Owner turned director cries unfair redundancy, consultation failure

The Fair Work Commission (FWC) recently dealt with an unfair dismissal case involving a business development manager in the insurance industry.

The case highlighted important issues around redundancy, consultation requirements, and award coverage.

In this case, the FWC found that the employer failed to properly consult with the worker before making their position redundant, despite being required to do so under the relevant award.

This decision serves as a reminder to employers about the importance of following proper procedures when considering redundancies, even when there may be legitimate operational reasons for restructuring.

Worker’s new role

The case centred around a worker who had sold his own insurance brokerage to a larger company on 1 July 2022. As part of the sale agreement, the company created a specific role for the worker as a director of the acquired business. The intention was to focus on and expand the worker's previous client base.

Initially, the worker's remuneration package was $150,000 (inclusive of superannuation) plus 20% of any new business. However, when the worker's performance didn't meet the company's expectations, they agreed to change his role to business development manager in October 2023.

This new position came with a different remuneration structure, including a lower base salary of $83,240 but the potential for commissions on new business. The new structure included quarterly targets and a bonus system based on exceeding these targets.

Performance issues or genuine redundancy?

The employer claimed that the worker continued to underperform in this new role. They provided evidence showing that over October to November 2023, the worker had brought in $10,818.65 of income against a business target of $32,727.27.

However, the worker argued that there was a long lead time in his speciality area of Builders' Warranty Insurance, meaning immediate results weren't always visible. He also stated that he was working on potential clients for various insurance products at the time of his dismissal.

On 15 December 2023, the employer informed the worker that his position was being made redundant. The corporate department manager and Perth branch manager made this decision, citing a lack of new business generation. However, they failed to consult with the worker about this decision prior to the termination meeting.

Award coverage and consultation requirements

A significant part of the case revolved around whether the worker was covered by the Banking, Finance and Insurance Award 2020. The employer argued that the worker's role didn't fit into any of the award classifications, but the FWC disagreed.

The FWC applied the 'principal purpose test' to determine award coverage, looking at the nature of the worker's duties rather than just their job title.

They found that the worker's role fit within Level 4 of the award, which includes positions like customer relationship manager and senior case manager.

The FWC noted:

"I do not see how someone who effectively sells insurance for an insurance firm does not fall within the scope of Level 4 of the Award when indicative jobs at this level include a customer relationship manager, a personal lending relationship officer and a senior case manager."

This finding was important because it meant the employer was required to follow the consultation process outlined in the award before making the worker's position redundant.

The FWC's decision

After considering all the factors, the FWC ultimately found that the worker had been unfairly dismissed. While they accepted that the employer had genuine operational reasons for restructuring, the failure to consult with the worker was a significant issue.

The FWC emphasised:

"The point of consultation in redundancy situations is to give employees this specific opportunity to affect the end outcome, which can include averting the need for their role to be made redundant or otherwise mitigating the effect of a redundancy."

Interestingly, during the hearing, it came to light that the worker had recently sold a significant insurance policy that the employer wasn't aware of at the time of the dismissal.

The Perth branch manager acknowledged that the worker had sold a client a home indemnity insurance policy to the value of 20 million dollars, but that he was not aware of this until after the worker's employment had been terminated.

The FWC said:

"It is open to me to find that this information could have influenced the decision to make [the worker’s] role redundant."

This further underscored the importance of proper consultation and information sharing before making redundancy decisions.

In conclusion, the FWC said:

"Considering all the factors in s 387, I find that the failure to consult [the worker] in the circumstances makes the decision to dismiss him unreasonable. I am therefore satisfied that [he] was unfairly dismissed."

The FWC directed the parties to provide submissions on the appropriate remedy. The worker initially sought financial compensation in his written submissions but changed this to reinstatement at the hearing.

The FWC decided to hear the parties separately on the question of remedy and directed them to attend a member-assisted conciliation to attempt to resolve the question of remedy by agreement.

This case serves as a reminder to employers about the importance of following proper procedures, particularly consultation requirements, when considering redundancies. It also highlights the need to carefully consider award coverage and the related obligations that come with it.