There have been a number of interesting legal matters heard by our judicial system within the employment law area in the last quarter. In this legal briefing, we provide an overview of two informative and instructive cases for employers, each dealing with their own unique and distinct employment law issue. In addition, we provide a timely update as to the progress of the union movement’s appeal to the Federal Court of Australia in the penalty rates decision that was handed down earlier this year.
Significant Payout to Senior Executive After Employer Repudiated Employment Contract
Crowe Horwath (Aust) Pty Ltd v Loone (No 3) [2017] VSC 548
We recently wrote an article about the Crowe Horwath decision where it was found that restraint of trade covenants in an employment contract were found to be unenforceable due to the employer’s repudiatory conduct, which the employee accepted in bringing his employment to an end, before then setting up a business in competition with his former employer. The decision was significant as the Victorian Supreme Court ultimately concluded that the employee’s post-employment restraints were of no legal effect given the employer’s repudiatory conduct. Following this initial decision regarding the enforceability of the restraints, the Court has now ruled in relation to the Executive’s claims to recover lost earning, as well as incentive payments which he claimed were improperly and unlawful withheld by his employer.
In assessing the case, Justice McDonald held that the employee was entitled to 12 months remuneration and superannuation, a bonus for 2015/16 which he would have received had his employer not repudiated the contract which was catalytic in bring the employment to an end. In addition, Justice McDonald rejected the employer’s argument that the employment would have ended in the context of an organisational restructure in August 2016. In total, the Court awarded the employee almost $425,000 in damages and is yet to rule on the issue of interest and costs.
In light of this significant two-part decision, it is advisable that employers carefully review employment contracts and in particular contractual provisions dealing with incentive payments to ensure commercial terms are appropriately drafted to reflect the employer’s actual intent. In addition, before a potential incentive payment becomes due, due consideration to the agreed mechanism for calculating the payment should be properly considered to minimise the risk of breach of contract claims. Most importantly, if an employer breaches the terms of the employment contract it will mean that any restraints of clauses which would otherwise have been enforceable become inoperative, and in addition to the employee being able to compete, the employer may be required to pay the employee for damages.
Company Ordered to Re-employ Employee in Position That No Longer Exists
Muhammad Buttar v PFD Food Services Pty Ltd T/A PFD Food Services [2017] FWC 4409
Generally, employers are required to consult with employees before terminating their employment for reasons of redundancy. Furthermore, employers are also required to consider redeployment options either within the employer’s business or in an associated business entity. Both the obligation to consult and consider redeployment in redundancy circumstances, is often, in our experience, overlooked and given little weight by employers. However, a recent decision has highlighted the importance of undertaking both requirements when terminating an employee by way of redundancy. In the decision of Muhammad Buttar v PFD Food Services Pty Ltd T/A PFD Food [2017] FWC 4409,the Fair Work Commission found that a worker was unfairly dismissed when his role was made redundant and ordered reinstatement of the employee despite his former job no longer existing and his employer’s claim that the employment relationship had been irreversibly damaged.
In this particular case, Mr Buttar had worked for PFD Food Services Pty Ltd T/A PFD Food Services (“PFD Food Services”) for over two years as a Supervisor within the Adelaide Fishroom. The Adelaide Fishroom had been experiencing a serious downturn in business and as a result PDF Food Services decided to restructure and reduce labour costs which included making Mr Buttar’s position redundant. The Company had notified Mr Buttar of his redundancy on the day it took affect without any consultation whatsoever. In this regard, Deputy President Anderson found in determining the unfair dismissal claim commenced by Mr Buttar that the business had failed to meet its statutory obligation to consult and as such the redundancy could not be a genuine redundancy within the meaning of the Fair Work Act 2009 (Cth) (“the FWA”).
The Commission also found that Mr Buttar’s dismissal could not be a case of genuine redundancy as it would have been reasonable in all the circumstances, for him to have been redeployed by PFD Food Services elsewhere in the enterprise or an associated entity. In this regard, Mr Buttar had made it known to PFD Food Services that he would be prepared to work in a variety of roles for the employer. To this end, the Commission noted that the company had completed a ‘Skills Matrix’ in order to assess Mr Buttar’s capability for alternate roles, however, Deputy President Anderson formed the view that the Matrix was a rushed job and the National Manager did not seriously want to redeploy Mr Buttar in any event. Deputy President Anderson went on to further state that the Matrix itself was not an adequate or sufficient mechanism to discharge the statutory obligation to take reasonable steps to explore redeployment. In conclusion, the Commission found that the National Manager had already decided to make Mr Buttar redundant, considered that he had no future in the business, and had unreasonably formed a negative attitude towards him which resulted in the National Manager not seriously considering redeployment options. This was further evidenced by the fact multiple positions were advertised publicly for PFD Food Services in the months after the redundancy, some of which Mr Buttar expressed interest in prior to the termination of his employment.
Although the Commission found there were genuine operational reasons for the business restructure in the Adelaide Fishroom, it concluded that Mr Buttar’s dismissal was not a genuine redundancy on the ground that the consultation requirement and the redeployment provisions had not been complied with. Despite having regard to multiple factors including the employer’s labour costs, the fact PFD Food Services had been advertising for multiple positions and Mr Buttar’s employee record, the Commission ordered PFD Food Services to reinstate Mr Buttar to another position in its production or distribution areas, as supervisor (or in an equivalent position that was consistent with his skills and capabilities).
Relevantly, this decision highlights the importance for employers to comply with their statutory obligations of consultation and redeployment and to actually engage with these requirements in a meaningful way, otherwise they may face a situation whereby the Commission orders the employee to be reinstated.
Unions Challenge Penalty Rates Decision in Federal Court
We previously wrote about the Fair Work Commission’s landmark decision in June 2017 to cut penalty rates within hospitality awards and retail awards. As a consequence, unions representing these workers have challenged the decision in the Federal Court of Australia in a 3-day hearing last week.
The unions appeal applications, which are being jointly heard and determined, will examine the extent to which the decision of the Fair Work Commission is affected by fundamental jurisdictional error. In particular, the Federal Court is expected to consider whether the Commission considered, and acted within, the proper ambit of its powers in connection with the 4 Yearly Modern Awards Review, as well as the reasonableness of the findings made by it to reduce penalty rates in the face of the evidence it received.
If it is found that the decision by the Commission is affected by jurisdictional error, the unions are seeking that the penalty rates decision be quashed and the implemented cuts to take home pay (which commenced on 1 July) be reversed. This will mean workers who were affected by the pay cuts from 1 July will be entitled to back pay for the lost wages. Employers who have implemented the changes, should take care to ensure they have a contingency in place if back pay is ultimately ordered.
The hearing concluded last week and the Federal Court has reserved its judgment. We will continue to update our clients as to the outcome and any impacts of the decision once it has been handed down.
However, in the meantime, if you or your business partners would like to discuss any aspect of this article or need employment law advice or assistance, please do not hesitate to contact us.
This alert is not intended to constitute, and should not be treated as, legal advice.