Redundancies are, unfortunately, a fact of life. For the most part they occur because an employer wants to restructure to adapt to a changing business environment. This adaptation means that new roles may be created in, or old roles removed from the employer's organisation. It is the removal of roles (or job positions) within the employer's organisation that leads to that role becoming redundant. When the role is removed the employee in that role is affected, and his or her employment contract terminated, by reason of the redundancy.
Fiji law recognises that employers are entitled to restructure their operations and make roles within their organisations redundant. But Fiji law also regulates this process by amongst other things: restricting the reasons that may justify a redundancy; setting out a redundancy process that must be followed; and setting a minimum standard for the redundancy package that must be given to the employee who may be terminated by reason of redundancy at the end of this process.
In this commercial law update, we provide more information on the minimum standards that employers must follow. But because this is not intended as legal advice and should not be relied on as such - all employers who may be contemplating redundancies should consult a lawyer first. It must also be remembered that at all times all employers owe a duty to treat their employees with good faith, and the redundancy process under Fiji law must not be used as a disguise to terminate employees. Getting this process wrong, can be an expensive mistake, and we briefly discuss recent case law in this regard from a jurisdiction outside Fiji.
The Employment Relations Act, 2007, (“ERA”) regulates employment by setting the minimum standards that employers must follow. A failure by an employer to meet the minimum standards may result in legal liability.
The ERA regulates employer’s ability to undertake redundancies by recognising that a termination of employment may be validly done for the reason of redundancy where there are “economic, structural or technological” reasons for the business to restructure making certain roles redundant and setting minimum standards that the employer must meet.
Redundancy is defined as “no longer being needed at work for reasons external to a worker's performance or conduct pursuant to the reasons and processes set out in Part 12” [sections 107 and 108 comprise Part 12 of the ERA].
Section 114 of the ERA provides that a reason must be provided in writing by the employer to the employee for any termination. This includes termination by reason of redundancy.
Section 107 of the ERA sets out the procedure that an employer must adopt to undertake a termination for the reason of redundancy.
Prior to undertaking any redundancies, employers would be well advised to ensure that they have undertaken adequate research and obtained any internal approvals that may be required to be able to justify the reasons for the restructure. This is because the reason must accord with one of the reasons (set out above) in the ERA, but also because of the fundamental point that redundancy relates to the job role, not the person/employee.
For example, if any employer has an internal IT team, but then decides to outsource its IT to an external service provider, then those roles in its internal IT team, or at least some of them may become redundant and have their employment contract terminated for this reason. This illustrates the point that it is not a termination of employment due to behavioural or any other reason related to the employee.
At all times, employers owe a duty to treat all their employees in good faith and in the event that an employer commences a redundancy process simply to terminate the employment of a particular person, this is a breach of the employers obligation, a breach of the ERA and is known as a “disguised redundancy.” For example, and while this is not an exhaustive list, determining that the person is being paid too much, or is not liked by management are not justifiable reasons for terminating that employee by reason of redundancy.
In the event that the employer has after some careful consideration determined that it does need to restructure and that certain positions will be made redundant then the redundancy process is set out in section 107 of the ERA. This includes a notice period of 30 days of the decision to contemplate redundancy. However, it should be noted, If a period in excess of 30 days is noted in the individual employment contracts, this contractual period will apply.
It is an important point of employment law that employers can be more generous than the minimum standards set out in the ERA but they cannot fall below them. This is why as well as understanding the standards they must meet in the ERA employers should also consider any additional benefits or standards that they have expressly agreed to in the employment contract. This equally applies to collective agreements as these may set out additional rights including in terms on consultation with the affected employees and their representatives.
In addition, pursuant to the ERA the employer must provide a notice of the decision to contemplate redundancy to the affected employee and a notice must also be sent to the Permanent Secretary of Ministry of Labour.
Employers should also be aware that the ERA sets out the minimum redundancy package that must be offered to any employee who may be terminated by reason of redundancy and this is 1 week of pay for each completed year of service. If there are contractual terms that set a bigger minimum package, then the contractual term applies.
Finally, employers also have a duty to consult with affected employees to: avert or minimise the number of terminations and to understand what measures the employer may take to minimise the adverse effects of the terminations.
Unfortunately, we have noted that employers have a tendency to overlook this important requirement that applies to them. The consultations may begin as soon as the notice is given to the employees who may be affected by the employer’s decision to restructure. During this consultation process the employer has an opportunity to explain why the restructure is happening but also to determine whether there are alternative or new roles that the employee may apply for. This enables information and suggestions to be provided to affected employees. Further, during consultations, employees may themselves make suggestions that would assist them during what is a stressful and difficult process. Employers may find they could accommodate requests for retraining or any number of other initiatives that could lead to a better outcome for both employer and employee.
We are unsure why the consultation stage is prone to being overlooked or misunderstood, and it may be due to the emotional side of the redundancy process but the goal of the consultation should be to avert or minimise the effect of the redundancies on the affected employees, and should be approached in this way. The consultation process does not, and probably should not be limited to one meeting only but may be an ongoing process and where possible should involve trained HR personnel. Employers would be well advised to keep notes of the consultations and handle them in an informed and sensitive manner.
As with the redundancy process itself, the consultations should be undertaken in good faith and if there are potential positions that may be created or could be offered to affected employees, then this should be genuine and information should be provided about these positions including the number of new positions and nature of those positions, applications requirement, and recruitment criteria. This information enables a realistic assessment to be made by employees regarding their future chances.
Terminations of employment contracts by reason of redundancy
Unfortunately, at the end of the redundancy process some or perhaps even all of the affected employees may have to be terminated from employment with the restructured organisation by reason of redundancy. The employer must ensure that at this point it also complies with the ERA and provides the minimum payments that the ERA stipulates - or the minimum payments that the employee’s contract of employment stipulate, if these standards are more generous than the minimum ERA standards.
Again, it is worth noting that employers are not bound to the minimum standards and may decide to be more generous to its terminated employees. In our experience, going beyond minimum standards may assist in mitigating the effects of the termination by reason of redundancy and increase the chances of a good faith resolution to the employment relationship.
At the time of termination the employees, must (in accordance with the ERA) be provided with: the notice of termination with a reason, the employment certificate, payment for all accrued benefits, and a redundancy package.
Disguised Redundancies and potential employer liability
If an employer does not have a genuine intention to restructure its operations for one of the reasons set out in the ERA, and then terminates the employment of an employee or employees for a different reason then it undertakes an unlawful dismissal. This may also be known as a disguised or cloaked redundancy.
An adverse finding against an employer for undertaking a disguised redundancy is a serious matter as the employer has effectively attempted to use a lawful process unlawfully and it is comparable, in our view, to a fraudulent action. It should be remembered that if a claim is brought against the employer that the burden will rest on the employer to justify that the redundancy and the redundancy process was genuine and genuinely undertaken.
An adverse finding by a Court or Tribunal will also result in an award of damages to the employee for unlawful dismissal, and the amount of damages will depend on the particular circumstances of each case. However, in the event of a finding of a disguised redundancy liability could be high. Although not a Fiji case and therefore not binding on Fiji's judiciary, in the Irish Republic in the case of JVC Europe Limited v Jerome Panisi  IEHC 279, Mr Justice Charleton upheld a finding that the employer had undertaken an unlawful dismissal when it had disguised that dismissal as a redundancy, pointing out that the burden rested on the employer to demonstrate that the termination of employment came within a lawful reason. Based on the particular circumstances of that case, the Judge then awarded the employee compensation of EURO 197,000 and it should be noted that this was based on legislation from that jurisdiction and also this reduced the initial finding at first instance that awarded the employee EURO 298,000. If you are interested in reading this case report then it can be found here.
It should be noted that the burden for the employer is to demonstrate not just that the redundancy was genuine but that it was also undertaken through a genuine process. In the JVC Europe Limited v Jerome Panisi case it was evident that off the record discussions and announcements by the employer played a significant role in demonstrating to the Court that the redundancy and process was not a genuine one.
In Fiji, this situation has occurred and has been litigated before the Courts. For example, in the Employment Relations Court, at Suva, in the case of Natadola Bay Resort Limited v Isireli Tamanitoakula and Others Suva ERCA 13 of 2012, the Court upheld the finding that 8 employees had been unlawfully terminated. In particular Madam Justice Wati found:
On the question of redundancy, I find that the employer had no basis to carry out the terminations on the grounds of redundancy nor did it follow proper procedure in doing so making the termination of the employees unlawful.
In that case, the Honourable Judge found that the employees who were unlawfully terminated 6 months into their 12 month contracts should be paid for the remainder of their 6 month contracts.
This employment law update is provided for information purposes only, and is intended to highlight the Fiji law requirement (shared with other common law jurisdictions) that a redundancy process should only be contemplated where it is genuine. Attempts to terminate employees in what are termed disguised redundancies is a breach of the ERA, is an unlawful dismissal and may lead to legal liability.
We also respectfully suggest that early legal advice is essential and by this we mean before an employer commences a redundancy process. Fiji has many qualified private legal practitioners who practise employment law who employers may choose to consult and if an employee has concerns then they too may consult a private lawyer or seek legal advice from Fiji's Legal Aid Commission.
If a redundancy process is commenced that is not genuine then the employer's options regarding how to resolve the situation become increasingly complicated. As is often said the cover up can create more trouble than the actual event.
With Thanks to: Mr Save Buadromo who is currently completing his GDLP, is placed with our firm, and who is about to qualify as a legal practitioner. Save undertook the case law research for this commercial law update. Thank you, Save!
Please note: This commercial law update is provided for information purposes only and it is not intended to be, and should not be taken to be or relied on as legal advice. In the event that you are an employer who is contemplating redundancies or an employee who is affected by a redundancy, then you are respectfully encouraged to seek specific legal advice and assistance from a private practioner or the Legal Aid Commission.