Wednesday, 14 August 2013

Restructures and redundancies – the perils of getting the process wrong

Two recent decisions have emphasised the myriad of obligations an employer needs to consider in implementing a restructure process – and the potential consequences of getting it wrong.

Failure to follow redeployment policy

The Full Court of the Federal Court has found that the Commonwealth Bank breached the implied term of mutual trust and confidence when the Bank breached a redeployment policy by failing to consider opportunities for an employee’s redeployment.

The Federal Court had found in favour of the employee at first instance, and on appeal by the Bank, the Full Court confirmed that while the policy was not itself incorporated into the employee’s employment contract, the Bank breached the implied duty of mutual trust and confidence in failing to follow the policy. The employee was awarded damages for loss of opportunity to be redeployed in excess of $300,000.

The Full Court’s decision is the first decision of an Australian appeal Court to find that the implied term exists under Australian law and emphasises the importance of considering and adhering to internal policies prior to implementing restructures.

Failure to consult with an employee on maternity leave

A former employee of Virgin Blue Australia who was made redundant while on maternity leave has succeeded in proving that Virgin Blue took adverse action against her and breached her employment contract because it failed to consult with her about the redundancy.

While the redundancy was found to be genuine, the Federal Circuit Court found that Virgin Blue breached Company policies which required consultation, amounting to a breach of her employment contract. Additionally, its failure to provide information as to the impact of the restructure on her pre-parental leave position, in breach of the NES, was found to constitute adverse action. While the damages awarded to the employee were relatively low (one week’s pay for the breach of contract, $500 for the adverse action), the Court is yet to impose a civil penalty on Virgin Blue in respect of the adverse action – a breach that could attract a fine of up to $33,000 (the conduct occurred prior to the most recent increase of penalty units).

This decision is a timely reminder to employers carrying out restructures to again follow Company policy and to communicate the impacts to any employees on parental leave.

If you are in the process of planning or implementing a restructure, contact us for advice as to how to best manage the legal risks.


This article was produced by HR Legal. It is intended to provide general information only in summary format on legal issues. It does not constitute legal advice, and should not be relied on as such.