Australia: Acceptable alternative employment: have you done enough to claim the redundancy pay exemption?

Last Updated: 25 May 2015
Article by Jennifer Teh

From individual redundancies to large scale restructures, redundancy continues to be a dominant theme in 2015. One of the recurring issues is whether an employer is exempt from the obligation to pay redundancy pay because it has obtained "other acceptable employment" for the worker. The Fair Work Commission (Commission) has dealt with this issue in a number of cases since late 2014 and in each of these cases, ordered the employer to pay redundancy pay.

When is an employer exempt from the obligation to pay redundancy pay under the Fair Work Act 2009 (Cth)?

Under section 120 of the Fair Work Act 2009 (Cth) (FW Act), an employer can apply to the Commission to vary the amount of redundancy pay due to the employee (including to nil). The Commission will only reduce the redundancy pay obligation if it is satisfied that the employer has obtained "other acceptable employment" for the employee.

In three recent cases, the Commission considered whether the employers had obtained other acceptable employment for the relevant redundant employees. In order to have 'obtained' the employment for the employee, the employer's actions must have been a 'strong moving force' towards the creation of the relevant job opportunity. The next question is whether the employment was 'acceptable' which is based the objective consideration of a number of factors such as pay, hours of work, location and job security.

Maritime Union of Australia v FBIS International Protective Services (Aust) Pty Ltd [2014] FWCFB 6737 (21 October 2014) (FBIS case)

In October last year, FBIS International Protective Services (Aust) Pty Ltd (FBIS) was ordered to pay redundancy pay to 49 security industry workers who became redundant when FBIS lost its contract to supply security services to Asciano's stevedoring operations. FBIS had applied under section 120 of the FW Act for a redundancy pay exemption on the basis that it had sourced employment for the workers with AGC National Pty Ltd (AGC), the incoming contractor.

The Commission found that FBIS had not done enough to obtain the exemption because FBIS's act of providing AGC with two lists of employees and their contact details "simply facilitated an invitation by AGC to [FBIS's] employees to apply for a position and undertake an interview" and "did no more than to secure the employees an opportunity to enter the recruitment process of ACG which may or may not have resulted in an offer of employment". That is, FBIS had not secured employment for the employees and actually had no knowledge of which employees had been offered employment or of the terms and conditions offered by AGC. Despite also requesting AGC to make arrangements to meet the employees through FBIS (which was rejected), attempting to negotiate a commercial agreement with AGC about the employees' continuity of service and accrued entitlements and providing AGC with a copy of its existing enterprise agreement, the Full Bench stated that the limited actions of FBIS, which did no more than establish contact between its employees and ACG, "[fell] well short of action which 'causes acceptable alternative employment to become available to the redundant employee' and [FBIS] was not a 'strong, moving force towards the creation of the available opportunity'".

Serco Sodexo Defence Services Pty Ltd (SSDS) [2015] FWC 641 (28 January 2015) (SSDS case)

In a similar case from January 2015, Serco Sodexo Defence Services Pty Ltd (SSDS) failed to obtain an exemption from the obligation to pay redundancy pay to the majority of its workforce after it lost 5 out of 6 defence contracts with the Defence Department. SSDS applied for variation orders under section 120 of the FW Act on the basis that it had obtained other acceptable employment for the redundant employees, primarily with the incoming contractors. Commissioner Roe heard the case in three parts based on the employees' location. This decision was about the NSW/ACT employees.

Commissioner Roe noted that this was the first case involving a very large number of employees as previous applications had always dealt with limited numbers of employees with an assessment being made of each employee's specific circumstances. However, he said that the finding must still be that the employer obtained the employment for "each of the employees".

As a starting point, Commissioner Roe noted that there were differing levels of cooperation between SSDS and each of the incoming contractors. As a result, he had to determine whether the actions of SSDS had obtained alternative employment for each group of employees with the relevant incoming contractor. Adopting the approach in the FBIS case, Commissioner Roe stated there must be a "casual connection between the purpose and effort of the employer and the gaining of employment or an offer of employment, by the employee" and confirmed that the test is whether the actions of the employer are a "strong moving force" towards the job offer being made.

Commissioner Roe's conclusion was that although SSDS expended "considerable resources" in the process and its actions went considerably beyond what was required under the consultation provisions of the relevant enterprise agreements covering the employees, its actions fell well short of what was required under section 120. In coming to this conclusion, Commissioner Roe distinguished the situation where an applicant has to go through a competitive selection process for a job and the situation where a direct appointment occurs without a selection process. In this case, each of the incoming contractors had competitive selection processes so the relevant question that had to be asked was whether the applicant would have been successful regardless of the actions of the outgoing employer, given the attributes and actions of the applicant and the needs and actions of the incoming contractor. If the answer to the question is "yes" and the applicant would have been successful anyway, then it was less likely that the outgoing employer would be found to be a 'strong moving force' behind the job offer being made.

Commissioner Roe considered a number of steps taken by SSDS to assist the employees but found that they were not sufficient for him to say that SSDS was a strong moving force in creating the employment opportunities. For example, whilst SSDS assisted employees to upgrade their security clearances to obtain certain positions and make them more attractive, it was the employees who applied for and gained these qualifications; SSDS's practice of assisting employees with drafting of their applications and resumes was not widespread and whilst this would have improved the quality of their applications, there was no evidence that this materially influenced the decision-making process and the assistance was not done as part of any agreement with the incoming contractors; SSDS provided information about the recruitment process and the incoming contractors but the evidence revealed that many employees did not rely on SSDS to obtain information but found it externally; and there was no general practice that allowed employees to attend interviews, medical appointments and information sessions on paid SSDS time.

In the case of one incoming contractor, MSS, Commissioner Roe did not dismiss the application altogether because whilst the actions of SSDS were not sufficient to obtain acceptable alternative employment for each redundant employee, the actions did make a significant difference. For example, SSDS had entered into an agreement with MSS which gave preference to SSDS employees; and SSDS made facilities available for MSS to conduct interviews, assisted employees with their job applications and advised SSDS employees of job opportunities. The majority of SSDS's employees were successful in obtaining jobs with MSS. As a result, Commissioner Roe was willing to hear further evidence in respect of the individual employees but SSDS declined this opportunity.

s 120 application to vary redundancy pay, Datamars (Australia) Pty Ltd T/A Datamars [2015] FWC 1269

In February 2015, Datamars (Australia) Pty Ltd (Datamars) made an application under section 120 of the FW Act to vary the redundancy pay owed to its former General Manager, Mr Tim Scott, because it had obtained "other acceptable employment" for him. Mr Scott's position came redundant after Datamars acquired a new business, Zee Tags. Datamars then offered Mr Scott the position of Business Development Manager, which he rejected because it was not acceptable to him.

SDP Richards noted that although Mr Scott's contract provided that he would be employed in "such other positions as may be required by the company", the fact that Mr Scott "contracted freely to accept the possibility of multiple positions cannot set aside the operation of s.120 of the Act where Mr Scott's position is made redundant".

SDP Richards had regard to the authorities in relation to the test of acceptability for alternative employment, which involves an objective consideration of matters including pay, hours of work, location, seniority, fringe benefits, workload and speed and job security. However, this list is not exhaustive and the Commission looks at the totality of the circumstances, with no one factor being determinative. He also noted the Full Bench's view1that employees should minimise the hardship of redundancy by accepting alternative employment (where found to be "acceptable") and that the employee's subjective views about the alternative employment are to be given no weight.

The onus to prove the acceptability of the alternative position lay with Datamars. SDP Richards said that "[t]here is no requirement that an alternative position in order to be acceptable must slavishly replicate every term and condition of the prior position...[s]ome features of the alternative position may well be inferior to the prior position, with the alternative position manifesting some compensating or offsetting benefits of another kind".

In Mr Scott's case, there were a number of factors which supported Datamars' case including that the remuneration was the same, the level of job security was the same and the hours of work were the same. Mr Scott would also be part of a much larger organisation with a wider range of opportunities on offer. However, SDP Richards' dismissed Datamars' application, finding that the "absence of any definable and substantial executive/strategic function and a very different measure of seniority and status in the new position [inhibited] a determination that the alternative position was acceptable". In the new role, Mr Scott would have more of a sales focus than an executive focus and would cease reporting directly to the Chief Operating Officer and would report to the new General Manager Asia-Pacific. He would cease to exercise a number of functions and key responsibilities such as human-resource decision-making, OH&S matters and profit and loss of the business. Datamars was also unable to identify at the time who Mr Scott would be responsible for managing, whereas previously he had managerial responsibilities.

In the alternative, Datamars submitted that the redundancy pay should at least be reduced. However, SDP Richards stated that "it is not the case that where an offer of alternative employment has been made (but does not amount to "acceptable alternative employment" under the Act) the redundancy obligation should be discounted to the degree that the alternative offer approaches acceptability".

What you need to do to claim the redundancy pay exemption?

The above cases demonstrate that there is a high threshold that an employer must meet before it can claim the redundancy pay exemption in section 120 of the FW Act. An employer must first "obtain" the employment for the employee which requires the employer's actions to be a 'strong moving force' behind the creation of the alternative employment. The alternative employment must then be "acceptable".

In the SSDS case, Commissioner Roe gave the following examples of what steps an employer can take to show that they have obtained employment for a redundancy employee:

  • Approaching the incoming employer and securing an agreement to employ a particular employee without the need for a selection process;
  • Providing information about a job opportunity which the employee would not otherwise have had access to;
  • Providing assistance to an employee and/or reaching agreement with the incoming employer which causes the job offer to be made or was a strong moving force towards the job offer;
  • In the context of a group of employees, reaching agreement with an incoming contractor to employ all of the employees without the need for a selection process.

It is clear that providing assistance and information to employees in what is otherwise a competitive recruitment process is not sufficient.

Employers also need to make sure that the alternative role is acceptable, based on all of the relevant factors considered overall. A role that may seem acceptable due to equivalent pay and hours may still be unacceptable if there is a significant diminution in seniority, status and responsibilities.


1Australian Chamber of Manufactures v Derole Nominees Pty Ltd (1990) 140 IR 123; [1990] AIRC, Print J4414, 12 September 1990, Peterson J, Marsh DP, Oldmeadow C

This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.

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Jennifer Teh
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