Are employers required to consider removing contractor workers from a business in order to facilitate redeployment of redundant employees?

The issue confronting the Court  

The issue in this case was whether, in applying that second element, the Fair Work Commission (FWC) was entitled to have regard to the other workers performing work in the employers enterprise – and any enterprises carried on by associated entities - and to determine whether it would have been reasonable for the employer to remove existing persons from their roles, or otherwise restructure those operations, in order to create an available position into which the redundant employee might be ‘redeployed’.

Such considerations had not emerged in the many cases in which this element of the exception was considered in the decade up to the FWC decisions in this case. Indeed, the position which seems to have been taken in relation to this aspect of the exception, either expressly or by implication, is that so long as genuine enquiries were made so as to establish that no available (i.e. vacant) positions existed, then it was typically found that it was not reasonable to redeploy the redundant employee.[4]   

The Court’s finding

The High Court found that in applying this second element, the FWC is entitled to enquire into whether changes ought to have been made to an employer’s enterprise to make available a position into which the dismissed employee may be ‘redeployed’. And such changes might include removing persons already performing work within the enterprise to create an available position for the redundant employee.

The only limitation on this power to enquire is that it is confined to identifying whether it is ‘reasonable in all the circumstances’ to make changes to create the relevant vacancy.

On any view, this decision materially expands the FWC’s powers of inquiry, yet it provides little indication of the standard of ‘reasonableness’ required to be applied by the FWC, how it should be understood or applied in any particular case – nor in the case at hand.

This article examines the factual background, the position taken by the FWC, and then the Full Court of the Federal Court, before explaining the High Court’s reasons for its decision.

Importantly, we then explore some quite significant practical and logistical issues which we think present for consideration in future cases before the FWC and for employers implementing redundancies. 

The factual background

As a result of the economic downturn during the COVID-19 pandemic, and the consequent reduction in demand for the coal produced at the Helensburgh mine, the employer decided to reduce production and consequently restructure its operations, requiring fewer workers.

Helensburgh gave notice to its employees of the restructuring and consulted with workplace representatives. It then decided to reduce its use of contractors, so as to mitigate the impacts of the restructure on employees – essentially reducing the number of its employees to be made redundant.

The restructure resulted in the number of contractors falling by 40%, and 90 employees being made redundant. 22 of the dismissed employees applied to the FWC for unfair dismissal remedies. Helensburgh objected on the basis that their dismissals were the result of genuine redundancies consistent with s 389 of the FW Act.

How did we get here?

The decisions of the FWC

Through a series of decisions, the FWC held that the terminations were not cases of "genuine redundancy" because, applying s 389(2), it would have been reasonable in all the circumstances for the employees to be redeployed to perform the work that was being performed by the contractors.

The dispute was first allocated to Commissioner Riordan, who resolved to hear the 22 unfair dismissal applications together. The first decision only dealt with Helensburgh’s jurisdictional objection on the basis that each of the terminations were genuine redundancies. At first instance, Commissioner Riordan dismissed the jurisdictional objection, finding that they were not genuine redundancies as it would have been reasonable to redeploy the dismissed employees into the roles of the contractors.[5] Helensburgh appealed to the Full Bench of the FWC. While not accepting all of Helensburgh’s contentions, the Full Bench agreed that in making his assessment, Commissioner Riordan was required to consider the feasibility, from the employer's perspective, of insourcing the Contractors' work in addition to considering the nature of that work and whether it was specialised. The Commissioner failed to consider the reasonableness of the deployment as he had only considered whether the employees could perform the contractor’s work.[6]

The matter was remitted to Commissioner Riordan who again decided that none of the dismissals were a case of genuine redundancy.[7]

Helensburgh appealed to the Full Bench of the FWC again. Permission to appeal was granted but the appeal was dismissed.[8]

Helensburgh subsequently applied to the Full Court of the Federal Court of Australia for judicial review and sought to quash all four FWC decisions and compel the FWC to cease dealing further with all the unfair dismissal applications.[9]

Helensburgh advanced several grounds in support of their application, of relevance are the first two which contended that s 389(2) of the FW Act does not authorise consideration of potential redeployment to roles that are already filled by others.

Katzmann and Snaden JJ dismissed the application, finding that the language of s 389 suggests the FWC has ‘wide bounds to consider what is legally reasonable’ and whether redeployment would have been reasonable in any given case. Although Raper J did not dissent, she gave additional reasons which urged a cautious approach. At para 96 her Honour said:

It is not insignificant that the effect of the Full Bench’s reasoning is that there does not need to be a vacant position in the enterprise for redeployment to be “reasonable in all the circumstances”. A consequence is that the Commission, satisfied that there is not a “genuine redundancy” may enter the fray, as part of the unfair dismissal proceedings and, by operation of s 391, order reinstatement which will require the creation of a new position and potentially as is the case here, lead to the termination of third-party contractual arrangements and a fundamental change of the employer’s business model. It would be a rare case indeed where an applicant (seeking to avail him or herself of unfair dismissal protections) could satisfy the Commission, under this provision, that redeployment in such circumstances, was reasonable.  

The proceedings before the High Court

The key issue for the High Court on review was the scope of the inquiry under s 389(2) and if the FWC can consider whether the employer could have made changes to how they use its workforce to operate its enterprise, i.e. by replacing contractors with employees.

Authority to consider

Each of the three judgments held that the FWC was permitted by s 389(2) to inquire into whether Helensburgh could have made changes to how it uses its workforce to operate its enterprise.

The plurality made clear that ‘redeployed’ does not require there to be a vacant position and the ordinary meaning of the term envisages ‘reorganisation or rearrangement’.[10] The inquiry under s 389(2) is only limited in the sense that it is in respect of the employer's ‘enterprise’ and the redeployment of the person must have been reasonable "in all the circumstances".

Although the separate judgments of Edelman J and Steward J agree that s 389(2) permits the FWC to inquire into whether changes could be made to the employer’s enterprise, they each make clear that there are limits to what the FWC may consider. One such limit is that when the FWC assesses whether the employee could have been redeployed within the employer's enterprise they may have regard only to the state of the employer's enterprise at the time of the employee's dismissal.[11]

A key point of distinction between the plurality and Edelman and Steward JJ’s judgments is that the former found that the nature of an employer’s enterprise is not defined by reference to how the employer uses its workforce to operate its enterprise, or why it does so in that manner;[12] whereas the latter both suggested that the employer’s enterprise includes the employer’s policies and practices in the use of labour.[13] This is a significant distinction as an employer's practices could favour the use of contractor labour for a variety of reasons such as flexibility and cost. If an employer's 'enterprise' is considered to includes these practices, their usage could help to discharge the employer's onus in establishing the genuine redundancy objection. 

The reasonableness of redeployment

The High Court’s decision gives little indication of how the standard of reasonableness should be understood or applied in any particular case – nor in the case at hand. The Justices were clear to indicate they were not deciding that it was or was not reasonable to remove contractors in order to make available positions for redundant employees.

The clearest indication came from the judgment of Steward J who wrote 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.’ His honour cited the caution articulated by Raper J in the earlier Federal Court decision, to emphasise that although the appeal confirmed the authority of the FWC to make the inquiries, cases mandating such an inquiry will be ‘rare’.[14]

Some very material changes for the FWC and for employers implementing redundancies

There is no doubt that this decision is a very major development. While some caution was noted, particularly in the judgments of Edelman and Steward JJ, it is not yet clear if the FWC will treat its power to, in effect, order the rearrangement of an employer’s enterprise, with the caution in those sentiments.

Should the FWC consider requiring the displacement of contractor positions in an employer’s enterprises, there are important logistical or procedural factors which will require consideration:

Evidentiary burden on employers

Dismissals that are a case of genuine redundancy are excluded from the FW Act’s unfair dismissal regime pursuant to s 385(d). As genuine redundancies function as an exception, the employer bears the evidentiary onus of making out that a dismissal was a genuine redundancy.

Should the FWC begin to make inquiries about the use of contractors in an employer’s enterprise, there will be an increased evidentiary burden on employers to justify their policies and practices with respect to the use of labour. The High Court noted that Helensburgh were unable to point to any business decision justifying the use of a blended workforce in any proportion; or provide evidence of the asserted cost differences.[15] These comments suggest that employers may confront heightened expectations when preparing their case that a termination was a genuine redundancy. Plainly, significant additional evidence will be required.

To get ahead of these evidentiary issues, employers might consider utilising the required consultation processes with employees to establish a business case and draw out these issues with employees and their representatives. That may create a position where issues not raised by unions and employees in the consultation period, receive less attention in any subsequent unfair dismissal case. Employers should also be prepared to justify their use of labour in the FWC.

Rights of displaced contractors

Where individuals working for contractor companies are dismissed to make way for redeployed employees, there is a real question of whether this decision could be challenged by the displaced contractors. The acknowledgement of such an impact is implicit in the extract from Raper J’s judgement set out above – and that impact was not denied in the High Court judgement.  

It is uncontroversial that the rules of natural justice apply to FWC proceedings. Where the Commission makes a decision that effectively requires the employer to displace the role of a contractor (that is, if the genuine redundancy exception is rejected, and an order for reinstatement requiring the displacement of contractors is contemplated), there will clearly be individuals and organisations whose private rights are adversely affected by the decision. On conventional principles each of those persons would be entitled to:

• reasonable notice that such a decision was being contemplated;
• a reasonable opportunity to be heard prior to the decision being made. And the conventional way that occurs is for their being given an opportunity to lead evidence, to test the evidence led against their position, and to make submission; and
• reasons for any decision to impact their legal rights.

It does not appear that this occurred in the Helensburgh case – nor does it appear any of the contractors or their employees took steps to assert these rights.

Further complicating this issue, where the selections for redundancy are made on the basis of an employer’s assessment of the relative merits of the performance and conduct of employees within the cohort impacted, it would seem necessary, in deciding whether employees of contractors be removed from the site, in order to create vacancies in which to redeploy the redundant employees, that some assessment of the relative performance and conduct of the contractors’ employees should be made. That clearly has the potential to make unfair dismissal proceedings in these circumstances significantly more complex – and of course to wholly defeat the very intention behind the introduction of the genuine redundancy exception.

Technological change

Questions about what is considered a ‘genuine redundancy’ are especially topical as generative AI is introduced into our economy and more employers look towards restructuring their operations. How is the FWC to decide whether an employer should use AI to perform work – particularly where it is more efficient and safer than humans, or whether an order should be made requiring the employer to make available a position for a redundant employee instead? And does that mean the AI vendor has a right to be heard and to adduce evidence about why such an order would not be ‘reasonable in all the circumstances’?

Unfair dismissal regime

Where a termination is not considered to be a ‘genuine redundancy’, it will come within the remit of the unfair dismissal regime. In cases where a redundancy is held not to be a ‘genuine redundancy’ they are not automatically an unfair dismissal pursuant to s 385, it must still be demonstrated that the dismissal was harsh, unjust or unreasonable. However, it is likely that the issues relating to redeployment will support a finding that the dismissal was unfair, as there is unlikely to be a ‘valid reason’ for the dismissal related to the employee’s capacity or conduct.[16] Which is exactly what the FWC did in the Helensburgh case.