Federal redundancy test case changes the standard

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Federal redundancy test case changes the standard

A Full Bench of the AIRC has set-out new guidelines on redundancy entitlements for federal award and agreement employees.

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A Full Bench of the AIRC has set-out new guidelines on redundancy entitlements for federal award and agreement employees. 

These guidelines increase the minimum benefits currently applicable to federal award and agreement employees, but they are not as generous as sought by the unions.

Individual federal awards will be varied on application to the Commission.

Key issues determined were:

  • Extension of the severance pay scale from four years of service to 10 years – providing up to 16 weeks’ severance pay – scaled to reduce when long service leave is available at 10 years – see table below, but no additional payment for employees of 45 years or more.
  • small businesses, currently exempt from redundancy payments, will have to provide a lower scale of redundancy benefits - up to a maximum of eight weeks after four years service;
  • employers of casual employees, currently exempt, will remain exempt from paying redundancy benefits to casuals;
  • redundancy payments beyond retirement age will not be required; and
  • employers will not be required to pay a $300 'job search allowance' to each redundant employee - as sought by ACTU.
Extracts from President’s Statement

'Our decision in these matters concerns applications to vary the standard provisions governing termination of employment in the Commission's safety net awards.

'The termination of employment provisions concerned, for the most part, have their origin in test case proceedings in 1984. In those proceedings the Commission handed down two decisions in relation to a standard clause which was suitable at that time for inclusion in the Commission's awards.

'The standard clause has been subject to some alteration from time-to-time to suit the circumstances of particular industries. The clause was also modified significantly in 1997 in the Award Simplification Decision.'

The amount of severance pay

'...We think it is appropriate to extend the severance pay scale from four years of service to 10 years. While the current scale reaches the maximum payment after four years of service, under the formula we have decided upon there will be increases in the amount of severance pay with each year of service between five and nine years. The scale will not go beyond 10 years of service.

'The new severance pay scale will be as follows: 

Period of continuous service

Severance pay

Less than 1 year

Nil

1 year and less than 2 years

4 weeks' pay

2 years and less than 3 years

6 weeks' pay

3 years and less than 4 years

7 weeks' pay

4 years and less than 5 years

8 weeks' pay

5 years and less than 6 years

10 weeks' pay

6 years and less than 7 years

11 weeks' pay

7 years and less than 8 years

13 weeks' pay

8 years and less than 9 years

14 weeks' pay

9 years and less than 10 years

16 weeks' pay

10 years and over

12 weeks' pay

'We have decided not to accede to the ACTU claim for an additional 25% loading on severance pay for employees over the age of 45 years whose employment is terminated on account of redundancy. There are a number of reasons. ...'

'Our decision to increase severance payments for employees whose employment is terminated by reason of redundancy after five or more years of service is based, to a significant extent, on the loss of non-transferable credits. The largest non-transferable credit is long service leave which accrues at the rate of 13 weeks' leave for 15 years of service.

'[Re the lower entitlement for '10 years and over':]The amount of 12 weeks' severance pay for 10 or more years of service, while still greater than the current maximum, has been fixed having regard to the fact that under the standard long service leave provision in federal awards employees with 10 or more years of service whose employment is terminated on account of redundancy are entitled to pro rata payment of long service leave. It would be double counting not to make an allowance for that fact in fixing the amount of severance pay to apply after 10 years of service.

Retirement date limitation

'The ACTU seeks the deletion of the provision in the TCR standard clause limiting severance payments to the amount an employee would have earned had employment continued until retirement.

'We have decided to reject this claim. In our view the current provision should be retained. The original purpose of the provision - to ensure that employees who are retrenched in reasonable proximity to their projected retirement date should not receive more than they would have earned had they remained employed until retirement - is still apposite. ...'

Employers of fewer than 15 employees

'The ACTU proposed that the exemption of employers of fewer than 15 employees from the requirement to make severance payments to redundant employees should be removed from the TCR standard clause. ...

'Having considered all of the material and submissions with respect to the issue we have concluded that we should partially remove the small business exemption from severance pay. As a general proposition the employees of small businesses are entitled to some level of severance pay. ...

'We consider that at this stage, having regard to the material before us, small businesses should not be required to implement the extension we have made to the severance pay scale.

'Accordingly, we have decided that the severance pay scale in the TCR standard clause should apply to employers who employ fewer than 15 employees up to a maximum of eight weeks' pay after four years of service. The other limitations in the TCR standard clause will also apply.

'We are satisfied that it is appropriate to exempt small business from the agreed dispute resolution clause as the employers submitted. A feature of the clause is the requirement to discuss alternatives to redundancy (such as redeployment options) and to consult with employees generally.

'We accept that if the clause applied it would have the potential to cause a number of problems within small businesses including disruption to the workplace, lost productivity and administrative difficulties.'

TCR Standard Scale

Period of continuous service

Severance pay

 

 

1 year or less

nil

1 year and up to the completion of 2 years

4 weeks’ pay

2 years and up to the completion of 3 years

6 weeks’ pay

3 years and up to the completion of 4 years

7 weeks’ pay

4 years and over

8 weeks’ pay


 
Casual employees

'The standard clause does not require employers to afford any termination benefits to casual employees. The ACTU seeks to extend the standard termination benefits to casuals other than those referred to as short-term casuals.

'We have reached the conclusion that it would be inappropriate to award severance pay for casuals. Such an approach would, in the case of the metal industry at least, be "double dipping" and likely to be so in other industries. Although there are other cogent arguments for and against this part of the ACTU application, this issue is decisive. It follows that we reject this aspect of the application.'

Professional services allowance

'The ACTU seeks the creation of an award obligation upon employers to pay redundant employees an amount of $300 by way of reimbursement for professional and counselling services, unless the employer provides such services.

'We reject this aspect of the ACTU's claim. ...'

Insolvency

'AiG proposed that, should severance pay entitlements be increased as a result of this decision, employees of insolvent companies should have no greater entitlement to severance pay than that currently provided by the TCR standard clause (a maximum of eight weeks).

'The AiG claim for a general amendment to the TCR standard clause to provide a reduced level of entitlements for redundant employees of all insolvent employers is refused. We should add that nothing in our decision on this issue affects the right that any employer may have to make application for relief from severance pay obligations on the basis of incapacity to pay.'

Employers' incapacity to pay

'The TCR standard clause provides for variation of the severance pay obligations on the basis of the incapacity of an employer to pay. ACCI proposed that the provision be amended to provide that applications may be made in that respect by a group of employers rather than by individual employers only.

'On the basis that ACCI has submitted that its proposal is not designed to weaken the incapacity to pay principle but to simply improve access to it, we will make the alteration sought. It must be clearly understood, however, that for relief to be granted, the concept of averaging cannot be used and incapacity must be shown in the case of each employer.'

Should the standard clause cover the field?

'ACCI and AiG proposed that the TCR standard clause should be amended so as to provide that it operates to the exclusion of redundancy and severance pay provisions in State laws and awards.

'The case for inclusion of "covering the field" provisions is based in substance upon a number of interlocutory decisions relating to s106 of the NSW Industrial Relations Act 1996. We do not think that the case put is sufficient to justify a variation to the TCR standard clause.'

Redundancy disputes procedure

'...In our view the provision is an allowable award matter. The whole of the provision is properly characterised as a dispute settling procedure.'

Operative date

'In all of the circumstances we have decided that the changes in the TCR standard clause in the awards before us should operate 28 days from the date of this decision. The operative date in other awards should be fixed having regard to the terms of s146 of the Act in the circumstances of the case.'

See: Federal Redundancy Test Case, March 2004 - FB of AIRC - Decision PR032004 - Giudice J, Ross VP, Smith C and Deegan C - 26 March 2004.

Related

Redundancy

Background to the case handed-down today

The NSW position under the NSW Employment Protection Act 1983

  

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