By Mike Toten Freelance Writer

Even if a business is in financial difficulty at the time, it is still required to consult with employees before making them redundant. In a recent case involving a restaurant chain that later went into liquidation, the Fair Work Commission (FWC) ruled that the employer should have consulted with a chef about potential redundancy. Because it did not do so, it unfairly dismissed him.

Facts of case

The employee was a Head Chef, responsible for managing two restaurants. When the employer planned to open a third venue, it hired another chef to prepare and manage it. But when the employer later decided not to proceed with the new venue, it retained the newly-hired chef and retrenched the one involved in this case. It did so by notifying the employee that his employment was terminated, and citing financial pressures on the business as the cause.

Although the award required the employer to consult with employees regarding the impact of redundancy and mitigating its effects before making them redundant, the only conversation between the parties was later about the notice period. No written information was provided until the notice of termination.

The employee acknowledged that the employer’s change of plans meant that it now had too many chefs, but claimed that he was selected because he was on a higher salary than the other chef, and claimed that he was not notified of any plans or decision not to open the third venue. 

Decision

The FWC ruled that the chef was unfairly dismissed because the employer did not comply with its obligations to consult with him about proposed redundancy. Therefore it deprived him of any opportunity to mitigate the adverse effects of losing his job. This was despite the employer having a valid reason for redundancy (its financial position).

As the business later went into liquidation, reinstatement was not possible, but the employee was entitled to compensation (amount to be decided later). 

What this means for employers

Financial difficulty is a valid reason to make employees redundant. However, it does not override the obligation for prior consultation with the employees about proposed redundancy and its potential impact on them, plus the opportunity to consider mitigation alternatives. 

Failure to consult with employees may result in an otherwise genuine redundancy becoming an unfair dismissal instead. 

Read the judgment

Mr Kyoung Sub Cha v The Coffee Traders Group Pty Ltd - [2024] FWC 3099 | Fair Work Commission

 

 

Need Help Navigating Redundancy?

Watch Our On-Demand Webinar: Redundancy – How to Get it Right. As highlighted in this case, failing to consult with employees during redundancy can lead to unfair dismissal claims. If you need guidance on how to handle redundancy processes properly, our on-demand webinar in partnership with Australian Business Lawyers & Advisors offers valuable insights.

In this webinar, you'll learn how to:

  • Determine if redundancy is the right solution for your business
  • Effectively manage legal risks throughout the process
  • Support and manage employees impacted by the changes
  • Avoid common mistakes and pitfalls