Recent redundancy rulings

With the future of Job Keeper uncertain and the real possibility of employers needing to make further redundancies in upcoming months here is a summary of some recent redundancy rulings to help guide these tricky decisions:

1. “Ordinary and customary turnover of labour”: Berkeley Challenge Pty Ltd v United Voice [2020] FCAFC 113 (1 July 2020)

As a result of this Full Federal Court decision it will be more difficult for an employer to rely upon the “ordinary and customary turnover of labour” exception to redundancy pay in section 119 of the Fair Work Act in circumstances where employees have been employed to service a longstanding contract that is terminated by a third party for reasons beyond the employer’s control.

In this particular matter the Full Federal Court found that the employer was obliged to pay redundancy pay to employees who were made redundant after the employer lost longstanding contracts (one was for 14 years, the other for 12 years). The Court found that an employee’s security of employment could not be dependant upon their employer’s “overall perceptions of how it ran its business”, with the Spotless group submitting that its business was to win and lose contracts on a regular basis. The phrase “ordinary and customary turnover of labour” incorporates issues of reasonable expectation on the part of employees.

Lesson: This judgment leaves open the possibility for employers who hire employees to service contracts of shorter unpredictable duration and who make it clear upon commencement that the employment is subject to the continuation of the contract, may still be able to rely upon the “ordinary and customary turnover of labour” exception to redundancy pay.

2. Consultation remains critical: Aimal v Battery Energy Power Solutions [2020] FWC 3034 (10 June 2020)

In this matter an employer’s failure to properly consult in relation to what was otherwise a genuine redundancy rendered the dismissal harsh as the employee was denied a “fair go all round”. The employee was awarded an extra weeks’ wages on top of his notice and redundancy payments.

Lesson: There is no excuse not to comply with consultation obligations particularly if a redundancy is caused by a significant downturn in work due to COVID-19 such that consultation should be relatively straightforward and not delay the process unduly.

3. Applications to reduce redundancy pay on the basis of incapacity to pay

There have been a number of recent cases where employers have applied, with mixed success, to reduce the redundancy pay otherwise payable to employees on the basis of an inability to pay due to the financial effects of COVID-19. In making its determinations the Commission has taken into account:

• Evidence of the employer having had to borrow money to stay afloat and subsequently deciding to close;
• Evidence of the employer having insufficient funds with no reasonable source of other funds;
• Whether employees rejected offers of redeployment (even where the offers were quite vague);
• Accounts payable significantly exceeding accounts receivable not enough where the employer had sufficient money in the bank to pay the full redundancy entitlements and no evidence was provided as to its other assets and liabilities;
• Whether the employer was eligible for job keeper with non-eligible employers being more successful in having payments reduced and an employer who elected redundancies over applying for job keeper being unsuccessful;
• Whether making an order to reduce the payments would affect the employee’s rights under GEERS or as a creditor if the employer became insolvent;
• Whether reducing the payment for some employees would increase the prospects of other employees remaining in their jobs

Lesson: Clear evidence of an inability to pay combined with the effect on the employer outweighing any adverse affects on the employees will be required.

4. Applications to reduce redundancy pay on the basis of obtaining other acceptable employment: Real Property WA Pty Ltd ATF Real Property WA Trading Trust T/A Real Property WA [2020] FWC 2013

In this matter the employer’s application to reduce the employee’s entitlement to redundancy pay from 6 weeks to 2 weeks on the basis that it had offered her other acceptable employment was unsuccessful. It was found that the new role offered by the employer required the employee to perform work for the same number of hours, performing duties she had previously performed for significantly less pay and accordingly was not acceptable. The reduction in pay would also have had a consequential adverse impact on other benefits such as her superannuation savings and because the new role required her to serve a 3 month probationary period she had less job security. The scope of duties she could be required to perform was reduced and her title was changed to one suggesting reduced seniority.

Lesson: While exploring redeployment is a necessary part of the redundancy process, in order to avoid paying redundancy pay any alternative position offered must be objectively acceptable.

5. Reduction in hours amounts to redundancy: Broadlex Services Pty Ltd v United Workers’ Union [2020] FCA 867 22 June 2020

In this matter the Federal Court found that reducing an employee’s hours from 38 to 20 without her consent (albeit continuing to work the reduced hours) amounted to a termination of her employment for the purposes of s119 of the Fair Work Act thereby giving rise to an entitlement to redundancy pay. In reaching this conclusion Justice Katzmann drew a distinction between the termination of the employment relationship and the termination of the employment contract. Her Honour found that by reducing the employee’s hours without her consent the employer had repudiated the employment contract bringing the employment relationship to an end. The reason for the repudiation was that the employer no longer required the job the employee was doing to be done by anyone. By accepting the repudiation the employee brought the employment contract to an end.  As the relationship then entered into by the employee on reduced hours was fundamentally different from the previous one she was entitled to be paid redundancy pay.

Interestingly there was no attempt by Broadlex to argue that it had obtained “other acceptable employment” such that any redundancy payment payable should be reduced under section 120 of the Fair Work Act. To the contrary it argued that “employment” in this section required a break in continuity before it could be engaged. Her Honour rejected this argument. Re Southern Cross Ceramics Pty Ltd [2013] FWC 1347 supports an argument that Broadlex may have been entitled to a 50% reduction in the redundancy pay payable on the basis of a partial redundancy but this was not argued or considered.

Lesson: If you are considering reducing an employee’s hours or pay due to COVID-19 care will need to be taken to avoid a claim for redundancy pay.

6. Was redundancy adverse action? Salerno v University of Melbourne [2020] FCCA 1294 (29 May 2020).

In this matter the Federal Circuit Court found that the employer’s decision to make the employee’s position redundant was not because she made what she characterised as workplace complaints or enquiries. Of importance in reaching this decision were the following:

• A number of positions including the applicant’s were made redundant such that if the restructure was a sham to get rid of her it was a sham for those other employees as well
• A discussion held with the applicant regarding the tone of her emails was not adverse action as it was intended to assist the applicant not discipline her;
• Further discussions regarding the applicant’s performance did not constitute adverse action and if they did, no loss flowed from them as the discussions had no impact on the restructure process and the termination of the applicant’s employment.

Lesson: Although this decision went in favour of the employer it highlights the fact that employers need to be wary of potential adverse claims in any termination situation including redundancies. The decision to terminate needs to be able to be substantiated and separated from any exercise of a workplace right including, most commonly, any complaint or inquiry made by the employee in relation to their employment.

These case summaries highlight the different scenarios that can arise when considering redundancies. Early advice is paramount to avoid facing additional claims at a time when your business may already be struggling.

If you would like to talk through any redundancy scenarios or alternatives to redundancies we’re here to help.