Australian employers face redundancy complexities after redeployment ruling

Melbourne-based Ben McKinley and Stefania Silvestro of Pinsent Masons were commenting after a new ruling by the Australian High Court, which confirms that the Fair Work Commission (FWC) – the Australian workplace tribunal – has authority to inquire “whether an employer could have made changes to how it uses its workforce to operate its enterprise so as to create or make available a position for an employee who would otherwise have been redundant”.

“This is a change from the previously understood view that employers are only required to consider suitable vacant roles as redeployment options for employees they otherwise intend to make redundant,” McKinley said.

“This is a significant decision for employers implementing organisational restructures and redundancies. It now may be that direct employees take precedence over contractors, consultants and labour hire employees, who may have their engagements terminated so a permanent employee whose own role has been made redundant can take their place,” he said.

Silvestro added: “The decision creates uncertainty for employers whose workforce planning and assessment of redeployment options will be scrutinised, and potentially overturned, by the FWC, which can replace the employer’s assessment of workforce composition with its own.”

The High Court’s ruling came in a case that originated 2020, when Helensburgh Coal restructured its operations following a Covid-19-related financial downturn. 

Helensburgh Coal terminated the employment of 47 permanent employees due to redundancy, of which 22 brought an unfair dismissal claim alleging their redundancies were not genuine. They argued that it would have been reasonable for Helensburgh Coal to have redeployed them to roles performed by contractors, which the company engaged through an agency company under a service agreement, at the same site.

Under Australian employment law, implementing a “genuine redundancy” is a complete defence to an unfair dismissal claim. It requires the employer to show that: the affected employee’s role was no longer required to be performed by anyone; that it has consulted with the employee in accordance with any obligations under an applicable industrial instrument; and it would not have been reasonable in all the circumstances for the employee to be redeployed within the employer’s business – including that of an associated entity of the employer.

As reported by Pinsent Masons last year, at earlier stages of the dispute, the FWC and Full Federal Court of Australia determined that the redundancies were not genuine, because they considered the employees could have been redeployed to roles that were being performed by contractors.

Helensburgh Coal’s appeal to the High Court focused on one important issue: when inquiringwhether it would have been reasonable in all the circumstances for a person to be redeployed within the employer's enterprise, can the FWC consider whether the employer could have made changes to how it uses its workforce to operate its enterprise?

Helensburgh Coal argued that the FWC is not permitted to consider possible changes to the ways in which an employer conducts its enterprise, including the option of replacing contractors with employees. In other words, its position was that the FWC cannot substitute its own view in place of the employer’s view on the matter – a position which is consistent with other aspects of the unfair dismissal regime where the FWC does not “stand in the shoes” of the employer to determine what it would have done if it were in the employer’s position.

However, the High Court disagreed.

According to the court, in considering options for redeployment, employers must look beyond merely what positions are vacant. It said that, as the inquiry is whether redeployment "would have been reasonable", this directs the FWC to consider whether, at the time of the dismissal, it would have been reasonable for the employer to redeploy the employee to perform other work within the employer's enterprise. The court said whether it would have been “reasonable” is an objective assessment that is to be made by the FWC.

In addition, the High Court found that the requirement that consideration be given to “all of the circumstances” is to be interpreted broadly, requiring assessment of the skills, experience, competencies of the employee, as well as the employer’s workforce plans, procedures, workforce composition and risk appetite.

The High Court said: “The language of [Section 389 of the Fair Work Act 2009, which deals with the requirements for genuine redundancy] does not prohibit asking whether an employer could have made changes to how it uses its workforce to operate its enterprise so as to create or make available a position for a person who would otherwise have been redundant. None of the statutory language, context or purpose supports such a proscriptive rule.”

The decision means that the FWC can examine and form its own view about the employer’s redeployment decisions, including assessing if redeployment into roles currently occupied by other workers would have been reasonable.