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Can My Employer Reduce My Redundancy Entitlement?

An employer in Australia is obliged to make payments to a worker who is made redundant (unless the employer has fewer than fifteen employees). A redundant employee is entitled to a set amount of redundancy pay depending on their length of service and the type of workplace. This formula is set out in the Fair Work Act 2009. Unfortunately, employers are increasingly trying to use provisions of this Act to reduce their employees’ redundancy entitlement. This article explains how an employer can vary or reduce a redundancy entitlement in Australia.

What Is Redundancy?

Redundancy occurs when an employer determines that a position is no longer operationally necessary. Employers may need to make a position redundant because of business restructuring, financial reversals or the introduction of new technologies that replace human labour. In those circumstances, it is considered fair for the employer to make the position redundant. Redundancy is only fair if it is genuine according to the statutory provisions in the Fair Work Act. Otherwise, a false redundancy is grounds for an unfair dismissal case. For a genuine redundancy, the following must apply:

  • The business’s operational requirements have changed so that the employer no longer requires the position to be filled;
  • The employer cannot reasonably redeploy the employee to another position within the company; and
  • The employer consults with the affected employee if there is an obligation in the employee’s award or enterprise agreement.

FWC Can Allow My Employer To Reduce My Redundancy Entitlement

An employer can ask the Fair Work Commission (FWC) for permission to reduce an employee’s redundancy entitlement. The FWC will assess the facts of the individual case and may order a reduction in the redundancy or even waive the requirement entirely. Only the FWC can order a variation in an employee’s redundancy entitlement. The employer cannot vary the amount without this FWC order or the employee’s agreement. The FWC may agree to vary the redundancy benefit if the employer genuinely cannot pay the whole entitlement or finds the employee acceptable alternative employment with another employer.

Financial Hardship

The FWC found in Mason Architectural Joinery Pty Ltd [2020] that an employer was under significant financial strain. After hearing the facts of the case, the FWC permitted the employer to reduce a worker’s redundancy entitlement from seven weeks to one week of wages. Conversely, in Worthington Industries [2020], the FWC rejected an employer’s application to reduce redundancy payouts for three full-time workers. The Commission noted that while the employer had experienced declining sales during COVID-19, they had sufficient funds in the bank to pay the full redundancy entitlements.

Acceptable Alternative Employment

The FWC will consider a range of factors before ordering a reduction on the basis that the employer found the employee other work. The onus is on the employer to demonstrate that they obtained (through conscious, intended action) acceptable alternative employment for the employee. “Acceptable alternative employment” is an objective concept, and the FWC will allow consideration of the following aspects of the new position:

  • Whether the new work is similar to the employee’s previous duties;
  • The new workplace’s location and whether it is an unreasonable distance from the previous workplace or the employee’s residence;
  • The employee’s new hours of work;
  • Whether the employee’s conditions and pay are comparable and comply with award requirements;
  • Probationary periods and job security;
  • Seniority and continuity of service;
  • Fringe benefits; and
  • The employee’s family circumstances.

An employee must “meaningfully cooperate” with their previous employer’s attempts to find them alternative employment. This means that they should seriously consider any options that the employer proposes. The employee’s prima facie entitlement may be at risk if they refuse an objectively acceptable position. If a group of employees are all made redundant, and one employee accepts alternative employment, that does not mean that the employment is acceptable to the entire group.

Can My Employer Reduce My Redundancy Entitlement: case Study

In Aisle 4 Pty Ltd T/A Greener Grocer v Nicola Hawkins [2021], an employer sought permission to reduce an employee’s redundancy. The employer claimed that they obtained acceptable alternative employment for Ms Hawkins at Harris Farm Markets. The employer requested a reduction of her entitlement from eleven to two weeks’ pay to account for the employee’s short unemployment. The FWC applied the standard tests to decide whether the employer had obtained alternative employment for their former employee.

The FWC was satisfied that the employer did obtain other employment for Ms Hawkins by arranging a meeting with a prospective employer at the earliest opportunity, encouraging her to be well-presented and paying for her attendance at three meetings with the new employer. However, the FWC was not satisfied that the new employment was acceptable. Ms Hawkins was forced to accept a significant reduction in her hourly pay and lost continuity of service, impacting her parental leave, pro-rata long service leave and notice of termination entitlements. The Fair Work Commission ultimately declined to vary Ms Hawkins’ redundancy payment because the employer had not found her acceptable alternative employment.

As this case demonstrates, an employer may try to reduce a redundancy entitlement without sufficient grounds. If your employer attempts to reduce your redundancy entitlement, you should seek legal advice immediately. Please call our specialist solicitors on 1300 038 223 or make an appointment via this online form.

Dr Nicola Bowes

This article was written by Dr Nicola Bowes

Dr Nicola Bowes holds a Bachelor of Arts with first class honours from the University of Tasmania, a Bachelor of Laws with first class honours from the Queensland University of Technology, and a PhD from The University of Queensland. After a decade working in higher education, Nicola joined Armstrong Legal in 2020.

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