Australia: Redundancy Pay And Comparable Alternative Employment

Last Updated: 17 April 2009

Article by Mira Guirguis and Stuart Kollmorgen


On 23 February 2005 Teletech International Pty Ltd (Teletech) terminated the employment of a number of employees on the ground of redundancy.

The employees were covered by AWAs which contained a clause providing for the payment of severance pay in the event that Teletech terminated employment due to redundancy. An exception clause did however exist, whereby Teletech was not required to pay severance pay if it was:

"able to arrange alternative employment with another employer that is comparable in wages, terms and conditions of current employment."

Ultimately, each terminated Teletech employee obtained employment with Telstra Corporation Ltd (Telstra). Teletech negotiated an arrangement with Telstra whereby each redundant Teletech employee had the opportunity to apply for a similar position of employment at Telstra. All employees had to undergo Telstra's standard recruitment process. Although all terminated Teletech employees obtained a position of employment at Telstra, discrepancies existed between the terms and conditions of employment at Telstra, and the former contracts of employment at Teletech.


Alternative employment

Marshall J held that Teletech had not provided 'alternative employment' for its redundant employees and therefore it was liable to pay severance pay under the terms of the AWA.

His Honour construed the clause narrowly and held that arranging alternative employment:

"...means bringing about the employment should the employee choose to accept it. Anything short of that, such as competing with competitor applicants....does not meet the test."

The fact that Teletech had arranged for its former employees to go through Telstra's recruitment process did not equate to "bringing about the employment."

Marshall J emphasised that Telstra required staff to perform the functions that were formerly performed by Teletech and as such Teletech was not a "strong moving force towards the creation of the available opportunity."

The fact that Teletech employees were required to go through Telstra's standard recruitment process, and were given no preferential treatment in the context of selection criteria, weighed heavily on the fact that Teletech had not facilitated alternative employment.

Comparable wages, terms and conditions of employment

Marshall J also set out a general approach to be taken when considering whether employment is "comparable in wages, terms and conditions."

He described the necessary approach to the comparative process as a "global approach rather than an item by item comparison of every term and condition."

His Honour emphasised the need to compare legally enforceable wages, terms and conditions and discretionary terms and "conditions as found in company policies that relate to the employee's employment." Consideration of terms and conditions should include an analysis of the position in terms of seniority, hours of work, duties, leave and other benefits and job security.

Significantly his Honour held that "it would be difficult to find wages and terms of condition of employment comparable in circumstances where an employee has gone from one employment where he or she enjoyed job security to employment with no or minimal job security." His Honour noted that in determining job security, factors such as accrued entitlements, seniority, length of service and probationary periods must all be considered. His Honour considered the probationary period that applicant employees were exposed to under Telstra AWAs and noted that Telstra had the right to dismiss employees during this period without notice. As this placed employees in a particularly vulnerable position, which they would not have otherwise been subjected to under their former AWAs with Teletech, his Honour placed emphasis on this in his assessment of job security.

Implications for employers

The narrow interpretation taken by Marshall J confirms the onerous requirements employers must satisfy before they will be precluded from paying severance pay. A clause excluding employers from liability to pay terminated employees severance pay should compensate employees for a broad range of hardships that follow being made redundant. This extends beyond compensation for the mere fact of unemployment. Thus, employers are placed in an onerous position.

To satisfy the requirements of 'alternative employment', the employer essentially needs to offer the employee a guaranteed position in alternative employment. The offer should be one which is accepted at the initiative of the employee and should not subject employees to a traditional recruitment process.

Furthermore, in order to assess whether the alternative employment is 'comparable in wages, terms and conditions', the court will take a 'global approach', as opposed to an item by item comparative analysis. The global approach, which is effectively a balancing exercise, incorporates the evaluation of the following list of conditions; though note that this is a non-exhaustive list:

  • wages
  • hours
  • position in terms of seniority
  • leave and other benefits, and
  • job security, factoring in probationary periods, seniority and accrued benefits.

Marshall J summed up the judgment by describing the necessary arranged alternative employment as "a transition into new employment as if [the former] employment were ongoing." This is an onerous test for employers, and means that:

  • careful strategy and planning by outgoing employers is essential, and
  • the outgoing employer may wish to use whatever bargaining power it has in negotiations with the incoming employer to ensure that offers of employment are made to transferring employees, and the terms of those offers.

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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