In the current economic climate, a number of employers are looking to restructure their businesses to improve efficiency and productivity. Headlines reporting that organisations are set to “slash” jobs due to higher costs for business, tighter regulation and a reduction in profits seem to be cropping up more and more frequently.

In these uncertain economic times, employers need to be aware more than ever of their obligations when implementing workplace restructure, not only to limit any potential liability for potential unfair dismissal and adverse action claims, but also to minimise brand and reputation damage by mismanaging workplace restructure. This update sets out the 7 deadly sins of employers when managing workplace restructure.

Sin 1 – Failing to Consult

It is a defence to an application for unfair dismissal that the dismissal was a case of genuine redundancy, but a person’s dismissal will only be a case of genuine redundancy if the employer has complied with any obligation in a modern award or enterprise agreement that applied to the employment to consult about the redundancy.

The recent decision of Mr Georg Thomas v InfoTrak Pty Ltd T/A InfoTrak [2013] FWC 1134, is a reminder to employers that the requirement to consult with employees is paramount. In this case, even though the employer was found to have had "sound, defensible and well-founded reasons" for making a former operations manager redundant, the employer was ordered to pay $10,829.70 for failing to consult before dismissing the employee.

The failure of the employer to comply with the consultation obligations in the applicable Professional Employees Award 2010 prior to implementing the redundancy meant that the redundancy was not a genuine redundancy for the purposes of the Fair Work Act. Fair Work Commissioner Julius Roe said that if the required consultation had taken place, an alternative to redundancy might have been found.

Employers should ensure that they are aware of any consultation obligations that may apply to its employees under a modern award or agreement as if an employer is prosecuted for a failure to consult in accordance with such clauses, the employer may be subject to a maximum civil penalty of 60 penalty units ($51,000).

Sin 2 – Failing to recognise prior service of transferring employees

A number of employers who are involved in a transfer of business (for example through an asset sale or outsourcing/insourcing arrangements) are often unaware of their obligations in relation to the transfer of their employees’ entitlements.

In the decision of Australian Nursing Federation [2012] FWA 6460, an employee who rejected a job offer from the new owner of a transmitting business was entitled to redundancy pay from the old employer because the offer did not recognise the employee’s service for the qualifying period for an unfair dismissal claim.

The old employer’s enterprise agreement (Agreement) provided that redundancy pay was not owed to an employee in the event that they rejected an offer of employment with a new employer “in which the terms and conditions are substantially similar and no less favourable” than the terms and conditions of the employee’s employment with the old employer.

The employee in this case was offered employment with the new employer on the terms and conditions of the Agreement, however, the engagement with the new employer also provided that that the employee’s prior service with the old employer would not be recognised for the purposes of unfair dismissal and that a new unfair dismissal qualifying period of six months would apply.

Fair Work Australia held that although the new position with the potential new employer was essentially the same as the employee’s position with the old employer in terms of pay and classification, the “significant diminution in her job security” rendered the position “fundamentally different”, and that the employee was therefore entitled to redundancy pay.

This case is a timely reminder to employers in who are involved in a transfer of business to ensure that they understand the source of redundancy entitlements under the National Employment Standards, any modern award, enterprise agreement or contract of employment that may be applicable.

Sin 3 – Transferring employees to other positions which aren’t suitable

Employers are obliged to consider whether it is reasonable, in all the circumstances, for an employee whose position has been made redundant to be redeployed within the employer’s enterprise including other associated entities. The job must be suitable, in the sense that the employee should have the skills and competence required to perform it to the required standard either immediately or with a reasonable period of retraining and other considerations may be relevant such as the location of the job and the remuneration attaching to it.

The New South Wales District Court in Smith v Onesteel Limited & Anor [2013] NSWDC 18 (15 March 2013) awarded a steelworker $153,316.39 in award redundancy entitlements because it found that the job he was transferred to was an inferior job although on the same pay and hours. After working with the employer as a furnace operator for 20 years, and for 12 years before that as a labourer, the worker was transferred to a finishing line to paint railway wheels due to a lack of work on the forge. The worker suffered from osteoarthritis and considered the shift to the finishing line to be a demotion and subsequently resigned a month later.

Judge Elkaim said “his commencement in the finishing line involved him starting afresh. He needed immediate training. He was therefore changing from a position based on seniority (even if only derived from length of service) to one which, notwithstanding the pay scale, he became a trainee.” The judge was satisfied that the finishing job was not acceptable alternative employment, and held that the worker was made redundant under the award when he was reassigned to the finishing line, rendering his resignation irrelevant.

Sin 4 – Failing to notify when terminating 15 or more employees on the grounds of redundancy

If an employer makes a decision to terminate the employment of 15 or more employees for redundancy, it must:

  • give each Union of which any of those employees was a member, and which is entitled to represent the industrial interests of that member, an opportunity to consult with the employer on the measures to avert or minimise the proposed dismissals and measures to mitigate the adverse effect of the proposed dismissals; and
  • notify Centrelink in accordance with section 530 of the Fair Work Act of the decision using the prescribed Form.

Sin 5 – Refusing to acknowledge any applicable employee job search entitlement

A number of modern awards expressly provide that where an employee is given notice of termination in circumstances of redundancy, the employee must be allowed up to one day’s time off without loss of pay during each week of notice for the purpose of seeking other employment (see for example, the Professional Employees Award 2010, the Clerks - Private Sector Award 2010 and the Mining Industry Award 2010).

Employers should ensure that they are aware of any job search entitlement obligations that may apply to its employees under a modern award or agreement as if an employer is prosecuted for a breach of such clauses, the employer may be subject to a maximum civil penalty of 60 penalty units ($51,000).

Sin 6 – Selecting employees for redundancy on the basis of prohibited reasons

In determining whether a dismissal was a case of genuine redundancy, the selection process used is not a relevant consideration. Where the business restructure was genuine and numerous redundancies occur as a consequence, then the selection process used, even if unsatisfactory, is not relevant under the test in the Fair Work Act to whether there is a genuine redundancy: UES (Int'l) Pty Ltd v Harvey [2012] FWAFB 5241 (14 August 2012).

However, selection criteria may be taken into account in determining whether there has been adverse action or discrimination. Having a valid reason to terminate an employee's employment (for example, redundancy) does not protect an employer from an employee claiming that they have been subjected to adverse action.

Adverse action claims are broader in their scope than most claims relating to termination of employment. The Fair Work Act provides that “adverse action” is taken by an employer against an employee if the employer dismisses (or threatens to) or discriminates between an employee and other employees (or threatens to).

If an employee is terminated, they may bring a claim under the general protections provisions of the Fair Work Act alleging that their employment was terminated for a prohibited reason. The prohibited reason is not required to be the sole or dominant reason for the employer taking the adverse action. The onus is on the employer to prove to the satisfaction of the court that the employment was not terminated because of the prohibited reason.

If there is a potential risk of an adverse action or discrimination claim being commenced against an employer, a cautious approach should be taken and the employer should ensure that contemporaneous notes are taken of any discussions with its employees regarding their employment including the reason for termination of their employment.

Sin 7 – Requiring remaining employees to work additional hours which aren’t reasonable

After a business restructure, remaining employees may be expected to work additional hours. The National Employment Standards deal with the issue of maximum weekly hours. Pursuant to section 62 of the Fair Work Act, an employer must not request or require an employee to work more than the prescribed maximum weekly hours in a week unless the additional hours are reasonable. If an employee is engaged on a full time basis, that is 38 hours per week and otherwise, this is the lesser of 38 hours or the employee’s ordinary hours of work in a week.

An employer must not request or require an employee to work more than the prescribed maximum weekly hours unless the additional hours are reasonable (s 62(1), Fair Work Act). A full-time employee may refuse to work additional hours beyond 38 per week if the additional hours are unreasonable (s 62(2), Fair Work Act). The employer bears the onus of proving that the request to work additional hours is reasonable in all the circumstances.

Section 62(3) of the Fair Work Act provides a list of matters that need to be taken into account, including:

  • risk to an employee’s health and safety from working the additional hours;
  • the personal circumstances of the employee;
  • the needs of the enterprise in which the employee is employed;
  • whether the employee is entitled to receive overtime payments, penalty rates or other compensation for, at a level of remuneration that reflects an expectation of working additional hours;
  • notice given by the employer of any request or requirement to work the additional hours;
  • notice given by the employee of their intentions to refuse to work the additional hours;
  • usual patterns of work in the industry;
  • nature of the employee’s role and the employee’s level of responsibility; and
  • any other matter.

Employers must make this consideration an individual basis. The employer should not apply a blanket rule that every employee work overtime or treat all employees as if they are the same. Employers should consult with an employee and carefully consider any objections in the light of all of the circumstances, before attempting to enforce a requirement to work additional hours.