Australia: Redundancy and Redeployment - Striking a Fair Balance

On 15 March 2013, the New South Wales District Court handed down a decision which illustrated the caution that must be applied when dealing with operational change.

The Plaintiff, Kelvin Smith ("Mr Smith") had been employed by the Second Defendant, Commonwealth Steel Company Pty Ltd ("CSC") since 1978. He became a furnace operator in the early 1990s and had been doing this job ever since.

In late October 2010, CSC transferred Mr Smith to the "railway finishing line". This work involved painting railway wheels and some other unskilled work.

Mr Smith gave CSC a letter of resignation on 9 October 2010 but alleged at the hearing that, by the time he had done so, he had already been terminated as a furnace operator and therefore was entitled to redundancy payments.

Redundancy was defined in the relevant award as follows:

"redundancy" means the employer has made a decision that the employer no longer wishes the job an employee has been doing done by anyone, and this is not due to the ordinary and customary turnover of labour; and that decision results in the termination of employment.

There was an exclusion which stated, in effect:

Nothing in this clause shall be read as requiring the employer to extend a redundancy benefit to an employee where the employer offers the employee acceptable alternative employment...

One of the critical questions in this case was whether Mr Smith's role on the finishing line was "acceptable alternative employment".

It was not disputed that:

  • there was no change in Mr Smith's pay or hours; and
  • both the role of a furnace operator and the role on the finishing line would have required approximately one month's training for a new employee, such that the two roles could be considered as requiring a relatively similar level of skill and training.

Mr Smith had problems with his knees which did not affect his ability to work as a furnace operator but did affect his ability to work on the finishing line.

The judge concluded that the question of "acceptable alternative employment" was an objective test, such that Mr Smith's subjective reaction or impression of the change in role was not relevant in itself. It was, however, considered to be relevant as evidence of the change in status between the two jobs.

In line with the finding that the test was objective, Mr Smith's medical limitations were also held to be irrelevant.1

Notwithstanding these findings, the judge concluded that the role on the finishing line was not acceptable alternative employment. He found that Mr Smith's experience and status had been established from working for 20 years as a furnace operator and that his position on the finishing line was essentially that of a newly engaged trainee. This represented a significant drop in status and therefore was not "acceptable alternative employment".

It was also noted that CSC had not "offered" Mr Smith acceptable alternative employment but rather had imposed it on him.

Accordingly, Mr Smith's application was successful and he was awarded $153,316.39.

The case highlights the need to tread carefully when seeking to change an employee's role. Firstly, it is critical to check carefully any applicable industrial instrument, whether an employment contract, an award, an enterprise agreement, an individual flexible agreement or a combination, as there is likely to be specific provision relating to redundancy that must be followed.

Secondly, it cannot simply be assumed that if an employee's wage and general conditions are unaltered that they have not been made redundant. In this case, a drop in status was enough to take it outside the scope of "acceptable alternative employment", but is just one of a number of factors that need to be considered.

Operational change is an inevitable part of business, but a clear understanding of the business's legal responsibilities, as well as the exercise of compassion and common sense, can assist in avoiding costly disputes such as this.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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