Fashion group hit with Fair Work Australia ruling that redundancies were not genuine

Fair Work Australia has ruled that the termination of five employees by Speciality Fashion Group were not genuine redundancies because the company failed to consult with the affected employees about its plans, but another case is needed to determine whether the terminations were harsh, unjust or unreasonable.

SFG, the listed company involved in the design and sale of women’s apparel, including Katies and La Senza branded stores with about 4,700 employees, argued to Fair Work Australia the terminations were not unfair because they were the result of genuine redundancies.

But FWA vice president Graeme Watson on Friday found that the five people – who were employed as a merchandiser, a merchandise controller, a senior merchandiser, a quality controller and on-road quality control inspector – fell within the Textile, Clothing, Footwear and Associated Industries Award.

This award bound SFG to a consultation clause which compels employers to notify employees who may be affected by proposed changes to production, program, organisation, structure or technology, and/or significant effects which include the termination of employers. This consultation must occur as soon as practicable.

Industrial relations lawyer Peter Vitale says the ruling doesn’t mean the employees will necessarily succeed in their unfair dismissal case, but for a redundancy to be considered genuine, the employer must show it has complied with consultation under the agreement.

“What the employer hasn’t done, which would have stopped any claim going further, is demonstrate to the tribunal that they consulted with the employees prior to the decision being made,” Vitale says.

“Depending on the evidence that is put before the commissioner at a future hearing, the commission may look at it and say, well either these people may well have been redeployed and therefore their dismissal is unfair, or alternatively he may find that they’re genuinely redundant and consultation might not have made any difference,” Vitale says.

“What it really shows is that employers who are planning to implement redundancies need to be aware that if they’re not covered by an agreement, then they’re likely to be covered by an award which will contain obligations, and if they can’t comply with those obligations, it may result in unfair dismissal proceedings being more complex than they need to be,” Vitale says.

“And if you don’t go through that process, it may result in a more complex hearing where detailed evidence will have to be delivered to justify the redundancies.”

FWA heard that SFG had been affected by adverse retail trading trends in the 2010-11 year, and from February this year its executive team started looking into the causes of the profit decrease and consider potential cost efficiencies.

Around June 1, a decision was made to restructure the design and production team, reducing the number of roles based in Australia and moving closer to the sources of product.

Two human resources representatives, the general manager of operations and the then-head of design of design concluded that 21 roles – out of 72 in the design and production team – were identified as excess to requirements.

A week later, 21 employees had been identified for redundancy. It was later decided that on June 23 an announcement by CEO Gary Perlstein would be made. The company’s HR representatives during the month also met to consider whether alternative roles existed for the surplus employees, but no alternative roles were found.

On June 23, the CEO told staff that its two-year-old “new world” project – which sought to deliver the company a competitive edge – needed a change of direction, and therefore a recalibration of internal sourcing was needed.

He told staff that the decision was the hardest the company had faced, there was a psychologist available, that staff could not access their computers or swipe cards, and a translator was available.

Those made redundant were given a letter confirming the decision, a payment information sheet, a certificate of service, an employment separation certificate, and information from an outplacement consultancy. The ex-employees were also told the company would contribute up to $1,500 towards career development at recognised education institute.

Vice President Watson said “the main issues which arise in this matter are whether the employer complied with an obligation in a modern award or enterprise agreement that applied to the employment to consult about the redundancy and whether it would have been reasonable to redeploy the applicants within the SFG enterprise.”

Watson rejected the case by SFG that “one on one” discussions with employees constituted an adequate consultation process.

“The employees were told of the decisions without any invitation for matters relevant to the decision to be raised so that they could be considered by SFG. There was no indication of an opportunity for input or the SFG’s open mind on issues such as selection, redeployment, payments and alternatives to redundancy,” Watson said.

“It may be that consultation was unlikely to alter the situation, but that is not the question I need to consider. The definition of genuine redundancy only applies if SFG has complied with its consultation obligations. On the evidence before me I am unable to conclude that it has,” Watson concluded.

“It follows that this element of the definition of genuine redundancy is not satisfied and that is sufficient to find that the terminations are not a case of genuine redundancy as defined.”