Redundancy overview

Redundancy refers to a job becoming redundant and not an employee becoming redundant.

Definition
 
‘Redundancy’ can be described as the situation where an employer no longer requires employees to carry out work of a particular kind or to carry out work of a particular kind at the same location. Redundancy refers to a job becoming redundant and not an employee becoming redundant. See R v Industrial Relations Commission of South Australia; Ex Parte Adelaide Milk Supply Cooperative Limited [1977] 44 SAIR; Termination, Change and Redundancy Cases (1984) 8 IR 34; Short v F W Hercus Pty Ltd (1993) 40 FCA 511. An employee’s position is usually considered to be redundant if:
  • an employer has made a definite decision that the employer no longer wishes the job the employee has done to be done by anyone
  • that decision is not due to the ordinary and customary turnover of labour
  • that decision led to the employee’s termination of employment
  • that termination is not on account of any personal act or default of the employee.
In redundancy situations, the emphasis is upon a ‘job’ becoming redundant rather than a worker becoming redundant. The words ‘when a position becomes redundant’ should be given a broad reading and not one that is strictly literal, confining the word ‘position’ to a ‘position with the employer’. See Termination, Change and Redundancy Case 8 IR 34.
 
Nature of severance pay
 
The (then) Australian Industrial Relations Commission determined that the payment of severance pay is justifiable as compensation for non-transferable credits, such as personal/carer's leave and long service leave, and the inconvenience and hardship imposed on employees. The tribunal did not believe that the primary reason for the payment of severance pay relates to the requirement to search for another job and/or to tide over an employee during a period of unemployment. See Termination, Change and Redundancy Case 8 IR 34; Redundancy Case [2004] AIRCFB 287.
 
National Employment Standards
 
Under the National Employment Standards, ‘redundancy pay’ is payable under s119 of the Fair Work Act if the employee’s employment is terminated by the employer because the employer no longer requires the job done by the employee to be done by anyone, except where this is due to the ordinary and customary turnover of labour, or because of the insolvency or bankruptcy of the business. An employee's actions do not cause redundancy. Termination is not necessarily the consequence on each occasion.
 
Genuine redundancy
 
Section 389(1) of the Fair Work Act defines the meaning of a ‘genuine redundancy’ to mean if:
  • the person’s employer no longer required the person’s job to be performed by anyone because of changes in the operational requirements of the employer’s enterprise; and
  • the employer has complied with any obligation in a modern award or enterprise agreement that applied to the employment to consult about the redundancy.
Section 389(2) states that a person’s dismissal is not a case of genuine redundancy if it would have been reasonable in all the circumstances for the person to be redeployed within:
  • the employer’s enterprise; or
  • the enterprise of an associated entity of the employer.
‘Enterprise’ is defined in s12 of the Fair Work Act to mean a business, activity, project or undertaking. Redundancy includes circumstances where the employer is restructuring their business to improve efficiency and the tasks done by a particular employee are distributed between several other employees, and therefore the person’s job no longer exists. See Ulan Coal Mines Limited v Howarth & Ors [2010] FWAFB 3488; Kerkeris v A.Hartrodt Australia Pty Ltd [2010] FWA 674; Carter v Village Cinemas Australia Pty Ltd [2007] AIRCFB 35.
 
Replaced by a more qualified person
 
In a matter heard before (then) Fair Work Australia, the employee’s position as a Financial Controller was made redundant. The employer then hired a qualified accountant to a position titled Dealership Accountant. The duties identified in the job advertisement for the new position were identical to those of the position made redundant. The employer placed considerable emphasis on the requirement of a tertiary qualification in accounting; however the job advertisement did not specify this requirement. It was found that this was not a case of genuine redundancy. See Mcilwraith v Toowong Mitsubishi Pty Ltd [2012] FWA 9662.
 
Employee’s duties given to another employee
 
In a matter heard before (then) Fair Work Australia, the employee’s position was made redundant following a restructure of the business. The employer then assigned 90% of the employee’s former duties to another employee. The employer argued that this was a genuine redundancy as it was the duties which existed, not the job. It was held that it was not a case where an employee’s duties were distributed among other employees and therefore it was not a case of genuine redundancy. See Rosenfeld v United Petroleum Pty Ltd t/a United Petroleum [2012] FWA 2445.
 
Consulting firm hired to take over employee’s role
 
In a matter heard before the Federal Court, the employee was the General Manager of the human resources department. The employer hired consultants to conduct a review of its operations. The employer retained the consultants beyond the period of time initially agreed to and the consultants began performing duties previously performed by the employee. The employer noted this and retrenched the employee without notice, consultation or proper consideration of alternatives. It was held that this was not a case of genuine redundancy. See Miller v Central Gippsland Water Authority [1997] FCA 1081.
 
Sale of business
 
In a matter heard before the High Court, the company sold part of its business to a wholly owned subsidiary. As part of a demerger, the employer gave notice to its employees that their employment was terminated. At the same time, the subsidiary offered employment to the same employees on the same terms with continued service. Although the union argued that these employees should have been paid redundancy payments the High Court held that employees were not entitled to redundancy payments as in the context of a demerger, the employees’ positions were not redundant. See Amcor Limited v Construction, Forestry, Mining and Energy Union [2005] HCA 10.
 
Changes in operational requirements
 
The Fair Work Act does not define the term ‘operational requirements’. It is a broad term that permits consideration of many matters including:
  • the past and present performance of the business
  • the state of the market in which the business operates
  • steps that may be taken to improve efficiency by installing new processes, equipment or skills, or by arranging labour to be used more productively
  • the application of good management to the business.
See Nettlefold v Kym Smoker Pty Ltd [1996] IRCA 282.
 
The Explanatory Memorandum to the Fair Work Bill 2009 provides examples as to when a dismissal is a case of genuine redundancy. The following are possible examples of a change in the operational requirements of an enterprise:
  • a machine is now available to do the job performed by the employee; or
  • the employer’s business is experiencing a downturn and therefore the employer only needs three people to do a particular task or duty instead of five people; or
  • the employer is restructuring their business to improve efficiency and the tasks done by a particular employee are distributed between several other employees and therefore the person's job no longer exists; or
  • a site or business closure; or
  • the completion of a project, or
  • outsourcing.
The onus is on the employer to prove that, on the balance of probabilities, the redundancy was due to changes in operational requirements. See Kieselbach v Amity Group Pty Ltd [2006] AIRC PR973864.
 
Downturn in business
 
In a matter heard before (then) Fair Work Australia, a warehouse manager’s position was selected to be made redundant. There was a decline in the business and therefore the employer no longer required the job to be performed by anyone because of changes in the operational requirements of the enterprise. However, in this case, a lack of consultation deemed the dismissal as not a genuine redundancy. See UES (Int’l) Pty Ltd v Harvey [2012] FWAFB 5241.
 
Reorganisation
 
Where an employer reorganises the enterprise and this results in the duties of a person or persons being absorbed by other staff, the question of whether a genuine redundancy has occurred may arise.
 
For example, in a particular case, four supervisory team leader positions were replaced by three team leader positions. The test is not whether the duties survive. The test is whether the job previously performed by the person still exists. A genuine redundancy can still occur where the duties of the previous job persist but are redistributed to other positions. What is critical for the purpose of identifying a redundancy is whether the holder of the former position has, after the re-organisation, any duties left to discharge. If there is no longer any duty or function to be performed by that person, his or her position becomes redundant. See Jones v Department of Energy and Minerals [1994] IRCA 42; Kekeris v A Hardrodt Australia [2010] FWA 674; Ulan Coal Mines Limited v Howarth & Ors [2010] FWAFB 3488.
 
Employees exempt from redundancy pay
 
Under ss121 and 123 of the Fair Work Act, the redundancy pay scale in the National Employment Standards does not apply to an employee’s termination of employment if, immediately before the time of the termination due to redundancy, or at the time when the person was given notice of termination:
  • the employer is a small business employer (employs fewer than 15 employees)
  • an employee has less than 12 months continuous service with the employer
  • the person is a casual employee
  • the employee is terminated because of serious misconduct
  • the employee is employed for a specified task, or a specified period of time, or a specified season and is terminated at the completion of the specified task, time or season
    a training arrangement applies to the employee and his/her employment is for a specified period of time, or is, for any reason, limited to the duration of the training arrangement
  • the employee is an apprentice
  • an industry-specific redundancy scheme in a modern award applies to the employee or is incorporated into an enterprise agreement which applies to the employee.
Calculation of 15 employees

Section 121 of the Fair Work Act states that redundancy pay does not apply to an employee’s termination if, immediately prior to the termination, the employer is a small business employer. The definition of ‘small business employer’ under s23 of the Fair Work Act applies, which means an employer employing fewer than 15 employees, at that time.
 
For the purpose of calculating the number of employees employed by the employer at a particular time:
  • all employees employed by the employer at that time are to be counted; and
  • all casual employees employed on a regular and systematic basis, but excluding other casuals; and
  • the employee being dismissed, and any other employee who is being dismissed by the employer.
Associated entities are taken to be one entity
 
Notice given prior to 12 months continuous service

Under s119 of the Fair Work Act an employer is exclude from an obligation to pay redundancy pay under the National Employment Standards if, immediately before the time of the termination, or at the time the employee was given notice of termination (whichever occurs first), the employee's period of continuous service with the employer is less than 12 months, or the business is a small business employer (employs fewer than 15 employees). This means that if the employee is given notice of termination prior to 12 months continuous service, the employee is not entitled to redundancy pay, even if the date of termination occurs after 12 months service has been completed by the employee.
 Amount of redundancy pay

National Employment Standards
 
The National Employment Standards prescribes a scale of redundancy payments based on an eligible employee’s years of continuous service with the employer. The redundancy payments are based on the following scale:
  • Less than one year’s continuous service — Nil
  • At least one year but less than 2 years continuous service — 4 weeks pay
  • At least 2 years but less than 3 years continuous service — 6 weeks pay
  • At least 3 years but less than 4 years continuous service — 7 weeks pay
  • At least 4 years but less than 5 years continuous service — 8 weeks pay
  • At least 5 years but less than 6 years continuous service — 10 weeks pay
  • At least 6 years but less than 7 years continuous service — 11 weeks pay
  • At least 7 years but less than 8 years continuous service — 13 weeks pay
  • At least 8 years but less than 9 years continuous service — 14 weeks pay
  • At least 9 years but less than 10 years continuous service — 16 weeks pay
  • At least 10 years continuous service — 12 weeks pay.
The reason the amount of redundancy pay entitlement is reduced after 10 years continuous service is that the government assumes the employee is also entitled to long service leave at this point.
 
The Fair Work Commission is able to reduce the amount of redundancy pay (which may be nil) where the employer obtains other acceptable employment for the employee, or if the employer cannot pay the amount which is legally payable. The employer must apply to the Fair Work Commission for this reduction.
 
Ordinary pay
  
National Employment Standards
 
The amount of redundancy pay equals the employee’s ‘base rate of pay’ for his or her ordinary weekly hours of work. The base rate of pay is the employee’s ordinary weekly rate of pay for their ordinary hours of work, excluding incentive-based payments and bonuses, loadings, monetary allowances, overtime or penalty rates, and any other separately identifiable amounts.
 
Continuous service
 
The National Employment Standards recognise an employee’s service with their employer prior to its introduction, provided the terms of an employee's contract of employment included an entitlement to redundancy pay. Most pre-Fair Work industrial instruments provided for redundancy pay and would be considered a condition under an employee’s contract of employment.
  
Award/agreement-free employees
 
Where an employee’s contract of employment does not contain an entitlement to redundancy pay, service for the purposes of calculating redundancy pay under the National Employment Standards commenced from 1 January 2010. This will mainly affect those award/agreement-free employees who did not have a previous entitlement to redundancy pay under the conditions of their contract of employment. An employee whose contract of employment provides for redundancy pay will have service prior to 1 January 2010 recognised by the National Employments Standards.
  
Excluded service
 
Redundancy pay is based on the number of years of continuous service the employee has completed with their employer. The Fair Work Act states that all employment with the employer counts as service, except for the following absences:
  • any period of unauthorised leave
  • any period of unpaid leave or authorised unpaid absence, other than community service leave and a period of stand down (the latter means when the employer ceases paying wages to employees for whom it has no work, until work is again available, but the employee remains employed by the employer).
This means that any paid absence from work, such as annual leave, personal/carer's leave (including compassionate leave), a public holiday, jury service, and long service leave counts as service for the purposes of calculating redundancy pay. However, unpaid absence, such as unpaid parental leave, leave without pay granted by the employer, unpaid carer's leave, or unpaid compassionate leave, do not count as service and are excluded from any calculation of continuous service.
 
Transfer of business
 
Recognition of service with the first employer does not apply with respect to annual leave or redundancy pay under the National Employment Standards where the transfer is between non-associated entities, if the second employer decides not to recognise the employee’s service with the first employer. 
 
Unless the first and second employers are associated entities, the second employer is not obliged to recognise prior service with the first employer for calculating the employee’s minimum employment period provided the second employer advises the transferring employee in writing that prior service will not be recognised before he or she commences employment. 
 
According to the Explanatory Memorandum (para. 479), if the new employer does not agree to recognise an employee's service in relation to redundancy pay, the old employer will be required to pay out that employee's redundancy pay.
Transfer to lower paid duties — modern awards
 
Most modern awards provide that employees who are transferred to lower paid duties as a result of their positions becoming redundant must be given the same period of notice as they would have been entitled to receive as if their employment had been terminated. The employer may choose to pay an amount equal to the difference between the former ordinary time rate of pay and the new ordinary time rate of pay for the number of weeks notice still owing.
 
Employee leaving during notice period
 
A term common to modern awards provides that an employee who is given notice of termination in circumstances of redundancy may terminate his/her employment during the period of notice.
 
The employee is entitled to receive the benefits and payments he/she would have received under the award had he/she remained in employment until the expiry of the notice period, but is not entitled to payment instead of notice.
 
Job search entitlement
 
Most modern awards will usually provide that an employee who is given notice of termination by the employer must be allowed up to one day's time off with pay during each week of notice for the purpose of seeking other employment. At the employer’s request, the employee must produce proof of attendance at an interview or there is no entitlement to payment for the day. A statutory declaration would be sufficient proof for this purpose.
Consultation
 
Modern awards contain a ‘standard’ provision that places an obligation on an employer to consult with employees regarding major workplace change. The award requires an employer to notify affected employees when a definite decision has been made to introduce major changes that are likely to have significant effects on employees. ‘Significant effects’ include termination of employment.
 
The obligation on an employer to consult with employees would arise in most redundancy situations. Failure to implement proper consultation procedure may result in a claim of unfair dismissal because, for example, the selection criteria used to identify which employee(s) were to be made redundant was subjective and discriminatory.
 
No consultation — exception
 
A decision to dismiss on account of redundancy will only be harsh, unjust, or unreasonable if the rationale for the decision is seriously undermined, or if there is a serious error in procedure that renders the dismissal unfair in the circumstances. Where consultation was highly unlikely to have negated the operational reasons for the dismissal or lead to any other substantive changes, the failure to consult prior to termination is not important if the employee had been dismissed in any event, even if timely consultation had occurred. See Maswan v Escada Textilvertrieb t/a ESCADA [2011] FWA 4239.
 
Meaning of ‘consult’
 
The meaning of the word ‘consult’ was considered by a Full Bench of the (then) Australian Industrial Relations Commission. It clearly encompasses more than informing someone of a decision already taken. Moreover it means more than simply talking to someone. Nor however does ‘consultation’ necessarily entail reaching agreement. It would mean, for example, the employer engaging in a dialogue with employees (or the union) to provide input before a decision by the employer is made. See Telstra Corporation Limited v Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia (2007) AIRCFB 374.
 
Lack of consultation
 
In order to find that a dismissal is a case of genuine redundancy this definition requires a finding that both elements of s389(1) of the Fair Work Act are present and that the circumstances described in s389(2) do not apply. The employer must also comply with an obligation in a modern award or enterprise agreement that applied to the employment to consult about redundancy and whether it would have been reasonable to redeploy the applicant(s) within the employer’s enterprise.
 
Employees who have had their employment terminated in circumstances of genuine redundancy do not have the right to bring an unfair dismissal claim. However, to be e genuine redundancy, a dismissal must meet three criteria. Under the Fair Work Act (s389), a dismissal will be case of genuine redundancy if:
  • the employer no longer requires the employee’s job to be performed by anyone because of changes in the operational requirements of the employer’s enterprise; and
  • the employer complies with its consultation obligations under the relevant modern award or enterprise agreement; and
  • it is not reasonable to redeploy the employee in to the employer’s enterprise, or an enterprise of an associated entity of the employer.
Modern awards
 
The ‘standard’ clause in modern awards relates to consultation regarding major workplace change. This was determined by the (then) Australian Industrial Relations Commission in its Award Modernisation — Priority Awards decision in December 2008. This confirmed the existing requirement of the employer to consult employees affected by a decision to make positions within the organisation redundant.
 
Generally, a modern award provision will require the following:
  • the employer must discuss with the employees affected and their representatives, if any, the introduction of the changes; and
  • the effects the changes are likely to have on employees; and
  • measures to avert or mitigate the adverse effects of such changes on employees; and
  • give prompt consideration to matters raised by employees and/or their representatives in relation to the changes.
The discussions must commence as early as practicable after a definite decision has been made by the employer to make the changes. For the purposes of such discussion, the employer must provide in writing to the employees concerned and their representatives, all relevant information about the changes including the nature of the changes proposed, the expected effects of the changes on employees and any other matters likely to affect employees provided that no employer is required to disclose confidential information the disclosure of which would be contrary to the employer’s interests.
 
An example of the ‘standard’ clause in modern awards regarding consultation regarding major workplace change is contained in the Clerks — Private Sector Award 2010 (cl 8).
 
Enterprise agreements
 
Under the Fair Work Act (s205), a consultation term must be included in an enterprise agreement, being a term that requires the employer to consult employees about major workplace changes, in the same circumstances as under modern awards. The clause must also allow for employees to be represented for the purposes of that consultation. If an enterprise agreement does not include a consultation term (or the consultation term does not comply with the provisions of the Fair Work Act), the model consultation term is taken to be a term of the enterprise agreement. The model consultation clause is prescribed in the Fair Work Regulation 2009 (SCHEDULE 2.3 Model consultation term), as follows:
 
‘Model consultation’ term
 
(1) This term applies if:
a. the employer has made a definite decision to introduce a major change to production, program, organisation, structure, or technology in relation to its enterprise; and
 
b. the change is likely to have a significant effect on employees of the enterprise.
(2) The employer must notify the relevant employees of the decision to introduce the major change.
(3) The relevant employees may appoint a representative for the purposes of the procedures in this term.
 
(4) If:
a. a relevant employee appoints, or relevant employees appoint, a representative for the purposes of consultation; and 
 
b. the employee or employees advise the employer of the identity of the representative;
the employer must recognise the representative.
(5) As soon as practicable after making its decision, the employer must:
a. discuss with the relevant employees:
(i) the introduction of the change; and
(ii) the effect the change is likely to have on the employees; and
(iii) measures the employer is taking to avert or mitigate the adverse effect of the change on the employees; and
 
b. for the purposes of the discussion — provide, in writing, to the relevant employees:
(i) all relevant information about the change including the nature of the change proposed; and
(ii) information about the expected effects of the change on the employees; and
(iii) any other matters likely to affect the employees.
(6) However, the employer is not required to disclose confidential or commercially sensitive information to the relevant employees.
 
(7) The employer must give prompt and genuine consideration to matters raised about the major change by the relevant employees.
 
(8) If a term in the enterprise agreement provides for a major change to production, program, organisation, structure or technology in relation to the enterprise of the employer, the requirements set out in subclauses (2), (3) and (5) are taken not to apply.
 
(9) In this term, a major change is likely to have a significant effect on employees if it results in:
a. the termination of the employment of employees; or 
b. major change to the composition, operation or size of the employer's workforce or to the skills required of employees; or 
 
c. the elimination or diminution of job opportunities (including opportunities for promotion or tenure); or 
 
d. the alteration of hours of work; or 
 
e. the need to retrain employees; or
 
f. the need to relocate employees to another workplace; or 
 
g. the restructuring of jobs.
(10) In this term, relevant employees means the employees who may be affected by the major change.
 
Failure to consult
 
The failure to notify and consult with an employee in accordance with the applicable modern award or enterprise agreement is considered by the Fair Work Commission to be a serious defect in the procedure relating to the dismissal of an employee whose position has become redundant. This is reinforced by the Fair Work Act (s389(1)(b)), which states that a person’s dismissal was a case of ‘genuine redundancy’ if the employer has complied with any obligation in a modern award or enterprise agreement that applied to the employment to consult about the redundancy.
 
However, where consultation was highly unlikely to have negated the operational reasons for the dismissal or lead to any other substantive changes, the failure to consult prior to termination is not important if the employee had been dismissed in any event, even if timely consultation had occurred. See Maswan v Escada Textilvertrieb t/a Escada [2011] FWA 4239
 
The failure to notify and consult with an employee in accordance with the applicable modern award is considered by the Fair Work Commission to be a serious defect in the procedure. If the outcome of consultation is less predictable the failure to consult over proposed changes could render the termination unfair. See Gordon v Newtrain Incorporated [2011] FWA 5698.
 
In a matter before (then) Fair Work Australia it was determined that because there was no opportunity for input by the applicants and no open mind on selection or alternatives the employer’s behalf the dismissals were not genuine redundancies. See Wang & Ors v Specialty Fashion Group [2011] FWA 6872.
 
 
Transfer of employment
 
The Fair Work Act (s311) provides that there is a transfer of business if each of the conditions in ss311(1)(a)–(d) are satisfied, which are:
  • one or more employees is terminated from the first employer
  • the employee(s) become(s) employed by the second business within 3 months doing substantially similar work
  • the work that the employee performs for the new employer is substantially the same as that performed for the old employer
  • there is a connection between the two employers.
Associated entities
 
The Corporations Act 2001 [Cth] (s50AAA) defines an ‘associated entity’ of another entity (the principal) in the following circumstances:
  • the associate and principal are related bodies corporate
  • the principal controls the associate
  • the associate controls the principal and the operations, resources or affairs of the principal are material to the associate
  • the associate has a qualifying investment in the principal, has significant influence over the principal and the interest is material to the associate
  • the principal has a qualifying investment in the associate, has significant influence over the associate and the interest is material to the principal
  • a third entity controls both the principal and the associate and the operations, resources or affairs of the principal and the associate are both material to the third entity.
Control
 
The word ‘control’ is defined in the Corporations Act 2001 [Cth] (s50AA) to mean when one entity controls another when the first entity can make decisions that determine the financial and operating policies of the second entity.
 
Transfer between non-associated entities
 
Service with one employer (first or old employer) will count as service with another employer (second or new employer) that is not an associated entity of the first employer, if the employee is a transferring employee in relation to a transfer of business from the first employer to the second employer.
 
The following would be considered a connection between the two employers in a transfer of business situation:
  • there is a transfer of some assets from one employer to another
  • there is an outsourcing of work from one employer to another, which can occur regardless of whether any assets change hands
  • there is an ‘insourcing’ of work from one employer to another
  • there is a transfer of employment between associated entities as defined in the Corporations Act 2001 [Cth] (s.50AAA).
The Fair Work Act (s311(3)(b)) states that there is a connection between the old employer and the new employer if the new employer or associated entity owns or has the beneficial use of some or all of the assets (whether tangible or intangible) that the old employer or associated entity owned or had the beneficial use of; and that relate to, or are used in connection with, the transferring work.
Transfer of assets
 
Arrangement
 
The Fair Work Act (s311(3)) provides one of the conditions of a transfer of business that must be satisfied is there is a connection between the old and new employer as described in any of ss311(3)–(6) of the Fair Work Act. That is, there must be an arrangement between the new and old employer for ‘the beneficial use of assets’ of the old employer ‘that relate to, or are used in connection with the transferring work’. The word ‘arrangement’ is not defined in the Fair Work Act, while the Explanatory Memorandum to the Fair Work Bill 2009 states that the word ‘arrangement’ is intended to be interpreted broadly.’
 
The relevant authorities on determining the meaning of the word ‘arrangement’ propose that, whilst not legally enforceable, requires:
  • that there be communication between the parties to the arrangement; and
  • that the parties must reach some understanding; and
  • that there is some expectation that each of the parties will behave in a particular way.
An arrangement is not an expectation that a party will behave in a particular way and it cannot be contrived. It requires some substance. See Australian Consumer & Competition Commission v CC (NSW) Pty Ltd [1999] FCA 954; Trade Practices Commission v Nicholas Enterprises Pty Ltd (No.2) [1979] FCA 51; The Commissioner of Taxation of the Commonwealth of Australia v K. Porter & Co Pty Ltd [1974] 22 FLR 344.

Non-associated entities — transfer of assets
 
In a matter heard before the Fair Work Commission, the employee worked for the old employer in a café. The business was purchased by the new employer. The employee worked three shifts for the new employer doing the same work before he was dismissed.
 
It was held that there was a transfer of employment, because there was a transfer of business between the old employer and the new employer. There was a connection between the old employer and the new employer as the transfer of business involved a transfer of assets.
 
Further, as the new employer had not informed the employee in writing that his previous service would not be recognised, the employee’s service with the old employer counted as service with the new employer. See Hill v Sahir t/a Café Moderno at Fountain Gate [2013] FWCA 668.
 
New employer ceased to outsource work to old employer
 
In a matter heard before (then) Fair Work Australia, the employee worked for the old employer, which provided labour to the new employer. After two years, the new employer ceased to outsource work to the old employer. The old employer terminated the employee’s employment, and she was employed by the new employer, but dismissed after about 3 weeks.
 
The employer was found to be a transferring employee in relation to a transfer of business. There was a connection between the old employer and the new employer because the new employer had ceased outsourcing work to the old employer. The employee was not informed in writing by the new employer that previous service with the old employer would not count as service with the new employer, and therefore it did not count. See Thorne v Jura Australia Espresso Pty Ltd [2012] FWA 4954.
 
No relevant connection between employers
 
In a matter heard before (then) Fair Work Australia, the employee worked as a security guard for the old employer, which provided site security under contract. A tender process resulted in the new employer being awarded the contract. The employee was offered employment with the new employer but was dismissed the following month. It was held that there was no connection between the employers, and therefore no transfer of business. As such, service with the old employer did not count as service with the new employer. See Szybkowski v Monjon Australia Pty Ltd [2010] FWA 7321.
 
In another matter heard before the Fair Work Commission, the employee had been employed by the old employer to work at a hotel. The old employer operated the hotel under a lease with the owners. The old employer abandoned the lease, and the owners leased it to the new employer. The new employer employed the employee to perform the same duties, but later dismissed her. On appeal, it was found there was no connection between the old employer and the new employer, because there was no evidence of a transfer of assets in accordance with any arrangement between the employers. See John Lucas Hotel Management v Hillie [2013] FWCFB 1198.
 
Intangible assets
 
Intangible assets are defined as identifiable non-monetary assets that cannot be seen, touched or physically measured, which are created through time and/or effort and that are identifiable as a separate asset. There are two primary forms of intangibles — legal intangibles, eg trade secrets (customer lists), copyrights, patents, and trademarks, and competitive intangibles such as knowledge activities, eg know-how, collaboration activities, leverage activities and structural activities. Legal intangibles are known under the generic term intellectual property and generate legal property rights defensible in a court of law.
 
No beneficial use of assets — no transfer of business
 
In a matter before (then) Fair Work Australia involving a jurisdictional point regarding the employee’s period of employment, it was determined that the leaving of some electrical appliances and a procedures manual does not satisfy the requirements that the arrangement entered into by the employers was not a beneficial use of assets, so no transfer of business occurred. See Zabrdac v Transclean Facilities Pty Ltd [2011] FWA 4492.
 
Work performed
 
Under the Fair Work Act (s311(1)(c)), the transferring employee must perform the same, or substantially the same, work for the new employer as he or she performed for the old employer. It is intended this provision not be construed in a technical manner. It recognises that, in a transfer of business situation, there may well be some minor differences between the work performed for the respective employers. However, the requirement is satisfied where, overall, the work is the same or substantially the same — even if the precise duties of the employees, or the manner in which they are performed, have changed.
 
This section of the Fair Work Act relates in the similarity in the actual work performed by the transferring employee. Whilst the work of the companies, the employee’s title and precise duties may have changed, if the overall work performed for both employers is substantially the same, a transfer of business occurs. See Farrugia v Building Technology Integrators Pty Ltd [2011] FWA 1285.
 
Recognition of service with the first employer does not apply with respect to redundancy pay under the National Employment Standards where the transfer is between non-associated entities and if the second employer decides not to recognise the employee’s service with the first employer. Where a transfer of employment occurs, a transferring employee is not entitled to redundancy pay at the time of the transfer of employment where employment with the second employer is ongoing.
 
The National Employment Standards also provides that an employee is not entitled to redundancy pay if:
  • the employee rejects an offer of employment made by another employer that is on terms and conditions substantially similar to, and, considered on an overall basis, no less favourable than the terms and conditions of employment with the first employer immediately before the termination, and recognises the employee’s service with the first employer; and
  • had the employee accepted the offer, his/her employment would have been transferred.
The Fair Work Commission may order the first employer to pay an amount of redundancy pay if it is satisfied the offer of employment with the second employer operates unfairly to the employee.
 
A transfer of business does not automatically trigger an entitlement to redundancy pay. In the Termination Change and Redundancy Case, the (then) Australian Industrial Relations Commission said ‘we would make it clear that we do not envisage severance payments being made in cases of succession, assignment or transmission’. See Termination, Change and Redundancy Case 8 IR 34; Amcor Limited v Construction, Forestry, Mining and Energy Union and Ors [2005] HCA 10; Stones & CEPU v Simplot Australia Pty Ltd [1997] IRCA 175; Svitzer Australia Pty Ltd v Maritime Union of Australia, The Northern NSW Branch [2011] FWAFB 7947.
 
National Employment Standards
 
Section 312 of the Fair Work Act requires that an enterprise agreement, workplace determination or a named employer award (a transferable instrument) will bind a new employer who is a successor, assignee or transmittee of the whole or a part of the business of a former employer.
 
 
Other acceptable employment
 
Under s120 of the Fair Work Act, the amount of redundancy pay may be reduced (which may be to nil) by the Fair Work Commission where the employer arranges other acceptable employment, and the terms and conditions offered with respect to the other employment are deemed to be fair.
 
Industrial courts and tribunals have considered several factors when determining the suitability of an employer's offer of alternative employment to an employee whose position has become redundant. The test that is usually applied in this instance is an objective one, and should take into account each individual employee's circumstance. This test should be applied when an employer is either trying to organise alternate employment with another employer or trying to arrange other employment within the organisation. Such factors include:
  • Pay levels — if the salary offered for an alternate job is similar or the same as the redundant position, this could be viewed as suitable to the acceptability of the offer. Where there is a drop in salary, the tribunal would determine the reasonableness, or otherwise, of the lower salary.
  • Hours of work — where the offer involves a change of starting and finishing times, a change from shift work to day work, or vice-versa, or work on different days of the week, this may be deemed unsuitable, depending on the circumstances of the individual employee. The tribunal may take into account such factors as the employee's family responsibilities when determining the suitability of the offer.
  • Nature of employment — the offer of part-time or casual employment to a current full-time employee may be deemed unsuitable. This may also fail on the basis of a lower salary level associated with these types of employment.
  • Employment status/seniority — the offer of a non-managerial position to a manager may be unsuitable as there is a certain 'status' associated with the current position. Such an offer could be viewed by a tribunal as a demotion.
  • Skills and qualifications — does the offer involve a position that the employee has the necessary skills and/or qualifications to perform? If not, the employer must have offered to provide the necessary training for the employee to acquire the necessary skills and/or qualifications.
  • Location of new offered position — where there is a relocation of the position, a tribunal will consider such factors as: the similarity of the job at the new location, the notice given to an employee(s) of the new location, whether the new location offers similar transport facilities, and the amount of additional time, if any, travelled by the employees to the new location.
  • Loss of fringe benefits — a tribunal, where relevant, may look at the overall impact of the offer of alternate employment on the employee's contract of employment. The loss of benefits such as the provision of a company motor vehicle, share option plan, shift or penalty rates, bonus and commission payments, or regular overtime payments, may make the offer unsuitable despite the base salary remaining the same.
  • Job security — this can be a factor in the offer of casual work to an employee because, with casual employment, there is no guarantee of permanent employment. Also, if the new position offered is of a temporary nature, this could be viewed as unsuitable.
The factors to be considered in a particular matter regarding an offer of acceptable alternate employment by an employer to an employee in relation to redundancy has been the subject of considerable precedent case law. See Clothing & Allied Industries of Australia v Hot Tuna Pty Ltd [1988] AIRC 483; Clothing & Allied Industries of Australia v Algray Pty Ltd [1989] AIRC 135; Derole Nominees Pty Ltd v Australian Chamber of Manufactures [1990] AIRC 980; Feltex Australia Pty Ltd v Textile, Clothing & Footwear Union of Australia [2006] AIRC 737; National Union of Workers v Linfox Australia Pty Ltd [2008] AIRC 647; Timbercraft Pty Ltd [2011] FWA 6283.
 
Adjustment to amount of redundancy pay

Section 120 of the Fair Work Act allows the Fair Work Commission to make an adjustment to the total amount of redundancy pay (down to nil) under the National Employment Standards where the employer arranges acceptable alternative employment. In doing so, the Fair Work Commission takes into account the efforts of an employer who arranges (say) a successful job interview for an employee being retrenched and so, applies to reduce the amount of redundancy pay that would otherwise have applied. In Baywood Products Pty Ltd v Inall [2010] FWA 9303 (21 December 2010) the employer was successful in obtaining a 50% reduction in the appropriate redundancy payment because he arranged an interview for an employee who was retrenched. In Spano Enterprises Pty Ltd [2011] FWA 3672, Fair Work Australia issued an order that the amount of redundancy pay be reduced to nil.


Meaning of ‘obtains' other acceptable employment
 
The Fair Work Act (s.120) provides that redundancy pay may be varied by the Fair Work Commission where the employer obtains other acceptable employment for the employee. The meaning of ‘obtains’ was the subject of an appeal to a Full Court of the Federal Court which found that while the employer did facilitate the opportunity for employees to apply for employment with another employer, it obtained for them something less than offers of employment which they could accept or decline as a matter of choice. Redundancy pay was payable in this circumstance. See FBIS  International Protective Services (Aust) Pty Ltd v Maritime Union of Australia [2015] FCAFC 90.
 
 
Refusing other suitable employment
 
The Fair Work Commission has stated that it will not tolerate a situation where an employee who is faced with redundancy and is offered comparable alternative employment, but refuses it because he/she would rather take a redundancy payout. Accordingly, an employee who refuses the offer of suitable alternative employment in this circumstance will not be entitled to receive any redundancy pay under the Fair Work Act (s120). See Mantra Hospitality (Admin) Pty Ltd [2013] FWC 1063.
 
Redeployment
 
Under s389(2) of the Fair Work Act, a redundancy is not genuine if it would have been reasonable in all the circumstances for the person to be redeployed within:
  • the employer's enterprise; or
  • the enterprise of an associated entity of the employer.
The factors taken into account about the reasonableness of any proposed redeployment in relation to a redundancy are the same is with other acceptable employment.
 
Fair Work Australia has determined that it is an essential part of the concept of redeployment under this section that a redundant employee be placed in another job in the employer's enterprise as an alternative to termination of employment. The job must be suitable, in the sense that the employee has the skills and competence required to perform it to the required standard either immediately or with a reasonable period of retraining. Other considerations may be relevant such as the location of the job and the remuneration attaching to it. See Ulan Coal Mines Ltd v Honeysett & Ors v Ulan Coal Mines Ltd [2010] FWAFB 7578 (12 November 2010).
 
Re-employment after redundancy
 
The redundancy provisions of the National Employment Standards do not prevent the re-employment of an employee previously made redundant, nor is there a provision disqualifying redundancy pay if the employee is re-employed within a particular period after the original redundancy occurred. An employee re-employed at any future time would not be required to forfeit their redundancy pay.
 
It is common for an employer to have a company policy that prohibits the re-employment of an employee whose position was made redundant. The existence of such a policy may be a response to existing taxation law.
 
For tax purposes, the redundancy pay must relate to a ‘bona fide’ redundancy. This determines whether the payment receives a concessional taxation rate compared to other eligible termination payments. Any arrangement entered into with the employee prior to termination of an employee’s employment regarding future re-employment would not be considered a ‘bona fide’ redundancy for the purposes of tax law.
Selection criteria
 
An area of potential disputation relates to selecting which employees are to be made redundant where a reduction in the overall numbers of employees has been decided upon. This decision may be influenced by a number of factors, including union pressure, award obligations, or anti-discrimination legislation.
 
Even in the case of genuine redundancy, the termination of employment may be harsh, unjust or unreasonable. See Quality Bakers of Australia Limited v Goulding (1995) IRCA 305; Needham v Shepparton Preserving Company Limited (1991) AILR 395; Cheesman v Kinhill Engineers Pty Ltd 59 SAIR 168; Corkery v General Motors Holden Limited (1986) AILR 429; Hemmings v CPS Credit Union (1991) 58 SAIR 421.
 
The factors determining which positions are to be redundant should be based on objective criteria and should be known by employees in advance, such as through a company policy. The employer should select who is to be made redundant, referring to the skills, experience, training and performance of individuals compared to the current and future needs of the organisation. If, after such an assessment, employees are found to be comparatively equal, the period of service would be an appropriate factor unless some other pressing domestic issue is raised by the individuals concerned.
 
Subjective criteria are open to abuse and open to be used to target particular workers. Referring to factors such as ‘teamwork’, ‘know how’, ‘initiative’, ‘integrity’, ‘trust', ‘credibility’, etc should be avoided. It seems the problem about subjective criteria is not so much the fact of their adoption, but the burden they impose on those that have to apply them. See Kenefick v Australian Submarine Corporation (1995) IRCA 193; Ralph v Fortis Australia Limited - T4482 [2000] AIRC 682 .
 
A company that used its employees’ workers compensation status as a factor in determining which employees should be selected for redundancy was unsuccessful on appeal in an unfair dismissal matter taken by former employees. See Smith & Kimball v Moore Paragon Australia Limited PR942856 [2004] AIRC 57 (20 January 2004).
Ordinary and customary turnover of labour
 
The termination of employment due to the ordinary and customary turnover of labour does not attract redundancy payments. Section 119 of the Fair Work Act provides that an entitlement to redundancy occurs when the employee’s employment is terminated at the employer's initiative because the employer no longer requires the job to be done by anyone, except where this is due to the ordinary and customary turnover of labour, or because of bankruptcy or insolvency. The term ‘ordinary and customary turnover of labour’ is not defined by the Fair Work Act, although the meaning of the term has been determined by various courts and industrial tribunals.
 
Generally, this describes a situation where it has been customary for employees’ services to be dispensed with because it is the view of management that they are in some way less than satisfactory employees, not appropriately skilled, not appropriately motivated, unreliable, or exhibiting other forms of unhelpful conduct, but not amounting to misconduct. This term also covers the coming and going of employees whose employment has come to an end by resignation, the effluxion of time, or the casual or temporary nature of an engagement.
 
The (then) Australian Industrial Relations Commission, in its principal decisions on redundancy, made it clear that ‘it was not our intention that the redundancy provisions should apply to the “ordinary and customary turnover of labour”; an expression used by Justice Fisher in his decision related to the Employment Protection Act in New South Wales’.
 
Promise of job until retirement — damages claim
 
An automotive engineer, who alleged his employer promised he would have a job until retirement, failed in a bid for damages after being made redundant during the global financial crisis. The employee left a well-paid job in India to take up a position in Sydney, however, he was made redundant (along with 100 other workers) some months later when the Global Financial Crisis hit. The engineer claimed the company had breached s53(b) of the (then) Trade Practices Act 1974 [Cth], by making him redundant after promising him a job until retirement during his contract negotiations. 
 
The claim by the engineer for damages was unsuccessful because the company gave assurances during the negotiations, but not a guarantee of a job until retirement, while the company also had every intention of continuing the employment of the engineer, except for the intervention of the GFC. See Robertson v Knott Investments Pty Ltd [2010] FMCA 142 (8 March 2010).
 

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