Outsourcing and unfair dismissal

There are occasions when a company may purport to outsource work to another company and then claim that as a consequence there are redundancies. This has been known to have occurred for no purpose other than to avoid unfair dismissal cases on the basis that a genuine redundancy is a complete jurisdictional defence to an unfair dismissal claim.

In determining in an unfair dismissal case whether a dismissal in this situation is a result of a genuine redundancy, and thus whether it is defensible, the Fair Work Commission may scrutinize the legitimacy of the outsourcing to ensure it is kosher, particularly where it may involve companies which are related. And it will approach outsourcing between related entities with some skepticism. Here is an example.

“Nevertheless, it must be possible to identify a rational explanation for the arrangement and the explanation must be satisfactorily related to an intelligible business objective. That is so because otherwise, doctrines of agency, at least, may operate to defeat a bare claim of independence and isolated liability, supported only by a bare reference to separate incorporation. This is particularly likely to be the case when: the separate employing company is completely reliant upon a company to which it purportedly supplies labour; it has no assets and no management structure of its own; and exists only as a corporate shell to protect another company, which does have assets, from liabilities to employees. In such a case a court might not hesitate long before pronouncing the arrangement ineffective or, in a more serious case, a sham.” Fair Work Ombudsman v Ramsay Food Processing Pty Ltd (2011) FCA 1176.

 

And see also Chance v Archer Operations Pty Ltd T/A Hervey Bay Nurseries (2017) FWC 828 delivered 22 March 2017 per Simpson C