feedback

28 August 2015 Redundancy - can an employer avoid payouts by getting their employees another job?

By Richard Ottley, Partner and Simon Obee, Solicitor

The Fair Work Act (the Act) contains a provision (s 120) which says that if an employer "obtains other acceptable employment" for an employee it is making redundant, it may get redundancy payments reduced. In particular, on application to the Fair Work Commission it may obtain an order reducing the redundancy payout otherwise payable under the scale in s 119 of the Act to a specified amount (which can be $nil).

In FBIS International Protective Services (Aust )Pty Ltd v MUA and Fair Work Commission [2015] FCAFC 90 (26 June 2015), the Full Federal Court looked at this issue and held that the employer in this case had not done enough to obtain other acceptable alternative employment for its employees to warrant a reduction in redundancy pay under the Act.

This provision is directed to situations where an employer has taken it upon themselves to find alternative employment for an employee (usually in circumstances falling outside a sale of business).

To be clear: the employer is under no obligation to do this, but the incentive is that should the employer be able to find alternative employment for an employee, they can (potentially) escape the liability to pay some or all of the statutory redundancy pay.

To make matters confusing, an entirely separate, although related provision exists in the Act (s 122), whereby an employer who is actually selling their business to a purchaser, may get relief from having to pay redundancy payments to those employees who are offered new jobs by the purchaser (although various conditions need to be satisfied for this to be available). This provision was not in issue in the FBIS decision, as a sale of business was not involved.

The question the court had to determine in the FBIS case was how far does an employer have to go to show that they have "obtained" acceptable alternative employment for employees?

The facts of the case

FBIS provided security services at stevedoring facilities at various locations within Australia. In 2013 it lost a tender to continue providing those services, which was won by a different contractor (ACG).

49 of FBIS's employees were offered and accepted employment with ACG in the same positions and on the same terms and conditions that they had been employed in by FBIS.

In normal circumstances the obligation to pay redundancy pay would fall on FBIS. However, FBIS made an application to the Fair Work Commission under s 120 of the Act on the basis that it had obtained other acceptable employment for its employees by:

  • having discussions with ACG about the employees' future engagement with ACG
  • providing ACG with the contact details of the employees
  • giving ACG a copy of the enterprise agreement which related to the employees
  • requesting ACG to meet the employees

The evidence was that FBIS had also unsuccessfully attempted to engage ACG in commercial discussions about the employees' accrued leave and accrued service.

The matter was initially decided in favour of FBIS by a Fair Work Commissioner, but the decision was overturned on appeal by the Full Commission. FBIS then in effect appealed to the Full Bench of the Federal Court.

The Court's decision

The Full Federal Court reviewed earlier decisions on this subject and in particular on the meaning of the word "obtain".

The Court agreed with earlier authority that "to obtain employment for an individual means to procure another employer to make an offer of employment, which the individual may or may not accept as a matter of his or her choice. If the employment is not accepted, the question whether the employment was "acceptable" will then arise."

It would appear therefore, that an employer may seek to rely on s 120 of the Act even if the employee refuses an offer of acceptable employment. Obtaining the offer of acceptable employment will be enough to fall within the section.

So what does an employer have to do to obtain an offer of employment?

Frustratingly, the Court did not provide any comprehensive guidance on this question, but found that what FBIS had done was not enough. In its words:

"The 49 employees did obtain employment with ACG. It seems uncontentious that this employment was acceptable. But on the facts referred to earlier in these reasons, we would not find that the applicant obtained that employment for those employees. It may have facilitated the opportunity for them to apply for employment with ACG, but what it obtained for them was something less than offers of employment which they could accept or decline as a matter of choice."

Do any other cases provide any more insights in what an employer must do to "obtain" acceptable employment?

Serco Sodexo Defence Services Pty Ltd (SSDS) [2015] FWC 641 concerned a similar situation where SSDS, having lost a number of defence contracts, applied to the FWC under s 120 of the Act on the basis that it had obtained employment for a large number of redundant employees with various different incoming contractors.

Helpfully Commissioner Roe gave the following as examples of where the employer might (depending on the circumstances) demonstrate that they had "obtained" employment for their staff:

  • "the outgoing employer approaches the incoming employer and secures an agreement to employ a particular employee without the need for a selection process"
  • "the outgoing employer provides information about the job opportunity which the employee would not have otherwise have obtained"
  • "the outgoing employer provides assistance to an employer and/or reaches agreement with the incoming employer which causes the job offer to be made or was a strong moving force towards the job offer"

In the facts of the case the Commissioner found that SSDS had not done enough to be held to have obtained employment for the vast majority of its staff. This was despite evidence that it had gone to considerable efforts to (amongst other things) provide information to the employees about vacancies with the new employers, facilitate interviews between the employees with the new employers and help employees upgrade their security clearances so that they were eligible for certain positions.

In dismissing the employer's applications the Commissioner placed great emphasis on the fact that the employees still had to go through a competitive selection process despite SSDS' efforts, and therefore the Commissioner was of the view of that it was the actions of the employees and the new employer that caused the job offer to be made, rather than the efforts of SSDS. The Commissioner repeatedly reached the conclusion that  the employees would have been offered the jobs regardless of the actions of the former employer.

It was only in relation to employment with one new employer (MSS) that the Commissioner was prepared to concede that SSDS may have satisfied the test under s 120 with respect to certain employees. However, SSDS declined the Commissioner's invitation to submit further evidence regarding the particular employees in question and so the case was ultimately dismissed.

The steps that SSDS had taken to secure employment for its staff with MSS included entering into a formal agreement with MSS whereby their employees were given preference over other applicants and a financial incentive paid to MSS for engaging SSDS' staff.

On the question of whether the other employment is "acceptable", the Commissioner did not need to consider this question given his finding that SSDS had not "obtained" acceptable employment for its staff. However he noted that factors relevant to whether the new employment was "acceptable" would include a comparison of wages and work conditions including such things as: status, location, working hours and job security.  

Lessons for employers

These decisions set the bar very high for employers wishing to rely on s 120 of the Act to reduce redundancy payments.

Following the rationale of the Court and the FWC in these cases, it would seem that if an outgoing employer procured the potential new employer to enter into some formal agreement (eg a deed) which provided that the potential new employer would definitely offer what was "acceptable" employment to named employees (without a selection process), this may be enough to satisfy the requirements of s 120.  

Actions by employers which may assist in making the argument that s120 has been satisfied, include:

  • entering into a deed whereby the new employer agrees to consider employing the outgoing employer's employees in preference to other applicants (although the commercial reality is that a potential new employer may have no inclination or motivation to do this unless they were offered some financial incentive by the outgoing employer)
  • making the arrangements for the potential new employer to interview its employees, if possible on its own premises (as opposed to just passing on the details of the employees)
  • assisting employees in their application process, eg help with preparing CVs
  • taking other steps to facilitate the employment

However, given the decisions in recent cases, there is a real risk that such actions would not be deemed to go far enough, if a court came to the view that, notwithstanding the efforts of the former employer, the employees were still appointed on the basis of their own merits or otherwise not due to the actions of the former employer.

At the end of the day, the above decisions have cast a high degree of doubt on the practical utility of the provisions in question, which will act as a deterrent on employers in the future, from making applications like this.

For further information, please contact:

Richard Ottley, Partner  |  Phone: +61 2 9233 5544  |  Email: rbo@swaab.com.au

If you would like to republish this article, it is generally approved, but prior to doing so please contact the Marketing team at marketing@swaab.com.au

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.

Back to publications
Association Memberships
Tristan Jepson Memorial Foundation
  • 2015 - Finalist Lawyers Weekly Women in Law Awards
  • 2015 - Finalist Lawyers Weekly Australian Law Awards - Employee program of the year