Are dis­missals gen­uine redun­dan­cies when employ­ees have reject­ed a pay cut?

Con­sid­er this sit­u­a­tion. You run Com­pa­ny A. Your busi­ness involves sup­ply­ing a ser­vice to Com­pa­ny B. You have been pro­vid­ing this ser­vice at a set price for a num­ber of years and engage a team of employ­ees to facil­i­tate the deliv­ery of the ser­vice. Due to rea­sons out­side of your con­trol Com­pa­ny B indi­cates that going for­ward it must reduce the amount it pays Com­pa­ny A for its ser­vice by, say, 10%.

This means that – as much as you would like to con­tin­ue to do so – you can­not afford to keep pay­ing your employ­ees at 100% of their cur­rent wage. You need to reduce their wages by 10%.

You con­sult ful­ly with the employ­ees about the changes. You acknowl­edge that you can­not uni­lat­er­al­ly reduce an employ­ee’s wages. Instead, you present them with the fol­low­ing offer: we no longer have a job for you pay­ing a wage at 100%, but instead we are offer­ing you a job at 90%”.

Some of the employ­ees accept the offer and life con­tin­ues much as before.

Oth­er employ­ees reject the new job offer. Hav­ing con­sid­ered that there are no oth­er avail­able roles you can offer them, you regret­tably con­sid­er that you have no choice but to make them redun­dant (their old job hav­ing ceased to exist).

You acknowl­edge that such an employ­ee is enti­tled to redun­dan­cy pay, there being no argu­ment that the alter­na­tive job offered to them was accept­able alter­na­tive employ­ment” (which oth­er­wise might obvi­ate the oblig­a­tion to pay redun­dan­cy), as a role which pays 10% less is clear­ly not on equal­ly favourable terms to their pre­vi­ous position.

You also con­sid­er that you are not at risk of an unfair dis­missal claim from the redun­dant employ­ees giv­en that their dis­missals were cas­es of gen­uine redun­dan­cy” with­in the mean­ing of sec­tion 389 of the Fair Work Act 2009 (Cth) ie: their job was no longer required to be per­formed, any oblig­a­tion to con­sult with employ­ees in a mod­ern award or enter­prise agree­ment was com­plied with, and it was not rea­son­able to rede­ploy them else­where in the business.

Although what is set out above might sound like an uncon­tro­ver­sial inter­pre­ta­tion of the law on redun­dan­cies, the Fair Work Com­mis­sion recent­ly dealt with a sim­i­lar fac­tu­al sit­u­a­tion and found that a vari­a­tion in a job’s remu­ner­a­tion does not equate to the employ­er no longer requir­ing the job’ to be per­formed”. Con­se­quent­ly the employ­ees in ques­tion were held not to have been dis­missed for rea­sons of gen­uine redun­dan­cy” and it was open to them to bring a claim in unfair dis­missal against the employer.

Giv­en that the out­come of the case chal­lenges what many thought to be fair­ly well-trod­den legal ground, it is a case that deserves close atten­tion. There are also a num­ber of poten­tial knock on effects of the case, some of which may be unexpected.

In Mr Leon Mal­lard and oth­ers v Para­bel­lum Inter­na­tion­al Pty Ltd T/A Para­bel­lum Inter­na­tion­al [2017] FWC 2431 the four appli­cants were employed as Emer­gency Ser­vice Offi­cers by the employ­er (Para­bel­lum).

Para­bel­lum pro­vid­ed emer­gency response ser­vices to its major client (Chevron).

In 2016 Chevron reduced its con­tract prices with Parabellum.

Para­bel­lum decid­ed that in order to meet its finan­cial com­mit­ments going for­ward, it need­ed to reduce the cur­rent salaries of its work­force by around 13%. All the appli­cants were offered vari­a­tions of their posi­tions on this basis. Hav­ing declined this offer – and there being no oth­er alter­na­tive posi­tions – Para­bel­lum deter­mined that their posi­tions were redun­dant and the employ­ees were dis­missed. Where the employ­ees were enti­tled to redun­dan­cy pay (because they had the req­ui­site length of ser­vice, etc) they were paid this in full.

The employ­ees sub­se­quent­ly com­menced pro­ceed­ings for unfair dis­missal in the Fair Work Commission.

Para­bel­lum defend­ed the pro­ceed­ings on the basis that the employ­ees’ dis­missal was as result of gen­uine redun­dan­cy” with­in the mean­ing of sec­tion 389 of the Fair Work Act (quot­ed below). By virtue of sec­tion 385 of the Act, a per­son will not have been unfair­ly dis­missed if their dis­missal was a case of gen­uine redun­dan­cy”. In oth­er words: if there is a gen­uine redun­dan­cy that is the end of the mat­ter. The Fair Work Com­mis­sion does not need to pro­ceed to con­sid­er whether the dis­missal was harsh, unjust or unrea­son­able if it is found to be a case of gen­uine redundancy”.

Sec­tion 389 states as follows:

Mean­ing of gen­uine redundancy

(1) A per­son­’s dis­missal was a case of gen­uine redun­dan­cy if:

(a) the per­son­’s employ­er no longer required the per­son­’s job to be per­formed by any­one because of changes in the oper­a­tional require­ments of the employ­er’s enter­prise; and

(b) the employ­er has com­plied with any oblig­a­tion in a mod­ern award or enter­prise agree­ment that applied to the employ­ment to con­sult about the redundancy.

(2) A per­son­’s dis­missal was not a case of gen­uine redun­dan­cy if it would have been rea­son­able in all the cir­cum­stances for the per­son to be rede­ployed within:

(a) the employ­er’s enter­prise; or
(b) the enter­prise of an asso­ci­at­ed enti­ty of the employer.” 

In the Para­bel­lum case Deputy Pres­i­dent Bull reject­ed the employ­er’s argu­ments that replac­ing a job at one salary lev­el with a job at a low­er salary meant that the employ­er no longer required the per­son­’s job to be per­formed by any­one” with­in the mean­ing of sec­tion 389 of the Fair Work Act. In doing so he said this:

[41] It is clear that the cir­cum­stances said by the respon­dent to equate to a redun­dan­cy, that is, that the roles are to be remu­ner­at­ed at a less­er rate, are not those that are pro­vid­ed in the Explana­to­ry Mem­o­ran­dum or giv­en as exam­ples in any judi­cial con­sid­er­a­tion of the term redun­dan­cy. I note also that the Aus­tralian Tax­a­tion Office Rul­ing TR 20092 Income Tax Gen­uine Redun­dan­cy Pay­ments pro­vides numer­ous exam­ples of what is con­sid­ered a gen­uine redun­dan­cy, none of which involve an employee’s dis­missal due to a fail­ure to accept a reduc­tion in remu­ner­a­tion with the same work per­formed by a new employ­ee at a low­er rate.
[42] There has been no reduc­tion in the respon­si­bil­i­ty or tasks allo­cat­ed to the posi­tion of Emer­gency Ser­vices Offi­cer, the posi­tions have not been abol­ished, the func­tions have not been split among oth­er staff or some of them giv­en to oth­er staff. The posi­tions are not in excess of the require­ments of the respon­dent.
[43] While the respon­dent sub­mits that the term job’ in the Act must be read to include the remu­ner­a­tion of the par­tic­u­lar job, no author­i­ty has been pro­vid­ed to sup­port this wide’ view.
[45] In my view the person’s job to be per­formed’ as stat­ed in the Act, are the func­tions, duties and respon­si­bil­i­ties asso­ci­at­ed with the job. The remu­ner­a­tion is the val­ue placed on per­form­ing the job by the employ­er. A sig­nif­i­cant vari­a­tion of the remu­ner­a­tion to be paid either by way of a salary increase, which is a com­mon vari­a­tion, or decrease, does not equate to the employ­er no longer requir­ing the job’ to be per­formed.
[46] A job is redun­dant when the func­tions, duties and respon­si­bil­i­ties for­mal­ly attached to the job are deter­mined by the employ­er to be super­flu­ous to the cur­rent needs and pur­pos­es of the employ­er.
[47] The posi­tions of Emer­gency Ser­vices Offi­cer have not been reduced in num­ber requir­ing the tasks of one or more Offi­cers to be under­tak­en by exist­ing staff, nor have the roles been altered such that the func­tions, duties or respon­si­bil­i­ties no longer reflect the roles occu­pied by the appli­cants. While a posi­tion may be redun­dant where the role is still being under­tak­en by oth­ers, this is not the same as adver­tis­ing the posi­tions with iden­ti­cal duties on a low­er wage to new prospec­tive employ­ees.
[48] This con­clu­sion does not address the valid­i­ty or oth­er­wise of the eco­nom­ic imper­a­tives the respon­dent said it faced in ter­mi­nat­ing the appli­cants’ employ­ment and whether such action amount­ed to a case of unfair dis­missal as per the Act in respect of each of the applicants. ”

Con­se­quent­ly the Deputy Pres­i­dent dis­missed Para­bel­lum’s argu­ment on gen­uine redun­dan­cy and ordered that the mat­ter be list­ed to con­sid­er the mer­its of the unfair dis­missal claim. In oth­er words, to con­sid­er whether the dis­missals were – not being cas­es of gen­uine redun­dan­cy – unfair dis­missals with­in the mean­ing of the Fair Work Act (ie harsh, unjust or unfair).

What hap­pens next in the case will be not­ed with inter­est. If it is the case that the Fair Work Com­mis­sion deems the dis­missals to have been unfair it will put employ­ers in Para­bel­lum’s (and Com­pa­ny A’s) posi­tion in a dif­fi­cult sit­u­a­tion: what are they to do when there is a need to cut staff costs, but still require a work­force of the same size to deliv­er results?

If the Fair Work Com­mis­sion deter­mines that the dis­missals were not unfair (even though they were not cas­es of redun­dan­cy) then the wider con­se­quences of the deci­sion could be detri­men­tal to employ­ees. For if the employ­ees’ posi­tions in the Para­bel­lum case were not con­sid­ered to have been made redun­dant (in the con­text of the unfair dis­missal pro­vi­sions) then it is arguable that the employ­ees would not have been enti­tled to redun­dan­cy pay under sec­tion 119 of the Fair Work Act.
Although unclear at present, a per­haps unfore­seen out­come of the deci­sion might there­fore be, that when an employ­er is faced with reduc­ing staff wages due to eco­nom­ic rea­sons (with pos­si­ble con­se­quen­tial staff loss­es), it may be able to avoid pay­ing statu­to­ry redun­dan­cy pay, a ben­e­fit which (to date) has been regard­ed as some­thing of a pro­tec­tion for employ­ees in these sit­u­a­tions. At the moment it would wise to await clar­i­fi­ca­tion on this ques­tion from the Com­mis­sion before con­sid­er­ing bas­ing any deci­sion on the Para­bel­lum case.

Although on the face of it, the deci­sion appears to be pro-employ­ee” (giv­en that it appears to open a new door to employ­ees to claim unfair dis­missal in such a sce­nario), the con­se­quences of the case for employ­ees may be estab­lished to be far from favourable.

Employ­ers are there­fore well advised to tread care­ful­ly when deal­ing with such a sce­nario. It may be pru­dent to con­sid­er effect­ing any such dis­missals using a Deed of Release.