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UpdatesJuly 31, 2020

Why consultation is important when downsizing – even during the pandemic

An employee covered by the unfair dismissal laws under the Fair Work Act 2009 (Cth) can challenge the fairness of their retrenchment in the Fair Work Commission

5 mins read

If you retrench employees in response to a downturn in business flowing from the current pandemic, you need to consider your unfair dismissal exposure.

An employee covered by the unfair dismissal laws under the Fair Work Act 2009 (Cth) can challenge the fairness of their retrenchment in the Fair Work Commission (FWC) if the employer does not follow their modern award obligations to consult the employee about redundancy.

Employee makes an unfair dismissal claim after her retrenchment

In Freebairn v Dandiie Pty Ltd (2020), a clerical employee was successful in arguing that the employer’s failure to follow the consultation obligations in the Clerks – Private Sector Award 2020 (Award) meant that the FWC could deal with the unfair dismissal claim.

The employee had nearly 7 years’ service as an administrative assistant in a financial services firm. On 18 March 2020, a staff meeting was held where the employer’s manager discussed the ongoing impact of COVID-19 on the business. Staff were informed the employer was considering ways to ensure the ongoing viability of the business, and the possibility that staff may be directly affected was raised.

A week later, on 25 March, the employer decided to reduce the hours of administrative staff as a necessary step to address the impact of the pandemic. The manager met with the employee later that day, explained the circumstances impacting on the business, and issued her with a notice of retrenchment.

The FWC ruled the employer did not comply with its obligation under the Award consultation clause to provide information, in writing, to the employee about the changes, including:

The requirement to provide such information, in writing, is to give employees the opportunity to understand the changes, and to enable them to make sensible suggestions and ask relevant questions about the changes in discussions with their employer.

The trigger for an employer to give notice of changes to employees who may be affected by the changes and to hold discussions with the employees is the making of a ‘definite decision’.

How did the employer fail to meet the Award requirements?

The employer provided a letter on 25 March. This letter did not meet the Award requirements because it was given after the decision had been made to terminate employment, rather than for the purpose of the discussion. Moreover, it did not provide all relevant information about the changes.

Further, the staff meeting on 18 March did not fulfil, or contribute in the satisfaction of, its consultation obligations under the Award because a definite decision had not yet been made. The definite decision to reduce the work hours of administrative staff in response to the COVID-19 pandemic was made by the employer on the morning of 25 March 2020.

There was a 15-minute discussion at the meeting on 25 March 2020 before the provision of the termination letter to the employee, at which time the employee’s manager discussed the introduction of changes (reduced work hours for administrative staff) and the reason for those changes (COVID-19). However, the manager did not discuss with the employee measures to avoid or reduce the adverse effects of the changes on employees.

The FWC observed the Award consultation 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.

The employer did not canvass the potential option available to reduce the adverse effects of the changes on the employee, namely to reduce her days of work from 3 days per week to 2 days per week. The employee would have accepted such an offer had it been made or suggested to her. A proper consultation for longer than 15 minutes should have explored this solution.

Was the dismissal unfair?

Given the employer had not complied with its Award consultation obligation, the genuine redundancy exemption did not apply. The FWC then considered whether the dismissal was unfair. The FWC ruled that the redundancy of the employee’s role provided a valid reason for dismissal. However, the impact of her dismissal was unduly harsh, given she had more than 6 years of service.

While a failure to consult does not necessarily make a dismissal harsh, unjust or unreasonable, in this case, the FWC ruled that a proper and meaningful consultation might have enabled the employee to continue her employment on 2 days per week. A proper consultation period would have extended to at least the end of March 2020, at which time the JobKeeper scheme was announced. The employer had conceded that had JobKeeper been announced before these discussions took place on 25 March 2020, it is possible the dismissal would have been avoided. The employer qualified for the JobKeeper scheme and it was later extended to other clerical staff. If the employer had complied with its Award consultation obligations, the employee would have been returned to her 3 days per week from early April 2020 and received a wage equal to the JobKeeper subsidy.

For this reason, the FWC concluded the dismissal was unfair and awarded compensation on the assumption that, but for the dismissal, the employment would have continued at for at least another 6 weeks and 5 days.

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