Australia: Avoiding redundancy pay where the employer obtains other acceptable employment for the employee

Last Updated: 10 September 2018
Article by Richard Ottley and Simon Obee

As most employers will be aware, the Fair Work Act 2009 (Cth) (Act) contains provisions requiring businesses to pay eligible employees a set amount of redundancy pay where the employee loses their employment due to their role being made redundant.

What is perhaps less well known is, the provision at section 120 of the Act which allows an employer who would otherwise be liable for payment of redundancy pay, to apply to the Fair Work Commission (Commission) for an order that no redundancy pay (or a reduced amount of redundancy pay) is payable.

Section 120 provides as follows:
Variation of redundancy pay for other employment or incapacity to pay

  1. This section applies if:
    1. an employee is entitled to be paid an amount of redundancy pay by the employer because of section 119; and
    2. the employer:
      1. obtains other acceptable employment for the employee; or
      2. cannot pay the amount.
  1. On application by the employer, the FWC may determine that the amount of redundancy pay is reduced to a specified amount (which may be nil) that the FWC considers appropriate.
  2. The amount of redundancy pay to which the employee is entitled under section 119 is the reduced amount specified in the determination.

It might be noted that s120 of the Act is a separate and discrete provision from s122, the latter being a provision which addresses a transfer of business situation and whether an employer's obligations to pay redundancy can be affected in those circumstances. This article is directed solely to the application of s120 of the Act.

In August 2018 there were at least four reported decisions, where the Commission was called upon to make a determination pursuant to section 120(1)(b)(i) of the Act, ie where the employer claimed that they had found "other acceptable employment" for the redundant employee.

The rationale of the section is easily understood. If redundancy pay is to compensate an employee for their loss of the job through no fault of their own, and perhaps the prospect of facing a period of unemployment, then it makes sense that the employer should be able to avoid liability for any such payment (or at least have the amount reduced) if it is able – through its own efforts – to find other acceptable employment for the employee. In this scenario, the employee is unlikely to face a significant reduction in earnings (or period of unemployment) for which they need to be compensated.

The four decisions discussed below, illustrate how the Commission approaches applications concerning "obtains other acceptable employment" and highlights the difficulty employers face in achieving success before the Commission.
It will be noted that the employer was successful in only one of the four applications.

Electricity Wizard Pty Ltd v Pasilika Tauiliili [2018] FWC 4556 – Deputy President Colman
Mr Tauliliili was employed by Electricity Wizard as a Team Leader, overseeing sales staff.

On 2 March 2018 Mr Tauiliili was advised that the business could not support the current Team Leader roles and that Mr Tauiliili and another Team Leader would need to undertake sales work or accept redundancy.

There was a further meeting on 9 March 2018 where it was explained to Mr Tauiliili:
"[10]...Mr Tauiliili's current role of team leader was redundant... Electricity Wizard needed to change the team leader role because certain functions were no longer required, and the sales force had reduced in size.... there was another role he could perform, to be called 'team leader', but which would involve interacting with customers, assisting them to choose the right energy plan, and contributing to sales.... the new role would entail the same hours of work and the same salary, together with necessary upskilling and retraining where necessary.... there was no position description for the role, and that certain details of the role remained to be finalised." (our emphasis)

In the meeting Mr Tauiliili advised that he was not interested in the alternative role and wished to be paid his redundancy entitlements.

There was a dispute between the parties as to when Mr Tauiliili's employment ended, but the Commission ultimately found that his employment terminated on 9 March 2018.

There was a further meeting between Mr Tauiliili and his (former) employer on 20 March 2018 where he was given further details about the alternative role including documents detailing the position description, key performance indicators and details of remuneration. Mr Tauiliili again said that he was not interested in the role.

The Commission recorded Mr Tauiliili's evidence on the acceptability of the alternative role as follows:
"[20]... He says it was of a different character, being fundamentally sales-based, rather than supervisory. He also submitted that although the salary and title were the same, the alternative role would have been a demotion. He also said that he would have had a reduced capacity to earn commissions; the commission structure meant he would need to cover his base salary by making a certain number of sales before receiving any commission, whereas in his previous role he simply made a $10 commission for every sale."

The first matter the Commission had to determine was whether Electricity Wizard had "obtained" alternative employment for Mr Tauiliili. The Commission had this to say:
"[23] Many of the cases that come before the Commission under s.120 of the Act concern efforts that have been made by the applicant-employer to obtain 'other acceptable employment' for the employee with another employer. However, it is also possible for the employer to 'obtain' other employment within its own organisation. It is clear that in the present case, Electricity Wizard 'obtained' other employment for the respondent. But when did it obtain this employment for him?

[24] During the meeting on 9 March 2018 the company gave Mr Tauiliili a good indication of the alternative role that would be available. It told him that the role would be customer-facing with a leadership element, and that the position title and remuneration would be the same. However, the alternative role discussed at this meeting lacked important details. The position description and the information about the bonus and commission structure were not provided to Mr Tauiliili until the meeting on 20 March 2018, after his employment with the company had ceased. In my view, for an employer to avail itself of s.120, the other acceptable employment must be 'obtained' and offered to the employee while she or he is still employed by that employer. The section speaks of an employer obtaining other acceptable employment for the employee. This cannot occur once the relevant employment relationship has come to an end. In the present case, the other employment was not obtained until after Mr Tauiliili's employment with Electricity Wizard ended." (our emphasis and footnotes omitted)
In the Commission's view the fact that alternative employment was only offered to the employee after his employment had ended was fatal to the employer's application.

However, the Commission also briefly addressed the question of whether the offer of employment was "acceptable". In doing so, the Commission made clear that it is possible for the employer to rely on section 120(b)(i) whether or not the employee accepts the offer of employment
"[25] ...It is clear that Mr Tauiliili did not accept the other employment. However, whilst relevant, this is not determinative of whether the employment was 'acceptable' for the purposes of s.120. 'Acceptable' means 'able to be agreed to', but it also means 'suitable'. A person might not accept objectively 'acceptable' employment.

[26] It is well-settled that the question of whether other employment is 'acceptable' is to be approached objectively, and with regard to all the circumstances, including the terms and conditions of employment and duties. In the present case, the alternative role offered the same salary and hours of work. The role had the same title, and involved leadership. It required assistance to be provided to agents, as well as coaching. However, Mr Tauiliili would have been required to go onto the phones, deal directly with clients and work on sales. The alternative role was essentially sales-based, with a leadership element; it was not primarily supervisory. It was therefore of a different nature. Further, the possibility of earning commissions was diminished. These two considerations together, on balance, lead me to conclude that the alternative employment was not 'other acceptable employment' for the purposes of s.120(1)(b)(i)." (footnotes omitted)

Stanley International College Pty Ltd T/A Stanley College [2018] FWC 4843 – Commissioner Williams
In Stanley College the facts were perhaps more straight forward.

Ms Akhter was an Accounts Officer working 30 hours over four days per week.
Her position was to be made redundant and she was offered, and accepted, an alternative position, identical to her current role apart from the fact that her hours were reduced to 15 hours over two days per week.
The Commission dealt with the employer's application that it had obtained alternative acceptable employment in the following way:
"[16] The alternative position that Stanley College obtained for the Respondent is the same Accounts Officer role but with the working hours and number of days per week reduced.
[17] The only difference between the redundant position and the other employment obtained is that the redundant position was for 30 hours worked over four days per week whereas the other employment is only 15 hours worked over two days per week.
[18] The other employment obtained for the Respondent reduces the hours and days per week she works and her resulting remuneration by 50%.
[19] Where an employer has obtained other employment for an employee whose position has been made redundant but the employee will then only be paid half the remuneration they had been receiving in the redundant position that other employment objectively is not "other acceptable employment". The fact the 50% reduction in remuneration is because that employee will only be required to work 50% of the hours and days per week of the redundant position does not change this conclusion.
[20] In all the circumstances here Stanley College has not obtained other acceptable employment for Ms Akhter.
Consequently the application to reduce the redundancy payment that would otherwise be payable to her will be dismissed
."

The ORS Group Pty Ltd T/A The ORS Group [2018] FWC 4820Commissioner Williams
ORS was in the business of providing workplace rehabilitation to injured workers and related services. In March 2018 it informed its employees that there may be redundancies in the organisation but that a separate business (APM) had agreed to employ a significant number of the staff.

In May 2018 Ms Kaur was advised that her position as Site Manager was to be made redundant but ORS had obtained other employment for her at APM as an "Employment Consultant".

The letter of offer she received indicated that her pay would remain the same and that the new employer would recognise her prior service with ORS for the purpose of calculating entitlements. The new role was also in the same location and with the same hours.

Ms Kaur did not accept the offer of employment with APM. OSR subsequently applied to the Commission to reduce the redundancy pay payable to her on the grounds of obtaining other acceptable employment for her.

As part of its analysis of the role Ms Kaur performed for ORS and the role she was offered with APM, the Commission compared the position descriptions and KPIs for both roles. It then made the following observations:
"[15] It is apparent from the above that the purpose and key responsibilities of the two positions are very different. This is reinforced by the fact that the KPIs for the two positions are also very different.
[16] The redundant position of Site Manager was a managerial and leadership role. The other employment at APM, as an Employment Consultant, was a role dealing directly with participants.
[17] Both positions are covered by the
Labour Market Assistance Industry Award 2010 [MA000099] (the Award).
[18] The other employment, as an Employment Consultant, was classified under the Award as a Training and Placement Officer Grade 2 whereas the redundant Site Manager position was classified under the Award as a Manager Grade 1 1. The other employment was two classifications below the relevant Award classification of the redundant position.
[19] Schedule B- Classification Definitions of the Award includes the following
,

"B.4.1 Training and Placement Officer Grade 2 means a multifunction employee who is engaged to provide direct services to participants and training courses, placement or support services and other programs and activities provided by the employer."
and
"B.6.1 Manager Grade 1 means a person engaged to manage the operations of a small to medium size service with a total weekly staffing of the service is less than 285 hours."

[20] ORS submit that whilst Ms Kaur was the Site Manager she had no direct nor indirect reports. In this submission they did confirm that, consistent with the ORS job description, her duties included training and staff development, claims, PPS, monitor performance and general site duties.
[21] Ms Kaur has been a Site Manager for over two years.
[22] The qualifications specified for the Site Manager position were that a Cert IV in employment services, disability or similar were preferred but not essential and that a Cert IV in Frontline Management or similar was also preferred but not essential.
[23] There are no qualifications specified for the Employment Consultant position as being essential or preferred.
[24] Ms Kaur has a Bachelor of Arts Degree majoring in Psychology.
[25] Considering all of the above I find that the Employment Consultant position was a significantly less senior role than the Site Manager position.

On balance the Commission found that the alternative role was not "acceptable" other employment and dismissed the employer's application.

The ORS Group Pty Ltd T/A The ORS Group [2018] FWC 4809Commissioner Williams
Another of ORS's applications to the Commission, concerned a Ms Zhang, employed as an Employment Consultant by ORS and offered an alternative role with APM with the same position and title.

As was the case with Ms Kaur, it was clear that the hours, salary and location would all be identical and that previous service would be recognised for the purposes of leave and entitlements.

Somewhat frustratingly the Commission's decision does not go into detail about Ms Kaur's submissions about the differences between the roles. However, the Commission held that on balance it was satisfied that the offer of employment was "acceptable". The relevant part of the decision was:
"[37] The other employment at APM was a similar role to Ms Zhang's previous position with ORS. She would continue to be employed as an Employment Consultant however her client caseload rather than being only DMS (Disability Management Services) would be both DMS and ESS (Employment Support Services). The location where she would work was the same. The annual salary she would be paid was the same. Both positions were full-time. There would be no loss of leave accruals, these would be carried over to APM and honoured by her new employer. Her length of service with ORS was to be honoured by APM.

[38] Ms Zhang in her submission identified a number of differences between ORS and APM. I accept there will certainly be some differences between the two employers operations and there will be some differences between the two roles and some employment entitlements.
[39] The question for the Commission however is to consider objectively whether the position obtained for her at APM was other acceptable employment. The fact that Ms Zhang's redundant position and the other employment obtained for her at APM are not identical does not prevent the other employment from being other acceptable employment.
[40] In the circumstances of this case I accept there were some differences between Ms Zhang's former position and the other employment ORS had obtained for her. I also accept some of these differences would have involved some detriment to her however this was relatively limited.
[41] Consequently I am satisfied that the other employment ORS had obtained for Ms Zhang at APM was other acceptable employment.
[42] Considering the particular circumstances here I agree it is appropriate to reduce the redundancy pay to which Ms Zhang would have otherwise been entitled to nil." (our emphasis)

CONCLUSION

From the above decisions the following points emerge:

  • For an employer to rely on the "obtains other acceptable employment" exemption, the alternative employment can be within the same organisation or with a different employer.
  • The employment must be obtained prior to the employee's redundancy taking effect (ie before the employment is terminated).
  • Employers should therefore ensure that they give all the relevant information to the employee about the new role before the employment ends. Only giving them partial information is unlikely to be seen as sufficient for the employer having "obtained" another role.
  • The assessment of whether an alternative role is "acceptable" or not is an objective one – the employee's views are not determinative.
  • An employer is able to seek to rely on the exemption whether or not the employee in fact accepts the alternative role.

For further information please contact:

Richard Ottley, Partner
PHONE: +61 2 9233 5544
EMAIL: RBO@SWAAB.COM.AU

Simon Obee, Associate
PHONE: +61 2 9233 5544
EMAIL: SRO@SWAAB.COM.AU

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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