Full Bench provides guidance on labour hire termination scenario

The Full Bench of the Fair Work Commission has handed down an important decision relating to a labour hire company’s decision to terminate an employee who they were directed to remove from one of their client’s work sites.

In this particular case, the Employee had been employed by the labour hire company (‘Company’) and had been placed with one of their clients (‘Client’) pursuant to a contractual arrangement for the supply of labour to a particular venture.

The Employee had an unblemished work record, but was subsequently involved in a ‘near miss’ incident in October 2015.  The Client subsequently relied on a contractual right that it held under the contract with the Company to direct the Company to remove the Employee from the work site.  Despite the Company not agreeing with the Client’s decision to remove the Employee, the Company did so in compliance with its contractual obligations.  The Company then attempted to redeploy the Employee. When the Company was unable to redeploy the Employee within its Australian or New Zealand entities, it made the decision to terminate him.

The Employee commenced an unfair dismissal claim and alleged that the Company had relied upon his capacity or conduct as the reason for his dismissal.  At first instance, the Fair Work Commission held that the dismissal by the Company was not related to the Employee’s conduct.  The Commissioner found that once the Client had exercised its contractual right to direct that the Employee be removed from the site, a decision which was beyond the Company’s control, the Company had made significant attempts to redeploy the Employee, and that it was only once all redeployment avenues had been exhausted, that the Company made the decision to terminate.

The Commissioner held that in the circumstances, considerations as to whether there was a valid reason for the dismissal did not arise, and that the termination had not been harsh, unjust or unreasonable.

The Employee appealed the decision on three grounds:

“(a) The Commissioner erred by finding that the question of whether there was a valid reason for the termination did not arise on the facts of the case.

(b) The Commissioner failed to take into account the mandatory consideration that there was no valid reason for the termination of [the Employee’s] employment.

(c) The Commissioner failed to take into account the relevant consideration of the unfairness of the decision of [the Client] to direct [the Company] to cease employing [the Employee] on the [Client’s] Site.”

In granting permission to appeal, the Full Bench made the following comment:

“Labour hire arrangements in which the host employer has a contractual right to exclude a labour hire employee from its worksites are increasingly becoming a common part of the landscape of employment in Australia. We have decided to grant permission in this situation because the appeal raises a broader question associated with the obligations of a labour hire employer.”

During the Appeal, the Employee again asserted that he had been dismissed because of his capacity or conduct, and that this could not have been a valid reason for his dismissal, because the Company itself had not made such findings in relation to his conduct.  The Full Bench rejected that position:

“… we do not consider his conduct was the reason for his dismissal. [The Company] was clearly prepared to place [the Employee] elsewhere in its operations but could not find a position for him. While the evidence indicates that [the Client] had concerns over [the Employee’s] conduct and elected to exercise its contractual right to direct [the Company] to remove [the Employee] from the [Client’s] Site, this was not the reason why [the Company] dismissed [the Employee]. That dismissal occurred because [the Employee] did not have the capacity to perform the duties which he was engaged to perform and could not be redeployed elsewhere by [the Company].”

The Full Bench then went on to find that as the dismissal did relate to the Employee’s capacity to do the work (given that he was not permitted on-site), the Commissioner had erred in concluding that the nature of the Employee’s dismissal did not give rise to valid reason considerations.  To this issue, the Full Bench stated:

“ …[The Employee’s] incapacity to work on the [Client’s] Site arose directly from the [Client’s] prohibition on his returning to work on that site, as distinct from any dispute over his conduct. As a consequence, the Employee was incapable of working on the [Client’s] Site in a manner which was akin to a bar or the loss of a form of licence, essential to his capacity to work. Hence [the Employee’s] capacity was a factor which required a conclusion in terms of whether it represented a valid reason for the termination of his employment.”

Whilst the Full Bench determined that the Commissioner had erred in deciding that she did not need to consider whether there was a valid reason for the dismissal, the Full Bench did not dislodge the order of the Commissioner to dismiss the unfair dismissal application, as it went on to find that there was a valid reason for the dismissal of the Employee.  The Full Bench noted that the Company had been contractually obligated to remove the Employee and that only after it had exhausted all redeployment options did it decide to terminate the Employee.  The Full Bench concluded that there was a valid reason for the dismissal in those circumstances, and that it was satisfied with the process undertaken in effecting the termination.

Lessons for Employers

This is an interesting case as it reflects a typical labour hire scenario and also a ‘not uncommon’ scenario where subcontractors are directed by principal contractors to remove a particular employee or employees from site.  This quite often means that the labour hire company or subcontractor, can no longer provide work for that employee to undertake.  This case sets up a situation whereby in such circumstances, the employee’s incapacity to perform work on that site, may constitute a valid reason for their dismissal.

However, Employers should be wary of the other factors that were present in this case.  It is clear from the fact that the Company went to some lengths to try and redeploy the Employee, and only after going to through that process and failing to find suitable alternative employment for the Employee, did the Company determine that it was appropriate to terminate his employment.  If, as an Employer, you find yourself in a similar situation, it is strongly recommended that you make a serious effort to redeploy the Employee/s, before terminating their employment.

The other critical element of this case is that the Client retained a contractual right to direct the Company to remove the Employee from the site.  This contractual right left the Company with no option but to comply.  In circumstances where such a contractual right does not exist, an Employer may well be expected to do more in terms of challenging the Client’s direction to remove that Employee from the site.