A legal guide to consultation during a crisis

Employers mustn’t forget their legal obligations when they are forced to make quick and important changes in the coming months.

COVID-19 has made our lives more volatile. This volatility has been met with unprecedented government intervention and economic assistance – assistance that’s soon coming to an end.

In late September, the moratorium on creditor’s petitions and statutory demands will be lifted, causing a sharp spike in corporate and personal insolvencies. At around the same time, the Commonwealth Small and Medium Enterprises Guarantee Scheme and JobKeeper payments are scheduled to change.

This could magnify the pressure placed on businesses, and there’s no doubt that in many workplaces significant and unpalatable changes will be required. And time will be of the essence.

In a situation where changes have to be implemented quickly, it’s worth revisiting the rules around an employer’s duty to consult the workforce about major changes.

This volatility has been met with unprecedented government intervention and economic assistance – assistance that’s soon coming to an end.

Three preconditions

Any employer for whom a modern award or enterprise agreement applies is obliged to consult with employees about any definite decisions to make major changes to productions, programs, organisations, structures or technologies that are likely to have a significant impact on employees. The consultation duty has three preconditions, each of which must be satisfied before the duty to consult employees is enlivened.

First, the employer must make a definite decision to implement the change. Whether it has been made is a question of fact and determines when the duty to consult arises.

Second, the decision must pertain to implementation of “major changes”. Whether something is a major change depends on:

The seniority and importance of the employees in the employer’s operations.
The extent to which the affected employees work in an integrated or disconnected manner.
The consequences for the continuing employees.
The number of employees affected.

Third, the changes must have “significant effects” on impacted staff. These are usually defined by the award or agreement and typically include termination, loss of job opportunities, alteration of hours of work or the need for transfer of employment or retraining.

If the duty to consult arises, employers are required to do more than merely notify employees of the changes. They must hold discussions with the employees (and, if applicable, their union) about the effect on employees and the measures that need to be taken to avoid any adverse effects. Remember, such discussions are not a one-way street.

Employers must also provide written information about the changes, their nature and their effect on employees. While this does not require production of confidential information, it does require more than provision of an abridged summary.

Implementing change

A ‘failure to consult’ is often disputed by unions in an endeavour to hold off terminations of employment or to obtain leverage in negotiations about the changes. Recently, the Federal Circuit Court of Australia dealt with such a dispute in Health Services Union v Healthscope Operations Pty Ltd.

Healthscope decided to outsource laundry operations at Newcastle Private Hospital, which resulted in 12 redundancies. It implemented the decision one week after making it, did not consult the employees and terminated employment on the same day employees were told of the decision. The Health Services Union (HSU) made an application for civil penalties, alleging Healthscope failed to consult.

The HSU submitted that outsourcing was a major change because Healthscope analysed the decision, made transitional arrangements, saved capital expenditure and was party to an anterior agreement with a labour hire company which would take over the operations.

If the duty to consult arises, employers are required to do more than merely notify employees of the changes.

The court rejected the HSU’s submissions, concluding the analysis conducted by Healthscope was simply an exercise of due diligence, and the capital expenditure, while not insignificant, paled in comparison to Healthscope’s overall budget. Crucially, the court gave weight to the number of employees affected (12) relative to Healthscope’s total workforce (2,884).

The court reiterated that when determining whether a change is a major change, it is necessary to consider the factors outlined previously. It is simply not enough to contend the change is “a major change and distressing for the employees themselves”.

While employers can expect the Fair Work Commission and federal courts to give some latitude around consultation disputes during the COVID-19 recovery phase, it is unrealistic to expect carte blanche. Accordingly, HR advisors are well advised to:

Actively participate in the development of workplace changes.
Determine whether the workplace change is a “major change” as soon as possible.
Properly document the date at which the employer decides to make the change.
Identify how the change will affect the employees.
Identify each employee who will experience the effects of the change.
If necessary, commence consultation.

This article originally appeared in the August 2020 edition of HRM magazine.

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