Redun­dan­cy — can an employ­er avoid pay­outs by get­ting their employ­ees anoth­er job?

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.