Fair Work Commission finds redundancy was unfair dismissal: SMEs warned about using redundancies

Businesses have been warned to ensure any redundancies they make are genuine and follow the steps set out by the Fair Work Act, following a successful application by an applicant who was not consulted fully before the decision was made.

The latest case also reinforces the attention to detail businesses must place on redundancy announcements, with M+K principal Andrew Douglas warning some SMEs sometimes opt to use them instead of a sacking – which can come back to bite them.

“People think that when they make a redundancy they can avoid all the awkward conversations, but so many times I’ve inherited files where a business has made someone redundant instead of sacking, and the person applies for unfair dismissal.”

“The business thinks they’re just going to be okay…but it fails every time.”

Georg Thomas filed an unfair dismissal case in the Fair Work Commission against his employer, InfoTrak, after being made redundant. Commissioner Roe found Thomas was terminated, with a letter stating the decision was “not a reflection” of his performance.

Thomas argued the company was not a small business entity, saying that although InfoTrak had fewer than 15 employees, another company owned by the managing director employed others. However, the commission dismissed this argument.

The company was able to show the commission it was suffering cashflow problems which led to making the position redundant – even though there had been some discussion between Thomas and the company about his performance.

“The redundancy was motivated, at least in part by a desire to get rid of the Applicant. However, I have no reason to doubt that there were cashflow problems and that the position has been abolished and has not been replaced,” Commissioner Roe said.

But the biggest issue was the company didn’t actually consult with the employee before making the decision about the redundancy. If it had, the commissioner found it might have been able to find a suitable job elsewhere in the company.

Combined with the fact the redundancy wasn’t due to any performance issues, and the employee was consulted, the commissioner found the redundancy occurred but was not genuine.

“The termination of the Applicant was not a genuine redundancy because there was a requirement to consult about the redundancy pursuant to the Award which was not complied with.”

“If that consultation requirement had been met it is possible that the discussions between the parties might have led to alternative solutions. It is possible that the redundancy might have been avoided because the parties agreed upon a productive way for the job to continue without the need for the redundancy.”

The case highlights the thorny issue of redundancy for small businesses. Douglas says too many SMEs believe they can get away with sacking an employee by simply calling the job redundant.

But he emphasises in order to claim a redundancy, as per this particular case, you need to be able to demonstrate the job no longer exists, you had consulted with the employee about the change, and that you actively considered whether it was appropriate to place the employee somewhere else in the company.

“If you have performance issues with someone, you need to just manage it. It’s cheaper than construct a performance issue that simply isn’t true.”

“Businesses find once they get the person out of the company, the problem gets much worse. But then you may have an adverse action against you as well.”

InfoTrak was contacted by SmartCompany, but no reply was available prior to publication.