is commencing.

We recommend holding a separate meeting specifically to obtain the employee’s feedback. This helps demonstrate that the employer was proactive in seeking feedback and proactive in offering redeployment. It also creates records and evidence of the process that was followed.

The aim is to avoid falling into the issue seen in the CEVA decision, where the employer was too neutral or not proactive enough in the consultation process. Employees should put forward their views, but employers should give them every opportunity to do so and keep records showing that they complied with their obligations.

Jessica: The next question relates to the costs of defending these sorts of claims. Would the company still pay defence costs, meaning legal costs, if it is successful in defending the case?

Joel: Yes, almost all of the time. Unfair dismissal proceedings, and most Fair Work Act-related proceedings, operate as no-cost jurisdictions. That means each party is generally expected to bear its own costs.

From a policy perspective, this prevents employees from being intimidated out of bringing proceedings because they may otherwise fear large costs orders from their employer’s lawyers.

However, it does mean employers need to assess the commercial validity of defending a claim through to hearing. Even relatively simple proceedings can cost in the range of $30,000 to $50,000 to run to a hearing. That is not something most businesses should take lightly.

This needs to be weighed against early settlement offers, the prospects of successfully defending the claim and the broader commercial considerations of litigation.

Employers will often need to bear their own costs unless the applicant has instituted proceedings unreasonably. There are also opportunities to resolve matters at early stages. Given the difficulty and uncertainty in how tribunals may view these matters, even where an employer has run a strong process, there can be an incentive to resolve matters at early conciliation to avoid the time and cost of defending the matter to hearing.

Jessica: If an employer is looking to make a person redundant and sends their reduced tasks to an external consultant, do you see any issues with this?

Joel: Outsourcing is a common reason to go through a redundancy process. This question is likely being asked in light of the High Court decision and whether employers need to consider terminating contractors before terminating employees.

The business should record its rationale. The relevant consideration is whether the business should outsource the work to the contractor or retain the employee. The answer may be that the external resource costs significantly less than keeping the employee in-house, and that cost saving is the rationale for why the role cannot be retained.

This goes back to documenting the decision-making process. Employers should document not just what decision was made, but why. That reasoning often provides the basis for explaining why it was not possible to place the employee in another role.

Jessica: Should employers now always consider whether to terminate contractor agreements before looking at employees in similar roles?

Joel: Yes, employers should consider that, but it is not the only consideration. The decision does not require employers to eliminate all contractors before making employees redundant. It requires employers to consider whether that should occur.

There will be many scenarios where it does not make sense to terminate contractors. They may not be doing the same work, or they may be doing similar work at a much lower rate, meaning the business cannot justify retaining the employee from a financial perspective.

Employers should not confine their considerations only to contractors. The broader task is to look at the enterprise and its workforce as a whole. Where the decision is made to keep contractors, employers should document the reason why and ensure it is reasonable.

Closing

Joel: That is all we have time for today. Thank you for attending the webinar.

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