When is a contractor one too many?

This article was co-authored with Reece Druiven.

Key points

• The Federal Court has clarified that dismissals may not constitute genuine redundancies if an employer could reasonably redeploy redundant employees to positions being performed by contractors.
• Employers must demonstrate they have exhausted reasonable redeployment possibilities, including insourcing contractor roles, before resorting to redundancies.
• Employees may be able to challenge dismissals if evidence suggests redeployment to roles being performed by contractors was reasonable in all of the circumstances.

Introduction

A recent decision by a Full Court of the Federal Court of Australia (Court) examined the concept of "genuine redundancy" in the context of redeploying workers to contractor roles.

The Court ruled that the dismissals were not genuine redundancies as redeployment to positions held by contractors was reasonable. This update analyses the case and its implications for employers.

Background

Helensburgh Coal Pty Ltd v Bartley [2024] FCAFC 45 (Bartley) concerned employees dismissed due to a reorganisation of operations at a coal mine.  These employees argued that their dismissals were unfair, and not a case of genuine redundancy, because the employer could have redeployed them to positions currently filled by contractors.  

The Fair Work Commission (Commission) was initially tasked with determining whether the dismissals satisfied the criteria for genuine redundancy outlined at s389 of the Fair Work Act 2009 (Cth) (FW Act). Four separate applications were brought before the Commission, with two proceeding to the Full Bench.

Broadly, the FW Act defines a genuine redundancy as a dismissal necessitated by operational changes that eliminates the employee's job (s389(1)(a)). However, the FW Act specifies that if it would have been reasonable in all the circumstances for the employee to be redeployed within the employer or an associated entity, the dismissal cannot be considered a genuine redundancy (s389(2)).  Compliance with consultation obligations under a modern award or an enterprise agreement will also be considered (s389(1)(b)).

At first instance, Riordan C decided that Mr Bartley’s dismissal did not constitute a case of genuine redundancy, holding that redeployment to roles performed by contractors was reasonable in the circumstances. Remitting the application for reconsideration on a factual basis, the Full Bench otherwise affirmed that Riordan C had not erred in deciding redeployment to contractor roles was a relevant consideration in assessing whether a termination was a case of genuine redundancy for the purposes of unfair dismissal. 

Helensburgh Coal sought judicial review of the Full Bench’s decision under s39B of the Judiciary Act 1903 (Cth), arguing (among other review grounds) that the Full Bench’s decision was affected by jurisdictional error, as it misinterpreted the legal test for genuine redundancy. Helensburgh Coal contended that redeployment should only be considered for vacant positions within the company, and it should not have considered the capacity for it to reduce reliance on contractors for the purposes of redeployment. 

The Court’s decision

The Court (Katzmann and Snaden JJ, Raper J) dismissed the application, holding that the Full Bench had not erred. Importantly the Court held that:

• section 389(1) does not require an inquiry into whether the operational changes that lead to redundancies were reasonable;
• by contrast, section 389(2) requires that the possibility of redeployment should be assessed according to “what would have been reasonable”. ‘Redeployment’ as contemplated by s389(2) does not necessarily require a role at the employer to be vacant; and
• accordingly, a relevant consideration to whether a redundancy is ‘genuine’ could involve an assessment of the reasonableness, in all the circumstances, of an employee being redeployed to fill a role or perform duties of contractors.

The Court therefore clarified that the exemption on the grounds of genuine redundancy should be interpreted broadly, granting the Commission the authority to examine all relevant factors when assessing redeployment options, including the employer’s reliance on contractors.

As Katzmann and Snaden JJ explained (from [59] – [60]): 

“Section 389(2) … requires that the possibility of redeployment should be assessed according to what “would have been” reasonable. That necessarily envisages some analysis of the measures that an employer could have taken in order to redeploy an otherwise redundant employee. In its proper context, “redeployed” can only refer to the prospect that an otherwise redundant employee might be taken from a position no longer required and deployed to the discharge of other tasks. If, in a given case, there were measures that could have been taken and which, in all of the circumstances, could reasonably have led to redeployment, that will suffice to engage the exemption to the immunity.

… there is no reason to excise from “all [of] the circumstances” the possibility that an employer might free up work for its employees by reducing its reliance upon external providers. The existence of that possibility in any given case is a circumstance that is capable of informing whether redeployment “would have been reasonable”.”

The Court therefore rejected the employer's submissions, affirmed the Full Bench’s decision, and ultimately dismissed the application.

Implications

Bartley has significant implications for both employers and employees. It establishes that the Commission can consider whether employers could have reasonably redeployed employees to contractor roles when determining if a dismissal qualifies as a case of genuine redundancy in unfair dismissal applications. Employers may also need to consider whether it is reasonable to retrain employees, and consider the likelihood that suitable positions might become available in the near future. 

The decision suggests employers must thoroughly assess all redeployment possibilities, including the potential for reassigning work from contractors to employees, before resorting to redundancies. Employees could have strong grounds to challenge dismissals if they can demonstrate that it would have been reasonable in the circumstances to redeploy them to contractor roles.

Raper J agreed with Katzmann and Snaden JJ, but made some additional observations.Her Honour highlighted the palpable uneasiness underpinning this case when she commented (at [96]):

“It is not insignificant that the effect of the Full Bench’s reasoning is that there does not need to be a vacant position in the enterprise for redeployment to be “reasonable in all the circumstances”. A consequence is that the Commission, satisfied that there is not a “genuine redundancy” may enter the fray, as part of the unfair dismissal proceedings and, by operation of s 391, order reinstatement which will require the creation of a new position and potentially as is the case here, lead to the termination of third-party contractual arrangements and a fundamental change of the employer’s business model. It would be a rare case indeed where an applicant (seeking to avail him or herself of unfair dismissal protections) could satisfy the Commission, under this provision, that redeployment in such circumstances, was reasonable.”

(Emphasis added).

Employers should seek legal advice through any organisational restructure to ensure its reliance on contractors does not mean that proposed redundancies are not genuine, and that those employees are reinstated by the Commission, or compensation awarded.