Consultation with employees - Why, what and when?

By: Ruth Nocka (Special Counsel), Amanda Cameron (Lawyer)

Submitted by Firm:
Corrs Chambers Westgarth
Firm Contacts:
John Tuck

The obligation on employers to consult with employees arises in a number of contexts. It is an obligation that often doesn’t get the focus that it requires.

However, the decision in Australian Licenced Aircraft Engineers Association v Qantas Airways Limited (No.2) [2013] FCCA 1696 (28 October 2013) reminds employers that consultation is not something that they can approach as a mere formality in the decision making process. A failure to consult can result in substantial civil penalties being imposed. In that case, Judge Raphael of the Federal Circuit Court of Australia ordered Qantas to pay $41,250 in penalties for breaching its consultation obligations and for failing to provide information required for effective consultation.

In this In Brief, we examine when employers are required to consult with their employees, what consultation means and the costs of non-compliance.

When does the obligation to consult arise?

Under the Fair Work Act 2009 (Cth) (FW Act), the obligation to consult arises in the following main situations:

  1. when considering making a major workplace change that will have a significant effect on employees covered by a modern award or an enterprise agreement;
  2. in connection with termination of employment; and
  3. when implementing changes that affect employees on unpaid parental leave.

Consultation obligations also arise under workplace health and safety legislation (although these requirements are not covered in this In Brief).

Major workplace change

All enterprise agreements and modern awards must include consultation terms that require employers to consult employees about major workplace changes that are likely to have a significant effect on their employment. The parties to an enterprise agreement can agree to their own consultation term; otherwise, the model consultation term in the Fair Work Regulations 2009 (Cth)[1] will be taken to be included in the enterprise agreement. The model consultation term is in similar terms to that contained in modern awards.

Consultation under an award or agreement usually requires an employer to notify its employees of a decision to introduce any major workplace change as soon as practicable after the decision is made; and to discuss the changes with employees and their representatives. The discussion should cover the introduction of the change, the effect the change is likely to have on employees and the measures being taken to mitigate any adverse effect of the change on employees. There is also an obligation to provide information to employees about the proposed change in writing, and to give “prompt and genuine consideration to matters raised” by employees or their representatives.

For these purposes, major workplace change includes:

  1. undertaking a restructure;
  2. making positions redundant;
  3. making changes to rosters;
  4. making changes to working hours;
  5. transferring employees to other work or other work locations; and
  6. requiring employees to undertake retraining.

There may be additional obligations for an employer depending on the specific terms of any consultation term the parties have included in an enterprise agreement (if they have not adopted the model term).

A failure to comply with the obligation to consult in either an award or enterprise agreement can expose an employer to penalties.

Termination of employment

There are a number of provisions in the FW Act which require employers to consult with an employee prior to terminating their employment:

(a) Where an employer has decided to make 15 or more employees redundant, section 531 requires that the employer must notify any relevant union/unions and consult with those unions on the following issues:

  1. measures to avert or minimise the proposed dismissals; and
  2. measures (such as finding alternative employment) to mitigate the adverse effects of the proposed dismissals.

This opportunity to consult must be given as soon as practicable after the employer’s decision to implement the redundancies, and prior to any dismissals taking effect.

(b) Employers are required to comply with the consultation obligations imposed by an applicable modern award or enterprise agreement, in order to rely upon the exemption from unfair dismissal claims in the case of a “genuine redundancy” (under section 389 of the FW Act).

Employees on unpaid parental leave

Section 83 of the FW Act imposes obligations on employers to consult with employees on unpaid parental leave, in relation to any changes that will have a significant effect on the status, pay or location of the position held by the employee prior to taking that leave.

What should an employer do to discharge its consultation obligations?

There is no hard and fast rule as to what it means to consult for the purposes of the legislative obligations discussed above. Consultation requirements can vary according to the particular circumstances, and the wording of applicable award or agreement provisions.

What is clear is that the consultation must be genuine. An employer may be penalised if it is apparent that the employer treated consultation as a mere formality in the overall decision making process, and had made a final decision before consulting employees or did not intend to take on board any of the employees’ feedback.

If the consultation process is challenged, internal documents created by the employer can be reviewed to determine the genuineness of the consultation.

Generally speaking, consultation requires an employer to discuss the introduction of changes that will affect the workforce or the particular employee, and to consider the views of employees before making a final decision. This does not mean employers have to give employees and their representatives a right of veto or ask for their consent to the proposed change.

To discharge the obligation to engage in “genuine consultation” an employer should:

  1. engage in consultation early on;
  2. provide employees and their representatives with a real opportunity to provide their views and opinions on the proposed decision;
  3. remain open to suggestions;
  4. provide comprehensive information to employees about the proposed decision and make sure it is in an accessible format;
  5. respond to any requests for information from employees – although this does not mean the employer is required to provide confidential or commercially sensitive information;
  6. keep records of conversations involving consultation;
  7. review any suggestions or opinions made by employees or their representatives;
  8. if deciding to implement the original decision which was the subject of consultation, explain the rationale for this to employees and their representatives; and
  9. consider seeking legal advice if unsure of the extent of the employer’s obligations.

Why is consultation important?

Employers need to properly consider their consultation obligations, because a failure to meet these obligations can result in a range of potential adverse consequences including:

  1. substantial legal costs;
  2. a greater exposure to successful unfair dismissal claims where employees have been made redundant, because the “genuine redundancy” defence will not be available; and
  3. proceedings for breach of an applicable award/enterprise agreement, and the imposition of substantial civil penalties as highlighted by the recent Qantas decision.

The cost of non-compliance

Qantas decision

In Australian Licenced Aircraft Engineers Association v Qantas Airways Limited (No.2) [2013] FCCA 1696, Qantas was ordered to pay a total of $41,250 in penalties for breaching its consultation obligations and for failing to provide information that was required for consultation.

The case arose from Qantas’ announcement that it was changing its maintenance procedures by introducing a Maintenance on Demand (MoD) system for its Boeing 737-800 and Airbus A330 fleet. The introduction of MoD resulted in fewer checks being performed on these aircraft by licenced aircraft maintenance engineers (LAMEs), and led to the positions of 30 LAMEs being made redundant.

In the substantive proceedings,[2] the Court had found that:

  1. Qantas breached its consultation obligations under the applicable workplace determination, by not genuinely consulting with the Australian Licenced Aircraft Engineers Association (ALAEA) in relation to its decision to make the 30 LAMEs redundant. The Court found that Qantas made a definite decision to make the positions of 30 LAMEs redundant prior to consultation occurring. This was evident from a letter Qantas sent to the ALAEA prior to consultation occurring, informing the union of its decision to introduce t MoD and stating “as a result of this decision, approximately 30 positions will become redundant.” Qantas used the consultation process to determine who would volunteer to leave employment and to inform the employees of their rights and opportunities in this respect. However, the Court considered that the redundancies were a “foregone conclusion”, regardless of any consultation process, so there was no opportunity for the union to negotiate over the number of redundancies.
  2. Qantas also breached its obligation under the workplace determination to provide certain information which had been requested by the ALAEA as part of the consultation process.

These breaches constituted contraventions of section 280 of the FW Act, with each contravention attracting a maximum penalty (at the time the breaches occurred) of $33,000 for a corporation.

In the penalty decision, the Court imposed upon Qantas penalties of:

  1. $24,750 for failing to genuinely consult; and
  2. $16,500 for failing to provide information required for consultation.

According to the Court, the relatively high penalty for failing to consult was justified for a number of reasons, including the need for deterrence and the fact that the breach involved senior management and a “deliberate action by a large corporation”.

Finally, employers should note that the maximum penalties for breaches of this kind have recently been increased to $10,200 for individuals and $51,000 for corporations – a further reason to ensure compliance with statutory, award and agreement consultation requirements.

[1] Schedule 2.3, see here.

[2] Australian Licenced Aircraft Engineers Association v Qantas Airways Limited [2013] FCCA 5992.