Fair Work Act 2009

s.394 - Application for unfair dismissal remedy

Summary - jurisdictional objection - whether genuine redundancy for purposes of s.389 - whether operational reasons and whether positions no longer required - non compliance with modern award consultation requirements - associated entity - objection dismissed - referral to arbitration.

[1] Mr Richard Pankratz ("the Applicant") on 2 October 2012 made application under section 394 of the Fair Work Act 2009 ("the Act") seeking an unfair dismissal remedy in relation to his dismissal by Regional Housing Limited ("the Respondent"). The Respondent is incorporated and a registered public benevolent institution. That is, it is a not-for-profit organisation. Its principal function is to source or facilitate access to low cost accommodation for those in need in the Bundaberg region. The Respondent is a smaller employer, employing some 20 to 25 employees. The Applicant's position appeared to involve property maintenance-related duties, and was claimed by the Respondent to be titled 'Asset Maintenance Officer'.

[2] On 28 September 2012, the Respondent allegedly made the Applicant redundant.

[3] The Respondent contends that the Applicant is not a person who was protected from unfair dismissal for reason that the Applicant's dismissal was a case of genuine redundancy for the purposes of s.389 of the Act.

[4] Section 389 of the Act provides as follows:

(1) A person's dismissal was a case of genuine redundancy if:

(a) the person's 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; and

(b) the employer has complied with any obligation in a modern award or enterprise agreement that applied to the employment to consult about the redundancy.

(2) A person's dismissal was not a case of genuine redundancy if it would have been reasonable in all the circumstances for the person to be redeployed within:

(b) the enterprise of an associated entity of the employer.

[5] The Explanatory Memorandum to the Fair Work Bill 2008 provides as follows in relation to s.389 of the Act:

1546. This clause sets out what will and will not constitute a genuine redundancy. If a dismissal is a genuine redundancy it will not be an unfair dismissal.

1547. Paragraph 389 (1)(a) provides that person's dismissal will be a case of genuine redundancy if his or her job was no longer required to be performed by anyone because of changes in the operational requirements of the employer's enterprise. Enterprise is defined in clause 12 to mean a business, project or undertaking.

1548. The following are possible examples of a change in the operational requirements of an enterprise:

• a machine is now available to do the job performed by the employees;

• the employer's business is experiencing a downturn and therefore the employer only needs three people to do a particular task or duty instead of five; or

• the employer is restructuring their business to improve efficiency and the tasks done by a particular employee are distributed between several other employees and therefore the person's job no longer exists.

1549. It is intended that a dismissal will be a case of genuine redundancy even if the changes in the employer's operational requirements relate only to a part of the employer's enterprise, as this will still constitute a change to the employer's enterprise.

1550. Paragraph 389 (1)(b) provides that it will not be a case of genuine redundancy if an employer does not comply with any relevant obligation in a modern award or enterprise agreement to consult about the redundancy. This does not impose an absolute obligation on an employer to consult about the redundancy but requires the employer to fulfil obligations under an award or agreement if the dismissal is to be considered a genuine redundancy.

1551. Subclause 389 (2) provides that dismissal is not a case of genuine redundancy if it would have been reasonable in all circumstances for the person to be redeployed within the employer's enterprise, or within the enterprise of an associated entity of the employer (as defined in clause 12).

1552. There may be many reasons why it would not be reasonable for a person to be redeployed. For instance, the employer could be a small business employer where there is no opportunity for redeployment or there may be no positions available for which the employee has suitable qualifications or experience.

1553. Whether a dismissal is a genuine redundancy does not go to the process for selecting individual employees for redundancy. However, if the reason a person is selected for redundancy is one of the prohibited reasons covered by the general protections in Part 3-1 then the person will be able to bring an action under that Part in relation to the dismissal."

[6] Section 389 of the Act requires a series of stepped findings.

[7] It is necessary firstly to determine whether there was a redundancy situation, for purposes of section 389(1)(a) of the Act. Whether or not a redundancy situation exists for purposes of s.389(1)(a) of the Act requires the establishment of two related facts. The initial fact concerns whether certain operational circumstances were in existence that justified the action purported to be taken in relation to the position. The further fact that needs to be established is whether the employer no longer required the position or job to be performed by any one (such that the position or job was not simply filled by another person).

[8] Once these facts are established, it is then necessary to determine whether the employer complied with any obligation in a modern award or enterprise agreement that applied to the employment to consult about the redundancy (for purposes of s.389(1)(b) of the Act).

[9] Lastly, it is necessary to determine whether it would have been reasonable in all the circumstances for the person dismissed to have been redeployed within the employer's enterprise (s.389(2)(a) of the Act), or in the enterprise of an associated entity of that employer (s.389(2)(b) of the Act).

Section 389(1)(a) of the Act : whether redundancy situation

[10] It appears to be an agreed fact that the Respondent faced a budgetary shortfall in 2012.

[11] From at least July 2012, the Respondent began implementing initiatives designed to achieve budgetary savings. This included reducing staff travel and training opportunities, vehicle benefits, printing and stationary, to name a few of the measures implemented.

[12] It contended the shortfall in the annual budget was in the vicinity of $300,000.

[13] The evidence led in this matter demonstrated that the Respondent had experienced a number of external financial and revenue shocks in 2012, which came on top of a series of losses (mostly in the region of $100,000) in the previous two financial years. While it is never possible to determine with great accuracy the extent to which internal management capabilities contribute to the way in which an organisation is able to respond to such shocks, that is not a matter to which I need to direct my enquiries. My enquiries, instead, are directed solely to the purpose of establishing the financial circumstances of the Respondent such that they provide a reason (redundancy) for the dismissal of the Applicant (that is unrelated to the Applicant's capacity, conduct or performance of his duties).

[14] In February 2012 the Respondent was required to accommodate a significant increase in its insurance premiums. This increase appears in part to be in response to the withdrawal of numerous insurers from the regional Queensland market following the natural disasters of the previous year.

[15] In any event, the Respondents insurance premiums increased by 40% or approximately $70,000 per annum.

[16] Other changes were made to the manner in which housing assets owned by or for which the Respondent was responsible were required to be maintained by it and not by an external government body. The maintenance and repair bill the Respondent thereafter had to absorb amounted to some $350,000-$400,000 per annum.

[17] The Respondent was advised of these changes in August 2012.

[18] During 2012 the Respondent was also required to address the impact of the Fair Work Transitional Provisions and Consequential Amendments) Amendment Regulation 2012 (No.1) ("the Regulation").

[19] The Regulation gave rise to a $260,000 back pay obligation and ongoing salary increases of $400,000 per annum. The Respondent was given formal notice of the promulgation of the Regulation by the Fair Work Ombudsman in February 2012. The evidence before me was that the supplementation for the mandated pay increase only covered some 20% of the new financial obligation.

[20] On 31 October 2012 the Tenant Advice and Advocacy Service - which was a service for which the Respondent received some $150,000 per annum - was withdrawn mid-program. The program's changed operation was advised to the Respondent in July 2012. It was put that this money also provided an element of cross subsidy for other operational and overhead expenses. This program was revived by supplementation received from the Federal Government, but this new funding stream was not notified until after the decision to make the Applicant redundant, and even then it had a finite life.

[21] The Respondent also included in its evidence correspondence from UHY Haines Norton, the chartered accountants responsible for the auditing of the Respondent's financial statements. That correspondence confirmed the deficits in the previous financial years including the budgeted deficit of the 2013 financial year.

[22] The correspondence from the chartered accountants indicated that the forecast deficit ($238,000) was "clearly attributable to" the commencement of the Regulation referred to above; increasing local authority rates for the portfolio of properties managed by the Respondent; and increased insurance premiums as a result of the insurance industry increasing premiums owing to the losses incurred from the natural disasters during 2011.

[23] The correspondence also indicated that there was no material increase in funding available to the organisation. The correspondence from the chartered accountants further stated that in light of these factors management had advised of their plan for a restructure of the organisation which would result in a number of redundancies. The revised budget prepared by management indicated that the structure could result in a surplus of some $27,000 for the 2013 financial year (representing an improvement of $265,000 on the original projected deficit).

[24] It appears that in the second half of 2012, therefore, it became abundantly clear to the Respondent that its financial circumstances were dire and that it needed to take corrective action in order to ensure that the organisation was sustainable into the future.

[25] Viewed objectively, and putting aside matters for which there might be proper internal management responsibility, the overall financial position in which the Respondent found itself in the latter half of 2012 provides sufficient explanation for the decision to make various changes to its workforce structure. Apart from the redundancy of the chief executive officer, five other full-time positions were made redundant. One of these was the position of the Applicant.

[26] The requirements of s.389(1)(a) of the Act are therefore satisfied - there was a demonstrable redundancy situation that had arisen.

[27] Further, on the evidence before me, the Respondent formed the view that the Applicant's position was no longer required. This is not to say that a number of the various tasks or duties comprising the Applicant's position were no longer required to be performed. They most likely were. But the Respondent did not require these tasks to be performed through an identifiable position by a dedicated person. The various tasks and duties were re-allocated amongst other employees.

[28] The Applicant was of the view that such circumstances, where his duties are re-assigned amongst other employees, do not constitute a redundancy. However, the Explanatory Memorandum to the Act makes clear operational changes of this kind are contemplated within the statutory notion of a redundancy. Item 1548 of the Explanatory Memorandum to the Act provides relevantly as follows:

1548. The following are possible examples of a change in the operational requirements of an enterprise:

• the employer is restructuring their business to improve efficiency and the tasks done by a particular employee are distributed between several other employees and therefore the person's job no longer exists.

Section 389(1)(b) of the Act: whether any required consultation was undertaken

[29] It was an agreed fact that the work performed by the Applicant was covered by the Social, Community, Home Care and Disability Services Industry Award 2010 ("the modern award").

(a) Where an employer has made a definite decision to introduce major changes in production, program, organisation, structure or technology that are likely to have significant effects on employees, the employer must notify the employees who may be affected by the proposed changes and their representatives, if any.

(b) Significant effects include termination of employment; major changes in the composition, operation or size of the employer's workforce or in the skills required; the elimination or diminution of job opportunities, promotion opportunities or job tenure; the alteration of hours of work; the need for retraining or transfer of employees to other work or locations; and the restructuring of jobs. Provided that where this award makes provision for alteration of any of these matters an alteration is deemed not to have significant effect.

(a) The employer must discuss with the employees affected and their representatives, if any, the introduction of the changes referred to in clause 8.1, the effects the changes are likely to have on employees and measures to avert or mitigate the adverse effects of such changes on employees and must give prompt consideration to matters raised by the employees and/or their representatives in relation to the changes.

(b) The discussions must commence as early as practicable after a definite decision has been made by the employer to make the changes referred to in clause 8.1.

(c) For the purposes of such discussion, the employer must provide in writing to the employees concerned and their representatives, if any, all relevant information about the changes including the nature of the changes proposed, the expected effects of the changes on employees and any other matters likely to affect employees provided that no employer is required to disclose confidential information the disclosure of which would be contrary to the employer's interests.

[31] There is no argument that the modern award does not apply to the Applicant. Its coverage clause provides as follows:

This industry award covers employers throughout Australia in the:

[32] The Respondent appears to have met with the employees over the period 21 August to 30 August 2012. The Respondent spoke in broad terms about the challenges before it and indicated the dire nature of its financial circumstances. The Respondent's employees no doubt were left with a firm impression that changes would need to be made to the way in which the business was operated in the future. The Applicant understood redundancies might follow, though he did not believe his own position was under threat.

[33] However, I do not see in the evidence any demonstration of the Respondent having done any of the things required by clause 8.2(c) of the modern award in relation to the discussions it had regarding the redundancies:

For the purposes of such discussion, the employer must provide in writing to the employees concerned and their representatives, if any, all relevant information about the changes including the nature of the changes proposed, the expected effects of the changes on employees and any other matters likely to affect employees provided that no employer is required to disclose confidential information the disclosure of which would be contrary to the employer's interests.

[34] Indeed, I do not see that the Applicant was advised that prospectively he was to be made redundant before such time as he was informed that he was to be made redundant. That is, in effect, he had no opportunities to discuss this situation or the alternative options with his employer before such time as his employment was ceased. It would appear difficult in such circumstances for the Respondent to have given effect to clause 8.1(b) of the modern award. Nor do I see in the evidence any effort on the part of the employer to provide in writing to the Applicant, let alone other employees similarly affected by the redundancies, the information stipulated in the modern award, as cited immediately above.

[35] I acknowledge that the Respondent took steps to explain its financial circumstances to its workforce at a collective level. But these explanations lacked the specificity in respect of the obligation to consult under the modern award. Nothing was presented to the Applicant in writing and he did not know his position had been made redundant until such time as it was communicated to him as a fact (and he was dismissed).

[36] Because of my findings in this regard, the jurisdictional objection under s.389 of the Act is dismissed. The application under s.394 of the Act will now be considered for purposes of an arbitration in relation to the requirements of s.387 of the Act.

[37] Before doing so, for reason of completeness, I note that for purposes of s.389(2) of the Act the Respondent did offer the Applicant alternative employment. There were no full or part time positions available in the Respondent's organisation (given its size). Further, whilst an associated entity did exist at the time, it was in relation to a redundant business that did not trade, had no financial affairs and had no employees.

[38] Mr Hanna did offer the Applicant - because of his prior experience in the building industry - a position as a contractor to undertake property management work. The Applicant refused this offer for reasons that he did not wish to go back on the "tools", so Mr Hanna claimed.

Printed by authority of the Commonwealth Government Printer