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Redundancy pay entitlements and the “other acceptable employment” exception

Please note: This article is intended to be brief information only and should not be relied or acted upon as legal advice. You should always seek legal advice tailored to your own individual circumstances. Please also note that this article is current as at the date of publication and the law may have subsequently changed since.

National vs State system employers

This article addresses issues concerning the employment of employees by “national system employers” under the Fair Work Act 2009 (Cth) (Fair Work Act).

Please be aware that some employees in Western Australia (ordinarily those employed by sole traders, partnerships and non-trading corporations) are employed by “state system employers”, being employers covered by the state industrial relations system under the Industrial Relations Act 1979 (WA).

If you are not sure whether an entity is a national or state system employer, you should seek legal advice.

Entitlement to redundancy pay under the National Employment Standards

Under the National Employment Standards (namely section 119 of the Fair Work Act), an employee may have a statutory entitlement to be paid redundancy pay by the employer if the employee’s employment is terminated:

  1. at the employer’s initiative 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
  2. because of the insolvency or bankruptcy of the employer.

Exceptions to statutory redundancy pay entitlement

There are various exceptions to the entitlement to redundancy pay under section 119 of the Fair Work Act, which are provided for under sections 120-123 of the Fair Work Act.

Most relevantly, section 120 of the Fair Work Act provides to the effect that an employer may apply to the Fair Work Commission (FWC) to reduce an employee’s entitlement to redundancy pay under section 119 to a specified amount that the FWC considers appropriate (which may be nil) if the employer obtains “other acceptable employment” for the employee.

Accordingly, if an employee refused the offer of alternate employment, then the employer could potentially apply to the FWC for an order to reduce their statutory entitlement to redundancy pay and such entitlement could be reduced or otherwise removed entirely by the FWC’s determination.

Whilst the employer and the employee generally both have the right to be heard in respect of any such application, it is important to note, in respect of proceedings in the FWC, that:

  • each party generally needs permission of the FWC to be represented by a lawyer;
  • generally each party bears their own legal costs regardless of whether they are successful or not; and
  • there are limitations to the ability to appeal a decision of the FWC.

What constitutes obtaining “other acceptable employment”?

The employer “obtains” other acceptable employment when it acquires or gets the other acceptable employment by its conscious, intended acts: see Australian Commercial Catering Pty Ltd v Marcelia Powell and Maria Togia [2016] FWCFB 5467 at [37]. Arguably, an offer of other acceptable employment must be clearly made with precise terms and conditions before the employee’s employment is terminated: see e.g. Electricity Wizard Pty Ltd v Pasilika Tauiliili [2018] FWC 4556 at [24].

Assuming an employer provides all relevant details about the alternate employment prior to any termination of an employee’s employment due to redundancy, the relevant question will likely become whether the alternative employment obtained for the employee constitutes “other acceptable employment”.

The acceptability of other employment is not measured by what is subjectively acceptable to the employee or their personal preferences. The employee’s personal preferences, including any wish to instead be paid a redundancy payment, is likely to be irrelevant to the issue. Rather, the Commission will objectively assess whether the other employment is “acceptable”.

The question of what constitutes “‘other acceptable employment” in the context of section 120(1)(b) of the Fair Work Act was summarised by Deputy President Sams in Spotless Services Australia Limited T/A Alliance Catering [2016] FWC 4505 at [65] as follows:

“…

• 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, as no two jobs could be exactly the same.

•  An employee must meaningfully cooperate with the employer in exploring or considering options for alternative positions.

•  An employee’s prima facie entitlement to redundancy pay may be at risk if the employee refuses a role or position, which is found to be objectively ‘acceptable’.

• The acceptance of alternative employment by one or more persons in a group of redundant employees, does not necessarily make the alternative employment ‘acceptable’ for all of them. Each employee’s individual circumstances must be taken into account.”

The following observations were made by Deputy President Binet in GCo Electrical Pty Ltd [2018] FWC 4342 at [47]:

The test of acceptability of the alternative employment involves consideration of matters such as pay levels, hours of work, seniority, fringe benefits, work load and job security. The FWC is required to have regard to the totality of the circumstances. No one factor will be determinative for the purposes of the discretionary judgement as to whether or not the alternative employment is acceptable.

The determination of whether alternative employment is acceptable requires an assessment and value judgment on the part of the decision-maker: see Australian Commercial Catering Pty Ltd v Fair Work Commission [2015] FCAFC 189 at [45].

Generally speaking, an employee must not be significantly disadvantaged in the alternate role. In this regard, the FWC will consider a number of factors including remuneration, the employee’s skills, experience and physical capacity, the rates of pay, hours of work, duties, location, continuity of service and other conditions of employment relevant to the proposed job.

However, alternative employment may be found to be acceptable notwithstanding some inconvenience or some detrimental alteration to the terms and conditions of the employee’s employment.

If the employee’s proposed duties under the alternative employment are substantially different but other factors including are similar, there will be a live issue as to whether the alternative employment constituted “other acceptable employment”. An example where the duties and responsibilities of the alternative employment were of a different nature is Electricity Wizard Pty Ltd v Pasilika Tauiliili [2018] FWC 4556. In that case, the different nature of the alternate employment, combined with the reduction of potential earning commissions, lead the FWC to conclude, on balance, that the alternative employment was not “other acceptable employment”.

However, there is a risk that:

  • given the discretionary value judgment, another decision maker may come to a different conclusion on any particular set of facts; and
  • any pre-existing contractual entitlement of the employer to alter the employee’s duties or role at its discretion may weigh in favour of the alternative role being found to be “other acceptable employment” despite a possible change to the employee’s duties.

Further information

If you require advice or assistance, please do not hesitate to contact us.