A recent Fair Work Commission (“FWC”) decision serves to remind employers that a solely performance-based redundancy is not a “genuine redundancy” for the purposes of the Fair Work Act 2009 (Cth). The FWC’s finding that the reason for the restructure, and hence the redundancy, was the Employer’s dissatisfaction with the Applicant’s performance, supported the finding that termination of the Applicant’s employment was “unfair”.

1. Performance-based redundancy is not a genuine redundancy

To summarise the facts of this matter:

• the Applicant was employed as the “State Manager NSW” for approximately one year, until his employment was terminated, purportedly on the basis of a “genuine redundancy”;

• the day after the dismissal, the Employer hired a new employee in the newly created position of “General Manager NSW”;

• the Applicant lodged an unfair dismissal application, alleging that the Employer still required the Applicant’s job to be performed because the positions of General Manager NSW and State Manager NSW were substantially the same;

• the Employer argued that the General Manager NSW position differed in various respects from the State Manager NSW position and the FWC agreed that the Applicant’s position was made redundant;

• however, the Employer did not consider the Applicant for the newly created role of General Manager NSW because of the Employer’s concerns about the Applicant’s unsatisfactory performance (including concerns about the Applicant being at the beach during working hours and attending a business meeting wearing shorts);

• in finding that it would have been reasonable in all of the circumstances for the Applicant to be redeployed within the Employer’s enterprise, the FWC found that the performance-based redundancy was not a “genuine redundancy”; and

• noting that the evidence of the Applicant’s performance was in dispute, the FWC was not satisfied that there was a valid reason to dismiss the Applicant based on poor performance and therefore found the dismissal to be unreasonable and accordingly unfair.

2. Remedy

The FWC was satisfied that reinstatement was inappropriate in this matter because:

• the Applicant’s former position no longer existed; and

• it was clear from the interaction between the self-represented Applicant and the Employer’s Director during cross examination that the relationship between the two was not one that could be repaired (for example, the Applicant suggested the director was a liar and the Director clearly disliked Applicant).

In determining the amount to be paid as compensation the FWC applied the “Sprigg formula”:

(a) estimate the remuneration the Applicant would have (likely) received if the Employer had not terminated the employment (the “Lost Remuneration”);

(b) reduce the amount of Lost Remuneration by any monies earned since the termination date;
(c) discount the remaining amount for contingencies; and

(d) calculate the impact of taxation to ensure that the Employee receives the actual amount he or she would have received if they had continued in their employment.

The FWC found that the Applicant’s employment would have continued for no more than 16 weeks, given the Employer’s concerns regarding his performance. The FWC reduced the 16 weeks’ Lost Remuneration by the eight weeks’ pay the Employee received at the time of termination and further reduced the Lost Remuneration because of the income the Employee earned from JobSeeker during the relevant 16 week period.

3. Key Takeaways

• The FWC will consider jurisdictional objections (for example, whether the dismissal was a “genuine redundancy”) prior to considering whether the dismissal was “unfair”.

• Poor performance-based redundancy is a poor excuse for redundancy. It will not be a “genuine redundancy” if the termination of the employment is carried out solely because of a personal act or default of the employee. Notwithstanding, performance may form part of the objective selection criteria when implementing redundancies.

• Employees failing to meet performance expectations should be supported and explicitly warned that a failure to improve their performance may lead to the termination of their employment.

• While reinstatement is the primary remedy for unfair dismissal matters, reinstatement may not be appropriate where there has been a loss of trust and confidence such that it would not be feasible to re-establish the employment relationship (particularly with respect to senior executives).

• Employers seeking to settle unfair dismissal proceedings should make enquires as to whether the former employee is receiving JobSeeker Payments and consider reducing settlement offers by the amount of the JobSeeker Payments.

See the full decision here.

Update: Please note that since the date of this decision there has been a divergence of opinions about the treatment of social security payments (such as JobSeeker Payments) in determining compensation. On 5 February 2021, the Full Bench of the FWC indicated that the correct approach is not to take into account JobSeeker Payments in determining compensation.

People + Culture Strategies