Co-founder argues proper consultation not undertaken before termination
The Fair Work Commission (FWC) recently examined an unfair dismissal claim involving a company co-founder who argued his redundancy was not genuine after being dismissed from the research and development business he established.
The case arose when the worker was made redundant due to financial pressures, but he contested that proper consultation procedures were not followed and that his role remained essential to ongoing operations.
The worker argued his dismissal was unfair, maintaining that despite the company's financial difficulties, he was excluded from business discussions and not properly consulted about the redundancy as required under award provisions.
He contended that his research and development work was ongoing and that no alternative roles were explored despite his 15 years of experience and comprehensive skill set.
The employer contested the worker's claim, arguing the redundancy was genuine and necessary due to significant financial distress threatening business viability.
Investment conditions lead to control loss
The employment relationship involved a worker who was the co-founder of a solar energy technology company he started with his brother in 2009, also serving as a director from the establishment until October 2024.
In 2021, the worker secured financial investment from an investment group to expand the business, but this investment was subject to various conditions that ultimately resulted in the worker and his brother losing control of the company.
Following the initial investment round in October 2021, the worker entered into an employment agreement for the position of managing director for the Australian operations.
On 1 December 2023, a new chief executive officer was appointed, and around the same time, the worker and his brother stepped down from their respective CEO roles and assumed positions involving research and development.
While there were some inconsistencies in the description of the worker's role over time, it was not disputed that at the time of his dismissal, he was primarily engaged in research and development tasks.
The worker's responsibilities included designing, assembling, manufacturing, installing, modifying, testing, fault finding, commissioning, maintaining and servicing company products within the boundaries of his qualifications and experience.
Financial pressures prompt restructuring decisions
The chief executive officer gave evidence that the company's financial performance had failed to improve despite multiple rounds of investment between 2021 and 2023.
As a result, operational changes commenced in November 2023, including the redundancy of five full-time employees - four in Australia and one in the United States, reducing the workforce from 16 to 11.
The CEO stated he was appointed in December 2023 to "oversee improvements in the business' financial performance, utilisation of any capital raised and further restructure to the ongoing operations" of the company group.
Cost-cutting measures were implemented throughout 2024, including reductions in marketing and advertising spend, a hiring freeze, and cuts to expenses such as entertainment and motor vehicle costs.
By October 2024, it became apparent that expenses continued to exceed revenue at an unsustainable level.
The company determined that the most effective and sustainable measure was to close the research and development division and focus on manufacturing and selling existing products already in the market and capable of creating further revenue, leading to the termination of both founders' roles.
Co-founder excluded from business discussions
The worker gave evidence that he was excluded from business operations following the appointment of the new CEO in December 2023.
Despite being a director until September 2024, he was not invited to any discussions, general meetings or board meetings during 2024.
He stated he was not aware of any cost-cutting measures or redundancy considerations and had not been involved in discussions regarding investment decisions, operational matters, or staffing.
The worker further asserted that the company failed to disclose a $165,000 annual dollar-for-dollar funding grant, of which he was the only Australian staff member who could complete the required work.
He claimed this funding would have offset the cost of the research and development function, making his redundancy unnecessary.
The worker denied having any discussions with the CEO regarding business restructuring or potential redundancy, stating the company had produced no documentary evidence to confirm such discussions occurred.
He disputed ever being offered a salary reduction as an alternative to redundancy and maintained that no employment contract, role description, task list or performance indicators had been issued concerning his research and development role.
FWC finds consultation requirements not met
The FWC found that the worker was covered by the Manufacturing and Associated Industries and Occupations Award 2020 at the time of his dismissal, based on his detailed evidence regarding duties including design, manufacture, installation, fault-finding, commissioning, and servicing tasks.
The worker held HVAC Trade Certificate, Class 2B Electrical License, and Diploma in Mechanical Engineering qualifications supporting his classification as Advanced Engineering Tradesperson Level 2.
The Commission noted that consultation obligations under the award therefore applied. The relevant clause required the employer to give notice of major changes to affected employees, discuss introduction of changes and their likely effects, and commence discussions as soon as practicable after a definite decision was made.
The FWC found: "There is no evidence that [the company] provided [the worker] with written notification of the major change, nor that it gave [the worker] an opportunity to be heard on measures to mitigate the impact of the redundancy. [The company's] assertion that [the worker] was aware of cost pressures and prior redundancy process does not satisfy the consultation obligations under the Award."
Genuine redundancy test fails on procedural grounds
The Commission accepted that the company no longer required the worker's position due to financial circumstances, with no suggestion that his role was subsequently filled by another person.
The FWC found this constituted a change in operational requirements of the enterprise, satisfying the first element of the genuine redundancy test.
However, the Commission found the consultation requirement was not met.
The FWC accepted the worker's evidence that "he was excluded from discussions, not invited to meetings, and that no consultation was undertaken prior to his dismissal despite his continued status as a Director until September 2024."
The Commission concluded: "I find that the consultation requirement was not met and as a result, the redundancy cannot be a genuine redundancy for the purposes of s.389 of the Act... Given my finding that the requirement was not met, I am satisfied and find that [the worker's] dismissal was not a case of genuine redundancy."
Compensation awarded for unfair dismissal
The FWC found the dismissal was harsh, unjust and unreasonable, noting that while there was a valid reason due to operational changes, the lack of consultation was problematic. The Commission stated:
"The lack of consultation meant [the worker] was not given the opportunity to engage in meaningful dialogue and suggest alternatives to his redundancy, or to propose other options for cost-cutting."
The worker did not seek reinstatement, and the FWC was satisfied it was inappropriate given he described the current workplace culture as "oppressive, unstable and toxic."
The Commission considered the worker's unique circumstances as co-founder with 15 years' experience who had worked in all aspects of the business, finding it possible an alternative to redundancy could have been found.
The FWC concluded: "Given the unique circumstances, I consider that it is likely that [the worker] would have remained employed for at least another three months... Having considered each of these factors, I am satisfied that it is appropriate to order a remedy of compensation in the amount of 7 weeks' salary, less appropriate taxation. This in effect covers the period between the end of the notice period and the commencement of his alternative employment."
