Fair Work Commission Shuts Down Employer’s Plan to Cut Redundancy Payout

Savco Vegetation Services Pty Ltd (“the Company”) has failed to persuade the Fair Work Commission (“FWC”) that helping a worker secure a job warranted not paying a worker their redundancy entitlement.

The Company applied to the FWC to reduce the worker’s redundancy pay from eight weeks to nil on the basis it was a “strong moving force towards” creating an “available opportunity” for the worker to be hired by a new employer. FWC Commissioner Ian Cambridge disagreed.

The Facts

The Company lost a large Essential Energy contract to a direct competitor, ETS Vegetation Management (“ETS”). As a result of this, the employer no longer required a substantial segment of its workforce and contacted ETS to transition its employers over to ETS.

The Company directed workers to apply for available ETS positions via the SEEK job search website and its termination letter to workers included a reference to “company assisted employment with new Tender holders“.

It is on this basis that the Company believed it was entitled to reduce redundancy payments to the transitioning workers.

Legal Issue

Employees are entitled to redundancy pay from their employer if their role is no longer required to be performed. Redundancy pay is determined by an employee’s period of continuous service and an employee’s base rate of pay for his or her ordinary hours of work as per s 119 of the Fair Work Act 2009 (Cth) (“the Act”).

However, s 120 of the Act allows an employer to apply to the FWC to reduce redundancy pay if the employer obtains other acceptable employment for the employee. The amount of the redundancy payment may be reduced to nil where the FWC considers it appropriate.

The Union’s Case

The Communications, Electrical and Plumbing Union of Australia (“the Union”) argued on behalf of one of the transitioning workers who secured a job with ETS, heavily criticising the Company’s application to not pay redundancy payments.

The Union argued that the worker has secured the new position on his own merit, “through his own efforts of answering the SEEK advertisement and following a competitive interview process“. Therefore, the Union argued that the worker ought to be paid his redundancy entitlements.

Furthermore, the Union contended that the new position with ETS was not acceptable alternative employment. The new position paid $5.17 an hour less, was subject to a six-month probationary period, and the location of work and rostering changed significantly to the worker’s detriment.

The Decision

The FWC dismissed the Company’s application as being “without jurisdictional foundation“.

This was because the entitlement to be paid redundancy was not because of s.119 of the FW Act but instead, was an entitlement provided by the terms of the relevant Enterprise Agreement. Consequently, the FWC held that it could not determine the application under section 120 of the Act. But given the agreement also provides a mechanism for the FWC to amend redundancy payments if the employer obtains acceptable alternative employment, therefore decided to determine the merits of the question to avoid further litigation.

First Issue

The first issue was whether the Company had in fact obtained employment for its redundant employees. That is, had it operated as the primary means to which alternative employment was secured by former employees? Evidence provided by ETS to the FWC did not confirm that the Company had negotiated and secured assurances from ETS regarding the employment of its redundant employees. The General Manager of ETS indicated that an arrangement had been made between the Company and ETS, however the redundant employees were not guaranteed a position. Instead, they were subject to “a competitive recruitment process”. Because if this, the FWC held that, “the facilitation and assistance for a potential employment [fell] far short of satisfaction that the employer had obtained other acceptable employment.”

Second Issue

The second issue was whether the alternate employment was objectively acceptable in accordance with s 119 of the Act. Evidence and submissions by the Company and ETS did not establish that the Company had obtained other acceptable employment for the respondent employees. In fact, the FWC found that there were a number of significant shortfalls in respect to the terms and conditions of employment with ETS, such as lower hourly rate of pay, less attractive rostering, a six-month probationary period and loss of non-transferable benefits derived from a length of service with the Company.

The Takeaway

Employers can apply to reduce redundancy payments at the discretion of the FWC if an employer obtains other acceptable employment for the employee. Notwithstanding this, as this case clearly demonstrated, the Company making the application must have a jurisdictional basis for the application, be the primary means to securing alternative employment, and the alternative employment must be acceptable.

If you have any further questions about either making an application to the FWC to reduce redundancy pay, or challenging such an application, please do not hesitate to contact  Nick Stevens, Luke Maroney, Daphne Klianis or Josh Hoggett.