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Excerpt from this article first published in Human Resources Magazine, Issue 167 - 9 December 2008
In the present economic climate, the prospect of workforce downsizing inevitably starts to feature in many employers’ strategic thinking. In this context, the recent decision of Campbell v Encyclopaedia Britannica Australia Ltd [2008] NSWSC 1178 is a salutary reminder of the importance of employers properly understanding (as well as seeking to comply with) their redundancy obligations before making decisions that may result in a reduction of the workforce.
In Campbell, Encyclopaedia Britannica Australia Ltd (Encyclopaedia Britannica) was sued by a former employee, David Campbell, for damages for breach of contract. One of Mr Campbell’s claims was that the termination of his employment was due to redundancy. He sought damages in respect of unpaid severance and related pay.
At the time of termination, Mr Campbell held a dual position of Managing Director as well as the position of Director-Sales Asia Pacific. His contract of employment for the position of Managing Director provided for a redundancy package equivalent to nine months salary including three months severance pay and three months notice.
The evidence indicated that Mr Campbell’s supervisor became concerned about Mr Campbell’s poor performance, and this was alleged to be a motivating factor in the decision to terminate the employment. The supervisor was, however, concerned at the generous redundancy package payable to Mr Campbell and therefore wanted to ensure that Mr Campbell’s termination was not considered a redundancy.
Following Mr Campbell’s termination, his position duties and obligations were redistributed. One individual took on the position of (Acting) Managing Director and another person took the position of Director-Sales Asia Pacific (with reduced responsibilities).
Encyclopaedia Britannica argued that there was no redundancy as Mr Campbell was terminated because of poor performance. However, the Supreme Court found that while Encyclopaedia Britannica was motivated to remove Mr Campbell because of performance, in so doing it made the position he held redundant through the restructure. Accordingly, Mr Campbell was entitled to the severance package for redundancy.
This situation was arguably partly brought about by the uncertainty in the redundancy obligations and entitlements arising from the employee’s employment contract. Uncertainty in the redundancy obligations and entitlements is likely to be a trigger for costly future disputes.
Carefully consider the nature and extent of the redundancy obligations and entitlements, whether that be under an award, enterprise agreement, contract of employment or company policy. The scope of the employer’s redundancy obligations and entitlements may arise from one or a combination of all of these instruments.
Review existing redundancy company policy for uncertainty and deficiencies. If uncertainty or deficiencies are present, make the necessary changes to the policy prior to rolling out any redundancies. This may avoid potentially costly future disputes. Typical points of uncertainty include whether the redundancy is expressed to occur when the ‘employee is made redundant’ or the position is made redundant’. The latter reflects the accepted meaning of redundancy, being when the employer no longer requires the position held by the employee to be performed by anyone. Another source of uncertainty is that the policy makes reference to redundancy entitlements without stating the nature of the entitlements or a reference to a particular instrument that sets out the entitlements.
Make sure that all required elements of the redundancy process are followed, such as consultation with the applicable union or consideration of redeployment opportunities, before effecting redundancy. The policy or instrument that sets out the redundancy obligations should set out what is required by the redundancy process.
Sudhir Sivarajah
Senior Associate
