Reducing redundancy payments through acceptable alternative employment

Workplace Relations 17 December 2018

A redundancy typically occurs when an employer has made a definite decision that the employer no longer wishes the job the employee has done to be done by anyone.  It is the job that becomes redundant, not the incumbent employee.

When a permanent employee’s job is made redundant their employer is required to provide them with redundancy pay based on the length of time they have been employed by that employer.  The employer’s liability is imposed by the National Employment Standards contained in the Fair Work Act 2009 (Cth) (the Act).

There are however, some exceptions to the requirement under the Act including where the dismissal is due to the ordinary and customary turnover of labour, the employer is a small business (it employs less than 15 employees) or where the employee was employed on a casual basis.

As well as those exceptions, section 120 of the Act provides that an employer can apply to the Fair Work Commission (the Commission) to reduce any amount of redundancy pay it is required to pay if it can demonstrate that:

  • it has obtained other acceptable employment for the employee; or
  • it can’t afford to pay the full redundancy amount.

Accordingly, in using its discretion to reduce the amount of redundancy pay an employer is liable to pay, the Commission is required to consider whether an employer has “obtained” other employment for the employee and if so, whether that employment is “acceptable”.

So what lengths is an employer is expected to go to in order to “obtain” other employment if it intends to have the employee’s redundancy pay reduced?  This issue was recently discussed by the Commission in its decision in Get Started Pty Ltd v Matthew Lee [2018] FWC 3295.

In that case, the employer was in the process of making an employee redundant when it was contacted by an unrelated company which sought to “borrow” a member of its staff to help it with a surge in its work.  The employer told the company that the employee was being made redundant and recommended him for any short-term or full-time work.  He also sent the company a link to the employees LinkedIn profile.  As a result, the employee was contacted by the company, interviewed and subsequently offered full-time employment with the company which he accepted.  The former employer then applied to the Commission to have the employee’s redundancy reduced to zero.

In considering whether the employer had “obtained” other employment for the employee the Commission held that the employer’s actions needed to be a “strong moving force” towards the employee gaining new employment and that this had to be the result of “conscious, intended, acts of the person concerned”.  Accordingly, the Commission held that the employer’s acts in procuring another unrelated company to make an offer to the employee were sufficient to satisfy the requirement contained in section 120 of the Act and reduced the employee’s redundancy pay to nil.

Once the Commission decides that the new employment has been obtained by the employer, it then turns to the question of whether that new employment is “acceptable”.  The test for determining what constitutes “other acceptable employment” is an objective one not one to be determined by the employer’s or the employee’s opinion.  In answering this question the Commission compares the employee’s previous position against their new position in light of a number of factors, including:

  • the nature of the work;
  • pay levels;
  • hours of work;
  • continuity of service;
  • level of job security;
  • fringe benefits;
  • the employee’s skills, experience and physical capacity;
  • the duties and conditions of employment associated with the new role;
  • seniority;
  • workload; and
  • the location of the work.

The recent decision of Commissioner Williams in BGC Residential Pty Ltd [2018] FWC 3045 provides an example of how the Commission assesses the new employment against the above factors.  In that case, the employer restructured its company and as a result, the employee’s previous position as a General Manager was made redundant.  However, due to the employee’s extensive experience and qualifications, the employer offered him a position in a new role of Brand Manager.  The employee accepted this offer despite its annual salary being 15% less than his previous role.

In consideration of whether the role of Brand Manager constituted “other acceptable employment” Commissioner Williams found that because the new role was to be performed in the same location, during similar working hours, and required parallel qualifications, it constituted other acceptable employment.  Accordingly, and upon having regard to the fact that the role of Brand Manager had an annual salary which was 85% of the position made redundant, the Commissioner granted the employer’s application and reduced the redundancy pay by 85%.

Contact us

Considering the above, if you are required to pay an employee a redundancy pay and want to query whether you are entitled to have that amount reduced, please contact the Litigation and Dispute Resolution Team at Coulter Roache whose employment lawyers can provide you with advice and assistance you need.

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