A report produced by the Organisation for Economic Co-operation and Development this year found that “workers who involuntarily lose their jobs can face substantial economic and non-economic costs. On average, each year around 2.3% of Australian workers with at least one year of tenure experience job loss due to economic reasons such as corporate downsizing or firm closure. In an international comparison, Australia has been rather successful at providing new jobs relatively quickly to these workers, as 70% become re-employed within one year and almost 80% within two years, even if new jobs are sometimes of poorer quality”.

Effective change management in these circumstances requires employers to implement a strategic approach to what roles are still required within an organisation, whether the obligation to pay redundancy is in fact triggered, and what options may exist for redeployment. In this article, we have distilled some emerging themes arising from recent decisions in relation to redundancies. These include:

• when employers are (and when they are not) required to make redundancy payments;
• what types of employment count towards continuous service;
• how employers should approach redeployment in the redundancy context; and
• the impact of specific obligations under a modern award or enterprise agreement.

Redundancy as we know it

Under the Fair Work Act 2009 (Cth) (“FW Act”) a redundancy occurs if an employer no longer requires the person’s job to be performed by anyone because of changes in the operational requirements of the employer’s enterprise.

Redundancy pay: not automatic

Often employees will perceive a situation where their role is no longer required as meaning that they are automatically entitled to redundancy pay (an outcome which can be more attractive than continuing employment in another position). However, employers should remember that the FW Act requires there to be a termination of employment before the entitlement to a redundancy payment arises.

The redundancy of a job or position does not necessarily amount to a termination of employment. Where the evidence demonstrates that, after identifying that a role is longer required, an employer has attempted to retain the employee’s services by offering an alternate position, there may be no termination of employment and, therefore, no entitlement to redundancy pay.

Whether making a particular position redundant and offering a new role amounts to repudiation of the contract of employment (which may lead to a termination of employment if the repudiation is accepted by the employee) will be determined by the terms of the relevant contract and the terms and conditions of the new role. For example, it is common (and in fact recommended) that employment contracts are subject to a condition that employees may be required to perform other duties that an employer may direct them to perform, having regard to their skills, training and experience, and that the employer may relocate them if the operational needs of the business require it.

In a recent case, an employee’s role was no longer required but the employer proceeded to offer various alternative roles. After turning down all of the roles offered, the employee alleged that he was entitled to redundancy pay, and when the employer refused to terminate his employment, he resigned. The employee then brought a claim for redundancy pay on the basis that he was constructively dismissed. The Court rejected this argument, in part, on the basis that the employer still required the employee’s services.

When dealing with organisational change it is important for employers to consider whether the changes proposed are such that they are relatively minor and within the scope of duties that the employer can direct the employee to perform, as opposed to changes that amount to a termination (or repudiation) of employment.

How much do I need to pay?

If an employer determines that a redundancy payment is due, it then needs to undertake the task of determining the amount payable based on the employee’s period of continuous service with the employer.

The National Employment Standards (“NES”) contain the minimum redundancy entitlement that an employee will receive. An employee may be entitled to a more generous redundancy entitlement in accordance with their contract of employment, a policy, enterprise agreement or award.

In a recent decision the Fair Work Commission (“FWC”) determined that periods of “regular and systematic” casual employment will be counted towards redundancy entitlements in circumstances where an employee transitions from casual employment to permanent employment (and is not a casual employee at the time of the termination of their employment).

The effect of this decision is, so long as the period of casual employment was “regular and systematic” and was part of the period of employment from which the employee is being made redundant, there will be no break in service between the period of casual employment and the transition to permanent employment for the purpose of calculating redundancy pay.

Other acceptable employment

If an employee is entitled to be paid an amount of redundancy pay and the employer obtains “other acceptable employment” for that employee, the employer can apply to the FWC for an order to reduce the amount of redundancy pay, including to nil.

What constitutes “acceptable alternative employment” is a matter to be determined on an objective basis. The use of the qualification “acceptable” is a clear indication that it is not any employment which complies, but that which meets the relevant standard. There are core elements of such a standard, including that the work is of a like nature, the location is not unreasonably distant, and the pay arrangements comply with award requirements. The FWC has found the relevant standard will be dependent on the “entire factual matrix” and an “objective assessment of acceptability”. For example, where the alternative employment requires a change of location, the FWC will look at the additional travelling time and distance involved, and any consequential disruption to the employee’s personal life and circumstances.

Obtaining that alternative employment

In a recent case the question was whether the former employer had “obtained” the alternative employment. At first instance the FWC decided to vary the redundancy pay owed by an employer to 48 employees from their full entitlement to nil, on the basis that it had facilitated suitable alternative employment with a new employer. However, the decision was overturned on the basis that the former employer did no more than facilitate contact between the new employer and the employees. This simply led to an invitation being extended to those employees to apply for a position and to attend an interview, which may or may not have resulted in an offer of employment. The Full Bench of the Federal Court upheld this decision on appeal, stating that:

“to obtain employment for an individual means to procure another employer to make an offer of employment, which the individual may or may not accept as a matter of his or her choice. If the employment is not accepted, the question whether that employment was ‘acceptable’ will then arise.”

Know your industrial instruments

In addition to any consultation provisions, employers covered by an enterprise agreement or modern award must be conscious of other obligations that may arise under such instruments. In a recent case following a downsizing, the enterprise agreement in question placed an obligation on the employer to “investigate all avenues to avoid forced redundancies, including the reduction of contractors” where permanent employees could instead adequately perform the duties of contractors. The Federal Court determined that the employer contravened this provision by failing to explore voluntary redundancies and by only considering reducing the use of full-time and permanent contractors (when at the time of the redundancies there were no such contractors). The court upheld an order to reinstate the employees affected by those decisions.