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Requirement to ‘consult’ in the redundancy process

August 30, 2017

By Alex Millman, Sid Sidhu and Troy Wild, NRA Legal

Restructuring a business often involves making employees redundant. This is an unfortunate but logical truth.

There is a natural tension between the freedom for businesses to be able to structure their operations in the most effective manner possible, and the need for workers to have some form of job security.

To that end, when the Fair Work Act 2009 (FW Act) was written, it included an absolute defence for employers against any claim for unfair dismissal arising out of a ‘genuine redundancy’.

A ‘genuine redundancy’ arises where:

  • the person’s job is no longer required to be performed by anyone due to changes in the operational requirements of the business; and
  • the employer consulted with the employee in accordance with the terms of a modern award or enterprise agreement; and
  • it was not reasonably practical for the employee to be redeployed elsewhere in the enterprise.

The first of these conditions – that the job is no longer required to be done by anyone – is generally easily understood by employers. It is the remaining two conditions that trip them up.

This is because each condition incorporates multiple elements which need to be taken into consideration.

For the purposes of this article, we will focus just on the requirement to consult, as it is a common stumbling point for employers.

Do I need to ‘consult’?

Best practice says that you should always consult with your employees before making them redundant.

However, the law only requires you to consult with your employees if a statutory instrument – a modern award or an enterprise agreement – contains a consultation clause.

All modern awards have an almost identical consultation clause, and all enterprise agreements are required to have one.

If the employee in question is not covered by a modern award or an enterprise agreement – for example, if they fall outside the classification structure of any applicable modern award – then the law does not require you to consult with that employee.

Be aware that if the employee’s employment contract includes a provision for consultation, you must still abide by that clause.

What does it mean ‘to consult’?

The most common error made by employers when discharging their obligation to ‘consult’ is that the discussion revolves entirely around redeployment.

It is important to remember that consultation and redeployment are two separate and distinct criteria; they are not one and the same. Discussing options for redeployment is not consultation.

The Fair Work Commission recently said in the plainest possible terms:

The notion of consultation implies that the proposed outcome may be impacted by an exchange of information and/or views.”[1]

To illustrate the point, Justice Logan of the Federal Court in another case remarked:

There is a difference between saying to someone who may be affected by a proposed decision or course of action, even, perhaps, with detailed elaboration, “this is what is going to done” and saying to that person “I’m thinking of doing this; what have you got to say about that?”. Only in the latter case is there “consultation”.”[2] (emphasis added)

In order for there to be consultation as envisioned by the FW Act, the employer must allow the affected employees an opportunity to put forward alternatives that may not involve the need for any redundancies.

This does not mean that an employer must implement a suggestion made by an employee; Justice Logan noted also:

“… a right to be consulted, although a valuable right, is not a right of veto.[3]

It is however important for the consultation process to actually have a chance to alter the outcome. If the employer’s mind is already made up, and the consultation process is simply done to ‘tick a box’, then a court or tribunal may find that consultation has not in fact occurred.

What happens if I fail to ‘consult’ properly?

If an employer fails to consult in accordance with a modern award or enterprise agreement then there are a number of risks to which the employer is exposed.

Unfair dismissal

First of all, if the employer cannot demonstrate that they properly engaged in consultation, then they cannot rely on the absolute defence of a genuine redundancy in an unfair dismissal claim.

This means that the case would proceed to a hearing on whether the dismissal was harsh, unjust, or unreasonable, with the risk that the employer loses depending on the circumstances of the case. It would also give rise to additional costs of defending the matter.

Breach of the Fair Work Act

Of perhaps far more concern to employers is that a failure to consult would amount to a contravention of the corresponding provision of the modern award or enterprise agreement.

Both of these amount to contraventions of the FW Act – section 45 for a modern award, section 50 for an enterprise agreement – both of which are civil remedy provisions.

This means that the employer can be sued by either an aggrieved employee or the Fair Work Ombudsman and be required to pay not only compensation, but also fines of up to $63,000 per contravention.

Individuals involved in the contravention can be fined up to $12,600 for their part in any contravention.

NRA Legal can assist your business to navigate its way through the complicated process of consultation and redundancy. To find out how, call 1800 RETAIL (1800 738 245).

[1] Fowler v Playford City Soccer and Community Club Inc t/a Angle Vale Tavern [2017] FWC 4381

[2] Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia v QR Limited [2010] FCA 591

[3] Ibid

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