High Court just raised the bar on redundancies. Employers must now actively consider restructuring business operations before letting staff go.
What’s happening: The High Court has confirmed that employers can no longer simply claim no suitable roles exist when making redundancies, but must actively demonstrate they considered restructuring their business operations, including replacing contractor roles with permanent positions, to redeploy staff instead.
Why this matters: This ruling significantly raises the bar for what constitutes a ‘genuine redundancy’ and could expose more small businesses to unfair dismissal claims, particularly those relying heavily on contractors or labour hire arrangements while simultaneously reducing permanent staff.
A High Court decision handed down yesterday has fundamentally altered the redundancy landscape for Australian small businesses, creating new obligations that could catch many employers off guard.
The ruling emerged from a case involving Helensburgh Coal, which dismissed 22 workers from its Metropolitan Coal Mine north of Wollongong in June 2020 following declining metallurgical coal prices during the early COVID-19 pandemic. According to ABC News, the workers successfully challenged their dismissals by arguing that contractors were performing similar work at the mine, making their redundancies unfair.
The High Court’s unanimous decision to dismiss the company’s appeal confirms what employment lawyers have suspected for years: the days of treating redundancy as a straightforward business decision are over. Instead, employers now face a much higher burden of proof when they claim a role is genuinely redundant.
The ruling explained
Redundancy occurs when a business no longer needs an employee’s role to be performed by anyone, typically due to factors like technological changes, reduced sales, business closures, relocations, or restructuring following mergers. Traditionally, this has been viewed as a relatively straightforward business decision where employers demonstrate the role itself is no longer required.
The High Court’s decision centres on section 389(2) of the Fair Work Act, clarifying that the Fair Work Commission has broad powers to investigate whether employers could have restructured their workforce operations to avoid redundancies altogether. “The High Court clarified that under section 389(2) of the Fair Work Act, the FWC was permitted to inquire into whether an employer could have made changes to how it uses its workforce to operate its enterprise so as to create or make available a position for an employee who would otherwise have been redundant,” explains a Peninsula spokesperson.
This includes examining whether it would have been reasonable for employees to be redeployed to roles currently filled by contractors or labour hire workers. The decision reinforces that dismissals cannot be considered genuine redundancies if reasonable redeployment options existed, marking a significant departure from the more employer-friendly WorkChoices legislation that previously allowed dismissals for “genuine operational reasons.”
The ruling fundamentally challenges the traditional understanding of redundancy by requiring employers to look beyond whether a specific role is needed, and instead consider whether the business could be reorganised to accommodate displaced workers elsewhere in the operation.
According to Peninsula, which provides HR consulting services to more than 24,000 Australian SMBs, redundancy remains one of the top three enquiries they receive from clients. Associate Director of Consultancy Stephen Roebuck explains that the ruling means “redeployment does not require an existing vacancy, and the Fair Work Commission may look at whether work could be reorganised.”
The implications extend far beyond simply checking for available positions. Employers must now demonstrate they actively considered whether their entire business structure could be adjusted to accommodate displaced workers.
What changed overnight
The most significant shift involves how businesses using contractors and permanent employees simultaneously approach redundancy decisions. Previously, employers could argue that no suitable internal positions existed for redundant workers, even while contractor roles continued.
Under the new interpretation, businesses must now justify why they couldn’t reasonably restructure operations to replace contractor arrangements with permanent positions for workers facing redundancy.
This creates particular challenges for small businesses that rely on flexible contractor arrangements to manage fluctuating workloads. The ruling suggests that maintaining contractors while making permanent employees redundant will face much closer scrutiny from the Fair Work Commission.
The decision also expands the concept of reasonable redeployment beyond existing vacancies. Employers must now consider whether new internal positions should be created by reducing reliance on external labour providers, fundamentally changing how businesses approach workforce planning.
New obligations emerge
The ruling establishes several new practical obligations for employers contemplating redundancies. When considering redeployment options, businesses must examine not only currently available positions but also roles that may become available in the foreseeable future. “When considering redeployment, employers should not only consider other currently available positions, but also positions that are about to become available,” advises a Peninsula spokesperson. “The redeployment obligation requires an employer to consider whether a new internal position should be created by reducing reliance on labour hire providers or contractors.”
Training requirements no longer automatically excuse employers from redeployment obligations. The High Court confirmed that where additional training would enable an employee to fill an alternative role, this doesn’t necessarily constitute an unreasonable redeployment expectation. “Where further training would be needed to redeploy employees in another role, this is not necessarily a barrier to redeployment,” notes a Peninsula spokesperson.
“Employers must be more cautious when dismissing employees whilst retaining contractors, if the business could be reorganised to prevent the redundancy, you could be exposed to costly unfair dismissal claims,” warns Peninsula. The ruling also necessitates reviews of existing policies and contracts with labour providers. Businesses need to ensure their contractor arrangements align with genuine enterprise needs and don’t unnecessarily overlap with the roles performed by permanent workers.
Documentation becomes crucial under the new framework. Employers will need to demonstrate they genuinely considered restructuring options, not merely dismissed them without proper evaluation.
Planning your next move
For small businesses, the ruling creates both immediate compliance requirements and longer-term strategic considerations. Any business currently contemplating redundancies should pause to reassess their approach in light of these expanded obligations.
The decision signals that future Fair Work Commission cases involving redundancy will subject employer decisions to much closer scrutiny, particularly where redeployment alternatives existed or could have been created. “The High Court’s decision signals that ‘genuine redundancy’ will be closely scrutinised in future decisions where redeployment was possible,” observes a Peninsula spokesperson.
This doesn’t mean redundancies become impossible, but it does require more thorough preparation and documentation. Businesses need to demonstrate they genuinely explored restructuring options, considered the feasibility of replacing contractor arrangements, and evaluated whether training could enable redeployment.
The ruling particularly affects industries with mixed permanent and contractor workforces, including construction, logistics, professional services, and hospitality sectors where flexible staffing arrangements are common.
For many small businesses, this may necessitate fundamental changes to workforce planning strategies. The traditional approach of maintaining maximum flexibility through contractor relationships while treating permanent staff as the adjustment variable may no longer be sustainable. Peninsula advises that “policies and contracts with labour providers should be reviewed to ensure decisions align with enterprise needs and don’t overlap on the roles of your current workers.”
Looking ahead, businesses should review their current contractor arrangements, assess potential overlap with permanent employee roles, and develop more robust redeployment consideration processes. The cost of getting this wrong, in terms of unfair dismissal claims and Fair Work Commission proceedings, could far exceed the investment required to ensure compliance.
The message from the High Court is clear: employers who want to rely on genuine redundancy defences must be prepared to prove they genuinely considered all reasonable alternatives, including restructuring their entire approach to workforce management.
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