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Excerpt from this article first published in Human Resources Magazine, Issue 128 - 15 May 2007
In two separate "operational reasons" cases, the Australian Industrial Relations Commission (AIRC) has ruled in favour of the employer, and in one case has found that an employer may dismiss an employee and re-advertise the position at a lower rate of pay.
In the first case, Cruickshank v Priceline, the AIRC found that the company had made 32 positions redundant as part of a restructure. In August 2006 a new CEO was appointed and the company announced a financial discrepancy of $17.2 million. Following this, the CEO initiated an immediate review of Priceline's structure and operations with a view to achieving significant cost savings.
The applicant was employed as one of four "space planners". The space planners were reduced from four to two, as two of the space planners, one of which was the applicant, were earning considerably more than the other two, and it was deemed that significant cost savings were possible.
Following his termination, the applicant found his position advertised at a lower rate of pay. He argued that where an employee is replaced by a new employee in exactly the same duties, that is a sham in breach of the Workplace Relations Act. Priceline argued that the termination was for a "genuine operational reason", and that the claim should be struck out on that basis.
Commissioner Eames found that "the Applicant's termination resulted from the respondent's financial difficulties and the subsequent decision to reorganise its structure, and on that basis at least part of the decision to terminate the Applicant was for a genuine operational reason. I am not satisfied there is any evidence to substantiate a "sham" or that the Applicant was targeted inappropriately".
Commissioner Eames further acknowledged that the question of a "valid reason" need not be considered, and that the concept of an operational reason is much broader than the idea of an operational requirement, the ground which existed in previous unfair dismissal provisions.
In the second case, Duncan v Altshul Printers, the employer was experiencing a significant downturn in sales and profits, and as a result an organisational restructure was undertaken in an attempt to reduce costs. Nine employees, including the applicant, a part-time HR Manager, were informed that they would be made redundant. The employer also re-organised work and restructured remaining positions within the organisation to meet its operational needs.
The applicant argued that although the employer was facing financial difficulties, the following factors indicated that the termination was not for a "genuine operational reason" as defined by the Act:
the employer's business was improving;
the employer had acquired a substantial new client and was prepared to expend considerable new expenses which included the hiring of new staff;
the applicant had a full workload and was working in excess of the required 12 hours per week; and
there was no one else within the organisation to attend to employee relations matters.
In deciding whether the termination was for a genuine operational reason, Commissioner Lewin considered the intention of Parliament in enacting the Workplace Relations Amendment (Work Choices) Bill 2005, was that "no claims can be brought where the employment has been terminated because the employer genuinely no longer requires the job to be done" and "a mere assertion by an employer that a termination was for operational reasons will not be sufficient to render an unfair dismissal application invalid".
Commissioner Lewin went on to conclude "I am satisfied that the operational reason for the termination of Ms Duncan's employment was of an economic and structural nature related to the respondent's business. Moreover, the reason was genuine, that is to say, true, real authentic and properly so called".
He said that the "merit, wisdom or appropriateness of the respondent's decision is not an issue for determination only its genuineness".
HR Tips
These cases are significant as they indicate that the grounds upon which an employer may make an employee redundant have expanded with the introduction of WorkChoices.
However when considering redundancies, employers should be aware that they will be protected from unfair dismissal claims only where the termination of employment is due to genuine operational reasons, being reasons of an economic, technological, structural or similar nature relating to the employer's undertaking, establishment, service or business, or a part of it. Where there are multiple reasons for the termination, it is sufficient that the operational reason is only one of the reasons.
These cases demonstrate that as part of a genuine operational reason such as a restructure to reduce costs, an employee may be dismissed and the position readvertised at a lower rate of pay, however extreme care must be taken where any terminations of this nature are considered. For example, an employer may be able to take such action where the termination is part of a restructure to reduce costs, but not where the termination is only a result of performance issues involving the employee.
Kelly Godfrey
Senior Associate and Notary Public
Adam Moulton, Lawyer
Australian Business Lawyers
