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Reducing Redundancy Pay is a High Bar to Jump
As is well known, the Fair Work Act 2009 requires employers to make a redundancy payment to an employee whose employment has been terminated because the employer no longer requires the job to be done by anyone, or because of insolvency.
Despite this, the Act also provides the Fair Work Commission with discretion to reduce the amount of the redundancy pay (including reducing it to nil) if:
- the employer obtains other acceptable employment for the employee; or
- the employer is unable to pay the amount.
Applications for a reduction to redundancy pay have often been unsuccessful, and two recent cases provide further insight to the Commission’s approach to each of these grounds.
Obtaining acceptable employment
The employer, the Kelly Group, sought for the Commission to reduce the redundancy pay owed to a dismissed employee on the grounds she was offered suitable alternative employment. The employer claimed the employee was offered two positions of suitable employment (with unrelated companies).
The Commission had to first consider whether the employer “obtained” the offer for the employee. Only if the employer “obtained” the offer would it be necessary to consider whether those offers met the threshold required for “other acceptable employment”.
In respect of the first offer, both parties agreed that the employee had initiated contact with the first potential new employer and only after this did the employer have contact to discuss the terms on which an offer might be made.
In respect of the second offer, the Commission found the employee was the “driving force” in securing the offer of employment, and how she became aware of the available position (which was through the employer) was irrelevant.
Ultimately, the Commission found the employer had not obtained either offer for the employee. Despite this, Commissioner went on to consider if the first role would constitute other acceptable employment (if it had been obtained by the employer). The Commission outlined a number of factors to be considered, including the nature of the work, job security, and hours of work. While the Commission found that the requirement to work the same number of hours over an extra day was unlikely to prevent the offer from being other acceptable employment, the change in title and duties did.
Cannot pay the amount
The employer, RingIR Pty Ltd, sought for the Commission to reduce (to nil) the redundancy pay due to five redundant employees, on the ground they were unable to pay because of the risk it would “pose to its solvency.” The Applicant also sought that they should be treated as a small business, due to the size of its Australian operations, and despite being an associated entity to a US-based company (Ring IR Inc).
In rejecting the claim that the employer was a small business, the Commission noted that this was not a matter of discretion, and instead turned on the total number of employees across the employer and its associated entitled (which totalled seventeen).
In respect of the alleged incapacity to pay, the employer provided evidence of a range of financial matters which underpinned its submission that it could not afford to pay the redundancy payments (which totalled just under $107,000). The financial matters arose from a number of factors, including recent setbacks in some major contracts and other external issues.
While the Commission accepted that the employer’s cash flow was strained it noted the recent recruitment of a new Chief Executive Office, who under the terms of their contract benefited from a salary increase of $110,000 which commenced during the same period in which the employees were made redundant. The Commission also referred to the various assets available to the employer, including the apparent previous willingness of the parent company to assist in providing resources when the subsidiary required assistance.
The Commission also suggested the employer could have initiated discussions with the CEO in an effort to negotiate the deferral of the salary increase to facilitate the redundancy payments.
The Commission was ultimately not persuaded the employer could not pay the redundancy amounts, and ordered for all five employees to receive their full redundancy payments.
As employers increasingly begin reviewing their operations for efficiencies and cost savings in the current economic climate, these cases serve as a timely reminder of the conditions and evidentiary burden that will need to be met by an employer before the Commission will consider exercising its discretion to reduce the amount of redundancy pay to be made to a redundant employee.