A recent decision in the Fair Work Commission has shone a light on a dilemma which employers face when managing redundancies in the context of a confidential business acquisition.

The dilemma is, at what point in time should the employer disclose to staff the impending acquisition and its likely impact upon their continuing employment. This was one of the issues canvassed in the recent decision of the Fair Work Commission in Churui Hu v ACY Capital Pty Limited [2019] FWC 1635 (19 March 2019).

In Churui Hu, Commissioner Cambridge considered an application by the employee for ​‘unfair dismissal’ in circumstances where the applicant had been made redundant. The redundancy had arisen in the context of her employer acquiring another financial services business. This had resulted in the number of employees growing from 17 to 24.

The employer pointed out that as it was a small company which had acquired another small company and occupied a small office, it was necessary to quickly downsize in order to seek to accommodate all the employees that had been acquired. The applicant occupied the position of Accounts Officer. Following the acquisition, the company had 4 staff for 2 available positions (relevant to the applicant’s role).

The applicant had been on holiday whilst the acquisition was proceeding and arrived at work to find that her location in the office was occupied by another employee and her personal belongings had been removed and placed elsewhere in the office.

A director of the employer met with the applicant around 10.00 am on her first day back, and advised the applicant verbally that, as a result of an acquisition various employees from the acquired company had been transferred into the office which was now full. He would therefore pay the applicant one month’s wages and she could then find a new job from that day forward.

Relevantly the employee had not received any prior consultation in relation to her impending redundancy.

The employee subsequently filed a claim for unfair dismissal which was defended, amongst other things, on the grounds that the termination had been a ​‘genuine redundancy’ within the meaning of section 389 of the Fair Work Act. This provision enables a respondent to challenge the jurisdictional basis for bringing a claim for unfair dismissal if the following criteria are satisfied:

  1. the employer no longer requires the job to be performed by anybody because of changes in its operational requirements
  2. the employer has complied with any obligation in a modern award or enterprise agreement to consult about the redundancy
  3. it would not have been reasonable in all the circumstances for the person to be redeployed within the employer’s enterprise or an associated entity.

It should be observed that relevantly, if an applicant succeeds in overcoming a jurisdictional objection to their claim made on the basis that termination was a ​‘genuine redundancy’, the matter then proceeds to a hearing as to whether or not the dismissal itself was ​‘harsh, unjust or unreasonable’.

In Churui Hu, in the alternative (in case its jurisdictional challenge was unsuccessful) the employer made submissions that the dismissal itself was not unfair.

Commissioner Cambridge first considered the jurisdictional objection by the employer by considering the test set out in section 389 of the Act.

He was satisfied that the job was lost due to operational requirements and therefore considered the first element of section 389 established.

The next limb of the test in section 389 concerned whether or not the employer had complied with its consultation obligations. It was uncontroversial that the employer had not consulted about the redundancy. Indeed, the first the employee had heard about the fact that she was to be made redundant was when she returned from work on holiday only to be told that the office was full, and she did not have a job.

The employer sought to defend the absence of consultation by relying on a particular provision in the consultation provision in the relevant award (being the Banking, Finance and Insurance Award 2010) which states that an employer is not ​‘required to disclose confidential information the disclosure of which would be contrary to the employer’s interests’.

The employer stated that it would have been contrary to the employer’s interests in this case, to disclose information relating to the employer’s acquisition of a competitor as it was highly confidential and sensitive and that there was no advanced warning and no time for consultation. It also noted that the employee was overseas on annual leave at the relevant time and the matter could not be discussed until her return to work (by which time the acquisition was completed).

Commissioner Cambridge considered that respect to the confidentiality provision in the consultation provision:

“This term does not relieve the employer of the obligation to discuss the change, it only allows that as part of those discussions it may not be required to provide confidential information that would be contrary to the employer’s interests”.

Commissioner Cambridge stressed that there was simply no discussion at any time prior to the applicant receiving advice that she was dismissed on the basis of redundancy. He considered once the acquisition had occurred there was an obligation on the part of the employer to discuss with the employee the effects of the acquisition on her employment and any measures to mitigate such adverse effects, so it could give prompt consideration to any matters raised by the applicant. At the very least the employer should have engaged in some discussion with the employee upon her return from leave before telling her she was redundant.

In the circumstances, Commissioner Cambridge held that the employer had not complied with the obligation to consult under the relevant award. On this ground alone therefore, the employer had failed to satisfy one of the key elements of section 389 and its jurisdictional objection could therefore not succeed.

Commission Cambridge also dealt with the third element namely that it would not be a case of ​‘genuine redundancy ’ if redeployment was reasonable in all the circumstances. He concluded that the evidence established that the employer had taken no steps to properly consider redeployment, particularly as it may have applied to associated entities of the employer. Therefore, the third element in respect of section 389 was not satisfied either.

As the employer had not been successful in challenging the employee’s unfair dismissal application on the grounds of a ​‘genuine redundancy’ the Commissioner went on to consider whether or not the termination was ​‘harsh, unjust or unreasonable’.

In looking at this question, the Commissioner noted that the employer had failed to pay the employee all due entitlements with respect to the redundancy, which failure would likely render the dismissal to have been unlawful. The Commissioner stated:

“The failure to pay all due entitlements arising in respect to the termination of employment would likely render the dismissal to have been unlawful. Although these entitlements are matters that may be pursued in other forms of litigation, a dismissal that included unlawful elements such as the failure to make payment of recognised entitlements, would establish that the dismissal was unjust and unreasonable.”

The Commissioner also considered the selection of the employee for redundancy. He considered that selection of the applicant as a person to be made redundant appeared somewhat arbitrary and related more to the fact she was on leave at the time the employer identified it had 2 accounting employees who were surplus to requirements. In his view therefore, the reason for the dismissal of the applicant was not ​‘sound, defensible or well founded’.

Commissioner Cambridge also considered that the employer ​‘had adopted an unnecessarily abrupt and perfunctory procedure to advise and implement the dismissal’. The applicant had been entitled to some level of discussion prior to implementing the decision to dismiss. He considered the dismissal a callous act exacerbated by the failure to pay all due entitlements to the applicant. As such it was unjust, unreasonable and unnecessarily harsh.

Having regard to the above factors the claim for unfair dismissal was successful.

What lessons arise from Churui Hu regarding consultation and redundancy?

A lesson which arises from this decision is the fact that employers will need to be mindful that the provisions in the consultation requirements under relevant awards that concern confidentiality do not relieve an employer of the obligation to consult about the redundancy. Each case will need to be looked at on its own merits, and employers whilst being able to protect commercial in confidence material, will need at some point prior to termination to disclose the existence of the proposed changes and otherwise comply with the consultation obligations.

Whether a failure to consult or to adequately consult about an impending redundancy will make a dismissal ​‘unfair’, has been the subject of a number of decisions of the Fair Work Commission, where the decisions are nuanced according to the facts of each case.

In an oft-quoted decision in Maswan vs Escada Textilvertrieb t/​a Escada [2011] FWA4239 Vice President Watson stated:

“[39] In my view a decision to dismiss on account of redundancy will only be harsh, unjust or unreasonable if the rationale for the decision is seriously undermined or if there is a serious error in procedure such that renders the termination unfair in the circumstances. Here the decision appears open to the employer to make. The failure to consult is not a trivial matter. But as it is clear that consultation was highly unlikely to have negated the operational reasons for the dismissal or lead to any other substantive change, I do not believe that the failure to consult prior to the date of termination rendered the dismissal unfair. Given the evidence in relation to the operational need to restructure, I am of the view that it is likely that Mr Maswan would have been dismissed in any event, even if timely consideration had occurred”.

A Full Bench decision of UES (Int’l) Pty Limited vs Harvey [2011] 215 IR 263 noted on the issue of consultation:

“[49] Taking into account the matters referred to above, we are satisfied Mr Harvey’s dismissal by UES was harsh, unjust or unreasonable. A failure to consult does not necessarily mean a dismissal was harsh unjust or unreasonable. However, in this case we consider the failure to consult was unreasonable and is sufficient to lead us to conclude that Mr Harvey’s dismissal was harsh, unjust or unreasonable, notwithstanding the valid reasons for his dismissal and the due weight we have given to those valid reasons”.

In a decision of Deputy President Lawrence in Joyce Rego vs Firma Foreign Exchange Corporation [2014] FWC 8225, the approach in Maswan was applied:

“[46] Applying the approach in Maswan, I have taken into account the failure to consult under section 387(h). Once the Respondent had decided that there was only enough work for one administrative staff, it was reasonable to select the most suitable for the job. I have found that this decision was for bona fide reasons. I do not think the failure to consult renders the decision unfair. The circumstances were different in UES where the applicant had been treated differently to other employees in relation to the consultation. As in Maswan consultation would not have likely lead to a different result. The applicant would have been dismissed in any event, even if timely consultation had occurred”.

Perhaps all that can be said with some certainty is, that whether a failure to consult will cause an applicant to succeed in an unfair dismissal claim, will be determined on its own facts. Sometimes a failure to consult will not make a termination on the grounds of redundancy, ​‘unfair’. On other occasions it will. In the case of Churui Hu it was a factor which did play a significant role.

As noted in the decision in Joyce Rego, where a particular employee is treated differently in relation to consultation than another employee, this may be a factor which enhances the prospect of a finding of unfairness.

Conclusion

In summary, employers should seek to enhance their prospects of successfully challenging an unfair dismissal application on the jurisdictional grounds of a ​‘genuine redundancy’, by, among other things, seeking to ensure consultation occurs as required under any award or enterprise agreement. In particular, they should seek to provide consultation at the earliest possible opportunity.

A balancing act will be required in relation to what information can be released having regard to the commercial interests of a company and the requirement to consult.

Employers should also go through the exercise of considering whether alternative employment could be offered to the employee within their organisation or any associated entity and having discussions with employees regarding such matters prior to termination.

Employers should endeavour to treat all employees fairly and equally in the consultation process and be in a position to explain their decision in relation to making particular employees redundant.

As noted in Churui Hu, it is important to pay the employee the correct entitlements upon redundancy. As noted above, in this case the employer did not pay the employee their full entitlements and this was a factor which weighed against it in the determination of whether the dismissal of the applicant was unfair.