Redundancy issues and dismissal laws


Redundancy issues and dismissal laws

Employers need to consider a number of issues that relate to termination of employment due to redundancy.


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Employers need to consider a number of issues that relate to termination of employment due to redundancy. 

With the current downturn in the economic cycle in Australia and overseas, it could be a difficult business climate for Australian employers over the next twelve to eighteen months. An unfortunate consequence of a downturn in business is an increase in the number of positions in the workforce that will become redundant. During the last decade, many employers would not have had reason to terminate an employee because of a downturn in business activity, although some employers may have previously been involved in redundancies due to non-economic factors. Since the last economic downturn, the workplace relations legislative landscape has changed considerably, particularly with respect to the interplay between unfair dismissal law and redundancy.

Eligible employees unfair dismissal

The federal Workplace Relations Act currently provides that an employee may lodge a claim for unfair dismissal with the Australian Industrial Relations Commission (AIRC) on the ground of the termination being harsh, unjust or unreasonable, but only in certain circumstances. In the case of an employee whose position has become redundant, the Workplace Relations Act provides a number of exclusions from unfair dismissal laws. These include:

  • if the employee is employed by an employer with 100 employees or fewer

  • if the employee has not served a six-month qualifying period of employment

  • if the employee was serving a probationary period determined in advance of commencing employment with the employer

  • if a casual employee was employed for a short period

  • if the employee was not employed under an award or workplace agreement and was earning $106,400 a year or above in remuneration

  • if the employee was dismissed for genuine operational reasons, which include economic, technological, structural or similar reasons relating to the employer’s business.

In the case of a redundancy and presuming the employee is an eligible employee in all other respects, the last jurisdictional point in an unfair dismissal matter would be the employer’s submission that the dismissal was on the ground of genuine ‘operational reasons’.

Unfair dismissal operational reasons

An employee cannot claim unfair dismissal before the AIRC on the ground that the termination was harsh, unjust or unreasonable if he or she was dismissed for genuine ‘operational reasons’. This was a new exclusion introduced by WorkChoices in March 2006 and which the then Government indicated was intended to cover redundancy situations. Redundancy may occur based on any of the following operational reasons:

  • downturn in the company’s level of production or sales, or in the economy generally

  • relocation of the business

  • merger or takeover

  • internal company restructure or reorganisation

  • market changes reflecting shifts in product demand and/or production costs

  • structural changes such as tariffs, quotas or exchange rates

  • staff reductions due to technological change.

Decisions by the AIRC indicate that as soon as the employer has satisfied the AIRC that the dismissal was for ‘operational reasons’ an employee’s claim for unfair dismissal would fail through want of jurisdiction. While an employer may claim that a position became redundant because of ‘economic reasons’, an employee may contend that the employer’s reason for choosing him or her for redundancy was based on a discriminatory ground. This could result in an employee claiming unlawful termination or a claim to the relevant discrimination tribunal.

Unlawful termination discrimination

An employee (including a casual employee) aggrieved about his or her redundancy (or any other reason for termination by the employer) may seek a remedy under discrimination laws because these operate separately from the unfair dismissal laws under the Workplace Relations Act.

The discrimination tribunals have the power to award compensation, but most also have the power to reinstate an employee.

Alternatively, an employee may lodge a claim of unlawful termination with the AIRC, although it should be noted that an employee is not able to lodge a claim with the AIRC for unlawful termination if he or she is pursuing other related termination proceedings before a discrimination or other tribunal.

The legislation

Section 659 of the Workplace Relations Act specifies certain grounds that constitute unlawful termination, including race, sex, pregnancy, age, physical or mental disability, family responsibilities, absence on maternity leave or other parental leave, sexual preference, colour, marital status, religion, national extraction or social origin, refusing to negotiate in connection with an ITEA, temporary absence from work due to illness or injury, political opinion, membership or non-membership of a trade union and temporary absence from work because of the carrying out of voluntary emergency management activity.

In the case of discrimination laws, an employee may claim discrimination where there is an unfair, or unequal treatment, or less favourable treatment of an employee based on a prohibited ground of discrimination.

The following are some common employee circumstances relating to selection for redundancy that have been the subject of a claim for unlawful termination before the AIRC or anti-discrimination tribunals where the employer has applied subjective selection criteria to the redundancy process:

  • a female employee who is pregnant, or is absent from work due to pregnancy, or is absent on parental leave — claiming her long-term absence from work as reason for selection for redundancy

  • an employee over a certain age, for example, an employee nearing retirement age - claiming discrimination on the ground of age

  • an employee who is absent from work due to illness or injury, whether on workers compensation or otherwise — claiming discrimination on the grounds of physical disability

  • an employee who is the site delegate of a trade union — claiming selection for redundancy because of his or her trade union activities.

A defence for an employer in any of these circumstance is that the employee was chosen for redundancy based on an objective selection criteria. It would also be prudent for an employer to have the selection criteria detailed in any company redundancy policy to assist in defending any subsequent unlawful termination matter.

Selection criteria for redundancy

It is preferable for an employer to apply an objective selection criteria with respect to redundancies. An objective selection criteria should relate to the skills, experience, training and performance of an individual compared with the current and future needs of the employer.

In identifying selection criteria that may be objective, tribunals have usually determined that an employer can rely on such matters as efficiency, experience, additional qualifications related to the same work, attendance records, disciplinary history and length of service (usually when all other criteria are equal), when such matters can be objectively assessed. However, length of service, as a sole criteria for selection, could be viewed as indirect discrimination on the ground of age.

Criteria that are objective and measurable present far less difficulties than criteria that are subjective. This is because subjective criteria may be easily manipulated by personal dislikes or personal biases. It is also more difficult for an employer to explain to a tribunal an assessment of an employee when a judgement is called for that may vary widely among managers within a workplace. Reasons based on subjective criteria such as ‘untrustworthy’ or ‘lacking integrity or credibility’ or ‘uncooperative’ or ‘unreliable’ should be avoided, as these cannot be objectively measured and could have a wide range of meanings among managers and the wider community.

The use of these words could also be perceived by a tribunal as an attempt by the employer to conceal the real reason for the employee’s redundancy, ie a discriminatory reason. Also, many employers have traditionally adopted the 'last on first off' or 'seniority' principle in redundancy situations; however, there is a view that such a selection criteria may offend various anti-discrimination laws on the grounds of age or sex, being regarded as indirect discrimination.

The process

A discrimination tribunal may also consider whether there was unfair, or unequal treatment, or less favourable treatment of an employee during the redundancy process, based on a prohibited ground of discrimination.

When providing conditions as part of the redundancy process, an employer should ensure they are offered to all affected employees to avoid any claim by an employee of unfavourable or unfair treatment. These conditions may include:

  • providing reasonable notice to the affected employee(s) — the minimum period of notice of termination (or payment in lieu) is prescribed by s661 of the Workplace Relations Act, or applying the relevant notice of termination provisions of an applicable industrial instrument or contract of employment that are more beneficial than the Workplace Relations Act

  • adequate consultation with employee(s) on the impact of the proposed changes, ie don’t unreasonably leave someone out of the loop - this is also important where the relevant industrial instrument or company policy prescribes a consultative process to be observed by the employer when a definite decision has been made regarding redundancy

  • exploring genuine alternative options to redundancy to the affected employee(s), such as redeployment or relocation — an employer successful in obtaining suitable alternative employment for an employee may not be required to pay severance or redundancy pay under the applicable industrial instrument

  • providing the scale of severance or redundancy pay to the affected employee(s) — as per the industrial instrument or contract of employment. (Note: the additional entitlement for an employee who is over 45 years at the time of redundancy is legislatively excluded from discrimination laws.)

  • providing appropriate ancillary services, such as time off to seek alternative employment, retraining opportunities, outplacement services, or financial planning.
Workers compensation note
While the Workplace Relations Act regards a termination due to an employee’s ‘temporary absence from work due to illness or injury’ as unlawful, an injured employee in receipt of workers compensation may also have some protection from redundancy because of the relevant state or territory workers compensation legislation.

As workers compensation statutes usually require an employee to participate in an authorised rehabilitation program to qualify for continuing workers compensation payments, there is usually some prohibition from termination by the employer, for a specified period, to enable the injured worker to return to work as part of that rehabilitation process.

Some jurisdictions recognise redundancy as a valid reason for terminating an injured worker while on workers compensation; however, as this will vary depending on the jurisdiction, an employer should check with the relevant state or territory WorkCover authority to establish an injured workers rights in this circumstance.
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