Welcome to our first E-Law for 2008.

As everyone in Australia is painfully aware, arguments regarding what is generally known as "WorkChoices" occupied much of the recent Federal election campaign.

One area that attracted criticism is the entitlement of an employer to dismiss employees for "operational reasons" - without being guilty of "unfair dismissal".

A decision of the Australian Industrial Relations Commission last month has cast useful light on just what this term means in practice. It is good news for employers - and makes useful reading for any employer and any employee who might be involved in a business restructure where, as a consequence, some current employees may no longer be required.

The new Labor government has signalled its intention to make changes to the Federal industrial laws - but the details of many of those proposed changes are not yet known. There is actually some debate as to the extent to which some of the changes will be "real" changes, as compared to either "fine tuning" or "window dressing".

In any event, until the changes are announced, and then passed through parliament, the current law stands. Industrial relations promises to be an active subject through 2008 - and we will keep you alert to useful changes and issues throughout.

Regards,

David Heidtman

Commercial Group
Heidtman & Co Lawyers

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Employee Dismissal for 'Operational Reasons'

29th January 2008

In our previous issue of E-Law, we outlined some of the legislative changes to the industrial relations system proposed by the new Federal Labor Government. Until the Federal Labor Government actually passes its industrial relations reforms through Parliament, the Workplace Relations Act 1996 (the "WRA") will continue to govern the obligations and rights of employers and employees (where applicable).

One of the more problematic (and controversial) provisions of the WRA has been the statutory exclusion of a claim for unfair dismissal where the dismissal is based on an employer's 'operational reasons'. That expression is not defined within the WRA, and has led to commercial uncertainty for employers. For employees who have satisfied their probationary periods, the spectre of dismissal still looms.

On 14 December 2007, the Australian Industrial Relations Commission ("AIRC") handed down a decision which provides guidance on how the 'operational reasons' exclusion should be interpreted.

In the case of Cruickshank v Priceline Pty Ltd [2007] AIRC 1005 (the "Priceline decision") Mr Cruickshank was employed by Priceline, and was made redundant as part of a restructure when his business unit was merged. Cruickshank brought a claim for unfair dismissal after he discovered that his position was re-advertised by Priceline at a lower salary. Some people may recall that this type of dismissal was the subject of the Labor Party's pre-election advertising campaign.

When the case first came before a single Commissioner, Priceline succeeded in showing that there was a genuine structural reason for the dismissal – economic efficiency and streamlining of the business group. Priceline also convinced the AIRC that there was no evidence that the dismissal was a sham or that Cruickshank was unfairly targeted. This decision was controversial because it seemed to permit employers to dismiss employees and replace them with people on lower salaries.

Cruickshank appealed the decision. On appeal the AIRC accepted Cruickshank's evidence that his position was re-advertised after the dismissal but the claim that the dismissal was a sham was rejected. The AIRC upheld the earlier decision, ruling that:

1. an employee's dismissal does not have to be an unavoidable consequence of the employer's 'operational reason';
2. whether an employer explored alternatives to dismissal or not is irrelevant to whether the dismissal was based on 'operational reasons'; and
3. there were bona fide reasons for Priceline to reduce its operational costs through restructuring and reducing the number of positions within the business group from three to two – even if the replacement position was advertised at a lower salary.

Accordingly, the reasons for Cruickshank's dismissal were found to be genuinely economic or structural in nature - the termination was within the 'operational reasons' exclusion and the claim by Cruickshank for unfair dismissal was rejected.

An employer does not necessarily need to prove an absolute financial necessity for restructuring which leads to a dismissal – a restructure for the sake of economic efficiency will suffice. Recent AIRC decisions have demonstrated that restructures involving the replacement of employees with others on lower salaries satisfy the 'operational reasons' exclusion as long as the employer can point to some economic, technological, structural or 'other' reason for doing so.

Despite the width of the 'operational reasons' exclusion, employers still need to be prepared with enough evidence for a dismissal based on operational reasons – personality conflicts and performance concerns will not satisfy the 'operational reasons' exclusion.

Future legislative change

We are still awaiting details of the proposed changes to the Federal industrial laws. The prevailing view amongst legal commentators is that the current 'operational reasons' exclusion will be replaced by a new statutory test that will give businesses the right to dismiss employees only in circumstances of genuine and significant financial strain. Arguably this is just as ambiguous a test as the 'operational reasons' exclusion. In any event, until new legislation is enacted, the principles outlined in the Priceline decision will continue to apply.

If you would like to discuss the Priceline case or have any workplace relations enquiries, you are welcome to contact David Heidtman, Alan McMurran, Elizabeth Lee or Michael Tzirtzilakis of our office.

Author: Michael Tzirtzilakis - Commercial Group

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