Transparent redundancy selection criteria must be applied

by Helen Karatasas

A recent Full Court of the Australian Industrial Relations Commission (“AIRC”) decision awarding compensation to retrenched employees illustrates the importance of employers applying transparent and objective redundancy selection criteria. If an employee’s workers compensation or injury status plays a role (albeit if only an inference can be drawn that it played a role), without consultation with employees, in selecting employees for redundancy, then this is not likely to constitute a valid reason for termination (even if it arises from genuine operational requirements) within the meaning of Federal unfair dismissal laws.


The employer implemented cost cutting initiatives to accommodate the predicted decline in the company’s output. Ultimately, the employer decided to implement 13 involuntary redundancies. Seven of the retrenched employees filed unfair dismissal applications in the AIRC. At first instance, Commissioner Hingley dismissed each of the applications. The employees appealed.


A Full Bench of the AIRC upheld the appeal. The Full Bench considered that it was reasonable to infer that the employer did have regard to the workers compensation and injury status of the employees and that it played an operative part in selecting them for retrenchment. The Full Bench considered that the Commissioner had not given adequate weight to, among other things, the discussion about workers compensation and injury status at the management meeting at which it was decided who would be retrenched, the selection for retrenchment of a seemingly disproportionate number of employees who were on workers compensation or suffering an injury, and the absence of an explanation from the employer of the significance of workers compensation and injury as a topic of discussion at the management meeting.

The Full Bench concluded that selection of employees for redundancy on the basis of their workers compensation history or injury status was not a “sound, defensible or well founded” reason and that there was no valid reason for the termination of the employees’ employment within the meaning of the Workplace Relations Act 1996 (Cth). Further, while operational requirements may provide a valid reason for reducing workforce numbers, they do not necessarily provide a valid reason for the retrenchment of particular employees. The Full Bench found the termination of each employee’s employment was unjust and unreasonable. The Full Bench remitted the matter to Senior Deputy President Lacy to decide the remedy. In each case, Lacy SDP rejected the claims for reinstatement. Lacy SDP then considered what would be an appropriate amount of remuneration in lieu of reinstatement.

Lacy SDP ordered individual amounts of compensation for each employee, which in total amounted to just over $65,000. We understand that the employer has lodged an appeal from Lacy SDP’s decision.

Lessons for employers

When implementing retrenchments, an employer should ensure that it acts in good faith (in that there is a genuine reason for implementing retrenchments and selecting individual employees for retrenchment) and that it affords employees procedural fairness.

Smith and Ors v Moore Paragon Australia Ltd (2002) PR 926979


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