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Restructure + No Duties = Redundancy, or does it?

In a complicated case involving related proceedings, multiple parties, 35 sitting days and culminating in a 400 page judgement, a recent case in the Victorian Supreme Court has raised a number of interesting employment law issues.

In James Hodgson v Amcor Ltd [2012] VR 94, Justice Vickery was called upon to determine a number of issues which included an initial claim made by Mr Hodgson for amounts said to be due to him under his contract of employment with Amcor consequent on the termination of his employment with that company.

Amcor cross-claimed against Mr Hodgson and several other former employees alleging that they breached their duties by entering into agreements between themselves relating to their acquisition or proposed acquisition of interests in two businesses sold by a division of Amcor. It was alleged that the former employees secretly entered into arrangements to gain interests in the two businesses and maintained those interests without any disclosure to their employer at the time, Amcor. 

There are multiple issues in dispute in the proceedings, but this Employment Update will focus on one of the key issues related to when an employee is considered to be redundant.

Background
Mr Hodgson commenced working for Amcor, or its predecessor, in Queensland from 13 January 1966. He rose through the ranks. In July 2000, he was appointed to the senior position of Group General Manager, Amcor Fibre Packaging Australasia. His employment ceased in 2004.

Mr Hodgson commenced proceedings claiming monies (including payment in lieu of notice, unpaid bonus, redundancy pay, long service leave and holiday pay) totalling $1,563,803 said to be due to him upon the termination of his employment with Amcor, which he claimed occurred on 1 October 2004.


Was Mr Hodgson made redundant?
One of the issues in the hearing was the basis of Mr Hodgson’s cessation of employment with Amcor and whether this was on the ground of redundancy.

Mr Hodgson’s employment contract did not expressly provide a period of notice in the event of redundancy. However, Amcor had a redundancy policy which applied to ‘all staff members (including senior management)’

The Court accepted that the existence of the redundancy policy was well known to Mr Hodgson and that the redundancy policy was applied in circumstances of redundant employees. The Court also accepted evidence from Mr Hodgson that ‘[t]he existence of the redundancy policy and its application to me in the event that I was made redundant was an important factor in my decision to accept the proposed renewal of my contract in March 2003’. The Court held that the redundancy policy formed part of Mr Hodgson’s contract of employment with Amcor.

Mr Hodgson contended that his employment was terminated on 1 October 2004 by reason of redundancy as a result of the decision made by Amcor to reduce the number of its group general managers from six to five and later four.

Mr Hodgson claimed that the reduction in the number of GGM positions from six to four, following the completion of a restructure and, in particular, the merging of the Australian and New Zealand cartons businesses into the Fibre Packaging Division, resulted in the position of GGM of each of these divisions no longer being required and the creation of one new GGM position.

Amcor contended that Hodgson could not claim a prima facie entitlement to a retrenchment package under the redundancy policy unless he could show, among other things, that:

a) his position (Group General Manager of Amcor Fibre Packaging Australasia) was made redundant; and

b) Amcor terminated his employment on that basis.

In this case, the redundancy policy did not define the term ‘redundant’. The Court therefore had to consider the meaning of this term. After a detailed consideration of relevant case law, Vickery J found that the common law concept of  ‘redundancy’ came down to the following propositions:

a) A job becomes redundant when the job of the employee ceases to exist because the employer, for whatever reason, whether by reason of reorganisation, mechanization, change in demand or other reason, no longer desires to have it performed by anyone;

b) This can occur either when the role no longer exists or the duties have so changed that for all practical purposes the original role no longer exists;

c) However, redundancy is not limited to the circumstance  where the employer no longer desires to have the work previously performed by the terminated employee done by anyone;

d) A redundancy may also arise upon the redistribution of job functions, where the duties performed by an employee are  redistributed among other employees. In this case the employer still requires the duties to be performed, but the re organisation may give rise to a redundancy. In this event, although the duties remain to be performed, ‘for all practical purposes the original role no longer exists’ because the duties are divided and assigned amongst others. In such a case the question is whether any function or duty remains to be performed by the employee. A redundancy will occur if, after the reorganisation, the employee in question is left with no duties to discharge; and

e) Redundancy will not arise where the termination of employment is carried out solely because of any personal act or default of the employee terminated or for any consideration peculiar to that employee.

In this case, the Court considered the restructuring process adopted by Amcor and the subsequent impact on Mr Hodgson’s position.
The evidence of Amcor was that Mr Hodgson was not made redundant, but rather, he became ‘surplus to requirements’ arising from other issues with his superior which gave rise to his termination. He was replaced in the position by another employee. Evidence on behalf of Amcor was that Mr Hodgson’s role ‘would continue to exist after the proposed restructure. The core functions, key customers and duties and responsibilities of the role were not to change with the restructure’.

The Court ultimately found that the evidence pointed to the role of GGM Fibre Packaging being modified, but not in such a way as to alter the fundamental nature of the position. It also found that there was not ‘any redistribution of job functions in relation to the GGM Fibre Packaging position with the result that Hodgson was left with no duties to perform as a consequence. True it is that after 1 October 2004 Hodgson was “surplus to requirements” in the sense that he had no role or duties to perform for Amcor after that time.
However, this was not brought about by any redistribution of Hodgson’s job functions by splitting and assigning the relevant duties to others’.
Accordingly, the Court found that the reorganisation within Amcor did not result in Mr Hodgson’s employment being capable of being terminated by reason of redundancy. Rather, it found that Amcor had elected to terminate Hodgson’s employment on the basis of differences in management style and clashes between Hodgson on the one hand and his superior on the other. It determined to appoint another employee in his place. Accordingly, his termination did not meet the common law criteria for it to be a redundancy. His claim for a redundancy payment in accordance with the redundancy policy was therefore dismissed.

Other interesting issues arising from this decision
The decision of Vickery J in this case also touched on a number of other interesting employment related issues. These included:

1. Whether providing an employee with a separation agreement may constitute termination of an employee’s employment;

2. The impact of terminating an employee’s employment on notice and use of gardening leave; and

3. Delays in dismissing an employee for serious misconduct and utilisation of ‘after-acquired’ information to support a decision to terminate.

Implications for employers The decision in this case is a useful reminder regarding the basis upon which an employee can be considered to be redundant. A job becomes redundant when the job of the employee ceases to exist because the employer, for whatever reason, no longer desires to have it performed by anyone. This can occur either when the role no longer exists or the duties have so changed that for all practical purposes the original role no longer exists. It does not arise where the termination of employment is carried out solely because of any personal act or default of the employee terminated or for any consideration peculiar to that employee.

 

Click here for more details on this case or contact Aitken Legal

 


Author: Lynne Brook, Brook Personnel - Article compliments of Aitken Legal