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Can I reduce an employee’s redundancy pay? Application to vary redundancy pay

Victoria Quayle ||

When employees are made redundant, they may be entitled to a redundancy pay from their employer under s 119 of the Fair Work Act 2009 (‘FWA’). This redundancy pay can be varied but only in certain circumstances.

Section 120 of the FWA

An employee’s entitlement to redundancy pay can be varied where the employer:

  1. obtains other acceptable employment for the employee; or,
  2. cannot pay the amount of the employee’s entitlement.

The employer must make an application to the Fair Work Commission (‘FWC’) who will make a determination according to the circumstances of the individual case. The FWC may then order the redundancy pay to be reduced to a specific amount, or even in some cases removed entirely.

What does it mean to “obtain” other acceptable employment?

The employer must get an actual offer of employment for the employee rather than merely just facilitating an employment opportunity.

The case of Stabler & Howlett Veterinary Surgeons Pty Ltd T/A Stabler & Howlett Veterinary Surgeons [2019] FWC 1208 found that discussions of a proposed role was not equivalent to obtaining other acceptable employment, particularly as there was no final offer. That is, negotiating an offer is not the same as ‘obtaining’. Additionally, an offer must be obtained that the employee can accept or reject.

What is “acceptable”?

The alternative employment does not need to be “identical”, but “acceptable”. The FWC will consider the following when determining what is acceptable:

  • rate of pay;
  • location;
  • hours of work;
  • workload;
  • seniority/job status;
  • fringe benefits; and,
  • other ‘relevant matters’.

In Manheim Pty Ltd v Christopher Cordiner [2019] FWC 534, the FWC found the alternative employment to be acceptable as it had the same pay, location, hours of work and job status. Even though the employee would report to a different supervisor, the FWC found that this did not mean it was a demotion.

The duties in the alternative position and whether they are within the employee’s skill set are also taken into consideration. In Children’s Services Support Unit Inc [2014] FWC 7503 (‘CSSU’), a childcare worker tried to argue that the employment offer was not acceptable as it meant that she would go from working in a centre for children up to 12 years to another centre for children up to the age of five. It was found that this difference was not a “radical departure” from the skill set of the employee.

Also, where the first contract of employment anticipates that the role may include relocation or that the responsibilities and duties of a position may change from time to time, this can prevent the employee from arguing that the new offer is not acceptable.

What is not ‘acceptable’?

Where the new role includes terms that make it less secure, the alternative employment will be found not to be acceptable. In Australian Nursing Federation v Calvert Manor P/L t/a Werribee Terrace Aged Care and Lasting Changes P/L [2012] FWA 6460, the new contract included a new qualifying period for the employee which the FWC determined made the employment less secure and therefore not “substantially similar”.

In the case of CSSU (referred to above), although it was found that the difference in age of the children being cared for was not a “radical departure” from the skill set of the employee, the offer was not “other acceptable employment” as there was a 19% pay reduction, a likely increase in accommodation costs from the previous role and a reduction in the level of seniority.

Where an employer cannot pay the amount

The second limb of s 120(1)(b) FWA specifies that an employer can apply to the FWC to reduce redundancy pay if they are unable to pay it. The onus is on the employer to prove why they are unable to pay.

The FWC will exercise its discretion in considering the following:

  • financial standing – assets and cash position;
  • financial competence;
  • other reasonable sources of funds;
  • whether the business is eligible for JobKeeper (currently still available at the time of writing); and,
  • the effect on the employee concerned and other employees of the business if an order was or was not made.

Mason Architectural Joinery Pty Ltd [2020] FWC 1897 is a case in point where an employee holding a full entitlement to redundancy pay had their entitlement reduced from seven weeks to one week as the employer was under “significant financial strain”.

In the alternative, the FWC in Worthington Industries [2020] FWC 1912 found that there were sufficient funds available to the employer to pay the affected employees. The FWC considered the employer’s situation that due to the COVID-19 pandemic, sales were projected to decrease by 50% in the coming months, and that there would be future cash flow issues. Despite this, the company still had the means to pay the affected employees their entitled redundancy pay at that time.

Key Lessons

If you are considering the option of reducing an employee’s statutory redundancy pay (in other words, the pay they are entitled to under the NES), remember that you cannot just make a reduction because you think it’s appropriate in the circumstances, or because you think you satisfy the relevant criteria set out in section 120 of the Fair Work Act. Instead, we recommend employers to obtain the permission of the Fair Work Commission to make any such reduction, and as stated above, permission will only be granted in circumstances where the Fair Work Commission forms the view that the relevant criteria in section 120 is satisfied.

If you require assistance with any of the above, please don’t hesitate to contact a member of Coleman Greig’s Employment Law team, who would be more than happy to assist you.

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