No, COVID didn’t change the law around unfair dismissals


A recent Fair Work Commission case outlines the danger in assuming business issues caused by COVID-19 change employer obligations.

It was bound to happen. In the chaos of the pandemic an organisation made the assumption that their legal obligations had changed, and so improperly dismissed an ex-employee and subsequently lost an unfair dismissal ruling. 

As outlined in the Fair Work Commission (FWC) decision, the employer MySharedServices (MSS) was facing a tough time, but in trying to make a consultant redundant it failed to do its due diligence both with regards to the nature of a genuine redundancy and a proper dismissal.

A struggling business

MSS is the direct employer of workers for a few related businesses, including LeasePLUS and SalaryPackagingPlus. The consultant’s role was in retaining clients for the former, which manages vehicle leasing arrangements, by helping them roll over their leases or replace them.

The employee was dismissed by phone on 9 April, in the early days of COVID-19 when people and businesses were reeling from the sudden changes brought on by the nationwide lockdowns.

According to the Fair Work Act, when it comes to an unfair dismissal a redundancy is only genuine if the “employer no longer required the person’s job to be performed by anyone because of changes in the operational requirements of the employer’s enterprise”. 

That is, circumstances are such that the business no longer requires a certain role to be performed. This doesn’t mean that none of a particular job will be performed by anyone; on the contrary, it is common for many tasks to be shifted to other employees.

“The decision of LeasePLUS to have the sales retention function performed and absorbed into the existing work of the sales consultants does not mean that the role performed by [the consultant] was still required to be done,” writes commissioner Bissett in her decision.

The company provided strong evidence that COVID-19 was disastrous for business. Its daily sales figures showed a “substantial decline in sales after 23 March 2020 and through April 2020 with a 50 per cent reduction in settlements in new business and a 30 per cent reduction in retention”.

In light of the downturn, its associated companies alerted MSS that three employees were no longer required. Bissett accepted that operational requirements had changed. However, the need for a redundancy is not enough to make a redundancy genuine.

A failure to consult

For a redundancy to be genuine, the Fair Work Act further requires that employers comply “with any obligation in a modern award or enterprise agreement that applied to the employment to consult about the redundancy”. 

In the legislation, this stipulation precedes the need to explore redeploying the worker to other parts of the business.

Both MSS and the employee agreed he was under the Clerks Award, which contains an obligation to “to advise employees of any change that may have a significant effect on their employment, the likely effect of the change and any measures being taken to mitigate the effect of the change”.

See here for more on the obligation to consult with staff about business changes.

As Bissett notes, “significant effect” certainly includes the termination of jobs. Despite this, not only did the company dismiss the employee without consulting him, it also didn’t consult any other employees regarding the business changes caused by COVID-19. 

Bissett confirms the importance of this obligation by demonstrating what consultation might have resulted in. She speculates that staff could have proposed that they work fewer hours so everyone could remain employed, or the employee could have offered to take leave without pay “until it was known how JobKeeper, having been announced on 30 March 2020, would operate and if MSS would be eligible for it”.

Many redundancies are ruled not genuine because the employee could have been redeployed elsewhere in the business. That’s not what happened here. Though later in the decision Bissett explores this possibility – and finds that the later hiring of two sales consultants means there probably was scope for a different role – the failure to comply with the obligation to consult under the Award was on its own enough to make the redundancy not genuine.

The root of the mistakes made with this dismissal come to light in a single line of the decision about the employer’s response to being told about this duty to consult: “During the conference [the managing director] posited that these obligations surely changed with COVID-19 – a position I corrected him on.”

The importance of documentation and fairness 

Of course, just because a redundancy wasn’t genuine doesn’t necessarily mean that a dismissal was unfair. The dismissal must also be “harsh, unjust or unreasonable”.

In establishing that this was the case, Bissett referred to:

  • The failure to talk to employees about the impacts of COVID-19
  • The fact that MSS had 57 employees and “provides human resources services” to its related companies meant it could reasonably be expected to have “effective and fair” procedures
  • The possibility of other roles

The dismissal was conducted over the telephone and no further reason was given except for redundancy. The company had no other reasons for dismissal to point to once it was ruled the redundancy was not genuine – they didn’t raise performance or conduct concerns, for example.

Redundancies and JobKeeper

That the commissioner speculates about how the consultation could have resulted in a consideration of JobKeeper raises a question. If an employer is eligible for JobKeeper (which is changing at the end of this month) but for whatever reason doesn’t register for it, does that change their obligations with regards to redundancies?

In other words, can a questionable business decision, such as forgoing a wage subsidy, make a redundancy not genuine or a dismissal unfair? Michael Byrnes, workplace lawyer and partner at Swaab, says it’s highly doubtful. 

“If a business makes a particular business decision that is not objectively sound or doesn’t have a strong commercial rationale that leads to redundancies that doesn’t mean any resulting redundancies won’t be genuine,” he says.

That being said, the genuine redundancy requirement to consult with employees under relevant Awards or enterprise agreements might talk about JobKeeper. When employees are told there are potential redundancies and are consulted, they have a right to ask whether the company couldn’t apply for the wage subsidy. Byrnes says in that circumstance the employer is obligated to take their thoughts into serious consideration, but they don’t have to follow the advice.

“The FWC generally won’t seek to interfere with the management prerogative of businesses. They won’t second guess or look behind a redundancy decision,” says Byrnes.

Take the example of a chain of cafes that decides to make the drastic and highly dubious change of no longer selling coffee, and instead becoming remedial massage parlours. During consultation, the employees who will be made redundant might rightly say that it seems this will be disastrous for the company. However, so long as the company shows that it is taking this on board, it is still within its rights to ignore the advice. It can argue, “This is the right decision for this company at this time, given what we hope to become.”

This is an important principle. The FWC doesn’t presume to have better business knowledge and insist companies obey it. 

The above decision is a good reminder that though we might be experiencing a “new normal”, and there have been some specific adjustments to the Fair Work Act and Awards, in a broad sense the law remains what it was at the beginning of the year. 

When making significant business changes, employees often have a right to be consulted. If a business fails to do so, any redundancies caused by those changes might be ruled as not genuine.

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This case reinforces the importance for HR practitioners to fully understand and comply with all legislation and other rules.

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No, COVID didn’t change the law around unfair dismissals


A recent Fair Work Commission case outlines the danger in assuming business issues caused by COVID-19 change employer obligations.

It was bound to happen. In the chaos of the pandemic an organisation made the assumption that their legal obligations had changed, and so improperly dismissed an ex-employee and subsequently lost an unfair dismissal ruling. 

As outlined in the Fair Work Commission (FWC) decision, the employer MySharedServices (MSS) was facing a tough time, but in trying to make a consultant redundant it failed to do its due diligence both with regards to the nature of a genuine redundancy and a proper dismissal.

A struggling business

MSS is the direct employer of workers for a few related businesses, including LeasePLUS and SalaryPackagingPlus. The consultant’s role was in retaining clients for the former, which manages vehicle leasing arrangements, by helping them roll over their leases or replace them.

The employee was dismissed by phone on 9 April, in the early days of COVID-19 when people and businesses were reeling from the sudden changes brought on by the nationwide lockdowns.

According to the Fair Work Act, when it comes to an unfair dismissal a redundancy is only genuine if the “employer no longer required the person’s job to be performed by anyone because of changes in the operational requirements of the employer’s enterprise”. 

That is, circumstances are such that the business no longer requires a certain role to be performed. This doesn’t mean that none of a particular job will be performed by anyone; on the contrary, it is common for many tasks to be shifted to other employees.

“The decision of LeasePLUS to have the sales retention function performed and absorbed into the existing work of the sales consultants does not mean that the role performed by [the consultant] was still required to be done,” writes commissioner Bissett in her decision.

The company provided strong evidence that COVID-19 was disastrous for business. Its daily sales figures showed a “substantial decline in sales after 23 March 2020 and through April 2020 with a 50 per cent reduction in settlements in new business and a 30 per cent reduction in retention”.

In light of the downturn, its associated companies alerted MSS that three employees were no longer required. Bissett accepted that operational requirements had changed. However, the need for a redundancy is not enough to make a redundancy genuine.

A failure to consult

For a redundancy to be genuine, the Fair Work Act further requires that employers comply “with any obligation in a modern award or enterprise agreement that applied to the employment to consult about the redundancy”. 

In the legislation, this stipulation precedes the need to explore redeploying the worker to other parts of the business.

Both MSS and the employee agreed he was under the Clerks Award, which contains an obligation to “to advise employees of any change that may have a significant effect on their employment, the likely effect of the change and any measures being taken to mitigate the effect of the change”.

See here for more on the obligation to consult with staff about business changes.

As Bissett notes, “significant effect” certainly includes the termination of jobs. Despite this, not only did the company dismiss the employee without consulting him, it also didn’t consult any other employees regarding the business changes caused by COVID-19. 

Bissett confirms the importance of this obligation by demonstrating what consultation might have resulted in. She speculates that staff could have proposed that they work fewer hours so everyone could remain employed, or the employee could have offered to take leave without pay “until it was known how JobKeeper, having been announced on 30 March 2020, would operate and if MSS would be eligible for it”.

Many redundancies are ruled not genuine because the employee could have been redeployed elsewhere in the business. That’s not what happened here. Though later in the decision Bissett explores this possibility – and finds that the later hiring of two sales consultants means there probably was scope for a different role – the failure to comply with the obligation to consult under the Award was on its own enough to make the redundancy not genuine.

The root of the mistakes made with this dismissal come to light in a single line of the decision about the employer’s response to being told about this duty to consult: “During the conference [the managing director] posited that these obligations surely changed with COVID-19 – a position I corrected him on.”

The importance of documentation and fairness 

Of course, just because a redundancy wasn’t genuine doesn’t necessarily mean that a dismissal was unfair. The dismissal must also be “harsh, unjust or unreasonable”.

In establishing that this was the case, Bissett referred to:

  • The failure to talk to employees about the impacts of COVID-19
  • The fact that MSS had 57 employees and “provides human resources services” to its related companies meant it could reasonably be expected to have “effective and fair” procedures
  • The possibility of other roles

The dismissal was conducted over the telephone and no further reason was given except for redundancy. The company had no other reasons for dismissal to point to once it was ruled the redundancy was not genuine – they didn’t raise performance or conduct concerns, for example.

Redundancies and JobKeeper

That the commissioner speculates about how the consultation could have resulted in a consideration of JobKeeper raises a question. If an employer is eligible for JobKeeper (which is changing at the end of this month) but for whatever reason doesn’t register for it, does that change their obligations with regards to redundancies?

In other words, can a questionable business decision, such as forgoing a wage subsidy, make a redundancy not genuine or a dismissal unfair? Michael Byrnes, workplace lawyer and partner at Swaab, says it’s highly doubtful. 

“If a business makes a particular business decision that is not objectively sound or doesn’t have a strong commercial rationale that leads to redundancies that doesn’t mean any resulting redundancies won’t be genuine,” he says.

That being said, the genuine redundancy requirement to consult with employees under relevant Awards or enterprise agreements might talk about JobKeeper. When employees are told there are potential redundancies and are consulted, they have a right to ask whether the company couldn’t apply for the wage subsidy. Byrnes says in that circumstance the employer is obligated to take their thoughts into serious consideration, but they don’t have to follow the advice.

“The FWC generally won’t seek to interfere with the management prerogative of businesses. They won’t second guess or look behind a redundancy decision,” says Byrnes.

Take the example of a chain of cafes that decides to make the drastic and highly dubious change of no longer selling coffee, and instead becoming remedial massage parlours. During consultation, the employees who will be made redundant might rightly say that it seems this will be disastrous for the company. However, so long as the company shows that it is taking this on board, it is still within its rights to ignore the advice. It can argue, “This is the right decision for this company at this time, given what we hope to become.”

This is an important principle. The FWC doesn’t presume to have better business knowledge and insist companies obey it. 

The above decision is a good reminder that though we might be experiencing a “new normal”, and there have been some specific adjustments to the Fair Work Act and Awards, in a broad sense the law remains what it was at the beginning of the year. 

When making significant business changes, employees often have a right to be consulted. If a business fails to do so, any redundancies caused by those changes might be ruled as not genuine.

1
Leave a reply

avatar
100000
  Subscribe to receive comments  
Notify me of
Mark Shaw
Guest
Mark Shaw

This case reinforces the importance for HR practitioners to fully understand and comply with all legislation and other rules.

More on HRM