Australia-wide impact of the federal Redundancy Test Case

Analysis

Australia-wide impact of the federal Redundancy Test Case

The impact of the federal Redundancy Test Case handed–down on 26 March 2004 is discussed in this article by IR consultant, Paul Munro.

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The impact of the federal Redundancy Test Case handed–down on 26 March 2004 is discussed in this article by IR consultant, Paul Munro. He covers the immediate effect of the decision, the on-going impact on federal awards and the impact on the State systems of industrial relations.

Overview

A Full Bench of the AIRC issued its decision in the National Test Case on Redundancy on 26 March 2004.

This was the first re-examination of redundancy standards in federal awards for two decades. In two of the primary areas for determination (general severance pay standards and the small business exemption) the Commission's decision significantly altered the existing level of employer obligations.

Who is immediately affected?

The federal Test Case decision will have an immediate impact on those federal awards that were part of the application by the ACTU. The operative date for the new redundancy provisions in the listed awards is 28 days after the date of the decision (i.e. 23 April 2004).

The awards immediately affected are:

  • Metal, Engineering & Associated Industries Award - Part I,

  • Rubber, Plastic & Cable Making Industry - General Award,

  • Graphic Arts - General - Award,

  • Industry, Storage Services - General Award,

  • Retail & Wholesale Industry - Shop Employees - ACT Award,

  • Clerical & Administrative Employees (Victoria) Award,

  • Information Technology Industry (Professional Engineers) Award,

  • Liquor & Accommodation Industry - Accommodation - Victoria Award, and

  • Business Equipment Industry - Technical Service - Award.

Other federal Awards

The decision does not automatically vary every federal award. The relevant union must make application to the AIRC for a flow-on of the new redundancy standard to the respective award.

It's anticipated that once an application is made to vary a federal award to reflect the Redundancy Test Case, the new redundancy standard will be inserted into the relevant award.

Rationale behind the scale of benefits

An unusual aspect of the decision is the scale of severance payment for an employee with 10 years or more continuous service (12 weeks severance pay) compared with nine years’ service (16 weeks severance pay).

The rationale behind this is that federal award provisions generally prescribe an entitlement to pro-rata long service leave on termination of two months pay after 10 years continuous service. The Commission felt that a higher severance payment and the entitlement to pro-rata long service leave would result in double-counting for employees with more than 10 years’ service.

Long service leave - a variable factor - scale of benefits

The standard scale of payment may be varied in an award application where the federal award does not prescribe long service leave provisions. Many federal awards make no provision for long service leave.

In the absence of a long service leave provision in a federal award, the relevant long service leave legislation in each State or Territory applies. This may complicate some award variations as the minimum qualifying period of service for pro-rata long service leave on termination of employment is seven years under Qld, SA, and NT legislation, and five years under NSW and ACT legislation.

A federal award without its own long service leave provision that operates in all States and Territories (eg. Clothing Trades Award), may have varied scales of severance pay depending on the State or Territory an employee is employed.

Employer parties to a particular federal award may seek to lower the scale of severance payments for service under 10 years in some States and Territories.

Flow-on implications for States

The new scale of payments will impact on those States' awards which currently reflect the superseded federal scale of severance payments. This is the case in the Western Australian, South Australian and Tasmanian industrial jurisdictions.

This aspect of the decision that relates to the federal scale of payment should not unduly influence standard severance payments in NSW or Qld awards where different scales apply.

However, an application by the respective State Labour Councils' to reflect the modified scale of severance payments for small business employers (an employer with less than 15 employees) contained in the federal decision would impact on NSW, Qld, and WA awards.

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