Employer ordered to pay compensation for flawed redundancy process...

The Employment Relations Authority (ERA) has ordered an employer to pay over $20,000 to an employee after the employer’s redundancy process was “materially flawed”.

The employer advised the employees at a staff meeting that the business needed to make changes as a result of a downturn in orders.  The employer then sent a letter to the employee advising that his role was to be dis-established. 

A meeting was held between the parties regarding the restructuring proposal.

At the meeting the employer said that, due to the financial state of the business, two positions were to be dis-established.

The employer did not provide any detailed reasons for the redundancy or give any indication of the timeframe in which the changes to the business would happen.

As the employee did not receive any further correspondence regarding the restructuring, or notice in accordance with his employment agreement, he continued to work. The employee described that he was confused about whether or not his employment was actually ending.

Sometime later the employer asked whether the employee would remain in the business as an independent contractor.  The employee took time to consider the proposal.  The employer made several requests for a response from the employee. 

Eventually, the employer made a unilateral decision to change the employee to an independent contractor and paid out the employee’s accrued annual leave entitlement.

The employee indicated that he would not return to work until his employment status had been clarified, and raised a personal grievance in the Employment Relations Authority.  The employer did not fully participate in the Employment Relations Authority process. 

The Employment Relations Authority found that, even if there was a genuine need to make changes to the business, the employer did not follow the proper restructuring process.

The employer failed to consult with the employee or share relevant information with the employee, allow the employee an opportunity to comment on the decision, or discuss selection criteria for the new role and/or redeployment options.  The employee had been unjustifiably dismissed.

The employer was ordered to pay:

• $12,000 in compensation for hurt, humiliation and injury to feelings;
• seven weeks lost wages; and
• outstanding employment entitlements.

This shows that even where the need for a restructure may be genuine (as the employer subsequently went into liquidation), the employer must follow the proper process otherwise an employee may raise a personal grievance.

Despite the employer’s efforts to reduce costs, it was required to pay over $20,000 because it did not follow proper process. 

Had the employer sought proper legal advice at the outset, the employer may have avoided the $20,000 payment and maybe even liquidation.

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