Redundancy Series: Varying redundancy pay – what you need to know

In most instances, if an employee’s employment is terminated due to redundancy (see here to understand a “genuine redundancy”), that employee will be entitled to redundancy pay of 4-16 weeks’ base rate of pay, depending on their period of service.[1]

However, the Fair Work Act 2009 (Cth) (the Act) provides a mechanism in section 120 by which an employer can make an application to the Fair Work Commission (FWC) to vary the amount of redundancy pay that must be paid to the employee. The FWC can, in response to such an application, reduce the amount of redundancy pay which is payable, which may be nil, to an amount that it determines is appropriate. The employer can make such an application because the employer either:

• obtains other acceptable employment for the employee;[2] or
• cannot pay the amount.[3]

It is critical to understand that the employer cannot rely on one or more of the above factors to itself to decide to reduce, or not pay, redundancy pay. An employer must make a successful application to the FWC to be able to lawfully take such action.

Obtaining other acceptable employment for the employee

When considering whether the employer has obtained other acceptable employment for the employee, the FWC will first determine whether the employer “obtains” other employment. The employer “obtains” other employment “when it acquires or gets the employment by its conscious, intended acts.”[4] That is, it must have made some deliberate effort to secure the new employment for the employee.

The onus of establishing that the alternative employment is “acceptable” rests with the applicant employer. In Spotless Services Australia Limited t/as Alliance Catering,[5] Deputy President Sams identified the following key principles:[6]

• The test of what constitutes “acceptable employment” is an objective one. It does not mean it must be acceptable to the employee.
• “Acceptable employment” is not identical employment.
• An employee must meaningfully cooperate with the employer in exploring or considering options for alternative positions.
• An employee’s entitlement to redundancy pay may be at risk if the employee refuses a role or position, which is found to be objectively ‘acceptable’.

The FWC will consider a range of matters in determining whether the other employment is acceptable. Other employment does not cease to be acceptable merely because it is on terms less advantageous to that of the previous position.[7] For example, in National Union of Workers v Tontine Fibres[8] it was noted that:[9]

“In order to establish whether the alternative employment obtained by the employer is acceptable it is necessary to have regard to such matters as pay levels, hours of work, seniority, fringe benefits, workload and speed, job security and other matters (including the location of the employment and travelling time)”

Once the FWC finds that the employer obtains other acceptable employment for the employee, it does not automatically follow that the redundancy pay is reduced to nil. In the recent case of Kresta Blinds Ltd v Ms Sharon Bryant,[10] Commissioner Hunt reduced the redundancy payment owed to the employee from eight weeks to three weeks, as concern was expressed for the employee’s ability to secure acceptable employment in the foreseeable future having regard to “the current economic climate due to the COVID-19 pandemic”.[11]

The DLA Piper employment team has extensive experience in assisting employers with the redundancy process. Please don’t hesitate to reach out to our team who would be more than happy to discuss this topic with you.