Redundancies and the events leading up to them – restructures, downsizing, off-shoring – happen. And unlike the hurdles presented in the past, these days the law is quite accommodating in insulating employers from employee claims regarding redundancies. Where they are genuine, employers are generally safe in effecting redundancies so long as they comply with the procedural steps of notification and consultation. Surprisingly, however, many employers still get notification and consultation wrong, and a relatively safe procedure ends up having significant legal consequences…
The following is a very basic overview of the law, but contains a very important message for all employers: don’t stumble over the easy part of a redundancy by getting it wrong!
Decision to Implement “Major Change” vs Consequences of “Major Change”
Employees who are covered by modern awards or enterprise agreements have a right to be notified and consulted about their employer’s decisions to implement “major change”. A “major change” is essentially anything that may have a significant impact on a worker’s employment. Whenever redundancies eventually occur, a “major change” will have occurred well beforehand (for example, a decision by a car manufacturer to stop building a particular type of car will be a decision about “major change”. The redundancies which may arise as a result of that decision is merely a later consequence of the “major change”).
The vital thing to take-away is that the notification and consultation obligations are triggered once the definite decision about the major change has been taken by the employer. The employer is required to notify the employees (verbally and in writing) of the non-confidential details of the major change. A period of consultation can then take place in which the employer and employees can discuss the potential or likely impacts of the major change on their employment, and mitigation strategies to avoid redundancies or other ramifications.
Unfortunately, employers often do not notify or consult with their staff after major change decisions are made, and in fact only notify staff once to inform them of redundancies. By this time the horse has bolted, and the time for complying with the notice and consultation obligations around “major change” has gone. And that’s where employers can suddenly find themselves exposed.
A recent case in the Federal Circuit Court serves as a typical example of how employers can get it wrong – and what the consequences can be. In Construction, Forestry, Mining and Energy Union v Whitehaven Coal Limited  FCCA 2657, Whitehaven made a definite decision to change the way it operated (by mining coal which required less effort and cost to extract) which as a result would reduce the equipment and personnel required. Whitehaven then on the same day notified a number of employees that their positions were being made redundant. Some of these employees were covered by an enterprise agreement and therefore had “major change” notification/consultation entitlements. Whitehaven had incorrectly been of the belief that under its notification/consultation obligations it could come to a decision to implement redundancies and then consult with its employees as to the affects of the redundancy decision that had already been made.
Outcome – Fines and Other Risks
The Federal Circuit Court held that Whitehaven had not complied with the consultation provisions as it did not provide any opportunity to discuss the operational changes with employees affected prior to the decision being made to implement the redundancies. The Court penalised Whitehaven $19,000 for its failure to consult.
The Court also penalised Whitehaven a further $1,000 for failing to notify Centrelink in advance of the redundancies (which is also an obligation set out in the Fair Work Act).
While it was not an issue that arose in this case, the failure to consult would also have stripped Whitehaven of an otherwise rock-solid defence against unfair dismissal claims brought by any of the retrenched staff. The law protects employers from unfair dismissal claims when the terminations are due to redundancy – but this protection disappears if the notification/consultation obligations are not followed.
Given the financial and legal risks involved, it is imperative that employers understand (or get legal advice on) their consultation obligations before making decisions about “major change” in the workplace. And definitely before taking any decisions about redundancy. The law in this area is a minefield, but it can be safely negotiated with sufficient prior planning, and the savings will be significant.