Australian ruling finds direct employees take priority over contractors for redeployment

In the case between New South Wales coal mine Helensburgh Pty Ltd and its dismissed employees, the Federal Court of Australia found that the dismissal of 22 employees was not a genuine redundancy because the dismissed employees could have been redeployed to roles that were being performed by contractors.

Employers that are undertaking restructures or redundancies, and engage contractors or consultants, must now consider and be able to prove that it would not have been reasonable to remove contractors and prioritise redeploying employees. The case also raises the question of whether roles performed by labour hire employees - staff provided by labour hire agencies - are expected to give way to redeploy direct employees.

Background to the case

The case was brought by 22 employees of Helensburgh Mine who were dismissed following a decline in revenue and consequent operational restructure during the Covid-19 pandemic.

To manage a decline in consumer demand, the mine moved from a five-crew, seven-day-per-week operation to a four-crew, six-day-per-week model.  These changes meant a reduction in headcount among the mine’s employees and contractors was necessary.  

Two years earlier, Helensburgh Mine outsourced parts of its mining operations, including servicing, inspection and rectification of conveyor systems. During consultation with the affected employees, the union argued that Helensburgh Mine could reduce the impact of its restructure by allowing those that might be retrenched to perform the work of the contractors. Helensburgh Mine did not agree to terminate its subcontracting arrangements and about 98 contractors were performing work in relation to the mine at the time the other mining employees were dismissed.

The 22 applicants were among 47 involuntary retrenchments. They filed unfair dismissal applications with the Fair Work Commission asserting that Helensburgh Mine should have redeployed them into roles being performed by contractors. 

The employer defended the applications by raising a jurisdictional objection that the dismissals were genuine redundancies, which is a complete defence to a claim for unfair dismissal. This required the employer to prove that the redundant roles were not required because of changes to operational requirements, as well as proving that it had consulted in accordance with an applicable award or enterprise bargaining agreement. In addition, the employer was required to prove that it would not have been reasonable in any circumstances to redeploy the employees within the employer’s or an associated entity’s enterprise.

The court’s decision

Having been unsuccessful in its jurisdictional objection and a subsequent re-hearing and appeal, the employer brought an application to the Federal Court of Australia, which it also lost.

In ruling against the employer, the Federal Court noted that possible redeployments should be assessed according to what “would have been reasonable”. In this case, Helensburgh Mine should have analysed the measures it could have taken to redeploy potentially redundant employees.

The court also noted that reducing reliance on contractors was one of those measures, stating: “There is no reason to excise from ‘all [of] the circumstances’ the possibility that an employer might free up work for its employees by reducing its reliance upon external providers. The existence of that possibility in any given case is a circumstance that is capable of informing whether redeployment ‘would have been reasonable’.”

In addition, the court said the test was not intended to establish whether an employer can “redeploy employees into a position that is not currently occupied”. Rather, the reasonableness of redeploying them into to another position – including those occupied by contractors – must be assessed taking into consideration all of the circumstances particular to that employer, and the prospective redundancies.

Lessons for employers

Employers are not required to create roles to offer employees whose roles are redundant. Rather, they are required to consider whether there are any available roles into which affected employees can be redeployed.

This outcome of this case creates doubt for employers as to whether roles performed by contractors – and, by extension, employees engaged via labour hire agencies – are to be considered ‘available’ for the purposes of reasonableness of redeployment.

If an employer chooses to favour contractors over redeploying a redundant employee, they should have defensible reasons for doing so, and be able to demonstrate to the Fair Work Commission why that choice was reasonable.

Otherwise, with reinstatement being the primary remedy for unfair dismissal, an unsuccessful defence of a claim might put the employer in a position of having to reinstate an employee into a position that does not exist.

On 3 May, the employer made an application to the High Court of Australia seeking special leave to appeal the decision.

Co-written by Stefania Silvestro and Rona Goldman of Pinsent Masons.