Employees are entitled to redundancy pay under the Fair Work Act 2009 (Cth) if their employment is terminated in circumstances of “redundancy”. In Australia, a redundancy occurs if the employment ends because the employer no longer requires the employee’s job to be performed by anyone. In a recent case, an employer successfully applied to the Fair Work Commission (“FWC”) to reduce the amount of redundancy pay it had to pay.

The FWC determined that the employer had found the redundant employees “acceptable employment” with another employer, and accordingly, the redundancy pay owed to the employees could be significantly reduced.

What amounts to alternative “acceptable employment”?

For the alternative employment to be considered “acceptable”, the new position must bear a “sufficient comparability” to the original one where the new work is not “unreasonably removed” from the employee’s original duties, skill set, qualifications, experience and other conditions of employment. Whether the employment is acceptable is not based on the subjective views of either the employer or employee but rather is an objective consideration of objective factors which include:

• nature of the work;
• pay;
• working hours;
• skills;
• duties;
• seniority; and
• location.

The FWC noted that “acceptability” is a lower hurdle than “equivalent” or “suitable” and placed it in a similar category to “adequate” or “tolerable”.

In this case, how were factors considered?

Pay – the FWC found that in relation to one of the employees, being paid a higher hourly rate for less hours did not necessarily render the alternative employment unacceptable. It was sufficient for any wage/salary to be roughly equivalent. In this case, wages of $31.25 per hour for a 40-hour week and $31.50 per hour for a 38-hour week were considered “roughly equivalent”.

Work and role – the FWC confirmed that there was no requirement for the employer to obtain identical work and it was logical that at a new place of work an employee may need to learn new or different systems. Even if the employee found these differences personally unacceptable (to the point of resigning from the new position), the FWC could still find the position objectively “acceptable”.

Workplace culture – the employees considered the new workplace was “overwhelming and unprofessional” and they provided anecdotal evidence of intimidating interactions with other workers. While the FWC accepted that there was a difference in environment (white collar versus blue collar) and the complaints were likely derived from that change, the employee’s assessment of “culture” was a subjective matter that did not factor into the assessment by the FWC.

Environment – conversely, the FWC accepted objective evidence that the new employment environment was dusty, noisy and malodorous with exposure to inert waste which made it less acceptable work. This was specifically taken into account when considering the appropriate reduction to redundancy pay.

Seniority – there was some evidence that one of the new roles was a “demotion”. The FWC noted that while this factor makes a role “less appealing” it needs to be weighed against other factors such as that the work was within the same industry and that overall, the role was not unreasonably removed from the original duties.

Employer efforts – from the outset the employer needed to show that it had obtained the employment for the employees. The FWC has a “broad discretion” to consider, and take into account, the effort put in by the original employer to find acceptable alternative employment.

On the totality of these grounds, the FWC was satisfied to make a seventy percent reduction of the employees’ redundancy entitlements.

Takeaways for employers

Redundancy can be a complex and difficult decision, and one that Australian employers may need to consider more in light of future anticipated economic challenges. However, finding acceptable alternative employment for redundant employees may help both employees mitigate the effects of unemployment and allow employers a means of reducing the cost of expensive redundancy payments.

Veronica Lee, Senior Associate and Daniel Prodigalidad, Paralegal