Does a small business have to follow the genuine redundancy rules when making an employee redundant? Or is following the Small Business Fair Dismissal Code enough to avoid an unfair dismissal finding?

A Fair Work Commission full bench has affirmed that small businesses have the same obligations as large employers when consulting over redundancies, dismissing a tile importer’s appeal against orders to pay more than $30,000 to a former sales representative.

The Commission last May found that Orientile Pty Ltd unfairly dismissed the award-covered sales representative – one of three at the nine-person company – and ordered it to pay $31,653 in compensation.

The Commission decided on the figure after considering the employer’s “unreasonable and extensive failure” to consult before retrenching the sales representative after 15 years of “long and loyal service”.

The Commission held that, although the Fair Work Act’s redundancy pay provisions do not apply to small businesses, it was in the circumstances a useful “guide” to include 12 weeks compensation.

If a small business employer does not establish that the dismissal is a case of genuine redundancy, the question of whether the dismissal is unfair falls for determination under s387 of the FW Act, rather than the provisions of the Small Business Fair Dismissal Code, the bench noted.

“In summary, the Code does not provide a fallback position to allow a small business employer to plead that a dismissal is a case of genuine redundancy, and that in the alternative, the dismissal was consistent with the Code.

“This is because the Code applies only to dismissals for reasons of conduct or capacity of the employee or dismissals without notice for serious misconduct.”

The bench continued that the definition of ‘genuine redundancy’ was nevertheless “not qualified or applied to a lesser degree, and nor are procedural deficiencies excused based on the size of the employer’s enterprise”.

“Nor does the FW Act provide a particular regime for small businesses in relation to redundancy that reduces or limits their obligations under the…to consult, where it is asserted that they have not complied with award obligations in this regard.”

“That there is no small business exemption from the obligations in the award to consult employees about major workplace change is consistent with the significance of consultation to an employee whose position is being made redundant and who will be excluded from a remedy for unfair dismissal if the employer complies with those obligations.

“To obtain the benefit of the exclusion, an employer must comply and partial compliance does entitle an employer to the benefit of a shield from an unfair dismissal application.

“In the absence of proper consultation, [the employer] has not established that the dismissal was substantively fair, and it is unarguable that the dismissal was procedurally unfair.”

The bench said it was “not clear” how the employer’s owner could argue that he complied with the award’s consultation obligations when he had told the deputy president “that he had not read the consultation term until he was preparing a response to [the] unfair dismissal application, and did not know about the existence of the consultation term, much less what his obligations were under that term, at the time he dismissed [the sales representative]”.

“The obligation to consult is not onerous.”

“It would have required little, if any, effort for [the owner] to meet the obligation to consult [the sales representative] and the other two salespersons about all the matters he was obligated by the award to discuss prior to initiating the termination of [the sales representative’s] employment on the ground of redundancy.”

Noting that the owner had completed the Code’s checklist only after the sales representative filed his unfair dismissal application, the bench said “[t]he section . . . dealing with ‘genuine redundancy’ would doubtless have assisted [him] comply with award consultation obligations”.

The Commission did not “err by failing to consider the employer’s status as a small business with limited human resources capability”.

“The short answer to this assertion is that the award provision setting out obligations of employers to consult about workplace change does not excuse non-compliance on the ground that the employer is a small business with limited access to human resource management expertise…”

Finally turning to consider the deputy president’s reliance on s119 as a guide, the bench rejected that he wrongly imposed a redundancy obligation on a small business.

“Section 392(2) of the FW Act confers a broad discretion to award compensation, requiring that the Commission take into account all the circumstances of the case.”

“A broad range of matters are listed, followed by ‘any other matter that the [Commission] considers relevant’.

“As the deputy president correctly observed: ‘A compensation remedy is designed to compensate an unfairly dismissed employee in lieu of reinstatement for losses reasonably attributable to the unfair dismissal within the bounds of the statutory cap on compensation that is to be applied’.”

As well as awarding four weeks’ pay to reflect the award’s consultation process, the deputy president employed the Sprigg formula and referred to s119 when adding a further 12 weeks’ pay as “seemed appropriate in the circumstances of the case…in this regard, [his] approach was both orthodox and correct,” the bench said.

Lessons

Small business has to apply the redundancy principles just as larger business’ do. It’s not onerous, as the Commission highlights. If you don’t need the role operationally any longer, have a meeting with the employee/s, explain why the role is no longer needed and give the employee an opportunity to have input. Offer redeployment if another job exists. That is the sum total of the obligation. Then a large payout and legal bill can be avoided.