Min­imis­ing employ­er redun­dan­cy obligations

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.