The High Court of Australia has issued a significant decision confirming that the Fair Work Commission (FWC) can engage in an extremely broad inquiry when determining whether it was reasonable for an employer to redeploy employees who would otherwise have been made redundant, in the context of an unfair dismissal claim. This issue is critical to whether the 'genuine redundancy' defence to an unfair dismissal claim is available.

Factual background

Helensburgh Coal employed many employees at the Metropolitan Coal Mine in Wollongong. In addition to that direct workforce, several contractors were engaged to perform various tasks at the Mine.

As a direct result of the COVID-19 pandemic and its impact on the price of coking coal, Helensburgh Coal announced a preliminary decision to eliminate one day of production and to consolidate its workforce into four, rather than five, crews. As part of the consultation process that followed, Helensburgh Coal committed to insourcing certain parts of the work being carried out by a contractor called Nexus Mining. However, Helensburgh Coal did not agree to insource the balance of the Nexus work or the work being undertaken by another contractor called Mentser. Following the restructure, there were eight Mentser employees and approximately 90 Nexus employees (mostly on a job-share arrangement) working at the Mine.

Ultimately, 90 Helensburgh Coal employees were made redundant in June 2020, 47 by way of forced redundancy. 40% of the contractor workforce at the Mine were also let go.

22 of the former Helensburgh Coal employees pursued an unfair dismissal claim in the FWC on the basis that they should have been redeployed to perform the work being performed by Nexus or Mentser employees.

The 'genuine redundancy' exception

Whether dismissals were 'genuine redundancies' must be addressed as a threshold matter before dealing with the merits of any unfair dismissal application. Under the Fair Work Act:

(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:

(a) the employer's enterprise; or

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

The issue ultimately was whether there were reasonable redeployment opportunities which Helensburgh Coal should have deployed its redundant employees into.

The High Court's decision

In their joint judgment, Chief Justice Gageler and Justices Gordon and Beech-Jones concluded that:

Redeployment does not require an existing vacancy, nor does the concept exclude or prohibit some change to how an employer uses its workforce to operate its enterprise that facilitates redeployment.

The FWC's inquiry is directed to considering what, at the time of the dismissal, could have been done to redeploy the redundant employee within the enterprise.

'All of the circumstances' in section 389(2) is 'unmistakenly broad', and relevant considerations for the inquiry might include:

• The attributes of the otherwise redundant employee, such as their skill set, experience, training and competencies.
• Those attributes of the employer's enterprise that concern its workforce, such as:

• its policies, including appetite for risk, plans, processes, procedures;
• business choices, such as a decision to terminate a contract in the future and a decision to persist with using contractors;
• decisions regarding the nature of its workforce, such as whether it has a blended workforce of both employees and contractors;
• contract terms, such as whether they are "as needs" contracts and whether the contractors are on daily work orders or on some long-term fixed commitment;
• practical concerns, such as whether redeployment would require the employee to undergo further training; and
• anticipated changes, such as another employee going on parental leave or retiring, a contract expiring, or a position being performed by a contractor while waiting for an employee to be hired.

The plurality concluded that the FWC is permitted to consider 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. If the FWC considers that such changes were reasonable in all the circumstances, the defence of 'genuine redundancy' may not be made out.

Both Justices Edelman and Steward wrote separate judgments, generally agreeing with the position of the plurality. However, both Justices acknowledged that there are limits to the FWC's enquiries. Justice Steward went further to conclude that in seeking to answer the question of reasonable redeployment that:

'…it must be accepted that it would be difficult to conclude that redeployment is reasonable if that meant that another person with a job, for which there is a business need, has to make way for someone else whose job was no longer needed. It would make very little sense in the ordinary case to conclude that it was reasonable to redeploy a person by terminating the permanent employment of another person.

No different conclusion might be expected if the other person were employed by a contractor, or if they were themselves independent contractors or casual labourers. Redeployment of a person at the expense of another person's position would be a very grave step to take and would be unlikely to be a reasonable outcome.'

Implications of the decision

The decision has potentially broad ramifications for any organisations considering restructures and redundancies. The breadth of enquiry granted to the FWC means that all of an entity's operational and staffing arrangements, including those within its related entities and with contractors, may be subject to detailed scrutiny and challenge by employees and unions in an unfair dismissal claim arising out of redundancies.

It also means that the consideration of redeployment opportunities is not limited to roles or work which are 'available' and not already being performed by someone else. Instead, the search extends to looking at all possible options the employer could have done differently apart from making an employee redundant.

Whilst each matter will need to be dealt with on their merits, the inevitable result of this decision is that single members of the Fair Work Commission may increasingly exercise discretion to substitute their own views of what is 'reasonable' for those of the responsible employer.

Mitigating risk

The decision is not authority for the proposition that displacement of contractors will be reasonable in any circumstances. There is in fact powerful commentary to the effect that this would very rarely be reasonable.

Employers can mitigate the risk by ensuring they have the following in place:

• A comprehensive labour plan which deals specifically with the mix between direct employment and contractors, supported by a clearly defined rationale for each contractor deployment. The plan should be regularly updated.
• At the point of downsizing – a clearly documented analysis of the future needs of the operation dealing both with employees and contractors, with a documented and fully explained variation of the post-reduction labour plan which articulates the business rationale for the retention of each contractor and their personnel.

If you would like to discuss the potential impact of this decision for your business, please contact us.