Key learnings for employers

This decision appears to expand and clarify the consultation requirements on employers prior to a redundancy termination.

The decision provides guidance on what consultation may involve, who should be included and how long it may take.

Small business employers who are not obliged to make redundancy payments under the National Employment Standards may be caught in other ways to make additional payments if a redundancy is challenged in Fair Work.

Utilising the Small Business Fair Dismissal Code Checklist does not avoid the obligation to consult appropriately.

Mr Zhang, a sales representative, was employed by Orientile Pty Ltd for a period of 15 years commencing his employment soon after the business commenced. Since he was employed two further sales representatives were employed the latest in mid-2024.  

On 28 February 2025 Mr Zhang was called to a meeting with the owner where he was made redundant and terminated that day with the owner stating the business needed to cut costs and could no longer afford 3 sales representatives. The small business employed 9 persons resulting in Mr Zhang not receiving any redundancy payments in accordance with the National Employment Standards. Mr Zhang filed an application for unfair dismissal stating his termination had not been genuine.  (Decision – U2025/3076)

In examining the termination process Deputy President (DP) Slevin looked at whether the redundancy was in fact genuine. One of the three key factors under the Fair Work Act determining whether a redundancy was genuine is whether the employer complied with any consultation obligations in the relevant Modern Award. Despite the owner claiming that the meeting on 28 February was part of the consultation process the DP found that the consultation requirements under the Award, concerning major workplace change (which included redundancies), had not been complied with. Therefore, the termination had not been a genuine redundancy within the meaning of the Act.

The employer also had claimed that it was covered by the Small Business Fair Dismissal Code Checklist and did not need to consult. The DP examined the code and found that it does not cover redundancy situations meaning the Act (and the Award consultation requirements) must be complied with in respect to redundancies regardless of business size.

The DP then looked at whether there was a valid reason to terminate. Given that the employer had claimed financial reasons to reduce the number of sales representatives the DP acknowledged there was a valid reason due to a change in the operational requirements of the business.  (In his decision the DP did not question why the employer had selected Mr Zhang for redundancy given he was the most experienced of the three representatives with the last sales representative having been employed just 8 months prior.)

Other factors looked at in relation to the termination included:

• The speed of the employer’s decision. The decision to remove one sales representative and the termination was made on the same day.
• There had been no prior issues raised about the capacity or performance of Mr Zhang.
• The failure to engage in a consultation process which involved Mr Zhang and the other sales representatives to explore the options of job sharing, voluntary redundancy or the development of a selection criteria for retrenchment.
• Mr Zhang had been paid his minimum entitlements on termination. He was not willing to entertain an additional payment for his long and loyal service and that his efforts had allowed the owner to grow his business since 2010.
• The employer had not contemplated the adverse impact of the dismissal on Mr Zhang and his personal financial circumstances.

The DP stated that, despite there being a valid reason to make Mr Zhang’s position redundant, all these factors ‘weigh in favour of the dismissal being harsh unjust or unreasonable’.

Compensation

Having found the redundancy termination had been harsh, unjust and unreasonable the DP turned his attention to the remedy. After deciding that reinstatement was not an option given the original need to make the position redundant had not changed, the DP considered a compensation payment. Taking into account the above dot points, with particular attention to Mr Zhang’s 15 years’ service, the DP stated …..

“The amount of 12 weeks seems appropriate in this case to take into account his long and loyal service and his substantial contribution to the growth of the business as well as to take into account the loss of livelihood occasioned by his dismissal, the need to find alternative income and the time it will take to do so.”

The DP also stated

‘Such a payment is justified as a matter of fairness as the failure of Orientile to consult and its failure to make efforts to mitigate the adverse impacts of its decision…’

Payment for Estimated Consultation Period

The Deputy President then discussed an additional payment, taking into account the duration of what would have been a proper consultation period. He stated that 4 weeks would have been an appropriate time to comply with the Award to provide Mr Zhang and the other two sales representatives with all relevant information about the changes needed to save costs. This included the nature of the proposed changes (being the reduction of one sales representative position), the extra work the remaining sales representatives would be taking on and the likely affects this would have on them and what measures had been considered to avoid or reduce the adverse impact of the changes. Once they had received this information the three sales representatives would need time to consider the changes and make suggestions. The employer would need then need time to consider their responses and suggestions. Further discussions then needed to occur about the proposed redundancy and the impact on the individual employees – both the representative who would lose their job and the two that remained. (Paraphrased)

The total amount of compensation awarded to Mr Zhang amounted to $31,652.  

This decision appears to have expanded and clarified the obligations on employers (especially small business employers) in relation to redundancy terminations. It should be noted here that putting aside the failure to consult, the employer had complied with the minimum legal requirements under the Act and the Award. It is unlikely the employer will appeal this decision. Given this is a decision from a Deputy President it will carry substantive weight for future similar decisions.

Employers considering redundancy terminations are advised to seek professional advice to clearly understand their consultation obligations.

Kind Regards
Michael Schmidt
M 0438 129 728
[email protected]
www.hunteremployeerelations.com.au

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