Failed consultation renders redundancy termination unfair; Loss of Jobkeeper factored into compensation
This month we look at a very topical case involving an employer who terminated an employee for redundancy reasons as a result of COVID-19 impacts to the business, and failed in its defence of the subsequent unfair dismissal claim.
On 18 March 2020, the employer, a business advisory and accounting business, met with its employees to discuss the impact of COVID-19. The meeting contemplated that staff may be directly affected by the impacts of COVID-19 and a commitment was made to keep staff informed as the situation developed. There was also confirmation at the meeting that staff would have to use annual leave (or annual leave in advance) if there was a lockdown.
On 25 March, the partners of the employer met and discussed the impact of COVID-19 on the business and a decision was made to reduce administrative hours. On the same day, late in the afternoon, the employer met with one of the administrative employees and informed her that COVID-19 was having a significant impact on the business and that decisions had to be made to keep the business viable. One of the partners of the employer conducted the meeting, and told the employee that all administrative staff would be affected. The partner then showed the employee calculations that he had done that showed that the employee would be better off financially if she did not remain employed and instead went onto the Federal Government’s Jobseeker program (compared to remaining employed on reduced hours as was being contemplated for other administrative staff). The partner explained that this is why the employee’s position had been chosen for redundancy.
The partner asked the employee whether she had any questions, comments or suggestions, and the employee confirmed that she did not. The partner then confirmed the decision to terminate the employee’s employment for redundancy reasons. He provided her with a letter at the end of the meeting which stated she would be on annual leave for the following week and her employment would then terminate on 3 April 2020. Note, the week of annual leave was eventually repaid to the employee.
The employee subsequently made an unfair dismissal application.
In hearing the application, Deputy President Saunders accepted that the employer terminated the employee because of operational changes to its business, however the Deputy President was critical of the employer’s consultation process in particular (and the employer failed in its defence of the claim as a result).
During the hearing, the employer accepted that it did not comply with its obligation under the Clerks Private Sector Award 2020 to provide information in writing to the employee about the changes that were likely to affect her employment.
In addressing this point, the Deputy President stated:
“The obvious purpose in providing such information, in writing, to employees is to give them an opportunity to understand the changes and to enable them to make sensible suggestions and ask relevant questions about the changes in the discussions with their employer. [The employee] was not afforded that opportunity in this case.”
The Deputy President was also satisfied that the meeting with all employees on 18 March could not constitute consultation relevant to the redundancy of the employee’s position, noting that the trigger for consultation is the making of a ‘definite decision’, and in this case the Deputy President found that the only definite decision was made on 25 March 2020. The employer was also criticised for not discussing with the employee measures to avoid or reduce the adverse affect of the changes. The Deputy President commented that:
“This obligation is not met by merely asking employees whether they have any questions, comments or suggestions. Nor is it met by informing an employee, as happened in this case, that the employee will be marginally better off financially by being dismissed and in receipt of Jobseeker payments than by remaining in employment on reduced hours.”
It was noted that the partner did not suggest to the employee that one potential option was to reduce her days of work from three days to two days per week and the Deputy President accepted that if that offer had been made to the employee, she would have accepted it. The Deputy President commented that this is the kind of option which a proper consultation period, of more than 15 minutes, may have resulted in.
Ultimately, because the employer did not meet its consultation obligations under the Award, Deputy President Saunders found that it failed to establish that the termination was a case of genuine redundancy, and the jurisdictional objection made by the employer failed. It followed that Deputy President Saunders found the dismissal to be harsh and unreasonable, specifically noting the employer’s failure to properly consult with the employee.
The Deputy President then considered the appropriate remedy for the employee. He noted the employee did not seek reinstatement, and accepted in any event that reinstatement was not appropriate due to the employer’s reduced need for administrative staff following closure of one of their offices.
The Deputy President then turned to consider compensation. The reasoning of the Deputy President is interesting in this respect. The Deputy President found:
- Had the employer complied with its obligation to consult, this would have resulted in the employee’s hours being reduced from three days per week to two;
- That consistent with other administrative staff, the employee would then have gone on to receive the Jobkeeper payment of $1,500 per fortnight, being more than her normal wage for her hours of work;
- That because the employee performed work in the office which was subsequently closed, that it was likely that the employee’s role would have been made redundant in mid-April, at which point she would have worked 4 weeks’ notice, bringing her employment to an end in mid-May 2020.
Taking into account the income that the employee earned during the same period as contemplated by the Deputy President for the employee’s likely continued employment, the employee was awarded $3,189.01 in compensation to place her in the position she would have been in but for the unfair termination of her employment.
Lessons for Employers
The clear lesson for all employers here is that proper consultation is essential when terminating an employee for redundancy reasons.
The modern awards, and in particular the 2020 iterations of the modern awards have very prescriptive consultation requirements, which include the requirement to provide information to the employee in writing as part of effective consultation. This case also reiterates the need to canvass with the employee whether there are any alternatives to mitigate the impact of the redundancy on the employee (with the usual options being redeployment, reduction in hours or job-share).
Prior to the consultation step, employers should carefully consider and prepare their business case which supports the decision to be made. The step of providing information in writing to the employee is essentially reducing the business case to written form (less any commercial in confidence information which the employee is not entitled to).
It is also instructive that the Fair Work Commission is taking into account the Jobkeeper payments the employee might have received in assessing appropriate consultation. Whilst it did not have a significant financial impact on the award of compensation in this instance, it will be interesting to see how the Commission looks at the impact of Jobkeeper moving forward when assessing compensation for employees – particularly with Jobkeeper now having been extended to March 2021 (albeit in a reduced form). It is foreseeable that under the right factual circumstances, an employee who misses out on a period of receiving the Jobkeeper payment due to a poorly executed redundancy termination, could be the benefactor of a significant award of compensation (largely driven by the Jobkeeper payment that they might otherwise have been entitled to).
Employer’s are reminded that the redundancy process is not a simple one, and it is not an ‘easy’ way of terminating an employee. Before you proceed with a redundancy decision, please obtain advice and ensure that you know what your obligations are, and what risks you face.
Disclaimer: The information contained this article is general and intended as a guide only. Professional advice should be sought before applying any of the information to particular circumstances. While every reasonable care has been taken in the preparation of this update, Aitken Legal does not accept liability for any errors it may contain. Liability limited by a scheme approved under professional standards legislation.