Is it unfair dismissal? Employer cites financial hardships in unilateral change
The Fair Work Commission (FWC) recently dealt with an unfair dismissal case involving a small café business and one of its employees.
The case highlighted the potential consequences of making changes to an employee's contract without proper consideration, especially in the context of small businesses facing financial challenges.
In this case, the café owner found himself in a difficult financial situation due to various factors, such as increased competition, rising costs, and the effects of the COVID-19 pandemic. Faced with the need to reduce expenses and keep the business afloat, the café owner decided to change the employment status of one of his full-time employees to casual.
However, the manner in which this change was communicated and implemented led to the employee filing an unfair dismissal claim.
Background of the case
The employee, who worked as a full-time staff member at the café for approximately 14 months, was informed of the change in her employment status via a WhatsApp message sent by the café owner on 2 January 2024. The message stated that due to the café's financial situation, the employee's position would be converted from full-time to casual, effective immediately.
The employee, feeling that her rights had been violated and her job security compromised, chose to accept the café owner's repudiation of her full-time employment contract on 28 January 2024.
She subsequently filed an unfair dismissal claim with the FWC, arguing that the café owner's actions were unjust and unreasonable, and that there was no valid reason for the dismissal based on her conduct or capacity.
Factors considered by the FWC
In determining whether the dismissal was harsh, unjust, or unreasonable, the FWC considered several factors outlined in s.387 of the Fair Work Act.
These factors included the validity of the reason for dismissal, the notification process, the opportunity for the employee to respond, the presence of a support person during discussions, and the impact of the employer's size and lack of dedicated human resource management on the procedures followed.
The FWC found that the café owner's financial position did not constitute a valid reason for dismissal related to the employee's conduct or capacity.
Furthermore, the Commission noted that the café owner's method of notifying the employee of the change in her employment status via a WhatsApp message was not reasonable.
Employer’s lack of HR expertise
Throughout the proceedings, the FWC acknowledged the challenges faced by small businesses, particularly in terms of limited resources and the absence of dedicated human resource management specialists.
The Commissioner recognised that the café owner, in attempting to navigate the financial difficulties faced by his business, "mistakenly thought it was lawful to make [the employee] a casual employee and did not realise this would have the legal effect of repudiating her full-time contract."
The FWC also noted that "a lack of dedicated human resource management specialists contributed to a significant degree to the defects in the decision-making and procedures followed by [the café owner] in effecting the dismissal."
Financial state of the employer
Moreover, the financial state of the café was a central factor in the case, as it was the primary reason behind the café owner's decision to change the employee's employment status.
The FWC accepted that the café's financial difficulties were genuine and that this was the motivation for the café owner's actions, as stated in the decision:
"I find the financial state of the [café] is a relevant factor and I accept that was the reason [the café owner] repudiated [the employee's] employment contract."
However, the FWC also emphasised that financial challenges do not absolve employers of their responsibilities under employment law or justify the implementation of changes without following proper procedures.
FWC’s conclusion and compensation
After considering all the factors outlined in s.387 of the Fair Work Act, the FWC concluded that the dismissal of the employee was unjust and unreasonable, primarily due to the absence of a valid reason related to her conduct or capacity. The decision stated:
"Having considered each of the matters specified in s.387 of the FW Act, I am satisfied that the dismissal of [the employee] was unjust and unreasonable primarily because there was no valid reason for dismissal related to [the employee's] conduct or capacity."
While the FWC determined that reinstatement was inappropriate given the irreparable damage to the employment relationship, it found that an order for compensation was appropriate in the circumstances. The decision noted:
"[The employee] has suffered financial loss in circumstances where I have found there was not a valid reason for dismissal. In all the circumstances, I consider that an order for payment of compensation is appropriate,” the FWC said.
The case serves as a cautionary tale for small business owners, highlighting the need to understand and comply with employment law, even in the face of financial hardship. It also demonstrates the importance of seeking professional advice and following fair and reasonable procedures when making significant changes to an employee's contract or effecting a dismissal.
