Adverse action: The dark horse in downsizing?

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Despite a number of high profile legal cases in recent months, including Toyota and TRUenergy, employers are failing to undertake their due diligence when it comes to downsizing and are ignoring the high risk posed by adverse action claims – that’s the stark warning from a leading employment law expert.

Murray Procter, workplace relations, employment & safety partner at DLA Piper, has warned employers against being lulled into a “false sense of security” when they focus so heavily on the unfair dismissal exemption under the Fair Work Act.

Under the Act, if employers follow the ‘three-step process’* they attract the exemption from the test of fairness and can be lulled into believing this exemption provides “carte blanche protection”. It doesn’t, Procter told Corporate Risk & Insurance sister title Human Capital, and the real danger comes through adverse action claims.

“Either employers have done the steps to get the exemption from the unfair dismissal or they assume the person is not subject to unfair dismissal, so they go ahead with their redundancy process. But of course the adverse actions are available to every employee and the exemptions you get from unfair dismissal do not protect you from an adverse action claim,” he said.

A union or an individual may claim the employer’s selection process for redundancy decisions was unlawful – for example, because the individual was a union member, or they bought forward a bullying or harassment claim in the past, or they took sick leave.

“The process is started by asking whether this person is covered by unfair dismissal laws. If they are, the employer does the three-step process to attract the exemption and they believe they’ll be fine. But what they haven’t thought about is this increasingly used jurisdiction of adverse action to attack the selection process,” Procter said.

Procter cited attendance as a commonly used element in their selection criteria matrix. However, employers selecting that particular element are potentially acting unlawfully, because attendance will incorporate approved sick leave. “Previous adverse action cases have demonstrated that a workplace right is a right to an entitlement, so if someone has exercised a workplace right, like sick leave, you are not allowed to take that into account for any reason to select the person.”

He added that employers rightfully will desire to hold onto their solid and high performers during downsizing, so they must also tread carefully if the selection criteria for redundancy includes performance.

“Providing you can demonstrate the legitimacy of the performance issue, then you will be safe,” Procter said. “The trick is demonstrating the legitimacy of the performance issue, especially if you haven’t raised it with the employee. If you’re going to hold them up for behaviour that you were keeping a rap sheet on but you hadn’t actually confronted them about it yet, it will be much more difficult for you to establish that that was a legitimate reason for selection.”

Need further incentive to get it right? In unfair dismissal cases the maximum compensation payable is six months’ pay. However, for adverse action claims, the compensation doesn’t have a cap.

So how can employers be sure they remain legally above board in redundancy actions?

Procter recommends:

  1. Know where you stand as an employer in terms of the obligations owed to employees about consultation, notification and redundancy pay – undertake an audit or due diligence at the beginning, assessing what rules and obligations apply to which employees.
  2. If there’s a selection criterion where you’ve got a number of employees performing the same type of job and you are reducing that number, then think about how that selection criteria might be seen to be a potential adverse action risk, and then remove it.
  3. Keep records of the decision-making process – who’s making it, when the decision is being made, etc.
  4. Think about the redeployment piece carefully and involve the views of the employee. Don’t make any assumptions.
  5. Obtain professional legal advice.

“Preparation, preparation, preparation is the main message I give to clients,” Procter concluded.

*The three-step process applies to employees under the unfair dismissal jurisdiction. It involves:

1. Proof that it’s a genuine redundancy – there might be operational, structural, economic or issues relating to technology that require there to be fewer jobs than previously; the role is no longer required to be done by the employee, or by anybody else.

2. Compliance with the notification and consultation obligations in the employees’ award or EA. Those awards and EAs contain clauses that require an employer to notify and consult with the employee and the unions if the employer has made a definite decision which will result in a redundancy. This step is not required if the employee is award-free or EA-free.

3. Ensuring checks are conducted to assess whether or not it is reasonable to re-deploy the employee in the employer’s business, or in the business of an associated entity of the employer. Do not assume an employee might not desire to take a less senior or less highly paid role; employee consultation is recommended.

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