The Federal Court has awarded redundancy pay to an employee whose full-time role was abolished – even though they remained employed in a permanent part time role. The case underscores the need to carefully consider your strategy and actions during restructures.
In Broadlex Services Pty Ltd v United Workers’ Union the Federal Court upheld an earlier NSW Magistrates Court decision to award full redundancy pay to a cleaner whose full-time role was no longer required because Broadlex’s client had reduced the cleaning hours required under its commercial contract.
The cleaner continued to work for Broadlex on a part-time basis and retained all service-related entitlements.
Section 119 of the Fair Work Act 2009 (Cth) (“FW Act”) provides:
An employee is entitled to be paid redundancy pay by the employer if the employee’s employment is terminated: a) at the employer’s initiative because the employer no longer requires the job done by the employee to be done by anyone….
Broadlex argued that because the employee’s employment was not terminated, there was no entitlement to redundancy pay.
In summary, both the Magistrate’s Court and the Federal Court found:
Termination of the contract and termination of the employment relationship are separate but related.
In this case Broadlex repudiated the full-time contract when it implemented its decision to discontinue the employee’s full-time hours, and the employee accepted the repudiation – this terminated the full-time employment contract on the initiative of the employer.
The reason for the termination was that the employer no longer required the full-time job done by the employee to be done by anyone, and therefore it met the test of section 119.
There is nothing in the words of the FW Act that limits the meaning of “termination” in section 119 to being termination of the entire employment relationship; termination of the employee’s full-time contract was enough to trigger the employer’s obligation to pay redundancy pay.
The Court referenced the common clause in awards and enterprise agreements that requires payment of notice to an employee who transfers to lower paying duties because of redundancy. However, it was made clear that this provision does not grant the employer an automatic right to make such a change.
During restructure, employers have an obligation to consider redeployment, including to lower paying roles or roles with other significant changes in conditions. Such changes could result in “termination” (for the purpose of redundancy pay) – depending on the specific facts and the governing instruments.
It is vital that when considering restructures, employers take advice about these implications before making definite decisions and before communicating redeployment options to the affected workforce. There may be lawful options available to avoid the unintended creation of a redundancy pay entitlement when an employee does not leave your employ.
When negotiating an enterprise agreement, employers should also be mindful not to create provisions that will limit the options available during restructures. This will involve closely reviewing more than the termination and redundancy clauses. Drafting of agreements should always be done – or at least closely reviewed – by experienced drafters familiar with contemporary industrial relations.
Employment contracts should be reviewed to ensure that they contain best practice approaches to minimise the risk of inadvertently creating redundancy pay entitlements when their current position changes or is abolished but they remain employed.
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