28 July 2016 Minimising employer redundancy obligations

By Richard Ottley, Partner and Simon Obee, Associate

A provision exists in the Fair Work Act, which enables employers to apply to the Fair Work Commission to minimise their statutory redundancy obligations to staff whom they retrench. The basis for such an application (which is made under s. 120 of the Act) is that the employer has found other acceptable employment for the employee or cannot pay the amount.

A number of such applications have met with little or limited success in the past and the recent decision of the Fair Work Commission in the matter of Sodexo Australia Pty Ltd T/A Sodexo (C2015/8064) is the latest in this series of decisions.

As indicated above, s. 120 allows an employer who has made an employee's position redundant, to apply to the Fair Work Commission to reduce (or avoid all together) the obligation to pay redundancy pay where they have obtained other acceptable employment for the employee.

It is also important to note that s. 120 is separate to the provisions in s. 122 of the Act which deal with redundancy pay in "transfer of business" situations. Under s. 122 in "transfer of business" situations, an employee will not be entitled to redundancy pay if they accept employment with the new employer and their period of service is recognised. An employee in a "transfer of business" situation who rejects an offer of employment with the (potential) new employer will usually not be entitled to redundancy pay if:

  • they were offered terms and conditions that were substantially similar and no less favourable than in their previous role; and
  • the new employer agreed to recognise their period of service with the previous employer for the purposes of (future) entitlements to redundancy pay.

In essence, s. 120 is concerned with a situation (other than a "transfer of business" situation) where an employer who is making an employee redundant, is responsible for that employee "obtaining" acceptable alternative employment (with another employer).

The rationale, presumably, is that where an employer has been instrumental in procuring new employment for a redundant employee, the employee will have less need to be compensated by way of redundancy pay.

As one would expect, it is not enough that the outgoing employer finds the employee employment of any type – s. 120 provides that the employment must be "acceptable" (not defined further). In particular, it is noted that in these circumstances there is no specific requirement in the legislation that the new employer must recognise previous service with the old employer (compare the "transfer of business" provisions referred to above). The Sodexo case provides some clarity on the issue.

There is a body of case law which deals with the considerable lengths an outgoing employer has to go to be considered to have "obtained" the new employment [please see our Article of 28 August 2015 entitled "Redundancy – can an employer avoid payouts by getting their employees another job?"]

However, in Sodexo all the parties appear to have accepted that the employer had "obtained" the new employment. The question in this case was whether that employment was "acceptable" within the meaning of the Act.

The Facts

Sodexo held a cleaning contract for two hotels – the Crowne Plaza Coogee and the Crowne Plaza Potts Point.
After losing the cleaning contracts to Challenger Hospitality Pty Ltd, Sodexo decided it would need to make those of its employees who cleaned those hotels redundant (as it had no alternative roles it could allocate to them).

It made efforts to obtain employment for the redundant employees with Challenger. A number of its employees accepted employment with Challenger.

Sodexo then made an application to the Fair Work Commission under s. 120 of the Act to reduce its obligation to pay its terminated employees redundancy pay, on the basis that it had obtained "acceptable" employment for them.

The Decision

Deputy President Sams who heard the matter, examined earlier decisions and noted common features included:

  • 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.
  • There are a range of factors of varying weight, according to an employee’s particular circumstances, which may be taken into account to assess the acceptability of alternative employment.

He also noted that notwithstanding the above general principles, whether the alternative employment is acceptable, will likely include consideration of the following matters:

  • rate of pay;
  • hours of work;
  • work location;
  • seniority;
  • fringe benefits;
  • workload;
  • job security;
  • continuity of service;
  • accrual of benefits;
  • probationary periods;
  • carer’s responsibilities; and
  • family circumstances.

He then considered the arrangements under which the ex-Sodexo employees were engaged by Challenger. In particular he focused on the fact that their past periods of service with Sodexo were not recognised and the impact this had on certain aspects of their employment, namely:

1. All employees were subject to a six month probationary period

The six month probationary period meant that, regardless of their previous period of service with Sodexo, they could be dismissed during that time without recourse to the unfair dismissal laws. Two employees were dismissed during this period, with a further two resigning because of changes to their hours.

None of these employees were able to claim unfair dismissal (or constructive unfair dismissal) because they had not been employed for the requisite minimum period of service stipulated in the Fair Work Act. On this basis, the Deputy President found that their engagement by Challenger was not "acceptable employment" within the meaning of the Act and ordered Sodexo to pay the four employees 100% of their redundancy pay entitlements.

2. Loss of ability to claim flexible working arrangements

The Deputy President also noted that a number of employees claimed that they were adversely affected by their past service not being recognised for the purpose of being able to claim flexible working arrangements under s. 65 of the Act (which requires a minimum of 12 months service).

The Deputy President considered that this meant their employment with Challenger was not "acceptable employment" and ordered that Sodexo pay the affected employees 40% of their redundancy pay.

Although the Deputy President's reasoning was not entirely clear as to why he awarded the employees only 40% of their redundancy pay, it is noted that it was Sodexo's case that even if the employees had a right to request flexible work arrangements there is no absolute obligation on an employer to agree to them – and it may be that this was the reason that they were not awarded their full redundancy pay. 

3. Loss of accrued personal leave

However, on the question of a loss of accrued personal leave, the Deputy President noted that the normal position on termination of employment is that accrued personal leave is not paid out. He further noted that whilst some employees had expressed concerns in the case that they may become ill or injured in the future and had lost out on their "bank" of personal leave accrued over their period of service with Sodexo, their need to utilise such leave was speculative.

In the circumstances, he ordered that those employees who relied solely on the loss of accrued personal leave for arguing their employment was not acceptable, should have their redundancy payments reduced to nil.  

4. Loss of parental leave

The Deputy President noted that two employees who were pregnant were in a much more unstable and precarious position. They would have been eligible for paid parental leave under the terms of an enterprise agreement with Sodexo (and the right to unpaid parental leave and a return to work guarantee under the Fair Work Act). However they lost these rights (which are contingent on a minimum period of 12 months' service) when they became employed by Challenger.

In the circumstances their employment could not be said to be "acceptable employment" and they were awarded 80% of their redundancy pay. 

Lessons for employers

The decision provides a valuable insight into factors which the Commission will look at when an employer argues that it should be relieved of some or all of its redundancy obligations to those staff for whom it obtains other "acceptable employment". What "acceptable employment" is, will need to be considered in the context of the impact of the proposed arrangements with the new employer on transitioning employees' rights including: unfair dismissal rights, flexible working arrangements and loss of parental leave. There are of course many other factors the Commission will look at as noted in this article.

Employers therefore need to carefully look at the individual circumstances of each affected employee and seek to secure as beneficial an arrangement as possible for their proposed employment with their new employer, in order to enhance the prospects of making a successful application under s. 120 of the Fair Work Act.

For further information, please contact:

Richard Ottley, Partner  |  Phone: +61 2 9233 5544  |  Email:
Simon Obee, Senior Associate  |  Phone: +61 2 9233 5544  |  Email:

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This article is not legal advice and the views and comments are of a general nature only. This article is not to be relied upon in substitution for detailed legal advice.

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