When the going gets tough – Reducing staffing costs and being open with employees

When a company is confronted with a downturn in business it can be a very difficult time for both employers and employees.  As part of ensuring the financial viability of the business employers are often forced to consider reducing workforce size by way of forced or voluntary redundancies.

But, it’s not always the case that an employer needs to resort to redundancies to reduce its wages costs. In a recent decision of the Fair Work Commission (FWC), an employer was praised for its efforts to retain staff during a difficult period.

In that decision (Piggott v Wellpark Holdings Pty Ltd T/A ERGT Australia [2016] FWC 3188) the employer engaged with staff to discuss with them the financial difficulties the business was facing and asked them to accept a 10% pay cut to save the business and to save jobs. Most of the workforce agreed to the temporary pay cut in 2015 and had their full pay restored by 7 March 2016 when the business had recovered.

In his decision, Senior Deputy President Hamilton said,

This is a legitimate course of action taken by the employees and employer, and no criticism should be made of it in my view. Indeed it might be said that it appears to be the sort of joint effort by employees and employer which should be encouraged by this tribunal. (at [13])

The employer’s strategy to be open and honest with its employees eased the financial pressure on the business and avoided redundancies, but unfortunately, this process wasn’t without issues.

The employer failed to connect with one particular employee who was on leave at the time that major discussions took place. That employee would not agree to the temporary pay cut and the employer terminated his employment. 

After hearing the employee’s application for unfair dismissal, the FWC held that the dismissal was harsh, unjust and unreasonable.  Specifically, the FWC said that the employer’s justification for terminating the employee’s employment (namely, his refusal to accept a pay cut) did not relate in any way to his capacity or conduct, as required by s387(a) of the Fair Work Act 2009 (Cth). Therefore, no valid reason existed for terminating the employee’s employment. In fact, the employer conceded that the employee did have the capacity to do his job.

The dismissal was also found to be harsh, unjust and unreasonable because the employer failed to adequately consult with the employee about the upcoming changes.  It did not give him the same treatment as other employees and denied him procedural fairness.

However, having regard to all the circumstances, the FWC only awarded the employee two weeks pay in compensation. It was put forward by the employer that the employee would not have been employed for any longer than a decent period of time in which appropriate discussions with him could occur. The FWC estimated this to be two weeks and made orders accordingly.   

In short, redundancies are not the only option for employers going through difficult times. The FWC has shown its support for employers willing to genuinely work with employees in order to save a business and jobs, even if the solution involves temporary pay cuts across the board. 

Shane Koelmeyer is a leading workplace relations lawyer and Director at Workplace Law. Workplace Law is a specialist law firm providing employers with legal advice, training and representation in all aspects of workplace relations, employment-related matters and WH&S.

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